Exhibit 99.2
GFL ENVIRONMENTAL INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the three and six months ended June 30, 2021
The following Management’s Discussion and Analysis (“MD&A”) for GFL Environmental Inc. (“us,” “we,” “our,” “GFL” or the “Company”) is dated July 28, 2021 and provides information concerning our results of operations and financial condition for the three and six months ended and as at June 30, 2021. You should read this MD&A together with our unaudited interim condensed consolidated financial statements and the related notes for the three and six months ended June 30, 2021 (the “Interim Financial Statements”), our annual audited consolidated financial statements for the year ended December 31, 2020 (the “Annual Financial Statements”), and our MD&A for the year ended December 31, 2020 (the “Annual MD&A”).
Company Overview
GFL is the fourth largest diversified environmental services company in North America, with operations throughout Canada and the United States. GFL had more than 15,000 employees as of June 30, 2021.
GFL was formed on March 5, 2020 under the laws of the Province of Ontario. Our subordinate voting shares trade on the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) under the symbol “GFL”. Our tangible equity units (the “TEUs”) trade on the NYSE under the symbol “GFLU”. Each TEU is comprised of a prepaid stock purchase contract (a “Purchase Contract”) and a senior amortizing note (an “Amortizing Note”). On March 5, 2020, GFL completed its initial public offering (the “IPO”).
Forward-Looking Information
This MD&A, including, in particular, the sections below entitled “Summary of Factors Affecting Performance” and Liquidity and Capital Resources” contains forward-looking information and forward-looking statements which reflect the current view of management with respect to our objectives, plans, goals, strategies, outlook, results of operations, financial and operating performance, prospects and opportunities. In some cases, forward-looking statements 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 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”. In addition, any statements that refer to expectations, intentions, projections 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.
These forward-looking statements and other forward-looking information are based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Factors that could cause actual results to differ from those projected include, but are not limited to, those listed below and in the section entitled “Risk Factors” included in our annual report on Form 20-F for the year ended December 31, 2020 (the “Annual Report”). There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change, except where we are expressly required to do so by law.
Our business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ materially from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, the following risk factors which are described in greater detail in the section entitled “Risk Factors” in our Annual Report and under the heading entitled “Key Risk Factors” included elsewhere in this MD&A; our ability to build our market share; our ability to retain key personnel; our ability to maintain and expand geographic scope; our ability to maintain good relationships with our customers; our ability to execute on our expansion plans; our ability to execute on additional acquisition opportunities; adverse effects of acquisitions on our operations; potential liabilities from past and future acquisitions; dependence on the integration and success of acquired businesses; our ability to continue investing in infrastructure to support our growth; our ability to obtain and maintain existing financing on acceptable terms; our ability to implement price increases or offset increasing costs; currency exchange and interest rates; the impact of competition; the changes and trends in our industry or the global economy; the changes in laws, rules, regulations, and global standards; changing governmental regulation, and risks associated with failing to comply; liabilities in connection with environmental matters; loss of municipal and other contracts; potential inability to renew or obtain new landfill or organic waste facility permits and agreements, and the cost of operation and/or future construction of existing landfills or organic waste facilities; our dependence on third party landfills and transfer stations; our access to equity or debt capital markets is not assured; increases in labour, disposal, and related transportation costs; fuel supply and fuel price fluctuations; we require sufficient cash flows to reinvest in our business; our potential inability to obtain performance or surety bonds, letters of credit, other financial assurances or insurance; operational, health and safety and environmental risks; natural disasters, weather conditions and seasonality; loss of existing customers or inability to obtain new contracts; economic downturn may adversely impact our operating results and cause exposure to credit risks; increasing dependence on technology and risk of technology failure; cybersecurity incidents or issues; damage to our reputation or our brand; introduction of new tax or accounting rules, laws or regulations; increases in insurance costs; climate change regulations that could increase cost to operate; risks associated with failing to comply with U.S., Canadian or foreign anti-bribery or anti-corruption laws or regulations; landfill site closure and post-closure costs and contamination-related costs; changing competitive dynamics for excess landfill capacity; litigation or regulatory or activist action; and health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic.
Basis of Presentation
Our Interim Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, within the framework of International Financial Reporting Standard (“IFRS”) as issued by the International Accounting Standards Board. Unless the context indicates otherwise, references in this MD&A to “GFL”, the “Company”, “we”, “us” and “our” mean GFL and its consolidated subsidiaries.
This MD&A is presented in millions of Canadian dollars unless otherwise indicated.
Reclassification of prior year presentation
Certain revenue disaggregation and segment reporting balances reported in prior periods have been reclassified for consistency with the current period presentation. These immaterial reclassifications had no effect on the reported consolidated results of operations.
Summary of Factors Affecting Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us. These factors are also subject to a number of inherent risks and challenges discussed elsewhere in this MD&A and in our Annual Report.
Our results for the three and six months ended June 30, 2021 were impacted by acquisitions and our financing activities as well as organic growth during the period as a result, in part, from the pricing strategies that we have implemented and changes in volume. Our ability to leverage our scalable network to drive operational cost efficiencies also impacted our performance for the periods. During the three and six months ended June 30, 2021, our performance was affected by the reduction in commercial activity as a result of the various measures primarily taken by the U.S. and Canadian governments in response to COVID-19. Finally, our results are influenced by seasonality and tend to be lower in the first quarter of the year, primarily due to winter weather conditions which are pronounced in Canada, and higher in the second and third quarters of the year, due to the higher volume of waste generated during the summer months in many of our solid waste markets.
We intend to continue to grow our business and generate improvements in our financial performance by expanding our service offerings into new geographic markets and extending our geographic footprint to increase regional density across our business lines, thereby increasing margins. Our success in achieving these goals is dependent on our ability to execute on our three-pronged strategy of (i) continuing to generate strong, stable organic revenue growth, (ii) successfully executing strategic, accretive acquisitions, and (iii) continuing to drive operating cost efficiencies across our platform.
Strong, Stable Organic Revenue Growth
Our ability to generate strong, stable organic revenue growth across macroeconomic cycles depends on our ability to increase the breadth and depth of services that we provide to our existing customers, realize on cross-selling opportunities between our complementary service capabilities, obtain prices and surcharge increases, win new contracts, realize renewals or extensions of existing contracts and expand into new or adjacent markets. We believe that executing on this strategy will continue to drive our organic revenue growth and free cash flow generation.
Our business is well-diversified across business lines, geographies and customers. We believe that our continued success depends on our ability to further enhance and leverage this diversification, a key component of which is our ability to offer our customers a comprehensive service offering across our three business lines backed by an extensive geography across Canada and the United States. The majority of the revenue we generate in our solid waste business is derived from secondary markets, with revenue derived from major metropolitan centres representing the majority of our residential solid waste revenue.
We also believe we are well positioned to respond to changing customer needs and regulatory demands in order to maintain our success. This includes being able to respond to legal requirements and customer demands to divert waste away from landfill disposal by continuing to expand our ability to collect and process multiple streams of material.
Our diversified business model also complements our acquisition strategy. Multiple business lines allow us to source acquisitions from a broader pool of potential targets. Maintaining a diversified model is therefore critical to capitalizing on accretive acquisition opportunities and helping to reduce execution and business risk inherent in single-market and single-service offering strategies.
Executing Strategic, Accretive Acquisitions
Our ability to identify, execute and integrate accretive acquisitions is a key driver of our growth. Given the significant fragmentation that exists in the North American environmental services industry, our growth and success depend on our ability to realize on consolidation opportunities in all three of our business lines.
Since 2007, we have completed over 160 acquisitions across our lines of business. We focus on selectively acquiring premier independent regional operators to create platforms in new markets, followed by tuck-in acquisitions to help increase density and scale. Integration of these acquisitions with our existing platform is a key factor to our success, along with continuing to identify and act upon these attractive consolidation opportunities.
In addition, successful execution of acquisitions opens new markets to us, provides us with new opportunities to realize cross-selling opportunities, and drives procurement and cost synergies across our operations.
Driving Operating Cost Efficiencies
We provide our services through a strategically-located network of facilities in Canada and in the United States. In each of our geographic markets, our strong competitive position is supported by and depends on the significant capital investment required to replicate our network infrastructure and asset base, as well as by stringent permitting and regulatory compliance requirements. Our continued success also depends on our ability to leverage our scalable network to attract and retain customers across multiple service lines, realize operational efficiencies, and extract procurement and cost synergies.
It is also key that we continue to leverage our scalable capabilities to drive operating margin expansion and realize cost synergies. This includes using the capacity of our existing facilities, technology processes and people to support future growth and provide economies of scale, as well as increasing route density and servicing new contract wins with our existing network of assets and fleet to enhance the profitability of each of our business lines.
Our success also depends on our ability to continue to make strategic investments in our business, including substantial capital investments in our facilities, technology processes and administrative capabilities to support our future growth. Our ability to improve our operating margins and our selling, general and administrative expense margins by maintaining strong discipline in our cost structure and regularly reviewing our practices to manage expenses and increase efficiency will also impact our operating results.
Impact of COVID-19
Since the outbreak of the COVID-19 pandemic in March 2020, the U.S. and Canadian governments, as well as numerous state, provincial and local governments, implemented certain measures to slow the spread of the virus, including shelter-in-place and physical distancing orders as well as closure restrictions or requirements. In the first half of 2021, we saw these measures lifted or scaled back in many U.S. states resulting in an accelerated economic recovery. In Canada, most provincial governments introduced new increased measures and re-introduced former measures, resulting in a slower recovery in Canada. Some of these restrictions began to ease towards the end of the second quarter.
