GFL talks Q1 earnings, M&A strategy and service changes

GFL talks Q1 earnings, M&A strategy and service changes

GFL CEO Patrick Dovigi discussed the company’s quarterly performance and how it navigated changes due to COVID-19.


GFL Environmental Inc., Ontario, announced its first-quarter results May 11.

According to the company, revenue increased by 29.2 percent to $931.3 million in the first quarter compared with the first quarter of 2019, driven by significant revenue growth across all reportable segments organically and through acquisitions.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 24.4 percent to $222.9 million in the first quarter compared with the first quarter of 2019, primarily attributable to strong revenue growth in the quarter. Net loss increased from $93.4 million in the first quarter of 2019 to $277.9 million in the first quarter of 2020 driven by costs associated with the company’s initial public offering, the early redemption of several series of its outstanding unsecured bonds and the extinguishment of its 11 percent payment-in-kind notes as part of the preclosing capital changes implemented immediately prior to its initial public offering.

"When we completed our initial public offering on March 5 of this year, we never thought we would be reporting our first quarter as a public company in such unprecedented times. Despite the significant slowdown of the Canadian and U.S. economies in late March resulting from government measures to limit the spread of COVID-19, we grew revenue in the quarter by 29.2 percent and adjusted EBITDA by 24.4 percent compared with the first quarter of 2019. Our strong results for the quarter demonstrate the resiliency of our business model," Patrick Dovigi, founder and CEO of GFL, says. "I am very proud of the hard work and commitment of our over 13,000 employees. Without them, we would not have been able to successfully continue to provide our essential services to our customers and communities during these challenging times. Throughout the outbreak of COVID-19, we have remained focused on ensuring the health and safety of our employees.

“We used the proceeds from our IPO to significantly de-lever our balance sheet. In April, we raised $500 million of 4.25 percent secured bonds maturing in June 2025, a net leverage neutral financing. Together, these financings have well-positioned us to further execute our growth strategy and take advantage of opportunities as they present themselves," Dovigi says.

COVID-19 response and impact

The primary impact to GFL’s business in the wake of the COVID-19 pandemic has been reduced commercial and industrial collection volumes as some of its customers reduced or suspended services in response to measures enacted by local authorities, the company says. The company says that its primary markets, most notably Toronto and Montreal, were more significantly impacted than its secondary markets throughout Canada and the U.S. where the company generates almost two-thirds of its solid waste revenues.

GFL says the company has enacted a series of initiatives to help protect its employees from the virus, including:

  • establishing a risk-management team of senior leadership and operational leads to identify, assess and respond to the impact of COVID-19 on its operations and personnel;
  • implementing physical distancing protocols recommended by local public health authorities;
  • reinforcing proper hygiene practices and increasing frequency of cleaning facilities, trucks and equipment;
  • ensuring appropriate personal protective equipment and sanitization supplies are available; and
  • enhancing employee communications to reinforce safe practices.

GFL says it also has closely managed its operating expenses and capital expenditures by deferring nonessential capital expenditures, reducing variable costs such as overtime, restricting discretionary spending such as travel and postponing merit increases for salaried employees.

The first quarter reflected a partial month's impact of COVID-19, the company says, whereas the second quarter is expected to include a full quarter of COVID-19-related impacts. The revenue results for April reflected a 15.8 percent increase over April 2019. Excluding the impact of acquisitions and foreign exchange, April revenue was 9.9 percent less than April 2019, a decline primarily resulting from reduced commercial and industrial collection volume that the company believes is primarily attributable to the economic impact of COVID-19.

Solid waste revenue for the month of April reflected an 8.7 percent decline as compared with April 2019 or a 4.2 percent decline when excluding the Canadian solid waste business which was disproportionately impacted by the shutdown of commercial activity in the provinces of Ontario and Quebec, the company says. Over the past several weeks, the company says it has seen sequential increases in commercial and industrial collection activity.

GFL notes that it remains well-capitalized and has ample liquidity available, including more than $700 million in cash as of April 30 and more than $600 million available under its revolving credit facility. As a result of the repayment of debt with the proceeds from its initial public offering, it has no material debt maturing over the next five years.

GFL earnings call

GFL followed up its Q1 earnings report with its Q1 earnings call May 12. During the call, Dovigi discussed the company’s quarterly performance and how it navigated changes due to COVID-19.

Dovigi on how the company mitigated the impact of COVID-19 during Q1

“As we said on our investor call in April, because of the high proportion of our revenues coming from our service-based collection, we have a highly variable cost structure. As volume slowed, we reduced our operating cost by consolidating collection routes, parking trucks and reducing overtime hours while our disposal costs … and fuel costs naturally flex down with reduced volumes. At the same time, we reorganized our workforce across our service offerings and business lines to minimize the disruption to our employees.”

Dovigi on GFL’s M&A activity in Q1

“In terms of M&A, we completed eight acquisitions during the quarter. Five of these completed at the time of the IPO (initial public offering), including County [Waste] and American Waste, and we closed three additional tuck-in acquisitions around the beginning of March. We deployed $1.1 billion of capital on County and American and approximately $70 million of capital on the six tuck-in acquisitions. Although there have been some delays because of COVID-related travel restrictions, the integration of both County and American are progressing very well.

“With the highly successful financing that we completed last month, we have over $1.3 billion in liquidity and are ready to capitalize on opportunities as they arise. We have temporarily delayed the closing of a few smaller tuck-in acquisitions since the onset of the pandemic, but we continue to progress on several opportunities and our pipeline continues to be robust.”

Dovigi on the company’s pricing strategy

“Previous to 2018, we didn’t spend five minutes focusing on price as we were building the business. There was much more of a [focus] on growing volume and growing market share versus growing price, and then post the acquisition of Waste Industries and watching how they increase the margins from [around] 23 percent to 24 percent up to [around] 27.5 percent to 28.5 percent, we took that playbook and started rationalizing our entire book of business in the nine provinces in Canada and 23 states in the U.S. [where we operate]. So, pricing continues to be strong. I think as we've rationalized the existing book and level-set that existing book, we're going to continue being focused on prices.”

Dovigi on service cancellations 

“We've had very minimal service cancellations. … As customers have called in and asked to temporarily suspend their service because they're closed, we've worked with those customers on a case-by-case basis.

“So, I would say there's been very little out and out terminations. I think if you look at the customer base today, about 6 to 7 percent of the commercial customer base has called in and asked to either temporarily suspend or change their frequencies. So, I don't think there's a permanent impairment, but again, it's still early days. … We are seeing sort of material uptakes and people now wanting to get their service back online—it's going to take some time to get back to the service level that we were at, but I think all in all from what we're seeing, there has been very little termination of services.”