All right, so now I'd like to introduce Allen Gransch, Chief Executive Officer, and Corey Higham, Chief Financial Officer of Secure Waste Infrastructure. Secure is a provider of innovative solutions to the global waste management, environmental, and sustainability industries. Its products and services include secure waste disposal systems, recycling technologies, waste-to-energy solutions, environmental monitoring systems, waste tracking and compliance services, and infrastructure development for sustainable waste management. Secure is 259 million shares outstanding, trading around CAD 15.5 for around a CAD 4 billion market cap, and net debt of around CAD 500 million. Thank you.
Welcome.
Alright. Maybe we could just start with a brief background on Secure and just go from there.
Sure. Can everyone hear me?
Yep.
Good morning. Thanks for having me at the conference. Allen Gransch, I'm President and CEO of Secure. A little bit of background about Secure. We started back in 2007. Primarily, we're in Western Canada. We have 55 waste processing facilities that handle a lot of oil and gas waste, so produced water, wastewater, emulsions, sludges. We have 12 landfills in Western Canada. We have some facilities in North Dakota in the Bakken as well. We have a group on our metal recycling division that's within our waste management as well. We have a specialty chemical group that we have. That's 75% of our business. 25% of our business would be energy infrastructure.
This is where we're either having a pipeline move from a gathering system onto a main trunk line, and we have some terminals and some storage as well. Yeah, go ahead.
No, I think that's helpful. Maybe just breaking down some of the end markets you mentioned, oil and gas, and how Secure has shifted to more of a recurring revenue stream.
Yeah, we're a very unique story. We trade on the TSX. We're very unique in the sense that we've transformed the business over the last 10 years. Ten years ago, 2014, 2015, we were more concentrated on drilling and completion activity. We had some oil field services businesses. We made a shift to decide to sell the oil field service businesses and just focus on production-related volumes, volumes that are reoccurring in nature. We transformed from 60% tied to drilling completions to only 20% today. Most of our 80% of our revenue is tied to reoccurring. Sixty-five percent would be production-related, and then 15% would be industrial. What was really unique in our transformation in 2021, we merged with our only competitor. We merged with Tervita in 2021. That was a CAD 1.4 billion acquisition for us, so substantial.
We essentially had a significant market share in Western Canada. We liked that because we could optimize the entire network. We had a lot of synergies associated with that transaction. At the same time, we were selling businesses that were oil field services related and really transforming the business. Where we got to is we were fighting the Competition Bureau of Canada because they did not like that we had a significant position in Western Canada. We ended up having to sell a third of that business. You guys just had Joe Box up here. Waste Connections is who bought those 29 locations. It was a very successful transaction for them and for us as well because it was a distressed sale, and we ended up selling 29 locations, which was about a third of what we had acquired, and we sold it for CAD 1.1 billion.
When we think about the cash flow that we got from those facilities over a two-and-a-half-year period, we essentially got our competitor for free, two-thirds of it for free. Substantial value creation. It allowed us in 2024 to pay down all of our debt. We restructured everything so that we could buy back 25% of the company, is what we did in 2024, and really focused on positioning the business as a waste business. Waste Connections helped us do that because they call it it's an extension of our business. We like the waste space because it's very reoccurring. We think about municipal garbage as you put your garbage on the curb, and it gets picked up every week, and you say, "I like that business because I know what's going to happen next week.
I'm going to have more garbage." That happens in oil and gas, too. Production happens every day. Every day, trucks come into our facility. They unload water. They unload waste. They unload sludges. We separate it. We process it. You just do not see it because it is happening in these remote areas, but it is very recurring, and we like that part of the business.
Right. I think that'd be a good segue. You mentioned the assets that you guys acquired, maybe just talking about the regulatory environment in Canada and just the scarce nature of the assets you guys own.
Yeah, the regulatory nature in Western Canada is very stringent. To get permits, you have to have the right geology, the right land locations. It is an onerous process. There is a high capital investment to doing what we do. When we looked at the regulatory framework, that's where the landfills and the waste processing facilities have significant moat. One of our facilities would cost you CAD 50 million to replicate today. It would service a 60 mi radius. The biggest cost for our customers is transportation. When you have a location that's near all of their production, you know you're going to get that volume into your facility because that's their highest cost. It isn't the cost to process and dispose. It's the cost to transport. We like a highly regulated, stringent market. It actually plays in our favor.
