SECURE announces 2023 Second Quarter 2023 Earnings

Press Release

• Adjusted EBITDA¹ of $119 million ($0.40 per basic share¹) and $270 million ($0.90 per basic share) for the three and six months ended June 30, 2023, respectively
• 5.5% of shares outstanding repurchased year to date

CALGARY, AB, July 27, 2023– SECURE ENERGY Services Inc. (“SECURE” or the “Corporation”) (TSX: SES), a leading environmental waste management and energy infrastructure business operating throughout western Canada and North Dakota, reported today the Corporation’s financial and operating results for the three and six months ended June 30, 2023.

“Results in the second quarter reflected the recurring nature of volumes handled across our infrastructure network, demonstrating the resiliency of our operations,” said Rene Amirault, Chief Executive Officer of SECURE. “We achieved strong Adjusted EBITDA of $119 million, equal to $0.40 per basic share, despite the impact of temporary facility shut-ins and lower customer production due to widespread wildfires across western Canada. SECURE would like to extend our gratitude to emergency responders, staff and industry partners for their hard work in protecting our communities in the midst of the wildfire situation.

“We are also pleased with the significant progress made in delivering on our capital allocation priorities during the quarter. We have returned $175 million in the first half of the year to shareholders through our quarterly $0.10 per share dividend and strategic share repurchases. In addition, we invested $67 million in capital expenditures year to date to advance previously announced infrastructure projects that are backed by strong commercial agreements, providing consistent cash flows to the Corporation throughout all business cycles. All this was achieved while continuing to maintain a solid Total Debt to EBITDA2 covenant ratio of less than 2.0x.

“On June 19, 2023, our appeal of the Competition Tribunal’s March 3, 2023, decision ordering the divestiture of certain facilities acquired in connection with the 2021 merger with Tervita Corporation was heard by the Federal Court of Appeal, where we were able to present our arguments of both errors of law and errors of fact in the decision. Our team holds a strong sense of optimism regarding the success of the appeal arguments. We anticipate the issuance of the Federal Court of Appeal decision to be later this year.”

SECOND QUARTER FINANCIAL HIGHLIGHTS

• Generated revenue (excluding oil purchase and resale) of $353 million, consistent with the second quarter of 2022.
• Recorded net income of $34 million or $0.11 per basic share, a 35% decrease from the second quarter of 2022. The decrease was primarily due to an adjustment in the prior year period resulting in lower than typical quarterly depreciation expense.
• Achieved Adjusted EBITDA of $119 million or $0.40 per basic share, down slightly from Adjusted EBITDA of $0.41 per basic share in the second quarter of 2022. Figure 1 outlines the quarterly results by reporting segment since the closing of the Tervita merger, underscoring the stability of SECURE’s core infrastructure business.
• Recorded an Adjusted EBITDA margin¹ of 34%, down from 36% in the second quarter of 2022, due to service mix and higher weather-related operating costs, partially offset by the full run rate of realized synergies in the quarter.
• Generated funds flow from operations of $80 million, consistent with the second quarter of 2022.
• Generated $42 million of discretionary free cash flow¹, a 36% decrease from the second quarter of 2022 due to higher sustaining capital investments³ for capacity expansion at our landfills and replacement of key equipment in our metal recycling to achieve efficiency gains.
• Maintained a Total Debt to EBITDA covenant ratio of 1.9x.

SECOND QUARTER STRATEGIC HIGHLIGHTS

• Incurred $31 million of growth capital³ related primarily to the expansion of water disposal infrastructure in connection with the previously announced Montney water disposal and Clearwater oil pipeline and terminalling infrastructure projects.
• Paid a quarterly dividend of $0.10 per common share, resulting in a dividend payout ratio¹ on a trailing twelve-month basis of 34%. At our current share price, the annual dividend provides an attractive yield of 6.0% on our common shares.
• Repurchased and cancelled 7,270,800 common shares at a weighted average price per share of $6.40 for a total of $47 million. In total, the Corporation has repurchased 5.5% of outstanding common shares this year.
• Released our 2022 Sustainability Report and inaugural Task Force on Climate-Related Financial Disclosures (“TCFD”) reports, demonstrating our ongoing commitment to transparent reporting.
• Received an upgraded issuer rating from B+ (stable) to BB- (stable) from Fitch Ratings to reflect SECURE’s better than expected financial performance following the July 2, 2021, merger with Tervita Corporation driving strong free cash flow and debt reduction capacity.

