GFL Environmental Inc
TSX:GFL
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GFL Environmental Inc
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Good morning, and welcome to the GFL Environmental Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Patrick Dovigi, Founder and CEO. Please go ahead.
Thank you, and good morning. I'd like to welcome everyone to today's call, and thank you for joining us. This morning, we will be reviewing our results for the fourth quarter. We will also provide our outlook for 2021 as well as additional considerations through to 2023. I'm joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into the details.
Thank you, Patrick, and good morning, everyone. Please note that we have filed our earnings press release, which includes important information. The press release is available on our website. Also, we have prepared a presentation to accompany this call that is also available on our website. During this call, we will be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today's date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments or otherwise. This call will include a discussion of certain non-IFRS measures. A reconciliation of these non-IFRS measures can be found in our filings with the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick, who will start off on Page 3 of the presentation.
Thank you, Luke. I want to start this morning with a recap of 2020, as I believe it has been an extraordinary year on many fronts. On Page 3 of the presentation, we have a summary of the many ways in which we have delivered on the commitments, which we made at the time of our IPO. While the numbers speak for themselves, I want to acknowledge that none of these achievements could have been possible without the dedication, contributions, countless hours and love that each employee has for this company. From our frontline workers to our employees, who support our operations in the field, and all of our corporate office employees, GFL is full of heroes. All of our employees did their part to help GFL navigate successfully through 2020, keeping each other safe and ensuring that we continue to meet our commitments to service all of our customers. There is no doubt that the most important part of any business is the people. If you have dedicated, loyal and hardworking employees, you'll have a successful business. I have never been more proud of what our employees working together in the face of great uncertainty accomplished in 2020. It is truly inspirational. I have said many times over the years, never let a good crisis go to waste. But as we headed into Q2, we had no idea how much we would all be challenged by the impact of the COVID-19 pandemic, both personally and professionally, or that we would be able to achieve so much in the face of a global crisis. Even as we faced many obstacles, we're able to take advantage of market opportunities and deliver on the commitments we made to our stakeholders at the time of the IPO, and more, including: we expanded our EBITDA margins 100 basis points despite unprecedented COVID-related volume declines across much of the platform; we deployed nearly $4 billion on strategic accretive acquisitions; we reduced our cost of debt by almost 200 basis points; we delevered our balance sheet by over 3 turns; and we accomplished all of this while being -- delivering the best safety stats in GFL's history. To expand on the M&A comment, the majority of the $4 billion that was deployed on 2 larger acquisitions in Q1 and the WCA, WM/ADS acquisitions in Q4. The WCA and WM/ADS integrations remain on track, and we remain confident in the opportunities we previously outlined for these deals. The Q4 revenue contribution from both of these businesses exceeded our expectations, and early indications from 2021 are also positive. During Q4, we also closed 7 smaller tuck-in transactions, and the pipeline has lined up such that 2021 could be another outsized year for M&A, something we will touch on more in the guidance portion of the call. During 2020, we were also able to make great progress on our sustainability initiatives. Sustainability has always been a core value of GFL. We recognized early on that providing customers with sustainable environmental solutions would be a key value proposition for all of our stakeholders. To name a few of our most notable achievements in 2020, we published our first sustainability report, which highlights the many ways in which sustainability is in our DNA, something for which we are very proud of. Our Winnipeg MRF was named the 2020 Recycling Facility of the Year by the National Waste & Recycling Association, and our Environmental Innovation Program was recognized by -- with a 2020 SEAL Environmental Initiative Award. We will be issuing specific goals and targets with our 2021 Sustainability Report, so stay tuned for that. From my perspective, the most exciting part of 2020 is how it has set us up for 2021 and beyond. We have assembled the pieces of the puzzle to build that we believe is a rock-solid foundation that we can leverage for exceptional high-quality growth over the next several years. And this is where we want to spend the majority of our time this morning, talking about not only our 2021 guidance, but also our outlook for incremental opportunities that we see going out to 2023. We believe that we have a unique set of circumstances for industry-leading free cash flow growth over the midterm and want to highlight the basic building blocks for our plan. However, we get into 2021 and beyond, we will quickly summarize how the fourth quarter ended up. I'll pass it over to Luke, who will take you through the details, but at a high level, we exceeded our plans on nearly every level. Despite even greater-than-expected COVID-related headwinds in our Eastern Canadian business, revenue increased by 37%, and the business as a whole returned to overall positive organic growth for the first time since the first quarter. Solid waste pricing ended the year strong, thanks to late Q3 pricing initiatives, and volumes continue to show meaningful sequential improvements across all of our lines of business. Consistent with what we said before, our liquid and infrastructure business have been the most impacted by COVID-related volume declines, but we continue to believe that these volumes will return and the meaningful sequential improvements in the business during the quarter are supported by that view. At the adjusted EBITDA margin line, the fourth quarter saw expansion of 190 basis points, driven by continued margin expansion in our solid and liquid waste businesses, partially offset by the compression in our infrastructure line. Our solid waste business ended the year as a whole at a 30% margin, an outcome in excess of what we had guided to toward an area where we think we can continue to build on. And lastly, we ended the year with nearly $360 million of adjusted free cash flow. While we are extremely happy with this outcome, we see a clear path to more than doubling free cash flow over the next few years, and that's what we'll focus on as we continue to discuss guidance. I'll now pass the call over to Luke.
