Harsco Corporation

Good morning. My name is Valerie, and I will be your conference facilitator. At this time, I would like to welcome everyone to the HOSCO 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 and the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Also, this telephone conference presentation and accompanying 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 express written consent of Harsco Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Harsco Corporation. Mr. Martin, please begin your call.

Thank you, Valerie, and welcome to everyone joining us this morning. I'm Dave Martin, VP of Investor Relations for Harsco. With me today is Nick Rasberger, our Chairman and Chief Executive Officer in Enshumanaga, Harsco's Senior Vice President and CFO. This morning, we will discuss our results for the fourth quarter of 2021 and our outlook for 2022. Before our presentation, however, let me mention a few items. First, the quarterly earnings release as well as the slide presentation for this call are available on our website. Second, we will make statements today that are considered forward-looking. 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 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. A reconciliation to GAAP results is included in our earnings release as well as the slide presentation. With that said, I'll turn the call to Nick.

Good morning, everyone. Thanks for joining us, especially in light of the events unfolding in Ukraine and the impact on the financial markets. I would like to begin by expressing my appreciation to our employees for their remarkable efforts and contributions during 2021. Our team overcame the personal and professional challenges of the pandemic, including illness, remote work, staffing shortages, and changing health and safety protocols. Our leadership team takes great pride in the values and the culture of our company, perhaps never more so than over the past year. Our 2021 financial results reflect those efforts. Harsco's continuing operations, that is our environmental and clean earth segments plus corporate, produced 20% growth in both revenue and adjusted EBITDA, and adjusted EPS increased by two and a half times. Demand in most of our environmental businesses improved following the COVID impact in 2020, although the effects of inflation, supply chain bottlenecks, and labor shortages dampened our results to some degree, particularly in the second half of the year. Our rail business, which is now reported as discontinued operations, faced continuing demand weakness for its maintenance of way products and services, which impacted its financial results. Inflation and supply chain constraints also had an adverse effect on our rail business, especially on our long-term contracts with major European rail customers. However, we believe many of the challenges faced in 2021 in rail were timing related, while the underlying business remains fundamentally strong. As evidence, we are now seeing clear signs of strengthening demand in our core North American market, proven in part by the passage of the infrastructure bill. I'm sure we'll provide more detail on the results for the quarter and the year, so let me shift to a discussion about our strategic outlook for 2022. As many of you may recall, a few years ago, we declared our ambition to become a single thesis environmental solutions company, a company with improved growth prospects, a better cash flow profile, and one providing services and products that meet an acute societal need. In this context, our top strategic objective this year is to divest our rail business, thereby taking another significant step in achieving our ambition along with yielding a healthier balance sheet. Our remaining two platforms, Harsco Environmental and Clean Earth, are each market leaders with compelling economic and environmental value propositions and meaningful growth prospects. Throughout the cycle, Each segment should generate cash flow in excess of 10% of revenue after funding capital needs related to maintenance or contract renewals. As previously stated, Harsco Rail is not aligned with our long-term strategy to focus on and drive growth in businesses that provide environmental solutions to a broad mix of end markets. However, rail is a unique business with a global reach and significant growth opportunities. I noted earlier the market dynamics in the rail business have started to improve, and as a result, we expect 2022 EBITDA and cash flow to reach more normalized levels based on the recovering demand and a cost reduction program executed last quarter. In line with the plan we laid out on our last earnings call, we are on track to launch a formal sale process in the coming weeks, and we expect a very competitive process. Our 2022 outlook for continuing operations reflects ongoing growth in both revenue and EBITDA and a significant increase in cash flow, particularly in Harsco Environmental. In terms of revenue, demand drivers will remain strong and will be somewhat mitigated by the effects of a stronger U.S. dollar and the exits from a few major contracts. Pricing gains are expected to offset inflationary pressures. Earnings and margin growth will be robust and clean earth as we realize the full year effects of integration benefits and higher prices in addition to strong underlying demand. Earnings growth will be more muted and harshly environmental owing to currency, commodity prices, and tax benefits received last year. Free cash flow will increase by about 50 million, due primarily to lower capital spending and working capital in Harsco Environmental, and higher cash earnings in both segments. Our guidance also assumes the impacts of a tight labor market and supply chain disruptions will persist through the first half of the year. Before I turn the call over to Anshuman, I'd like to spend a minute on our environmental, social, and governance initiatives. We continue to make significant progress on our ESG journey and on integrating ESG into our strategic planning processes at Harsco. You can see some of our ESG highlights from 2021 on slide four. Clean Earth and Harsco Environmental improved their safety records in 2021, helping us achieve our company-wide goal of a total recordable incident rate below one. Our business brought a record number of new environmental solutions to market, in fact, 30 percent more than in 2020. We also successfully implemented the first year of our new annual incentive plan modifier that links executive pay to a number of strategic objectives and ESG targets. We continue to see positive responses from our investors and ESG ratings groups. including most recently a 20 percent improvement in our ESG rating from Sustainalytics. So, in summary, we delivered a solid year. We're making meaningful progress on the execution of our strategic roadmap, and our outlook for this year provides us with confidence in our ability to drive shareholder value creation. I'll now turn the call over to Anshuman.