A couple of years back, the Alberta and Saskatchewan governments changed the regulation to say, "If you're an industrial, if you're a miner, if you're an oil and gas, and you have an asset retirement obligation on your balance sheet, you are mandated to spend at least 5% of that obligation every year if you're looking for new permits." That is great for our business because we have landfills that take hazardous and non-hazardous waste. It becomes more of a recurring volumes that are going to be coming into our landfill. We like higher regulatory and higher stricter markets. This is why we operate in Western Canada. We also think in the Bakken in North Dakota, it is more regulated, which is why we have five locations in the Bakken as well.
Excellent. One of the things I wanted to touch on, we had your predecessor here last year. We're fortunate to have him. I just wanted to see kind of what your experience has been since taking over in the CEO role.
Yeah, you know Rene and I worked together for 18 years. And I was CFO up until 2017. He was a great, great mentor in that he allowed all of us to experience different roles. I went into business development until 2020, and then I became the Chief Operating Officer and then moved to President. Part of our transition, it wasn't something that just happened a year ago. I took over May 1st. We've been planning this for a few years. You could really hit the ground running. Rene was at the point of time. He's on our board. He's Vice Chair. Really, I took over full strategy, leading our team, leading the growth in our EBITDA, and doing acquisitions, doing organic growth. Great time to transition. I think we did it very, very successfully. The last year has been very good.
When you do some bold moves, I mean, we changed our name January 1 to Secure Waste Infrastructure. We've been repositioning the business. We've made some bold moves that I think we want the recognition of, "Look at our infrastructure. Look at our assets." Our EBITDA margins are the highest out of all of our waste peers at 34%. We have the highest rate of return. Our revenue growth last year was 11%. We're continually taking our EBITDA up. Last year, we ended at CAD 490 million. Our guidance this year is CAD 510 million-CAD 540 million, so midpoint, call it CAD 525 million, CAD 530 million. When you have a business that has growth opportunities like we do, and you have margins and returns like we do, it looks very, very attractive.
You mentioned it right there. I just wanted to touch on also the rebranding to Secure Waste Infrastructure. Kind of how does that align with the long-term goals of the company?
Yeah, I mean, we've been repositioning over the last five, seven years, as I said, selling oil field service business. I think the biggest misconception is that we have volatility in our earnings. Companies that put out public guidance have confidence in their earnings, which is why we do put out public guidance. We have a chart in our investor slide, and part of it talks to what's happened to Western Canadian production in the last 15 years. It's actually grown at 1%-2%. You look at the volatility in WTI over that period, and it's been some wild swings. When you have a business that focuses on waste from production that's very reoccurring, you can get confidence and conviction in your revenue streams. We like the fact that we've repositioned into this reoccurring production stream network.
That's been a bit of the, "Let's move away from energy services because it still has that oil field services connotation to it." We really want to focus on when you have infrastructure. We do not own a lot of trucks. We do not own a lot of bins. A lot of the waste comes to us and comes to our infrastructure, which is why we have lower sustaining capital. We also have a higher free cash flow conversion. Last year, our free cash flow conversion was 60%. When you think about a midpoint of CAD 525 million EBITDA this year, we are going to generate CAD 300 million of cash flow. We have a balance sheet that is under-levered because we have spoken about wanting to be at two to two and a half times.
We're kind of in that one, one and a half times, depending if you include leases or you do not. We are still under-levered, and we're creating a bunch of cash flow every year. The business is starting to get the recognition with the brand change, with the recognition that we're a waste and very solid EBITDA.
Definitely. That sounds like a good opportunity to discuss just as it relates to capital allocation, the two transactions you guys did back in December, the metal recycling businesses. Maybe you could talk to that.
Yeah, I'll talk a little bit about the metal recycling business. From a capital allocation standpoint, as I said, we bought back 25% of the company. We still have an NCIB in place, which we're allowed on the TSX to buy back 7% of the company. In Q1, we continually executed on buying back the company's stock because we still believe we are undervalued significantly. When I think about our metal recycling strategy, Western Canada was a little bit unique. When we merged with our competitor, Tervita, they had five metal recycling locations. What we recognized is in Western Canada, the metal recycling scrap metal market was not consolidated. It's been consolidated in Eastern Canada. It's been consolidated in the US.
We really like the scrap market because there's been a shift over the last five years where a lot of refiners, metal refiners, steel refiners have moved from blast furnaces where they create new steel to electric arc furnaces. A lot of this was subsidized because they're less carbon intensive. When you move to these electric arc furnaces, your only input to be able to create new steel is scrap metal. We see a high demand for scrap metal. Consolidating a market in Western Canada, I think, will have huge advantages for us. Over the past year and a half, we've purchased a few locations in Saskatchewan and Alberta. Just recently, in February, we closed our acquisition of General in Edmonton. Why that was unique is because they have the only mega shredder in Alberta.
