GFL Environmental Inc., Ontario, announced its results for the third quarter Nov. 4.
- revenue of $793.6 million, an increase of 15.4 percent;
- adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $215.4 million, an increase of 24.6 percent; net loss of $87.86 million;
- adjusted EBITDA margin of 27.1 percent, an increase of 200 basis points;
- solid waste adjusted EBITDA margin of 30.6 percent, an increase of 240 basis points;
- adjusted earnings per share of 10 cents; loss per share of 25 cents;
- free cash flow generation of $135.66 million;
- cash flow from operating activities of $196.64 million; and
- reduced borrowing costs with new 3.75 percent notes.
"Our employees continued to deliver exceptional results in the third quarter. Despite the ongoing impact of COVID-19 on parts of the North American economy, we were able to grow our revenue in the quarter by 15.4 percent and adjusted EBITDA by 24.6 percent compared to the third quarter of 2019, resulting in our highest-ever reported adjusted EBITDA margin," Patrick Dovigi, founder and CEO of GFL Environmental, says. "This increase in margins was largely due to the organic growth in our solid waste business and our disciplined management of our variable costs, resulting in better than expected free cash flow generation for the period.
“In our solid waste line of business, we continued to see sequential improvements in the commercial activity and volumes in the markets that we serve, driving 2.5 percent of organic growth in the quarter and resulting in margin expansion of 240 basis points," he continues. "During the quarter, we began to see the anticipated benefits of our acquisition of Canada Fibers, a leading operator of technologically advanced material recovery facilities (MRFs), including higher volumes in our MRF operations as a result of new contract wins in both eastern and western Canada.
"When we went public earlier this year, part of our plan was to execute strategic acquisitions while maintaining leverage within our stated goals and reducing our cost of capital. Since quarter end, we closed the acquisitions of WCA Waste Corp. and the divestiture assets resulting from the transaction between Waste Management Inc. and Advanced Disposal Services Inc.," Dovigi says. "These high-quality, vertically integrated assets are expected to advance our goal of creating long-term shareholder value while supporting our organic growth strategy. To finance these acquisitions, we used the proceeds from the offering of our $574.51 million of 3.75 percent senior secured notes, the lowest coupon in our history, and the private placement of $600 million of preferred shares, convertible at an approximately 20 percent premium to the $21.26 share price at the time of issue. To further achieve our goal of reducing our cost of capital, our lenders under our revolving credit facility have agreed to reduce margins by 50 basis points."
Dovigi concludes, "As we look toward the future, we remain focused on pursuing our growth strategies, including through organic revenue growth and accretive acquisitions and further reducing our cost of capital. We plan to implement our well-advanced integration plans for the acquisitions of WCA and the divestiture assets, continue our regular tuck-in M&A program and further delever our balance sheet."
Q3 and year-to-date results
Revenue increased by 15.4 percent to $793.6 million in the third quarter compared with the third quarter of 2019. Solid waste core price and surcharges for the third quarter were 3.5 percent. Solid waste volumes declined 1.7 percent for the third quarter, primarily from lower volumes in the company’s commercial and industrial collection businesses and its post-collection business due to a decrease in service levels attributable to COVID-19. Revenue for the nine months ended Sept. 30 was $2.27 billion, an increase of 20.8 percent compared with the same period in 2019. The increases in both periods were driven by significant revenue growth across all reportable segments from organic contributions and through acquisitions.
Adjusted EBITDA increased by 24.6 percent to $215.4 million in the third quarter compared with the third quarter of 2019. This was primarily attributable to strong revenue growth in the quarter. The adjusted EBITDA margin was 27.1 percent for the third quarter as compared with 25.1 percent in the prior-year period. Net loss increased from $84.19 million for the third quarter of 2019 to $87.86 million for the third quarter of 2020, driven primarily by the changes in adjusted EBITDA partially offset by a mark-to-market loss in the company’s tangible equity unit derivative purchase contracts.
Adjusted EBITDA increased by 24.1 percent to $586.39 million for the nine months ended Sept. 30 compared with the same period in the prior year, primarily attributable to strong revenue growth in the period. Net loss increased from $207.82 million for the nine months ended Sept. 30, 2019, to $389.29 million for the nine months ended Sept. 30, 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 paid-in-kind notes as part of the pre-closing capital changes implemented immediately prior to its initial public offering and by a mark-to-market loss on its tangible equity unit derivative purchase contracts.
Cash flow from operating activities increased by 214.2 percent to $196.64 million in the third quarter compared with the third quarter of 2019. This increase was predominantly attributable to improved working capital, an increase in adjusted EBITDA and reduced interest expense during the period. For the nine months ended Sept. 30, cash flow from operating activities was $259.45 million, an increase of 187 percent compared to the same period in the prior year.
Financial impact from COVID-19
The company's financial results for the first three quarters were impacted by the reduction in commercial activity as a result of the various measures implemented since March by provincial, state and local governments in Canada and the U.S. in response to COVID-19. The magnitude of the impacts varied by region and were correlated to the timing and nature of measures enacted. In some markets, the company's business saw organic growth as governments focused on lifting measures and reopening businesses, while in other markets, such as within the provinces of Ontario and Quebec and parts of the Midwest and Northeast U.S, the reintroduction of restrictions on businesses or closure requirements resulted in a slower recovery than previously expected.
The company's overall revenue is heavily weighted to its solid waste business, which is its most resilient business line and is also diversified across geographies and customers, GFL says. The majority of the revenue generated in its solid waste business is from secondary markets. The solid waste revenue generated in major metropolitan centers or primary markets is predominately derived from municipal residential contracts. In the third quarter, the company continued to see sequential improvements in commercial activity and volumes in its solid waste line of business. The company, however, experienced lower sales volume of used motor oil and reduced industrial collection processing activity in its liquid waste business resulting from the temporary suspension of certain customers' operations and deferral of capital expenditures in an effort to mitigate the impact of COVID-19. In its infrastructure and soil remediation line of business, revenue declined primarily as a result of a reduction in soil volumes processed at the company's facilities. While the substantial majority of the company's larger active projects were deemed essential and continued to progress throughout the third quarter, the measures implemented by governments to limit the spread of COVID-19 delayed the commencement of new large projects, which temporarily reduced the volume of contaminated soils in the markets that the company serves.