Q4 2023 Enviri Corp Earnings Call
Good morning, My name is I'm, Jay and I will be the conference facilitator.
MJ: Good morning. My name is MJ, and I will be the conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation fourth quarter release conference call. All lines have been placed on mute to avoid any background noise.
At this time I would like to welcome everyone to the environment Corporation fourth quarter release conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question and answer period.
MJ: 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 one on your telephone keypad. If you would like to withdraw your question, you may then press star and then the number two on your telephone keypad.
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MJ: Also, this telephone conference presentation and accompanying webcast made on behalf of Enviri Corporation are subject to copyright by Enviri 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 Enviri Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Enviri Corporation. Mr. Martin, you may begin your call.
Also this telephone conference presentation and accompanying webcast made on behalf of if I recall or Asian are subject to copyright by and very corporation and all rights are reserved no recording or redistribution of this telephone conference by any other party are permitted without the express written consent of <unk>.
Valerie Corporation your participation indicates your agreement.
I would now like to introduce Dave Martin Oven Valerie Corporation. Mr. Martin you may begin your call.
Thank you Jay welcome to everyone joining us this morning, I'm, Dave Martin of inspiring.
David Scott Martin: Thank you, MJ, and welcome to everyone joining us this morning. I'm Dave Martin of Enviri. With me today are Nick Grassberger, our Chairman and Chief Executive Officer, and Tom Vadaketh, our Senior Vice President and Chief Financial Officer. This morning we will discuss our results for the fourth quarter of 2023 and our outlook for 2024. We'll then take your questions.
With me today is Nick Grasberg, our chairman and Chief Executive Officer, and Tom <unk>, Our senior Vice President and Chief Financial Officer.
This morning, we will discuss our results for the fourth quarter of 2023, and our outlook for 'twenty 'twenty. Four will 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.
David Scott Martin: Before we begin our presentation, let me mention a few things. 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 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 these statements. For a discussion of such risk and uncertainties, see the risk factors section in our most recent 10-K and 10-Q. The company undertakes no obligation to revise or update any forward-looking statements.
Second we will make statements today that are considered forward looking within the meaning of 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 these statements for.
For a discussion of such risks and uncertainties see the risk factors section in our most recent 10-K and 10-Q the company undertakes no obligation to revise or update any forward looking statement.
Nick Grassberger: 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 a slide presentation. With that being said, I'll turn the call over to Nick.
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 including included in the earnings release as well as a slide presentation.
With that being said I'll turn the call to Nick.
Yeah.
Thank you, Dave and good morning, everyone.
Nick Grassberger: Thank you, Dave, and good morning, everyone. The fourth quarter was another strong quarter for Enviri, with both Harsco Environmental and Clean Earth delivering double-digit revenue and EBITDA growth versus Q4 of 2022, capping a very strong 2023. The rail business, excluding the impact of a few large European contracts, delivered its best quarter in many years. Tom will step through the details of the quarter in a few minutes.
The fourth quarter was another strong quarter for environment with both harsco, environmental and clean Earth, delivering double digit revenue and EBITDA growth versus Q4 of 2022.
Capping a very strong 2023.
The rail business, excluding the impact of a few large European contracts deliberate its best quarter in many years.
Tom will step through the details of the quarter in a few minutes.
Yeah.
Nick Grassberger: So we're pleased with the continued solid performance of our core businesses. That being said, we believe our share price has not kept pace with the improving fundamentals of our businesses over the past 18 months. To support this point, I'd like to share a few of the highlights of last year.
So we're pleased with the continued solid performance of our core businesses.
That being said, we believe our share price has not kept pace with the improving fundamentals of our businesses over the past 18 months.
To support the point I'd like to share a few of the highlights of last year.
Number one revenue and EBITDA, both increased at double digit rates for the full year of 2023.
Nick Grassberger: Number one, revenue and EBITDA both increased at double digit rates for the full year of 2023. EBITDA margins were up 200 basis points, and cash flow from our two core segments increased $125 million.
EBITDA margins were up 200 basis points.
Cash flow from our two core segments increased $125 million.
Nick Grassberger: Financial leverage declined more than one turn to around four turns. Operationally, the Clean Earth team did a very nice job executing price increases and achieving record service levels. Reducing the risk and cost of accessing disposal capacity and increasing our capabilities and engagement in PFAS-related matters, amongst many other accomplishments. At Horace Coe Environmental, we continue to expand our footprint with new contracts and faster growing markets, with Better Financial Profiles and also to invest in innovative projects focused on extracting environmental benefits from steel slag. H.E.
Financial leverage declined more than one turn to around four turns.
Operationally clean Earth, the clean Earth team did a very nice job of executing price increases achieving record service levels.
Reducing their risk and cost of accessing disposal capacity and increasing our capabilities and engagement and P fast related matters.
Amongst many other accomplishments.
And harsco environmental we continue to expand our footprint with new contracts in faster growing markets.
With better financial profiles and also to invest in innovation projects focused on extracting environmental benefits from steel slug.
H. He also achieved its financial plan for the year, despite much lower than expected steel production.
Nick Grassberger: also achieved its financial plan for the year despite much lower than expected steel production, demonstrating strong execution. In terms of leadership, we upgraded our senior management team with Tom Vadaketh and Jeff Beswick, the president of Clean Earth, while also continuing to refresh our board of directors with two new appointments. The year was not without some challenges.
Demonstrating strong execution.
Yeah.
In terms of leadership, we upgraded our senior management team with Tom batter Cats, and let's Jeff Best which the president to clean Earth.
While also continuing to refresh our board of directors with two new appointments.
Okay.
The year was not without some challenges.
