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spk03: Good morning, my name is Jay and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation first quarter release conference call. All lines have been placed in mute to prevent 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 a 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 redistribution 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 Bonin of Harsco Corporation. Mr. Mornin, you may begin your call.
spk04: Thank you, Jay, and welcome to everyone joining us this morning. I'm Dave Martin of Harsco. With me today is Dave Rasberger, our Chairman and Chief Executive Officer, and Nshuma Agha, Harsco's Senior Vice President and CFO. This morning, we will discuss our results for the first quarter of 22 and our outlook. We'll then take your questions. Before our presentation, however, let me mention a few items. First, Our 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 that may cause actual results to differ from these forward-looking statements. For a discussion of such risks, see the risk factors section in our most recent 10-K. 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 the call to Nick.
spk09: Good morning, everyone, and thanks for joining us today. Before I discuss our results, let me speak to the ongoing crisis in Ukraine. The global steel market is in the process of rebalancing as a result of the Russia-Ukraine conflict, and we anticipate limited impacts to our Harsco environmental segment over time given the diversity of our portfolio. Furthermore, Harsco has no direct exposure within either country, and any related disruptions at customer sites were short-lived and minimal in the quarter. Turning to our results, HSCO consolidated revenue was up 1% versus the first quarter of 2021, and adjusted EBITDA totaled $49 million. These adjusted results are consistent with our guidance. Much of the quarter, however, was characterized by unprecedented inflation in commodities and other input costs, as well as tightness in our supply chains and labor markets, particularly in the U.S. We expect these factors to remain a concern and are working aggressively to mitigate the impact on our businesses. That being said, underlying demand within most of our key markets remains firm, including the steel industry and in most of the markets served by Clean Earth. We also remain confident in the outlook of our rail business as the industry continues to recover from COVID-related impacts. For example, we have sold more tampers, the core of our product line, in the first 100 days of this year than we did all of last year. Now let me comment on each of our two core businesses. Horseshoe Environmental had a strong quarter despite these conditions as a result of strong execution. Looking forward, our steel industry outlook is largely unchanged, as is our expectation for HE for the full year. Any impacts from the conflict in Ukraine are expected to be muted longer term for our environmental business, given the diversity of our customer portfolio and of our exposures. HE results are projected to strengthen in the coming quarters, reflecting better seasonal volumes and additional benefits from our growth investments. These investments include eco products, where our steel fault business recently introduced its first carbon negative asphalt product. Steel Fault is a compelling growth story within HE, which illustrates our innovation mindset and positions us as a strategic environmental partner to the steel industry. The outlook for our all-tech business, which we acquired a few years ago, is also beginning to improve. We expect to sign at least three contracts this year to either sell directly or to build all-you-sell plants for customers that need a better environmental solution to process waste from the aluminum manufacturing process. Looking at Clean Earth, in the first quarter, again, we were impacted by incremental cost inflation, particularly for fuel and price increases for steel containers. These effects were more pronounced late in the quarter, and additionally, volumes continued to be affected by the ongoing shortage of drivers. as well as weakness within certain retail customers where pandemic-related benefits have waned. The onboarding of drivers has, however, improved significantly over the past few weeks. While these items will continue to weigh on Clean Earth in the second quarter, we've begun addressing these challenges proactively. Recently, we initiated a series of price increases and surcharges to offset significant increases in the cost of fuel, third-party transportation costs, and containers. By and large, the responses from our customers have been favorable. There are also some bright spots within Clean Earth. Our full-circle service is increasingly supporting sustainability goals for our customers, and we continue to pursue avenues to expand some of our unique capabilities. In addition, the outlook for our soil and dredge business is quite promising with numerous large projects in the pipeline for later this year and into 2023. Overall, for Clean Earth, we anticipate margins will recover in the second half of the year, and our longer-term view on margins and growth potential remain unchanged. Turning to sustainability, our strategic direction and environmental focus is quite clear. Harsco is uniquely positioned as the leading provider of recycling and reuse solutions within the industrial waste market. Customers are increasingly searching for more environmentally friendly solutions for their waste streams, consistent with their value proposition. We continue to drive initiatives internally to improve our carbon footprint across our logistics and processing plant operations. Since 2019, our carbon intensity has declined 13.5%, putting us on track to deliver our 15% reduction goal by 2025. There is much more for us to do here, and we'll have additional details to disclose regarding our sustainability achievements and goals within our next sustainability report to be published later this year. Next, let me comment on rail and our efforts to reduce our financial leverage. We're committed to a sustainable leverage ratio of under three times, as we've discussed in the past. A rail transaction is an important step for HSCO in this regard. Fundamentals within the rail maintenance and weigh market have clearly improved in recent months, particularly in North America, where we've experienced a notable pickup in order activity. The increase in our backlog during the quarter supports our return to a more normalized level of EBITDA in the business for this year, which is about $40 million. The process to divest rail is continuing to progress as anticipated. There has been tremendous interest in this unique and valuable asset, for more than 70 parties globally. We are now narrowing the list of potential buyers and expect to continue with a more detailed due diligence process with this smaller group within the next few weeks. Our expectations remain unchanged for the sale of the rail business in the second quarter with the closing of the transaction shortly thereafter. I would like to conclude by acknowledging Harsco's 12,000 employees for their ongoing dedication to the company and commitment to satisfy our customers in a safe and compliant manner.
