Q4 2024 Enviri Corp Earnings Call
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Good morning, everyone. My name is Jamie and I'll be your conference facilitator.
At this time I would like to welcome everyone to the in theory Corporation fourth quarter release Conference call.
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Speaker Change: I would now like to introduce Dave Martin I've been very Corporation, Mr. Martin May begin your call.
Speaker Change: Thank you, Jamie and welcome to everyone. Joining us this morning, I do apologize for the technical issue. This morning, and I. Appreciate your patience I'm, Dave Martin VP of Investor Relations for <unk> again with me today is Nick Grasberg, our chairman and Chief Executive Officer, and Tom <unk>, Our senior Vice President and.
Speaker Change: Chief Financial Officer.
Speaker Change: This morning, we will discuss our results for the fourth quarter of 'twenty 'twenty four and our outlook for 2025, well then take your questions.
Speaker Change: Before our presentation, let me mention a few items.
Speaker Change: First our earnings release and slide presentation for this call are available on our website.
Speaker Change: Second we will make statements today that are considered forward looking within the meaning of the federal Securities laws. These statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ from these forward looking statements.
Speaker Change: For a discussion of such risks and uncertainties see the risk factors section in our most recent 10-K and as updated in our subsequent 10-Qs The company undertakes no obligation to revise or update any forward looking statements.
Speaker Change: Lastly on this call we will refer to adjusted financial results that are considered non-GAAP for SEC reporting purposes.
Speaker Change: Conciliation to GAAP results is included in the earnings release as well as the slide presentation.
Nick Grasberg: With that being said I'll turn the call to Nick.
Nick Grasberg: Thank you, Dave and good morning, everyone.
Nick Grasberg: We delivered a solid fourth corner at environment, driven by clean Earth, which produced another quarter of record revenue EBITDA and cash flow.
Nick Grasberg: Harsco environmental performance was challenged by much weaker global steel production and a strong U S dollar.
Nick Grasberg: Well Harsco Rail's adjusted results were similar to those in Q4 of last year.
Nick Grasberg: Yeah.
Nick Grasberg: For the full year 2020 for some key highlights include.
Nick Grasberg: And viral delivered the highest adjusted EBITDA in over 10 years marked by an increase of 10% on an organic basis.
Nick Grasberg: And 100 basis point lift in margins.
Nick Grasberg: Cash flow from clean Earth, and harsco environmental improved to a record of nearly 200 million.
Nick Grasberg: And importantly, we delivered better safety performance across the company.
Nick Grasberg: Yeah.
Nick Grasberg: I'll share a bit more about each of our businesses starting with clean Earth.
Nick Grasberg: Yeah.
Nick Grasberg: For the full year of clean Earth delivered cash earnings profit margins and free cash flow that were each two times higher than at the time of acquisition a few years ago.
Nick Grasberg: We're entering 2025 with great momentum in this segment and expect a further double digit EBITDA improvement this year.
Nick Grasberg: Okay.
Nick Grasberg: Our strategic goal is to continue to shift our portfolio to align with clean Earth profile.
Nick Grasberg: Specialty waste business with higher underlying growth rates and healthy cash flow conversion.
Nick Grasberg: To that end since we fully integrated clean Earth in 2021.
Nick Grasberg: The business is contribution to our consolidated EBITDA has grown from 25% to over 50%.
As of this year end.
Nick Grasberg: The contribution of clean Earth cash flow is even higher.
Nick Grasberg: And as it moved at a similar rate.
Nick Grasberg: Clean Earth has become a very valuable business and an attractive in a consolidating industry.
Nick Grasberg: The significant increase in the value of clean Earth has been driven not only by the much improved performance of the business.
Nick Grasberg: But also by the substantial expansion of the industry valuation multiples.
Nick Grasberg: Our clean Earth team has done a remarkable job improving the profile of the business through better pricing dynamics productivity initiatives as well as boosting customer service to industry leading levels.
Nick Grasberg: Over the next few years, we expect that volume growth benefits over that common platform facility improvements.
Nick Grasberg: And more efficient disposal solutions will serve as clean Earth main growth drivers.