Nick Grassberger: While there is outside interest in the purchase of our rail division, delays in reaching an agreement on new commercial terms on a single large loss-making European contract have pushed out the divestiture and negatively impacted our cash flow. Additionally, we were affected by an increase in short-term interest. Turning to the outlook for the year, we expect our end markets to be supportive of further growth and improvement in our financial profile. We anticipate steel production at the mills we support will increase by low single digits while still remaining below mid-cycle level. We also expect the domestic retail, industrial, and healthcare markets served by Clean Earth to increase at low single-digit rates. However, Clean Earth will be somewhat challenged by difficult comparisons to high-margin project work that we saw last year. Nonetheless, the ongoing efficiency programs in both HE and CE should yield an overall increase in EBITDA of near 10% at the high end of our guidance. Cash flow and margins should also improve. So overall, we're very happy with the development of the Clean Earth Platform over the past 18 months.
Well there was outside interest in their purchase of our rail division delays in reaching an agreement on new commercial terms on a single large loss, making European contract.
It's pushed out the divestiture and negatively impacted our cash flow.
Additionally, we were affected by the increase in short term interest rates.
Turning to the outlook for the year, we expect our end markets to be supportive of further growth and improvement in our financial profile.
We anticipate steel production at the Mills, we support will increase low single digits.
I'll still remaining below mid cycle levels.
We also expect the domestic retail and industrial.
And the health care market served by clean Earth to increase at low single digit rates.
Clean Earth will be somewhat challenged by difficult comparisons to high margin project work that we saw last year.
Nonetheless, the ongoing efficiency programs in both H E N C E should yield an overall increase in EBITDA of near 10% at the high end of our guidance.
Cash flow and margins should also improve.
Okay.
So overall, we're very happy with the developments in the clean Earth platform over the past 18 months.
Nick Grassberger: And we've largely achieved our margin and cash flow expectations when we acquired these businesses. We are even more excited today about the value creation potential of the business. And we will be sharing updated margin and growth targets for Clean Earth later this year. Cleaner's value proposition and its pricing leverage within the market are clear. And with specialty waste assets trading at all-time high valuations, we believe the market value of Clean Earth is considerably more than our initial investment. We're also pleased with the stability of the Harskell Environmental Platform.
And we've largely achieved our margin and cash flow expectations. When we acquired these businesses.
We were even more excited today about the value creation potential of the business.
And we will be sharing updated margin and growth targets for clean Earth later this year.
Clean Earth's value proposition in its pricing leverage within the market are clear.
And with specialty waste assets trading at all time high valuations, we believe the market value of clean Earth is considerably more than our initial investment.
We're also pleased with the stability of the Harsco environmental platform.
The volatility of our earnings and cash flow have lessened significantly in the business is good cyclical upside.
Nick Grassberger: The volatility of our earnings and cash flow has lessened significantly, and the business has good cyclical upside, as well as a strong competitive position. Our lengthy pipeline of growth opportunities allows us to focus on those with the best risk-adjusted returns. And finally, emerging technologies and ecoproducts can change the game in terms of both economics and environmental benefits.
As well as the strong competitive position.
Our lengthy pipeline of growth opportunities allows us to focus on those with the best risk adjusted returns.
And finally, the emerging technologies knuckled products can change the game in terms of both economic and environmental benefits.
Thomas G. Vadaketh: Concerning rail, I'm encouraged by the performance of the business. The team has made significant operational improvements with a strong finish to the year in Q4. Excluding the impact of the EU contracts, profit and cash flow generation will work nicely year over year and will again in 2024. The team has worked hard to stabilize the large European contracts, and we expect to complete our agreement with a major customer on new commercial terms later this year. So efforts to divest the business are continuing, and we're focused on remaining financially disciplined while executing an acceptable transaction for shareholders. So to be sure, the board and the management team are squarely focused on creating value both across and within our portfolio of businesses, while pursuing our strategic ambition of investing in environmental solutions. We look forward to sharing such developments with investors throughout the year. Now I'll turn the call over to Tom. Thanks, Nick, and good morning, everyone.
Concerning rail I'm encouraged by the performance of the business. The team has made significant operational improvements with a strong finish to the year in Q4.
Excluding the impact of the EU contrast profit and cash flow generation were up nicely year over year, and we will be again in 2024.
The team has worked hard to stabilize the large European contracts and we expect to complete our agreement with a major customer a new commercial terms later this year.
So efforts to divest the business are continuing and we're focused on remaining financially disciplined.
While executing an acceptable transaction for shareholders.
So it can be sure the board and the management team are squarely focused on creating value both across and within our portfolio of businesses.
While pursuing our strategic ambition of investing in environmental solutions.
We look forward to sharing such developments with investors throughout the year.
Now I'll turn the call over to Tom.
Thanks, Nick and good morning, everyone.
Thomas G. Vadaketh: Let me start by saying that my first full quarter with Enviri was rewarding and refreshing. I've learned a great deal more about our businesses and our people, as well as the tremendous opportunity in front of us. I've been impressed with the quality and engagement of Enviri's employees, and I'm excited about where the company is headed. The Enviri team delivered a strong finish in the fourth quarter to a strong year, with revenue for the full year 2023 growing 10%. Adjusted EBITDA growing 28%, a significant improvement in cash generation, and an improvement in our covenant net leverage from 5.3 times on January 1st last year to 4.1 times at the end of the year. Now, let me comment on our fourth quarter performance, starting on slide four. Enviri's fourth quarter revenues from continuing operations increased to $529 million, up 13% compared with the prior year quarter. The increase was driven by both pricing and high demand for our environmental services in both CLEAN Earth and HARSCOE Environmental. Adjusted EBITDA totaled $73 million.
Let me start by saying that my first full quarter within Barry was rewarding and refreshing.
I've learned a great deal more about our businesses and our people as well as the tremendous opportunity in front of us.
Been impressed with the quality and engagement of <unk>. Bari then please make cited about where the company is headed.
The environment <unk> delivered a strong finish in the fourth quarter to a strong year.
With revenue for the full year 2023 growing 10% <unk>.
Adjusted EBITDA growing 28%.
A significant improvement in cash generation and an improvement in our covenant net leverage from five three times on January 1st last year to four one times at the end of the.
Now, let me comment on our fourth quarter performance starting on Slide school.
And batteries fourth quarter revenues from continuing operations increased to $529 million up 13% compared with the prior year quarter.
