SECURE Announces 2024 Second Quarter Results

Press Release

• Adjusted EBITDA¹ of $114 million ($0.43 per basic share) and $246 million ($0.90 per basic share) for the three and six months ended June 30, 2024, respectively
• Full year Adjusted EBITDA guidance increased to $470 – $490 million
• Adjusted EBITDA margin¹ of 34%, maintaining consistency year over year
• Net cash provided by operating activities of $91 million and discretionary free cash flow¹ of $53 million
• 17% of shares outstanding repurchased year to date

CALGARY, AB, July 30, 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 six months ended June 30, 2024.

“Strong second quarter results were driven by robust industry fundamentals, favourable weather conditions, and continued operational execution across our business units, resulting in double digit revenue growth on a same store sales basis,” said Allen Gransch, President and CEO. “We achieved significant milestones in our capital allocation strategy, repurchasing approximately 14% of our outstanding shares in the second quarter and reinforcing our commitment to enhancing shareholder value and effectively managing proceeds from dispositions. Year to date, we have invested $60 million into the business, advancing organic projects backed by solid commercial agreements and ensuring consistent cash flows for the Corporation. Additionally, we were pleased to close a strategic tuck-in acquisition in our metal recycling business, expanding our network into a new operating region, diversifying our supply base, and bolstering our processing capabilities and logistics strategies.

“Reflecting on our strong results in the first half of 2024, the success of our organic growth investments, and the additional Adjusted EBITDA from our metal recycling acquisition, we are pleased to raise our full year 2024 Adjusted EBITDA guidance to $470 – $490 million, up from the previously disclosed $450 – $465 million.”

SECOND QUARTER HIGHLIGHTS

• Repurchased and cancelled 37,937,838 shares, reducing our shares outstanding by 13.6% in the second quarter. The Corporation incurred a cost of $433 million to complete the repurchases, representing a weighted average price per share of $11.41.
• Generated revenue (excluding oil purchase and resale) of $337 million, a decrease of 5% from the second quarter of 2023, primarily due to the impact of 29 facilities divested on February 1, 2024 (the “Sale Transaction”), and the divestiture of a non-core oilfield service business unit in December 2023. On a same-store sales basis, revenue increased over the second quarter of 2023, driven by strong customer demand, improved weather conditions, and higher pricing. Additionally, the Corporation benefited from contributions from capital investments made in the second half of 2023 and year-to-date, including the Clearwater heavy oil terminal, which began operations in Q4 2023.
• Recorded net income of $32 million or $0.12 per basic share, a decrease in net income of $2 million compared to the second quarter of 2023, while net income per share increased by $0.01 per basic share (9% increase) over the same period due to the share buybacks over the past year reducing the weighted average shares outstanding in the quarter by 11%.
• Achieved Adjusted EBITDA of $114 million ($0.43 per basic share), a decrease of 4% compared to the second quarter of 2023 (8% increase on a per share basis) as a result of the same factors described above.
• Realized an Adjusted EBITDA margin of 34%, consistent with second quarter of 2023, as the impact of the Sale Transaction was offset by higher activity levels improving utilization and fixed cost absorption across the remaining infrastructure network.
• Generated funds flow from operations of $91 million ($0.35 per basic share), an increase of 14% compared to the second quarter of 2023 (30% increase on a per share basis). This increase resulted from the timing of fixed debt payments, lower interest payments due to reduced debt, and interest income generated on cash held during the quarter, which offset the impact of lower Adjusted EBITDA and higher current taxes.
• Generated discretionary free cash flow of $53 million ($0.20 per basic share), an increase of 26% compared to the second quarter of 2023 (43% increase on a per share basis) as a result of the factors above, along with reduced spending on sustaining capital due to reduced facility count following the Sale Transaction.
• Paid a quarterly dividend of $0.10 per common share, which currently represents a yield of 3.4% on our common shares.
• Extended the maturity of our $800 million senior secured revolving credit facility until May 31, 2027, strengthening our capital structure, and ensuring financial stability and operational flexibility. As at June 30, 2024, the Corporation had drawn $121 million, excluding letters of credit.

