Good morning. My name is Rocco, and I will be your conference facilitator. Welcome everyone to the Harsco Corporation's Fourth Quarter Release Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers’ remarks, there will be a question-and-answer session. Please note this event is being recorded. This telephone conference presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation, and all rights are reserved. No recordings or redistributions of this telephone conference by any other party are permitted without the expressed written consent of Harsco Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Harsco Corporation. Mr. Martin, you may begin your call.

Thank you, Rocco, and welcome to everyone joining us this morning. I'm Dave Martin, VP of Investor Relations for Harsco. With me today is Nick Grasberger, our Chairman and Chief Executive Officer; and Pete Minan, Harsco’s Senior Vice President and Chief Financial Officer. This morning, we will discuss our results for the fourth quarter and our outlook for 2023, we’ll then take your questions. Before our presentation, however, let me mention a few items. First, our quarterly earnings release and slide presentation for this call are available on our website. Second, we will make statements today that are considered forward-looking within the meaning of 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. For a discussion of such risks and uncertainties, see the Risk Factors section in our most recent 10-K. 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 GAAP results is included in the earnings release and slide presentation. With that being said, I'll turn the call to Nick.

Thank you, Dave, and good morning, everyone and thanks for joining us today. I'd like to begin by acknowledging the efforts of our Harsco environmental colleagues and supporting the people impacted by the earthquake in Southern Turkey. We have nearly 200 employees working across three sites in the area with our partner Tosyali. Thankfully, none of our employees or their immediate families was killed, but many have lost their homes and living conditions are very difficult. So we are doing what we can by providing temporary accommodations and other necessities. Now on to the past quarter. The fourth quarter was above our guidance expectations as adjusted EBITDA improved year-over-year as did revenue and margins. These results reflect the continued improvements in our Clean Earth segment, due to numerous ongoing operational initiatives, as well as pricing actions implemented in the previous quarter. Harsco environmental also performed somewhat better than we expected as declining steel production over the previous few quarters stabilized in most of our markets. The Clean Earth team executed a very impressive turnaround in the second-half of the year. Adjusted EBITDA margins which were below 4% in the first-half grew to over 12% in the second-half of the year. Adjusted EBITDA and free cash flow were also about 3 times higher in the second half of the year. The external forces that affected our first-half performance, namely inflation, a tight labor market and severely limited incineration capacity largely continued through the remainder of the year. However, our team moved aggressively to mitigate the impact and executed the action plan that we developed extremely well. Of equal importance, service levels to our customers reached new highs and our safety culture took a big step forward in Clean Earth, following the lead of Harsco Environmental, which delivered record safety performance for…

Thanks, Nick, and good morning, everybody. So let's start by turning to slide four. Harsco fourth quarter consolidated revenues from continuing operations increased to $468 million, up 1% compared with the prior year quarter or 6% if you exclude the impact of foreign exchange. The increase was primarily driven by the higher pricing that we implemented in both our Clean Earth and Environmental segments. Adjusted EBITDA totaled $61 million, which is above our prior guidance range and represents an improvement from the prior year. Each of our segments showed stronger-than-anticipated performance, although Clean Earth was the larger and largest contributor . Clean Earth results were better-than-expected due to lower operating costs, as well as the timing and volume of dredge related work, while environmental benefited from lower spending and the mix of services performed during the quarter. And lastly, corporate expense was lower-than-anticipated given our continued discipline on our functional spending. Relative to the prior year quarter, the EBITDA increase was driven by Clean Earth as a result of price increases and cost improvements initiated mid-year. The success of these efforts is apparent in our results for the past two quarters and we're pleased that Clean Earth's adjusted EBITDA margin exceeded 12% in the second-half of the year. Our adjusted earnings per share was $0.01 for the quarter. The unusual items in the quarter included $4 million of restructuring cost in environmental, which will boost its performance going forward and a non-cash impairment charge of $15 million related to Altek. Free cash flow for the quarter was $3 million, this result was lower than our expectations due mainly to some delayed payments from China-based customers, some of which have since been paid in early 2023. Please turn to slide five in our Environmental segment. Segment revenues totaled $257 million and…

Thank you. We will now begin the question-and-answer session. Today's first question comes from Michael Hoffman at Stifel. Please go ahead.

