GFL Environmental Q3 2026 Earnings Call Transcript

GFL Environmental (TSX:GFL) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

GFL Environmental reported a strong third quarter, with revenue growth of 27% year-over-year, driven by organic growth and significant contributions from recent acquisitions like Secure and Frontier.

The company raised its guidance for the year, expecting revenue between $8.055 to $8.075 billion and adjusted EBITDA of $2.49 to $2.495 billion, citing industry-leading growth metrics despite headwinds from elevated diesel prices.

Strategically, GFL Environmental successfully integrated Secure, aiming to achieve $25 million in cost synergies short-term with potential for an additional $25 to $50 million through disposal and cross-selling opportunities.

The company is optimistic about future growth, particularly in Western Canada, with plans to capitalize on organic opportunities and expand its platform.

Management highlighted the effectiveness of their pricing strategies and cost optimization, leading to a 125 basis point expansion in adjusted EBITDA margins despite fuel cost challenges.

A strategic review process is underway, with a deadline for bids set for November 9th, reflecting strong interest from global institutions in GFL Environmental’s assets.

Management remains confident in driving material equity value creation, with a focus on achieving mid-30% adjusted EBITDA margins and mid-40% free cash flow conversion by 2027.

Full Transcript

OPERATOR

This call will include forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. These statements are subject to a number of risks and uncertainties, including those set out in GFL Environmental’s filings with the Canadian and U.S. securities regulators. Forward-looking statements are not guarantees of future performance and actual results may differ materially from those expressed or implied in the forward-looking statements.

These statements speak only as of today’s date and GFL Environmental does not assume any obligation to update these statements. This call will also include a discussion of certain non-IFRS measures. A reconciliation of these measures can be found in GFL Environmental’s filings with the Canadian and U.S. securities regulators. After today’s prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again.

I will now turn the call over to Mr. Patrick Dovigi, Founder and CEO of GFL Environmental. Please go ahead, Mr. Dovigi.

Patrick Dovigi (Founder and CEO)

Thank you, Operator. Good morning, everyone, and welcome to today’s call. I’m joined this morning by Luke Pelosi and together we will be reviewing our results for the third quarter and updating our guidance for the year. The exceptional performance we delivered in the first half of the year continued through the third quarter, allowing for another top-to-bottom beat of financial expectations. The ongoing quality and durability of our operational performance, coupled with the closing of the Secure acquisition, allows us to raise our guidance for the third time this year and provides for an extremely compelling setup for 2027 and beyond. Organic revenue growth accelerated 100 basis points over the second quarter, driven by core pricing ahead of expectations and 50 basis point improvements in both volume and commodity prices.

Landfill volumes turned positive, including both C&D and special waste streams. Although we believe that construction, development, and expansionary manufacturing investment remains tempered, we remain well positioned to participate in the eventual recovery of these activities. Volatility in fuel prices continues to impact revenues, costs, and margins. Third quarter diesel prices accelerated another 10% over the second quarter and were over 60% higher than the prior year. Our fuel surcharge mechanisms have proven effective at recovering the direct impact of higher diesel costs, although we are seeing a greater degree of indirect cost increases coming through transportation, spare parts, and other cost categories. Our industry-leading margin expansion would have been significantly greater if not for the impact of these fuel prices.

Non-fuel-related cost of sales and SG&A cost intensity trended lower on a year-over-year basis for the seventh consecutive quarter and was achieved despite headwinds from M&A and higher landfill operating costs. This ongoing trend highlights the positive impacts from continued improvements in labor turnover and our ongoing focus on cost discipline. These benefits are in part arising from process optimization along with the realization of self-help opportunities across our portfolio.

Nowhere are these impacts more apparent than our adjusted EBITDA margin, where we delivered an industry-leading 125 basis points of underlying adjusted EBITDA margin expansion. To be able to raise our margin guidance for the second time this year despite the challenging macro environment and significant headwinds from fuel costs is a testament to the effectiveness of our strategies. The third quarter also saw us closing of the Secure acquisition. When we underwrote the acquisition, we were impressed with Secure’s market-leading platform of difficult-to-replicate, critical waste infrastructure assets in the familiar and attractive Western Canadian market. The transaction was also highly financially compelling, accelerating the achievement of our multi-year financial targets we laid out at Investor Day and enhancing our balance sheet and free cash flow profile to allow our maximum capital deployment flexibility.

Since the time we announced the acquisition, we believe that the macro outlook for Secure’s business and the markets in which it operates has materially improved and should provide for further upside to our investment thesis over the medium and long term. Integration of the Secure business is well underway and we remain confident in the ability to achieve the 25 million of underwritten cost synergies in the near term, with opportunity for an incremental 25 to 50 million of previously referenced synergies around disposal and cross-selling.

In addition to Secure’s physical platform, we are equally excited about the people and talent that have joined our team. As previously announced, Allen Gransch was appointed as our COO on September 1st. Allen brings a proven track record of operational excellence that directly complements our long-term growth strategy. Across his nearly 20 years at Secure, Allen was instrumental in establishing and implementing the company’s strategic direction, including leading transformational changes, driving operational execution, and building high-performing teams.

Allen’s proven leadership capabilities, extensive experience overseeing a large-scale, diversified waste management platform, and his broad skill set will make him exceptionally well suited to advance GFL Environmental’s operational and growth goals. Furthermore, with Billy Safera staying on in a Senior Strategic Advisor role, we will continue to get the benefit of his deep expertise as he remains actively involved in leading many of our corporate-wide value-creation initiatives.

Before I pass the call over to Luke, I will walk through the quarter in more detail. I want to take a moment to discuss the ongoing strategic review. You would have read in the press release that the Special Committee has provided bidders with a final deadline of November 9th to deliver their updated proposals. I will tell you that we have undergone a very thorough process. We always find it useful to have highly sophisticated third parties come in and take detailed looks under the hood of our business—fresh sets of eyes and critical, candid perspectives of what they view.

And while we have found that such processes are time-consuming and disruptive, the strong interest from globally recognized institutions is a testament to both our team and the platform we have built. Assets of this scale and quality have scarcity value. The Special Committee, in conjunction with their financial advisors, are continuing to evaluate the best path forward for the company. We expect to have a decision very soon, so stay tuned on that front.

However, regardless of the path forward, the confidence we have in absolute earnings growth year over year, medium and long term, should be a source of material equity value creation. While the Committee completes its review, our team continues to remain focused on optimizing our proven operating model, including delivering on the Investor Day commitments of achieving low to mid-30% adjusted EBITDA margins and free cash flow conversion in the mid-40% range.

The quality of our base business has never been more solid. The risk-adjusted growth profile has never been better. We have the right assets, we have the right people, we have the proven effectiveness of our execution, and we are going to continue to win and we are going to keep fighting until we have done so. I’ll now turn the call over to Luke to walk through the quarter and guidance for 2027.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Thanks, Patrick. Good morning, everyone. Looking at the details of the quarter, Q3 revenue grew 27% over the prior year, driven by 5.7% price, a 50-basis-point sequential improvement in volume, and incremental contribution from both surcharges and commodity prices. M&A added nearly 19%, mainly from the Frontier and Secure acquisitions. Q3 volumes were nearly flat, or approximately $10 million better than the second quarter. At the beginning of the third quarter, the restructuring of a large multifaceted recycling contract in Western Canada removed our obligation to provide brokered transportation services on a pass-through basis.

This resulted in a $13 million reduction in quarterly revenue, albeit with minimal impact to profitability. Excluding the impact of just this one contract, volumes for the quarter would have been positive 60 basis points. As Patrick said, the volume performance was supported by the return to positive volumes of both C&D and special waste landfills. C&D landfill tons were up 4.5%—the first quarter of positive volume since early 2025. This result was helped by the one-time cleanup of a closed transfer station in Western Canada. But even absent that benefit, C&D volume was modestly positive. Roll-off pulls were flat in the quarter as activity remains tempered. As a result, our volume outlook remains cautious.

