Q2 2025 Enviri Corp Earnings Call
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Good morning. My name is Danielle and I will be a conference facilitator at this time, I would like to welcome everyone to the invite Corporation second quarter release conference call.
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I would now like to turn the call over to David Martin of ENVIRI Corp. Mr. Martin, you may begin your call.
Thank you, Danielle and welcome to everyone joining this morning. I'm uh, with me today is Nick grasberger our chairman and chief executive officer, and Tom vat, our senior vice president and Chief Financial Officer. This morning, we will discuss our results for the second quarter and our outlook for the year. We will also discuss briefly our announcement this morning related to the evaluation of strategic Alternatives. We'll then take your questions.
We ask that you keep your questions focused on earnings operations and the Outlook as there's limited additional information. We can provide on strategic Alternatives at this time.
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 materially from these 4 looking statements.
For a discussion of such risks and uncertainties, see the risk factors section in our most recent, 10K and 10q.
The company undertakes no obligation to revise or update any forward-looking statement.
Reconciliation to gaap results is included, included in our earnings release today, as well as the slide presentation.
With that being said, I'll turn the floor to Nick.
Thank you, Dave. And good morning everyone.
Before we dive into our Q2 results, I would like to take a moment to discuss the announcement that we made this morning about our review of strategic alternatives.
As you would expect the board and our management team are continuously focused on evaluating options and taking actions that are in the best interest of envir. And at shareholders
In this context, we continue to believe, there is a significant and persistent gap between our Market valuation and the sum of the parts value of the company.
Over the past several years, we've created a portfolio of valuable businesses focused on delivering compelling solutions to our customers.
Clean Earth is an especially valuable business and an attractive and consolidating Industry.
While harco, environmentalism market leader with unmatched, service capabilities, and a strong earnings and cash flow profile.
We were also continuing to take actions to stabilize rail building on the improvements that we've made there.
Confident that executing our operating plan will continue to create value over time.
With that said, we believe there may be alternatives to unlock this value sooner than we think. Now is the right time to initiate a formal evaluation of our business portfolio and strategic options with the assistance of our advisors
This evaluation will consider a wide range of Alternatives including a tax efficiency sale or separation of the clean Earth business.
Along with a continued execution of the company's business plan.
This process will also consider amongst other things. The capitalization needs for our businesses in the future.
I'm proud of what our teams have accomplished and I'm excited about the opportunities this process may present for our company and its employees.
We expect that this evaluation will take some time given the complexity of our business.
They also hope you appreciate that. We do not intend to disclose further details or developments on the evaluation process.
Until the company determines that disclosure is appropriate or required.
Now, let me turn to our second quarter earnings, starting with our environmental segments, which performed quite well in the quarter.
Despite some unique and short-term external challenges.
Um, we'll cover our financial results in more detail, shortly.
Cleaners, revenue and earnings grew single digits, and its margin reached 16.3%.
The cleaner team achieved these results, despite whether related pressures a week or business mix in soil and dredge.
And a temporary rise in disposal costs.
C continues to perform remarkably well overall and the team is executing against its priorities by investing in new service capabilities and building a strong business pipeline.
C's ongoing project to implement a common. It platform is also on track.
With further productivity benefits, anticipated. Next year from the completion of this project.
Turning to Harsco environmental. The business is managing well through persistent softness in the Global Steel Market.
By managing its costs and flexing Capital expenditures among other actions.
While maintaining industry-leading service levels.
We have experienced a modest uptick in volumes in the US of late due to added trade protections, but this benefit has been offset elsewhere.
Overall volumes are flat and more trade actions are needed. Particularly in Europe to deal with excess steel, making capacity in China.
With that said, recent US dollar, weakness is a positive and we expect H's results to improve considerably in the second half of the year.
Much of which will be driven by internal initiatives.
New sites will benefit us more in the coming quarters, as will improvements at a few hundred performing locations.
Moving to Harsco Rail.
Demand for standard equipment and parts has slowed considerably since the end of Q1.
Orders from us customers, as well as those from China have paused in recent months.
Demand from Key customers elsewhere, including in Canada and Mexico is also very weak.
Ohmic and global trade uncertainty with the related impacts appearing, more pronounced in our Niche segment of Maintenance of Way.
We expect these impacts to be temporary and are confident in our Market position.
We may benefit from the finalization of us trade agreements, but we would not expect to acrew any related benefits until next year at this point.