spk05: The engagement of our employees is... Thanks, Nick, and good morning, everyone. Please turn to slide five. Harsco Q1 revenues from continuing operations increased 1% compared with the prior year quarter to $453 million, including a 2% headwind from FX translation. Adjusted EBITDA totaled $49 million, which was in line with our guidance. Relative to our expectations, environmental performed strongly and corporate costs were slightly favorable. Meanwhile, clean earth results were impacted by increased inflation pressures related mainly to fuel, with diesel increasing approximately 40% driven by the Russia-Ukraine conflict. Also, driver availability, including the impact of Omicron earlier in the quarter, impacted volume. Each of these items impacted CE results by 1 to 2 million. We are taking action to mitigate the spike in inflation due to the Russia-Ukraine conflict, including with respect to pricing, which I'll return to later. Harsco's gap loss per share from continuing operations in Q1 was 9 cents, while the adjusted loss was 1 cent. This adjusted per share figure in the quarter was outside of our guidance range due to the higher effective tax rate, which was impacted by the geographic distribution of our income. Lastly, our free cash flow for the quarter was a deficit of $29 million. This result was consistent with our expectations. As we've discussed in the past, Q1 is typically the low point for our cash flows during the year for various reasons, including the timing of interest and pension payments, as well as incentive compensation payments. Our cash performance is expected to improve meaningfully for the remaining quarters of the year. Please turn to slide six and our environmental segment. Segment revenues totaled $262 million and adjusted EBITDA was $48 million. Revenues increased 2% on higher volumes and commodity prices, partially offset by foreign exchange impacts. Meanwhile, adjusted EBITDA decreased by $6 million year on year. The change reflects the expected less favorable mix of services and higher operating costs, mainly within eco-products. Also, effects in Brazil's sales tax credits in the prior year combined impacted results by approximately 2 million. On the Russia-Ukraine conflict, as Nick mentioned, we have not seen any material impacts to date on Harsco Environmental. We did see a modest number of steel output disruptions at customer sites due to the high energy prices and the raw material availability. However, higher steel prices have since supported these operations, and some production has likely moved elsewhere to offset these impacts. This illustrates the benefit of our global portfolio. Higher commodity prices have also helped Harskow. Please turn to slide seven to discuss Clean Earth. For the quarter, revenues totaled 191 million and adjusted EBITDA was 10 million. Compared to the first quarter of 2021, revenues increased 1%. Meanwhile, adjusted EBITDA decreased 4 million year on year. This change primarily relates to hazardous materials line of business where fewer drivers muted volume somewhat and high inflation following the Russia-Ukraine crisis impacted results. These costs were greatest later in the quarter, particularly for fuel, third-party transportation and containers. We have instituted additional price increases and implemented surcharges on top of the price increases we introduced in Q4 across a large percentage of our sales book to offset this inflation. While most customers understand and support the price increases, it will take till late in Q2 for these impacts to be fully realized, so we're absorbing a cost-price timing mismatch. We also continue to focus on cost controls to mitigate our risk here. Lastly, on Clean Earth, the truck driver shortage is slowly improving. Turnover declined in the first quarter, and March was a good month for recruiting drivers. Before turning to our outlooks, let me comment briefly on rail. During the first quarter, we recorded special items in rail, which totaled 35 million. This amount for additional estimated future costs to complete fixed price contracts with three large European customers. These contract adjustments relate primarily to supply chain challenges and production delays that have increased anticipated costs and further delayed our progress on these projects. resulting in penalties. We are working with our suppliers and customers to mitigate some of the impacts that resulted in