All financial information in Canadian dollars

Q1 Earnings

GFL Environmental continues to see clear signs of recovery from the pandemic, even as certain markets remain more heavily affected, and it expects to see a notable uptick as the year continues.

CEO Patrick Dovigi said he considered the company's results favorable in light of the fact almost 40% of its revenue comes from Canada, which has yet to reopen like many parts of the United States have. "I think our best days are in front of us," he said during a first-quarter earnings call.

The company reported spending an estimated $150 million on 10 tuck-in acquisitions year-to-date, worth $60 million in annualized revenue, mainly focused on solid waste. In addition to multiple deals in Canada, Dovigi said, the list included assets in Alabama, Colorado, Missouri, North Carolina and Virginia that largely built on new platforms it created by the acquisitions of WCA Waste and divestitures it purchased as a result of the Waste Management-Advanced Disposal Services merger.

COVID-19 recovery

• GFL's solid waste volumes were up 0.4%, year over year, but down 3.2% when excluding MRF activity. Regionally, volumes were down 5.2% in Canada and 2% in the United States. The expansion of GFL's Canada Fibers business last year inflated MRF volumes in terms of comparison. 
• The company reported total organic growth for solid waste of 5.1%, driven largely by a 4% increase in pricing along with a 0.7% improvement in commodity values and the minor volume uptick. Executives anticipate more pricing opportunities this year as the recovery continues.
• As it has discussed for multiple quarters, GFL's liquid waste division and infrastructure and soil remediation division both remain heavily affected by lower activity at construction sites, factories and other facilities. Year-over-year revenues were down 8% and 17.9%, respectively.

Like other major players in the industry, GFL is seeing clear, incremental improvement as regional economies continue to reopen and vaccination rates rise. The company is also benefiting from a major year of acquisitions in 2020, with those deals contributing $270 million in revenue for the quarter.

While key parts of Canada remain under tighter pandemic requirements than the rest of North America, GFL reported volumes began turning positive throughout its portfolio in March and are still trending in that direction. Dovigi expected ongoing recovery among customers in the office, school, entertainment and restaurant categories heading into future months. 

As for liquid and infrastructure activity, the company has a growing backlog of contract work awarded in the last month or so that will ramp up quickly when ready. GFL may still see a tough year-over-year comparison in the second quarter because this activity was slower to ramp down in the pandemic's early months than solid waste, but Dovigi anticipated "substantial upside" as more parts of Canada reopen.

Other news

• Unlike some of its peers, GFL does not view the current labor shortage as a major issue; Dovigi said "we’re nowhere near the levels that we saw in 2018." While turnover is generally low in Canada, the company has experienced some hiring challenges in parts of the U.S. Sun Belt region.
• GFL is assessing the potential for three or four new landfill gas-to-energy facilities, but it foresees the opportunity to renegotiate royalty agreements or modernize older projects as potentially an even bigger opportunity if current RIN pricing holds up.
• Chief Financial Officer Luke Pelosi said the company's second annual sustainability report is coming within the next couple of quarters and will include "industry-leading" targets. "I think you're going to see some pretty aggressive and impressive sort of lines in the sand being drawn," he said.

Looking ahead

• While some companies have already adjusted guidance due to recovery trends, GFL won't do so until at least midyear. The company anticipates more visibility by then into Canada's reopening, any possible divestitures from the $927.5 million Terrapure Environmental acquisition, additional M&A and possible refinancing.
• Near term, Dovigi said GFL is still more focused on smaller tuck-ins that build on its existing platform rather than on big acquisitions. The company still anticipates closing 30-35 smaller transactions this year, with a "deep and robust" pipeline of opportunities it plans to be selective about. 
• “We have had an influx of calls recently with people we’re talking to since Biden’s comments a couple weeks ago now on the increase in the capital gains rates. I think that will drive people's behavior here over the next six to eight months," Dovigi said. "We're going to have to cherry-pick the ones that are most accretive to us."