The Corporation’s operating and financial highlights for the three and six months ended June 30, 2024 and 2023 can be summarized as follows:

	Three months ended June 30,			Six months ended June 30,
($ millions except share and per share data)	2024	2023	% change	2024	2023	% change
Revenue (excludes oil purchase and resale)	337	353	(5)	697	769	(9)
Oil purchase and resale	2,215	1,429	55	4,704	2,920	61
Total revenue	2,552	1,782	43	5,401	3,689	46
Adjusted EBITDA (1)	114	119	(4)	246	270	(9)
Per share ($), basic (1)	0.43	0.40	8	0.90	0.90	—
Per share ($), diluted (1)	0.43	0.40	8	0.89	0.89	—
Net income	32	34	(6)	454	89	410
Per share ($), basic	0.12	0.11	9	1.67	0.30	457
Per share ($), diluted	0.12	0.11	9	1.64	0.29	466
Funds flow from operations	91	80	14	199	216	(8)
Per share ($), basic	0.35	0.27	30	0.73	0.72	1
Per share ($), diluted	0.34	0.27	26	0.72	0.71	1
Discretionary free cash flow (1)	53	42	26	146	163	(10)
Per share ($), basic (1)	0.20	0.14	43	0.54	0.54	—
Per share ($), diluted (1)	0.20	0.14	43	0.53	0.54	(2)
Capital expenditures (2)	43	68	(37)	62	114	(46)
Dividends declared per common share	0.10	0.10	—	0.20	0.20	—
Total assets	2,312	2,796	(17)	2,312	2,796	(17)
Long-term liabilities	658	1,179	(44)	658	1,179	(44)
Common shares – end of period	241,167,308	293,629,841	(18)	241,167,308	293,629,841	(18)
Weighted average common shares:
Basic	262,468,788	296,343,936	(11)	272,013,348	301,402,499	(10)
Diluted	265,906,070	298,407,348	(11)	276,196,506	304,185,069	(9)

1	Non-GAAP financial measure/ratio. Refer to the “Non-GAAP and other specified financial measures” section herein.
2	The Corporation classifies capital expenditures as either growth, acquisition or sustaining capital. Refer to “Operational Definitions” in the MD&A for further information.

OUTLOOK

SECURE is well positioned for success with a constructive industry backdrop, growth opportunities, and the financial capacity to execute on our strategic initiatives and deliver enhanced shareholder returns. Sustained and expanded industry activity levels in the coming years are expected to drive higher volumes and overall demand for SECURE’s infrastructure as new infrastructure developments in western Canada provide our customers with increased takeaway capacity and improved access to global markets.

With our waste processing facilities currently operating at approximately 60 percent utilization, we have ample capacity to accommodate growing customer needs for processing, disposal, recycling, recovery, and terminalling, all with minimal incremental fixed costs or additional capital investment. With the completion of the Trans Mountain Expansion Pipeline in May, and commissioning of LNG Canada’s 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.

The accretive multiple achieved from the mandated facilities divestiture to Waste Connections in the first quarter highlights the underlying value of SECURE’s business. The Board of Directors and management believe a substantive disparity remains between SECURE’s share price and its fundamental value, which supported the share buybacks executed in the second quarter. In the coming months, the Board of Directors and management will continue to evaluate our capital allocation priorities. We intend to remain active under our Normal Course Issuer Bid (“NCIB”) and may repurchase up to the remaining 6.3 million shares before the NCIB renewal on December 13, 2024. These repurchases may occur through open market transactions at SECURE’s discretion, in accordance with TSX rules and applicable regulatory restrictions.

