- Delivered another record quarter with Adjusted EBITDA1 of
$126 million , up 215% compared to Q1 2021, and up 64% on a per basic share basis2 - Repaid
$90 million of debt, helping to reduce our Total Debt to EBITDA ratio3 to 2.9x compared to 3.4x atDecember 31, 2021 - Increased revenue to
$359 million , excluding oil purchase and resale, up 172% from Q1 2021 - Increased Adjusted EBITDA margin2 to 35% from 30% in Q1 2021
- Achieved net income of
$38 million and12 cents per share, an increase of$39 million from Q1 2021 - Realized
$53 million of annualized run-rate synergies impacting Adjusted EBITDA, an increase of$13 million sinceDecember 31, 2021 , and on track for a minimum of$75 million synergies by end of 2022 - Generated
$100 million of discretionary free cash flow1, up 245% from Q1 2021, and 78% on a per share basis2 - Increased funds flow from operations to
$107 million , 257% higher than Q1 2021 - Optimized our portfolio through the sale of non-core assets for total proceeds of
$22 million - Releasing our 2021 Sustainability Report on
May 2, 2022 demonstrating our commitment to sustainability, and laying out our roadmap to achieving net-zero greenhouse gas emissions by 2050, including reducing GHG emissions intensity by 15% by the end of 2024
"We opened 2022 with another record quarter, reflecting the strength and scale of our business as industry tailwinds, combined with optimizing our expanded platform, continues to drive strong results," said
"We have a strong deleveraging plan in place, as demonstrated in Q1, and we expect to continue to reduce our debt this year and put us in position to enhance shareholder returns in the future. Our enhanced scale allows us to optimize existing assets and operations so that we can add more value to our customers and provide greater optionality in allocating capital through all market environments.
"Looking forward to the remainder of 2022, we expect to continue to benefit from favourable industry fundamentals which will support our strong momentum and drive higher year over year discretionary free cash flow. As we achieve our debt reduction targets, we anticipate looking at increasing returns to our shareholders as well as incremental organic growth opportunities that provide stable cash flow. Our near-term focus remains on synergies, operational excellence and efficiencies, progressing our ESG initiatives, and paying down debt with free cash flow, while leveraging opportunities to grow and provide value for shareholders and customers."
1 Non-GAAP financial measure that is not a standardized financial measure under International Financial Reporting Standards ("IFRS") and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP and other financial measures" section herein. |
2 Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP and other financial measures" section herein. |
3 Calculated in accordance with the Corporation's credit facility agreements. Refer to the "Liquidity and Capital Resources" section in the Q1 2022 MD&A which information is incorporated by reference into this news release. |
FINANCIAL AND OPERATING HIGHLIGHTS
The Corporation's operating and financial highlights for the three months ended March 31, 2022 and 2021 can be summarized as follows:
Three months ended | |||
($ millions except share and per share data) | 2022 | 2021 | % change |
Revenue (excludes oil purchase and resale) | 359 | 132 | 172 |
Oil purchase and resale | 1,391 | 529 | 163 |
Total revenue | 1,750 | 661 | 165 |
Adjusted EBITDA (1) | 126 | 40 | 215 |
Per share ($), basic (1) | 0.41 | 0.25 | 64 |
Per share ($), diluted (1) | 0.40 | 0.25 | 61 |
Net income attributable to shareholders of SECURE (2) | 38 | — | 100 |
Per share ($), basic and diluted | 0.12 | — | 100 |
Funds flow from operations | 107 | 30 | 257 |
Per share ($), basic (3) | 0.35 | 0.19 | 84 |
Per share ($), diluted (3) | 0.34 | 0.19 | 82 |
Discretionary free cash flow | 100 | 29 | 245 |
Per share ($), basic and diluted (1) | 0.32 | 0.18 | 78 |
Capital expenditures (1) | 13 | 6 | 117 |
Dividends per common share | 0.0075 | 0.0075 | — |
Total assets (2) | 2,970 | 1,369 | 117 |
Long-term liabilities (2) | 1,378 | 487 | 183 |
Common shares - end of period | 309,800,855 | 160,137,641 | 93 |
Weighted average common shares: | |||
Basic | 308,833,319 | 159,540,722 | 94 |
Diluted | 312,043,772 | 159,540,722 | 96 |