Our overall revenue remains heavily weighted to our solid waste business, which is our most resilient business line and is also diversified across geographies and customers. The majority of the revenue we generate in our solid waste business is from secondary markets. The solid waste revenue we generate in major metropolitan centres or primary markets is primarily derived from municipal residential contracts. For the three and six months ended June 30, 2021, we experienced higher volumes in our solid and liquid waste commercial and industrial collection businesses due to an increase in service levels as COVID-19 restrictions began to ease in the markets that we serve. While construction projects in certain jurisdictions have been deemed essential services, due to the protracted duration of the COVID-19 pandemic, we continued to experience lower volumes in our infrastructure and soil remediation business in the three and six months ended June 30, 2021, as a result of the delay of the commencement of new larger projects, despite the easing of COVID-19 restrictions. In addition, we continued to experience an adverse impact on our infrastructure and soil remediation margins due to the change in revenue mix resulting from fewer low volume high-frequency projects.
The impact of the COVID-19 pandemic on our business and future results of operations, financial condition and cash flows will depend largely on future developments, which are uncertain and continue to evolve, including the duration and spread of the virus in Canada and the United States, the continued roll-out, execution and effectiveness of vaccination programs, the severity of and actions taken to limit the spread of COVID-19, including variants, and the pace and extent to which normal economic and operating conditions resume in the markets that we serve.
2. Operating Results
Analysis of results for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020
The following tables summarize certain operating results and other financial data for the periods indicated, which have been derived from our Interim Financial Statements and related notes:
| ($ millions except per share amounts) | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020 | | | Change | | | % | |
| Revenue | | $ | 1,314.3 | | | $ | 993.3 | | | $ | 321.0 | | | | 32.3 | % |
| Expense | | | | | | | | | | | | | | | | |
| Cost of sales | | | 1,187.3 | | | | 881.3 | | | | 306.0 | | | | 34.7 | |
| Selling, general and administrative expenses | | | 136.5 | | | | 104.1 | | | | 32.4 | | | | 31.1 | |
| Interest and other finance costs | | | 139.8 | | | | 95.4 | | | | 44.4 | | | | 46.5 | |
| Gain on divestiture | | | (35.5 | ) | | | — | | | | (35.5 | ) | | | — | |
| Other (income) expenses | | | (154.4 | ) | | | 66.3 | | | | (220.7 | ) | | | (332.9 | ) |
| Earnings (loss) before income taxes | | | 40.6 | | | | (153.8 | ) | | | 194.4 | | | | (126.4 | ) |
| Income tax expense (recovery) | | | 15.4 | | | | (38.3 | ) | | | 53.7 | | | | 140.2 | |
| Net income (loss) | | | 25.2 | | | | (115.5 | ) | | | 140.7 | | | | 121.8 | |
| Earnings (loss) per share, basic and diluted ($) | | | 0.03 | | | | (0.32 | ) | | | (0.35 | ) | | | (109.4 | ) |
| Adjusted EBITDA(1) | | $ | 353.0 | | | $ | 261.5 | | | $ | 91.5 | | | | 35.0 | % |
| ($ millions except per share amounts) | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020 | | | Change | | | % | |
| Revenue | | $ | 2,500.9 | | | $ | 1,924.6 | | | $ | 576.3 | | | | 29.9 | % |
| Expenses | | | | | | | | | | | | | | | | |
| Cost of sales | | | 2,274.0 | | | | 1,733.6 | | | | 540.4 | | | | 31.2 | |
| Selling, general and administrative expenses | | | 269.7 | | | | 259.2 | | | | 10.5 | | | | 4.1 | |
| Interest and other finance costs | | | 231.9 | | | | 364.8 | | | | (132.9 | ) | | | (36.4 | ) |
| Gain on divestiture | | | (35.5 | ) | | | — | | | | (35.5 | ) | | | — | |
| Other expenses | | | 35.7 | | | | 86.5 | | | | (50.8 | ) | | | (58.7 | ) |
| Loss before income taxes | | | (274.9 | ) | | | (519.5 | ) | | | 244.6 | | | | 47.1 | |
| Income tax recovery | | | (73.9 | ) | | | (126.0 | ) | | | 52.1 | | | | 41.3 | |
| Net loss | | | (201.0 | ) | | | (393.5 | ) | | | 192.5 | | | | 48.9 | |
| Loss per share, basic and diluted ($) | | | (0.63 | ) | | | (1.09 | ) | | | 0.46 | | | | 42.2 | |
| Adjusted EBITDA(1) | | | 659.6 | | | | 484.3 | | | | 175.3 | | | | 36.2 | |
| | | June 30, 2021 | | | December 31, 2020 | | | Change | |
| Total assets | | $ | 15,695.2 | | | $ | 15,730.0 | | | $ | (34.8 | ) |
| Total cash | | | 310.4 | | | | 27.2 | | | | 283.2 | |
| Total long-term debt | | | 6,529.6 | | | | 6,166.1 | | | | 363.5 | |
| Total liabilities | | | 10,282.9 | | | | 10,050.7 | | | | 232.2 | |
| Total shareholders’ equity | | $ | 5,412.3 | | | $ | 5,679.3 | | | $ | (267.0 | ) |
(1) Adjusted EBITDA is a non-IFRS measure. Refer to section entitled “Non-IFRS Financial Measures and Key Performance Indicators”.
Revenue
The following tables summarize revenue by service type for the periods indicated:
| | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020(1) | | | | |
| ($ millions) | | Revenue | | | % | | | Revenue | | | % | | | Change | | | % | |
| Residential | | $ | 304.8 | | | | 23.2 | % | | $ | 262.4 | | | | 26.4 | % | | $ | 42.4 | | | | 16.2 | % |
| Commercial/industrial | | | 452.6 | | | | 34.4 | | | | 298.2 | | | | 30.0 | | | | 154.4 | | | | 51.8 | |
| Total collection | | | 757.4 | | | | 57.6 | | | | 560.6 | | | | 56.4 | | | | 196.8 | | | | 35.1 | |
| Landfill | | | 161.0 | | | | 12.2 | | | | 68.4 | | | | 6.9 | | | | 92.6 | | | | 135.4 | |
| Transfer | | | 154.5 | | | | 11.8 | | | | 96.8 | | | | 9.7 | | | | 57.7 | | | | 59.6 | |
| Material recovery | | | 85.7 | | | | 6.5 | | | | 66.2 | | | | 6.7 | | | | 19.5 | | | | 29.5 | |
| Other | | | 60.7 | | | | 4.6 | | | | 66.9 | | | | 6.8 | | | | (6.2 | ) | | | (9.3 | ) |
| Solid waste | | | 1,219.3 | | | | 92.7 | | | | 858.9 | | | | 86.5 | | | | 360.4 | | | | 42.0 | |
| Infrastructure and soil remediation | | | 139.2 | | | | 10.6 | | | | 134.3 | | | | 13.5 | | | | 4.9 | | | | 3.6 | |
| Liquid waste | | | 123.4 | | | | 9.4 | | | | 107.1 | | | | 10.8 | | | | 16.3 | | | | 15.2 | |
| Intercompany revenue | | | (167.6 | ) | | | (12.7 | ) | | | (107.0 | ) | | | (10.8 | ) | | | (60.6 | ) | | | 56.6 | |
| Revenue | | $ | 1,314.3 | | | | 100.0 | % | | $ | 993.3 | | | | 100.0 | % | | $ | 321.0 | | | | 32.3 | % |
| | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020(2) | | | | |
| ($ millions) | | Revenue | | | % | | | Revenue | | | % | | | Change | | | % | |
| Residential | | $ | 592.5 | | | | 23.7 | % | | $ | 501.2 | | | | 26.0 | % | | $ | 91.3 | | | | 18.2 | % |
| Commercial/industrial | | | 876.6 | | | | 35.1 | | | | 605.4 | | | | 31.5 | | | | 271.2 | | | | 44.8 | |
| Total collection | | | 1,469.1 | | | | 58.8 | | | | 1,106.6 | | | | 57.5 | | | | 362.5 | | | | 32.8 | |
| Landfill | | | 300.9 | | | | 12.0 | | | | 131.2 | | | | 6.8 | | | | 169.7 | | | | 129.3 | |
| Transfer | | | 284.6 | | | | 11.4 | | | | 185.2 | | | | 9.6 | | | | 99.4 | | | | 53.7 | |
| Material recovery | | | 166.4 | | | | 6.7 | | | | 112.5 | | | | 5.8 | | | | 53.9 | | | | 47.9 | |
| Other | | | 115.7 | | | | 4.6 | | | | 119.6 | | | | 6.3 | | | | (3.9 | ) | | | (3.3 | ) |
| Solid waste | | | 2,336.7 | | | | 93.5 | | | | 1,655.1 | | | | 86.0 | | | | 681.6 | | | | 41.2 | |
| Infrastructure and soil remediation | | | 250.8 | | | | 10.0 | | | | 266.6 | | | | 13.9 | | | | (15.8 | ) | | | (5.9 | ) |
| Liquid waste | | | 227.8 | | | | 9.1 | | | | 212.1 | | | | 11.0 | | | | 15.7 | | | | 7.4 | |
| Intercompany revenue | | | (314.4 | ) | | | (12.6 | ) | | | (209.2 | ) | | | (10.9 | ) | | | (105.2 | ) | | | (50.3 | ) |
| Revenue | | $ | 2,500.9 | | | | 100.0 | % | | $ | 1,924.6 | | | | 100.0 | % | | $ | 576.3 | | | | 29.9 | % |
(1) Includes reclassification of $1.2 million from Other into Liquid waste and $0.9 million from Other into Infrastructure and soil remediation.
(2) Includes reclassification of $1.5 million from Other into Liquid waste and $1.4 million from Other into Infrastructure and soil remediation.
