GFL Environmental Inc. (TSX:GFL)
Canada · Delayed Price · Currency is CAD 50.41
-1.01 (-1.96%)
May 5, 2026, 4:00 PM EST
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Investor Day 2025
Feb 27, 2025
Please welcome to the stage Patrick Dovigi, Founder and Chief Executive Officer.
Just wait for me to sit down. Good morning, everyone, and thanks for attending the GFL Investor Day. Obviously, it's been an interesting journey this year. Over the last number of years, I think this is almost our five-year anniversary since actually being in this exact room for the actual IPO of GFL. So for many of you, most of you know, but we went public with GFL on March 5th of 2020. We were the last group to ring the bell here on the exchange before COVID. As we get into the presentation, it's certainly been an interesting five years. Certainly learned a lot over those five years, from transitioning from a private company to a public company, and just thinking about how that all works and dealing with a multitude of investors.
A lot of you in this room have been great champions of the GFL brand, so we're thankful for that. I think as we get into the presentation, you're going to see what's been created here, how the business has evolved, most importantly, how it's evolved and where it's going. I think from our perspective, where we sit as a management team and as shareholders and being the largest shareholders of this company, we're extremely excited about where this is going and how it's going to go. As you've seen from us over the last five years, particularly as a public company and probably 13 or 14 years as a private company, the one thing that's been consistent is that we've made a lot of money for our investors. We don't expect that to change anytime soon.
It's really the hard work and dedication of not only individuals you're going to meet and see today, but it's the 15,000+ employees that are left with our main company that go out and work and do their job every day that make this company as great as it is. What you're going to see is, if you turn to page five, from my perspective, handpicked best-in-class management team, starting with Billy Soffera. Billy joined us, long tenure in the waste industry, came from a public, was at Advanced Disposal. As we went through the divestiture package with Waste Management ADS, Billy was an individual that I met through that process that I figured we couldn't live without and we thought would be a huge addition to the team.
Interestingly enough, he was one of the only individuals that Waste Management had on their list that was protected that we couldn't take. It took about six months for us to get him from Waste Management, but Billy joined us, and Billy has taken on the reins from Greg, who's former COO. Greg's still in the room. Greg's still working through the transition process on special projects, et cetera. To get someone with Billy's duration and industry experience is second to none. Ben Habets. Ben was with Waste Industries for a long period of time. His dad was the former COO of Waste Industries. Waste is, I would say, ingrained in Ben's nature. He's been with Waste Industries a long time, building the entire U.S. business for us, and continues to stay here today.
Matt McCarra, again, as we expanded our business into Western Canada, 2014, Matt came with one of the acquisitions. 10 years later, again, we saw a star in Matt, and Matt has moved up the ranks significantly in the Canadian business. Obviously, now giving exposure to both Ben and Matt in the U.S., in Canada, and vice versa. Again, it's what we do, and it's how we train. We like to breed it from within versus take it from the outside. Steve Miranda. Steve Miranda's family was probably the largest recyclers in Canada. Again, Steve's been in a MRF since he was in diapers with his dad. Doesn't know anything else other than running MRFs. Has been instrumental in the Extended Producer Responsibility build-out and working through that over the last number of years, and you're going to hear a lot of great things from him. Nicole Willett.
Nicole was someone I met at Waste Management when I started early in the business. I again identified Nicole as a great leader. Nicole, from a government relations perspective, but not all government relations people actually understand operations. But Nicole actually understood operations and understand how to actually make money, not just become compliant with regulation. I thought that was a very unique trait that she employed. You're going to get a chance to meet her. Jen Ahluwalia was at one of the biggest consulting firms in Canada, did a significant amount of work for us as well. As GFL scaled up and we could afford to have her full-time, she was one of the people that we brought on and brought into this business. Julie Boudreau has been the jack of all trades at GFL for a long period of time.
started as a treasurer, went into integrations, went into M&A. She handled every sort of job within GFL, has a relationship right through the entire operation with every level, I would say, and has touched every level. When she speaks, and she speaks to the field, she speaks intelligently that people know that you know exactly what she's talking about. You'll learn a little bit about what she's doing from a transformation perspective. Obviously, Luke, who many of you know. Again, Luke started here in 2014. Luke, I've known since high school.
I said, "You're going to make a better career at GFL than you will at KPMG, and I think this is something you should do." I don't know if he believed me, but I told him to quit his job before I gave him an employment agreement, which probably made him a little nervous as he had his first child coming in. He took the job over a drink at the Four Seasons almost, I don't know, 11 years ago now and still here, and obviously been a huge addition to the GFL team and a massive contributor. Oh, did I miss Craig? Oh, Craig. Sorry. Craig Orenstein. Craig was actually my first business partner at GFL. He worked for the private equity firm that gave me my first $10 million back in 2007.
Craig was responsible for doing all the diligence on all the assets that we were thinking about acquiring, the first three, one being the waste transportation to Pickering, as well as one in Central Toronto, as well as our first liquid waste business, which was a company called Direct Line Environmental. That was the actual core of actually building GFL, and then we acquired the three transportations from Waste Management in the middle of the financial crisis in 2008. Craig worked for the private equity firm, and it became pretty clear to me that he was going to be a very good addition to GFL and convinced him to come over as well, and he's been here as long as I've been here. Again, deep knowledge of the entire organization and a testament to the loyalty of the team that's here. If we turn to page 6...
Oh, I do? Sorry, I thought they were giving it back there. Turning to page six, we're going to focus basically on RemainCo now. Obviously, with ES carved out, the GIP business carved out, we're really left with a pure-play solid waste business. Today, that solid waste business is going to basically be left with 15,000 employees, 7,100 trucks. On a 2024 number, it's about $6.1 billion of revenue, and about $1.75 billion of adjusted EBITDA. That's spread broadly throughout various, well, the revenue stream's really spread through residential, commercial, industrial. Obviously, our landfills, transportation, recycling facilities, and MRFs make up the rest. Collection revenue mix is very similar to the rest of the peers. Again, 34% coming from the residential line, 38% coming from the commercial line, and about 28-ish% coming from the industrial side.
That's really spread now throughout 10 provinces in Canada and roughly 20 states in the U.S. You can see the map of where we're generally focused on. Again, we're focused on all 10 provinces in Canada. We've built out extensive platforms, and if you look through where we've really focused the business now in the U.S., is largely down from Canada, right down through the Southeast, over to Texas, and up through the Midwest. Last year, we divested the markets where we saw the least amount of opportunity for us, not necessarily the industry, but just given the presence of others in those specific markets, we thought it was prudent to exit them and deploy those dollars into markets where we had a very large presence. We're going to get higher returns on our invested capital by doing M&A in these specific markets.
If you think about since the IPO, what have we done? We've grown revenue at almost a 17% CAGR. We've grown EBITDA at over a 20% CAGR, taken free cash flow up by a 23% CAGR over the last five years, and adjusted EBITDA margins, we've increased 300 basis points. All of these at the time of the IPO were something we've articulated. Articulated them clearly. The plan was as people saying, "Why were you going public?" We were going public because we needed the capital to grow. We thought there was a clear path to taking EBITDA from, when we did the IPO, of roughly $950 million-$1 billion to north of $2 billion. I would say we exceeded those goals and even our own internal expectations.
Always, maybe, and we'll get into the slide in terms of what the annualized return of GFL was, but this management team knows how to make money. We've done it for a long period of time as a private company. We've done it for a long period of time now as a public company. We make prudent capital decisions, sometimes maybe not always the most popular because of what's happening in the macro environment in the world. If you think about what we've done in the macro environment, we've lived through COVID, where the world basically shut down. We went through a hyperinflationary environment from zero rates to rates that were higher than we've seen really since 2007. Albeit, we've executed the plan. I would say we've numbed the noise in the background, and we've created a significant amount of equity value.
Now, it always wasn't reflected in the stock price, but at the end of the day, I use the case study of the environmental services business. I go back to 2021, when we bought an asset, our largest competitor in Canada. Everybody looked at us like we were crazy. We were bringing up leverage a quarter of a turn in the middle of COVID. We saw an opportunity with that asset. That asset, again, was levered to Canada. Canada was largely shut. We were buying it off of, I would say, COVID-adjusted numbers. There was no real private equity firms coming to Canada because they couldn't get across the border. We just saw a real opportunity. Yes, it probably didn't make investors happy that we were bringing up leverage a quarter of a turn, and it was unexpected.
If you look at the value that's now created for this shareholder base, it's remarkable. We just, again, transacted with that business at an $8 billion value, put $6.2 billion of capital in our pocket, and still retained 44% equity interest. Again, those are the types of things we will do. If you flip the page to page 8, over the period, over the last 5 years since being a public company, our annualized total shareholder returns have been about 22.5% a year. In the environment that I just described, I think that's a remarkable outcome. Could we do better? Of course, we're going to do better. Are there more opportunities to do better? Absolutely, we're going to do better.
If you look comparative to sort of what it's done to the other waste peer groups, the S&P, as well as the TSX60, I think it's pretty clear the steps and the decisions that we made as a management team and a board were the right ones and will continue to be the right ones to be stewards of everyone's capital. If I flip to page 9, this is really just the building blocks. This is a 3-year outlook. I'll say when we put a 3-year outlook out, we like to err on the side of caution. This is a conservative case. It gives you all the building blocks as to where we are and how we move from basically $1,760 of EBITDA to north of $3 billion over the next 3 years. Again, this is not a complicated story. The story continues to get simpler.
This is a very simple story that sort of follows the playbook of many others. If you just look at where we are, the guidance we've given for 2025, some 19.25-19.50, and then you sort of just layer in the organic growth piece, coupled together with potential tuck-in acquisitions that we've had significant success over the last 17-18 years doing, coupled together with sort of the EPR and RNG contributions for the capital. The lion's share of the capital that's already been spent, coupled together with just the solid waste self-help levers that we've talked about over, and over, and over again. Pricing, CNG procurement, and labor turnover with a more steady state labor market spits out what we think is industry-leading growth. Again, with the focus on maintaining leverage in the low threes to attract the broadest base of investors.
We move towards that investment-grade credit rating sort of over the next 12 to 18 months. We think is going to lead to an optimal result and optimal, obviously, stock performance and value creation for us as all of our shareholders. Which then leads to, again, on the backs of that, leading to what our key strategic pillars are for the next 3 years. Again, we want to drive industry-leading growth. We want to improve our free cash flow conversion, which is going to be well telegraphed, and you'll hear a lot about that today. Again, return focused capital deployment. For the first time ever, we're going to be in a position to have incremental capital to buy back shares and increase dividends. We're going to have the flexibility to do whatever we want from a free cash flow perspective on M&A without, again, moving leverage significantly.
We're going to be able to maximize shareholder value through all of this. I think, we have the flexibility now to look at the highest sort of returns on invested capital acquisitions that fit within the existing footprint. If you look at the footprint today, we've built out the infrastructure in both Canada and the U.S. We are now going to leverage those capital spends and acquisitions that we've made. We're going to find opportunities that just make those businesses better and more profitable. That's a simple thing to do now because from a risk perspective, the business is totally de-risked. We're tucking in M&A into markets where we already own assets, into existing management teams that have been GFL-ized, that have been doing this for a significant amount of time. I think the model at this point is tried, tested, and true.
certainly is from our perspective. Again, if I go back to 2007, we haven't had a private equity investor leave with less than sort of 3x their money. You, as part of public investors, the stock's up 150% since the IPO. I think the day one stock opened at $17.80. Today, the stock's trading around $45. Again, that's in the face of all the adversity we faced over the last five years, the learnings that we've taken as a management team over the last five years. What you'll know from me is that I'll always be prudent with your capital. Being the largest individual shareholder here, I'm doing decisions that I think are right for my own equity, which then in turn is right for your own equity. I think that's been proven over and over again.
With that, I'll turn it over to Billy. We'll get into the details, and then I'll follow back up at the end, and we'll open it up for Q&A. Again, feel free to ask any question you want, no question's off the table. We're here to be as transparent as you want us to be, and we look forward to a successful next two years. Thank you.
Please welcome to the stage Billy Soffera, Chief Operating Officer.
Patrick, thank you.
Good morning, everyone. I am Billy Soffera, and thank you, Patrick, for the introduction. I sincerely appreciate the opportunity to tell part of the GFL story, and it's quite a compelling story. Most importantly today, I think we'll highlight the path from our previous Investor Day story in 2022, and bring you forward to today. Then, just as importantly, delineate what we think is a really clear path to 2025 here and beyond. As Patrick mentioned, I transitioned into the COO role since that time, a role previously held by Greg Yorston. Patrick introduced him, but I want to mention that Greg is primarily responsible for a really firm foundation that I'll reference throughout my presentation. Greg remains with the company in a senior strategic and advisory role, which allows us continuity and to take great benefit from Greg's experience and guidance.
Really happy about that, and we'll continue to have Greg as part of our team. The solid foundation that I referenced is one of the promises we made in 2022 that we would coordinate all the strong assets that we assembled through concerted market development activity, that we would evaluate our positioning relative to those assets, that we would integrate those assets and mature the business with a firm base of process and KPI development and focus, and very importantly, discipline in regards to our organizational development. We also promised that we would put significant effort into people and leadership development. You will see the result of that effort in the presentations that follow with the people and with the output. I'm certain that you'll be very impressed with that result. We find ourselves with a really solid foundation, rooted in process and measurable results.
Our focus matures now into using our experience in a clear line of sight to execute on operational opportunities that my colleagues will further illustrate. I do want to emphasize that we are not reinventing the wheel in this phase. We are executing on fundamental levers and opportunities that many of us have executed many times over. Patrick mentioned my background. 35 years, largely with BFI and Republic in escalating senior leadership roles. Greg Yorston, 38 years, and I mentioned he's still around, in senior leadership roles in Waste Management, Waste Industries, and now with GFL. The two of us and a few others, not only executed on these type of opportunities and levers, we helped develop and perfect them at these other companies. We know how to do this. We know exactly how to do this.
We have the experience, the opportunity, and the will to execute on things like procurement discipline. We'll talk about that a bit on routing opportunities, on program management, on organic growth strategies, and several other opportunities that will be described shortly. It's always important for us to signal what's next and what's coming from here. I wanted to mention that we are developing and utilizing enhanced digital platforms, including AI, to create incremental value and to scale our customer contact and retention efforts. You have heard us describe ramping up market development activity and participation. Craig Orenstein, I mentioned before, will very ably describe the planning and strategic focus that will inform and direct that activity. I will summarize that point by saying we are building on our platform, the platform we have developed at this point.