Q4 volumes are expected to decelerate on the lapping of EPR transition contracts and exiting certain ancillary services in the Midwest, with underlying base volumes remaining relatively flat to modestly down. Third-quarter cost of sales before depreciation, amortization, and integration costs as a percentage of revenue improved 70 basis points excluding the impact of direct fuel costs, and over 100 basis points when factoring in indirect fuel costs as well. SG&A cost intensity also improved 70 basis points when excluding D&A and transaction costs. The ongoing realization of efficiency in labor and R&M costs as well as operating leverage on our corporate segment continues to highlight the effectiveness of the cost optimization strategies we laid out at our investor day.

As expected, fuel costs were a drag on operating costs and margins. Average diesel costs were up over 60% in the quarter and spiked even higher in the first half of September, which resulted in a $5 million headwind to our original Q3 guide. We now expect the impact of elevated diesel prices to result in roughly $125 million of incremental costs for the year as compared to our original guidance. Adjusted EBITDA margin for the quarter was 31.5%, 30 basis points higher than expectations and nearly flat with the prior year, which was the highest margin in our company’s history. Despite the meaningful headwinds from fuel costs and M&A, elevated landfill operating expenses—primarily tied to leachate transportation and disposal costs—were also a headwind to margins. Excluding these headwinds, and considering that improved commodity prices were a 20-basis-point margin tailwind, underlying consolidated margins were up 125 basis points from the prior year.

Adjusted free cash flow was $272.5 million, over 50% greater than the prior year. This result was 15% better than guidance, partially on account of the one-month contribution from Secure that was not previously contemplated. With the closing of Secure and the ongoing quality of our financial performance, we are once again increasing our guidance for the year. Assuming current FX, commodity, and diesel prices, we now expect the following amounts for full year 2026: revenue of $8.055 to $8.075 billion, adjusted EBITDA of $2.49 to $2.495 billion, and adjusted free cash flow of $1.02 billion inclusive of cash interest of $455 million and net capex of $910 million. Adjusted EBITDA margin increases 40 basis points over our previous guide to 30.9% despite the significant headwind from elevated diesel prices, which are assumed to continue for the balance of the year.

Absent the run-up in diesel prices, full-year margin would have been over 31.5%, an increase of more than 150 basis points over the prior year. As always, the updated guidance does not include the contribution from any further M&A in the year. Our latest guidance represents annual growth of over 20% in revenue, 25% in EBITDA, and 35% in adjusted free cash flow—industry-leading growth metrics by a material margin. Even more impressive is the fact that our setup exiting this year gives us a high degree of visibility to produce similar levels of industry-leading growth again in 2027.

I will now pass the call back to Patrick, who will provide some closing comments before Q&A.

Patrick Dovigi (Founder and CEO)

Prepared comments intensely short today, as we think the results speak for themselves. I will just reiterate that our focus is singular and our path forward is clear. We already have a great setup for 2027, and any improvements to the macro environment will be incrementally additive. I will now turn the call over to the operator to open the line for Q&A.

OPERATOR

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star-one to raise your hand. To withdraw your question, press star-one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sabahat Khan with RBC Capital Markets.

Your line is now open. Please go ahead.

Sabahat Khan (Analyst at RBC Capital Markets)

Great. Thanks, and good morning, everyone. I guess thanks for the comments on where the process stands. Maybe for you, Patrick—ultimately, you founded the company, you have a say in how the process here evolves. Maybe if you can share some thoughts on ultimately what you want to do here. What are your thoughts on the process that’s going on? Thanks.

Patrick Dovigi (Founder and CEO)

Yeah, I mean, good question. I think ultimately, you know, we want to keep winning and having fun, whether that’s sort of publicly or privately. You know, I think when, you know, I look back, we’re coming up on our 20th year anniversary and we were actually reminiscing the last few days just in terms of, you know, how the company was founded and, you know, went out to one of the original sites and met with employees. It’s, I mean it’s amazing. The same employees are there that were there 20 years ago when we sort of acquired the first business, went back to the same scale that I used to work at on the weekends.

You look at what’s been built here, it’s an exceptional team. And I look at, I’ve looked at, gone back and sort of scratched my head and looked at the original private equity partners and sort of Genuity and Healthcare of Ontario Pension Plan. And then Jeffrey Keenan and Neil Aronson at Roark backed us and then Scott French, Mark Rubenstein, Garrett Cochran backed us with the HBS team which is now sort of at BlackRock. And then you had Ontario Teachers, GIC and BC Partners backing us in 2018 as private companies.

I look at the returns that were generated for private equity shareholders and us alone and I think they believed in this management team and had the philosophy that winners win and winners will continue to win. And whether we do that publicly or privately, I think that ability is there for us to continue winning. I look at us going public in March of 2020. I have the tombstone on my desk. First trade was just over $17 and today we’re roughly three times higher than we were in 2020.

So it’s worked publicly as well. I think the challenge in the public market is sometimes you have to make unpopular decisions for the short term. And, you know, I look back to this year, Secure, for some just not knowing what it was, was maybe an unpopular decision and we had to do that over the last number of years but over the long run, and, you know, I think if you look at the equity value that’s been created for our shareholders, it’s been substantial. And sometimes those unpopular decisions are unpopular in the short term, but over the long term we’re going to continue to drive material equity value.

And so, you know, selfishly as a private company, you know, us and the management team would make a lot more money and probably have to not manage the quarter-to-quarter, you know, movements if we had opportunity to spend a little bit more on capex because that was the right thing to do or do a little bit more M&A and bring up leverage temporarily. You know, that makes the business easier to run. The contra to that is, you know, the liquidity opportunities that exist in the public markets.

And, you know, I look back, it would have been very difficult for us to execute on Secure if we were a private company. So those are the negatives of that. That being said, when prices get dislocated like they were for a long sort of period of time, listen, there’s a lot of smart capital sitting on the sideline that identifies winning management teams with a winning business in a great industry that, you know, they don’t get the opportunity to buy those often. And I think, you know, I look at the stock price today. I mean, when we give the sort of breadcrumbs for 2027, like, you know, Luke was sort of mentioning, you’re going to get into, I mean, today the business is trading at somewhere between 12 and 12 and a half times 2027.

And you just can’t buy businesses of that size and scale for 12 to 12 and a half times. And you look back to what we’ve done since 2020, even going public, when we went public, the business was roughly 950 million of EBITDA. Today, you know, the public company is about 3. You know, for 2027 is going to be about 3.125 to 3.150. In that sort of range. You have our ES business today, which, you know, we look at sort of the budget for 2027, roughly a $675 million EBITDA business, of which we own just under 40% of.

And you have the GIP business today, that’s roughly, you know, for 2027 is going to be roughly 350 million of EBITDA. So you put all those, some of those parts together, we took 950 million of EBITDA and grew with almost 4 billion of EBITDA over the last five and a half to six years and tripled the stock price in an environment we think the stock from a multiple perspective is materially undervalued. So listen, I sit here, I said a lot again. At the end of the day, this management team is going to continue winning, having fun. You know, when I look at now the Secure platform that we’ve added and what’s happening in Western Canada, what’s happening all over Canada, we just have multiple levers that are going to drive incremental value over the coming years. So whether that’s public or private, either way we’re going to win. And when I look at free cash flow per share in a normal growth algorithm over the next five years, there’s no path at which I don’t think that free cash flow isn’t close to a double.

So free cash flow doubles over the next five years. What is that going to do to our sort of equity value if we remain a public company and if we go private? Because that’s the decision that the special committee makes to bring that to a shareholder vote. Then, you know, we have, again, we’ve lived that world for 14 plus years as well and we know what that entails. But I think I’m fine either way. You know, I think there’s been a lot of great shareholder engagement which has been great.

We have a lot of great shareholders and albeit some have different perspectives. They’re all very valuable input that they have. And you have a very core group of shareholders that obviously who may have a little longer-term thinking in the back of their head and again see the path forward to that. There’s material equity value creation sitting in front of them. And then you have other shareholders that might be a little bit short term that, you know, are prepared to take some capital at a lower price off the table and find the next opportunity.

