Enviri Corporation 2026 Q2 Earnings Call

Thank you, Chuck, and welcome to everyone joining us this morning. With me today is Russell Hochman, our President and CEO, and Pete Minan, our Executive Vice President and CFO. This morning, we will discuss our results for the second quarter as well as our outlook. After our prepared remarks, we will 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 Form 10 information statement. 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 as well as the slide presentation. With that said, I will turn the call over to Russell to begin his remarks.

Thank you, Dave. It's great to be with you all this morning. It's an exciting time for the company with a lot of momentum underway, and I appreciate your interest in Enviri. This is our first earnings call since we completed the sale of Clean Earth in June, and we are pleased to report positive results for our first quarter as a new public company, building on the momentum of Q1. Harsco Environmental and Rail each performed well and exceeded expectations despite serving end markets that have yet to recover. We said that as a standalone company, we are continuing to move forward with urgency in taking action to strengthen our foundation and position the company to drive earnings, margins, and cash flow growth.

You can see that we've wasted no time and have taken meaningful steps to advance our strategic priorities, including the decision to exit our Deutsche Bahn and Network Rail ETO contracts, which significantly de-risks our company. We are also getting positive traction on our various internal work streams to enhance business efficiency and operational execution at all levels. In short, we believe all of these actions post-spin will position Enviri for meaningful growth in 2027. While it's exciting to watch the implementation of our value creation playbook as we deliver on our commitments, what really energizes me is the broad engagement of our employees at all levels, which has been simply tremendous. We are pleased with what our teams have accomplished in a short period of time. Our Q2 results illustrate how disciplined execution and a simultaneous focus on growth opportunities and efficiencies can drive results.

They also underscore our continued drive to implement our strategic priorities. Getting into the details, revenues in the second quarter grew on a like-for-like basis, and adjusted EBITDA increased by over 20% compared to last year. Our growth was driven by Harsco Environmental, which benefited from a modest improvement in the underlying steel market. Importantly, much of the bottom-line growth we saw reflects our internal focus on operational execution and opportunities as well as cost discipline. It's encouraging to see our HE business growing again. Rail, meanwhile, benefited from its expanded focus on after-market opportunities, with these revenues growing double digits, as well as our ability to drive efficiencies through related operational levers, despite demand for original equipment remaining at multi-decade lows. Pete will go through the quarter in more detail. Next, let me turn to Rail's ETO contracts.

As we announced yesterday, we decided to exit our Deutsche Bahn and Network Rail equipment contracts. We've ceased all related manufacturing and development activities, and we've been working closely with each rail customer to identify an alternative solution that meets their needs. For Deutsche Bahn, we signed an agreement with our primary subcontractor, GBM, to sell our relevant assets and to transfer supplier obligations under the contract with the support of DB. GBM plans to complete the vehicles and has agreed to compensate us for our inventory and intellectual property in upcoming quarters.

For Network Rail, while we are no longer executing on the manufacturing contract, we have proposed upgrading its existing fleet of Stoneblowers, which we currently maintain and operate through a separate contracted services agreement. This proposal provides a viable transition plan that minimizes operational disruption for the customer and provides sufficient time for them to transition to an alternative maintenance strategy. Our discussions with Network Rail are ongoing, and we're hopeful that we can reach an agreement soon. Each of these legacy ETO projects carried significant technical and financial risks for our company. For some time now, we've been attempting to find a viable path forward for each of these contracts, but ultimately, we were unable to identify one that would be acceptable to Enviri and its stakeholders post-spin.

We are confident that our decision to exit these contracts is the right one, enabling us to de-risk the rail business and advance a top priority for the company. These projects consumed approximately $40 million of cash in 2025 and were originally anticipated to consume a similar amount this year. As a result of these decisions, our go-forward financial and cash flow profile is greatly improved, as is our strategic flexibility. As we previously communicated at the time of the spin-off, we set aside sufficient cash to address these outcomes without any increased leverage or placing an additional burden on our shareholders. SBB is now our only legacy ETO contract. This contract is progressing on plan. The first group of vehicles has already been delivered, and the manufacturing assembly of the second set of vehicles, 11 in total, is well underway.

We expect regulatory approval in the beginning of 2027 and our manufacturing activities to conclude in the second half of 2027. Most importantly, we anticipate meaningful cash flows from SBB to start early next year and to be positive until the contract concludes. With these challenged legacy ETOs behind us, going forward, Harsco Rail is free to enhance its focus and resources exclusively on its core maintenance-of-way business and other offerings where we have competitive advantages and can generate more predictable earnings, stronger cash flow, and lower execution risk. It is important to recall that Rail has been and remains the North America market leader in its space for over 100 years. Next, let me comment on our ongoing comprehensive self-help improvement initiatives. We've evaluated everything we do day in and day out, and how we manage our businesses, and how we operate and serve our customers.

We have launched numerous actions over the last quarter to enhance our operations and efficiency with the goal of improving margins and cash flow and driving growth. In Rail, we continue to strengthen our operating platform through supply chain and manufacturing optimization initiatives. These actions are improving productivity and working capital efficiency while enhancing our ability to deliver high-quality products on time and to expand market share. In aftermarket, a refined commercial strategy driving strong customer engagement and leading to sustainable profit growth. We have also right-sized our engineering and administrative expenses. In Harsco Environmental, we are focused on driving structural cost improvements across maintenance, consumables, and indirect spending while optimizing service delivery and contract performance. These actions are expected to improve productivity, enhance our cost competitiveness, and maximize our revenue capture and further differentiate our value proposition to customers.

In addition, we've taken strategic restructuring actions across both businesses and corporate to support our broader improvement efforts. For example, in connection with the ETO exits, we closed our Ludington, Michigan manufacturing operation and have implemented restructuring programs within our European operations and at our South Carolina location, focused on optimizing operational engineering and SG&A costs. At HE, we've consolidated site-level responsibilities as well as central functions, which impacts across our global footprint. These are necessary steps to strengthen our leadership positions within our industries and, along with our business improvement work streams, we expect them to drive significant margin improvement. The engagement of our people through this review has been very positive, and I'm pleased with our progress so early post-spin. We'll have more to communicate about the results of these actions and the related financial benefits later this year.

Our strategic priorities are clear, and I'm encouraged by what we have accomplished in recent months. Enviri is well-positioned with a strong balance sheet and greater strategic flexibility. While HE and Rail are each at a cyclical and structural inflection point, both are leaders in their respective markets. With these self-help initiatives underway, we will have the operating leverage to maximize any market tailwinds. Together, with the actions underway post-spin across the company, the underlying strengths of our businesses position us well to deliver improved earnings and cash flow performance starting in 2027. Now, let me turn it over to Pete to discuss the quarter in more detail.