these charges. And as Nick mentioned, our process to sell rail is progressing according to plan, and we're optimistic of our ability to complete a transaction this year. Selling rail is important to reduce our leverage. Now let's turn to our 2022 outlook on slide nine. Our adjusted EBITDA is now expected to be within a range of 250 million to 265 million, with the change versus a February guidance entirely attributable to inflationary factors and clean earth, with the cost-price timing mismatch in the first half. This new EBITDA guidance translates to adjusted earnings per share of 35 cents to 44 cents. Beyond the EBITDA change, the revised EPS guidance incorporates a change to our anticipated interest expense due to higher anticipated market rates and our effective tax rate. Lastly, we are now targeting free cash flow excluding rail of $25 to $40 million. You can find our segment guidance within the appendix of the slide deck. Let me conclude on slide 10 with our second quarter guidance. Q2 adjusted EBITDA is expected to range from 59 million to 64 million. We expect environmental adjusted earnings to be modestly lower due to business mix and FX impacts. Clean earth adjusted EBITDA is anticipated to also modestly be lower due to the cost price timing mismatch. In addition, corporate costs should be within a range of 10 to 11 million for the quarter. Thanks. And I will now hand the call back to the operator for Q&A.
spk03: Thank you. And as a reminder, if you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Once again, that's star one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. And our first question comes from the line of Michael Hoffman of Stifel. Your line is open.
spk08: Thank you very much, Nick, Anshuman, David. I'd like to start for rail for one second and try and put something to bed. There is a perception that you can't sell this well enough to get a de-levering event. And you've talked about the number of bidders. Should we be concerned about these charges? How do you work that through a due diligence process? What does everybody need to understand why you can get net proceeds that will take a turn, turn and a half out of this business model?
spk09: Yeah. Well, first of all, I think it's important to reiterate the strength of the process so far with a very large number of interested parties, a very large number of bidders that are really focused on the core of the business and its future growth potential, which, of course, we believe is quite high. The large European contracts where we have adjusted the future profitability will be looked at effectively along with excess working capital as debt-like items by the buyers. And I will say that the charges we took in the first quarter we believe there's a reasonable path to reversing all or a part of those as we continue to dialogue with our customers about the COVID-driven nature of those adjustments, whether it be for late delivery or for cost inflation. So I think it should be relatively straightforward for the buyers to look at those contracts and kind of assess what the future cash flow impact would be, plus or minus, and adjust then their valuation for the core. So that's, I guess, a long-winded way of saying that we do expect this to be a significant delivering event, as we've said in the past.
spk08: Okay. Switching gears then to the fundamentals, Cost issues aside, are you seeing a North American industrial economic environment that is creating a favorable top-line outlook? And your ability to account for cost issues timely aside, that's good?
spk09: Yeah, I think the volume trends in the U.S. industrial market are quite good. We did see in the first quarter – some softness with a few major retailers that we serve on a national basis. But we expect those to be somewhat short-lived. But the volumes in healthcare and industrial and other retail accounts are actually quite good.
spk08: And the retail issue is a timing one, or did they see a reduction in foot traffic and that led to less activity?
spk09: Yeah, it's the latter.
spk08: Okay.
spk09: These were a few retailers that in particular benefited from the buying patterns of consumers during the pandemic.
spk08: Got it. Okay. And then, Anshuman, on the free cash, in the press release, you have a line item that's a pension income number. So one is that cash, and two, how do I think about that in the context of the 30 to 50 being revised down to 25 to 40?
