ENVIRI Corp Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Acknowledged the loss of Mauro Curi, President of Harsco Environmental. Will lead HE until new President is named early next year.
• Clean Earth had another record quarter for EBITDA and margin, with double-digit earnings growth.
• HE faced headwinds from a weak global steel market, excess capacity in China, and customer production curtailments.
• Rail faced supply chain and operational challenges, plus the impact of Hurricane Helene.
• Strengthened balance sheet through asset sales and renewals/extensions of credit facilities.
• Strategic plan focuses on organic growth, margin improvement, stabilizing Rail, and creating shareholder value.

Segment Performance

• Clean Earth: Revenues totaled $237 million, down 1% year-over-year. Adjusted EBITDA increased 23% to $42 million, with an EBITDA margin of 17.5%, both quarterly records. Driven by price, lower incentive compensation, bad debt expenses, and efficiency initiatives.
• Harsco Environmental (HE): Revenues were $279 million, down 2% year-over-year. Adjusted EBITDA was $53 million, modestly lower than the prior year. Impacted by a weak global steel market, excess capacity in China, and customer production curtailments.
• Rail: Revenues were $58 million. Adjusted EBITDA was a loss of $2 million. Impacted by shipment and supply chain delays, Hurricane Helene, and operational bottlenecks.

Guidance

• 2024 adjusted EBITDA expected to be within $317 million to $327 million (up 5% vs 2023), midpoint down $10 million from prior guidance due to HE and Rail, offset by raised Clean Earth.
• 2025 free cash flow expected $40 million to $60 million due to improved Rail, strong cash flow in CE and HE, lower interest expense, and pension contributions.
• 2024 Q4 adjusted EBITDA expected $68 million to $78 million; Clean Earth EBITDA above prior year, HE lower due to FX, contract exits, divestitures, Rail modestly higher.

Risks

• Weak global steel market impacting HE.
• Supply chain and operational challenges in Rail.
• Weather-related impacts (e.g., Hurricane Helene).
• Risks related to forward-looking statements, including potential material differences from actual results.

Question and Answer

Q: Ability to deal with lower volumes in HE. How much fixed cost, flexibility?

A: HE has minimum billings and fixed fees providing protection below threshold, but some impact until then; focus on EBITDA minus CapEx, which is more stable.

Q: Volume growth in Clean Earth. Where strength?

A: Health Care segment healthy, retail has churn, industrial/manufacturing soft.

Q: Cash flow and free cash flow, Rail impact.

A: Rail cash use expected to improve; pension contributions and interest costs to decline; HE and CE to generate cash.

Q: Rail ETO contracts, time line, cash generation.

A: Smaller ETO contracts to be positive next year; large UK and Germany contracts to generate $75M+ free cash flow later.

Q: Rail forward loss provision drivers.

A: Complex, long-term projects with constant fine-tuning of cost estimates due to high customization.

Q: Noncontrolling interest in cash flows.

A: Timing of distributing accumulated earnings from joint ventures, mainly HE related.