SECURE Announces First Quarter Results

Press Release

• Adjusted EBITDA¹ of $132 million ($0.47/basic share)
• Discretionary Free Cash Flow¹ of $93 million ($0.33/basic share)
• Strengthened our capital structure with debt repayment and refinancing. At March 31, 2024, the Corporation had $264 million of cash and $751 million in available borrowing capacity, subject to covenant restrictions, providing ample liquidity for shareholder returns and funding of growth initiatives
• 2024 planned growth expenditures increased to approximately $75 million (from $50 million previously announced) with customer support for infrastructure expansion projects
• Intention to launch a Substantial Issuer Bid next week as part of our capital allocation strategy

CALGARY, AB, April 25, 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 months ended March 31, 2024.

“We’re pleased to report a solid start to 2024, with first-quarter results meeting our expectations, allowing us to narrow our Adjusted EBITDA guidance to $450–$465 million for the year,” said Allen Gransch, President and incoming CEO. “Strong execution across all business units continues to underscore the stability of our cash flow generation capabilities. In addition, we’ve optimized our capital structure through debt repayment and refinancing, positioning us with substantial liquidity for strategic initiatives. Our critical infrastructure network, expertise, and financial position set us up to drive operational excellence, growth, and long-term sustainability as a leading waste management and energy infrastructure company.

“Over the last quarter, the Corporation successfully refinanced its long-term debt and continued to deliver shareholder returns through dividends and share buybacks, while maintaining significant financial flexibility. Given our positive operational results in the first quarter, the Board of Directors and management continue to believe that a significant gap exists between SECURE’s current market valuation and that of peers in the waste management and energy infrastructure sector. In light of these factors, alongside ongoing initiatives, we intend to initiate a Substantial Issuer Bid next week as a key element of SECURE’s capital allocation strategy.”

FIRST QUARTER HIGHLIGHTS

• Closed the sale of 29 facilities to Waste Connections, Inc. (through its wholly owned subsidiary) for $1.15 billion on February 1, 2024 (the “Sale Transaction”). The 29 facilities were formerly owned by Tervita Corporation and were ordered to be divested by the Competition Tribunal.
• Repaid the entire amount drawn on the $800 million senior secured revolving credit facility, excluding letters of credit.
• Redeemed the outstanding US$153 million aggregate principal amount of 11% senior secured notes due 2025.
• Closed the offering of $300 million aggregate principal amount of 6.75% senior unsecured notes due 2029. Net proceeds from the offering, along with cash on hand, were used to redeem the outstanding $340 million aggregate principal amount of 7.25% senior unsecured notes due 2026.
• Repurchased and cancelled 12,055,510 shares under the normal course issuer bid at a weighted average price per share of $10.47 for a total of $126 million, reducing our shares outstanding by 4% in the first quarter. The Corporation repurchased an additional 2,812,700 share subsequent to quarter end.
• Paid a quarterly dividend of $0.10 per common share, which currently represents an attractive yield of 3.5% on our common shares compared to peers.
• Generated revenue (excluding oil purchase and resale) of $360 million, a decrease of 13% from the first quarter of 2023, primarily related to the impact of the Sale Transaction, and the divestiture of two non-core oilfield service business units in 2023, partially offset by higher volumes and improved margins across the Corporation’s remaining infrastructure network.
• Recorded net income of $422 million or $1.50 per basic share, an increase of $367 million or $1.32 per basic share compared to the first quarter of 2023. The increase was primarily driven by the gain of $520 million recognized on the Sale Transaction, net of the current and deferred tax expenses resulting from the gain.
• Achieved Adjusted EBITDA of $132 million ($0.47 per basic share), a decrease of 13% to the first quarter of 2023 (4% on a per basic share basis) due to the same factors impacting revenue. However, the decrease in Adjusted EBITDA per basic share was partially offset by a reduction in the number of common shares outstanding resulting from ongoing share repurchases over the past year, which resulted in a decrease of 8% to the weighted average basic shares outstanding in the first quarter of 2024 from the 2023 comparative period.
• Generated funds flow from operations of $108 million ($0.38 per basic share), a decrease of 21% to the first quarter of 2023 (14% on a per basic share basis) as a result of lower operating profit resulting from the Sale Transaction.
• Generated Discretionary Free Cash Flow of $93 million ($0.33 per basic share), a decrease of 24% to the first quarter of 2023 (18% on a per basic share basis) as lower Adjusted EBITDA was partially offset by reduced spending on sustaining capital due to reduced facility count following the Sale Transaction.

