This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good morning and welcome to the GFL environmental first quarter earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Patrick DiVigi, founder and CEO of GFL. Please go ahead.
spk07: Thank you and good morning. I would like to welcome everyone to today's call and thank you for joining us. This morning, we will be reviewing our results for the first quarter. I am joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into the details.
spk06: Thank you, Patrick, and good morning, everyone, and thank you for joining. 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'll 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 the 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 the 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. We'll start off on page three of the presentation.
spk07: Thank you, Luke. We are extremely pleased with our first quarter results, which exceeded our expectations across nearly every metric we tracked. At a high level, we grew adjusted EBITDA by nearly 40% and expanded margins by nearly 200 basis points, which we believe is a testament to the effectiveness of the overall growth strategies which we've articulated since the time of our IPO just over a year ago. Solid waste margins were 31%, the highest in our history, and achieved during our first quarter, which historically is our seasonally lowest margin quarter, and in the face of significant COVID disruptions. This is our fifth quarter of reporting as a public company and our fifth quarter of delivering on what we said we were going to do, a trend we intend to maintain for the quarters to come. In terms of organic growth, solid waste pricing accelerated to 4% in Q1. which was above plan and driven by our strong price retention in all of our key markets. We are encouraged by this result and when considering the context of the current inflationary environment, we believe that we are well positioned to achieve the high end of our pricing outlook in 2021. Solid waste volume growth was ahead of expectations at a positive 0.4% as a result of volume improvements across our major geographies and continued success in our MRFLA and processing business in Canada. Non-MRF processing volumes improved over 110 basis points sequentially from Q4 after accounting for the extra leap day in 2020. We achieved this growth despite severe weather events in February and in certain markets that continued, or in the case of Canada, enhanced lockdown measures. For context, nearly 40% of our revenues are derived from Canada, where many major cities continue to have the most stringent COVID business closure regulations in North America. Our Q1 results reinforce our optimistic view of the position to benefit from the reopening activities in these markets, which we anticipate will lag our other geographies by three to six months. As expected, commodity values were up versus the comparable period and modestly above our guidance. Although our strategic shift towards a fixed price processing model reduces the impact from commodity volatility, the rapidly changing pricing dynamics during the quarter provided a benefit to both revenues and margins. This is a tailwind we expect to continue, although the impact in Q2 will be muted on the tougher year-over-year comparison. Consistent with prior comments, our liquid and infrastructure business have been most impacted by COVID-related volume declines. The Q1 results were in line with our plan, notwithstanding that the substantial majority of our revenue in these segments is derived from the slowest to reopen markets in our platform. Based on our current visibility, we expect that as reopening activities continue, the growth in these segments will be substantial and yield significant operating leverage. The integration of the 2020 acquisitions continue to progress on plan, and the acquired businesses exceeded our expectation for the first quarter. We announced the acquisition of TerraPure in March, and as we said on that call, we believe this transaction represents a unique opportunity to acquire a highly complementary set of free cash flow accretive assets at a compelling valuation. The regulatory review is proceeding as expected, and we anticipate closing in the second half of the year. Although the Terapeer transaction alone will result in us exceeding our M&A upside opportunities for the year by nearly two times, we also closed six small tuck-in acquisitions during the quarter and another four after the quarter end. Our pipeline remains active and we are confident in our ability to deliver on our M&A guidance even when excluding Terapeer. I'll now pass the call over to Luke, who will walk us through the details of the financial results, and then I'll share some closing perspectives before we wrap up and turn it over for questions.
spk06: Okay, so picking up on page four of the presentation, revenue increased over 27% compared to the prior year period, driven by M&A contribution, strong solid waste pricing, and continued volume improvements. Overall, organic revenue grew sequentially from Q4 despite ongoing COVID-related headwinds. Net pricing was ahead of plan at 4%, which was a sequential increase from what we saw in Q4. Our pricing continues to be impacted by suppressed IC&I volumes and rollover of negative CPI from 2020, but we should see these headwinds ease as reopening continues and in light of the inflationary environment. Commodity prices added an incremental 70 basis points of revenue growth tied to the portion of our Merck business that is not on a fixed price processing model. The overall positive solid waste volume increase of 0.4% that Patrick mentioned is just over 1.1% when removing the impact of the leaf day in the prior period and continues to be attributable to the new MERC processing contracts in Canada, which will last in early Q2. Excluding MERV processing volumes, solid waste volumes were negative 3.2% as compared to negative 3.7% in Q4, a 50 basis point sequential improvement and over 110 basis point improvement after accounting for the leap day. The volume story remains regional specific. Non-MRF volumes in Canada were negative 5.2% and negative 2% in the U.S. The acceleration of the recovery throughout the quarter was evident, and although negative for the quarter as a whole, we saw non-MRF volume turn positive in March in both regions. As Patrick mentioned, the negative infrastructure and liquid volumes were in line with our expectations, and despite continued restrictions in many of the key markets, In these segments, the indication throughout March and April are that the volumes are continuing to recover. 