SECURE announces 2023 Fourth Quarter and Year-End Results
Press Release
CALGARY, AB, Feb. 26, 2024 – SECURE Energy Services Inc. (“SECURE” or the “Corporation”) (TSX: SES), a leading waste management and energy infrastructure company, reported today its operational and financial results for the three and twelve months ended December 31, 2023.
“2023 was an exceptional year for SECURE, marked by strong financial performance that underscores the stability and growth potential inherent in our core waste management and energy infrastructure operations,” said Rene Amirault, Chief Executive Officer of SECURE. “The successful conversion of $590 million of Adjusted EBITDA to $363 million of Discretionary Free Cash Flow1 during the year enabled us to execute on our capital allocation priorities.
“We delivered significant shareholder value in 2023, returning a total of $280 million to shareholders, or $0.95/basic share, through a combination of quarterly dividends and strategic share repurchases. Our opportunistic share buybacks throughout 2023 resulted in a 7% decrease in outstanding shares, contributing to an 11% improvement in Adjusted EBITDA per basic share over 2022. In addition, we successfully executed two critical infrastructure growth projects supported by long-term commercial agreements. These projects provided for the safe and reliable handling of production volumes for our customers, and consistent cash flows for SECURE across our business cycles. Notably, we accomplished these milestones while maintaining a Total Debt to EBITDA2 covenant ratio below 2.0x.
“We also advanced our strategy as a leader in waste management and energy infrastructure. The accretive multiple achieved from the mandated facilities divestiture to Waste Connections highlights the underlying value of SECURE’s business. Post-transaction closure, we maintain our market leadership in western Canada and North Dakota, leveraging our extensive facility network to expertly manage waste streams for energy and industrial customers. In 2023, we also strategically optimized our portfolio by divesting of non-core oilfield services business units that did not align with our core infrastructure strategy.
“The proceeds from the asset sale to Waste Connections has significantly improved our financial position, affording us capacity to enhance returns to shareholders and strategically expand in the industrial and energy waste markets. Our Board of Directors and management team continues to believe a substantial disparity exists between our intrinsic value and the current share price. The transaction valuation underscores our conviction that we should trade higher than the current multiple. Therefore, the Corporation remains committed to aggressive NCIB share repurchases, and we will evaluate various avenues, including the merits of a substantial issuer bid, to further return capital to shareholders.”
FOURTH QUARTER HIGHLIGHTS
- Entered into a definitive agreement (the “Divestiture Agreement”) with Waste Connections, Inc. (through its wholly owned subsidiary) (“Waste Connections”) to sell the 29 facilities formerly owned by Tervita Corporation that were ordered to be divested by the Competition Tribunal for $1.075 billion in cash, plus $75 million for certain adjustments as provided in the Divestiture Agreement for total cash proceeds of $1.150 billion. On February 1, 2024, the Corporation closed the sale transaction with Waste Connections (the “Sale Transaction”), which was completed by R360 Environmental Solutions Canada Inc., an affiliate of Waste Connections.
- Generated revenue (excluding oil purchase and resale) of $451 million, an increase of 12% from 2022.
- Achieved Adjusted EBITDA of $162 million or $0.56 per basic share, an increase of 17% on a per basic share basis from 2022.
- Recorded net income of $59 million or $0.20 per share, a 100% increase from $0.10 per basic share in 2022.
- Increased funds flow from operations to $128 million, up 52% from 2022.
- Sold the Corporation’s Projects business unit, focused on mobile yellow iron used for demolition and remediation. This sale completed the Corporation’s portfolio rationalization of non-core oilfield service focused business units that did not fit into SECURE’s core waste management and infrastructure strategy.
- Paid a quarterly dividend of $0.10 per common share, which currently represents an attractive yield of 3.7% on our common shares compared to peers.
- Renewed the Corporation’s normal course issuer bid (“NCIB”) effective December 14, 2023, which allows the Corporation to repurchase approximately 8.0% of the Corporation’s outstanding common shares. The Corporation has repurchased and cancelled 10,076,810 shares since the start of the new NCIB at a weighted average price per share of $9.97 for a total of $100 million.
- Maintained a Total Debt to EBITDA covenant ratio of 1.9x.