The assets we will target from here have demonstrable strategic value and are additive to our platform, and those are identified by the processes we've developed, including the strategic planning process. Quickly, you see here the footprint of our solid waste and recycling assets. I would like to point out that we have a firm foundation here with solid opportunity for growth, with about two-thirds of our assets concentrated in U.S. markets, but strong representation across the entire Canadian footprint. To further that message of footprint in market selection, you see here that we have a concentration about three-quarters of our business in secondary markets, particularly those where we can vertically integrate or those that are disposal neutral. If I can put a point on what we see by vertical integration, that's not only disposal assets, but recycling assets, organics, and even cross-selling opportunities with our JV partners.
These markets also typically give us really richer opportunities for organic and inorganic growth and margin growth or maintenance of those margins. In a quarter of markets where we are near or in primary urban areas, we tend to have very good vertical integration and/or an opportunity to specialize in certain additional offerings. I'll end by emphasizing that our goals across the enterprise are aligned to promote quality and industry-leading growth, to bring shareholder value through free cash flow conversion, and to maximize our own investments through a disciplined process. I use that word again, disciplined process, focused on manifest returns. We achieve these goals through adherence to core values centered around safety, employee experience, customer engagement, shareholder return, and a culture of execution enhanced by the experience we bring to the table. You'll see these values reiterated throughout the presentations.
With that, I'd like to turn the stage over to Matt McCarra and Ben Hobitz, Senior Vice Presidents of Operations, to further illuminate our execution on these opportunities that are presented to us. Thank you very much.
Good morning. My name is Ben Hobitz, and very excited to be here this morning before you. I'll be kicking off with Matt and covering price optimization as well as our journey on reducing employee turnover through better employee experience and better employee engagement. We'll start off touching on price optimization. GFL continues to execute on a price-led organic growth plan that drives margin expansion. We're heavily focused on durable price costs spread, and there is a solid foundation in place for this to continue as we expand upon and implement proven price mechanisms already implemented by the industry. The first reason we see this strong pricing continuing is our price mix, which you can see on the left-hand side.
You can see our mix is quite similar to others in the industry, with about 52% open market, 20% tied to CPI, and 28% tied to other restricted business. We also benefit from our market selection, which Billy touched on previously, with 73% being in secondary markets. You combine that with our primary markets, with vertical integration, and you can see we have the right mix to allow us to drive price into the future. In addition, through our strategic planning and our rigorous contracts and route management, we have a pathway to reduce further our restricted business and expand our open market percentage as we move into the future. On the right, we show that we have successfully priced higher than our peers. You can see in 2022 and 2023, a little bit oversized, and that was benefiting from the implementation of our fuel surcharge program.
Really our ability to price is really driven by three key factors. One, the market selection that I mentioned. Two, we're in our early life cycle, and we're really initiating proven strategies that have already been deployed by the industry. Third, we're continually enhancing our pricing tools, with contribution of robust monitoring and a dedicated support team that oversees that. That's allowing us to make surgical analysis on an account-by-account basis in identifying and executing on core price surcharge and ancillary opportunities. Fourth, the optimization of our operating system, with the development of a data lake composed of multiple databases being linked together for business intelligence purposes. This is increasing the speed that we can make pricing decisions. In addition, it's providing real-time intelligence on our organic volumes, allowing us to continually adjust our price volume equation for each of the individual markets.
Last but not least is our municipal contract management focus, where we're focused on improvements in our CPI indices as well as surcharge implementation. You consider that moving away from all items as much as possible to trash, water, sewer indexes or garbage collection indexes, which is historically a little bit higher. We've got a consistent track record of executing on price over cost inflation and driving underlying margin expansion, yet we're in the early stages of our price optimization, and we're utilizing industry-proven methodologies to create a runway for additional price growth. I'd now like to touch on our ancillary surcharge program, which we remain heavily focused on and that we're quite excited about. We know there's a lot more water in the towel, so to speak, to wring out. The graph on the left kind of helps paint the picture of some of our previous success.
It's showing the implementation of our fuel surcharge program, which allowed us to fully cover our direct fuel price impact, as well as a portion of our indirect fuel price impact over the course of five short quarters. This experience really is what provides the well-defined execution playbook for us to capture incremental surcharge and execute on our ancillary charge program into the future. We've deployed 3,000 tablets which are connected to tablets and interfaced with our billing system to capture ancillary charges throughout the business. The installation of these tablets really is reducing the friction it takes in order to capture an overcharge and through the push of a button. We expect the full ancillary charge capture by 2028 and an incremental adjusted EBITDA contribution of $40 million-$80 million by 2028.
I'd now like to transition over to our employee experience and Team Green. At GFL, our decentralized and entrepreneurial culture drives higher employee engagement. First and foremost, the foundation of our great employee experience is ensuring that every team member is Safe for Life. Our Safe for Life program has implemented an advancement system framework that includes assessing the risks, encouraging our folks to pause before they take on a work task, the provision of necessary resources you can consider that suitable trucks, well-maintained vehicles, compliant vehicles, equipment, as well as personal protection equipment. The coaching and training of our employees, including morning huddles, monthly safety meetings, learning management system, just to name a few.
The coaching adoption of technology through our SIMS program, which is our EHS management system, tracking our compliance, performance, safety performance, and our Lytx cameras, observing driver behavior out in the field and allowing us to coach and improve on those behaviors as time goes on. Last but not least, driving continual improvement through the assessment of performance. At its core, our Safe for Life program empowers employees to make safe choices and empowers them to be comfortable taking a moment to pause before they start a work task or saying something if they see a hazard out in the field. Ultimately, this focus leads to a continuous TRIR improvement that we've successfully achieved over the last four years and are poised to continue doing so in the future. Once again, employees and candidates, they gravitate to a culture of safety and protecting employees.
Our culture of engagement doesn't stop with just safety. We also seek feedback from our employees, and we're constantly looking to expand and invest in meaningful programs for Team Green. This past year was our first completion of an employee opinion survey, and we're very excited about the overall engagement scores reported back from our people. We've also made investments in expanding training, which included the start of a learning and development team, which is currently providing supervisor training to enhance communication skills, collaboration, and understanding of the workforce. This is complemented with the launch of our GFL Learning Hub, which is an online learning management system for employees to gain skills and training for personal growth, but also growth within the organization.
Last but not least, the launch of our Green Futures Employee Scholarship Program, which supports ambitious employees who have overcome significant obstacles and allows them to have a path for growth and success. Next, I'd like to take a moment just to share a quick case study with you. On the screen before you is one of our region's past seven quarters' experience and performance. What you can see here is a 55%+ improvement on voluntary turnover over that period. Quite significant, but really the power of this is showing how powerful it is to reduce employee turnover over time. You can see here strong improvement in safety of over a 40% TRIR reduction over that period, improved service with a 40% reduction on incoming service calls, and improved margin of 180 basis points.
This takes place because of high employee engagement, high employee empowerment. The execution of best management practices and really consistency, which on the collection side of business, we often say same driver, same truck, same route as consistently as possible. Employee experience, really, it's the driver of us retaining our folks. At GFL, we're committed to hiring and retaining the best and the brightest. We aim to provide our team members a career with personal growth, not just a job. As can be seen on the upper left graph, we've made significant strides in the last three years reducing voluntary turnover, an 800 basis point improvement to 22% in 2024, and we've demonstrated a 1%-4% improvement on voluntary turnover on an annual basis during that period.
Given that track record, and as you look ahead, we believe a 100 basis points + improvement on an annual basis of voluntary turnover is a very realistic target. As you see, it will ultimately lead us to a mid-teens voluntary turnover rate by 2028. The lower graph makes it clear that retaining our new hires until their third year is really the key to success in driving employee retention. I talked about some of the programs on the employee engagement side that we've launched to help on that front, and that's what initiated those, the learning development team, the Learning Hub, our Green Futures Employee Scholarship. I'd also point out and reference our fleet automation program and the expansion of our in-cab technology in our vehicles.
With fleet automation, we're helping our folks in the workforce reduce the manual labor that they do out in the field on collection routes. Secondly, we're empowering our drivers to identify route challenges or safety hazards and blocked containers and numerous other things, which gives them empowerment to bring those things forward. Maybe more importantly, it drives timely response by our supervisors to not only address those issues but bring a resolution back to the driver, improving the overall employee experience. Driving down involuntary turnover is extremely impactful to the business. As you can see on the right-hand side of the screen, significant reduction in labor costs as we become less reliant on overtime and reduce our reliance on subcontractors. It reduces our R&M expense primarily by allowing us to avoid third-party shop repairs, which is typically double the cost and double the timeline versus an in-house repair.
Ultimately that also reduces the downtime our fleet experiences on a regular basis. Certainly reduces the cost of risk with an improved safety performance and reduction of incidents and improved productivity. The more our folks are more comfortable with their equipment and their route and the familiarity they have, we drive efficiency in the business. Last but not least, improvement in customer experience. Faster response times to our customers, in addition to a reduced number of service calls coming into our customer service teams. Maybe more importantly, it's the retention of our customers and the retention of price that I talked about early on.
With our track record and our realistic outlook of 100 basis point plus improvement on voluntary turnover, our expansion of our employee engagement programs, and the following benefits of lower labor, R&M, and risk costs, combined with an improved customer experience, we foresee our adjusted EBITDA contribution of these efforts being $20 million-$30 million by 2028, all as a result of a reduction in employee turnover. I'd now like to turn it over the presentation to Matthew McAra, and he's going to discuss customer experience. Thank you.
Thanks, Ben. Good morning, everybody. My name is Matthew McCarra, Senior Vice President of Operations. Ben discussed how employee experience drives lower turnover, which is a perfect segue into what I want to discuss, which is continuously improved customer experience. I'd like to first highlight how exceptional customer service is measured by missed pickups, drives price retention, and increases customer loyalty. On the right, you'll see a case study highlighting a GFL business unit that was experiencing abnormally high missed pickups in Q1. Subsequently, this led to customer churn and greater price rollbacks. Once the issue was identified, we were able to decrease missed pickups by 75%, leading to dramatically lower customer churn and better price retention as the year went on. Granted, most of the price execution was in Q1, but that doesn't take away from the directional movement.
This case study is an isolated example of the correlation between service levels, customer churn, and price rollbacks. It illustrates very clearly that good customer service equates to greater price retention and increased customer loyalty, ultimately driving revenue growth and profitability. Obviously, we would like to have had this issue corrected much earlier in the year. With the commenced rollout of our AI-driven customer service platform, we can now better measure customer satisfaction and respond in real time. This all leads to quicker issue resolution and an enhanced customer experience. Let me walk you through our real-time AI customer service dashboard, which gives us the ability to measure our customer satisfaction on every interaction. First on the left, we've got AI sentiment. Every call that a customer service rep has with our customers, AI immediately starts to analyze the overall sentiment of the call.
It tracks inflections and keywords to determine their state of mind. This is something we simply couldn't do before. We now get a live view of whether a customer interaction was positive, negative, or neutral. This allows our managers to see in real time how customer service representatives handle different interactions. For example, if a call starts off with negative sentiment, we want our CSRs to gauge this emotional state and use soft skills and customer-centric approach to make sure they are satisfied by the end of the call. Based on data and real customer conversations, we can now better adapt and improve our training, leading to a better overall customer experience. Next, we have AI issue status. The AI sentiment is one piece of data, but we need to know if the customer's issues are resolved.
Issue status is when AI interprets the interaction and determines if the issue is resolved, not resolved, or unknown. There are currently seven dimensions of service that we're presently monitoring through AI. Service, billing, customer issues, cancellations, price disputes, repeat service issues, and repeat sales issues. Collectively, this is called our 360-degree service surveillance. Lastly, on the right-hand side, you see our CSAT score. The CSAT score is a composite of the AI sentiment and AI issue status that I just discussed. This score measures overall customer satisfaction with every single interaction, allowing us to understand our success at the individual BU and CSR level. We are doubling down on communication and training surrounding the provision of exceptional service. This will create higher customer satisfaction, which ultimately results in increased loyalty and better retention to price, all driving profitability. Next up, operations optimization.
Within operations optimization, there are a few initiatives we're focused on to drive margin expansion in the coming years. First is to continue converting a high percentage of our fleet to CNG from diesel collection vehicles. As many of you are aware, this is an industry-proven strategy. CNG vehicles continue to be the most economically viable alternative fuel path, have lower incremental costs versus other alternative fuel sources, lower average fuel costs per vehicle versus diesel-powered units, and there's an opportunity to utilize internally produced RNG. CNG vehicles also provide a few non-financial benefits versus their diesel peers, most notably a quieter operating platform and have a lower carbon footprint. These benefits are viewed favorably by both our customers and the communities we serve. Supply chain issues during and post-pandemic resulted in initial lower conversion rates, but thankfully, that's since improved.
We remain committed to purchasing more than 50% of our annual fleet replacements with CNG-powered vehicles. As we look ahead, the future for CNG expansion is promising. Smaller secondary markets are becoming more viable through remote fueling services via hub-and-spoke fueling models and the opening of public fuel stations. Historically, we haven't been able to convert in smaller markets because building our own fueling stations didn't make sense. With hub-and-spoke fueling models and public fuel stations, these markets will gradually open up. Additionally, the majority of new contracts we pursue are CNG deployments. At the end of the day, we are confident that we will have 45%+ of our fleet converted by 2028, which translates into an incremental adjusted EBITDA contribution of $20 million-$30 million by 2028.
Next up, within operations optimization, we have further opportunities within procurement and fleet, largely tied to us taking advantage of our greater scale. First, procurement optimization. Our overall business growth has doubled our cost base, creating meaningful procurement opportunities. Since our last Investor Day, we have focused our national and managed programs on identifying and prioritizing high-impact areas and large spend categories. The focus has been on categories with straightforward implementations that drive cost savings and efficiency in short order. Key category expansions were telecom, IT software and hardware, liner and liner installations, and contingent labors. Running parallel to this, more opportunities exist within our managed programs in large spend categories such as parts, shop supplies, site services, and post-collection operations.
