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Secure Energy Reports Second Quarter Results Including $67 Million in Realized Synergies

Press Release

  • Realized $67 million of run-rate synergies impacting Adjusted EBITDA1, reaching 89% of our $75 million target, on track to deliver the remainder by end of 2022
  • Earned $127 million and $0.41 per basic share of Adjusted EBITDA1 in Q2, reflecting strong operational performance and realized synergies, up 310% from Q2 2021 and 116% on a per basic share basis
  • Improved our Total Debt to EBITDA2 covenant ratio to 2.5x
  • Settled US$77 million, or 26% of our 11% senior secured notes as we continue to optimize our capital structure
  • Released our 2021 Sustainability Report, demonstrating our commitment to sustainability with tangible short-term goals
  • Generated revenue (excluding oil purchase and resale) of $355 million up 203% from Q2 2021
  • G&A as a percentage of revenue (excluding oil purchase and resale) improved to 8% from 11% in Q2 2021
  • Adjusted EBITDA margin1 of 36%, up from 26% in Q2 2021
  • Achieved net income of $54 million and $0.17 per share, an increase of $67 million from Q2 2021
  • Generated $66 million of discretionary free cash flow1, up 267% from Q2 2021, and 91% on a per basic share basis1
  • Increased funds flow from operations to $80 million, 371% higher than Q2 2021

CALGARY, AB, July 27, 2022 – SECURE ENERGY Services Inc. (“SECURE” or the “Corporation”) (TSX: SES) reported the Corporation’s operational and financial results for the three and six months ended June 30, 2022.

“We are extremely pleased with our strong financial performance in the second quarter of 2022, demonstrating the strength of our expanded business, our ongoing focus on managing costs, and an overall improvement in our underlying markets,” said Rene Amirault, President and Chief Executive Officer of SECURE. “Results were positively impacted by realized cost synergies from the Tervita transaction, which have progressed ahead of our expectations. Our operations also benefited from robust industry activity levels led by higher oil and gas prices, driving significant demand for our customer solutions.

“There is strong momentum throughout our operations. With our increased discretionary free cash flow generation capabilities and a strengthened balance sheet, we remain well positioned to meet our debt reduction targets, deliver on ESG initiatives, and at the same time capitalize on growth at existing facilities and favourable industry fundamentals.

“We are excited by the future of SECURE. Using our technologies, network and best in class team to form new partnerships, we remain focused on helping our customers develop the highest ESG standards and lowest cost structure in the world, ensuring we create sustainable energy and environmental solutions for many decades.”

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 “Liquidity and Capital Resources” section in the Q2 2022 Management’s Discussion and Analysis (“MD&A”) which information is incorporated by reference into this new release.

FINANCIAL AND OPERATING HIGHLIGHTS

The Corporation’s operating and financial highlights for the three and six months ended June 30, 2022, and 2021 can be summarized as follows:

Three months ended June 30,

Six months ended June 30,

($ millions except share and per share data)

2022

2021

% change

2022

2021

% change

Revenue (excludes oil purchase and resale)

355

117

203

714

249

187

Oil purchase and resale

1,723

395

336

3,114

924

237

Total revenue

2,078

512

306

3,828

1,173

226

Adjusted EBITDA (1)

127

31

310

253

71

256

Per share ($), basic (1)

0.41

0.19

116

0.82

0.44

86

Per share ($), diluted (1)

0.41

0.19

116

0.81

0.44

84

Net income attributable to shareholders of SECURE (2)

54

(13)

515

92

(13)

808

Per share ($), basic and diluted

0.17

(0.08)

313

0.30

(0.08)

475

Funds flow from operations

80

17

371

187

47

298

Per share ($), basic and diluted (3)

0.26

0.11

136

0.60

0.29

107

Discretionary free cash flow (1)

66

18

267

166

47

253

Per share ($), basic and diluted (1)

0.21

0.11

91

0.54

0.29

86

Capital expenditures (1)

19

7

171

32

13

146

Dividends per common share

0.0075

0.0075

0.0150

0.0150

Total assets (2)

2,931

1,510

94

2,931

1,510

94

Long-term liabilities (2)

1,281

480

167

1,281

480

167

Common shares – end of period

309,868,588

160,499,821

93

309,868,588

160,499,821

93

Weighted average common shares:

Basic

309,831,621

160,358,466

93

309,335,228

159,951,853

93

Diluted

313,071,825

160,358,466

95

312,560,669

159,951,853

95

(1) Refer to “Non-GAAP and other specified financial measures” section herein.

(2) Prior year amounts have been restated, refer to the “Accounting Policies” section in the Q2 2022 MD&A for additional information.

(3) Supplementary financial measure. Refer to the “Non-GAAP and other specified financial measures” section herein.

FINANCIAL AND OPERATIONAL RESULTS

The following should be read in conjunction with the Corporation’s MD&A for the three and six months ended June 30, 2022, and the consolidated financial statements and notes thereto for the three and six months ended June 30, 2022 (“Interim Financial Statements”), which are both available on SEDAR at www.sedar.com.