This is a large shredder, 55-horsepower mega shredder that allows us to get process efficiencies. What they needed is they needed more scale. They were only utilizing it by 50%. If we can take the network that we now have and funnel more of that scrap metal into Edmonton, we can process it more efficiently, gain operating margin percentages, and also have a very robust market with the scrap metal where it is today. One issue we have been trying to navigate, like everybody in this room, is tariffs. What does this mean? It is on, it is off, it is on, it is off. I think we are still trying to get clarity on where scrap metal is going to land, but we do not think it is going to be tariffed again. I think it is just more focused on the finished steel market, aluminum and steel.
We think it's actually going to be a benefit to us. The scrap metal consolidation for us has been very, very successful. We've been able to do it accretively to our current trading multiple. We're currently trading the low eights on an EV to EBITDA multiple. We can do this M&A roll-up, and we think we can get synergies. It's going to take us about 12 months to get the full synergies of this acquisition in Edmonton. We're quite excited that we got it closed. We can integrate it into our network and continue to optimize.
Definitely. Just given the dynamics you spoke about, is that an area that Secure would want to continue engaging in M&A and grow that business?
Yeah, I think it's unique to us right now. We don't have a lot of competition just because of the footprint. We now have 12 metal recycling facilities. I think we probably have CAD 100 million more in the hopper that we could potentially do if we get to the right valuation. There is more to do on the M&A front. We do spend a lot organically as well this year. We have announced CAD 75 million in organic spend. What we're doing there is we're processing and managing production water for some of our customers. We'll build a facility, and that facility will have two anchor customers. We'll sign long-term 10-year arrangements, and we'll manage and process and dispose of their water. We're not only doing the M&A on the metal recycling side.
We also have on our waste processing facilities, we also have more organic growth to do. We typically try to target 20% after-tax IRR. Part of that would be a take-or-pay area dedication arrangement. Part of it would be third-party spot volume. Ultimately, our goal is if we're spending CAD 750-800 million, that you're getting a four- to four and a half-times payback on that investment. Great organic growth opportunities to continue to expand our EBITDA. What you'll see from us as we head through 2025 is we have same-store sales growth. When we think about waste, waste in this oil and gas market grows at about 3% annually. We have this same-store sales growth. When we look across our network, we're about 60% utilized. We can still push this waste through our facilities without investing a lot of capital.
We then have this layer of growth on the organic side where we'll put capital to work. It usually takes us a few months to get contracts complete. Then we have to construct it. Then we have to turn it over to operations. Typically, it takes a full year. All the capital we're investing this year will be a contribution to EBITDA in 2026. We have M&A on top of that. When you look last year, and we grew revenue at 11%, it's a function of those three elements: same-store sales, organic growth, and the M&A aspect. Those opportunities exist and allow us to continue to grow the pie.
Excellent. Yeah, I mean, it sounds like very attractive unit economics there. Just shifting gears, you kind of touched on it as it relates to tariffs, given the relevance today. Maybe you could just discuss the implications there as it relates to Secure.
Yeah, so when we think about where originally we were looking at the oil and gas tariffs, I mean, we're more concentrated on the oil and gas market in Western Canada. When you have a tariff that's going to go on WTI, what is the impact to our customers? At 10%, there has been a lot of research done that that sort of impact, how is it going to be shared? Is it going to be borne by the Canadian producer? Is it the U.S. refiner? Or is it the consumer in the U.S., ultimately what they pay at the pump? I heard a third, a third, a third, it would be shared. How are the refiner crack spreads going to look? Ultimately, the analysis showed on 10%, the impact to our customers would be 3%-5% of their cash flow.
Very little impact to their overall cash flow. Some of them right now are doing buybacks because they're trading at low multiples. They're doing special dividends. We don't think that changes what they're doing in the field in terms of drilling, completion, and obviously maintaining their production. We didn't see it as an issue into our guidance and the amount of waste that we are going to generate. As it stands, the 10% won't go on given the USMCA agreement that we have. Legally, that's binding. We can't have the 10%. I think that's going to be positive for the sector in Western Canada.
On scrap steel, I think when you look at these steel mills in the U.S., I think they were lobbying saying, "Hey, look, my input costs are going to go up by 25% because I got to buy scrap out of Canada." They were not too happy about that. I think that is why we are seeing it being carved out. They cannot afford to have that input cost. I think with the scale that we generated and the demand for it, I think it is going to play well for us in 2025. Right now, as we think about that guidance range on EBITDA of CAD 510 million-CAD 540 million, we have not adjusted that based off of tariffs. We believe our business will still be fine through this whole tariff rhetoric.
Definitely. On the EBITDA guide, you guys did like 35%, you mentioned 35% EBITDA margins. I mean, that's industry leading. Just maybe you could talk to that and the operating leverage embedded in the business and how you guys are driving margin there.
Yeah, we look at it as everything we invest in, we look at it as an after-tax IRR. When we are putting in a capital investment of $50 million, there is a certain amount of cash flow that you need to generate the return on that $50 million investment. When you are more focused on infrastructure and long-term infrastructure, you would expect that you would have larger margins. We were focused on having significant locations where they are going to continually drive value and drive reoccurring volumes into these facilities. We look at our sustaining capital. This year, it will be about $85 million off of our $525 million EBITDA. It is low sustaining capital because we do not have a lot of trucks.
We are not replacing a lot of high-turn components every year. These are long-lived assets, large tanks, pipelines, landfills where you do not have a lot of maintenance.
The margins are higher and the returns look great because you've put in the time to pick the right locations, having the permits, having that infrastructure placed. You've got significant value in that, and you expect higher margins associated with it.
Definitely. I wanted to just also briefly touch on just the competitive landscape in Canada. I mean, you were saying you merged with Tervita, huge merger. There were some issues with the Canadian government there. I guess maybe you could just talk to what the competitive dynamic is where you guys operate.
I think when we merged with our competitor, we had significant market share. I think from our perspective in 2021, we just wanted to get the market more efficient. As I said, we optimized our network such that our facilities were 60% utilized. If there was an older facility, it was costing a lot of maintenance. We shut it down. It has been existing for 40 years. We optimized everything. We had the full picture of what the waste market looked like. When we sold to Waste Connections last year, we gave them facilities. They were a relative sample of what our business looks like today. Joe has talked about our business over the past year and how successful it has been for Waste Connections. We effectively would have 70% market share. They would have, call it 20-25-30% market share.
There's a few mom-and-pops that still exist. Competitively, when I reflect back in 2016, 2017, our former competitor was more of a discounter. When I think about the waste players, the Republic's, GFLs, Waste Connections, they look at it as a return. They look at it as if my cost structure is going up and I'm worried about where my margins are, I should be raising prices. They do not care about losing the last 5% of volume to be a discounter. They would rather raise prices. I think that is a different way of thinking about the overall market and the network. It is a positive. We have very similar cultures. I spent a lot of time with Waste Connections through the process. We have similar cultures. We have similar principles when we think about economics and understanding business and returns. We like the competitive nature.
When we sold those assets, we actually sold, we provided 250 employees to run those assets. So we're very familiar with them and the employees. I think it sets up for a good competitive environment as I think about the future and the next few years.
Definitely. I wanted to touch on also just capital allocation. We have kind of hit on some of those points with the buyback you guys did and some of the M&A you have done. Just maybe as it relates to the priority, what, I guess, in order of importance, how do you view that?
I would say in order of importance, I mean, we've been pretty aggressive on the buyback and buying back our stock. When you're trading below eight times, when we sold those assets a year ago to Waste Connections, I consider that a distressed sale. We did that on a trailing seven and a half times. Fast forward a full year, and we're trading a half a turn to almost a turn above that. We're still not getting the recognition for the quality of those assets. We believe we're 11-12 multiple type businesses when you think about the infrastructure, the returns, the margins, the free cash flow. When we think about capital allocation, that's why we're doing an NCIB. That's why we're buying back our stock. We have conviction, board and management that we're undervalued. You see us allocate capital towards the buyback.
You see us allocate towards organic opportunities. As I said, the returns look pretty good. We will compare returns on M&A, on organic growth. Organic growth, when you're doing a build multiple of 4-4.5 times, and I just talked about where we trade at, that's highly accretive to our valuation and our numbers. We like doing organic growth. Our customers like working with us. We've been there for 18 years. We've got this great footprint. We will continue to support our customers. We were very happy to see TMX get in place last year in May. We still have 200,000 barrels that we could go into the West Coast. We have capacity on that market. That means our customers can grow without being apportioned. We also see LNG Canada is going to start up our first LNG facility.
We actually are going to manage the waste for LNG Canada in Kitimat. We like to see the activity that may happen here in Northeast BC. We're talking about Cedar LNG. We're talking about another LNG Canada too. That activity is going to be very, very strong. We are happy with the organic potential that we would have just with the availability on TMX as well as in Northeast BC for future organic opportunities. M&A, I think M&A is a bit unique for us. I mean, if I looked at the waste space today and there are companies that have come to market, these companies are going for 10, 11, 12 times. That's dilutive to where we trade today.
On the metal side, because we have this unique foundation where I think we can consolidate, get efficiencies, I think the M&A strategy works really well for us. I call it as a business today, we just want to hit singles. We just want to focus on our core competencies, do what we do very, very well. We do not need to step out geographically. We do not need to step out and do something that is in a new business line. There are more risks associated with that. We see avenues of growth within our core business segments, and we are going to continue to focus in on that while also focusing in on buying back our stock because, again, of the undervalue.
Definitely. I think that really covers it well. Just, I guess, pivoting, you mentioned the LNG facilities. I guess maybe you could talk more to that and the growth potential there.
Yeah, so that Northeast BC market, I think when you look at Northeast BC, and I'll call it Fort St. John and south of that, you get liquids-rich natural gas. This is where you're getting gas production, but you're also getting C4 and C5, which is you're getting butanes, propanes, and condensate. When there's liquids, they have to be stripped out. There's water associated with that. We will handle any sort of solids that are going to come from drilling and completing that well. We're going to handle all the water that comes back from that well, and we're going to help on the condensate and making sure that condensate gets to market. As you get north of Fort St. John, you start to get into more dry gas area. You have a combination of both liquids-rich and dry gas.
As I think about the first LNG facility for Canada, which is great, we need more infrastructure. We need to have multiple avenues of where we can ship our product out. I just think adding two additional LNG facilities will allow for more waste processing facilities. That is an area where we're undersupplied. I think if you look at Alberta and Saskatchewan, we have enough infrastructure when I think about waste and landfills. In Northeast BC, permitting is tougher, geology is tougher, but I think they're going to need more of our waste services, and we're going to look to provide infrastructure for them. I think it could be very, very great for us.
It definitely sounds like it. Just want to briefly pivot to the audience and see if there's any questions. Yes.
Yeah. I mean, on currency exposure, we try to mitigate it as much as we can. All of our customers, when we have a weakening WTI, it actually benefits our weakening Canadian dollar. It actually benefits them because they sell oil on the U.S. basis for WTI. They have a lot of strength in terms of their cash flows. We do not take a lot of currency risk or commodity risk. Everything we do, we are just taking a processing fee. We are transacting in CAD. Our U.S. exposure is in North Dakota where we have operations in North Dakota. Anything in terms of FX exposure, we have enough U.S. cash flow that covers our operations in North Dakota.
When we think about the metal recycling, if we're sending across the border, we can hedge the dollar because we don't want to take whether it's steel risk or whether it's FX risks, we don't want to have exposure to those risks. We hedge in month as much as we can because we're really just trying to maintain that processing fee, that term lien fee, whatever it may be.
Definitely. Any other questions in the audience? All right. Maybe just one final one from me. Just long-term vision, 5 to 10 years, I guess what's the plan and what's the vision for SECURE?
We're definitely a young, dynamic team. I think we see opportunities to continue to grow the business. I think when I look at same-s tore sales and organic growth, we can grow revenue in that kind of high single digits over the next few years. I think M&A would be revenue growth on top of that. The waste market, as we think production grows and as we see the market develop, whether it's LNG, whether it's more production that comes on stream, that's good for the waste market because that just means more waste coming into our facilities. Over the next few years, you will see our EBITDA continue to grow. I also see water as being a very important element. We handle 136,000 barrels of water, the dirtiest water. We add a lot of chemistry to be able to separate, filter, and dispose of that water.
When I think about freshwater access, a lot of these government, whether it's a municipal government, federal government, provincial government, they're restricting freshwater access. If you're an industrial that uses a lot of water, we have the expertise to be able to help them manage the recycling element of it. We've got great chemistry to strip out solids, to strip out waxes, to strip out scale. I see the water market, the water recycling market being a bigger play for us as I think about five and I think about 10 years. Just because you're going to have less access to freshwater, you have dirty water, use it again, use it again as much as you can. I think we could play a big part of that.
That is kind of a longer-term future, but I do see the near-term our ability to continue to grow EBITDA and grow the business.
Excellent. That was a great overview and analysis. We are excited about everything going on at Secure, and we hope to have you guys back at our symposium next year. Thank you.
Hey, thanks for having us. I appreciate everyone, and thank you.