Welcome to the GFL Environmental fourth quarter earnings call. My name is Juan, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star one on your telephone keypad or the flag icon if you have joined us online. I will now hand over to your host, Patrick Dovigi, Founder and CEO of GFL Environmental. Please, Patrick, go ahead.
Thank you, and good morning. I would like to welcome everyone to today's call and thank you for joining us. This morning, we will be reviewing our results for the fourth quarter and providing our guidance for 2022. I am joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into the details.
Thank you, Patrick. Good morning, everyone, and thank you for joining. We have filed our earnings press release, which includes important information. The press release is available on our website. We've prepared a presentation to accompany this call that is also available on our website. During this call, we'll be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements.
These forward-looking statements speak only as of today's date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments, or otherwise. This call will include a discussion of certain non-IFRS measures. A reconciliation of these non-IFRS measures can be found in our filings with the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick, who will start off on page three of the presentation.
As we look back and reflect on what we accomplished in 2021, I have to say I've never been prouder of the entire GFL family. While we had all hoped that COVID would be behind us with the vaccine rollout in Canada and the U.S., I think we can all agree it hasn't been as smooth as we would have liked, particularly here in Canada. Add to that the labor shortages in some markets, building inflationary pressures, and overall supply chain disruptions, there's been a lot of challenges to deal with. As a result, we were able to overcome all of these challenges. The quality of our asset base and market selection continues to be the foundation of our growth. The strength of our brand supported our talent retention, and the dedication of our team allowed us to excel.
GFL now stands with more than 18,000 employees, nine provinces, and 26 states in the U.S. Every day, we go out, and we drive to win. I think it's safe to say that no one will outwork us, and I believe that's what distinguishes us from others. Count on us not to take the easiest path, but to take the most accretive path. The proof is in the headline results. Revenue for the year grew by over 30%. Our adjusted EBITDA grew closer to 40%. Adjusted free cash flow grew over 50%. We have exceeded expectations for eight consecutive quarters as a public company. How are we able to consistently achieve these results? I believe that GFL is different.
The collective equity ownership of our management team far exceeds that of any others in our industry, and I believe that alignment drives a relentless focus on long-term value creation. We are laser-focused on the levers of our growth strategy that have guided us since our IPO. Drive organic growth and margin expansion, rationalize our balance sheet to optimize our asset base, and reduce debt costs and execute on strategic accretive acquisitions. ESG continues to be a focus. It is core to our organic growth strategy. We released our updated sustainability report for 2020 in Q4, and we will be releasing our sustainability action plan with our ESG targets, goals, and objectives in our 2022 sustainability report later this year.
As we'll discuss later in more detail later on the call, CapEx in 2022 includes investments in our recycling business, in fleet conversion to CNG, and in RNG projects at our landfills to support our sustainability action plan commitments. In the face of the pandemic, we deployed CAD 2.3 billion on 46 acquisitions. With our focus on rationalizing our balance sheet, we were also a seller of assets when it makes sense to ensure we are achieving the highest and best return from our asset base. In 2021, we sold non-core assets in three separate divestitures from which we realized approximately CAD 260 million in proceeds, giving us additional capital to deploy into higher organic growth opportunities in our base business.
Later in this call, we will discuss our plans for our infrastructure services business, which is more involved in the divestitures we have done to date, but the underlying strategy is consistent, taking the path that we believe will drive the greatest value for our shareholders from our assets. As I mentioned, rationalizing our balance sheet also means focusing on our capital structure. I'll touch briefly on our view of the impact of higher interest rates. I think you need to look at GFL differently than other industry players who are already investment grade. As our credit quality continues to improve with our increasing free cash flow, we still have lots of room to decrease our cost of capital. We believe that the spread compression on rates we can realize as a result of that improvement in our credit quality will mitigate the risk of higher interest rates.
In pulling this all together, I believe that 2021 is another example of GFL executing on what we said we were going to do when we went public. We buy when we see accretive opportunities. We prune when we see opportunities to deploy our capital. We invest when we see opportunities to add complementary lines to our business like RNG. In doing all of that, we create value for our shareholders. I'll now pass the call over to Luke, who will take us through the financial results and guidance.
Thanks, Patrick. I'll pick up on page five of the presentation. Revenue for the quarter increased over 25% compared to the prior year period, which was CAD 125 million greater than the guidance we provided in November. While the outperformance was primarily driven by contributions from M&A, we also exceeded our targets for solid waste pricing and volume, which came in at 5.1% and 3.4% respectively. The price growth was 80 basis points better than Q3 and was supported by a pull forward of price increase plans in certain U.S. markets to respond to cost inflation. Included in the volume growth is the impact of some opportunistic ancillary revenues we picked up in our Western Canadian operations. Commodity prices softened versus the peak we saw in Q3, so that was a modest drag on the quarter as compared to guidance.
Specifically on M&A, we saw meaningful volume in the Terrapure liquid business continue straight through to December, a deviation from the typical seasonality profile. We also saw growth exceed expectations in certain of the new U.S. markets that came through the Q4 2020 acquisitions. It's not uncommon to have imperfect information on the contribution cadence of recent M&A, and as of late, COVID-related disruptions and then subsequent catch-ups have compounded some of this forecast uncertainty. Infrastructure and soil remediation continued to see delays in the start-up of new projects, but our pipeline of new opportunities remains robust and our outlook for this segment, as we finally get on the other side of COVID restrictions, is exceptionally positive. On page six, you'll see adjusted EBITDA for Q4 of CAD 388.3 million at a margin of 25.2%.
The decline in commodity prices, outperformance of the relatively lower margin M&A contributors, and the ancillary Western Canadian revenues all combined to partially offset the base number for margin that was largely in line with guidance. While internal cost inflation continued to rise and now sits around 4%, we view this quarter as a continued demonstration of the capacity of our platform to respond with price levels that not only cover the cost escalation, but drive organic margin expansion as well. Looking at each of the segments, solid waste margins were 30% or better every quarter this year, a first for the company, and a result that is all the more impressive when considering the inflationary backdrop under which it was achieved.
Excluding the impact of M&A, macro headwinds, and certain one-time post-collection volumes, margins expanded organically 20 basis points quarter over quarter, driven by pricing and overall operating leverage. The margin drag from rising fuel prices was partially offset by benefits from commodity pricing. For the year as a whole, solid waste margins expanded 90 basis points, with organic margin expansion in both of our geographies. Liquid waste margins were 21.7% for the quarter and were impacted by the outsized and dilutive revenue contribution from Terrapure. Terrapure margins are right in line with expectations, and we continue to see a path to bring the Terrapure liquid revenues up to and then above the average margin for the liquid segment.
For the year as a whole, liquids margins increased 80 basis points, overcoming a 100 basis point headwind from M&A and demonstrating the operating leverage associated with post-COVID volume recoveries that we had forecasted. Infrastructure and soil margins improved over 400 basis points period over period as the soil volumes recovery continued, and we were able to leverage the relatively fixed cost structure of the segment. While the first part of 2022 will be challenging on margins from a quarter-over-quarter comparison perspective, we are confident in our ability to continue to use our pricing levers as well as cost and asset-based optimization to drive sustained and ongoing margin expansion over the near and longer term. On page seven, you can see adjusted cash flow from operating activities of CAD 321 million, a 33% increase over the prior period.
We completed another asset divestiture during the quarter, bringing total proceeds from asset disposals for the year to approximately CAD 260 million. As previously discussed, we are redeploying these dollars into attractive high return growth initiatives within the base business. Because the success of our portfolio rationalization efforts outpaced our ability to redeploy the proceeds into the business, we have a timing difference between dollars received and dollars deployed. As such, for the annual adjusted free cash flow reconciliation, we've included an adjustment to exclude the excess proceeds realized from asset disposals with the intent of burdening the adjusted free cash flow number with a normalized level of CapEx. When we discuss our guidance for 2022, we'll provide additional color as to how we are thinking about the treatment of these excess proceeds.
