Q3 2025 Enviri Corp Earnings Call
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 envir corporation third quarter release conference call.
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I would now like to turn the conversation over to Dave, Martin of envir. Corporation, Mr. Martin, you may begin your call.
Thank you, Jamie and welcome to everyone. Joining us today with me is Nick, grasberger our chairman and chief executive officer and Tom vat, our senior vice president, and Chief Financial Officer.
On the call, we will discuss our results for the third quarter and our outlook for the remainder of the year. We'll then take your questions.
Our quarterly earnings release and slide presentation for this. Call are available on our website.
During today's call, we will make statements that are considered forward-looking within the meeting 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 those forward-looking statements for our discussion of such risks. And uncertainties, see the risk factors section in a most recent 10K. And as updated, in subsequent 10 cues,
the company undertakes, no obligation to revise or update any forward-looking statements.
Lastly, on this call, we will refer to adjusted Financial results that are considered non-gaap for SEC. Reporting purposes, a Reconciliation to Gap. Results is included in our earnings release, as well as a slide presentation with that being said, I'll turn the call to Nick.
Thank you, Dave. And good morning everyone.
Before we dive into our Q3 results, I will take a moment to provide a brief update on our strategic review. Process that we announced a few months ago
Recall that this process is aimed at identifying and executing alternatives to unlock the inherent value of our business portfolio.
In our view, this value is not yet reflected in our market value.
Throughout our process and as expected, we have seen strong and definitive interest in our clean Earth business.
From both strategic parties as well as others.
Well, nothing can be certain, we believe that there is a path to crystallizing its value in a tax. Efficient manner. For our shareholders,
We have spent considerable time with our advisors thinking through structures that work.
1 of which involves a simultaneous sale of clean Earth together, what the taxable spin to our shareholders of our horoscope environmental and rail businesses.
We believe this structure would result in minimal tax leakage for our investors and would allow for a sizable cash payment to shareholders upon the sale of clean Earth.
In fact, we have recently amended our credit agreement to allow for this transaction.
Time will comment further on this amendment.
We will update you further when appropriate, but we believe we should be in a position to conclude our process review prior to the end of this year.
Now let me turn to our third quarter earnings. Starting with clean Earth and Tom will cover our financial results in detail shortly.
Cleaners, revenue, and earnings grew in the single digits, and its margins exceeded 17%, translating to a record quarterly performance.
For the business.
The degree of execution delivered by the clean Earth, team remains very high despite various distractions.
As it focuses on its key priorities.
Our investments in new capabilities continue.
And sees it implementation is on track and nearing completion.
Commercially, the team committed to a new growth strategy a year ago, and we built a strong business backlog since.
And CE is now seeing healthy volume growth as a result.
We expect strong performance.
Or more of the same from clean Earth in Q4.
Turning to horse Co environmental results. Improved in Q3 with H's margin reaching 17% and the business generating 33 or 30 million in free cash flow in the quarter.
Looking back, we believe this business troughed in the first half of 20125.
New contracts are in place to replace those exited over the past year and improvements in underperforming sites. While slower than we’d like,
Our ongoing with Benefits expected in coming quarters.
He is also experienced some cost inflation in recent quarters and we've implemented cost out actions to absorb this impact.
These added costs should be offset in 2026 through these efforts and also through price increases.
We're also hopeful that the steel industry volumes are set to improve.
In early October the European commission proposed, new and significant Safeguard measures to protect its steel industry.
These actions include higher import tariffs and lower quotas among other changes.
These measures are likely to lift volumes in a key market for he if if implemented next year,
Overall, HC remains the industry leader, and we expect 2026 to be a better year for the business.
Moving to Harsco Rail.
Our challenges and rail are clear and I'm pleased with how our new management team which is operationally focused and has considerable Ito experience within the broader rail industry.
Is taking aggressive and appropriate action to move the business forward.
So, shop shop shop floor bottlenecks have lessened and supply chain. Pressures are improved.
Overhead costs are being addressed as well.
confident this management team can transform the business over the next year or 2
On the commercial side, demand for standard equipment and aftermarket parts remains weak and at unprecedented levels.
We're hopeful that this downturn will be short-lived, given that maintenance spending can only be deferred for so long.
But we've yet to see signs of upcoming improvement.