spk05: The pension income is a non-cash item, and that doesn't impact at 25 to 40. If you really think of a free cash flow change in guidance, there were two items. One, our cash interest cost is going up as The new projections for interest rates are seven to eight hikes this year. And the second, we did reduce our EBITDA guidance slightly for the year. Combined, those are about 14 million, and we've reduced cash at midpoint by about seven. So we've compensated for part of the decline.
spk08: Okay. And when you think about in the HE business, Are you expecting the rest of the world to make up the 30 million tons of Russian steel that's exported and, therefore, you could see increased level of production across your customer base? Or you're still sticking with we're 1% to 2% production growth net of China year over year? Yeah.
spk09: Yeah. Yeah, it's a good question, Michael. We're sticking with our original guidance on volume growth in HE, but to answer the first part of your question, yes, given the demand trends in the global steel industry, we would expect that production gap in Russia and Ukraine to be made up elsewhere.
spk08: Okay.
spk03: All right. Thanks. Thank you. Next question comes from the line of Larry Solo of CJS Securities. Your line is open.
spk02: Good morning, guys. Thanks. Sorry, I was joining the call a little late. Just a couple questions on Clean Earth, and you may have addressed some of this stuff. I think that was sort of the sore spot for me in the quarter. In terms of revenue shortages and whatnot, driver shortages, has Is that improving? And do you make up, you know, what happens if, you know, you don't pick up some of this waste and stuff? Do you make that up? Does that accumulate? Are you losing share to other, you know, other companies? You know, how does that, on the hazardous side, on the retail side, is that, or is that just, you know, lost revenue that you can't get back?
spk09: Yeah, yeah. Well, first of all, clearly our competitors move the material by truck as well, and I think we're all in the same situation here. No, we do think as the situation improves, and I think as I mentioned, maybe on Schumann did as well, we do expect and we have seen the last several weeks the trends improving in terms of the hiring of drivers. So we do see the situation improving in the second quarter. clearly should be better than the first, which was better than the fourth of last year. With that said, I think it probably would be a bit aggressive to assume that we can simply recover all of that lost volume. I think there's certainly an element of that that we're confident will recover, but I wouldn't expect to fully recover that volume.
spk02: How about on the soil side? I don't know if you guys addressed this. I know that's been... down considerably the last couple of years. It hasn't come back. It was down coming into COVID. In terms of construction activity and infrastructure, hopefully it starts to move forward. Do you see any visibility, light at the end of the tunnel on that side of the business and the dredging side as well? I know they're kind of dry and wet swells, I guess, are kind of combined now, but anything comments on that, color on that?
spk09: Yeah, Larry, we are for the first time in some time. We do have visibility into a more robust pipeline of projects. And so I would kind of tend to view that as a bit of upside for the year for us. We have relatively modest volumes built into our guidance, but we're hoping that that some of these projects do break loose and generate revenue for us later this year. But we've been frustrated before on that front, so we're perhaps taking a bit of a cautious view in our guidance, but we are seeing improved visibility for the first time in a couple years.
spk02: And lots of talk on the PFAS side, and I know Clean Earth, I think, had one, I think maybe right before you acquired them, a couple of quarters before, had a couple of projects You know, all the stars aligned. I think they did, you know, a few million of EBITDA in one quarter, maybe one half year on the PFAS side. And I don't expect to probably have much visibility for this year or putting any numbers in your guidance. But lots of talk about it. You know, do you see Clean Earth being at least an incremental provider, you know, for PFAS cleanup as we look out over the next few years?
spk09: Yeah, there's no question. We view that as probably one of the top three to five growth drivers in the business over the next few years. In fact, this summer we'll be starting a project on Cape Cod at the joint base on Cape Cod with our mobile technology processing PFAS contaminated soils. And so that should be a very critical project for us. And we believe that if that is as successful as we expect it to be, that many more opportunities, similar opportunities should become available to us.
spk02: Okay. Just last question. Just on ESOL, and I realize you did this acquisition, it was over two years ago, so it's now part of Clean Art. It's not separate, but ESOL, Just in terms of, I know when you guys acquired it, there were some pricing issues there and just inefficiencies and excess storage facilities. Just on those couple of items, and I know now you're raising pricing across the business, so is there still sort of a discrepancy between the ESOL units and your legacy business? They're on the cleaner legacy side, if you will.