Thanks, Patrick. I'll walk through the next couple of pages of the deck summarizing the fourth quarter results, and then I'll pass it back to Patrick as we get into the outlook section. On Page 4, we have provided our usual summary of revenue growth by operating segment. Revenue increased over 37% compared to the prior year period, driven by M&A contribution, strong solid waste pricing and continued sequential volume improvements. Overall organic revenue growth was 320 basis points greater than Q3 and was positive overall for the first time since Q1. For the quarter, we exceeded our expectations and realized 3.6% net price, thanks to pricing activity in late Q3. Again, our overall pricing in the solid waste business in the current year continues to be impacted by suppressed IC&I volumes and by negative CPI adjustments on certain municipal contracts. With Q4 as a result, however, we ended the year with 3.9% net price, an outcome we're very happy with and one that emboldens our confidence in being able to continue to deliver on our stated pricing goals as we look forward. Consistent with the third quarter, we also realized an incremental 70 basis points tied to commodity prices, where we realized the blended basket price nearly 40% higher than that of the prior year and up over 15% from the third quarter. As we continue moving our contracts towards a fixed-price processing model, we will see less volatility in our results tied to movements in OCC and other commodities. Solid waste collection volumes were down 3%, a 60 basis point improvement over the third quarter, which was driven by a 5% decrease in IC&I, offset by nearly flat volume in residential. IC&I volumes were 250 basis points better than in the third quarter as we continue to see sequential improvements across nearly all of our markets. Post-collection volumes were positive 10.5%, a 200 basis point improvement over the third quarter, and once again largely on the strength of MRF processing volumes in Canada. Excluding MRF volumes, post-collection volumes were negative 7.4% for the quarter, which was slightly behind the 6.9% decline we saw in Q3, but largely attributable to a tough comp in our organics processing servicing line as both transfer station and landfill volumes were meaningfully better than Q3. The volume story remains regional-specific, with our Eastern Canada solid waste business, where incremental COVID restrictions were implemented during Q4, continuing to lag our other markets where reopening activities have progressed at a faster rate. As Patrick mentioned, the WM/ADS and WCA acquisitions contributed revenue just over USD 155 million on a same-store basis, which was $10 million more than our original guidance, which we believe indicates that seasonality profile of the assets is not as pronounced as we had thought, but it's also an early validation of our expectation on those 2 acquisitions. To recap the solid waste volume story for the year: Q2 was negative 8.3%, Q3 was negative 2% and Q4 was basically flat. With the overall volume numbers were support -- while the overall volume numbers were supported by the strength of our expanding MRF operations and the Canadian residential contracts, where we're paid by the ton and benefited from heavier curb weights, we nonetheless think these results are a true testament to the resilience of our overall platform. Our infrastructure and liquid waste businesses saw the greatest sequential improvements over Q3, and we remain encouraged by that trend line. We continue to believe that the combination of permit delays, driven by COVID-related shutdowns, and temporary capital spending deferral by our customers are yielding a slower volume recovery than we've seen in solid waste, but the volumes will return as reopening activities continue. The regional nuances we described in Q3 continue to be at play, with soil volumes in the U.S. Northeast and liquid volumes in the U.S. Midwest lagging the recoveries we've seen in our Canadian markets. Used motor oil volumes continue to lag the prior year, but the gap continues to close from the low we saw in Q2. When we get to our outlook section, you will see we're taking a more conservative view on the expected timing of the recovery of these businesses. But again, we believe it's just the timing. And when the volume returns, we will enjoy above-average growth as our customers catch up on previously deferred spending. On Page 5, we have presented margins by segment for the quarter and for the year as a whole. Once again consistent with Q3, we expanded solid waste margins by 240 basis points in the fourth quarter, an achievement, we believe, once again demonstrates the success we are having with our multi-pronged strategy of leveraging the platform to drive incremental profitability. The key components of the solid waste margin walk include 57 basis points from lower diesel costs and 45 basis points from commodity pricing, partially offset by 10 basis points headwind from incremental COVID-related costs. Acquisitions were slightly margin accretive at the segment level as the recent M&A in the U.S., which contributed margins higher than our base business, offset the drag from tuck-ins in Canada that are yet to achieve what we believe to their full margin-accretive potential. Excluding these items, our base solid waste business continue to realize organic margin expansion despite ongoing COVID-related volume headwinds. On infrastructure and soil, we continue to see margins impacted by the change in volume mix, whereby we are seeing a smaller proportion of total volumes coming from low-volume, high-frequency customers. This change in mix, coupled with the relatively higher fixed-cost structure of this segment, resulted in margin compression despite our continued focus on cost control strategies. As we said last quarter, we fully expect that, as volumes recover, we'll see significant margin expansion consistent with our view that this segment can be a low 20s margin business in the near to midterm. Our liquid waste business showed the strongest relative recovery of all of our segments, with 910 sequential basis points improvement in organic revenue versus the third quarter. We continue to flex operating costs out of the business and this focus on cost containment, coupled with continued synergy realization and a nearly 28% increase in net used motor oil selling prices, drove the organic margin expansion as compared to the prior year. Similar to our commentary in Q3, when you think about the $9 million revenue decrease from lower liquid volumes on a year-over-year basis, the realized margin expansion highlights the underlying operating leverage we are realizing in this segment. We remain confident in our views that the liquid segment can be a better-than-mid-20s-margin business in the near to midterm. Turning to Page 6. Adjusted cash flows from operating activities were $240 million for the quarter and $767 million for the year, results that exceeded our expectations and the guidance we've previously provided. In the reconciliation, you will note that the calculation of our adjusted free cash flow, we backed out the net working capital investments we made in the fourth quarter on the 2 recent deals. As we highlighted on our Q3 call, the WM/ADS acquisition did not come with opening working capital, atypical for us on a transaction that size and a dynamic that was factored into our valuation. So we view the initial investment in working capital to financing activity and backing down of the operating activities on that basis. Turning to broader working capital management. Our efforts around our order to cash cycle time are continuing to contribute to our success. Recall, our guide was to end the year neutral in terms of working capital, and we ended up $5 million positive, including the $16 million net drag from the recent M&A. So like-for-like, we ended at plus $21 million of the working capital line, an outcome we're very happy with, considering the backdrop. In terms of credit exposures, the quarter did not see any significant incremental bad debt. As we said before, we continue to actively monitor exposures in light of the uncertain landscape. When thinking about cash from operations in Q4 as compared to Q3, it's important to consider the timing of our cash interest payments. Q4 included $126 million of cash interest, excluding the $35.5 million of debt prepayment penalties, versus $36 million of cash interest costs included in Q3. With recent refinancings, we've been thoughtful about equalizing the cash interest payment cadence across the quarters. Although there will still be some volatility in 2021, the cadence by the end of the year will be closer to a straight-line pattern of interest payments. Net CapEx for the quarter was $117 million. Recall, our guide for Q4 was $90 million for the base business and additional approximately $50 million for potential incremental organic growth and the Q4 acquisitions, both the integration CapEx and regular CapEx for those businesses. When you unpack the $117 million, what you have is the organic number right in line with guidance and the cash spend on the recent M&A coming in lower than expectations, but that's largely just a timing issue. We remain confident in the ongoing CapEx needs for these 2 businesses, as previously communicated. We deployed an incremental $80 million for 7 tuck-ins during the quarter, over half of which was at December 31. We think these acquisitions will generate approximately $30 million of annualized revenue. Although, to clarify, over half of this revenue was already included in the rollover guide we provided in Q3. The main cash flow from financing activities are listed on Page 6. As you've seen, we've continued our strategy of pursuing opportunistic refinancings, and I think the success of that strategy is speaking for itself. Although there are costs associated with the refinancing, such as the $35 million incurred in Q4, the interest rate differentials are so significant that the payback and returns analysis remain highly compelling. We are constantly evaluating opportunities to reduce our borrowing costs, and you will see us continue to assess the debt markets as attractive opportunities present themselves. We presented a full year adjusted free cash flow at the bottom of the page. And I would highlight the number there reflects both our pre- and post-IPO structure, and so it's not necessarily representative of our true current run rate. In the guidance section, we'll walk through where we think we can take adjusted free cash flow over the next couple of years. Quickly on Page 7. Once again, we've included a summary of net leverage, consistent with how we presented in the past. All I'll say here is that we ended the year in line with our previous messaging, and we remain committed to the leverage philosophies we have discussed with each of you at length. We continue to have ample liquidity to support our growth goals, while delevering our balance sheet and reducing our cost of borrowing along the way. I'll now turn the call over to Patrick, who will pick up on Page 9 in the presentation.