During the quarter, we normalized for an incremental CAD 5.6 million of working capital related to recent M&A that we believe is better characterized as part of purchase price. We believe our cash collection toward the end of December were modestly impacted by disruptions from the rapid spread of Omicron over the holiday period. And also, our working capital was negatively impacted by just under CAD 10 million as a result of the required repayment of 2020 payroll taxes previously deferred under the CARES Act. Despite this CAD 10 million-CAD 20 million working capital headwind, we realized over CAD 540 millions of adjusted free cash flow for the year, a result ahead of our guidance and representing over 50% growth as compared to the prior year, an outcome that we believe continues to demonstrate the attractiveness of our ongoing free cash flow growth opportunities.
Turning to page eight, in terms of net leverage, we ended the year as anticipated at 4.75x , in part due to the previously announced issuance of $300 million preferred equity. We deployed approximately CAD 1 billion into 17 acquisitions during the quarter. Now, over CAD 900 millions of this was completed when we last spoke in November, so it's about CAD 90 million deployed into nine tuck-ins as the net new number since we last spoke. For all the acquisitions completed during the year, we expect to generate annualized revenues of approximately CAD 785 million. We previously guided towards a rollover of approximately CAD 450 million related to M&A.
We still believe that to be an accurate net number as the new CAD 50 million of revenue acquired since our last guidance is largely offset by the timing differences related to Terrapure and the incremental negative rollover from incremental divestitures. From a liquidity perspective, we start the year with nearly CAD 200 million of cash on hand and an undrawn revolver, which we think is an ideal setup, providing maximum optionality as we evaluate growth opportunities for 2022.
Picking up on page 10, we wanted to highlight what we believe to be the final significant step in our near-term portfolio rationalization initiatives. Our infrastructure and soil remediation segment is comprised of two divisions with two different margin profiles, a mid-teen service component and a high twenty soil division. The soil division is a service line that the entire industry participates in, but the services division has a different investment profile relative to our core solid and liquid waste businesses. We believe that our services division leadership team is best in class and would thrive if given the opportunity to invest incremental growth capital into its business. That investment has been tempered under GFL as we have been focused on deploying capital into our solid and liquid waste businesses. On page 11, we outline our plan.
We will bring together our services business with Coco Paving to create a leading infrastructure services growth vehicle called Green Infrastructure Partners. Coco is a leading vertically integrated civil infrastructure company with highly complementary assets and service offerings to our existing infrastructure business. I will be the chairman of the new entity and oversee the new management team, which will be a mix of existing GFL and Coco leaders. With CAD 180 million of pro forma EBITDA and meaningful M&A pipeline, we see a highly attractive value creation opportunity by spinning off the infrastructure services business and allowing it to capitalize on the value creation that we believe will far exceed its value within GFL. The form of the transaction will see us sell the infrastructure business to Green Infrastructure Partners for cash and equity interest in the new entity.
When complete, we will no longer recognize the results of infrastructure services within GFL's financial statements. Instead, we will carry our investment in Green Infrastructure Partners that we can monetize over time as value is created. While the timing of infrastructure services divestiture is still a moving target, we intend to execute the plan in the near term. Page 12 illustrates the impact of divestiture to GFL post-transaction. In summary, the weighting of solid waste in the portfolio increases, EBITDA margins increase, and the retained soil remediation division will be combined with our liquid waste segment and renamed Environmental Services, simplifying our overall segment reporting. Finally, while not listed on the page, we think there's an opportunity to take the cash component of the consideration we got for the infrastructure business and redeploy it into near-term M&A opportunities to backfill the divested infrastructure services EBITDA.
With the increase in the weighting of solid waste and the opportunity for near-term M&A, this reaffirms our conviction that there is still a lot of opportunity for growth within our solid waste business, both organically and through accretive acquisitions. I will now pass it back to Luke to talk about further while reviewing our guidance.
Starting on page 15, we've laid out the details for the guide. We followed the same format as last year, so hopefully that makes it easy to follow. Page 15 reiterates the levers Patrick mentioned earlier that we intend to continue to pull and create equity value. We believe we have demonstrated capabilities in each of these areas since we went public. We think the opportunity set looking forward is even greater than what we've accomplished to date. Looking at page 16, we've laid out how we see it all coming together on the top line. Solid waste pricing at high fours, 100 basis points better than the prior year in response to inflationary cost pressures. There could be upside to the pricing number depending on retention rates and actual CPI levels at the time that each of our various resets get calculated.
Solid waste volume 1%-1.5%. We expect to anchor at the high end of this range with the opportunity to beat if Canada can once and for all move beyond the lingering lockdown disruptions. Commodity prices are +0.25%, whereas non-recurring commodity volumes that we benefited from in 2021 are just over 0.5% headwind. The net commodity impact we expect to be about 40 basis points drag. The commodity forecast assumes January's net basket price of approximately CAD 170 per metric ton, which was about CAD 25 less than where the basket was when we provided our outlook in November. A decrease has an impact of about CAD 20 million to revenue, EBITDA, and free cash flow.
Liquid and infrastructure expected to generate 5%-6% top line growth, largely on the expected volume recovery associated with the reopening. The net M&A rollover, including the approximate $40 million negative rollover from divestitures, is expected to be around $450 million. The guidance assumes an FX rate of 1.26 versus the 1.25 average in 2021. That brings you just over $6.3 billion of revenue at the midpoint or just over 15% growth, excluding the negative drag from divestitures. In the last step of the bridge, you can see that we have backed out the standalone guidance for the infrastructure services business that we plan to spin out.
As Patrick said, the timing of the spin out is still a moving target, but we intend to execute the plan in the near term and will segregate the results from this division until the transaction is consummated. The last bar on the page, which excludes contribution from infrastructure services, shows CAD 5.875 billion as the midpoint, and this is the number we would highlight as 2022's base revenue guide. Turning to page 17, you'll see that revenue range as listed on page 16 convert to CAD 1,710 millions of adjusted EBITDA and CAD 680 millions of adjusted free cash flow, including infrastructure. As I mentioned previously, the contribution to adjusted EBITDA and free cash from commodity prices was CAD 20 million less than we provided our preliminary outlook in November. Those are the numbers for the business as a whole.
We've also presented in the blue highlighted column the guidance excluding our infrastructure services, CAD 1,645 million adjusted EBITDA and CAD 640 million adjusted free cash at the midpoint. Again these are the base numbers that we think you should be expecting for 2022 before considering the impact of any net new M&A, which we'll touch on in a moment. In terms of the walk from adjusted EBITDA to adjusted free cash, against the CAD 1,645 million EBITDA, we're expecting net CapEx around CAD 660 million. The margin drive from rising fuel prices was partially offset by benefits from commodity pricing. For the year as a whole, solid waste margins expanded 90 basis points with organic margin expansion in both of our geographies. Liquid waste margins were 21.7% for the quarter and were impacted by the outsized and dilutive revenue contribution from Terrapure.
Terrapure margins are right in line with expectations, and we continue to see a path to bring the Terrapure liquid revenues up to and then above the average margin for the liquid segment. For the year as a whole, liquids margins increased 80 basis points, overcoming a 100 basis point headwind from M&A and demonstrating the operating leverage associated with post-COVID volume recoveries that we had forecasted. Infrastructure and soil margins improved over 400 basis points period-over-period as the soil volumes recovery continued, and we were able to leverage the relatively fixed cost structure of the segment.
