GFL Environmental Inc. Provides Update on 2024 Capital Allocation Strategy

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GFL Environmental Inc. (NYSE: GFL) (TSX: GFL) provided an update on its capital allocation strategy for 2024, focusing on sustainability investments and M&A opportunities. The company plans to deploy $250-300 million in renewable natural gas projects and $600-650 million in M&A opportunities. GFL expects these investments to generate $80-100 million of incremental Adjusted EBITDA, contributing to a target of at least $2.2 billion of Adjusted EBITDA in 2024.

VAUGHAN, ON, Nov. 29, 2023 /PRNewswire/ - GFL Environmental Inc. (NYSE: GFL) (TSX: GFL) ("GFL", "we", "our" or the "Company") today provided an update on its capital allocation strategy for 2024.

Patrick Dovigi, GFL's Founder and Chief Executive Officer said, "We remain committed to making the disciplined capital allocation decisions that we expect will generate outsized returns while continuing on our trajectory of de-levering the business, with a focus on moving toward an investment grade credit rating. In order to align expectations for 2024, we are also providing detail on our planned growth capital expenditures for the coming year."

Mr. Dovigi continued, "Our growth capital expenditures in 2024 will focus on sustainability investments and the continued execution of our M&A strategy. We believe that the sustainability-related investments we are making represent the best risk adjusted returns that we have seen in decades. On M&A, our investments in 2024 will be focused on densifying our existing footprint. Given our current pipeline, we are confident that we can deploy capital into these accretive opportunities at attractive valuation multiples consistent with our track record."

The details of the incremental growth capital expected to be deployed by GFL in 2024 are as follows:

• $250 million to $300 million in investments related to renewable natural gas ("RNG") projects, material recovery facilities and other infrastructure primarily related to opportunities arising under extended producer responsibility ("EPR") legislation.
• $600 million to $650 million in M&A opportunities within its existing geographies.

The total amount to be deployed by GFL into these growth opportunities in 2024 will not exceed $900 million. This amount will be in addition to GFL's normal course capital expenditures in the year which are expected to be between $850 million and $900 million.

The EPR-related investments are expected to generate an incremental $40 million to $50 million of Adjusted EBITDA¹, resulting in an aggregate of $80 million to $100 million of incremental Adjusted EBITDA¹ that GFL expects to realize starting in Q4 2024 and ramping up to the full run rate by 2026. GFL's first RNG facility at Arbor Hills is now online and the Company continues to develop its portfolio of other RNG projects that it expects will come online starting in Q4 2024 through 2026.

Mr. Dovigi concluded, "As we said in our Q3 investor call, we expect to realize at least $2.2 billion of Adjusted EBITDA¹ in our base business in 2024 and organically de-lever to the mid 3's by the end of that year. These incremental growth investments will add approximately 20 basis points to our leverage, yielding Net Leverage¹ at year end of between 3.65x and 3.85x. We are fully committed to these targets and we anticipate this balanced approach to capital allocation will further demonstrate our absolute commitment to de-levering. We look forward to updating you in February on our 2023 results, 2024 guidance and broader outlook."

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(1)

Information contained herein includes preliminary 2024 outlook with respect to Adjusted EBITDA and Net Leverage which are non-IFRS measures. Due to the uncertainty of the likelihood, amount and timing of effects of events or circumstances to be excluded from these measures, GFL does not have information available to provide a quantitative reconciliation of such projections to comparable IFRS measures. See "Non-IFRS Measures" below.

 

About GFL

GFL, headquartered in Vaughan, Ontario, is the fourth largest diversified environmental services company in North America, providing a comprehensive line of solid waste management, liquid waste management and soil remediation services through its platform of facilities throughout Canada and in more than half of the U.S. states. Across its organization, GFL has a workforce of more than 20,000 employees.