(1) Refer to "Non-GAAP and other financial measures" section herein. | |||
(2) Prior year amounts have been restated, refer to "Accounting Policies" in the Q1 2022 Management's Discussion and Analysis for additional information. | |||
(3) Supplementary financial measure. Refer to the "Non-GAAP and other financial measures" section in the Q1 2022 MD&A which information is incorporated by reference into this news release. |
FINANCIAL AND OPERATIONAL RESULTS
The following should be read in conjunction with the Corporation's MD&A for the three months ended
FIRST QUARTER HIGHLIGHTS
- Significant debt reduction of
$90 million - the Corporation repaid$90 million or 20% of the amount drawn on its revolving credit facility entered into in connection with SECURE's acquisition of, and amalgamation with,Tervita Corporation (respectively, the "Revolving Credit Facility" and the "Transaction") using a portion of funds flow from operations of$107 million as well as the sale of non-core assets for additional proceeds of$22 million . These non-core assets generated less than$2 million of Adjusted EBITDA per year. 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 a significant amount of debt was further aided as limited capital spending was required to support the business. The debt reduction improved our Total Debt to EBITDA covenant ratio to 2.9x from 3.4x atDecember 31, 2021 . This debt reduction demonstrates the strength of our business model and moves us closer to achieving our near-term debt targets. - Integration cost savings of
$53 million realized - achieved an incremental$13 million of annualized cost savings impacting Adjusted EBITDA in the first quarter of 2022, increasing realized cost savings from$40 million to$53 million on an annual run-rate basis. As a result, the Corporation has now achieved 71% of the$75 million cost savings target in the first nine months following the completion of the Transaction. The$13 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 endedMarch 31, 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
$359 million - an increase of 172% compared to the first quarter of 2021 with Midstream Infrastructure revenue (excluding oil purchase and resale) increasing by$107 million to$158 million and Environmental and Fluid Management revenue increasing by$120 million to$201 million for the quarter. These increases were primarily due to additional revenue associated with the Transaction and an increase in industry activity levels. 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 as underpinned by an increase in average active rig count of approximately 40% compared to the first quarter of 2021. Higher crude oil pricing in the first quarter of 2022 also positively impacted recovered oil revenue and contributed to the increase in oil purchase and resale revenue which increased by 163% to$1.4 billion compared to the comparative 2021 period. - Net income attributable to shareholders of
$38 million - an increase of$38 million compared to the first quarter of 2021 and the first net income posted by the Corporation since Q4 2019 as general industry conditions continued a positive trend. The increase was primarily driven by the impact of the Transaction which increased Adjusted EBITDA by$86 million as described below. This positive impact was partially offset by higher general and administrative ("G&A") expenses and depreciation, depletion and amortization ("DD&A") due to the increased size of the Corporation's asset base,$20 million of higher finance costs associated with debt assumed in connection with the Transaction and a non-cash deferred tax expense of$9 million . Net income for the first quarter of 2022 included gains of$15 million related to the sale of non-core assets which included vacant land and a non-core consulting business that was not material to SECURE's operating results. - Adjusted EBITDA of
$126 million and$0.41 per basic share - an increase of 215% and 64% compared to the first quarter of 2021, respectively, primarily due to the Adjusted EBITDA contributions from the Transaction and related synergies, demonstrating the strength and scale of the combined business. In addition, higher oil prices resulted in overall improved 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 35% - increased from 30% in the first 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.