Nick Grasberg: Turning to harsco environmental the business is managing well through the most challenging conditions the global the global steel industry has seen in many years.
Nick Grasberg: Beginning in the middle of 'twenty 'twenty, four low priced Chinese steel baganda flood export markets, most notably in Europe, and Latin America.
Nick Grasberg: The drivers behind this are threefold low domestic steel prices in China significant excess capacity in China.
Nick Grasberg: As well as weak treat trade barriers.
In response to this market shift many of our customers have reduced production and a few have declared bankruptcy and closed operations.
Nick Grasberg: We've been through similar cycles before and we know how to manager.
Nick Grasberg: While the reversal of this trend is difficult to predict we're moving aggressively to mitigate its impact through lower capital spending cost reduction and other efficiency programs at our sites.
Nick Grasberg: Our operating leverage to the upside will be significant when the industry recovers.
Nick Grasberg: Okay.
Given the extremely challenging backdrop is even more impressive how well our team is executing.
Nick Grasberg: If we exclude the impact of a strong U S dollar.
Nick Grasberg: And a few small divestitures had on the HVAC business.
Nick Grasberg: Adjusted EBITDA in 2024 was essentially flat versus that of 2023.
Nick Grasberg: We expect adjusted EBITDA in 2025 to be mostly unchanged on the same basis.
Nick Grasberg: Yeah.
Nick Grasberg: <unk> cash flow profile continues to improve largely due to capital efficiency improvements as well as better equipment maintenance practices.
Nick Grasberg: Over the past few years free cash flow when a G has been in the range of 75 to 90 million per annum.
Nick Grasberg: Compared to an average of $40 million to $45 million per annum over the previous five years.
Nick Grasberg: And we expect to maintain this level of free cash flow in 2025.
Nick Grasberg: Moving to Harsco rail.
Nick Grasberg: This has clearly been our most challenging business over the past few years, having a significant impact on the execution of our portfolio strategy and on cash flow.
Nick Grasberg: Yes.
Nick Grasberg: As we've said before cheap among the challenges are a small number of contracts to produce highly engineered and bespoke equipment.
Nick Grasberg: In the face of unprecedented supply chain disruptions and inflation.
Nick Grasberg: A few projects were completed last year and a few more will be completed by the end of this year, leaving only a few remaining after that.
Nick Grasberg: We were in the process of executing and concluding these obligations, while continuing an active dialogue with our customers for relief as.
Nick Grasberg: As well as exploring alternative options to further mitigate the associated risks.
Nick Grasberg: The senior corporate executive team is leading these efforts and it is among our top priorities this year.
Nick Grasberg: As these projects are completed and we removed the overhead costs, we anticipate the EBITDA in our rail business to be in the range of 35 to 40 million with a healthy cash flow profile.
Nick Grasberg: And further supported these efforts we've made meaningful upgrades to rail leadership team.
Nick Grasberg: And of course, we have not signed any new engineered to order contracts and we do not intend to do so in the future.
Nick Grasberg: The completion of these projects will yield a material boost to our consolidated free cash flow generation.
Nick Grasberg: At our analyst day in Philadelphia last June we projected free cash flow of 150 million in 2027 and.
Nick Grasberg: And our expectation has not changed.
Nick Grasberg: Nor have our plans changed to divest the rail business and reduce financial leverage to our target range of two and a half to three times EBITDA.
Nick Grasberg: The board and management continue to consider other value enhancing portfolio options as well.
Nick Grasberg: On a regular basis.
Nick Grasberg: Turning to our outlook for 2025, we expect EBITDA growth in clean Earth to offset the year over year decline in H easy EBITDA.
Nick Grasberg: Due to the stronger dollar and lost earnings of divested businesses.
Nick Grasberg: We also expect rail's EBITDA to improve.
Nick Grasberg: Okay.
Nick Grasberg: The most notable change in our financial profile. This year it will be improved cash flow.
Nick Grasberg: Due to lower net outflows on a rail contracts and the end of our UK pension plans funding.
Nick Grasberg: Although free cash flow will improve and clean Earth. We are planning a sizeable increase in growth oriented capital spending in the business.
Given the meaningful opportunities we see ahead.
