Q2 2024 Enviri Corp Earnings Call
Asha: Good morning. My name is Asha and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation's second quarter release conference call.
Unknown Executive: At this time, I would like to welcome everyone to the Enviri Corporation's second quarter release conference call. All lines have been raised and used 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 and the number one on your telephone keypad. If you would like to withdraw your question, press star and two on your telephone keypad.
Speaker Change: 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, press star and two on your telephone keypad.
Unknown Executive: Also, this tells some conference presentation. An accompanying webcast made on behalf of Enviri Corporation is subject to copyright by Enviri Corporation, and all rights are reserved. No recordings of the redistribution of this telephone conference by any other party are permitted without the express written consent of Enviri Corporation. Your participation indicates your agreement.
Unknown Executive: No recordings or redistribution of this telephone conference by any other party are permitted without the express written consent of Enviri Corporation. Your participation indicates your agreement.
No recordings or redistribution of this telephone conference by any other party are permitted without the express written consent of Enviri Corporation. Your participation indicates your agreement.
David Martin: I would now like to introduce Dave Martin of Enviri Corporation. Mr. Martin, you may begin your call.
David Martin: Thank you, Asha, and welcome to everyone joining us this morning on Dave Martin of Enviri. With me today is Nick Grasperger, our chairman and chief executive officer, Enviri. At this morning, we will discuss our results for the second quarter of 2024 and our outlook for the remainder of the year. We'll then take your questions.
David Scott Martin: Thank you, Asha, and welcome to everyone joining us this morning. I'm Dave Martin of Enviri. Lastly, on the call, we will also 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 this slide.
Speaker Change: Thank you, Asha, and welcome to everyone joining us this morning. I'm Dave Martin of Enviri.
Dave Martin: With me today is Nick Grasberger, our Chairman and Chief Executive Officer, and Tom Vadaketh, our Senior Vice President and CFO . This morning we will discuss our results for the second quarter of 2024 and our outlook for the remainder of the year. We'll then take your questions.
David Martin: 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'll make statements that are considered forward-looking within the meaning of the federal security laws. These statements are based on our current knowledge and expectations that are subject to certain risks and uncertainty to make those extra results to differ from those forward-looking statements. For discussion of such risks and uncertainties, see the risk factors section in the most recent campaign. Thank you. The company undertakes no obligation to update any forward-looking statement.
Speaker Change: 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 those forward-looking statements.
Speaker Change: For discussion of such risks and uncertainties, see the Risk Factors section in our most recent 10-K and 10-Q.
David Martin: Lastly, on the call, we will also refer to adjusted financial results that are considered non-GAAP for us to see reporting purposes. The reconciliation of gap results is included in earnings release as well as the slide presentation.
Nick Grasperger: With that being said, I'll turn the call on it. Thank you, Dave, and good morning, everyone. Q2 was another strong quarter for Enviri as each of our three segments performed above our expectations in terms of cash flow and adjusted EBITDA. Consolidated EBITDA increased 7% versus Q2 of last year, despite the adverse impacts of a strengthening US dollar and the benefit of the sterile cycle settlement in last year's figure. EBITDA margin of 14% was about 1 point higher than a year ago, and free cash flow was $60 million higher. In terms of our outlook for the full year, we are not changing our earnings guidance as we expect the impact of a strong US dollar to offset the impact of better performance from our businesses.
Speaker Change: Q2 was another strong quarter for Enviri as each of our three segments performed above our expectations in terms of cash flow and adjusted EBITDA.
Speaker Change: Consolidated EBITDA increased 7% versus Q2 of last year, despite the adverse impacts of a strengthening U.S. dollar and the benefit of the steric cycle settlement in last year's figure.
Speaker Change: The EBITDA margin of 14% was about one point higher than a year ago.
Unknown Executive: In terms of our outlook for the full year, we are not changing our earnings guidance as we expect the impact of a strong U.S. dollar. However, these were the highest of any quarter since we combined Clean Earth and the ESOL business in 2020 when adjusting for the impact of currency.
Speaker Change: In terms of our outlook for the full year, we are not changing our earnings guidance as we expect the impact of a strong U.S. dollar to offset the impact of better performance from our businesses.
Nick Grasperger: Our financial leverage continues to decline; debt to EBITDA is now below four times for the first time since 2020 and is on a path to our target of 2.5 times in a few years.
Nick Grasperger: as we discussed at our recent Analyst Day in Philadelphia. We expect cash flow to steadily rise to 150 million per annum over that period due to EBITDA growth, reduced interest and pension expenses, and the runoff of our ETO contracts in Harskow Rail, which will begin to turn cash positive as the vehicles are delivered. We recently noted that we're targeting an incremental 50-75 million of cash proceeds this year from asset sales. At the end of Q2, we had generated nearly $40 million against this goal. Q2 is also a record quarter for CleanEarth with EBITDA of 38 million and EBITDA margin of 16%.
Speaker Change: As we discussed at our recent Analyst Day in Philadelphia.
Speaker Change: Q2 is also a record quarter for Clean Earth, with EBITDA of $38 million and EBITDA margin of 16%.
