GFL Environmental Inc

NYSE:GFL

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, and welcome to the GFL Environmental First Quarter Earnings 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 of GFL. Please go ahead.

[Patrick Dovigi, Founder, Chairman, President & CEO]

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.

[Luke Pelosi, Executive VP & CFO]

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 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 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 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.

[Patrick Dovigi, Founder, Chairman, President & CEO]

Thank you, Luke. We are extremely pleased with our first quarter results, which exceeded our expectations across nearly every metric we track. 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 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 MRF 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 the 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 3 to 6 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 a 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 Terrapure transaction alone will result in us exceeding our M&A upside opportunities for the year by nearly 2x, we also closed 6 small tuck-in acquisitions during the quarter and another 4 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 Terrapure. 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.

[Luke Pelosi, Executive VP & CFO]

Okay. So picking up on Page 4 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 MRF business that is not on a fixed price processing model. The overall positive solid waste volume increase of 4% -- 0.4% that Patrick mentioned is just over 1.1% when removing the impact of the leap day in the prior period and continues to be attributable to the new MRF processing contracts in Canada, which will lap in early Q2. Excluding MRF 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 volumes 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 base 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 or about $2 million revenue headwind versus our guide. The recent strengthening of the Canadian dollar against the U.S. dollar will yield a bigger impact in Q2. Recall that for every 1-point change in the FX rate, our annual revenues are impacted by about $24 million. On Page 5, you'll see segment results. Solid waste margins of 31% were 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 1 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 free 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 in light the uncertain landscape. You should note that the free cash flow results are inclusive of a nonlinear cash interest cadence in 2021. We closed 6 acquisitions in the quarter, another 4 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 delevering 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.

[Patrick Dovigi, Founder, Chairman, President & CEO]

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 Terrapure business and recent tuck-in 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 exceeding our guidance for the year. Towards the end of the second quarter, we expect to gain better visibility on the timing of the Terrapure 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.

[Operator]

[Operator Instructions] The first question comes from Tyler Brown with Raymond James.

[Patrick Tyler Brown, Managing Director]

Patrick, so I hear you on the commentary about Canada lagging, but the organic growth was up 9% there in solid waste. I think you said that non-MRF volumes were down 5% in Canada. So are those MRF volumes adding something like 10 points to that organic growth number in Canada?

[Luke Pelosi, Executive VP & CFO]

Yes. 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 the Canada Fibers platform into both Western Canada and into Québec. 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 us a net sort of positive number because of the strength of that MRF processing volume. And as I said in the prepared remarks, that will lap in Q2, and then I'll stop sort of parsing that out if you'll have now like for like.

[Patrick Tyler Brown, Managing Director]

Okay. Perfect. And then I appreciate the 2.9% volume in March, but I'm a little unclear. Does that includes the MRF volumes or not? But now that you've likely closed April, is there -- can you give us any color on kind of how April trended?

[Luke Pelosi, Executive VP & CFO]

So what I'd say is that 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, I said Q2 would be in the mid-single digits positive. I think everything we're seeing based on Q1 is there's 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.

[Patrick Dovigi, Founder, Chairman, President & CEO]

Yes. And Tyler, I would say, that -- and that's in the face of the continued lockdowns in Canada. So I mean, our expectation is when they start opening up in more of a material way as we sort of come into the end of May is my guess. And the announced lockdown are supposed to come off around May 20. I mean, I think they're going to start seeing rapid volume increases from a lot of the businesses that we service.

[Patrick Tyler Brown, Managing Director]

Okay. Perfect. And then my last one here. So I think you guys mentioned 6 small tuck-ins, maybe 4 completed post the quarter. 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?

[Patrick Dovigi, Founder, Chairman, President & CEO]

So it's a mixed bag. When you look at it, I think the lion's share of what we did was basically in solid waste, between sort of Missouri, Colorado, Alabama, Québec, 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.

[Patrick Tyler Brown, Managing Director]

But definitely leveraging the ADS and WCA assets.

[Patrick Dovigi, Founder, Chairman, President & CEO]

Correct. Yes. Yes, absolutely.

[Operator]

The next question comes from Hamzah Mazari with Jefferies.

[Hamzah Mazari, Equity Analyst]

Great. Just -- you had mentioned pieces of the puzzle are now in place for sustainable long-term growth. Could you maybe just talk about upside to synergies, how those ramp through 2021 and sort of what we can expect sort of next year or just the cadence of the synergy upside, really?

