Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Can you share a brief background to your history in the waste industry?

I started in 1996. My wife Alida was a commercial banker and one of her customers, Duall, got bought out by Sanifill, a large US waste company, the first one to enter the Canadian market. I had an interview with a Texan named Brett Sarbor who was the business developer, who hired me on the spot as the scale guy, which lasted two days. The IT guys came from the States, and this was more or less when USA Waste and Sanifill merged, to create what we would know as Canadian Waste Services which became Green Waste Management as we bought out Burgundy Waste Management.

They needed someone to drive them to all these new locations that USA Waste/ Sanifill were buying in Ontario, and I had my license and so I was driving these IT guys around and watching what they were doing. Many things didn't make a lot of sense. I had a marketing degree and went to university but had no practical experience, and they were looking at me strange going, that made a lot of sense. By the time they were done within a week, I was now part of the IT team. For eight months, I flew across the US and Ontario, installing new point of sales systems, which are obviously very important. Landfills and transfer stations were part of the training development of the software. Unfortunately, they were firing all the Laidlaw and Phillips people from the acquisitions. I just had my first child and needed to go home to my wife who was alone and in tears as I was gone for four or five days a week.

They threw me into this white elephant company down in South Toronto, near downtown which was losing so much money. I still knew nothing. Ford was their biggest customer and I remember Rod Proto was the chief operating officer of the new Sanifill USA Waste merger. He was looking at me and was really disappointed; the place was a disaster. Equipment was always breaking down and he said, wow, this place is quite a mess. My operations manager told him it had been a lot worse, but he didn't say a word. The disappointment on his face said it all. All of a sudden, bells went off in my head and I realized we were doing something wrong. Everybody was saying, we make money, let's keep doing it the same, but because I didn't know any better, I started changing the way waste was always done. I looked at things nobody ever looked at before. Why are we using a trailer with only four axles instead of six? Four is only 28 tons of load whereas six is 36 tons. Next thing, I look like a hero and I got another district and the long-haul business and we did really good there and I have never looked back. It's that simple.

Why are there so many smaller local companies in this industry?

It's an easy business to get into; you only need a roll off truck, a few bins, and to know some people. You pick up waste and bring it to a transfer facility or landfill if there is one close by. People have a hard time understanding their own business but when it comes to the waste part of their business, they are all experts. Everybody knows and cares about waste; it's fascinating and you're right because there are so many mom-and-pop stores. The original strategy of all these big companies was to consolidate all these mom-and-pop companies. Except that as soon as you bought one, another one would pop up.

What is driving the consolidation in the market?

Density. When you buy a mom-and-pop shop, their coverage is the same as the big guys, but the big guys have way more trucks. So they're traveling 125 kilometers as their customer base is within that range, and not getting the maximum out of their equipment. When you buy that mom-and pop-shop, you now have two trucks in this area and two trucks in that area and are much closer to the transfer stations or landfills, which is more efficient. The waste pie is so big and the total dollars do not change. Landfills make the biggest margin, but that pie never changes until you get to GFL.

You said that another mom-and-pop would pop up when you acquire one, did that truly happen? Did you not see the number of companies declining over time?

We did, but after their five year non-compete was over, their uncle, cousin or sons would open up other businesses. Their challenges remained the same; trying to cover the same area with less equipment, so they only ever got their small customer base back. By then, you have consolidated so much and your routes are so dense, it doesn't matter if they nibble. When it comes to the mom-and-pop – and I don't mean to disrespect them whatsoever – but it's a race to the bottom. When you get larger, you start understanding there is real value in those assets and you need a return on them. If you have investors giving you money, there's room for everybody to exist. You need the mom-and-pop shops, but you also need big companies and best practices, which is why Waste Management, Waste Connection, Republic, Suez and Veolia in Europe exist; everybody has a spot.

We can talk about route density and M&A later, but how did you first get involved with GFL?