Nick Grasperger: These were the highest of any quarter since we combined CleanEarth and the ETO business in 2020. The execution in the business was very impressive as pricing actions and efficiency gains across a number of initiatives are driving the growth and margin expansion. To repeat the main theme of our Analyst Day, we believe we are still in the early stages of creating value in the CleanEarth segment. With future catalysts including PFAS remediation, the deployment of common IT systems, a restructuring of our commercial organization, and M&A. Harskow Environmental had a solid quarter with EBITDA growth of 5 to 10% versus the same quarter a year ago, when adjusting for the impact of currency, the sale of a small business, and one-time severance costs related to two site exits.
Speaker Change: These were the highest of any quarter since we combined Clean Earth and the ESOL business in 2020.
Speaker Change: The execution in the business was very impressive, as pricing actions and efficiency gains across a number of initiatives are driving the growth and margin expansion.
Speaker Change: To repeat the main theme of our Analyst Day, we believe we are still in the early stages of creating value in the Clean Air segment.
Speaker Change: Parsco Environmental had a solid quarter with EBITDA growth of 5 to 10 percent versus the same quarter a year ago when adjusting for the impact of currency, the sale of a small business, and one-time severance costs related to two site exits.
Nick Grasperger: Both mill services and echo products contributed to this growth. These positive results were achieved despite anemic steel production levels, particularly in Europe. HG is also doing an excellent job of improving cash flow through both working capital and capital spending initiatives. You're to date free cash flow and HEE of 55 million is more than double the figure generated through the first six months of last year. Harskow Rail also delivered healthy growth in both EBITDA and EBITDA margin in the second quarter for the core business. Demand a steady in our operational performances improving. We've expected $9 million of ETO charges that we booked in Q2 to be offset in the second half of the year, as we conclude negotiations with a few key customers related to relief of uncontrollable cost overruns and delivery delays.
Unknown Executive: These positive results were achieved despite anemic steel production levels, particularly in Europe. Itchy is also doing an excellent job of improving cash flow through both working capital and capital spending initiatives. Demand is steady, and our operational performance is improving as we conclude negotiations with a few key customers related to the relief of uncontrollable cost overruns and delivery delays. At this point, we believe the delivery of the initial vehicles on the two large ETO contracts in a couple years will be the catalyst for the successful sale of the business.
Speaker Change: These positive results were achieved despite anemic steel production levels, particularly in Europe .
Speaker Change: You're to date free cash flow in HEE of $55 million. It's more than double the figure generated through the first six months of last year.
Nick Grasperger: After exploring options to divest the business, we are now focused on growing the core business and executing the remaining ETO contracts. At this point, we believe the delivery of the initial vehicles on the two large ETO contracts in a couple of years will be the catalyst for the successful sale of the business.
Speaker Change: At this point we believe the delivery of the initial vehicles on the two large ETO contracts in a couple years will be the catalyst for the successful sale of the business.
Nick Grasperger: We also recently released our fifth annual ESG Report. This report outlines our ambitions, our goals, the impact metrics across our focus areas, which include innovative solutions, a thriving environment, safe workplaces, and inspired people. For 2023, I'm proud to highlight that our total recordable incident rate was 0.8, making us one of the safest companies in the industry. We also recycled or reused 19 million tons of waste, with HE recycling or reusing 93% of processed steel slag and clean earth recycling or reusing 91% of processed waste. We believe these facts illustrate how we are solving the most complex environmental challenges faced by our customers.
Speaker Change: We also recently released our fifth annual ESG report. This report outlines our ambitions, our goals, the impact metrics across our focus areas,
Unknown Executive: For 2023, I'm proud to highlight that our total recordable incident rate was.8, and Clean Earth recycled or reusing 91% of process waste. We believe these facts illustrate how we are solving the most complex environmental challenges faced by our customers.
Speaker Change: We also recycle to reuse 19 million tons of waste, with H.E. recycling or reusing 93% of processed steel slag.
Speaker Change: We believe these facts illustrate how we are solving the most complex environmental challenges faced by our customers.
Tom Vadaketh: I'll now turn the call over to Tom. Thank you, Nick, and good morning, everyone. The Enviri team again delivered strong quarterly results in Q2. The revenues increased 6% on an organic basis and adjusted, even though it grew 7%. Driven by record results for Clean Earth and a nice year on year improvement for rail. Our cash flow was better than anticipated, and our covenant leverage ratio decreased further to below 4 times for the first time since mid 2020.
Tom Vadaketh: Now let me comment on our second quarter performance further, starting on slide 4. In the second quarter, revenues total $610 million, relatively flat versus the prior year on a reported basis, but 6% higher on an organic basis after adjusting for FX translation impacts, the sale of the performance business, the favorable stair cycle settlement in 2023, and forward loss adjustments in rail for our three large engineered auto European contracts. Adjusted EBITDA was $86 million and improvement of 7% year on year and 10% sequentially, with this being our highest quarterly adjusted EBITDA since the acquisition of ESOL and the impact of COVID in 2020.
Speaker Change: In the second quarter, revenues totaled $610 million, relatively flat versus the prior year on a reported basis.
