Harsco Corporation Aktie

Good morning. My name is Roy, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation Third Quarter 2026 Earnings 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 express written consent of Enviri Corporation. Your participation indicates agreement.

I would now like to introduce Dave Martin of Enviri Corporation. Mr. Martin, you may now begin your call.

Welcome to everyone joining us this morning. With me today is Russell Hochman, our President and CEO; and Peter Minan, our Executive Vice President and CFO. This morning, we will discuss our results for the third 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 these 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. Now I'll turn the call over to Russell to begin his remarks.

Thank you, Dave. It's great to be with you all today to discuss our quarterly results and to update you on the progress we've made on our key priorities. Let's begin with the quarter. Harsco Environmental and Rail each delivered very strong results, which exceeded our expectations in the third quarter, and our business leadership and teams continue to respond well with a sense of determination and focus. Our adjusted earnings grew by more than 20% for the second consecutive quarter with both businesses reporting their highest quarterly earnings in roughly 2 years.

We achieved these results despite some persistent headwinds in the markets we serve, which I believe validates the merits of our near-term strategy for Enviri and the strong leadership and disciplined execution across our businesses. HE's growth in the quarter was driven by improvements and efficiency initiatives as well as a modest lift in volumes. Rail meanwhile, benefited from a lower overall cost structure resulting from our restructuring actions in recent quarters as well as an improved business mix, including within aftermarket parts.

Notwithstanding the continuing softness in the market for new equipment in North America, aftermarket overperformed our expectations, remaining a greater area of strategic focus and an important short-term growth opportunity for Rail. We expect the momentum within our businesses to continue, and we've raised our outlook for the year as a result. Pete will go through the quarter and our outlook in more detail. Next, let me turn to our priorities. We continue delivering on our commitments to drive actions to strengthen Enviri by derisking our ETO exposure in rail and executing on improvement program to enhance business efficiency and operational performance across the company.

We expect these efforts to drive meaningful earnings, margin and cash flow growth while improving our financial and strategic flexibility over the next year. Turning to rail ETO contracts. As we announced yesterday, we have executed an agreement with DB that releases the Harsco Rail from its obligations under the engineered-to-order contract for utility track vehicles. In connection with the release, as planned, we paid approximately $73 million in October to repay customer advances and satisfy our obligations associated with exiting the contract. This amount had been fully accrued for with the related cash set aside from the sale of Clean Earth.

As part of this agreement, DB will release performance bonds totaling approximately $13 million. No payments to DB are required under the agreement. We are pleased that DB will receive the next generation of machines from GBM to support their mission and that Harsco Rail has been able to maintain a positive relationship with this customer throughout this process. This formally completes our exit from the DB contract and removes a significant source of operational and financial uncertainty. This is truly a great outcome for Enviri and its shareholders.

Separately, under our agreement to transfer the assets related to the exited DB contract, GBM, the subcontractor on the project, has now assumed all responsibility for the related vehicles and has paid us the first of 3 installments for the project assets, which are expected to total up to $42 million. For Network Rail, our constructive discussions are ongoing, and both sides are committed to finding a mutually beneficial resolution to this situation. Network Rail continues to evaluate our proposed alternative solution to upgrade their existing fleet of stone blowers, and we expect that this process will take some time.

Importantly, we are no longer executing on this equipment contract, and therefore, we are not deploying any incremental cash related to this contract. Also, let me reaffirm that we have set aside cash from the sale of Clean Earth to fully address all potential outcomes related to exiting this contract with Network Rail. We are also making good progress on our remaining large ETO contract with SBB. The first 36 vehicles, the wagons have been fully delivered and now accepted. Of the remaining 11 vehicles, 4 have been fully manufactured and are undergoing commissioning by the customer. The other 7 vehicles are now being produced or will be shortly.

We remain on track to complete this project over the next year or so and importantly, collect the cash related to these final vehicles. While there is still work to do on these 2 contracts, we successfully eliminated a good deal of risk and distraction and the team is keenly focused on its core maintenance of way of business, which is more predictable and cash generative and lower risk. Lastly, let me comment on our self-help improvement program. These broad-based efforts have been underway for a couple of quarters, and we recently completed our final assessment of the various work streams.

We conducted a very disciplined bottoms-up process, and I'm encouraged by the ownership and leadership across the company. Based on this assessment, we are committing to deliver approximately $40 million of annualized value for our shareholders from these actions. Pete will provide some additional detail in his remarks. In Harsco Environmental, we are changing certain long-standing practices on how we maintain and manage our equipment fleet, which improve asset availability and productivity while performing at the high service levels our customers expect. We have also simplified HE's organization and overhead structure.

These actions are expected to strengthen our competitiveness while supporting our profitability and continued leadership in the industry. In Rail, we optimized our manufacturing footprint and working capital to improve operational efficiency to support product quality and on-time product delivery. We also rightsized administrative and engineering support spending, and we're beginning to see the benefits of these actions. We are also doubling down on aftermarket with a more aggressive commercial strategy that we expect to sustainably boost the size of this business within rail.

It's an exciting time for Enviri. Both HE and Rail are moving in the right direction, and our Q3 performance again highlights the importance of disciplined execution and our focus on delivering on our commitments. Our strategic priorities are very clear, and I'm encouraged by the progress we've made over the past 2 quarters. Enviri is well positioned with a strong balance sheet and significant financial and strategic flexibility, which should strengthen further as a result of our improvement initiatives. Any uplift in our end markets will further boost our growth over time. In short, we are very optimistic about what Enviri can accomplish over the next year or 2. Now let me turn it over to Pete to discuss the quarter in more detail.

Thanks, Russell, and good morning, everyone. Both of our businesses executed and performed very well in the third quarter despite, as [ Russell ] mentioned, some market headwinds. Each business delivered year-over-year earnings growth that exceeded our expectations. Relative to our prior guidance, we benefited from better services activity at HE and higher aftermarket volumes in Rail. Both businesses also benefited from our focus on cost controls and our recently implemented efficiency actions. As I've mentioned before, we are laser-focused on delivering against our near-term commitments.

And given our momentum, we're pleased to raise our earnings guidance for the year. Looking a little further out, HE and Rail continue to push forward our key initiatives aimed at further boosting our earnings, margins and cash flow profile, which [ Russell ] discussed. I'll come back to our guidance and improvement program shortly, but let me first walk through our third quarter details starting on Slide 4. As with the last quarter, note that our financial data now excludes Clean Earth for all historical periods. The central costs previously allocated to Clean Earth are now embedded within our Corporate segment as we continue to support Clean Earth under a transition services agreement.

In the third quarter, total revenue was $325 million, and adjusted EBITDA was $47 million, which is 21% higher than Q3 of last year. And again, we exceeded our expectations for the quarter. HE and Rail contributed equally to our earnings growth this quarter. Our Q3 adjusted loss per share was $0.16, and our unusual items in the quarter included $6 million of restructuring costs, consisting of $3 million of severance-related costs at HE and $3 million of third-party consulting fees linked to our internal improvement program. I should note that there will be some further restructuring costs recorded in Q4.

Our unusual items also included the $8 million rail gain related to the first payment we received from GBM under our asset transfer agreement, which we disclosed last quarter. And as noted in our earnings release, we expect to receive up to $34 million in additional payments from GBM in the coming quarters. Also, as we mentioned in yesterday's press release, we recorded a $12 million favorable adjustment in connection with the execution of the DB exit agreement. The gain relates to the release of performance bonds supporting the project, which we have previously accrued as a potential liability.

Adjusted free cash flow for the quarter was negative as anticipated and included the $8 million GBM payment I just mentioned. We expect our underlying cash flow performance to improve starting in Q4 and to accelerate as we move forward. So please turn to Slide 5 and our Harsco Environmental segment. Segment revenues totaled $273 million, an increase of 5% compared with the prior year quarter. Adjusted EBITDA totaled $50 million, which is 13% higher than the comparable quarter in 2025, and HE's EBITDA margin increased to over 18%.

