Secure Energy announces 2022 fourth quarter and year-end results and over $70 Million of 2023 year-to-date shareholder returns

Press Release

• Delivered a strong quarter with Q4 2022 Adjusted EBITDA¹ of $150 million or $0.48 per basic share¹, up 33% from Q4 2021, resulting in a record $557 million Adjusted EBITDA in 2022, up 95% from 2021
• Recorded net income of $32 million or $0.10 per share in Q4 2022 and $184 million or $0.59 per share in 2022
• Increased funds flow from operations to $84 million in Q4 2022 and $403 million in 2022, up 56% and 129% from the respective 2021 comparative periods
• Generated $74 million of discretionary free cash flow¹, up 57% from Q4 2021. In 2022, SECURE generated $348 million of discretionary free cash flow, up 104% from 2021, which was primarily used to repay debt
• Improved our capital structure with the repurchase of an additional US$58 million principal amount of 11% 2025 senior secured notes. At the end of 2022, US$162 million remains outstanding, a principal reduction of over 67% since the assumption of the notes in July 2021
• Improved our Total Debt to EBITDA² covenant ratio to 1.9x and ended the year with principal debt of $911 million, nearing the midpoint of our $850–$950 million principal debt target
• Paid our first increased quarterly dividend of $0.10 per common share in January 2023
• Repurchased and cancelled 5,932,800 common shares at a weighted average price per share of $7.78 for a total of $46 million since the commencement of the Normal Course Issuer Bid (“NCIB”) in December 2022
• Commenced construction of a commercially backed pipeline tie-in and terminalling infrastructure in the Clearwater region
• Appointed former Pembina Pipeline Corporation CEO Mick Dilger to the Board of Directors and as Chairman of the Board effective January 5, 2023

CALGARY, AB, March 2, 2023 – SECURE ENERGY Services Inc. (“SECURE” or the “Corporation”) (TSX: SES) reported the Corporation’s operational and financial results for the three and twelve months ended December 31, 2022.

“Strong fourth quarter results capped off a record year from both an operational and financial perspective for SECURE as we completed the integration of Tervita,” said Rene Amirault, Chief Executive Officer of SECURE. “The enhanced scale of our business has better positioned us to serve our customers, optimize existing infrastructure assets and operations and drive greater discretionary free cash flow to the bottom line. In 2022, we generated discretionary free cash flow of $348 million, which we directed primarily towards the repayment of debt, bringing our Total Debt to EBITDA covenant ratio from 3.4x at the beginning of 2022 to 1.9x at December 31, 2022. I couldn’t be prouder of our hard-working employees who carried out the final stages of the integration while continuing to provide best-in-class customer service.

“With our improved balance sheet, we are balancing our go-forward priorities between continuing to reduce our absolute debt balance, returning cash to shareholders, and allocating funds to incremental growth opportunities that provide reliable volumes and recurring cash flows. Since the commencement of our NCIB in December 2022, we have been able to deliver increased returns to shareholders through the repurchase and cancellation of 1.9% of our outstanding common shares. We were also pleased to pay an increased quarterly dividend of $0.10 per share in January 2023, representing a current annual yield of 4.7% on our common shares. This increased dividend is sustainable ­ ̶   in 2023, we will spend approximately 35% of trailing twelve month discretionary free cash flow on dividend payments  ­̶  providing room for growth in future years.

“Looking forward, we expect a supportive macro environment which will continue to showcase the underlying strength of our business, as growing production in most of our operating areas support higher volumes across our existing network of infrastructure. We are also excited to expand our footprint in 2023 with new customer-backed facility infrastructure in the Clearwater region, an area that has seen oil production grow from zero to nearly 100,000 barrels a day over the last five years.

“We are also pleased to have Mick Dilger join our Board of Directors and serve as our new Chairman of the Board. As the former CEO of Pembina Pipeline Corporation from 2014 to 2021, Mick created tremendous shareholder value during his tenure. SECURE will benefit from his deep knowledge of Western Canadian infrastructure and his commitment to our environment, social, and governance values.”

The Corporation’s operating and financial highlights for the three and twelve months ended December 31, 2022 and 2021 can be summarized as follows:

FOURTH QUARTER HIGHLIGHTS

• Revenue (excluding oil purchase and resale) of $401 million – an increase of 23% compared to the fourth quarter of 2021 with Midstream Infrastructure revenue (excluding oil purchase and resale) increasing by $31 million to $169 million and Environmental and Fluid Management revenue increasing by $43 million to $232 million for the quarter. These increases were primarily due to an increase in energy-related volumes and reclamation trends. Higher crude oil pricing in the fourth quarter of 2022 also positively impacted recovered oil revenue and contributed to the increase in oil purchase and resale revenue which increased by 60% to $1.6 billion compared to the comparative 2021 period. In the Environmental and Fluid Management segment, increased industry activity led to higher volumes in industrial landfills, demand for drilling, completion and production optimization infrastructure underpinned by an approximate 36% increase in the average active rig count compared to the fourth quarter of 2021.
• Net income attributable to shareholders of $32 million and $0.10 per share – an increase of $198 million or $0.64 per share compared to the fourth quarter of 2021, as general industry conditions stayed strong supporting higher gross margins. Net income in the fourth quarter of 2021 included a $247 million non-cash impairment charge attributable to the suspension or closure of facilities to achieve the integration cost savings related to the Tervita merger.
• Adjusted EBITDA of $150 million and $0.48 per basic share – increases of 35% and 33% compared to the fourth quarter of 2021, driven by stronger energy, environmental and industrial markets. Despite extreme cold weather during the quarter, our infrastructure continued to receive higher processing, recovery, terminalling, and pipeline volumes.
• Adjusted EBITDA margin¹ of 37% – increased from 34% in the fourth quarter of 2021, due to the higher volumes and higher revenue contributing to improved fixed cost absorption, particularly in the service lines impacted by increased drilling and completion activity during the quarter. Additionally, integration cost savings as a result of the Tervita merger have contributed to a higher Adjusted EBITDA margin during the quarter.
• Funds flow from operations of $84 million – an increase of $30 million from the prior year comparative period, or 50% on a per basic share basis, driven by the increase in Adjusted EBITDA.
• Discretionary free cash flow of $74 million – which was used primarily to repurchase a portion of SECURE’s 2025 senior secured 11% notes, pay costs related to the Tervita merger, fund growth capital and repurchase shares under the NCIB.
• Improved our Total Debt to EBITDA covenant ratio to 1.9x – Adjusted EBITDA and cash generation was supported by increased revenues in all segments, industry activity, lower G&A and synergies achieved. The debt reduction is consistent with our 2022 capital allocation objective to target lower overall debt levels.
• Midstream Infrastructure segment profit margin of 63% – significantly increased margin improvement from 59% in the fourth quarter of 2021, driven by synergies and increased activity.
• Environmental and Fluid Management segment profit margin of 25% – decreased by 3% from the fourth quarter of 2021 as a result of change in project mix and lower ferrous pricing impacting Metals Recycling.
• G&A expense before DD&A and share-based compensation as a percentage of revenue (excluding oil purchase and resale) of 4% – an improvement of 4% compared to 8% in the fourth quarter of 2021, driven by synergies related to the Tervita merger and supported by increased activity levels.
• Growth capital expenditures⁴ of $13 million – primarily related to long-lead items and expansion of existing facilities which are backstopped by commercial agreements.
• Sustaining capital expenditures⁴ of $21 million – primarily related to well and facility maintenance, landfill cell expansions and asset integrity and inspection programs.
• Liquidity³ of $398 million – As at December 31, 2022, the Corporation had drawn $352 million aggregate principal amount on SECURE’s $800 million Senior Secured Revolving Credit Facility (the “Revolving Credit Facility”) and a total of $92 million of letters of credit have been issued against SECURE’s credit facilities resulting in $398 million of Liquidity (available capacity under SECURE’s credit facilities and cash on hand, subject to covenant restrictions).

ANNUAL HIGHLIGHTS

• Revenue (excluding oil purchase and resale) of $1.5 billion – an increase of 72% compared to 2021 due to the same factors that impacted the quarter as well as the full year contribution of the assets acquired through the Tervita merger.
• Net income attributable to shareholders of $184 million – an increase of $387 million compared to 2021. The increase was primarily driven by the same factors that impacted revenue and Adjusted EBITDA above and a non-cash impairment expense in 2021.
• Adjusted EBITDA of $557 million – an increase of 95% compared to 2021, primarily due to the same factors that impacted the quarter as well as the full year contribution of revenue above.
• Significant debt reduction – the Corporation repaid $108 million of the Revolving Credit Facility and repurchased US$138 million aggregate principal amount of 2025 senior secured notes using funds flow from operations of $403 million. The debt reduction, combined with an increase in our Adjusted EBITDA, improved our Total Debt to EBITDA covenant ratio to 1.9x from 3.4x at December 31, 2021.
• Integration cost savings of $76 million (101% of initial target) realized – as of September 30, 2022, the Corporation achieved 101% of the $75 million cost savings target it established in connection with the Tervita merger.
• Discretionary free cash flow of $348 million – an increase of $177 million from the prior year which was used for the reduction of debt, to pay costs associated with the Tervita merger, fund growth capital expenditures and the Corporation’s quarterly dividend, as well as increased working capital associated with higher activity levels.
• Total capital expenditures of $96 million – consisting of $27 million growth capital and $69 million of sustaining capital. Growth capital included spend related to connecting an additional segment of the East Kaybob oil pipeline, increasing the handling capacity at a water disposal facility and optimization upgrades. Sustaining capital related primarily to well and facility maintenance, landfill cell expansions, spare parts, asset integrity and inspection programs.

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 Q4 2022 Management’s Discussion and Analysis (“MD&A”).

³ Capital management measure. Refer to the MD&A for further information.

⁴ 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’s strategic plan in 2022 was to realize the $75 million in synergies from the Tervita merger, integrate the acquired business units, and pay down debt, of which the Corporation outperformed its overall operational and financial goals. For 2023, the Corporation’s strategic plan will focus on:

• Enhancing the business with best-in-class customer service and effective optimization of our infrastructure;
• Growing the volumes handled across the network;
• Investing capital in infrastructure that has contracted and/or recurring cash flows;
• Targeting strategic partnerships for opportunities that reduce inefficiencies and redundant assets;
• Executing a digital transformation of the business;
• Evaluating potential ESG growth opportunities that fit our core competencies; and
• Delivering on our capital allocation priorities.

In 2023, the Corporation expects to see continued momentum across all business lines as stronger energy, environmental and industrial markets continue to drive higher volumes, activity levels and overall demand for SECURE’s infrastructure.

Our energy customers have strengthened their balance sheets and remain disciplined on spending while growing production within operating cash flows. While macroeconomic factors such as inflationary pressures, the possibility of a near-term recession, overall demand globally and the geopolitical risk premium creates ongoing uncertainty for energy markets, the current price environment continues to drive robust producer cash flows and increased energy industry activity in our operating regions. SECURE’s infrastructure network across western Canada and North Dakota has significant capacity to help our customers with increased volumes requiring processing, disposal, recycling, recovery and terminalling with minimal incremental fixed costs or additional capital.

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