[Patrick Dovigi, Founder, Chairman, President & CEO]

Yes. So I think -- I mean, on the -- I think what you're seeing is, I think, from an integration perspective, particularly in the larger 2, I mean, we basically got through those on plan and unscathed without any pain. They did exactly what they were supposed to do, and they're performing truthfully at or above plan, which is great, particularly on the WM/ADS divestitures. As a carve-out, there's always a bit of risk when you carve something out to make sure you're actually -- you bought what you're getting. So I think from that perspective, those have gone well. I think the integrations has 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 got 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 not all price is created equally, as we all know, right? I think at the end of the day, driving price and making sure it sticks in order to get that incremental margin expansion is where we're focused, so -- and I think you're seeing that come through. And then you sort of couple that together with a very sort of deep and robust pipeline of opportunities in a bunch of the markets where we recently acquired to drive incremental margin and profitability off the back of a bunch of those fixed cost facilities, such as transportation, recycling facilities and landfills, we're just going to continue driving -- buying businesses that we can continue tucking into those operations to drive incremental profitability on them. So couple that all together, again, I keep coming back to 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 -- I mean, today, we're sitting in Canada and sitting in lockdown again. I think this government has 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 health care system to be able to only handle a minimum amount of people going into hospitals under our socialistic-type health care system. I think at the end of the day, 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 and the infrastructure business, obviously, as things continue to reopen.

[Hamzah Mazari, Equity Analyst]

Got it, got it. And just, as you know, there was a small secondary recently. Maybe you could just comment on 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.

[Patrick Dovigi, Founder, Chairman, President & CEO]

Yes. So I think I have mentioned this on calls before, people have asked. I mean, obviously, we have a private equity sponsor that was in. And I think from our perspective, very rare, I would say, for a private equity sponsor to not sell anything in the first 12 months post going public. I always said that they would probably sell something in the 30s. I mean -- but at the end of the day, all of us, the group, believe that the stock continues to be undervalued, and there's going to be potential upside. And 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, 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 the growth opportunities that we've articulated. I think from my perspective, I didn't sell any stock. Today, I have probably $800 million of equity sitting in the company today. There will be -- I am considering my own personal tax perspectives. I mean, as there's potential capital gains changes coming, and there's potentially some reorg that would require me to pay probably somewhere in the neighborhood of a $50 million 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 the restructuring. But I think where we sit today, there is material upside given what we have planned for the company.

[Hamzah Mazari, Equity Analyst]

Got you. Just last question, and I'll turn it over is just a clarification. So 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.

[Luke Pelosi, Executive VP & CFO]

Yes. Hamzah, it's Luke. In terms of liquid, 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, it really speaks to the strength of the cost containment measures and productivity that's been put in place in that segment. And 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. In terms of Canada, 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 8% negative for the quarter was actually positive 2% 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.

[Operator]

The next question comes from Walter Spracklin with RBC Capital Markets.

[Walter Noel Spracklin, MD & Analyst]

I'd like to ask on the free cash flow. You had a very good first quarter number here on free cash flow. Most of that -- seasonally, most of the expectations were that it would actually be a usage, and you came in with a strong positive. Curious because net working 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 net working capital expenditure into a later quarter during the year?

[Luke Pelosi, Executive VP & CFO]

Yes, Walter. So what I would say is the result for the quarter was slightly ahead of our own internal expectations and 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've said, and you're going to see smaller swings in each quarter. Now with that, H1 is going to continue to be a net use, and then H2 is a sort of net recovery. And so if you 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 WM/ADS acquisition that rolled over from Q4 into Q1, we're still ending 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 2 quarters will reverse in Q3 and Q4, providing sources of net working 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, if you use $300 million of expected cash interest, only $40 million is 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 payment. 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.

[Walter Noel Spracklin, MD & Analyst]

And just my second question. Any related aspects that would influence your guidance? You mentioned one on refinancings. And are you in a position that perhaps you'll have probability into those refinancings in the coming quarter? Or is this something that goes out to 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?

[Patrick Dovigi, Founder, Chairman, President & CEO]

Yes. So I think when you -- as Luke said, when we talk 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. We'll continue to be opportunistic on the refinancing. So it is our expectation that, that will get done at some point here in the future. The M&A pieces, again, like the last call we had at 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 I think 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 Terrapure acquisition, but I don't think anything has changed. From a timing perspective, I think it's sometime between August and October that we'll be able to actually execute on the closing of that. So all of those, I think, provide pretty good tailwinds in terms of how we're thinking about the future, but we'll kick the can down and roll it a little bit in terms of 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.