Thanks, Luke. Before we get into guidance, I wanted to provide some context as we're going to do things a little bit different than some of our peers. Although we are managers, first and foremost, we are shareholders, and I believe we have some of the best incentive alignment in our industry. I started this company in 2007 with $250,000, which is all the money I had at the time. Since then, through a lot of blood, sweat and tears, both mine and our employees, the support of our various partners and a little bit of luck, we have grown the business into the fourth largest environmental services waste management company in North America. I'm personally one of the largest single shareholders, and I would argue no one is more incentivized to see GFL continue to succeed over the long term. And when you look at the broader management team, both the other NEOs and the other field-level leaders, you'll also see best-in-class shareholder alignment as the broader management team has a material amount of equity in this business. As I've said before, this is a management team that knows how to create equity value. We've done it for over the past 13 years, and we see a very clear path to creating material incremental equity value in the near to midterm. This is why, in addition to providing our 2021 guidance, we are also going to provide our outlook through to 2023. We see clear opportunity to significantly grow our free cash flow, and we want to make sure everyone has the same building blocks that we're thinking about. So turning to Page 10. We've laid out how we plan to do it. What's summarized on this page is the same as the 4 pillars of our strategy that we've been speaking of since our IPO. We will continue to speak to these over the next several years, and we believe they are the cornerstones of our path to creating long-term shareholder value. First, organic growth. As we've said, we think our market and asset position, together with where we are at in optimizing the pricing of our existing portfolio, positions us for outsized organic growth compared to the industry as a whole. Continuing to leverage our leadership position in many sustainable service offerings should add to our growth opportunities as regulations and sentiment continue to evolve on ESG-related matters. And finally, we see opportunities for capital redeployment, where we would look to divest of certain noncore assets around the edges of our platform and reinvest those proceeds into organic growth initiatives in our core markets. This is a fourth lever, we believe, can add incremental organic growth, particularly on the free cash flow line. Second, margin expansion. We've continuously said that we believe we have the path to raise margins across all of our segments and bring the blended business to a high 27% growth, 28% margin over the next few years. I think we've proved our strategy is working in 2020, increasing margins by 100 basis points during a period when many others were going in the other direction. And what we did despite that compression in our infrastructure business, as Luke explained, we think we can expand margins in our base business another 80 to 90 basis points in 2021. And that's with our conservative views on volume growth and reopenings, which Luke will outline in a moment. When volume growth returns to what I would call more normal levels, we expect high incremental contributions, which can drive higher margins expansion even further. The third pillar is reducing our cost of debt. We have decreased our average interest cost to long-term debt by almost 200 basis points since 2019. And although we are very proud of that achievement, we still have an average cost of interest at about 4.5%, which is a number we think can significantly improve. We will outline what we think is the art of possible in this area, but we think there's easily another $50 million of incremental free cash flow we can generate over the next several years from this lever alone. The final pillar is M&A. I will dive into this area in detail in a minute, but suffice to say, we believe there is significant opportunity to deploy capital to attract -- at attractive multiples for assets in the long run will be very accretive to our business. These 4 pillars are areas you'll hear us talk about a lot as we execute on our strategy over the next few years. I'm now going to pass the call over to Luke, who will walk through the 2021 guide for our base business. I will then identify some incremental opportunities that allow -- we are not including in our -- although we're not including in our base guidance, are areas that we believe can meaningfully impact our launch-off point going into 2022.
Okay. So on Page 11, we've shown the building blocks of our guide. What I'd say is that this outlook is based on the environment and market conditions we see today. We've now factored material easing of COVID-related restrictions nor the anticipated volume increases that we expect to see with reopening activities. While we, like I'm sure many of you, are extremely hopeful that we can get to the other side of this pandemic as soon as possible, we've perceived too much uncertainty, particularly in our Canadian markets, to make a call as to whether that will be 3, 6 or 9 months from now. So we've provided the guide on what we see today. Looking at the waterfall. We're assuming solid waste price in the 3.5% to 4% range, consistent with our past messaging. With continued restrictions in many of our Canadian markets and suppressed ICI volumes across the entire platform, we're now expecting to materially outperform this range in 2021. However, we continue to see outsized pricing opportunities within our portfolio that we intend to go after once normality returns. Inflationary expectations should offset some of the negative CPI adjustments we experienced in 2020, and ongoing discipline around ensuring any underpriced residential contracts are renewed at rates that meet our return thresholds should serve to support our pricing goals. On solid waste volumes, we're seeing approximately 0.5 point to 1 point of growth. Now we know some of expectations were higher growth number here, but I remind everyone of the following 2 points. One is we had a lower volume decline during the year than much of the industry, so we're coming off of a higher low, if you will. And two, we have a bigger proportion of our revenues coming from Canada, much of which is still under some of the most restrictive lockdowns, and we think, on average, maybe a quarter or 2 behind the U.S. in terms of reopening time lines. From a cadence perspective, we're anticipating Q1 will be low single digits negative volume, inclusive of the drag in the extra day in February 2020. Q2 should be low to mid-single digits positive on the easy comp, and Q3 and Q4 flat to modestly positive. Again, should reopening activities accelerate and see a rebound in IC&I volumes from where we are today, that would be upside to the guide. Thus, in respect of commodity pricing, as we continue to move more and more of our contracts to a fixed-processing charge model, we're seeing less variability in our results from movements in commodity. The guide assumes 2021 plays out the pricing we saw at the end of 2020, which equates to approximately $9 million or $10 million of incremental revenue that flows through at a high incremental margin. On liquid and infrastructure, we're taking a more tempered view in terms of when volumes return. Despite the significant sequential increases we've seen in the recovery of these segments, the tough comp over Q1 2020 and the concentration of revenue in some of the harder-hit regions of the Northeast and in Canada and the lagging when customers' capital spending programs gear back up, all leads us to think '21 in more conservative growth terms. We've shown the 2 segments together, but when you unpack it, we're thinking of liquid in the mid-single digits and infrastructure basically flat. On the M&A roll-forward, this reflects the approximately $900 million we previously communicated, plus the late December M&A, reduced slightly in response to revised views on seasonality in the current winter situation in the south, and then grossed up to the 1.34 FX rate to be presented on a constant currency basis for 2020. We're providing our guide assuming a 1.27 FX rate, so that last stepping stone on the page is to bring the Canadian equivalent of our roughly $2.4 billion US dollar-denominated revenue down from the average 2020 exchange rate of 1.34 to 1.27. That 4% for FX equates to about $170 million, and is roughly split $50 million related to the rollover M&A and $120 million on the base business. For every point move of FX, revenue changes by approximately $24 million, and we'll provide details of impacts from FX as we report during the year. So that's the revenue bridge. For your modeling considerations, remember, we still have relative seasonality in our business, largely driven by our more northern geographies. The cadence of the annual revenue is expected to be approximately 22% to 23% in Q1, 24% to 25% in Q2, 26% to 27% in Q3 and the balance in Q4. In terms of the M&A rollover, expect $250 million to $260 million in Q1, $270 million-ish in Q2, approximately $280 million in Q3 and the balance in Q4. If you look at Page 12, we have shown what that revenue translates through in terms of adjusted EBITDA, free cash flow and leverage. Remember, none of this guidance includes any incremental M&A or refinancing activities. For adjusted EBITDA, we forecast to be able to drive an incremental 90 basis points of margin expansion, and we're expecting that expansion pretty consistently across each of the segments. When you think about the EBITDA walk, using the middle of our guidance range after adjusting for the 1.27 FX, we're expecting about $240 million incremental EBITDA from acquisition rollover. Recall that the majority of the rollover M&A is a blended 28% margin, so we're expecting the 2020 M&A to be slightly decretive to the solid waste margin and slightly accretive to the overall margin. The EBITDA impact of the $120 million of FX on the base business is a headwind of about $37 million. Additionally, we have approximately $15 million of incremental public company and risk costs on a year-over-year basis. The balance of just under $100 million is organic growth. At the margin line, when you think about the 90-or-so basis points of expansion, M&A adds just under 30 basis points and commodity prices add another 10 basis points. The $15 million of incremental public and risk costs are negative 30 basis points, and the FX is negative 10 basis points. So all 4 of those items are basically awash, and what you're left with is all the expansions coming organically from the same levers that we've been pulling and expected to continue to pull as we go forward. From that adjusted EBITDA, we're guiding towards an adjusted free cash flow number of $465 million to $495 million based on expected net capital expenditures of around $510 million, cash taxes of $10 million, a modest improvement in working capital, offset by repayment of CARES deferred dollars and some incremental M&A-related investment, ARO spend of about $60 million and cash interest of $300 million, which, again, is before considering the impact of any refinancing activity. So if you're thinking about an adjusted free cash flow walk, again, using the midpoint of the guidance, take the $360 million from 2020, add the '21 incremental EBITDA at just over $15 million for changes in working cap, then deduct $100 million for incremental CapEx, $34 million for the swing from CARES deferrals, $5 million for incremental cash interest and about $40 million for incremental ARO and cash taxes. And at the bottom of the page, if you run the math between where we've ended 2020 and what the model shows for 2021, you'll see the business will be levered down in the mid-4s.
