Prepared remarks
Good morning. My name is Rocco, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation Fourth Quarter and Full Year 2025 Results Release Conference Call. 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, Rocco, and welcome to everyone joining us this morning. With me today is Nick Grasberger, our Chairman and Chief Executive Officer; Russell Hochman, our President and Chief Operating Officer and the future CEO of New Enviri; and Tom Vadaketh, our Senior Vice President and CFO. This morning, we will discuss our results for the fourth quarter and the full year of 2025 as well as our outlook for Harsco Environmental and Rail, which are the two businesses that will make up New Enviri following their spin-off into a new stand-alone publicly traded company in connection with the sale of Clean Earth. After our prepared remarks, we'll 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 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 as updated in subsequent 10-Qs. The company undertakes no obligation to revise or update any forward-looking statement. 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 today and our slide presentation. Now I'll turn the call to Nick to begin his prepared remarks.
Thank you, Dave, and good morning, everyone. Let me start with a brief status update on our transaction to sell Clean Earth. We continue to target the midyear closing, and we are working diligently to complete the transaction. The HSR waiting period is scheduled to expire on March 9, absent a request for more information. We expect to publicly file both our Form 10 and proxy documents later in March, and at that point, we'll begin to focus on our shareholder meeting and a date to close the transaction. Finally, we are not yet in a position to narrow the cash payout range of $14.50 to $16.50. The payout will take into consideration the time of the closing and the company's cash flow up to that point as well as the amount of cash we determine is prudent to retain in support of Rail's ETO contracts. We may decide that New Enviri should retain more cash for these contracts than we had hoped a few months ago.
We are in the midst of discussions with various parties that will impact the amount of cash that will need to be retained and ensuring New Enviri is soundly capitalized and set up for success is, of course, a priority for us. We look forward to providing further updates when appropriate. And at this time, there's not much more that we are able to say about the cash payout range. As I reflect on the Clean Earth transaction, I'm pleased with what we have accomplished over the past few years. The improvement realized at Clean Earth has been extraordinary. And I credit the Clean Earth leadership team for having the vision to identify strategic initiatives and drive their execution throughout the organization. I'm confident that Clean Earth will continue to prosper as part of Veolia. And while the sale of Clean Earth is a major step towards capturing the sum of the parts value of the Enviri portfolio, it's certainly not the final step.
There's more value to be created through New Enviri. Harsco Environmental and Rail are market-leading businesses with strong reputations within their markets, and we are optimistic that underlying demand will improve, and we believe Russell and his team are poised to accelerate positive change within and throughout these businesses. Tom and Russell will comment further on Q4, our outlook, and our priorities. So first, over to Tom.
Thank you, Nick, and good morning, everyone. We finished 2025 with quarterly adjusted earnings that were towards the high end of our expectations. Full-year revenues for 2025 were $2.2 billion, led by 4% growth at Clean Earth, which was achieved through a mix of price increases and volume growth. This growth was offset by lower revenues at both Harsco Environmental and Rail due mainly to lower volumes as well as divestitures in the case of HE. Adjusted EBITDA for the year totaled $275 million. Clean Earth again realized record earnings and margins in 2025. For Harsco Environmental, market challenges persisted throughout the year, but we're pleased its performance improved as the year progressed. Our HE team executed well operationally and successfully renewed a larger-than-normal volume of contracts during the year. Looking forward, we're hopeful that underlying steel demand and production will improve for our customers, particularly in Europe, where trade protections are pending and expected to be implemented later this year.
Any benefits from these trade actions in Europe are not considered in our guidance for 2026 at this point, and I'll share more on that shortly. At Rail, standard equipment demand remains weak and its ETO contracts continue to weigh on its earnings and cash flow. Despite sluggish demand, Rail's base business remained profitable in 2025 and its cash flow did improve. For the year, Rail's ETOs contributed an EBITDA loss of approximately $20 million, and these contracts consumed roughly $40 million of cash during the year. We are pleased with the results of the actions the team has taken to improve efficiencies in the supply chain and manufacturing operations. We are continuing to take aggressive actions at Rail to manage ETO risk and address the challenging demand situation, including a recent additional restructuring to rightsize the business. We'll come back to the path forward for Rail in a bit, and you can find the full-year financial summary in the appendix within our presentation.