The Corporation’s operating and financial highlights for the three and six months ended June 30, 2023 and 2022 can be summarized as follows:

OUTLOOK

Throughout the remainder of 2023, SECURE continues to expect the current macro environment in both the industrial and energy sectors to remain strong.  Energy industry activity is robust as producer discipline, balance sheet strength, cost optimization efforts and operational efficiency strategies facilitate ongoing development. Our infrastructure network continues to have significant capacity to help customers with increased volumes requiring processing, disposal, recycling, recovery and terminalling with minimal incremental fixed costs or additional capital. Overall, SECURE has a constructive outlook for volumes, activity levels and demand for SECURE’s infrastructure for the remainder of 2023.

The rapid growth in the Montney and Clearwater regions has provided opportunities to partner with our customers where infrastructure and additional capacity are required to keep up with production growth. The $100 million of growth capital anticipated for 2023 provides SECURE with long-term contracted volumes in these areas, and provides our customers with cost-effective, reliable solutions for growth volumes, allowing them to free up resources to focus on other corporate initiatives.

SECURE’s appeal of the decision of the Competition Tribunal of Canada (the “Tribunal”) dated March 3, 2023 was heard by the Federal Court of Appeal on June 19, 2023. While a decision from the Federal Court of Appeal is not anticipated until later in 2023, the partial stay received with respect to the divestiture order allows the Corporation to operate status quo, providing strong cash flows during this period of uncertainty.

The Corporation remains optimistic that the appeal will be successful. However, if the Tribunal’s decision stands after all appeals are exhausted and SECURE is required to sell the assets it has been ordered to sell by the Tribunal, we expect these asset sales to yield strong proceeds. The initial priority will be to use the proceeds of disposition to pay down debt, strengthening the Corporation’s financial position and reducing interest expenses. Subsequently, SECURE expects to reinvest the proceeds to grow the business and direct towards additional shareholder returns, creating shareholder value.

2023 Expectations

• Growth capital expenditures of approximately $100 million, primarily related to the Clearwater oil pipeline and terminal and Montney water pipeline and disposal infrastructure. Both projects are on budget and expected to be in service in the fourth quarter of 2023.
• Sustaining capital expenditures of approximately $85 million, inclusive of landfill expansions, to meet current activity levels and in anticipation of increased abandonment spend obligations driven from government regulations.
• Asset retirement obligation expenditures of approximately $20 million.
• Annualized base dividend of $0.40 per share, which equates to a total of approximately $120 million for the year based on current issued and outstanding shares.
• Continued opportunistic share repurchases under the Corporation’s Normal Course Issuer Bid, balanced with other capital allocation opportunities.
• Maintain a Total Debt to EBITDA covenant ratio of approximately 2.0x.
• Continued strong margins as we focus on optimizing the business, targeting additional operating efficiencies and continually improving operating cash flow. The wildfires did have a temporary impact on our margins in May 2023 due to short-term and intermittent facility closures. Although we currently have no facility closures, there continues to be significant fire risk across Western Canada and SECURE will continue to work closely with the Provincial authorities and support the communities where we operate.

SECURE remains committed to operational excellence and positioning itself for growth in the environmental waste management infrastructure and energy infrastructure markets. SECURE thanks our customers and our employees for their exceptional effort every day making Canada a global Environment, Social and Governance (“ESG”) leader.

Read More:

IBF4