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Secure Announces 2023 Third Quarter Results

Press Release

  • Achieved Q3 Adjusted EBITDA1 of $158 million ($0.54/basic share1)
  • Repurchased 7% of outstanding shares in 2023 and reached the maximum allowable repurchases under the NCIB that commenced in December 2022
  • Executed key environmental and energy infrastructure growth projects backstopped by long-term commercial agreements

CALGARY, AB, Nov. 1, 2023 – SECURE ENERGY Services Inc. (“SECURE” or the “Corporation”) (TSX: SES) released its 2023 third quarter results today.

Rene Amirault, Chief Executive Officer of SECURE, remarked, “Third quarter results highlighted SECURE’s ability to generate significant free cash flow across our critical infrastructure network, enabling us to execute on our capital allocation priorities. Year to date, SECURE has delivered an annualized 12% return to shareholders, achieved through our $0.40 per share annualized dividend payment and the repurchase of 7% of our outstanding shares under SECURE’s NCIB. These actions underscore our commitment to enhance returns to our shareholders, complemented by our growth capital program this year.

“We were pleased to bring into service our Clearwater oil terminal and gathering infrastructure, and our Montney water disposal infrastructure expansion at the end of the third quarter, both of which are backstopped by commercial agreements. These additions provide critical infrastructure for the safe and reliable handling of production volumes for our customers. We continue to see a strong opportunity set to work with customers seeking further brownfield expansions based on reducing their costs and environmental footprint.”

THIRD QUARTER HIGHLIGHTS

  • Continued demand for our critical services and strong utilization across our infrastructure network resulted in revenue (excluding oil purchase and resale) of $427 million, up 2% from the third quarter of 2022.
  • Recorded net income of $47 million or $0.16 per basic share, down $13 million from the third quarter of 2022 primarily due to a gain on an asset sale recorded in the prior year period.
  • Achieved Adjusted EBITDA1 of $158 million or $0.54 per basic share, up 8% from Adjusted EBITDA of $0.50 per basic share in the third quarter of 2022.
  • Maintained an industry leading Adjusted EBITDA margin1 of 37%.
  • Generated funds flow from operations of $130 million, or $0.45 per basic share, up 5% per basic share from the third quarter of 2022.
  • Generated $104 million of discretionary free cash flow1, or $0.36 per basic share, up 3% per basic share from the third quarter of 2022.
  • 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. These assets will begin contributing to the Corporation’s results in the fourth quarter.
  • Paid a quarterly dividend of $0.10 per common share, representing an attractive yield of 5.2% on our common shares.
  • Repurchased and cancelled 4.6 million common shares under the Corporation’s normal course issuer bid (“NCIB”) at a weighted average price per share of $7.32 for a total of $33 million. The purchases in the third quarter resulted in SECURE reaching the maximum allowable repurchases under the NCIB, which included repurchases of 7% of outstanding common shares this year. SECURE’s Board of Directors has approved the renewal of the NCIB which is expected to occur in December 2023.
  • Maintained a Total Debt to EBITDA covenant ratio of 1.9x2.

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

Three months ended
September 30,

Nine months ended

 September 30,

($ millions except share and per share data)

2023

2022

% change

2023

2022

% change

Revenue (excludes oil purchase and resale)

427

419

2

1,196

1,133

6

Oil purchase and resale

1,788

1,730

3

4,708

4,844

(3)

Total revenue

2,215

2,149

3

5,904

5,977

(1)

Adjusted EBITDA (1)

158

154

3

428

407

5

Per share ($), basic (1)

0.54

0.50

8

1.44

1.31

10

Per share ($), diluted (1)

0.54

0.49

10

1.42

1.30

9

Net income

47

60

(22)

136

152

(11)

Per share ($), basic

0.16

0.19

(16)

0.46

0.49

(6)

Per share ($), diluted

0.16

0.19

(16)

0.45

0.49

(8)

Funds flow from operations

130

132

(2)

346

319

8

Per share ($), basic

0.45

0.43

5

1.16

1.03

13

Per share ($), diluted

0.44

0.42

5

1.15

1.02

13

Discretionary free cash flow (1)

104

108

(4)

267

274

(3)

Per share ($), basic(1)

0.36

0.35

3

0.90

0.89

1

Per share ($), diluted (1)

0.35

0.34

3

0.89

0.88

1

Capital expenditures (1)

56

30

87

170

62

174

Dividends declared per common share

0.1000

0.0075

1,233

0.3000

0.0225

1,233

Total assets

2,870

2,935

(2)

2,870

2,935

(2)

Long-term liabilities

1,156

1,215

(5)

1,156

1,215

(5)

Common shares – end of period

289,073,492

309,962,537

(7)

289,073,492

309,962,537

(7)

Weighted average common shares:

Basic

292,043,344

309,912,215

(6)

298,248,498

309,529,670

(4)

Diluted

294,929,189

313,278,309

(6)

301,065,871

312,802,491

(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 Q3 2023 Management’s Discussion and Analysis (“MD&A”).