SECOND QUARTER HIGHLIGHTS
  • Integration cost savings of $67 million realized – achieved an incremental $14 million of annualized cost savings impacting Adjusted EBITDA in the second quarter of 2022, increasing realized cost savings from $53 million to $67 million on an annual run-rate basis. As a result, the Corporation has now achieved 89% of the $75 million cost savings target in the first twelve months following completion of the Tervita transaction (the “Transaction”). The $14 million achieved in the quarter is mainly a result of a reduction of headcount and corporate overhead costs, and operational optimizations. In the three months ended June 30, 2022, $9 million of costs related to the Transaction and integration of the legacy businesses were incurred of which $6 million was associated with the competition review process.
  • Revenue (excluding oil purchase and resale) of $355 million – represents an increase of 203% compared to the second quarter of 2021 with Midstream Infrastructure revenue (excluding oil purchase and resale) increasing by $115 million to $164 million and Environmental and Fluid Management revenue increasing by $123 million to $191 million for the quarter. These increases were primarily due to additional revenue associated with the Transaction and an increase in energy-related industry activity levels as benchmark oil and natural gas prices were strong in the quarter. Both reportable segments benefited from improved industry activity levels, driving incremental volumes at Midstream Infrastructure facilities and industrial landfills, and demand for drilling and completion related services, underpinned by an increase in average active rig count of approximately 47%. Higher crude oil pricing in the second quarter of 2022 also positively impacted recovered oil revenue and contributed to the increase in oil purchase and resale revenue, which increased by 336% to $1.7 billion compared to the comparative 2021 period.
  • Net income attributable to shareholders of $54 million and $0.17 per share – an increase of $67 million or $0.26 per basic share compared to the second quarter of 2021, as general industry conditions continued to strengthen. The increase was primarily driven by the impact of the Transaction and lower depreciation, depletion and amortization (“DD&A”), partially offset by higher general and administrative (“G&A”) expenses, higher finance costs associated with debt assumed upon closing the Transaction and a higher non-cash deferred tax expense.
  • Adjusted EBITDA of $127 million and $0.41 per basic share – an increase of 310% and 116% compared to the second quarter of 2021, respectively, primarily due to contributions from the Transaction and related synergies, demonstrating the strength and scale of the combined business. In addition, higher oil and natural gas prices resulted in improved energy market conditions and increased activity levels in a number of the Corporation’s operating areas, which led to higher processing and disposal volumes at our Midstream Infrastructure facilities and landfills and increased demand for services related to drilling and completion activity within the Environmental and Fluid Management segment.
  • Adjusted EBITDA margin of 36% – increased from 26% in the second quarter of 2021, due to the positive impact from the cost savings mentioned above and higher revenue contributing to improved fixed cost absorption, particularly in the service lines impacted by the increased drilling and completion activity.
  • Funds flow from operations of $80 million – an increase of $63 million from the prior year comparative period, or 136% per basic share, driven by the increase in Adjusted EBITDA, partially offset by higher interest payments of $37 million in the quarter, including semi-annual interest coupon payments on the Corporation’s fixed debt.
  • Discretionary free cash flow of $66 million – which was used primarily, in addition to our revolving credit facility, to purchase and settle US$77 million aggregate principal amount of our 2025 senior secured 11% notes, as well as fund the Corporation’s quarterly dividend, transaction related costs and growth capital expenditures. At June 30, 2022, SECURE carried Working Capital3 of $199 million, an increase of $12 million in the quarter.
  • G&A expense before DD&A and share-based compensation as a percentage of revenue (excluding oil purchase and resale) of 8% – an improvement of 3% compared to 11% in the second quarter of 2021, driven by synergies related to the Transaction and supported by increased activity levels.
  • Improved our Total Debt to EBITDA covenant ratio4 to 2.5x – Adjusted EBITDA and cash generation was supported by an improved commodity pricing environment, increased industry activity and a limited amount of investment in working capital. The Corporation’s ability to repay debt was further aided as modest capital spending was required to support our business. The debt reduction is consistent with our current capital allocation objective to target lower debt levels and moves us closer to achieving our near-term debt targets.
  • Settled US$77 million of our 11% 2025 senior secured notes – the Corporation remains focused on improving our capital structure and as such, the Corporation opportunistically repurchased US$77 million aggregate principal amount of our 11% 2025 senior secured notes in the quarter.
  • Liquidity5 of $298 million – decreased by $92 million from March 31, 2022 primarily due to funding the repurchase of US$77 million aggregate principal amount of 2025 senior secured notes.As at June 30, 2022, the Corporation had drawn $435 million aggregate principal amount on the revolving credit facility and a total of $108 million of letters of credit have been issued against SECURE’s credit facilities resulting in $298 million of Liquidity (available capacity under SECURE’s credit facilities and cash on hand, subject to covenant restrictions).The following table outlines SECURE’s covenant ratios4, calculated in accordance with the Corporation’s credit facilities, at June 30, 2022, and December 31, 2021:

Read More: https://secure-energy.mediaroom.com/2022-07-27-SECURE-ENERGY-REPORTS-SECOND-QUARTER-RESULTS-INCLUDING-67-MILLION-IN-REALIZED-SYNERGIES

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