Now let me turn to our fourth quarter performance details, starting on Slide 4. In the fourth quarter, total revenues were $556 million, and adjusted EBITDA was $70 million. Both revenue and adjusted earnings were unchanged compared with the 2024 quarter, with year-over-year growth for Harsco Environmental and Clean Earth, offset by Rail. Overall, our earnings performance was towards the higher end of our expectations, with the primary driver being Harsco Environmental, which achieved its highest quarterly adjusted EBITDA for the year. HE benefited from better cost performance during the quarter and tax recoveries in Brazil, which were not anticipated. It also benefited from some price and various other adjustments at year-end. Meanwhile, Rail benefited from additional machine shipments in the quarter versus our earlier expectations. I'd note that corporate costs were higher than expected as a result of compensation expense linked to our share performance and other incentives.
Our adjusted diluted loss per share was $0.17 for the quarter, excluding the impact of unusual items. These unusual items totaled $57 million pretax and included the following: $15 million of costs directly related to the sale of Clean Earth and the spin-off of New Enviri. It also includes $7 million to accelerate the vesting of certain stock compensation to mitigate the tax impact of the company, which can also be considered deal related, and it includes $24 million of additional estimated costs to complete our ETO projects with SBB and Deutsche Bahn, which we will discuss further. Lastly, our adjusted free cash flow for the quarter was $6 million and for the full year, we ended at negative $15 million. This outcome was better than our latest guidance and reflects improved collections in the fourth quarter. For the year, Harsco Environmental and Clean Earth generated more than $160 million of free cash flow.
This total, however, was offset by an interest burden of more than $100 million and Rail's negative cash flow of more than $50 million, both of which are expected to improve as part of New Enviri. A schedule detailing our free cash flow by business is included in our press release. Please turn to Slide 5 and our Harsco Environmental segment. Segment revenues totaled $257 million, an increase of 7% compared with the prior year quarter, and adjusted EBITDA totaled $48 million, which translates to a margin of nearly 19%. The year-over-year earnings increase can be attributed to a number of factors, including higher service levels, improvement actions at certain underperforming sites, and favorable foreign exchange rates as well as tax recoveries in Brazil. These positives were partially offset by lower product contributions, which can mainly be attributed to our ALTEK business. HE's results in Q4 were supported by a modest increase in steel production at our customer sites with growth most prominent in India, the Middle East, and North America.
Steel output in Europe, our largest market, however, remained very weak in the quarter. And while customer steel output overall did improve somewhat in the second half of the year, we continue to see significant room for upside. If implemented, we expect the trade measures contemplated in Europe mentioned earlier to support its steel industry with benefits for Harsco Environmental possible during the back half of 2026. Proposed changes were recently approved by the EU trade committee and are now before the full parliament. Now please turn to Slide 6 to discuss Clean Earth. For the quarter, revenues totaled $244 million, and adjusted EBITDA reached $38 million. Hazardous waste revenues grew approximately 3% through a mix of price and volume. And this increase was partially offset by a lower volume as a result of project-related work completed in the prior year quarter and mix changes in soil dredge materials.
CE's adjusted EBITDA margin was just under 16% for the quarter, which includes the impact of higher incentive compensation. Now please turn to Slide 7 and our Rail business. Rail revenues totaled $56 million, and its adjusted EBITDA loss was $4 million in the fourth quarter. Compared with the prior year quarter, lower volume across all business lines as well as a weaker business mix led to the decline in adjusted earnings. As we have commented in prior quarters, we have been seeing weakness in the North American market, resulting in contracting volumes. Our Rail team has done a nice job during 2025 to drive completion of several smaller ETO projects, improve our manufacturing processes, and have also addressed the weaker demand by taking restructuring actions throughout the year to resize our capacity accordingly. Now let me provide a brief status update on Rail's large European ETOs. Russell will provide some perspective later as well.
On the Network Rail contract, we continue to work towards some important project milestones while we continue discussions with our customer to improve the financial terms of the contract. Delivery and on-site testing of the first machine is planned for the summer, soon after which we expect to finalize our revised contract negotiations. For SBB, most of the first group of vehicles, which includes 48 wagons, have been delivered and accepted by the customer. The remainder are expected to be accepted by the customer by the end of Q3. Homologation for the second vehicle type, which will total 11 machines, has started, and we expect to complete delivery of these machines by mid-2027. For Deutsche Bahn, the first three vehicles are scheduled to be completed and undergo homologation in the coming quarters under the existing contract. Now let me turn to our outlook on Slide 8. As Nick mentioned earlier, we're targeting a midyear closing for the sale of CE as well as the spin-off of New Enviri.
