Good morning. My name is Danielle, and I’ll be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation Third 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 period. [Operator Instructions] Also, this teleconference presentation and accompanying webcast made on behalf of Enviri Corporation are subject to copyright by Enviri Corporation, and all rights are reserved. Please note, this call is being recorded. No recordings or redistribution of this telephone conference by any other party are permitted without the express written consent of Enviri Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Enviri Corporation. Mr. Martin, you may begin your call.

Thank you, Danielle, and welcome to everyone joining us this morning. I’m Dave Martin, VP of Investor Relations for Enviri. With me today is Nick Grasberger, our Chairman and Chief Executive Officer; and Tom Vadaketh, our Senior Vice President and Chief Financial Officer. This morning, we will discuss our results for the third quarter and our outlook for the remainder of the year. We’ll then take your questions. Before our presentation, 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 materially from those forward-looking statements. For a discussion of such risks and uncertainties, see the Risk Factors section in our most recent 10-K and more recent 10-Qs. 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 our earnings release and the slide presentation. With that being said, I’ll turn the call to Nick. Thanks.

Thank you, Dave, and good morning, everyone. Before we get into the results, I’d like to acknowledge our late colleague and friend, Mauro Curi, who is the President of our Harsco Environmental segment. We unexpectedly lost Mauro near the end of this past quarter. Mauro will be remembered for his energy and passion and his commitment to our business and to our values. We are fortunate to have a strong team across HE and at the executive level, and I will lead HE until the new President is named, which we expect to be early next year. Turning to the quarter, I’ll make a few comments on our Q3 results and on each of our three segments, and then provide an update on our strategic plan and our business portfolio as we focus on creating shareholder value. Our third quarter can be characterized by four developments. Number one, another record quarter for Clean Earth in terms of EBITDA and EBITDA margin. Second, with HE, a weakening of the global steel market due to the impact of excess capacity in China and slower demand in many of our key geographies. Third, continued supply chain and operational challenges in our Rail business. And fourth, the strengthening of our balance sheet through asset sales and the renewal and extensions of our revolver and other short-term credit facilities. Turning to Clean Earth. The business continues to exceed expectations and deliver double-digit earnings growth against challenging comparisons to last year. Adjusted EBITDA increased over 20% versus Q3 of last year while the EBITDA margin improved 17.5%, an increase of over 300 basis points. Cash flow remained strong. Pricing mix and numerous projects aimed at improving efficiency are driving the business. In addition to these factors moving forward, Clean Earth should also benefit from volume growth…

Thanks, Nick, and good morning, everyone. Overall, Q3 was a challenging quarter due to market-related customer, supply chain and weather-related pressures, particularly for Horsco Environmental and Rail. The Enviri team responded to these challenges by pushing hard to close the quarter on a positive note, and I’m pleased that we delivered adjusted EBITDA within our guidance range for the quarter. Now let me comment on our third quarter performance further starting on Slide 4. In the third quarter, revenues totaled $574 million, down 4% on a reported basis. Revenues increased modestly on an organic basis, excluding the impacts of FX translation, recent divestitures and a $5 million ETO-related adjustment in Rail. Adjusted EBITDA was $85 million, an improvement of 3% year-over-year as reported and little changed from our multiyear high in the second quarter. FX translation and divestitures impacted our EBITDA growth by roughly 5%. Our year-over-year earnings growth was driven by Clean Earth, which had another fantastic quarter with record quarterly earnings and margins. Relative to guidance, Rail performance was below our expectations and was impacted by shipment and supply chain delays for standard equipment, lower aftermarket sales in Asia and lower revenue recognition and profits on certain contracts due to operational bottlenecks and higher costs. Hurricane Helene, right at the end of the quarter also impacted deliveries. HE results were also slightly below our internal expectations, where we saw lower service volumes driven by our customers curtailing or slowing production in recent months, as well as delays starting new sites and contract exit costs. These weaknesses in performance were offset by Clean Earth, where we benefited from pricing, efficiency initiatives and better overall cost performance. Our adjusted diluted loss per share was $0.01 for the quarter. Adjusted free cash flow for the quarter was a deficit of $34…

[Operator Instructions] The first question comes from Rob Brown from Lake Street Capital Markets. Please go ahead.

Hi. Good morning. Thanks for taking my question. I guess first question is on the ability to kind of deal with lower volumes in HE. How much is that is a fixed cost business? And how much flexibility do you have there to just lower cost with lower activity?

Yes. Hi Rob, it's Nick. As you know, we have minimum billings and fixed fees, which provide a good bit of protection against volume declines below a certain threshold. But until that threshold is reached, there is some impact. And that's what we saw during the quarter and expect to see again in Q4. And then I think, Tom and I both mentioned that there have been a few sites that have just simply shut down. And so the impact of that is in our Q3 results and guidance as well.