ANNUAL HIGHLIGHTS
- Generated revenue (excluding oil purchase and resale) of $1.647 billion, an increase of 7% from 2022.
- Achieved Adjusted EBITDA of $590 million or $1.99 per basic share, an increase of 11% on a per basic share basis from 2022.
- Recorded net income of $195 million or $0.66 per basic share, and increase of 12% on a per basic share basis from 2022.
- Increased funds flow from operations to $474 million, up 18% from 2022.
- Maintained an industry leading Adjusted EBITDA margin1 of 36%.
- Completed and commissioned the expansion of our Montney water disposal infrastructure and Clearwater oil terminalling and gathering infrastructure projects safely, on time and on budget.
- Repurchased and cancelled approximately 23 million common shares at a weighted average price per share of $7.10 for a total of $163 million.
- Progressed our short-term target to reduce emissions associated with our operations by 15%. Since 2021, the Corporation has reduced Scope 1 and Scope 2 emissions at our waste processing facilities by 9% through energy conservation programs.
- Recorded zero lost time injuries, and reduced our recordable injury frequency by 36% over 2022.
- Introduced our WiQ application, a transparent e-ticketing system that ensures compliance and standardization for the documentation of waste and recyclables. WiQ provides an innovative solution that will help maximize the efficiency of compliant operations, assist with product logistics and provide the necessary information to support waste and emissions reporting for our customers.
The Corporation’s operating and financial highlights for the three and twelve months ended December 31, 2023 and 2022 can be summarized as follows:
|
Three months ended |
Twelve months ended |
|||||
|
($ millions except share and per share data) |
2023 |
2022 |
% change |
2023 |
2022 |
% change |
|
Revenue (excludes oil purchase and resale) |
451 |
401 |
12 |
1,647 |
1,534 |
7 |
|
Oil purchase and resale |
1,889 |
1,624 |
16 |
6,597 |
6,468 |
2 |
|
Total revenue |
2,340 |
2,025 |
16 |
8,244 |
8,002 |
3 |
|
Adjusted EBITDA (1) |
162 |
150 |
8 |
590 |
557 |
6 |
|
Per share ($), basic (1) |
0.56 |
0.48 |
17 |
1.99 |
1.80 |
11 |
|
Per share ($), diluted (1) |
0.55 |
0.48 |
15 |
1.97 |
1.78 |
11 |
|
Net income |
59 |
32 |
84 |
195 |
184 |
6 |
|
Per share ($), basic |
0.20 |
0.10 |
100 |
0.66 |
0.59 |
12 |
|
Per share ($), diluted |
0.20 |
0.10 |
100 |
0.65 |
0.59 |
10 |
|
Funds flow from operations |
128 |
84 |
52 |
474 |
403 |
18 |
|
Per share ($), basic |
0.44 |
0.27 |
63 |
1.60 |
1.30 |
23 |
|
Per share ($), diluted |
0.44 |
0.27 |
63 |
1.58 |
1.29 |
22 |
|
Discretionary free cash flow (1) |
96 |
74 |
30 |
363 |
348 |
4 |
|
Per share ($), basic(1) |
0.33 |
0.24 |
38 |
1.23 |
1.12 |
10 |
|
Per share ($), diluted (1) |
0.33 |
0.24 |
38 |
1.21 |
1.11 |
9 |
|
Capital expenditures (3) |
33 |
34 |
(3) |
203 |
96 |
111 |
|
Dividends declared per common share |
0.1000 |
0.1000 |
— |
0.4000 |
0.1225 |
227 |
|
Total assets |
2,844 |
2,840 |
— |
2,844 |
2,840 |
— |
|
Long-term liabilities |
1,186 |
1,115 |
6 |
1,186 |
1,115 |
6 |
|
Common shares – end of year |
287,627,549 |
309,381,452 |
(7) |
287,627,549 |
309,381,452 |
(7) |
|
Weighted average common shares: |
||||||
|
Basic |
288,968,141 |
309,956,766 |
(7) |
295,909,340 |
309,637,322 |
(4) |
|
Diluted |
293,212,504 |
314,248,785 |
(7) |
299,086,393 |
313,167,037 |
(4) |
|
1 Non-GAAP financial measure/ratio. Refer to the “Non-GAAP and other specified financial measures” section herein. |
|
2 Calculated in accordance with the Corporation’s credit facility agreements. Refer to the Q4 2023 Management’s Discussion and Analysis (“MD&A”). |
|
3 The Corporation classifies capital expenditures as either growth, acquisition or sustaining capital. Refer to “Operational Definitions” in the MD&A for further information. |
OUTLOOK
Following the Sale Transaction, SECURE remains the market share leader in western Canada, and expects to continue to deliver industry leading margins, and a stable cash flow profile underpinned by recurring volumes driven by industrial waste, metals, and energy markets.