2020 M&A contributed just over $270 million of revenue during the quarter, $10 million above our guidance and achieved despite the challenging winter weather across much of the legacy WCA footprint. Strength in the underlying acquired-based businesses coupled with significant incremental growth opportunities identified post-acquisition have driven outperformance from these asset packages since we acquired them. FX was negative 3% versus the prior period, with a $2 million revenue headwind versus our guide. The recent strengthening of the Canadian dollar against the US dollar will yield a bigger impact in Q2. Recall that for every one point change in the FX rate, our annual revenues are impacted by about $24 million. On page five, you'll see segment results. Solid waste margins of 31% with 260 basis points ahead of the prior comparable period, evidencing the continued success we're having through our strategies to leverage the platform to drive incremental profitability. Strong pricing, cost management, and focus on productivity and asset utilization drove over 210 basis points of this organic solid waste margin expansion. Additional contributors to the margin expansion were approximately 30 basis points from the net impact of commodity pricing and higher MRF volumes, as well as 30 basis points from the one less day compared to the prior period. Partially offsetting these increases was a 10 basis point headwind from FX and M&A, which contributed margins slightly less than the segment average. Infrastructure and soil margins continue to be impacted by decreased volumes and the change in mix, coupled with the cost structure of this segment. Liquid margins increased organically nearly 50 basis points, which was substantially offset by the impact of recent M&A. As volumes recover, our expectations remain that we will see significant margin expansion through both of these segments. On page 6, you can see adjusted cash flow from operating activities nearly doubled from the comparable prior period. Adjusted pre-cash flow includes some modest incremental investment in M&A-related working capital, which we did not adjust for but had previously previewed with you. We still expect working capital to be an investment in the first half of the year and slightly positive for the year as a whole. In terms of credit exposures, the quarter did not see any significant incremental bad debt, but we continue to actively monitor our exposures and light down certain landscapes. You should note that the pre-cash flow results are inclusive of our non-linear cash interest cadence in 2021. We closed six acquisitions in the quarter, another four since quarter end, for a total of 10 deals year-to-date, for which we deployed about $150 million. We think these acquisitions will contribute approximately $60 million in annual revenue, $5 million of which was recognized in the first quarter. Net leverage at quarter end was slightly better than at Q4, and we continue to have ample liquidity to support our growth goals while de-levering our balance sheet. And finally, we continue to assess opportunities to reduce our overall cost of borrowing. With that, I'll turn the call back over to Patrick for some closing remarks.
spk07: At the end of 2020, we said that the puzzle pieces have been assembled to form an ideal foundation to drive exceptional, high-quality growth over the next several years. The complementary therapy of business and recent token acquisitions further solidify that foundation. Coupled with the constructive macro backdrop across pricing, volumes, and commodities that has further improved since the beginning of the year, we anticipate a clear path to exceeding our guidance for the year. Towards the end of the second quarter, we expect to gain better visibility on the timing of the terapia acquisition and any potential divestitures, and therefore anticipate being in a position to provide accurately revised and increased guidance when we report our Q2 results. I will now turn the call back over to the operator to open the line for Q&A.
spk00: We will now begin our question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Tyler Brown with Raymond James. Please go ahead.
spk04: Hey, good morning, guys.
spk00: Good morning, Doug.
spk04: Good morning. Hey, Patrick, so I hear you on the commentary about Canada lagging, but the organic growth was up 9% there in solid ways. I think you said that non-MERF volumes were down 5 in Canada. So are those MERF volumes adding something like 10 points to that organic growth number in Canada?
spk06: Yeah, Tyler, it's Luke. I mean, that's about right for the quarter. You have to remember, we had mid-Q2 of 2020, we had some significant success expanding that Canada Fibers platform into both Western Canada and into Quebec. And so we've been benefiting for the last couple of quarters from that sort of net new processing volume. So we've been parsing it out just because, as you said, about 9% positive volume in the quarter. We didn't want to overshadow the underlying trend of the sort of broader business. And your math is correct. You have Canada at just above 5% negative. Now, it's an improvement sequentially over Q4, but it does show as a net sort of positive number because of the strength of that MERV processing volume. And as I said in the prepared remarks, that will last in Q2, and then I'll stop sort of parsing that out because you'll have now like for like.
spk04: Okay, perfect. And then I appreciate the 2.9 volume in March, but I'm a little unclear if that includes the MERV volumes or not. But now that you've likely closed April, can you give us any color on kind of how April trended?
spk06: So what I'd say, the 2.9 does not include the MRF. So it's like for like. So you can really see that that non-MRF that was negative 3 for the quarter, but March was actually positive 2.9. So seeing the trajectory there. And look, April is going to be even better. I mean, the trend, and as the guide had suggested, would be as you start lapping those COVID quarters, you're going to see an improvement. We had our initial guide that said, you know, Q2 would be in the mid-single digits positive. I think everything we're seeing based on Q1 is probably an opportunity to do a little bit better than that. We're not going to come out and revise the guide as of today, but the indications that we're seeing are positive.