The year-over-year earnings improvement reflects higher services and product volumes, better pricing as well as operational improvements at certain existing sites. Now these benefits were partially offset by some market conditions, higher incentive pay and foreign exchange translation headwinds. Customer steel output increased modestly year-over-year, and production levels were considerably weaker in the Middle East and in Turkey due to the ongoing conflict in that region, but these impacts were offset elsewhere. In Europe, a number of steel mills have announced plans to restart certain operations following the implementation of the new tariff quota scheme that was effective at the beginning of July of this year.

We provide services at some of these sites and expect to benefit from these plans in the coming quarters. Next, please turn to Slide 6 and our Rail business. Rail revenues totaled $52 million, which is lower than the prior year quarter. The change reflects lower equipment volumes amid soft market demand, which remains at a multi-decade low as well as the impact of exiting the DB and Network Rail contracts. Rail's adjusted EBITDA was $1 million in the quarter compared to an EBITDA loss of $4 million in the prior year.

This improvement reflects a more favorable mix of equipment and aftermarket sales, lower operating costs following recent manufacturing footprint and workforce changes, some of which related to the DB and Network Rail contract exits as well as LIFO cost of sales adjustments. Let me next turn to our outlook on Slide 7. We have raised our full year EBITDA guidance for both HE and Rail. For HE, our EBITDA range is now $180 million to $184 million compared with $170 million to $180 million previously. And for Rail, we now expect a loss range of $7 million to $10 million compared with the previous range of $19 million to $26 million -- these changes reflect benefits from our recent business improvement and efficiency actions as well as a modest increase in service levels at HE.

And for Rail, we are now also anticipating an increase in our aftermarket volumes, which is the direct result of our focused pursuit of this market opportunity in recent quarters. Our EBITDA guidance for the fourth quarter can be found on Slide 8. At the midpoint of its guidance range, Harsco Environmental performance is expected to be similar to the fourth quarter of 2025 as underlying business growth is offset by an operating tax credit in 2025 not repeating this year as well as certain market pressures in the Middle East. For Rail, volume growth in aftermarket and cost improvements are projected to benefit results compared to the prior year quarter.

Corporate costs are expected to be $5 million to $6 million in the fourth quarter, net of stock compensation expense. We expect our underlying free cash flow in Q4 to improve relative to the third quarter. Now this expectation excludes the approximately $73 million payment we made in October as a result of exiting the DB contract that [ Russell ] mentioned. That payment was in line with our accrual and in line with our expectations and as mentioned earlier, concludes our obligations related to the DB contract. We are also pleased to report that in October, we received a $5 million working capital final true-up payment from Veolia related to the Clean Earth sale.

Our net leverage remained at 1.9x at the end of Q3 as defined by our credit agreement. And you will recall that our bank covenant definitions limit the amount of cash that can be used in calculating net debt to $100 million. Now lastly, regarding our improvement program, which [ Russell ] discussed, we expect approximately $40 million of incremental benefits in addition to those realized in 2026. The benefit will roughly be split between HE and Rail as well as between 2027 and 2028. We are certainly pushing to realize these impacts sooner, but we see this as an appropriate view at the present time.

Some of these benefits come from simplifying our organizational structure and should have more immediate impacts, while others will take time, reflecting the complexity of implementing maintenance and operational changes across more than 100 sites globally in HE. To a lesser extent, the program also includes benefits in rail related to increased aftermarket penetration in 2027 and 2028. Now we'll provide more clarity on these details with our 2027 guidance that we will issue in February. Thanks, and I'll now hand the call back to the operator for Q&A.

Your first question comes from Rob Brown with Lake Street Capital Markets.

Just wanted to follow up on the aftermarket focus. You had good progress starting -- starting this quarter, but in the quarter. What's sort of the view on the aftermarket kind of ramp? How much progress have you made there? And how much do you have to go to really get to where you want to be?

Rob, it's Russell. I think we've made some very good progress. I think there's more to go. I think the shift is really a reorientation of the team from its sort of legacy focus on new equipment as the primary focus and a realization that there's sort of a new opportunity to focus more on the aftermarket as its own sort of product category. And so I think we've separated these with new leadership, new organizational structure, separate P&L, bringing in new expertise, new life cycle aftermarket approach. And so obviously, the results speak for themselves. We may have taken our eye off that in the past. And so we think there's more runway there in terms of going after aftermarket. So we're very enthusiastic about the opportunity.

Rob, it's Pete. We're early days, a simple answer. And I think the benefits we saw in Q3 were kind of largely related to quick wins and some real good opportunities that we saw. The real structural benefits, the longer-term benefits, which you'll see in 2027 and 2028 are going to be really related to some of the structural changes that we're putting in place today. So it's going to phase in. It's not going to be an overnight change, but we expect it to continue to be accretive over the next several quarters, actually through the end of 2028.

And then good progress on getting the rail contracts sort of cleaned up on the DB side. What's sort of the next steps on that broader effort? I know you really reserved complete for what the ultimate charges are, but what's sort of the next steps in that effort?

Are you referring to Network Rail, Rob?

Yes.

Network Rail. So yes, as I mentioned, we're having constructive discussions with them. We have a very long-standing relationship with them going back decades. We are still providing contracted services to them and that relationship is as good as ever. And they've reaffirmed that relationship continues to be very positive and the services continue to be very good. And all I can tell you at the moment is that the 2 sides are trying to work it out, right?

And so they're evaluating our offer as you can imagine as the national rail service provider, it's a big decision for them. They have a lot of stakeholders they need to speak with. So we are there when they need us. We are available to answer their questions. We are not spending anything. And so that's really what I can report at the moment. And so we put aside what we need to put aside for any kind of eventuality. But I would just say it's heading in a direction that we had hoped for.

And obviously, the recent news on Deutsche Bahn is evidence that we can work things out with our partners. I think the news yesterday that we successfully exited in a way that our customer will ultimately receive their equipment that the reputation of Harsco Rail remains very positive with this customer. And obviously, that we are getting paid for the assets kind of is evidence that we can work these things out, right? And so we're hopeful we can repeat that with Network Rail. But that's really what I can provide as an update at the moment.

And Rob, it's Pete. Lest any uncertainty at all. The Deutsche Bahn contract is concluded. So we're -- it's entirely in our rearview mirror. We have nothing -- well, nothing further to do with respect to the contract. Frankly, the only accounting adjustments you're going to see are when we collect our payments from GBM next quarter and in early 2027, and those are positive cash flows and gains. So it's, as Russell said, extremely successful conclusion to a contract that has been creating a lot of uncertainty and questions for us over the years. So really happy about that.

Your next question comes from Larry Solow with CJS Securities.

Good to see some progress on your initiatives. Congrats there. Just on the -- so on the -- curious on the DB settlement exit, is just the amount of cash outlay or the contractual settlement, is that -- it sounds like it's basically in line with your expectations, right? SBB, I'm just trying to run through them all. SBB, I believe that will be positive cash flow this year, right? So the only real dangling or potential -- I'm not saying it's negative, but where there's still some risk, I guess, is Network Rail. Is that correct? And can you just like run us through kind of -- I know you had, I think, like $200 million of cash reserve for all these contracts. Where does that kind of stand now? Can you kind of update us on just the numbers behind it?

Yes, yes, sure. Larry, Pete. Good to hear from you. Yes, let me just break it into pieces. First of all, in the question of Deutsche Bahn, that actually -- the only thing we did in October was pay off the amount that we accrued in the exact amount to our -- basically refund the advance we got, which was $73 million. We paid that early October. So that's -- you'll see that in the Q4 cash activity. I mentioned that in my remarks, but that was completely consistent with what we accrued. There is no change. And as Russell mentioned, we had the cash set aside from that, and I'll come back to that in a second.

In the case of Network Rail, we are not spending any money. We've exited the contract. So we're not -- there's no activity at all until we reach an ultimate agreement with the company. So that's -- that we've got accrued, and I'll come back to the amount accrued in a second. SBB is cash positive -- net cash positive really more significantly in 2027 and 2028. But it's just -- it's something we're keeping because it's progressing quite well from here on out, and it's going to generate a meaningful amount of cash inflow over the next couple of years.