On a consolidated basis, revenue for the three months ended June 30, 2021 increased by $321.0 million to $1,314.3 million compared to the three months ended June 30, 2020. The increase is primarily attributable to the impact of acquisitions completed since July 1, 2020 which accounted for approximately $288.1 million of the increase, the majority of which was in our solid waste business. Strong pricing and volume increases realized in conjunction with the easing of COVID-19 restrictions also contributed to the increase. Highlights of the changes in revenue during the three months ended June 30, 2021, excluding the impact of acquisitions include:
| • | Solid waste revenue increased by 4.9% from core pricing, surcharge and commodity price increases and 6.3% from positive volume, which was driven by higher volume across all of our collection and post collection operations as COVID-19 restrictions were eased throughout our markets. Changes in foreign exchange rates decreased revenue by 7.5%. |
| • | Infrastructure and soil remediation revenue decreased by 1.9%, a decline predominantly attributable to a reduction in soil volumes processed at our facilities. The substantial majority of our infrastructure and soil remediation revenues are generated in Eastern Canada and the U.S. North East, two regions that continued to be impacted by measures implemented by governments to limit the spread of COVID-19. Despite the recent easing of restrictions, we continued to see delays with the commencement of new large projects and a reduced level of activity from lower volume high frequency soil remediation customers, both of which temporarily reduced the volume of contaminated soils in the markets that we serve. Changes in foreign exchange rates decreased revenue by 1.0%. |
| • | Liquid waste revenue increased organically by 13.6%, an increase primarily due to an increase in industrial collection and processing activity resulting from customers’ operations resuming as COVID-19 restrictions eased. Changes in foreign exchange rates decreased revenue by 4.6%. |
On a consolidated basis, revenue for the six months ended June 30, 2021 increased by $576.3 million to $2,500.9 million compared to the six months ended June 30, 2020. The increase is predominantly attributable to the impact of acquisitions completed since January 1, 2020 which accounted for approximately $566.4 million of the increase, the majority of which was in our solid waste business. Strong pricing and volume increase realized in conjunction with the easing of COVID-19 restrictions also contributed to the increase. Offsetting these increases were negative volumes in our infrastructure and soil remediation lines of business and the impact of changes in foreign exchange rates. Highlights of the changes in revenue during the six months ended June 30, 2021 excluding the impact of acquisitions include:
| • | Solid waste revenue increased by 4.8% from core pricing, surcharge and commodity price increases and 3.5% from positive volume, which was driven by higher volume across all of our collection and post collection operations as the COVID-19 restrictions were eased throughout our markets. Changes in foreign exchange rates decreased revenue by 5.7%. |
| • | Infrastructure and soil remediation revenue decreased by 9.9%, a decline predominantly attributable to a reduction in soil volumes processed at our facilities. The substantial majority of our infrastructure and soil remediation revenues are generated in Eastern Canada and the U.S. North East, two regions that continued to be impacted by measures implemented by governments to limit the spread of COVID-19. Despite the recent easing of restrictions, we continued to see delays with the commencement of new large projects and a reduced level of activity from lower volume high frequency soil remediation customers, both of which temporarily reduced the volume of contaminated soils in the markets that we serve. |
| • | Liquid waste revenue increased organically by 3.1%, an increase predominantly due to an increase in volumes as a result of customers’ operations resuming as COVID-19 restrictions were eased. Changes in foreign exchange rates decreased revenue by 3.2%. |
Cost of Sales
The following tables summarize cost of sales for the periods indicated:
| | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020(1) | | | | |
| ($ millions) | | Cost | | | % of Revenue | | | Cost | | | % of Revenue | | | Change | | | % | |
| Transfer and disposal costs | | $ | 289.9 | | | | 22.1 | % | | $ | 225.0 | | | | 22.7 | % | | $ | 64.9 | | | | 28.8 | % |
| Labour and benefits | | | 304.5 | | | | 23.2 | | | | 242.8 | | | | 24.4 | | | | 61.7 | | | | 25.4 | |
| Maintenance and repairs | | | 119.1 | | | | 9.1 | | | | 84.2 | | | | 8.5 | | | | 34.9 | | | | 41.4 | |
| Fuel | | | 54.4 | | | | 4.1 | | | | 30.7 | | | | 3.1 | | | | 23.7 | | | | 77.2 | |
| Other cost of sales | | | 88.5 | | | | 6.6 | | | | 68.3 | | | | 6.9 | | | | 20.2 | | | | 29.6 | |
| Subtotal | | | 856.4 | | | | 65.1 | | | | 651.0 | | | | 65.6 | | | | 205.4 | | | | 31.6 | |
| Depreciation expense | | | 214.1 | | | | 16.3 | | | | 117.7 | | | | 11.8 | | | | 96.4 | | | | 81.9 | |
| Amortization of intangible assets | | | 110.2 | | | | 8.4 | | | | 111.1 | | | | 11.2 | | | | (0.9 | ) | | | (0.8 | ) |
| Acquisition rebranding and other integration costs | | | 6.6 | | | | 0.5 | | | | 1.5 | | | | 0.1 | | | | 5.1 | | | | 340.0 | |
| Cost of sales | | $ | 1,187.3 | | | | 90.3 | % | | $ | 881.3 | | | | 88.7 | % | | $ | 306.0 | | | | 34.7 | % |
| | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020(2) | | | | |
| ($ millions) | | Cost | | | % of Revenue | | | Cost | | | % of Revenue | | | Change | | | % | |
| Transfer and disposal costs | | $ | 539.0 | | | | 21.6 | % | | $ | 431.5 | | | | 22.4 | % | | $ | 107.5 | | | | 24.9 | % |
| Labour and benefits | | | 582.6 | | | | 23.3 | | | | 476.0 | | | | 24.7 | | | | 106.6 | | | | 22.4 | |
| Maintenance and repairs | | | 230.0 | | | | 9.2 | | | | 169.6 | | | | 8.8 | | | | 60.4 | | | | 35.6 | |
| Fuel | | | 102.3 | | | | 4.1 | | | | 70.0 | | | | 3.7 | | | | 32.3 | | | | 46.1 | |
| Other cost of sales | | | 178.7 | | | | 7.1 | | | | 132.6 | | | | 6.9 | | | | 46.1 | | | | 34.8 | |
| Subtotal | | | 1,632.6 | | | | 65.3 | | | | 1,279.7 | | | | 66.5 | | | | 352.9 | | | | 27.6 | |
| Depreciation expense | | | 410.1 | | | | 16.4 | | | | 234.5 | | | | 12.2 | | | | 175.6 | | | | 74.9 | |
| Amortization of intangible assets | | | 221.2 | | | | 8.8 | | | | 210.2 | | | | 10.9 | | | | 11.0 | | | | 5.2 | |
| Acquisition rebranding and other integration costs | | | 10.1 | | | | 0.4 | | | | 9.2 | | | | 0.5 | | | | 0.9 | | | | 9.8 | |
| Cost of sales | | $ | 2,274.0 | | | | 90.9 | % | | $ | 1,733.6 | | | | 90.1 | % | | $ | 540.4 | | | | 31.2 | % |
| (1) | Includes reclassification of $2.7 million from Fuel and $1.5 million from Other cost of sales into Maintenance and repairs in the amount of $4.2 million. |
| (2) | Includes reclassification of $5.2 million from Fuel and $2.6 million from Other cost of sales into Maintenance and repairs in the amount of $7.8 million. |
Cost of sales increased by $306.0 million to $1,187.3 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase is predominantly attributable to the impact of acquisitions. Changes in the individual cost categories as a percentage of revenue were primarily the result of the impact of the business mix. For depreciation expense, the increase in the expense as a percentage of revenue is attributable to the impact of purchase accounting for recent acquisitions. Additional costs of risk management related to insurance and COVID-19 also contributed to the increase in cost of sales as compared to the three months ended June 30, 2020. Partially offsetting the cost increases were cost savings from our continued focus on cost management and enhancing efficiency. Cost of sales as a percentage of total revenue for the three months ended June 30, 2021 increased by 160 basis points to 90.3% compared to the three months ended June 30, 2020. Excluding depreciation expense, amortization of intangible assets, and acquisition rebranding and other integration costs, cost of sales as a percentage of total revenue for the three months ended June 30, 2021 decreased by 50 basis points to 65.1% compared to the three months ended June 30, 2020.
Cost of sales increased by $540.4 million to $2,274.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase is predominantly attributable to the impact of acquisitions. Changes in the individual cost categories as a percentage of revenue were predominantly the result of the impact of business mix. For depreciation expense, the increase in the expense as a percentage of revenue is attributable to the impact of purchase accounting for recent acquisitions. Additional costs of risk management related to insurance and COVID-19 also contributed to the increase in cost of sales as compared to the six months ended June 30, 2020. Partially offsetting the cost increases were cost savings from our continued focus on cost management and enhancing efficiency. Cost of sales as a percentage of total revenue for the six months ended June 30, 2021 increased by 80 basis points to 90.9% compared to the six months ended June 30, 2020. Excluding depreciation expense, amortization of intangible assets, and acquisition rebranding and other integration costs, cost of sales as a percentage of total revenue for the six months ended June 30, 2021 decreased by 120 basis points to 65.3% compared to the six months ended June 30, 2020.