I was a district manager out of Waste Services, who merged with BFI and then became Waste Connect. I devised a plan with my boss Ross, to use certain under-utilized assets in both companies. We closed down some facilities and it was fantastic. That caused WSI to sell because Waste Management would control the tons WSI had, and a large company's worth is the tons it controls. The more tons it controls, the bigger the multiple of that company. As soon as BFI saw we were tying up our tonnage with Waste Management for five years, my boss and I both said, it will never happen with Waste Management, they will come to a deal, and I probably would be out of a job because I was a senior person making too much money.

The first phone call I got when BFI and WSI merged, was from Patrick Dovigi, who I had met while he was cleaning up a site, which was his first avenue into the waste business. He befriended a gentleman that was worth a lot of money and they owned a property which they had rented to some bad players in the market, and filled it with waste. The property was worth a lot of money and the Ministry came down on the owner of the land and said he had to clean it up. That is how Patrick and I met for the first time; he was 32 years old at the time. He knew nothing and the Ministry hired a third party to take care of the cleanup, charging them a crazy amount of money, and I told Patrick that he didn't have to do that. This is what it costs, let me clean it up with Waste Management, we will save you a bunch of money. Once WSI and BFI merged, he said to me Friendly Fernie, you're getting let go; you need to come and work for me. I call him PD for Patrick Dovigi, and I said, I appreciate the offer, I know I'm getting let go, thanks for the heads up, but I feel I can take some time off. I took four months off but he kept on calling me. He hired me and for three years I was his right-hand guy and we grew the company from $40 to $400 million. He is a super guy; I have nothing bad to say.

What attracted you to eventually join him?

My whole life, all I knew was corporate world, and when we started all these acquisitions and we were a smaller company, we got to do whatever we wanted. Even though we were part of a bigger company, it was our company and we grew and made changes and controlled our own destiny. The bigger the company, all of a sudden, they start taking control. HR gets involved. You're in a box, you're a level 7, you're a level 2, you're a level 5. What about benefits?

I will tell you a little story. I was a big district manager at Waste Management and there was a big project called Phoenix and we wanted our customers to be gold, with the best customer service. We went to Vegas with all the big shows, and we talked about benefits. We had bought a company called Laidlaw and one of my mentors was an older gentleman who had been in the waste business forever. Burt passed away on our site and his life insurance had changed. His wife comes to me in tears saying, with Laidlaw his death benefit was X dollars, now we're Waste Management and it's only this; I had no idea it changed. They want us to be the best so our customers get the best service, yet what's going on with our benefits; they've changed and people don't even know they have? The response was that they were industry standard.

How would you describe Patrick’s style in those early days?

He was so involved in everything. I had way more experience but he was awesome at finding money and had great relationships with people. There were so many non-believers but he always kept on proving people wrong. He simply let me go and, together, we built the foundation. Something he knew very early on was that there were only a few people in each area who are significantly true leaders in the waste business, whether in sales or operations. We took them from the big players because they drove them in a box.

What was the early strategy with PD?

Because we were buying mom-and-pop shops which were not well-run, they had their own accounting systems and ways of making money, which wasn't for us. We knew we could increase price and density by finding the right people, to create at least the foundation. When I got there, liquid waste had already made one acquisition, but had no systems. We had no idea which customers made money because everything was on sheets of paper. Our IT guy needed three weeks to create his own software so we could have information. We had no maintenance program; all these mom-and-pops used spreadsheets or little calendars, which we had to change because we had no idea what makes money or costs money; you're blind. We got best-in-class maintenance systems which resulted in us getting all this information. When you have information, you are heads above the mom-and-pop companies.

What do these mom-and-pop companies look like? How many people, routes and trucks did they have?

In Ontario – but it doesn't matter where you are – 65% to 70% are mom-and-pops and 30% are bigger customers. They would have as few as three or four roll off trucks, to maybe 12. Medium-sized companies might have 10 roll off trucks and four front ends. Then you would have another two or three large players in a population of 10 million, who might have 35 roll off trucks, 20 front ends and their own systems; well run companies. They started 30 years ago and it's their babies and they're hard to acquire because their legacy is the name on their trucks. Once you sell to GFL or Waste Management, you lose everything.

