Their current target is $58.00. GLTA
EQUITY RESEARCH
GFL ENVIRONMENTAL INC Q1 Beat Driven By Environmental Services; Taking Up 2024
EBITDA Guidance
Key Takeaway: Positive impact. GFL reported Q1 results that were above
our and Street expectations. Adj. EBITDA was $456MM in the quarter with
margin coming in at 25.3% while we had forecasted $440MM (consensus at
$441MM) with margin of 24.9% (consensus of 24.8%). Environmental
Services drove the beat in the quarter with revenue outperforming our
expectations by $40MM and adj. EBITDA in this segment beat our estimate
by $20MM. The company raised its full-year adj. EBITDA guidance to
$2,230MM ($2,215MM previously) but maintained the rest of the metrics. We
expect a more fulsome update to its full-year outlook when it reports Q2
results. GFL is hosting a call on May 2 at 8:30 a.m. ET.
Q1 Recap: GFL reported Q1 results that were above our and Street
expectations, which we summarize below.
• Q1 revenue came in at $1.80B, flattish Y/Y and versus our estimate of
$1.77B (consensus of $1.78B). Solid waste revenue was $1.43B versus
our expectations of $1.44B (cons. of $1.43B), with GFL noting that solid
waste pricing was up 7.7% Y/Y and volume was down 3.0% Y/Y. ES
(Environmental Services) revenue came in at $370MM versus our
estimate of $330MM (cons. of $356MM). GFL had guided to $1.775B.
• Adj. EBITDA was $456MM, up from $441MM a year ago and versus our
estimate of $440MM (cons. of $441MM). GFL had guided to Q1 EBITDA
of $440MM. The adj. EBITDA margin was 25.3%, up 81 bps from 24.5%
last year and versus our estimate of 24.9% (cons. was 24.8%). The solid
waste margin came in at 30.8%, up 160 bps Y/Y and in line with our
estimate. GFL noted that underlying margins expanded 100 bps, driven
by outsized price cost spread and operating efficiencies. Commodities
were a 70 bps tailwind, net fuel was a 10 bps net benefit, and M&A was
a 20 bps drag. ES margin came in at 22%, up 70 bps Y/Y versus our
expectation of 18.5%. This is also 70 bps better than GFL’s own
expectations despite weather impact in the quarter.
• Adj. EPS was nil, down from $0.08 a year ago and versus our
expectations of $(0.26) [consensus was $(0.04)]. The main variance
came from the tax expense line.
• Adj. FCF including incremental growth capex was $(13)MM, up from
$(50)MM last year and versus our estimate of $(93)MM. Consensus was
at $(54)MM however we would note that there is an inconsistent
treatment of the incremental capex, which was $62MM in the quarter.
Excluding the incremental capex spend, adj. FCF was $49MM versus
our estimate of $(18)MM. The biggest variance was less NWC usage (a
$20MM delta) and less capex (a $30MM delta) and an EBITDA beat (a
$16MM delta) in the quarter.
• The leverage ratio came in at 4.3x while we were expecting 4.4x. This is
down 70 bps Y/Y. The company remains committed to deleveraging in
2024, targeting an exit range of 3.65x-3.85x
Solid Waste Fundamentals: In Q1, total solid waste revenue growth came in at 0.6% Y/Y.
Organic growth contributed 4.4% Y/Y and acquisitions contributed 4.6% Y/Y divestures
contributed (8.2)% Y/Y. U.S. solid waste revenue growth was (2.2)% Y/Y, with acquisitions
contributing 6.3% Y/Y, divestures contributing 11.5% Y/Y, organic growth contributing 3.3%
Y/Y, and FX contributing 0.2% Y/Y. Looking at the solid waste organic growth drivers, pricing
was up 7.7% Y/Y, surcharges were down 1.1% Y/Y, volume was down 3.0% Y/Y, and
commodity prices were up 0.8% Y/Y. Total solid waste organic growth in the quarter was
4.4% Y/Y.
GFL Taking Up 2024 Adj. EBITDA Guidance And Maintains Other Outlook Metrics: GFL
is taking up its 2024 adj. EBITDA to $2,230MM (from $2,215MM) on the back of positive Q1
results. It appears GFL raised its full-year guidance to just reflect the outperformance in Q1
EBITDA. The company noted that it’s well on track to exceed its full-year guidance and
expects to provide more details when it reports Q2 results.
Conference Call Details: GFL is hosting a conference call on May 2 at 8:30 a.m. ET. Dial-in
numbers are: 1-833-950-0062 in Canada or 1-8 33-470-1428 in the United States (access
code: 726645)