Selling, General and Administrative Expenses (“SG&A”)
The following tables summarize SG&A for the periods indicated:
| ($ millions) | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020 | | | Change | | | % | |
| Salaries and benefits | | $ | 69.2 | | | $ | 51.2 | | | $ | 18.0 | | | | 35.2 | % |
| Share-based payments | | | 10.6 | | | | 4.2 | | | | 6.4 | | | | 152.4 | |
| Other | | | 35.7 | | | | 30.2 | | | | 5.5 | | | | 18.2 | |
| Subtotal | | | 115.5 | | | | 85.6 | | | | 29.9 | | | | 34.9 | |
| Depreciation expense | | | 7.7 | | | | 5.9 | | | | 1.8 | | | | 30.5 | |
| Transaction costs | | | 13.3 | | | | 7.7 | | | | 5.6 | | | | 72.7 | |
| IPO transaction costs | | | — | | | | 4.9 | | | | (4.9 | ) | | | — | |
| Selling, general and administrative expenses | | $ | 136.5 | | | $ | 104.1 | | | $ | 32.4 | | | | 31.1 | % |
| ($ millions) | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020 | | | Change | | | % | |
| Salaries and benefits | | $ | 137.7 | | | $ | 104.4 | | | $ | 33.3 | | | | 31.9 | % |
| Share-based payments | | | 20.3 | | | | 19.9 | | | | 0.4 | | | | 2.0 | |
| Other | | | 71.0 | | | | 58.0 | | | | 13.0 | | | | 22.4 | |
| Subtotal | | | 229.0 | | | | 182.3 | | | | 46.7 | | | | 25.6 | |
| Depreciation expense | | | 15.3 | | | | 11.8 | | | | 3.5 | | | | 29.7 | |
| Transaction costs | | | 25.4 | | | | 18.9 | | | | 6.5 | | | | 34.4 | |
| IPO transaction costs | | | — | | | | 46.2 | | | | (46.2 | ) | | | — | |
| Selling, general and administrative expenses | | $ | 269.7 | | | $ | 259.2 | | | $ | 10.5 | | | | 4.1 | % |
SG&A increased by $32.4 million to $136.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase was predominantly attributable to incremental salaries, benefits, information technology infrastructure investments and other costs related to the number and size of businesses acquired since July 1, 2020. SG&A as a percentage of revenue was 10.4% for the three months ended June 30, 2021, compared to 10.5% for the three months ended June 30, 2020. Excluding depreciation expense and transaction costs, SG&A as a percentage of revenue was 8.8% for the three months ended June 30, 2021, compared to 8.6% for the three months ended June 30, 2020.
SG&A increased by $10.5 million to $269.7 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase was predominantly attributable to incremental salaries, benefits, information technology infrastructure investments and other costs related to the number and size of businesses acquired since January 1, 2020. There was also increased costs of risk management associated with being a public company for the six months ended June 30, 2021. SG&A as a percentage of revenue was 10.8% for the six months ended June 30, 2021 compared to 13.5% for the six months ended June 30, 2020. Excluding depreciation expense and transaction costs, SG&A as a percentage of revenue was 9.2% for the six months ended June 30, 2021, compared to 9.5% for the six months ended June 30, 2020.
Interest and Other Finance Costs
The following tables summarize interest and other finance costs for the periods indicated:
| ($ millions) | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020 | | | Change | | | % | |
| Interest | | $ | 74.5 | | | $ | 87.6 | | | $ | (13.1 | ) | | | (15.0 | )% |
| Loss on extinguishment of debt | | | 49.3 | | | | — | | | | 49.3 | | | | 100.0 | |
| Amortization of deferred financing costs | | | 7.7 | | | | 2.9 | | | | 4.8 | | | | 165.5 | |
| Accretion of landfill closure and post-closure obligations | | | 2.9 | | | | 1.6 | | | | 1.3 | | | | 81.3 | |
| Other financing costs | | | 5.4 | | | | 3.3 | | | | 2.1 | | | | 63.6 | |
| Interest and other finance costs | | $ | 139.8 | | | $ | 95.4 | | | $ | 44.4 | | | | 46.5 | % |
| ($ millions) | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020 | | | Change | | | % | |
| Interest | | $ | 151.6 | | | $ | 199.8 | | | $ | (48.2 | ) | | | (24.1 | )% |
| Loss on extinguishment of debt | | | 49.3 | | | | 133.2 | | | | (83.9 | ) | | | (63.0 | ) |
| Amortization of deferred finance costs | | | 11.1 | | | | 22.6 | | | | (11.5 | ) | | | (50.9 | ) |
| Accretion of landfill closure and post-closure obligations | | | 7.3 | | | | 3.2 | | | | 4.1 | | | | 128.1 | |
| Other finance costs | | | 12.6 | | | | 6.0 | | | | 6.6 | | | | 110.0 | |
| Interest and other finance costs | | $ | 231.9 | | | $ | 364.8 | | | $ | (132.9 | ) | | | (36.4 | )% |
Interest and other finance costs increased by $44.4 million to $139.8 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. This increase was predominately due to a $49.3 million loss on extinguishment of debt related to the repayment of the 8.500% 2027 Notes, which was partially offset by a decrease in interest expense driven primarily by a lower average interest rate for the three months ended June 30, 2021.
Interest and other finance costs decreased by $132.9 million to $231.9 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. In the prior period a loss of $133.2 million was realized on the extinguishment of long-term debt that was repaid at the time of our IPO, compared to a loss of $49.3 million for the six months ended June 30, 2021 related to the repayment of the 8.500% 2027 Notes. Interest expense of $151.6 million for the six months ended June 30, 2021 was $48.2 million lower than the same period in the prior year, a decrease driven primarily by a lower average interest rate on the long-term debt balance outstanding. Additionally, amortization of deferred finance costs of $11.1 million for the six months ended June 30, 2021 was $11.5 million lower than the same period in the prior year.
Other Income and Expenses
The following tables summarize other income and expenses for the periods indicated:
| ($ millions) | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020 | | | Change | | | % | |
| Gain on foreign exchange | | $ | (37.3 | ) | | $ | (8.4 | ) | | $ | (28.9 | ) | | | 344.0 | % |
| Mark-to-market (gain) loss on Purchase Contracts | | | (117.3 | ) | | | 74.2 | | | | (191.5 | ) | | | (258.1 | ) |
| Loss on sale of property and equipment | | | 0.2 | | | | 0.5 | | | | (0.3 | ) | | | (60.0 | ) |
| Other (income) expenses | | $ | (154.4 | ) | | $ | 66.3 | | | $ | (220.7 | ) | | | (332.9 | )% |
| ($ millions) | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020 | | | Change | | | % | |
| (Gain) loss on foreign exchange | | $ | (76.3 | ) | | $ | 97.6 | | | $ | (173.9 | ) | | | (178.2 | )% |
| Mark-to-market loss (gain) on Purchase Contracts | | | 111.0 | | | | (14.2 | ) | | | 125.2 | | | | (881.7 | ) |
| Loss on sale of property and equipment | | | 1.0 | | | | 2.1 | | | | (1.1 | ) | | | (52.4 | ) |
| Deferred purchase consideration | | | — | | | | 1.0 | | | | (1.0 | ) | | | — | |
| Other expenses | | $ | 35.7 | | | $ | 86.5 | | | $ | (50.8 | ) | | | (58.7 | )% |
Other income increased by $220.7 million to $154.4 million for the three months ended June 30, 2021, compared to other expenses of $66.3 million for the three months ended June 30, 2020. This change was primarily due to a $117.3 million non-cash gain on the revaluation of Purchase Contracts and a $37.3 million non-cash foreign exchange gain arising from the revaluation of TEUs and the unhedged portion of our U.S dollar denominated debt to Canadian dollars based on the foreign exchange rate as at June 30, 2021.
Other expenses decreased by $50.8 million to $35.7 million for the six months ended June 30, 2021, compared to other expenses of $86.5 million for the six months ended June 30, 2020. This change was primarily due to a $111.0 million non-cash loss on the revaluation of Purchase Contracts for the six months ended June 30, 2021. This was partially offset by a non-cash foreign exchange gain of $76.3 million from the revaluation of TEUs and the unhedged portion of our U.S. denominated debt to Canadian dollars based on the foreign exchange rate as at June 30, 2021.
Divestiture
In the three months ended June 30, 2021, we sold certain landfill assets, as well as hauling and ancillary operations, at a sale price subject to post closing adjustments of $63.1 million (US$52.2 million), with a resulting net gain on divestiture of $35.5 million.
Income Tax Expense (Recovery)
Net income tax expense increased by $53.7 million to $15.4 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The increase was predominantly due to incremental tax losses related to increased depreciation expense from acquisitions, offset by a non-cash gain on the revaluation of Purchase Contracts, a non-cash foreign exchange gain and a gain on divestiture.
Net income tax recovery decreased by $52.1 million to $73.9 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The decrease was predominantly due to incremental tax losses related to increased depreciation expense from acquisitions and the non-cash loss on the revaluation of Purchase Contracts, which was partially offset by a non-cash foreign exchange gain and gain on divestiture. Our basis for recording income tax recoveries is due to the offsetting of deferred tax liabilities on our balance sheet.
3. Operating Segment Results
Our main lines of business are the transporting, managing and recycling of solid and liquid waste and infrastructure and soil remediation services. Our operating segments are: Solid waste, which includes hauling, landfill, transfers and material recovery facilities; Infrastructure and soil remediation; and Liquid waste.
The results for our operating segments are presented in accordance with the same criteria used for the internal report prepared for the chief operating decision-maker (“CODM”) who is responsible for allocating the resources and assessing the performance of the operating segments. The CODM assesses the performance of the operating segments based on several factors, including revenue and Adjusted EBITDA.