What type of companies or markets did you go after?

We went after only liquid waste, soil and waste. We started buying mom-and-pop shops in those businesses, and the more dense the routes, the more money we earned, the better the return and the more the handcuffs got looser and the bigger the companies we bought. When Patrick looked at an acquisition, especially in the early days, he wasn't looking at the roll off trucks. We looked at the assets and usually they were well run but they were much older. He looked at the people because, every acquisition we did, we kept all the people. There are not that many people around but systems were consistently poor. The information they had was poor, but they were still making money. Imagine putting best practices into those.

What are those best practices and what changes did you make?

We used a third-party system called TRUX but we obviously utilized it to the depth that system had. Many companies may have had the same systems but didn't understand how in depth you could get. There are certain things you need to understand in the waste business, otherwise when companies get too large like Waste Management, Waste Connection or Republic, they're controlled by accountants and everything becomes a key figure; you have to hit this return.

Isn’t GFL nearly that big today?

There is no doubt they will get to that point. They are now publicly traded and people want to see a return; there are many eyes on it. There is absolutely more growth but when you're a small company worth 100 million and you buy a company worth 10 million, that's 10%. That yard stick moves and there are real synergies and solid change when you buy a billion-dollar company. All of a sudden, you have all the synergies of purchasing power. Do you know how much fuel and tires I use? When you look at the finances of any company, labor might be your first, but in the waste business, it becomes fuel and the operation of trucks, such as the tires, nuts and bolts. Now I'm at such a size, the second and third largest component expense of that financial becomes your purchasing power.

So there are there less synergies in terms of best practices and improving costs the larger the acquisition?

Yes, densities are still out there but, with a billion-dollar company, it's harder to find people, because you're that much bigger. One of the companies I saw when I was at Waste Services, our CEO David and my boss Rob noticed there only a few key people were strong, so we were allowed to have many districts under our umbrella. We tried to mentor local district managers with best practices, to see if what we were doing worked there, because it is area dependent. When BFI bought WSI, it was run by controllers, who no longer needed a Fern. They wanted district managers to concentrate on districts and it becomes more about money.

Back to the M&A, how does the cost structure of the mom-and-pop change when you buy the company?

The senior leadership doesn't change but administrative is the first thing. You consolidate invoicing and IT systems and densify routes. If they were operating eight trucks, take two off the road, but you're growing at such a pace, all of a sudden you organically grow. We won the City of Toronto and no one thought GFL could ever win a residential contract. After that, we had to hire 80 people, so we simply bought a company. When the snowball starts going up the hill, there's always attrition and you're always densifying the routes and taking cups off the road. If it's unionized, it's slightly different and there are ways to keep the strong players, but in the end it doesn't change. Big or small, you still have your challenges.

What was the story of winning that big residential contract?

GFL was a new player on the block and had purchased a company called National which had some very successful residential contracts. Danny Ardellini, who recently started E360, was bought out and had a non-compete, but is back in the game creating another company. I hired a bunch of students to follow the City of Toronto who was doing the service themselves. Of the five separate areas, one was done privately and four were done by unionized Toronto city workers. The students followed all the trucks to find out what time they start and finish, when they go to lunch and if they fuel or not. It was unbelievable how inefficiently that residential contract was being run. The City of Toronto request for proposal stated if your bid was over $30 million, they will not open the envelope. My philosophy is that I don't care what other people are bidding, I bid what I know I can control and according to what my costs are. We bid at a certain price, but Patrick said no, and it was the only time he ever said no. He said that we needed this because he lived in the area and wanted the trucks. He believed we would get much more public relations by having all our trucks on the road in Toronto. He lowered it and we won, even though my price would have won, and all we did was grow.