We've begun extracting further value within these categories through a reorganization of our existing procurement team structure, recruiting leading talent to manage key categories, and building out our PMO to drive project-level accountability. All this leads to greater in-house capabilities, unlocking further value, and positioning us well for the future. At the field level, we aligned incentives to increase procurement program compliance, expand reach, and unlock value in existing and new categories. This ensures that our business functions are aligned to improve procurement across business units. From a systems perspective, our newly deployed ERP will help further drive compliance, improve data and analysis, and reduce administrative processes. Lastly, if you combine this bench strength and process vigor, we would capture M&A synergy opportunities related to procurement much earlier in the process. Next up, fleet optimization.
To increase fleet savings and drive incremental EBITDA, there are two opportunities I'd like to highlight: automated side load conversions and warranty recovery. Automated side load conversions. These conversions are an industry-proven strategy that provide material productivity gains, margin expansion, and labor benefits. With ASL, there's less manual labor. This means much more efficient operating platform, plus a larger labor pool of applicants to hire from. Incremental tailwinds from automation include materially lower, fewer workplace injuries, resulting in a reduction of both employee turnover and the overall cost of insurance. By simply executing the industry playbook, we will realize margin expansion. We continue to seek conversion opportunities across the platform where it is economically feasible. Given our rapid growth, warranty recovery presents an opportunity to standardize and scale our warranty claims program for our fleet across the platform.
We have made steady progress and laid the groundwork to capture claims and reduce our overall parts spend. Most of these claims are captured through our parts getting certified to do basic level repairs. This allows us to perform the work in-house and receive direct reimbursement from the OEMs. Dealership repairs are often met with delays, so this ultimately increases fleet utilization. While most of our shops have been certified, we are working to have the balance certified in the near term to fully realize the value. The next phase will be for our shops to attain a more comprehensive certification, which will bring more complex warranty repairs in-house. Additionally, increasing in-house capabilities has a considerable impact related to uptime on new truck deliveries. A recent study verified that new units have an average of over 30 manufacturing defects upon delivery.
Most are minor in nature, but there are several that are claimable for warranty. Claiming these repairs and performing the work in-house will greatly eliminate future repairs and reduce truck time, allowing our trucks to hit the road sooner than before. When combining warranty recovery efforts with their procurement, we are better positioned to lower our total parts spend. In all, we expect these procurement and fleet optimization initiatives to realize incremental adjusted EBITDA of CAD 30 million-CAD 50 million by 2028. We have recently built momentum with procurement savings, fleet automation, and warranty recovery programs, which will help accelerate during the forecast horizon. Thank you for your time this morning. Next up, I'd like to welcome Steven Miranda and Nicole Willett.
Good morning, everyone. It's a privilege and great to be back here again, speaking with everyone. It's been three years since our last Investor Day conference. I just wanted to start off by reintroducing myself, Stephen Miranda, Vice President of Recycling. It's been a great three years with a lot of growth. First, I wanted to provide some context by reflecting where we were in 2022 versus where we are today. In 2022, we were really laying the foundation to amp up and grow our recycling business. At the last Investor Day, we talked about some of the new MRFs we were building, as well as several upgrades we were in the middle of completing and planning. Happy to say that all are now complete and everything's running successfully. We also just last month commissioned our brand-new state-of-the-art facility in Montreal, Canada.
It can process up to 150,000 tons, and at 60 days into the operation, it's meeting and even exceeding all expectations. We also started to tease out some internalization opportunities, and we were just starting to execute on an emerging trend of EPR. Of course, the recycling business was there to aid and assist in any of the work we're doing in terms of vertical integration with our customers. Fast-forward to today, and we've evolved and grown significantly through embracing changing landscapes. We find ourselves on track to meet our 2030 sustainability goal of increasing our recovered materials at our facilities by 40%. Internalizing our tons, organic growth, and executing on emerging trends such as EPR are just some of the ways that we're going to accomplish this goal.
A key component of our growth has also been the development of large-scale MRFs that incorporate state-of-the-art technologies strategically designed to optimize operational efficiencies while remaining flexible. By integrating advanced technologies, we have achieved significantly higher recovery rates and material quality, driving improved revenue from the material that we process, and reducing our disposal costs on the back end as a result. Additionally, by running more efficiently, we're ultimately able to increase our uptime and throughput at the MRFs, allowing us to increase overall capacity at the site. Improved facilities also reduce the need for manual labor, meaning we're able to achieve similar outputs with fewer resources and lower costs.
Importantly, as we're building these facilities and integrating our data, our enterprise transformation team, who you'll hear from later, is helping to digitalize the platform to help us optimize recycling shed networks and MRF efficiencies at a much more granular level and in real-time. Integrating and improving our data capture with the help from AI will also help us understand the detailed dynamics of our performance and operations. It'll also give us insights into our material compositions, which can produce very important information while we manage our contracts and explore new revenue-emerging trends. As we continue to scale and grow, one of our key priorities has been to de-risk the business and create a more stable revenue base. In 2022, there was an approximately 50/50 split in our revenue base from fixed-fee processing and commodity sales.
Since that time, as you can see, we're projected to have our revenue base for fixed-fee around 63%, and a pathway to increase that percentage even more as we continue to execute on our EPR contracts and our other recycling initiatives. By increasing the portion of revenue from processing fees with annual price adjustments, we've effectively reduced volatility and improved the predictability of our business, helping us to mitigate volatilities tied to fluctuating commodity prices. We also recognize, though, that commodity sales are still an important source of income, and we made partnership agreements that allow us to keep some of the upside of our material sales, something that our centralized commodity team works very hard on selling and making sure we're getting our premiums. This is particularly important as we see shifts in inbound commodity compositions.
We're seeing a natural decrease in the amount of fiber coming through the facilities and an increase in the amount of plastics and metals. With the state-of-the-art facilities, we're able to capture these plastics and metals at a higher level, which produce increased value, as they're generally priced a lot higher than fiber recovery. We've made significant progress, as I've outlined, and have successfully executed on our vision, a vision we're going to continue to expand upon. There are three main recycling priorities that help GFL drive industry-leading growth, improve free cash flow conversion, and ensure appropriate returns on our capital deployment. We are going to be pursuing internalization opportunities. As part of our ongoing strategy to strengthen our recycling business, we are actively pursuing opportunities to internalize a greater portion of our volumes, taking greater control of the materials that we handle, and leveraging our collection contracts.
By internalizing volumes, we reduce our reliance on third parties and can improve our asset utilization, ultimately allowing us to better manage operational efficiencies and cost structures. Rather than relying on external partners, we can keep a greater portion of the value chain in-house, from collecting the materials to receiving materials out of transfer stations, to long-hauling those materials out of our transfer stations in the processing facilities, to processing the materials, and to selling the commodities, all maximizing revenue potential and decreasing costs along the way while remaining flexible. In order to successfully build out an internalization strategy, we work closely with our GIS team to ensure we have the right model in place, such as the hub and spoke model I'll speak to on the next slide.
Internalization also fosters opportunities for our sales effort in the collection business, supporting competitive bids for new business as they will have post-collection cost certainty and a facility they can rely on. Where internalization opportunities don't make sense, two of the key strategies we're focused on is building strong partnerships, that could be local partnerships or North American partnerships, as well as leveraging material swaps, bringing our knowledge and expertise into these markets and seeing how it could be prosperous for all parties involved. Another recycling priority is enhancing our revenues. Our MRFs not only serve as a core part of our operations, but also act as magnets or catalysts to assist in pulling through revenue from other upstream sources. MRFs also provide our customers with another point where we can collect and recover their materials.
We can use these facilities to unlock new opportunities, drive innovation, and create synergies that strengthen our market position. This includes providing customers with sustainability reports, educating them on best practices, providing audit services, and creating new recycling programs for them, could even involve bringing them into our facilities and discussing their design and packaging changes and finding ways that we can recover alternate materials for them. There is an opportunity to seize incremental business by being a first mover, by going to our customers who are some of the largest retailers or manufacturers and offering them more services, not just on their printed paper and packaging, but also on their other materials that get discarded from their internal commercial facilities. By creating further recycling service, we can thicken our revenue stream with customers and continue to use our vertical integration to create true long-term partnerships.
We will continue positioning for emerging trends. EPR was an emerging trend we had been following for well over a decade. A lot of work went to this opportunity that we're now executing on. You'll hear from Nicole Willett about this. As demand for new emerging technologies continues with evolving policy and regulation being introduced, there will be opportunities in some of our key markets for implementation of new material management programs, such as organic management, construction and demolition management, municipal solid waste management, and plastic management. Some of the key factors driving our strategy is ensuring that we're well-positioned to capitalize on these emerging trends.
However, we need to ensure market conditions are appropriate through examination of key factors such as local landfill bans or landfill barriers, legislation or pending legislation, community engagement and involvement, and of course, understanding the material that we're being asked to process and recover and making sure we can do the job as well as after we do the job, that there's a home for this recovered material. By staying ahead of the curve while embracing legislative changes, we're not just reacting to changes in the market, we can be an active participant in its future. We can utilize templates which have worked for us in previous strategic pursuits while tailoring solutions to the specific needs of the market to develop localized models. Education plays a critical role. We're working to proactively inform our stakeholders about the environmental, financial, and sustainability benefits of these new trends.
By doing so, we hope to position ourselves as trusted experts in these areas, much like we've done with EPR. Related to internalization, just take a brief moment here to share one of our success stories. This is our Mayville, Wisconsin MRF that was commissioned last year that we briefly touched upon in 2022. Having this facility to internalize tons already in our Fox Valley region has allowed for cost collection savings, post-collection revenue and cost certainty, as well as stability in our post-collection processing. It has allowed our team to pursue incremental volume, knowing we have available capacity, ultimately reducing our reliance on third-party competitors. Further, efficiencies at the MRFs are increased as it utilizes best technology from multiple manufacturers, ensuring that we have the best equipment available. We've successfully been able to take two of the leading manufacturers, for recycling equipment and integrate them into one system.
I mean, that's a true testament to our partnerships with these manufacturers, as well as the expertise in the field. One of the key elements also contributing to our success in the Wisconsin facilities has been the adoption of the hub and spoke model. This structure allows for streamlined transportation, reducing the number of inefficient trips, maximizing load capacity, reducing windshield time, and overall logistic expenses. Further, the hub and spoke model enables us to strategically expand into adjacent markets, allowing for faster market penetration and higher scalability. Some of the key takeaways before I hand this off to Nicole is that we're going to continue to employ rigor and discipline into our capital deployment activities through a commitment to continuously advancing our technology to achieve all efficiencies I've touched upon.
We're going to use MRFs as magnets to thicken our revenue stream and create stickiness with our customers, really embracing our relationships and providing value-added services. We're able to use our facilities to drive growth in other lines of business, such as expanding our collection business into adjacent markets. We're going to continue to maintain our first-mover advantage in Canada and target markets in U.S., positioning ourselves as one of the leading innovators in recycling and recovery while expanding our footprint in key areas. Nicole is going to highlight some of the successes in EPR, but again, I'd just like to emphasize that this is an emerging trend we've been following for quite some time, and we will take the same discipline and specialized approach while monitoring and embracing emerging trends to ensure we are always putting ourselves in the right position at the right time. Thank you.
Tough act to follow. Hi, my name is Nicole Willett. I'm Vice President of EPR at GFL. As Steven mentioned, our recycling line of business has many strategic thrusts. One of which is EPR or Extended Producer Responsibility. Before we go into what this means to GFL from a performance perspective, I'd like to ensure that we're all aligned on what EPR is. EPR is a legal change in financial and operational responsibility of recycling collection, processing, marketing, long haul, and transfer from an individual homeowner, municipality, or city to a producer. By a producer I mean a consumer packaged goods company or a beverage manufacturer. EPR legislation varies from state to state or province to province, and also varies in terms of timeline, covered entities, and covered commodities.
Sometimes we will see in some legislation that only a residential home is covered, or in others we'll see that it also includes commercial business, multi-res, schools, public spaces, and long-term care homes. Of course, we're likely going to see in the legislation commodities such as plastics, glass, aluminum, and cardboard, where in others we see harder to recycle material like flexible packaging and glass. When a jurisdiction passes EPR, they set something called a recovery rate, or the amount of a certain material that needs to be recovered out of the system, or they face potential consequences from the regulator. An example of this is in Ontario, Canada. By 2030, 80% of the beverage containers have to be recovered or those manufacturers face potential consequences. This is extremely favorable for GFL's highly robust and advanced recycling technologies.
Because every beverage manufacturer is not going to send a truck to homes to collect their individual basket of goods, they hire something called a PRO, or a Producer Responsibility Organization, who is a consortium and helps manage the logistics for every producer. Now that we're all experts on EPR, let's talk about where EPR is. EPR is not a new concept. It has been fully implemented across Europe and parts of the world for decades. As you can see, North America is a late adopter of the initiative, and Canada has passed legislation in almost all provinces and is in the process of transitioning between now and 2027. You'll see that five U.S. states have passed legislation, however, they haven't started the transition yet. You'll see that there are a number of others that have EPR legislation tabled.
As we can see, we are in the early stages of EPR. Let's now talk about what an EPR contract looks like. These awarded EPR contracts are highly. We use our first-mover advantage, given our market expertise, strategically located vertically integrated asset base to secure these 10-20-year contracts with fee-for-processing models at highly, including annual price increases at high margins. As you can see, GFL continues to be well-positioned for EPR growth, and the contracts that we're speaking about will have an incremental adjusted EBITDA contribution that ramps into 2027. You may be wondering how we took a really advanced, highly complex concept and legislation and translated into real dollars for GFL.
As momentum grew around EPR legislation, GFL leveraged our experience as the only operator of a fully implemented EPR program in North America through our contract in British Columbia, where we process the recyclables for the entire province. We took our expertise and playbook and engaged directly with producers, policymakers, and elected officials. We knew what worked and what didn't work at the curb, and we collaborated with these policymakers to ensure successful legislation. Through these discussions, we listened to what the needs of the producers and lawmakers were, and we explored creative solutions leveraging existing assets and infrastructure. Since municipalities are no longer typically part of EPR legislation, we partnered with PROs and understood what their complex needs were and how we could use our first mover advantage to help them.