Nick Grasberg: Finally, as we announced last month, we are continuing to refresh our board with skill sets that shift towards expertise in our core markets and in portfolio strategy.
Nick Grasberg: I'm very pleased to announce the next step in our process with the nomination of Knicks fan of DAC as to our board.
Nick Grasberg: Nick is the former CFO of Dupont and brings valuable transformational and operational expertise.
Nick Grasberg: From running several businesses throughout his career.
Nick Grasberg: We are excited to welcome <unk> to our board and look forward to his engagement with our leadership team as we work to capitalize on the value creation potential we believe inherent in our company.
Nick Grasberg: Okay.
Tom: I'll now turn the call over to Tom.
Tom: Thank you Nick and good morning, everyone.
Tom: We had a solid finish to 2024 in the fourth quarter, which was broadly in line with our expectations.
Tom: Full year revenues for 2024 with $2 $3 billion.
Tom: Adjusted EBITDA reached $319 million, which was up 4% year on year as reported or up 11% on an organic basis. This was our highest adjusted EBITDA in 10 years.
Tom: From a segment standpoint, a cheap performed well while facing challenging market conditions cleanup drove outgrowth by again delivering record earnings and margins.
Tom: As Nick said Peanuts EBITDA in 2024 was more than double its earnings in 2021, Oh first full year of ownership, we're very pleased with the execution of the cleanup and the returns now being generated on our initial investment.
Tom: And virus free cash flow for the year was a negative $34 million. This was the result of cash usage for our large engineered to order projects and the rail business as well as delayed collections in our base real business with certain shipments being pushed out into 2025.
Tom: A G and clean the together generated free cash flow of more than $119 million in 2024, an improvement of over 2023.
Tom: Our covenant leverage ratio at the end of 2024 was full point over seven times, an improvement from the beginning of the year.
Tom: Now, let me turn to our fourth quarter performance details starting on slide five.
Tom: Similar to quarter three we faced some headwinds in Q4 within harsco, environmental and rail businesses as a result of market conditions customer shipment delays and supply chain pressures. However, our operating teams performed very well and I'm pleased that we delivered adjusted EBITDA within our guidance range.
Tom: For the quarter.
Tom: We saw positive momentum in the quarter.
Tom: Cleanup deliberate over 25% EBITDA growth and record Q4 margins.
Rail showed strong quarter on quarter improvement in both EBITDA and free cash flow and importantly, these positive trends and really expect it to continue in 2025.
Tom: And H E met all expectations for the quarter, despite very difficult conditions within the global steel market.
Tom: So net net a positive quarter for the company.
Tom: In the fourth quarter revenues totaled $559 million, which was little changed from the prior year quarter. After adjusting for the impact of FX translation and business divestitures.
Tom: Adjusted EBITDA was $70 million, which is 5% higher year over year on a similar or organic basis again, reflecting the strong improvement in growth that cleanup.
Tom: Relative to guidance cleanup and harsco environmental performed in line with our expectations in H E incremental FX and volume pressures were offset by better cost performance.
Tom: <unk> performance was steady and strong and Q4, while rail results were modestly below our target due to shipment delays in North America, which will be realized in 2025 as well as cost adjustments and a few small projects, which will also be completed in 2025.
Tom: Our adjusted diluted loss per share was four cents for the quarter.
Tom: This figure excludes the impact of special items totaling $19 million.
Tom: This is a significant amount of such charges and reflects the fact that we are actively and aggressively working to address certain issues, including some legacy matters.
Tom: In the fourth quarter. This included roughly half a dozen items in harsco environmental and.
Tom: And rail with about 40 million of the $90 million representing assets impairments or write downs that are not noncash in nature.
Tom: In H E. These items include exit costs following a site closure in the U K.
Tom: And asset impairment for an underperforming U S site, where improvement initiatives are underway.
Tom: And anticipated costs to address an environmental matter in the middle East.
Tom: In rail the charges include further adjustments in all three large European contracts and the goodwill impairment charge.
Tom: Q4 was an unusual quarter as we work through these issues and we understand the importance of minimizing the impact of special items in the future.
Tom: Lastly on this slide of adjusted free cash flow for the quarter was $8 million, reflecting a $42 million improvement versus the third quarter of 2020 full draw.