Why was the City of Toronto so inefficient when running their trucks?

Due to by-laws, you cannot start earlier than 7:00 AM, but they had not fueled their trucks and the last truck didn't go on its route until 9:00 AM. If all my trucks are fueled at the end of the night and start at 7:00 AM for their very first pick up, how much can you save? 25% to 30% of their employees were on workman's compensation, meaning they got hurt on the job. They didn't maintain their trucks at night, only during the day. In three months, we had less complaints from residents than they did doing the contract forever. Obviously, the unions knew they were done, but they had still three districts and changed the way they did business. They used more or less what we were doing, and no other areas have come up for public tender, so they're keeping what they had and GFL controls another district, Miller, I believe. It was a good lesson for all players; the unionized, the city and GFL.

How do you look at route density when you're acquiring an asset? Is there a certain calculation you use to see if you could hit a certain rate?

In a roll off truck, usually it’s number of lifts daily. But really, it’s not lifts in a day but how much revenue a truck makes daily. Some people would be pounding their chest saying, my truck does 10 lifts a day, but four of them were deliveries, three were paid and two were removals, so how much money did the truck make? In the end, it's revenue per day. The accountants love to look at all these different metrics. To me it's simply how much revenue that truck made.

What drives the revenue per day?

How profitable the customer is, how tight your maintenance programs are and how efficient your drivers are. There is much software out there to help with what day they have to be picked and it spits out the runs for drivers. I will spend a few weeks with a certain line of business – say it's the front end runs – and I will show the driver what the software says, but guys know the customers, the runs and the school zones, so I get them to mark on their route sheets, what makes sense, which is something new. Usually, they'll receive it and say that it makes no sense, but never change anything. They don't communicate but it changes when you get more involved, which Patrick was in the beginning. Obviously now it's a different animal. He was involved in the way that if a driver wanted to talk to him because a district manager wasn't doing their job, our doors were always open.

We had several union drives where Teamsters want to unionize them. They are showing them rates where they had 50 years of unionization, but we always paid our guys more than union waste hauler rates. We flew to Windsor, he talks to everybody and because he's such a likable guy, they start realizing there's only so much a company can pay, and they're getting paid more than the competitors. The reality is, if you want what a guy makes on an assembly line, go work on an assembly line. None of our districts unionized when I was there. Several tried but they all failed because we always paid them slightly more and their benefits were always slightly better. That is part of the culture.

In the Toronto example where you won the residential contract, how did GFL compete with Waste Management?

Waste Management could never make money in the residential business and left the door open. We changed the way we operated and made money. Waste Management were simply not good at it for whatever reason, locally in Ontario. I can't talk about other places because it's completely different in the States, where they have a subscription model and you could have six different haulers pick on the same street. In Ontario, the municipalities control their own waste and all you have to do is pick it up and they have zones which you bid on. It helps pay for your administration and accountants which is a great base.

Once you pay for your base, you can buy the mom-and-pops and do the roll offs, front ends and rear packers and all the other things will come together. Residential is a good foundation for a company, but you need strong people because you have 80 trucks on the road, not five or 10. Patrick makes people stronger than they are, which is how he gets loyalty and attracts the stars; there are only a few stars in the business. We took the number one sales guy, locally, from Waste Management. Patrick told me I would never succeed because the number one maintenance guy had been there forever and was comfortable. He wanted me to go, but didn't think I could do it.

How did you do it?

The other waste company already had the noose around their necks. How much do you make? I'll pay you X plus your severance. I've been working there forever. The most you will ever get in Ontario is two years, plus your measly pay, what is that worth? It's worth A. I'll give you a signing bonus and pay you 50% more. If you net the company 10 million and all of a sudden, you're making $200,000, that's $100,000 more than you were making before.

How did you get all the best guys in the area?