Okay. Great. Thank you. And then on the volume growth in Clean Earth, are you seeing that continue to grow nicely? And where are you seeing the strength there? Just some color on the volume growth would be helpful? Thank you.

Yes. In general, the Health Care segment has been healthy for us, seeing volume growth there. In retail, there's been a healthy amount of churn. And so that's been flat to soft. And then the weakest of the three has been the so-called industrial or manufacturing sector where we've seen softness.

Okay. Thank you. I will turn it over.

The next question comes from Larry Solow from CJS Securities. Please go ahead.

Good morning. Thanks for taking the questions and my condolences as well to Mauro Curi's family. I guess first question just on the environmental piece. It sounds like we're obviously in a period of decline in global volumes. Just curious what's like your contract win net loss? I know you mentioned some contract losses or you walked away from some contracts. Just trying to figure out your ability to sort of grow revenue in this environment? I know you mentioned a new contract or you had a press release, new cars deal [ph] just a couple of weeks ago. So just curious if you can give us any color on – from a global level – high level, your net win rate and does this new contract have any – is that meaningful?

I'll respond to that in a second, Larry. But let me first just emphasize what I think the audience knows here, which is that the best way to look at the performance of HE is on an EBITDA minus CapEx business. So we've softened our guidance on EBITDA, but the impact on EBITDA minus CapEx is much less. This business is much more stable than it has been and a higher level of cash flow than we've seen for a long time. And so we are able to mitigate some of these volume declines with efficiency on capital spending. And we've seen that in the third quarter and in Q4 and into next year as well. And in terms of revenue growth, we've commented before, and it certainly remains the case that we have an extraordinarily healthy and lengthy pipeline of growth opportunities in HE. Our competitive position is quite strong. And since we limit our investment in growth contracts, we're really only selecting the best opportunities that tend to be in growth markets, the terms and conditions are the best and, of course, the returns are higher and the risk is lower. And we have a number of those contracts that are ramping up now. We'll see the benefit of those in 2025, and that will serve to mitigate some of the short-term impact that we're seeing at some of our existing sites. But in general, there's a significant geographic shift underway in our portfolio now away from the UK and Europe and towards growth markets; India, Turkey, Mexico, I think, increasingly, the U.S., given the protections we have here against low-cost imports, but this takes time, right? You – we've seen some of that this year and we'll see more of it next year but in general, this geographic shift is really going to be a tailwind for the business.

Okay. I appreciate that color. And on the positive side, Clean Earth, obviously, relatively flat revenue and volumes had a very nice quarter on the margin side. I think you were up even sequentially like 150 bps. I know you've done a lot of initiatives over the last two years, Nick, pricing and efficiencies. I think you had opted sort of three-year target of 17% around where we are today on the margin. Is there more room for upside – pretty impressive to this quarter? Anything unusual to kind of drive further increases in margin on flat revenue?

I would say, nothing unusual. As you know, the first four years of Clean Earth, we focused an awful lot on efficiency and cost and pricing and leadership and structure and so forth. And we're now putting a significant effort behind driving volume growth with new leadership, new focus, kind of enhanced value propositions and so forth. So I think as we look forward, we'll start to see more volume growth drive margin expansion and EBITDA and top line growth in that business.

Okay. And then just last question on the cash flow and the free cash flow. I appreciate sort of the early look out to next year. If you look at the midpoint for this year or next year, it's a nice significant job, I think like $60 million. I know Rail is losing $40 million this year. Is the biggest piece of kind of that flip going to be that Rail number goes from 40% to maybe closer to positive next year? I'm just trying to get a little better hand on that. Thanks.

Yes. Look, we – obviously, we'll comment in more detail. We're going to go through our annual planning cycle here momentarily, and then we'll only give you guys guidance in the early part. But I think of it in maybe four distinct pieces, right? So the pension contributions, cash pension contributions, we expect that to be down significantly year-on-year as we go into 2025. Nick mentioned that our pension fund in the UK is now at a fully funded status. We still got to do a little bit of work to make it happen, but I expect those contributions to be down significantly. Interest costs, yes, needless to say, we expect interest payments to be down somewhat year-on-year. So those are two big chunks that already sort of give us some pathway there. And then, on Rail, we expect the Rail cash performance. As I said in my comments, this year, Rail is in a cash-use position in the $40 million range, right, so negative $40 million. I do expect that to improve significantly. I can't say now, it's a little too early, if you don't mind, Larry, and I'll give you more details but where it flips into positive, but certainly, I expect it to be much, much better. And then, of course, the HE and CE businesses, we expect to keep chugging along and those will deliver a little bit extra cash as well.

Great. I appreciate that call Tom. Thank you everybody.

I think one important point just to add on these long-term contracts in Rail. With the exception of the two large contracts in the UK and Germany, the others, all flipped to positive cash flow when they end next year. So that will significantly reduce the net cash outflow in Rail next year. We've been investing in the past couple of years about $50 million per year in cash in those contracts. So again, when you start to look forward, thinking our long-range plan, when that $50 million is over, and we're generating $30 million to $40 million of cash flow in Rail per year, plus the cash flow in HE and CE which should continue to be strong and interest comes down and pension, now that's why we're pretty confident we're going to get to this $150 million-plus range per year in free cash flow in a couple of years.

Got it. Thanks Nick.

[Operator Instructions] The next question comes from Brian Butler from Stifel. Please go ahead.

Good morning. Thanks for taking the questions.

Hi, Brian

Hi, Brian

On the Rail piece, can we just go back to those ETO contracts that are kind of you've been investing in and kind of you're getting to positive. What's still – can you remind everyone on the time line? And how much cash should those ultimately generate over the next three, four years as they kind of – as they finish up? Because you really should have a pretty positive inflow after multiple years of investment in it?

Yes, no doubt. So next year, on the smaller ETO contracts, I think that number is $20 million to $25 million of positive next year. That will be offset by continued investment into the contracts in the UK and in Germany. But those two contracts, if you look to the latter part of 2026 into 2027, 2028, collectively, those should throw off $75 million or so of free cash flow. My comment a minute ago was when we're on the other side of those, right? We'll still swing from kind of minus $50 million what we've been seeing in Rail in the past couple of years to kind of a plus $20 million or $30 million even not accounting for the positive cash flow at the end of those two large contracts.

Okay. And then on the hurricane activity that got kind of pushed, can you give some color on the sales and EBITDA that ultimately got moved? And is there more – is there a tailwind at some point on the cleanup side?

Yes. I think there were three or four machines that ultimately did not make it out the door or could not be picked up by the shipping, the transportation company. And I'm going to say, the EBITDA impact of that was a few million, $1 million to $2 million.

Okay. And then I guess last one, when you think of Clean Earth kind of looking into 2025, I mean, it still sounds like it's pretty bullish and you had the industrial softness. Maybe your thoughts on, again, what that could look like? I mean, I'm not looking for guidance per se, but the momentum that you have, is that – can that be carried into 2025?

Yes, we certainly think so. And adding to that would be an expectation for volume growth next year, which we largely did not have this year.

Okay. Great. Thanks for taking the questions.

The next question comes from Devin Dodge from BMO Capital Markets. Please go ahead.

Yes, thanks. Good morning. So maybe I just want to come back to the Rail division. Another adjustment to the forward loss provision to those ETO contracts. Just can you provide some color on the drivers of this? So just if the provision is going up, I'm just trying to understand if things are getting worse or was there an assumption that things will get better and that – let's say, coming out of Q2?

Devin, I'll try and answer that. It's Tom here. The – look, these are very complex projects right? And we're making engines or vehicles that no one's made before. They're highly engineered, highly customized for each customer according to the design specs that they wanted us to produce. And they're long term in nature as well. And so the ability of any company, to be honest, to be able to very, very accurately to the nearest million estimate the costs is challenging. And so as we get closer to the endpoint, we're getting better visibility sometimes to what it's really going to take to make these and so there is a constant fine-tuning. Now we do have puts and calls, right? So sometimes, we are able to reduce what we think it's going to cost, sometimes it does cost more. There are also changes in the supply chain, there may be price increases, et cetera. So we are managing all of these things. There's a ton of focus, as you can imagine, to try and do that. But occasionally, we do have to acknowledge from an accounting point of view that the cost is going to be more, and that's what drove those adjustments. So it's not – yes, it's not overly optimistic expectations or whatever. It's just – to me, it's just a natural part of this process given that you have these very longstanding contracts and you're discovering more as you go along.

Okay. Fair enough. Okay. And then maybe just another question likely for you, Tom. Just something that stands out on the cash flow statement. So noncontrolling interest in the financial cash flows, it seems like dividends are outpacing earnings contributions pretty meaningfully this year. Just can you remind us what assets they relate to? And why the gap between dividends and earnings has been more pronounced this year?

Yes, it's probably just timing, right? So you've got accumulated earnings over the years. And at some point, we trip into a need to distribute some of those. The main joint ventures that I can think about, of course, we have some in China, as you know and then in Italy. I look around my colleagues to see if there's anything else that you would – so I think those are the main – so it's all HE related and what we needed to do in order to get into some of those businesses. But it's timing, yes.

Okay, 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.

Thank you for joining us this morning. Feel free to contact me with any follow-up questions. And as always, we appreciate your interest in the company. I look forward to speaking with many of you in the coming weeks. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.