spk07: And that's in the face of the continued lockdowns in Canada. So, you know, I mean, our expectation is when they start opening up in more of a material way, you know, as we sort of come into, you know, the end of May, as my guests have been The now lockdown is supposed to come off around May 20th. I mean, I think you're going to start seeing, you know, rapid volume increases from a lot of the businesses that we service.
spk04: Okay, perfect. And then my last one here. So I think you guys mentioned six small tuck-ins, maybe four completed post-order. They're likely small, though. They don't look to be terribly small. but just any color on where those were, are those around newly acquired assets or are those more around existing assets?
spk07: So it's a mixed bag, you know, when you look at it. You know, I think the lion's share of what we did was basically in solid waste, but between sort of Missouri, Colorado, Alabama, Quebec, Ontario, a couple in Western Canada, one in Virginia, and another one in North Carolina. So it's sort of a mixed bag, all within the existing footprint of our operations today.
spk04: But definitely leveraging the ADS and WCA assets.
spk07: Correct, yeah.
spk04: Yeah, absolutely. All right. Yeah, thank you, guys.
spk00: Thanks, Tyler. The next question comes from with Jeffrey. Please go ahead.
spk01: Great. Good morning. Thank you. Just, you had mentioned, you know, pieces of the puzzle are now in place for sustainable long-term growth. Could you maybe just talk about, you know, upside to synergies, how those ramp through 2021, and sort of what we can expect sort of next year, or just sort of the cadence of the synergy upside, really?
spk07: Yeah, so I think, I mean, Hamza, I think what you're seeing is know i think from an integration perspective particularly in the larger two i mean we basically got through those on plan and unscathed without any pain um you know they did exactly what they were supposed to do and they're performing you know truthfully at or above plan which is great um you know particularly on the wm ads investors you know as a car boat there's always a bit of risk when you carve something out to make sure you're actually you know you bought what you're getting so um i think from that perspective those have gone well i think the integrations have gone well i think Getting back to the base business and some of the value creation opportunities that we saw pre-COVID, I think those have sort of bubbled up to the surface again, really largely leveraging the platform around procurement. And obviously with pricing, as we've gone back to sort of harmonize some of those books, that's sort of been brought back up to the surface now. So I think there's still opportunity, as Luke said, to continue driving solid price. And, you know, not all price is created equally as we all know, right? I think at the end of the day, you know, driving price and making sure it sticks in order to get, you know, that incremental margin expansion is where we're focused. So, and I think we're seeing that come through. And then you sort of couple that together with, you know, a very sort of deep and robust pipeline of opportunities in a bunch of the markets where we've recently acquired to drive incremental margin and profitability off the backs of a bunch of those, you know, fixed cost facilities, such as, you know, transfer stations, recycling facilities, and landfills. You know, we're just going to continue driving, buying businesses that we can continue tucking into those operations to drive incremental profitability of them. So a couple of that all together, you know, again, I keep telling back this, I think we're in the early innings here. And I think we're going to continue doing that, and I think you're just going to continue to see further expansion. And then put that together with, you know, I mean, today we're sitting in Canada and sitting in lockdown again. You know, I think this government has, you know, taken a different approach to sort of managing the lockdown, I think, but at the end of the day, it comes down to a failure to get vaccines and a failure of our healthcare system to be able to only handle a minimum amount of people going into hospitals completely. under our socialistic type healthcare system i think at the end of the day you know that is reversing and they're taking the steps that they need to and obviously vaccines have started flowing now and hospitalizations continue to decrease so as we reopen there's going to be substantial upside from the liquid in the infrastructure business obviously as things continue to reopen got it and uh
spk01: You know, just as you know, there was a small secondary recently. Maybe you could just comment on, you know, your intentions and just sort of what you view as the intrinsic value of the stock. Just any thoughts as to how you're thinking about that. I know you have a lot of equity in the business.
spk07: Yeah, so... I think I've mentioned this on call before. People have asked. I mean, you know, obviously we have a private equity sponsor that was in. And I think from our perspective, you know, very rare, I would say, for a private equity sponsor to not sell anything in the first, you know, 12 months post going public. You know, I always said that they would probably sell something in the 30s. I mean, but at the end of the day... All of us as a group believe that the stock continues to be undervalued and there's a potential upside. And I know we've only been a public company for a year, but I think we're starting to demonstrate and continue to demonstrate our ability to execute on our plan. And I think the view is from everybody that as long as we continue doing that, we're going to get continue to be appreciated by the public markets and as we continue driving that agenda forward we'll get the multiple expansion that sort of we all deserve coupled together with you know the growth opportunities that we've articulated i think from my perspective you know i didn't sell any stock um today you know i have probably 800 million of equity sitting in the company today um you know there there will be a point i am considering my own personal tax perspectives i mean as there's potential capital gains changes coming and there's potentially some reward that would require me to, you know, pay probably somewhere in the neighborhood of a $50 to $60 million tax bill to benefit myself for the years to come. So, I mean, that is my only need for capital today if, in fact, we actually go ahead with that restructuring. But, you know, I think where we sit today, there is material upside given what we have planned for the company.