I’ve interviewed several times and was asked what my biggest strength was. My response was that I knew the right people, because I couldn't do it alone. I'm a real smart guy and I've seen and done a lot, but if the people around me are weak, there's only so much I can do. I have a loyal group of people who would still work for me because I treated them well. I might be the VP of operations with a different title, but we're both the same. I treat the driver the same as I do the sales person; we're all equals. Our responsibilities are different but we need everybody.

How did GFL approach the roll up differently to its competitors?

They didn't and don't. The base model of the waste business is roll off, front end and transfer stations to landfills. Someone produces waste and a company picks it up, bulks it and sends it to either a landfill or a transfer station for further bulking, or to a processing facility like a recycling center. The waste industry is simply a bulking business. You might process it to remove some metals, wood or cardboard, or send it for recycling, but you bulked it up. Patrick created the soil business. Waste Management's soil goes to the landfill, which is the same pie, but Patrick created a new pie called soil remediation, which was bring it by the ton, process it, then take it out by the load once it is clean. The big guys had costly landfills which could only accept a limited amount of tons per year, so they were capped.

What was the story to creating that soil remediation business?

Patrick had a girlfriend whose dad lived in an oil heated house with a buried tank. Patrick phoned some companies up about soil remediation. The oil tank was leaking and was going to cost $15,000 to remove. Next thing you know, he does a liquid waste acquisition which came with a big piece of property, so he went into soil remediation. The margins were huge. Waste Management there own landfills but we never had any when I was around. We made agreements with those who controlled it, but our soil business made as much market.

How does it work with the transfer stations?

A hauling company makes the least amount of money, taking 5% of the revenue. The transfer station will bulk it up and has the majority of the cost, because it has to take it to a landfill which is far away; they are generally outside of the cities. The majority of the revenue goes to landfills, especially in Europe, but because that truck can pick up many different customers, they receive more revenues. They don't do it at $2, $3, 4$. I picked up 10 customers; my front end might pick up 80 or 130 customers in a day. It depends on density and how much driving you are allowed do in a day, but that pie doesn't change. If you own the landfill, you make most of money.

Why didn't GFL own any landfill sites?

We couldn't afford to buy a landfill. Those assets take forever to acquire or permit. People dislike landfills nearby.

If the competitor owns the landfill, can't they price you out of it?

That would be bad and the Competition Bureau would come in; they can't do that. Those landfills need every ton they can get, so we had a relationship with other large waste customers who made a deal with Patrick. We would bring one ton into their transfer station, but get two tons back. Everybody makes money because the philosophy I brought was, if it ain't good for you, it ain't good for me. I can make all the money in the world but if you don't make any, you don't exist.

How do you compete in more competitive markets that are more exclusive and have only two or three big waste management companies in a specific area?

They are price leaders.

Do you compete mainly on picking up the waste and getting the tonnage?

You acquire customers at very competitive rates, provide a good service and give them a price increase every six months. Mature companies have customers who have been with them 15 years and have been priced to death. We would go into markets where those big players were dominant, because we knew the pricing was lucrative. We never had a magic wand, but worked our butts off, and had strong systems in place to understand our costs. The more we grew, the more purchasing power we had, and you become competitive in other ways. Everybody does the same thing, take a truck and pick up your customer. That doesn't change, but the in between does. We could compete against larger companies because they need to price higher to achieve a higher rate of return. We were privately held at the time and didn't need as high a rate of a return. It all changes and there comes to a point where investor A and B want the same. There is no competitive advantage but Patrick created a new pie.

We can talk about soil remediation and the new pie in a moment, but what is the competitive advantage when you have multiple companies in one market?

Density is the biggest thing. The less kilometers you travel to earn a certain revenue dollar per day, the more money you make, while obviously controlling your costs. The small mom-and-pop shops believe a truck can last 25 years, because they don't understand if you spend $15,000 on that truck once it gets too old, then $5,000 then another $10,000, if you finance a new truck, it will only cost $1,000 a month or $10,000 a year versus $30,000. They either don't have the ability to understand the financing involved, or the capital, because their margins are always much smaller. The more sophisticated you are, your cost per hour becomes extremely more advantageous than the mom-and-pops, similar to the larger players.