Speaker Change: The sale of the Performix business, the favorable Stericycle settlement in 2023, and forward loss adjustments in rail for our three large engineer-to-auto European contracts.
Unknown Executive: Adjusted EBITDA was $86 million, an improvement of 7% year-on-year and 10% sequentially, with this being our highest quarterly adjusted EBITDA since the acquisition of ESOL and the impact of COVID in 2020. Pre-cash flow for the quarter was $9.5 million versus a deficit of $51 million in the prior year quarter, with the year-on-year improvement reflecting better working capital performance, as well as some timing benefits Segment revenues. Adjusting for the FX impact and the sale of Performics, organic growth for HE was 6%. Next, please turn to slide six to discuss Clean Earth.
Tom Vadaketh: Our year-over-year earnings growth was driven by cleaner than rail as anticipated. Our adjusted earnings were also modestly above our prior guidance range for the quarter, with all three operating segments contributing to the better-than-anticipated outcome. Our adjusted earnings per share was 2 cents for the quarter. Pre-castle for the quarter was $9.5 million, versus the deficit of $51 million in the prior year quarter, with the year-on-year improvement reflecting better working capital performance as well as some timing benefits in both capital spending and working capital movements. Lastly, here, our covenant leverage ratio improved to 3.9 times from 4.1 times in Q1, as I mentioned.
Speaker Change: Our year-over-year earnings growth was driven by Clean Earth and Rail, as anticipated.
Speaker Change: Our adjusted earnings were also modestly above our prior year guidance, prior guidance range for the quarter, with all three operating segments contributing to the better-than-anticipated outcome.
Speaker Change: Free cash flow for the quarter was $9.5 million versus a deficit of $51 million in the prior year quarter, with the year-on-year improvement reflecting better working capital performance.
Tom Vadaketh: This change was driven by both lower debt as well as higher trailing EBITDA. In addition to the pre-castle generated in the quarter, the lower net debt also reflects our continued focus on debt reduction. As previously disclosed, we monetized the remainder of a note receivable related to the sale of our IKG business, generating $17 million in the quarter. And we sold our performance metallurgical additives business in Q2 for net proceeds of also $17 million.
Speaker Change: In addition to the free cash flow generated in the quarter, the lower net debt also reflects our continued focus on debt reduction.
Speaker Change: As previously disclosed, we monetize the remainder of a notes receivable related to the sale of our IKG business.
Tom Vadaketh: Least turn to slide five and our Harsko Environmental segment. Segment revenues total $293 million, up 1% compared with a prior quarter net of an $8 million FX translation impact, adjusting for the FX impact and the sale of performance organic growth for H.E. with 6%. Adjusted EBITDA for the quarter total $49 million, which, as expected, was modestly lower versus the prior year. The favorable impact from higher demand and pricing was offset by FX, the sale of performance, a less favorable business mix, and certain administrative costs, including severance and compensation.
Speaker Change: Segment Revenues.
Speaker Change: totaled $293 million, up 1% compared with the prior year quarter, net of an $8 million FX translation impact.
Speaker Change: Adjusting for the FX impact and the sale of Performics, organic growth for HE was 6%.
Tom Vadaketh: Next, please turn to slide six to discuss cleaner for the quarter. Revenues total $236 million, up 2% versus the prior year, and adjusted EBITDA increased 10% to reach $38 million. This was a very strong quarter for C.E. with the business delivering revenue and EBITDA growth despite the favorable impact of the Stericycle settlement in Q2 of 2023 making for a difficult comparison. C.E. reached record profitability in Q2 with its highest EBITDA of $38 million and highest EBITDA margins of 16%. This earnings performance was driven by both price and volumes, as well as lower operating costs and efficiency initiatives.
Unknown Executive: This was a very strong quarter for CE, with the business delivering revenue and EBITDA growth despite the favorable impact of the stericycle settlement in Q2 of 2023, making for a difficult comparison. CE reached record profitability in Q2, with its highest ever EBITDA of $38 million and highest ever margins of 16%. This earnings performance was driven by both price and volumes, as well as lower operating costs and efficiency initiatives. However, this growth was offset elsewhere, mainly due to lower project values. Now please turn to slide 7 and our rail visit.
Speaker Change: CE reached record profitability in Q2 with its highest ever EBITDA of $38 million and highest ever margins of 16%.
Speaker Change: This earnings performance was driven by both price and volumes, as well as lower operating costs and efficiency initiatives.
Tom Vadaketh: As anticipated, volumes were mixed as C.E. faced a very difficult comparison quarter in 2023 that included strong project-related volumes. Healthcare, retail, and soil-dread volumes were higher this year versus the 2023 quarter, and this growth was offset elsewhere, mainly due to lower project work. Adventist materials revenues totaled $195 million, while soil-dread revenues reached $41 million for the quarter.
Speaker Change: Healthcare, retail, and soil dredge volumes were higher this year versus the 2023 quarter, and this growth was offset elsewhere mainly due to lower project work.
Speaker Change: Hazardous materials revenues totaled 195 million dollars while soil dredge revenues reached 41 million dollars for the quarter.