We had accrued roughly $185 million or so at the end of the quarter for all of these things. We won't get into specifics, but part of that will be settled by the $73 million payment I just mentioned related to DB that we've already spent. And then the rest of it is related to Network Rail and some other contracts, which we'll spend when we reach a negotiated settlement with Network Rail.

As far as cash, we had $280 million of cash on the balance sheet at the end of the quarter, $50 million of it was previously indicated as restricted. It's no longer restricted as of now. So that cash is what we had set aside plus another $25 million of cash collateral, if you recall, related to performance bonds, which is not shown as cash on the balance sheet. It's actually buried in other assets. So we have just under $300 million of cash kind of on the balance sheet that we had set aside to cover not only our normal working capital needs, but to deal with any and all possible scenarios that these exits could take.

I appreciate all that color. And I know it's early days, but it sounds like if I just put the pieces all together between the exits of these UTV contracts and hopefully, some improvement in the domestic side. If we look out to '27, I know you don't want to give guidance yet, but is it fair to say that just on the rail side, cash flow could actually be positive or at least no longer negative?

Yes. I think that's a fair comment, Rob.

I mean...

Okay. Great. Lastly, just on HE. It sounds like things are progressing mostly cost cutting and stuff. But you did mention, I guess, a little bit of a revenue increase. Is that more just volumes are roughly flat. I guess you got a little bit of benefit on the Eco product side. But are you just -- what's driving the revenue improvement volume decline? Is it just more ancillary services? Or what kind of drove that modest improvement? And it sounds like on the Europe side, no benefit yet, but perhaps some benefit next year.

Yes. It's volumes, but also prices. We have some good price increases. So that helps. You recall that I mentioned that we're still seeing some pressure -- volume pressures in the Middle East because of the conflict there. That's -- those were largely offset by volume and price increases elsewhere in the business. In the case of Europe, you're absolutely right. We -- there are a number of sites that are in process now for restarting furnaces, for example, and to deal with the additional volumes that they expect to come in. We operate a number of those sites, and we expect to see the benefits largely in 2027, but we might see it a little bit in Q4.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Martin for any closing remarks. Please go ahead.

Thank you, Roy, and thanks for everyone joining us this morning. Any follow-up questions, feel free to reach out to me. And as always, we appreciate your interest in Enviri and look forward to speaking with you in the future. Take care.

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

Good morning. My name is Chuck, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation Second Quarter 2026 Earnings 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 express written consent of Enviri Corporation. Your participation indicates your agreement.

I would now like to introduce Mr. Dave Martin of Enviri Corporation. Mr. Martin, you may begin the call.

Thank you, Chuck, and welcome to everyone joining us this morning. With me today is Russell Hochman, our President and CEO; and Peter 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'll 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 stand-alone 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 derisks 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 aftermarket 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 derisk 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 the 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 American 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 rightsized 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 and 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 strength 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.

Thanks, Russell, and good morning. It's really nice to be here with everyone again, and it's such an exciting time at Enviri. And personally, it's been great to reengage with the team and help Russell drive forward our many key initiatives. I'm encouraged by our progress to date and very optimistic about what we can accomplish and achieve over the next couple of years. As Russell discussed earlier, our operating teams executed very well in the second quarter. Each business delivered on its Q2 financial priorities while advancing our strategic initiatives aimed at strengthening the company's earnings and cash flow potential. Harsco Environmental and Rail both exceeded the high end of our guidance for the quarter.

For HE, services volumes and pricing boosted performance. And for Rail, stronger aftermarket volumes contributed to the better result. In addition, each business benefited from our focus on tightly managing our discretionary spending and other similar actions. The momentum within our businesses is becoming more visible. HE, for example, showed positive revenue, EBITDA and margin comparisons on a year-over-year and quarter-over-quarter basis. While there are still some challenges ahead, we are optimistic that these positive trends will continue.

Progress at Rail will take a little longer to translate into positive reported results, but the exit of the 2 ETO contracts and the restructuring actions we've implemented represent a defining moment for the business. Meanwhile, our free cash flow performance is also improving, driven by reduced debt levels as well as rail where the team has improved working capital performance within its base business and reduced ETO spending. Now let me turn to our second quarter details, starting on Slide 4. First, let me note that our KPIs, including revenue, adjusted EBITDA and adjusted free cash flow now exclude Clean Earth for all historical periods. And it's important to note that expenses of roughly $8 million on an annual basis previously allocated to Clean Earth are now reflected in our corporate segment.

As a result, comps can be impacted by these changes as well as by our cost reimbursements from Veolia under our transition services agreement. In the second quarter, total revenue was $187 million. However, this included a negative revenue adjustment of $136 million related to exiting the 2 rail contracts, which had been previously recorded using percentage of completion accounting. This ETO revenue had previously been reported at 0 margin as we discussed in the past. Excluding this adjustment, revenues were higher as compared to the 2025 quarter. Adjusted EBITDA for the quarter was $34 million, which is 22% higher than Q2 of last year and exceeded our expectations this quarter. This growth again was driven by Harsco Environmental.

Our adjusted loss per share was $0.63 for the quarter. Now as you analyze our results, please keep in mind that this quarter includes several unusual accounting items associated with the contract exits and the Clean Earth sale and spin-off. So let me try to provide some clarity, starting with the $247 million of unusual P&L items. $207 million of this amount is the result of exiting the Deutsche Bahn and Network Rail contracts. It includes noncash impairment charges of $75 million related to contract assets in inventory. and the remaining $133 million relates to incremental liabilities we may incur to settle any obligations associated with exiting these contracts. This brings our total accrued liability for these and other contracts to $190 million.

As Russell mentioned, we had set aside funds from the Clean Earth proceeds, which allow us to meet obligations from these derisking actions without any additional leverage or burden on our shareholders. Furthermore, we are no longer accounting for the operation of these contracts, which should provide for greater clarity and considerably less volatility in the future. Secondly, the $29 million of the total unusual items comprises project or transaction costs related to the Clean Earth sale. and the remaining $10 million of unusual items is for restructuring actions within both HE and Rail, which Russell referred to earlier. As part of these restructuring actions, approximately 300 positions are being eliminated and most of the cost is, therefore, severance related.

These monies will be spent in the upcoming quarters, and the margin uplift from these actions once completed, is anticipated to exceed $15 million annually on a full run rate basis. These unusual items overall reflect the aggressive and accelerated actions we're taking to derisk the company and improve our cost structure, and we are well underway in these efforts. Our adjusted free cash flow for the quarter was negative $9 million, which is an improvement year-over-year and quarter-over-quarter. The underlying cash flow from each of our businesses was positive in the quarter, and Rail had its strongest cash flow quarter in a number of years as it benefited from strong collections in its core business and less ETO contract-related spending.

We expect our cash flow performance to improve as we move forward. Lastly, we ended the quarter with net debt of approximately $290 million and a net leverage ratio of 1.9x as defined by our credit agreement. Both figures are monumental improvements compared to our recent past and a great foundation for our new company. I'd also like to note that these Q2 leverage figures consider only $100 million of our cash in calculating what comprises net debt. Please turn to Slide 5 and our environmental -- Harsco Environmental segment. Segment revenues totaled $266 million, an increase of 3% compared with the prior year quarter. And adjusted EBITDA totaled $46 million, which is 15% higher than the comparable quarter in 2025.

The year-over-year earnings improvement reflects higher services and products volumes, better pricing as well as operational improvements at certain sites. Customer steel output increased modestly year-on-year, but there were some volume headwinds in the quarter, mainly in Northern Europe and China, and we are now seeing some volume pressure in Q3 in the Middle East due to the ongoing conflict in that region. We are pleased to see that Europe steel tariff and quota changes were ratified and became effective at the beginning of July. While we expect there to be some offsetting impacts across our global portfolio of customers, overall, this development is positive for HE, and we expect modest uplift from these actions next year.