Tom: Driven by working capital improvements in rail, which we had expected.
Tom: Fourth quarter cash flow also benefited from timing of interest and lower pension payments.
Tom: Clean Earth in H E generated over $40 million of free cash flow in Q4, combined rail's free cash flow in the quarter netted out to nil with positive general cash generation from the base business.
Tom: She usage from its law GTO contracts, which continue to weigh on overall cash generation as we've discussed previously.
Tom: I'll come back to rail and our outlook in a bit.
Tom: Finally, as you may recall, we extended our revolver and accounts receivable facilities in Q3 of 2024.
Tom: Earlier this month, we amended our credit agreement to provide additional cushion under our covenants and strengthen our financial flexibility.
Tom: We also increased the size of our accounts receivable facility by $10 million.
Tom: Overall, I'm pleased with our capital structure and while our next debt maturity is not until 2027, we expect to continue to be proactive and opportunistic and addressing future maturities.
Tom: Please turn to slide six and I'll spell environmental segment.
Tom: Segment revenues totaled $240 million adjusting for an FX impact of $14 million in the divestiture impact of $26 million the organic decline in revenues was 4%.
Tom: This change reflects lower service levels as a result of weaker steel production as well as site exits which relates to the site closures we discussed in October.
Tom: Adjusted EBITDA for the quarter totaled $41 million compared with $56 million in the prior year quarter.
Tom: Operating rates or production rates at our customer sites are very low in Q4 for customers that provide this information mill utilization was below 73% in the quarter.
Tom: And relative to the prior year quarter steel production was weakest in Europe, North America, and the Middle East.
Tom: The fourth quarter is traditionally a soft period for the steel industry as well and there is some positive steel price momentum in the marketplace today.
Tom: And while it's too early to call. This a trend higher steel prices often leads to increased production in mill service activity.
Tom: As Nick mentioned, a cheese operating leverage through higher production levels remain significant positioning us well to benefit when markets recover.
Tom: Next please turn to slide seven to discuss cleanup.
Tom: For the quarter revenues totaled $241 million and adjusted EBITDA reached $36 million up 26% year on year.
Tom: The increase in revenues is attributable to pricing as it is and the growth in EBITDA reflects higher prices as well as cost efficiencies.
Tom: The clean Earth team continues to realize benefits from its efforts to drive down costs within its major spending categories. The largest stope, which include transportation and disposal.
Tom: He also generated over $30 million of free cash flow in the quarter and its free cash flow for the year exceeded $100 million for the second consecutive year.
Tom: Overall these very strong results for clean Earth reflects positively on the leadership in the business, who many of you met at our Investor day, and the high level of execution throughout the C E organization.
Tom: Now please turn to slide eight in our rail business rail revenues totaled $77 million.
Tom: And its adjusted EBITDA was $2 million in the fourth quarter. The increase in revenues as a result of higher equipment and technology volumes offset by lower aftermarket volumes the.
Tom: The year on year EBITDA change can be attributed to lower after market sales as well as a less favorable business mix, including the contracting services work performed in each quarter relative.
Tom: Relative to the third quarter of 2024 Rail's adjusted earnings improved as did its cash free cash flow, which I mentioned earlier.
Tom: We continue to strengthen the rail team, while also making progress in addressing rail supply chain and operational challenges. Our operations team is driving several improvement projects, which will be completed during 2025, and we will progressively improve our ability to meet delivery expectations and <unk>.
Tom: Increase the throughput and capacity of the operation.
Tom: We're investing in a new I T ERP system for rail, which we also expect to drive operating improvements by a better visibility and control for our team.
Tom: Making progress on our large engineered to order contracts is also a top priority for the company additional.
Tom: Additional forward losses of $13 million under these contracts were recorded in Q4 as we continue to make progress in manufacturing the equipment for all customers.
Tom: We also continue to work with these customers to clarify future schedules and to limit our financial exposure.
Tom: We'll provide you an update on these efforts when appropriate.
Tom: In an effort to provide more clarity on rail to underlying performance. We've included slide nine in the deck detailing the revenue EBITDA and free cash flow split for its E T OS and base business in 2024.