The increase was driven by both pricing and higher demand for our environmental services in both cleanup and harsco environmental.
Adjusted EBITDA totaled $73 million.
Thomas G. Vadaketh: This result represents a 21% improvement from the prior year and is above our prior guidance range. The stronger-than-anticipated results were driven mostly by volumes and a more favorable business mix, with again both Harsco Environmental and Clean Earth contributing, relative to the prior year quarter. Each operating segment contributed to the growth in adjusted EBITDA, which I'll discuss shortly. However, this was partially offset by higher corporate spending, which was mainly driven by higher incentive compensation spending in 2023 and other smaller items that occurred in 2022 that did not repeat, such as some FX-related hedging gains. Our adjusted loss per share was $0.07 for the quarter.
This result represents a 21% improvement from the prior year and is above our prior guidance range.
The stronger than anticipated results were driven mostly by volumes and a more favorable business mix with again, both harsco environmental and clean are contributing.
Relative to the prior year quarter.
Each operating segment contributed to the growth in adjusted EBITDA, which I'll discuss shortly.
This was partially offset by higher corporate spending which was mainly driven by higher incentive compensation spending in 2023.
And other smaller items that occurred in 2022 that did not repeat such as some FX related hedging gains.
Our adjusted loss per share was seven cents for the quarter.
Thomas G. Vadaketh: Pre-cash flow for the quarter was $25 million versus $3 million in the prior quarter. This improvement was driven by a reduction in working capital and higher cash earnings. Our days sales outstanding improved by 8% or six days from the end of 2022 to the end of 2023, with both HE and CE showing strong improvement, and the finance and operating teams within our businesses doing a great job to drive this improvement. Lastly, our net leverage decreased to 4.1 times from 4.5 times at the end of Q3. Please turn to slide 5 and our environmental section. Segment revenues totaled $292 million, up 14% compared with the prior year quarter. Adjusted EBITDA for the quarter reached $56 million, representing an increase of over 30 percent. Relative to the prior year quarter, HE benefited from higher services and ecoproducts volumes, including from new sites, as well as higher prices. As a result, HE's ZBITDA margin exceeded 19%, which was its highest quarterly margin for the year. Burning to Clean Earth on slide 6.
Free cash flow for the quarter was $25 million. This is $3 million in the prior year quarter.
This improvement was driven by a reduction in working capital and higher cash earnings.
Our days sales outstanding improved by 8% or six days from the end of 'twenty to 'twenty two to the end of 'twenty to 'twenty, three with both AG and CE showing strong improvement and the finance and operating teams within our business is doing a great job to drive this improvement.
Lastly, our net leverage decreased to four one times from four five times at the end of Q3.
Please turn to slide five in dollar environmental segment.
Segment revenues totaled $292 million up 14% compared with the prior year quarter adjusted.
The EBITDA for the quarter reached $56 million, representing an increase of over 30%.
Relative to the prior year quarter, a T benefited from higher services, an eco product volumes, including from new sites as well as higher pricing.
As a result, a G 's EBITDA margin exceeding 19%, which was its highest quarterly margin for the year.
Turning to clean Earth on slide six.
Thomas G. Vadaketh: For the quarter, revenues totaled $237 million, and adjusted EBITDA reached $29 million. Compared to the fourth quarter of 2022, revenues increased 12%, and revenues decreased only modestly from the record levels we saw in the third quarter of 2023. Year-on-year, price contributed about one-third of the increase, with underlying volume growth led by industrial markets, which included the impact of project-related work, followed by retail. As of this material's revenues reached $189 million, while soil dredge revenues totaled $48 million for the quarter. These figures represent increases of 11% and 14%, respectively. Additionally, Clean Earth's adjusted EBITDA increased 17% year-on-year. In addition to price and volumes, the businesses benefited from efficiency initiatives, and these positive items were partially offset by higher incentive compensation, restructuring costs, and Internal Investments of Spending. Now, please turn to slide 7.
Fourth quarter revenues totaled $237 million.
Adjusted EBITDA reached $29 million.
Compared to the fourth quarter of 2022 revenues increased 12% and revenues decreased decreased only modestly from the record levels. We saw in the third quarter of 2023.
Year on year <unk> contributed about one third of the increase with underlying volume growth led by industrial markets, which included the impact of project related work.
Led by retail.
As of this materials revenues reached $189 million, while soils dredge revenues totaled $48 million for the quarter.
These figures represent increases of 11% and 14% respectively.
<unk> adjusted EBITDA increased 17% year on year.
In addition to price and volumes the business as the business benefited from efficiency initiatives and these positive items were partially offset by higher incentive compensation.
Truck drilling costs, and some internal investments or spending.
Now please turn to slide seven.
Thomas G. Vadaketh: For the full year, revenues from continuing operations increased to almost $2.1 billion, an increase of 10% year over year, and Adjusted EBITDA totaled $293 million, an increase of 28% over 2022. Additionally, Enviri's underlying free cash flow performance was positive. HE and Clean Earth together generated free cash flow of approximately $185 million in 2023, and an improvement of over $125 million compared with the prior year due to higher earnings and working capital performance. This increase was partially offset by higher interest costs at corporate. We reduced our covenant net leverage ratio by over one term during the year from 5.3 times to 4.1 times.
For the full year revenues from continuing operations increased to almost $2 $1 billion, an increase of 10% year over year.
And adjusted EBITDA totaled $293 million, an increase of 28% over 2022.
Additionally, and vires underlying free cash flow performance was positive.
A G and cleanup together generated free cash flow of approximately $185 million in 2023.
An improvement of over $125 million compared with the prior year due to higher earnings and working capital performance.
This increase was partially offset by higher interest costs at corporate.
We reduced our covenant net leverage ratio by over one times during the year from five three times to four one times.
Without a doubt 2023 was a very strong year for in Bahrain.