Analysis of results for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020
The following tables present GFL’s revenue and Adjusted EBITDA by operating segment for the periods indicated. Gross revenue is calculated based on revenue before intercompany eliminations.
| | | Three months ended June 30, 2021 | |
| | | Gross
Revenue | | | Intercompany
Revenue | | | Revenue | | | Adjusted
EBITDA(1) | |
| Solid waste | | | | | | | | | | | | | | | | |
| Canada | | $ | 401.7 | | | $ | (52.5 | ) | | $ | 349.2 | | | $ | 105.0 | |
| USA | | | 817.6 | | | | (96.9 | ) | | | 720.7 | | | | 225.3 | |
| Solid waste | | | 1,219.3 | | | | (149.4 | ) | | | 1,069.9 | | | | 330.3 | |
| Infrastructure and soil remediation | | | 139.2 | | | | (5.4 | ) | | | 133.8 | | | | 25.8 | |
| Liquid waste | | | 123.4 | | | | (12.8 | ) | | | 110.6 | | | | 31.1 | |
| Corporate | | | — | | | | — | | | | — | | | | (34.2 | ) |
| | | $ | 1,481.9 | | | $ | (167.6 | ) | | $ | 1,314.3 | | | $ | 353.0 | |
| | | Three months ended June 30, 2020 | |
| | | Gross
Revenue | | | Intercompany
Revenue | | | Revenue(2) | | | Adjusted
EBITDA(1)(3) | |
| Solid waste | | | | | | | | | | | | | | | | |
| Canada | | $ | 352.8 | | | $ | (46.4 | ) | | $ | 306.4 | | | $ | 87.8 | |
| USA | | | 506.1 | | | | (48.6 | ) | | | 457.5 | | | | 147.1 | |
| Solid waste | | | 858.9 | | | | (95.0 | ) | | | 763.9 | | | | 234.9 | |
| Infrastructure and soil remediation | | | 134.3 | | | | (3.1 | ) | | | 131.2 | | | | 26.7 | |
| Liquid waste | | | 107.1 | | | | (8.9 | ) | | | 98.2 | | | | 22.9 | |
| Corporate | | | — | | | | — | | | | — | | | | (23.0 | ) |
| | | $ | 1,100.3 | | | $ | (107.0 | ) | | $ | 993.3 | | | $ | 261.5 | |
(1) Adjusted EBITDA is a non-IFRS measure. Refer to section entitled “Non-IFRS Financial Measures and Key Performance Indicators”.
(2) Includes reclassification of $1.3 million from Solid waste - Canada into Liquid waste.
(3) Includes reclassification of $0.3 million from Solid waste - Canada into Liquid waste and $0.9 million from Corporate to Solid waste - USA.
| | | Six months ended June 30, 2021 | |
| | | Gross
Revenue | | | Intercompany
Revenue | | | Revenue | | | Adjusted EBITDA(1) | |
| Solid waste | | | | | | | | | | | | | | | | |
| Canada | | $ | 746.9 | | | $ | (95.4 | ) | | $ | 651.5 | | | $ | 188.0 | |
| USA | | | 1,589.8 | | | | (186.7 | ) | | | 1,403.1 | | | | 447.5 | |
| Solid waste | | | 2,336.7 | | | | (282.1 | ) | | | 2,054.6 | | | | 635.5 | |
| Infrastructure and soil remediation | | | 250.8 | | | | (8.6 | ) | | | 242.2 | | | | 39.8 | |
| Liquid waste | | | 227.8 | | | | (23.7 | ) | | | 204.1 | | | | 48.2 | |
| Corporate | | | — | | | | — | | | | — | | | | (63.9 | ) |
| | | $ | 2,815.3 | | | $ | (314.4 | ) | | $ | 2,500.9 | | | $ | 659.6 | |
| | | Six months ended June 30, 2020 | |
| | | Gross
Revenue | | | Intercompany
Revenue | | | Revenue(2) | | | Adjusted EBITDA(1)(3) | |
| Solid waste | | | | | | | | | | | | | | | | |
| Canada | | $ | 666.2 | | | $ | (86.9 | ) | | $ | 579.3 | | | $ | 153.7 | |
| USA | | | 988.9 | | | | (96.5 | ) | | | 892.4 | | | | 282.0 | |
| Solid waste | | | 1,655.1 | | | | (183.4 | ) | | | 1,471.7 | | | | 435.7 | |
| Infrastructure and soil remediation | | | 266.6 | | | | (4.7 | ) | | | 261.9 | | | | 48.2 | |
| Liquid waste | | | 212.1 | | | | (21.1 | ) | | | 191.0 | | | | 39.8 | |
| Corporate | | | — | | | | — | | | | — | | | | (39.4 | ) |
| | | $ | 2,133.8 | | | $ | (209.2 | ) | | $ | 1,924.6 | | | $ | 484.3 | |
(1) Adjusted EBITDA is a non-IFRS measure. Refer to section entitled “Non-IFRS Financial Measures and Key Performance Indicators”.
(2) Includes reclassification of $1.5 million from Solid waste - Canada into Liquid waste.
(3) Includes reclassification of $0.4 million from Solid waste - Canada into Liquid waste.
Solid Waste — Canada Operating Segment
Revenue increased by $42.8 million to $349.2 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The increase was due in part to acquisitions completed since July 1, 2020, which contributed approximately $5.6 million of revenue, $11.0 million from price and surcharge increases and $4.7 million from higher selling prices for the saleable commodities generated from our material recovery facility (“MRF”) operations. The amount of price and surcharge increases were higher than the same period in the prior year, as a result of the continued execution of our pricing strategies for our commercial and industrial business as well as strong consumer price index (“CPI”) adjustments on certain municipal collection contracts. Volume increased revenue by $21.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily from volumes in our MRF operations as a result of the commencement of new MRF processing contracts in both Eastern and Western Canada as well as higher volumes in our commercial and industrial collection, transfer station, landfill and organic waste business due to an increase in service levels as COVID-19 restrictions were eased.
Revenue increased by $72.2 million to $651.5 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was due in part to acquisitions completed since January 1, 2020, which contributed approximately $10.1 million of revenue, $20.7 million from price and surcharge increases and $7.7 million from higher selling prices for the saleable commodities generated from our MRF operations. The amount of price and surcharge increases were higher than the six months ended June 30, 2020, as a result of the continued execution of our pricing strategies as well as strong CPI adjustments on certain municipal contracts. Volume increased revenue by $33.8 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, predominantly from volumes in our MRF operations as a result of the commencement of new MRF processing contracts in both Eastern and Western Canada as well as higher volumes in our residential collection, landfill and organic waste businesses. Partially offsetting these increases were lower volumes in our industrial collection and transfer station businesses due to a decrease in service levels attributable to COVID-19.
Adjusted EBITDA increased by $17.2 million to $105.0 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, predominately attributable to the previously described change in revenues. Adjusted EBITDA margin was 30.1% for the three months ended June 30, 2021, an increase of 140 basis points as compared to the three months ended June 30, 2020. The increase is attributable to the continued realization of organic margin expansion resulting from pricing initiatives, cost controls and overall operating leverage. The contribution from acquisitions did not materially impact the overall Adjusted EBITDA margin. The net benefit of the higher selling prices for saleable commodities partially offset by the higher volume of lower margin MRF processing activity also contributed to margin expansion, however these benefits were more than offset by rising fuel costs.
Adjusted EBITDA increased by $34.3 million to $188.0 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, predominately attributable to the previously described change in revenue. Adjusted EBITDA margin was 28.9% for the six months ended June 30, 2021, an increase of 240 basis points as compared to the six months ended June 30, 2020. The increase is predominantly attributable to the continued realization of organic margin expansion resulting from pricing initiatives, cost controls and overall operating leverage. The contribution from acquisitions did not materially impact the overall Adjusted EBITDA margin. Additionally, the impact of one less day in the six months ended June 30, 2021 on account of 2020 being a leap year and the net benefit of the higher selling prices for saleable commodities partially offset by the higher volume of lower margin MRF processing activity, also contributed to the margin expansion, however these benefits were partially offset by rising fuel costs.
Solid Waste — USA Operating Segment
Revenue increased by $263.2 million to $720.7 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The increase was predominately due to acquisitions completed since July 1, 2020 which contributed approximately $272.7 million of revenue, $20.0 million from price and surcharge increases and $1.7 million from higher selling prices for the saleable commodities generated from our MRF operations. Volume increased revenue by $26.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, predominantly from increased commercial and industrial collection businesses and post-collection business, due to an increase in service levels as COVID-19 restrictions eased. Strengthening of the Canadian dollar against the U.S dollar for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, decreased revenue by $57.6 million.
Revenue increased by $510.7 million to $1,403.1 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was predominately due to acquisitions completed since January 1, 2020 which contributed approximately $535.2 million of revenue, $38.4 million from price and surcharge increases and $3.4 million from higher selling prices for the saleable commodities generated from our MRF operations. Volume increased revenue by $17.1 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, predominantly from increased volumes in our commercial and industrial collection businesses, due to an increase in service levels as COVID-19 restrictions eased. Strengthening of the Canadian dollar against the U.S. dollar for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, decreased revenue by $83.5 million.
Adjusted EBITDA increased by $78.2 million to $225.3 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, predominately attributable to the previously described change in revenues. Adjusted EBITDA margin was 31.3% for the three months ended June 30, 2021, a decrease of 90 basis points compared to the three months ended June 30, 2020. The incremental revenue from acquisitions contributed Adjusted EBITDA margins lower than the existing base business, negatively impacting the overall Adjusted EBITDA margin. Partially offsetting this decrease was the impact of organic margin expansion resulting from pricing initiatives, cost controls, and overall operating leverage. The net benefit of the higher selling prices for saleable commodities also contributed to margin expansion, however these benefits were more than offset by rising fuel costs.
Adjusted EBITDA increased by $165.5 million to $447.5 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, predominately attributable to the previously described change in revenue. Adjusted EBITDA margin was 31.9% for the six months ended June 30, 2021, an increase of 30 basis points compared to the six months ended June 30, 2020. The increase is predominantly attributable to organic margin expansion resulting from pricing initiatives, cost controls, and overall operating leverage. The incremental revenue from acquisitions contributed Adjusted EBITDA margins lower than the existing base business, negatively impacting the overall Adjusted EBITDA margin. Additionally, the impact of one less day in the six months ended June 30, 2021 on account of 2020 being a leap year and the benefit of the higher selling prices for saleable commodities also contributed to the margin expansion, however, these benefits were partially offset by rising fuel costs.
