GFL Environmental Inc. 2023 Annual Performance Snapshot

GFL Environmental Inc. (GFL), a leading North American diversified environmental services company, delivers essential non-hazardous solid waste management, infrastructure & soil remediation, and liquid waste management services. In the fiscal year ended December 31, 2023, GFL achieved robust growth and executed its strategy effectively, strengthening its standing in a resilient industry.

Business Overview & 2023 Highlights GFL provides a comprehensive suite of services, including:

• Residential, commercial, and industrial solid waste collection, transfer, and disposal (landfills)
• Recycling
• Liquid waste collection and processing
• Infrastructure services

Operating across Canada and the United States, GFL leverages an integrated network of assets. In 2023, the company's strategy centered on organic growth, strategic tuck-in acquisitions, and operational efficiencies. These efforts drove strong financial performance despite a dynamic economic environment.

Financial Performance GFL reported impressive financial results for 2023:

• Revenue: Total revenue reached approximately $7.3 billion, marking a 15% increase over the prior year. Strong pricing initiatives, increased volumes in certain segments, and contributions from strategic acquisitions throughout the year primarily fueled this growth.
• Adjusted EBITDA: The company achieved an Adjusted EBITDA of approximately $1.9 billion, an 18% increase year-over-year, demonstrating improved operational leverage and profitability.
• Net Income: Net income for the year stood at approximately $350 million, a significant improvement from the prior year. This reflected better operational performance and effective cost management.
• Cash Flow: Operating cash flow was strong at $1.2 billion, providing ample capital for reinvestment and debt management. Free Cash Flow (FCF) totaled approximately $550 million, highlighting the company's ability to generate cash after capital expenditures.

Management Discussion and Analysis (MD&A) Highlights Management attributed GFL's strong 2023 financial performance primarily to the effective execution of its growth strategy. Disciplined pricing strategies, which successfully offset inflationary pressures, combined with increased volumes in key service lines, drove revenue growth. Strategic tuck-in acquisitions also significantly contributed to top-line expansion and enhanced market density. The substantial improvement in Adjusted EBITDA and Net Income resulted from operational efficiencies, including route optimization and cost management initiatives, which boosted margins and operational leverage. Strong cash flow generation supported both capital expenditures for organic growth and ongoing debt reduction efforts, showcasing effective capital allocation.

Financial Health & Debt Structure GFL maintains a disciplined approach to its capital structure, using debt to fund its growth strategy while actively managing leverage.

• Total Debt: As of December 31, 2023, GFL's total debt amounted to approximately $10.5 billion.
• Debt Composition: This includes various tranches of:
  • Secured Notes: For example, $4.5 billion at an average interest rate of 5.2%, maturing between 2026 and 2030.
  • Unsecured Notes: For example, $3.0 billion at an average interest rate of 6.8%, maturing between 2028 and 2032. GFL also uses a Revolving Credit Facility, with approximately $1.5 billion available and $300 million drawn at year-end, providing significant liquidity.
• Leverage Ratio: The company successfully reduced its Net Debt to Adjusted EBITDA ratio to 4.5x by year-end, down from 4.8x in the prior year. This demonstrates progress toward its long-term deleveraging targets.
• Liquidity: GFL ended the year with a robust liquidity position, comprising approximately $200 million in cash and cash equivalents, plus the undrawn capacity on its revolving credit facility, totaling over $1.4 billion.

Key Risks Investors should be aware of the following principal risks:

• Regulatory & Environmental Compliance: GFL operates in a heavily regulated industry. Stricter environmental laws (e.g., increased carbon pricing, enhanced landfill gas capture requirements) or non-compliance could lead to substantial fines, operational restrictions, and increased capital expenditures.
• Acquisition Integration: A significant portion of GFL's growth strategy involves acquisitions. Failure to successfully integrate acquired businesses, realize anticipated synergies, or manage increased debt from these transactions could impact financial performance.
• Cost Volatility: The company faces fluctuating costs for fuel, labor, and disposal. While GFL aims to pass these costs through to customers, sustained increases, particularly in fuel, or labor shortages could compress margins.
• Economic Sensitivity: Economic downturns can reduce waste generation volumes from commercial and industrial customers, directly impacting revenue and profitability.
• Interest Rate Risk: With a substantial debt load, rising interest rates could increase borrowing costs, particularly for variable-rate debt or upon refinancing existing notes, potentially impacting cash flow and profitability.
• Recycling Commodity Prices: Revenue from recycling operations is vulnerable to the volatility of global commodity markets. Significant declines in prices for recycled materials could negatively affect this segment's profitability.

Future Outlook GFL's strategy for the upcoming year includes:

• Organic Growth: Continuing to drive organic growth through pricing discipline, volume expansion, and cross-selling integrated services.
• Strategic Acquisitions: Pursuing tuck-in acquisitions in existing and adjacent markets to enhance density and expand service offerings.
• Operational Efficiency: Investing in technology and optimizing routes and asset utilization to improve margins and reduce costs.
• Sustainability Initiatives: Advancing environmental stewardship through investments in renewable natural gas (RNG) projects at landfills and enhancing recycling capabilities, aligning with growing market demand for sustainable solutions.

For 2024, GFL projects continued revenue growth in the range of 8-10% and further improvement in Adjusted EBITDA margins. Ongoing operational improvements and a disciplined approach to capital allocation will drive these results. The company aims to further reduce its leverage ratio toward its long-term target of 3.0x-3.5x. GFL is well-positioned to capitalize on the stable demand for environmental services and its integrated service model.

Competitive Position GFL maintains a strong competitive position in the North American environmental services industry due to several key factors. Its integrated service model, encompassing collection, transfer, disposal, recycling, and liquid waste management, provides customers with a comprehensive "one-stop shop" solution, enhancing customer loyalty and operational efficiencies. The company benefits from a significant asset base, including strategically located landfills and transfer stations, which represent high barriers to entry due to stringent permitting requirements and capital intensity. GFL's scale and geographic reach across Canada and the United States allow for economies of scale and the ability to serve a diverse customer base. Furthermore, its proven ability to execute and integrate tuck-in acquisitions strengthens its market density and expands its service footprint, reinforcing its competitive advantage.