Thomas G. Vadaketh: Without a doubt, 2023 was a very strong year for Enviri; our strong market position and value proposition enabled us to drive increases in volume as well as price. Our operating teams executed well and realized meaningful benefits from various growth and improvement initiatives. Clean Earth, for example, reached an all-time high for on-time customer service while recycling and reusing 10 billion pounds of waste. Osco Environmental won more than 20 service contract renewals and secured five new growth contracts during the year, illustrating its continuing premier position in the market.
Truong market positions and value proposition enabled us to drive increases in volume as well as price.
Our operating teams executed well and realized meaningful benefits from various growth and improvement initiatives.
Lina for example reached an all time high for on time customer service, while recycling and reusing 10 billion pounds of waste.
<unk> environmental one more than 20 service contract renewals and secured five new growth contracts during the year illustrating its continuing premier position in the market.
We expect these positive trends to continue in 2024.
We're also very pleased with the performance of our rail business and the team.
Rail performed strongly in Q4 with revenues up more than 30% year on year.
Thomas G. Vadaketh: We expect these positive trends to continue in 2024. We're also very pleased with the performance of our rail business and the team. Rail performed strongly in Q4, with revenues up more than 30% year-on-year.
It generated fourth quarter free cash flow.
And its quarterly adjusted earnings were the highest in two plus years as Nick mentioned the rail team has done a great job. This last year to drive operational improvements in the base business, while working towards stabilizing our large eto contracts and agreeing to our go forward plan without customers.
Thomas G. Vadaketh: It generated fourth-quarter free cash flow, and its quarterly adjusted earnings were the highest in two plus years. As Nick mentioned, the rail team did a great job this last year to drive operational improvements on the base business while working towards stabilizing our large ETO contracts and agreeing to a go forward plan with our customers. We recorded charges of $40 million in Q4, reflecting forward losses on these contracts, where we now have significantly improved visibility. Importantly, we think we're at or near an inflection point for Roehl. Its earnings and cash flow are projected to strengthen further in 2024, and its cash flow is set to improve further beyond 2024 as these large contracts mature. Now, let me turn to our 2024 outlook on slide 8. Our school's full-year adjusted EBITDA is expected to be within a range of $300 to $320 million, up 6% year-on-year at the midpoint. This represents continued momentum in the business after a very strong 2023, with EBITDA growing strongly double digits over a two-year period. This EBITDA range translates to adjusted earnings-per-share guidance between breakeven and a loss of $0.25.
We recorded charges of $14 million in Q4, reflecting forward losses on these contracts, where we now have significantly improved visibility.
Importantly, we think we're at or near an inflection point for rail.
Its earnings and cash flow are projected to strengthen further in 2024 and its cash flow is set to improve further beyond 2024 as these large contracts mature.
Now, let me turn to our 2020 for outlook on slide eight.
Our schools full year adjusted EBITDA is expected to be within a range of $300 million to $320 million up 6% year on year at the midpoint.
These this represents continued momentum in the business. After a very strong 2023 with EBITDA growing strong double digits over a two year period.
This EBITDA range translates to adjusted earnings per share guidance of between breakeven and a loss of 25 cents.
Lastly, we are planning for capital spending of between 130 and $140 million, which is comparable to 2023.
And we are targeting free cash flow of $20 million to $40 million.
For 2020 full we're expecting an underlying improvement in operating cash flows within a G. N C E.
Thomas G. Vadaketh: Lastly, we're planning for capital spending of between $130 and $140 million, which is comparable to 2023, and we're targeting free cash flow of $20 to $40 million. For 2024, we're expecting an underlying improvement in operating cash flows within HE and CE. With AGE and CE expected to see an increase of up to $30 million year on year, the impact will be partially offset by a slight increase in cash interest and higher incentive payouts linked to 2023 performance. Also note that this free cash flow outlook again excludes rail. It also excludes finance leases.
With a G N C. He expected to see an increase of up to $30 million year on year.
The impact will be partially offset by a slight increase in cash interest and higher incentive payouts linked to 'twenty to 'twenty three performance.
Also note that this free cash flow outlook again excludes rail. It also excludes finance leases, we have entered into finance lease obligations of approximately $50 million, mostly book cleanup that will commence in 2024 and are expected to carry into 2025.
These leases for cleaner relates to the refreshment of its vehicle fleet, which occurs once per decade roughly.
As a result of EBITDA growth and free cash flow our leverage ratio is expected is anticipated to decline further during 2024.
Now, let's turn to our segment guidance on slide nine.
Thomas G. Vadaketh: We have entered into finance lease obligations of approximately $50 million, mostly for Clean Earth, that will commence in 2024 and are expected to carry into 2025. These leases for Clean Earth relate to the refreshment of its vehicle fleet, which occurs once per decade, roughly. As a result of EBITDA growth and free cash flow, our leverage ratio is expected to decline further during 2024. Now, let's turn to our segment guidance on slide nine. Both segments are expected to realize growth in adjusted earnings in 2024. For Hasko Environmental, revenues are expected to grow at a low single-digit rate, and H.E.
Both segments are expected to realize growth in adjusted earnings in 2024.
Well harsco environmental revenues are expected to grow at a low single digit rate.
And Ags profitability is expected to be slightly above 2023 levels at the guidance midpoint.
Growth in <unk> revenue and EBITDA will be driven by higher customer steel production, new contracts sites improvement initiatives and pricing.
The outlook for better steel production is principally driven by Europe, India and the Middle East.
Well peanuts revenues are also anticipated to grow low single digits, while CE EBITDA will grow at a higher rate with its margins expected to improve 50 to 100 basis points for the full year.
Thomas G. Vadaketh: 's profitability is expected to be slightly above 2023 levels at the guidance midpoint. Growth in HE Revenue and EBITDA will be driven by higher customers' field production, new contracts, Site Improvement Initiatives, and price. The outlook for better steel production is principally driven by Europe, India, and the Middle East.
Beyond higher revenues EBITDA drivers for cleanup again include various efficiency initiatives with anticipated gross benefits of over $10 billion for the year.
Lastly, corporate costs are expected to be comparable with 2023 levels.