We priced contracts to reflect capital investment and return thresholds required and ensured that contracts also include performance-based financial upside. As hard to recycle goods found their way through EPR legislation, we developed innovative solutions to hard to recycle packaging, demonstrating our commitment to meeting producers' obligations in creative ways. What was a bit unexpected, but is now starting to develop, is that we're starting to see adjacent opportunities that are presenting themselves in jurisdictions where GFL is the EPR service provider. I'd like to walk you through a quick case study in the city of Toronto, where GFL has successfully expanded our recycling operations through EPR. This case study depicts a clear example of how EPR can create opportunities for GFL and enhance our business performance. As you may know, the city of Toronto was one of the base contracts for GFL when Patrick started the business.
That we are pretty near and dear to all of our hearts. We are already the service provider to part of the city for collection, and we process most of the recycling in the city. Through our intricate knowledge of the City of Toronto collection contracts and operations and experience operating performance-based contracts, we were able to leverage this knowledge and expand our footprint in the city of Toronto across collection, transfer, long haul, and processing lines of business. Furthermore, because of the specific EPR legislation in that jurisdiction, we expanded collection to schools, multi-residential buildings, public spaces, long-term care homes, and retirement homes. Also because of that legislation, which includes an expanded list of commodities, the amount of recyclables that are in the containers once EPR legislation passed, has increased. There's more materials now in the entire recycling system in the city of Toronto.
Finally, we're not done. Further opportunities remain today in the city of Toronto. As you can see with this case study, EPR can expand the portfolio of service and the work that we currently do in communities. As EPR legislation continues to roll out in North America, we can utilize this model through the over 600 municipal contracts we currently service. What does this all mean for GFL? We estimate that our overall recycling opportunities will contribute an estimated CAD 130 million in adjusted EBITDA by 2027. This estimated CAD 130 million in adjusted EBITDA by 2027 does not include the potential upside in our recycling contracts, nor the robust pipeline of additional opportunities and internalization. As you can see from the timeline at the top, we continue to ensure that our infrastructure is well-positioned for EPR and internalization of recycling tons.
This EPR journey started in 2019, and we have a refined strategic playbook that we continuously shape. As EPR legislation worked its way through Canada, we ensured that our technology was ready to support the legislation. As you leave GFL Investor Day today, I'd like you to remember four quick things about EPR. One, we are in the early innings. Further opportunities remain in North America. Two, recycling opportunities are contributing highly accretive margins to our business. Three, EPR is complex. Our experience and proven track record shows that we can continue this path forward. Four, EPR legislation can expand the recycling services in a jurisdiction more than what we do today. As we said, we're in the early innings of EPR, and I believe we're just getting started. With that, I'd like to introduce Jen Ahluwalia, our Senior Vice President of Renewables, Environmental Responsibility, and Sustainability.
Thank you.
Good morning. My name is Jennifer Ahluwalia, Senior Vice President, Environmental Responsibility, sorry, Renewables, Environmental Responsibility, and Sustainability at GFL. Today I'm going to talk about our sustainability program, and I'm also going to provide a brief update on our RNG portfolio. Sustainability at GFL has always been about prioritizing initiatives that are relevant to the business, and that are also capable of driving positive environmental, employee, and community outcomes, and then most importantly, positive business outcomes. The most impactful initiatives that we've identified for our business are the ones that we talk about in our sustainability action plan. Also, it's important to know about our approach to sustainability is that it's embedded in all parts of the business. The presentations from earlier today illustrate this well.
Ben talked about employee turnover, and clearly that there's a positive ROI from continuously improving our safety performance and pursuing higher employee engagement. This is why these two metrics are goals and targets in our sustainability action plan, and of course, why safety is one of our core values. Equally, from the solid waste fleet conversion initiatives that Ben and Matt both discussed, shifting our fleet to CNG engines not only provides an opportunity for meaningful margin expansion for us, it also contributes to lowering our direct greenhouse gas emissions. Another example is our incremental growth opportunities. This really connects to the strong, stable, organic growth aspect of our overall business strategy. Nicole and Steven just walked through how important recycling services are to our customers and their efforts to meet their environmental responsibility and sustainability goals.
RNG has the same benefits and also helps us reduce our own GHG emissions, and both pretty strong adjusted EBITDA returns. There you go. We have a full suite of sustainability-related goals, which are available in our latest sustainability report, which is posted on our investor page late last year. This report also highlights the progress that we've made in achieving these goals and targets. What you see on the slide behind me, though, is our climate-related sustainability targets. Our climate strategy really has two aspects to it. First, what we do to help our customers reduce their emissions, and then second, what we're going to do to reduce our own emissions. The last two targets on the page are tied to our strong, stable, organic growth opportunities, so RNG and recycling, and then everything in the middle underpins our overall greenhouse gas reduction target.
This includes the beneficial use of biogas and the projects we're developing to capture more gas at landfills, which will ultimately reduce our emissions. The last thing that I wanted to draw your attention to on this page is the 30% in our overall greenhouse gas reduction target. In December, we increased that greenhouse gas emissions reduction target to a 30% absolute reduction in total scope 1 and 2 emissions by 2030 from a 2021 base year. That's a doubling of the target that we originally set in late 2022. The approach that we use to identify our increased target is derived from separate science-aligned pathways for different types of emissions that are generated in our operations. We're the first in our industry to adopt this type of hybrid approach to setting targets that's aligned with multiple key science-based assessments.
While all that's on this slide is a bit technical, I thought I'd share with you how we developed this approach that we're using. Rewinding to 2021, we doubled our landfill portfolio through several acquisitions that we'd made in the U.S. Given that growth, and that we're in the early stages of putting our landfill gas capture and beneficial use initiatives in place, we decided to set an initial target to reduce our combined Scope 1 and 2 emissions by just 15%. Whoops. Didn't mean to do that. Can I go back? Yes, I can. At the same time, we shared how we wanted to set a target that was science-aligned, and there was a lot happening on that front at the time.
Through our active engagement with our waste industry peers, NWRA and EREF, which are two major industry associations, we were already working on updating emissions monitoring and modeling methodologies. We decided to really dig in on these topics, and not only did we contribute in a meaningful way to our industry understanding, as a whole, of understanding landfill emissions modeling and monitoring, that deep dive also gave us the confidence to set an updated target. Also occurring between 2021 and 2023 was the release of the Global Methane Assessment. This ultimately led to what's called the Global Methane Pledge. This body of work provided much more relevant information about landfill emission reduction pathways than any other research that had been released to date. This gave us the confidence in the integrity of the 30% methane reduction target, which ultimately makes up our overall 30% reduction target.
Something that we've said many times is that we're relatively new in our sustainability journey, and our approach of steady and thoughtful progress has resulted in an industry-leading approach to target setting, which we're really quite excited about. We believe that this target is science-aligned and intend with a third party to confirm our alignment in the coming months. Something else we wanted to highlight, which is on this slide, is our progress to date in achieving our overall reduction target. When we first set our target, we also shared our anticipated pathway, so what it would look like or what the trajectory from getting from 2021 to 2030 would look like. What we expected in 2023 was that we were going to be at around 1%-2% of that 2021 base year.
Accounting for acquisitions and divestitures, as well as some other adjustments, in 2023, we're really pleased to report that we're 5% below our 2021 target, and that really puts us ahead of our anticipated pathway. How did we get there? Purchasing renewable energy certificates made up a small portion of that overall reduction. We did that to offset our total electricity consumption in the U.S. We met our goal, like Matt talked about, of 50% of the replacements of our fleet being CNG vehicles, and we used 60% in our U.S. fleet of RNG in those CNG vehicles. Lastly, and most significantly, that contributed to that overall reduction is that we reduced fugitive emissions from our landfills. We did this through improvements in our gas capture systems at our landfills and investments in the related development of RNG facilities. Our RNG portfolio update.
I'm not going to go into a lot of detail on this. Patrick and Luke have really spoken about this a lot on investor calls over the last few years. To reiterate the scope of the opportunity, at the end of the last year, we had 4 RNG facilities flowing gas into the pipeline, and this includes our latest RNG facility, which is our largest at the Arbor Hills landfill. We expect these 4 projects to contribute CAD 50 million of adjusted EBITDA in 2025, ramping up to CAD 75 million of adjusted EBITDA contribution in fiscal 2028 as additional well field improvements are implemented at these sites. At the moment, our first 4 projects are selling into the transportation markets. Longer term, our strategy is to move 60%-70% of our portfolio to fixed contracts, as production stabilizes.
We're in various stages of developing another 15 projects, and our latest view on the overall RNG opportunity is that we expect to see contributions of another $100 million of adjusted EBITDA from these projects for a total run rate in fiscal 2028 of $175 million. This would be from a platform of 11.5 million MMBtu. I think that's it for this sort of pre-morning session. Now there's a bit of a break. Is that right? Thank you very much.
Now we will take a 15-minute break.
You do it for the joy it brings. You're a joy, oh, girl. The world owes me nothing. We owe each other the world. I do it because it's the least I can do. I do it because I learned it from you. I do it just because I want to. Just because I want to. Everything I do is just, and mostly they get it wrong, but oh well. The bathroom mirror has not burst, and the woman who lived there can tell the truth from the stuff that they say. She looks me in the eye and says, "Would you prefer it the easy way?" "No." "Well, okay then, don't cry." I wonder if everything I do, I do instead of something I want to do more. Questions fill my head. I know there's no grand plan here. This is just the way it goes.
When everything else is unclear. I guess at least I know. You do it for the joy it brings. Because you're a joy, oh, girl. Because the world owes me nothing. We owe each other the world. I do it's the least I can do. I do it, I learned it from you. I do it just because I want to. Just because I want to.
Ladies and gentlemen, please take your seats. Our program will begin momentarily. Please welcome to the stage Craig Orenstein, Vice President of Corporate Development.
Thank you. Welcome back after the break. Hopefully everyone is caffeinated for this next stage. I thought it would be useful to start this second part with a quote by Jack Welch, "An organization's ability to learn and translate that learning into action rapidly is the ultimate competitive advantage." With that in mind, let's explore our history of M&A and how strategic acquisitions can drive sustainable success. Execution of the illustrated track record has generated exceptional results as M&A fits well within a clearly articulated and demonstrated strategy of organic growth, margin expansion, leverage reduction, and long-term sustainability. As a company, we have employed a deliberate and continued investment in technology, creating a solid foundation and one which can absorb and interpret data.
Having now built our digital foundation with scalable systems, together with significant investment in corporate development and integrations, we are uniquely positioned to build and execute on a deep pipeline. We now boast an established M&A platform with a proven acquisition track record as an acquirer of choice with significant momentum. The velocity of acquisitions has steadily increased within the framework of a disciplined execution approach, with capacity and capability to execute on 30-50 transactions annually and spend capital between $700 million and $900 million. 2024 was a year of portfolio optimization. Within a higher interest rate environment, the business was focused on de-leveraging our balance sheet, balancing our capital allocation between M&A and other high return growth initiatives, including EPR and RNG.
While acquisition deal flow was lower, we were highly successful in our divestment of our environmental services business, which the corporate development team was intimately a part of. Notwithstanding, we continue to build a pipeline as we head into 2025. As we return to higher activity levels, we do so in an environment within GFL with lower execution risk across the platforms spread across U.S. and Canada, and without the burden of actively being concentrated in any one market at any one time. From a market perspective, the North American solid waste market is estimated to represent $80 billion of revenue, with just over half controlled by the public company set. We estimate the addressable market to GFL within our existing footprint to represent approximately $10 billion, split 75% in the U.S. and 25% in Canada.
We are well situated to capitalize on an industry experiencing continued consolidation. Owners do not have a good succession plan or an exit strategy. We have shaped and defined a reputation in the market as an acquirer of choice and believe that that positions us extremely well. M&A is one of the activities that we do best within a returns-focused capital deployment strategy with mid-teens plus ROIC returns. We are positioned for success with a corporate development team that is multidisciplinary and has expanded alongside our partners in integration. Together, our capacity for deal-making has increased with experience and tenure while simultaneously lowering the risk from execution of an M&A strategy. Further, the importance of alignment and collaboration with the broader GFL executive team cannot be understated and brings together multiple disciplines.
With a shared vision and a deliberate purpose, from an initial term sheet through diligence to final documentation, functional areas across the business contribute and collaborate to ensure a process that is disciplined and results-oriented. Over the past 24 months, I've been intimately involved in the regional strategic planning process, helping to shepherd strategic development. Across each region with area vice presidents, regional vice presidents, sales teams, financial partners, and others, we've created an environment to evaluate strategic themes with three objectives. Directing resources to markets that can deliver the highest return on capital, developing strategies within each local market to best position GFL to compete, grow, and defend, and to ensure alignment among key functional groups within GFL with regional strategies, including M&A. We have experienced unwavering efforts to reach full strategic and financial potential.
Understanding the strategic position of each local market helps to inform our continuing evaluation of opportunities. With the passage of time, we now have a framework for continuing reviews to revisit strategic positioning, strategies and initiatives, and to align on priority strategic acquisition targets. Importantly, we have established a connective tissue between market development and operational execution. Our footprint in Wisconsin highlights the continued execution of these strategies and the combination of asset quality, densification, vertical integration, and execution. In 2020, we acquired a portfolio of assets through the divestitures of Waste Management and ADS, which have now evolved through more than 10 acquisitions into a fully integrated platform, complementary upstream and downstream lines of business, providing strategic advantage. The platform now supports additional capital investments in initiatives such as RNG and recycling.
As Steven demonstrated, the size and scale of the market that we have built supported the investment in a new material recycling facility, which allowed for the internalization of tons that we previously directed to third-party processing facilities. Our growth within the market aligns with the pie chart on the slide. The theme of executing against a pipeline primarily representative of tuck-in acquisitions is evidenced therein, which shows that 84% of our deals completed in the last several years were categorized as having an enterprise value of less than $30 million. Within our footprint, there's significant strategic value to be captured through the pursuit of transactions without regard for size, which often includes small family-run operations. Finally, to note, the execution of our M&A strategy has benefited from an advanced, repeatable due diligence process.