While the first part of 2022 will be challenging on margins from a quarter-over-quarter comparison perspective, we are confident in our ability to continue to use our pricing levers as well as cost and asset-based optimization to drive sustained and ongoing margin expansion over the near and longer term. On page seven, you can see adjusted cash flow from operating activities of CAD 321 million, a 33% increase over the prior period. We completed another asset divestiture during the quarter, bringing total proceeds from asset disposals for the year to approximately CAD 260 million. As previously discussed, we are redeploying these dollars into attractive high return growth initiatives within the base business. Because the success of our portfolio rationalization efforts outpaced our ability to redeploy the proceeds into the business, we have a timing difference between dollars received and dollars deployed.
As such, for the annual adjusted free cash flow reconciliation, we've included an adjustment to exclude the excess proceeds realized from asset disposals with the intent of burdening the adjusted free cash flow number with a normalized level of CapEx. When we discuss our guidance for 2022, we'll provide additional color as to how we are thinking about the treatment of these excess proceeds. During the quarter, we normalized for an incremental CAD 5.6 million of working capital related to recent M&A that we believe is better characterized as part of purchase price. We believe our cash collections towards the end of December were modestly impacted by disruptions from the rapid spread of Omicron over the holiday period.
Also, our working capital was negatively impacted by just under CAD 10 million as a result of the required repayment of 2020 payroll taxes previously deferred under the CARES Act. Despite this CAD 10 million-CAD 20 million working capital headwind, we realized over CAD 540 millions of adjusted free cash flow for the year, a result ahead of our guidance and representing over 50% growth as compared to the prior year, an outcome that we believe continues to demonstrate the attractiveness of our ongoing free cash flow growth opportunities. Turning to page eight, in terms of net leverage, we ended the year as anticipated at 4.75x , in part due to the previously announced issuance of $300 million preferred equity. We deployed approximately CAD 1 billion into 17 acquisitions during the quarter.
Now, over CAD 900 million of this was completed when we last spoke in November, so it's about CAD 90 million deployed into nine tuck-ins as the net new number since we last spoke. For all the acquisitions completed during the year, we expect to generate annualized revenues of approximately CAD 785 million. We previously guided towards a rollover of approximately CAD 450 million related to M&A. We still believe that to be an accurate net number as the new CAD 50 million of revenue acquired since our last guidance is largely offset by the timing differences related to Terrapure and the incremental negative rollover from incremental divestitures. From a liquidity perspective, we start the year with nearly CAD 200 million of cash on hand and an undrawn revolver, which we think is an ideal setup, providing maximum optionality as we evaluate growth opportunities for 2022.
Picking up on page 10, we wanted to highlight what we believe to be the final significant step in our near-term portfolio rationalization initiatives. Our infrastructure and soil remediation segment is comprised of two divisions with two different margin profiles, a mid-teen service component and a high twenties soil division. The soil division is a service line that the entire industry participates in, but the services division has a different investment profile relative to our core solid and liquid waste businesses. We believe that our services division leadership team is best in class and would thrive if given the opportunity to invest incremental growth capital into its business. That investment has been tempered under the GFL as we have been focused on deploying capital into our solid and liquid waste businesses. On page 11, we outline our plan.
We will bring together our services business with Coco Paving to create a leading infrastructure services growth vehicle called Green Infrastructure Partners. Coco is a leading vertically integrated civil infrastructure company with highly complementary assets and service offerings to our existing infrastructure business. I will be the chairman of the new entity and oversee the new management team, which will be a mix of existing GFL and Coco leaders. With CAD 180 million of pro forma EBITDA and meaningful M&A pipeline, we see a highly attractive value creation opportunity by spinning off the infrastructure services business and allowing it to capitalize on the value creation that we believe will far exceed its value within GFL. The form of the transaction will see us sell the infrastructure business to Green Infrastructure Partners for cash and equity interest in the new entity.
When complete, we will no longer recognize the results of infrastructure services within GFL's financial statements. Instead, we will carry our investment in Green Infrastructure Partners that we can monetize over time as value is created. While the timing of the infrastructure services divestiture is still a moving target, we intend to execute the plan in the near term. Page 12 illustrates the impact of divestiture to GFL post-transaction. In summary, the weighting of solid waste in the portfolio increases, EBITDA margins increase, and the retained soil remediation division will be combined with our liquid waste segment and renamed Environmental Services, simplifying our overall segment reporting. Finally, while not listed on the page, we think there's an opportunity to take the cash component of the consideration we got for the infrastructure business and redeploy it into near-term M&A opportunities to backfill the divested infrastructure services EBITDA.
With the increase in the weighting of solid waste and the opportunity for near-term M&A, this reaffirms our conviction that there is still a lot of opportunity for growth within our solid waste business, both organically and through accretive acquisitions. I will now pass it back to Luke to talk about further while reviewing our guidance.
Starting on page 15, we've laid out the details for the guide. We followed the same format as last year, so hopefully that makes it easy to follow. Page 15 reiterates the levers Patrick mentioned earlier that we intend to continue to pull and create equity value. We believe we have demonstrated capabilities in each of these areas since we went public. We think the opportunity set looking forward is even greater than what we've accomplished to date. Looking at page 16, we've laid out how we see it all coming together on the top line. Solid waste pricing at high fours, a full 100 basis points better than the prior year in response to inflationary cost pressures. There could be upside to the pricing number, depending on retention rates and actual CPI levels at the time that each of our various resets get calculated.
Solid waste volume 1 point-1.5 points. We expect to anchor at the high end of this range with the opportunity to beat if Canada can once and for all move beyond the lingering lockdown disruptions. Commodity prices are +0.25%, whereas non-recurring commodity volumes that we benefited from in 2021 are just over 0.5 point headwind. The net commodity impact we expect to be about 40 basis point drag. The commodity forecast assumes January's net basket price of approximately CAD 170 per metric ton, which was about CAD 25 less than where the basket was when we provided our outlook in November, a decrease that has an impact of about CAD 20 million to revenue, EBITDA, and free cash flow.
Liquid and infrastructure expected to generate 5%-6% top line growth, largely on the expected volume recovery associated with the reopening. The net M&A rollover, including the approximate CAD 40 million negative rollover from divestitures, is expected to be around CAD 450 million. The guidance assumes an FX rate of 1.26 versus the 1.25 average in 2021. That brings you just over CAD 6.3 billion of revenue at the midpoint, or just over 15% growth, excluding the negative drag from divestitures. In the last step of the bridge, you can see that we have backed out the standalone guidance for the infrastructure services business that we plan to spin out.
As Patrick said, the timing of the spin-out is still a moving target, but we intend to execute the plan in the near term, and we'll segregate the results from this division until the transaction's consummated. The last bar on the page, which excludes contribution from infrastructure services, shows CAD 5.875 billion as the midpoint, and this is the number we would highlight as 2022's base revenue guide. Turning to page 17, you'll see that revenue range is listed on page 16 converts to CAD 170 millions of adjusted EBITDA and CAD 680 millions of adjusted free cash flow, including infrastructure. As I mentioned previously, the contribution of adjusted EBITDA and free cash from commodity prices is about CAD 20 million less than we provided our preliminary outlook in November. Those are the numbers for the business as a whole.
We've also presented in the blue highlighted column the guidance excluding our infrastructure services, CAD 1,645 million of adjusted EBITDA and CAD 640 millions of adjusted free cash at the midpoint. These are the base numbers that we think you should be expecting for 2022 before considering the impact of any net new M&A, which we'll touch on in a moment. In terms of the walk from adjusted EBITDA to adjusted free cash, against the CAD 1,645 million of EBITDA, we're expecting net CapEx of around CAD 615 million, cash interest expense of approximately CAD 340 million, neutral working capital, and other net drags of approximately CAD 50 million, leverage ending at low fours. On page 18, we unpack our CapEx for both 2021 and 2022. In 2021, we had normal course CapEx of about CAD 540 million.