Thomas G. Vadaketh: For Clean Earth, revenues are also anticipated to grow low single digits, while CE's EBITDA will grow at a higher rate, with its margins expected to improve 50 to 100 basis points for the full year. Beyond higher revenues, EBITDA drivers for Clean Earth again include various efficiency initiatives with anticipated gross benefits of over $10 million for the year. Lastly, corporate costs I expect to be comparable to 2023 levels. Let me conclude on slide 10 with our first quarter guidance. Q1 Adjusted EBITDA is expected to range from $63 million to $70 million.
Let me conclude on slide 10, without first quarter guidance.
Q1, adjusted EBITDA is expected to range from $63 million to $70 million.
Oscar Environmental EBITDA is anticipated to increase slightly versus Q1 2023.
Higher volumes price and improvements will contribute to growth.
Clean Earth EBITDA is also expected to be modestly above the prior year quarter.
Here higher price and improvements are expected to offset a less favorable business mix.
Thomas G. Vadaketh: Hasko Environmental EBITDA is anticipated to increase slightly versus Q1 2023. Higher volumes, price, and improvements will contribute to the growth. Clean Earth EBITDA is also expected to be modestly above the prior year quarter. Here, higher prices and improvements are expected to offset a less favorable business. Compared with Q4, this outlook contemplates seasonal weakness in each of our business sectors. And lastly, I'd note that Q1 is traditionally a week-long free cash flow period given seasonal business performance and cash flows. This will be the case again in 2024.
Compared with Q4 this outlook contemplates seasonal weakness in each of our business segments.
And lastly, I'd note that Q1 is traditionally a weak.
Free cash flow period, given seasonal business performance and cash flows.
This will be the case again in 2020 pool, we expect to consume cash in Q1, given the seasonality as well as the timing of interest and incentive compensation payments.
Thanks, and I'll now hand, the call back to the operator for Q&A.
Thank you very much.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speaker phone please pick up your handset before pressing the keys to.
Operator: We expect to consume cash in Q1, given the seasonality, as well as the timing of interest and incentive compensation payments. Thanks, and I'll now hand the call back to the operator for Q&A. Thank you very much. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw from the question queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Rob Brown with Lake Street Capital markets. Please go ahead.
Good morning.
Good morning first question is on the on the clean Earth growth expectations.
Just wanted to get a sense of of how much prices left to realize and how the volume.
Robert Duncan Brown: To withdraw from the question queue, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.
Volume mix is shaking.
Shaking up for 24.
Mhm.
Well we.
A couple of years have been quite pleased with the the pricing leverage within clean Earth.
Robert Duncan Brown: Good morning. My first question is on the Clean Earth growth expectations. I just wanted to get a sense of how much price is left to realize and how the volume mix is, Shake.
I think this year.
Typically raise prices in January have been very pleased again.
Nick Grassberger: Well, we think so. For the last couple of years, I have been quite pleased with the pricing leverage within cleaners. I think this year will be better.
With the acceptance of of that I'll say relative to our inflation. So I think we continue to expect to see.
Nick Grassberger: Typically, we raised prices in January and have been very pleased again with the acceptance of that, I'll say, relative to our inflation. So I think we continue to expect to see some margin left over time from price, in terms of volume and clean air.
Some margin lift over time.
From from pricing.
In terms of volume and clean Earth.
Sure.
The the industrial segment is probably the strongest in terms of its outlook three or 4% I think something.
Nick Grassberger: The industrial segment is probably the strongest in terms of its outlook, three or four percent. I think something less than that in retail and in health care. We did have a number of large one-offs. High margin. Projects in Clean Earth last year that I never quite know if they're going to repeat, so perhaps we're a bit conservative here in how we think about the volume in 2024. But I will say that the pipeline of those projects remains very strong. We're just never quite sure when they're going to start.
Less than that and in retail and then and in health care.
We did have a number of large one off.
High margin <unk>.
Projects in clean Earth last year that are never quite know if they're going to repeat so perhaps were a bit conservative here and how we think about the the volume in 2024.
But I will say that the pipeline.
Those projects remains very strong we're just.
Never quite sure when they're going to start.
Okay, Okay got it and in it.
You know, what's what's sort of the long term growth rate in clean Earth that that you.
Robert Duncan Brown: Okay, okay. I've got it. And, you know, what's the sort of long-term growth rate in clean earth that you see at this point? Is it sitting at that kind of low low to mid single digit growth rate. Yeah, I think about it as kind of a GDP plus growth business. So think of GDP plus a few points of growth over a cycle. And, of course, we would expect the volume in the business to be somewhat less volatile than GDP overall throughout a cycle. Okay, thank you. I'll turn it over to you.
C. At this point is it even with those projects is it sitting there kind of a low to mid single digit growth rate in clean Earth or do you.
You see that kind of coming out.
Think about it as kind of a GDP plus growth business. So think of GDP plus plus a few points of growth.
Over a cycle and of course, we would expect.
The volume.
In the business to be somewhat less volatile than the GDP overall throughout a cycle.
Okay.
Great. Okay. Thank you I'll turn it over.
Thank you. The next question comes from Michael Hoffman with Stifel. Please go ahead, hi, Good morning, Nick Tom Hey, My questions Hey.
Michael Hoffman: Thank you. The next question comes from Michael Hoffman with Stiefel. Please go ahead.
Michael Hoffman: Hi, good morning, Nick, and Tom. Thanks for your questions. Hey, Michael.
Two to the you've all been very good about calling out the project activity could you just remind us so we get the cause of all start doing quarterly numbers the cadence of when we should think about that and.
Thomas G. Vadaketh: To the team, you've all been very good about calling out the project activity. Could you just remind us, you know, because we'll all start doing quarterly numbers, the cadence of when we should think about that? So we get that quarterly cadence right. I realize that's a little bit of a housekeeping question. We all ought to pay attention. Yeah, good morning, Michael. It's Tom Vadaketh.
So we will get that quarterly cadence right I realize that's a little bit of a housekeeping question, but.
We all ought to pay attention to that.