[Luke Pelosi, Executive VP & CFO]

Yes. Walter, what I'd say is, look, we don't intend on getting the habit of updating guidance sort of every quarter. What we -- the intention was to do Q2. And in light of all those factors that Patrick spoke about, the sort of external upside opportunities, whether it be Terrapure, regular way M&A, refinancing, et cetera, Q2 was going to be the natural timing to do that. Anyway, in light of that, we'll have the visibility likely by then, and that's part as the basis for the pausing until we want to update. Another piece that we've got to sort of factor in is the fact that 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 takes out by midyear will also position us to give a better, more accurate guide for the year as a whole.

[Operator]

The next question is from Mark Neville with Scotiabank.

[Mark Neville, Analyst]

Maybe just on the M&A front, two things, Luke. You mentioned a contribution for the year. I missed it. And maybe for you; Patrick. I'm just curious, with potential changes in capital to gain tax, just curious if there's any sort of bigger opportunities taking shape.

[Luke Pelosi, Executive VP & CFO]

So on the first part, Mark, what I said is, we spend -- bought about $25 million, $30 million of revenue through the Q1 acquisitions, another sort of $25 million to $30 million through the what is closed thus far in Q2. So that's sort of $60 million annualized that you're not going to realize all of that in the year. There will be a sort of proration of it, but that's a revenue, 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 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...

[Patrick Dovigi, Founder, Chairman, President & CEO]

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. At this point, with the platform we have, 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 $1 million to $10 million EBITDA businesses. So I think a little bit more work to get those done. But at the end of the day, I think, given the pieces -- the larger piece of 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, with -- we have had an influx of calls recently where people were talking to since Biden's comments a couple of weeks ago now on the increase in the capital gains rates, but I think that will drive people's behavior here over the next 6 to 8 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.

[Mark Neville, Analyst]

Got it. And then likely in the infrastructure, the volumes, does it really just boils down to the function of just reopening? Is it that simple?

[Patrick Dovigi, Founder, Chairman, President & CEO]

I think it's that simple. I mean, you look at -- I mean, just liquid in terms of what's essential and not essential and what people are doing and factories running at scale down, skeleton staff, et cetera, I mean, capital projects, et cetera, people just -- it's just slow. I mean, that business is levered to Canada, right? At the end of the day, in Canada, that's what it's levered to.On the infrastructure side, again, it's been opening and closing nonstop. Again, they closed nonessential construction, which impacted probably 10% to 15% of the revenue base. Then the other challenge is, I mean, again, think about a large-scale construction project. I mean, basically, any time one of these projects has more than 5 individuals that comes down with COVID or connected some out to the site, the site had to shut down for 10 days. So that has been an evolution and never ending process and the ability for people to get new permits. The one thing I will say on this, we've never seen a backlog or have to bid as much or have been awarded more work as we've been awarded in the last 30 to 50 days. So I think the front is about to go on the accelerator, and I think you're going to -- once we get opened 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 just awarded a significant amount of work from the subway, a significant amount of contaminated soils, and even contaminated soils in the U.S. are starting to recover. We're back to 70% to 80% of where 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, right? So Q2 was actually a fairly good quarter for us on the infrastructure side. So it will 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 will be the laggard to sort of reopen back up. But when it opens back up, we're going to have a real tailwind on both of those sort of LOBs. I mean, in the face of the liquid business in Canada actually did very well and from a margin perspective, I think, even exceeded some of our other public company peers in terms of the margins and organic numbers that they had put up. So I think as a testament to the business and the resiliency of it, but it's very levered to the reopening here in Canada.

[Mark Neville, Analyst]

I think maybe I'll ask one more question. Just on margin, and I'm thinking solid waste. Obviously, a very strong quarter. A lot is happening, I guess. There's been M&A. You spoke about procurement and pricing strategies. You've got synergies coming in. Is there a way of maybe ballpark and your sort of what the upside opportunity is from here in terms of basis points over time, just rough run-on numbers?

[Luke Pelosi, Executive VP & CFO]

Yes. Look, Mark, it's Luke. I'd say it's consistent with what we've been preaching all the 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 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 had 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, every expansion point -- or basis point you're doing there really impacts the consolidated number. So seeing that path to 28% blended margins that we've talked about, I think it's becoming clearer and clearer. And our ability to get there, the path to get there has probably shortened from what it originally was. And we're not going to stop there. We're going to keep going. As Patrick said, I think densifying and increasing asset utilization across the sort of footprint that we have today, it is going to be highly margin accretive. And we see meaningful opportunities to do that both organically and inorganically, and I think 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's gone up to sort of low 25%. We ended the year at sort of higher 25% LTM margin of solid business. Today, it 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.