Tom Vadaketh: Now, please turn to slide seven and our rail business. Rail revenues totaled $81 million and adjusted EBITDA total $7 million in the second quarter. This EBITDA total excludes forward lost adjustment of $9 million related to our three large ETO contracts in Europe. As we've said before, these contracts are long-term in nature, with some equipment deliveries lasting through 2027. We have continuing to work to stabilize these projects, and as we signed Q2, we could occasionally see additional charges as we find to now cost estimates to complete the projects. We're also making good progress with our contract negotiations with our customers.
Unknown Executive: Rail revenues totaled $81 million, and adjusted EBITDA totaled $7 million in the second quarter. This EBITDA total excludes forward loss adjustments of $9 million related to our three large ETO contracts in Europe. We are continuing to work to stabilize these projects, and as we saw in Q2, we could occasionally see additional charges as we fine-tune our cost estimates to complete the projects. We're also making good progress with our contract negotiations with our customers.
Speaker Change: Rail revenues totaled $81 million and adjusted EBITDA totaled $7 million in the second quarter.
Speaker Change: As we've said before, these contracts are long-term in nature, with some equipment deliveries lasting through 2027.
Speaker Change: We are continuing to work to stabilize these projects, and as we saw in Q2, we could occasionally see additional charges as we fine-tune our cost estimates to complete the projects.
Tom Vadaketh: As we have done in the past, we will be excluding both the charges from additional forward lost provisions, as well as any favorable impact from contract negotiations, from adjusted EBITDA. Excluding the impact of these three contracts, Rails Q2 adjusted earnings were the highest in a few years, with the year-on-year growth in earnings coming from higher base equipment and services demand. The decline in revenues versus the prior quarter was driven by the favorable forward loss adjustment from our ETL contracts in the UK in Q2 of 2023. While we are excluding the impact of these adjustments from EBITDA, they cannot be excluded from revenues.
Unknown Executive: Excluding the impact of these three contracts, Rails Q2 adjusted earnings were the highest in a few years, with the year-on-year growth in earnings coming from higher base equipment and services demand. These adjustments negatively impact the revenue comparison by approximately $15 million versus the 2023 quarter. Also, relative to our May guidance, our better-than-expected Q2 results are offset by FX translation impacts in HE for the balance of the year. Otherwise, our outlook is largely intact.
Speaker Change: Excluding the impact of these three contracts, Rails Q2 adjusted earnings were the highest in a few years, with the year-on-year growth in earnings coming from higher base equipment and services demand.
Tom Vadaketh: These adjustments negatively impact the revenue comparison by approximately $15 million versus the 2023 quarter.
Tom Vadaketh: Now, let me turn to our updated 2024 outlook on slide 8. Environments full-year adjusted EBITDA is now expected to be within a range of $327 to $340 million. Our midpoint is unchanged from May guidance and continues to point to a year-over-year growth of approximately 9%. Also, relative to our May guidance, our better-than-expected Q2 results are offset by FX translation impacts in H for the balance of the year. Otherwise, our outlook is largely intact. Our detailed segment outlook can be found in the appendix of the presentation. This EBITDA range now translates to adjusted per share guidance of between $0.7 and a loss of $0.9.
Speaker Change: Now let me turn to our updated 2024 outlook on slide 8.
Speaker Change: Enviri's full-year adjusted EBITDA is now expected to be within a range of $327 to $340 million.
Speaker Change: Also, relative to our May guidance, our better-than-expected Q2 results are offset by FX translation impacts in HE for the balance of the year. Otherwise, our outlook is largely intact.
Unknown Executive: Our detailed segment outlook can be found in the appendix of the presentation. Now, let me move on to slide nine now with our third quarter guidance. Q3 adjusted EBITDA is expected to range from $85 million to $92 million, and rail EBITDA is projected to increase year-on-year due to higher standard equipment and technology demand. Lastly, on Q3, I'd note that free cash flow in Q3 is anticipated to weaken from Q2 due to some of the timing benefits we saw in Q2. And, as communicated at our recent Analyst Day, our goal is to get below three times below three times in the coming year.
Tom Vadaketh: And we are still targeting adjusted free cash flow of $10 to $30 million. The cash flow upside in Q2 was largely timing-related, and our outlook for the year remains unchanged. This Outlook reflects the collection of some overdue receivables from a customer in China. There is some risk with the timing of these collections, which is reflected in the relatively wide cash flow guidance range.
Speaker Change: The cash flow upside in Q2 was largely timing-related, and our outlook for the year remains unchanged. This outlook reflects the collection of some overdue receivables from a customer in China.
Tom Vadaketh: Let me move on to slide 9 now with our third quarter guidance. Q3 adjusted EBITDA is expected to range from $85 million to $92 million. Hasco Environmental EBITDA is anticipated to be similar to Q3 2023, with a benefit from higher prices and volumes being offset by FX translation impacts and the sale of our performance business in April. Clean Earth EBITDA is expected to be above the prior quarter. Here, higher prices and cost improvements are expected to drive the earnings growth. And Ray Lima dies projected to increase year-on-year due to higher standard equipment and technology demand.
Speaker Change: Let me move on to slide 9 now with our third quarter guidance.