The quantum of deals that we've completed have allowed our business to evolve a due diligence process to be best in class, and includes the development and now consistent application of controls, processes, and procedures, including SOX audit and compliance controls. We've consistently demonstrated a track record of value creation. Strategic accretive acquisitions can drive significant growth and strengthen our market presence. Results are overwhelmingly positive. Our historical activities have benefited from meaningful densification opportunities, building out our collections to feed the transfers, to feed the processing facilities and landfills in a vertically integrated manner. Excluding platform acquisitions, we have historically completed acquisitions at an average adjusted EBITDA multiple of 7x. The illustration on the left walks through the value creation path, beginning with acquired EBITDA.
Numerous levers are available to the business to reduce costs almost immediately following an acquisition, ranging from optimization efforts to cost rationalization and disposal internalization. Our confidence to underwrite against these synergies is high and translates into high-margin, accretive post-synergy adjusted EBITDA multiples that are reduced by 25%-30%. This multiple reduction is further supplemented by often meaningful opportunities from pricing and cross-selling opportunities, offering additional services across the value chain. The illustrative example of ROIC over a 5-year period assumes that GFL deploys $750 million of capital on tuck-in acquisitions per annum. Acquiring $100 million of annualized EBITDA and $400 million of annualized revenue assumes a 25% margin and capital intensity of 7.5%. As we just discussed, a proven framework for synergy realization and full integration will improve adjusted EBITDA margins significantly and grow free cash flow through the first year by in excess of 60%.
Assuming a 7.5x acquisition multiple and the referenced acquired free cash flow profile. Acquisitions are executed at 7.5% unsynergized, 12.3% synergized yield, increasing to 15% in year 5, representing a conservative and desirable result accretive to GFL. Julie Boudreau is next to present. Julie's been with GFL for 11 years and is the Chief Transformation Officer. Julie's played a critical role in shaping our success and has demonstrated leadership, vision, and an ability to manage complex challenges, and has been instrumental as a partner to my success as well. Julie.
Thanks, Greg, for that wonderful introduction. I'm going to talk to you today a little bit about the transformation group, what we're all about, and our roadmap over the next couple of years. It's important to mention first that the teams within the transformation group have existed for some time at GFL. We've just recently pulled them in under one umbrella to make sure that we're all working in lockstep to deliver the enterprise initiatives for the business. We're going to start with the integrations team. I spoke a couple years ago to you about the integrations team and what we do. Sorry, can you guys still hear me? Yeah. Okay. We still have our M&E SWAT team doing the integrations, applying our integration formula to every single acquisition that we do.
Their goals are to integrate as quickly and as seamlessly as possible so that we can capture that return on invested capital as quickly as possible. Next, we have our business process transformation team. That's a group of individuals that are Lean Six Sigma certified individuals. They work with the business, both operations and the back office, to identify those business processes that are basically right for optimization. They're very much focused on getting to a seamless GFL one way of operating. The optimization includes either re-engineering, retraining or automation in many cases. We also have our enterprise transformation team. This team leads all the enterprise initiatives at GFL. They plan, they resource, they change manage. Create a movement, make me care, and help me learn. They train, and then they execute. Think of this team as the go-to-market team for the enterprise initiatives for the business.
All the leaders in this team have a lot of knowledge of the business, and they also have a lot of experience running enterprise projects. Transformation. Talk a little bit more about that. At GFL, transformation is really part of our fabric. It's part of our DNA. You've seen before, we've done 270 acquisitions to date, 240 of which I've been lucky enough to be here for. We've executed successfully on large separations. At the same time, over the last several years, our IT team has been working to modernize our systems. We're now in the cloud. We utilize data lake technology. We're well down the path in our AI technologies, which you've heard about in the prior presentations. We will talk a little bit more about that in the next slide. We've also implemented scalable ERP systems very smoothly at GFL.
We have the team, and we have the digital foundation, and now we're going to be harnessing that value out of those systems. A little bit more specifically, what do our initiatives look like? We have a multi-year roadmap. It's very much front-end loaded in the first 24 months. One of the major initiatives that we're working on is the rollout of our consolidated operating system and the integration of that into our data lake. What is that going to do? That is going to provide us with real-time visibility on our customer and operating trends, and it's going to provide visibility to our ops leaders to make up-to-the-minute decisions for their business. It's also going to support our price increase strategies and our ancillary charges strategies. AI, again, you've heard about AI in our customer experience and in our recycling initiatives.
We're also implementing AI for our recruiting efforts. It's going to save a lot of time as we're capturing that potential employee interest very quickly as they visit our career site. We're also going to be rolling out a program for our office workers. AI is the great simplification tool and acceleration tool. We're going to systematically teach our system users how to effectively use AI to accelerate their tasks. Finally, the LMS, which you heard about from Ben earlier. We're continuing to migrate our training programs onto our LMS. Doing great stuff. Employees that feel that they're invested in are employees that feel valued and stay at GFL. With that being said, I'm going to leave you with a couple thoughts. Think of transformation as the bridge connecting the islands, a GFL for all enterprise initiatives.
Just the last thing I'll say is every single one of our initiatives that we're working on are directly connected with the pillars that you saw in the prior slides. We're working to perfect a platform to create that value for the operations. Thank you very much. Next up is Luke Pelosi.
Hearing from everyone, all of my colleagues, I realize I'm woefully unprepared. They had very nice, articulate speaking notes, and I have a couple bullets on this page. Prior to us starting today, I was catching up with Tyler Brown from Raymond James, and what he said, he goes, "I hate coming to these things and all it is is just the CEO and the CFO up there talking. Who wants to hear that?" I think he's right, because part of this, we have an extremely compelling, easy-to-understand sort of growth opportunity here that I'll go through some of the pages on. I think even more exciting is the people that are going to execute that.
I get a lot of time to talk with all you folks, but I'm really just summarizing all of the great efforts and accomplishments of all the people that you're here hearing from. Part of our key focus and desire for this is for folks to walk away and understand the quality and depth of bench of the folks that actually do all of the stuff that I come and explain to the financial results thereof. I wanted to put together a deck that just showed these opportunities and then summarize it. This is the financial outlook section that I'm going to walk through. As you can imagine, a deck like this getting put together, there's all these back and forth and reviews and comments, et cetera.
At one point, I asked Hamza, I'm like, "Hey, Hamza, send me the latest sort of review, where are people at?" I get this email forwarded over to me, and I'm reading it, and it's talking about a number here. Then there was a bullet that said, "We're going to update Luke's picture, right?" Then I was caught off guard a little bit. I'm looking at this picture, and I don't know if it's because I have one button too many undone on my shirt, or if it's because that picture, I have none of the gray hair that I have today, and they just thought it was sort of misrepresented. The gray hair that is here, that picture was right before the IPO. I can conclude one of two things.
Either one, for the last five years, dealing with you all has done this to me, or two, it's trying to keep up with Patrick, Mr. Dovigi, and all of his plans. Patrick is a force. The irony, when he told me, he told the story when we met, and we sat down, and I joined to do M&A. I asked him at that time, the business was $80 million of EBITDA with a five-year plan to go to $160 million. I said, "Is going to be enough M&A to keep me busy? I get a good thing going over here." He sort of laughed and he said, "Don't worry, sir." Sure enough, he was right with the opportunity.
One way or the other, I've ended up sort of old and gray, but I get to summarize, really bring together everything that the team just described today. It goes back again to these simple key strategic pillars, right? This is what we think is the sort of outlook in terms of equity value creation opportunities in front of us. They've been touched on, so I won't read the words on the page, but I hope the idea was to illustrate how everything that we do is tied back to these key tenets of what we believe to be long-term sort of successful equity value creation strategy. The starting point, let's look at the guidance. In our earnings press release this week, we put out our fiscal 2025 guidance. We've lined this up against the 2024 pro forma, if you will.
The RemainCo that we have today. I'm pretty sure when I do the math and I compare to the industry average, this is industry leading across the board. You can see a top-line growth of mid-single-digit or better that then translates to a 20%+ free cash flow growth down at the sort of bottom. One of the things that we have come to realize in the public markets is people would much rather have you sort of beat and raise than put out a really lofty expectation in the beginning of the year and then come and achieve that by the end of the year. It doesn't seem to get the same outcome. As Patrick said, we've learned a lot over the past five years, and I think that's one of the things that we've learned as well.
We think this is a good guide that again demonstrates industry-leading results. We do see multiple avenues for potential upside as we articulated on the conference call. Additionally, this guide has no M&A. You heard from Craig and from Patrick, we have a robust pipeline of opportunities, and all of that will be additive. There will be M&A, and that will add to these sort of numbers that are on the page. We don't really want to talk about just the 2025 today. We're really here for the sort of multi-year outlook. When you think about that, we had this page or similar to in our prior investor day, but we believe it sort of really accurately or concisely summarizes what we view to be the sort of GFL opportunity.
It starts with a great industry, and I think the industry has never been in a better place in terms of sort of opportunity as it goes forward. With a waste asset of scale, there's a very predictable sort of growth algorithm that comes out of that. It's shown on the left-hand side of the page here with a mid-single-digit top-line growth that with a little bit of modest EBITDA margin expansion, you get mid-single-digit to better at the EBITDA line, and then that translates to a high single-digit free cash flow CAGR. I think that's the industry pretty tried, tested, and true and demonstrated from the large peers, the consistent ability to deliver in and around those ranges organically.
We take a very compelling industry algorithm, then look at the GFL assets, which I would say we've been able to assemble an asset base that's best in class, really predicated on market selection, as well as then the team that we have to utilize those. We add to that the incremental opportunities. Now, as you can imagine, we highlighted four or five buckets of opportunity here today. There's numerous other initiatives that are obviously being worked on constantly that we believe will drive incremental additive return in addition to what we said here. The idea was, let's just summarize four or five very easy-to-understand tangible levers that are actively being worked on by the folks that have done these exercises at other shops and have demonstrated very predictable outcomes.
Just summarize with those, and if you take that and add that to that industry growth algorithm, you can see this GFL organic growth in the middle column, and we just think we have this unique idiosyncratic right to do better than our peers by virtue of the realization of those opportunities. You end up with this organic that's a little bit better than an already very compelling industry growth algorithm, and to that, you add M&A. For all the reasons Craig and Julie discussed, I think it's an area where we've demonstrated our expertise capabilities and one where we see a lot of opportunity to continue on a significantly lower risk profile than what we had before.
If you take that and add that to our organic growth algorithm, you get the far right column, which we feel a high degree of conviction on this ability to execute growth rates at this that I think tend to be significantly higher than what the industry average otherwise is. Taking that page and summarize, I'll go back to Tyler Brown, who loves to tell me that bridges that we sometimes do in our decks are a great way to articulate the story. Again, the idea was to set out some collateral that folks, either existing followers of GFL or net new names, can pick up and understand the growth story. We thought that this page very well summarizes it. You're just taking a handful of very simple building blocks. Patrick summarized the EBITDA page. This is the revenue version thereof.
It just simply says, take the $6.5 billion of revenue we've guided for in 2025, and to that, add on the sum of the things we've talked today. Talk about organic growth. 5%-6% top-line growth, industry average type numbers. You could assume in there a pricing number of a mid-fours to mid-fives and a volume number of a zero to 50 basis points. Each year will be something different, but we feel a high degree of conviction that over this frame of reference period, you could achieve growth rates organically on the top-line in and around that range. To be honest, if 2025 or 2026 is not greater than that, we would be disappointed. Just for sort of conservatism, that's what we put out on an organic growth perspective. Add in tuck-in M&A.
You could go, I think on this page, we're saying you buy $300 million-$400 million of revenue a year, and I think it's a very achievable level that the team is capable of executing on and the market opportunity more than supports. If you go and buy that and assume you buy that revenue and then that grows at that same organic growth rate, you would add on that roughly $1.3 billion-$1.4 billion incremental revenue. You take EPR and RNG between Steve and Nicole and Jen, they laid out what that looks like. High degree of conviction of those dollars coming into the system over the next couple of years, and that adds another $300 million. Then the self-help levers. It's a relatively small number on this page, but it's more an EBITDA driver, which we'll get to on the next.
This is really that ancillary pricing opportunity. Again, if you think within context, our commercial book of revenue, about $1.7 billion-$1.8 billion, to think that you're going to be able to yield a 2.5%-3.5% incremental lift by implementing the same pricing program that all of our peers do. Again, think there's a conservatism baked into that estimate and an opportunity for upside above and beyond that. That shows a path to revenue, $9.2 billion-$9.5 billion. We like to focus on the profitability lines more, and so this page just then translates how those amounts will flow through to the EBITDA line. Again, same building blocks. What we would characterize as conservative assumptions. I look at the EBITDA line and think about that organic revenue of 5%-6% that we talked about.
This assumes you're realizing 40 basis points of margin expansion a year. For everyone who follows the industry, there's a lot of conversation about price-cost spread, right? You figure out your cost inflation, you price something above that, and that generates EBITDA margin spread. 40 basis points of adjusted EBITDA, that assumes a 60 basis points price-cost spread. That's effectively the math. I think we anticipate the 2025 number being north of 100 basis points of spread. Again, I think this is providing a lot of opportunity in the out years to solve for whatever sort of macro inflationary backdrop may be there. There's probably a good opportunity to do something better than this. The tuck-in M&A. Craig just walked you through what we believe to be a very compelling illustration of how the synergy value gets captured through years 1 through 5 of acquisitions.
If you bought something at mid-20s margin through those synergy capture, you can take that up to EBITDA accretive margins of low- to mid-30s. For simplicity, this doesn't assume any of that. This just says, "Hey, I bought $100 million, $115 million of in-year EBITDA through acquisitions and just keep it at 27.5% margin and then have that grow at the same 40 basis points that you're saying the regular business does." Again, the conservatism, I think our experience has suggested there's something much greater than that. But even if you take that very simplifying conservative assumption, you can see $420 million of incremental EBITDA to be realized through that level of M&A. EPR and RNG, again, the $175 million incremental doesn't give consideration, any margin expansion that will come out of that, or any improvement of RIN prices or outperformance of the $11.5/MMBtu that Jen spoke to.
Once again, I feel very confident in the ability to deliver those numbers. The self-help levers. Between Billy, Dan, and Matt walked through sort of $100 million-$200 million of opportunity. Again, each of those items, I mean, if you pick employee turnover, one of the examples. In there we're saying, "Hey, employee turnover today is 22%. You're going to improve it 500 basis points to 18% over the next sort of three or four years." You get roughly 14,000, 15,000 employees. If you improve the sort of five basis points on that's 700, 750 employees that you're now turning over every year. I think it was Ben or Matt that walked through the cost savings associated with an employee. I mean, there's the onboarding, there's the wages, the productivity, all the things that we articulated.