So the shareholder engagement we’ve had over the last couple of months has been excellent and it’s been, you know, it’s been enlightening. And, you know, the best part is everybody’s been very supportive. So, you know, we’ll see how it unfolds over the next week. But from my perspective, either way is a win. Some pros and cons on both sides and, you know, we’ll see where it goes. But it’s been a great exercise to go through anyways with these people sort of looking, taking a deep dive in the business.

So we’ll see what happens. Yeah, listen, I just look at, again, when you have world-class investors that see businesses across multiple sectors, I mean their input is valuable. Right. And I just look at a couple of tools that were flagged to us just in terms of that when they bring in—again not mentioning names—but they bring in sort of a chief revenue officer of another strategic that is now working as a consultant and coming in and looking at our overweight charges, there’s significant pricing opportunity still within the base business.

So that, again, gives us a high degree of confidence that there’s significantly more upside here, implementing tools like Harvey on, you know, contract management and keeping customers accountable to their contracts, etc. We were just using it specifically on the legal side and picking other tools that will just, again, all things that are just additive and incremental to our business that will make our business better. And, you know, which again just gives us more confidence in terms of the operating plan sort of moving forward.

And, you know, again, going back six months, not to sort of harp on this, but, you know, the initial reaction when we bought Secure was negative from some of the shareholders that really didn’t understand Western Canada or the Secure assets. You know, you had some of these organizations that were actually looking at that opportunity independently because they love the scarcity value of those assets and the business that was being built and the amount of organic opportunities that existed to put capital out at high returns on invested capital organically sort of in Western Canada.

And again, you know, sometimes you need to be—in order to be good, you need to be lucky. And we’re a little bit lucky just, you know, given the timing of when we did the Secure acquisition. And then what’s happened in the macroeconomic backdrop with, you know, the Middle East and Iran and now with, you know, as everyone’s saying with our new Prime Minister in Canada, Carney’s, you know, wants to make Canada an energy sort of superpower and sort of break down the barriers of the red tape that we’ve historically had in Western Canada to be able to sort of expand that and put Canada back on the map again.

So that will create sort of incremental opportunity again for us that wasn’t underwritten. So all those things give us a high degree of confidence in plans sort of moving forward. And I think, again, going back to your point on shareholders, yes, you have top 10 shareholders—again, some longer-term thinkers and other shorter-term thinkers—shorter-term thinkers happy to take less money and sort of move on and look for other opportunities versus, you know, some of our page one shareholders that have a perspective that, you know, GFL Environmental is worth sort of well into the 60s.

And if, you know, you’re going to continue executing on a plan which they have no reason to believe we won’t, given our track record over the last 20 years, both on the GFL Environmental side and now the recently acquired Secure, you know, that’s going to yield an exceptional result as well. And again, free cash flow doubling over the next five years per share. Again, you can do the math on what that does to the equity value, you know, if we get the multiple expansion that we believe we deserve as we come out of this, you know, potentially this AI trade that has, you know, affected the entire sector over the last sort of 12 months.

I mean, I think, you know, you’re going to have a winning, successful public company as well. But yeah, I think it’s been great to have the interaction with shareholders. It’s been great to get new eyes on the company and have a lot of great discussions with new shareholders, you know, both in sort of Canada, U.S. and Europe as well as Asia and the Middle East. We’ve had just a lot of great dialogue and it’s great to get a lot of that out there and, you know, put GFL Environmental on the map with a lot of different investors. And, you know, I think, listen, whichever way it goes, you know, we’re fine.

But we want to bring the process to finality and sort of move on with whatever the decision that the committee and, you know, one of our largest shareholders decides to make. So.

OPERATOR

Your next question comes from the line of Tyler Brown with Raymond James. Your line is now open. Please go ahead.

Tyler Brown (Analyst at Raymond James)

Hey, good morning. Hey, good morning, guys. Hey, Tyler. Hey, just curious on how we should think about pricing into next year. I mean it sounds like you got some inflation creeping back in, particularly in indirect fuel. But how should we think about maybe pricing accelerating into next year? Because if I read between the lines, Patrick, it seems that maybe the take Private diligence has increased your conviction on pricing opportunities longer term. Just any thoughts there would be helpful.

Patrick Dovigi (Founder and CEO)

Yeah, I mean I think we have identified sort of incremental opportunity. As you know, we like to under-promise and over-deliver, and I think that’s just another lever for us to continue doing that. And again, like I said, when we looked at the sort of value-creation opportunities that we laid out at our previous Investor Day, I think as AI tools continue to come on, as incremental pricing opportunities continue to come on, again, that’s just additive in terms of the long-term plan.

And, you know, as maybe what was going to wind down in 2027–2028, those initial equity value-creation plans, maybe we can now extend them with some of these incremental opportunities and some of these other incremental AI tools that will allow us to have a deeper dive into our actual customer base, looking at what each customer contract has, what we’re allowed to do under each one of those contracts, and summarizing in a form that allows us to basically better manage our business.

And, you know, I think this is just relying on tools that are coming to the market. Every day there’s a new shiny object, but we’re just trying to focus on the four or five things that will actually create that value without a lot of disruption.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Tyler, I’d just add to Patrick’s comment. If you think about the upside incremental price we articulated originally, we said it was $40 to $80 million to capture over the next, you know, three or four years. That’s what we had said at Investor Day. I think what Patrick is suggesting, and we’re feeling highly confident, is that prize is something greater than that. Now the ultimate magnitude remains to be seen, but I think between ’25 and ’26 you’re seeing our outperformance as we are realizing those, what I call, surcharge opportunities.

Now going into ’27, you have to remember this year we’re getting meaningful support at the price line from some of this EPR-related transition. And that you’re going to lap in ’27. And so I think you kind of got to back that out of your calculus. If our headline price this year is going to be a low six number, if you were to back out the EPR benefits, that’d be more sort of low 5 to mid 5 number. So I think in a headline number you might not see acceleration, but underlying we continue to see an opportunity to take our normal-course algorithm of pricing at a spread above our cost inflation and then achieving something greater as we are catching up to parity with where our peers are.

And I just think the runway for keep adding something greater keeps getting extended as we’re going out.

Tyler Brown (Analyst at Raymond James)

Okay, yes, that is extremely helpful. And then, Luke, just in the release you guys reiterated your commitment on getting to that mid-40% free cash conversion that you guys laid out at Analyst Day. If I look at your guide for ’26, it looks like you’re going to be around, let’s call it 41%. And if I put the pieces together, it’s a little bit scary, but if I do, maybe that’s like 43, 44 next year. I don’t know if you could confirm that. So when we talk about that mid-40s, is that more a 45, 46, 47% or what is the art of the possible in that number over the next few years?

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, it’s a great question, Tyler, and you’ve always been good at math, and we think that is the sort of direction of travel. Now I’ll just caveat: this year’s number 41, you’re getting the last four months contribution of Secure, which has working capital recovery, a little bit of abnormality because it’s not a full year. I think if you’re really pro forma where we’re at today, you’re probably more at a 39–40% number exiting this year. Now we go into next year, we think there’s going to be expansion on that.

Now I will have a ramp in cash taxes as I’m becoming a larger cash taxpayer. But I see the path of next year being in that sort of 41 to 42 and a half. I think that’s what we had articulated pro forma for Secure to be, and we’ll continue to grow from there. I mean, if you think about the whole 2027 framework, you know, this year’s growth being 20% revenue, 25% EBITDA, 35% free cash, with the setup going into next year you have the opportunity to almost sort of replicate that. And you think about that, I mean the top-line growth organically is going to be mid single digits. Now the exact pricing number, exact volume number remains to be seen, but you know that’s going to be a number greater than five.

You think about the M&A rollover already in hand, you sort of have 15% in hand. So you’re entering ’27 with a 20% plus revenue number. If our ’26 guide is $8,055 or $8,065, 20% growth on that in the next year, that brings you to $9.7 to $9.8 billion. Right now, if you look at the margin line, what we have said and continue to prove is we have industry-leading organic EBITDA margin expansion. So if the industry has been doing 30 to 40 basis points, we sort of do 2x that. It’s putting you at a 50 to 60 basis point organic margin expansion. The rollover impact of Secure should be roughly another 30 to 40 basis points. You have already a setup for, call it, 100 basis points of margin going into next year.

