Enviri Corporation

Good morning. My name is Jason. I will be your conference facilitator. At this time, I would like to welcome everyone to the Envire Corporation first quarter 2024 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'd like to ask a question during this time, simply press star, then one on your telephone keypad. If you'd like to withdraw your question, please press star, then two on your telephone keypad. Also, this telephone conference presentation and accompanying webcasts made on behalf of Envire Corporation are subject to copyright by Envire 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 Envire Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Envire Corporation. Mr. Martin, you may begin your call.

Thank you, Jason, and welcome to everyone joining us this morning. With me today is Nick Grasperger, our Chairman and Chief Executive Officer, and Tom Batiketh, our Senior Vice President and Chief Financial Officer. This morning, we will discuss our results for the first quarter 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 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 these 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 statements. Lastly, on the 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 the earnings release as well as the slide presentation. With that said, I'll turn the call to Nick.

Thank you, Dave, and good morning, everyone. Q1 was a strong start to 2024 as each of our three segments performed above our expectations. in terms of both cash flow and adjusted EBITDA. Consolidated EBITDA increased about 20% versus Q1 of last year, while the EBITDA margin improved nearly 150 basis points to 13%. Of note, Clean Earth's EBITDA margin exceeded 15%. That's three points higher than the last year's figure and three times the figure in Q1 of 2022. In terms of our outlook for the full year, our updated guidance reflects about a 5% improvement in the underlying performance of the Clean Earth and Harsco environmental segments compared to our previous guidance. Our primary focus from a financial standpoint continues to be improving cash flow and reducing leverage. We expect cash flow from our three segments to improve by 40 to 50 million this year. including the rail business, with the CE and HE segments each generating an excess of $100 million for the first time. When combined with the expected double-digit increase in cash earnings, leverage should approach 3.85 times at year end, but we are pushing to reduce it further to 3.75. The board and management continue to focus on leverage to create shareholder value. Envire's cash earnings are at the highest level in the last decade, and our environmental businesses are more stable with more upside potential than those in our portfolio a decade ago. Nonetheless, our degree of financial leverage is higher than we would like in this economic and interest rate environment. So besides continuing to grow our businesses and improve our cash flow yield, we are considering other means to reduce leverage through sales of assets and businesses. At this time, we are targeting to generate $50 to $75 million of cash from such disposals this year, and our leverage goal continues to be below three times. Turning to a discussion on our two environmental businesses, which comprise about 95% of the EBITDA from our three segments. In Harsco Environmental, Volume growth of 6% in mill services was consistent with expectations, while pricing was a bit better. Echo product volumes and profits were also up. The impact of a stronger U.S. dollar partially offset the better operational performance, and these currency headwinds will likely be more of a challenge over the remainder of the year than we expected a few months ago. Overall, I'm pleased with the improved demand for our services and products. as well as our execution and expect HE to deliver a solid year of underlying earnings and cash flow growth. In Clean Earth, higher volumes and lower costs in the has waste business drove the favorable EBITDA and cash flow variance versus our previous expectation. The retail and healthcare markets performed relatively better than the industrial market, while the soil and dredge business met expectations. CE's leadership team also continues to reduce costs in the business. And as a result, we've improved our EBITDA and cash flow outlook for the full year and now expect cash earnings to be up by a mid to high teens percentage over what was a very strong 2023. We look forward to hosting a Clean Earth focused investor day here in Philadelphia on June 20th. Jeff Beswick and his team will highlight our strategy and key initiatives and provide an updated financial outlook for the next few years. As noted in our press release, we have decided to pause our divestiture process for Harsco Rail and reconsolidate the business into our financial statements. While there was strong interest from many potential buyers, the risk associated with a few large European contracts proved to be a barrier to completing the divestiture with attractive terms for shareholders. at this time. We believe the risk on these contracts has been largely recognized, and the ongoing negotiations with customers should result in favorable adjustments. Overall, the core of Harsco Rail is performing quite well, and the divestiture remains both a strategic and a financial objective for the company. And our view of the value of the business has not changed. Once the European contracts stabilize and the associated risk is clearly reduced, we believe this will be an attractive business.