The Corporation’s operating and financial highlights for the three months ended March 31, 2024 and 2023 can be summarized as follows:

OUTLOOK

SECURE is extremely well positioned for success with a strong industry backdrop, growth opportunities, and the financial capacity to execute on our strategic initiatives and deliver enhanced shareholder returns. With the Trans Mountain pipeline expansion scheduled to begin operations in the second quarter, our customers can gain take away capacity and stronger pricing with access to global markets paving the way for sustained and expanded activity levels in the years ahead. We expect industry fundamentals will drive increased volumes and overall demand for SECURE’s infrastructure. 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.

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, facilitating our ability to execute on all SECURE’s strategic priorities. With a solid foundation and clear direction, we’re confident in our ability to protect the base business and seize new opportunities to create value for our shareholders. We also remain committed to enhanced shareholder returns through share repurchases and our $0.40 per share annualized dividend, all while maintaining low leverage.

2024 EXPECTATIONS

• Adjusted EBITDA of $450–$465 million, the high end of the range previously provided of $440–$465 million. Excluding Corporate costs, SECURE anticipates approximately 70% of Adjusted EBITDA will be attributable to the Waste Management reporting 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 will increase by $25 million to approximately $75 million for 2024. The increase relates to customer agreements for a produced water pipeline to a waste processing facility, as well as processing equipment for phase three at the Clearwater heavy oil terminal. 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 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, including by means of a Substantial Issuer Bid in the second quarter of 2024, 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 $110 million per year based on current issued and outstanding shares.
• Allen Gransch, President, to succeed Rene Amirault as Chief Executive Officer effective May 1, 2024. Rene will remain on the Board of Directors as Vice Chair.
• Election of Allen Gransch to the Board of Directors at the Corporation’s Annual General Meeting of Shareholders on April 26, 2024. The Board of Directors will remain at eight directors, with Brad Munro not seeking re-election.
• Release of our 2023 Sustainability Report and second Task Force on Climate-Related Financial Disclosures (TCFD) report in May 2024, demonstrating our ongoing commitment to transparent reporting.

“I’d like to congratulate Brad Munro and Rene Amirault on their respective retirements,” said Mick Dilger, Chairman of the Board of Directors. “Brad was elected as a director of the Corporation in 2009, and has provided exceptional leadership, guidance and thoughtful advice for over 15 years. With over 30 years as a director in the waste management industry, Brad brought valuable experience and mentorship to many of his fellow directors. Brad served as lead director from April 2020 to July 2021 and Interim Chairman of the Board of Directors from June 2022 to January 2023, where he was instrumental in guiding the organization during the merger negotiations and successful integration. On behalf of the entire Board, we thank Brad for his valuable contributions.”

“As previously announced, Rene will retire as CEO on May 1, 2024. While he steps down from his executive role, we are pleased that Rene will remain on the Board of Directors as Vice-Chair. As one of the founders of the Corporation, we welcome Rene’s leadership which will continue to help guide the organization and SECURE’s strategic direction. After 17 years of great successes, we wish Rene all the best in his well-deserved retirement from management.”

Rene Amirault commented, “The Corporation has a strong team of dedicated employees in place to execute on its strategic objectives, while continuing to provide best-in-class customer service. The leadership transition with Allen Gransch assuming the role of President and CEO marks the beginning of an exciting new chapter for the Corporation. Allen’s proven leadership capabilities, extensive experience and diverse skill set will allow for a seamless succession, and guide SECURE as it moves forward.”

“I’m very privileged to be taking over as CEO at this time,” said Allen Gransch. “Thanks to Rene’s visionary leadership, SECURE has established itself as a trusted industry partner, showcasing remarkable accomplishments in growth and operational excellence. The Corporation is extremely well positioned to advance our strategy as a leader in waste management and energy infrastructure, prioritizing value creation for our customers through reliable, safe, and environmentally responsible infrastructure. I’m excited for this opportunity for continued growth and innovation.”

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 months ended March 31, 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 months ended March 31, 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 months ended March 31, 2024 and 2023.

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 months ended March 31, 2024 and 2023, transaction and related costs have been adjusted for in determining Discretionary Free Cash Flow 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.

FINANCIAL STATEMENTS AND MD&A

The Corporation’s consolidated financial statements and notes thereto and Management’s Discussion and Analysis for the three months ended March 31, 2024 and 2023 are available on SECURE’s website at www.secure-energy.com and on SEDAR+ at www.sedarplus.ca.

FIRST QUARTER 2024 CONFERENCE CALL

SECURE will host a conference call Thursday, April 25, 2024, at 1:00 p.m. MST to discuss the first 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 Thursday, May 2, 2024, by dialing 1-888-390-0541 and using the pass code 204398#.

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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