Offsetting this amount was CAD 260 millions of proceeds we received from the divestitures. As anticipated, we were able to redeploy just over CAD 110 millions of these proceeds into growth initiatives within our business. The remaining CAD 150 million proceeds that we did not deploy during 2021 are normalizing as excess proceeds and we expect to invest these dollars in 2022. Looking at the 2022 bridge at the bottom of page 18, we've identified approximately CAD 150 millions of incremental growth opportunities, substantially all of which will be funded with the excess proceeds from 2021. These investments are centered around new and material upgrades to existing recycling facilities, continued investment in the infrastructure and asset bases of certain new markets, and RNG development. Again, all this investment is being funded by the proceeds from our rationalization program.
Another way of thinking about these dollars is simply a timing difference between when the cash was received and when it will be spent. This bridge does not reflect any cash proceeds for the sale of infrastructure division, as we intend to reinvest those dollars into M&A. Consistent with past practice, our guidance does not include any impact from future M&A. As Patrick mentioned, our M&A pipeline is robust, and page 19 has summarized how we are thinking about the landscape. There's one larger transaction within our footprint that could largely backfill the infrastructure services EBITDA we have carved out in our guidance. This opportunity would be immediately accretive and actionable in the first half of 2022. On top of this larger opportunity, we anticipate continued execution of our regular tuck-in M&A program.
We highlight this opportunity as CAD 250 million-CAD 300 millions of incremental revenue across 25-30 transactions, but history has shown that there's upsides to this number. If you think about those as potential upside opportunities, page 20 shows that if executed, we could exit 2022 with adjusted EBITDA of CAD 1.8 billion and adjusted free cash flow of CAD 730 million on a run rate basis.
Page 21 has an overview of the RNG opportunities, and while not highly relevant for our 2022 guidance, we wanted to frame how these ties into how we're thinking about 2023. We are contemplating using the 50/50 joint venture structure arrangement with third parties for the development of the landfill sites where we think there are viable RNG projects. Using conservative assumptions, we think our portion of the aggregate incremental free cash flow from these sites could be CAD 150 million-CAD 200 million per annum. We have finalized arrangements for the first four sites, are in the process of finalizing the next five sites, and the expectation that our portion of adjusted free cash flow from these nine sites will be CAD 105 million-CAD 125 million per year.
Our portion of the expected capital outlay for these nine projects is CAD 150-180 million, the majority of which will be spent in 2023. We see RNG as a great add-on to our core business, but it will not distract us from our focus on continuing to invest in the fundamental organic and M&A levers to drive our continued growth that we highlighted earlier. On page 23, you will see we start with our potential 2022 run rate. Add this conservative estimate of the RNG opportunity to normal course organic and M&A assumptions for 2023, and we end with an adjusted free cash flow run rate in the mid-900, setting a clear path to exceed CAD 1 billion in 2024.
As many of you have followed GFL through our history, we think you'll see that there is a consistent theme when we have these calls with you every quarter. As owners, our senior management team is fully aligned with our shareholders. Our 2021 results again reaffirm how that alignment drives this management team to achieve industry-leading results, even in the face of the most challenging times. I'm very proud of what we've achieved so far, and I've never been more optimistic about what GFL's future holds. I will now turn the call over to the operator to open the line for questions.
Thank you. As a reminder, if you would like to ask any question, please press star followed by one on your telephone keypads now, or the flag icon if you have joined us online. When asking a question, make sure your phone is unmuted locally. The first question comes from Hamzah Mazari from Jefferies. Please, Hamzah, your line is now open.
Good morning. Thank you. You know, my first question, maybe for Luke, is just on free cash flow. You know, it looks like the sector, you know, organically grows free cash flow in general high single digits, maybe if you add M&A, maybe it's 10%, or slightly higher. You know, your free cash flow profile and growth appear much higher than peers. You know, it looks like it's approaching CAD 1 billion in the out year. Maybe walk us through, you know, what you're doing differently, how sustainable is this? You know, do you just feel like your markets have less competition? I know there's some mixed differences in Canada versus U.S.
Just walk us through, you know, confidence level in that free cash flow profile and why your numbers are a lot higher than peers.
Yeah. Thanks, Hamzah. Good morning. I mean, I think it's a great question. It's one that we sort of sit around and think about a lot when we look at where the sort of stock price is and try and correlate the sort of two of them. I mean, I think you're right. The normal model in this industry is you have mid-single-digit top line with a little bit of margin expansion, and at the bottom line, that equates to sort of, you know, high single-digit free cash flow. I think when you look at our business, you know, because of the sort of market selection, quality of the asset base, and all the opportunity we have in the middle, we see an opportunity before considering, you know, the capital structure to beat that through the margin expansion.
Even at a sort of 5% top line growth, I think we can eke out a little bit of incremental margin year-over-year, which is going to help drive a bigger number at the free cash flow line. When you couple that with what I think is a unique opportunity solely for GFL, which is the delevering profile, right? If you think today about that interest cost, as we're able to leverage that interest cost line going forward as we've reached the inflection point of self-funding, you know, our growth, there's a meaningful accretion at the free cash flow line that comes from that.
I think you put those factors together, you can take what a normal course grower is at sort of 8%-9%, and organically, you can see that at low- to mid-teens as a result of what I think is a unique advantage for GFL, you know, tied to the markets and the capital structure. On top of that, when you look at, you know, what we've been able to achieve and look to continue to achieve in these sort of organic redeployments, I think you have another sort of 5-7 basis points easily of sustainable for the next few years on that piece, right? That's now all of a sudden brought free cash flow growth up to a sort of, you know, high teens, low 20% number.
You layer on M&A on top of that, and you look at the numbers we're suggesting here. This year was 50%. Next year's 30% with this conservative guide we're giving. The year above is another 30%. Like, I think there's a real unique opportunity that's compounded by not just the outsized M&A and other, but just an organic opportunity that's unique to the industry. You know, I think in time, as you know, I've heard people say the results are noisy, but as that noise subsides, I think you'll clearly be able to see this organic growth rate and the free cash flow far in excess of peers and then complemented, if you will, by all this other value-added items we've been looking at.
Got it. You know, the other question would just be on the infrastructure announcement. You know, it's pretty clear, but could you just talk about you know, what kind of proceeds do you expect? Is it too early? You know, what does your equity pickup look like in terms of you know, percentage ownership you want to keep? I know Patrick, you're going to be chairman of that business. You know, is that distracting? That you know, is that business going to grow to be much larger? Is BC Partners going to be involved in that? Just you know, any more detail around you know.
Sure
the execution of that.
Sure. I mean, for some people that don't know the story, I mean, we organically built that business starting really in late 2009, early 2010, and have grown that business really over, you know, an eight-year period between 2010 and call it 2018, pre-us thinking about starting to go public and, you know, what that would look like in the public realm. I mean, grew that from zero to, you know, revenue today in excess of CAD 500 million, you know, on the combined sort of infrastructure business. It's always been my view that there's a significant opportunity to create a GFL 2.0 in the infrastructure services business.
You know, when we were a private company, we were doing that ourselves, and it was less relevant to how we sort of looked and felt compared to the, you know, the industry peers. I think we had a best-in-class management team in that business line. You know, young, hungry, very successful guys, industry leaders in Canada. And we just saw this opportunity. I mean, the easiest path would be just, you know, we could just sell it. But I think from my perspective, why would we sell something when we know there's a significant amount of value to be created, for us as shareholders? That team reports to me today already, so it's not as if I'm getting more reports.