Tom Vadaketh: Lastly, on Q3, I've noticed that free cash flow in Q3 is anticipated to weaken from Q2 due to some of the timing benefits we saw in Q2.
Speaker Change: Lastly, on Q3, I'd note that free cash flow in Q3 is anticipated to weaken from Q2 due to some of the timing benefits we saw in Q2.
Tom Vadaketh: Finally, on our balance sheet, we've made considerable progress to reduce our covenant leverage, and getting to below four times is an important milestone. This remains a key priority for us, and we will continue to review opportunities for additional asset sales this year. And, as communicated at our recent analyst day, our goal is to get to below three times in the coming years.
Speaker Change: And as communicated at our recent Analysts' Day, our goal is to get to below three times in the coming years.
Unknown Executive: Thanks, and I'll now hand the call back to the operator for Q&A. Thank you.
Speaker Change: Thanks, and I'll now hand the call back to the operator for Q&A.
Unknown Executive: We will now begin the question and answer question. To ask a question, you may press star and one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. We draw from the question, Q; please press star and two.
Operator: 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 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.
Unknown Executive: At this time, we will pause momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Aadit Shrestha: The first question comes from Aadit Shrestha, with Steve Full. Please go ahead. Hi, Nathan Tom. Thanks for taking the questions. Just on HE, I just needed a margin. I mean, it came in the lowest sort of your expectations. Usually, it is 18 to 20%. I think average margin in the first half is around 16, 16 and a half.
Unknown Executive: Just on HE, the adjusting EBITDA margin, I mean, it came in below sort of your expectations; usually, it's 18 to 20 percent. I think average margin in the first half is around, you know, 16, 16 and a half. How do you, maybe you can walk us through how you get to the 18% sort of implied margins within the outlook for FY24 and what do you see in second half of 24 that could get it to that level?
Tom Vadaketh: How do you, maybe you can walk us through how you get through the 18% sort of implied margins within the outlook for FY 24? And what do you see in second half 24? I could get it to that level. Well, so the in the first half, as we mentioned, in addition to the effect pressure of the idea, we did have some more unusual items, those some severant costs, etc. And so we expect over time, we don't expect to see those again in the second half. You know, that'd be one piece that is still will continue to be some effect pressure, but that one effect margins because it affects both revenue and even the and we expect the second half to be more normal.
Speaker Change: How do you, maybe you can walk us through how you get to the 18% sort of implied margins within the outlook for FY24 and what do you see in second half 24 that could get it to that level?
Unknown Executive: Well, so in the first half, as we mentioned, in addition to the FX pressure, we did have some [inaudible].
Speaker Change: Well, in the first half, as we mentioned, in addition to the FX pressure, we did have some
Speaker Change: More than usual items, there's some severance costs, etc.
Speaker Change: And so we expect over time, we don't expect to see those again in the second half, you know, that'd be one piece. There is still, will still continue to be some FX pressure.
Speaker Change: But that won't affect margins because it affects both revenue and EBITDA. And we expect the second half to be more normal. So the business, we continue to feel comfortable that it will be in that 18 to 20% range.
Tom Vadaketh: So the business, you know, we continue to feel comfortable that it will be in that 18 to 20% range.
Unknown Executive: We also have a few relatively large sites in HE that have been underperforming for 18 months. They are improving, and we expect that rate of improvement to increase in the second half.
Tom Vadaketh: We also have a few relatively large sites in HE that have been underperforming for 18 months. They are improving, and we expect their ramp of improvement to increase in the second half. And that that has a fairly sizable impact on the margin in the second half as well. Okay, great, thank you.
Speaker Change: We also have a few relatively large sites.
Speaker Change: That has a fairly sizable impact on the margin in the second half as well.
Unknown Executive: Okay, great. Thank you. So just looking at what's for sale, you said you received $40 million net proceeds to date from the asset sales. You're trying to get to $50 to $75. What else is up for sale at this point? Yeah, you know, obviously, as you'd imagine.
Aadit Shrestha: So just looking at for sale, you said you received 40 million net proceeds to date from the asset sales. You're trying to get 50 to 75.
Speaker Change: Okay, great. Thank you.
Speaker Change: So, just looking at for sale, you said you received $40 million net proceeds to date from the asset sales. You're trying to get to $50 million to $75 million. What else is up for sale at this point?
Tom Vadaketh: What else is up for sale at this point? Yeah, you know, obviously, as you'd imagine, I wouldn't want to comment on any specifics, but, you know, we are looking at opportunities to continue to monetize the masses. So we still have our eyes set on that 50 to 75 range and, you know, quite pleased with the progress made so far through the first half.
Unknown Executive: Yeah, you know, obviously, as you'd imagine, I wouldn't want to comment on any specifics. But, you know, we are looking at opportunities to continue to monetize these assets. So we still have our eyes set on that 50 to 75 range and are quite pleased with the progress made so far through the first half.
Aadit Shrestha: All right, thanks a lot.
Speaker Change: Alright, thanks a lot.