Tom: Let me make a few observations.
Tom: Demand for rail standard equipment and services remains strong.
Tom: Base business profits are significant and margins steady with a healthy conversion to cash.
Tom: Our largest E. T OS are reported as zero gross margin given a forward loss provisions, but we have overheads that support these projects.
Tom: And lastly, we've been consuming cash through working capital for all E. T O projects as we build the related equipment in advance of delivery to our customers.
Tom: Now specifically rail's adjusted EBITDA in 2020 full totaled $9 million, including a loss of $20 million on its E. T OS and a positive contribution of $30 million from its base business.
Tom: And rail consumed $62 million of cash in the bank.
Tom: E T O is consumed approximately $79 million of cash while the base business generated a positive $17 million.
Tom: Overall rail based business is a valuable part of our portfolio and as we've discussed before the E. T O US up on now a headwind to the business and company for them that for that matter.
Tom: We hope this additional detail is helpful. And then importantly, the impact of rails E. T. O contracts is set to improve in the future as certain contracts and and others mature starting in 2025.
Tom: Now, let me turn to our 2025 outlook on slide 10.
Tom: <unk> full year adjusted EBITDA is expected to be within a range of $305 million to $325 million, which represents 5% organic growth.
Tom: Revenues are expected to increase less than that on us on a similar basis and note that the revenue headwind from divestitures and FX.
Tom: Is roughly $100 million year on year.
Tom: Importantly, our EBITDA change reflects a continued shift in our business mix among our two largest segments, which have very different valuation considerations.
Tom: For the year clean up EBITDA is projected to grow double digits and this growth will be offset by H E on a reported basis, including FX and divestiture impacts.
Tom: Free cash flow is anticipated to increase to between 30 million and $50 million. This reflects considerable improvement in 2025.
Tom: With the increase largely due to rail and pensions.
Tom: A $40 million improvement in rail free cash flow is expected as some small eto projects conclude and we are paid by our customers.
Tom: The rail cash flow improvement in 2025 is also driven by an improvement in working capital in its base business with lower inventory and higher collections.
Tom: The other large change for 2025 is that our cash pension contributions will decrease by approximately $20 million.
Tom: For the three large E T O projects, we expect to start delivering a significant portion of the equipment to our customers in 2026.
Tom: At which point, we expect cash flows on these three projects to start improving.
Tom: Capital spending of $130 million to $140 million is planned for the year with less spending in AG and higher year on year spending it clean nuts to drive its growth.
Tom: Oh push their guidance for adjusted earnings ranges from a loss of one cents to a loss of 25.
Tom: This range considers that our interest expense will decline modestly and various other assumptions included in our press.
Tom: Released.
Tom: Now, let's turn to our segment guidance on slide 11.
Tom: Harsco environmental profitability is expected to be lower the year on year negative impact of a stronger U S dollar and divestitures is nearly $20 million.
Tom: Operating improvements and new contracts will offset the weaker service mix and contract exits.
Tom: We have not assumed much improvement in underlying steel production at the customer sites.
Tom: Well cleanup revenues are anticipated to grow mid single digits with this increased slightly more weighted to volume over price.
Tom: The EBITDA will grow at a low double digit rate with its margin approaching 17%.
Tom: And I would note that clean Earth had a bad debt benefit in 2020 food that will not recur in 2025.
Tom: Net net we again expect a strong contribution from its revenue lift in 2025.
Rail's adjusted EBITDA is projected to increase approximately 50% at the midpoint with the improvement driven by price volume and efficiency initiatives.
Tom: And lastly, corporate costs are expected to be approximately $38 million in 2025 with the increase largely due to noncash equity compensation.
Tom: Let me conclude on slide 12, without first quarter first quarter guidance.
Tom: Q1, adjusted EBITDA is expected to range from 57 million to $63 million.
Tom: Cleanup results I expect it to be above prior year quarter, while ATM rail I expect it to be lower year on year for.
Tom: For AG the change reflects the impact of divestitures site closures and exits.
We do have new contracts in 2025, but these positive impacts won't offset the exits until the second half of the year.
Tom: For rail the change reflects the lumpiness of the business, particularly in Q1, each year and we've anticipated a weaker business business makes this yet.
