Rupert Merer: Great. And then as a follow-up, on a somewhat related company, wondering if you can give us an update on GFL Infrastructure? How are they doing? And what are your plans for future involvement?
Patrick Dovigi: Yes. I mean, infrastructure business, obviously, as you know, there’s a lot of projects that have recently come to the fruition. The business, again, just we had to sort of I just said last call, running through some of the inflationary costs and pressures on some fixed rate contracts, which are rolling off between now and sort of mid-2024. But we are bringing on sort of a lot of new work, and we’ve been shortlisted for a lot of new work. And the outlook for that business is sort of very positive. We will be opportunistic with that business when the time comes. My expectation is we’re going to get through 2024 and into 2025. And hopefully, the world is sort of in a better place, and we’ll look to sort of maximize and optimize value out of that business in some format, the way we’ve done with every other sort of part of our business over time.
But it’s performing well, it’s great. And I think when you look at the infrastructure spends that particularly the government, both in sort of Eastern Canada and Western Canada looking to spend, particularly around transportation. When you look at the infrastructure budget today, around 80% of the infrastructure spends are hospitals and roads, which are things that are right down the middle of fairway exactly what we do. So we think it will be a very positive outcome.
Rupert Merer: Great. I leave it there. Thank you.
Patrick Dovigi: Thanks, Rupert.
Operator: Thank you for your question. Our next question comes from the line of Michael Doumet with Scotiabank. Michael, your line is now open.
Michael Doumet: Hey, good morning, guys. So just a question on the 2024 margin – on the 2024 margin expansion, I know it’s still early, but would you be able to quantify the market expansion from the divestiture, as well as the intentional volume shedding this year into next year because presumably, that would be additive to the price cost spread?
Luke Pelosi: Yes. That’s right. I mean, the net M&A number will be a function of the impact of the divestitures, which is slightly margin accretive and solid and relatively neutral to sort of baseline number in conjunction with the incremental net new rollover. And what we’re going to do, Michael, is part of the 2024 guide, we’ll lay out all those sort of moving pieces based on where we end up for this year. And we’ve contemplated internally actually providing the specific numbers for Q1 and Q2 related to those divestitures, so folks can model that appropriately. But we are going to wait till Q4 before we get into the particulars of that nature.
Michael Doumet: Okay. Thank you. And then maybe just turning to the inflation trends in the business, particularly as it relates to labor and R&M, maybe just discuss what you’re seeing today versus the first half and how you’re tracking into 2024?
Luke Pelosi: Yes. This is Luke speaking. I’d say at a high level, it’s trending as anticipated, albeit at a slower rate. I mean, the labor line, it’s clear that things are getting better. I don’t think it’s quite as improvement, as we had hoped for, but certainly at the sort of wage rate and the rate of wage inflation you’re seeing improvement there. I think on the R&M side, I don’t think we’re alone within the industry, where we said headwinds in that line have continued to persist. Again, appears to be getting better. Supply chain improvements are providing the trucks that we are missing. We look at the rental trucks that we were using last Q4 versus today, and that number has come down sort of 90%, right, which I think is indicative of the improvement in the sort of supply chain constraints.
But as we said on the call, in Q2, I mean, our expectations for the improvement of that R&M line in the back half of the year, we’re probably going to exit the year, 50 basis points, 70 basis points, as a higher R&M cost and percentage of revenue than we previously anticipated. So I’d say everything appears to be moving in the right direction, albeit a little bit slower than anticipated.
Michael Doumet: Thanks for that. And one quick one, just for the capital outlay for M&A in Q4 for the deals completed?
Luke Pelosi: Sorry. What have we spent subsequent quarter end? It’s about $200 million approximately post quarter end.
Michael Doumet: Perfect. Thanks for the questions guys.
Luke Pelosi: Thanks, Michael.
Operator: Thank you for your question. Our next question comes from the line of Walter Spracklin with RBC. Walter, your line is now open.
Walter Spracklin: Yes, thanks very much operator. Good morning everyone. I just wanted to zero in on the pricing, and I know some focus has been on that having to come down, as you lap harder comps, but I’m a little more focused on the spread and the evolution of the spread. I know you touched on labor and some of the costs there. But I get the sense that at 8.8%, you’ve now expanded your pricing to well cover costs, and you’re in a pretty good spot here now. And even if that headline pricing comes down, my question is whether you can hold on to a little bit higher spread than what you’ve been able to hold on to in the past, given the stickiness in some of those contracted pricing? Just your thoughts on that spread?
Luke Pelosi: Hey Walter, it’s Luke speaking. I think that’s absolutely right. And while price is decelerating, it’s doing so at a slower pace than cost. And so, you’re going to have this widening of the spread. I think if I look at pricing into next year, it’s not going to be as high as it was this year. But I think we feel highly confident we’re going to have a wider spread than we did this year because this year was really the sort of tale of two halves, right? And the double-digit price recorded in Q1 was lovely to see as a headline, but you saw that margins were backwards year-over-year. And as prices come down, the margin expansion, I think, is really what we’re after. And so, we’re feeling really optimistic about the 2024 setup.
And it’s partially for that exact reason that I think you’re going to have this more stable cost number, might be a little bit higher than what we had hoped for when we started 2023. But I think we’ve demonstrated that us and the industry, as a whole will price at the level we need to be. And I think the backdrop is very favorable going into 2024.
Walter Spracklin: That’s great. And just my follow-up here is on the tenor of the M&A pipeline. And I know you dialed back a little bit your acquisitions or the tempo a bit for this year as you realigned leverage down toward the 4% level. And I know you’ve got 3.5% kind of penciled in for end of year next year. Is that predicated on a consistent level of M&A that you’ve seen this year? Or can you as you become more cash flow generative start to reaccelerate your M&A and still be able to achieve that mid-3 target for next year?
Patrick Dovigi: Yes. So I think from where we sit today, it’s going to be a question of what you buy, where you buy, what the synergies are, et cetera, and what price you have to pay for those targets. So that is all going to go in the blender in terms of where we look at how we deploy those dollars, coupled together with how many dollars we have to deploy into these EPR related initiatives. I mean, we’re looking at the EPR spend bucket and M&A as one. So it’s really just deploying those dollars and where is the capital best allocated once we see the whole host of opportunities that are going to – in the final plan that sort of comes out of EPR. Do I think we’re going to see a material acceleration? No, the answer is no.