Larry Tolo: The next question comes from Larry Tolo with CJA Security. Please go ahead. Good morning, everybody. Nick, could you just clarify? Obviously, Real had a really nice quarter, especially relative to last year. Could you just, I guess, two clarifications of questions. So the growth, you said, you know, obviously, better demand and equipment and service; assume that that's all domestic demand. And then I guess the next question is, are you the difference between this year and last year? Is there a lower adjustment on the ETO contract, what less losses in the EBITDA? I'm just trying to figure that, you know, that also makes up some of the difference.
Unknown Executive: clarify. Obviously, Roehl had a really nice quarter, especially relative to the last year.
Speaker Change: Good morning, everybody.
Speaker Change: Can you just clarify? Obviously, Roehl had a really nice quarter, especially relative to the last year. Could you just, I guess, two clarifications or questions? So the growth you said, you know, obviously,
Unknown Executive: Could you just, I guess, two clarifications or questions. So the growth, you said, you know, obviously better demand for equipment and services. I assume that that's all domestic demand, right? And then I guess the next question is, are you, the difference between this year and last year, is there a lower adjustment on the ETL contract, fewer losses in EBITDA? I'm just trying to figure out that, you know, the that also make up some of the difference.
Speaker Change: [inaudible]
Nick Grasperger: Donald. Yeah, sure. So let's break it into two pieces: the core business and rail, and the ETOs. And the core business standard equipment, aftermarket, and our contracted services are all up a good bit year over year. So that, that's certainly helping. And our reported numbers exclude the ETO charges on the largest three contracts. The other ETOs which are included in the core, yeah, the performance of those year over year is better. But I'd really point to the core business and the improvement in really each of the segments, the product segments and services within the core is doing better year over year.
Speaker Change: A good bit year over year. So that that's certainly helping and reported numbers exclude the ETO charges on the the largest three contracts.
Speaker Change: But I'd really point to the core business and the improvement in really each of the segments, the product segments and services within the core as doing better year over year.
Unknown Executive: And really, each of the segments, the product segments, and services within the core is doing better year over year.
Unknown Executive: The charges on the large ETO contracts we have been excluding consistently from the adjusted EBITDA both last year and this year. So those, yes, they are much lower this year than last year, but that's not contributing to this growth. The growth is coming from the underlying core of the base business.
Nick Grasperger: And if I just say so, the charges on the large ETO contracts we have been excluding consistently from the adjusted, but at both last year and this year. So those, yes, they are much lower this year than last year, but that's not contributing to this growth. The growth is coming from the underlying core of base business.
Tom Vadaketh: Got it. And then the cash flow you said Tom is improving; it's still negative, but it's improving, I guess, as those ETO losses decline. Is that right? Yeah, yeah. I mean, just the, you know, the beyond the numbers, what's happening right now is we have these long-term contracts that deliver the vehicles in these, and we are building the vehicles right now. And so that is a cash use period, and we'll start generating cash on these contracts when we start delivering these vehicles, as Nick said, in a couple of years or so. So until then, they're in a negative period, but it will become progressively less negative as we go forward.
Tom Vadaketh: This year we haven't talked about specific numbers, but that's what's driving the negative outlook we've shared before and on rail. The underlying business pretty much throws off cash in line with the cash earnings.
Tom Vadaketh: Got it.
Larry Tolo: Okay, and then just switching gears cleaner. You know, really strong quarter. Obviously, you're back out the price benefits you had last year, and Q2 last year, it looks like even that grew over 25% if my estimates are all right. Can you just give us a little more call there in terms of revenue, you know, underlying revenues, volume versus price, and you know, what you know, feels like it's, volumes just continues to grow and where are you getting seen some of those volumes? Is it retail, industrial, healthcare? Can you give us a little bit of a cross-section of the massive?
Unknown Executive: Can you just give us a little more color there in terms of underlying revenues, volume versus price? It feels like volumes just continue to grow, and where are you getting some of those volumes? Retail, Industrial, Healthcare. Can you give us a little bit of a broad sector view on that?
Nick Grasperger: Sure, sure. So in Q2, Larry's underlying volume was relatively flat. We've seen good growth in healthcare, but some of the larger projects in the so-called M&I segment and also in the soils business. While they're in backlog, they haven't yet started. That's the lumpy part of this business, as you know. So, we hazardous soil projects are very high margin. We have a difficult comparison in Q2 to those projects. Also, some of the soil and dredge, I guess, was up a good bit in Q2 that the cop gets tougher in the second half of the year for them.
Speaker Change: Hazardous soil projects are very high margin. We have a difficult comparison.
Unknown Executive: But the underlying, and then in retail, you know, the stop count is about the same, but the volume coming out of retail is a bit soft. And that, of course, is a known trend in the U.S. for the retail segment. So yeah, so again, relatively flat if you account for the project work.
Nick Grasperger: But the underlying and then in retail, you know, the stop count is about the same, but the volume coming out of retail is a bit soft. And that, of course, is a known trend in the US for the retail segment. So, yeah, so again, relatively flat. If you would account for the project work comparison year for year, the rest of the volume is up a little bit.
Larry Tolo: Great. Thank you. I appreciate it.
Unknown Executive: Great. Thank you. I appreciate it.