Next, please turn to Slide 6 and our Rail business. Adjusted rail revenues totaled $58 million, which is unchanged from the prior quarter. Its adjusted EBITDA loss was $5 million in the second quarter. The change in earnings year-over-year reflects lower contributions from original equipment sales and contracted services work with these impacts partially offset by higher aftermarket volumes and overhead cost reductions. Let me conclude with our outlook. Guidance for both HE and Rail is unchanged for the year. Performance in the first half of the year has tracked better than we anticipated.

However, we are dealing with considerable uncertainty within our base rail business and in HE, given fuel prices and the geopolitical pressures affecting customer production around the world, particularly in the Middle East. As a result, we are maintaining our full year guidance with HE's adjusted EBITDA range remaining at $170 million to $180 million and Rail's adjusted EBITDA loss range remaining at $19 million to $26 million.

Our EBITDA guidance for the third quarter can be found on Slide 7. At the midpoint of its guidance range, Harsco Environmental performance is expected to be modestly above the third quarter of 2025, while Rail's EBITDA is anticipated to decrease as a result of lower volumes. Regarding corporate costs, let me remind you that we will continue to support Clean Earth through the transaction -- transition services agreement in the coming quarters. We're hopeful that this support will conclude at or near the end of this year. For Q3, gross corporate costs should be comparable to the just completed quarter or approximately $9 million. And lastly, we expect our adjusted free cash flow to be modestly negative in the third quarter.

Thanks, and I'll now hand the call back to the operator for Q&A.

[Operator Instructions] And our first question for today will come from Larry Solow with CJS Securities.

First question, just could you help us just kind of bridge -- I know you didn't put out an official restricted cash number, but restricted cash is now $50 million. It was $175 million. Just trying to get my hands on the ETO contracts. And it sounds like your decision to exit will certainly be beneficial, but I just want to make sure the -- is everybody -- it sounds like Deutsche has agreed upon this, but maybe [ Network Rail ], you're still working on negotiations with them. So it sounds like we're close to finality. Just kind of help us maybe get a little more color on that and just help to quantify the accounting for it.

Larry, it's Russell. Let me start, and then I'll turn it over perhaps to Pete for additional commentary. So we are in close conversation with these customers. We obviously have long-standing relationships with them. In the case of Network Rail, they go back decades, and we're still performing contracted services for them. So I think it's fair to say those discussions are ongoing to try to find an alternative pathway forward for them. It's very much part of our strategic planning to support them as they look to replace the equipment that we were in the process of manufacturing for them. So we'll have more to say throughout the year, but I just want to emphasize the fact that we are working very closely with them. They understand the reasons for the decision given the spin-off of the company. And so we'll continue those discussions.

Yes, Larry, this is Pete. So as I mentioned in my prepared remarks, the total contract liability for Network Rail and DB exits and everything else is about $190 million at the end of the quarter. And then you look at our -- on the asset side of the balance sheet, we've got roughly $300 million in cash. As you pointed out, $50 million is identified as restricted.

The restricted -- it's not just the restricted cash that has been set aside and earmarked as a result of the spin-off to deal with these situations. It's kind of -- you look at the combined cash of $300 million, that's all been kind of earmarked to some degree or another to help us deal with the situations that we have with these contract exits. When you look at our net debt calculation for covenant purposes when I calculated when I described the leverage of [ 1.91 ], we only get to count $100 million of cash that we have on the balance sheet as considered to be net debt for the calculation purposes. Does that help a little bit put in context?

Yes, no, no, absolutely. Yes, absolutely. So that $190 million basically is more in line with -- because I heard the $13 million, I saw the $13 million in the release. That's fair. And I know you can't count more than $100 million, but conveniently or coincidentally, that's about what your real cash is if you kind of deduct for the -- it's in the neighborhood of that. Okay. No, that's all fair. And then the -- so it sounds like just lastly on HE, a little improvement in the steel market. I think last Q1 of last year was also a terrible quarter for volumes. But I'm taking your outlook, you're building in just roughly flattish kind of volumes and stuff through this year, right? That's...

That's right. It's built in. I think that's a fair assumption, Larry, that we're not incorporating any meaningful market uplifts -- if that happens through tariffs or otherwise, obviously, that will be upside, but we're not incorporating into our current forecasting.

We're also considering the volume pressures we're seeing in the Middle East that I mentioned earlier, Larry, sorry.

Right. Right. Just lastly, the free cash flow assumption. I know you had expected $40 million from the rail. Is that -- I know you said that should improve this year with these ongoing negotiations, but I guess there's no certainty to that. But by '27, it sounds like if things are -- go your way directionally as they continue to go positively, it sounds like '27 could be -- actually should be a positive year for rail net, right, by itself.

Yes, , we should start to see some close to breakeven free cash flow later this year, even in Q4.

Okay. Great. And then I imagine as you exit Europe, you probably over the longer run, you have ability to take out some more costs in this business, I suppose.

Yes, that's correct.

Next question will come from Rob Brown with Lake Street Capital Markets.

Just wanted to follow up on the Middle East comment that you made. What's -- could you remind us again what your exposure is to the Middle East or how much of your business you have in that region?

Yes. We've got a hand -- this is Pete, Rob. We've got a handful of sites there in Oman, Abu Dhabi, Bahrain, Egypt, and they're all affected in different ways. I mean nobody has actually shut down. But in some cases, some of the customer sites are dealing with some struggle getting some incoming materials to be able to keep their production levels at the right levels. In some cases, particularly in Egypt, we're starting to see the demand pressures kind of affect them more significantly. All those factors together kind of collectively are creating a pretty reasonable headwind on our customer sites in that area. Good news is no sites are shut down and nobody is hurt as a result of anything that's going on there.

Okay. Great. Good to hear. And then sort of back to the rail ETO contracts, I just wanted to clarify, you sort of named the $190 million. Is that sort of the max exposure you have now at this point and -- or expected number? Or is there any other kind of outstanding issues that could change that number?

Yes. This is Pete again. I'll make 2 comments. One, when we made the decision to exit, obviously, we wanted to put these contracts in the rearview mirror operationally and accounting-wise. So we will not be longer doing any more accounting for these contracts. So you won't see any periodic adjustments for things like estimates at completion or cost overruns and that sort of thing. That's all behind us. And the intention was to be done.

Right. And Rob, it's Russell. I think if you recall our previous earnings calls, my comments about derisking the ETOs, this is obviously one of our most important strategic priorities to put these behind us, both operationally, financially, et cetera, to allow our business at Rail to focus on its core, to grow and then to give our shareholders clarity on the status of these ETOs going forward. So everything we've done to date is oriented around putting these in the rearview mirror.

Okay. Great. Great. And then I guess the ongoing rail business, I think, had a very high kind of parts and services aftermarket exposure or percentage. Could you just sort of give us a sense of what rail looks like from a mix standpoint and sort of focus going forward now?

So I'll let Pete give you the numbers. But in terms of focus, we are reemphasizing the focus on aftermarket in the sense that the legacy business has generally been oriented around large equipment sales and aftermarket was an ancillary business. Our focus is actually on separating it out as a separate area of focus, separate line of business. We'll have more to report on that as the year progresses. But I think you're going to hear perhaps as we put the ETOs behind us, more emphasis on the aftermarket, particularly since we are at that cyclical bottom of the equipment market. So more to come on that particular part of the business.

Yes. I mean, historically, kind of the aftermarket parts business is kind of 40% of revenues. But as we told you with the volume pressures we're getting with respect to original equipment sales, that percentage is increasing. Plus, as Russell just mentioned, with a lot of the revenues, which had been associated with ETO contracts going away, that percentage is quite a bit higher. Now it's -- we hope that the equipment market turns around in the future years and that percentage kind of normalizes itself. But certainly, in the near term, we expect the percentage of aftermarket to grow relative to the total.

[Operator Instructions]

Our next question will come from Devin Dodge with BMO Capital Markets.

I wanted to come back to one of the earlier questions on the ETO contracts. So just trying to understand what some of the risks and opportunities that could cause the cost to conclude those ETO contracts to be either higher or lower than that $190 million [ cash outflow ] estimate.