Thanks, Luke. Well, Luke just walked through is our base guidance. With our current platform, capital structure and macro operating environment, we are confident we can deliver on that plan. However, on Pages 12 and 13, we have highlighted opportunities over which we have a degree of conviction, and that would be incremental to our plan. The first opportunity is incremental M&A. The integration of the recent transaction is well on track, and we remain confident in realizing the synergies we have underwritten. The business performed well in Q4 and early indications for 2021 are also looking very positive, although we are still assessing whatever minor impacts there may be even recent severe weather in the south. I think the success we were able to achieve during 2020 clearly demonstrates our ability to continue to deliver. Even in the most challenging environment, 2021 is shaping up for what could be another active year for M&A. We have a robust pipeline of actionable opportunities that fit our model, and we could envision deploying upwards of $500 million of capital across 25 to 30 tuck-in transactions throughout our existing geographies. These smaller tuck-in acquisitions can be entirely self-financed primarily with our own free cash flow, which will allow for deleveraging as we grow. We are also evaluating one larger opportunity, a business that we have known for years, but was never actionable. It is entirely within our existing footprint, and we believe will be highly complementary. Timing of that acquisition signing could be in the next few weeks, with closing potentially in the second half of the year, and we would not need any equity to finance this potential transaction. Any impact from this acquisition will be additive to what I said about the tuck-in acquisitions. In addition to M&A, on Page 14, we have laid out 2 additional areas of opportunity for 2021. The first is refinancing, which we think is a real opportunity to replace our 8.5% notes with much cheaper paper and reprice our term loan. We conservatively estimate that those initiatives could result in $20 million to $30 million of annual savings. As always, we will be opportunistic depending on market windows, and there could be a path to even more savings here, but we think $20 million to $30 million is an achievable outcome. The other item is capital redeployment, and we think 2021 could be a year where we clean up our portfolio around the edges, realizing proceeds of $100 million to $125 million and redeploying those dollars into attractive organic growth initiatives in some of our key growth markets. The potential of divested assets that we are considering are ones that are underutilized in our portfolio, and as a result, suboptimal free cash flow generators. So while the impact to revenue and adjusted EBITDA would likely be somewhat muted, we think we'll be able to drive an incremental $10 million to $15 million of adjusted free cash flow from the redeployment. So if you turn to Page 15, we've shown a bridge of what the launch-off point for 2022 could be for adjusted free cash flow. Now we intentionally have not incorporated the upside from these opportunities in our 2021 guidance as the timing and quantum of the impact is still uncertain at this point. However, we feel highly confident in our ability to realize the upside by the end of the year, and therefore, we're thinking about an adjusted free cash flow launch-off point in 2022 somewhere in the $550 million range, representing over 10% of revenue and approaching 40% conversion from adjusted EBITDA. Then to take it one step further, we present a similar exercise for 2022 and 2023. Now obviously, 2023 is a few years out, and that world may look a little bit different by then. But all we're trying to show on Page 16 is that the inflection point we have reached and the power of the model that we've built. The top of the page lays out the organic growth impacts based on the same revenue growth drivers we've been talking about all along, assumptions I would characterize as highly conservative for 2022 when you think about the potential for outsized growth as we get on the other side of this pandemic. The middle of the page has M&A assumptions acquiring $160 million to $240 million of revenue per year, which we think is also pretty conservative. I think the highlight on the M&A point is these deals become more and more free cash flow accretive as they truly tuck in to our largely self-financed free cash flow model. And finally, at the bottom of the page, we have refinancing. As the legacy debt becomes callable, we believe we can replace this with cheaper options and drive another incremental of $20 million to $30 million of adjusted free cash flow through lower cash interest expense. On Page 17, we've laid out the waterfall and showing that, in our view, you don't need to believe much to see a pretty clear path to 2020 for free cash flow launch-off point of around $800 million. We understand this approach is unconventional. We said that in the opening remarks. But it's our intent that everyone could go in to update their models for the upside opportunities as communicated. Our preference would be for people to think about these, the base businesses that exist today, and then we will update as and when we announce new transactions. We just see some very clear building blocks for how we can more than double our 2020 free cash flow over the next few years and wanted to lay those out on a piece of paper for all to see. I'm sure there's a couple of questions, so I'll turn it over to the operator to open up the line for Q&A.
[Operator Instructions] The first question comes from Hamzah Mazari from Jefferies.
Thank you for all the detail. Just from the free cash flow, the long-term targets that you laid out with M&A refinancing, et cetera. Could you maybe talk about how achievable you think these metrics are? I know investors don't have a lot of public history with you guys. So do you just talk about -- do you view these targets as conservative? Maybe just unpack the free cash flow growth a little bit for us.