I mean, this is using a pretty conservative $30,000 number or $35,000 number. I think once you layer in cost of risk and productivity, et cetera, you could attach a much larger number to what that actual cost of that employee turnover is. Once again, I think there's an inherent degree of conservatism in that number that we're putting in. You could say the same for all the pieces, the CNG truck conversion, the procurement. Nonetheless, when you put those together, there's $150 million of EBITDA.
I guess where I'm going with all of this is, our hope is for folks to be able to understand very tangible levers available at our disposal that don't require us to hit a home run per se, but just rather singles and doubles execution, once again, led by teams of folks that have done this at our peers and learn from their mistakes and have the opportunity to do it a little bit better here. I think that backdrop would support doing something better than what the historical experience has been. Yet, I think what we're articulating here is something at a discount to what the historical has been. You put that together, you get a 17%+ EBITDA CAGR over this time period, and you're going to add sort of low- to mid-30s% margins.
Now, one of the things we were having a conversation before is at GFL, since we've gone public, there's been a lot of sort of boxes to tick. At first it was just too complicated. A lot of notes I saw this week after we put out our earnings described it and used the word boring. I guess we've ticked that box. It's no longer too complicated. We had a sort of leverage component. Well, as of Monday morning, we're actually going to receive sort of $6.2 billion of proceeds that are going to once and for all sort of deal with the sort of leverage and sort of tick that box. Last one, anticipate sort of is coming, is the free cash flow conversion, right?
Because it's still an area where we have lagged our peers and I think folks want to understand what that path to free cash flow conversion and what gives us the conviction in being able to drive improvement there. Give credit to Hamza, Murray, and the guys for putting together this slide because I think it very accurately sums up what we see to be the path to doing so and breaks it down into, I think, very sort of straightforward, understandable components. Along the left-hand side is really just the guide, and it shows how from adjusted EBIT of high 29s, you're going to walk to an 11.5% free cash flow margin or a sort of 38.7% conversion. It highlighted the components that drive that, right? Really against that, you have CapEx, you have cash interest, and then cash taxes and other.
Today, by virtue of the sort of leverage profile that GFL has operated with, we have operated with a cash interest burden significantly higher than our peer group. With the delevering, we are now going to embark on a path whereby our cash interest intensity is going to gravitate towards that of our peers. I think it's really that line item and that line item alone, once you get your head around some EBITDA margin expansion opportunities, which again, we're saying go from almost 30% to low- to mid-30s%. I think there's a real opportunity to sort of do better than the implied sort of 32% or 33% that the sum of all those opportunities suggests.
Once you can get your head around some EBITDA margin expansion, the free cash flow conversion is really sort of coming down to those sort of two cash interest and cash taxes lines. Because the capital intensity in these businesses is pretty well documented and understood. We're going to operate at an 11% capital intensity, just like our peers. We're going to have our cash interest materially moderate as a percentage of revenue as we go forward on this deleveraging trajectory. The one offset is going to be we're going to become a larger cash taxpayer, right? We've afforded, by virtue of all the leverage historically, we've had significant tax shield that has avoided us from having a full cash tax burden.
That's going to start to ramp, but not at the same pace at which the EBITDA margin is going to expand and the cash interest intensity is going to reduce. It's as simple as that. You put these things together, you can see a clear path to what will be a sort of mid-teens free cash flow margin or a mid-40s free cash flow conversion. What I'd say is that fiscal 2028 E column there, that doesn't even represent the sort of end state. I mean, if you think about the interest intensity, we will eventually look just like the peers. It's not going to be fully achieved by 2028, just by virtue of how some of that sort of debt will roll off.
That will continue to be a tailwind for the improvement of GFL's cash flow conversion that is afforded to us and us alone as our peers are already enjoying that sort of lower intensity. The one other item I'd say is, this contemplates a significant step up in cash taxes as we're now a sort of full cash taxpayer in the U.S. This does not contemplate any extension of bonus depreciation or other sort of tax incentives that have existed over the last couple of years. To the extent that gets reinstated, the capital-intensive nature of our business, bonus depreciation would significantly temper this otherwise sort of ramp and sort of cash tax payable. The free cash margin and the free cash flow conversion would be significantly better than what's shown on the page, if that is to sort of transpire.
The other piece that I would say of all this, when you put it together, it yields a sort of free cash flow $1.3-$1.4 billion or better, a low- to mid-20s free cash flow CAGR from now until 2028. What's not said on this page is what's happening to leverage with this. As much as there's been a big focus on leverage, if you execute on this plan, this strategy that's laid out included buying the $700-$900 million of M&A a year, deploying that much capital, leverage at the end of 2028 on this plan would be 2x. Now, that's not a real outcome. Patrick has maybe agreed to join the public equity world in terms of where leverage is supposed to be, but I assure you it won't be two. What does that really mean?
There's incremental capital available above and beyond this for share buybacks and other incremental sort of returns to shareholders. That's not factored into here because it starts getting hard to estimate where the share price is going to be. If you're able to sort of grow free cash flow at a 20%-25% sort of CAGR and then simultaneously be reducing the share count outstanding by virtue of share buybacks, well, there's obviously a better sort of growth rate at the per share level available. Again, just reiterating the sort of de-leveraging that has occurred and the commitment to staying there, and then highlighting that the commitment becomes easier today because of the inflection point that's been reached on both an organic EBITDA growth and free cash flow generation.
You're able to deploy $500 million or billion a year into an M&A program and still sort of maintain leverage in the near term, the next couple of years, and thereafter we'll actually have to start deploying incremental capital through dividends or shareholder in order to maintain leverage at this level. Hopefully, I know we still need a couple of quarters, but we can stop having this conversation and we can start focusing on this incredible growth opportunity that exists within GFL. Capital allocation priorities, which have been touched on, we'll continue to do what we have done, focusing on high return organic initiatives, augmenting that with sort of M&A. As I said, now this third bucket that hasn't really been available to us before of incremental sort of returns to shareholders.
The one last piece that I'll clarify or articulate, we put out this morning in line with the sort of capital return to shareholders. Normal course issuer bid this morning was launched, that gives us the sort of opportunity to buy up to 28 million shares in the public market. We have said that with the proceeds of ES, $2.25 billion is earmarked for the repurchase of shares. It'd be roughly 36 million shares at yesterday's share price. The intention and expectation is the vast majority of that will be repurchased from our financial sponsors, and then NCIB will be there for sort of small degree of those total $2.25 billion to be purchased in the open market.
Last item I'll touch on before I bring Patrick back up for closing remarks is just the concept of index inclusion, not so much as what GFL is doing, but just in terms of what else is happening, sort of macro from the GFL stock that could have a material impact on GFL. Today, we are not included in any of the large indices, really being the TSX 60 in Canada or the S&P 400 in the U.S. The TSX 60 in Canada, there's less movements that happen in that than, say, the S&P 400 or 500, and therefore changes to index constituents are less frequent. However, there could be a path over the next sort of 3, 6 months where there actually is some changes happening in that index.
GFL, this is based on CIBC's index team and stock ranks, their expected most likely contender to enter the TSX 60 should 1 or 2 of the current members be removed. What it shows up is Fairfax Financial, an insurance company based in Canada, by far the largest from a sort of market cap or float cap size, but happens to be in a sector that our index is already very overweight, and they do have a mandate to try and have a bit more balance in terms of their sort of sector allocations. If they were to prefer an industrial, which is one of the larger underweight sectors, you can see based on CIBC at least, GFL is the highest rank likely sort of name to be included. There could be a rebalance or a change of constituents as early as March 7th.
There could potentially be another one on June 7th, so there could be potential for two opportunities for new names to be introduced. I think the idea is just to show that GFL is positioned very favorably to be sort of part of those potential sort of changes. Why is this relevant? I think index inclusion in and of itself drives more specific index demand. I think there's a perspective that in Canada, not only does it drive specific index demand, but there's a whole host of incremental shadow demand that comes from not necessarily pure index funds, but maybe those who very closely hug those indices. To the extent TSX 60 index inclusion is not there, you've heard a lot of sort of noises lately of Canadians that are contemplating sort of re-domiciling or other things to make themselves able to be U.S. index included.
GFL, we have a significant base of operations in the U.S. that eventually could be a plan sometime down the road if TSX 60 was never a viable option. Where we sit today, we think there's a very quiet all of a sudden compelling opportunity that could see GFL get included in Canada sooner rather than later. That's all I have. I'm going to bring Patrick back up for some closing remarks, and then I think we're going to open it up for some Q&A.
Yeah. Just in summary, again, keep it brief, keep it quick, and we'll open it up for questions. I think the story from here is pretty simple. Again, five really key messages from my perspective. Again, what you're going to see from us over the next three years is obviously industry-leading adjusted EBITDA growth. Again, clear path from our perspective to move free cash flow conversion towards the mid-40s. Again, as you've seen from Luke and what the budget presented was 38.7. Obviously, our expectation is to under promise and over deliver. Our internal target is that we want to hit 40 this year. Again, balance sheet leverage, as we talked about. Again, we've taken all the necessary steps. We've taken all the pain over the last five years from the market. We get it. We understand it.
Leverage in the low threes, moving to investment grade, again, top of mind for us. Post-Monday, leverage won't be a thing for GFL again. Obviously, the re-ignition of what we've done best for the last 17 years. Again, looking at very strategic M&A with high returns on invested capital. Again, just a stronger free cash flow profile that we're now going to have with a de-levered balance sheet. Again, for the first time, we're going to be able to look at increasing dividends and doing share buybacks, which will all be beneficial to us as shareholders. With that, open it up for any Q&A that anybody has, and we'll move forward.
I'll give you some metrics.
Yeah.
I think Tyler has one. I think
Good. I'll let the record know I love CEOs and CFOs. Tyler Brown, Raymond James. Hey, couple clarifications first. On the $40 million-$80 million of pricing opportunities, is that just fuel surcharge capture, or does that include other ancillary pricing like bin overages, for example?
It's mostly ancillary charges. Our fuel surcharge program has been articulated. We are very successful in ramping that up. It's not fully there. Some of it was contractual that we had to wait for that to turn. We still see a small amount of incremental fuel surcharge as we're not fully there, but the majority of that would be the next leg of surcharge being ancillary. This is really focusing on one aspect of ancillary, and as you know, every month there appears to be new ones. We see a lot of opportunity there as we're just in the nascent stages of that.
Okay. I think Ben mentioned that 28% of the book is on a non-CPI restricted mechanism. Can you talk about and unpack what's in there? Is that water, sewer, trash? Is that just regulated returns, set increases? Just a little more there.
It's mostly going to be just fixed annual increases, Tyler. Sewer water, trash does not seem as prevalent in many of our markets as it is in some of the others. I think it's a Southwest coming across the country. We're a big supporter of it. We think it makes sense. We just haven't seen a lot of those opportunities in our markets.
doesn't exist in Canada at all.
Yeah. We do have a lot of, "Hey, we want you to be CPI." Well, we can't do CPI, but we can do 3.5%, 4% fixed, right? Now you have that type of restricted book. I think it'd be more of that than an alternative index.
Okay, my last one. I love the conversion chart, extremely helpful. Just to be clear on the cash interest leverage, does that assume that you do the 700-900, and what drives it? Is it coupon rates on investment grade? Is it just leveraging the overall debt stack? Can you talk a little bit more about that and just clarify that?
Yeah. That cash interest and free cash flow conversion lines up with the growth waterfalls we've had, so includes all that incremental M&A and that annual $800 million spend on M&A. In there, it's not assuming you're getting a better coupon rate. It's taking your current debt stack, but it really is just the leveraging, the fact that the interest expense doesn't grow at the same rate as what the EBITDA is doing by virtue of this inflection point that's largely self-financing that M&A spend from your own free cash flow. Now, as we go forward and you get better borrowing rates by virtue of improved credit quality, that would all be accretive to what's happening there.
that's why you can see in there that end state that already demonstrates what we believe to be extremely compelling mid-40s free cash flow conversion is being achieved even with a cash interest intensity 100-150 basis points higher than our peers. Ultimately, there's no reason why we don't achieve that same cash interest intensity as our peers, meaning incremental upside above and beyond what's on that page.
Thank you.
Thank you, Jerry Revich, Goldman Sachs. Patrick, Luke, can you just talk about the M&A pipeline over the next year? Luke, as you pointed out, you'd probably do nearly double the M&A target that you laid out and leverage still be at around three. I'm just trying to put your comments into perspective on how you're thinking about M&A versus buyback going forward versus previously, because the economics for tuck-ins are really attractive. I'm wondering, is that a comment on, hey, maybe in five years there won't be one way to do over $1 billion a year of acquisitions? Or how would you counsel us to think about that allocation decision?
Yeah, I still think we have a good 10 years in front of us on M&A. I think from everything we're seeing, the needle really hasn't moved that much on M&A. There's a significant amount of opportunity within the existing market. Our addressable market in the U.S. is still probably $5 billion-$7 billion of M&A that we can do over top of the existing markets in the U.S. I think there's a long way to go, particularly in the U.S. In Canada, you look at Canada, a third of the market is consolidated today. We're the only operator in 10 provinces. The white space we have in Canada is significant. Although the deal sizes are smaller, the number of deals are a lot more.
I don't think from our perspective, spending, as we've said, somewhere between $800 million and $1 billion a year on M&A is a tall order. I think that's down the middle of the fairway, and I think we can do that pretty conservatively year in, year out for the next number of years. Obviously, on share buyback, we want to be opportunistic where the price is. Today, we see very compelling value in where the share price is given the opportunities that we see in front of us 2026, 2027, and 2028 in the plan we have for the next three years. Our anticipation is we're going to get those share buybacks, at least with the initial capital from the sale of ES, to get those done relatively quickly.
You'll see us as an active buyer in the market starting next week as well once we get OSC approval to buy back the large stake from the insider block. That'll happen relatively quickly as well. That can formally kick off when we get the proceeds on Monday, but we expect that to happen relatively quickly and buy back that large block of stock from them quickly.