OUTLOOK

March 3, 2023, Competition Tribunal Order

On March 3, 2023, the Competition Tribunal of Canada (the “Tribunal”) issued an order requiring SECURE to divest 29 facilities all formerly owned by Tervita Corporation (“Tervita”). On August 1, 2023, the Federal Court of Appeal dismissed SECURE’s appeal of the Tribunal’s order. “The combination of SECURE and Tervita better positioned us to serve our customers and we have proven the significant cost efficiencies through our financial results over the past two years,” said Rene Amirault. “We are disappointed that the Federal Court of Appeal dismissed our appeal and sought leave to appeal to the Supreme Court of Canada. We are pleased that the Federal Court of Appeal stayed the Tribunal’s order while the Supreme Court determines whether to hear our appeal. As a prudent course of action, SECURE has engaged an advisor and is evaluating the potential sale of the 29 facilities. Due to the uncertainty with respect to the timing of a hearing being granted or a resolution of the matter, our Board of Directors and management continue to consider all options with respect to the Tribunal’s order to best serve our customers and other stakeholders.”

Q4 2023 and 2024 Expectations

For the remainder of 2023, SECURE expects activity levels to remain strong in the energy and industrial sectors despite ongoing macroeconomic factors, shifting supply and demand dynamics driving commodity price volatility, and elevated interest rates. Our customers continue to showcase balance sheet strength, modest growth, cost optimization efforts and operational efficiency strategies for disciplined production growth. The industrial sector is also expected to remain stable, marked by sustained volumes, demand for our infrastructure services and activity linked to long-term and recurring projects. SECURE also continues to diligently manage inflationary costs through price increases and operational efficiencies.

Our 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. We also continue 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. In 2023, the planned $100 million in growth capital has been committed, with significant growth projects now operational. In 2024, we expect to spend approximately $50 million on opportunities that continue to leverage our existing infrastructure through long-term contracts, as well as approximately $85 million on sustaining capital including landfill expansions, and approximately $20 million on settling SECURE’s abandonment retirement obligations.

Overall, SECURE maintains a constructive outlook for volumes, activity levels, and infrastructure demand throughout the remainder of 2023 and 2024. Looking ahead, we expect to continue to direct our significant discretionary free cash flow to our four capital allocation priorities. For 2024, this includes capital structure improvements through the repayment of high interest debt, paying our $0.40 annualized dividend which currently yields an attractive 5.2%, growing our base infrastructure with customer-backed contracts, and opportunistically repurchasing shares.

Long-Term Outlook

The continued need for energy security has placed renewed focus on the long-term role we believe Canadian oil and gas will play in responsibly meeting the growing demand for energy. While energy diversification is crucial to address future global demand and achieve emission reduction objectives, the significance of oil and natural gas as fundamental energy resources will persist for decades to come. Canada stands out with our world-class safety, environmental and social practices making it a reliable source of sustainably produced energy.

The significant expansion of access from the Trans Mountain Expansion Project, LNG Canada, and new natural gas liquids marine export terminals is expected to lead to increased domestic production across commodities. The Corporation is encouraged by the long-term investments undertaken by energy producers, from exploration and appraisal to production development and capacity expansions, highlighting the extensive and robust nature of the energy industry in Canada. We anticipate that these market dynamics will persist, driving sustained and growing activity levels in the years to come.

SECURE is well positioned to benefit from this activity for the long-term due to the critical services provided energy and industrial customers through our infrastructure network located in key areas across western Canada and North Dakota. Furthermore, SECURE’s industrial landfills will benefit from recurring volumes resulting from government regulations mandating abandonment, remediation and reclamation activities. Diverse waste streams and ongoing demand from our industrial customer base further enhance the stability and resilience of our operations.

We remain committed to our vision of being the leader in environmental and energy infrastructure, prioritizing value creation for our customers through reliable, safe, and environmentally responsible infrastructure. This approach allows our customers to allocate their capital where it can yield the highest return while emphasizing operational excellence and leading ESG standards.

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 nine months ended September 30, 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.

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 nine months ended September 30, 2023 and 2022.

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