April 10, 2020
The novel coronavirus, or COVID-19, has disrupted many services and businesses within the waste and recycling industry, which has been deemed essential. Some recycling programs have paused, some facilities have temporarily closed and some of the industry’s frontline workers have been infected with the virus.
One of the major industry players weathering this storm is Toronto-based GFL Environmental, which recently entered into the ranks of the publicly-traded solid waste players via its initial public offering. During a call with investors on April 9, company leaders discussed how the coronavirus is impacting the business.
“Founding the business in late 2006 and picking up in 2007, this management team has weathered a few different financial crises over the years with the oil collapse in 2015 and 2016,” said GFL CEO Patrick Dovigi during the call. “The reality is no one knows what’s going to happen over the next three months, but whatever it is, it will not change what our plan was for the next five years. The management is here to create shareholder value over the long term, and like many, this too shall pass. We will get through this together.”
During the call, GFL walked through an investor update presentation, which outlined how the coronavirus is impacting the company and what steps GFL is taking to keep its workers and customers safe while offering essential services.
Here are some highlights from the call.
To keep employees safe on the job, GFL has implemented a number of best practices such as: following physical distancing protocols recommended by public health authorities; reinforcing proper hygiene practices; ramping up cleaning of facilities, high-touch surfaces, trucks and equipment; establishing a risk management team comprising senior business leads; holding daily calls to discuss and respond to the impacts of the virus on personnel and operations; ensuring appropriate personal protective equipment and sanitization/disinfectant supplies are available; and enhancing employee communications to reinforce safe practices.
“We’re very proud of the fact that out of our 12,000 employees today, we only have five known cases of [COVID-19],” said Dovigi. “Three of those employees actually live together, and we had one case in Detroit and one in the Denver market. All in all, we’ve been very fortunate, and a lot of the practices we’ve put into place are certainly working.”
Dovigi went on to say that the company’s absenteeism across its workforce is around 3 percent, which shows the loyalty of GFL’s workforce.
Creating a New Line of Business
GFL has created a new line of business to keep employees working until some affected facilities come back online. Workers on the liquid waste business side or industrial collection side who may have temporarily lost work, for example, can now work on COVID-19 cleaning teams.
In the first week of running this new line of business, Dovigi said the company has completed about $700,000 in work for mostly current customers.
At GFL, more than 75 percent of revenue comes from the company’s solid waste business. The highest proportion of revenue is from stable residential collection, followed by commercial/industrial collection provided to a diversified customer base across multiple industries. The lower proportion of revenue is derived from landfills relative to public company peers.
“The bulk of all projects we are on today has been considered an essential service by the governments in the areas that we’re operating in,” stated Dovigi. “Between Canada and the U.S., we have 81 projects, and 80 percent of those are still operating. The business is operating more efficiently because the amount of volume we’re moving on a daily basis is more than we would on a traditional day, and there are less cars on the road.”
“We’re very well positioned in this line of business to react to the government spending that’s going to come out of this crisis, which will be similar to what we saw in other downturns where there’s a significant amount of money spent on infrastructure,” he added. “We’re well positioned to capture and pounce on those opportunities.
Looking at the company’s liquid waste business, Dovigi said non-essential business closures and stay at home orders are reducing vehicle miles traveled, which results in lower used motor oil collection volume. However, spread compression in used motor oil can be manageable overtime with stop fees and charge-for-oil rate increases.
When it comes to fuel, the company is seeing a meaningful year-over-year tailwind on diesel due to lower pricing and less traffic on the roads. In response to this tailwind, GFL is looking ahead, weighing the option of buying some forward fuel to lock in the favorable pricing it’s seeing today.
Overall, the company’s revenue diversification is fairly equal between the U.S. and Canada, and no single customer represents more than 3 percent of its 2019 revenue, according to Dovigi.
Historically, 21 to 22 percent of the company’s revenue is generated in Q1, 25 to 26 percent in Q2, 26 to 27 percent in Q3 and 24 percent in Q4.
“While there was a slowdown in mid-March, today we’re well positioned to weather the storm, as our big revenue months are still in front of us,” explained Dovigi. “We feel comfortable where we are.”
Managing Residential and Commercial Collection Contracts
GFL has residential and commercial collection contracts in both Canada and the U.S. In Canada, GFL acts as a service provider to municipalities, so it’s not responsible for the disposal component of the waste stream. With a lot of its larger contracts, the company is paid by the ton, so if there’s an increase in volume at the curb, GFL is generally getting paid for it, according to Dovigi.
In the U.S., 40 percent of the company’s residential line of business is subscription based, so individual homeowners are billed. In this case, GFL has the ability to push pricing based on the volumes it is seeing at the curb. Currently, the company is monitoring volumes on a weekly basis to determine if there’s a need for a price increase to its subscription residential contracts.
On the commercial/industrial collection business side, the majority of GFL’s collection revenues are generated in secondary markets. The impact COVID-19 is having on these markets varies, with Ontario and Quebec markets most affected due to stay at home orders and non-essential business closures.
Exploring M&A Opportunities
When asked about mergers and acquisitions (M&A), Dovigi said that GFL “is a very entrepreneurial team, and we’re never going to let a good crisis go to waste.”
He went on to say he completed his first major acquisition in the middle of the last financial crisis and significant opportunities between 2008 and 2010 helped put GFL on the map. Looking forward, he thinks GFL will continue to see opportunities, some of which will continue to get cheaper.
“We will continue to monitor [COVID-19] and see the light at the end of the tunnel to get into a position to close on some of those opportunities,” stated Dovigi. “There will be some guys that are forced to sell, some that we were looking at acquiring before this crisis and some that will be more motivated to sell because they don’t want to ride through another downturn.”