2024 Expectations
SECURE expects activity levels to remain robust in both the energy and industrial sectors for 2024. Our Canadian and North Dakota customers continue to demonstrate disciplined and modest production growth within cash flow, while maintaining balance sheet strength, cost optimization efforts and operational efficiencies. With the completion of the Trans Mountain Expansion Pipeline expected in mid-2024, and commissioning of LNG Canada’s LNG export terminal expected by early 2025, increased capacity for our customers to gain stronger pricing with access to global markets is expected to result in sustained and growing activity levels in the years to come. Furthermore, the industrial sector is expected to remain stable, characterized by sustained volumes, continued demand for our infrastructure services and activity linked to long-term and recurring projects.
Financial Guidance
Consistent with previous guidance, the Corporation expects to generate between $440-$465 million of Adjusted EBITDA in 2024. Excluding Corporate costs, SECURE anticipates approximately 70% of Adjusted EBITDA will be attributable to the Environmental Waste Management reporting segment in 2024, with the remaining approximately 30% of Adjusted EBITDA generated from the Energy Infrastructure segment.
In 2024, the Sale Transaction is anticipated to have a lesser impact on Discretionary Free Cash Flow compared to 2023, despite the expected Adjusted EBITDA change. This difference results from reduced sustaining capital and asset retirement obligations due to fewer facilities post-Sale Transaction. Additionally, lower interest expense is expected as significant Sale Transaction proceeds are allocated towards debt repayment.
The Corporation’s infrastructure network maintains significant capacity to support customers, accommodating increased volumes for processing, disposal, recycling, recovery, and terminalling, driving higher same store sales with minimal incremental fixed costs or additional capital. SECURE also continues to realize a sizable organic opportunity set to partner with our customers in areas where infrastructure and additional capacity are required to match production growth.
SECURE continues to have $50 million allocated for growth opportunities in 2024, with confirmed commercial support for expansion at the newly constructed Clearwater heavy oil terminal. The terminal began commercial operations in the fourth quarter of 2023. The expansion is backstopped by both existing and new customers and will approximately double the terminal capacity to over 60,000 barrels per day. Construction activities are expected to be completed and operational in the second quarter of 2024. Remaining high probability growth opportunities in 2024 are also expected to leverage existing infrastructure through long-term contracts. The Corporation intends to update its growth plans and provide further details following the entering of agreements with its customers.
The Corporation also continues to expect to spend approximately $60 million on sustaining capital including landfill expansions, and approximately $15 million on settling SECURE’s abandonment retirement obligations.
Capital Allocation
The Sale Transaction resulted in significant proceeds of $1.075 billion in cash, along with $75 million for certain adjustments as provided in the Divestiture Agreement for total cash proceeds of $1.150 billion, providing SECURE with significant capital allocation flexibility. The receipt of these proceeds has provided immediate liquidity for debt repayment, while maintaining significant leverage capacity and a surplus of cash available for various purposes, including shareholder returns and funding of growth initiatives.
Debt Repayment
SECURE has repaid the entire amount drawn on the $800 million Revolving Credit Facility with proceeds from the Sale Transaction. On February 22, 2024, the Corporation also redeemed the US$153 million outstanding balance of 11% Senior Second Lien Secured Notes due 2025 at a redemption price of 105.5% of the principal amount of the notes, plus accrued and unpaid interest up to, but excluding, the redemption date.
In addition, SECURE intends to redeem the outstanding $340 million aggregate principal amount of 7.25% Senior Unsecured Notes due December 30, 2026 (the “Notes”) in the coming weeks. In accordance with the provisions of the indenture governing the Notes, SECURE may redeem all or any part of the Notes, upon not less than 15 nor more than 60 days’ notice, at 103.625% of the principal amount of the Notes, plus accrued and unpaid interest up to, but excluding the redemption date. Redeeming the Notes will alleviate restrictive covenants associated with shareholder returns.