Yeah. Good morning, Michael It's Gotta get I can I can take that so we we guided due to the growth rates over the quarter and I'd expect basically about the same pattern and phasing.
Thomas G. Vadaketh: I can I can take that. So we've guided you to the growth rates over the quarter, and I'd expect basically about the same pattern and phasing by quarter. So, you know, broadly speaking, each quarter for each of the businesses should have the same kind of growth rate. So, you know, in a nutshell, a similar pace to last year. Okay, and that, but just to remember, the project work was heavy in the first half. That's where we, we've got to overcome that in the first half, is that correct? And clean earth.
Nice quarter. So each you know broadly speaking each quarter for each of the businesses should be should have the same kind of growth rates.
In a nutshell similar phase into last year.
Okay and that but just to remember the the project work was heavy in the first half that's.
That's where we have we've got to overcome that in the first half that correct.
Clean Earth.
Yeah actually I would say in the Charles business the project work.
Was was better in the second half of the year.
In the first half of the year, we'd have a somewhat challenged comparison in the because of the settlement with a large customer as you as you may remember yep.
Michael Hoffman: Actually, I would say in the soils business, the project work was better in the second half. You know, in the first half of the year, we had a somewhat challenged comparison because of the settlement with a large customer, as you may remember. Yep. Okay. That's what I wanted to draw out, free cash flow. At the segment level, you know, that's an impressive number going up 30 million year over year on 185 million. How do we get what what has to happen in the business model? to convert at the whole company level, where the conversion of your EBITDA starts to look more like the peers, which is in the 30 to 40% of EBITDA instead.
Okay.
That's what I wanted to draw out and then.
Free cash flow.
At the segment level.
Impressive number going up $30 million year over year on a 185 million how do we get what are what is what has to happen in the business model.
At the whole company level.
Where the conversion of your EBITDA starts to look more like the peers, which is in the 30% to 40% of EBITDA instead of we're landing somewhere in the low double digits.
Mhm.
Yeah.
Great question first of all clean Earth is in that conversion range of 75% to 80%. So I think that compares.
Thomas G. Vadaketh: We're landing somewhere in the low double digits. Yeah, great question. First of all, Clean Earth is in that conversion range of 75 to 80%, so I think that compares very favorably to its peers, who are more capital intensive. NHE that conversion figure is closer to 50% now. Now, you know, over time, and there's a big push this year to transition some of our contracts to more of an asset-light model where we're only really investing in the so-called critical assets on the site that truly add value, and less so in the assets used for logistics. So over time, as that value proposition is better adopted, I think we'll see the HE-CAS conversion certainly improve. Of course, the last piece of that is interest expense, right? We're highly levered. We have a lot of interest expense.
Very favorably to its peers, who are more capital intensive than itchy that conversion figure is closer to 50% now.
Over time, and there's a big push this year to transition some of our contracts to more of a.
And as site asset light.
Model, where we're only really investing in the so called critical assets on the sites.
That truly add value and less so when the assets used for logistics. So so over time as that value proposition.
There's better adopted.
I think we'll see the the H E cash conversion certainly improve and then.
Of course, the last piece of that is interest expense right, where we're highly levered, we have a lot of interest expense and so as rates come down and as we.
Thomas G. Vadaketh: And so as rates come down and as we de-lever, that will certainly help the cash conversion on a consolidated basis. To that end, you're trying to sell a business to help do that. At one point, you alluded to that nefarious European customer that if you couldn't get a resolution in a timely manner, you'd pull it out and then just sell the business away. What's changed in the strategy to... Yeah. Yeah, I think we really need to negotiate new commercial terms with this one customer if we were to divest the business and retain the risk on that contract without the ability to execute it. I'm just not sure that would be wise for us to do.
Delever are that that will certainly help.
The cash conversion on a consolidated basis.
Okay.
To that end you were trying to sell the business to help do that.
At one point, you alluded to that nefarious European customer that if you couldn't get a resolution in a timely manner you pull it out and then just sell the bezel. So.
What's changed in the strategy to.
Yeah.
Yeah, I think we feel that we really need to negotiate new commercial terms with this one customer if if we went to.
Divest the business and and retain the risk on that contract without the ability to execute it.
Just not not sure that's that's would be wise for us to do so.
Nick Grassberger: So again, the base business is very strong; standard equipment, aftermarket, or services business is very strong. But we just don't believe we can get the right value risk profile for the business until we complete this negotiation. It's still, of course, a strategic imperative to divest it, but it needs to make sense for shareholders and, I guess you'd also remind everyone that, you know, the rail business is less than 10% of our EBITDA, correct, on a consolidated basis.
Again, the base business is very strong standard equipment aftermarket or services business is very strong.
But we just don't believe we can get the right.
Value risk profile for the business until we complete this negotiation.
It's still of course, a strategic imperative to divest it but it needs to make sense for shareholders.
I guess you'd also remind everyone that you know the rail business is less than 10% of our EBITDA right on a consolidated basis. So again, it's something we want to do.
Nick Grassberger: So again, it's something we want to do. But even if we were to decide to retain it, given that the outlook for the business is good, and we might become more comfortable executing the next year or two of these contracts as opposed to effectively outsourcing them but retaining the risk. Now that that may well be the right thing to do for shareholders, we're just not at that point yet to make that call.
But even if we were to decide to retain it.
Given that the outlook for the business is good and we might become more comfortable executing the next year or two of these contracts as opposed to effectively outsourcing, but retaining the risk.
You know that that may well be the right thing to do for shareholders. We're just not not at that point, yet to make that call.
Yeah, I mean, that's the.
Michael Hoffman: Yeah, I mean, the deleveraging aspect, not the EBITDA, I think the market's focused on at this point. Two things on PFAS and then Superfund, in your outlook. Have you assumed that a more conservative view about PFAS given that the current administration is being very slow about issuing final rules? And then, on the flip side, they've just issued an announcement of 25 sites to get Superfund cleanup funding, and I'm curious about how you... Cleaners, Roland University, some of that act. A lot of it's predominantly in your sweet spot geographically.