Rob Brown: Once again, if you have a question, please press star, then one. The next question comes from Rob Brown with Lake Street Capital Market. Please go ahead. Good morning. Just following up on the Clean Earth revenue growth, I think Jane wants to say you talked about that being a bit of a higher growth opportunity. Just a sense, and how do you see that growth playing out over the next year or two? And should you see that kind of volume and pricing together, given the double digits terms for growth? You know, you know, Rob, our view hasn't changed.
Operator: Once again, if you have a question, please press star, then 1. The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.
Robert Duncan Brown: You know, Rob, our view hasn't changed. Again, these parts of the clean earth business can be relatively lumpy. And that's what we're saying. Certainly, the backlog is growing. But these projects..., quarter-to-quarter tend to have a sizable effect on the year-over-year comparison.
Speaker Change: Hi, good morning.
Speaker Change: [inaudible]
Speaker Change: Can you just give a sense on how you see that growth playing out over the next year or two?
Speaker Change: Terms and Conditions.
Nick Grasperger: Again, this parts of the Clean Earth business can be relatively lumpy. And that's, that's what we're saying. And as we highlighted during our analyst day, we continue to expect volume growth and kind of the load amid single digits and clean earth over time. I think the demand is there. Certainly that the backlog is growing, but these projects quarter to quarter tend to have a sizable effect on your comparison.
Speaker Change: Rob, our view hasn't changed. Again, parts of the clean earth business can be relatively lumpy and that's what we're seeing.
Speaker Change: Certainly, the backlog is growing.
Speaker Change: But these projects, quarter to quarter, tend to have a sizable effect on the year-over-year comparison.
Nick Grasperger: Okay, that makes sense. And then you alluded to the operation improvements you're working on. That can kind of help margins expand even further, but what's sort of the timing on those and referring specifically to the IT platform and sales integration? Yeah, you're referring to Clean Earth. Yeah, so there are a number of them. I think we've made dramatic improvements in the last couple of years in the efficiency of our logistics network and where we, where we transport and process waste. So I think that that is a key driver of efficiency. We've also, in the facilities, a number of initiatives around containers and the flow of material that have served to improve efficiency as well.
Unknown Executive: Okay, yeah, makes sense. And then you alluded to the operational improvements you're working on. That can kind of help margins expand even further. But what's the sort of timing on those, referring specifically to the IT platform and sales.
Unknown Executive: Yeah, are you referring to Clean Earth? Yes.
Unknown Executive: Yeah, so there are a number of them. I think we've made dramatic improvements in the last couple years in the efficiency of our logistics network and where we transport and process waste. So I think that that is a key driver of efficiency. We've also in the facilities. A number of initiatives around containers and the flow of material that have served to improve efficiency as well. So there are any number; there are probably a dozen different projects that have contributed to that.
Speaker Change: A number of initiatives around containers and the flow of material that have served to improve.
Nick Grasperger: So they're, they're any number. They're probably a dozen different projects that have contributed to that. I don't yet believe that we're reaching diminishing returns. I referenced the major initiative to move to a common IT platform in Clean Earth. And we had a major milestone in the second quarter where one of our largest facilities converted over to that system. It's really without any glitches. So it gives us a lot of confidence in the further rollout of that system. And that system will serve to shorten lead times, response times to customers. So it's a lot more, as it will result in lower overhead for the business.
Speaker Change: Efficiency as well. So there are any number, there are probably a dozen different projects that have contributed to that. I don't yet believe that we're
Unknown Executive: I don't yet believe that we're, Reaching Diminishing Returns, I referenced a major initiative to move to a common IT platform in Clean Earth. We had a major milestone in the second quarter where one of our largest facilities converted over to that system really without any glitches. So it gives us a lot of confidence in the further rollout of that system, and that system will serve to shorten lead times and response times to customers, which will result in lower overhead for the business, kind of on the cost of delivering the services. The SG&A reduction is still ahead of us.
Speaker Change: It gives us a lot of confidence in the further rollout of that system, and that system will serve to
Speaker Change: Shorten lead times, response times to customers, it will result in lower overhead for the business.
Nick Grasperger: So while the cost reduction initiatives to date in Clean Earth are focused mostly. kind of on the cost of delivering the services, the SDNA reduction is still ahead of us.
Rob Brown: Okay, great, thank you. Open door.
Speaker Change: Okay, great. Thank you. I'll turn it over.
Davis Baynton: The next question comes from Davis Baynton with the AMO Capital Markets. Please go ahead. Hi, good morning. So just look at the real segment results. Could you please provide some additional color on the ETO contract adjustments. So in the Q1 commentary, you had mentioned that these were weighing on the rail operations, which was part of the thought process behind postlining the sale. And I know this morning you mentioned that the delivery in a couple of years will be that main catalyst, but does recognizing these adjustments help move the needle at all there.
Operator: The next question comes from Davis Baynton with BMO Capital Markets. Please go ahead.
Speaker Change: The next question comes from Davis Baynton with BMO Capital Markets. Please go ahead.
Davis Robert Baynton: Hi, good morning. So just looking at the rail segment results, could you please provide some additional color on the ETO contract adjustments? So in the Q1 commentary, you had mentioned that these were weighing on the rail operations, which was part of the thought process behind postponing the sale. I know this morning you mentioned that the delivery in a couple years will be the main catalyst, but does recognizing these adjustments help move the needle at all there?