Share Repurchases
SECURE received approval from the Toronto Stock Exchange for an NCIB to repurchase approximately 8.0% of our outstanding shares as at December 8, 2023, or 10% of the Corporation’s public float, which commenced on December 14, 2023. The NCIB will terminate on December 13, 2024, or such earlier date as the maximum number of common shares are purchased pursuant to the NCIB or terminated at the Corporation’s election. The Board of Directors and management believe there is a substantive disparity between SECURE’s share price and the fundamental value of the business. The Sale Transaction valuation underscores this disconnect, and provides compelling evidence that the Corporation’s stock should be valued above this benchmark.
As such, SECURE intends to continue to actively repurchase shares under the NCIB, and will evaluate other methods that may be available to reduce this valuation gap and return capital to shareholders, which may include consideration of the merits of a substantial issuer bid, based on, among other things, market conditions, the discretion of the Board of Directors, compliance with debt covenants and financial performance at the applicable time.
Dividend
The Corporation intends to continue paying its quarterly dividend of $0.10 per share, or $0.40 per share on an annualized basis, which currently provides an attractive 3.7% dividend yield compared to peers.
Growth
The Corporation plans to execute on growth opportunities, both organically, and through acquisitions that align with the Corporation’s investment criteria and complement its core waste management and energy infrastructure business operations. Execution of growth expenditures will depend on signing agreements with customers to backstop the investments, and acquisition opportunities present.
Looking Ahead
SECURE remains committed to being the leader in waste management and energy infrastructure, prioritizing value creation for our customers through reliable, safe, and environmentally responsible infrastructure. This strategic approach allows our customers to allocate their capital where it can yield the highest return while emphasizing operational excellence and strong ESG standards.
Proceeds from the Sale Transaction, as well as continued strong free cash flow generation, provides the Corporation with significant capital allocation optionality for 2024 and beyond. SECURE is well positioned to grow the business and deliver incremental shareholder returns, all while maintaining low leverage. The Corporation has a strong team of dedicated employees in place to execute on these objectives, while continuing to provide best-in-class customer service.
NON-GAAP AND OTHER SPECIFIED FINANCIAL MEASURES
The Corporation uses accounting principles that are generally accepted in Canada (the issuer’s “GAAP”), which includes International Financial Reporting Standards (“IFRS”). This news release contains certain supplementary non-GAAP financial measures, such as Adjusted EBITDA and Discretionary Free Cash Flow and certain non-GAAP financial ratios, such as Adjusted EBITDA Margin, Adjusted EBITDA per share, and Discretionary Free Cash Flow per share which do not have any standardized meaning as prescribed by IFRS. These measures are intended as a complement to results provided in accordance with IFRS. The Corporation believes these measures provide additional useful information to analysts, shareholders and other users to understand the Corporation’s financial results, profitability, cost management, liquidity and ability to generate funds to finance its operations.
However, these measures should not be used as an alternative to IFRS measures because they are not standardized financial measures under IFRS and therefore might not be comparable to similar financial measures disclosed by other companies. See the “Non-GAAP and other specified financial measures” section of the Corporation’s MD&A for the three and twelve months ended December 31, 2023 and 2022 for further details, which is incorporated by reference herein and available on SECURE’s profile at www.sedarplus.ca and on our website at www.SECURE-energy.com.
In this press release, the Corporation has also reported shareholder returns delivered in 2023, and returns per basic share, which do not have any standardized meaning as prescribed by IFRS. Shareholder returns are calculated as the sum of dividends paid and share repurchases made. Returns per basic share is calculated as shareholder returns divided by basic weighted average common shares.
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per share
Adjusted EBITDA is calculated as noted in the table below and reflects items that the Corporation considers appropriate to adjust given the irregular nature and relevance to comparable operations. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue (excluding oil purchase and resale). Adjusted EBITDA per basic and diluted share is defined as Adjusted EBITDA divided by basic and diluted weighted average common shares.
