Mr. Rene Amirault reports

SECURE ANNOUNCES 2023 FOURTH QUARTER AND YEAR-END RESULTS

Secure Energy Services Inc. has released its operational and financial results for the three and 12 months ended Dec. 31, 2023.

"Two thousand twenty-three was an exceptional year for Secure, marked by strong financial performance that underscores the stability and growth potential inherent in our core waste management and energy infrastructure operations," said Rene Amirault, chief executive officer of Secure. "The successful conversion of $590-million of adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] to $363-million of discretionary free cash flow during the year enabled us to execute on our capital allocation priorities.

"We delivered significant shareholder value in 2023, returning a total of $280-million to shareholders, or 95 cents/basic share, through a combination of quarterly dividends and strategic share repurchases. Our opportunistic share buybacks throughout 2023 resulted in a 7-per-cent decrease in outstanding shares, contributing to an 11-per-cent improvement in adjusted EBITDA per basic share over 2022. In addition, we successfully executed two critical infrastructure growth projects supported by long-term commercial agreements. These projects provided for the safe and reliable handling of production volumes for our customers, and consistent cash flows for Secure across our business cycles. Notably, we accomplished these milestones while maintaining a total debt to EBITDA covenant ratio below 2.0 times.

"We also advanced our strategy as a leader in waste management and energy infrastructure. The accretive multiple achieved from the mandated facilities divestiture to Waste Connections highlights the underlying value of Secure's business. Posttransaction closure, we maintain our market leadership in Western Canada and North Dakota, leveraging our extensive facility network to expertly manage waste streams for energy and industrial customers. In 2023, we also strategically optimized our portfolio by divesting of non-core oil field services business units that did not align with our core infrastructure strategy.

"The proceeds from the asset sale to Waste Connections has significantly improved our financial position, affording us capacity to enhance returns to shareholders, and strategically expand in the industrial and energy waste markets. Our board of directors and management team continues to believe a substantial disparity exists between our intrinsic value and the current share price. The transaction valuation underscores our conviction that we should trade higher than the current multiple. Therefore, the corporation remains committed to aggressive NCIB [normal course issuer bid] share repurchases, and we will evaluate various avenues, including the merits of a substantial issuer bid, to further return capital to shareholders."

Fourth quarter highlights:

• Entered into a definitive agreement with Waste Connections Inc. (through its wholly owned subsidiary) to sell the 29 facilities formerly owned by Tervita Corp., that were ordered to be divested by the Competition Tribunal, for $1.075-billion in cash, plus $75-million for certain adjustments, as provided in the divestiture agreement, for total cash proceeds of $1.15-billion. On Feb. 1, 2024, the corporation closed the sale transaction with Waste Connections, which was completed by R360 Environmental Solutions Canada Inc., an affiliate of Waste Connections.
• Generated revenue (excluding oil purchase and resale) of $451-million, an increase of 12 per cent from 2022.
• Achieved adjusted EBITDA of $162-million, or 56 cents per basic share, an increase of 17 per cent on a per-basic-share basis from 2022.
• Recorded net income of $59-million, or 20 cents per share, a 100-per-cent increase from 10 cents per basic share in 2022.
• Increased funds flow from operations to $128-million, up 52 per cent from 2022.
• Sold the corporation's projects business unit, focused on mobile yellow iron used for demolition and remediation. This sale completed the corporation's portfolio rationalization of non-core oilfield-service-focused business units that did not fit into Secure's core waste management and infrastructure strategy.
• Paid a quarterly dividend of 10 cents per common share, which currently represents an attractive yield of 3.7 per cent on the company's common shares compared with peers.
• Renewed the corporation's normal course issuer bid, effective Dec. 14, 2023, which allows the corporation to repurchase approximately 8 per cent of the corporation's outstanding common shares. The corporation has repurchased and cancelled 10,076,810 shares since the start of the new NCIB at a weighted average price per share of $9.97, for a total of $100-million.
• Maintained a total debt to EBITDA covenant ratio of 1.9 times.

Annual highlights:

• Generated revenue (excluding oil purchase and resale) of $1.647-billion, an increase of 7 per cent from 2022.
• Achieved adjusted EBITDA of $590-million, or $1.99 per basic share, an increase of 11 per cent on a per-basic-share basis from 2022.
• Recorded net income of $195-million, or 66 cents per basic share, and increase of 12 per cent on a per-basic-share basis from 2022.
• Increased funds flow from operations to $474-million, up 18 per cent from 2022.
• Maintained an industry-leading adjusted EBITDA margin of 36 per cent.
• Completed and commissioned the expansion of the company's Montney water disposal infrastructure, and Clearwater oil terminalling and gathering infrastructure projects safely, on time and on budget.
• Repurchased and cancelled approximately 23 million common shares at a weighted average price per share of $7.10, for a total of $163-million.
• Progressed the company's short-term target to reduce emissions associated with its operations by 15 per cent. Since 2021, the corporation has reduced Scope 1 and Scope 2 emissions at its waste processing facilities by 9 per cent through energy conservation programs.
• Recorded zero lost time injuries, and reduced Secure Energy's recordable injury frequency by 36 per cent over 2022.
• Introduced the company's WiQ application, a transparent e-ticketing system that ensures compliance and standardization for the documentation of waste and recyclables. WiQ provides an innovative solution that will help maximize the efficiency of compliant operations, assist with product logistics and provide the necessary information to support waste and emissions reporting for the company's customers.

The corporation's operating and financial highlights for the three and 12 months ended Dec. 31, 2023, and 2022, can be summarized as shown in the associated table.

Outlook

Following the sale transaction, Secure remains the market-share leader in Western Canada, and expects to continue to deliver industry-leading margins and a stable cash flow profile, underpinned by recurring volumes driven by industrial waste, metals and energy markets.

Two thousand twenty-four expectations

Secure expects activity levels to remain robust in both the energy and industrial sectors for 2024. Secure's Canadian and North Dakota customers continue to demonstrate disciplined and modest production growth within cash flow, while maintaining balance sheet strength, cost optimization efforts and operational efficiencies. With the completion of the Trans Mountain Expansion Pipeline expected in mid-2024, and commissioning of LNG Canada's LNG (liquefied natural gas) export terminal expected by early 2025, increased capacity for Secure's customers to gain stronger pricing with access to global markets is expected to result in sustained and growing activity levels in the years to come. Furthermore, the industrial sector is expected to remain stable, characterized by sustained volumes, continued demand for Secure's infrastructure services, and activity linked to long-term and recurring projects.

Financial guidance

Consistent with previous guidance, the corporation expects to generate between $440-million and $465-million of adjusted EBITDA in 2024. Excluding corporate costs, Secure anticipates approximately 70 per cent of adjusted EBITDA will be attributable to the environmental waste management reporting segment in 2024, with the remaining approximately 30 per cent of adjusted EBITDA generated from the energy infrastructure segment.

In 2024, the sale transaction is anticipated to have a lesser impact on discretionary free cash flow compared with 2023, despite the expected adjusted EBITDA change. This difference results from reduced sustaining capital and asset retirement obligations, due to fewer facilities postsale transaction. Additionally, lower interest expense is expected as significant sale transaction proceeds are allocated toward debt repayment.

The corporation's infrastructure network maintains significant capacity to support customers, accommodating increased volumes for processing, disposal, recycling, recovery and terminalling, driving higher same-store sales with minimal incremental fixed costs or additional capital. Secure also continues to realize a sizable organic opportunity set to partner with its customers in areas where infrastructure and additional capacity are required to match production growth.

Secure continues to have $50-million allocated for growth opportunities in 2024, with confirmed commercial support for expansion at the newly constructed Clearwater heavy oil terminal. The terminal began commercial operations in the fourth quarter of 2023. The expansion is backstopped by both existing and new customers, and will approximately double the terminal capacity to over 60,000 barrels per day. Construction activities are expected to be completed and operational in the second quarter of 2024. Remaining high-probability growth opportunities in 2024 are also expected to leverage existing infrastructure through long-term contracts. The corporation intends to update its growth plans and provide further details following the entering of agreements with its customers.

The corporation also continues to expect to spend approximately $60-million on sustaining capital, including landfill expansions and approximately $15-million on settling Secure's abandonment retirement obligations.

Capital allocation

The sale transaction resulted in significant proceeds of $1.075-billion in cash, along with $75-million for certain adjustments, as provided in the divestiture agreement, for total cash proceeds of $1.15-billion, providing Secure with significant capital allocation flexibility. The receipt of these proceeds has provided immediate liquidity for debt repayment, while maintaining significant leverage capacity and a surplus of cash available for various purposes, including shareholder returns and financing of growth initiatives.