That takes this year’s 30.9% closer to 32 for next year. So if you take $9.7–$9.8 billion of revenue at 32, that should be that $3.12 billion of EBITDA that Patrick referenced in his commentary. And then if you apply that sort of 41% to 42% free cash flow conversion, and that’s just assuming the normal-course drags to EBITDA across capex, interest, et cetera, that puts you at a $1.3 billion plus free cash flow number. And then I think there’s a high degree of conviction in that, and it just grows from there.

So we’re feeling very confident in that framework we previously laid out. And I think with the avenues of upside we keep speaking to, as you get to ’28 and beyond, I’m not ready to cap what that ultimate free cash flow conversion number could be, because I think there’s a runway to keep going north.

OPERATOR

Your next question comes from the line of Kevin Chang with CIBC. Your line is now open. Please go ahead. Kevin, I’m not sure—we can’t hear you. Maybe you’re on mute.

Kevin Chang (Analyst at CIBC)

Can you hear me?

OPERATOR

Yeah, now we can hear you.

Kevin Chang (Analyst at CIBC)

Oh, perfect. Perfect. You’ve alluded to this a few times, just the upside to Secure given some of the opportunities in Western Canada. Just wondering if you’re able to frame that as you think of what that upside could be relative to what you thought at the time of acquisition. If you look at some of the projects being proposed, and if all goes well, let’s say you could have a 50% increase in kind of crude oil egress. One, is there a way to frame that upside?

And then, two, how do you think about your own capacity within Secure to absorb that growth, or does that require incremental investments as these development projects move forward?

Patrick Dovigi (Founder and CEO)

I think it’s a combination of both. Obviously the waste assets we own can continue handling more volume generally. So again, that is just sort of all incremental upside. And I think, again, what Secure did very well, which I think was underappreciated by the public markets, was the amount of opportunity they had to deploy capital with very high returns for their customer base. And as their customer base continues to expand operations, that affords the ability to deploy incremental capital into incremental opportunities at high returns.

And again, east-west pipelines, north-south pipelines—plus, coupled together with some of these LNG projects and terminals—all of those are just going to drive incremental activity in Western Canada. Can I quantify that exactly today? No. Do I know for sure that that’s going to drive incremental volumes? Yes. I mean, we’ve seen this movie before. And not only does it help the Secure business, but it’ll help all of the industry in Western Canada because the macro sentiment in Western Canada—when it’s positive—the floodgates open.

And I think from a macro perspective, you’re going to see a lot of great activity not only around our business, but even in the Lower Mainland or whether that’s in Edmonton, Calgary, etc. That is going to drive incremental volumes and activity throughout the entire region. So again, that was never the thesis for doing the acquisition because we liked it on its own. But I think, you know, sometimes, like I said, in order to be good, you gotta be lucky. And I think just given what’s happened in the Middle East and some of that tension, and what’s happened obviously with the U.S. and tariffs, and the Canadian government now looking to focus inward versus outward, that is driving incremental opportunity. And, you know, we’re seeing some of these opportunities already.

I think the challenge for us—and going back to being a public company versus being a private company—public markets are very prescriptive in terms of how much capex you can spend in a year, growth versus maintenance, etc. But I think we have to look at these opportunities the same way we would look at an M&A transaction—what are the returns, what are the paybacks—and bucket some of these growth opportunities potentially as an M&A transaction. Maybe you dial back some of your M&A spend to deploy more capital into some of these organic opportunities that we see that ultimately will drive higher returns on invested capital. So that’s something we’re thinking about and looking at as a company. And we are going to continue doing what’s best for shareholders and what’s going to drive the highest return for our shareholders, again, whether public or private. But again, those opportunities are going to continue to persist, not only in the Secure book that we acquired, but also within our existing book, particularly in Western Canada.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Kevin, I’d just add: when we underwrite acquisitions—maybe this comes out of our days of higher leverage—while we look for upside cases, we really want to diligence downside cases, right, and see what that could be in a really draconian negative scenario. And for Secure, while we’ve very clearly articulated their performance has shown they don’t expose us to short-term volatility, the downside risk was if WTI went down below $50, $45 a barrel for extended periods of time, that would in time lead to lower production and activity in that part of the world, which could in time degrade earnings.

I think where we sit today, we have the benefit of a very high degree of confidence that over the near, medium, and probably longer term, the opposite is going to be true. And the level of activity and production and therefore opportunity for the Secure assets is greater than otherwise. So to Patrick’s point, quantifying what that upside looks like today—we’re not prepared to do it—but it’s something greater than what our underwriting case was. And we were really happy with our underwriting case.

Patrick Dovigi (Founder and CEO)

Yeah. And when Remy and Alan founded Secure back in 2007, the actual year we started, remember, they started with nothing as well and organically built that business. So, I mean, I think it’s underappreciated how exceptional the team is there at looking at and identifying organic opportunities to build and scale that business. So, you know, again, you will see over the long run that, you know, this, all of these, you know, if you look at all the regions we’re operating in today, you know, the 10 provinces in Canada, 26 states in the U.S., you know, we have a very unique ability here over the next number of years to really win. And I think you’re going to continue seeing it deliver these types of results year over year.

Kevin Chang (Analyst at CIBC)

That’s helpful. Maybe just a follow-up. You know, Luke and Patrick, you’ve highlighted a strong organic growth pipeline and levers as we exit 2026 here. Just, you know, with the bigger EBITDA footprint, the step-up in free cash flow conversion, you painted a, call it, a normalized M&A year being roughly $1 billion of capital deployment. Does that change next year just given the improved liquidity profile, given some of the acquisitions you’ve made in 2026?

Patrick Dovigi (Founder and CEO)

Yeah, if we’re continuing to be a public company, depending on the stock price, I think moving into 2027, you now have the unique ability to add share buybacks in a more material way into the capital allocation plan. So yeah, I mean, that’s the beauty of the inflection point of where we are if you look at the free cash flow growth and ramp. I mean, I think we have the ability to do a multitude of things just depending on where we are in the cycle.

But yes, I mean, in theory for sure, again, if we look at the M&A and the organic opportunities that we’ll have in Western Canada, we will have materially more capital to deploy with the free cash flow profile now, the added Secure business into the portfolio, and as our business continues to grow, we’ll look at that. So I think we have multiple levers available to us to pull depending on what the situation is at the time.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

And Kevin, as you’re well aware, now with the enhanced size and scale, the leverage impact of capital deployment is far more muted than it was before. And just illustratively, all other things being equal, if you end ’26 at mid-3’s leverage, through EBITDA growth and free cash flow generation, you would delever 30–40 basis points going into next year and come down to a lower-3 number. If you deployed $1 billion into M&A at eight times, for round numbers, that would impact leverage by 15 or 18 basis points.

And so, just to say, the balance sheet capacity to now do that incremental capital deployment has never been greater. And so, I think to Patrick’s point, just providing us maximum flexibility, being able to execute on our strategies while very squarely adhering to the newer leverage philosophy that we adopted a couple years ago.

Kevin Chang (Analyst at CIBC)

That’s super helpful. Thank you very much for taking my questions.

OPERATOR

Kevin, your next question comes from the line of William Griffin with Barclays. Your line is now open. Please go ahead.

William Griffin (Analyst at Barclays)

Great. Good morning. Appreciate the opportunity here. My first one, and I get this may be difficult to address, but, you know, Patrick, you’ve referenced in the past that having visibility to a path to monetizing this incremental equity value creation in the case of a take-private was an important factor for you and, I think, the company. But I’m just curious, how are you thinking about the possible options and maybe how that could be structured now as this process seems like it’s progressed a bit further?

Patrick Dovigi (Founder and CEO)

Sorry, maybe I’m not understanding the question. Monetizing what, sir?