Yes. Hamzah, it's Luke. What I would say -- I mean the components are all laid on the page, right, between the organic, the M&A and the refinancing. I mean, you're right, we have a short history in the public market window. And I think, well, the one thing we have picked up is the under-promise and over-deliver strategy. And so when we looked about each of those levers, we think the opportunity to outperform what we've laid on the page is there on all 3 of the buckets. Now the organic piece, obviously, is still time -- conditional on the timing of when things reopen. But you've heard from others, and I think the industry, as a whole, view is that it feels like things are about to take off like a rocket ship. It's just a matter of when that hits. And when it does, I think the volume component of that incremental free cash flow could be far in excess of what we've sort of laid out on the page. But the pricing strategy is there, and that's working. The volume story, we think, will come and will be exciting when it does. We're just uncertain on the matter of when. But if you think about the incrementals that are going to come from that volume, I think it could far outperform the modest organic free cash flow growth that's on that page. And then on the sort of nonorganic piece, the financings and the M&A, I mean, again, we realize we've been in the public sphere for a short period time, but we've been doing this for a long period of time. And what I would say is we have a high degree of conviction that we can outperform those 2 buckets, but we wanted to put down some conservative views. So folks could at least see how we were thinking about it. Patrick, I'm not sure if there's any other pieces.
Yes. Hamzah, I would just say, from my perspective, this isn't a 6 to 9-month sort of -- I know there's been a big focus on volume. But I think what you've seen over the last year is that this business has been really resilient. And it's the whole sector, it's not just GFL. I mean it's been subject to basic regional reopenings. And I think we've all performed, I would say, exceptionally well. And I think what this has proved is, like most businesses, I don't think what people understand is that even with sort of volume declines, all of us were able to maintain price, which is not something you see in every industry. So I think when you layer that on and then you look at the hockey stick effect that's going to come in late 2021 and 2022 and 2023, sporting events reopening, hotels reopening, restaurants, schools, like just -- office buildings, I mean, there's just a big amount of volume that's going to come in. And I think we're taking a very conservative approach to what we think organic is going to be, but I think we're in a very good place today.
Got it. That's very helpful. Just on the volume piece, you mentioned you're kind of extrapolating what you're seeing today. So the 2021 guide on volume growth, that doesn't include any vaccine expectations, or what's your sort of underlying economic assumptions for the further volume guide? So just looking to see what potential upside...
So we've modeled basically what we saw in Q4, what we saw in Q1. I mean, I think, the U.S. is probably moving quicker than, clearly, Canada. I mean, I remember, 40% of our revenue today is going to come from Canada. So Canada has been much more conservative on the reopenings. Now I think that's going to ramp up significantly with vaccines here over the next couple of months. So I think Canada is probably 4 to 5 months behind the U.S. But that being said, we haven't modeled any significant improvements in where we are today. So that's why, going back to Luke's point, I think we've taken a very conservative approach. And there's probably going to be upside to those numbers as things start coming back online relatively quickly here.
Got you. And then you referenced sort of the near-term pipeline of M&A over the next 2 years. Could you maybe talk about longer term? Is there something larger you can do, Patrick? And what are your sort of long-term plans as you think about a much, much larger transaction long term, just given your overlap with some of the other larger players in the public arena?
Okay. Well, what I would say is, firstly, I'm a shareholder, right? And my job here is to create shareholder value. So at the end of the day, I'm not here to practice, we're here to win, which, in turn, means everybody on this call is going to win. So I mean that's the way I think about it in my own mind. I mean in terms of our pipeline and opportunities of M&A, like we've said, the pipeline is robust. If you look today, we have almost 13 tuck-in transactions under LOI, again, which we haven't modeled. And like I said, we talked about 1 larger transaction. Truthfully, a business that we looked at over the last 7 years but could just never get the deal over the line for whatever reason. And I'm not one to surprise people in the public markets. I mean, I think, that is an acquisition we're actively working on. And I think it could be signing as weeks away what's closing will be in sort of Q3. So I mean that's what the pipeline sort of looks like for 2021. So you put that all in a blender, I think we're set up. In terms of a larger transaction, I mean, who knows, I guess, is probably the word. Sure, I mean, when you look at it as a shareholder, I mean, you really have to assess culturally 2 companies come together because that's where they're going to succeed or fail. And then, financially, would it work? And can you make more money together than apart? I mean if you look at the industry as a whole, big deals have been successful over the years, at least as I've been in the industry, whether as a Republican allied, whether it was Waste Connections integration, or whether it was recently WM/ADS, I think, done right, you can make money. And I think all of those companies have done those well over the years. So I mean, who knows, but whether we're included in one of those or we're -- we happen to be the company that gets to pick up the divestitures from someone else merging would be a good outcome as well. But who knows?
Well, you're a young guy, you've got a long road ahead of you. So that's great.
Our next question comes from Mark Neville from Scotiabank.
I appreciate all the detail here. There's lots to chew through. Maybe just starting on the M&A. Just so I'm clear, all the M&A that you sort of talked about, all the tuck in, again, it would be -- the plan is to self on that, and maybe there is a need for some incremental debt, but no equity, correct?
Correct. So for the small tuck-in M&A as well as the larger transaction, we would not need any incremental equity. We could self-fund through maybe a little bit more borrowing and using the free cash flow to offset any of the leverage-related issues, and again, with the commitment to still maintain leverage in the mid-4s.
Right. So the larger deal you've referenced doesn't change that equation?
No. No. No equity would be required. I mean that shows -- that gives you -- from conviction from our side on sort of the multiple we'd be paying and the synergy opportunity on the existing group of transactions that I say referencing that are under LOI plus the large amount.
Is that large one solid waste?
I'm not going to get into detail on it, but I think it's safe to say a portion of it is.
Okay. Okay. Maybe just on the margin. Again, just to be clear, the 2021, you haven't really assumed much upside to the volume, but there's a little bit baked in, in terms of volume recovery, 2022, 2023, that sort of helps the margin out. Correct?
Yes, Mark, this is Luke. I think that's right. Obviously, 90 bps of organic expansion in 2021, there is some positive volume. We think when the volume comes back, it's obviously at a high sort of incrementals, but very modest and conservative in the quantum of that sort of volume. I mean if you look today and you think about what the sort of price is to get back, I mean, on the solid side, we're probably missing $110 million, $130 million of sort of revenue, right? Like that's the sort of lost volume, if you look for the year to what we would have had. I mean when that comes back, we anticipate, particularly considering it's mostly in post-collection and sort of IC&I, that's very margin accretive when that comes back. So we've been quite conservative in the portion of that, that we're anticipating back in 2021, and then the pretty plain vanilla growth in 2022 and '23 that we put out there, obviously, isn't inclusive of any sort of hockey stick recovery there either. And then also on the liquid and infrastructure, I mean you're probably missing about $60 million in liquid and call it another $40 million to $50 million in infrastructure, which is very, very high accretive margins, right, just because of the sort of fixed cost nature of those businesses. So again, a little bit of expansion on each of those businesses. But when that volume fully returns, whether that be late 2021 or early 2022 or sometime thereafter, we think that represents meaningful upside to the numbers we've laid out.
And just -- again, just sort of just take on what you've said, and again, I haven't done all the math yet, but this -- again, just sort of -- the incremental margin you spoke about in different lines of business, did it sort of get you through the targets that you sort of referenced earlier in the call for low 20s, mid-20s, and I think close to 30%? Is that sort of where you sort of land by 2023 as you sort of hit all these targets loosely or roughly?