Importantly, rails, based business is profitable and cast generative, despite this Market situation, and Harsco Rail remains a technology and industry leader.
Rail is also making good progress with its Ito contracts, which continue to consume cash.
Our discussions with network rail to amend or exit that contractor ongoing, deliveries and development work on SBB and DB or on track with few surprises in recent months.
As we've discussed previously rails, cash flow, profile is anticipated to turn positive in 2027.
As our Ito contracts mature and we are paid for the machines that we deliver.
As a result of the demand weakness and Rail and other impacts in. He, we have lowered our outlook for the year.
Looking further ahead, we are optimistic about 2026 and confident in the earnings and cash flow potential of our company.
Evaluation of strategic Alternatives is to address this disconnect.
and we will update you further on this review when appropriate
I will now turn the call over to Tom.
Thank you, Nick and good morning everyone.
In the third quarter, total revenue was 575 million and adjusted ibida was 74 million.
Both figures are highs for the year, but lower than our expectations at the beginning of the quarter.
Rail accounted for much of the shortfall, whereas we discussed last quarter and, as Nick just mentioned, demand for standard products and aftermarket parts remain very sluggish.
Also, some Contract Services work for certain us, customers was deferred into future quarters.
Our product orders did improve somewhat from the prior quarter, but the increase was from a low base, and this activity will not benefit rail in 2025.
Performance at high school was also slightly lower than expectations due to higher operating costs and lower contributions from new sites.
Actions are underway that are expected to help offset the challenges in both segments, as Nick mentioned.
Still, we have lowered our outlook for the fourth quarter, which I'll provide details on shortly.
Now, let me turn to our third quarter performance details and slide 4.
In the third quarter, our revenues were unchanged as reported and 1% higher on an organic basis.
Adjusted ibida was lower year on year, as anticipated with record earnings at clean Earth offset by our other segments.
The impact of divestitures on ibida within he was 3 million dollars compared with the prior year.
Our adjusted diluted loss per share was 8, cents for the quarter, excluding the impact of unusual items.
These unusual items totaled, 12 million dollars pre-tax, with most of this related to strategic project costs and very various restructuring actions across the company.
Excuse me, adjustments. On our large Ito contracts in rail were less than $2 million and much lower than in recent quarters. We believed this illustrates our progress in de-risking these projects,
Our adjusted free cash flow for the quarter was $6 million.
which was $20 million above Q2 and in line with our expectations,
Controls offset the impact of lower earnings for the quarter.
Before moving on to segment performance, let me add to Nick's comments on the amendment to our credit agreement.
First, I'd like to thank our bank group for their continued support of the company.
And their flexibility to support our strategic initiatives and changing financial situation.
In addition to allowing for the potential sale or separation of cleaners, we modified our financial covenants to provide additional flexibility.
The credit agreement also now provides a capital structure framework for our remaining businesses. If we complete a cleaner sale.
under this scenario, our initial net leverage ratio, post a transaction would be 2 times or less
and our maximum net, net leverage would be 3 times.
Further details on this amendment are available in our SEC filings this morning.
Please turn to slide 5 and our Harsco environmental segment.
Segment, revenues total 261 million.
And adjusted ibida totaled, 44 million.
The year-over-year change in earnings is the result of diversities and site exits or closures.
Eco product contributions were also slightly lower with this impact attributable, to our Excel operations in the US, and steel felt business in, in Europe.
Production at our customer locations on a continuing site basis, Rose modestly. Compared with the prior year.
with puts and takes across our global portfolio, as you'd expect.
Higher output in the U.S., India, and the Middle East was mostly offset by lower production in Canada and Brazil.
Volumes in our largest market, Europe, were unchanged year-over-year.
And while quarterly revenues and steel output were the highest this year.
Overall production rates remained subdued.
Customer utilization rates remain in the mid-70s as a percentage of capacity, with our largest market, Europe, being below 70%.
So, we see lots of room for improvement across our service portfolio.
Next, please turn to slide 6 to discuss. Clean Earth.
For the quarter. Revenue is total 250 million which was up 6% compared with the 20 2024 quarter.
And adjusted ibida reached 43 million.
CES adjusted EBITDA margin was 17.3% in the quarter.
Revenue growth was slightly more weighted to volume over price sees. Volume growth was realized across end markets in hazardous waste. And reflects the team's success, executing on a commercial growth plan that it developed over a year ago.