Tom: Lastly in Q1, we expect free cash flow will be negative as a result of business seasonality as well as the timing of interest and incentive compensation payments.
Tom: Thank you and I'll now hand, the call back to the operator for Q&A.
Speaker Change: Ladies and gentlemen, we will now begin our question and answer session to ask a question you May Press Star and then one on your telephone keypad.
Speaker Change: You are using a speaker phone, we do ask that you. Please pick up your handset before pressing the keys.
Speaker Change: Who withdraw from the question queue you May Press Star then two.
Speaker Change: Once again that is star and then one to join the question queue.
Speaker Change: We'll pause momentarily to assemble the roster.
Speaker Change: Our first question today comes from.
Speaker Change: Devin Dodge from BMO capital markets. Please go ahead with your question.
Speaker Change: Alright, Thanks, Scott Good morning, guys.
Speaker Change: So I'm going to start with clean Earth really solid performance again this quarter.
Speaker Change: Some good pricing I think some efficiency benefits, but volumes I think they continue to be a bit soft just wondering if you can provide some context for why volumes have been a little bit sluggish in 2024 and at least based on the guidance why that should change in 2025.
Speaker Change: Sure Hi, Devin it's Nick.
Speaker Change: Yeah in terms of 2020 for volume in clean Earth, a there was a lot of churn.
Speaker Change: Amongst the top retail accounts are that should actually be a bit of a tailwind for us in 2025.
Speaker Change: Our pipeline on the industrial side of our end markets.
Speaker Change: Was somewhat weak in 2024, but.
Speaker Change: The pipeline has grown significantly and I think we have a four 5% volume lift and in industrial.
Speaker Change: Within has wasted clean Earth in 2025, and we feel pretty confident about that health care was reasonably strong in 2024, we expect that to continue.
Speaker Change: But overall in and.
Speaker Change: Clean Earth the.
Speaker Change: We expect the top line to grow say around 5% half of that price and about half of that volume.
Speaker Change: And you're right, we haven't had a volume growth at that level.
Speaker Change: A couple of years, but we were pretty confident given our pipeline that.
Speaker Change: To achieve that this year.
Speaker Change: Yeah.
Speaker Change: Okay. Okay. Good color. Thanks for that and then just switching over to Harsco environmental stone.
Speaker Change: They are I know they provide some downside protection or are have some minimum volume guarantees.
Speaker Change: Look recognizing it's hard to generalize but.
Speaker Change: But how much more downside from a volume perspective as they are across the portfolio before we reached the floors are set in those contracts.
Speaker Change: Well I think we likely are kind.
Speaker Change: Kind of at the bottom in terms of volume at most of our plants.
Speaker Change: The bigger impact is really been site closures right. We've had one in the U K one in the Czech Republic, one in Chile, we've had other.
Speaker Change: Large sites reduce production.
Speaker Change: Closed the blast furnace, let's say your idle idle their facility for a period of time.
Speaker Change: So I'm really kind of.
Speaker Change: As we look across the portfolio of our size, we we don't see further risk for bankruptcies or sites being idled.
Speaker Change: And enter your question, Yeah, it's hard to generalize.
Speaker Change: Yeah, it's different on a contract by contract basis, but.
Speaker Change: I think we're still a ways away at most sites.
From kind of hitting that floor.
Speaker Change: In terms of our volume.
Volume yes.
Speaker Change: Okay makes sense. Thank you I'll turn it over.
Speaker Change: Thank you.
Our next question comes from Rob Brown from Lake Street Capital Markets. Please go ahead with your question.
Rob Brown: Good morning.
Speaker Change: Hi on the clean Earth business.
Rob Brown: Good morning.
Speaker Change: We're working on operating improvements in terms of I think you talked about ITM facility type improvements how far are you into that effort and how much can you kind of see in the next year in terms of improvement there.
Rob Brown: Well in terms of I T.
Rob Brown: We are a little more than halfway through kind of a two and a half year program to harmonize our systems.
Rob Brown: Under the banner of one clean Earth.
Rob Brown: Very very broad.
Rob Brown: <unk> across many different.
Rob Brown: Components of our I T systems.