Yes. I think it's not just the volume, but also just looking at what -- how we've been sort of flexing the business, realizing the synergies of all that we've brought together. So I think it's really all of those levers together. Our pricing programs are working on the middle and now the expectation of leveraging the sort of refined cost structure that we have as that new volume comes back, I think it's all those things together that now gives us further conviction of achieving those sort of broader margin targets in totality and by segment as we have articulated.
Our next question comes from Michael Hoffman from Stifel.
Patrick, Luke, hope you're having a good day up there. Just to be clear, your '21 to '23 plan doesn't, in actual fact, pick up $210 million of pandemic-lost business. Because it's -- you're only showing 0.5 point to 1 point of volume growth.
That is correct.
That is correct, Michael.
Right. Okay. So that -- so there's a double whammy here, do your job every day plus the upside -- the reopening trade.
Correct.
Okay. Sure. Now I'm going to ask you some short-term questions. The $105 million to $135 million of year-over-year free cash flow growth, if you broke it into 3 buckets, cash interest, operating leverage and M&A, how does that -- if you want to take the midpoint and split it up, how does that split up?
So cash interest, right, I mean, if you look through the normalization we did in 2020 and effectively saying 2020's cash interest was, what, a $295 million, and now I'm telling you our guide for next year is $300 million. So there's a minus $5 million from cash interest. You have -- the CapEx line year-over-year is going up by $100 million. So you have that. And then -- sorry, the last number you referenced, Michael, you're talking about...
So I was thinking of it more from a standpoint of operational leverage and then M&A. So just a business, what's the operational leverage to free cash? What's the M&A leverage to free cash offset by negative $5 million, $4 million?
Yes. So if you go about it that way, I mean, if you take the M&A, I mean, effectively saying the M&A is adding -- the EBITDA from the M&A coming in sort of high 230s, if you incorporate that in a walk from 2020, you take 2020's number of $360 million, you normalize that for FX. Now the FX, you get some wins on the interest in CapEx line, but net-net, FX would have been a sort of $20 million drag. And if you walk through that, what you're going to see, I think, is implied organic on the base number. You have about $60 million, $65 million of organic sort of free cash flow in that level, which is sort of 17%, 18%. So I think when you strip out all the M&A and the other sort of noise, that's what you're really left with the sort of operating leverage being driven by the business.
Okay. And then the other number I'd like to zero in on, your cash flow from ops range has improved as a percentage of revenues pretty meaningfully from low double digits up to almost 20%. You're sort of 19.5%, 20% for '21. To hit a lot of what you're laying out, that cash flow from ops number needs to improve, and it's not just net income doing that. So how much working capital do we have to play with that can come out of this model and help drive this into a 22%, 23% of revenues, just cash flow from ops?
Yes. So the cash flow from ops in 2020, I mean, you really need to look at the adjusted number. Obviously, in the first quarter, a lot of sort of noise in that number. And so when you look at the adjusted of where it's at, the $770 million we had sort of for the year and where that's going. I think there's sort of less of a lock at that point, right? And so really, what you're seeing here is the interest component, right? If there's a $300 million drag at the interest line, we're really now leveraging that. We're going forward to adding all the sort of incremental net income, if you will, but without any incremental sort of interest coming off of that. So you're getting, I think, a lot of leverage on that line. Working capital, I mean, in the guide we're giving, this year, working capital, there's some noise with CARES, et cetera, but really just modeling a modest working capital improvement for next year. So sort of on the base business, if you will, kind of plus $10 million to $15 million. We think the working capital price, as we've said, in the business is far in excess of that. But again, a lot of that exists in our legacy sort of Canadian business. And just with the uncertainty on reopenings, et cetera, we didn't think 2021 was the year to guide to a big sort of price on that piece. It's still there. I think it's probably just more a 2022-plus number. So really, I think, once you've normalized and looked at our 2020 adjusted cash from ops as a starting point, you see it's really starting to leverage that sort of finance cost component of it, which historically has been a large drag. And you're being able to see the sort of true sort of operating income margin of the business come out, come through.
Okay. And then in -- back in the fourth quarter and several different virtual settings, Patrick, you offered up that liquid, while it was a good business, why you grew it, it isn't necessarily core to the long-term strategy. Do you still maintain that thesis?
I mean, like I said from before, if someone wanted to pay us a big price for it, I think it was something we would look at. I think where we sit today, the business is recovering exceptionally well. Canada almost hit budget for the actual year. I mean our biggest impact was really in the Midwest operations and liquid waste business. So our Canadian business ran at above mid-20s margins for the year. And I think it's recovering well. And I think it's set up to do exceptionally well this year. So I mean, our view is, just sort of given the relative size and scale, we're going to keep -- we're going to -- my view is, is to keep it. It's a good growth vehicle. It's a good free cash flow generator. At this point, I don't see a reason that we would do something with it.
But you would entertain it if it pays the right value for it, is what you're saying?
Sure. Like anything, right? Anybody -- any line of business, I guess, if someone wanted to -- again, we would assess whatever that would be at any time.
And then on the portfolio cleanup, what's the timing of those proceeds showing up? Or do you have a line of sight on that?
Yes. So I mean, the view is, I think it's a first half of 2021. So I mean, I think, definitely line of sight. The anticipation is we'll get it done in the first half of 2021.
And then last one for me. Is there anything you can do to help take the volatility out of the infrastructure margins?
I mean -- prior to COVID? I mean it was like a beautiful sort of -- again, it's more of a regional issue, right? Like we have exposure to Ontario and Québec and BC in that market. And the Northeast is where one of our facilities are. Now the amount of infrastructure dollars, I can tell you that -- are being announced in Canada and even through the Northeast. We bid on to those facilities. I mean going back to your earlier point, in the recovery, I don't know exactly when. But I would say by late Q3, beginning of Q4, we're going to experience in that LOB what we've experienced, really, from 2016 through to 2019 when COVID hit. I mean there is a significant backlog of projects and things that are essential that actually have to move. If you look at the Ontario market and Québec market, the amount of transportation spending that's been announced. I mean we're just sort of hit dead smack in the middle of where we receive a lot of the volumes. And you look at a bunch of the opportunities on the West Coast and some of the recent projects that have been priced to go into our Northeast facilities, I mean, I think, it's going to be -- I'm pretty bullish about it. I mean there's nothing you can really do today in this situation. But I think you're going to see that recover at faster rates than you see the rest of the business just because of the impact that we experienced for the last year in that business.
Our next speaker is Walter Spracklin, and he comes from RBC Capital Markets.
So I'd like to come back on your thoughts on leverage and clarify a couple of things. So first of all, you ended the year 4.6. You said you could deploy all of the capital, the $350 million to $500 million in a self -- kind of self-financing way on the $350 million to $500 million, but then there's the larger acquisition on top of that. So I think you answered the question that you could do both without the need for equity, so both the $350 million to $500 million plus the larger acquisition. And would that imply -- essentially, you might go above 5 by the end of the year, but a line of sight to get back down to mid- to low 4, 1 year later. Are we looking at that at the right way or is there something?
Yes. No, I mean, you're directionally correct, but leverage would stay generally in the same range that it would be today if the larger acquisitions are done.
