Good morning. My name is Jason, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation First Quarter 2024 Release Conference Call. [Operator Instructions] Also, this telephone conference presentation and accompanying webcast made on behalf of Enviri Corporation are subject to copyright by Enviri 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 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, Jason, and welcome to everyone joining us this morning. 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 first 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 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 these 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 the 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 as well as the slide presentation. With that said, I'll turn the call to Nick.

Thank you, Dave, and good morning, everyone. Q1 was a strong start to 2024 as each of our three segments performed above our expectations in terms of both cash flow and adjusted EBITDA. Consolidated EBITDA increased about 20% versus Q1 of last year while the EBITDA margin improved nearly 150 basis points to 13%. Of note, that's 3 points higher than the last year's figure and 3x the figure in Q1 of 2022. In terms of our outlook for the full year, our updated guidance reflects about a 5% improvement in the underlying performance of the Clean Earth and Harsco Environmental segments compared to our previous guidance. Our primary focus from a financial standpoint continues to be improving cash flow and reducing leverage. We expect cash flow from our 3 segments to improve by $40 million to $50 million this year, including the Rail business with the CE and HE segments each generating in excess of $100 million for the first time. When combined with the expected double-digit increase in cash earnings, leverage should approach 3.85x at year-end, but we are pushing to reduce it further to 3.75. The Board and management continue to focus on levers to create shareholder value. Enviri's cash earnings are at the highest level in the last decade. And our environmental businesses are more stable with more upside potential than those in our portfolio a decade ago. Nonetheless, our degree of financial leverage is higher than we would like in this economic and interest rate environment. So besides continuing to grow our businesses and improve our cash flow yield, we are considering other means to reduce leverage through sales of assets and businesses. At this time, we are targeting to generate $50 million to $75 million of cash from such disposals this year and our…

Thanks, Nick, and good morning, everyone. As stated in our press release and by Nick just now, our results now include Harsco Rail within continuing operations and my prepared remarks mirror that presentation. The Enviri team delivered a strong first quarter of 2024. Revenues grew 7%, adjusted EBITDA grew nearly 3x that rate. Our cash flow was slightly better than anticipated. And our covenant leverage ratio decreased modestly. Now let me comment on our first quarter performance, starting on Slide 4. In the first quarter, revenues from continuing operations increased to $600 million, again up 7% compared with the prior year quarter. Adjusted EBITDA totaled $78 million, an improvement of 19% from the prior year. Each of our three business segments delivered higher revenues and higher EBIT -- higher adjusted EBITDA versus the prior year, driven by a combination of price, volume growth and cost initiatives. Also, corporate costs were comparable with the prior year quarter. This EBITDA figure isn't comparable to our prior guidance due to the inclusion of Rail. But both Clean Earth and Harsco Environmental exceeded our expectations in the quarter due to higher volumes, a more favorable service mix and lower operating costs, driven by initiatives in Clean Earth. Our adjusted loss per share was $0.03 for the quarter. Free cash flow for the quarter was a negative $17 million versus a positive $16 million in the prior year quarter. The year-on-year change in free cash flow can be mainly attributed to the amount and timing of incentive compensation payments in Q1 this year but which occurred in Q2 in 2023 as well as working capital movements. Please turn to Slide 5 and our Harsco Environmental segment. Segment revenues totaled $299 million, up 9% compared with the prior year quarter. Adjusted EBITDA for the quarter reached…

[Operator Instructions] Our first question comes from Rob Brown from Lake Street Capital Markets.

Nice progress in the quarter. Just wanted to follow up with Clean Earth, some of the volume trends there. I think they were sort of mixed. How do you see the volume trends playing out over the next 12 to 18 months? Does it continue to be sort of a mixed situation? Or are there some sort of macro improvements that can happen there?

Yes, I think the volume outlook for Clean Earth certainly varies by end market. But overall, we don't expect to see much volume growth this year, given a lot of churn and some other headwinds. What's driving Clean Earth is really price/cost efficiency and also mix. We're seeing better mix both in hazardous waste as well as in the soil and dredge business. But in general, we expect the manufacturing/industrial segment and the health care segments to be a bit better from a volume standpoint than retail this year.

Okay, great. And then on the Rail business, the ETO contracts that are playing out, how much is to go on those contracts? And when will those fully be concluded and kind of more clear, where you can have more comfort in where those stand?

Yes, many of them will actually be delivered this year. And we'll receive the cash later in the year. There are two large contracts in Europe, one in the U.K., one in Germany that still have a couple of years to run. Now as I mentioned in my remarks, as did Tom, we've in Q4 taken some additional charges against those contracts. We believe that, that is largely behind us. And we're looking forward to, over the next year or so, demonstrating that the risk clearly is reduced and we've taken the necessary charges. I also mentioned that we continue to negotiate commercial terms with the German customer, whereby we anticipate a price increase to be afforded to the contract that should serve to offset some of those previous charges that we've taken.

The next question comes from Larry Solow from CJS Securities.

