GFL reports highest adjusted EBITDA margin to date

GFL Environmental, Vaughan, Ontario, has released its earnings report for the third quarter of 2024, reporting a margin for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 31.1 percent, the highest in the company’s history.

Adjusted EBITDA increased by 18 percent to $625.9 million in the third quarter of 2024, compared with$530.3 million in the third quarter of 2023. The company’s solid waste adjusted EBITDA margin was 34.8 percent in the third quarter of 2024, compared with 31.4 percent in the third quarter of 2023. The environmental services adjusted EBITDA margin was 32.2 percent in the third quarter of 2024, compared with 31.1 percent in the third quarter of 2023.

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“Once again, the dedication of our over 20,000 employees delivered consistent high-quality results across all our financial metrics,” GFL founder and CEO Patrick Dovigi says. “Our continued focus on strong execution generated industry leading adjusted EBITDA margin expansion of 300 basis points over the prior year quarter, the highest in GFL's history.”

The company reported a revenue of $2.01 billion, a 9.3 percent increase compared with the third quarter of 2023, excluding the impact of divestitures.

GFL’s solid waste revenue equaled $1.55 billion, including 6 percent from core pricing partially offset by volume decreases of 0.8 percent. Solid wase volumes improved sequentially by 90 basis points, which the company says was ahead of expectations.

It reported an environmental services revenue of $460.5 million, compared with $447 million in the prior year, which included approximately $20.6 million of revenue associated with an unseasonably high level of large event driven business, GFL says. Excluding the impact of this outsized activity in the prior year period, revenue increased by 7.9 percent.

Net income was $110.6 million in the third quarter of 2024, compared to net income of $18.3 million in the third quarter of 2023.

Adjusted free cash flow was $225.4 million in the third quarter of 2024, compared with $276 million in the third quarter of 2023. The decrease of $50.6 million was predominantly due to the timing of cash taxes related to divestitures and incremental growth investments, offset by an increase in cash flows from operating activities, according to GFL.

Dovigi says the company deployed $96.4 million in incremental growth initiatives during the quarter, primarily related to extended producer responsibility (EPR) and renewable natural gas (RNG) opportunities, as well as $47.4 million in tuck-in acquisitions.

The company commissioned two RNG facilities in Q3 and expects a third to come online before the end of 2024.

GFL Chief Financial Officer Luke Pelosi said in the company’s earnings call that GFL is expecting $25 million to $30 million of adjusted EBITDA from its RNG operations, which should double into next year. Pelosi also said GFL expects an incremental $35 million to $45 million from EPR.

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“Inclusive of the impact of these investments and acquisitions, we achieved net leverage of 4.05x, the lowest in our company's history,” Dovigi says.

In August, the company announced plans to further evaluate the potential sale of its environmental services business. GFL says potential buyers have proposed valuations that would net a minimum of 6 billion in after-tax proceeds.

“We expect to repay at least $3.5 billion of debt with the remainder available to be used for share buybacks and general corporate purposes,” Dovigi says. “We are working with our advisors on assessing the bids, with a view to executing an agreement prior to the announcement of our 2024 year-end results.”

The company says it is also tracking in line to achieve its 2024 capital allocation targets, including the deployment of approximately $900 million in merger and acquisition (M&A) and incremental growth investments. GFL’s year-to-date completed acquisitions have generated approximately $115 million in annualized revenue.

This year, GFL commissioned two new material recovery facilities (MRFs), and expects two additional facilities to come online in early 2025, Dovigi said in the earnings call.

GFL will also see a change in its leadership team next year. Effective Jan. 1, 2025, Greg Yorston will transition the role of chief operating officer to Billy Soffera, GFL’s current executive vice president of solid waste operations. Yorston will continue in an advisory role until the end of 2025 to aid in the transition.

“Over the past six years, Greg has been instrumental in executing our growth strategy and instilling operational discipline across the enterprise,” Dovigi says. “We are fortunate that we will continue to benefit from his leadership during this transitional period. Billy has decades of industry experience and has been a critical member of our operational leadership team since joining GFL in 2021. Billy's depth and breadth of experience, combined with his institutional knowledge of our business, make him uniquely positioned to advance our operational and growth strategy.”