Post the close date, we will likely be providing certain transition services to Veolia for some months, and 2026 accordingly will be a mixed year of Enviri and New Enviri. Therefore, today, we're only providing guidance for Harsco Environmental and Rail, the two businesses that will exist within New Enviri. This outlook doesn't contemplate any major improvements in economic or business fundamentals including within the European steel industry as a result of trade protections, and in the case of Rail, our expectation is that demand will soften this year relative to 2025 with overall volumes reaching historic lows. While our outlook does consider the cost-out actions and improvements implemented in recent months within both Rail and HE, the benefit of these actions won't reach a full run rate until the second half of the year. Furthermore, our outlook does not incorporate any benefits from other projects underway within the company that Russell will speak to shortly.
For Harsco Environmental, adjusted EBITDA is expected to be within a range of $170 million to $180 million. This range reflects that volume from new site startups, a modest improvement in customer steel output, and cost-out initiatives will be offset by certain costs and certain items not repeating in 2026. For Rail, we expect an EBITDA loss of between $26 million and $19 million. This outlook reflects lower demand for standard equipment and contract services as well as lower capacity utilization at our main plant, which will be partially offset by the restructuring actions I mentioned earlier. These expectations translate to pro forma EBITDA for the year of approximately $140 million for New Enviri. This figure is $5 million higher than what we presented in November when we disclosed the Clean Earth sale and reflects pro forma corporate post significant rightsizing of our corporate team and costs.
The specific changes contemplated at corporate have been already announced internally and will be fully implemented after the close of the Clean Earth transaction and the completion of transition services. For free cash flow, we anticipate cash generation to be modest for New Enviri in 2026. I'd remind you that our free cash flow is typically negative in Q1 as a result mainly of our bond interest payments. For the year, HE and Rail cash flows are projected to improve compared with 2025, but we expect Rail ETOs to remain negative in 2026 under the existing contracts. Let me conclude on Slide 9 with our first quarter guidance. Here, I'll simplify and note that segment performance for these two businesses is projected to be lower year-over-year as well as lower compared to the just completed fourth quarter. These changes reflect lower volumes of demand for both businesses as well as contract exits for HE. This guidance also reflects that certain Q4 items, such as the Brazil tax credits, won't be repeated in the first quarter. Now over to Russell.
Thank you, Tom, and good morning, everyone. I'm as energized today as when we announced the launch of New Enviri. I'm going to spend some time talking about priorities and the work underway now to position Harsco Environmental and Rail for the future once the spin-off into New Enviri is complete. To start with, we've assembled an outstanding leadership team and announced the return of Pete Minan as our CFO. Many members of the team were integral to the identification, creation, and rapid growth of the Clean Earth platform. This team is already hard at work, laser-focused and aligned to our priorities. The sale of Clean Earth is the first of many steps that I expect will create value. New Enviri will begin with a prudent capital structure, which is very important, and I'm confident that we'll make positive changes within each of these businesses that will result in strong earnings and cash flow growth.
In the near term, New Enviri guidance implies stability or some improvement in the case of Harsco Environmental. However, I am not satisfied with this guidance and believe that we can do much better going forward as we focus on improving these businesses, refining our strategic priorities for HE and Rail, and taking additional aggressive actions to reduce complexity and drive operational excellence. Since announcing the spinoff, the team has been moving with urgency to implement initiatives that will carry us forward. To begin with, we have taken steps to strengthen Rail's cost performance and are working diligently to reduce or minimize its ETO contract risk, which I see as a critical priority for 2026. Two cost-out restructurings have already been completed at Rail, the most recent of which was in January. In addition, the team has achieved a significant reduction in third-party inventory management costs and taken actions to improve Rail's material, supply chain, and reduce inventories while optimizing shop floor throughput.
We are not stopping here and are actively pursuing other initiatives to rightsize our manufacturing operations and global SG&A. On the larger ETOs, while I won't comment on specific outcomes for these, we can anticipate improving our financial terms under certain arrangements or meaningfully reducing our ETO exposure. I am committed to accelerating actions to derisk the Rail ETOs this year. As it relates to corporate costs for New Enviri, we recently began efforts to streamline central functions, such as IT, across what will be a much smaller organization following the sale of Clean Earth. We have also launched a deep dive review of HE and Rail operations with the assistance from third-party experts to identify additional levers to improve efficiency, further optimize costs, and strengthen our industry positions. In HE, focus areas include SG&A and support function costs as well as site-level productivity and spending on personnel and maintenance.