Walter, I think the thing to consider is we start the year at 4.6. That's going to naturally delever. Even if you do the small tuck-in M&A, you're still going to delever as you go throughout the year. So if you get -- by the time you get in to the back half, which is when if something larger would potentially close, you brought leverage down and then you're able to sort of do that acquisition, we're still respecting that high -- mid- to high 4s cap that we've talked about historically. Going above 5 is not in the cards.
Got it. Perfect. Okay. That's great. Just a small one here. The free cash flow guide, you put refi as a kind of an opportunity for that $20 million to $30 million. Why is it an opportunity and not built in your free cash flow guide? What would stop you from doing something like that in 2021?
I think, from our perspective, when we modeled it, it's just -- to be honest with you, it was just analyst models like -- of when that actually got realized. And we typically do it when there's an opportunistic point in time to do it. So that could happen next week. It could happen in May. It could happen in June. So I think the view was that we would just make everybody aware of it when it was done so people could update their models. But our view is it's going to get done imminently, whenever that is, when that market window is there for us, to execute in the best way, but it's going to happen sooner rather than later.
Yes. Walter, I don't think we'd characterize it much different than the sort of outsized volume recovery and M&A. We think those are both things that are probably going to happen in the year, but just don't know exactly when. And so we'd rather just articulate the art of the possible in terms of what that could look like so people could consider that on the side, but don't have it sort of taint, if you will, the base business guide of what we have today. That's really the sort of thought around it.
Got it. That totally makes sense. Okay. And last question here is really on strategic focus. When you look at your book of business right now in terms of what markets -- or not markets but segments you're in, you mentioned the sale of noncore. Can you give us some color around how you see your business side of your kind of the solid waste aspect? What areas do you like where you see opportunity to scale up? And what would be areas that really might be too small within your organization that you might look to divest?
Yes. I mean so from -- like we said before, there's a couple of markets that we've acquired with recent businesses that, again, they're good assets. They're just, in our view, probably more strategic value to some players in those markets where we just don't see a real opportunity for us to really want to deploy a significant amount of capital because we have better use for our capital. I think, from an M&A perspective, I think, again, capital allocation. And like we said, all of the capital that we have allocated for 2021 is going to go into the existing markets in the existing business lines that we're already in. So that's the 9 provinces in Canada and 27 states in the U.S. I think there is -- probably, it's more a little bit heavily weighted to Canada today. And again, from my perspective, I think it's an attractive time to acquire in Canada. Number one, we did a lot in the U.S., and those guys are integrating and digesting. But in Canada, the guys have largely been sitting on the sidelines for a little bit. And I think it's an opportune time to acquire. I mean, you get to see the highs of some of these businesses that you're on in 2018 and 2019. You watched the lows. You're valuing them off an LTM number that's probably more reasonable than it was in 2018 and 2019. We have ultra-low interest rates and then we're going to have, in our view, a very strong recovery through 2022 and 2023. So I think now is the time to sort of deploy that capital. I mean when you look at the borrowing rates, I mean, we're borrowing money at -- we're talking of borrowing money at 1.5% to 2.5%. I mean one could argue, is that an asset or is that actually a liability? Like -- and that's on a -- probably on a pretax base. So I think we're in a very good spot today with the platform. And again, I mean, the ones that are maybe the most accretive to us are going to be the ones within that footprint today. And given that platform that we have, I think we're just going to, again, juice as much of the fruit as we can within that platform, and I think that's going to be the most synergistic.
Our next question comes from Adam Jonathan from ADW Capital.
Patrick, this is Adam Wyden. I guess they have Jonathan in there, our analyst. So look, I think you guys have done a lot of numerical kind of conversation. And I just want to take a step back. I mean, you're basically 1 year into your IPO, and you still trade at basically 3.5 turns, cheap for waste connections. You clearly have a much longer runway in front of you. Your guidance and your shareholder value creation kind of initiatives are far more ambitious than theirs. Can you talk a little bit about what do you think you can do to narrow that gap in terms of communicating it? And then I have a couple of questions kind of qualitatively about the tuck-in program.
Sure. Yes. I mean, from my perspective, it's just, again, continuing to execute on the strategy that we've deployed. I mean, I think, from our perspective, again, we're all continuing to grow free cash flow at double-digit rates, continuing to execute on the M&A. And then over time, the value, from my perspective, will accrete. And we'll continue to close the gap. We started very far behind at the beginning of the year and the gap sort of closed over the next little while. And I think, as we continue executing on the strategy, we'll continue to get the respect and trust of the public investor base.
All right. So let me ask a question. We've been a shareholder now for almost a year. I mean, as most of you know, we do an enormous amount of primary research on our companies, and all industries. And what our observation has been is that these larger companies, whether it's -- look, waste management roll-ups are not new to society, right? You've got [ Weihang ], you've got good, you've got bad. And it feels like you guys have been doing it a little bit differently. Based on our research, you guys have been very focused on buying platforms and then doing tuck-ins. And without getting into specifics on different markets, but I mean, our understanding is you buy an ADSW, you buy WCA, you were in Michigan, you bought Rizzo. It's our understanding that you can buy these things at whenever, anywhere up to 7.5x EBITDA, but once you roll in the back office and you basically integrate the assets, you can get them to kind of low singles. But even more importantly, if they're on an existing route, you can drive utilization on your existing trucks, i.e., sell their trucks, run them on your trucks and then increase the purchasing trucks on future trucks. And so when we do our own kind of back-the-envelope map, your return on invested capital is far better than your peer group as a function of kind of how you do integrations. Can you talk about kind of what you see in WCA and ADSW and your ability to drive return on invested capital and margin? I mean, look, numbers are numbers, but I think it's really helpful for me as an investor and perhaps other key people that are new to the waste management industry to qualitatively understand the strengths of your business model or your peers.
Yes. It's a simple model, right? I mean you go in, you buy a platform, you buy these post-collection operations, like landfills, transportation, recycling facilities. You go on with a base of business. And then you go in and the tuck-in strategy works really well around those assets because the incremental margin that you get from a volume that you're tucking into those existing facilities. And eliminate going in. I mean, you have the SG&A savings out of the gate. And then you have the operational synergies around facility consolidation and routing opportunities, and that's where you're going to see the bulk of this year due. And when you do that, you're going to eliminate a significant amount of cost, you're going to do acquisitions, and you're going to delever naturally at the same time because of the actual effective purchase price of those acquisitions. So I think it all holds together. I think you're right in saying that's what it is. And I think, from a scalability perspective and where we are in terms of the overall CAGR number, we're probably in a unique position because we're smaller than the larger big 3 today. And I think from a CAGR perspective, our number is going to look a lot larger just because we're in the -- we are aware they were sort of 7, 8, 10 years ago. So I think we're in a great spot. I mean, I think we've done M&A well. The integration team is exceptional here. They've done this calendar time. The business development team is here. We have a very well oiled machine, as most of you know. We've done a lot previous to 2020, did a lot in 2020. And the factory continues to run here. So I think we're positioned very well for 2021 and 2022, for sure.