Thank you very much. So I'm impressed by you did react quickly to the cost side. I'm trying to understand the steel market says that the steel -- global steel, world steel is saying steel production is going to be pretty muted. So are you expecting some rebound in Europe? Is that sort of what gives you a little bit more comfort that's how to think about that is the mix within your customers, everything stable that was good and the thing that was weak gets better?

Yes. Hi, Michael. Yes, that is true in the second-half of the year. We have a very difficult comp in the first-half of the year. And even though there's a lot of discussion amongst our European customers to restart or boost production, it actually hasn't yet started. But we do anticipate to see very modest volume improvement in the second-half of the year.

Okay. And then on Clean Earth, you know, there was a lot of really strong volume activity in 4Q across the disposal end of the market and then their recurring business and you emphasized price. But I was wondering if we were through nuancing that? Did you in fact see volume as well, but price just overwhelmed that?

You know, volume was fairly modest. We continue to be revenue constrained, because of the incineration capacity issue. Volume was a little better in soil and dredged than it was and has. But overall, the driver of our EBITDA improvement really was pricing cost.

Okay. And then WTI is back online, but we're hearing that there's so backlog that it's not really providing much relief yet. Would you (ph) with that's probably the scenario at least through the first-half of the year before that incremental capacity really provides market relief?

Yes. We really are not anticipating in our outlook here any improvement in the incineration capacity or to be clear more slots available to us that would enable us to take more business ourselves.

Even by the second-half of the year. So you think the whole year just remains constrained?

Largely yes.

Okay. And then you have shared with us in the past that there's some big infrastructure jobs with a lot of dirt that are, kind of, looming at the Moynihan Tunnel for Metro North in LaGuardia’s next phase in Princeton University. Any visibility on either the IIJA driving things or those projects where there's some more activity around that part of the model?

Yes. Michael, as you've heard from us and I'm sure others, the delays in these projects are quite frustrating. So we've assumed a pretty modest degree of incremental volume from those projects this year. Will we see some? I certainly expect to. But in the past couple of years, we've also built some of that upside into our outlook and it hasn't materialized. So we're being fairly cautious.

Okay, and last one for me. This industry on the Clean Earth side has not been noted for pricing. As a driver of growth in hyperinflationary environment certainly had to change that. Do you see that, that now becomes a structural change and I ask it from two perspectives, you had to follow through with price ultimately, because of the inflation. What was the impact in churn? And by the way, do you think you can now use price as a form of sustaining growth even as inflation ebbs?

Well, I certainly think we learned in the second-half of the year that our value proposition and its importance to our customers enables us to get price when it's justified as it certainly was in the second-half of the year. Now we're also increasing prices. Our annual price increase early this year, which we also expect to have a high realization rate. So yes, I would say that the value proposition that we have in both hazardous waste and contaminated soil. Is one that should enable us to gain price going forward.

Okay, great. Thank you.

And the next question today comes from Larry Solow at CJS Securities. Please go ahead.

Great. Good morning, Nick and Pete. Just a couple of follow-ups on -- good, good. On the Clean Earth, so essentially are you saying that volumes are going to be at least on the hazardous side pretty flat this year and it's mostly price and then maybe a little incremental just kind of summarize it. Incremental benefit from infrastructure and dredging. Is that sort of the summary of the drivers are cleaner this year?

Yes. And cost reduction, operational cost reduction. We have also removed some overhead costs, but the impact of those are largely being mitigated by inflation and some compensation related matters. But yes, the plan, the growth year-over-year is being driven by price and cost. I will say that our pipeline of growth opportunities both in haz waste and in soil are quite robust. We just simply not built in the benefits of those.

And the limitation on growth in hazardous is, like you said, it's basically -- it’s just capacity and ability to incinerate and make room for more stuff essentially for you to process?

Well as well as the overall economy, sorry.

Right. Fair…

…that in the overall economy. The outlook for retail and industrial in particular.

And basically on the soil side, it's really -- it's more timing and your visibility on that is still limited, it sounds like?

Right. Better than it has been the previous couple of years also.

Right.

And again, I think we're being a bit cautious on (ph) volumes.

Sure. And then just switching gears a little bit. So on the environmental side, obviously, I think it’s more a victim of just a slower production on Environment this year. Obviously done a great job in cost cutting and all that good stuff. What about just longer term, just ability to obtain new contracts? I know it's sort of a fine line, but you're still fairly levered. Obviously, you want to kind of reduce this leverage, improve your free cash flow, but how do you kind of get new wins and new business wins without some investment?

Yes, it's a great question. It's something we're very focused on. If you consider how Harsco Environmental truly adds value to its customers, right? It's around engineering and know-how and new environmental solutions and the skill of our labor force et cetera, et cetera. If not, right utilizing our balance sheet to fund these assets to perform the service. So I think over time and you've -- this Phoenix bankruptcy provides a bit of an opportunity, I think for us to drive our true value proposition. The fact is that our customers’ balance sheets are healthier than ours. Their cost of capital was lower than ours. And so you put all that together and we're going to push pretty hard to see if we can win some new contracts here on more of a capital light basis.

Got you. Yes, that's fair enough. And just maybe a question for Pete. Could you just clarify, you said the -- you're targeting, sort of, getting towards or maybe even under 4 times lever by the end of the year. So I think the $260 million EBITDA that I used the high-end number. Right now I'd suggest you're going to get your net debt a little over $1 billion or down like (ph), is that right? And how do you do that, yes.

Yes, that’s right. So you got to recognize that the leverage ratio I quoted is the Yes.

Got you.

So they're still adjusted. Yes.

That's fair. We could talk about that offline. That was my calculation. Sounds great. Yes, I appreciate the color guys. Thanks.

Thank you.

Thank you.

Our next question comes from Rob Brown at Lake Street Capital Markets. Please go ahead.

Thanks for taking my question. Just wanted to get a little more detail on the competitive environment in Environmental with the Phoenix bankruptcy. Are you seeing more opportunities, sort of, come to market? How has that change things?

Yes. Good morning, Rob, and thanks for the question. Yes, it's a very dynamic situation now with the Phoenix bankruptcy and that's -- you really need to look at on a contract-by-contract basis. Of course, we all know that these mill services that we perform on behalf of our customers are extraordinarily critical to the production of steel. So our customers understandably need to be very cautious in how they navigate. This situation with Phoenix and what if anything of Phoenix will survive and what the ownership structure will be and how they're going to approach their contracting function in the future. So we are very focused on a handful of contracts or sites that we know well that we think truly appreciate our value proposition. And so we're selectively targeting six, eight contracts, which we would hope to secure at some point during the year. But it's a very unusual bankruptcy process in many ways and it's going to take a little more time. And so we'll see how this plays out. But again, our focus is on the six to eight sites, where we think we can really add value and would be good new business for our company and for our shareholders.

Okay, great color. Thank you. And then on the Rail sale process, you talked a little bit about reenergizing it later this year. Is that sort of dormant right now? How has that progressed? Is it waiting for certain things? Just an update on what sort of driving that?

Yes. So it's certainly dormant from our standpoint. We continue to have a lot of interest expressed both to us and to our banker from parties that want to re-engage. As I think both Pete and I mentioned, we're very focused on simplifying the core part of the business and also continuing to renegotiate the delivery schedule and penalties and price on somebody's large longer-term contracts. And that is a frustratingly slow process as Pete can attest. He's kind of on point for us there. But it's moving in the right direction. The customers understand and it's, of course, this is not a situation unique to our Rail business many, many other suppliers to our Rail customers are facing similar situations. So our customers understand that the need to provide a degree of relief and we're negotiating that as we speak and we're confident that we'll be pleased with the outcome, but that's going to take still a few months and between wrapping up those negotiations and executing the simplification of other parts of the Rail business we think will be in a very strong position to re-engage with buyers in the second-half of the year.

Great. Thank you. I'll turn it over.

Thank you. And ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Thanks, Rocco and thank you for all that joined this call. Please feel free to contact me with any follow-up questions. And as always, we appreciate your interest in Harsco and have a great day. Take care.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.