As a result, we have reduced our outlook for the year and our rail leadership team is increasingly focused on internal initiatives to help offset these impacts.
Supply chain and factory improvements are ongoing, and we're focused on lowering rail overhead.
The team also continues to advance and reduce our risk on the large Ito contracts.
Last quarter, we announced an amendment to our Deutsche Bank contract and we are still engaged in discussions with network rail.
Several other smaller Ito contracts, have been completed and the remainder will be finished next year.
As we've said in the past, the cash flow in our rail business will change materially over the next few years as these and the larger Ito contracts are completed.
Overall, we expect continued economic uncertainty result in weaker demand that will cause pressure for inquiry in the short term.
And as I mentioned, we've lowered our outlook for the year to reflect this.
However, our environmental businesses continue to perform well, and we expect business performance to strengthen for each of our segments in the coming quarters.
Looking further ahead, our optimism regarding the earnings and cash flow of potential for our company is unchanged.
And the same is true with respect to the intrinsic value. We see in our business.
Look forward to progressing the evaluation of our strategic Alternatives and I'll update you on that process. When appropriate
I will now turn the call over to Tom.
Thank you, Nick and good morning everyone.
In the second quarter, total revenue was 562 million and adjusted ibida was 65 million.
As Nick mentioned, our environmental segments, executed well and performed consistent with our expectations in the second quarter.
Favorable cost performance and a weaker US dollar in Harsco environmental offset. The impact of sluggish product and services volumes relative to our expectations earlier in the quarter.
At clean Earth better pricing and volumes as well as administrative cost. Controls offset weather impacts and higher. Disposal costs resulting from outages at our primary service providers. Overall, our adjusted ibida was within guidance albeit at the lower end driven by the rail results.
Rail performance was negatively impacted by volumes.
with equipment aftermarket and Technology sales coming in much lower than anticipated,
We saw our customers adopting, a very cautious view on maintenance related spending.
Rails order activity has been unusually Weak by any historical measure, as a result.
This demand weakness is most prominent in the U.S., where customers, including the Class Ones and others, now seem to be deferring maintenance and related capital spending due to economic uncertainty.
And we're also seeing limited to no demand out of Mexico, Canada and China.
Likely, as a result of global trade tensions.
Given these Trends in rail, we have lowered our guidance for the year.
I'll come back to rail, and our Outlook in a bit. When I'll comment on actions underway to mitigate rails operating and Market challenges,
Now, let me turn to our second quarter performance details on slide 4.
in the first quarter, revenues totaled, 562 million, which was down, approximately 6% on an organic basis,
Adjusted ibida was 65 million with clean Earth achieving records. Second quarter profits in the quarter.
The vesture impacts were in unfavorable $3 million. Compared with the prior year and FX impacts were not Material.
Our adjusted diluted loss per share was 22 cents for the quarter, excluding the impact of unusual items.
These unusual items include 16 million dollars in rail, mainly related to additional costs, anticipated to complete our Network Rail and SBB contracts.
The amount of related to network rail assumes, we continue with the contract.
Are ongoing. In fact, we recently sent Network rail a letter communicating our urgent need to bring these negotiations to closure and summarizing various options. Including a substantial revision of the contracts economic terms or finding a mutually acceptable exit.
And the additional SBB costs are for manufacturing and commissioning expenses as we approach. Completion of deliveries of the first vehicle type and work towards the Final Phase of this contract, to complete production, and deliveries of the second vehicle type.
The remaining unusual items in the quarter include project related costs and an 8 million impact in, he most of which relates to our decision to exit a downstream products business in France.
Lastly, on this slide, our adjusted free cash flow. For the quarter, was the negative -4 million, which is in line with our expectations.
Our cash flow performance is expected to improve in Q3 despite our semiannual interest payment on our bond and free cash flows. Should further improve in Q4
Now, please turn to slide 5 and our hearts, go environmental segment.
Segment revenues totaled $258 million, and adjusted EBITDA totaled $40 million.
The year-over-year change in earnings is the result of diversities and lower service levels resulting from sight exits. Enclosures
As well as lower product sales from our Excel operations.
These impacts were partially offset by lower sgna expenses, and Severance costs that were incurred in 2024 that were not repeated this year.
Deal production at our customer locations on a continuing site basis, Rose modestly. Compared with the prior year.