spk09: Yeah, I think we've largely addressed that issue. You know, we've stopped, I guess, tracking directly the integration benefits. We set a target for, and we achieved that in, I don't know, maybe a third of those benefits were related to pricing.
spk02: Okay. Okay, fair enough. Thanks. I appreciate all that, Colin. Yeah, thank you.
spk03: Thank you. Next question comes from the line of Rob Brown. of Lake Street Capital. Your line is open.
spk06: Good morning. Just wanted to follow up on the price increases in CE. What sort of the percentage of price increases that you're needing to take and how, you know, how again does that sort of flow through into the year?
spk09: Yeah. Yeah, well, it's quite a mix across the various customer types, retail, industrial, and healthcare. And there's surcharges. There are also price increases depending upon the nature of the contract or the customer. So it's a real mix. I think the easiest way to look at it is that relative to our original budget for this year, inflation in Clean Earth is about $20 million higher than we expected. And the price realization that we expect to offset that is only about 10. So that kind of drives the delta in the guidance for Clean Earth that you had mentioned. Now, certainly as we roll into next year and have the full year impact of those price increases and continue to adjust our contracts to give us the flexibility in the future if needed to address surprises, I'll call them, in cost inflation, that should be a nice enhancement to margins. But the gap this year is, in terms of EBITDA, about 10 million.
spk06: Okay, great. Thank you. That's very helpful. And then maybe on the interest expense line, what do you sort of expect for interest expense in 2022?
spk05: So we're somewhere between 68 and 70 million of interest expense this year. From our prior guidance at that stage, the expectations were for three to four interest rate hikes this year. Now the expectations built in is seven to eight interest hikes this year. Okay, great. Thank you. I'll turn it over. Sorry, just one additional clarification. This doesn't, the interest expense doesn't include any benefits from reduction in debt after the sale of rail and the corresponding interest reduction then. Yep, Kyle, thank you.
spk03: Thank you. Next question comes from the line of Chris Howe of Barrington Research. Your line is open.
spk10: Good morning, everyone. Thanks for taking my questions. I wanted to follow up on the soil and dredge business. You had mentioned that there are projects for later this year. As we think about that, along with some other buckets, such as pricing increases, which will benefit later in Q2, and perhaps future price increases, how should we look at these different channels as it relates to the margin recovery in the second half for clean earth or even beyond that?
spk09: Go ahead, Anshuman.
spk05: Yeah, so if you really start thinking of price increases, the $10 million that Nick mentioned that was uncovered is really in the first half of the year. So there's a cost-price mismatch during the first half of the year. The second half of the year, our price increases are covering inflation. And as Nick was mentioning, we put in place a lot of surcharges and stop fees, which really is going to be tied to which has been one of the big contributing factors for inflation for us. So our margins will recover from that. The soil and dredge business is, from a guidance perspective, relatively flat to last year. That business has a very high contribution margin as incremental volume would come in. So if we were able to pull in some work into this year, there could be good margin upside, as Nick mentioned. a lot of the projects, the pipelines developing for later this year into 2023. So as you start thinking margins 23, 24, we see a recovery in the soil dredge business, which really could be a couple of points of margin expansion into our long-term targets. And then on top of that, as you factor in our efficiency program through the digitalization effort, through our logistics improvements, and continued growth in the business, that's how we get to our mid-term margin targets of the 15%. Got it.
spk10: That's perfect. And no specific order here. If we go to the driver shortage in Clean Earth, you mentioned March was a little bit better for recruitment. Can you give a sense of the current magnitude of shortage versus where you hope to be?
spk05: Yeah, so we're probably about 60 to 70 drivers short, and March was a good month for us in both the number of drivers we onboarded, but also we, in the first quarter, saw a reduction in the turnover, so actual people leaving, drivers leaving the business. So net positive on both ends for us. Additionally, as we'd mentioned earlier, during the last quarter, we basically took into effect certain new procedures on onboarding to cut the time for onboarding of our drivers and getting them productive, and about half of all of that is starting to help us also.