Jerry, on M&A, as Craig articulated and you referenced, there's a lot of value creation in the tuck-in M&A, right? You buy at 7, 8 times small business, and then for all the reasons we articulated, it starts at mid-20s% margin, ends up low- to mid-30s%, highly accretive. You saw the return profile. Those small deals, those are our current capacity today as to how many transactions you're going to do in a given year. Julie and Craig are here. We like to close at month-end. 3 per month-end is comfortable. 4 starts getting a little less. It gives you 36-48 deals a year. Obviously, we could ramp up the sort of teams there.
If you're buying the 35-40 deals a year at that sort of $2 million-$3 million EBITDA, that's really what's putting the cap on the deployment, less so than the opportunities that what Patrick said, right? You do want to party. Sure. You can start buying bigger businesses and deploy more capital. Where we sit today over this reference period, we think the highest investor return is the small densifying tuck-ins that are going to feed our relatively underutilized post-collection assets. You're going to have a bit of a perfunctory cap just by virtue of that.
Yeah. Historically, we've done 1-2 larger ones a year, and then 35-40 smaller tuck-ins a year. That's been the normal cadence, and again, I don't think that's going to change materially moving forward.
Super. Thank you. Luke, can I ask just on your comment on post-collection assets that are underutilized, is there any significant part of your footprint that could benefit from declining reserve life? We've seen a number of relatively large landfills actually close. I'm wondering, as you look at the reserve life issues for the industry, is there a big pricing opportunity or potential rail opportunity for you folks as you look at your footprint?
Craig was talking on the sort of strategic market development initiatives that Bill and the team are doing, and it's exactly that, looking at areas with what the changing landscape is over the coming years and how our asset positioning may afford us an opportunity to have outsized wins. Patrick, I think about. We've highlighted in our prepared remarks Florida and how successful we were with that one asset in Florida and putting a network, but Miami yields an interesting example, sort of real time of opportunities such as that.
Yeah. I think Florida, the Carolinas, obviously various parts of Canada we see, again, the push to remove a lot of smaller landfills, regional landfills, to move to more super site sites that are managed properly, managing leachate, particularly around the PFAS-related issues. I think over time, you're going to see the EPA want to move away from the smaller landfills to move to more super site sites that all volumes are controlled properly and managed properly. You can put in proper infrastructure based on material volumes, right? I think that wave continues to come. I think it'll continue to come. Again, Florida's been a great market for us. Obviously, with the incinerator in South Florida burning to the ground and South Miami, Broward, et cetera, are looking for places to put a lot of volume. We're in process of permitting new facilities there, et cetera.
I know, I think there's a whole swath of opportunity across all of our markets, and I think we've really concentrated our bets on the markets where we think we can drive the highest returns. We've exited the markets where we don't. For us particularly, we didn't think there was a great opportunity, and we're now just doubling down on the markets where we think have the best opportunity.
Thank you.
Hey, thank you. This is Brian Butler from Stifel. Just to stay on the topic of M&A, when you talk about that $700-$900 annual deployment, that's a little bit down from in the past where you talked more around $1 billion. So is that just more of you guys under-promising and over-delivering scenario, or has something changed that kind of stepped that down?
I just think we're being conservative. Just under-promise and over-deliver. I don't think anybody in this room would say that we don't have a very good track record of getting more M&A done versus less. If you want to say CAD 1 billion, say CAD 1 billion, I'm fine with it. The decks are CAD 700 million-CAD 900 million, but model as you wish.
Sure. I just wanted to clarify. I guess on capital deployment, when you talked about CNG on the deck and going more aggressive on that, where are CNG vehicle prices compared to diesel, and how does that compare to maybe what your experience has been with electric vehicles and where they may fit in somewhere down the road?
Yeah, we've been down the path with the electric vehicles. There's a couple of markets, there's a couple of municipal contracts we're looking at today. Complicated, not simple, for sure. Power continues to be an issue. Now, they're looking at separating the bodies with the cab and chassis. I still think we're a little bit away from having a perfect solution at an economical price. We're still looking at prices north of $600,000 per truck on the electric side. We're still finding challenges with utilities that can supply as much electricity as we need to actually power those trucks, where then they're implementing natural gas generators to produce the power to basically put electricity in the trucks, which again, I think is defeating the purpose to a certain extent. That's evolving.
Obviously, on the CNG side, CNG trucks are still $60,000-$65,000 US more per truck. That's where it's sort of settled. At the end of the day, there's a lot of markets. Again, when we're looking at where we're deploying capital, we're deploying it in and around EPR and all these new municipal contracts that we've recently won, where we have 60, 70, 80 trucks in a facility. That's where you get the biggest payback the quickest, right? I think in 2026 there'll be a big turning point because we have a lot of municipal contracts that are coming on. We have a lot of EPR contracts that are coming on that require CNG fleets. You look at the City of Toronto. City of Toronto, we just renewed the District Two contract that we had, that we're currently doing for CAD 17 million, for CAD 37 million.
That requires CAD 37 million a year. We got basically a CAD 20 million a year price increase on that contract versus what we're doing it for today. We're converting that fleet to CNG. We're doing the entire City of Toronto for recycling now. All four districts in the City of Toronto under EPR, that's going to convert to CNG. The Region of Peel in Toronto, which is again another 50-60 truck outfit. Again, that's all converting to CNG. I think you'll see a big turning point next year in terms of CNG truck conversion from diesel, starting in 2026 right through 2027 and 2028.
Brian, on your M&A comment, capital deployment, the billion, just for what it's worth, I was talking about versions before and reviewing all just the versions. I'll tell you, there's one still sitting on my desk that said $800 million-$1.2 billion annual deployment. Since yesterday at 4:00 and today, it's not as if the market or the opportunity has changed dramatically. Just for what that's worth.
Yeah. Thanks. Chris Murray from ATB Capital. Billy talked a little bit about the mix between primary markets and secondary markets, so wanted to ask a couple questions. The primary markets, I guess, they're better than they used to be, but what are the opportunity sets in terms of being able to improve those? I also question, we go back to the last Investor Day and part of it was we're going to focus on tuck-ins, but there was also the talk about divestitures. When you think about the portfolio more broadly, are there other opportunities to shape it? Is there some white space maybe that helps take those primary markets and improve them in the near term?
Yeah, I think from a shaping perspective, I think you've seen all you're going to get, at least from us. There could be some small swaps that we do with some of the larger competitors. We're always having conversation with people to exit markets and enter them. But again, that's immaterial and to be honest with you, wouldn't even probably disclose. If you look at the primary markets, I always break up Canada and the U.S. differently because they are different. They operate differently. Again, if I look at Canada, there's really eight primary markets in Canada. The rest of it is a large secondary market. We tend to play in the secondary markets where owning landfills is less relevant.
Really just having significant, sitting at market density and being one of the only players in those markets, because there's not generally room for more than one or two in those specific markets, and we love those markets, and have done that for a long period of time. In the U.S., we're really focused around the post-collection operations that we operate. I think vertical integration in the U.S. is really important. Having those post-collection operations is going to drive ultimate productivity and incremental dollars and the highest returns on invested capital. We're focused on markets where we can vertically integrate both on the recycling side, transportation side, whether we're getting into the organic side or in the landfill side. We feel very comfortable with the post-collection assets we have in the U.S. now.
Now it's just about, again, driving just incrementally more volume into those facilities, which is going to yield the best return for all of us.
Okay, thanks. Maybe just a slightly different question, and this is maybe more for Luke, but let's assume that sometime in the next few months, you're probably going to hit an investment-grade credit rating. With the debt stack that's left, do you have any other opportunities that you can look at, be that a refinancing or any other triggers that maybe you could reshape the debt profile?
Yeah, Chris, great question. Just to clarify, what we expect is to have significant credit rating upgrades sooner than the next couple of months. Just to be clear, investment grade will still be sometime thereafter, right? If you think about S&P, we still have, we're BB minus, so there's two levels before hitting triple B. You think you'd get something next week upon the closing of the deal, fast-forward and execute for another couple sort of quarters, the next one up, but just still some time before investment grade. You'll start getting meaningful credit rating upgrades along the way. Your comment on the sort of pricing, GFL, for what it's worth, in the debt markets and some of our debt investors are here as well, already punches significantly above their weight, if you look at what our credit rating is.
In addition to that, we were smart or fortunate enough to refi a lot of our balance sheet during the lows of COVID. Right? We today enjoy certain bonds and stuff as well.
Should have done more and longer.
Hindsight is always good. We have, for instance, bonds that carry a 3.5% coupon, where if you were to go out and refinance that today, you'd probably be a couple hundred basis points, certainly above that. I think the opportunity today on the investment grade is less about actual near term reduction in coupon or spread, but more just in the improved perception of quality of the business and what that therefore affords us from a sort of broader shareholder or investor base as you start sort of ticking the box of what looks like.
Yeah. I think, again, going back to what Luke said, just we've always punched above our weight. I mean, listen, we've had a long track record with debt investors, 12, 13 years. That just proved itself again when we did the actual carve out of the ES business and we did that financing. If you look at that financing, that was the tightest LBO pricing ever done. That term loan was done at SOFR plus 250 today. GFL is at SOFR plus 200. ES has had 6 turns of leverage. GFL, at the time, has 4 turns of leverage. One would argue that the RemainCo is significantly more valuable or less volatile than the ES business. As those refinances start coming, I believe our debt investors will start looking to where they know the puck is going versus where it was.
I think we will price towards an investment grade credit rating regardless of whether or not we actually have that final stamp of approval from Moody's and S&P or Fitch.
Thank you. Chris, just to clarify, and then go back to Tyler, is that free cash flow conversion ramp that we have, that's not predicated on any sort of improved rating or whatnot. That's just sort of status quo with where we are today, and so any improvements would be sort of additive to that.
Thanks for the presentation. Kevin Chiang from CIBC. Luke, you mentioned when you run the free cash flow math, the pro forma leverage, that's about 2x. You have free cash flow optionality still. I'm just wondering, I guess, how we should think about the ES option in the context of your balance sheet and that 2x. Because I think the call option's in five years, but you have to exercise it or announce if you want to exercise it in year 4, which I think would be in about 2028 timeframe, if I'm correct. Would your intention be to manage that leverage maybe sub-optimally or below that 3x to have room for that option? Or is that, I guess, maybe that's just one of the levers you could look at in terms of that free cash flow optionality?
Yeah. If you actually ran the math, you're thinking about a repurchase of that business. You'd want it to sort of 4.5-5 years out from now. You're really talking about late 2029, early 2030. If you were thinking about buying that business back, yeah, you could dial back some other M&A, maybe slow down on obviously share repurchases, et cetera, in advance of that. There's nothing to suggest that maybe certain of those shareholders wouldn't take some equity in GFL to make sure that you would maintain the leverage profile where you wanted it. Again, the beauty of that transaction, it's fully our option. Worst case is I think we end up with another windfall of cash. Again, we have a further exacerbating the cash problem in a good way.
You have a lot of money to deploy into maybe larger scale M&A or again, material share buybacks, because those would be the two sort of options. We believe there's a path that conservatively take that business from CAD 500 million-CAD 550 million of EBITDA to closer to CAD 900 million to CAD 1 billion over the next 4.5 years. Particularly, again, with handcuffs off on the M&A front, that industry is really not consolidated much at all, and I think it's probably 10-15 years behind Solid Waste. I just think there's a great opportunity there and we can run that with a private equity type balance sheet without the hands managing the sort of M&A program at the GFL level. I think either way we win. It's just a question of what we choose.
4.5-5 years goes by pretty quickly, but it's still a long time and we have a lot of optionality, and I think that was the beauty of the transaction.
Kevin, just to Patrick's point, it's like 29, 30 consideration. Patrick mentioned M&A, but if you do that model that was on the page, you're a meaningful buyback of shares just to deploy the capital in those years just to maintain at three. Absolutely to your point, if you have the visibility, if you just tone down those buybacks because of the sort of deleveraging and therefore provides the sort of capacity to do so.
That's helpful. Maybe just one second question. EPR has been really successful for you in Canada, and I think part of that has been your first mover advantage kind of across the country. Is there similar opportunity in the U.S. to kind of get in front of what looks to be maybe a growing EPR legislative effort, and maybe especially in the blue states? Just looking at the map, there's obviously a lot of pending legislation. Is there similar opportunity for GFL in some of those states?
Definitely, but we'll be very selective based on regulation. Because again, I think ultimately regulation will drive proper behavior. I think at the end of the day, we've seen some states come with some regulation and then that's got flipped on its head with lobbying and other things, I think which is sort of less relevant in Canada. That's been the beauty of Canada. I think Canada actually deployed the right model, where you can be effectively, the producers can speak for 100% of the volume, which we think is the most important part, without the municipalities sort of interjecting into that. They can actually put the most efficient system together without politics. Right?
I think what's happening in the U.S. in certain states is, I don't think it's that efficient. If we look at Colorado, for example, it's going to a subscription model. How efficient is a subscription model in Colorado when you have multiple houses, you have maybe three, four, five, six different companies collecting recycling from the same street? That's not efficient, and I think from a productivity perspective, it just doesn't work. We're going to look at the markets in the states where there is proper regulation that we think actually drives the optimal outcome and achieves the objectives of the actual program.
Hi, thanks. Timna Tanners with Wolfe Research. I wanted to follow up on Luke's comments about the potential to re-domicile to the U.S. and just kind of get a flavor for the steps that would need to happen. If you don't feel like you have a path to the inclusion on the TSX or if there's other factors, how are you thinking about that decision?
I'd say right now we're not thinking about it directly for all the reasons I just said. It just seems it's very topical in the news, that there's a lot of others that are exploring it. I think what's come is some of the rules and regulations that exist within S&P around domicile today, I think perhaps they're evaluating is maybe integrated with global capital flows, and maybe it doesn't make sense. just to say, it seems like it's a topic that is front and center for many, and that may give rise to incremental opportunities sort of down the road should the TSX 60 not be. we're a Canadian domiciled company today.
Yeah. I think the ability to reincorporate doesn't exist. If you reincorporate, you'll automatically get index inclusion. If you don't reincorporate, then there's a whole list of like eight or nine tests that you actually would have to meet to get index inclusion. I think post-divestiture of ES, we would most likely meet the majority of those tests. We do think there is a path to actually getting there post the divestiture of ES, just given the amount of revenue we have in the U.S. versus Canada, and then the whole host of other lists. I think it's a path.