With various puts and takes across our Global and diverse footprint.
The implementation of Steel import tariffs in the US has supported higher production at our customer locations domestically. However, this impact has been offset elsewhere. Including in Canada, where output is declined.
Overall steel demand globally remains stable, although utilization rates remain well below optimal levels.
Next, please turn to slide 6 to discuss. Clean Earth.
For the quarter, revenues totaled $246 million, which was up 4% compared with the 2024 quarter.
And adjusted ibida reached. 25 million.
Up 5%.
Revenue growth was slightly more weighted to price over volume.
D. E's earnings, growth is attributable to the increase in Revenue as well as cost efficiencies partially offset by higher transportation and Disposal expenses.
As mentioned earlier, transportation and Disposal costs were higher as we utilized alternative and more costly, disposal options, given that our primary Outlets were not available for a period of time.
this situation has improved in early, Q3
Each of our industry segments verticals within hazardous. Waste are solid growth in the quarter while soil, dredge volumes, and earnings were lower and as anticipated.
The lower contribution from soil, dredge relates to seasonal weakness, due to dredging restrictions, in the Northeast and some higher margin projects in 2024 that are not repeating this past quarter.
No, please turn to slide 7 and our rail business.
Rail revenues total 58 million and its adjusted ibida loss was $3 million in the second quarter.
The year-over-year ibida change is the result of lower volumes and a less favorable product. Mix as well as higher manufacturing costs, due to inefficiencies and inflation.
We've discussed our manufacturing challenges previously. And these continued supply chain and Manufacturing improvements are underway.
These initiatives take time. However, and the related benefits are taking longer than we originally expected.
Rail is now also dealing with a weak demand environment as mentioned earlier.
Q2 standard equipment, bookings were anemic and our year-to-date orders are now down more than 30%.
Rails backlog has contracted as a result.
Q3 and fully implemented in q1 of next year.
Finally on the eto's we've already mentioned Network rail, we're making good progress on our smaller contracts, as well as the SBB and Deutsche Bond contracts.
We expect to complete most of our smaller contracts, which total roughly 10 this year, the remaining 2 should conclude in 2026.
On SBB, where we are delivering two vehicle types, we expect to have completed deliveries of the first vehicle type by the end of this year.
On the second vehicle type, we will be testing the equipment later, this quarter, and expect to complete deliveries by the end of next year.
On Deutsche Barn, which is a contractor delivered 23 Vehicles. We're encouraged by our internal testing results on the first unit.
The first 3, Vehicles will commence the formal acceptance process in Germany by the end of this year after which they can be accepted by the customer.
Production of the remaining 20 vehicles are on track to be completed and delivered by the end of 2027.
We continue to expect that our existing Ito contracts will consume roughly 50 million dollars of cash this year.
An improvement from the 80 million outflow in 2024.
Next year, we expect similar cash impacts before these contracts turn positive in subsequent years
Importantly, we continue to expect that project cash flows on these Ito contracts will be neutral on a go-forward basis.
Now, let me turn to our full year outlook on slide 8.
The midpoint of EBITDA and free cash flow. Guidance is reduced by $15 million, driven by rail.
Our ibida range is now 290 to 310 million, and our free cash flow range is now 15 million to 35 million.
Let me conclude on slide 9 with our third quarter guidance.
Q3 adjusted ibida is expected to range from 76 million to 86 million.
Each of our segments is anticipated to see sequential Improvement in earnings.
compared with the prior quarter, he results are expected to be lower as a result of diversity, than sight exits while results for CE and rails should be higher due to volumes and or price,
Thanks, and I'll now hand the call back to the operator for Q&A.
We will now begin the question and answer session.
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At this time, we'll pause momentarily to assemble the roster.
The first question comes from Larry Solo from CJs Securities. Please go ahead.
Hi, good morning. Um, I'm just curious on the, on the reduced Outlook revised guidance. Is it, is it driven entirely by rail? I missed a little bit of the call. I was actually juggling a couple here. Um, it does sound like some of the the trends that were in cleaner Earth. Environmental maybe just temporarily a little bit below. Our expectations, certainly in the quarter. So I'm just curious as that 15 million in entirely Rail and the other is just kind of rounding errors. And and then and then the related question just kind of housekeeping does the currency impact the weaker dollar, is that a benefit for you? Um, is that been a little bit of an added benefit as the years progressed?
