GFL Environmental Inc. Q3 FY2024 earnings call

The momentum from the first half continued, with nearly 20% adjusted EBITDA growth and a 31.1% adjusted EBITDA margin, the highest in company history. GFL effectively handled hurricanes in the U.S. Southeast. Deployed $96 million in incremental growth investments, commissioned 2 MRFs and 2 RNG plants, and $47 million in tuck-in acquisitions. Launched sale of Environmental Services segment, expecting at least $6 billion in after-tax proceeds, aiming to repay $3.5 billion debt and use remaining for buybacks. Addressed security incidents, stating they won't derail business. Leadership succession: Greg Yorston to transition COO to Billy Soffera.

Consolidated revenue for the quarter was $2.015 billion. Solid waste revenue saw 11.3% growth excluding divestiture impact, with a 6% price increase and -0.8% volume, but a 90 basis point sequential improvement. Environmental Services revenue was up 3% year-over-year, 9% excluding specific items. Adjusted EBITDA margin was 31.1%, the highest in GFL's history, a 300 basis point expansion over the prior year. Solid waste adjusted EBITDA margins increased by 340 basis points, while Environmental Services adjusted EBITDA margins were 32.2%, 110 basis points higher than the prior year.

Full-year revenue is expected $7.82 billion to $7.95 billion, with adjusted EBITDA margin ~28.6%. Q4 revenue is projected $1.94 billion to $1.97 billion with ~29% adjusted EBITDA margin and ~$350 million free cash flow. 2025 guidance to be provided in February, with mid-single-digit top line organic growth, double-digit adjusted EBITDA growth, over 100 basis point margin expansion, and M&A potential.

Security incidents under investigation; risks associated with forward-looking statements including market, regulatory, and operational uncertainties; commodity and energy price fluctuations impacting revenue.

Q: Clarification on tax implications of ES sale proceeds.

A: $6 billion+ in cash proceeds, with at least $3.5 billion earmarked for debt repayment and the balance for general corporate purposes and share buybacks.

Q: Incremental EBITDA from EPR and RNG.

A: EPR expected ~$35M-$45M incremental EBITDA in 2025, RNG ~$25M-$30M, with potential for more.

Q: Margin journey and medium-term outlook.

A: Price/cost spread, EPR, RNG, and optimization processes driving margin expansion over the medium term.

Q: EPR blue sky potential.

A: Could be over $130M, potentially up to $200M depending on market penetration.

Q: Working capital seasonality post-ES sale.

A: Muted swings expected, with Canadian solid waste business seasonality improving.

Q: RNG RIN price volatility.

A: Volumetric and RIN pricing conservatism, but potential for higher earnings with ramp-up.

Q: Camera technology impact.

A: Piloting in infancy, with potential for incremental dollars from nonconforming pickup.

Q: ES sale final winner considerations.

A: Price, structure, timeliness; narrowing to 4 bidders for final selection.

Q: Storm impact on Q4 volume.

A: Potential tailwinds from hurricane-related volumes offsetting special waste softness.

Q: Used motor oil business sale.

A: No, integrated with broader services, manageable spread.

Q: M&A valuation post-interest rate changes.

A: Valuations in $1M-$10M EBITDA range, pipeline robust for 2025.

Q: Commodity price sensitivity.

A: Commodity and diesel pricing offsetting, with modest margin impact.

Q: Industrial revenue bonds impact.

A: ~100 basis point savings, part of cap stack, 10%-20% component.

Q: Labor inflation and turnover.

A: ~4% labor inflation, voluntary turnover down to 20%, trend positive.

Q: M&A mix post-ES sale.

A: Continue densifying existing markets, focus on U.S. due to size.

Q: U.S. administration change impact.

A: Hopes for bonus depreciation return, but no major change in operations.

Q: ES sale tax and proceeds details.

A: $6B+ net cash, EV impact on tax, details to follow as process progresses.