William Griffin (Analyst at Barclays)

Sort of realizing this incremental equity value creation. Right. You had in the past talked about maybe IPOing the business if it gets right.

Patrick Dovigi (Founder and CEO)

Yeah. Oh, I mean, so I think, I mean, that’s the question. I think, you know, if you’re going private, I mean that’s obviously a big question in terms of you create all this value over the next four to five years and then take the business back to market, and then public investors would miss out on that value creation over the next four to five years, then get the business back when it’s probably 2x the size, right, if that’s a path. Or, you know, I think as these private vehicles get more sophisticated and it’s more sort of long-dated, non-closed-end funds where it’s perpetual equity in continuation-type vehicles where the money is just, you know, there’s no closed-ended fund nature, maybe the business actually never goes back to the market, right. And then just given the amount of free cash flow the business generates, you could find ways to continue selling down stakes to incremental LPs as they come in at different times.

And so, you know, I think that’s always the challenge in a go-private. One of the negatives—I mean the liquidity, like we talked about, is one of the positives of the public market. The negative part of the private markets is there’s less certainty on liquidity at various points in time. Now that’s more of a Patrick issue. I think that is solved for employees in other ways. I mean we’ve done that for 14 years. So this is not an employee issue. This is just like, hey, how do you monetize your 28.8 million shares over time?

I’m not a seller, so it’s not really—I’m 47 years old. I’m not looking for Freedom 55 or Freedom 65 yet. But I think, you know, over time you need to think about that in the event that was. But, you know, I think there are products available that allow for that under these new constructs.

William Griffin (Analyst at Barclays)

All right, appreciate that color, thank you. And my follow-up here: you referenced an increase in landfill operating costs in the prepared remarks. Not the first time we’re hearing about that this quarter. I’m just curious, what are the drivers there and how are you thinking about your ability to recover those through price and, to the extent there’s any lag, potential margin impact?

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, well, I mean, starting point: a lot of people talk about leachate. It was very wet in many areas, right, and that’s just a quarter-over-quarter difference that, you know, Michigan had X inches more rain than last year. That can drive incremental leachate, so that’s part of it. But I think what you’re also seeing is, as leachate management, processing, etc., is becoming more front and center, people are getting more sophisticated with where leachate should be going.

Sometimes that’s incurring further transport costs to get it there, and the like. So I think this quarter isn’t necessarily reflective of a structural, material, ongoing headwind. It was about $6 million in this quarter; maybe three-quarters of that is, I’d call it, more timing/one-time, and a quarter of that cost is just incremental cost of transport and processing. But I think we have the benefit, in an industry where we all suffer the same fate, if you will, that as incremental regs or other reasons drive operating costs higher, we need to recover those.

And you’ll see us, through our various pricing and other mechanisms, ensure we’re getting appropriately compensated for these critical services that we’re providing. So I think longer term, like anything, incremental cost will just add to the broader base of cost inflation on which we use to set our overall pricing. But, you know, in a given quarter you can get some mismatch between that cost incurrence and subsequent price recovery. But in time I wouldn’t expect you to have the same headwind that you had, and you’d be pricing above your cost inflation as we do for all of our costs.

OPERATOR

Your next question comes from the line of Trevor Romeo with William Blair. Your line is now open. Please go ahead.

Trevor Romeo (Analyst at William Blair)

Good morning. Thank you guys for taking the questions. I had one on Secure, kind of the performance in the quarter. Wondering if you could maybe talk about how much it contributed in terms of revenue and EBITDA, and anything you can say on the maybe volume-price split or just the core disposal business versus maybe some of the other businesses in the quarter.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, so, I mean, again we have one month of Secure revenue contribution. There was around $150 million of revenue. It was just over $50 million of EBITDA, so sort of mid-30s-plus EBITDA margins. You had 25 to 30 million of the free cash flow performance that came from Secure. Now, one month I don’t think is actually reflective, right, from a capex timing, working capital timing, etc. But I think the contribution—Secure’s profile for the year was they’re going to do $550 million of EBITDA, you know, $1.5 billion of revenue. And I think they’re very handily positioned to be able to deliver that. The distribution of that revenue across their services is as we’ve previously articulated. And then you have a small percentage of overall profitability coming from the other lines of specialty chemical and energy infrastructure, but the majority of those revenues is their typical waste and waste processing.

And so I’d say it’s right in line with expectations. The team’s Q4 outlook is in line with expectations, and we’re finalizing budgets into 2027. But no, everything is turning out as anticipated with the opportunity for upside that we were previously speaking about.

Patrick Dovigi (Founder and CEO)

Thank you, Luke, for that.

Trevor Romeo (Analyst at William Blair)

And then maybe just a quick follow-up on M&A looking into next year and beyond. I mean, if we’re thinking about a higher interest rate world, just curious for your thoughts on maybe how that influences your aggressiveness on M&A, as well as the willingness among targets to sell if that’s another incremental headwind for them. Is that an incremental positive for you with maybe more targets coming to market?

Patrick Dovigi (Founder and CEO)

Yeah, I mean, I don’t think it’s material enough that it really affects that much. I mean, yes, there’s been a move in interest rates, but when I look at our borrowing costs, in a worst case today you’re probably 100 to 125 basis points wider today than you were maybe six to eight months ago. But from our perspective that’s not a forever thing, and we have mechanisms that can reduce that with swaps and other things. For the longer-dated swaps, again it’s something to think about.

I don’t think it’s that material. I think when I look at some of these larger, recent businesses that have come to market that have sold on the ES side, you have ES businesses still continuing to trade at large size and scale between 13 and 15 times depending on the market. I don’t think it’s really materially affected values all that much. But yes, something to obviously keep in consideration, and I think if we think there’s going to be perpetually higher rates for a long period of time, then that may factor into that.

But again, when we look at running that model, when we’re looking at returns we model in what the actual cost of capital is. So it does get factored in. But, you know, we have to take a longer-term view on what we think rates are going to do. But yes, it factors in.

Trevor Romeo (Analyst at William Blair)

All right, thank you guys. Appreciate it.

OPERATOR

Your next question comes from the line of Stephanie Moore with Jefferies. Your line is now open. Please go ahead.

Stephanie Moore (Analyst at Jefferies)

Good morning. Thank you. Maybe taking a step back, and I appreciate all the color you provided us so far on this call. But let’s just say if it does turn out where GFL ultimately remains public, what should investors expect the next chapter of the company to look like? I guess thinking, what are the key strategic and financial priorities that you think can help drive the rerating you believe the company deserves? Thanks.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah. Hey Stephanie, it’s a great question and I think the reality is whether it’s a sort of public vehicle or private vehicle, our path forward is relatively the same under both, and it’s really executing on all that we articulated at the Investor Day and more. And I say and more because today we’ve largely achieved those sort of three-year targets we put out. So we’re just sort of resetting and going into higher levels from there. But it starts, as I’ve said always, you think about the algorithm, it starts at the top line. And Patrick articulated this, but the industry has a very sound and stable top-line organic growth algorithm. And we believe we have an idiosyncratic opportunity to do better than that very attractive industry algorithm, as we benefit from the self-help that’s available to us now. That’s mostly from price.

But you’ve also heard us say we believe our market selection should drive incremental volumetric opportunities as well, as we benefit from the fact that in western Canada, what should be our passing there over the next sort of near and medium term, and then the U.S. Southeast, where the preponderance of our business has just had the demographic benefit of being a place where people are moving to. So we think top line, we have a right to win there organically.

And I’ll speak to all this organically before I talk to M&A. Then you look at the EBITDA margin side. If you think about our EBITDA margin performance over the past, call it five, six years that we’ve been public, or 10 years if you want to take it, we’ve continued to produce outsized EBITDA margin expansion as we demonstrate the efficacy of our strategies, and we see runway to keep doing that. Think about our results today, achieving— I just gave a guide for 27 of these breadcrumbs there too— you’re very squarely past the low 30s and moving towards mid-30s.