You know, they have lots of great ideas and, you know, Coco being one of the great ideas we've had over the last couple of years, an industry leader in Canada, one of the most successful, best family-run businesses in Canada. Right down the middle of the fairway of what GFL likes to do. You know, it worked and, you know, that got the brain sort of thinking on my side about what we do, and this created the opportunity to sort of spin that out. I think when you look at what makes sense for us, you know, the thought process is, as we said, spin it out, keep it leverage neutral.
You know, get back, you know, what I would call just for round numbers, a quarter of a billion dollars of proceeds, and then get left with just under a 50% equity stake in the new entity, and we're gonna go and build it. I think over time, as we build it, you know, we're gonna create significant value for our shareholders. You know, starting with a full form EBITDA of just call it roughly CAD 180 million, I don't see any reason why we can't take CAD 180 million to CAD 1 billion over sort of five to six years . There's a significant amount of opportunity, significantly underserviced, and highly fragmented.
When you start with a business the quality of ours, you know, if you look at industry comps, this combined entity will have, you know, margins that are 400-600 basis points higher than the industry norm because of the quality of the two businesses. It's a very unique opportunity. It'll be a great opportunity for our investors to participate in that have followed the GFL story. You know, for GFL shareholders that have been a part of it, that are gonna contribute out of the gate, it's a great opportunity as well. I think it's a win-win for everybody, and I think we'll just create a lot more value than we probably could have if we just would've sold it off.
All right. Just last question, I'll turn it over. You know, you have a lot going on. You have these free cash flow numbers and a lot of detail out to 2023, and, you know, people can probably project beyond that. You've been public for two years, Patrick. Stock's been, you know, volatile. It's been a good stock last year. Obviously the market does what it does. But maybe talk about, you know, your role at GFL. You know, do you plan to see this whole thing through? Do you plan on being here over a decade? How are you thinking about, you know, your role, you know, given obviously you have a lot of net worth tied into this, but also you've created a ton of value in the private market for yourself and others, over, you know.
Sure
the last decade plus.
Yeah, I mean, lots to sort of unpack there, but I think from where we sit today, you know, I think, you know, I can't control the stock price, right? Like there's certain things I control. All I can control is allocating capital, making the right decisions for the business that I think are going to create value over the long term. That's what I've done here for sort of 15 years, and I don't think that's going to change anytime soon. You know, I think as we continue getting respect from, you know, the industry as this thing continues to season, I'm not going to be happy until I see this stock go from, you know, wherever it's $32-$33- $100. I think that's at the tip of our fingers.
I think, you know, there's always been sort of the under promise and overdeliver approach. I think you see that. I think we've; you know, investors have asked us what the pieces of the puzzle look like, and I think that's why we came out and gave you the pieces of the puzzle. I don't think there's a more attractive story in the industry today. We're in an amazing industry with amazing peers that have been successful over a long period of time, and there's no better industry that I'd want to be in today than this one, and I think there's a significant amount of value that can be created here over the next little while. At the end of the day, I'm here because I want to win. I don't need to be here for a paycheck, and I have enough money.
Like anything, I'm here to make money and make more money, and I'm gonna make more money for everybody that's on this call. We're gonna take the 33 and we're gonna get to a 100, and we're not gonna stop until we get there. When we get to a 100, then we'll realign our goals, but that's where I sort of feel the opportunity is here and where we're gonna go.
Got it. You're still a young guy, so you have a lot of time. Thank you.
Yeah. All right. Yeah. I'm not ready to go to the mall and hold hands with my wife yet, so, we're gonna keep working until we get there.
All good.
Thanks, Hamzah.
Good. I'll turn it over. Thank you.
Thank you. Our next question comes from Michael Hoffman from Stifel. Please, Michael, your line is now open.
Hi. Thank you very much. I'm gonna tackle green infrastructure for a second, just so you're putting in your CAD 55 million, you're getting half of the value you put it in for cash, and then the equity interest. Beth, help me if I've got these numbers right. You then got a CAD 180 million starting number, EBITDA. Grow it, call it 4% or 5% organically. Add CAD 20 millions of EBITDA from M&A. That's a 210x number. Take it public, appears at 10x-12x. That's a CAD 2.1 billion enterprise value. I don't know, you can lever it 4.5x , take out CAD 900 million, that's sort of CAD 1.16 billion. 45% of that's CAD 520 million. That's your value plus the equity, the cash. Is that the right way everybody should think about that?
Yeah. Yeah, Mike, I think that math is very good. I mean, I think there's probably more of an opportunity. It all depends on when you would actually want to take the thing public. Yeah, and if you do that, you're getting close to sort of 2x on your equity. While it may look on the face of it today that maybe, you know, the 55% isn't getting maximum value, following that logic you just described, we think you could end up monetizing that at a significant premium to what you would otherwise get for it today. That's the exact rationale. If things go well, it could be multiple higher than what you just said.
Right. I'm using all the low end of things. I'm not trying to overstate it. Take a conservative view. That's how you create the incremental value for the shareholders. It's not that sure you could sell 55% at 12x or something. This is creating, in a relatively short window of time, how to calculate what the path to the upside is.
Correct.
Okay. Good. All right. 2022. You know, part of being a young company and in the development mode and all the growth, the I get the adjustments. That's the noise people talk about. It's 30% of your adjusted free cash flow at the midpoint are adjustments. How do you get that number sub-10, and when?
Yeah. I mean, Mike, yeah, I hear people talk about adjustments. I mean, to level set, I mean, really what we're adding back, never mind blowing up the cap structure in past years or the IPO, really what we're adding back is, so it's CAD 25 million a year at this pace of rebranding, where we're painting everything bright green and you can see that as you travel all over the country. You know, that's a strategic decision that we do with this M&A, and, you know, you can debate that, but we say, "Look, that is unique as we're in growth mode," and there's that CAD 20 million. Then you have CAD 60 million a year roughly of transaction costs. I mean, you look at the last four years, we've done over 125 deals and deployed over CAD 11 billion.
Across all of that, about CAD 60 million a year in transaction costs. CAD 240 million in aggregate over four years in transaction costs to deploy CAD 11-CAD 11.2 billion. I mean, that's like 2%. You know, what I've said to folks is if we're deploying capital at these levels, there's going to be transaction costs associated with that. I mean, we don't pay bankers. You know, but these lawyer fees and et cetera sort of add up, and that's what it is. I'd say if you look at the last three years, I think that number's been like CAD 60 million every year, and the free cash flows went from a negative to CAD 300-CAD 500 on its way to CAD 900.
You know, I think the relative quantum of that number is naturally going to decrease through the growth of the free cash. Obviously, if we're not growing free cash at 50% a year, you know, augmented with the M&A, that number's going to come down. If we're deploying this year CAD 2.3 billion across 46 transactions, I think CAD 50 million-CAD 60 million is, you know, a fair number of where that's gonna shake out. I mean, that's the way I think about that. I do think, though, your comment about the percentage, that's naturally just coming down in meaningful steps as the base number is growing.
Great. I think that helps clarify how to think about how dissonant that noise really is. You introduced the idea that we ought to think about margins first half, second half. Do you want to walk us through the cadence so everybody gets that right and we, you know, the Street numbers don't end up with a, you can drive a truck through it range?
Starting point, we've included in the deck like a pro forma for recasting 2021 if you backed out infrastructure, so just so we can have a sort of right level set comparison. If you think of. Like, we're not gonna give the quarterly guidance. I mean, Q1, look, historically it's sort of 22%-23% of annual revenue in a normal seasonality cadence. Now, as I said, seasonality is sort of getting a little bit wonky, you know, in Canada with the COVID starts and stops. You know, if you take 22.5% times the midpoint of the revenue range, that's CAD 55.9 billion. I think that's a good sort of revenue number for Q1.
