So all that together, we think over the next two years to three years, all of that happens. And I say, by 2026, you have a real sort of turning point on sort of on margins and the free cash flow profile of the entire business and free cash flow conversion as we sort of move there.
Chris Murray: Okay. That’s helpful. I’ll leave it there. Thanks guys.
Patrick Dovigi: Thank you.
Operator: Thank you. With our last question for the day from James Schumm from TD Cowen. James, your line is now open.
James Schumm: Hey guys. Good morning. Nice quarter. Patrick, maybe just to follow up on that last point. So by 2026, do you think that your margin free cash flow profile will sort of equal your larger peers? Do you think you can fully catch up?
Patrick Dovigi: I think the free cash flow conversion will still continue to lag a little, but that’s just solely from the capital structure perspective. I think on margin perspective, you’re definitely going to be there and I think you’re still have a little bit of the lag just in terms of the way our RNG portfolio is structured, right? Because you’re going to get even a contribution from the RNG portfolio, but the first dollars out of the RNG project actually go to repay a portion of the debt. That’s the way they’re sort of structured today. So, you’re going to have a year and a half basically payback on those and then you’re going to you get the ramp of the free cash flow and that. But from a margin perspective, again, you look at EPR, you look at RNG, you look at all the self-help opportunities internally.
I think headline margin numbers certainly are going to be there, free cash flow conversion and we’ll get there. It just might be sort of a year to year and a half behind.
James Schumm: Right. Right. Great. Thanks for that. And then just on the M&A front, as you noted, you’re around $500 million of M&A. So tracking ahead there for the year, how do you think about that strategically going forward for the rest of the year? Do you continue to bid on tuck-in work? Do you put more low ball bids out there? And I’m just trying to think about how you strategically handle as you get closer to your target $600 million to $650 million. Do you put in some low bids and if you win them and exceed your guidance, so be it because it’s a great opportunity or is that $600 million to $650 million a hard cap that you’re definitely not going to surpass?
Patrick Dovigi: The $600 million to $650 million is definitely a hard cap. We’ve committed to that in the capital allocation framework. That’s what drives the — that’s what drives where we’re going to end up on a leverage level. So all of that is what we are going do. Again, the full — we have very — acquisitions just don’t happen in a week, right? So we have very good visibility on where the pipeline sits, what we’re going to close over the next couple of quarters. And then, we’re getting to a point in the year where, again, acquisitions, like I said, don’t happen in a week, generally take six months to eight months between negotiations with sellers implemented and sometimes they take years. But we feel very comfortable in that number.
Obviously there’ll be rollover. We’re getting to the point where we’re getting now where we can start pushing stuff until 2025. But for 2024, we’re definitely committed to the framework. We’re definitely continuing to the committed to the leverage levels. And I think as that rolls into 2025, I think we got a question from someone over the course of the night, are you just going to honor this for 2024 and then drive leverage back up in 2025 with an influx of deals and the answer to that is no. I think if you look at the free cash flow generation, the organic margin expansion, the organic growth in the base business, how much capacity that gives us for M&A, while that — while still driving down leverage. I mean, that puts us squarely sort of sub-mid-3s next year for 2025.
So, that’s the model we’re working towards. So no, I feel very comfortable with what we put out and we are going to stick to that hard cap.
James Schumm: Okay, great. Thanks for the answers guys. Appreciate it.
Patrick Dovigi: Thanks.
Luke Pelosi: Thank you.
Operator: Thank you.
Patrick Dovigi: Okay.
Operator: We have no further questions for the line. I will now hand back to the management team for closing remarks.
Patrick Dovigi: Thank you everyone. Much appreciated. We look forward to speaking to everyone after our Q2 results in July. Thank you very much.
Operator: Thank you. Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.