It also includes revenue and price initiatives. In Rail, the focus is on ways to simplify our regional manufacturing and global footprint, materials management, and support costs. We look forward to communicating with you once our analysis is complete. And while the specific benefits from these initiatives are not contemplated with our 2026 plan, we are confident they will drive significant value for shareholders in the years to come. Harsco Environmental and Rail are both attractive businesses with strong market positions and each is at an inflection point. We remain confident that their respective markets will eventually recover, and we are taking actions now that will drive better margins and returns through economic cycles. In summary, we are optimistic that New Enviri will see significant earnings and cash flow growth over time, and I look forward to updating you on our progress. Thank you, and I will now hand the call back to the operator for Q&A.
Questions and answers
And today's first question comes from Larry Solow of CJS Securities.
Great. Just quickly just on the Clean Earth just on the fact that it sounds like your cash usage or what you may need to retain at New Enviri sort of running towards the higher end of the range or maybe above that a little bit. So I guess that just infers that the cash payment will be towards the lower end, I guess, is that fair to say?
No, I wouldn't say that, Larry, it's Nick. In fact, I would say that there are just many moving parts here. And so we just can't be more specific, but I wouldn't infer from the comments that payout is trending to the lower end of the range. That's not necessarily the case.
Okay, that's fair. I can discuss that more privately. HE had a really good quarter. It's just one quarter and there were some one-time benefits. Your outlook aligns with expectations, somewhat muted, but reasonable given the current environment. I'm curious about the expectations for steel production—are they still stable? Additionally, it seems your customers have faced more challenges than the overall industry in recent years. Could you clarify that a bit?
Yes. Well, certainly, as I think you know, we are more exposed to the EU steel markets than other geographies, and that's been particularly weak. Tom commented on that and certainly indicated reasons for optimism, even though not built into guidance, and we could begin to see some of those benefits as early as the second half of this year. But I would say in other geographies, North American volumes are reasonably good. Of course, they continue to be strong in India and the Middle East. Brazil and Mexico were a bit weaker, perhaps. But overall, I would probably use the term stable and hopefully improving in the latter part of this year.
Got it. Regarding Harsco specifically, I know you mentioned some new contracts and have issued a couple of press releases about them. However, there are also some contracts that you've exited. I'm curious if you are seeing a net benefit as we look ahead, given that you are adding more contracts even as some are going out. Can you provide any insights on this?
Yes, for this year, we anticipate that the revenue from contract churn will result in higher margins. We believe we are improving our margin mix on contracts. You're right; the contracts we have chosen to exit were primarily due to price, as we are not willing to compromise on margin considering the numerous more attractive opportunities available to us. As we look ahead beyond this year, given the visibility we have into our pipeline and the likelihood of securing some of these new contracts, we expect the churn rate to contribute positively to both EBITDA and margin.
Great. I have one question regarding Rail. It seems like the demand environment is continuing to weaken. Specifically about the ETO contract, I believe you mentioned a $20 million EBITDA loss and a $40 million impact on free cash flow for 2025. It appears that 2026 might show some improvement, although perhaps not as much as we initially anticipated. Could you provide more specific details on what we can expect for 2026?
Yes, Tom, do you want to take that one?
Yes. Larry, we haven't spoken to that and we'll probably stay off it. But yes, we expect improvements as we go along. ETOs will still be a large use of cash in 2026. The $40 million that we had in 2025, if you remember when we started the year, I had talked about completion of small ETO projects. And our Rail team did a real nice job of driving those to completion. And as a result, it got paid for many of those. And that has partly the reason why the $40 million is certainly better than what we had last year, for instance, in 2024. But for 2026, we still expect to see a fairly large cash use from mainly the big three European ETOs.
And it looks like our next question today comes from Devin Dodge of BMO Capital Markets.
A bit of a modeling question, maybe tying back to, I think, the last question. But just the guidance had some directional comments on pro forma free cash flow in 2026 and looking for some improvement year-over-year. I believe there's a table at the back of the deck that outlines the cash flow performance by business. So that's helpful. But Tom, I was just wondering if you can walk us through the puts and takes to get to a reasonable range that pro forma free cash flow number, both in 2025 and 2026.
I think what I said in my comments was that we expect it to be modest. So whether it's total Enviri or the pro forma of New Enviri, I would have it breakeven or slightly worse than breakeven.
But in general, I mean, I think we expect better cash flow in HE, less negative cash flow in Rail kind of offset by some items in corporate. Is that right?
That's right. Yes.
