GFL Environmental Reports Fourth Quarter and Full Year 2020 Results; Provides Full Year 2021 Guidance and Financial Outlook Through Full Year 2023

VAUGHAN, ON, Feb. 22, 2021 /PRNewswire/ - GFL Environmental Inc. (NYSE: GFL) (TSX: GFL) ("GFL" or the "Company") today announced its results for the fourth quarter and full year 2020.

 

"I am incredibly proud of what our employees have accomplished this year", said Patrick Dovigi, Founder and Chief Executive Officer of GFL. "Despite the impact of the pandemic on the North American economy, as a group we were able to deliver on our 2020 commitments and produce exceptional financial results. We expanded our Adjusted EBITDA margins by 100 basis points compared to the prior year, completed nearly $4 billion of accretive acquisitions and pursued opportunistic refinancings, while continuing to focus on preserving our leverage commitments with a view to increasing free cash flow."

 

"During the fourth quarter, we grew revenue by 37.8% and Adjusted EBITDA by 49.0%, as compared to the prior year, resulting in expanded Adjusted EBITDA margin of 25.2%. The margin increase was largely due to organic growth in our solid waste business in both Canada and the U.S., as well as cost control initiatives and synergies realized from acquisitions, 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 we serve, contributing to 4.0% of organic growth in the quarter and margin expansion of 240 basis points. During the quarter, we also continued to see higher volumes in our MRF operations as a result of new contract wins in both Eastern and Western Canada."

 

"During the year, we were able to take advantage of market opportunities and deliver on the commitments we made to our stakeholders at the time of our IPO and more, including our commitment to reduce leverage by using the proceeds from the IPO to repay debt and raising US$600 million in equity from a long-time GFL investor to fund part of our acquisition of WCA Waste Corporation. We also leveraged our improved credit quality to reduce our weighted average cost of debt by nearly 200 basis points through opportunistic refinancings."

 

Mr. Dovigi concluded, "As we head into 2021, GFL has never been in a better financial position. Our free cash flow gives us the ability to naturally de-lever while at the same time allowing us to continue to deploy capital on attractive organic growth opportunities, accretive tuck-in acquisitions, as well as sustainability initiatives. We have always been opportunistic acquirers. Interest rates are at all-time lows giving us access to financing markets that position us well to continue to lower our cost of debt while pursuing accretive M&A at very attractive multiples, both tuck-ins and potentially larger-sized opportunities, within our expanded platform. 2021 has the potential for being another year of outsized M&A and you should expect to see us continue to make these strategic value-creating investments as these opportunities arise."

 

Fourth Quarter and Year to Date Results

 

Revenue increased by 37.8% to $1,235.6 million in the fourth quarter of 2020 compared to the fourth quarter of 2019. Solid waste core price and surcharges for the fourth quarter of 2020 were 3.6%. Solid waste volumes declined 0.3% for the fourth quarter of 2020, predominately due to a reduction in commercial and industrial collection activity as well as reduced transfer station and organic waste volume, as a result of the various measures implemented by the Canadian and U.S. governments in an effort to limit the spread of COVID-19. Solid waste volumes in the fourth quarter of 2020 represented an improvement of 139 basis points as compared to the volume decrease during the third quarter of 2020. Revenue for the year ended December 31, 2020 was $4,196.2 million, an increase of 25.4% compared to 2019. The increase in both periods was driven by significant revenue growth across all reportable segments from both organic contributions and through acquisitions.

 

Adjusted EBITDA1 increased by 49.0% to $311.2 million in the fourth quarter of 2020 compared to the fourth quarter of 2019, primarily attributable to strong revenue growth in the quarter. Adjusted EBITDA margin1 was 25.2% for the fourth quarter of 2020 as compared to 23.3% in the prior year period. Net loss increased from $180.4 million for the fourth quarter of 2019 to $486.7 million for the fourth quarter of 2020 driven primarily by the changes in Adjusted EBITDA1, partially offset by a mark-to-market loss on our tangible equity unit (the "TEUs") purchase contracts (the "Purchase Contracts"). Adjusted EBITDA1 increased by 30.4% to $1,076.7 million for the year ended December 31, 2020 compared to the prior year, primarily attributable to strong revenue growth in the period. Net loss increased from $451.7 million for the year ended December 31, 2019 to $994.9 million for the year ended December 31, 2020 driven by costs associated with our initial public offering, the early redemption of several series of our outstanding unsecured bonds and the extinguishment of our 11% paid-in-kind notes as part of the pre-closing capital changes implemented immediately prior to our initial public offering and by a mark-to-market loss on our Purchase Contracts.

 

Cash flow from operating activities increased by 22.9% to $163.5 million in the fourth quarter of 2020, compared to the fourth quarter of 2019, and Adjusted Cash Flow from Operating Activities1 was $241.7 million, a result that exceeded our expectations. For the year ended December 31, 2020, cash flow from operating activities was $502.2 million, an increase of 100.1% compared to the prior year, and Adjusted Cash Flow from Operating Activities1 was $772.3 million.

 

Financial Impact from COVID-19

 

The Company's financial results for the three months and year ended December 31, 2020 were impacted by the reduction in commercial activity as a result of the various measures implemented since March 2020 by several 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 re-opening businesses, while in other markets, such as within the Provinces of Ontario and Quebec and parts of the Mid-west and north-east U.S., the re-introduction of restrictions on businesses or closure requirements continued to impact the recovery of these markets. 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. The majority of the revenue generated in its solid waste business is from secondary markets. The solid waste revenue generated in major metropolitan centres or primary markets is predominately derived from municipal residential contracts. In the three months ended December 31, 2020, the Company continued to see sequential improvements in commercial activity and volumes in its solid waste line of business. The Company however experienced lower volumes in its solid and liquid waste commercial and industrial collection and post collection businesses due to a decrease in service levels attributable to COVID-19, primarily in the major metropolitan centres that its serves. The Company's liquid waste business also had lower sales volume of used motor oil which management believes is a result of the temporary suspension of certain customers' operations in response to 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 fourth quarter, the measures implemented by governments to limit the spread of COVID-19 continued to delay the commencement of new large projects, which temporarily reduced the volume of contaminated soils in the markets that the Company serves.

 

Full Year 2021 Guidance2

 

GFL also provided its guidance for 2021.

 

 

The 2021 guidance excludes any additional acquisitions, refinancing opportunities and any potential redeployment of capital. Implicit in forward-looking statements in respect of the Company's expectations for 2021 are certain current assumptions, including, among others, no changes to the current economic environment and that none of the jurisdictions in which the Company operates institute additional COVID-19 emergency measures including physical distancing, shelter-in-place or similar orders. The 2021 guidance assumes that the Company will continue to execute on its strategy of organically growing its business, leveraging its scalable network to attract and retain customers across multiple service lines, realize operational efficiencies, and extract procurement and cost synergies.

 

2021- Upside Opportunities3

 

The Company expects to reduce its cost of capital by refinancing certain of its outstanding debt, including US$360 million of its 8.50% 2027 Unsecured Notes and its outstanding term loan facility. These potential financing opportunities could result in annualized interest costs savings and additional Adjusted Free Cash Flow between $20 million and $30 million.

 

The Company manages a robust pipeline of potential acquisition targets and sees opportunities to deploy between $350 million and $500 million of capital in 2021 on acquisitions in Canada and the United States, potentially resulting in additional revenue between $200 million and $280 million, additional Adjusted EBITDA between $50 million and $70 million and additional Adjusted Free Cash Flow between $35 million and $40 million. The Company is currently assessing a larger acquisition opportunity that is within its existing footprint, the impact of which is excluded from these potential upside opportunities.

 

The Company expects to redeploy capital into organic initiatives in key growth markets from the potential sale of non-core assets, potentially resulting in additional revenue between $15 million and $30 million, additional Adjusted EBITDA between $3 million and $5 million and additional Adjusted Free Cash Flow between $10 million and $15 million.

 

Based on the above upside opportunities, the Company's launch off point for 2022 could be Adjusted Free Cash Flow between $530 million and $580 million. 

 

2022-2023 Potential Growth Opportunities4

 

The Company expects to continue to organically grow revenue by approximately 4.5% over the 2022 and 2023 periods, including 3.5% to 4.0% in price increases and 0.5% to 1.0% in volume increases, and to expand Adjusted EBITDA Margin in each line of business (35 to 45 bps for solid waste, 100 to 125 bps for liquid waste and 200 bps for infrastructure and soil remediation) potentially resulting in additional revenue between $450 million and $475 million, additional Adjusted EBITDA between $145 million and $155 million and additional Adjusted Free Cash Flow between $100 million and $110 million by the end of 2023.

 

Over the course of 2022 and 2023, the Company sees opportunities to deploy $600 million to $900 million for acquisitions, substantially financed from free cash flow generated by the business, resulting in potential additional revenue between $320 million and $480 million, additional Adjusted EBITDA between $80 million and $120 million and additional Adjusted Free Cash Flow between $55 million and $80 million by the end of 2023.

 

The Company expects to further reduce its cost of capital during the 2022 and 2023 periods by refinancing US$500 million of its 4.25% 2025 Secured Notes and its 5.125% 2026 Secured Notes, potentially resulting in additional Adjusted Free Cash Flow between $20 million and $30 million by the end of 2023.

 

Based on the above potential growth opportunities, the Company's launch off point for 2024 could be Adjusted Free Cash Flow between $705 million and $800 million.

In addition to the assumptions that underlie the 2021 guidance referred to above, implicit in forward-looking statements in respect of the upside opportunities for 2021 and the outlook for the 2022 to 2023 period are additional assumptions including no material changes in interest rates and foreign exchange rates, access to debt markets for refinancing opportunities on comparable terms and conditions to the Company's recent financings, continued margin expansion and sufficient free cash flow to fund acquisitions. The Company's M&A assumptions are based on the fragmented nature of the industry, the Company's historical experience with acquisitions and its current robust pipeline.

 

Q4 2020 Earnings Call

 

GFL will host a conference call related to our fourth quarter earnings on Tuesday February 23, 2021 at 8:30 am Eastern time. A live audio webcast of the conference call can be accessed by logging onto the Company's Investors page at investors.gflenv.com or by clicking here or listeners may access the call toll-free by dialing 1-877-344-7529, 1-412-317-0088, or 855-669-9658 (conference ID: 10150538) approximately 15 minutes prior to the scheduled start time. The Company encourages participants who will be dialing in to pre-register for the conference call using the following link: https://dpregister.com/sreg/10150538/ded9ae7a5c. Callers who pre-register will be given a conference passcode and PIN to gain immediate access to the call and bypass the live operator on the day of the call. Participants may pre-register at any time, including up to and after the call start time. For those unable to listen live, an audio replay of the call will be available until February 25, 2021 by dialing 1-877-344-7529, 1-412-317-0088, or 855-669-9658 (conference ID: 10150538). A copy of the presentation for the call will be available on our website at https://investors.gflenv.com or by clicking here.

 

About GFL

 

GFL, headquartered in Vaughan, Ontario, is the fourth largest diversified environmental services company in North America, providing a comprehensive line of non-hazardous solid waste management, infrastructure & soil remediation and liquid waste management services through its platform of facilities throughout Canada and in 27 states in the United States. Across its organization, GFL has a workforce of more than 15,000 employees.

 

1 A non-IFRS measure; see accompanying Non-IFRS Reconciliation Schedule

 

2 The 2021 Guidance includes non-IFRS measures such as Adjusted EBITDA, Adjusted Free Cash Flow and Net leverage. Due to the uncertainty of the likelihood, amount and timing of effects of events or circumstances to be excluded from these measures, the Company does not have information available to provide a quantitative reconciliation of such projections to the comparable IFRS measure.

 

3 The 2021 Upside Opportunities includes non-IFRS measures such as Adjusted EBITDA and Adjusted Free Cash Flow. Due to the uncertainty of the likelihood, amount and timing of effects of events or circumstances to be excluded from these measures, the Company does not have information available to provide a quantitative reconciliation of such projections to the comparable IFRS measure. 

 

4 The 2022-2023 Potential Growth Opportunities includes non-IFRS measures such as Adjusted EBITDA and Adjusted Free Cash Flow. Due to the uncertainty of the likelihood, amount and timing of effects of events or circumstances to be excluded from these measures, the Company does not have information available to provide a quantitative reconciliation of such projections to the comparable IFRS measure.