Infrastructure and Soil Remediation Operating Segment
Revenue increased by $2.6 million to $133.8 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, an increase predominately attributable to acquisitions completed since July 1, 2020 which contributed approximately $6.3 million in revenue, partially offset by a reduction in soil volumes processed at our facilities. The substantial majority of our infrastructure and soil remediation revenues are generated in Eastern Canada and the U.S. North East, two regions that continued to be significantly impacted by measures implemented by governments to limit the spread of COVID-19. Despite the recent easing of restrictions, we continued to see delays with the commencement of new large projects and a reduced level of activity from lower volume high frequency soil remediation customers, both of which temporarily reduced the volume of contaminated soils in the markets that we serve. Strengthening of the Canadian dollar against the U.S. dollar for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, decreased revenue by $1.3 million.
Revenue decreased by $19.7 million to $242.2 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, a decline predominantly attributable to a reduction in soil volumes processed at our facilities, partially offset by acquisitions completed since January 1, 2020 which contributed approximately $8.1 million in revenue. The substantial majority of our infrastructure and soil remediation revenues are generated in Eastern Canada and the U.S. North East, two regions that continued to be significantly impacted by measures implemented by governments to limit the spread of COVID-19. Despite the recent easing of restrictions, we continued to see delays with the commencement of new large projects and a reduced level of activity from lower volume high frequency soil remediation customers, both of which temporarily reduced the volume of contaminated soils in the markets that we serve. Strengthening of the Canadian dollar against the U.S. dollar for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, decreased revenue by $1.9 million.
Adjusted EBITDA decreased by $0.9 million to $25.8 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, predominately attributable to the previously described change in revenue. Adjusted EBITDA margin was 19.3% for the three months ended June 30, 2021, a decrease of 110 basis points compared to the three months ended June 30, 2020. The decrease in margin is predominantly attributable to the impact of the change in revenue mix described above.
Adjusted EBITDA decreased by $8.4 million to $39.8 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, predominately attributable to the previously described change in revenue. Adjusted EBITDA margin was 16.4% for the six months ended June 30, 2021, a decrease of 200 basis points compared to the six months ended June 30, 2020. The decrease in Adjusted EBITDA margin is predominantly attributable to the impact of the change in revenue volume and mix.
Liquid Waste Operating Segment
Revenue increased by $12.4 million to $110.6 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. Acquisitions completed since July 1, 2020 drove approximately $3.5 million in increased revenue. In addition to the contribution from acquisitions was an organic revenue increase of $13.4 million, predominantly due to an increase in industrial collection and processing activity resulting from customers’ operations resuming as COVID-19 restrictions eased. Strengthening of the Canadian dollar against the U.S. dollar for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, decreased revenue by $4.5 million.
Revenue increased by $13.1 million to $204.1 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. Acquisitions completed since January 1, 2020, drove approximately $13.1 million in increased revenue. In addition to the contribution from acquisitions was an organic revenue increase of $5.9 million, predominantly due to an increase in volumes as a result of customers’ operations resuming as COVID-19 restrictions eased. Strengthening of the Canadian dollar against the U.S. dollar for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, decreased revenue by $6.0 million.
Adjusted EBITDA increased by $8.2 million to $31.1 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, predominately attributable to the previously described change in revenue. Adjusted EBITDA margin was 28.1% for the three months ended June 30, 2021, an increase of 480 basis points from the Adjusted EBITDA margin realized for the three months ended June 30, 2020. Pricing initiatives, variable cost controls, as well as higher pricing of used motor oil favourably impacted Adjusted EBITDA margin for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. Offsetting these increases was the incremental revenue from acquisitions which contributed Adjusted EBITDA margins lower than the existing base business as well as rising fuel costs.
Adjusted EBITDA increased by $8.4 million to $48.2 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, predominately attributable to the previously described change in revenue. Adjusted EBITDA margin was 23.6% for the six months ended June 30, 2021 an increase of 280 basis points compared to the six months ended June 30, 2020. Pricing initiatives, variable cost controls, as well as higher pricing of used motor oil favourably impacted Adjusted EBITDA margin for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. Offsetting these increases was the incremental revenue from acquisitions which contributed Adjusted EBITDA margins lower than the existing base business as well as rising fuel costs.
Corporate
Corporate costs increased by $11.2 million to $34.2 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The increase was predominately attributable to additional headcount and overhead costs to support the growth in the business, including additional cost of risk management and professional costs associated with being a public company. Corporate costs as a percentage of total revenue were 2.6% for the three months ended June 30, 2021, an increase of 30 basis points compared to corporate costs as a percentage of total revenue for the three months ended June 30, 2020.
Corporate costs increased by $24.5 million to $63.9 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was attributable to additional headcount and overhead costs to support the growth in the business, including additional cost of risk management and professional costs associated with being a public company. Corporate costs as a percentage of total revenue were 2.6% for the six months ended June 30, 2021, an increase of 60 basis points compared to the six months ended June 30, 2020.
4. Liquidity and Capital Resources
We intend to meet our currently anticipated capital requirements through cash flows from operations and borrowing capacity under our Revolving Credit Facility (defined below). We expect that these sources will be sufficient to meet our current operating capital needs, pay our dividend and fund certain tuck in acquisitions consistent with our strategy.
Cash Flows
Cash Flows for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020
| ($ millions) | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020 | | | Change | | | % | |
| Cash flows from operating activities | | $ | 177.5 | | | $ | 132.2 | | | $ | 45.3 | | | | 34.3 | % |
| Cash flows used in investing activities | | | (221.4 | ) | | | (128.1 | ) | | | (93.3 | ) | | | (72.8 | ) |
| Cash flows from financing activities | | | 359.5 | | | | 662.4 | | | | (302.9 | ) | | | (45.7 | ) |
| Increase in cash | | | 315.6 | | | | 666.5 | | | | | | | | | |
| Changes due to foreign exchange revaluation of cash | | | (16.3 | ) | | | (34.0 | ) | | | | | | | | |
| Cash, beginning of period | | | 11.1 | | | | 91.4 | | | | | | | | | |
| Cash, end of period | | $ | 310.4 | | | $ | 723.9 | | | | | | | | | |
| ($ millions) | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020 | | | Change | | | % | |
| Cash flows from operating activities | | $ | 390.2 | | | $ | 82.0 | | | $ | 308.2 | | | | 375.9 | % |
| Cash flows used in investing activities | | | (417.2 | ) | | | (1,353.9 | ) | | | 936.7 | | | | 69.2 | |
| Cash flows from financing activities | | | 330.8 | | | | 1,422.1 | | | | (1,091.3 | ) | | | (76.7 | ) |
| Increase in cash | | | 303.8 | | | | 150.2 | | | | | | | | | |
| Changes due to foreign exchange revaluation of cash | | | (20.6 | ) | | | (1.1 | ) | | | | | | | | |
| Cash, beginning of period | | | 27.2 | | | | 574.8 | | | | | | | | | |
| Cash, end of period | | $ | 310.4 | | | $ | 723.9 | | | | | | | | | |
Operating Activities
Cash flows from operating activities increased by $45.3 million to $177.5 million for the three months ended June 30, 2021, compared to cash flows from operating activities of $132.2 million for the three months ended June 30, 2020. This increase was predominantly attributable to an increase in Adjusted EBITDA and improved working capital which was offset by increased cash interest paid during the three months ended June 30, 2021.
Changes in non-cash working capital items resulted in a use of cash of $9.9 million for the three months ended June 30, 2021, as compared to a use of cash of $28.5 million of cash for the three months ended June 30, 2020. The period on period improvement of $18.6 million was predominantly a result of a source of cash of $104.7 million in accounts payable and accrued liabilities due to timing of payments to vendors, which was partially offset by a use of cash of $73.2 million in accounts receivable and $12.7 million in prepaid expenses and other assets.
Cash flows from operating activities increased by $308.2 million to $390.2 million for the six months ended June 30, 2021, compared to cash flows from operating activities of $82.0 million for the six months ended June 30, 2020. This increase was predominantly attributable to an increase in Adjusted EBITDA, a decrease in cash interest paid, and improved working capital during the six months ended June 30, 2020. Included in the prior year period was $152.8 million of IPO related transaction costs (comprised of $73.8 million prepayment penalties, $46.2 million IPO transaction costs, $30.2 million prepayment premium and a $2.6 million net realized foreign exchange loss on repayment of debt).
Changes in non-cash working capital items resulted in a use of cash of $44.0 million for the six months ended June 30, 2021 compared to a use of cash of $82.5 million for the six months ended June 30, 2020. The period on period improvement of $38.5 million was predominantly attributable to a source of cash of $23.8 million in accounts payable and accrued liabilities due to timing of payments to vendors, a source of cash of $10.5 million in accounts receivable due to improved collection results, and a source of cash of $4.4 million in prepaid and other assets.
Investing Activities
Cash used in investing activities increased by $93.3 million to $221.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase was predominantly related to acquisition expenditures of $135.0 million for the three months ended June 30, 2021, as compared to acquisition expenditures of $12.3 million for the three months ended June 30, 2020. Capital expenditures increased by $32.3 million to $151.8 million for the three months ended June 30, 2021, compared to capital expenditures of $119.8 million for the three months ended June 30, 2020. This was partially offset by proceeds on disposals of assets which increased by $61.4 million to $65.4 million for the three months ended June 30, 2021, which included the proceeds on divestiture, compared to proceeds on disposals of assets of $4.0 million for the three months ended June 30, 2020.