Devin, it's Russell. Let me start again. So in terms of them being lower, we, I think, have made it very clear, we are in discussions with these customers. We've signed up a sale agreement with GBM, our contract manufacturer in Germany. So we are hopeful that through those actions and discussions with the customer, including Network Rail and the offer we've made to upgrade their existing stoneblower fleet, which we know very well because we've been operating it for quite some time that the cost could be lower.

But of course, conversely, we may not be able to reach that final agreement, for example, with Network Rail, -- and of course, if that results in a conflict litigation, then that's probably going to represent our maximum exposure. Of course, that will take some time, and we feel strongly that there's a better path for both parties, but that scenario could represent the outer limits of what we envision.

Maybe, Devin, this is Pete. Let me just give you some accounting color on this, too. So in the past, of course, you're used to us dealing with these things as ongoing operational accruals. So we would be adjusting them for changes in estimates and overruns and that sort of thing. As I mentioned in my prepared remarks, we aren't using that accounting anymore. Once we made the decision to exit it, we no longer account for these contracts in that manner. And rather, we recorded this liability from the perspective of an exit-related liability. So -- and generally accepted accounting principles, that kind of gets the vast majority of the bad things behind you.

I think while Russell mentioned, there's conceivably a scenario that could result in an increase in what we've got recorded. It's not anywhere it's of the magnitude or frequency or of the nature of things that we've been talking about in the past. I think it's quite the opposite. As I mentioned, the objective of doing this from both a financial and accounting perspective was to put these things in the rearview mirror, and I think we've got that.

Okay. Makes sense. Okay. For the agreement with GBM, under what scenarios would Harsco Rail receive funds? And are there scenarios where Harsco Rail would need to provide additional capital to GBM?

So no additional capital. All the money will flow one way. And then I would just say, without obviously getting into the specifics of the contract, there are certain milestones that you would expect as GBM proceeds with their manufacturing of this equipment, certain approvals by DB. So as those milestones are met, we will receive funds. And this is not something that's going to extend for years. This is really associated with the homologation of the equipment. So my expectation is we're talking really probably in the next 6 months or so.

Okay. Okay. Last one for me. Overhead in Harsco Rail, just I think there's some costs in there to support those ETO contracts. Just can you remind us how meaningful those are and how quickly they will step down following these contract exits?

Well, we've started already, and some of those are reflected in the numbers. So as you heard, we've shut down the factory in Ludington, Michigan. We've been ramping down the European facility that supports the DB contract. We've made significant changes at our South Carolina facility. The one thing just to keep in mind, Devin, is that some of the people who have been supporting the Deutsche Bahn contract in Europe also support the SBB contract. So there's some overlap there that we may not be able to get to immediately, but those actions have already been undertaken.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Martin for any closing remarks. Please go ahead.

Yes. Thank you for joining us this morning. Feel free to call me with any follow-up questions. And as always, we appreciate your interest in Enviri and look forward to speaking with you in the near future. Take care.

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

Good afternoon. My name is Chuck, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation First Quarter 2026 Earnings 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 express written consent of Enviri Corporation. Your participation indicates your agreement. I would now like to introduce Mr. Dave Martin of Enviri Corporation. Mr. Martin, you may begin the call.

Thank you, Chuck, and welcome to everyone joining us this afternoon. With me today is Nick Grasberger, our Chairman and Chief Executive Officer; Russell Hochman, our President and Chief Operating Officer and incoming CEO of New Enviri; Tom Vadaketh, our Senior Vice President and Chief Financial Officer; and Pete Minan, the incoming CFO of New Enviri. Today, we will discuss our results for the first quarter as well as our outlook for Harsco Environmental and Rail. 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 most recent 10-K and as updated in subsequent 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 the earnings release today as well as the slide presentation. I'll now turn the call to Nick to begin his prepared remarks.

Thank you, Dave, and good afternoon, everyone. Let me start with a brief status update on the Clean Earth sale and spin-off of New Enviri. Last week, our shareholders voted to approve the Clean Earth sale, and the Form 10 filing related to the New Enviri spin-off was approved by the SEC and declared effective. As a result, we have now cleared the key regulatory milestones for both the sale and spin-off transactions and expect to close in approximately 3 weeks or June 1, which is in line with our anticipated timing. We will announce the cash payout to shareholders from the Clean Earth sale shortly prior to closing.

Our cash conversion range remains $14.50 to $16.50 per share. We are working diligently through the details related to the payout and won't comment further today on potential outcomes. With the Clean Earth sale closing soon, this will be my last earnings call with Enviri. It has been a privilege and a pleasure to lead this company over the past 12 years. The professionalism displayed across the company over the years has been unmatched, and I'm grateful for the hard work and consistent support of our employees and our Board.

I'd like to recognize the employees of Clean Earth and our entire Enviri team for their efforts and dedication in creating a better business and completing the successful yet complex transaction. It certainly provides a great outcome for our shareholders. And I wish the Clean Earth team well, and I'm confident they will thrive as part of Veolia. I'd also like to recognize Tom Vadaketh, who will be leaving Enviri when the transaction closes. Tom has been a driving force behind the tremendous value creation for our shareholders during his 2.5-year tenure. Tom is liked and respected by all, and I simply cannot imagine a better partner for me and our colleagues during his time with our company.

With that said, there is more value to be created here through New Enviri and under the leadership of Russell. New Enviri's implied valuation today is compelling, and we believe Harsco Environmental and Harsco Rail have attractive earnings growth potential. These are strong businesses poised to improve as demand rebounds in their respective markets. Margin growth for each will be further supported by the initiatives contemplated by Russell and team. New Enviri is in very good hands, and I look forward to watching its continued progress as a sizable shareholder. Russell, Tom, and Pete Minan will comment further on Q1, our outlook and our priorities. Now over to Russell.

Thank you, Nick, and good afternoon, everyone. Harsco Environmental and Rail started the year with positive momentum, each exceeding our expectations as a result of better volumes, positive operational execution, and prudent cost management. I'm optimistic about what's ahead for New Enviri. Harsco Environmental and Rail are market-leading attractive businesses that we believe are at an inflection point. New Enviri will benefit from a strong capital structure and with less burden from related interest costs. And we're confident our internal actions will drive margin improvement.

As market conditions improve, we'll be even better positioned to drive earnings and cash flow growth, further reduce debt, and continue to enhance shareholder value. Next, I'll provide an update on my key priorities. These include our deep dive business review of both Harsco Environmental and Rail aimed at driving self-help improvement initiatives to boost business performance over the coming quarters and years and the derisking of Rail's ETOs. Our review is ongoing at an accelerated pace. We're working to refine our business strategy and priorities as well as to identify levers to reduce our complexity and drive operational excellence. Through this process, we are challenging ourselves to think critically about our business approach and best practices and importantly, to make often difficult decisions that will position us to achieve our goals.

In Harsco Environmental, we're focused on initiatives that will improve our site level productivity and maintenance efficiency as well as opportunities to optimize our SG&A and support costs. In Rail, additional initial restructuring is underway. We're taking actions to improve our supply chain and reduce inventory. We're prioritizing Rail's aftermarket business where margins are attractive and significant opportunities exist as well as evaluating other capital-light business opportunities, and we continue to evaluate further actions to optimize our manufacturing operations and reduce our global footprint and SG&A costs.

Overall, I'm pleased with our progress through this review and encouraged by the engagement and commitment of our people. We'll have more to communicate on this initiative in the months ahead. Our goal is to show demonstrable progress in 2026 and head into 2027 with key implementation programs in place. With regard to Rail's European ETO contracts, I'll reiterate that reducing or minimizing our ETO risk is critical and a top priority for me in 2026, and we are on track to meeting this commitment. For SBB, most of the first group of vehicles has been delivered and accepted by the customer. The remaining 2 of 48 vehicles are expected to be accepted by the customer in the coming months. Homologation for the second vehicle type has started, and we expect to complete that process in early 2027.

