All financial information in Canadian dollars

Q3 Earnings

GFL Environmental posted third quarter earnings with positive results amid its rapid expansion in the U.S. market, despite a recent negative short-seller report and ongoing pandemic headwinds.

CEO Patrick Dovigi pointed to free cash flow of $177 million, among other metrics, in an extended rebuke to multiple accusations by short-seller Spruce Point Capital that sought to derail the company's trajectory of acquiring WCA Waste and divested assets from Waste Management's acquisition of Advanced Disposal Services. 

In response to a question, Dovigi largely avoided the report's personal commentary – aside from saying "because I'm Italian doesn't make me a mobster" – adding GFL's support from prior and current investors spoke for itself.

“Over 14 years we’ve done nothing but make investors make money," said Dovigi. "We're only in the second inning here of a long baseball game, I mean we’re just getting started ... The shareholder group, if they didn't have the confidence in management to deliver the plan, would have never allowed this company to go public."

COVID economy

• Overall solid waste volumes were down 1.7% for the quarter, with a 3.6% decline in collection volumes. Bigger impacts for commercial and industrial volumes were offset by heightened residential volumes. "Post-collection" volumes were up 8.5% due to higher MRF volumes, but down 6.9% when excluding recycling activity.
• Asked about the potential effects of new pandemic restrictions in certain Canadian provinces, executives said it is hard to model due to changing circumstances but Dovigi predicted effects would be "relatively muted" as compared to the second quarter.
• Volume recovery for GFL's soil remediation and infrastructure business, as well as liquid waste, has seen a "more tempered recovery" than solid waste due to various regional factors. Liquid waste volumes in the U.S. Midwest have lagged Canadian activity, while infrastructure projects in multiple areas have been delayed likely into 2021 due to pandemic factors.

Integration progress

• Combined revenue from assets acquired in the two major deals is projected to be US$135-145 million for the fourth quarter. Executives said integration plans are proceeding well, and expected to have a more detailed outlook in the next earnings report.
• GFL's said its completion of the WCA deal in October came a month earlier than planned and was related in part to the pending Advanced divestiture arrangement. “We were able to persuade the DOJ that this made sense to make us an even stronger competitor in the U.S. than we already were," said Dovigi. 
• While the WCA deal was a complete package, the more fragmented nature of divestiture assets acquired in the other deal may require different types of capital expenditures and tuck-in plans. Dovigi said the divested post-collection operations and commercial front-load routes acquired were very strong, meaning the focus now is on building out the roll-off line of business and adding more high-margin volumes to the new landfills.

Looking ahead

• Following three tuck-in deals during the quarter for a combined price of $26.2 million (two in Ontario, one in the United States), GFL will continue to focus on smaller deals. Dovigi said the pipeline includes nearly 50 potential targets, ranging from estimated purchase prices of $2 million to $60 million.
• In looking at where these deals may happen within GFL's newly expanded footprint, Dovigi said "some of it's overlap, some of it’s new beachheads" and pointed to the Midwest and Florida as key areas. While the potential reversal of corporate tax cuts might not be a driving factor anymore – pending control of the Senate – pandemic fatigue was cited as an ongoing motivator for family-run companies.
• CFO Luke Pelosi said the company's 2020 outlook released in August after the WCA announcement remains on track. WCA will be factored into GFL's earnings for the full fourth quarter, while the other divestiture package closed last week will count for two months.