spk01: Gotcha. Just last question, and I'll turn it over, is just clarification. I guess maybe if you could just comment on liquid margins. It seems like they were more positive than expected. And then in Canada, what was March volume in Canada? I know you referenced 2.9% positive. I guess that's overall volume. Thank you.
spk06: Yeah, Hamza, it's Luke. On terms of liquid margins, If you look at the sort of 10 basis point overall expansion for the segment, what you really had in there was some strong organic margin expansion offset by the contribution of M&A, which came in at a sort of decretive margin. Now, really, when you think about an 8% organic top-line growth and the fact that they're still expanding margin organically really speaks to the strength of the cost containment measures and productivity that's been put in place in that segment. Now, some of those costs will obviously come back as the volume does, but we're really encouraged by that result and see a real path to incremental operating leverage torque as the volume does come back on the basis of the Q1 experience. um in terms of canada the the 2.9 that i referenced that was talking to solid waste so where solid waste was negative 3.2 for the quarter as a whole it was positive 2.9 looking at the liquid waste business like for like that eight percent negative for the quarter was actually positive two percent in march so again a very encouraging trend line that you're seeing through that segment as well as the pace of reopening activity continues
spk01: Great. Thank you. Thanks, Hamza. Thanks, Hamza.
spk00: The next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.
spk02: Thanks very much, Operator. Good morning, everyone. Morning, Walter. Good morning, Walter. So I'd like to ask on the free cash flow. You had a very good first quarter number here on free cash flow. Seasonally, most of the expectations were that it would actually be a usage and you came in you know, with a strong positive. Just curious because, you know, networking capital can move around quarter to quarter. Was the quarter performance here, in your view, kind of clean, sustainable, and we build on it from there? Or is there any timing influences that move maybe some of the networking capital expenditure into a later quarter during the year?
spk06: Yeah, Walter, so what I would say is the result for the quarter was slightly ahead of our own internal expectations on the strength of some great sort of collection volumes. The historical seasonal cadence, when we were more predominantly focused in Canada, where you have larger swings, is tempering and moderating, as we said, and you're going to see smaller swings in each quarter. Now, with that, you know, H1 is going to continue to be a net use, and then H2 is a sort of net recovery. And so if we think about for the year as a whole, we continue to expect, even in the face of the modest incremental investment we had to make on the WMABS acquisition that rolled over from Q4 into Q1, we'll still end the year sort of slightly positive there. As we've said, we think we continue to have overall opportunities to improve working capital, but in light of the sort of uncertain dynamic in 2021, some of those opportunities would likely materialize in 2022. I think it's fair to think that Q2 will look similar to Q1, and then those two quarters will reverse in Q3 and Q4, providing sources of networking capital and ending the year sort of slightly positive. The other piece on the free cash flow, as we articulated in the opening remarks, is just the interest cadence for this year. So you can see, you know, if you use $300 million as expected cash interest, only $40 million in Q1, that's going to ramp up to about $75 million in Q2, up to $100 million in Q3, and then the balance in Q4. And that's just a function of some of the refinancing that happened in 2020 and the initial first interest payments. By the time you get out to 2022, you'll have a much more approximately linear cadence across the quarters, except for the impact of any incremental financing you do from here on out.
spk02: And just my second question is a timing-related aspect that would influence your guidance. You mentioned one on refinancings, and, you know, are you in a position that perhaps you'll have flexibility into those refinancings in the coming quarter, or is this something that goes out in the back half of the year? And your initial, I think, can you repeat your expected closing date on TerraPure and how that might have changed?
spk07: yeah so i think when you you know as luke said when we talked about giving updated guidance on the q2 call i mean i think there's the same old pillars that again we continue to focus on and refinancing is one of those will continue to be opportunistic um on the refinancing so you know it is our expectation that that will get done um at some point here in in the future You know, the M&A pieces, again, like the last call we had at the end of the year, we had 13 under LOI. We closed 10 of those 13. The pipeline continues to build, and I still think we're well-positioned to do 30 to 35 like we've always said we would do. So, again, well-positioned on that. Obviously, on the We'll get more visibility over the next few months on the further reopenings in Canada. And then we'll have very good clarity on the therapy acquisition. But I don't think anything has changed from a timing perspective. You know, I think it's sometime between August and October that we'll be able to actually execute on the closing of that. You know, all of those, I think, provide pretty good tailwinds in terms of how we're thinking about the future. But we'll, you know, we'll kick the can down the road a little bit in terms of, you know, providing that guidance. But I think those are all of the pillars that we're focused on today to drive sort of incremental value here.
spk06: yeah well so what i'd say is look we don't intend on getting the habit of updating guidance sort of every quarter uh what we you know the intention was to do q2 and in light of all those factors that patrick spoke about this sort of external upside opportunities whether it be terrapure regular way m a um refinancing, et cetera. Q2 was going to be the natural timing to do that. Anyway, in light of that, we'll have that visibility likely by then. And that's the basis for the pausing until we want to update. Another piece that we've got to sort of factor in is FX. It's just translational, but obviously, Walter, you're sitting here in Canada as well. We gave our guide at 1.27. Today, I'm not sure where it is, but 1.23. Every point is about $25 million of revenue. So seeing where that shakes out by mid-year will also position us to give a better, more accurate guide for the year as a whole. Appreciate the time. Thank you.