- Discretionary free cash flow of
$100 million - which was used primarily to repay$90 million of debt, as well as fund the Corporation's quarterly dividend, transaction related costs and growth capital expenditures. Funds flow from operations was$107 million in the quarter, an increase of$77 million from the prior year comparative period. Higher Adjusted EBITDA in the first quarter of 2022 was partially offset by higher transaction and related costs and asset retirement costs incurred. AtMarch 31, 2022 , SECURE carried Working Capital1 of$187 million consistent with$183 million atDecember 31, 2021 . - Midstream Infrastructure segment profit margin of 63% - increased from 59% in the first quarter of 2021.
- Environmental and Fluid Management segment profit margin of 27% - remained consistent with 27% in the first quarter of 2021.
- G&A expense before DD&A and share-based compensation as a percentage of revenue (excluding oil purchase and resale) of 7% - an improvement of two percentage points compared to 9% in the first quarter of 2021, also supported the increased Adjusted EBITDA margin.
- Liquidity1 of
$390 million - increased by$101 million fromDecember 31, 2021 primarily due to debt repayment funded by discretionary free cash flow generated during the first quarter of 2022 and proceeds received from the sale of non-core assets, which was partially offset by Transaction and related costs incurred and an investment in non-cash working capital.
As at
The following table outlines SECURE's covenant ratios2, calculated in accordance with the Corporation's credit facilities, at
Covenant | |||
Senior Debt to EBITDA | 1.2 | not to exceed 3.0 | 1.5 |
Total Debt to EBITDA | 2.9 | not to exceed 4.75 | 3.4 |
Interest coverage | 3.8 | not to be less than 2.5 | 3.4 |
___________________________ |
1 Capital management measure. Refer to the "Non-GAAP and other financial measures" section in the Q1 2022 MD&A which information is incorporated by reference into this news release |
2 Calculated in accordance with the Corporation's credit facility agreements. Refer to the "Liquidity and Capital Resources" section in the Q1 2022 MD&A which information is incorporated by reference into this news release. |
- Growth capital expenditures of
$3 million - related to the expansion of a water disposal facility which is backstopped by a commercial agreement with an existing customer at the facility. - Sustaining capital of
$10 million - related primarily to well and facility maintenance, landfill cell expansions and asset integrity and inspection programs. - Declared dividends of
$2 million - representing$0.0075 (0.75 cents ) per common share for the quarter.
OUTLOOK
The Corporation's strong first quarter results benefitted from cost control, realized synergies from the Transaction and increasing crude oil, liquids and natural gas prices that drove producer cash flows and industry activity, including increased demand for drilling and completion services, incremental facility volumes, realization of transaction synergies, increased recovered oil revenue and crude oil marketing opportunities. Benchmark crude oil prices reached eight-year highs during the first quarter, supported by macroeconomic factors including significant inflationary pressures, geopolitical risk premium due to the current war in
More specifically, we expect to see the following trends:
- SECURE's focus for 2022 is to continue to successfully integrate and optimize the addition of the legacy Tervita facilities and operating networks acquired pursuant to the Transaction and deliver on expected integration cost savings to become a more resilient, profitable, and efficient business. At the end of the first quarter of 2022, we have realized
$53 million of synergies impacting Adjusted EBITDA on an annual run-rate basis. We expect to execute on the remaining$22 million of administrative and operational synergies by the end of this year. The operational synergies include optimizations and facility rationalizations with the expectation that the synergies will contribute a partial benefit in 2022 with the full run rate of$75 million cost savings in 2023. Additional savings through initiatives such as improving our capital structure as well as minimizing sustaining capital by managing underutilized assets, are expected to provide incremental discretionary free cash flow beyond our$75 million cost savings target that impact Adjusted EBITDA. - Increased utilization at our midstream processing facilities as higher drilling, completion and production volumes from increased activity levels require additional treating, processing, terminalling and disposal. The Corporation has significant capacity to increase facility throughput and disposal with minimal incremental fixed costs or additional capital. Higher drilling and completion activity is expected to continue to have a positive impact on our drilling and production services business within the Environmental and Fluid Management segment. In addition, we have been able to pass through price increases to offset some of the cost pressures we are experiencing due to currently higher inflation.