Rob Brown: But this year, let's say at the end of this year.
Rob Brown: I think we expect to be.
Rob Brown: 80, 90% finished with that with that effort and that's.
Rob Brown: Given the complexity of it has actually gone quite well, we're very very pleased with.
Rob Brown: What's that.
Rob Brown: I'm sorry, what was the other part of your question.
Rob Brown: Bob.
Rob Brown: Yeah. It was really on the facility side as well.
Speaker Change: Where are you in terms of getting that done and how much to go.
Speaker Change: Yeah, I think that what we're spending on her new capabilities and capacity.
Speaker Change: And the facilities, we expect very high returns and very quick paybacks.
Speaker Change: Relative to what's typical for those kinds of investments so.
Speaker Change: So even though we're spending an extra $20 million to $30 million on Capex and clean Earth. This year.
Speaker Change: We think that's a very good investment for the business.
Speaker Change: But this level of capital spending this $50 million or so that we're looking at.
Speaker Change: In 2025 is certainly higher than what we have spent and likely to be higher than what we will spend in the future.
Speaker Change: Okay got it.
Speaker Change: And then on the rail business you know you continue to sort of see incremental.
Speaker Change: Costs, there Oh, how much I guess visibility do you have on those incremental costs in the engineered to order that youre getting.
Speaker Change: And of the intermediate deliveries I think you said 26.
Speaker Change: A fair amount of deliveries done, but just a sense of how much more risk you see in those and maybe when or how that gets it starts to taper off in 'twenty six 'twenty seven in terms of the amount of remaining risks.
Speaker Change: Yeah, Rob let me, it's done better get they'll just take try and take that as I think you've heard us say before.
Speaker Change: The risk sort of truly dissipates dramatically once we have delivered the very first vehicle in the series of vehicles and equipment that were meant to deliver to the customer.
Speaker Change: And once the customer has accepted that so at that point you have your bill of material locked in you've got supply contracts from your various vendors locked in and you kind of know where you are.
Speaker Change: And so we are.
Speaker Change: I would say from today you know about.
Speaker Change: A year to 15, 15, 18 months away from that occurring.
Speaker Change: For.
Speaker Change: For our three big contract now, but two of the three big contracts on one of them, where you know what have made.
Speaker Change: Quite a bit of progress already and expect to actually end to get to the end of that contract. During 2026, So I would say.
Speaker Change: Long way to answer your question.
Speaker Change: Look we learn a little bit every quarter.
Speaker Change: Sometimes there are changes in the supply chain the supply chain. So these are complex and so some of the charges we had to take in the fourth quarter reflect just.
Speaker Change: Just changes in supply chain, we've had we had to switch suppliers the new supply there happens to be a little bit more expensive than the old supplier and that sort of thing.
Speaker Change: But we have a full flow in terms of the production process and yeah like I said risk will really dissipated dramatically. Once we've delivered then that's very puts vehicle.
Speaker Change: And we're about 12 to 15 months away from that occurring.
Speaker Change: Yes, I'll just add to that Ken referencing the three large contracts which are.
Speaker Change: Really the only ones I'll say relevant at this point because the others have either been completed or will be will be this year on two of the three large remaining contracts that net risks and opportunities are probably close to zero.
Speaker Change: Because we have some expected.
Relief coming on one of those.
Speaker Change: The the largest remaining risk that we have is is really in a contract in the U K.
Speaker Change: And Thats, where Tom and myself and our general counsel and others are very focused on.
Speaker Change: On trying to mitigate their risk and improve the outcome on that on that contract.
Speaker Change: Okay, great. Thanks for the color I'll turn it over.
Speaker Change: Once again, if you would like to ask a question. Please press star and one using a touchtone telephone.
Speaker Change: Withdraw yourself in the question queue, you May press star and two <unk>.
Speaker Change: Isn't that a star and then wanted to get in the question queue.
Speaker Change: And our next question comes from Brian Butler from Stifel. Please go ahead with your question.
Brian Butler: Hey, good morning, Thanks for taking the questions.
I guess on the on the first one what what's assumed in 25 guidance for from a perspective of steel production.
Brian Butler: Whats embedded into that that estimate.