spk00: Thanks, Walter. The next question is from Mark Neville with Scotiabank. Please go ahead.
spk08: Hey, good morning, guys. Good morning, Mark. Good morning. Maybe just something I have on the front. Two things. Luke, you mentioned a contribution for the year. I missed it. Maybe for you, Patrick. I'm just curious, you know, with potential changes in capital gains tax, I'm just curious if there's any sort of bigger opportunities to take shape.
spk06: So on the first part, Mark, what I said is, and bought about $25 million, $30 million of revenue through the Q1 acquisitions, another sort of $25 million to $30 million through what is closed thus far in Q2. So that's sort of $60 million annualized. Now, you're not going to realize all of that in-year. There will be a sort of proration of it, but that's the incremental revenue that we've acquired thus far this year. And again, going back to the sort of formal guide, by the time we get to Q2, we've closed a few more. We have visibility on Terrapure. I'll update the full in-year expected contribution from all net new M&A at that time. Patrick, maybe on the second.
spk07: On the second question, I mean, I think our focus has not been on anything larger. I mean, we've been focused on the singles and doubles that are going to tuck into the existing footprint in Canada and in the U.S., you know, at this point with the platform we have, you know, that's where we're sort of laser focused because we think that's going to create the most equity value for us today and drive the highest sort of operational and margin improvement within the existing business to leverage that platform. So, I mean, it's a lot of what we've done in the past, sort of one to $10 million EBITDA businesses. So I think, you know, a little bit more work to get those done, but at the end of the day, I think given the larger piece of the puzzle we already have in place, we'll continue just hitting the singles and doubles that are going to tuck in and integrate very nicely into the existing business. Obviously, we have had an influx of calls recently of people we're talking to since Biden's comments a couple weeks ago now on the increase in the capital gains rates. But I think that will drive people's behavior here over the next six to eight months is my guess. So we're going to have to cherry pick the ones that are the most accretive to us. Again, our hands are sort of tied in terms of how much we can do. We're capable to do a lot, and the factory continues to run here. But given what we're seeing today and how deep the pipeline is, it's really going to be up to us to cherry pick the ones that are going to be of the most value to us today.
spk08: Got it. And on the liquid in the infrastructure, the volumes, does it really just boil down to a function of just reopening? Is it that simple?
spk07: I think it's that simple. I mean, you look at, I mean, there's liquid in terms of what's essential and not essential and what people are doing and, you know, factories running at scale down, skeleton staff, et cetera. I mean, capital projects, et cetera. It's just slow. I mean, that business is levered to Canada, right, at the end of the day. you know, in Canada, that's what it's levered to. On the infrastructure side, again, it's been opening and closing nonstop. Again, they closed non-essential construction, which, you know, impacted probably 10 to 15% of the revenue base. And then the other challenges, I mean, you know, again, Think about a large scale construction project. I mean, basically any time one of these projects has more than five individuals that comes down with COVID or connected somehow to the site, the site has to shut down for 10 days. So, you know, that has been an evolution and leveling process and, you know, the ability for people to get new permits, um, The one thing I will say on this, we've never seen a backlog or had to bid as much or been awarded more work as we've been awarded in the last 30 to 50 days. So I think the, you know, the front is about to go on the accelerator. And I think you're going to, you know, once we get open here in the summer, I mean, it's going to be similar to what I just said on the M&A side. It's continuing to cherry pick. But we were, you know, we were just awarded a significant amount of work from the subway. a significant amount of contaminated soils. And even contaminated soils in the US are starting to recover. We're back to 70% to 80% of what we were sort of pre-COVID, which is good because it was down significantly. Like that business, it was slow to wind down because you can't just stop it. So Q2 was actually a fairly good quarter for us on the infrastructure side. So it'll be still a tough comp in Q2 just because we wound down over Q2 and then Q3 and Q4 were the most impacted. i mean i think you'll see that it'll be the it'll be the lagger to sort of reopen back up but when it opened back when it opened that's up we're gonna have real a real tailwind um on both of those sort of lobs i mean even the face that the liquid waste business in canada actually did very well and from a margin perspective i think you know even exceeded some of our other public company peers in terms of the margins and and organic numbers that they put up. So I think, you know, it's a testament to the business and the resiliency of it. But, you know, it's very levered to the reopening here in Canada.
spk08: Thanks for that. I think maybe that's one more question. This is Martin. I'm thinking solid waste. Obviously a very strong quarter. A lot's happening. There's been M&A. You spoke about procurement and pricing strategies. You've got synergies coming in. Is there a way that maybe ballpark, in your opinion, sort of what the upside opportunity is from here in terms of basis points over time, just rough, rough round numbers? Thanks.