I guess, Nick, picking up kind of on that line of questioning, just on the Rail business, so I think you said about $20 million EBITDA this year. What is -- I think if we go back a few years back, I remember this business was thought that it could be, I think, at least $50 million, maybe even higher than that in terms of EBITDA. What's sort of the -- can you kind of bring us up to speed what you think this business could do in 3 years from now or some type of horizon, when we get beyond kind of some of these contract issues and whatnot? And if you can just help us kind of with the sort of multiyear outlook, that would be great.

Yes. Well, if you exclude the impact of these engineered-to-order contracts, we believe the base business, say, everything else, and Harsco Rail generates $35 million to $40 million of EBITDA, we expect those ETO contracts to roll off here in the next few years. So think of the base business as 35% to 40%, which is consistent with where it's been in the last 6 or 7 years, I would say. We're back to the kind of pre-COVID level of profitability in the base business. We've seen good demand in North America both for equipment. We've seen good demand and very good performance on our part in contracted services and then aftermarket and technology as well. So we also look at some of the stimulus money in North America that's been allocated towards rail infrastructure. We think that's a tailwind for us. And our competitive position in North America and elsewhere is quite strong. So at our Investor Day on June 20, we'll provide an updated long-term view for each of our businesses. So I'd ask you to wait until then to understand our longer-term view for Rail.

Yes, no, absolutely. And I look forward to the Analyst Day, too -- Investor Day, too. No, that's great. Okay, I guess, just a question, just switching gears, just to Clean Earth and just on your guidance, you mentioned kind of flat volumes, all-in a little bit better on the health care and industrial side. What about just on the dredging side? I know your bookings were really strong last year on the soil side. What are you kind of -- what's in your guidance for this year in terms of sales or growth or however you can frame that?

Yes. I think in terms of soil and dredge, what's helping the business more than volume now is mix. We have a fairly strong pipeline of higher-margin projects. Volume overall is fairly flat. I think the higher interest rate environment is certainly contributing to some of these projects being put on hold. But overall, the mix, the price and some of the cost initiatives are really helping to continue to grow the earnings in the business. But it's not being driven by volume, at least not at the moment. As we've said before, the visibility that we have just when some of these projects start is not as good as we'd like. So it's certainly conceivable as it was last year, where some of these projects began that we had not expected to start. And that helped the business.

The next question comes from Brian Butler from Stifel.

Tom, just the first one, just back to Rail real quick, so on that 35% to 40% of EBITDA in the base business, what does the cash flow look like from that piece of it?

I mean, the conversion is pretty good, Brian, on the base part of the business. Obviously, you have to contend with the normal puts and calls when customers pay you, et cetera. But generally speaking, it converts pretty nicely. So the capital expenditure is fairly modest in that business, maybe mid-single digits on average, and so most of that turns into cash.

Okay, great. And when you think about now in continuing operations and you're reducing the risk, do you guys need to wait until these contracts kind of come to completion before you reconsider possibly putting us back on the market? Or is it just you need to show that the risk has been reduced?

I think that it's the latter. As I mentioned, we took some charges in the fourth quarter not that long ago, of course. And even though we believe that the vast majority of the risk has now been accounted for, I think we need several quarters of stability on those contracts as well as completing the commercial negotiations with Deutsche Bahn. I think when those two things happen, and it could happen later this year, then we will rethink the timing of again marketing the business.

Okay. And then one just on Clean Earth, nice quarter there. How much of an impact was January weather on the quarter?

It affected our soil and dredge business a bit, I guess, as well as has. I wouldn't say it was that material. Again, it was more of a challenge than we thought. But of course, we were still able to deliver a better quarter than we expected.

All right. Then maybe I'll slip one last one in on Harsco Environmental. When you look at steel production versus your February guidance, has there been any increase or change in expectations around kind of a global steel outlook?

No, Brian, there has not. So I think we expect 6% to 7% volume growth in the mill services business this year. Probably 4 points of that or so is the market and the balance would be the impact of new contracts. So no, the outlook has really not changed.

Our next question comes from Davis Baynton from BMO Capital Markets.

This is Davis on for Devin Dodge. So some solid results in Harsco Environmental and Clean Earth. But just wondering if you could speak to some of the internal deleveraging efforts with the Rail sale being on pause?

Sure. So as I mentioned, we are looking at some other smaller businesses within the portfolio. We're looking at some assets that we can dispose of. And these are not new initiatives. But I would say the degree of focus on them has stepped up a bit with the reconsolidation of Rail. So we've seen -- you'll see some of that in the second quarter. And then in the back half of the year, I think you'll see some other transactions that, as I estimated in my remarks, we think will total $50 million to $75 million of incremental cash. I'll turn it over...

And if I just -- I'll just take it and add to that. I covered it in my prepared remarks. But we've already, as Nick said, made progress, and I listed a few things. So we sold our planes. That generated some cash in Q1. And then in Q2, we'll have the proceeds from the Performix sale as well as we monetized a notes receivable for an amount. So by the end of Q2, we would've already kind of made pretty good progress towards the target that Nick just mentioned.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to you, David Martin, for any closing remarks.

Thank you, everyone, for joining us this morning. Feel free to reach out to me with any additional questions. And as always, we appreciate your interest in Enviri, and have a great day. Thank you.

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