I think, you know, typically, Q1 is the sort of lowest margin quarter here to the tune of 150-200 basis points. You know, so if you're thinking about high 27% as the blended number for next year, you'd see Q1 at sort of, you know, call it high 25%. I really think if you unpack that, you have you know, solid will be a tough comp last year. If you look at last year, Q1, solid U.S. was its highest margin of the year, which is very atypical for Q1. So, normalizing for that, you know, solid's going to have a tough comp. Liquid, you know, the new liquid will have some expansion. You know, you can bank on the corporate cost bucket being about sort of 3%.
That's how I'd see Q1 shaking out. I think Q2, Q3, and Q4 will follow that sort of typical seasonality cadence. You'll peak margins in Q3, you know, and rounding out the year, you know, ending at that sort of high 27%, low 28% as per the guide.
Okay. Patrick, I don't think you're going anywhere. I think you have four kids under the age of 10, so you know, you're gonna go to work every day. More importantly, talk about your bench strength.
I mean, listen, I.
I mean, yeah.
We're gonna do an Investor Day. Yeah, instead of obviously being public, you know, a week before COVID hit in March of 2020, we haven't really had the opportunity to sort of showcase the team. You know, where I sit today, we have. From my perspective, I don't know the other teams, but what this team's been able to accomplish, at the end of the day, I'm here, I'm a cheerleader, right? I'm cheering on, you know, starting with sort of Greg Yorston through to sort of, you know, Luke and his team, to the HR team, to the integration team, the BD team, you know, general counsel.
Like, as we go through the whole list, from my perspective where I sit, this is a handpicked team, best-in-class management team that have delivered exceptional results quarter after quarter for a long period of time. When we look at that, you know, I think that is a big thing. When you look at the, you know, the solid waste, which is the lion's share of our business, if you look into the results that this team's been able to put and execute on, and the amount of M&A in the face of all those inflationary pressures and all the other things, I think it's exceptional. You know, I look forward to showcasing that team when we do our Investor Day in May. You know, we haven't picked a date exactly yet because we're just waiting to see what happens with COVID.
I think when that onion gets peeled back and people get to look under the hood, you know, if Patrick gets hit by a bus tomorrow, I think it's gonna be pretty clear that GFL is going to be just fine. You know, I think we have all of the relevant pieces of that management team in place, and they're just doing and executing and continue to do great things. It's really amazing to watch because, you know, from, you know, starting on a scale, being on a scale to sort of sitting where I am today and then being able to watch, you know, these guys execute the playbook, it's pretty amazing. You know, I take my hat off to them because you know what?
There's guys that are doing a better job than I did when I was in the seat and you know, if it wasn't for them and me sort of handing over the reins, we wouldn't sort of be where we are. You know, I'm thankful to all of them for actually making that happen. I look forward to showcasing that entire team in May when we do that Investor Day.
Okay. Thank you.
Thanks, Michael.
Thanks, Mike.
Thank you. Our next question comes from Tyler Brown from Raymond James. Please Tyler, your line is now open.
Hey, good morning, guys.
Hey, Tyler.
Can you guys hear me? Oh, hey, sorry.
Yes.
Morning.
Obviously, pricing was really solid. Yeah, it's really solid. You know, it sounds like you pulled forward some PIs into Q4. Given the pull forward and the fact that CPI will layer in over the course of the year, just how does pricing look as the year plays out? Does it start high and fade, or should it be pretty consistent as the year plays out?
Yeah. I still think we're anticipating the start high and then walk down, but with less fade than a sort of normal year. I mean, Q1, I mean, January particularly, we have about 40% approximately of our CPI resets are hitting then. And then just a bunch of our open market stuff is focused on that time as well. Q1 will definitely be the biggest number. You know, we've guided to sort of the high fours. I think there's maybe opportunity to beat, and I think Q1 will tell that tale. If you can see Q1, and it'll be dependent on how the CPI resets actually hit and what the retentions are like. If you see Q1 at a high fives, you know, I think that's gonna set the stage for a beat for the year.
You know, we'll see how that actually shakes out. I think you'll have Q1 as the majority step down in Q2, and then consistently in Q3 and Q4, albeit perhaps not as big of a step downs as you would have seen in the sort of pre-COVID environment because we will have good support from large PIs that hit in Q3, primarily in our U.S. book of business.
Right. Okay. That's helpful. Just real quick on RNG. To be clear, you know, despite the JV structure, that RNG CapEx will flow through the actual CapEx line. Is that right?
As the structures aren't all finalized, Tyler, that's still sort of in flux. You know, either way we'll parse it out, so you actually see the sort of apples to apples. If to the extent it's manifest itself on certain transactions as investment in JV, we'll be sure to sort of ring-fence and isolate so people can actually see the real underlying economics.
Okay. Kind of along the same thinking here, but how in 2023 will your account for the unconsolidated share, the EBITDA from those plants? Will there just simply be an add back to EBITDA? Or how will you show that financially? I know it's probably still in flux, but just any thoughts there?
Yeah, I mean, again, in flux just cause all those agreements aren't sort of done. I mean, if you look in practice, I mean, you know, you end up picking up your proportionate share of the sort of results of the JV. You know, if you look at those guys who in practice are already doing this, they exclude that, and they add back, you know, their share of the EBITDA, right? There's, you know, if you look at other RNG players, I mean, Darling, just as an example, is one I was looking at that has a bunch of these, you know, as what the precedent might look like. Yeah, I think there's something about backing out the normal course accounting and then just layering in your share of the EBITDA is probably how that ends up shaking out.
Okay. Okay, that's helpful. This is my last one, and I appreciate the pro formas and the appendix. When you layer in Terrapure just for modeling purposes, will that new Environmental Services line be about CAD 1 billion in revenue? Is that kind of a good placeholder?
Yeah, that's a perfect place. I think about 2022 is CAD 1 billion of Environmental Services and CAD 4.9 billion of solid, you know, on the base guide.
Okay. Okay, perfect. All right, I appreciate the time. Thanks, guys.
Thanks, Tyler Brown.
Thank you. Our next question comes from Walter Spracklin from RBC Capital Markets. Please, Walter, your line is now open.
Yeah, thanks very much. Good morning, everyone. I want to come back on the renewable energy approach, and Patrick, your strategy on how to tap that resource that you have. We've seen your competitors take or discuss and reveal some other ways to do it, more of a go it alone, invest it all, you know, invest and own the entire thing, but then subject a little bit to some of the volatility that would come with that higher level of investment. Your go-to partner approach, I'm hearing positive feedback on that relative to the other approach. Perhaps talk a little bit more about what led to your decision, and how would you characterize the go it alone, which being much more upside, but perhaps with some more volatility?
Yeah. I mean, initially, when we started talking about this, I think if you went back, if you sort of rolled back the clock, eight months ago, I would say we knew very little about how to actually harvest dollars from this RNG. I think some of those other companies that have been going at it alone have significantly more internal resources that have been looking at this for a while. I think that was one thing. Yes, we could go and figure it out. I'm not looking at this as a core pillar of, you know, we're at the end of the day, we're an environmental services company.
RNG is something we sort of found that was not gonna be sort of, you know, a new business line where we were gonna stop doing exactly what we've been doing for the last 15 years, which is like, how do we realize dollars as quickly as we can with experts that know how to do this, that can get a shovel in the ground as quickly as possible, that have inventoried, you know, inventory to build out the parts that they need to build out one of these facilities as quickly as possible, have the engineers on site and get us permitted, and most importantly, find, you know, the best back ends to be able to maximize profitability on the sale of the actual RNG. Those were all things we didn't know anything about six, eight months ago.