spk10: Okay. And then my last question, just going back to these ongoing challenges of inflation, supply chain, labor, it doesn't seem at this point things are getting much better, but more of the duration is being extended. How are you factoring in future price increases to perhaps overcompensate for these challenges to not be on the short end?
spk09: Yeah, well, I think a lot of the work comes down to the structure of our contracts. Of course, this business had not experienced inflation of this magnitude in the past, certainly not as quickly as it developed. And so the contracts were written at a time when accommodating that was not even a thought. So a lot of the work will be done through giving us the avenue to make appropriate adjustments per the contract going forward.
spk10: Okay. And then likewise, I would assume that these price increases somewhat stick with us for a while to account for the challenges that are occurring and have occurred.
spk09: Yeah, that's certainly what we're anticipating.
spk10: Okay. Thank you for taking my questions. Thank you.
spk03: Thank you. Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, that's star one on your telephone keypad. And if you would like to withdraw a question, please press the pound key. Next question comes from the line of Zane Karimi of DA Davidson. Your line is open.
spk07: Hey, good morning, gentlemen, and thank you for taking my questions. Good morning. So first off here on clean earth, can you speak a little bit more to your previously announced 2024 clean earth expectations and what has changed between initial announcements and today? And in particular, what changes, if any, need to be worked on to hit those targets?
spk09: Yeah, I assume you're referring to the EBITDA margin targets of 15% that we've discussed?
spk07: Yes, and or top line.
spk09: Yeah, so I think Anshuman mentioned a key component of that bridge to get from where we are today to the 15%. At least two points of that will be the soil and dredge business returning to pre-pandemic volume levels. So that would be a few points there. I would expect, we do expect, an incremental one to two points in margin from the leverage that we'll receive from incremental volume. And then I think Anshuman also mentioned a lot of the IT initiatives that are underway, which will serve to both improve the customer experience, but also to help the back office operations become more effective and likely leading to a reduction in G&A costs. So those are the principal components of what's called that five-point gap between normalized current margins, adjusting for inflation, and the 15% target that we have.
spk07: Okay. Thank you. And maybe, I know we've discussed a lot of the Clean Earth potential near-term headwinds, but I was hoping to talk a little bit about what you're seeing as best you can, the 2023 and 2024 opportunities there.
spk09: Well, I think those opportunities are consistent with kind of the investment thesis that we stated when we bought the business. There are significant opportunities in areas like PFAS. There are opportunities with our front-end work that we're doing to improve the customer experience to take what has been kind of negative churn in large accounts to one that's positive. And, of course, the ongoing opportunity to expand permit capabilities at our federally permitted sites to process different kinds of waste. There are many, many opportunities that are consistent with those that we mentioned when we bought the business a few years ago. And we indicated that we think that the volume opportunity in this business on an annual basis is kind of mid-single digits, plus, of course, any benefits or price. So we still believe that's achievable.
spk07: Okay. I appreciate the color, and I'll jump back into Q&A.
spk03: Thank you. Next question comes from the line of Jeff Hammond of KeyBank. Your line is open.
spk01: Hey, good morning, guys. Hey, Jeff. Sorry, I jumped on a little late. I don't know if you gave EBITDA for the quarter for rail, even though it's disc ops or what it is, you know, trailing. I know you're talking about the $40 million, you know, go forward.
spk05: We didn't give the EBITDA, but really the results were impacted by the $35 million charge that I referenced during the call. But really going forward, as Nick mentioned during the call, we've seen a very strong recovery into Q1 and the early parts of Q2 in the rail business. The number of tampers we sold in the first 100 days, our core product this year is more than we did all year last year. We've received another... ordered this early in this quarter, Q2, that will help continue to show good growth in the base business of this rail segment. And as a result, we feel pretty comfortable that as buyers are looking at this business, they should be looking at the near-term earning potential, which is around the $40 million mark.
spk01: Okay, perfect. And then just on HE, can you just talk about you know, kind of how, if there's any moving pieces within the guide, it seems unchanged, but it seems like, you know, certainly nickel scrap, you know, should be kind of a tailwind. I don't know if there's offsetting headwinds.