spk06: Yeah, look, Mark, it's Luke. I'd say it's consistent with what we've been preaching the whole time, that we think we can take over the short term this business to a 28% blended plus margin for the consolidated business. The way you get there is bringing solid from what was a 30 upwards towards 32. You take liquid from low 20s up to that mid to higher 20s, and you take soil from the high teens to the low 20s. I mean, if you just bring soil and liquid back to where they historically were, if you look for the quarter, the margin, just bringing soil and liquid back to the historical margin profile would add another 100 basis points of consolidated margin. If you start leveraging that corporate bucket, which today includes all the investment that we've made for becoming a public company, as well as building out our shared services for our U.S. expansion, which is largely one-time sort of fixed investment, you'll start leveraging that. There's more margin that comes out of there. And then if you take soil, I mean solid, know every expansion point or basis point you're doing there really impacts the consolidated number so seeing that path to 28 blended margins we've talked about you know i think it's becoming clearer and clearer and our ability to get there as you know the path to get there is probably shortened from what it originally was And, you know, we're not going to stop there. We're going to keep going. As Patrick said, I think densifying and increasing asset utilization across this sort of footprint that we have today is going to be highly margin-accretive. And we see meaningful opportunities to do that both organically and inorganically. And I think, you know, the proof will be in the continued expansion. I mean, if you think about the LTM margin, I mean, if you just go back to Q2 of last year, LTM margin for the consolidated business was 24.5%. By Q3 of 2020, that had gone up to sort of low 25s. We ended the year at sort of higher 25s. LTM margin of consolidated business today is 26.1%. I mean, it's very – you can clearly see the strategies are working, and we continue to sort of keep pushing it forward from here through all those levers that we continue to discuss.
spk08: All right, that's helpful. Thanks for taking the question, Seth. Appreciate it. Thanks, Mark.
spk00: The next question comes from Brian Butler with CIFL. Please go ahead.
spk05: Good morning. Thanks for taking my question. Morning, Brian. Bob, you touched on this a little bit, but I was hoping to maybe put a little finer point. When you look at the segments and you look at what business was disrupted and what's kind of recovering, could you give a little color by those segments, just kind of what's still, I guess, remaining out there, like how much was disrupted and how much has come back? And then as it comes back, is that pent-up demand potentially going to drive further strength beyond just the simple recovery?
spk07: Yeah, I mean, broad question, but I mean, you know, I think you've seen from all the, let's start with solid waste. I mean, the U.S., continues to recover at a very good pace. I mean, when you look at from a volume perspective, you know, apples to apples, sort of negative, sort of 1%. So I think that business is coming back and, you know, further reopenings happening, particularly around office buildings, entertainment, schools, et cetera, you know, even restaurants to a certain extent, you know, that's just going to drive incremental volume. So I think that is, well on the path, and there continues to be upside, you know, in the U.S., which will continue to drive great results. I mean, solid waste in Canada, again, you know, major centers are locked down, secondary markets a little bit less affected. But again, like Luke said, volume sort of down, you know, negative 5%. Continues to be material, you know, in our view, material upside, which, again, when you think about the incrementals that come back on that volume loss, it would be similar to what you saw in the U.S., And then on the liquid and the infrastructure side that we talked about, hardest hit, lever to the reopening. I think you'll see material margin expansion out of both of those LOBs to sort of pre-COVID levels, which were substantially higher than where they sit today, which again will sort of put in a blender is going to come up with significant opportunity for us to even turbocharge, you know, the numbers that you're seeing today. So I think that's what excites us today, that putting out these results today in the face of almost 40% of our revenue coming out of Canada that's levered to the reopening that hasn't happened yet, I think, you know, our best days are in front of us.
spk05: Okay, that's helpful. And can you maybe by business line give a breakdown kind of how you see the free cash flow splits out contribution?
spk06: Yeah, so Brian, I think what we've consistently said is all the businesses, because of the different capital intensity, are blending to something sort of comparable. Now, the current EBITDA margins in liquid and infrastructure are obviously suppressed for all the reasons we've sort of been discussing. But if you were to think about that off of a sort of more normalized basis, if it's always business as a 30% EBITDA margin with a 10% to 11% capital intensity, And then you have the liquid business at a 23%, 24% EBITDA margin with a 6% to 7% capital intensity. And you have the soil business at a sort of high-team 20% margin at a 4% to 5% capital intensity. So if you just look at a simplified free cash flow there, that's equating solid in that sort of 19% to 20% range, liquid in that sort of higher-team 17%, 18%. And you have soil with those numbers at that sort of 15%, 16%. Now, our perspective is those businesses, EBITDA margin profiles should really be sort of, you know, solid is going to 31-plus. Liquid can be in that sort of high 20s, so call it 27, 28, and soil is going to come up to those low 20s, or sort of 23-ish. If you apply those same capital intensities at that level, then you're seeing everything sort of blending to a comparable sort of 20% simplified sort of free cash flow profile. EBITDA, we've said before, EBITDA is nice, but it's not the be-all and end-all. Because of the meaningfully lower capital intensity of those businesses, we think there's a clear path that each of the segments can be a good and meaningful contributor to what we believe in time can become a leading pre-cash flow profile for the business as a whole.
