Q1 results above RBC/consensus estimates, 2024 Adj. EBITDA guidance revised modestly higher
NYSE: GFL | USD 31.86 | Outperform | Price Target USD 46.00
Note: Enterprise Value and EV/EBITDA multiples referenced are as of April 4, while all other trading data on this page is as of April 5.
Sentiment: Positive
Q1/24 initial take – Overall, we view Q1 results as modestly positive. Adjusted EBITDA was ahead of RBC/consensus estimates (revenue was modestly above), while 2024 Adjusted EBITDA guidance was also nudged modestly higher. Commentary in the release notes that GFL is on track to exceed full-year guidance, with management expecting to provide a more detailed update when the company reports Q2 results. Similar to what we have seen from the 3 large Waste peers that have recently reported Q1/24 results, 2024 is off to a good start for GFL, with the results/commentary (and the modest upward bump to guidance) pointing to further upside as the year progresses. Leverage was +0.16x QoQ to 4.30x (in line with our forecast of 4.32x), with the company reiterating guidance for leverage to be in the 3.65x-3.85x range exiting 2024. Adjusted FCF was $49.1MM (vs. RBC comparable forecast of -$101MM). This metric adjusts for (unwinds) $61.6MM of "incremental growth investments" – reflecting this outflow drives FCF of -$12.5MM (which is also better than the comparable RBC forecast of -$176MM as we had reflected incremental growth investment of $75MM in Q1).
Result details – GFL reported Q1 revenue of $1,801MM (+0.1% YoY, or +6.5% excluding the impact of divestitures), modestly above RBC/consensus estimates of $1,777MM/$1,780MM, reflecting Solid Waste and Environmental Services organic revenue growth of +4.4% YoY (pro-forma divestitures; RBCe +1.1%) and -10.1% YoY (largely driven by ~$40MM of normalization from "outsized" activity in Q1/23; RBCe +5.0%), respectively. Within Solid Waste, organic revenue growth was driven by an increase in Price (+7.7% YoY, or +7.1% including the impact of divestitures), while Volume growth was -3.0% YoY (surcharge and commodity price were -1.1% and +0.8% YoY, respectively). In comparison, Net M&A contributed to -3.6% YoY growth in Solid Waste (+4.6% growth from acquisitions more than offset by a -8.2% impact from divestitures) and +8.5% YoY growth in Environmental Services, with GFL acquiring $100MM of annualized revenue YTD. FX was a -0.2%/-0.1% YoY impact across Solid Waste/Environmental Services.
Q1 Adjusted EBITDA of $455.7MM (+3.5% YoY, or +10.0% excl. the impact of divestitures; 25.3% margin, +81bps YoY) was above RBC forecast of $440.8MM (+0.1% YoY, 24.8% margin) and consensus of $440.9MM (+0.1% YoY, 24.8% margin). By segment, Solid Waste reported Adjusted EBITDA margin of 30.8% (+1.6pp YoY, with commodities, net fuel, and underlying margin expansion contributing +70bps, +10bps, and +100bps, partially offset by -20bps from M&A) and Environmental Services reported 22.0% (flat YoY, noting a late-2023 facility fire impacted margins in Q1 – no further impacts are expected). Adjusted EPS came in at $0.00 vs. RBC/consensus forecasts of -$0.09/-$0.02, while Adjusted FCF came in at $49.1MM (excl. incremental growth investments; + $99.2MM YoY). Leverage was +0.16x QoQ to 4.30x (in line with RBC forecast of 4.32x), with GFL guiding to leverage of 3.65x-3.85x (after anticipated M&A and incremental growth investments) exiting 2024 (unchanged).
2024 Adjusted EBITDA guidance revised modestly higher (all other metrics unchanged); commentary points to potential for further upside as the year progresses – GFL's 2024 guidance calls for: 1) Revenue of ~$8.0B (unchanged; vs. $7.5B in 2023), reflecting Solid Waste organic growth of +4.55%-5.30%, Environmental Services organic growth of +5.0%-5.5% (timing of event- driven work likely drives growth through the remainder of the year), M&A contribution of 4.0% (noting this reflected M&A to- date as of Q4/23 reporting), and no FX impact; 2) Adjusted EBITDA of ~$2,230MM (vs. ~$2,215MM previously and $2,004MM in 2023); and, 3) Adjusted FCF of ~$800MM (unchanged; vs. $701MM in 2023), reflecting $850MM-$900MM of net capex (excl. ~$250MM-$300MM of growth capex related to RNG/MRF facilities and EPR-related infrastructure). We expect a more detailed update at Q2 reporting.
Areas of focus for the 8:30AM ET call: 1) puts/takes on the company's strong performance in Solid Waste (organic growth of +4.4% YoY, Adjusted EBITDA margin +1.6pp YoY); 2) organic growth drivers in the Environmental Services segment and the outlook for the cadence of organic growth going forward (recall segmented guidance is +5.0%-5.5% YoY); 3) potential opportunity (puts/takes) associated with the recent PFAS ruling/headlines in the U.S.; 4) any updates to the timing of completion for the company’s MRF/ RNG facility investments; and, 5) the outlook for M&A going forward (noting GFL acquired $100MM of annualized revenue YTD).