GFL Environmental sees revenue increase by 13.8 percent in Q2

GFL Environmental Inc. has released its financial results for the second quarter of 2023.

"Our exceptional start to the year continued into the second quarter, thanks to the hard work and commitment of our over 20,000 employees," said Patrick Dovigi, founder and chief executive officer at GFL. "Our strong execution once again resulted in our achievement of double-digit revenue growth in the quarter."

"During the second quarter," continued Dovigi, "we successfully completed our portfolio rationalization initiative that we committed to earlier this year. We realized $1.65 billion of gross proceeds from these non-core divestitures, $150 million more than our original expectation, and completed the process one quarter ahead of plan. A portion of the net proceeds from the divestitures was used to accelerate our balance sheet deleveraging commitment and we ended the second quarter with net leverage of 4.18x, the lowest level in our history. The resulting enhanced strength of our balance sheet, coupled with our margin expansion and accelerated free cash flow, sets us on a path to ending the year with net leverage of less than 4.0x, mid 3.0x by the end of 2024 and a pathway to investment grade in the medium term.

"We remain focused on executing our strategy to create long-term shareholder value. We have completed 16 acquisitions year-to-date, the majority of which were smaller tuck-in acquisitions, which have continued to densify our existing footprint. With the success of the divestiture transactions, we intend to allocate a portion of the proceeds to a number of incremental sustainability-related capital projects, primarily related to opportunities arising from extended producer responsibility legislation and RNG, in keeping with our highest and best capital use strategy. We are excited about the positive contribution that these investments will have across many facets of our strategy.

"Our strong performance for the first half of the year, coupled with our expectation for the balance of the year, the resilience of our business model, and the effectiveness of our growth strategies, are leading us to increase our . . . full-year guidance for this year. We are increasing our guidance for revenue, adjusted EBITDA and adjusted free cash flow."

GFL's second quarter results for 2023

• Revenue increased by 13.8 percent to $1,943.6 million in the second quarter of 2023, compared to the second quarter of 2022.
  • Solid waste revenue of $1,556.3 million, including organic growth of 4.8 percent driven predominantly by core
    pricing increases.
  • Environmental services revenue of $387.3 million, including organic growth of 10.2 percent driven by the strength of industrial collection and processing activity at GFL's facilities and by core pricing and surcharge increases.
• Adjusted EBITDA increased by 19.3 percent to $540.7 million in the second quarter of 2023, compared to the second quarter of 2022. Adjusted EBITDA margin was 27.8 percent in the second quarter of 2023, compared to 26.5 percent in the second quarter of 2022. Solid waste adjusted EBITDA margin was 31.6 percent in the second quarter of 2023, compared to 29.4 percent in the second quarter of 2022.
• Net income from continuing operations was $293.8 million in the second quarter of 2023, compared to net income from continuing operations of $82.6 million in the second quarter of 2022.
• Adjusted free cash flow was $8.5 million in the second quarter of 2023, compared to $102.2 million in the second quarter of 2022. The decrease of $93.7 million was inclusive of $138.8 million of incremental net capex and $28.2 million of incremental cash interest paid.

GFL's 2023 year-to-date results

• Revenue increased by 20.4 percent to $3,742.7 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.
  • Solid waste revenue of $3,038.5 million, including organic growth of 8.3 percent driven predominantly by core pricing increases.
  • Environmental services revenue of $704.2 million, including organic growth of 16.5 percent driven by the strength of industrial collection and processing activity at GFL's facilities and by core pricing and surcharge increases.
• Adjusted EBITDA increased by 21.5 percent to $981.2 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. Adjusted EBITDA margin was 26.2 percent for the six months ended June 30, 2023, compared to 26 percent for the six months ended June 30, 2022. Solid waste adjusted EBITDA margin was 30.6 percent for the six months ended June 30, 2023, compared to 29.6 percent for the six months ended June 30, 2022.
• Net income from continuing operations was $76.0 million for the six months ended June 30, 2023, compared to net income from continuing operations of $219.6 million for the six months ended June 30, 2022.
• Adjusted free cash flow was $46.3 million for the six months ended June 30, 2023, compared to $220.8 million for the six months ended June 30, 2022. The decrease of $267.1 million was inclusive of $286.9 million of incremental net capex and $93.0 million of incremental cash interest paid.

GFL's updated full-year 2023 guidance

GFL also provided its updated guidance for 2023 assuming a CAD/US exchange rate of 1.32 for the remainder of the year (compared to 1.34 provided in GFL's original guidance on February 21, 2023).

Net leverage

• Revenue is estimated to be approximately $7,400 million.
  • Full year solid waste core pricing of 9.5 percent, surcharges of (1.0 percent), volume of (1.9 percent) and commodity price impact of (0.6 percent);
  • Environmental services organic growth of 7.0 percent; and,
  • Changes in foreign exchange resulting in 1.6 percent revenue growth and revenue from M&A contribution of 1.7 percent.
• Adjusted EBITDA is estimated to be approximately $2,000 million.
  • Full year Adjusted EBITDA margin 3 is expected to be approximately 27.0 percent.
• Adjusted free cash flow is estimated to be approximately $705 million.
  • Full-year cash interest is expected to be approximately $490 million, inclusive of $20 million of cash interest incremental to original guidance as a result of higher interest rates and borrowings and the in-year savings from the repayment of variable debt using net proceeds from the sale of three non-core U.S. solid waste businesses.
  • Full-year net capex is expected to be approximately $805 million, excluding approximately $200 million to $300 million of incremental purchase of property and equipment which will be offset by an equal allocation of a portion of the net proceeds from the sale of three non-core U.S. solid waste businesses.
• Year-end net leverage is estimated to be less than 4.0x, resulting from growth in adjusted EBITDA and adjusted free cash flow.