Harsco Corporation

Good morning. My name is Polly, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Hardscroll Corporation's third 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 1 on your telephone keypad. If you would like to withdraw your question, press the pound or hash key on your telephone keypad. Also, this telephone conference presentation and accompanying webcast made on behalf of Hardscroll Corporation are subject to copyright by Hardscroll Corporation, and all rights are reserved. No recordings or redistribution of this telephone conference by any other parties are permitted without the express written consent of Harsgrove Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Harsgrove Corporation. Mr. Martin, sir, you may begin your call.

Thank you, Polly, and welcome to everyone joining us today. I'm Dave Martin of Harsgrove. With me today is Nick Rasberger, our Chairman and Chief Executive Officer, and Nshumanaga Harsko, Senior Vice President and CFO. This morning, we will discuss our results for the third quarter of 2021 and our outlook for the remainder of the year. We'll then take your questions. Before our presentation, let me mention a few items. First, our quarterly earnings release as well as the slide presentation for the call are available on our website. Secondly, 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 statements. 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 the earnings release as well as the slide presentation. With that said, I'll turn it over to Nick.

Good morning, everyone, and thanks for joining us. I would like to further acknowledge that our new CFO on Schuman Aga is with us today. As previously noted, We're very fortunate to have recruited on Schumann to Harsco. He has held significant financial and operational roles at Siemens, AECOM, and Cubic, and he is already adding tremendous value to our company. Turning to our results, the third quarter was characterized by healthy underlying demand in our two core businesses, Harsco Environmental and Clean Earth. It also reflected cost inflation and supply chain disruptions across all three business units. Overall, Harsco consolidated revenue was up 7% versus Q3 of 2020, while adjusted EBITDA was up 22% on the same basis. Demand in our rail segment was dampened by continued weakness in transit ridership, a slowdown in domestic freight traffic, and uncertainty as customers wait for the passage of the U.S. infrastructure bill. Another headline from this morning's announcement is our intent to divest our rail segment during the first half of next year. As we have indicated in the past, Harsker Rail is not aligned with our long-term strategy to focus on and drive growth in businesses that provide environmental solutions to a broader mix than markets. However, Harsco Rail is a unique business with innovative solutions and a global reach with meaningful growth opportunities ahead. We have received solicited expressions of interest from many parties over the past several months and expect a very competitive sale process. I'll comment on each of our segments, beginning with Harsco Environmental. Harsco Environmental continued to perform in line with our expectations, and we are pleased with its momentum. Capacity utilization of the steel mills we support remains lower than the levels of the first half of 2019, and analysts expect low- to mid-single-digit LST growth through next year. Commodity prices, along with the contributions from our so-called echo products, previously referred to as applied products, remain strong. Looking ahead to 2022, against a continued positive outlook for the global steel industry, and a decline to normalize levels of capital spending in our business, we expect the environmental business to deliver the highest EBITDA and free cash flow in many years. Clean Earth experienced a moderate impact in the third quarter from cost inflation and an excessive backlog of material requiring incineration, which negatively affected volume. The recovery in contaminated soil continues to be a bit slower than anticipated due to delays in certain infrastructure projects. Nonetheless, Clean Earth's EBITDA in Q3 was close to our expectations, and these pressures should abate throughout Q4 and become de minimis by Q1 of 2022. Similar to Harsco Environmental, we believe that Clean Earth is set up to deliver another strong year of growth in 2022. Underlying market demand, new business, and yet higher benefits from the ESOL turnaround and integration will be the primary drivers. As noted, our rail business had a challenging quarter due to cost inflation and the timing of equipment orders and shipments. Many of our customers have been affected by their own supply chain issues, and as a result, maintenance programs are being put on hold. While we expect to see some continued impact from these inflationary and supply chain issues in Q4, we expect the situation to improve as we move through the first half of next year. The passage of the U.S. infrastructure bill and the introduction of new products aimed at improving the efficiency of rail maintenance activities should also support growth. The other components of our business, those being aftermarket technology and contracted services, are performing in line with expectations, and the outlook is encouraging. Therefore, we believe the timing of the divestiture of the rail business should coincide with improving market fundamentals and deliver the value we expect for our shareholders. I'll now turn the call over to Hans Schumann.