And we see a lot of runway to keep going there. The most exciting part of it for us is this inflection point that’s been reached at the free cash flow level. And really what that is, is now that you’re past the deleveraging hump, if you will, as you go forward and you effectively maintain an interest expense intensity on a relatively flat basis to diminishing, you’re getting significant idiosyncratic torque at the free cash flow line that is available for GFL and GFL alone.

And so you put that all together over the next three to five years, as Patrick suggested in the prepared remarks, you don’t need to believe a lot to see close to 2x in a free cash flow per share level over that period of time. And that is really what the next chapter is. We built the business together pro forma with Secure. We now have the balance sheet scale and the free cash flow profile to be able to very squarely execute capital deployment strategies without any longer having to be tempered by the leverage considerations, and just doing more of the same and now doing so with best-in-class asset base and a management team that has proven the effectiveness. We welcome Alan to the team that brings incremental horsepower.

And we’re just very excited and confident in the go-forward opportunity to keep doing all of the items that we’ve articulated.

Stephanie Moore (Analyst at Jefferies)

Thank you. Appreciate the time.

OPERATOR

Your next question comes from the line of Brian Bergmeier with Citigroup. Your line is now open. Please go ahead.

Brian Bergmeier (Analyst at Citigroup)

Hey, good morning. Thanks for taking the question. During the prepared remarks, you flagged 125 million, I think, in inflation from diesel. Just curious how much of that you expect to be kind of passed along effectively in 2026, and then if you see any kind of lingering catch-up in 2027.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, Brian, great question. So if you look at it on direct diesel costs, what we pay for, we have about $100 to $105 million incremental cost. And then indirectly we calculate, and this is third-party transport providers, et cetera, for another $20 to $25 million. So you’ve got about $125 million of cost. We’re going to recover this year about $100 to $105 million of that. So you have this $20 to $25 million exposure, which is really a function of those quick ramps, right?

Because you take a month like September where diesel jumps up very quickly mid-month, you have that exposure; you don’t get to recover it ultimately till it rolls over. So we do feel confident in time, when diesel rolls over—assuming that that happens—you will recover that incremental $20 to $25 million. But if you think from a margin profile for the year, where we estimate diesel cost, and it’s really that $25 million exposure plus the recovery of the other $105, to be roughly a 75 basis point margin headwind this year. If we would have had full recovery, that would have been a 40 to 45 basis point margin headwind. I think that’s consistent with what some of our peers have spoken about, and I think that’s more a reflection of the maturity of their recovery programs, and that’s just more opportunity for us.

So we do feel confident that we will recover that when it rolls over. And as we continue to refine and mature our own surcharge programs, we’ll be even better protected as we go forward. But, ultimately, diesel rolling over will be a margin tailwind for us.

Brian Bergmeier (Analyst at Citigroup)

Got it, got it. Appreciate that detail. And then just maybe following up on Kevin’s question, is there anything that you would like to highlight on growth CapEx for 2027, maybe for either legacy GFL or Secure? I know it’s quite a bit early, so no worries if you don’t want to comment. But you know, Secure I think has been spending over 100 million per year. So just curious if there’s anything in the pipeline there. Thank you. I’ll turn it over.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, I think that’s probably— we’re still obviously looking through all the opportunities. I think legacy GFL probably has another $50 to $75 million of the final ramp in growth CapEx for EPR and RNG, so that’s winding down. And then for Secure, again, putting all of the opportunities in the blender, I think that’s probably a safe number to continue to use. But again, like I said before, we’re going to think about the growth CapEx spend similar to the way we would think about an M&A transaction at Secure. And if there’s high-growth opportunities with high returns on invested capital, we’ll look at that exactly the same way we look at an M&A transaction. And we’ll bucket those spends together. And when we think about how we allocate capital, we’ll allocate that in that capital bucket.

So, yeah, a lot of opportunity. Still early days, but obviously when we come out in February, when we report Q4 and give detailed guidance for 2027, we’ll have a better handle on exactly what we want to do.

OPERATOR

Your next question comes from the line of Konark Gupta with Scotia Capital. Your line is now open. Please go ahead.

Konark Gupta (Analyst at Scotia Capital)

Thanks. Aubrey. Good morning. I want to go back to the strategic review process. And in fact, I wanted to understand, in a simplified manner, what’s the process looking like? How will it unfold? Here you have November 9th as a deadline by a special committee. If you see the bids and the updates come through by that deadline, what’s the next step going to look like after that? And then will there be any potential ebbs and flows or holds with respect to bondholders in that process?

So any color would be there?

Patrick Dovigi (Founder and CEO)

Yeah, I think these transactions are very complex. Again, we’ve done them multiple times. Obviously a little bit trickier as a public company. As I said over and over again, I’m not a seller, so I’m not really part of the process or the negotiation of whatever that is. You have other potential insiders that would potentially look at selling a whole or part of— again, that comes with its own set of complexities. And then you have a special committee that needs to arrive at a place that they feel comfortable that they can stand behind with their advisor, in terms of coming up with what they believe is a number that represents fair value.

So all of those things have to align. There’s nothing more we can do as a company from a diligence perspective. People just have to arrive now at an answer that works or doesn’t work. Like I said, I’m conflicted because at the end of the day, I’m not selling. So it’s in someone else’s hands and ultimately that decision will be made. But the process, from my perspective, has been very good on a multitude of fronts. As a public company or private company, learning more about our business is always good.

Having smart people look at your business is always good. We’ve had a significant amount of engagement with our public shareholders that we probably wouldn’t have had if it weren’t for this process. And we’ve had a lot of dialogue with new potential shareholders around the company. So, listen, it’s been good. It’s been a lot of work, it’s been time consuming, coupled together with everything else we’ve been working on. But no one in this organization shies away from hard work. And we’re just going to continue doing the right things and we’ll see how the process unfolds over the next week. But from my perspective, management’s perspective, we just want to get on with it. It’s got to come to a conclusion and we need to move on and put the chapter behind us one way or another.

Hence the reason why it’s a deadline of November 9th. I think it’s not easy to get all these different groups together. And we’ve been in Toronto the last couple days where everyone can actually sit down and have fruitful discussions and real discussions about where things are at, what needs to be done. And hence we put a pin in it. We feel confident that by November 9, we can put a pin in this one way or the other.

Konark Gupta (Analyst at Scotia Capital)

Again, I appreciate the color there. Thanks. And if I can just follow up, Luke, on the guidance bridge— your guidance has moved up on the back of recent acquisitions, obviously. If I look at the incremental margin on the guidance change, it’s like 37% EBITDA margin and 59% cash flow conversion. I’m suspecting most of that is driven by Secure. Is there anything outside of Secure that Contributed to the guidance change for the full year?

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, Konark, thanks for the question. I mean, obviously a lot of moving pieces from the original guidance with where diesel has gone. FX has been bouncing around, the recovery from commodities. But if you think about from the beginning of the year, if you think about the top line, originally revenue was supposed to grow just under 6% — 5.8% was our original guide — and now we’re saying it’s 22%. So you effectively have 16% incremental revenue growth versus the original sort of guidance.

Now, 13% of that’s coming from M&A, and 7.5% to 8% of that 13 — or just under 15% — is from Secure. You have 180 basis points from FX, sort of the Canadian dollar weakening, and therefore you’re left with like 120 basis points of what I call organic. Now, that’s mostly diesel recovery in commodities as price and volume are sort of a wash, right? Price is 40–50 bps better and volume is sort of 60–70 bps negative, so a bit of a wash. That’s really what’s happening at the top line.

Now, if you flow that down to the EBITDA line versus our original guidance, original guidance was just under 8% EBITDA growth — I think 7.8% EBITDA growth — and now we’re saying 25% and change, right? So you have roughly 17–17.5% incremental EBITDA growth. Now again, 14.5 of that is coming from M&A, and that is a large contribution from Secure. You have 180 basis points again about FX, and you have roughly a 100 basis point benefit from the commodity price.