GFL is a different beast today so when big companies compete in the same market, how do you see their returns and profitability changing?

The pie doesn't change, but Covid caused price increases and inflation, not only to the consumer basket at the supermarket or gas station, but also on the waste bill. They are charging more money for the same thing. With Covid, you picked up less restaurant waste, but municipally, because people were home, now they produced more waste. During economic hard times, commercial volumes will drop, but governments, municipalities, schools and hospitals change.

How important is it for a waste management company to own landfill sites?

It is the biggest margin on that waste part of the business. Waste Industries had many landfills, which was the next segue into the evolution of GFL. They bought several landfills in the Ottawa area. Michigan has many landfills and most of Toronto's garbage ends up there. Those landfills are 10,000 tons a day, whereas local landfills are only 2,500. The marketplace differs between Canada and the United States.

Does that drive the margin for the bigger companies in the long run?

Absolutely. They may create the facade of being green and recycling, but in the end, landfill makes 50% to 60% of the margin. Diapers are made out of plastic and some fiber, but once the fiber gets contaminated, they are no longer recyclable.

What are the advantages of owning a landfill rather than using others?

The value of a company is how much volume they control, and if you don't own that landfill you don't control the volume and are missing the biggest piece of the pie. If the landfill makes 60% margin, how much are you really worth and what is your multiple? Suddenly you have internalized and you own that landfill, now you are worth the whole pie.

Is there any reason GFL shouldn’t be trading at the same multiple as Waste Connections in the long run?

I am not a financial wizard, but in my eyes, 100%, why wouldn't they?

Are the assets better quality at Waste Connections or more exclusive markets or better integration?

Those class-leading companies are more mature, but there's only one way to go. When I was there, we were building a great foundation where the metrics were all the same. What have Waste Management and Waste Connection done lately to move the yard stick? It is almost impossible, but they are great run mature companies who are making good margins. When GFL finishes their growth, they will become a mature company because they are putting all the pieces together, otherwise who would give them money? I don't look at their financials, I simply look at the heading in the newspapers and see they beat their previous quarter. Patrick was a great boss for me because I learned to look at things in a different way. Metrics are great for accountants but you cannot put value on the intangibles, which is what I tried to impress on the businesses when I ran them.

What made Patrick so good with people?

I don't think it was through any experience; he was born that way and was at a level which people take many years to get to. I wasn't there, I simply kept my eyes open and watched what best-in-class was and tweaked it, never resting on the laurels.

Was he in the weeds or did he learn from you? It seems he was doing the selling and raising the capital and you were buying assets; is that a fair assumption?

I don't think anybody learns from anybody, and Patrick never had to because he surrounded himself with the right people. It doesn't mean you don't understand or want to get involved. I was part of Waste Management when they were buying a company a day, and then it simply blew up and the stock went from $80 down to $30.

Why did that happen?

The CEO got toasted, because they got so big that he could no longer control it. You can invest in growth, but you get to a point where the returns are diminishing.

This is my question now about GFL because I understand that in the early days, when they were buying mom-and-pop shops with five to 10 million EBITDA, you can make huge changes, reduce costs, etc. But when you're buying at 200 million EBITDA and paying 1.2 billion, it's a different ball game, so how much organic profitability growth can they achieve when buying big assets?

I don't see organic growth being the driver because it is difficult to grow.

At this point it is the capital structure optimization?

Yes, and Patrick was able to balance capital spend on renewing assets with acquisitions. When I was there, it was easy to illustrate because we implemented systems. The value of a truck after five to eight years dictates you should dispose of the asset, before it costs you money. The residual value of that asset and the costs it bore was the magic number. Today that is impossible to attain, but we looking at those metrics when GFL was small. To compete with the mom-and-pops at low rates, you are not doing yourself any benefits. Acquire a slightly bigger company and put in best practices, then it becomes easier to price increase existing customers, rather than losing them or finding new ones. It is that simple.