Deleveraging aspect not to EBITDA I think the market's focused on at this point.
Two things on P, passing and then Super fun.
In your outlook.
Outlook.
Have you assumed that you have a more conservative view about P. Fast given the current administration's being very slow about issuing final rules.
And then on the flip side the they've just issue that announcement of 25 sites. They get Superfund cleanup funding and I'm curious about how you see clean earth roll in and some of that activity because a lot of it's predominantly in your sweet spot geographically.
Right right.
Nick Grassberger: Hi, Hi. Well, first of all, on PFAS, we do not have any kind of financial impact of PFAS remediation in our 2024 guidance. I feel very good about how we're positioned, both in terms of technology and the partnerships that we've developed. And you may recall recently an announcement with the DOD on a project to prove out some remediation concepts with the Navy and the Air Force. So we feel very, Very good about how we're positioned when those volumes begin to begin to flow. In terms of the Superfund sites, I think that news just came out a few days ago.
Well first of all on DFAST, we do not have any any kind of financial impact of P. Fast remediation in our 2024 guidance where.
Feeling very good about how we're positioned both in terms of technology.
The partnerships that we've done.
Developed and you may recall recently, an announcement with the D O D on a oh on a on a project to prove out some remediation.
Concepts with the Navy and the Air Force, So we feel very.
Very good about how we're positioned when the what when those volumes begin to.
Begin to flow.
In terms of the Superfund sites I think that.
News just came out a few days ago as you know Michael we have facilities all over the country are really strong footprint both in soil and.
Nick Grassberger: As you know, Michael, we have facilities all over the country, a really strong footprint, both in soil and in hazardous waste. So we certainly would expect to participate in the Superfund volumes as they begin to flow. Thank you. Thank you. The next question comes from Larry Solow with CJS Securities. Please go ahead.
And in hazardous waste, so we certainly would expect to participate.
And there are superfund volumes as they are as they begin to flow. Okay. Thank you very much.
Okay.
Okay.
Thank you. The next question comes from Larry Solow with CJS Securities. Please go ahead.
Great. Thank you and good morning.
Lawrence Scott Solow: Great. Thank you. And good morning.
Lawrence Scott Solow: Quick follow up on the morning. A follow up quickly on the rail. You said, I just wanted to clarify, just in terms of run rate EBITDA, or just kind of some number to look at, is it around 20 to 25 minutes? You said less than times seven EBITDA, maybe excluding the charges.
One quick follow up on the a follow up just quickly on the wall.
You said just wanted to clarify just in terms of run rate EBITDA or just kind of some number you look at it is at around 20 to 25.
What about EBITDA, maybe excluding the charges is there any way to kind of look at what that sort of run rate EBITDA is today or.
Nick Grassberger: Is there any way to kind of look at what that sort of run rate EBITDA is today? Yeah, no, it's, it's closer to 30 this year on a, on an, in our outlook, EBITDA basis, but on a quality of earnings basis, it's higher because of a few add-backs. So we're looking at 35 to 40 in terms of the Q of E, EBITDA figure for rail this year. Gotcha. Okay. And then I guess environmental services, a really nice quarter, and what normally is seasonally a little bit slower, your margins are actually picking up too. So, really good to see that. I'm just curious, it sounds like there's a lot of positives going into 24. You mentioned, you know, you're expecting volumes and feel it will pick up. You called out a few new contracts; I don't know if your net contracts business is new or positive, but it sounds like it is. And some favorable pricing. So, it just sounds like that's also a good guide.
24 outlook, Yeah, I know, it's it's it's closer to 30 this year on a on a.
And our outlook is the EBITDA.
But on a quality of earnings.
They said, it's higher because of a few add back. So we were looking at 35 to 40.
In terms of the Q E.
The EBITDA figure for rail this year.
Gotcha, Okay, and then I guess environmental services that really nice quarter.
What.
What normally seasonally a little bit slower your margins actually picked up to so really good to see that I'm. Just curious it sounds like there's a lot of positives going into 'twenty four you mentioned.
Volumes.
Pick up you called out a few new contracts I don't know if you have net contracts.
New is a positive but it sounds like it is and some favorable pricing. So I'm just it sounds like that's also a good guy so I'm just trying to figure out.
What are some of the offsets kind of talk me through your expectations for growth in 'twenty four.
Nick Grassberger: So, just trying to figure out what some of the offsets kind of mute your expectations for growth and. Right, so the core of the global mill services business is really improving, and the Echo Products business, which is, as you know, in part exposed to certain commodity prices. Well, we expect to be weaker because of those commodity prices and, And we also have a business within AG called Reed Minerals that is transitioning from coal slag to steel slag, its base product for roofing materials and abrasive materials. In that transition, EBITDA will decline year over year.
And environment right. So the the <unk>.
Core of the global Mill services business as a as really improving.
Nicely year over year, both in terms of volume and in EBITDA and cash flow the echo products business, which is as you know in part exposed to certain commodity prices.
So we expect to be weaker because of those commodity prices and.
And we also have a business within a G.
Called Reed minerals that is transitioning from.
Call slag to steel slag is it's based product for roofing materials, and abrasive materials and in that transition that EBITDA will decline year over year. So so echo products overall is probably down about $10 million of EBIDTA.
Nick Grassberger: So ECHO products overall are probably down about $10 million in EBITDA. Again, mostly because of price, but also in this one business. Okay, got it. And then just switching gears to Clean Air, there are a couple there. Just on the mix, it just sounds like a little bit of a downturn in mix. Is that more on the hazardous side?
Again, mostly because of price, but also in this this one just one business.
Okay got it and then just switching gears to clean up a couple of the interest on that.
But the mix.
It sounds like a little bit of a down a ton and more is that more on the housing side, I guess, but I guess it sounds like those projects.
Lawrence Scott Solow: I guess it sounds like those projects are related. You're not referring to the..., or is that also on the soil side? In terms of timing a project, I guess that would be on the soil side or not. Yes. So let's get started. So it was a long time ago. I think it was a couple of weeks ago.