But I mean, look, without throwing your competitors under the bus, I mean, I know you're doing business or family yourself the fastest. In at least from our study of the industry historically, most people have not taken the approach to the industry that you have, i.e., they buy -- they bought bigger assets, they run them independently, maybe they get purchasing synergies on trucks. But I mean, in terms of combining routes, in terms of combining back office, I mean the level and scale of integration doesn't -- is somewhat unprecedented. I mean you guys have a huge M&A team '18. Waste Connection's has 2 guys. I mean, look, I know you have to be careful what you say, like, I think it's important to distinguish in an industry where it's capital-intensive and you can trust in this and that you guys are doing it better. And not just a little bit better, a lot better. I mean, can you comment on that?
I don't know what the other competitors have in terms of their business development team. I know we do it well. And like I said earlier, we're not here to practice. We're here to win. So we will continue doing what we've done for the last 14 years. And like I said earlier, you guys will all be the benefactor of that. And this is -- again, this is not a sprint, it's sort of a marathon. So we'll continue executing the same way we have the last 14 years.
Very good. Well, look, I look forward to seeing your cost of capital payout to your peers. Obviously, you guys have proven that even without it. You've been able to create substantial shareholder value. So I appreciate all the hard work.
Our next question comes from Tyler Brown from Raymond James.
Luke, you may have mentioned this in the prepared remarks, but what is the expectation for closure, post-closure just out the door annually based on the landfill fleet today?
$55 million to $60 million.
Okay. And since we're kind of on this, I don't know if you guys have this off hand. But again, based on the fleet today, how much annual airspace do you think you consume? And I don't know if you could split that between Canada and the U.S.?
Tyler, I'm going to have -- I got -- I tried to purposely have my prepared remarks address all your questions, but you caught me off guard with that one. So I'm going to have to -- I have to get back to you on that.
Yes. No problem. No problem. And just my last -- I know this call has been long already. But at a very high level, how much of the revenue is tied to CPI? And I don't know if you can break that also into U.S. and Canada as well?
Yes. So if you think about -- I mean, CPI, ultimately, everything. But contractually, I mean, if you look at the residential revenue, on that line of business, you have a $1.2 billion of revenue going into next year. And now you have about $300 million in Canada, which you should think, basically, virtually, all is some sort of CPI-type escalator, then you have the other $900 million in the U.S. Now that the $900 million in the U.S., you have about $300 million of that $900 million is subscription, right? So more like open market pricing, and therefore, you're left with that sort of CAD 600, but in the U.S., that would be tied to a CPI-type escalator. I know there's a lot of great work being done in the industry by moving to sort of sewer and water main and et cetera. And we look forward to being sort of joining that train, but we are -- we have a de minimis amount of that today. So the vast majority of that $600 million that's not subscription would be CPI in the U.S. Then you'd have a little bit of MRF -- in the MRFs and in the post-collection, where municipalities are using our landfills. But by and large, it's in residential collection line, Mark.
Our next question comes from Kevin Chiang, and he's from CIBC.
[indiscernible] my question. Apology if I missed this. Just in terms of initiate into outside opportunities, just wondering how -- just wondering how that must change your cash tax profile over the next few years?
Yes, Kevin, you were very difficult to hear. If I understand, you're saying, with all the guidance, what does that look like on the cash taxes line? That's the question?
That's correct, yes. That's correct.
Yes. So if you look today, we continue to have meaningful sort of tax shield that's going to push out any meaningful cash taxes to sort of beyond 2024. Obviously, the extent to which we continue to invest in the business, both organically and inorganically, if there's any outsized investments, that can sort of augment and continue to push that out from a further sort of runway perspective. Let's say, today, in Canada, there's very clear path to growing in 2025 and beyond with no meaningful cash taxes. The U.S., absent some other M&A or other things by time you get to 2025, you'll eventually start sort of pivoting to a cash tax payer. We continue to look at ways to be as effective and efficient as possible there. And obviously, incremental deployment of M&A dollars will help provide additional buffer at that tax line.
Our next question comes from Tim James from TD Securities.
I was just wondering if you could talk about how you're seeing the resilience of the Canadian markets? And I'm thinking kind of liquid waste and in soil and infrastructure here in particular, just kind of a comparison between Canada and the U.S. in terms of the resiliency to the restrictions. Is there any difference there in how it's impacting the business?
I mean on the infrastructure side, it's really just been around -- mostly around delays. The backlog and the amount of work that has to get done and continues to be announced is significant. And again, I think when you look at the U.S., again, it's very regional specific, depending on the regions where you're operating. We're in the Northeastern U.S., so again, that will be a little harder hit than some other markets in the Sun Belt where it's less impactive. Now it's all coming back and the projects are going and the facilities through the early part of the year starting to see the volume come back. But I think, in Canada, on the liquid waste side, particularly, I mean, listen, post the original shutdown, everything has basically stayed open. And again, we don't have really any exposure to E&P. This is all really around sort of manufacturing, industrial-type uses, and all those have been deemed essential and continue to stay open. So that business really largely tracked back to almost hitting budget by the end of the year, which is an exceptional result. So I think it's really just that. I think versus some of the other places in the U.S. where we operate in the Midwest, there was more capital deferral. Again, so those projects will get done probably in the second half of 2021, but more of an impact while people were going through their own capital mitigation procedures.
Okay. And then just quickly, I'm wondering if you can just provide us with a bit of an update on the integration of your 2 big acquisitions from late last year. It sounds like the results that they generated in the fourth quarter were very good relative to your expectations. Just in terms of kind of the integration process, anything kind of turning up that's better than expected or more challenging than expected?
Yes. Tim, it's Luke here. I'd say quickly, just the last minute or so before we have to end. I mean the ADS/WM business, I think, all things considered from both sides. And I think WM made similar their comments was about as good as one could have expected. I mean although the delays with the process there were painful, it did afford everyone a lot of time for planning and preparation. And I think that was about as seamless as one could hope. Yes, there's hiccups here and there. But by and large, day 1, that was an asset deal, moved over to our systems and platforms. And by December 31, it switched everything over. I think we rely on WM for some Internet services in some locations. Other than that, basically completely integrated on the back end. And now we're executing on operational overlap, where we can drive sort of incremental cost savings in those markets that there was overlap. So I'd say that business and integration thereof went phenomenally successful, and we're very, very happy with how that came together. WCA was a bit more of a staggered approach. Again, there was really a back-office consolidation there, minimal geographic overlap. So the integration was very much a sort of corporate back-office one. The first wave of that happened at the time of closing is really focused on the sort of C-suite, which was effective and happened as per plan. And then it will be mid-Q2, where we do the full conversion of the corporate office into our existing shared services centers. So the planning for that, how they've been reporting in the meantime, I'd say all is very much on track. The synergy realization, approximately $15 million that we've underwritten, also on track. And again, all these things have sort of hiccups, but one of the experiences you get through all the practice we've had is figuring out how to sort of manage through those, which I think the team has done exceptionally well.
This concludes our question-and-answer session. I would like to turn the conference back over to Patrick Dovigi for closing remarks.
Thank you very much, everyone, and look forward to speaking to you after Q1.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.