How did you balance maintenance with acquisition capital?

Because we acquired many mom-and-pop shops, all the equipment was old. We basically said those were the pigs of our equipment and we had to get rid of them. I told Patrick to give us several roll off trucks and two front ends as a minimum, then use the other capital to acquire. Once you created a name for yourself in an area, you could sit back and people would be phoning you. Four years ago, China stopped taking North America's garbage and commodity rates tanked and recycling companies were doing terribly. Patrick bought Canada Fibers, the biggest recycling company in Canada. His timing was impeccable because commodity priced would normalize. He makes the right acquisitions at the right time.

What was he doing on a day-to-day basis?

He was, unless I asked for his help to visit different districts. We would always have BBQs and he would show up once in a while. People knew who Patrick was when it was a relatively small company. Today, he might be on his yacht in the Mediterranean, but in his defense, if I text Patrick, he'll text me back within a minute. I don't know what that means.

It means he has his phone with him.

Absolutely. Well, it happens to everybody.

What are the biggest challenges in operating GFL today, given the size of acquisitions?

Once in a while I ponder that question because the bigger you get, that yard stick gets bigger. I read that they bought Coco Paving, an asphalt concrete company in Canada, and are divesting the infrastructure group from GFL.

They are taking it private and starting a new business. He was buying all these companies in the States which were regular waste companies, doing the same thing as everybody else. I thought he would integrate vertically and get into infrastructure, but I guess he will grow infrastructure, but somehow still join in ownership or something like that.

He spun it out privately and took ownership, and he is also the chair.

GFL still has some ownership, and remember the synergies of these things. He is very different from a waste company. He is a fully integrated environmental waste company. Those infrastructure customers have waste, soil and business development excavation.

Was he first to go in there?

Absolutely, and I'm not aware of anybody else in North America doing that. They did soil, which is not infrastructure, but excavation, road building and forming companies.

He has an excavation company, so he also digs the holes.

So he obviously takes the stuff through his network?

Yes, which is what we call internalization. The basic waste management strategy is to sign up the customer on paper, take his waste, bulk it up and send it to a transfer station or direct to landfill. With infrastructure he created a new pie, because that pie never changes.

Two pies.

Technically, two pies, and you only have big business developers in every city, who control the majority of the business development, whether residential or commercial. If he does the forming and digs the hole for them, he will get their waste, which is brilliant.

If it's so good, why is he selling it and spitting it out on GFL?

GFL still has ownership but I don't know why as I am not in his head space. The guy from BP financial is a gentleman and I hear he is also extremely bright. Perhaps there is a difference in getting capital when privately owned versus publicly owned, but I have no idea.

I remember reading old filings, which state that being first on site with customers in the infrastructure space drives cross-selling to solid and liquid waste services; did you see that play out?

The liquid waste customer has garbage so they can use the same service provider. It's so much easier when you communicate with different lines of business because we always had more lines of businesses than our competitors, and the more people you know, the more chances you have of being successful.

Why didn't the existing waste companies do this?

It beats me. I don't want to sound critical of them because I own their stock and they provide great returns and dividends.

Do you also own GFL?

I own some GFL for sentimental reasons.

Do you also own Waste Connection or Waste Management who are bigger?

I am diverse but, yes, waste companies are in my portfolio as they are very consistent. They go up and down, but would never crash 50% like PayPal.

What is the biggest risk to GFL, in your mind?

Running out of money. You always have to move that yard stick because people now see GFL as a growth company. If they run out of money and cannot buy companies, they are being judged by the quality of their EBITDA margins, similar to Waste Management and Waste Connection. I assume it will be a balancing act for these guys. Growth will slow down but he just took the infrastructure out, which will work out for him because the customers are the same. He doesn't wait for the building to be built; he's there at the ground level. Infrastructure will play a huge role in the coming years because in the States, the government is spending trillions of dollars.