The following table reconciles the Corporation’s net income, being the most directly comparable financial measure disclosed in the Corporation’s financial statements, to Adjusted EBITDA for the three and twelve months ended December 31, 2023 and 2022.
|
Three months ended |
Twelve months ended |
|||||
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
|
|
Net income |
59 |
32 |
84 |
195 |
184 |
6 |
|
Adjustments: |
||||||
|
Depreciation, depletion and amortization (1) |
52 |
49 |
6 |
203 |
178 |
14 |
|
Current tax expense |
(4) |
— |
(400) |
2 |
— |
200 |
|
Deferred tax expense |
23 |
23 |
— |
60 |
68 |
(12) |
|
Share-based compensation (1) |
7 |
5 |
40 |
26 |
19 |
37 |
|
Interest, accretion and finance costs |
24 |
24 |
— |
96 |
97 |
(1) |
|
Unrealized loss (gain) on mark to market transactions (2) |
(12) |
1 |
(1,300) |
(6) |
(1) |
(500) |
|
Other expense (income) |
10 |
1 |
900 |
— |
(25) |
2,500 |
|
Transaction and related costs |
3 |
15 |
(80) |
14 |
37 |
(62) |
|
Adjusted EBITDA |
162 |
150 |
8 |
590 |
557 |
6 |
|
(1) Included in cost of sales and/or G&A expenses on the Consolidated Statements of Comprehensive Income. |
||||||
|
(2) Includes amounts presented in revenue on the Consolidated Statements of Comprehensive Income. |
||||||
Discretionary Free Cash Flow and Discretionary Free Cash Flow per share
Discretionary Free Cash Flow is defined as funds flow from operations adjusted for sustaining capital expenditures, and lease payments. The Corporation may deduct or include additional items in its calculation of Discretionary Free Cash Flow that are unusual, non-recurring, or non-operating in nature. Discretionary Free Cash Flow per basic and diluted share is defined as Discretionary Free Cash Flow divided by basic and diluted weighted average common shares. For the three and twelve months ended December 31, 2023 and 2022, transaction and related costs have been adjusted as they are costs outside the normal course of business.
The following table reconciles the Corporation’s funds flow from operations, being the most directly comparable financial measure disclosed in the Corporation’s financial statements, to Discretionary Free Cash Flow.
|
Three months ended December 31, |
Twelve months ended December 31, |
|||||
|
2023 |
2022 |
% Change |
2023 |
2022 |
% Change |
|
|
Funds flow from operations |
128 |
84 |
52 |
474 |
403 |
18 |
|
Adjustments: |
||||||
|
Sustaining capital (1) |
(19) |
(21) |
(10) |
(89) |
(69) |
29 |
|
Lease liability principal payments and other |
(16) |
(4) |
300 |
(36) |
(23) |
57 |
|
Transaction and related costs |
3 |
15 |
(80) |
14 |
37 |
(62) |
|
Discretionary free cash flow |
96 |
74 |
30 |
363 |
348 |
4 |
|
1 The Corporation classifies capital expenditures as either growth, acquisition or sustaining capital. Refer to “Operational Definitions” in the MD&A for further information. |
FINANCIAL STATEMENTS AND MD&A
The Corporation’s annual audited consolidated financial statements and notes thereto for the years ended December 31, 2023 and 2022 and MD&A for the three and twelve months ended December 31, 2023, are available on SECURE’s website at www.secure-energy.com and on SEDAR+ at www.sedarplus.ca.
FOURTH QUARTER AND YEAR-END 2023 CONFERENCE CALL
SECURE will host a conference call Monday, February 26, 2024, at 9:00 a.m. MST to discuss the fourth quarter and year-end results. To participate in the conference call, dial 416-764-8650 or toll free 1-888-664-6383. To access the simultaneous webcast, please visit www.SECURE-energy.com. For those unable to listen to the live call, a taped broadcast will be available at www.SECURE-energy.com and, until midnight MST on Monday, March 4, 2024, by dialing 1-888-390-0541 and using the pass code 876018.
For further information: Rene Amirault, Chief Executive Officer; Allen Gransch, President; Chad Magus, Chief Financial Officer, Phone: (403) 984-6100, Fax: (403) 984-6101, Email: ir@secure-energy.com, Website: www.SECURE-energy.com
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