GFL Environmental Inc. (NYSE: GFL) (TSX: GFL) outperformed expectations in Q1 2022, seeing 27.4 percent revenue growth driven by pricing strategies, rebounding volumes and M&A activity.
The robust earnings release comes as weather conditions, labor challenges and inflationary pressures tested the Canada-based company's business model and growth strategies.
"We continue to hear opportunity for pricing surcharges as we optimize our book of business, and we will be focused on that for the rest of the year," CEO Patrick Dovigi commented. "With the strength of the first-quarter expectations for the balance of the year, we feel confident in our ability to exceed the high end of the guidance for our base visit that we previously provided."
Revenue reached $1.4 billion for the year end March 31, 2022, up from $1.186 billion year over year (YOY). GFL saw organic revenue growth shift upwards 11 percent, with double-digit numbers in both solid waste and environmental services lines of business. The company stated that core pricing was up 6.4 percent for both segments, compared to 4.0 percent in Q1 2021. GFL reported a net loss of $226.2 million in Q1 2022 for an adjusted net income of $12.7 million. Adjusted Free Cash Flow rose to $118.6, up from $116.9 million in the previous year's quarter.
"Solid Waste pricing accelerated to the mid-60s and head of our own expectations our ability to adjust our pricing strategy to reflect the changing operational landscape in real time is a testament to both the quality of our business model and the capabilities of our team," Dovigi said.
Despite inflationary costs seemingly placing greater revenue potential at bay, GFL's overall adjusted EBITDA margin was 25.3 percent for Q1 2022. Underlying Solid Waste Adjusted EBITBA margin saw a 135 basis-point headwind from the previous quarter's year on fuel costs and merger and acquisition activity.
"We've been anticipating the full recovery of our environmental services sectors that we saw that we saw this quarter, we saw our customers reengaged services that had been deposited or reduced during the pandemic," Dovigi said.
The company's Environmental Services business saw revenue of $231.7 million, including organic growth of 19.3 percent due to industrial collection and processing revenue.
Volume increases were stated as "impressive," outpacing the COVID Omicron variant and severe weather conditions in parts of Canada and the northern United States. The company sees the positive trend continuing for the rest of the year and expects a "full recovery" in its environmental services segment. The line of business saw individual organic growth of 19.3 percent and revenues of $231.7 million on industrial collection and processing revenues.
GFL announced just days before its Q1 2022 earnings release that it acquired Texas-based Sprint Waste Services in an undisclosed transaction. Sprint's footprint spans across 14 sites in Texas and two in Louisiana with a fleet of more than 400 vehicles and 500 employees.
"We're excited that [owner] Joseph [Swinbank] and his sons are showing their support," Dovigi said of the deal."This provides an opportunity through their continuing their investment as a shareholder GFL and as consultants could have business."
Since the beginning of 2022, GFL has closed 20 "small tuck-in acquisitions" to date to further expand its footprint, realizing nearly $300 million in aggregate annualized revenue.
Speaking of GFL's recent spin-off, Dovigi said, "in addition to the acquisitions completed year-to-date, we have received cash consideration of approximately $91.9 million from the sale of non-core assets and $224.0 million from the spin-off of GFL Infrastructure Group to Green Infrastructure Partners, the proceeds of which are being redeployed in our organic and inorganic growth strategies. The spin-off provides us the opportunity to leverage the greater weighting in our Solid Waste segment both organically and through accretive acquisitions. We also believe that our approximately 45 percent equity investment in Green Infrastructure Partners, which combines GFL Infrastructure Group with the business of Coco Paving to form a leading Canadian provider of vertically integrated infrastructure services with $1.1 billion in annualized revenues, will result in significant value creation for our shareholders over the long-term."
2022 Full Year Guidance
Revenue: Between $6 billion and $6.1 billion (Previously $5.8 billion and $5.9 billion, respectively)
Adjusted EBITDA: $1.68 billion and $1.72 billion (Previouls $1.625 billion and $1.665 billion, respectively)
Adjusted Free Cash Flow: Between $645 million and $675 million (Previously $625 million and $655 million, respectively