Low leverage following the receipt of proceeds from the Sale Transaction, as well as continued strong free cash flow generation, provides the Corporation with significant capacity to execute on SECURE’s strategic priorities. With a solid foundation and clear direction, we’re confident in our ability to protect the base business, continue to advance our strategy as a leader in waste management and energy infrastructure and seize new opportunities to create value for our shareholders.

2024 EXPECTATIONS

• The previous guidance to our 2024 Adjusted EBITDA ranged from $450 million to $465 million. Given the strong first half results and the tuck in metal acquisition, the Corporation has increased our full year Adjusted EBITDA guidance to $470 – $490 million. Excluding Corporate costs, SECURE anticipates approximately 70% of Adjusted EBITDA will be attributable to the Waste Management segment in 2024, with the remaining approximately 30% of Adjusted EBITDA generated from the Energy Infrastructure segment.
• Continued robust Adjusted EBITDA margins as we focus on optimizing the business, targeting additional operating efficiencies, and continually improving operating cash flow.
• High discretionary free cash flow conversion with low sustaining capital and debt service requirements.
• Growth capital expenditures of $75 million for 2024, consistent with previous guidance, related primarily to expansions at the Clearwater heavy oil terminal, and pipeline tie-ins to existing waste processing facilities. With a solid pipeline of organic growth opportunities, the Corporation continues to pursue growth strategies to expand its infrastructure network with new project announcements following the finalization of customer agreements. Additionally, the Corporation will consider further acquisitions that meet its investment criteria and enhance its core operations in waste management and energy infrastructure.
• Sustaining capital expenditures of approximately $60 million, including landfill expansions.
• Asset retirement obligation expenditures of approximately $15 million.
• Continued share repurchases through the NCIB based on, among other things, market conditions and the discretion of the Board of Directors.
• Annualized base dividend of $0.40 per share, which equates to a total of approximately $96 million per year based on current issued and outstanding shares.

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 six months ended June 30, 2024 and 2023 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. For the three and six months ended June 30, 2024 and 2023, transaction and related costs have been adjusted as they are costs outside the normal course of business.

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 six months ended June 30, 2024 and 2023.

	Three months ended June 30,			Six months ended June 30,
	2024	2023	% Change	2024	2023	% Change
Net income	32	34	(6)	454	89	410
Adjustments:
Depreciation, depletion and amortization (1)	41	47	(13)	86	101	(15)
Share-based compensation	6	5	20	20	14	43
Interest, accretion and finance costs	13	24	(46)	31	47	(34)
Gain on asset divestitures	—	—	—	(520)	—	100
Other expense (income)	1	(8)	(113)	15	(16)	(194)
Unrealized loss on mark to market transactions (2)	8	3	167	9	—	100
Current tax expense	15	1	1,400	42	4	950
Deferred tax expense (recovery)	(4)	9	(144)	107	24	346
Transaction and related costs	2	4	(50)	2	7	(71)
Adjusted EBITDA	114	119	(4)	246	270	(9)
(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 six months ended June 30, 2024 and 2023, 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 June 30,						Six months ended June 30,
	2024		2023		% Change	2024			2023		% Change
Funds flow from operations	91		80		14	199			216		(8)
Adjustments:
Sustaining capital (1)	(32)		(37)		(14)	(40)			(47)		(15)
Lease liability principal payments and other	(8)		(5)		60	(15)			(13)		15
Transaction and related costs	2		4		(50)	2			7		(71)
Discretionary free cash flow	53		42		26	146			163		(10)
(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 consolidated financial statements and notes thereto and Management’s Discussion and Analysis for the three and six months ended June 30, 2024 and 2023 are available on SECURE’s website at www.secure-energy.com and on SEDAR+ at www.sedarplus.ca.

SECOND QUARTER 2024 CONFERENCE CALL

SECURE will host a conference call Tuesday, July 30, 2024, at 9:00 a.m. MST to discuss the second quarter 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 Tuesday, August 6, 2024, by dialing 1-888-390-0541 and using the pass code 371262#.

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