Cash used in investing activities decreased by $936.7 million to $417.2 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The decrease was predominantly related to acquisition expenditures of $203.3 million for the six months ended June 30, 2021, compared to acquisition expenditures of $1,138.3 million for the six months ended June 30, 2020. This was partially offset by an increase in capital expenditures of $63.4 million to $283.1 million for the six months ended June 30, 2021, as compared to capital expenditures of $220.0 million for the six months ended June 30, 2020. This was further offset by proceeds on disposals of assets which increased by $64.8 million to $69.2 million for the six months ended June 30, 2021, which included the proceeds on divestiture, compared to proceeds on disposals of assets of $4.4 million for the six months ended June 30, 2020.
Financing Activities
Cash from financing activities decreased by $302.9 million to $359.5 million for the three months ended June 30, 2021, compared to cash inflows of $662.4 million for the three months ended June 30, 2020. The decrease was primarily due to the issuance of long-term debt of $1,313.9 million, partially offset by the repayment of long-term debt of $906.8 million during the three months ended June 30, 2021, compared to the issuance of long-term debt of $785.2 million, partially offset by the repayment of long-term debt of $80.7 million for three months ended June 30, 2020.
Cash from financing activities decreased by $1,091.3 million to $330.8 million for the six months ended June 30, 2021, compared to cash inflows of $1,422.1 million for the six months ended June 30, 2020. The decrease was primarily due to the the issuance of long-term debt of $1,761.3 million, partially offset by long-term debt of payments of $1,325.3 million, contingent purchase consideration of $15.9 million and dividends of $8.7 million for the six months ended June 30, 2021, compared to the issuance of $3,257.6 million of share capital, $1,006.9 million of TEUs, and the issuance of long-term debt of $1,600.9 million, partially offset by the repayment of long-term debt of $4,397.8 million in the prior year period as a result of our IPO.
Available Sources of Liquidity
Under our Sixth Amended and Restated Credit Agreement, dated November 24, 2020 (as amended on May 18, 2021, the “Revolving Credit Agreement”), we have access to (i) a $628.0 million revolving credit facility (available in Canadian and US dollars), and (ii) an aggregate US$40.0 million in revolving credit facilities (available in US dollars) (collectively, the “Revolving Credit Facility”) as well as a $200.0 million letter of credit facility (available in Canadian and US dollars). As at June 30, 2021, we had $123.9 million drawn under the Revolving Credit Facility ($148.8 million as at December 31, 2020).
Our Revolving Credit Facility contains a financial maintenance covenant. The covenant (which applies only when the Revolving Credit Facility is drawn at or above 35% of the Revolving Credit Facility limit) is a ratio of Total Net Funded Debt to Adjusted EBITDA (each as defined in the Revolving Credit Agreement) equal to or less than 8.00 to 1.00. As at June 30, 2021 and December 31, 2020, we were in compliance with this covenant.
The Revolving Credit Facility matures on November 24, 2024. We have no other material long-term debt maturities until May 31, 2025.
On June 8, 2021, we issued US$750.0 million of 4.750% senior notes (“4.750% 2029 Notes”). Concurrent with the issuance, we entered into cross-currency swaps for US$350.0 million of the 4.750% 2029 Notes to manage our currency risk. We used the net proceeds of the issuance to fund the redemption of the entire US$360.0 million outstanding aggregate principal amount, related fees, premiums and accrued interest on the 8.500% USD senior notes (“8.500% 2027 Notes”). We used a portion of the remaining net proceeds to pay down the Revolving Credit Facility. A loss on extinguishment of the 8.500% 2027 Notes of $49.3 million and write off of deferred financing costs of $3.4 million was recognized in interest and other finance costs.
The cross-currency interest rate swap associated with the 8.500% 2027 Notes continued to be in place after the redemption of the notes. As a result of the redemption, we discontinued the use of hedge accounting. We entered into an offset swap to receive and pay interest semi-annually at 8.825% on $348.0 million in order to hedge this exposure.
Contractual Obligations
The following table summarizes our contractual obligations as of June 30, 2021:
| ($ millions) | | Total | | | Less than
1 year | | | 1-3 year | | | 4-5 year | | | Thereafter | |
| Long-term debt | | $ | 6,390.7 | | | $ | 8.1 | | | $ | 16.3 | | | $ | 3,267.9 | | | $ | 3,098.4 | |
| Interest on long-term debt | | | 1,533.5 | | | | 141.0 | | | | 552.9 | | | | 481.0 | | | | 358.6 | |
| Lease obligations | | | 292.3 | | | | 48.2 | | | | 113.1 | | | | 42.8 | | | | 88.2 | |
| Equipment loans and other | | | 4.8 | | | | 0.3 | | | | 0.8 | | | | 0.5 | | | | 3.2 | |
| Amortizing Notes | | | 90.3 | | | | 27.0 | | | | 63.3 | | | | — | | | | — | |
| | | $ | 8,311.6 | | | $ | 224.6 | | | $ | 746.4 | | | $ | 3,792.2 | | | $ | 3,548.4 | |
Other Commitments
We had letters of credit totaling approximately $176.6 million outstanding as of June 30, 2021 ($133.8 million as of December 31, 2020), which are not recognized in our Interim Financial Statements. These letters of credit primarily relate to performance-based requirements under our municipal contracts and financial assurances issued to government agencies for our operating permits
As of June 30, 2021, we had issued performance bonds totaling $1,690.6 million ($1,697.4 million as of December 31, 2020), of which approximately $92.6 million ($108.5 million as of December 31, 2020) is secured by a charge on the assets of certain subsidiaries.
5. Summary of Quarterly Results
The following table summarizes the results of our operations for the eight most recently completed quarters:
| | | 30-Jun | | | 31-Mar | | | 31-Dec | | | 30-Sep | | | 30-Jun | | | 31-Mar | | | 31-Dec | | | 30-Sep | |
| ($ millions except per share amounts) | | 2021 | | | 2021 | | | 2020 | | | 2020 | | | 2020 | | | 2020 | | | 2019 | | | 2019 | |
| Financial Summary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 1,314.3 | | | $ | 1,186.6 | | | $ | 1,235.6 | | | $ | 1,036.0 | | | $ | 993.3 | | | $ | 931.3 | | | $ | 896.5 | | | $ | 898.0 | |
| Adjusted EBITDA(1) | | | 353.0 | | | | 306.6 | | | | 311.2 | | | | 281.2 | | | | 261.5 | | | | 222.8 | | | | 208.9 | | | | 225.7 | |
| Net income (loss) | | | 25.2 | | | | (226.2 | ) | | | (486.7 | ) | | | (114.7 | ) | | | (115.5 | ) | | | (278.0 | ) | | | (182.0 | ) | | | (109.9 | ) |
| Net earnings (loss) per share | | | 0.03 | | | | (0.66 | ) | | | (1.39 | ) | | | (0.32 | ) | | | (0.32 | ) | | | (0.77 | ) | | | (1.01 | ) | | | (0.61 | ) |
(1) Adjusted EBITDA is a non-IFRS measure. Refer to section entitled “Non-IFRS Financial Measures and Key Performance Indicators”.
Over the last eight quarters our results were primarily impacted by acquisitions and associated financing activities. Additionally, our results are influenced by seasonality and tend to be lower in the first quarter of the year, primarily due to winter weather conditions, which are pronounced in Canada, and higher in the second and third quarters of the year, due to the higher volume of waste generated during the summer months in many of our solid waste markets. For each quarter in 2019 and the first quarter in 2020, net loss per share, basic and diluted, has been recalculated to retrospectively adjust the number of shares for the share split completed in conjunction with the pre-capital closing changes implemented as part of our IPO.
6. Key Risk Factors
We are exposed to a number of risks through the pursuit of our strategic objectives and the nature of our operations which are outlined in the “Risk Factors” section of our Annual Report. We are also subject to the following financial risks.
Financial Instruments and Financial Risk
Our financial instruments consist of cash and cash equivalents, trade accounts receivable, trade accounts payable, long-term debt, and our TEUs. The carrying value of our financial assets are equal to their fair values.
The carrying value of our financial liabilities approximate their fair values with the exception of our outstanding USD secured and unsecured notes (“Notes”). The following table summarizes the fair value hierarchy for our Notes for the periods indicated:
| | | Fair Value as at June 30, 2021 | | | Fair Value as at December 31, 2020 | |
| ($ millions) | | Quoted prices
in active
market
(Level 1) | | | Significant
observable
inputs
(Level 2) | | | Significant
unobservable
inputs
(Level 3) | | | Quoted prices
in active
market
(Level 1) | | | Significant
observable
inputs
(Level 2) | | | Significant
unobservable
inputs
(Level 3) | |
| Notes | | $ | — | | | $ | 4,761.3 | | | $ | — | | | $ | — | | | $ | 4,454.3 | | | $ | — | |
For more information on our financial instruments, including hedging arrangements, and related financial risk factors, see our Interim Financial Statements, our Annual Financial Statements, and our Annual MD&A.
7. Other
Related Party Transactions
After the payment of the semi-annual instalment of $3.5 million for the three months ended June 30, 2021, the remaining principal outstanding on the note payable to Josaud Holdings Inc. (an affiliate of Patrick Dovigi) was $14.0 million ($17.5 million as of December 31, 2020).
After the payment of the semi-annual instalment of $2.9 million for the six months ended June 30, 2021, the remaining principal outstanding on the note payable to Sejosa Holdings Inc. (an affiliate of Patrick Dovigi) was $23.2 million ($26.1 million as of December 31, 2020).