Now diesel, as I was saying to Brian, put a 125 basis point drag to EBITDA dollars for the year. And so again that leaves roughly 100 basis points of just pure incremental organic EBITDA growth. And that’s really the sort of margin piece that you have coming through. So obviously Secure is driving a component of this and taking that margin profile up, but there’s a lot of other pieces including the underlying organic margin expansion from a bunch of the cost levers and other optimization that we’ve been talking about on this call and previously.

Konark Gupta (Analyst at Scotia Capital)

Yeah, that’s great. Appreciate the time, thank you.

OPERATOR

Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is now open. Please go ahead.

Jake Coyman (Analyst at Wells Fargo)

Hey, thanks for taking the question. This is Jake Coyman on for Jerry. So on the RNG EBITDA, I was just wondering whether you could comment on where it sits relative to the $125 to $150 million range, and what are the in-service dates for the remaining facilities, and roughly how much RNG capex remains in 2027. Thank you.

Patrick Dovigi (Founder and CEO)

Yeah, so I think we’re, again like we said, somewhere between $50 and $75 million. Some of that’s EPC, but we probably have another $50 to $60 million depending on the structure of the RNG projects. You know, we expect the in-service dates for those to come on late ’27 through ’28. And we have about half of that RNG EBITDA contribution in the P&L today, and that other incremental has to come over the course of late ’27 and through early ’28.

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, I think the in-year — so, I mean, what we said this year, $50 million in-year EBITDA this year from RNG — that’s roughly right. We’re actually a little bit behind, but the next four projects that come on, to Patrick’s point, they’ll be on end of ’27 — probably no contribution ’27, just contribution ’28. That’s another $40 to $50 million of EBITDA. And then the last four small projects is that remaining sort of $15 to $25 million of EBITDA that comes on, you know, into 2029.

As Patrick said, the capex for that has mostly been manifesting through contributions into JVs, but the exact capex spend in the form thereof will be clarified for ’27 guidance.

Jake Coyman (Analyst at Wells Fargo)

Great. Thank you. Appreciate the color.

OPERATOR

Your next question comes from the line of James Shum with TD Cowen. Your line is now open. Please go ahead.

James Shum (Analyst at TD Cowen)

Hey, good morning. If you guys go private and then double the size of the business over four to five years, can you talk about the challenges, if any, of going public again? You went through that process, I don’t know, six or seven years ago. How onerous would that be to go through that IPO process again?

Patrick Dovigi (Founder and CEO)

I mean, I always say it’s very simple. It’s, again, why you have to have an operating plan. You can look at a business, you can buy a business, you can put whatever plan you want on a piece of paper, but then you have to figure out actually how you’re going to monetize that. I think it’s really just a function of how much leverage do you want to use as a private company, and I just say that’s the biggest impediment to going public and going public at the right price.

I mean, we lived that. At the time when we went public with a $950 million EBITDA business, when we went public in 2020, we had to do a very large IPO because the business we were operating — the business — six, seven turns of leverage we had to use. We had to do a $3 billion IPO, which is a very large IPO today — now a large IPO six years ago. Today, I mean, when you’re talking about IPOs of $75 billion to $250 billion, maybe we’re in a different market.

But from my perspective, listen, if the public markets want to see leverage somewhere between three and a half and four turns, right, initially out of the gate, you just have to backsolve for what that looks like in terms of an IPO. And again, do you want to run the business at six turns of leverage and then have to take out two turns of leverage on an IPO? And if the business is, call it, $6 billion of EBITDA, that means you have to fund — to do a $12 billion IPO to delever.

Or do you want to run the business with four and a half or five turns of leverage, where you only have to do a $4 billion IPO to get into that zip code where investors want to see leverage for the longer term? Again, you can backsolve for that; you can underwrite that in your returns. Do you have to run the business with three and a half turns of leverage? No, but I think as a private company you wouldn’t run the business with five and a half to six turns of leverage. I think you would keep leverage at four and a half-ish to five turns, toggle between those as a private company, and then that sets up a very reasonable IPO if you want to re-IPO the business in four or five years.

The other thing is, you know, there is material free cash flow that comes off of this business, right? So, you know, you’re going to have — ultimately a turn of leverage doesn’t do much. Like, if you’re thinking about an incremental turn of leverage, which is, call it, $3 billion today — you know, to borrow an extra $3 billion at sort of an interest rate of 5% to 6%, you’re talking about only an incremental $150 million of interest cost to run that incremental turn of leverage.

It’s not a material number. And the business still spits off, you know, hundreds and hundreds of millions of dollars of free cash like that, which would afford you the ability to delever and grow at the same time as a private company. So a lot of different paths, but nothing — again, I think that’s just the biggest impediment to maintaining that. And obviously what you don’t want is to have a bunch of scorched earth public investors today that think they were slighted and then the business comes back to the market at 2x the value. So finding the fair value today would be a very important part because the last thing — I’m 47 years old — I have no interest in burning a bridge with public investors, although, you know, I believe it’s trading at a material discount today.

But again, those same anchors that are our top 10 shareholders today would have to be our same top 10 — or top page-one — shareholders if you were going to re-IPO. So I think that’s an important thing to do, and I’m cognizant of that if that is the path chosen. So yeah, that would be the only real impediment.

James Shum (Analyst at TD Cowen)

Okay, great. And you actually answered my next question with that as well. Maybe just going back to the M&A — sort of what you’re seeing there. Are you seeing any — like we’re hearing that maybe there’s more, and I’m talking about specifically solid waste M&A. Are you seeing more competition for deals on the solid waste M&A space? Are you seeing more private equity competition, and is that sort of maybe driving up valuations?

Patrick Dovigi (Founder and CEO)

I mean, I’ve seen more private equity around ES assets with the recent run-up over the last year and a half, two years, and sort of Clean Harbors’ execution and the fact that their multiple today is probably trading at a higher multiple than a bunch of the solid waste sector, which has driven confidence on the ES side that maybe on the environmental services business, things are where solid waste was maybe 15 to 20 years ago. So consolidation opportunities have stepped up.

Now, that being said, I’ve seen valuations in that business move up on large-scale assets. I think if you think about businesses that are — historically what we do is acquiring businesses $1 to $10 million of EBITDA — I haven’t seen much of a change in that size of business. Where you’ve seen some change, I think, is in the upper end of the range, when you’re talking about businesses that are $75 to $100 million of EBITDA, where you’ve seen valuations step up because you have a private equity firm that could potentially get a management team and look to use that as a platform and then buy down that multiple with incremental, less expensive M&A. Right? So I think that’s where you’re seeing it. I don’t really see it in terms of what our core business is and what we do every day.

James Shum (Analyst at TD Cowen)

Got it. Very helpful, thank you.

OPERATOR

Your next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open. Please go ahead.

Shlomo Rosenbaum (Analyst at Stifel)

Hi, good morning. Thank you for taking my questions. Patrick, I want to ask you a little bit just about the impact of diesel more broadly. You talked about some of the indirect costs in terms of some transportation and some parts. But are you seeing any of that creeping into broader stuff like labor, and how are you thinking about that in terms of going into next year? We talked a little about pricing, maybe pricing coming down, and we’ve seen pricing come down since the last inflation run-up. But should we start to think that maybe that could start going the other direction in response to some potential inflation that’s building because of the season?

Patrick Dovigi (Founder and CEO)

Yeah, I mean, listen, again, quick movement in fuel economy, you know, knee jerks, you’re going to have to push through price. I mean, I think going to Luke’s point, you know, annualized impact, probably 125 million. We’ve recovered well, we will recover 90 to 95 to 100 of that. So, you know, there’s a little bit of a lag, sort of municipal contracts and other things. I think like other businesses that have a transportation component to their business, again, whether it’s parts, whether it’s long haul trucking, again, they’re going to need to recover that.

Those indirect costs will have to be recovered. So depending on what happens with fuel… Yeah, that could yield to incremental price that we need to put through in 2027 versus what we thought maybe three to four months ago. But again, the industry, you know, whether it’s Waste Connections, whether it’s Waste Management, whether it’s Republic, whether it’s Casella, whether it’s the large independents or the smaller independents, we’re all in the same boat. And I think the industry has shown a very good discipline around pricing and having to price appropriately to cover our sort of internal cost of inflation. And you saw that through COVID, as internal cost inflation declined, pricing came down.