Coupled together with a lot of our sites had, you know, they already had gas rights that were given away. We had royalty agreements, you know, which required our consent to switch those from, you know, the typical, you know, electric or flaring model to, you know, RNG. That opened the door to have a discussion about, "Hey, RNG certainly makes more sense than these old sorts of electrical subsidized agreements . Let's go RNG, but let's split them 50/50 and, you know, make sense." I think it's fair. I think it'll get us to the market as quickly as possible with experts that do this every day, where somewhere we didn't have any, in a division that we don't have expertise in. You know, it's hugely profitable. I think you sort of couple that together, I think we learned a lot.
I think if we had to go at it on our own today, we probably could on some of these sites. At the end of the day, it's just something we're not sort of set up to do, and let's just let the expert do it because they're going to do it, better than we're gonna do it. It was just my perspective.
Yeah. That makes a ton of sense. Okay, switching gears here to pricing, service and churn. You know, clearly, you're driving price as are your competitors. When a customer gets a big price increase, they may have to take it, but I think their lens gets a little more focused on getting the right service with the higher price, all things considered. Are you seeing either any trends in churn within your own organization or are you looking at any opportunities for churn in other of your competitors that could see you grow market share as a result of this kind of Very extreme pricing dynamic we're seeing emerge continuing into this year.
Yeah, for me, it's an interesting time in the market, right? Because even for us as, you know, companies, we're all having to be very selective about new business and ensuring that we're getting paid the appropriate price to collect new business, just for the simple fact that, you know, it's a challenging labor market. It's challenging to get new equipment. Everything, you know, has been slower. I think we've all navigated the situation as an industry very well. I think the market is. We've all, as competitors, been very disciplined to ensure that we continue getting, you know, price to at least cover our, you know, these internal costs and inflation measures. I don't think anyone's seen, you know, inflation, you know, high since it's been since 1982.
I think there's very few industries like ours that have been able to sort of pass that on like we have. So, I don't think the focus of ours is not, you know, trying to go out and grab as much market share as we can based on some of the PIs that are going through in the market. I think our customer base knows that, you know, the price is needed for us to be able to, you know, remain competitive and provide that service. You know, they wanna make sure that it's picked up on time. You know, I think at the end of the day, the luxury of our business is, you know, that the lion's share of our accounts are between CAD 200 and CAD 500 a month, right?
You know, even if they're getting a, you know, high single-digit price increase, I mean, it's not a material amount to them. I think they have other bigger fish to fry than they normally would. I'm not seeing any. I think the market is understanding of it. Clearly, the headlines every day in the papers around inflation and driver shortages and fuel and insurance and R&M and supply chain shortage, you know, backlogs, all of those sort of coupled together, have remained in check. I think all of us in the industry is, you know, a pretty loyal sort of customer base today. It's not people aren't driving to go out and win new market share just at any cost because it just doesn't make sense today, just given what's sort of happening in the industry.
I think that's where it sort of sits today, but nothing that worries me in any real way today.
Perfect. Okay. As always, I appreciate the time, Patrick.
Thanks, Walter.
Thank you. Our next question comes from Kevin Chiang from CIBC. Please, Kevin, your line is now open.
Thanks for taking my question. If I could just clarify, I think, Luke, in your prepared remarks, you talked about when you gave the bridge for 2022, and you highlighted the upside to solid waste volumes. You made a comment on basically Canada and maybe there's upside if we see more of a reopening. Just wondering, what are you building in for a recovery within, you know, within your solid waste? Is it what we're seeing today in Canada, which is obviously pretty challenged? Do you assume we kind of get back to some level of normalcy through the year?
Yeah. Kevin, it's a good question. To be honest, we're sort of getting tired of trying to pin the tail on the donkey in Canada. So, it's really. Look, I think, you know, you're sitting here in Toronto with me today. We seem to be in the right direction. It's assuming we continue this, we get back, you know, another two weeks, he lets us have full restaurants, et cetera, and we continue on this progress. If we all, you know, sort of get completely locked down again, obviously, that would be a headwind. If by this summer, we can actually be fully enjoying life again, that could be a tailwind. So, you know, I think it's sort of middle of the fairway right now. I do think there's upside to the number because I'm very hopeful, we don't go backwards from here.
You know, we've tried to guess for the last two years and been wrong, so sort of just taking a conservative approach this time.
Yeah. No, I hear you. I've stopped wearing suits, and I'm only wearing track pants, as I've been stuck at home as well. When I look at your 2023 run rate, you know, you're implying about a 49% free cash flow conversion. If I go back to the presentation you had, this time last year, and you talked about, you know, what 2023 could look like, you know, I think it was about mid-40s. Just wondering, as we kind of look out maybe past 2023, do you see yourself being a north of 50% free cash flow converting company?
I guess I ask that because it does seem like you have, you know, incremental free cash flow opportunities from RNG, which I suspect convert at a higher rate here. Any color there would be helpful.
Yeah. Kevin, I think there's a little. That page you're looking at, there's some footnotes that I think are relevant because really the RNG, for simplicity on that page, has just been layered into the free cash number. You can see the table on the page before that tees that up in the footnotes. But you're dividing the free cash into EBITDA, but it's not apples to apples. When you do that, it would be more along that line in mid-40s. But to your point, you know, we don't think that's the ceiling. You know, as you go forward from here, you heard Patrick say it, I mean, we think this can, you know, go above mid-40s, and yeah, we're gonna break through the 50% level and keep going from there.
You know, I think when you look fundamentally at the opportunity set that lies in front of us and where the industry as a whole is going, to echo Patrick's comments, you know, I don't think there's a ceiling there. The asset base we have and the opportunity, we see a path to, you know, continuing, you know, that march to a point where we think we can be industry leading.
Excellent. You know what, I'll leave it there. Thank you very much for the clarification.
Thank you.
Thanks, Kevin.
Thank you. Our next question comes from Mark Neville from Scotiabank. Please, Mark, your line is now open.
Hey, good morning, guys. Appreciate all the
Morning, Mark.
Maybe just on the remaining Environmental Services business. I mean, is that something that you would consider sort of core long term? Is it salable, or sort of would you sort of anticipate participating in some of that, consolidating that market as well?
I think, you know, as long as we can keep creating value. I mean, obviously if we'll have this equity interest and, you know, I think the plan is to take that entity public and let people participate in it from the beginning, and we'll keep it. You know, again, we have, there's a very good plan behind that to significantly grow the equity value of that business sort of post IPO. You know, I think we have the ability to monetize that over time. We'll do that once, you know, we create significant value. Sorry, you're talking about-
Sorry, Patrick.
Are you talking about infrastructure or are you talking about liquid?
The liquid. The stub that'll be left, the liquid and the soil.
Sorry. My fault.
I misunderstood that.
The liquid business is, you know, great. I mean, like I said, I'm a shareholder first. Someone to pay a big number for it. I think, you know, looking at what Republic paid on the face of it for U.S. Ecology, I think, you know, U.S. Ecology was a, you know, high teens business. You have our business that sits at high, you know, mid-20s margins, gonna go to high 20s margins. You know, great similar comparable sort of asset base. You know, they paid sort of over 14 times for that. I think from our perspective, you know, we think we have a similar business.
Could be better in some ways, maybe not in other ways, but at least it sort of sets the benchmark of what sort of, you know, what value, that's worth sort of in the base case. I think we're gonna keep it. I think it's a great business. You know, very comparable free cash flow margins to our existing business. There's no reason not to keep it. You know, it's largely sort of focused on the Canadian market today. I think we're of the opinion we're gonna keep it. It's a great business. Why not? We'll keep growing it with an exceptional management team, with industry leading margins as well in that business. No, no thoughts to get out of that anytime soon.