Referring to the.
Or is that also on the soil side, you know in terms of timing of projects I guess that would be on the salt or not necessarily just trying to quantify yeah. So so.
Again, the the the margins on the soil business or about a point or two higher than that on the hazardous side.
Nick Grassberger: I think this is the first one of the four. Again, the margins on the soil business are about a point or two higher than that on the hazardous side. We saw very strong growth in the soil volume, particularly in the second half of the year. And so there is a bit of a mix down overall in Clean Earth because of that dynamic this year. We also had some very high-margin hazardous projects that, again, they may well repeat. The pipeline is good; we just don't have clear visibility into when. Right? There may be a bit of conservatism.
So very strong growth.
And in the soils volume, particularly the second half of the year.
And so there is a bit of a mix down overall in clean earth because of that dynamic this year.
We also have some very high margin hazardous projects that again, they they may well repeat the pipeline is good we just don't have clear visibility to win.
Right there there may be a bit of conservatism there.
Lawrence Scott Solow: I know your bookings were up pretty strongly; I think you had five of those last quarter, on the ground, for the whole year. They were. They were. They were.
But personally I know your bookings were up pretty strongly I think you have to plant those last quarter on the soil.
For the whole year, they weren't right. They were they were in the outlook.
Nick Grassberger: And the outlook is good. Gotcha. And then just, just one question, any, any commentary or, you know, the positive effects perhaps just on the intent, the contract, um, for Veolia and their incineration, I guess that won't really kick in until 25, but, um, so I guess there's still kind of a backlog for you guys this year, a little bit of a budget issue, until you get some of this stuff moved out faster some other way. Yeah And the benefits are helping us now, even though their large incinerator is not opening until 2025. As part of the agreement with Veolia, we have access to their other incinerators as well.
And the outlook is good.
Gotcha and then just last question any commentary.
The positive effects, perhaps just on the in center contract for the OEM generation I guess that one really kick in until 'twenty five, but so I guess is there still kind of a backlog for you guys. This year or above supply chain issue until you get some of this stuff moved to opt outs or some other way.
Yeah, No I think we earn veolia feel really very positive about the agreement that we reached in the.
The benefits are helping us now, even though they're large incinerator.
Not opening until 2025 is.
As part of the agreement with Veolia, we have access to their other.
Our incinerators as well and so the benefits of that contract.
Lawrence Scott Solow: And so the benefits of that, the contract in terms of capacity access as well as price, are benefiting us as we speak. Got it. I appreciate that clarification. Great. Thanks. Thanks for all the comments and questions. Thank you. And again, if you have a question, you may press star then one. The next question comes from Davis Baynton with BMO Capital Markets. Please go ahead. Hi, good morning; this is Davis on behalf of Devondawg. Good morning.
Contract in terms of our capacity access as well as price.
Are benefiting us as we speak.
Got it I appreciate that clarification, great. Thanks, Thanks for all the color on them.
Yep.
Thank you.
Again, if you have a question you May press Star then one.
The next question comes from Davis, Paignton with BMO capital markets. Please go ahead.
Hi, Good morning. This is David on for Devin Dodge.
Good morning.
Davis Robert Baynton: Hi, so just wondering regarding that European rail contract. Did I hear correctly when you said that the agreement is likely not going to be reached until the back half of the year? Is there any incremental commentary you can give on the timing of that? Yeah, no; we're certainly in discussions with them now. We've passed a few milestones recently that should enable us to accelerate those discussions, but I'll just be very honest. Dealing with a large bureaucratic European state-owned real estate company can be a bit frustrating in terms of the pace at which things move. So it's difficult to predict.
Hi, So just wondering regarding that European rail contract. So did I hear correctly. When you said that the agreement is likely not going to be reached until the back half of the year or is there any incremental commentary you can give on the timing of that.
Yeah, No. We're certainly in discussions with them now we've we've.
Past few milestones recently.
That should enable us to accelerate those those discussions, but I'll just be very honest dealing with they are large bureaucratic European state owned a real company it would be a bit frustrating in terms of the pace at which things move.
So.
It's difficult to predict.
Nick Grassberger: Yeah, appreciate the color there. And then maybe one more quickly for me, just on the accounts receivable securitization, a significant decrease in that compared to the previous quarter last year. I'm just wondering if there's any color that you could give there.
Yeah I appreciate the color there and then just maybe one more quickly for me just on the AR accounts receivable securitization significant decrease and that compared to the previous quarter in the last year I'm. Just wondering if there's any color that you could give there. Please.
Well the so it's done better get yeah, hi, we happen to facility, obviously that facility went into force in 2022, and that's when there was that effectively a onetime benefits I think of about 140 under 45, we had an additional 5 million or so this year and so the size of it.
Thomas G. Vadaketh: Well, it's Tom Vadaketh here. Hi. We have the facility. Obviously, the facility went into effect in 2022. And that's when there was that effectively a one-time benefit, I think, of about $140,000, $145,000. We had an additional $5 million or so this year. And so the size of the facility today is about $150 million, and we expect it to stay at that kind of level going forward. So there won't be or shouldn't be an additional Cash Flow Benefit from that going forward.
Today, it's about $150 million and we expect it to stay at that kind of level going forward. So they won't they shouldnt be an additional.
Our cash flow benefit from that going forward.
Okay perfect. Thank you I'll turn it over.
Thank you. This concludes our question and answer session I would like to turn the conference back over to Dave Martin for any closing remarks.
Yeah.
Davis Robert Baynton: Okay, perfect. Thank you. I'll turn it over.
Thank you Jay and thank you for all that joined the call today. Please feel free to reach out to me with any questions and as always we appreciate your interest in the company and look forward to speaking soon take care.
David Scott Martin: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Dave Martin for any closing remarks. Thank you, NJ. And thank you to all that joined the call today. Please feel free to reach out to me with any questions. And, as always, we appreciate your interest in the company and look forward to speaking soon. Take care. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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