spk05: Perfect. That's very helpful. One last one, if I could send it in. Just kind of, can you touch on maybe the ESG goals and then maybe talk about, you know, when we could see maybe an update post, you know, obviously your first PSR and thoughts on those targets?
spk06: Yeah, Brian, what I'd say is, you know, we came out with our first report, and I think we had a lot of great sort of color on a lot of the areas in which we've strived and continued to sort of focus our attention as far as ESG-type matters. We have the team actively working now on really quantifying what those sort of observable and quantifiable goals are going to be. And, you know, we intend to come out with our best report. I think you're going to see us put out some goals that are industry-leading. And, you know, I think it's consistent with who we are and, you know, what we are. I mean, GFL, you know, many of the ESG type initiatives have been embedded in our culture from the beginning. And, you know, we're proud of that, going to highlight that, and we're going to you know, put our money where our mouth is, so to speak. And, you know, I think you're going to see some pretty aggressive and impressive sort of lines in the fan being sort of drawn. So we're working on our next report, and we'll be including some of those quantified vocals. And I believe that schedule will sort of come out, you know, in the next couple quarters, I think is our timing for that.
spk05: Great. Thank you very much. Thanks, Brian.
spk00: The next question is from Jerry Rivick with Goldman Sachs. Please go ahead.
spk07: Yes, hi. Good morning and congratulations on the strong results here. I'm wondering if you could talk about the margin expansion over the course of the quarter. you know, nearly 200 base points of improvement without the benefit of volumes, but obviously March looked a lot better than February. Can you just talk about what the benefit of volumes, you know, how much margin expansion you folks saw in March or any way you can talk about how much the leverage improves once you get a little bit of volumes in the system that would be helpful?
spk06: Yeah, Jerry, so what I'd say is, I mean, January, February, March, you know, getting into spring, our business as a whole has significant degrees of seasonality that drive margin impacts, and so it's difficult to just tie the expansion and contractions just to the volume alone. But look, what we said was coming into 2021 with our original guide, we thought we could continue our successful operating leverage to drive an incremental 80 or 90 basis points of margin expansion. Now, with incremental or accelerated volume recovery, I think there's high torque and high incrementals on that extra volume, and you're going to see outside benefit to that. And so, you know, when we come back in Q2, we'll better articulate, you know, the upside to that original sort of guide we think we can see at the margin line because it's real. If you think about the volume that's missing and the post-collection in the commercial collection and in our broader liquid and soil businesses, I mean, it's very high incrementals on that because of the relatively sort of fixed cost nature of those operations. So you'll get high torque. Yes, the costs are coming back. I mean, today, you know, the cost takeout that has happened today, I think, you know, the goal is to have some of that discipline to come back. I mean, travel and entertainment, I think, is a part of the business. Maybe it won't come back in the same extent to which it was before, but our SG&A is benefiting from that today. We'll give some of that back. But, you know, I think it will be net-net positive. So what I would say is the original guide anticipated sort of 80 to 90 basis points of expansion. and to the extent there's volume recovery in excess of what we had planned, there's probably some upside available in that number, and the quantum of that we'll come back to when we speak in Q2 and see where we think the full year will shake out.
spk07: Okay. And then can you talk about the margin expansion that you're seeing on 2019 vintage acquisitions? So at least it's my perception that that's when you folks should be hitting your sweet spot in terms of the pricing initiatives and the callouts. I'm wondering if you could comment on whether the pricing and margin improvement that you're seeing on those assets are at or above the company total in the quarter.
spk06: Yeah, what I would say, Jared, for 2019 vintage acquisitions, we actually had the benefit of the 2020 lull to accelerate a lot of the activities that would give rise to achieving the expected pro forma for all those businesses. If you think about the integration activities that could span between six to 12 months in doing everything, with the quiet periods of 2020, we were afforded a unique opportunity to, I think, accelerate a lot of that. So I would say by and large, I mean, a lot of those businesses are tuck-ins that go into a market, and by the time you get two years out and you've done incremental tuck-ins, the ability to track that one independently is somewhat lost, but the markets as a whole are exceeding our expectations across the board. And so I think we're really seeing the benefit of all of the great work that was done in 2020 to position us to, you know, outperform now on the reopening. And so I would say, by and large, there's not an acquisition or a specific market in our portfolio that is not sort of running at a better, you know, volume-adjusted number than it was sort of in 2019. We're really happy with that success.