Okay. Okay. That's helpful. On the Rail business, look, I know adjusted EBITDA excludes the impact from the large ETO contracts. But I think if earnings are expected to remain in negative territory in 2026, I think you mentioned it was down $19 million to $26 million. Just I know there's some overhead costs in the business that are tied to supporting those ETO contracts. Can you just remind us how much those are and when those should roll off? And if you back those out, would the business be operating at or above a breakeven level?
Yes. The SG&A to support those costs, along with some other overheads, is in the $15 million to $18 million range. Removing those, we project that the business will still incur a loss in the base business due to the very weak demand situation. We have implemented cost measures, and more will follow. However, it will take time for these measures to be fully effective, particularly in the manufacturing sector. Even though we are saving cash costs, it takes time for that to reflect in the financial statements. We expect to see the full benefits in the latter half of the year, which is partly why we are forecasting a loss for the base business.
Okay. Okay. And then sticking with the Rail business. Do you feel like most or all of the lower revenues that you're seeing is due to just soft industry conditions? Or is there a regional mix element to that? Or is there market share losses? Just trying to understand or if you could unpack what you're seeing on the top line performance?
It's Russell Hochman. Maybe I'll start and then, Tom, if you want to add anything or Nick. Just it's primarily related to the North America base business. We just see continued weakness, really historic weakness. We are hopeful that at some point, the customers will start investing in this equipment, but this is a cyclical low. That's really what's driving a lot of that market contraction for us.
Yes. And in our guidance, Devin, we didn't want to build in undue optimism. So we have based the guidance for the year based on current demand levels. And as Russell said, hopefully, that will start to change as the year progresses. And if it does, we'll certainly update you.
For sure, for sure. And if I could just squeeze in one last one. Tom, I think you have some good color on the contracts with SBB and Deutsche Bahn. Apologize if I missed it, but is there any update on the contracts for the ETO contract?
Devin, I didn't catch you; I think you mentioned Network Rail, right? Yes, Network Rail. We are making progress toward completing the first machine. Once that is delivered, it will go through homologation in the U.K. We are also in discussions with the customer to enhance the commercial and financial terms to make the future arrangement more appealing for the company. We have tentatively agreed with the customer that once the machine is delivered to the U.K., we will seek to finalize this agreement. Our current focus is on completing the first machine and wrapping up these negotiations, although there are more machines to be produced.
And our next question today comes from Rob Brown at Lake Street Capital Markets.
Good morning. Regarding the ETO contracts, there are many developments expected this year. Looking ahead to 2026, could you share your perspective on the ETO exposure and risk level? Will it be fully resolved by the end of 2026, or is there still an outstanding issue with Network Rail? I would just like to get a sense of the remaining risk on the ETO side after these steps are taken this year.
It's Russell Hochman. I'll share my thoughts on your question. Regarding the smaller ETOs, we expect to complete them this year, with a minor exception that will finish in the first quarter of 2027. As previously mentioned, we are not taking on any new ETOs, so this will conclude the smaller projects. For the larger ETOs, my commitment is to mitigate the company's risk associated with these. I am actively involved with Tom and others in discussions with our customers. We've communicated a clear message that we intend to finalize the terms of these contracts this year on a mutually beneficial basis, or we will seek other methods to reduce risk in the portfolio. My goal is to ensure these discussions lead to improved terms or alternate ways of mitigating risk as mentioned.
Okay. Great. Got it. Regarding Rail, I understand there is a cyclical downturn, and predicting the recovery is challenging. What are the dynamics we can expect as these orders begin to pick up? How quickly can we anticipate a rebound? I assume that the longer customers wait, the more pent-up demand they may have, but I'm not certain if that's accurate. Can you provide some insight into how the recovery cycle typically unfolds in the Rail market?
Well, we haven't seen volumes this low for a very long time. But Rob, it's a fairly quick cycle kind of business. So these are standard pieces of equipment. We can make them pretty fast unlike, say, the ETOs, for example. So if demand comes back, we should start to see our volumes respond pretty quickly. And we are monitoring, as you can imagine, monitoring the market very closely. For now, our customers are not ordering as much as they have in the past. They're choosing to conserve cash. In some cases, they're looking to remanufacture or refurb some of the old machines and stretch them out. And so yes, it's a matter of waiting at the moment.
And that concludes our question-and-answer session. I'd like to turn the conference back over to Dave Martin for any closing remarks.
Thank you, Rocco, and for everyone that joined us this morning. Feel free to contact me with any follow-up questions. And as always, we appreciate your interest in Enviri and look forward to speaking with you in the future. Have a great day.
Thank you. That 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.