- 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
$80 million , 371% higher than Q2 2021
"We are extremely pleased with our strong financial performance in the second quarter of 2022, demonstrating the strength of our expanded business, our ongoing focus on managing costs, and an overall improvement in our underlying markets," said
"There is strong momentum throughout our operations. With our increased discretionary free cash flow generation capabilities and a strengthened balance sheet, we remain well positioned to meet our debt reduction targets, deliver on ESG initiatives, and at the same time capitalize on growth at existing facilities and favourable industry fundamentals.
"We are excited by the future of SECURE. Using our technologies, network and best in class team to form new partnerships, we remain focused on helping our customers develop the highest ESG standards and lowest cost structure in the world, ensuring we create sustainable energy and environmental solutions for many decades."
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1 Non-GAAP financial measure/ratio. Refer to the "Non-GAAP and other specified financial measures" section herein. |
2 Calculated in accordance with the Corporation's credit facility agreements. Refer to the "Liquidity and Capital Resources" section in the Q2 2022 Management's Discussion and Analysis ("MD&A") which information is incorporated by reference into this new release. |
The Corporation's operating and financial highlights for the three and six months ended June 30, 2022, and 2021 can be summarized as follows:
Three months ended | Six months ended | |||||
($ 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
- 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 endedJune 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 settleUS$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. AtJune 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 repurchasedUS$77 million aggregate principal amount of our 11% 2025 senior secured notes in the quarter. - Liquidity5 of
$298 million - decreased by$92 million fromMarch 31, 2022 primarily due to funding the repurchase ofUS$77 million aggregate principal amount of 2025 senior secured notes.
As atJune 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, atJune 30, 2022 , andDecember 31, 2021 :
Covenant | |||
Senior Debt to EBITDA | 1.2 | not to exceed 2.75 | 1.5 |
Total Debt to EBITDA | 2.5 | not to exceed 4.5 | 3.4 |
Interest coverage | 4.4 | not to be less than 2.5 | 3.4 |
- Growth capital expenditures of
$2 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 expenditures of
$17 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.
________________________________________ |
3 Capital management measure. Refer to the "Non-GAAP and other specified financial measures" section in the Q2 2022 MD&A which information is incorporated by reference into this news release. |
4 Calculated in accordance with the Corporation's credit facility agreements. Refer to the "Liquidity and Capital Resources" section in the Q2 2022 MD&A which information is incorporated by reference into this news release. |
5 Capital management measure. Refer to the "Non-GAAP and other specified financial measures" section in the Q2 2022 MD&A which information is incorporated by reference into this news release. |
During the second half of the year, the Corporation expects the benchmark crude oil price will continue to fluctuate, supported by macroeconomic factors such as significant inflationary pressures, geopolitical risk premium due to the current war in
During the second half of 2022, we expect to see the following:
- Completion of the
$75 million in synergies and cost savings. In the twelve months since the Transaction, we have realized$67 million or 89% of synergies impacting Adjusted EBITDA on an annual run-rate basis. We expect to execute on the remaining$8 million of administrative and operational synergies by the end of this year. The operational 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 currently experiencing due to higher inflation.
- Increased volumes at the Corporation's industrial landfills and industrial waste facilities as both industry activity and abandonment, remediation and reclamation 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 withinAlberta ,Saskatchewan andBritish Columbia , which is scheduled to end in the first quarter of 2023. 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 (which amount has recently been increased from$422 million to$700 million for 2023), and a similar program initiated by theSaskatchewan provincial government is expected to begin in 2023. SECURE anticipates 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 half of the year, we expect to use discretionary free cash flow and any proceeds from non-core asset sales to reduce debt further. We will also continue to look for opportunities to improve our capital structure with the ultimate goals of reducing interest costs and increasing flexibility. 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 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 will likely 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
In closing, industry fundamentals remain favourable and provide support for our business outlook in the second half of 2022. Our priorities are to achieve the remaining
The Corporation uses accounting principles that are generally accepted in
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
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 and six months ended
Three months ended | Six months ended | |||||
2022 | 2021 | % Change | 2022 | 2021 | % Change | |
Net income (loss) (1) | 54 | (13) | 515 | 92 | (14) | (757) |
Adjustments: | ||||||
Depreciation, depletion and amortization (1) (2) | 21 | 30 | (30) | 77 | 59 | 31 |
Deferred tax expense | 14 | (3) | (567) | 23 | (3) | (867) |
Share-based compensation (2) | 5 | 4 | 25 | 10 | 7 | 43 |
Interest, accretion and finance costs (1) | 24 | 4 | 500 | 49 | 9 | 444 |
Unrealized loss (gain) on mark to market transactions (3) | 1 | — | 100 | (1) | — | 100 |
Other (income) expense | (1) | 2 | (150) | (15) | 2 | (850) |
Transaction and related costs | 9 | 7 | 29 | 18 | 11 | 64 |
Adjusted EBITDA | 127 | 31 | 310 | 253 | 71 | 256 |
(1) Prior year amounts have been restated, refer to the "Accounting Policies" section in the Q2 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 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 for the three and six months ended
Three months ended | Six months ended | |||||
2022 | 2021 | % Change | 2022 | 2021 | % Change | |
Funds flow from operations | 80 | 17 | 371 | 187 | 47 | 298 |
Adjustments: Sustaining capital | (17) | (4) | 325 | (27) | (6) | 350 |
Lease liability principal payment (net of sublease receipts) | (6) | (2) | 200 | (12) | (5) | 140 |
Transaction and related costs | 9 | 7 | 29 | 18 | 11 | 64 |
Discretionary free cash flow | 66 | 18 | 267 | 166 | 47 | 253 |
The Corporation's consolidated financial statements and notes thereto and MD&A for the three and six months ended
SECURE will host a conference call on
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 priorities for the second half of 2022 and beyond, including related to ESG, sustainability, debt reduction and strengthening its balance sheet, and its ability to achieve such priorities; ongoing focus on managing costs; momentum throughout SECURE's operations; SECURE's ability to repay debt and achieve its near-term debt targets; SECURE's ability to form new partnerships; focusing on projects to reduce customers' emissions and ESG goals; SECURE's ability to create sustainable energy and environmental solutions for many decades; continued optimization of SECURE's capital structure; fluctuations in benchmark crude oil prices, supported by macroeconomic factors such as significant inflationary pressures, geopolitical risk premium and continued changes to the supply and demand outlook; using a majority of discretionary free cash flow in 2022 to repay debt; the impact of acquisitions on SECURE's market presence and business; SECURE's ability to execute and deliver on the expected benefits of the Transaction, including the continued successful integration the legacy Tervita business to become a more resilient, profitable and efficient business, and the timing thereof; benefits to SECURE from its focus on cost control, realized synergies from the Transaction and industry activity, including increased demand for drilling and completion services, incremental facility volumes, increased recovered oil revenue and crude oil marketing opportunities; achieving $8 million in synergies related to the Transaction by the end of the year and the full
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.
SECURE is a publicly traded energy infrastructure and environmental business listed on the
SOURCE
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