Yeah. Um hi Larry it's Tom vat, good morning. Um yeah so the the reduction in outlook for the year both on um on ibida and free cash flow.
Is entirely due to the reduction in rail, um, and stemming from, you know, some of the demand issues and Market issues that we've covered in the call.
Sure. Um,
Um, and then on FX, as you know, we went into the year, um, expecting a 9 or 10 million dollar impact, um, there's been some call back. The, the dollar is weakened during the year and at this point we still see a slight negative year on year.
Um, oh gosh, but not as large as we thought at the beginning.
On that, or from the economy, or anything on that. And then the follow-up on clean Earth is, and I think you might have discussed it, but just the margins were flat-ish year-over-year and sequentially or down a little bit even in the quarter. Um, was there any particular reason behind that? I think you discussed something there. So maybe I missed that. Thanks.
Yeah. Yeah. Hi Larry, it's Nick. Uh, on your first question about the tariffs, uh, know we've not not seen any direct impact. Um, right, in fact, the the volume Trends in our so-called uh manufacturing and Industrial
Segments of our hazardous waste business, which is the largest segments have been quite good. Um, okay. Not only Revenue but, uh, but orders and, and, and our pipelines. So we're we're really encouraged by by the performance of, uh, that
That segment within our has waste uh, business.
Uh so really no no impacts to speak of uh of tariffs on on clean Earth.
Um, I I would say on the margin. Um, uh, it was a little softer than we expected. Primarily due to some unplanned maintenance related outages at some disposal facilities, okay?
So, we had to move the waist further distances to dispose of it and also, in a few cases pay some higher rates, um, than kind of our standard solution. So that's behind us, it's not continuing. It actually was behind us later in the second quarter. Um, so very much, a, a temporary impact.
Okay. You can also mention the mix too, I guess. Yep. I'm sorry. One second, yeah, I'll just supplement. So in the quarter, cleanup margins were slightly up year on year.
Um and then, as Nick said, sequentially going into Q3 and Q4 we would expect margins to uh, to climb versus the first half performance.
Yeah. Larry the the other the other impact that I think we mentioned in terms of uh margin uh was the the mix with our soil and dredge business you know as you may know the margins in that business generally are a few points, higher.
Than the RNR, uh, has waste business and that segment was, uh, a bit weaker in terms of volume than we expected. And I think you also know that, that tends to be a function of, uh, projects starts which can be difficult to predict, and a bit Lumpy
Sure. So it's really not a, not a demand issue. It's it's more of a short-term issue the orders in the backlog in that I think had done well, at least in 24th. Okay. Okay. Exactly. The Outlook is good for that business. Yes.
Great. Thanks. You had another question? Yeah, no. No. I think I'm all set. That's a you. You discussed it all set. Thank you, thank you. Thank you.
The next question comes from Rob Brown from Lake Street. Capital Park markets. Please go ahead.
Good morning. Um, hi on the, on the environmental business, I think you talked a little bit about an expectation of some improvement margins, uh, and results in the, in the back half. Could you just clarify sort of what's driving that? Um,
At this point.
in in he
Did you say, "Did you say it, he?" Yeah. Yeah. Um,
Yeah. I well we have some new sites, ramping up and that will help. We have some uh cost reduction initiatives which uh which will have a
6 months of in the second half of the year. So that's that's certainly going to help. And then
We talk about a handful of sites that we have a lot of focus on improving their performance and uh and and some of those benefits should also help us in the second half of the year.
Okay. Okay, great. And I and I know, uh, there's a lot of cross-currents on rail right now, but I guess historically, when you have these down Cycles in rail, um, you know, how, how long do they last what sort of the kind of a, a down cycle, or is there such a thing, as a typical down cycle, but maybe a sense of of, uh, how long these Cycles last in the rail business.
Yeah. Well in this case, we expect it to be shorter lived because there's as you know, uh, not not we're not in a recession there. There's
Railroads in the US.
And so, this does happen from time to time where they just cut back spending. We've
there are many data points, uh, uh, that that we have access to, um, across customers competitors that
Uh, make it clear that this is an industry issue. It's not a, not a horoscope rail issue.
Um, but we do expect it to be shortlived. So it's, um, we don't see this persisting into
2026 at the moment.
Okay, great. Thank you. I'll turn it over.
Thank you.
As a reminder, if you have a question, please.
Dodge from BMO Capital markets. Please go ahead.