If inflation goes up, we will price accordingly, and we will do so in a disciplined fashion. No one is doing it in an egregious nature. And I think that’s why people love waste. And, you know, you look at the results again, Waste Connections printed an exceptional quarter. Waste Management, from my perspective, printed an exceptional quarter. I mean, the industry is doing exactly what it’s supposed to do in the face of whatever challenges are being thrown at us.

You know, a couple years ago it was labor, you know, now this year it’s fuel, you know, and I think whatever gets thrown at us, we can handle and we can adapt to as an industry. And, you know, that’s what we’ll do. Okay, thank you.

Shlomo Rosenbaum (Analyst at Stifel)

Just for a follow-up, maybe, Luke, I think you talked about a $13 million contract that you exited, and I was wondering if you could give a little bit more of a description as to what it was. And it seems like it wasn’t providing much profitability. So it sounded like it was somewhat empty calories. But is that the same type of impact of 13 million that we should expect, or what’s being incorporated in the guide for next quarter as well?

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, that’s right, Shlomo. It’s a contract where we provide a whole host of broad-based recycling-related services. We used to have a meaningful transportation component whereby we were coordinating third-party transportation and effectively just passing that through, being a broker on that piece. As part of restructuring the contract, we’re no longer doing that component of it. So although there’s $30 million of gross revenue going away, the profitability of that was de minimis.

And so you’ll have that same impact in Q4 as well. And so I think I said in prepared remarks that Q4 volumes will decelerate and it’ll be negative. But a big component of that is, again, just that $13 million. And if you back that out and some other sort of puts and takes, you really have just this base underlying volume being sort of flattish.

Shlomo Rosenbaum (Analyst at Stifel)

All right, thank you.

OPERATOR

Your next question comes from the line of Chris Murray with ATB Capital Markets. Your line is now open. Please go ahead.

Chris Murray (Analyst at ATB Capital Markets)

Yeah, thanks, folks. Good morning. Maybe just turning to some of the subs, especially GIP. You know, when we listen to you talk about the process you’re going through right now, I wonder if it changes your opinion of the infrastructure business, especially as we’ve seen multiples in the construction space move up, and just trying to get a sense of what you would think fair value is on that. I know you guys mark-to-market the earnings, but just any thoughts around GIP or even the ES business would be helpful.

Patrick Dovigi (Founder and CEO)

You know, I think, again, multiples—start with ES. You know, I think, again, the operating plan was very straightforward for that business. We had a five-year plan, carved that business out, was doing 475 to 500 million of EBITDA inside the public company. Today, over the last year and a half to two years, that’s grown to 675. Over five years, we had a plan to grow that business to roughly a billion dollars of EBITDA and have roughly five turns of debt on that business.

Now those businesses today are trading between 15 and 16 times. So do I want to do something with that business today? Absolutely not. I think that would be very short-sighted given the operating plan and the plan we have for that business to continue growing that business over the next, you know, two and a half to three years. But again, you run that math. Take a billion of EBITDA, put a 15 to 16 times multiple on that. It’ll have roughly five to five and a half turns of debt. There’s, you know, call it ten-plus billion dollars of equity value sitting there, of which we own, you know, 40%. If we buy it back at a fixed multiple of 1.8 times, right, that we would owe the existing shareholders in that, roughly, you would have, you know, 5 billion of debt. You would owe those other shareholders roughly sort of five to five and a half billion.

You have 10 billion, you’d have five to six billion of equity value of that business in, call it, two and a half years. GIP—you know, again, we carved that business out just doing over 200 million of EBITDA. Today that’s grown to 350 million of EBITDA, has a very robust acquisition pipeline, a very large organic pipeline. Given where we’ve specialized our work, we’ve won multiple projects, you know, that are coming online. We recently got a quarry permit in Newfoundland that’s going to supply a lot of the Northeast into the U.S. all the way down to Florida—a quarry that’ll probably generate somewhere between 25 and 50 million of EBITDA, depending on how much volume we bring out of that quarry.

There’s just a lot of upside in that business. Again, plan is to grow that to sort of 500 to 550 million of EBITDA and then look to sort of, again, monetize a big chunk again. But again, we’re two to two and a half years away from doing that on both of those businesses. Yes, you could do it sooner, but I don’t see any reason why we would do that today and not continue executing that plan. And again, like I said, I think between those two businesses over the next two and a half years, you probably have in the neighborhood of six to seven billion dollars that’ll come back to GFL Environmental shareholders of value that will be created in those two businesses alone, on top of the value that we create inside the public company.

Chris Murray (Analyst at ATB Capital Markets)

Okay, I’ll leave it there. Thanks, guys.

OPERATOR

Your next question comes from the line of Adam Bubs with Goldman Sachs. Your line is now open. Please go ahead.

Adam Bubs (Analyst at Goldman Sachs)

Hi, good morning. Wondering if you could just talk about your assessment of runway for M&A in the U.S. and relative attractiveness of the opportunities for Canada. And then without the public market scrutiny, how much M&A would you have the capacity and could you pursue based on the opportunity pipeline if you were private.

Patrick Dovigi (Founder and CEO)

Yeah. I think, again, if you’re going to stay within the normal algorithm, right—if I roll out to 2027, I think between organic capex spends and M&A spend, and again share buybacks, you could probably today, back-of-the-envelope math, probably deploy 1.3 to sort of 1.4 billion and stay within the leverage targets that the public investors want. And over the next three to four years, as the business continues to grow, that number grows. Right. So I think over the next three or four years that number will grow to somewhere closer to 2 billion that you could deploy.

I think as a private company, if you had less of a focus on sort of leverage and maintaining those targets, I think that 1.3 to 1.4, you could actually deploy somewhere between 2 and 2.2 billion a year, and that number would grow as the business grows. So I think you basically have a 600 to 700 million dollar a year delta versus what you could spend as a private company versus a public company if you didn’t have the scrutiny of maintaining that sort of leverage target.

So I think that’s really the real delta. And over a five-year period you spent an extra 600 to 700 million a year; you know, you’re basically spending an incremental 3 billion dollars over that period. And obviously at the private company you wouldn’t be spending any money on share buybacks. So you could—if share buybacks became a part of your capital allocation framework—you would be using that for growth projects versus share buybacks. So I think that’s the real delta over the next five years.

Adam Bubs (Analyst at Goldman Sachs)

Got it, that’s clear. And then, Luke, you talked about adjusted free cash flow conversion potentially getting above 40% next year. When we just think about the flow-through to discretionary free cash flow, how much of that 1.3 billion of adjusted free cash flow could you actually realize on sort of an unadjusted basis? It sounds like there’s 150, maybe plus, million of capex. Any other big moving pieces we should be thinking about on that bridge?

Luke Pelosi, CA (Executive Vice President & Chief Financial Officer)

Yeah, we’re going to have to wait to ’27. As Patrick said, you know, evaluating growth capex—that would obviously be a piece of it as you think about that bridge. But otherwise, you know, ex that, you have the normal course items we’ve talked about before, right. You have leases coming off of that, we will have some integration costs, et cetera. So I think—I know there’s been focus on the delta between unadjusted and adjusted. This used to be a focus at our EBITDA line, and as our EBITDA grew, the relative impact of those adjustments staying flat, on a degree of importance, just diminishes.

And the same thing is happening at the free cash flow line now. I mean, the overall lease and other costs that are a drag against that do not grow at the same rate as the free cash flow base, and you’re going to get operating leverage on that. You have to wait till ’27 official guidance where we’ll have the specific pieces.

Adam Bubs (Analyst at Goldman Sachs)

Great. Thanks so much.

OPERATOR

There are no further questions at this time. I will now turn the call back to Mr. Dovigi for closing remarks.

Patrick Dovigi (Founder and CEO)

Thank you, everyone, and look forward to connecting with our Q4 results.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

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