Meanwhile contributions from sees soil and dredge business were lower. Compared with the prior quarter as anticipated. This change reflects the timing of work activity and business mix,
Now, please turn to slide 7 and our rail business.
Rail revenues, total 64 million and its adjusted. Ibida loss was 4 million in the quarter.
Compared with the prior quarter lower equipment and service volumes as well as higher manufacturing costs and a weaker business. Mix were partially offset by higher aftermarket sales.
Operationally, rail continues to make steady progress.
As Nick mentioned, although further manufacturing and supply chain improvements are needed and targeted to strengthen the business.
On Rails, large European ETOs, we continue to make steady progress as well, particularly with Deutsche Bank and SBB.
For Deutsche Bono, DB, the next key milestone is for the first three vehicles to progress through homologation, or the formal acceptance process.
The first vehicle has already started this process, and we expect that all three vehicles will be undergoing homologation as we move into the first half of 2026.
As we've said before, once we complete homologation, the risk on this project from a cost and schedule perspective will significantly diminish, and we will move into a repeatable manufacturing process for the remaining vehicles.
For SBB delivery of the first group of vehicles is to be completed by January 2026.
The second vehicle type is currently undergoing homologation, and we expect to complete all deliveries of this second group of vehicles in early 2027.
Negotiations with the customers have continued to progress.
Although progress has been slower than we would like, our customer is focused on the delivery of the machines and is negotiating in good faith.
Good progress has been made recently to gain alignment on several technical design areas which had been open.
This is an important step for us to be able to complete manufacturing the machines. Additionally, we are seeking a meaningful improvement in the economics of this contract in order for us to continue, or we will negotiate a mutually acceptable exit from the contract.
Now, let me turn to our full-year outlook on slide 8.
The midpoint of ibida guidance is reduced by 27 million and the midpoint for free cash flow is reduced by $50 million.
The ibida change is largely driven to buy Rail and, to a lesser extent, He.
For rail, we've removed from our Outlook, certain unsold equipment and parts that aren't supported by our order books and Pipelines.
And we anticipate that the challenges in Q3 will persist through year-end.
Our updated free cash flow guidance reflects this revised earnings outlook, as well as some previously anticipated milestone payments on certain rail contracts being deferred into 2026.
Let me conclude on slide 9 with our fourth quarter guidance. Q4 adjusted EBITDA is expected to range from $62 million to $72 million.
Clean Earth is again. Expected to show. Nice year-over-year growth in Q4.
Oscar environmental earnings are anticipated to be modestly below the prior quarter due to contract exits, and rail results are projected to be lower, mainly due to volumes.
Thanks, and I'll now hand the call back to the operator for Q&A.
Ladies and gentlemen, we will now begin the question and answer session.
Ask a question, you may press star and then 1 on your telephone keypad. If you are using a speaker-phone, we do ask that you. Please pick up your handset before pressing the keys.
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At this time, we will pause momentarily to assemble the roster.
Our first question today comes from Clarity solo from CJs Securities. Please go ahead with your question.
Great. Uh, thanks. Good morning. Um, Nick wondering if you could, I know you can't give us too much details, but just any more caller on the on just you sound pretty confident at least on the, on the process that the process is nearing an end. Or you'll have some kind of, uh, something in the next few weeks. It sounds like if by year end so, um, can you just give us any more? Is it your confident that will? At least he will we actually, you know, hear something before your end or, um, you know, just anything will be great on that front. Thanks.
Yeah.
Yeah, hi Larry. Um,
You know, honestly, there's not much more we can say at this point, as I indicated, we've had, as we expected, uh, very strong interest in, in the business.
Um,
We've created a tremendous amount of value when clean Earth over the past couple years it's not in our share price. We need to find a way to unlock that, that's what we've been doing.
Um the specialty waste industry is consolidating um and uh you've likely seen some of the values. Um
That have been paid for, like businesses that are transacted over the past couple of years.
Um, so we're we're happy with where we where we are. Um, it's been a, uh,
Uh, it's been a strong process, and we're well supported by, you know, our advisors and...
of course, and most importantly, the the cleaner leadership team has just been doing a tremendous job.
Okay, great. I appreciate that. Just on the on the guidance and the Outlook pretty significant drop. It looks like a lot more actually, you know, Q3 was a bit of a myth but the Outlook Q4 is even looks like it's somewhat even worse. Um, and you mentioned it, it's it's predominantly rail. But um, just trying to Tom maybe you can help us a little bit with that. You know, that 27 million Delta um is, is it more like mostly rail there? I'm just trying to get a little more uh granularity there.
The bulk of the, the highest variation is on Rail and as I said, in my remarks, what that consists of is, you know, we're trying to kind of de-risk our outlook for the remainder of the year. So we took out from that any
Any volume that is currently unsupported by either firm orders or, you know, good visibility in our pipeline.
Um, and so, that's that, that's that, that's what that is, mainly. And then, um, on on, he, we've also taken down somewhat, you know, partially, you know, most of it is basically, the, the Miss in Q3 but, uh, just reflecting, um, the the pace that we're on a Q3, um, expected to largely continued into Q4.
Okay, if I can just squeeze 1 more in just on the on clean Earth, um, another good quarter, especially on the, On the Hazardous side was the was the soils. Um, did they have an exceptionally good year last year? It looks like a pretty good year-over-year. Drop and Ava doc contribution in the quarter for a kind of a minority part of the business. Um and then you mentioned various distractions and you know, any more color on that unclean Earth. Thanks, again.
Yeah, just maybe for context for the full year, you know, we're expecting even uh in hazardous waste to be up about 15%.
And down, 15% in SDM.
As likely no, hazardous waste is 5 to 6 times the size of STM. But SDM, as we've indicated before, can be a very lumpy business. We have a very attractive backlog of projects.
And we try to anticipate when they're going to begin.
And often times they're delayed, and that's what we're what we're facing uh now. Um, there's also a, a mixed component within SDM. There are some projects that have margins that are 15 to 20 points higher than others.
And so what we've seen in the second half of this year is is both uh a mix challenge as well as. Um, this the the starts of the projects being pushed out, but again, the backlog is very good. The the mix is good and the backlog. Um, it's it's not an overall demand issue. It's not a market share issue. Its
It’s just a timing issue in SDM.
Okay, great. I appreciate all that caller. Thank you.
Once again, if you would like to ask a question, please press star and then 1. To withdraw your questions, you may press star and 2.
Our next question comes from Rob Brown from Lake Street Capital Markets. Please go ahead with your question.
Good morning.
Morning. Um,
congrats on the on the sale process. I think you talked about sort of a, a, a peer group that's, you know, with consolidation the multiples that that are that are in the peer group, I guess. Are you, are you sort of comfortable that those multiples are sustaining out there in the industry and and just a sense on on? Give you on multiples?
Yeah, yeah. I would say if you look at precedent transactions, um,
The multiple that we would expect would certainly be consistent with those.
Great. And then, in terms of the, I think, at one point, you talked about rail, uh, kind of the baseline business, excluding Ito, contracts of sort of $30 to $35 million or so of you. But, uh, and maybe things are a little weaker now. But what sort of the baseline uh rail business, um, kind of run rate in the current environment in terms of EBITDA?
Um, yeah, so it is Larry is it is a little lower, you know, reflecting the current uh, drop in demand. We don't expect that to be, um, long-standing and it should be short-lived because we think the demand will come back at some point during 2026. So, on a longer-term basis and a sustainable basis, you know, if you're trying to model this, it would be in that 35 to 40 million range on a standalone basis. Uh, today you're probably looking at, uh, a range of in the 30s.
And again, the visibility to that is is fairly good because we have a good sense of when these Ito contracts are going to be completed.
And when we'll get paid for them, uh, yes, that can slip by a quarter or 2 as we've seen recently, you know, some of the smaller contracts.
um,
Cost in our business, that supports those contracts, that will be removed.
So it's, it's not.
Difficult to adjust the current performance of the business.
Uh, for what will happen at the end of those Ito contracts. Um,
And it's just that there's a lot of cost embedded in the business that will be removed.
Okay, great. Thank you. I'll turn it over.
And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to David Martin for any closing remarks.
Thank you all that joined us today and thanks Jamie for hosting. Our call, feel free to reach out to me with any follow-up questions and as always, appreciate your interest in VY and look forward to speaking with many of you shortly, take care.
And with that, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.