Yeah, thanks. Uh, good.
Um,
I was gonna maybe take a stab at asking a question around that other announcement this morning. Just wondering if you could provide, you know, just a bit of background on the strategic review and what prompted the board to consider its options. Now, I'm just trying to get a sense that there have been some inbound interest or, you know, um, or if it was prompted by new challenges in the business. Uh, I'm going to turn around and financial performance, maybe pushing out a bit.
Well, certainly not the letter. Um, I I would say we've done a lot of work, uh the discount to our sum of the parts value continues to persist.
And I I think we have a bit more confidence in our in the potential outcome of of a few of these options. And so we're
we're digging deeper into them and we've hired advisors and, um,
And I I think that distinction here is it's a bit more formal of a process.
Um,
and uh, so that's
That that that's uh but beyond that we really can't can't comment.
We we have done a lot of work on a number of different options. Yeah.
Okay. Okay, fair enough. Uh, had to ask there. Okay. Um, uh, second question. Look, I'm I'm apologize. I may have missed it during the remarks, but I, uh, I believe there was a pretty meaningful Step Up in forward loss. Provisions at Harsco Rail. Just, can you provide, you know, a bit more color behind the drivers behind those Chargers.
Yeah, the so both the Chargers relate to, um, Network rail, that was the largest chunk. And then also a smaller chunk for SBB in total about 15 or so million dollars.
Um, and 10 of that is Network rail. We um,
Um, and and it's really, uh, a revision in our estimated cost to complete that contract. Um, um, it it's a normal quarterly process Devon. Um, and as we look out to the, to the, to the end of this period, when we are going to complete, you know, to complete all the vehicles, and this is about 11 that we need to deliver to the customer. Uh, that's just an update in our cost estimates at this point. So there's nothing uh, more unusual than that. Um, as as as we remarked that, I think in my profile prepared remarks, we separately have a negotiation ongoing with, uh, with network rail that could end up in different outcomes. Uh, there could be an improvement in contract and the contract terms, uh, and the economic terms similar to what you saw with Deutsche Bank.
um, earlier this year, um, we hope that's an outcome or we're also uh, potentially talking to the customer about, just exiting the contract in a mutually acceptable basis
this adjustment that we recorded in Q2 just assumes that things, proceed as they are currently without either of those 2 potential changes
Uh, coming in and then an SBB. Um, this project is, you know, reaching the end athlete, you know? So we the the major part of the contract, which is to deliver about 50 vehicles, uh, we expect to be done with that. By the end of this year, the end of 2025, and then the second, uh, vehicle type, we expect to be done by the end of 2026 next year.
Um and um this was you know I would say more again similar similar concept to what what I explained to network rail. It's a regular and um quarterly process where we're continually
Reviewing, what it's going to take to uh to complete the vehicles as we get closer as the designs get locked down. As we have more certainty around uh input costs and so forth. Um it's a sort of a natural outcome of that process and that was about 4 or 5 million dollars.
Okay, good call, appreciate that. Um, and then just 1 last 1
Uh, I think there's been a new leader in rail. Now for uh, a little while just wondering if you could kind of highlight, you know, clearly there's some maybe near-term demand headwinds but just if you could highlight, you know, Focus areas and maybe some early wins um,
Uh, from the new, uh, leader coming in.
Yeah. Yeah.
Well, he, uh, he has a, a rail industry background. Uh, he's very operationally oriented and that's, uh, much much of his, his background. So his Focus. Um, of course I I guess early on has has been operations and supply chain.
And the logistics with our outsourced warehouse that feeds the Columbia plant.
And um, we we have seen uh uh some better metrics over the past couple weeks. Uh, but in terms of
Uh, that warehouse, um, filling the needs of the, um, of the Columbia, South Carolina Factory. Um, so we're quite encouraged by the team. Uh, we have a new Finance leader in that business as well. Our operations leader has been with us for about a year. Uh, so we feel uh we feel quite confident that.
This team has the requisite background and skill set uh to resolve our operational issues.
Okay, excellent. Thanks for that. I'll turn it over.
This concludes our question and answer session. I would like to turn the conference back over to Dave, Martin, for closing remarks.
Yeah. Thank you, Danielle, and thank you to everyone that joins us this morning. Please feel free to contact me with any follow-up questions, and as always, we appreciate your interest and inquiry. We look forward to speaking with many of you in the near future. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect