Harsco Corporation

Good morning. My name is Shelby, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation fourth quarter release conference call. All lines have been placed on mute to avoid any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Also, this telephone conference presentation and accompanying a webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation and all rights are reserved. No recordings or redistributions of this telephone conference by any other party are permitted without the expressed written consent of Harsco Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Harsco Corporation. Mr. Martin, you may begin your call.

Thank you, Shelby. Welcome to everyone joining us this morning. I'm Dave Martin of Harsco. With me today is Nick Rasberger, our Chairman and Chief Executive Officer, as well as Pete Minin, Harsco's Senior Vice President and Chief Financial Officer. This morning, we will discuss our results for the fourth quarter of 2020 and our outlook for 2021. We'll then take your questions. Before our presentation, however, let me mention a few items. First, our quarterly earnings release as well as a slide presentation for this call are available on our website. Second, we will make statements today that are considered forward-looking within the meaning of the federal securities laws. These statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from those forward-looking statements. For a discussion of such risks and uncertainties, see the risk factors section in our most recent 10-K and 10-Q. The company undertakes no obligation to revise or update any forward-looking statement. Lastly, on this call, we may refer to adjusted financial results that are considered non-GAAP for SEC reporting purposes. A reconciliation to GAAP results is included in our earnings release as well as the slide presentation. Now I'll turn the call to Nick to begin his prepared remarks.

Good morning, everyone, and thanks for joining us today. Our fourth quarter results reflected the continued positive trends in our largest businesses, Harsco Environmental, and the hazardous waste portion of our Clean Earth segment. Overall, Harsco delivered both sequential and year-over-year growth in Q4, and EBITDA was consistent with our expectations. With that said, we are very happy to have 2020 in our wake. Harsco, like many other companies, faced challenges in 2020 that required us to shift our focus essentially overnight to keeping our employees safe, our businesses resilient, and our liquidity position strong. At the same time, we closed the largest acquisition in Harsco's history in terms of revenue, ESOL. Beyond its scale, ESOL required a complicated carve-out from its parent company, was in need of basic process discipline and was underperforming its market. Additionally, in 2020, we made a step change in our ESG journey as evidenced by significant ratings upgrades, external recognition, and improved metrics in nearly all areas. It is clear that ESG is closely aligned with our strategy and central to the shifting identity of Harsco. Looking back on what the Harsco team accomplished, I could not be more proud of both the effort and the results. Turning to 2021, there are many reasons to be optimistic about the direction of our company. Most notably, the continued improvement in our end markets and the value creation potential of our environmental services businesses that represent about 80% of our revenue. Our strategic focus is clear and we look forward to executing the next major steps of our portfolio transformation as conditions warrant. We have four principal objectives this year, apart from our primary objective of continuing to manage the impact of the pandemic on our people and on our businesses. The first objective is to realize the targeted benefits of the Clean Earth and ESOL integration. and prepare for accelerated growth in this new platform. Second, enhancing the value proposition and the cash flow profile of Harsco Environmental by shifting the revenue mix further towards environmental solutions. Third, increasing the enterprise value of our rail business through further operational improvements and backlog growth. And fourth, reducing our financial leverage to a level much closer to our target of about two and a half times. Regarding the Clean Earth Platform, the benefits realized from the integration of ESOL were about twice what we expected in 2020. We anticipate incremental benefits of about 20 million this year, also, or about double those realized in 2020. We still expect total benefits of 40 to 50 million by the end of 22 on a run rate basis. Although external integration costs are behind us, we will incur about 10 million of costs this year for branding and IT initiatives that will not repeat in 2022. Overall, while the negative impact of the pandemic on the business could not have been predicted, I'm pleased with our execution and the foundation we are building in this new platform. In Horisco Environmental, it's terrific to have following Cs after 18 months of menacing head Cs. I'm excited to see the development of the business this year, particularly in the areas of all tech, applied product sales, and innovation. As previously discussed, a significant amount of maintenance capital was deferred from 2020 to this year, and capital spending on new contracts will also be higher than in future years. Nonetheless, the growth and cash flow trends in the business are favorable and we are targeting free cash flow generation of eight to 9% of revenue in 22 on a path to 10 plus percent in future years. A rail business was set up to have a very strong year in 2020 based on operational improvements in a record backlog. The impact of COVID on capital spending in both the freight and transit sectors has been dramatic. Although the freight sector is recovering, spending on maintenance of way equipment will lag by a few quarters. And the transit sector remains particularly weak. Another challenge for our business is overcoming the margin loss associated with a large Chinese aftermarket program that is winding down. Fortunately, our backlog in the launch of new products and our global reach should enable us to outperform the market this year. While our project score met its objectives in terms of capacity and data analytics, it uncovered more opportunity to improve manufacturing costs than we had realized. Just a few comments in our portfolio. As noted previously, an aggressive slate of internal initiatives in our financial leverage will likely push the next major step in our portfolio transformation into next year. We also continue to focus on the best avenue to create shareholder value with our rail business. But our strategic ambition remains clear, continuing our transformation to a pure play environmental solutions company. Now over to Pete.