Harsco Corporation

Good morning. My name is Rocco and I will be your conference facilitator. 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 session. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. 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, you may begin your call.

Thank you, Rocco, and welcome to everyone joining us this morning. I'm Dave Martin, VP of Investor Relations for Harsco. With me today is Nick Grasberger, our Chairman and Chief Executive Officer, and Pete Minin, Harsco's Senior Vice President and Chief Financial Officer. This morning, we will discuss our results for the fourth quarter and our outlook for 2023. We'll then take your questions. Before our presentation, however, let me mention a few items. First, our quarterly earnings release and 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 from those forward-looking statements. For a discussion of such risks and uncertainties, see the risk factors section in our most recent 10-K. The company undertakes no obligation to revise or update any forward-looking statement. Lastly, on this call, we will 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 and slide presentation. With that being said, I'll turn the call to Nick.

Thank you, Dave, and good morning, everyone, and thanks for joining us today. I'd like to begin by acknowledging the efforts of our Harsko Environmental colleagues in supporting the people impacted by the earthquake in southern Turkey. We have nearly 200 employees working across three sites in the area with our partner, Toshiali. Thankfully, none of our employees or their immediate families was killed, but many have lost their homes and living conditions are very difficult. So we are doing what we can by providing temporary accommodations and other necessities. Now onto the past quarter. The fourth quarter was above our guidance expectations, as the adjusted EBITDA improved year over year, as did revenue and margins. These results reflect the continued improvements in our Clean Earth segment due to numerous ongoing operational initiatives, as well as pricing actions implemented in the previous quarter. Persco Environmental also performed somewhat better than we expected, as declining steel production over the previous few quarters stabilized in most of our markets. The Clean Earth team executed a very impressive turnaround in the second half of the year. Adjusted EBITDA margins, which were below 4% in the first half, grew to over 12% in the second half of the year. Adjusted EBITDA and free cash flow were also about three times higher in the second half of the year. The external forces that affected our first half performance, namely inflation, a tight labor market, and severely limited incineration capacity, largely continued through the remainder of the year. However, our team moved aggressively to mitigate the impact and executed the action plan that we developed extremely well. Of equal importance, service levels to our customers reached new highs, and our safety culture took a big step forward in Clean Earth, following the lead of Harsco Environmental, which delivered record safety performance for the year. Changes in leadership, structure, and process, along with the heightened emphasis of the Harsco values, have been the underlying foundation of our success in Clean Earth. We certainly expect this momentum to continue throughout this year as we validate our strategy of building a leading platform in the hazardous waste sector. Turning to Harsco Environmental, while service volumes remain weak compared to last year, particularly in Europe, steel production appears to be stabilizing and was a bit higher than we anticipated in Q4. We continue to remove costs and boost productivity across our platform And at the same time, we were improving our competitive position in light of the bankruptcy of Phoenix Services, the third largest mill services business. We see an opportunity to gain new contracts as a result without relaxing our standards for economics and risk protection. At Harsco Rail, which is accounted for as a discontinued operation, let me address opportunities and then challenges. Our rail business is solid and demand is growing. In fact, we are experiencing our highest backlog for standard equipment in several years. To alleviate some of the growing backlog, we will reopen our Ludington, Michigan manufacturing facility in the second quarter, which we expect to be a net positive as it will alleviate some constraints in other parts of the rail business. Our aftermarket business, which accounts for about two-thirds of our rail profit, has also remained strong in the past few years, and we expect growth in 2023. The challenges for the rail segment continue to be our long-term contracts for highly engineered and specialized equipment due to the impacts of inflation, supply chain disruptions, and design changes. To mitigate these challenges, we are negotiating new delivery schedules, a reduction of penalties, and price increases with many of our customers. To be very clear, divesting Harsco Rail remains a priority. We are focused on value creation and are being thoughtful in our approach, given the division's unique attributes and positive outlook. And we plan to reengage on the sale process with prospective buyers in the second half of the year. Our 2023 outlook for continuing operations reflects improvement in all key financial metrics for each segment. namely adjusted EBITDA margins and free cash flow, even with limited volume growth. In terms of adjusted EBITDA margins, we anticipate growth of about 150 basis points, led by a 300 basis point jump in clean earth margins. Importantly, we also anticipate a strengthening of the balance sheet, driven both by operations as well as by the future rail divestiture. Adjusting for the impact of an accounts receivable securitization program last year, the cash flow from our two segments is expected to improve by more than $100 million. As Pete will discuss, we expect strong revenue and earnings growth in Clean Earth. And while Harsco Environmental is holding its own, segment growth is expected to be slower given the difficult market conditions it faces. So before I turn the call over to Pete, I'd like to thank our 12,000 employees for mitigating the many challenges of the past year and also identifying the opportunities for future growth in both revenue and productivity. I'll now turn the call to Pete.