Financial report: GFL to divest infrastructure services division, grows revenue by 31.7 percent

GFL Environmental has released its financial results for the fourth quarter and full year of 2021. The company has also announced that it intends to divest its infrastructure services division for shares in a new entity, Green Infrastructure Partners. GFL's soil remediation division, currently included in its infrastructure segment, will be combined with its liquid waste segment and rebranded as environmental services. 

"In 2021, we grew revenue by 31.7 percent, driven by strong organic growth and acquisitions that outperformed expectations," said Patrick Dovigi, Founder and Chief Executive Officer of GFL. "We also expanded our Adjusted EBITDA margin and solid waste Adjusted EBITDA margin by 80 bps and 90 bps, respectively, demonstrating the effectiveness of our proactive pricing and efficiency initiatives to counteract increased inflationary cost pressures. I am especially proud that we were able to accomplish these results despite the continued impact of the COVID-19 pandemic in many of the markets we serve, especially in Canada."

Dovigi continued, "We remain focused on executing on our strategy to create long-term value for all our stakeholders. In 2021, we closed 46 accretive acquisitions, completed financing initiatives to further reduce our cost of capital and realized approximately $260 million from the sale of non-core solid waste assets which we expect to continue to reinvest in organic and inorganic initiatives. Our integration plans for the acquisitions that closed in 2021 are significantly advanced and on schedule. Entering into 2022, we continue to manage a robust M&A pipeline, setting us up for another outsized year of acquisitions."

In connection with the intended acquisition of GFL Infrastructure, GIPI will acquire Coco Paving and its affiliates to create a leading infrastructure services growth vehicle. Coco is one of Canada's largest vertically integrated infrastructure services businesses with operations across Ontario, Quebec, Manitoba and Saskatchewan. Coco's operations include access to over 250 aggregate sites, 33 asphalt plants, eight concrete plants and one of Canada's largest asphalt cement terminals. 

"We believe that our investment in the combined complementary businesses of GFL Infrastructure and Coco through Green Infrastructure Partners will result in greater value creation for our shareholders than GFL Infrastructure's value contribution within GFL," said Dovigi. "Post-divestiture, we continue to see lots of opportunity to leverage the greater weighting in our solid waste segment both organically and through accretive acquisitions. This will also increase the comparability of our business mix with our publicly traded peers."

Fourth quarter and full year 2021 results

• Revenue increased by 24.6 percent to $1,539.5 million in the fourth quarter of 2021, compared to the fourth quarter of 2020.
• Solid waste revenue increased by 20.2 percent, including 6.5 percent from core pricing, surcharge and commodity price increases and 3.4 percent from positive volume.
• Adjusted EBITDA increased by 24.8 percent to $388.3 million in the fourth quarter of 2021, compared to the fourth quarter of 2020.
• Adjusted EBITDA margin was 25.2 percent in the fourth quarter of 2021, in line with the prior year period.
• Net loss decreased to $77.4 million in the fourth quarter of 2021, compared to a net loss of $594.2 million in the fourth quarter of 2020.
• Cash flows from operating activities increased by 73.6 percent to $283.8 million in the fourth quarter of 2021, compared to the fourth quarter of 2020.
• Revenue for the year ended December 31, 2021 was $5,525.5 million, an increase of 31.7 percent, compared to the year ended December 31, 2020.
• Adjusted EBITDA increased by 35.9 percent to $1,463.7 million for the year ended December 31, 2021, compared to the year ended December 31, 2020.
• Adjusted EBITDA margin was 26.5 percent for the year ended December 31, 2021, compared to 25.7 percent for the year ended December 31, 2020.
• Net loss decreased to $606.8 million for the year ended December 31, 2021, compared to a net loss of $1,102.4 million for the year ended December 31, 2020.
• Cash flows from operating activities increased by 78.8 percent to $897.9 million for the year ended December 31, 2021, compared to the year ended December 31, 2020.

Guidance for 2022

GFL also provided its guidance for 2022, assuming the inclusion of GFL Infrastructure and excluding this segment as noted below.

• Revenue is estimated to be between $6,265 million and $6,365 million ($5,825 million and $5,925 million excluding GFL Infrastructure), representing year-over-year growth of 14 percent to 16 percent, resulting from expected organic growth of 5.0 percent to 6.0 percent, revenue from net M&A roll over of 8.0 percent to 8.5 percent and changes in foreign exchange resulting in 0.5 percent revenue growth.
• Adjusted EBITDA is estimated to be between $1,690 million and $1,730 million ($1,625 million and $1,665 million excluding GFL Infrastructure), assuming Adjusted EBITDA margin of 27.0 percent to 27.2 percent (or 27.9 percent to 28.1 percent excluding GFL Infrastructure).
• Adjusted Free Cash Flow is estimated to be between $665 million and $695 million ($625 million and $655 million excluding GFL Infrastructure), assuming Adjusted Free Cash Flow margin of 10.6 percent to 10.9 percent (or 10.7 percent to 11.1 percent excluding GFL Infrastructure).
• Net Leverage is estimated to be approximately 4.3x (approximately 4.3x excluding GFL Infrastructure), resulting from growth in Adjusted EBITDA and Adjusted Free Cash Flow.

The 2022 guidance excludes any impact from acquisitions not yet completed and refinancing opportunities. 

Potential growth opportunities from 2022 to 2023

• GFL expects to continue to organically grow revenue by approximately 5.0 percent in 2023 and to realize Adjusted EBITDA margin between 28.2 percent to 28.4 percent, potentially resulting in revenue growth between $305 million and $335 million, Adjusted EBITDA growth between $85 million and $95 million and Adjusted Free Cash Flow growth between $55 million and $60 million during 2023.
• GFL manages many potential acquisition targets. In 2023, GFL assumes the deployment of $450 million to $525 million for acquisitions, financed from free cash flow generated by the business, resulting in potential additional revenue between $250 million and $300 million, additional Adjusted EBITDA3 between $60 million and $75 million and additional Adjusted Free Cash Flow between $45 million and $55 million.
• GFL Renewables has entered into joint venture arrangements with established partners at four MSW landfills to date and is currently evaluating potential arrangements at five additional MSW landfills. These nine projects are expected to generate approximately $105 million and $125 million in incremental annual free cash flow.
• Based on the above potential 2022 to 2023 growth opportunities, GFL's launch off point for 2024 could be Adjusted Free Cash Flow between $890 million and $970 million.