Overall, we believe that we're in a good position on the SBB contract and that its risk profile has improved drastically in the past year. As a reminder, we anticipate turning cash positive in 2027 for this project. For our contract with Deutsche Bahn, the first three vehicles are progressing as we look for ways to maximize net cash flows and otherwise derisk the contract. For Network Rail, we are actively engaging with our customer to improve the financial outlook for the contract and/or otherwise minimize the volatility and risk. This derisking is among the highest priorities for New Enviri. The opening capital structure for New Enviri will provide us with the financial flexibility to pursue any and all derisking options. I'm optimistic about what we can accomplish over the next year, and I'm extremely confident in our team. With a fresh start provided by the Clean Earth transaction to optimize our capital structure, there is considerable value creation potential at New Enviri, and we're laser-focused on priorities that will maximize this opportunity.

Lastly, let me officially welcome my former colleague, Pete, back to the team. Pete knows Harsco Environmental and Rail very well, and he has already been a valued leader in the formation of our strategy for New Enviri. I cannot imagine a better partner for me and our colleagues during this exciting time. I'd also like to acknowledge Nick and Tom as they prepare to depart the company. Tom joined the company during a time of considerable uncertainty, successfully leading numerous financial and strategic initiatives and contributing to the transaction soon to be completed. He has been a great partner to me during his time with Enviri. Nick, of course, has been the visionary leader of this company for more than a decade. He brought stability to Enviri and instituted strategic direction, business process, and core values, all of which made a better company. I'm grateful to have served with Nick, and I'll benefit from my experience with him as we enter the next phase of growth under new Enviri. Now let me turn it over to Tom to discuss the quarter in detail.

Thank you, Russell, and good afternoon, everyone. I'll briefly review the first quarter results and then hand it over to Pete to comment on the outlook. Please turn to our first quarter performance details starting on Slide 4. In the first quarter, total revenue was $550 million and adjusted EBITDA was $65 million. Revenues were unchanged from the prior year. Adjusted earnings for Harsco Environmental and Rail were little changed year-over-year, while Clean Earth results were impacted by lower volumes. Our adjusted diluted earnings per share was $0.10 for the quarter. The unusual items in the quarter included strategic costs connected to the sale of Clean Earth and the spin-off of New Enviri as well as costs related to rail restructuring, which we have mentioned previously.

Lastly, our adjusted free cash flow for the quarter was a negative $6 million during a traditionally weak cash quarter for the company. Cash performance for Harsco Environmental and Rail did improve from the prior year, although Rail remains a consumer of cash. Rail's negative cash flow was $18 million, which is largely attributable to its ETO contracts. Please turn to Slide 5 in our Harsco Environmental segment. Segment revenues totaled $257 million, an increase of 6% compared with the prior year quarter. And adjusted EBITDA totaled $38 million, exceeding our expectations for the quarter. The year-over-year earnings change reflects volume from new sites, higher services demand, and operational improvements at existing sites as well as FX benefits. Customer steel output was up modestly, with higher output in India and the Middle East, mostly offset by lower production in Europe.

These favorable impacts were offset by contract exits, lower eco product volumes, and a change in business mix. Lastly, the trade measures to further support the EU steel industry continue to progress. Alignment on the quota and tariff changes was achieved in mid-April and formal endorsement is expected later in May, with implementation anticipated in July. Now please turn to Slide 6 to discuss Clean Earth. Clean Earth also executed well in the quarter, although its financial results were impacted by sluggish project-related work and industrial volumes, much of which related to winter storms in the first quarter. These extreme weather conditions impacted our peers as well and were most pronounced in late January and then again in mid-March.

Now please turn to Slide 7 in our Rail business. Rail revenues totaled $67 million and its adjusted EBITDA loss was $1 million in the first quarter. Rail's base business generated positive EBITDA in the quarter, exceeding our expectations. Its modest loss is attributed to overhead costs supporting its ETO contracts. The change in earnings year-over-year reflects higher contributions from contracted services work, which was offset by lower equipment volumes for which demand remains weak, as we've discussed in the past and higher operating costs.

As with Nick, this will be my final earnings call with Enviri. It's been a pleasure working with Nick, our corporate team and the business leaders within each of our divisions. Nick has led this company through its transformation, embedding strong values with a steady focus on improving the businesses and creating value. I'm proud of what this collective team has accomplished under his leadership. I've also greatly appreciated the support from our analysts, our shareholders, our banks, and our debt holders over the years. Russell has been a key leader and a partner to me, and the company is in great hands as he takes over as CEO. I wish him, Pete, and the entire team the very best. Now over to Pete.

Thanks, Tom, and hello, everyone. First, let me say how excited I am to be back here at Enviri. The tremendous success of Clean Earth and the hard work by Nick, Tom, and the team to unlock the value in Enviri is truly remarkable. And I'm looking forward to continuing that success with New Enviri, working with Russell and the senior leadership team to improve margin growth, reduce volatility and risks at Rail and help to drive cash flow and earnings growth.

So let me provide my perspective on the full year and next quarter outlook of New Enviri. In summary, and as Russell mentioned, our guidance for both Harsco Environmental and Rail and therefore, New Enviri is unchanged for 2026. HE's adjusted EBITDA range remains $170 million to $180 million, and Rail's EBITDA loss range remains $19 million to $26 million. As stated previously, these ranges translate to pro forma EBITDA of approximately $140 million for New Enviri using the midpoint of each range.

Our expectation for modest free cash flow during the year is also unchanged at the present time. While Q1 results were stronger than expected, there is still a significant amount of economic uncertainty. For Harsco Environmental, this uncertainty includes the geopolitical situation in the Middle East, where we maintain some operations. And it's also unclear how higher energy prices will impact business conditions in Europe and globally in the coming quarters. In Rail, the demand for equipment continues to remain challenged, and we have not yet filled our order book for the year.

With that said, our EBITDA guidance for the second quarter can be found on Slide 8. Harsco Environmental performance is expected to be comparable to the second quarter of 2025, while Rail's EBITDA is anticipated to decrease as a result of lower volumes. And I'll remind you that our financial reporting for the year will include a mix of Enviri and New Enviri. And once the sale of Clean Earth happens, it will be reported as a discontinued operation for financial reporting purposes. Also, corporate results will reflect that New Enviri will continue to support Clean Earth through a transition services agreement with Veolia for a period of time after closing.

But before I hand it back to the operator for Q&A, let me once again say how great it is to be with you all again. I came back to Enviri simply because I'm a firm believer in the value creation potential of Harsco Environmental and Rail, and I'm 100% aligned with Russell's priorities. I look forward to catching up with many of you and reporting on our progress in the upcoming quarters. Thanks, and I'll now hand the call back to the operator for Q&A.

[Operator Instructions] And the first question will come from Rob Brown with Lake Street Capital Markets.

I guess the first question is on the Rail business. I think you talked a little bit about the order book still needing to get filled. Could you give us some color on how the order book typically fills and maybe the visibility that, that brings as it fills up?

Yes, this is Pete. Normally, we'd expect to see pretty much a proportionate, maybe even slightly more than proportionate order book by this time. So we're running a good bit behind. It's related to primarily OEM equipment in North America. And we expect it to come back a little bit in the second half of the year. But as of this point in time, we're a little bit behind what we historically see in terms of a filled order book relative to our estimated revenue for the new equipment.

Okay. And then also aftermarket, I think Russell mentioned that as an area of focus. And I know it's -- can you remind us how much of your business is aftermarket and some of the things you could do there?

Yes. Roughly about 40% of our revenues is aftermarket. And that has been -- and we had a pretty good aftermarket in Q1. We expect that to continue at a similar pace in the rest of the year. But that's clearly an area of focus for us because it not only is a kind of a good offset to the decline in OEM, but it also provides pretty good margins. It's got pretty much 2x the margins that the original equipment has. So that's the primary reason we're focusing on it.

[Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Martin for any closing remarks. Please go ahead.

Thank you, Chuck, and thank you for everyone joining us this afternoon. Feel free to contact me with any follow-up questions. And as always, we appreciate your interest in Enviri, and have a great day. Take care.

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

Hello, and welcome to the Special Meeting of Stockholders of Enviri Corporation. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Nick Grasberger, Chairman and Chief Executive Officer of Enviri Corporation. Mr. Grasberger, the floor is yours.