spk07: And lastly, you know, landfill gas to pipeline economics look pretty attractive on paper. I'm wondering if you could just talk about what opportunities you folks have to essentially monetize the outlook for wind prices and, you know, how many additional plants could we be looking at across your network over the next three to five years? Yeah, so currently we have three to four opportunities to develop some new plants from sort of the ground up in which we're currently in discussions and exploring. and then the big opportunity for us is you know as we said we've entered into a bunch of different loyalty agreements etc um in the past at a bunch of our a bunch of the legacy landfills and as those agreements come up for exploration you know really over the next three to five years there's going to be an opportunity to renegotiate uh those agreements or develop new more state-of-the-art type collection systems to be able to drive incremental value though so um you know there is upside i think like we said we are collecting the gas and most of our facilities today with the exception of those three or four projects that i just mentioned um and you know that will play out sort of over the next three years most likely and the repricing will take place over the next three to five years as those contracts come up to expiration but you know there's meaningful material dollars If RIN and, you know, credits continue and loyalty agreements continue to stay where they are today, you know, we believe there's material upside probably in the tune of $25 to $30 million over the next, you know, three to five years. Okay. Terrific. I appreciate the discussion. Thanks. Thanks, Terry.
spk00: The next question comes from Luca Nadu with National Bank. Please go ahead. Good morning.
spk04: So my question is, with regards to, so earlier you mentioned the 28% long-term margin goal, and you said it could be coming earlier than you expected. What do you think is the new timeline for the company to reach that margin for profit?
spk06: Yeah, so Luca, you know, as I suggested, we're going to come in Q2 with some more sort of definitive views on a revised sort of outlook and guidance. As I said, the original plan for the current year was taking where we ended 2020 and adding sort of 80, 90 basis points. where we sit today, we think we can do better than that. The exact sort of quantum of that we'll sort of update the group with when we speak in Q2. And then thereafter, you can layer on the incremental outlook that we provided for 2022 and 2023. So, again, not going to provide the updates today, but we think the path has been shortened and likely the goalpost has been sort of raised and that there's probably a net new number that we can be striving to achieve. But we'll come back in Q2 and provide people the outlook for 2021 as well as then, you know, even later on thereafter. Good. Thank you for the colour on that.
spk07: And one more in terms of... the M&A picture.
spk05: So do you foresee increased competition as the opening activities continue? And do you think you'll have to pay more for M&A in the future?
spk07: So we think we'll have to pay more? Like from a valuation perspective? Exactly. Like do you expect to pay higher multiples for your valuation?
spk04: And like what are your goals? Are you willing to complete your acquisitions regardless of the price?
spk08: Or do you strike more to a strict valuation M&A?
spk07: I mean, the interesting, we all talk about multiples, et cetera, but at the end of the day, 75% of these businesses that we're buying, the sellers don't even know what even that is or what a multiple is. I mean, it's generally what Jimmy and Bobby want for their business and what they needed. And it's really up to us to sort of back into the math. I don't think valuations have materially changed on the small opportunities. you know larger scale opportunities like we talked about continue to sit at sort of 10 to 12 times but that's not where we're focused our focus is is you know sort of being in the sort of four to seven times range um and we continue to see a significant amount of opportunity in that range hence the reason you know we did um you know 10 of course almost you know six acquisitions in q1 another four post Q1 and, you know, leverage really hasn't moved. And that's just a testament to the fact that we continue finding opportunities that, you know, sort of merge, you know, leverage accretive multiples. So I think I don't see a material change in that today. I mean, I think what you'll see is you may see some guys speeding up to try and get an ideal close by December 31 because they're afraid of the capital gains change in 2022. And my guess is we'll probably see that in Canada because Canada at some point over the next little while is going to have to do something in order to pay for this $1.5 trillion they've given away to people during the pandemic. So, you know, I think it's going to be a very robust and strong M&A market for the next few years to come here.
spk04: Good. Thank you. Thanks.
spk00: Again, if you have a question, please press star then 1. And we have a question from Devon Dodge with BMO Capital. Please go ahead.
spk03: All right. Thanks. Good morning, guys. Morning, Devin. Morning, Devin. Maybe it's been a long call here. Maybe just one for me on labor. You know, we're hearing some companies are starting to have some challenges hiring. Just wondering what you're seeing across your markets and maybe what programs you have in place or are considering to help maybe navigate a potentially tight labor market.
spk07: Yeah, I mean... I mean, the tightest labor market we saw was really in 2018, so I don't think we're seeing anything today anywhere near those levels. I would say Canada has been, you know, fairly stable and good. Obviously, you know, the unemployment levels are higher in Canada and hopefully most people in Canada don't move and are happy with where they're working. So turnover in Canada has been very low and stable. There are some specific markets in the U.S. where it has tightened up, nothing to the point of anything that worries us today. So I think we're okay. But at the end of the day, in a lot of the – Sunbelt markets were just recently acquired. I mean, there is a bit of a lag. And, you know, I think as further stimulus dollars continue to come out, you know, I think it's tightened up the labor market. But I think as that sort of runs its course by the summer, I think you'll see that loosen back up again. But, you know, we're nowhere near the levels that we saw in 2018. I think around the hospitality industry, I think they've been sort of harder hit trying to get people back to work just from an hourly wage perspective, typically a lot lower than what our employees make, so we're not as affected, but I think we're still sitting in a pretty good position today.
spk03: Okay, good color. I'll turn it over. Thank you. Thanks, Dan.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Patrick Davici for any closing remarks.
spk07: Thank you, everyone, for joining us, and we look forward to speaking to everyone after the Q2 results. Have a good day.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer