Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Secure Energy Services Inc (SECYF, Financial) reported a strong quarter with adjusted EBITDA of $114 million, surpassing expectations.
- The company successfully executed a share buyback plan, repurchasing nearly 14% of outstanding shares, which improved financial metrics on a per-share basis.
- A strategic tuck-in acquisition of metal recycling yards in Saskatchewan was completed, expanding the company's network and diversifying its supply base.
- The Clearwater heavy oil terminal's Phase 2 expansion doubled its crude oil handling capacity, contributing to higher volumes and recurring cash flows.
- The company maintained a strong balance sheet with significant capacity on its credit facility, supporting strategic priorities and maintaining low leverage.
Negative Points
- Revenue for the quarter was $337 million, representing a 5% decline compared to the same period in 2023, primarily due to divestitures and the sale of a non-core business unit.
- Net income decreased by $2 million compared to the second quarter of 2023, despite an increase in net income per share.
- Transportation costs were higher this quarter, which may impact margins if not normalized in future periods.
- The divestiture of 29 facilities in February impacted overall activity levels and volumes, contributing to the revenue decline.
- Segment profit margins in waste management were down 4% to 5% year-over-year, despite a 15% increase in revenues, indicating potential cost pressures or inefficiencies.
Q & A Highlights
Highlights of Secure Energy Services Inc (SECYF) Q2 2024 Earnings Call
Q: Congrats on a strong quarter here, especially post-asset sale. First, can you maybe talk about the same-store sales number, which reference is up double digits? Was this more a factor of higher utilization across your footprint? Or were there some pricing that increases mixed in there?
A: Yes. So I think when we look at the quarter compared to 2023, I think the number one factor we recognized is the wildfires did have an impact on where volumes were going to different locations. We do, or we have seen our utilization increase. I mean it's still in that 60% to 65%. I believe it was a bit lower in 2023. I think you also have some fundamentals that were driving increased value. You had TMX start up in May, which allowed a lot more takeaway capacity for our customers.
Q: Second for me, transportation costs were up a little bit this quarter. Wondering could we see this normalize given a higher percentage of your volumes are coming from production tie-in facilities. Are you still seeing some pressure on the cost side? Or is it more of a one-time thing this quarter?
A: Yes. That's a great question. I think from a normalization perspective, I think it's probably -- you can look at it as a one-time cost for this quarter and start to flatten out as we progress through the remainder of the year.
Q: In terms of M&A, nice to see a tuck-in. Is metals recycling the main focus right now? Or do you have other areas or end markets that you're looking at as well?
A: Yes, I think for -- I talked a lot about our core business segments is where we're focusing on and obviously, in our core competencies. I think when you look at the acquisition, that $31 million is a great tuck-in given it's a privately owned yard in a bunch of yards in Saskatchewan. It allows us to expand our operating network and helps us diversify our customer base. We've got more industrial customers, residential customers, commercial customers, it's obviously going to help with our processing capabilities and logistics.
Q: Maybe just sticking with the tuck-in acquisition here. Sorry if I missed it, but are you able to disclose any financial contributions out of the gate here from the assets, maybe perhaps a run rate EBITDA multiple for the transaction? And then also, just curious what sort of runway of organic growth opportunities you might be able to go after in the Saskatchewan market.
A: Yes, I mean, I think when you look at the $31 million acquisition, maybe it is really a tuck-in, I would say the EBITDA contribution is not material, but we did raise our guidance here for the back half of the year, moving it from the start of the year at $440 million to $465 million. We're now at $470 million to $490 million. So we're very pleased that we're raising guidance and part of the acquisition will contribute to it. But what I will say just about the metrics is that we're trading at sub-7 times here. It was accretive to our current trading multiple.
Q: Also just in terms of how you're thinking about M&A at this stage, would you consider the size of tuck-in as the sweet spot for you going forward? Or are you also considering larger transactions as well, assuming the deal terms make sense. But I'm just curious if you had any color on what the deal pipeline looks like going forward, smaller deals versus some larger opportunities during the back half of the year?
A: Yes, no, good question. I think whenever you're contemplating larger deals and obviously, with the divestment in February of over $1 billion, that transaction alone took almost a year to put together and there's a ton of due diligence, I do not foresee and we're not looking at any large transactions. I would say we're looking at these smaller tuck-ins, maybe they range from 30 to 80 to maybe slightly over 100. Nothing that I would consider substantial or large.
Q: I know there's a bit of noise this quarter with oilfield services now being reported within waste management. But it looks like year-over-year waste management revenues are up, call it, 15%, yet segment profit margins are actually down 4% to 5%. Were there any factors in the quarter that might normalize going forward? Or does this quarter kind of establish a new base for margins going forward?
A: Yes. There's nothing that jumps out to me, Pat. We're overall, we're pretty happy with the activity in Q2 in that segment and the margins. I think, and considering where the margins are overall, that 34%, we're happy in that range. And I think we can expect there might be some modest uptick in Q3, Q4, just with some seasonality in those quarters typically being a bit stronger, but it's not going to be drastically different.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