- Increased volumes at the Corporation's industrial landfills as both industry activity and abandonment, remediation and reclamation material and activity continue to trend higher as a result of the Canadian Federal Government's
$1.7 billion stimulus package to help fund the closure and reclamation of orphan and inactive wells in the WCSB withinAlberta ,Saskatchewan andBritish Columbia , which is scheduled to end in December of 2022. In addition, there is direction from theAlberta Energy Regulator requiring energy producers and other companies that have retirement obligations related to inactive (non-producing) wells and facilities to spend an amount each year towards addressing those obligations, and a similar program initiated by theSaskatchewan provincial government is expected to begin in 2023. SECURE anticipates both programs and policy changes to increase abandonment, remediation and reclamation activity to positively impact all of SECURE's Canadian operations, particularly within the Environmental and Fluid Management segment as a result of higher demand for environmental site assessments, onsite abandonment, remediation and reclamation management and decommissioning work.
One of SECURE's key priorities remains debt repayment. As clearly demonstrated in the first quarter, we will use discretionary free cash flow and any proceeds from non-core asset sales to reduce debt further. As we achieve our leverage targets, in addition to strengthening our balance sheet, we are committed to allocating capital towards increased shareholder returns as an important element of our capital allocation framework, as well as for incremental organic growth opportunities that provide stable cash flow. These shareholder returns may include further debt repayment, increased dividends, share buybacks, or a combination thereof. SECURE will continue to work diligently to manage inflationary costs that may continue through the year; including purchasing materials in bulk, working with customers and negotiating with suppliers or finding alternate suppliers.
We expect sustaining capital in 2022 to be approximately
Summary
In closing, industry fundamentals remain favourable and provide support for our business outlook in 2022. Our priorities are to achieve the remaining
NON-GAAP AND OTHER FINANCIAL MEASURES
The Corporation uses accounting principles that are generally accepted in
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 (loss), being the most directly comparable financial measure disclosed in the Corporation's Interim Financial Statements, to Adjusted EBITDA for the three months ended
Three months ended | |||
2022 | 2021 | % Change | |
Net income (loss) (1) | 38 | (1) | (3,900) |
Add: | |||
Depreciation, depletion and amortization (1) (2) | 56 | 29 | 93 |
Deferred tax expense | 9 | — | 100 |
Share-based compensation (2) | 5 | 3 | 67 |
Interest, accretion and finance costs (1) | 25 | 5 | 400 |
Unrealized gain on mark to market transactions (3) | (2) | — | 100 |
Other income | (14) | — | 100 |
Transaction and related costs | 9 | 4 | 125 |
Adjusted EBITDA | 126 | 40 | 215 |
(1) Prior year amounts have been restated, refer to "Accounting Policies" section in the Q1 2022 MD&A for additional information. | |||
(2) Included in cost of sales and/or general and administrative expenses on the Consolidated Statements of Comprehensive Income (Loss). | |||
(3) Net balance. Includes amounts presented in revenue and cost of sales on the Consolidated Statements of Comprehensive Income (Loss). |
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 (net of sublease receipts). 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.
The following table reconciles the Corporation's funds flow from operations, being the most directly comparable financial measure disclosed in the Corporation's Interim Financial Statements, to discretionary free cash flow.