[Operator]

The next question comes from Brian Butler with Stifel.

[Brian Joseph Butler, Research Analyst]

Just -- you touched on this a little bit, but I was hoping to maybe put a little finer point. When you look at the segment and you look at what business was disrupted and what's kind of recovery, 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 kind of drive further strength beyond just the simple recovery?

[Patrick Dovigi, Founder, Chairman, President & CEO]

Yes. I mean, it's a broad question, but I mean, 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, from a volume perspective, apples-to-apples sort of negative sort of 1%, so I think that business is coming back. And as further reopenings happening, particularly around office buildings, entertainment, schools, et cetera, even restaurants to a certain extent, that's just going to drive incremental volume. So I think that is well on the path, and there continues to be upside in the U.S., which will continue to drive great results. I mean, solid waste in Canada, again, major centers are locked down. Secondary markets, a little bit less affected. But again, like Luke said volume sort of negative 5%, continues to be material -- 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, in the infrastructure side that we talked about, hardest hit, levered to the reopening. I think you'll see material margin expansion out of both of those, that will be the sort of pre-COVID levels, which were substantially higher than where they sit today, which, again, we'll sort of put in blender is going to come up a significant opportunity for us to even total charge the number that you're seeing today. So I think that's what excites us today is that putting up 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 our best days are in front of us.

[Brian Joseph Butler, Research Analyst]

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?

[Luke Pelosi, Executive VP & CFO]

Yes. So Brian, I think what we've consistently said is all the business is because of the different capital intensity are blending is something sort of comparable. Now that the current EBITDA margins in liquid and infrastructure 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, 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 teens 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 teens, 17%, 18%. And you have soil with those numbers of that sort of 15%, 16%. Now our perspective is those businesses -- EBITDA margin profiles would really be sort of solid is going to 31% plus. Liquid can be in that sort of high 20s, so call it, 27%, 28%. And soil's going to cost those low 20s, sort of 23-ish. If you apply those same capital intensities at that level, then you're seeing everything as sort of blending to a comparables with a 20% simplified sort of free cash flow profile. So that's -- I mean, EBITDA, we've said before, EBITDA is nice, but it's not to be all and end all. And 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 free cash flow profile for the business as a whole.

[Brian Joseph Butler, Research Analyst]

Perfect. That's very helpful. And one last one, if I could fit it in. Just kind of -- can you touch on maybe the ESG goals? And then maybe talk about whether we could see maybe an update post, obviously, your first ESR and thoughts on those targets.

[Luke Pelosi, Executive VP & CFO]

Yes. Brian, what I'd say is 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 continue to sort of focus our attention to 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 we intend to come out with our best foot forward. I think you're going to see us put out some goals that are industry-leading, and I think it's consistent with who we are and what we are. In GFL, these many of the ESG-type initiatives have been embedded in our culture from the beginning, and we're proud of that. I'm going to highlight that, and we're going to put our money where our mouth is, so to speak. And I think you're going to see some pretty aggressive and impressive sort of lines in the sand being sort of drawn. So we're working on our next report, and we'll be including some of those quantifiable goals. And I believe that's schedule to sort of come out in the next couple of quarters, I think, is our timing for that.

[Operator]

The next question is from Jerry Revich with Goldman Sachs.

[Jerry David Revich, Vice President]

And congratulations on the strong results here. I'm wondering if you could talk about the margin expansion over the course of the quarter. We're nearly 200 basis 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, 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.

[Luke Pelosi, Executive VP & CFO]

Yes, Jerry. So what I'd say is, I mean, January, February and March, getting in the spring, our business as a whole has significant degrees of seasonality that drive margin impact, and so it's difficult to just tie the expansion and contraction just to the volume alone. But look, what we've said was coming into 2021 with our original guide, we thought we could continue our successful operating leverage to drive an incremental 80 to 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 outsized benefit to that. And so when we come back in Q2, we'll better articulate the upside to that original sort of guide. We think we can see it 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 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 door. Yes, the costs are coming back. I mean, today, the cost takeout that has happened today, I think the goal is to have some of that discipline stick. Obviously, some of it's going to come back, and some of it will want 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 I think it will be net-net positive. So what I would say is the original guide anticipated is sort of 80 to 90 basis points of expansion. And to the extent there is 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 you when we speak in Q2 and see where we think the full year will shake out.