Speaker Change: Yes, hi.
Brian Butler: Brian.
Speaker Change: Of course, it varies a good bit by region. So.
Brian Butler: Our fastest growing region.
Brian Butler: Has been India, the middle East and Africa.
Brian Butler: It's grown quite nicely we expect.
Brian Butler: Volume in that region to grow kind of three or 4% this year.
Brian Butler: And then I'll say essentially flat in the other regions. So North America, Europe Latin America, primarily.
Brian Butler: Okay, and then of course it also varies a good bit by by sites, but I think we overall have.
Brian Butler: Volume.
Brian Butler: From a liquid steel tonnage up one or 2% I think overall.
Brian Butler: Okay. That's helpful.
Brian Butler: And when you think of your the kind of the new footprint in the AG business in the centre at post the closing and a normalized production environment, what would be the expectation for annualized revenue in that business now.
Brian Butler: If we ever get back there.
Brian Butler: Yeah. So it's a it's a function of that as well as the dollar we've lost $30 million of EBITDA and a G. Just from a strengthening dollar over the last four years.
Brian Butler: So, let's assume constant constant currency.
Brian Butler: But I would say if we got back to kind of mid <unk> on production.
Brian Butler: <unk> off.
Brian Butler: The revenue base today, which is one one or 1 billion about $1 billion.
Brian Butler:
Brian Butler: There's at least another $100 million of revenue there just from getting back to mid cycle, probably more than say one to 200.
Brian Butler: Okay great.
Brian Butler: With a with a fall through rate that's pretty high right.
Brian Butler: 30% 35, 40%.
Brian Butler: Okay. That's good and then on the clean Earth business.
Brian Butler: When you think of 25 and the opportunity to year round P. Fat I mean, right now I don't think Youre doing any P. Patchwork, but that scene is that is that a place you're looking to put capital to work in that area and where do you see that opportunity in 'twenty five and maybe beyond.
Brian Butler: Yeah.
Brian Butler: Well we are.
Brian Butler: Treating some P fast contaminated wastewater we have a facility of permitted facility up in Detroit.
Brian Butler: And that's been good business for US, we're also working with the Doj and others on.
Brian Butler: Various sites kind of testing.
Brian Butler: Our technology or others technology at our permitted sites and facilities. So I think we.
Brian Butler: We're quite active but we don't have anything.
Brian Butler: Substance built into 2025 for PFS I think we feel that.
Brian Butler: With our technology, and our permitted facilities and access to others technology, we're very well positioned and PFS when those opportunities begin to.
Brian Butler: Begin to flow likely for us initially with the with the D O D.
Brian Butler: So I think we're very confident in our capabilities and our and our capacity and our permitted facilities.
Brian Butler: But we really and this even goes back to our long range plan that we presented.
Brian Butler: At our analyst day here back in June we really have not built any any P fast revenue or EBITDA in two or three year.
Brian Butler: Plan.
Brian Butler: Okay, and then last one on rail.
Brian Butler: Well, how should we think about the cadence in 25 based on the guidance that you've given here.
Brian Butler: How should that how should we how should we worked out a model that through that through the year.
Brian Butler: So.
Brian Butler: I gave some guidance, Brian and for the first quarter.
Brian Butler: And then I would I would suggest you know the back back.
Brian Butler: Three quarters, just spread it about evenly.
Brian Butler: Would it be modeling.
Brian Butler: We've tried to from a production perspective, you heard me talk about some of the things we're working on and we've tried to level load the production plan.
Brian Butler: Through the year.
So that.
Brian Butler: So that it allows us to optimize.
Brian Butler: Manufacturing and allow us a chance to work on some of the improvements that I described so yeah for your assumptions, but what we do.
Basically level loaded.
Brian Butler: Okay, great. Thanks for taking the questions.
Speaker Change: And ladies and gentlemen that will conclude today's question and answer session I'd like to turn the floor back over to David Martin for closing remarks.
Speaker Change: Thank you for joining the call. This morning feel free to call me with any follow up questions and as always we appreciate your interest in my area and look forward to speaking with you soon take care.
Speaker Change: And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: 15%.
Speaker Change: Okay.
Speaker Change: [music].