Good morning, everyone. My name is Nick Grasberger, and I am the Chairman and CEO of Enviri Corporation. It is my pleasure to welcome you to this Special Meeting of Stockholders of Enviri Corporation.

On behalf of the Board of Directors, I want to thank you for your support in conducting this meeting virtually. And I will officially call the meeting to order. Today's meeting will follow the order of business available on the virtual meeting portal. I'm joined today by Russell Hochman, President and Chief Operating Officer. Representing Computershare, the corporation's transfer agent and Inspector of Election is Sue Nelson. Following the vote on the special meeting matters, we will facilitate the Q&A session if there are any questions submitted through the question box on your screen.

Appropriate documentation of notice for this meeting was given as indicated by an affidavit and report provided by our transfer agent, Computershare. The affidavit and copies of the notice of special meeting of stockholders, proxy statement and proxy card will be filed with the minutes of this meeting. All stockholders of record at the close of business on March 20, 2026, are entitled to vote at this meeting.

As of March 20, 2026, the special meeting record date, there was a total of 82,704,523 shares of common stock outstanding. Sue Nelson, the representative of the Inspector of the Election has signed the oath of the inspector for this meeting. That signed oath shall be filed with the minutes of this meeting. Our first order of business of this meeting is to determine whether shares represented at the meeting, either in person or by proxy, are sufficient to constitute a quorum for the purpose of transacting business.

I have a Secretary's Report indicating that the total number of shares of common stock represented by stockholders and voting in person or by proxy is 70,175,504 or approximately 84.85% of all the outstanding shares entitled to vote. A copy of the Secretary's report will be filed in the minutes of today's meeting.

Based on this report, I confirm that a quorum of stockholders entitled to vote at this meeting is present, either in person or by proxy, and that this meeting has been properly convened for purposes of transacting such business as may properly come before it.

We will now proceed with the matters properly brought before this meeting to be acted upon by stockholders. The first proposal for stockholder action is the proposal to adopt and approve the merger agreement and the merger. The affirmative vote of at least a majority of the shares of our voting stock entitled to vote and represented in person or by proxy at this meeting is required to approve this proposal.

The second proposal for stockholder action is the vote on a nonbinding advisory basis to approve merger-related named executive officer compensation as set forth in the proxy statement. The affirmative vote of at least a majority of the shares of voting stock entitled to vote and represented in person or by proxy at this meeting is required to approve this proposal.

The time is now 8:05 a.m. Eastern Time, and I declare the polls are now open for each matter to be voted on today, May 4, 2026. If you have not yet already done so, please vote your shares.

[Voting]

I hereby declare the polls now closed at 8:06 a.m. Eastern Time, and ask that the Inspector of Election tabulate the ballots.

As mentioned earlier, the Board of Directors has appointed Computershare, represented here today by Sue Nelson, as Inspector of the Election. Ms. Nelson has tabulated the stockholder votes and has provided me with the preliminary results of the voting. The preliminary results from the Inspector of Election indicate that the transaction proposal has been approved, and secondly, that the advisory merger-related executive compensation proposal has not been approved.

The final report of the Inspector of Election will be filed with the minutes of today's meeting. Thank you. The Special Meeting of Stockholders of Enviri Corporation is now adjourned. I will now turn to any questions that have been submitted through the online portal. Seeing that there are no questions, I thank you for your attendance today and for your support of Enviri Corporation.

This concludes the meeting. You may now disconnect.

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. [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, 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 2 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 was 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 as 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 FX 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 or 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. Our steel customers in Europe expect these policy changes to become effective at the beginning of July this year.

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 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 3 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 2 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 [ cost ] 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 2 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, low volumes or 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 margin 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.

[Operator Instructions] 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, is 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. Well, I can talk about that more offline. Okay, good. So HE had a really nice quarter actually. I know it's just 1 quarter, and it sounds like there were some onetime benefits in there. Your outlook is, I think, in line with expectations, somewhat muted, but in this environment, I think it within expectations.

Just curious, looking -- breaking out some of the moving parts, what are your expectations for steel production? Is it flattish still? And I think over the last few years, your customers have actually even been hurt more than overall industry. So just curious if you can help parse that out a little 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 in particular weak. And Tom commented on that and certainly indicated reason 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 you. And just Harsco specifically, I know you mentioned some newer contracts, and I think you've had a couple of press releases out. But then there's some net exited contracts. So I'm curious, is your -- and I know sometimes you exit discretionarily because of lower margin, but is your -- are you netting a benefit as we look out, you're getting -- you're adding more contracts in that are going out the door? Or any way you can give us color on that?

Yes. I think for this year, that contract churn, if you will, in terms of revenue will be -- margin should be higher. We believe that we're mixing up in terms of the margin on contracts. And you're correct, the contracts that we've exited have largely been due to price that we're simply not willing to sacrifice margin given the large number of opportunities we have that we view as more attractive.

So as we look forward kind of beyond this year, given the visibility we have to our pipeline and the likelihood of entering into some of these new contracts, we expect that churn rate to be positive to both EBITDA and margin.

Great. Just one question on Rail. It sounds like just demand environment continues to weaken. Just on the ETO contract specifically, though, I think you said $20 million EBITDA loss, $40 million on free cash flow for '25. It sounds like directionally, we're going a little bit better in '26, maybe not as much as initially expected. But did you actually -- or can you give sort of at least a little more specifics on what that might look like in '26?

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 3 European ETOs.

[Operator Instructions] 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 were that we expect it to be modest. So whether it's total Enviri or the pro forma of a 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. Okay. 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 -- so the -- the SG&A, Devin, to support those, it's not just SG&A, there's some other overheads as well, is in the $15 million to $18 million range. And so removing those, the business we're projecting will still be at a loss in the base business. And that is because of just the demand, the very weak demand situation. We have taken cost actions and there'll be more cost actions to follow.

But it takes time for those to reach a full run rate and particularly in the manufacturing business, even though you save cash costs, it takes time for that to come through the P&L. So we expect to see a full benefit of those towards the back half of the year. And that is partly the reason why we're projecting 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 that 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 in -- for the ETO contract?

Devin, I didn't catch you -- I think you mentioned Network Rail, right? Yes. Yes, Network Rail, so this -- we are progressing towards the completion of the very first machine. And once that is delivered, it will undergo what we've referred to before as homologation that will occur in the U.K.

We are also in talks with the customer to improve the commercial terms, the financial terms so that the go-forward picture is more attractive for the company. And what we have sensitively agreed with the customer is that upon -- around the timing of the delivery, the arrival of the machine in the U.K., we will also look to finalize this agreement. Basically, that's the focus of our activity for now. There are more machines to be made, but our focus is on completing the first one and then also completing these negotiations.

And our next question today comes from Rob Brown at Lake Street Capital Markets.

Good morning. Just sort of sticking to the ETO contracts. A lot of things are going to happen this year. I guess, what's -- exiting '26, what do you sort of see the ETO exposure and risk level down to? Is it sort of complete by the end of '26? Or I guess, is the Network Rail still outstanding? But just a sense of after these steps happen this year, what's the remaining risk on the ETO side?

So it's Russell Hochman. I'll start with my thoughts on your question. So with regard to the -- what we're calling the smaller ETOs, those will be essentially completed this year with a minor exception, which will be completed in the first quarter of 2027. And we're -- as we've said before, not taking on any new ETOs. So that will be the end of the smaller ones. With the larger ones, as I said in my comments, my commitment is to derisk the company of these.

And so I'm directly involved along with Tom and others in these conversations with these customers. And I would say the message that we've communicated is pretty clear that we will come to terms on these contracts this year. Obviously, something on a mutually beneficial basis or we will look to pursue other ways of de-risking the portfolio, right? But my commitment is to complete those conversations so that the terms are improved or we've derisked the portfolio, as I said, in other manners.

Okay. Great. Got it. And then I guess thinking Rail, the cyclical kind of downturn activity, I know it's hard to predict the sort of recovery. But what are sort of the dynamics as these orders start to recover, how quickly can it come back? And what's the kind of customer -- I assume the longer they wait, the more they kind of have a pent-up demand, maybe that's not how it works. Just a sense of how the recovery cycle tends to happen in the Rail market?