It seems like he is building a mini GFL in the infrastructure space.

My guess is that it might go public, then everybody cashes out. Whatever he is doing, it is well thought of and will be successful; why would I ever think otherwise?

Everyone compares GFL to bigger competitors, and it is difficult to see what the true margin and profitability is with GFL because they have grown so quickly, but there does seem to be a 4% to 5% gap in EBITDA margins, compared to Waste Connection, for example. Based on the markets they are in and the assets and contracts they have, would GFL have structurally lower margins over the long term?

I don't know enough about what they do today, but when you buy companies, regardless of their size, they could all improve their margins. Waste Industries could have done better because they are not best-in-class. When you buy larger companies it takes longer, but you can get them to the same margins as any other leading waste company. It is not difficult to get rid of customers who don't make any money, it's all a matter of time. It is not that he has bad customers and other companies have good customers, that is not how it works.

He mentioned that with the inflation last quarter they will increase pricing, and they have increased it more than inflation, which should improve their margins. How did you approach those price increases with customers? Was it 1% or 2% above inflation each time to grow your margin or did you have a specific strategy?

It was an interesting conversation. I had all these sales people reporting to me and we were going to do our 1.5% price increase. I said why not 5%? They thought the customers would freak. I said what is the worst that can happen; they will leave us. Will they not phone us to say they are upset, is that not human emotion? If they phone, we tell them that we made a mistake and negotiate. If you ask for 1.5%, they will still phone, so you may as well start at 5% and settle on 3%. That changed everybody's way of doing business, at least the people I was originally with at GFL.

Did it go through often or what did the customers say to 5%?

That is why when I was at WSI, we averaged 17% bottom line increase every year.


17% cannot be achieved with only a 1% price increase, not a chance.

Was the 17% increase in EBITDA per year done through price?

Yes, because we were a young company and acquired many mom-and-pops, who had many low hanging fruits. I am not a miracle worker, I simply set the expectation. When I went to my first budget meeting at WSI, John McGarvey wanted 5%. He could have made it 10% but I was not going to change the way I work; I will make as much money as I can.

What do customers say when you increase prices?

The customer doesn't know, and you have to provide good service. We were one of the first to implement fuel surcharges. Fuel was going up and we were making less margin. Why did we have to pay for those surcharges when everybody sees it at the pump? Instead of putting in with a CPI increase, we always separated fuel, which many big companies now do. FedEx have fuel as a separate component, and depending on location, the surcharge changes. I will not get into the numbers but it varies. When fuel goes up you can always either make the same money, or as Patrick put it, the higher the inflation, the more money we make.

Because you add a bit on top?

You have to, that is simply business, and if everybody does the same thing, which they should, they will all make more money. Could you imagine if someone told you that if a pandemic hit, nobody would work and there would be lock downs, and that companies would make the most money they have ever made? Not a chance, but they are making more money.

Which costs can you not pass through to the customer, if any?

You can pass through anything which is a legitimate cost to you.

What is the biggest risk to the margins for these companies?

It's the waste business but for Patrick it's more about infrastructure. If they stop building because governments don't have money and there is a big economic turn, infrastructure will get hammered. Infrastructure becomes a bigger part, even though it is privately held in a different balloon; it will hit other lines of business because it's all integrated.

Anything else in terms of the risk on the solid waste business for GFL?

Why do you always have to say GFL?

GFL is the most exciting.

I know but GFL is a well-run company and Patrick has great people.

It is such a resilient industry where you can pass through all the costs and you have sticky customers, what could go wrong? Is it simply about execution and having the right team and operations in place?

It is so big that even if a small township is poorly run, it will not move the needle. There will not be a fundamental meltdown for GFL or any other waste business. It’s just not built that way. Locally, you have your synergies.

It's a pretty nice business.

It's a great business, and Brett once said to me, if you make it seven, you will always, always be in the waste business. The only thing that changes is the name on the guy’s shirt.