spk09: Yeah, there are a number of moving parts, as you noted. In our echo products group, some of the input costs to producing those products, the costs have increased. So we've, Recovering that in price as we speak, but there was a bit of a headwind in the quarter and probably some of the second quarter as well. Due to that, as you point out, some other commodity prices which tend to benefit the business have remained a bit higher than we thought. But overall, the volume in the business is consistent with our original thoughts. And, yeah, we're quite comfortable with the original guidance that we provided for the full year.
spk01: Okay, great. And then last one, just on, you know, I know when you bought ESOL, you were talking about, you know, I guess restructuring some of the transfer facilities in the transportation business. And I'm just wondering kind of where you are in that, you know, evolution and, you know, kind of how you maybe think about it the same or differently given all this kind of, you know, driver shortage, you know, inflation, et cetera.
spk09: Well, we've made a number of changes already to our route planning and so forth. So a lot of that has already been addressed. Although, as you can imagine, in this market, it's certainly – is prompting us to look a level deeper and to continue trying to find efficiencies in our route planning. So it's an ongoing initiative, I'd say, Jeff.
spk01: Okay, appreciate it, guys. Yeah, thank you.
spk03: Thank you. Next question comes from the line of Michael Hoffman of Stifel. Your line is open.
spk08: Yes, thank you for the follow-up. I just wanted to get a point of clarity. 20 million of headwind, 10 million offset, and it's contract structural limitations that are preventing you from doing that faster. So is that what I think I heard?
spk09: Yeah, in effect, that's correct. And that, of course, is something we're addressing now if and when this sudden and severe inflationary environment would ever recur. But yeah, I think that's taken us a bit more time to work through the appropriate mechanisms to increase prices given the structure of the contracts. Again, whether they be surcharges or price increases and temporary versus permanent. And it's quite a mixed bag of contracts. So it has taken a bit of time to work through that. But I'm quite pleased with the effort of our Clean Earth team to get where we are today and certainly have confidence that we'll be in a better position to mitigate this going forward.
spk08: And I get and appreciate that these businesses are all being run as one, but they're now underlying segments. So is this an industrial issue, a retail issue, a healthcare issue? Is it more of something? And that's why there's some timing here?
spk09: Yeah, it's more retail and industrial. It's not a healthcare issue. It's really not a legacy clean earth issue. It's more of a An ESOL issue with respect to industrial and retail customers.
spk08: All right. And then what are the plans to term out the debt? Is it something that's tied to you get rail sold, you de-lever, and then try and term out and get out from under some of this variable versus fixed issue?
spk05: Currently, we're 50-50 from a variable versus fixed. And as we get the rail proceeds, obviously we'll be paying down some of the variable debt. So our percentage for the rest of this year goes a little bit higher towards fixed. At this stage, interest rates are up, so taking out the high yield and replacing that probably isn't a strategy given the current interest rates, but we'll continue to monitor interest rates and look at mechanisms to further reduce our interest costs as we continue to deliver and have a stronger balance sheet.
spk08: Okay. And then lastly, Nick, I want to ask about the 15% margin. My recollection was Clean Earth Legacy was very high margin because soils and dredge was such high incrementals. ESOL was virtually zero. But the combined was meant to be better than 15%. because of the benefit of clean earth. Now we're only getting to 15 because of soils and dredge. I thought 15 was without soils and dredge recovering.
spk09: Well, we're talking just over the next few years. We really haven't looked out beyond a few years and where the margins can develop to. I think to pick up five or so points of margin in the next few years is an aggressive but reasonable target for the team. And that's what we're tasking them to do. And we have a pretty good roadmap on how to get there, where the margins can go beyond 15%. You know, we'll discuss that later.
spk08: Okay. Thank you for taking the extra questions.
spk03: Thank you. There are no further questions at this time, and we'd like to turn the call back to Dave Martin for closing remarks.
spk04: Thank you for joining the call, and I apologize for the technical issues with Nick at the very end of his prepared remarks. Feel free to contact me with any follow-up questions, and again, we appreciate your interest in HRSCO and look forward to speaking with you in the future. Have a great day.
spk03: Ladies and gentlemen, this concludes today's conference call. Thank you for... participating, you may now disconnect. Have a great day.
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