For the three and six months ended June 30, 2021, we paid $1.1 million and $1.9 million ($0.9 million and $1.4 million for the three and six months ended June 30, 2020) in aggregate lease payments to related parties.
Current Share Information
Our current authorized share capital consists of (i) an unlimited number of subordinate voting shares, (ii) an unlimited number of multiple voting shares, (iii) an unlimited number of preferred shares, issuable in series and (iv) 28,571,428 Series A perpetual convertible preferred shares (the “Preferred Shares”).
As of June 30, 2021, we had 317,534,049 subordinate voting shares, 12,062,964 multiple voting shares and 28,571,428 Preferred Shares issued and outstanding. As at June 30, 2021, the Preferred Shares are convertible into 25,082,243 subordinate voting shares, representing approximately 7.3% of the issued and outstanding subordinate voting shares and 5.4% of the outstanding voting rights attached to all of our outstanding shares and based on a conversion price of US$25.20 per share. As of June 30, 2021, we had 14,495,539 Purchase Contracts outstanding which are convertible into 31,790,166 subordinate voting shares, assuming a minimum conversion of 2.1931.
Additional Information
Additional information relating to GFL, including our most recent annual and quarterly reports, are available on SEDAR at www.sedar.com and on Edgar at www.sec.gov/edgar.
8. Accounting Policies, Critical Accounting Estimates and Judgements
We prepare our Interim Financial Statements in accordance with IFRS. Our significant accounting policies and significant accounting estimates, assumptions and judgements are contained in the Annual Financial Statements.
Significant Accounting Estimates, Assumptions and Judgements
The preparation of our Interim Financial Statements requires management to make estimates and use judgment that affect the reported amounts of revenue, expenses, assets, liabilities and accompanying disclosures. Accordingly, actual results may differ from estimated amounts as future confirming events occur. Significant estimates and judgments used in the preparation of our Interim Financial Statements are described in our Annual Financial Statements.
Since the date of our Annual MD&A, there were no material changes to the significant accounting estimates, assumptions and judgments. See the section entitled “Significant Accounting Estimates, Assumptions and Judgements” in our Annual Report.
Landfill Asset
The following table summarizes landfill amortization expense on a per tonne basis for the periods indicated:
| | | Three months ended
June 30, 2021 | | | Six months ended
June 30, 2021 | | | Year ended
December 31, 2020 | |
| Amortization of landfill airspace ($ millions) | | $ | 53.3 | | | $ | 102.2 | | | $ | 111.8 | |
| Tonnes received (millions of tonnes) | | | 4.4 | | | | 8.3 | | | | 8.3 | |
| Average landfill amortization per tonne ($) | | $ | 12.1 | | | $ | 12.3 | | | $ | 13.5 | |
The amortization of landfill airspace for the three and six months ended June 30, 2021 did not include $10.2 million of amortization related to the difference between the ARO obligation calculated using the credit-adjusted, risk-free discount rate required for measurement of the ARO obligation through purchase accounting, compared to the risk-free discount rate required for quarterly valuations. This accounting adjustment does not impact the economics of the average landfill amortization per tonne.
Landfill Capacity
As of June 30, 2021, we had 327.2 million tonnes (328.5 million tonnes as at December 31, 2020) of remaining permitted capacity at the landfills we own and at the landfill in Quebec where we have designated access to a fixed level of capacity. As of June 30, 2021, fourteen of our landfills satisfied the criteria for inclusion of probable expansion capacity, resulting in additional expansion capacity of 140.6 million tonnes, and together with remaining permitted capacity, our total remaining capacity is 467.8 million tonnes (469.1 million tonnes as at December 31, 2020). Based on total capacity as of June 30, 2021 and projected annual disposal volumes, the weighted average remaining life of the landfills we own and at the landfill in Quebec where we have designated access to a fixed level of capacity is approximately 24.9 years (25.0 years as at December 31, 2020). We have other expansion opportunities that could extend the weighted average remaining life of our landfills.
9. Non-IFRS Financial Measures and Key Performance Indicators
This MD&A makes reference to certain non-IFRS measures, including EBITDA, Adjusted EBITDA and Adjusted EBITDA margin. 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 nor 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.
EBITDA
EBITDA represents, for the applicable period, net income (loss) plus (a) interest and other finance costs, plus (b) depreciation of property and equipment, plus (c) amortization of intangible assets, less (d) income tax expense (recovery), in each case to the extent deducted or added to/from net income (loss). We present EBITDA to assist readers in understanding the mathematical development of Adjusted EBITDA. Management does not use EBITDA as a financial performance metric.
Adjusted EBITDA
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 our borrowing capacity. Adjusted EBITDA is calculated by adding and deducting, as applicable, 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) loss (gain) on foreign exchange, (b) loss (gain) on sale of property and equipment, (c) mark-to-market loss (gain) on fuel hedge, (d) mark-to-market loss (gain) on Purchase Contracts, (e) share-based payments, (f) gain on divestiture, (g) IPO transaction costs, (h) transaction costs (included in SG&A related to acquisition activity) (i) acquisition, rebranding and other integration costs (included in cost of sales related to acquisition activity), and (j) deferred purchase consideration. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis reflecting factors and trends affecting our business.
Adjusted EBITDA Margin
Adjusted EBITDA margin represents Adjusted EBITDA divided by revenue. We use Adjusted EBITDA margin to facilitate a comparison of the operating performance of each of our operating segments on a consistent basis reflecting factors and trends affecting our business.
Adjusted EBITDA to Net Income (loss) Reconciliation
The table below provides the reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA for the periods presented:
| ($ millions) | | Three months ended
June 30, 2021 | | | Three months ended
June 30, 2020 | |
| Net income (loss) | | $ | 25.2 | | | $ | (115.5 | ) |
| Add: | | | | | | | | |
| Interest and other finance costs | | | 139.8 | | | | 95.4 | |
| Depreciation and amortization | | | 221.8 | | | | 123.6 | |
| Amortization of intangible assets | | | 110.2 | | | | 111.1 | |
| Income tax expense (recovery) | | | 15.4 | | | | (38.3 | ) |
| EBITDA | | | 512.4 | | | | 176.3 | |
| Add: | | | | | | | | |
| Gain on foreign exchange(1) | | | (37.3 | ) | | | (8.4 | ) |
| Loss on sale of property and equipment | | | 0.2 | | | | 0.5 | |
| Mark-to-market loss on fuel hedge | | | — | | | | 0.6 | |
| Mark-to-market (gain) loss on Purchase Contracts(2) | | | (117.3 | ) | | | 74.2 | |
| Share-based payments(3) | | | 10.6 | | | | 4.2 | |
| Gain on divestiture(4) | | | (35.5 | ) | | | — | |
| Transaction costs(5) | | | 13.3 | | | | 7.7 | |
| IPO transaction costs(6) | | | — | | | | 4.9 | |
| Acquisition, rebranding and other integration costs(7) | | | 6.6 | | | | 1.5 | |
| Adjusted EBITDA | | $ | 353.0 | | | $ | 261.5 | |
| ($ millions) | | Six months ended
June 30, 2021 | | | Six months ended
June 30, 2020 | |
| Net income (loss) | | $ | (201.0 | ) | | $ | (393.5 | ) |
| Add: | | | | | | | | |
| Interest and other finance costs | | | 231.9 | | | | 364.8 | |
| Depreciation of property and equipment | | | 425.4 | | | | 246.3 | |
| Amortization of intangible assets | | | 221.2 | | | | 210.2 | |
| Income tax recovery | | | (73.9 | ) | | | (126.0 | ) |
| EBITDA | | | 603.6 | | | | 301.8 | |
| Add: | | | | | | | | |
| (Gain) loss on foreign exchange(1) | | | (76.3 | ) | | | 97.6 | |
| Loss on sale of property and equipment | | | 1.0 | | | | 2.1 | |
| Mark-to-market loss on fuel hedges | | | — | | | | 1.8 | |
| Mark-to-market loss (gain) on Purchase Contracts(2) | | | 111.0 | | | | (14.2 | ) |
| Share-based payments(3) | | | 20.3 | | | | 19.9 | |
| Gain on divestiture(4) | | | (35.5 | ) | | | — | |
| Transaction costs(5) | | | 25.4 | | | | 18.9 | |
| IPO transaction costs(6) | | | — | | | | 46.2 | |
| Acquisition, rebranding and other integration costs(7) | | | 10.1 | | | | 9.2 | |
| Deferred purchase consideration | | | — | | | | 1.0 | |
| Adjusted EBITDA | | $ | 659.6 | | | $ | 484.3 | |
| (1) | Consists of (i) non-cash gains and losses on foreign exchange and interest rate swaps entered into in connection with our debt instruments, (ii) and gains and losses attributable to foreign exchange rate fluctuations. |
| (2) | This is a non-cash item that consists of the fair value “mark-to-market” adjustment on the Purchase Contracts. |
| (3) | This is a non-cash item and consists of the amortization of the estimated fair market value of share-based options granted to certain members of management under share-based option plans. |
| (4) | Consists of gain resulting from the divestiture of certain landfill assets, as well as hauling and ancillary operations. |
| (5) | Consists of acquisition, integration and other costs such as legal, consulting and other fees and expenses incurred in respect of acquisitions and financing activities completed during the applicable period. We expect to incur similar costs in connection with other acquisitions in the future and, under IFRS, such costs relating to acquisitions are expensed as incurred and not capitalized. This is part of SG&A. |
| (6) | Consists of costs associated with the IPO, such as legal, audit, regulatory and other fees and expenses incurred in connection with the IPO, as well as underwriting fees related to the offering of our TEUs that were expensed as incurred. |
| (7) | Consists of costs related to the rebranding of equipment acquired through business acquisitions. We expect to incur similar expenditures in connection with other acquisitions in the future. This is part of cost of sales. |