Okay. Just on renewables. You gave some numbers, I think for your capital investment. To get to the 150-200, roughly what's sort of your investment required? Or should we just kind of like look at linearly at least?
It's a little bit of a moving target cause we're negotiating. You know, I think some of the benefits of what we're working on today, the future capital commitments will be significantly less than the original deals. That's how some of the developers are differentiating themselves. You know, I think there'll be minimal capital required from us for the future projects that you see. I don't think there'll be much more required, given what we're negotiating with today.
Okay. Maybe just one follow point for clarification. When you report Q1, even if the infrastructure hasn't closed yet, the plan would be to report with that excluded. Is that correct?
Yeah, Mark, that's correct. Whether it's officially done in the financial statements proper or I need to sort of pro forma do it in the report is still sort of TBD. But either way we will get you a clean sort of segment presentation, ex the infrastructure.
All right. Thanks, guys. Appreciate it.
Thanks, Mark.
Thank you. Our next question comes from Jerry Revich from Goldman Sachs. Please, Jerry, your line is now open.
Yeah, thanks. Good morning. Patrick, look, on the CAD 7.5 million MMBtu of landfill gas projects, I'm wondering if you could talk about what proportion of that you expect to use as you build out your CNG vehicle fleet versus other RIN 3 eligible applications and, you know, and what proportion you expect to go to industrial non-RIN 3 applications based on the offtake plans.
Yeah. We need about 10% of that volume, you know, and that'll slightly grow that we're gonna have to put into, you know, into our own vehicles in the sort of transportation market. You're sort of left with 90%. We're in process, you know, and have negotiated some long-term arrangements, but I think what you'll see is most likely, you know, 50% of that, the remaining balance going into the sort of industrial commercial long-term agreement, half and then the other 40% will continue into the transportation sort of RIN market today.
Got it. Patrick, when we last spoke about the topic, you had mentioned that industrial market price is in the 20s. Is that where it's shaking out? Any update as you've spent more time with-
Yeah.
With the-
It's still there. Obviously, as the RIN pricings moved up, the pricing's moved up a bit. What we're seeing now is the ability to actually share in the upside if, you know, for example, if RIN pricing went from, you know, let's call it CAD 3.20-CAD 3.40 and ran to CAD 4 or CAD 5, wherever it may go, these new agreements are now you have a sharing agreement that's sort of correlated to RIN pricing. If they go up higher, then the long-term supply agreement has to pay more, and they have to pay a portion back. Even getting a little bit more lucrative than we originally anticipated back, you know, three or four months ago.
Okay. Terrific. You know, in terms of the plan to roll up the infrastructure and asphalt industry, you know, not a lot of assets out there that can post mid-teens EBITDA margins. Can you just expand on what the M&A pipeline looks like for that part of the portfolio, you know, how much heavy lifting will you folks need to do to get, you know, acquired businesses to the margin profile that your business and certainly Coco is running at?
Yeah. I think it comes down to exactly what we did on the solid waste and liquid waste business, right? It's, you know, how are our assets performing sort of where they are. I think at the end of the day, you know, it comes down to market selection and finding the right markets and the right places to go. I think the beauty of us operating in nine provinces in Canada and 26 states in the U.S., we generally know what markets to be in. I think you'll see us focused on markets that have better margin profiles than others, right? With that backdrop, I think it'll be the exact same playbook that you've seen with sort of GFL and the margin profile of GFL, and its liquid waste business and the solid waste business.
I think you'll continue to see that, and I think you'll continue to see us be very select about the markets we go into with that business and the quality of businesses that we acquire under that profile. We'll continue to be, you know, our perspective is industry leading business, and it should go pretty well.
Okay, great. Lastly, nice to see the pricing pull forward on the solid waste side. I'm wondering, as you look at the absences from Omicron in the first quarter, any new actions that you folks have implemented given higher overtime and other costs? Luke, you alluded to it in potential for pricing to be higher than what you're guided to. I'm wondering how did that look through January and February as you folks have dealt with those constraints?
Yeah, look, obviously the beginning of January, the sort of labor constraints, I think Omicron fortunately had a very sort of short fuse and, you know, a lot of that sort of got behind us quite quickly. You know, I think. Look, the pricing in Q1 is coming in sort of strong, as I said, at some of our strongest sort of levels. If this sort of keeps up throughout the quarter, you know, I think there's opportunity to beat, you know, the high end of that guide that we had provided. Look, I think it's important to understand the low end of the guide, at 4.5, that's a number that's enough to cover the cost of inflation. Even at the low end of the guide, we're sort of, you know, we're good.
I think the opportunity is to beat, you know, or achieve the high end or beat the guide. As I said, you know, on one of the earlier comments, I think Q1 will sort of tell the tale. First, you know, January and February is looking promising in terms of sort of retention, but we'll see by the time we get to the end of the quarter. Again, if that's sort of a high fives number, you know, or a six, I think that sort of sets us up for the opportunity to sort of beat the guides of the year. I think people should rest assured that even the low end of the guide, you know, more than covers the current cost of inflation we're seeing.
Terrific. Appreciate the discussion. Thanks.
Thanks.
Thank you. Our next question comes from Rupert Merer from National Bank Financial. Please, Rupert, your line is now open.
Thank you. Good morning, guys. Patrick, on GIP, you mentioned CAD 250 million cash GFL should receive from divestment of the infrastructure assets, and you gave us a rough estimate for the ownership stake in GIP. Can you tell us what's left to do to finalize the economics on the deal, when you might have that final plan?
Yeah. I mean, it's gonna come together sort of over the next, you know, five to six weeks. You know, we're just looking at a bunch of sort of structures, et cetera, you know, leading up to sort of, you know, getting that entity public in September. That's all pretty fluid now, but that's generally the parameters of what you'll see.
Okay. You do expect to be minority interest and have a joint venture accounting, kind of along the lines of what you explained on RNG. Is that fair?
Rupert, it would be equity accounting. This won't be a joint control is an unlikely outcome. As Patrick said, it's still fluid, but it's probably non-controlling interest just to have regular way equity accounting as opposed to actually joint venture accounting.
Okay, great. You mentioned your asset rationalizations largely done. Are there any assets out there, any regions you might consider non-core? Do you anticipate seeing any other asset sales in 2022?
Yeah. There's a few things left to do, which, you know, we'll expect to get done, you know, Q1 and early Q2 sort of well underway. You know, we anticipate proceeds probably in the sort of CAD 50 million-CAD 60 million range.
Great. Given those were quick, if I could lob one more quick one at you. The RNG projects-
Sure.
You referred before. What's the timing on those? I know we're looking at them in 2023. Are you thinking early 2023, mid, late? How should we think about the cadence?
I think for simplicity modeling purposes is you basically get 50% of those revenues in 2023. The reality is we probably are going to shovel ready and starting construction on some of them in March. You know, typical construction time on those is like 12-12.5 months. I think, you know, late Q1 or early Q2, we should be online, particularly with the largest one, which is a landfill in Michigan, that's like a 10,000 SCFM site. We hope to have that up and running, you know, sort of April next year.
Okay. Excellent. Thank you very much.
Thanks, Rupert.
Thank you. We currently have no further questions. I will hand over back Patrick Dovigi for any final remarks.
Thank you so much everyone for joining the call, and again, I appreciate your continued support. I was always available today to jump on the phone if there's any further questions later on. Thanks so much.
This concludes today's call. Thank you so much for joining. You may now disconnect your lines.