Financial report: GFL sees revenue increase by 10.3 percent in third quarter of 2023

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

"Once again in the third quarter, our employees delivered results that exceeded our expectations," said Patrick Dovigi, founder and chief executive officer of GFL. "Total revenue for the quarter, excluding non-core asset divestitures, increased 10.3 percent over the prior year period, driven primarily by solid waste core pricing increase of 8.8 percent and our continued focus on the quality of our revenue. We also saw significant margin improvement during this quarter across both our lines of business, with solid waste adjusted EBITDA margin up 250 bps year over year, inclusive of headwinds from M&A, commodity pricing and fuel, and environmental services adjusted EBITDA margin up 440 bps. These results are a testament to the strength of our business and our ability to execute on the many self-help levers in our portfolio.

"We continue to manage our asset base to create long-term sustainable shareholder value," continued Dovigi. "In the second quarter, we completed divestitures of certain non-core assets and are reinvesting a portion of those proceeds into higher margin, accretive organic growth initiatives, such as RNG projects and new contract wins driven by extended producer responsibility recycling regulations in Canada. Our base business has now scaled to the point where we expect organic growth to outpace growth from M&A, as we focus primarily on tuck-in acquisitions to densify our existing footprint.

"Even in this current high-interest rate environment, this quarter we reduced our cost of borrowing by 60 bps under our senior secured term loan, reflecting the continued support of our high quality, long-standing institutional debt investors. We remain committed to deleveraging our balance sheet. With the progressive improvements we are making in our business, we expect to continue to realize material credit quality enhancements in the near to medium term, leading to our achieving an investment grade rating before the majority of our fixed rate debt matures in 2028 and beyond, positioning us for improved free cash flow conversion.

"Our strong results year to date position us well for outsized operating leverage next year," concludes Dovigi. "Our preliminary 2024 outlook sets us up to achieve high single-digit top-line growth, inclusive of approximately $210 million of M&A rollover revenue from acquisitions already completed and before considering the impact of divestitures from earlier this year. By continuing to apply our proven strategy that drove margin expansion this year, we expect another year of outsized adjusted EBITDA margin expansion, which should also drive low teens adjusted EBITDA growth, or at least 10 percent when considering the impact of divestitures. We look forward to providing our formal guidance for 2024 when we report our year-end results."

GFL's third quarter results

• GFL had a revenue of $1,890.0 million in the third quarter of 2023, an increase of 10.3 percent excluding the impact of divestitures (3.2 percent including the impact of divestitures), compared to the third quarter of 2022.
  • A solid waste revenue of $1,502.5 million, including organic growth of 4.2 percent driven predominantly by core pricing increases.
  • Environmental Services revenue of $387.5 million, including organic growth of 6.9 percent excluding the impact of $30.0 million of revenue contributed from an outsized amount of sub-contracting work in the third quarter of 2022 ((1.9) percent including this impact). The increase is predominantly due to higher industrial collection and processing activity at our facilities and an increased level of emergency response activity, offset by a reduction in contaminated soil volumes.
• Adjusted EBITDA1 increased by 12.0 percent to $530.3 million in the third quarter of 2023, compared to the third quarter of 2022. Adjusted EBITDA margin1 was 28.1 percent in the third quarter of 2023, compared to 25.8 percent in the third quarter of 2022. Solid Waste Adjusted EBITDA margin1 was 31.4 percent in the third quarter of 2023, compared to 28.9 percent in the third quarter of 2022.
• Net income from continuing operations was $18.3 million in the third quarter of 2023, compared to net loss from continuing operations of $183.7 million in the third quarter of 2022.
• Adjusted Free Cash Flow1 was $276.0 million in the third quarter of 2023, compared to $97.0 million in the third quarter of 2022. The increase of $179.0 million was inclusive of $248.6 million of incremental cash taxes related to divestitures and $21.6 million of incremental cash interest paid, offset by a decrease of $84.9 million of incremental net capex.

Year-to-date results

• Revenue of $5,632.7 million for the nine months ended September 30, 2023, an increase of 17.8 percent excluding the impact of divestitures (14.0 percent including the impact of divestitures), compared to the nine months ended September 30, 2022.
  • Solid waste revenue of $4,541.0 million, including organic growth of 6.8 percent driven predominantly by core pricing increases.
  • Environmental services revenue of $1,091.7 million, including organic growth of 12.9 percent excluding the impact of $30.0 million of revenue contributed from an outsized amount of sub-contracting work in the nine months ended September 30, 2022 (9.2 percent including this impact). The increase is predominantly due to higher industrial collection and processing activity at our facilities and an increased level of emergency response activity.
• Adjusted EBITDA increased by 18.0 percent to $1,511.5 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Adjusted EBITDA margin was 26.8 percent for the nine months ended September 30, 2023, compared to 25.9 percent for the nine months ended September 30, 2022. Solid waste Adjusted EBITDA margin was 30.8 percent for the nine months ended September 30, 2023, compared to 29.3 percent for the nine months ended September 30, 2022.
• Net income from continuing operations was $94.3 million for the nine months ended September 30, 2023, compared to net income from continuing operations of $35.9 million for the nine months ended September 30, 2022.
• Adjusted free cash flow was $235.8 million for the nine months ended September 30, 2023, compared to $317.8 million for the nine months ended September 30, 2022. The decrease of $82.0 million was inclusive of $248.6 million of incremental cash taxes related to divestitures, $195.9 million of incremental net capex and $114.6 million of incremental cash interest paid.