Forward-Looking Information

This release includes certain "forward-looking statements" and "forward-looking information" (collectively, "forward-looking information") within the meaning of applicable U.S. and Canadian securities laws, respectively. Forward-looking information includes all statements that do not relate solely to historical or current facts and may relate to our future outlook, financial guidance and anticipated events or results and may include statements regarding our financial performance, financial condition or results, business strategy, growth strategies, budgets, operations and services. Particularly, statements regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or "potential" or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved", although not all forward-looking information includes those words or phrases. In addition, any statements that refer to expectations, intentions, projections, guidance, potential or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts nor assurances of future performance but instead represent management's expectations, estimates and projections regarding future events or circumstances.

Forward-looking information is based on our opinions, estimates and assumptions that we considered appropriate and reasonable as of the date such information is stated, is subject to known and unknown risks, uncertainties, assumptions and other important factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to certain assumptions set out herein; our ability to obtain and maintain existing financing on acceptable terms; our ability to source and execute on acquisitions on terms acceptable to us; our ability to find purchasers for non-core assets on terms acceptable to us; currency exchange and interest rates; commodity price fluctuations; our ability to implement price increases and surcharges; changes in waste volumes; labour, supply chain and transportation constraints; inflationary cost pressures; our ability to maintain a favourable working capital position; the impact of competition; the changes and trends in our industry or the global economy; changes in laws, rules, regulations, and global standards; and the duration and severity of the COVID-19 pandemic, including variants, and its impact on the economy, the North American financial markets, our operations, our M&A pipeline and our financial results. Other important factors that could materially affect our forward-looking information can be found in the "Risk Factors" section of GFL's annual information form for the year ended December 31, 2022 and GFL's other periodic filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. Shareholders, potential investors and other readers are urged to consider these risks carefully in evaluating our forward-looking information and are cautioned not to place undue reliance on such information. There can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors not currently known to us or that we currently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. The forward-looking information contained in this release represents our expectations as of the date of this release (or as the date it is otherwise stated to be made), and is subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable U.S. or Canadian securities laws. The purpose of disclosing our financial outlook set out in this release is to provide investors with more information concerning the financial impact of our business initiatives and growth strategies. The 2024 preliminary outlook includes the expected contribution of acquisitions already completed in 2023, net of divestitures completed to date, but excludes any impact from acquisitions not yet completed. Implicit in forward-looking information in respect of our preliminary outlook for 2024 are certain current assumptions, including, among others, no changes to the current economic environment, including fuel and commodities. The 2024 preliminary outlook assumes GFL will continue to execute on its strategy of organically growing our business, leverage our scalable network to attract and retain customers across multiple service lines, realize operational efficiencies, and extract procurement and cost synergies.

Non-IFRS Measures

This release makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Accordingly, these measures should not be considered in isolation or as a substitute for analysis of our financial information reported under IFRS. Rather, these non-IFRS measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation.

Acquisition EBITDA represents, for the applicable period, management's estimates of the annual Adjusted EBITDA of an acquired business, based on its most recently available historical financial information at the time of acquisition, as adjusted to give effect to (a) the elimination of expenses related to the prior owners and certain other costs and expenses that are not indicative of the underlying business performance, if any, as if such business had been acquired on the first day of such period and (b) contract and acquisition annualization for contracts entered into and acquisitions completed by such acquired business prior to our acquisition (collectively, "Acquisition EBITDA Adjustments"). Further adjustments are made to such annual Adjusted EBITDA to reflect estimated operating cost savings and synergies, if any, anticipated to be realized upon acquisition and integration of the business into our operations. Acquisition EBITDA is calculated net of divestitures. We use Acquisition EBITDA for the acquired businesses to adjust our Adjusted EBITDA to include a proportional amount of the Acquisition EBITDA of the acquired businesses based upon the respective number of months of operation for such period prior to the date of our acquisition of each such business.