Davis Baynton: I know this morning you mentioned that the delivery in a couple of years will be that main catalyst, but does recognizing these adjustments help move the needle at all there?
Thomas G. Vadaketh: I'll take that. Hi, it's Tom Vadaketh.
Tom Vadaketh: I'll take that. Hi, it's Tom Vadaketh. The, I mean, yes, I think you could think of it in that way. You know, we are progressively, as each quarter goes by, getting more accuracy for like we have more visibility into what it's going to take to build build out these vehicles. If you imagine these have highly engineered, highly complex pieces of equipment with thousands of SKUs that go into each one. And these have been occurring over a period when we had COVID and then supply chain issues, et cetera. And so we called them all about some of the original estimates that we had to build these out have turned out to be insufficient.
Thomas G. Vadaketh: I mean, yes, I think you could think of it in that way. You know, we're gradually, as each quarter goes by, getting more accuracy, if you like. We have more visibility into what it's going to take to build out these vehicles. As you can imagine, these are highly engineered, highly complex pieces of equipment with thousands of SKUs that go into each one.
Speaker Change: [inaudible]
Thomas G. Vadaketh: And this has been occurring over a period when we had COVID and then supply chain issues, et cetera. And so, because of all of that, some of the original estimates that we had to build these out have turned out to be insufficient. I think we're getting to the back end of these adjustments. Frankly, we took a lot last year, particularly in Q4, as you know. We didn't have much in Q1. In Q2, we had about $9 million worth.
Speaker Change: and these have been occurring over a period when we had COVID and then supply chain issues, etc.
Speaker Change: And so, because of all of that, some of the original estimates that we had to build these out have turned out to be insufficient. I think we're getting...
Tom Vadaketh: I think we're getting to the back end of these adjustments, frankly. We took a lot last year, particularly in Q4, as you know. We didn't have much in Q1 in Q2. We had about nine million dollars' worth. So I do think they're trailing off, but we still have a few years to go before we complete the deliveries. So that's my remarks that, you know, they could, you know, there could be a few more, but I do think we're trailing off. In terms of, I think you're saying, you know, is this green light to future the vestiture.
Speaker Change: We didn't have much in Q1. In Q2, we had about $9 million worth. So I do think they are trailing off, but we still have a few years to go before we complete the deliveries.
Thomas G. Vadaketh: So I do think we are trailing off, but we still have a few years to go before we complete the deliveries. So that's my remark, that there could be a few more, but I do think we're trailing off. Green Light for future divestiture. I think I'd go back to what Nick said in his previous remarks. We'll probably feel a little bit better about the stability of the contract, and potentially, then at that point, we could consider whether we should reach out.
Davis Baynton: I think I'd go back to what Nick said and his reporter marks. Once we start delivering these vehicles, it will probably feel a little bit better about the stability of the contracts. And potentially then at that point, we could consider whether we restart the vestiture process. Okay. Great. Thank you.
Speaker Change: start delivering these vehicles, we'll probably feel a little bit better about the stability of the contracts. And, and potentially then at that point, we could consider whether we restart the divestiture process.
Unknown Executive: Okay, great. Thank you. And then just quickly on the rollout of that IT system in Clean Earth, do you have any visibility into how long it could be before we see some of the SG&A cost reductions?
Davis Baynton: And then just quickly on the rollout of that IT system in Clean Earth. Do you have any visibility into how long that could be to see some of the S DNA cost reductions? I think that's likely going to be in the latter half of 2025. Okay. Thank you.
Speaker Change: Okay, great. Thank you. And then just quickly on the rollout of that IT system in Clean Earth, do you have any visibility into how long that could be to see some of the SG&A cost reductions?
Unknown Executive: I think that's likely going to be in the latter half of 2025.
Speaker Change: I think that's likely going to be in the latter half of 2025.
Unknown Executive: Okay, perfect. Thank you. I'll turn it over.
Unknown Executive: I'll turn it over.
Speaker Change: Okay, perfect. Thank you. I'll turn it over.
Unknown Executive: This concludes the question-and-answer session.
Operator: This concludes the question and answer session. I would like to turn the conference back over to Dave Martin for any closing remarks. Please go ahead.
David Martin: I would like to turn the conference back over to Dave Martin for any closing remarks. Please go ahead. Yeah. Thank you for joining the call. Please feel free to contact me with any follow-up questions. And lastly, we appreciate your interest in the inquiry and look forward to speaking in the future. Thank you.
Operator: This concludes the question and answer session. I would like to turn the conference back over to Dave Martin for any closing remarks. Please go ahead.
David Scott Martin: Yeah, thank you for joining the call. Please feel free to contact me with any follow-up questions. And lastly, we appreciate your interest in Enviri and look forward to speaking with you in the future. Thank you.
Dave Martin: Yeah, thank you for joining the call. Please feel free to contact me with any follow-up questions. And lastly, we appreciate your interest in Enviri and look forward to speaking in the future. Thank you.
Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.
Unknown Executive: You may now disconnect.