Enviri Corporation

Good morning, my name is Cindy and I will be your conference facilitator. At this time, I would like to welcome everyone to the Envire Corporation first quarter 2025 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 1 on your telephone keypad. If you would like to withdraw your question, please press star then 2 on your telephone keypad. Also, this telephone conference presentation and accompanying webcast made on behalf of EnviroCorporation are subject to copyright by EnviroCorporation 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, Cindy, and welcome to everyone joining us this morning. With me today is Nick Grasperger, our Chairman and Chief Executive Officer, and Tom Vadeketh, our Senior Vice President and Chief Financial Officer. This morning, we will discuss our results for the first quarter and our outlook for the year. We'll then take your questions. Before our presentation, 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 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. The company undertakes no obligation to revise or update any forward-looking statements. Lastly, on this call, we refer to adjusted financial results that are considered non-GAAP for SEC reporting purposes. Reconciliation to GAAP results is included in the earnings release and the slide presentation. With that being said, I'll turn the call to Nick.

Thank you, Dave, and good morning, everyone. We delivered another solid quarter and saw mostly consistent execution in each of our segments. Clean Earth, once again, was a standout performer and delivered double-digit earnings growth. Despite challenging conditions in the global steel market, Parsco Environmental also performed well, exceeding our internal expectations in the quarter. For rail, Q1 financial results were soft, as anticipated. However, we were able to successfully renegotiate one of our major ETO contracts. and the segment continued to advance its operating agenda while building its backlog. Key highlights for the quarter include our two environmental segments performed well with revenues and adjusted earnings essentially unchanged on an organic basis, despite the impact of site closures and exits in Horstco Environmental. Second, Clean Earth delivered a record first quarter results. Third, cash flow was ahead of expectations, adding further support to full-year cash flow guidance of $30 to $50 million. And finally, we, during the quarter, completed the rebuild of the rail leadership team with the new president and the new CFO. Before turning to our segments, let me comment briefly on tariffs and recent global trade developments. As you know, we have a diverse group of businesses operating across many end markets and geographies, so many benefits and challenges can be expected. For example, our operations in Mexico and Canada may be impacted by U.S. tariffs, while recent actions by the EU to support its steel industry are much needed and potentially helpful to our business in that region. We recognize the significant level of macroeconomic uncertainty driven by the ongoing global trade issues and are mindful that this may potentially lead to slower economic activity and demand. But overall, we currently do not believe that the direct tariff impact on Enviry will be material, and we have not yet seen a meaningful shift in the underlying business or customer behavior. Nonetheless, we will continue to closely monitor the situation. Now turning to each of our businesses, starting with Clean Earth. CE's margins grew by over 100 basis points and exceeded 16% in the quarter. Our Clean Earth team continues to do a remarkable job executing against its strategic priorities with a focus on expanding service capabilities and business growth, as well as its industry-leading customer service. The investments we've made in commercial resources are beginning to bear fruit CE's business pipeline is very robust, and its revenue growth in the first quarter included a good balance of price and volume, a shift we were expecting to see. Operational excellence also remains a focus, and we anticipate productivity improvements in the future for ongoing investments in a common IT platform. Overall, the outlook for cleaners' earnings, margins, and free cash flow in the coming years is positive. outpacing that of our other segments, and tracking ahead of the financial targets we established for the business at our analyst day last June. Turning to Harsco Environmental, the business is managing well through a difficult period in the global steel industry, which is marked by excess capacity and diminished demand in major steel-consuming regions around the world. Steel prices have recovered, and customer profitability has improved in recent months, We have not yet seen an improvement in volumes or any efforts to restart idle capacity. Trade protections that attempt to deal with excess steelmaking capacity in China and its steel exports are welcome. These protections are needed most in Europe, which is our largest market, and we're hopeful that recent actions by the EU are the beginning of positive change for our customers in that region. In recent years, U.S. dollar strength has been a headwind for HEE, so recent dollar weakness is a potential tailwind for this business. Roughly 80% of HEE's revenues are generated outside the U.S. As a result, dollar strength has negatively impacted HEE's revenues in EBITDA by roughly $100 million and $25 million over the past three years. Given these pressures, HE has been aggressively managing its capital spending, implementing cost reductions, and executing other improvement programs at our sites. These efforts have positioned HE well and will enable the segment to maintain underlying profitability this year and support cash flow while we await a recovery in the global steel market. Moving to Harsco Rail, demand for our standard equipment, parts, and adjacent services remains strong. as does the outlook for rails-based business. Healthy orders in the first quarter illustrate the strength of this business. Highlighting recent progress with our ETO contracts, we're pleased to have successfully amended our contract with Deutsche Bahn. We've been working on the amendment for a few quarters. Under this contract, in collaboration with our customer, prototype development and testing are going well. Our technology continues to satisfy our customer requirements, and we expect to begin product homologation with this customer later this year. In short, the future risk on this contract has been diminished. As we've said before, chief among the challenges in rail are a few ETO contracts, which weigh in our consolidated earnings and cash flow. This amendment is a positive step forward and will continue to work with DB and our other ETO customers to reduce the risk related to these contracts. We're also pleased to have strengthened our rail leadership team with the appointment of Gary Latta as our new president of rail. Gary brings considerable rail industry experience and importantly, a proven track record of operational excellence at various industrial companies, as well as leading large ETO projects. We've also hired new leaders in finance and operations in recent months. The team is focused on executing a number of key priorities, including removing the bottlenecks in our operations, managing our supply chain, and advancing our ETO contracts. Turning to our 2025 outlook, we've maintained our guidance for the full year. Our organic growth in the year will be driven by Clean Earth, while HE's performance is expected to be stable on a like-for-like basis. This is an important transition year for the company's cash flow, and we expect lower net outflows on our rail contracts as well as lower pension contributions to help us generate positive cash flow. In future years, we anticipate earnings growth and the completion of the ETO contracts in rail will position us to generate annual free cash flow of $150 million on a consistent basis. as we communicated during our analyst day last June. I'll now turn the call over to Tom.