Adjusted EBITDA is a supplemental measure used by management and other users of our financial statements, including our lenders and investors, to assess the financial performance of our business without regard to financing methods or capital structure. Adjusted EBITDA is also a key metric that management uses prior to execution of any strategic investing or financing opportunity. For example, management uses Adjusted EBITDA as a measure in determining the value of acquisitions, expansion opportunities and dispositions. In addition, Adjusted EBITDA is utilized by financial institutions to measure borrowing capacity. Adjusted EBITDA is calculated by adding and deducting, as applicable from EBITDA, certain expenses, costs, charges or benefits incurred in such period which in management's view are either not indicative of underlying business performance or impact the ability to assess the operating performance of our business, including: (a) (gain) loss on foreign exchange, (b) (gain) loss on sale of property and equipment, (c) mark-to-market (gain) loss on TEU Purchase Contracts, (d) share of net (income) loss of investments accounted for using the equity method, (e) share-based payments, (f) gain (loss) on divestiture, (g) transaction costs, (h) acquisition, rebranding and other integration costs (included in cost of sales related to acquisition activity) and (i) other. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis reflecting factors and trends affecting our business. As we continue to grow our business, we may be faced with new events or circumstances that are not indicative of our underlying business performance or that impact the ability to assess our operating performance.

EBITDA represents, for the applicable period, net income (loss) from continuing operations plus (a) interest and other finance costs, plus (b) depreciation and amortization of property and equipment, landfill assets and intangible assets, plus (less) (c) the provision (recovery) for income taxes, in each case to the extent deducted from or added to/from net income (loss) from continuing operations. We present EBITDA to assist readers in understanding the mathematical development of Adjusted EBITDA. Management does not use EBITDA as a financial performance metric.

Run-Rate EBITDA represents Adjusted EBITDA for the applicable period as adjusted to give effect to management's estimates of (a) Acquisition EBITDA Adjustments and (b) the impact of annualization of certain new municipal and disposal contracts and cost savings initiatives, entered into, commenced or implemented, as applicable, in such period, as if such contracts or costs savings initiatives had been entered into, commenced or implemented, as applicable, on the first day of such period ((a) and (b), collectively, "Run-Rate EBITDA Adjustments"). Run-Rate EBITDA has not been adjusted to take into account the impact of the cancellation of contracts and cost increases associated with these contracts. These adjustments reflect monthly allocations of Acquisition EBITDA for the acquired businesses based on straight line proration. As a result, these estimates do not take into account the seasonality of a particular acquired business. While we do not believe the seasonality of any one acquired business is material when aggregated with other acquired businesses, the estimates may result in a higher or lower adjustment to our Run-Rate EBITDA than would have resulted had we adjusted for the actual results of each of the acquired businesses for the period prior to our acquisition. We primarily use Run-Rate EBITDA to show how GFL would have performed if each of the acquired businesses had been consummated at the start of the period as well as to show the impact of the annualization of certain new municipal and disposal contracts and cost savings initiatives. We also believe that Run-Rate EBITDA is useful to investors and creditors to monitor and evaluate our borrowing capacity and compliance with certain of our debt covenants. Run-Rate EBITDA as presented herein is calculated in accordance with the terms of our revolving credit agreement.

Net Leverage is a supplemental measure used by management to evaluate borrowing capacity and capital allocation strategies. Net Leverage is equal to our total long-term debt, as adjusted for fair value, deferred financings and other adjustments and reduced by our cash, divided by Run-Rate EBITDA.

All references to "$" in this press release are to Canadian dollars, unless otherwise noted.

For more information:
Patrick Dovigi
+1 905-326-0101
pdovigi@gflenv.com

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SOURCE GFL Environmental Inc.

FAQ

What is GFL Environmental Inc.'s ticker symbol?

GFL Environmental Inc.'s ticker symbols are NYSE: GFL and TSX: GFL.

What is GFL Environmental Inc. focusing on in 2024?

GFL Environmental Inc. is focusing on sustainability investments and M&A opportunities in 2024.

How much does GFL Environmental Inc. plan to deploy in renewable natural gas projects in 2024?

GFL Environmental Inc. plans to deploy $250-300 million in renewable natural gas projects in 2024.

What is GFL Environmental Inc.'s target for Adjusted EBITDA in 2024?

GFL Environmental Inc.'s target for Adjusted EBITDA in 2024 is at least $2.2 billion.

What is GFL Environmental Inc.'s plan for capital allocation in 2024?

GFL Environmental Inc. plans to deploy $250-300 million in renewable natural gas projects and $600-650 million in M&A opportunities in 2024.