Q1 2024 Secure Energy Services Inc Earnings Call
Operator: Good afternoon, ladies and gentlemen, and welcome to the Secure Analysis first quarter 2024 results conference call. At this time, all lines are in a listen-only mode.
Good afternoon, ladies and gentlemen, and welcome to secure announces first quarter 2024 results conference call. At this time all lines are in a listen only mode.
Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Thursday, April 25, 2024. I would now like to turn the conference over to Alison Prokop. Please go ahead.
Operator: Following the presentation, we will conduct a question and answer session. If at any time. During this call you need assistance. Please press star zero for the operator.
Alison Prokop: This call is being recorded on Thursday April 25, 2024, I would now like to turn the conference over to Alison Procarp. Please go ahead.
Alison Prokop: Thank you. Welcome to Secure's conference call for the first quarter of 2024. Joining me on the call today is Rene Amirault, our Chief Executive Officer; Allen Gransch, our President; Chad Magus, our Chief Financial Officer; and Corey Higham, our Chief Operating Officer. During the call today, we will make forward-looking statements related to future performance, and we will refer to certain financial measures and ratios that do not have any standardized meaning prescribed by GAAP and may not be comparable to similar financial measures or ratios disclosed by other companies.
Alison Prokop: Thank you welcome to pick your conference call for the first quarter of 2020 for joining me on the call today is running on Bureau, our Chief Executive Officer, Alan grants, our President Tom I guess, our Chief Financial Officer, and Corey Hi him, our Chief operating officer during.
Alison Prokop: During the call today, we will make forward looking statements related to future performance and we will refer to certain financial measures and ratios that do not have any standardized meaning prescribed by GAAP and may not be comparable to similar financial measures or ratios disclosed by other companies.
Alison Prokop: The forward-looking statements reflect the current views of Secure with respect to future events and are based on certain key expectations and assumptions considered reasonable by Secure. By their very nature, forward-looking information addresses future events and conditions, and actual results could differ materially from those anticipated due to numerous factors. Please refer to our continuous disclosure documents available on CDER Plus as they identify risk factors applicable to secured transactions, factors which may cause actual results to differ materially from any forward-looking statements, and identify and define our non-GAAP measures.
Alison Prokop: The forward looking statements reflect the current views of secure with respect to future events and are based on certain key expectations and assumptions considered reasonable by secure.
Alison Prokop: Forward looking information address those future events and conditions by their very nature, they involve inherent assumptions risks and uncertainties and actual results could differ materially from those anticipated due to numerous factors or risks.
Alison Prokop: Please refer to our continuous disclosure documents available on SEDAR plus they identify risk factors applicable to secure factors, which may cause actual results to differ materially from any forward looking statements and identify and define our non-GAAP measures.
Alison Prokop: Today, we will review our financial and operational results for the first quarter of 2024 and our outlook for the remainder of the year. I will now turn the call over to Rene for his opening remarks. Thank you and good afternoon, everyone.
Alison Prokop: Today, We will review, our financial and operational results for the first quarter of 2024, and our outlook for the remainder of the year I will now turn the call over to Rodney for his opening remarks.
Rene: Thank you and good afternoon, everyone. We are pleased to report a fantastic start to 2024 with first quarter results meeting our expectations, allowing us to narrow our adjusted EBITDA guidance to 450 to $4 60 $500 million for the year, our strong financial performance continues to underscore this.
Rene E. Amirault: Thank you and good afternoon, everyone. We are pleased to report a fantastic start to 2024, with the first quarter results meeting our expectations. Alana Mustanera, Adjusted EBIDOG Guidance. 450 to 465 cents a hundred million for the year. Our strong financial performance continues to underscore the stability and growth potential of our waste management and energy infrastructure business. During the quarter, we were extremely pleased to close the $1.15 billion asset sale to an affiliate of Waste Connection.
Rene E. Amirault: Stability and growth potential of our waste management and energy infrastructure business.
Rene E. Amirault: During the quarter, we are extremely pleased to close the 1.15 billion asset sale to an affiliate of waste connections 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 facilitating our ability to execute.
Rene E. Amirault: Proceeds from the sale transaction, as well as continued strong free cash flow generation, provide the corporation with significant capital allocation optionality for 2024 and beyond, facilitating our ability to execute on all Secure's strategic priorities. With a solid foundation and clear direction, we're confident in our ability to protect the base business and seize new opportunities to create value for our shareholders. We also remain committed to enhancing shareholder returns through our 40 cents per share annualized dividend and share repurchases, all while maintaining low leverage.
Rene E. Amirault: All secured strategic priorities with a solid foundation and clear direction, we're confident in our ability to protect the base business and seize new opportunities to create value for our shareholders. We also remain committed to enhance shareholder returns through our <unk> 40 per share annualized dividend and share.
Rene E. Amirault: Purchases, all while maintaining low leverage.
Rene E. Amirault: Over the past few months, we have materially strengthened our capital structure with debt repayment and financing. In February, we repaid the entire amount drawn on the $800 million revolving credit facility and redeemed the senior second lien secured notes due 2025. In March, we closed an offering of the six and three-quarters five-year senior unsecured notes with an aggregate principal balance of $300 million. Net proceeds from the offering, along with cash on hand, were used to redeem the outstanding principal amount of the seven and a quarter senior unsecured notes due 2026.
Rene E. Amirault: Over the past few months, we have materially strengthened our capital structure with debt repayment and financing in February we repaid the entire amount drawn on the 800 million revolving credit facility and redeemed senior second lien secured notes due 2025 and March we closed the offering of the six and three quarter five years.
Rene E. Amirault: Senior unsecured notes with an aggregate principal balance of 300 million net proceeds from the offering along with cash on hand were used to redeem the outstanding principal amount of the seven and a quarter senior unsecured notes due 2026 at March 31, 20 for the corporation had $264 million of cash.
Rene E. Amirault: At March 31, 2024, the corporation had $264 million of cash, and an unused debt capacity of approximately $750 million, subject to covenant restrictions, providing ample liquidity for shareholder returns and funding of growth initiatives. During the quarter, we repurchased and cancelled approximately 12.1 million shares under the normal course issuer bid at a weighted average price per share of $10.47 for a total of $126 million, reducing our shares outstanding by 4%. The corporation repurchased an additional 2.8 million shares subsequent to the quarter end.
Rene E. Amirault: And unused debt capacity of approximately $750 million subject to covenant restrictions, providing ample liquidity for shareholder returns and funding of growth initiatives.
Rene E. Amirault: During the quarter, we repurchased and canceled approximately $12 1 million shares under the normal course issuer bid at a weighted average price per share of $10 47 for a total of 126 million, reducing our shares outstanding by 4%.
Rene E. Amirault: The corporation repurchased an additional two 8 million shares subsequent to the quarter end. We also paid our quarterly dividend 10 cents per common share, which is currently represents an attractive yield of three 5% our common shares compared to peers and finally today, we announced an increase to our unexpected capital spend in 24 to 75 million.
Rene E. Amirault: We also paid our quarterly dividend of $0.10 per common share, which currently represents an attractive yield of 3.5% on our common shares compared to peers. And finally, today we announced an increase to our unexpected capital spend of $24 to $75 million, up from the $50 million previously announced. The increase relates to customer agreements for a produced water pipeline to a waste processing facility, as well as processing equipment for phase three at the Clearwater Heavy Oil Terminal.
Rene E. Amirault: Up from the $50 million previously announced the.
Rene E. Amirault: The increase relates to customer agreements for our produced water pipeline to a waste processing facility as well as processing equipment for phase III at the Clearwater heavy oil terminal. We continue to have a solid pipeline of organic growth opportunities and we will consider acquisitions that meet its investment criteria and enhanced its core operations and waste management and energy infrastructure.
Rene E. Amirault: We continue to have a solid pipeline of organic growth opportunities and will consider acquisitions that meet its investment criteria and enhance its core operations in waste management and energy improvement. I believe this is only the beginning for Secure. We are well positioned with the right people, the asset network, and financial flexibility to take us on our next phase of growth. As previously announced, I will retire as CEO on May 1st, 2024.
Rene E. Amirault: I believe this is only the beginning for secure.
Rene E. Amirault: We are well positioned with the right people.
Speaker Change: <unk> network and financial flexibility to take us on our next phase of growth as previously announced I will retire as CEO on May one 2020 for the leadership transition with Alan Graf <unk>, assuming the role of President and CEO marks the beginning of an exciting new chapter for the Corporation.
Rene E. Amirault: The leadership transition with Allen Gransch assuming the role of President and CEO marks the beginning of an exciting new chapter for the corporation. I am proud of what we have accomplished together and even more excited about our future. Allen's proven leadership capabilities, extensive experience, and diverse skill set will allow for a seamless succession and guide Secure as it moves forward. I look forward to continuing to support Secure's strategy as Vice-Chair of the Board. I will now pass it over to Chad to provide closing remarks.
Chad: What we have accomplished together and even more excited about our future Allen's proven leadership capabilities extensive experience and diverse skill set will allow for a seamless succession and guide secure as it moves forward I look forward to continue to support secure strategy as Vice chair of the board I will now.
Rene E. Amirault: Pass it over to Chad to provide some additional first quarter highlights.
Chad William Magus: Thanks, Rene, and good afternoon, everyone. Strong execution across all business units continues to underscore the stability of our cash flow generation capability. As the sale transaction with Waste Connections decreased the number of our overall facilities, this reduced most of our financial metrics on an absolute basis when comparing the first quarter of 2024 to a year earlier. However, thanks to our opportunistic share buybacks over the past year, we have decreased our weighted average outstanding shares in the first quarter of 2024 compared to the first quarter of 2023 by 8%.
Chad: Thanks, Randy and good afternoon, everyone.
Chad William Magus: <unk> execution across all business units continues to underscore the stability of our cash flow generation capabilities.
Chad William Magus: As the sale transaction with waste connections decreased number of our overall facilities. This reduced most of our financial metrics on an absolute basis, when comparing the first quarter of 2024 to a year earlier.
Chad William Magus: However, thanks to our opportunistic share buybacks over the past year, we have decreased our weighted average outstanding shares in the first quarter of 2024 compared to the first quarter of 2023 by 8%.
Chad William Magus: partially offsetting the impact of the reduced number of facilities on our results on a per-share basis. To be clear, we have not prepared any financial highlights on a pro forma basis. Corey, however, will provide some volume information on a pro forma basis.
Chad William Magus: Partially offsetting the impact of the reduced number of facilities to our results on a per share basis.
Chad William Magus: To be clear, we are not prepared any financial highlights on a pro forma basis. Corey. However, we will provide some volume information on a pro forma basis.
Chad William Magus: Net revenue of $360 million decreased 13% from the first quarter of 2023, primarily related to the impact of the sale transaction and the divestiture of two non-core oil field service business units in 2023, although partially offset by higher volumes and improved margins across the Corporation's remaining infrastructure network. Net income of $422 million, or $1.50 per basic share, increased to $367 million, or $1.32 per basic share, compared to the first quarter of 2023. The increase was primarily driven by the $520 million gain recognized on the sales transaction, net of the current and deferred tax expenses resulting from the gain.
Chad William Magus: Net revenue of $360 million decreased 13% from the first quarter of 2023, primarily related to the impact of the sale transaction.
Speaker Change: Thank you.
Chad William Magus: Divestiture of two noncore oilfield service business units in 2023.
Chad William Magus: Partially offset by higher volumes and improved margins across the corporations remaining infrastructure network.
Chad William Magus: Net income of 422 million or $1 50 per basic share increased $367 million or $1 32 basic share compared to the first quarter of 2023 the.
Chad William Magus: The increase was primarily driven by the $520 million $8 recognized on the sale transaction net of the current and deferred tax expenses, resulting from the game.
Chad William Magus: Adjusted EBITDA of $132 million, or $0.47 per basic share, decreased 13% from the first quarter of 2023, or 4% on a per basic share basis as a result of the sale transaction. Funds flow from operations of $108 million, or $0.38 per basic share, decreased 21% from the first quarter of 2023, or 14% on a per basic share basis, as a result of lower operating profit resulting from the sale Discretionary free cash flow of $93 million, or $0.33 per basic share, decreased 24% from the first quarter of 2023, or 18% on a per basic share basis.
Chad William Magus: Adjusted EBITDA of 132 million or <unk> 47 per basic share decreased 13% from the first quarter of 2023 or 4% on a per basic share basis as a result of the sale transaction.
Chad William Magus: Funds flow from operations of $108 million or <unk> 38 per basic share decreased 21% from the first quarter of 2023 or 14% on a per basic share basis as a result, lower operating profit, resulting from the sale transaction.
Chad William Magus: Discretionary free cash flow of $93 million or <unk> 33 per basic share decreased 24% from first quarter of 2023 or 18% on a per basic share basis. The lower adjusted EBITDA was partially offset by reduced spending on sustaining capital due to the reduced facility count following the sale transaction.
Chad William Magus: The lower adjusted EBITDA was partially offset by reduced spending on sustaining capital due to the reduced facility count following the sale transaction. As the sale transaction utilizes a significant amount of Secure's tax bills, the corporation is recording current tax expense in 2024, the majority of which is expected to be paid in the first half of 2025. I'll now turn it over to Corey to provide some operational highlights from the first quarter. Thanks, Chad.
Corey: The sale transaction to utilize the significant amount of secures tax pools. The corporation is reporting current tax expense in 2020 for the majority of which is expected to be actually paid in the first half of 2025.
Chad William Magus: I'll now turn it over to Corey to provide some operational highlights from the first quarter.
Corey Ray Higham: Thanks, Chad. In the quarter, our facilities handled on average 114,000 barrels of produced water per day and 51,000 barrels of slurry waste and emulsion. Through our processes, we were able to recover over 315,000 barrels of oil from customer waste. On a pro forma basis, produced water volumes were up 11% from the first quarter of 2023. The increase was a result of higher same-store volumes due to industry trends, resulting in increased water volumes.
Corey: Thanks, Chad in the quarter, our facilities handled on average of 140000 barrels of produced water per day, and 51000 barrels and slurry waste in our motion.
Corey Ray Higham: Through our process, we were able to recover over 350000 barrels of oil from customer waste on a pro forma basis produced water volumes were up 11% from the first quarter of 2023. The increase was a result of higher same store volumes due to industry trends, resulting in increased water volumes.
Corey Ray Higham: Okay.
Corey Ray Higham: On a pro forma basis <unk> processing volumes were up 3% from the first quarter of 2023 due to production growth as well as increased drilling and completion activity driving incremental volumes in certain regions across our landfill network. We safely disposed 940000 tons of contaminated solid waste in the quarter on a pro forma basis landfill volumes.
Corey Ray Higham: On a pro forma basis, waste processing volumes were up 3% from the first quarter of 2023 due to production growth, as well as increased drilling and completion activity, driving incremental volumes in certain regions. Across our landfill network, we safely disposed of 940,000 tons of contaminated solid waste in the corridor. On a per-capita basis, landfill volumes were relatively flat, quarter over quarter, supported by disciplined drilling and completion activity and mandatory abatement, remediation, and reclamation spending.
Corey Ray Higham: We were relatively flat quarter over quarter supported by disciplined drilling and completion activity and mandatory abandonment remediation and reclamation spending.
Corey Ray Higham: Overall ferrous metal recycling volumes increased 48% due in part to incremental scrap volumes associated with project work driving higher volumes two secured facilities as well as strategic investments made in 2023 and process improvements, which resulted in improved operating capabilities and efficiencies.
Allen Peter Gransch: Overall, ferrous metal recycling volumes increased 48%, due in part to incremental scrap volumes associated with project work driving higher volumes to secure facilities, as well as strategic investments made in 2023 and process improvements, which resulted in improved operating capabilities and efficiency. In our energy infrastructure segment, crude oil and condensate turbine and pipeline volumes were up to 115,000 barrels per day in the first quarter, a 23% increase from the same period in 2023, driven by the Clearwater Heavy Oil Terminal, which commenced operations in the fourth quarter of 2023.
Allen Peter Gransch: In our energy infrastructure segment crude oil and condensate pipeline volumes were up to $150 115000 barrels per day in the first quarter of 23% increase from the same period in 2023, driven by the Clearwater heavy oil terminal, which commenced operations in the fourth quarter of 2023.
Allen Peter Gransch: Turning now to our capital program, our $75 million growth capital plan for 2024 relates primarily to brownfield infrastructure expansion projects to manage incremental production volumes for our customers'.
Allen Peter Gransch: Major growth projects are backstopped by new commercial agreements, providing reliable volumes and recurring cash flows over the life of the contract.
Allen Peter Gransch: In the first quarter, we incurred $11 million as we progressed our investment in the second phase of the Clearwater terminal.
Allen Peter Gransch: And some additional capital at our metals recycling locations to Clearwater terminal expansions backstopped by both existing and new customers and will approximately double the terminal capacity to over 60000 barrels per day.
Allen Peter Gransch: Turning now to our capital program, our $75 million growth capital plan for 2024 relates primarily to brownfield infrastructure expansion projects to manage incremental production volumes for our customers. Major growth projects are backstopped by new commercial agreements providing reliable volumes and recurring cash flows over the life of the contract. In the first quarter, we incurred $11 million as we progressed our investment in the second phase of the Clearwater Terminal and spent some additional capital at our metal recycling location.
Allen Peter Gransch: Construction activities are expected to be completed in the expanded capacity operational in the second quarter of 2024.
Allen Peter Gransch: We also closed a small acquisition in our specialty chemicals business during the quarter, expanding our product offerings for fluid optimization with the work within the water treatment production remediation and drilling fluid chemical segments.
Allen Peter Gransch: Sustaining capital of $8 million for the quarter related to landfill cell expansions, well maintenance and asset integrity programs for processing facilities and asset replacement for our waste management operations.
Allen Peter Gransch: Clearwater Terminal Expansion is backstopped by both existing and new customers and will approximately double the terminal capacity to 60,000 barrels per day. Construction activities are expected to be completed in the expanded capacity in the second quarter of 2024. We also closed a small acquisition in our specialty chemicals business during the quarter, expanding our product offerings for fluid optimization within the water treatment, production, remediation, and drilling fluid chemical segment. Sustaining capital of $8 million for the quarter related to landfill cell expansions, well maintenance, and asset integrity programs for processing facilities, and asset replacements for our waste management operations. We continue to expect to spend approximately $60 million on sustaining capital in 2024 and approximately $15 million on settling Secure's abandonment retirement obligation. I will now turn it over to Allen. Thanks, Corey.
Allen: We continue to expect to spend approximately $60 million on sustaining capital in 2024, and approximately $15 million on selling securities.
Allen: <unk> obligations.
Allen: I will now turn it over to al.
Allen: Thanks, Corey <unk> looking forward to releasing our fifth annual comprehensive sustainability report and our second task force on climate related financial disclosures report in May demonstrating our ongoing commitment to transparent reporting.
Allen: These reports showcase the advancement, we made in our ESG priorities in 2023.
Allen: We are especially proud of substantial progress secure made in reducing our emission intensity as we have experienced a decrease of nearly 13% on our overall emissions intensity from 2021 to 2023.
Allen: We are on track to reach our short term goal of 15% reduction over three years and our greenhouse gas emission intensity by the end of 2024.
Allen Peter Gransch: Thanks, Corey. Secure is looking forward to releasing our 5th Annual Comprehensive Sustainability Report and our 2nd Task Force on Climate-Related Financial Disclosures Report in May, demonstrating our ongoing commitment to transparent reporting. These reports showcase the progress we made on our ESG priorities in 2023. We are especially proud of the substantial progress Secure made in reducing our emission intensity, as we experienced a decrease of nearly 13% in our overall emissions intensity from 2021 to 2023.
Allen: We introduced new technologies to ensure compliance and standardization of waste and recyclable documentation.
Allen Peter Gransch: We also continued to deliver on our commitments to supporting the communities, where we live and work through more than $1 3 million in contributions.
Allen Peter Gransch: The solutions secure provides are designed not only to help reduce cost, but also lower emissions increased safety, Matt its water recycle byproducts and protect the environment. In 2023, we avoided 28000 tons of Cotwo by recovering crude oil from waste when compared to producing the same barrel from extraction in Permian resources.
Allen Peter Gransch: We are on track to reach our short-term goal of 15% reduction over three years in our greenhouse gas emission intensity by the end of 2024. Furthermore, we introduced new technologies to ensure compliance and standardization of waste and recyclable documentation.
Allen Peter Gransch: And similarly by processing scrap metal for recycling, we avoided 94000 tons of cotwo compared to creating the same type of metal from resource extraction. Combined this is enough to offset all of our scope one emissions in 2023. Additionally, we displaced 140000 truckloads because of our.
Allen Peter Gransch: We also continue to deliver on our commitments to supporting the communities where we live and work through more than $1.3 million in contributions. The solutions Secure provides are designed not only to help reduce costs but also lower emissions, increase safety, manage water, recycle byproducts, and protect the environment. In 2023, we avoided 28,000 tons of CO2 by recovering crude oil from waste when compared to producing the same barrel from the extraction of virgin coal. And similarly, by processing scrap metal for recycling, we avoided 94,000 tons of CO2 when compared to creating the same ton of metal from resource extraction.
Allen Peter Gransch: Pipeline infrastructure network, resulting in 13000 tons of Cotwo option of our customers' scope three emissions.
Allen Peter Gransch: The company's success is a testament to the hard work and dedication of everyone on the secure team as we look at 2020 for some of our key objectives include progressing on our journey to net zero with ambitious safety targets fostering.
Allen Peter Gransch: <unk>, our indigenous partnerships with the completion of our Progressive Aboriginal Relations program certification and working to develop a protocol for carbon credits generated from recovery of products from waste, which will be a critical milestone in achieving our net zero by 2020 by 2050.
Allen Peter Gransch: Turning now to the outlook for the remainder of the year secure is extremely well positioned for success with a strong industry backdrop growth opportunities and the financial capacity to execute on our strategic initiatives and deliver enhanced shareholder returns with the channels chat mountain pipeline expansion scheduled to begin operations in the second quarter.
Allen Peter Gransch: Combined, this is enough to offset all our Scope 1 emissions in 2023. Additionally, we displaced 140,000 truckloads because of our pipeline infrastructure network, resulting in 13,000 tons of CO2 reduction from our customer Scope 3 emissions. The company's success is a testament to the hard work and dedication of everyone in security. As we look at 2024, some of our key objectives include progressing on our journey to net zero with ambitious safety targets. Fostering our Indigenous partnerships with the completion of our Progressive Aboriginal Relations Program certification.
Allen Peter Gransch: <unk>, our customers can gain takeaway capacity and stronger pricing with access to global markets paving the way for sustained and expanded activity levels. In years ahead, we expect industry fundamentals will drive increased volume and overall demand for securities infrastructure.
Allen Peter Gransch: With our waste processing facilities currently operating at 60% utilization, we have ample capacity to accommodate growing customer needs for processing disposal recycling <unk> recovery and terminalling, all with minimal incremental fixed costs or additional capital investment.
Allen Peter Gransch: And working to develop a protocol for carbon credits generated from recovery of products from waste, which will be a critical milestone in achieving our net zero by 2050. Turning now to the outlook for the remainder of the year, Secure is extremely well positioned for success with a strong industry backdrop, growth opportunities, and the financial capacity to execute on our strategic initiatives and deliver enhanced shareholder returns. With the Trans Mountain Pipeline expansion scheduled to begin operations in the second quarter, customers can gain takeaway capacity and stronger pricing with access to global markets, paving the way for sustained and expanded activity levels in the years ahead.
Allen Peter Gransch: Over the last quarter. The corporation successfully refinanced its long term debt and continue to deliver shareholder returns through dividends and share buybacks, while maintaining significant financial flexibility given our positive operational results in the first quarter. The board of directors and management continue to believe that significant gap exists between.
Allen Peter Gransch: Securities current market valuation and that of the peers in the waste management and energy infrastructure sector in light of these factors alongside ongoing initiatives, we intend to initiate a substantial issuer bid next week as a key element of secures capital allocation strategy.
Allen Peter Gransch: We expect industry fundamentals will drive increased volume and overall demand for Secure's infrastructure. With our waste processing facilities currently operating at 60% utilization, we have ample capacity to accommodate growing customer needs for processing, disposal, recycling, recovery, and termination, all with minimal incremental fixed costs or additional capital investment.
Allen Peter Gransch: I also invite you all to attend Tomorrows annual general meeting of shareholders. At this meeting among other things shareholders will be voting unsecured board of directors I am pleased to be on the ballot for the first time was seven other highly qualified and experienced directors.
Allen Peter Gransch: Over the last quarter, the corporation successfully refinanced its long-term debt and continued to deliver shareholder returns through dividends and share buybacks while maintaining significant financial flexibility. Given our positive operational results in the first quarter, the Board of Directors and management continue to believe that a significant gap exists between Secure's current market valuation and that of its peers in the waste management and energy infrastructure sector. In light of these factors, alongside ongoing initiatives, we intend to initiate a substantial issuer bid next week as a key element of Secure's capital allocation strategy.
Allen Peter Gransch: Brad Monroe longtime director and secure will not be seeking reelection at the meeting and we offer them a sincere. Thank you for his 15 years of valuable service.
Speaker Change: Lastly, I want to wish Randy congratulations on his well deserved retirement from management.
Allen Peter Gransch: Thanks to <unk> visionary leadership secure has established itself as a trusted industry partner showcasing remarkable accomplishments and growth and operational excellence. The corporation is extremely well positioned to advance our strategy as a leader in waste management and energy infrastructure.
Allen Peter Gransch: I also invite you all to attend tomorrow's Annual General Meeting of Shareholders. At this meeting, among other things, shareholders will be voting on Secure's Board of Directors. I am pleased to be on the ballot for the first time with seven other highly qualified and experienced directors. Brad Monroe, longtime director of Secure, will not be seeking re-election at the meeting, and we offer him a sincere thank you for his 15 years of valuable service.
Speaker Change: <unk> value creation for our customers through reliable safe and environmentally responsible infrastructure I'm very privileged to be taking over as CEO at this time.
Allen Peter Gransch: And I'm excited for this opportunity for continued growth and innovation I look forward to <unk> continued support as vice chair of the board of directors and working with him and the entire board to help guide secure into the future.
Allen Peter Gransch: That concludes our prepared remarks, we would now be happy to take your questions.
Operator: Lastly, I want to wish Rene congratulations on his well-deserved retirement from management. Thanks to his visionary leadership, Secure has established itself as a trusted industry partner, showcasing remarkable accomplishments in growth and operational excellence. The corporation is extremely well positioned to advance its strategy as a leader in waste management and energy infrastructure, prioritizing value creation for our customers through reliable, safe, and environmentally responsible infrastructure. I am very privileged to be taking over as CEO at this time, and I'm excited for this opportunity for continued growth and innovation.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.
Operator: We'll hear with Rachel prompt acknowledging your request if you will.
Operator: A speaker phone please lift the handset before pressing any case.
Operator: Your first question comes from call Tomorrow at Stifel. Please go ahead.
Operator: Hi afternoon, all I just wanted to start on the S. B, obviously theres some questions around what the size and price may be can you just talk about how you're thinking about what the right level might be for most of these factors whether it's.
Operator: I look forward to Rene's continued support as Vice Chair of the Board of Directors and working with him and the entire board to help guide Secure into the future. That concludes our prepared remarks. We would now be happy to take your questions.
Operator: Certain valuation multiple of certain leverage.
Operator: That you want to be at after how are you guys thinking about that.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the number on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any key.
Operator: Yes.
Operator: Our goal is for any year.
Operator: I'm sure that's going to be.
Operator: The number one theme until we press release our intentions.
Speaker Change: Those are great questions around the <unk>.
Operator: B.
Operator: All we can tell you is that next week.
Operator: Your first question comes from Cole Pereira at CIFL. Please go ahead.
Cole J. Pereira: Get that I'll figure it out and take a look at a bunch of different factors that go into it.
Cole J. Pereira: Hi, afternoon all. I just wanted to start on the SIB. Obviously, there are some questions around what the size and price may be. Can you just talk about how you're thinking about what the right level might be for most of these factors, whether it's, you know, a certain valuation multiple, a certain leverage that you want to be at after? How are you guys thinking about that?
Cole J. Pereira: The various <unk>.
Cole J. Pereira: Criteria and ultimately get signed off by our board of directors, but.
Speaker Change: Stay tuned.
Cole J. Pereira: We will press release it is once we get it altogether and it should happen next week, that's our intent.
Rene E. Amirault: Hi Cole, it's Rene here. I'm sure that's going to be the number one theme until we press release our intentions, and those are great questions around the SIB. All we can tell you is that next week we'll get that all figured out and take a look at a bunch of different factors that go into the various criteria and ultimately get signed off by our board of directors. Stay tuned. We'll release it once we get it all together, and it should happen next week. That's our intent.
Speaker Change: Got it fair enough.
Cole J. Pereira: And then so obviously you're effectively debt free now the business is generating a lot of free cash how do you guys think about what the right level of growth spending is for this business going forward.
Rene E. Amirault: Yes.
Rene E. Amirault: Hey, Paul It's Alan here, Yeah, No. Great question. If you look at 2023, we spent over $100 million and growth projects, primarily in the Montney for water disposal infrastructure and then our <unk> terminal, which has great economics.
Allen Peter Gransch: Got it. Fair enough. And then, obviously, you're effectively debt-free now, and the business is generating a lot of free cash. How do you guys think about what the right level of growth spending is for this business going forward?
Allen Peter Gransch: And great growth projects and a lot of our projects are result of our customers wanting to work with us to partner up to get there whether or not it's waste products into our waste processing facilities or whether they want clean oil onto our mainline system and we're there to help them.
Allen Peter Gransch: Hey, Cole, it's Allen here. Yeah, no, great question. If you look at 2023, you know, we spent over 100 million on growth projects, primarily in the Montney for Water Disposal Infrastructure and then our Nipissi Terminal, which is, you know, great economics and great growth projects. A lot of our projects are a result of our customers wanting to work with us to partner up to get their, whether or not it's waste products into our waste processing facilities, or whether they want clean oil onto We're there to help them.
Allen Peter Gransch: And I think as we think about growth year for 2024, we just announced another $25 million and part of that is we're going to complete phase III for an efficacy.
Allen Peter Gransch: And we're gonna at Phase III, which will add some processing capacity some treating capacity to get it.
Allen Peter Gransch: Total terminal output of around 70000 barrels a day that will be complete.
Allen Peter Gransch: By the end of this year, so great great growth project, we also announced that we're doing another montney water disposal pipeline that is backed by an anchor tenant and these are all very similar to sort of take or pay in the area of dedication arrangements that we have with our customers.
Allen Peter Gransch: And I think, you know, as we think about growth here for 2024, we just announced another 25 million. And part of that is we're going to complete phase two for Nipissi, and we're going to add phase three, which will add some processing capacity, some treating capacity to get a total terminal output of around 70,000 barrels a day. That'll be
Allen Peter Gransch: And as I said in the past, we'll come to announcing these projects when we've got signed agreements and when we do that we'll roll out the project and what it relates to we've been focusing a lot on brownfield growth expansion. Those are great return projects because you have your base infrastructure and the more infrastructure you at the higher rate of REIT.
Allen Peter Gransch: By the end of this year, so a great, great growth project. We also announced that we're doing another Monty water disposal pipeline that's backed by an anchor tenant. And these are all very similar sort of take or pay and area dedication arrangements that we have with our customers.
Speaker Change: <unk>. So my expectation here I think we spent $100 million last year I could see that number.
Allen Peter Gransch: And, you know, as I said in the past, we'll come to announcing these projects when we've got signed agreements. And when we do that, we'll roll out the project and what it relates to. We've been focusing a lot on brownfield growth expansion. Those are great return projects because you have your base infrastructure, and the more infrastructure you add, the higher the rate of return. So my expectation here, you know, I think we spent 100M last year.
Allen Peter Gransch: The 75 that we've announced so far trending upwards to 100, but again that will be predicated on when we get agreement side some of it might roll into 2025, but ultimately I would say our hopper of opportunities is pretty robust.
Allen Peter Gransch: When you have a strong backdrop in the sector like we're seeing.
Allen Peter Gransch: No more opportunities start to present themselves and so as those opportunities are bedded in D C where that infrastructure is at it again, we will come to market.
Allen Peter Gransch: I could see that number, you know, the 75 that we've announced so far trending upwards to 100, but again, that'll be predicated on when we get the agreement signed. Some of it might roll into 2025, but ultimately, I'd say our hopper of opportunity is pretty robust. When you have a strong backdrop in the sector, like we're seeing, more opportunities start to present themselves. And so as those opportunities are vetted and we see where that infrastructure is added, we'll come to market again.
Speaker Change: Okay got it and then just one more quick one.
Allen Peter Gransch: Chad you mentioned, you'll be cash taxable in 2025.
Allen Peter Gransch: The bookends you're willing to put around this in terms of you know a dollar amount percentage rate something like that.
Speaker Change: Yeah, Hey call.
Allen Peter Gransch: I think the best thing to do is.
Speaker Change: Larry our year end no.
Allen Peter Gransch: Wow.
Allen Peter Gransch: We will have a taxable income and I would knock that down or.
Allen Peter Gransch: For the divestiture and the percent.
Unknown Attendee: Okay, got it. And then just one more quick one.
Allen Peter Gransch: A rough percentage up what the casual we lost.
Chad William Magus: Chad, you mentioned you'll be cash taxable in 2025. Any bookends you're willing to put around this in terms of, you know, a dollar amount, percentage rate, something like that?
Unknown Attendee: For the Divesture and then just apply that 25% rate.
Chad William Magus: But given you ballpark dollar numbers dots.
Chad: On a go forward basis, it's probably in the $60 million to $75 million range.
Chad William Magus: Yeah, he's cool. I think the best thing to do is, you know, our year-end note. We'll have taxable income, and then I would knock that down for the divestiture and the percent, a rough percentage of what the cash flow we lost for the divestiture and then just apply that 25% rate, you know, but given you ballpark dollar numbers, that's in the, You know, on a go-for basis, it's probably in the $60 to $75 million range.
Speaker Change: Okay got it.
Speaker Change: That's all for me, Thanks, I'll turn it back and congrats again, Randy on your retirement.
Speaker Change: Thanks, Paul.
Chad William Magus: Thank you next question comes from John Gibson.
Speaker Change: BMO capital markets. Please go ahead.
Speaker Change: Good afternoon, and again congrats on out here is shocker, it secure and best wishes in your retirement.
Speaker Change: Just one thing Thats kind of gone on other areas your dividend I guess when the dust settles on the SAP could we expect a similar payout level for the dividend just.
Unknown Attendee: Okay, got it. That's all for me. Thanks. I'll turn it back on and congratulations again, Rene, on your retirement.
Operator: Thank you. The next question comes from John Gibson of BMO Capital Markets. Please go ahead.
Unknown Attendee: This would imply an increase just given where your share count falls too.
Operator: Hey, John its Alan here, Yes, no I think obviously in our capital allocation decision, making share buybacks.
John Gibson: Good afternoon. Again, congratulations, Rene, on your strong career at Secure and best wishes in your retirement. Just one thing that's kind of gone under the radar is your dividend. I guess when the dust settles on the SIV, could we expect a similar payout level for the dividend? Obviously, this would imply an increase just given where your share count falls.
John Gibson: Are really Paramount I mean, if you look at what we've done in the first quarter, we bought back over 12 million shares we've used about 70% of that in CIB. Because we continue to believe the stock is undervalued and it's a real value when you see what we transacted and sold in a distressed situation to waste can add.
Allen Peter Gransch: John, it's Allen here. Yeah, no. I think, obviously, in our capital allocation and decision making, share buybacks are really paramount. I mean, if you look at what we did in the first quarter, we bought back over 12 billion shares, and we've used about 70% of that MTIB because we continue to believe the stock is undervalued. And it's a real value when you see what we transacted and sold in a distressed situation to Waste Connection. So that's a real discount.
John Gibson: So that's a real discount and so we've been taking advantage of it and that's why next week when we come out and put out terms on the <unk> side Youll get an understanding of what that looks like but as I go through the other elements of capital allocation in terms of growth, which we've now announced and there's a little bit of parameters around it our balance sheet isn't fast.
Allen Peter Gransch: Fantastic shape.
Allen Peter Gransch: Deal that Chad a restructured in March I think sets us up well for for the future years, So I do believe.
Allen Peter Gransch: And so, we've been taking advantage of it. And that's why next week when we come out and put out terms on the SID, you'll get an understanding of what that looks like. But as I go through the other elements of capital allocation in terms of growth, which we've now announced, and there are a few parameters around it, our balance sheet is in fantastic shape. The deal that Chad restructured in March, I think, sets us up well for the future here.
Allen Peter Gransch: Dust settles here when we get through Q2, we will take another look at the dividend and our current yield.
Allen Peter Gransch: Because youre right as we buy back stock there will be contemplation do we do we are we getting the value for the dividend and what do we want to do because we want to increase it but that will be our optionality and I think we will take a look at as we progress through the year.
Allen Peter Gransch: So I do believe as the dust settles here and we get through Q2, we will take another look at the dividend and our current yield. Because you're right, as we buy back stock, there will be contemplation. Are we getting value for the dividend?
Speaker Change: Okay, Great and then last one for me thanks for providing the pro forma metrics are volume metrics on the call and obviously impressive to see the year over year increases could you maybe speak to what the drivers were more specifically was it.
Allen Peter Gransch: And what do we want to do? Do we want to increase it? But that will be our optionality, and I think we will take a look at it as we progress through the year.
Allen Peter Gransch: More production volume related or more due to the infrastructure that <unk> built over the past few years.
Corey Ray Higham: Okay, great. And then last one for me, thanks for providing the pro forma metrics or volume metrics on the call. It's obviously impressive to see the year-over-year increases. Could you maybe speak to what the drivers were more specifically? Was it more production volume-related or more due to the infrastructure you've built over the past few years?
Speaker Change: I think its release quarter here I think it's a combination of both we saw steady activity through the quarter on on drilling completions and production. So when you combine all those three together you get those those results of produced water being up 11% quarter over quarter, our waste processing volumes up 3% quarter over quarter.
Corey Ray Higham: I think it's really, this is Corey here. I think it's a combination of both. You know, we saw steady activity through the quarter on drilling completions and production. So, when you combine all those three together, you get those results of produced water being up 11% quarter over quarter and our waste processing volumes up 3% quarter over quarter. We've been very successful on the melt recycling project work, which has increased our revenue by 40% quarter over quarter. So, I think it's just a little bit of everything and great execution by our team.
Corey Ray Higham: We've been very successful on the <unk>.
Corey Ray Higham: El recycling project, which has increased 40% quarter over quarter. So I think it's just a little bit of everything and great execution by our team.
Corey Ray Higham: Okay.
Speaker Change: And what type of organic growth does your guidance this year at corporate.
Speaker Change: So we've announced so we've announced the 75 most of that capital will likely be spent throughout call. It Q3, and Q4, a little bit here in Q2. So the expectation is the contribution of EBITDA from that 75 will be.
Corey Ray Higham: And what type of organic growth does your guidance for this year incorporate?
Corey Ray Higham: <unk> added on to what would be our 2025 guidance.
Corey Ray Higham: So, we've announced, so down here, we've announced that the 75 million, most of that capital will likely be spent throughout, call it Q3 and Q4, and a little bit here in Q2. So, the expectation is that the contribution of EBITDA from that 75 million will be added to what would be our 2025 guidance. And, as you know, because of our 10 million above the numbers here in Q1, we've tightened our guidance range to 450 to 465 billion EBITDA for 2024. So, any of the organic, any of the organic spend, and then contribution will be.
Corey Ray Higham: And as you know because of our $10 million above the numbers here in Q1, we've tightened our guidance range to $4 50 to $4 $65 billion of EBITDA.
Corey Ray Higham: For 2024, so any of the organic any of the organic spend and then contribution will be 2025.
Speaker Change: Okay, Great I appreciate the color I'll turn it back.
Speaker Change: Thanks, John.
Corey Ray Higham: Thank you. The next question comes from Keith Mackey with RBC. Please go ahead.
Speaker Change: Hey, good afternoon, just wanted to start out on the Tms expansion, so pipeline hopefully be coming towards the commissioning very shortly here can you just talk about your exposure to.
Unknown Attendee: Okay, great. I appreciate the call. I'll turn it back on.
Operator: Thank you. The next question comes from Keith MacKey at RBC. Please go ahead.
Keith MacKey: Hey, good afternoon. I just wanted to start out on the TMX expansion. So pipeline should hopefully be coming towards commissioning very shortly here. Can you just talk about your exposure to Whether it's direct exposure or not to the improved operating environment with this pipeline in effect, you've certainly got some ability to store crude and looks like you did some in Q1. Can you just talk about your revenue opportunity and the overall business environment pre and post the TMX expansion commissioning?
Keith MacKey: Whether it's direct exposure where not to.
Keith MacKey: The improved operating.
Keith MacKey: Environment with this pipeline in effect certainly got some some ability to store crude and looks like did some in Q1 can you just talk about your your revenue opportunity and the overall business environment.
Keith MacKey: Pre and post the <unk> expansion commissioning.
Allen Peter Gransch: Yeah, you're absolutely right there. We've always said that we'll optimize differentials and, and obviously help our customers to get the best net price, and obviously, having the ability to store some crude in select months enhances both the customer's net price and our bottom line. You know, think of TMX as coming on.
Keith MacKey: Sure.
Speaker Change: Yes, Youre absolutely right.
Allen Peter Gransch: We've always said that we will optimize differentials.
Allen Peter Gransch: Obviously help with our customers to get the best net price.
Allen Peter Gransch: Obviously, having the ability to store some crude.
Allen Peter Gransch: In select months enhances both the customers net price in our bottom line.
Allen Peter Gransch: <unk> is coming on.
Allen Peter Gransch: You know, you've got a lot of our customers who have indicated to us and shared some of those long-term forecasts, obviously, when it comes to making sure they have the right infrastructure. I think you'll be a little bit more aggressive in terms of bringing on new production because, you know, let's face it, since 2008, we've been pipeline constrained. And, and, and so it kind of opens the door for a lot of the volumes that maybe wouldn't have been as aggressively drilled to obviously be drilled, but all and new production comes on.
Allen Peter Gransch: You've got a lot of our customers who have.
Allen Peter Gransch: Indicated to us and share some of those long term forecast obviously when it comes to making sure. They have the right infrastructure is that.
Allen Peter Gransch: I think.
Allen Peter Gransch: You'll be a little bit more aggressive in terms of bringing on new production because.
Allen Peter Gransch: Let's face it since 2008.
Allen Peter Gransch: We'd been pipeline constrained in and so kind of opens the door for a lot of the.
Allen Peter Gransch: <unk> that.
Allen Peter Gransch: Maybe wouldn't have been as aggressively drilled to obviously be drilled.
Allen Peter Gransch: New production come on so what we're seeing in that.
Allen Peter Gransch: So what we're seeing in that, you know, Western Canadian Basin is there are a lot of new startups, there are a lot of smaller companies that go under the radar, they're private, a lot of times, who have a lot of land holdings and are starting to drill up with some of the new drilling techniques. And, you know, traditionally, some of these areas just weren't economical at that $70 to $75.
Allen Peter Gransch: To <unk>.
Allen Peter Gransch: Western Canadian Basin is Theres, a lot of new startups. There is a lot of smaller companies that go onto the radar, they're private a lot of the times.
Allen Peter Gransch: We have a lot of land holdings and are starting to drill up with some of the new drilling techniques.
Allen Peter Gransch: Traditionally some of these areas.
Allen Peter Gransch: Just werent economical.
Allen Peter Gransch: Now, with the new drilling techniques, you're seeing them getting a six month payback, three month payback. And that just opens up a whole new door in terms of bringing new production and new waste and new water into our facilities. And the great thing about our network is that we've got pretty well most of Western Canada covered where this drilling, this new drilling is happening in the new production. Incremental production is coming on.
Allen Peter Gransch: 70% to $75 now with the new drilling techniques youre seeing them getting a six month payback three months payback.
Allen Peter Gransch: That just opens up a whole new will move door in terms of bringing new production and new waste new water into our facilities and the great thing about.
Allen Peter Gransch: Our network is that we've got pretty well most of western Canada covered where this drilling this new drilling is happening in the new production incremental production is coming on so I think what youll see Keith over the next three years is I think not going to see a whole bunch of apportionment.
Allen Peter Gransch: So I think what you'll see Keith over the next couple of years is I think you're not going to see a whole bunch of apportionment, and maybe there's a little less volatility and differentials, but you also have a customer base that wants to take advantage of that higher net back and actually bring on new production. So, all in all, we just think it's really positive for not only Secure, but for our customers.
Allen Peter Gransch: And maybe theres, a little less of the.
Allen Peter Gransch: Volatility in differentials, but you also have a customer base that wants to take advantage of that higher netback and actually bring on new production. So all in all we just think it's really positive for not only secure for our customers.
Unknown Attendee: I don't know. That's very helpful. Thanks for that.
Speaker Change: Got it no that's very helpful. Thanks for that and just secondly on acquisitions, so you've talked about.
Keith MacKey: And secondly, on acquisitions, you've talked about potentially doing acquisitions but sticking with your core competencies and things like that and strict return targets. But can you talk a little bit about your readiness to be able to execute on anything you need? Is there any particular new capability you'd have to stand up to be able to evaluate potential deals and things like that? Or is that pretty much all ready to go, and now it's just a matter of finding the right deals that meet your criteria?
Keith MacKey: Potentially doing acquisitions, but sticking with your core competencies and things like that and strict.
Keith MacKey: Return targets, but can you talk a little bit about your.
Keith MacKey: Our readiness to be able to execute on anything you need is there any particular.
Keith MacKey: New capabilities you'd have to stand up to be able to <unk>.
Keith MacKey: Evaluate potential deals and things like that or is that pretty much all.
Keith MacKey: All ready to go and now it's just a matter of.
Keith MacKey: Finding the right deals that meet your criteria.
Allen Peter Gransch: Yeah, Keith, you.
Allen Peter Gransch: Yeah, Keith, I think we spent so much time in 2022 realizing the synergies. They were such low-hanging fruit. And then I would call it in 2023, we played defense because we were not only, you know, going to battle against the Competition Bureau, but we were also, you know, all hands on deck to, you know, try to get as much value as we could for these infrastructure assets, which were, you know, ultimately very successful considering the distressed situation.
Allen Peter Gransch: Yes, Keith I think we spent so much time in 2020 to realizing the synergies they were such low hanging fruit and then I would call. It in 2023, we play defense because we were not only going to battle against the competition Bureau, but we're also all hands on GAAP.
Allen Peter Gransch: Try to get as much value as we can to these infrastructure assets, which ultimately very successful considering the distress situations. So I now have a team of business development and M&A group that are really ready to go on to the next chapter which is.
Allen Peter Gransch: So I now have a team in my business development and M&A group that are really ready to go on to the next chapter, which is, you know, you've got a great balance sheet, and there are lots of good acquisitions. I just don't think we've had enough time, considering we just closed step one, and there were lots of, you know, lots of things that needed to happen to make sure that it was successful.
Allen Peter Gransch: <unk> got a great balance sheet and there is lots of good acquisitions I. Just don't think we've had enough time, considering we just closed that one and there was lots of.
Allen Peter Gransch: Lots of things that needed to happen to make sure that was successful. So we're just now starting to get into what type of opportunities within our own core competencies make a lot of sense for us to transact on I would think we have the current bench strength to go ahead and start getting through acquisitions a lot of them are early.
Allen Peter Gransch: So we're just now starting to get into, you know, what type of opportunities within our own core competencies make a lot of sense for us to transact on. I would think we have the current bench strength to go ahead and start vetting through acquisitions. A lot of them are what, you know, in the early days, you call them tuck-in acquisitions that, you know, kind of fit where the business is growing in terms of that waste management space.
Allen Peter Gransch: Days call it tuck in acquisitions that kind of fit where the business is growing in terms of that that waste management space, but I think as we get through 2024, we will provide more clarity about what that looks like but right now it's really early days.
Allen Peter Gransch: But I think as we get through 2024, we'll provide more clarity about what that looks like. But right now, it's really early days. And we're obviously focused on, you know, the capital allocation priorities here of just buying back our stock because that's the best return for our shareholders right now.
Allen Peter Gransch: And we're obviously focused on the capital allocation priorities here are just buying back our stock because that's the best return for our shareholders right now.
Allen Peter Gransch: Okay, perfect. Thanks very much. And, of course, Rene, I echo all the sentiments on your career and congratulations on your quote-unquote retirement. Thanks very much. Have a good day, guys. Thanks, Keith.
Speaker Change: Okay perfect. Thanks, very much and of course, the Reni Echo all the sentiments on your career and congrats in your quote unquote retirement, thanks, very much have a good day guys.
Rene E. Amirault: Thanks, Keith. I'm trying to go from 8,000 to 7,000 RPMs. Awesome, take care.
Speaker Change: Thanks, Steve.
Allen Peter Gransch: I am trying to go from 8000 to 7000 Rpms.
Operator: Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star 1. The next question comes from Patrick Kenny at National Bank.
Speaker Change: Take care.
Operator: Thanks.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Operator: Next question comes from Patrick Kenny at National Bank.
Patrick Kenny: Good afternoon, guys. Thank you.
Patrick Kenny: Please go ahead.
Operator: Guys. Thank you.
Patrick Kenny: Just on the EBITDA margins... 37% realized in the quarter. Can you remind us, within your financial guidance for the year, if you're expecting any material change in margins going forward? I mean, it sounds like, you know, higher customer activity with TMX coming on, offsetting any headwinds. Potentially related to tighter differentials, but I'm just curious, you know, with your new high-quality take or pay assets coming on this year as well, how we should be thinking about your consolidated EBITDA margins trending over the next year or two?
Patrick Kenny: Just on the EBITDA margins of 37% realized in the quarter.
Patrick Kenny: Can you remind us you know within your financial guidance for the year, if youre expecting any material change in margins going forward.
Patrick Kenny: I mean, it sounds like.
Patrick Kenny: Higher customer activity with Tms coming on offsetting any headwinds.
Patrick Kenny: Potentially related to tighter differentials, but I'm just curious with your new high quality take or pay assets coming on this year as well.
Patrick Kenny: How we should be thinking about your consolidated EBITDA margins trending over the next year or two.
Chad William Magus: Yeah, hey Pat, it's Chad. Good question. We're very happy with our EBITDA margins, obviously at 37%. We do think, you know, as we go forward, that the trend will be more in that mid 30% range, so around 35%, and obviously we'll do what we can to obviously increase that. But, but I think that's. Over the longer term, that's what we're modeling today, and that's what we're seeing, and that's what we're doing.
Speaker Change: Hey, Chad.
Chad William Magus: Good question, we are very happy with our EBITDA margins, obviously at 37% we do think.
Chad William Magus: As we go forward.
Chad William Magus: The trend will be more not mid 30% range around 35%.
Chad William Magus: And obviously, we will do what we can to obviously increase up but.
Chad William Magus: But I think thats.
Chad William Magus: Over the longer term nuts.
Chad William Magus: What we are modeling today and that's what we're seeing and that's what we're managing to.
Pat: Okay got it thanks.
Patrick Kenny: And then maybe just at a higher level, I'm curious if you could provide a bit of an update on your overall strategy with respect to the metals recycling business. It looked to be a nice tailwind here in the quarter, but perhaps your outlook for ferrous pricing and overall demand for recycling services and perhaps a bit of a look into what regions across North America you might be interested in extending your metals franchise to.
Chad William Magus: And then maybe just a higher level.
Patrick Kenny: Yes.
Patrick Kenny: If you could provide a bit of an update on your overall strategy with respect to the metals recycling business, so look to be in.
Patrick Kenny: A nice tailwind during the quarter.
Patrick Kenny: But just perhaps your outlook for ferrous pricing and overall demand for recycling services.
Patrick Kenny: And perhaps a bit of a look into what regions across North America that you might be interested in extending your metals franchise.
Allen Peter Gransch: Yeah, I think we've done a very, very successful job at getting the operational aspect of that business going, turning inventory on a monthly basis. We've upgraded some of the equipment purchases within our facility network, so we purchased 40 railcars last year. We've got another 40 on the table here for 2024 because a lot of the, let's call it CP and CN aren't leasing cars anymore. So actually to have the railcars, and these railcars can hold 30% more, they're deeper, and they're a little bit wider, that allows you to actually ship more efficiently. So there are some operational efficiencies that we're going to get from these new cars. So we have that as an advantage.
Speaker Change: Yeah, Hey, Matt, Yes, I think we've done a very very successful job at getting the operational aspect of that business turning inventory on a monthly basis.
Allen Peter Gransch: We've upgraded some of the equipment purchases within our facility network. So we purchased.
Allen Peter Gransch: <unk> 40 railcars last year, we've got another.
Allen Peter Gransch: Another 40 here on on the table here for 2024, because a lot of the.
Allen Peter Gransch: Paul at CP, and CN RBC cars any more SaaS you to have the railcars and these railcars can hold 30% more they're deeper and there are a little bit wider that allows you to actually ship more efficiently. So there is some operational efficiencies that we're going to get from these new cars.
Allen Peter Gransch: So we have that as an advantage I know, there's a bit of a trend from a decarbonization.
Allen Peter Gransch: I know there's a bit of a trend toward decarbonization in how metal is actually created on the freight basis. A lot of the refiners are moving from these blast furnaces to arc furnaces, and arc furnaces just require recycled material. So we believe the long-term outlook for metals is very strong. I think the demand for recycled material, when refiners are only able to use that recycled material, will help create demand for that market in the long term.
Allen Peter Gransch: How metal is actually created on the ferrous basis. So a lot of the refiners are moving from these blast furnaces to arc furnaces in arc furnaces, just require recycled material and so we believe the long term outlook for metals is very strong I think the demand for recycled material when refiners are.
Allen Peter Gransch: Our only able to use that recycled material I think will help create demand for that market in the long term and so I think what we've done to set up the business is fantastic. We had some of the benefits of <unk> volume throughput through the facilities. We also work up in.
Allen Peter Gransch: And so I think what we've done to set up the business is fantastic. We have some of the benefits of TMX and volume throughput through the facilities. We also work up in Fort Mac and help some of our customers up there manage some of the tailings pipes. So we've got a steady state of volume that we see, and given the demand and the backdrop, I think that you can envisage a scenario where metal pricing remains relatively low.
Allen Peter Gransch: Fort Mac and help some of our customers up there, Matt and some of the tailings pipe. So we've got a steady state volume that we see and given the demand and the backdrop I think that you can envision a scenario where metal pricing remains relatively robust here. So so I think that business is set up for success.
Unknown Attendee: It is too early to say what percentage of your overall business mix might come from the metals recycling business over time.
Allen Peter Gransch: And the long term.
Unknown Attendee: And too early to say what.
Unknown Attendee: I guess percentage of your overall business mix might come from.
Allen Peter Gransch: Yeah, I think it's too early. I mean, we've got pro formas all over the place that we just divested some facilities, Chad's running models all over the place. So, I think give us a little bit of time for that one, and we'll, you know, we can provide as much clarity as we can on, you know, what that looks like in the overall waste management segment. Okay, great.
Unknown Attendee: Metals recycling business over time.
Allen Peter Gransch: Yes, I think it's too early I mean, we've got pro forma is all over the place that we just divested in some facilities chad's running models all over the place. So I think give us a little bit of time for that one and we will we.
Allen Peter Gransch: We can provide as much clarity as we can on what that looks like in an overall waste management segment of the business.
Unknown Attendee: Okay, great. Sounds good. And thanks to both of you again on your retirement, Rene, and your appointment, Allen. Thanks.
Speaker Change: Okay, Great sounds good and thanks to both of you again.
Unknown Attendee: Your retirement ready and near appointment Alan Thanks.
Speaker Change: Thank you thanks, Matt.
Allen Peter Gransch: Thank you. We have no further questions. I will turn the call back over to Allen Gransch for closing comments.
Unknown Attendee: Thank you we have no further questions I will turn the call back over to Alan for closing comments.
Allen Peter Gransch: Thank you for being on the conference call today. A taped broadcast of the call will be available on Secure's website. We look forward to providing you with updates on Secure's performance at the end of July, after the completion of our second quarter.
Allen Peter Gransch: Thank you for being on the conference call today, a tape broadcast of the call will be available unsecured website. We look forward to providing you with updates on secures performance at the end of July after the completion of our second quarter.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Allen Peter Gransch: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.