Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Clean Earth achieved another record quarter in terms of EBITDA and EBITDA margin, with adjusted EBITDA increasing over 20% compared to Q3 of last year.
- The company successfully strengthened its balance sheet through asset sales and the renewal and extension of its revolver and other short-term credit facilities.
- Enviri Corp's sizable pension fund in the UK is now fully funded, reaching this milestone about a year earlier than expected.
- The company exceeded its goal of generating $50 million to $75 million of proceeds from asset sales, primarily from non-core businesses.
- Enviri Corp expects to yield EBITDA in excess of $400 million in 2027 with free cash flow of more than $150 million and net leverage of 2.5 times, providing greater strategic flexibility and optionality for value creation.
Negative Points
- Harsco Environmental faced headwinds due to a weakening steel industry, with excess capacity and weaker demand in China impacting customers in less protected markets.
- Harsco Rail continues to face operational challenges, including late deliveries from key vendors, global shipping disruptions, and bottlenecks in manufacturing processes.
- Hurricane Helene affected production and shipments at the end of the quarter from the primary manufacturing facility in Columbia, South Carolina.
- The company's free cash flow for the quarter was a deficit of $34 million, primarily due to the timing of working capital and capital spending.
- Enviri Corp's full-year adjusted EBITDA guidance was lowered, reflecting tempered expectations for Harsco Environmental and Rail, partially offset by a raised outlook for Clean Earth.
Q & A Highlights
Q: How does Enviri plan to manage lower volumes in the Harsco Environmental (HE) segment, and what flexibility exists to adjust costs accordingly?
A: F. Nicholas Grasberger, Chairman and CEO, explained that Enviri has minimum billings and fixed fees that provide protection against volume declines below a certain threshold. However, until that threshold is reached, there is some impact, which was observed in Q3 and is expected in Q4. Some sites have shut down, affecting results and guidance.
Q: Can you provide insights into the volume growth in Clean Earth and the areas showing strength?
A: F. Nicholas Grasberger noted that the Health Care segment is experiencing healthy volume growth, while the retail segment is flat to soft due to churn. The industrial or manufacturing sector is the weakest, showing softness.
Q: What is the net contract win/loss rate in the HE segment, and how does the new contract impact growth?
A: F. Nicholas Grasberger emphasized that HE's performance should be evaluated on an EBITDA minus CapEx basis, which remains stable with high cash flow. The company has a healthy pipeline of growth opportunities and is selective in choosing contracts with the best terms and returns. Geographic shifts towards growth markets like India, Turkey, and Mexico are expected to be beneficial.
Q: How did Clean Earth achieve margin improvements despite flat revenue, and is there potential for further margin expansion?
A: F. Nicholas Grasberger attributed the margin improvements to efficiency, cost, and pricing initiatives. The focus is now on driving volume growth with new leadership and enhanced value propositions, which should support further margin expansion and growth.
Q: What factors contribute to the expected improvement in free cash flow for 2025, and how significant is the rail segment's role?
A: Tom Vadaketh, CFO, outlined that reduced pension contributions, lower interest costs, and improved rail cash performance are key factors. Rail is expected to move from a cash-use position to a positive cash flow, significantly contributing to the overall improvement.
Q: Can you provide details on the timeline and cash generation potential of the ETO contracts in the rail segment?
A: F. Nicholas Grasberger stated that smaller ETO contracts should generate $20 million to $25 million of positive cash flow next year, with larger contracts in the UK and Germany expected to yield $75 million in free cash flow by 2027-2028.
Q: What was the impact of Hurricane Helene on rail sales and EBITDA, and is there a potential tailwind from cleanup activities?
A: F. Nicholas Grasberger mentioned that three or four machines were delayed, impacting EBITDA by $1 million to $2 million. There was no specific mention of a tailwind from cleanup activities.
Q: What are the expectations for Clean Earth's performance in 2025, considering current momentum and industrial softness?
A: F. Nicholas Grasberger expressed confidence in maintaining momentum into 2025, with expectations for volume growth that was largely absent in 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