Debt repayment

Secure has repaid the entire amount drawn on the $800-million revolving credit facility, with proceeds from the sale transaction. On Feb. 22, 2024, the corporation also redeemed the $153-million (U.S.) outstanding balance of 11 per cent senior second lien secured notes due 2025, at a redemption price of 105.5 per cent of the principal amount of the notes, plus accrued and unpaid interest up to, but excluding, the redemption date.

In addition, Secure intends to redeem the outstanding $340-million aggregate principal amount of 7.25 per cent senior unsecured notes due Dec. 30, 2026, in the coming weeks. In accordance with the provisions of the indenture governing the notes, Secure may redeem all or any part of the notes, upon not less than 15 days nor more than 60 days of notice, at 103.625 per cent of the principal amount of the notes, plus accrued and unpaid interest up to, but excluding, the redemption date. Redeeming the notes will alleviate restrictive covenants associated with shareholder returns.

Share repurchases

Secure received approval from the Toronto Stock Exchange for an NCIB to repurchase approximately 8 per cent of its outstanding shares as at Dec. 8, 2023, or 10 per cent of the corporation's public float, which commenced on Dec. 14, 2023. The NCIB will terminate on Dec. 13, 2024, or such earlier date as the maximum number of common shares are purchased pursuant to the NCIB, or terminated at the corporation's election. The board of directors and management believe there is a substantive disparity between Secure's share price and the fundamental value of the business. The sale transaction valuation underscores this disconnect, and provides compelling evidence that the corporation's stock should be valued above this benchmark.

As such, Secure intends to continue to actively repurchase shares under the NCIB, and will evaluate other methods that may be available to reduce this valuation gap and return capital to shareholders, which may include consideration of the merits of a substantial issuer bid, based on, among other things, market conditions, the discretion of the board of directors, compliance with debt covenants and financial performance at the applicable time.

Dividend

The corporation intends to continue paying its quarterly dividend of 10 cents per share, or 40 cents per share on an annualized basis, which currently provides an attractive 3.7-per-cent dividend yield compared with peers.

Growth

The corporation plans to execute on growth opportunities, both organically and through acquisitions that align with the corporation's investment criteria, and complement its core waste management and energy infrastructure business operations. Execution of growth expenditures will depend on signing agreements with customers to backstop the investment and acquisition opportunities present.

Looking ahead

Secure remains committed to being the leader in waste management and energy infrastructure, prioritizing value creation for its customers through reliable, safe and environmentally responsible infrastructure. This strategic approach allows Secure's customers to allocate their capital where it can yield the highest return, while emphasizing operational excellence and strong ESG (environmental, social and governance) standards.

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. Secure is well positioned to grow the business and deliver incremental shareholder returns, all while maintaining low leverage. The corporation has a strong team of dedicated employees in place to execute on these objectives, while continuing to provide best-in-class customer service.

Financial statements, and management's discussion and analysis (MD&A)

The corporation's annual audited consolidated financial statements and notes thereto for the years ended Dec. 31, 2023, and 2022, and MD&A for the three and 12 months ended Dec. 31, 2023, are available on Secure's website and on SEDAR+.

Fourth quarter and year-end 2023 conference call

Secure will host a conference call Monday, Feb. 26, 2024, at 9 a.m. Mountain time to discuss the fourth-quarter and year-end 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 the company's website. For those unable to listen to the live call, a taped broadcast will be available at the company's website and, until midnight MT on Monday, March 4, 2024, by dialling 1-888-390-0541 and using the pass code 876018.

About Secure Energy Services Inc.

Secure is a leading waste management and energy infrastructure business headquartered in Calgary, Alta. The corporation's extensive infrastructure network located throughout Western Canada and North Dakota includes waste processing and transfer facilities, industrial landfills, metal recycling facilities, crude oil and water gathering pipelines, crude oil terminals, and storage facilities. Through this infrastructure network, the corporation carries out its principal business operations, including the processing, recovery, recycling and disposal of waste streams generated by its energy and industrial customers and gathering, optimization, terminalling and storage of crude oil and natural gas liquids. The solutions the corporation provides are designed not only to help reduce costs, but also lower emissions, increase safety, manage water, recycle byproducts and protect the environment.

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