[Jerry David Revich, Vice President]

Okay. And then can you talk about the margin expansion that you're seeing on 2019 vintage acquisition? So at least it's my perception that, that's when you folks should be hitting your sweet spot in terms of the price initiatives and the copout. I'm wondering if you could comment on whether the pricing and margin improvements that you're seeing on those assets are at or above the company total in the quarter.

[Luke Pelosi, Executive VP & CFO]

Yes. What I would say is, Jerry, for 2019 vintage acquisitions, we actually had the benefit of the 2020 low to accelerate a lot of the activities that would give rise to achieving the expected pro forma for all those businesses, right? If you think about the integration activities that could span between 6 to 12 months and doing everything, with the quiet periods of 2020 we reported a unique opportunity to, I think, accelerate on that. So I would say, by and large, I mean, a lot of those businesses are tuck-in that go into a market. And by the time you get 2 years out, you've done incremental tuck-ins. The ability to attract that one independently is somewhat lost, but the market 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 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 volume adjusted number than it was sort of in 2019, and we're really happy with that success.

[Jerry David Revich, Vice President]

Okay. And lastly, 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 improved outlook for RIN prices. And how many additional plants could we be looking at across your network over the next 3 to 5 years?

[Patrick Dovigi, Founder, Chairman, President & CEO]

Yes. So currently, we have 3 to 4 opportunities to develop some new plant from sort of the ground up in which we're currently in discussions and exploring. And then the big opportunity for us is, as we said, we've entered into a bunch of different royalty agreements, et cetera, in the past at a bunch of -- a bunch of legacy landfills. And as those agreements come up for exploration, really, over the next 3 to 5 years, there's going to be an opportunity to renegotiate those agreements or develop new more state-of-the-art type collection systems to be able to drive incremental value to those. So there is upside. I think like we said, we are collecting the gas in most of our facilities today with the exception of those 3 or 4 projects that I just mentioned, and that will play out sort of over the next 3 years most likely. And the repricing will take place over the next 3 to 5 years as those contracts come up to exploration. But there's meaningful material dollars if RIN and credits continue and loyalty agreements continue to stay where they are today. We believe there's material upside probably in the tune of $25 million to $30 million over the next 3 to 5 years.

[Operator]

The next question comes from Louka Nadeau with National Bank.

[Louka Nadeau, Associate]

Yes. 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 time line for the company to reach that margin goal?

[Luke Pelosi, Executive VP & CFO]

Yes. So Louka, as I suggested, we're going to come in Q2 with some more definitive views on 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 to 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 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 can layer on thereafter.

[Louka Nadeau, Associate]

Good. And one more in terms of the M&A picture. So do you foresee increased competition as [ reopenings ] continue? And do you think you'll actually pay more for M&A in the future?

[Patrick Dovigi, Founder, Chairman, President & CEO]

Do we think we'll have to pay more, like, from a valuation perspective?

[Louka Nadeau, Associate]

Exactly. Like do you expect to pay higher multiples for your valuation? And like what are your goals? Are you willing to complete the acquisitions regardless of the price? Or do you go stick more to trade valuation M&A?

[Patrick Dovigi, Founder, Chairman, President & CEO]

I mean, the interesting -- I mean, we all talked 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 EBITDA 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 truly up to us to sort of back into the map. I don't think valuations have materially changed on the small opportunities. Larger scale opportunities, like we talked about, continue to sit at sort of 10 to 12x, but that's not where we're focused. Our focus is sort of being in the sort of 4 to 7x range. And we continue to see a significant amount of opportunity in that range. Hence, the reason we did 10, we've closed almost 6 acquisitions in Q1, another 4 post-Q1, and leverage really hasn't moved, and that's just a testament to the fact that we continue finding opportunities at sort of 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 a deal closed 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, it's 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 I think it's going to be a very robust and strong M&A market for the next few years to come.

[Operator]

[Operator Instructions] And we have a question from Devin Dodge with BMO Capital.

[Devin Dodge, Analyst]

Maybe -- it's been a long call here. Maybe just one for me on labor. 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.

[Patrick Dovigi, Founder, Chairman, President & CEO]

Yes. 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 fairly stable and good. Obviously, the unemployment levels are higher in Canada. And truthfully, 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, not been 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 where we just recently acquired, I mean, there is a bit of a lag. And I think as further stimulus dollars continue to come out, 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 we're nowhere near the level 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.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Patrick Dovigi for any closing remarks.

[Patrick Dovigi, Founder, Chairman, President & CEO]

Thank you, everyone, for joining us, and we look forward to speaking to everyone after the Q2 results. Have a good day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.