Personally, I think we'll wait to see how the next 3-6 months plays out and what happens with the rebalancing of the TSX 60, and then that's something we address sort of in Q3, Q4, and pick a path about which direction we actually want to head.
Okay, helpful.
Just specifically, we do qualify, like we meet all the criteria in Canada today. Like it's not debatable in Canadian qualification. It's just, is there a spot for us?
Got you. Thank you. My other question was about Canada. Keeping in mind that we don't know what tariff policy will be, and I'm not going to try to predict that, I don't think you have so much direct tariff impact if there were tariffs put on Canada. How do we characterize any risk, for example, of your customers that could be subject to tariffs or any risk to the economy from tariffs on your business? How would you characterize that? Thank you.
Yeah. I think on the business side, particularly on the capital side, right? Like that would be the immediate impact, and just identify when we buy trucks in the U.S., we obviously make trucks in Canada as well. The cab and chassis cross both sides of the border. How that would all work, I don't think anyone knows at the moment. So maybe there'd have to be a price increase put through for incremental cost of parts and capital. So that would be one side of it. Yeah, and then there's the macro perspective. What's the impact in Western Canada, and then I would say Quebec and the Maritimes less so. I think Ontario, obviously, with the auto sector in Ontario, there could be a macro impact if that happens. But again, I don't think that shuts off overnight. One, I don't think the U.S. has the capacity to do it.
At the end of the day, I think there's so much parts sharing, et cetera, that goes both across the board. I'm not even sure how practically they would actually implement that. Because I think the U.S. gets a lot of parts from Canada and Canada gets a lot of parts from the U.S., and the same goes for Mexico. I don't actually know. On the oil and gas industry, again, we don't have a lot of direct exposure to E&P, but again, would it negatively affect the macro environment in Alberta? Potentially, yes, but I think largely Alberta's been sideways for the last six, seven years anyways. Again, we don't have a huge exposure to the softwood lumber industry as well, and those tariffs have been going back to the first Trump administration back and forth. I don't think it'd be meaningful.
Potentially it could be something, but I think it should be a non-event.
Thanks. It's Konark Gupta from Scotiabank. Thanks for the presentation. Just a few questions here. Maybe first on M&A. Luke, I think you have a lot of runway on the M&A side for the next 4 or 5 years. Obviously, it might be also coming with some sort of challenges. Just want to understand the risk profile for those M&A transactions here. What's the biggest challenge you foresee in integrating these M&As, and how would you plan to overcome those challenges?
Greg and Julie. Konark, it's a great question and one that gives us our perspective on and gives us so much conviction in the path forward, that just from where we sit today, we think like execution risk has never been lower. Patrick alluded to this as an opening comment. Today, you're buying a 5-10 truck operation and tucking it into a market that has 5-10x that amount of vehicles with a team that's done this 10 times previously. The relative rate of change of what the impact of 5 trucks coming into a 50-truck operation is not nearly what it was 10 years ago when you were a 5-truck operation bringing in 5 trucks. Do we still stumble and fumble on integration and acquisitions? Sure. There's always something.
I think the experience we have and the relative size of the businesses to which we're tucking these into materially de-risks that integration risk that you sort of speak of. Additionally, not only de-risk, but the quantum of opportunity has never been greater. Just in terms of a cost takeout, if you think about integrating a 5-truck operation into a 50-truck operation. The quantum of cost takeout opportunity has never been greater, and the speed with which we can realize that has never been better. Craig, I think on his page, beautifully showed how you take a business that you pay 7 or 8 times for, and through this sort of handful of cost takeout, you end up owning it at sort of 4-5 times pretty quickly. Well, the speed with which you've done that has never sort of been better than it is today.
From our perspective, greater opportunity achieved in a shorter amount of time with a sort of lowest risk profile that you have. I mean, people often think about the larger acquisitions, "Oh, that's got to be more complicated." I think Patrick and Julie will be the first to tell you, those are often easier in many senses in that they're organized, they have their own resources, they have accounting systems, CFOs, all of these. It makes it easier to come into a large, organized, sort of business like ourselves versus some of these small ones. The small ones is really, I think Craig or Julie said 270 and 85% plus have been small. That is really our bread and butter and our expertise, and I think the relative size and capabilities of the team today have made that never better.
Even if you're growing your revenue CAGR somewhere between 5%-8% a year from M&A. The first 12 years of GFL, we were growing our M&A CAGR 35%-45%. I would say the relative contribution from that is very de minimis today versus what it was. From that perspective, that's not something that worries me at all. If anything, the business has gotten larger. You think about 300+ locations. There's a lot of locations that don't even get a deal in a year, right? If you ask the field, instead of doing 40-50 deals a year, they probably want to do 100-150. If you looked at everybody there requesting us to do something. Again, as Lou said earlier, the bottleneck is at corporate because we keep that very tight. The integration's done up top.
The M&A is all approved through one office. Legal is all done through one office, as well as environmental diligence, et cetera. Now, in the U.S. particularly, we've added reputational diligence into these, just given sort of our experience in 2016 with the Rizzo acquisition. We've augmented the process as we've moved along. That's not something I worry about ever.
Okay, that's great. Thanks. Last question from me. With respect to the competitive landscape, I think you showed a slide where you're showing pricing exceeding your competitors. Has there been a pushback from any of your customers or even any regulatory bodies kind of started looking into that? Or is that something that you see as a risk maybe going forward for the industry, not just you guys? It's just hard to imagine, like in a lot of industries, obviously, whenever we've seen pricing continuously growing that much, there's been some pushbacks.
Yeah. Listen, I think the industry is pricing at the appropriate levels to deal with the cost of risk that comes with the business now and the cost of capital to run the business. I think that's evolved over time. I think, this industry is a great industry where the largest industry participants are aligned in what those returns on invested capital should be. At the end of the day, none of us can work for free. We all have shareholders. It's interesting because I looked at the original City of Toronto bid when we bid that contract. You can go back and look at that bid because we said, "How did the price go from CAD 17 million a year when we redid our bid to CAD 37 million a year?" Same work, same et cetera. Now, a truck in 2010, 2011, when we ordered those, were CAD 200,000.
Today, that same truck is $525,000. Labor. Labor is up 50% from where it was sort of 12 years ago. Cost of risk is 2 to 2.5x what it was. You sort of start layering all these things. I wouldn't say like our margins as an industry went from high 20s to 45 or 50 because we were being piggish on price. Margins are moving up 50, 60, 70 to 100 basis points a year. That's just what we need to manage the price over cost spread to earn a proper return on invested capital. Our customers recognize that. It's a tough job. It's a tough business.
You can look at your cable bill or your cellphone bill that you get at your home and then look at what you get charged to pick up waste that actually has a driver, a truck, facilities, et cetera, coming by. The cable bill is significantly more than you get charged to pick up your waste. I think from that perspective, it's sort of well-received, and I think the customers have now realized that these are the rates we need in order. Listen, we've walked some of our biggest customers through it over time. Like CPI could be 1.5% or 2%, but that doesn't mean our driver is only going to expect 1.5% or 2% wage increase. He expects 3% a year because that's what he needs to maintain his cost of living, particularly in these big urban markets.
No, I feel very comfortable where the pricing model is today, and I think the industry is well-aligned on where that needs to be.
Konark, that page that you're referencing really illustrates, one, that was during the sort of inflationary period of the last sort of two years that we had. Yes, it shows pricing at a double-digit number in Q1, but cost inflation was also double digit at that time. Really, the intent of that was to show how we have been outperforming our peer group, largely just because we're a little bit behind in the price discovery versus where they're at, right? As Patrick said, CAGR is growing at 40% top line, early stages of the company's life. Hard to optimize your pricing during that type of volumetric growth. That was really illustrating how we still think we got an idiosyncratic right to win because we are less mature in our price discovery of our peers.
When you layer that perspective on to this ancillary charge opportunity, if you look at the quantum of dollars that our peers are realizing on a relative basis from ancillary charges versus the modest uptake that we're putting on that page, I think it sort of paints a picture that there's a lot of sort of upside above that, and that was the intent of it.
Hi, Bryan Burgmeier from Citi. Just thinking about some of the broader puts and takes around volume, maybe just in the medium term here. Is it accurate to say there could be maybe a downward bias in volume from some shedding or rationalization, just given the M&A strategy? Conversely, you probably don't have much of a macro rebound included in your numbers put out today. Is it fair to think residential maybe continues to walk down? Just sort of your big picture view, could volume move the needle for you guys over the next three years or maybe not? Thanks.
I think volume, just in general, the way you think about volume, I think obviously as you do larger M&A and more M&A, provides that opportunity to shed some of that lower margin volume. Now, the last couple of years, M&A has been muted, so yes, as we sort of tailed off and lapped the shedding of incremental volumes, that sort of lapped us, and I think that's why you see from a volume perspective, relatively flat. I don't think there's anything material. I think on the residential side, I don't think you'll see that shrink. I think we've gotten out of the stuff that we wanted to get out of, and we're repricing the stuff that we like at the levels that we need it to be at.
I think obviously we haven't priced in a macro, or we haven't modeled in a macro recovery in terms of robust volume coming from the macro sentiment, but I think flattish to down a little bit, up a little bit is probably where you're going to be.
Thanks, and good morning, guys. Sabahat Khan, RBC. Just some of the initiatives around ASL, the rollout of tablets. Are you guys thinking about sort of the labor training element of it? Is there infrastructure put in place for that? What's been the uptake on those 3,000 tablets rolled out, and are you seeing the progress we'd be expecting by this time?
Yeah. We're basically have every tablet rolled out. Obviously, software and training, like you said, are the biggest things. Again, we're making it, I would say, idiot-proof. It's very simple system to use. Again, I always say this, the tone at the top drives the better behavior, and we're seeing that with our management in certain markets that are pushing it more than others. I think we're going back to the sort of pricing, why you're seeing that, we have the confidence in the increased pricing that's going to come with it is because we're seeing the uptake in the tablets. I think over the next 12 to 18 months, that'll be largely flushed through, and you'll see that flow through in terms of the organic side of the margin expansion line.
Just a quick one on M&A, I guess. As you think about the $10 billion of opportunity is, should we assume that maybe more of that goes into the white space in the Western U.S. and maybe more to platform acquisitions? Or are you thinking more densification in existing regions that you're in?
Listen, I think for where we sit today, there's always the ability. Like I said, historically, we've done 1-2 larger ones. Sometimes it's in our existing footprints, sometimes it's in adjacent markets. I think we're focused on our existing markets and maybe adjacent markets, but we're not looking to sort of, unless there's something so unbelievable that came across our desk that we said, "Wow, this is a once in a lifetime opportunity." Sure. You want me to tell you that we're not going to look at it? Of course, we're going to look at it. But where we sit today, it's about densifying those existing markets and driving those incremental volumes and taking out those existing synergies out of the business to drive the highest returns on invested capital on the M&A dollars that we're going to deploy over the next three years.
Thanks. James Schumm from TD Cowen. Just on the internalization rates, where are they now for solid waste and recycling, and where do you hope to see those go over the next several years?
Yeah. In the U.S., we're north of 60% in terms of internalization rates of our own volumes into our landfills. I don't think that materially moves higher. I think in Canada, when you look at Canada's been largely perfected. Between Waste Management, Waste Connections, ourselves, and the swaps that we have in the markets where we operate, again, I don't see material change coming from internalization in the Canadian market. We're all fully optimized, and the ability to permit new sites in Canada is very low. For the foreseeable future, we're going to stick with what we have, and I don't think you'll see material change on either side of the border.
Hi, Michael Doumet from National Bank Financial. On EPR, you talked about upside to the $130 million EBITDA number and that you could add contracts in existing markets that would require lighter capital deployment. Could you talk about the opportunity there and if you would kind of be updating this number going forward when new contracts are added?
Yeah. We'll definitely update it. Again, when you look at what's still left in Canada, there's still roughly half of Quebec that's still up for grabs. You have the Maritimes that's still up for grabs. You have Western Canada. British Columbia is basically already optimized, but that program will change at some point is our belief. You look at basically Alberta, Saskatchewan, Manitoba. Now, we have state-of-the-art MRF already in Manitoba and Alberta. I think from a competitive and a cost perspective, I think we have something unique to offer the producers just because our capital costs will be less in those markets because we already have those MRF. Again, going back to the point of where you say we have the opportunity to win new work based on assets we already have.
Yeah, there could be some small upgrades you need to the facilities to meet the diversion targets, but we feel pretty good about that. Ontario and half of Quebec are basically done, which are the two largest, but that's still half of Quebec and the Maritimes, and then we'll focus on Western Canada. Western Canada is live now. The bidding process is open and we'll see where that goes. We feel pretty good about winning some incremental opportunity in those markets.
Great to hear. Just a quick one on M&A. For 2025, what would the acquisition cadence be, if you can guide to it? Would it be more back half-weighted?
I think pretty evenly throughout the year. We have some stuff in the pipe. We closed sort of one, planning on closing another couple in March, but I think you'll see it just come in throughout the year.
Abraham Landa from Bank of America. Just touching on the discussion around cash interest. You stated that after the ES sale closed on Monday, that you would look to pay off the revolver term loan and the near-dated 2025s and 2026s. I guess, what other debt would you target to tender for?
Those four instruments you described, Abe, take all the dollars. If you think about $3.75 billion that we want to go between the TLB and the revolver, we'll pay that right away on Monday, and then you're left with the short date 2025s and 2026s. That accounts for roughly the entire sort of 3.7. That is what we articulate is what will be paid down, and then we'll effectively be with an undrawn revolver. We'll actually be sitting on $2.25 billion cash for a period of time, which I'm very certain is a first in GFL history.
Not for long. I get nervous. The bank said you can only put $1 billion in one bank account, so we'll have to spend it fast.
Yeah, Abe, it's those four instruments we'll take care of it all. Okay.
Well, if that's everything, again, we're around. If anybody wants to speak sort of offline, happy to speak. Again, honestly, thank you for the commitment. Each and everyone in this room have been great supporters of the company, and obviously helped us in our journey over the last five years to understand how to be a public company and what makes things tick. We look forward to obviously a very successful next year and obviously next three to five years. Thank you very much for all of your support, and we look forward to continuing to deliver for each and every one of you over the coming months and years. Thank you.