Three months ended | |||
2022 | 2021 | % Change | |
Funds flow from operations | 107 | 30 | 257 |
Adjust: | |||
Sustaining capital | (10) | (2) | 400 |
Lease liability principal payment (net of sublease receipts) | (6) | (3) | 100 |
Transaction and related costs | 9 | 4 | 125 |
Discretionary free cash flow | 100 | 29 | 245 |
FINANCIAL STATEMENTS AND MD&A
The Corporation's consolidated financial statements and notes thereto and MD&A for the three months ended
FIRST QUARTER 2022 CONFERENCE CALL
SECURE will host a conference call on
FORWARD-LOOKING STATEMENTS
Certain statements contained in this press release constitute "forward-looking statements and/or "forward-looking information" within the meaning of applicable securities laws (collectively referred to as "forward-looking statements"). When used in this press release, the words "achieve", "advance", "anticipate", "believe", "can be", "capacity", "commit", "continue", "could", "deliver", "drive", "enhance", "ensure", "estimate", "execute", "expect", "focus", "forecast", "forward", "future", "goal", "grow", "integrate", "intend", "may", "maintain", "objective", "ongoing", "opportunity", "outlook", "plan", "position", "potential", "prioritize", "realize", "remain", "result", "seek", "should", "strategy", "target" "will", "would" and similar expressions, as they relate to SECURE, its management, or the combined company, are intended to identify forward-looking statements. Such statements reflect the current views of SECURE and speak only as of the date of this press release.
In particular, this press release contains or implies forward-looking statements pertaining but not limited to: SECURE's deleveraging plan; SECURE's priorities for 2022, including related to ESG, debt reduction and strengthening its balance sheet, its ability to achieve such priorities and the timing thereof; SECURE's ability to execute and deliver on the expected benefits of the Transaction, including the anticipated synergies, successfully integrating the legacy Tervita business and becoming a more resilient, profitable and efficient business, and the timing thereof; SECURE's ability to leverage opportunities for its shareholders and customers; the strength and scale of the combined business and SECURE's ability to optimize assets; optionality in allocating capital; SECURE's Sustainability Report and the timing thereof; the costs required to increase facility throughput; SECURE's goal to achieve net-zero GHG emissions by 2050, and the roadmap to achieve such goal, including the reduction of absolute GHG emissions by 15% by the end of 2024; an increased rig count; sustained inflationary pressures throughout 2022, their impact on SECURE's business and SECURE's ability to manage such pressures; the impact of increased industry activity on SECURE's business; the end of the Canadian Federal Government's stimulus package and its impact on SECURE's business; the impact of new or existing mandatory spend requirements for retirement obligations on SECURE's business, and the introduction of such requirements; SECURE's discretionary free cash flow and the use and portion of such discretionary free cash flow and proceeds from non-core asset sales to reduce debt; SECURE's priorities beyond 2022, including growth opportunities that provide stable cash flow, and increased shareholder returns, in the form of debt repayment, increased dividends, share buybacks, or a combination thereof; SECURE's capital expenditure guidance; required sustaining and growth capital focusing on projects to reduce customers' costs and emissions and other ESG goals; long-term opportunities; SECURE's capital structure and ability to fund its capital needs and the amount thereof; and SECURE's liquidity position and access to capital.
Forward-looking statements are based on certain assumptions that SECURE has made in respect thereof as at the date of this press release regarding, among other things: economic and operating conditions, including commodity prices, crude oil and natural gas storage levels, interest rates, exchange rates, and inflation; the changes in market activity and growth will be consistent with industry activity in
Forward-looking statements involve significant known and unknown risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether such results will be achieved. Readers are cautioned not to place undue reliance on these statements as a number of factors could cause actual results to differ materially from the results discussed in these forward-looking statements, including but not limited to: general global financial conditions, including general economic conditions in
Although forward-looking statements contained in this press release are based upon what the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with these forward- looking statements. The forward-looking statements in this press release are expressly qualified by this cautionary statement. Unless otherwise required by applicable securities laws, SECURE does not intend, or assume any obligation, to update these forward-looking statements.
ABOUT SECURE
SECURE is a publicly traded energy infrastructure and environmental business listed on the
SECURE's Midstream Infrastructure business segment includes a network of midstream processing and storage facilities, crude oil and water pipelines, and crude by rail terminals located throughout key resource plays in western
SECURE's Environmental and Fluid Management business segment includes a network of industrial landfills, hazardous and non-hazardous waste management and disposal, onsite abandonment, environmental solutions for site remediation and reclamation, bio-remediation and technologies, waste treatment & recycling, emergency response, rail services, metal recycling services, as well as fluid management for drilling, completion and production activities.
SOURCE
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