Well, we haven't seen it this -- 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.

Good morning, everyone. My name is Jamie, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation Third Quarter 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 turn the conference call over to Dave Martin of Enviri Corporation. Mr. Martin, you may begin your call.

Thank you, Jamie, and welcome to everyone joining us today. With me is Nick Grasberger, our Chairman and Chief Executive Officer; and Tom Vadaketh, our Senior Vice President and Chief Financial Officer. On the call, we will discuss our results for the third quarter and our outlook for the remainder of the year. We'll then 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 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 as well as a slide presentation.

With that being said, I'll turn the call to Nick.

Thank you, Dave, and good morning, everyone. Before we dive into our Q3 results, I will take a moment to provide a brief update on our strategic review process that we announced a few months ago. Recall that this process is aimed at identifying and executing alternatives to unlock the inherent value of our business portfolio. In our view, this value is not yet reflected in our market value. Throughout our process and as expected, we have seen strong and definitive interest in our Clean Earth business from both strategic parties as well as others.

While nothing can be certain, we believe that there is a path to crystallizing its value in a tax-efficient manner for our shareholders. We have spent considerable time with our advisers thinking through structures that work, one of which involves a simultaneous sale of Clean Earth together with a taxable spin to our shareholders of our Harsco Environmental and Rail businesses. We believe this structure would result in minimal tax leakage for our investors and would allow for a sizable cash payment to shareholders upon the sale of Clean Earth. In fact, we have recently amended our credit agreement to allow for this transaction. Tom will comment further on this amendment.

We will update you further when appropriate, but we believe we should be in a position to conclude our process review prior to the end of this year. Now let me turn to our third quarter earnings, starting with Clean Earth, and Tom will cover our financial results in detail shortly. Clean Earth's revenue and earnings grew single digits and its margins exceeded 17%, translating to a record quarterly performance for the business. The degree of execution delivered by the Clean Earth team remains very high despite various distractions as it focuses on its key priorities. Our investments in new capabilities continue and CE's IT implementation is on track and nearing completion.

Commercially, the team committed to a new growth strategy a year ago, and we've built a strong business backlog since, and CE is now seeing healthy volume growth as a result. We expect strong performance or more of the same from Clean Earth in Q4. Turning to Harsco Environmental. Results improved in Q3 with HE's margin reaching 17% and the business generating $30 million in free cash flow in the quarter. Looking back, we believe this business troughed in the first half of 2025. New contracts are in place to replace those exited over the past year and improvements in underperforming sites, while slower than we'd like, are ongoing with benefits expected in coming quarters.

HE has also experienced some cost inflation in recent quarters, and we've implemented cost-out actions to absorb this impact. These added costs should be offset in 2026 through these efforts and also through price increases. We're also hopeful that the steel industry volumes are set to improve. In early October, the European Commission proposed new and significant safeguard measures to protect its steel industry. These actions include higher import tariffs and lower quotas among other changes. These measures are likely to lift volumes in a key market for HE if implemented next year.

Overall, HE remains the industry leader and we expect 2026 to be a better year for the business. Moving to Harsco Rail. Our challenges in rail are clear. And I'm pleased with how our new management team, which is operationally focused and has considerable ETO experience within the broader rail and street is taking aggressive and appropriate action to move the business forward. Shop floor bottlenecks have lessened and supply chain pressures are improved. Overhead costs are being addressed as well.

Confident this management team can transform the business over the next year or 2. On the commercial side, demand for standard equipment and aftermarket parts remains weak and at unprecedented levels. We're hopeful that this downturn will be short-lived given that maintenance spending can only be deferred for so long, but we've yet to see signs of upcoming improvement.

Importantly rail based business is profitable and cash generative despite this market situation and HarscoRail remains a technology and industry leader. Rail is also making good progress with its ETO contracts, which continue to consume cash. Our discussions with Network Rail to amend or exit that contract are ongoing deliveries and development work on SBB and DB are on track with few surprises in recent months. As we've discussed previously, rails cash flow profile is anticipated to turn positive in 2027 as our ETO contracts mature, and we are paid for the machines that we deliver.

As a result of the demand weakness in rail and other impacts in HE, we have lowered our outlook for the year. Looking further ahead, we are optimistic about 2026 and confident in the earnings and cash flow potential of our company. The evaluation of strategic alternatives is to address this disconnect. and we will update you further on this review when appropriate.

I will now turn the call over to Tom.

Thank you, Nick, and good morning, everyone. In the third quarter, total revenue was $575 million, and adjusted EBITDA was $74 million. Both figures are high for the year, but lower than our expectations at the beginning of the quarter. Rail accounted for much of the shortfall, where as we discussed last quarter and as Nick just mentioned, demand for standard products and aftermarket parts remain very sluggish. Also some contract services work for certain U.S. customers was deferred into future quarters. Our product orders did improve somewhat from the prior quarter, but the increase was from a low base and this activity will not benefit rail in 2025.

Performance at Harsco Environmental was also slightly lower than expectations, due to higher operating costs and lower contributions from new sites. Actions are underway that are expected to help offset the challenges in both segments, as Nick mentioned, Still, we have lowered our outlook for the fourth quarter, which I'll provide details on shortly. Now let me turn to our third quarter performance details on Slide 4. In the third quarter, our revenues were unchanged as reported and 1% higher on an organic basis.

Adjusted EBITDA was lower year-on-year as anticipated, with record earnings at Clean Earth, offset by our other segments. The impact of divestitures on EBITDA within HE [indiscernible] with the prior year. Our adjusted diluted loss per share was $0.08 for the quarter, excluding the impact of unusual items. These unusual items totaled $12 million pretax with most of this related to strategic project costs and various restructuring actions across the company adjustments on our large ETO contracts in rail were less than $2 million and much lower than in recent quarters.

We believe this illustrates our progress in de-risking these projects. Our adjusted free cash flow for the quarter was $6 million which was $20 million above Q2 and in line with our expectations. Working capital management and capital spending controls offset the impact of lower earnings for the quarter. Before moving on to segment performance, let me add to Nick's comments on the amendment to our credit agreement. First, I'd like to thank our bank group for their continued support of the company. and their flexibility to support our strategic initiatives and changing financial situation.

In addition to allowing for the potential sale or separation of clean [indiscernible] we modified our financial governance to provide additional flexibility. The credit agreement also now provides a capital structure framework for our remaining businesses if we complete the Clean Earth sale. Under this scenario, our initial net leverage ratio post the transaction would be 2x or less, and our maximum net leverage would be 3x further details on this amendment are available in our SEC filings this morning.

Please turn to Slide 5 and our Harsco Environmental segment. Segment revenues totaled $261 million and adjusted EBITDA totaled $44 million. The year-over-year change in earnings is the result of divestitures and site exits or closures. ECO product contributions were also slightly lower with this impact attributable to our Excel operations in the U.S. and steel felt business in Europe. Steel production at our customer locations on a continuing site basis rose modestly compared with prior year with puts and takes across our global portfolio, as you'd expect.

Higher output in the U.S., India and the Middle East was mostly offset by lower production in Canada and Brazil. Volumes in our largest market, Europe were unchanged year-over-year. And while quarterly revenues and steel output was the highest this year, overall production rates remain subdued. Customer utilization rates remain in the mid-70s as a percentage of capacity with our largest market, Europe being below 70%. So we see lots of room for improvement across our service portfolio.

Next, please turn to Slide 6 to discuss Clean Earth. For the quarter, revenues totaled $250 million, which was up 6% compared with the 2024 quarter, and adjusted EBITDA reached $43 million. CE's adjusted EBITDA margin was 17.3% in the quarter. Revenue growth was slightly more weighted to volume over price. CE's volume growth was realized across end markets in hazardous waste and reflects the team's success executing on a commercial growth plan that had developed over a year ago. Meanwhile, contributions from CE's soil and dredge business were lower compared with the prior year quarter as anticipated.

This change reflects the timing of work activity and business mix. Now please turn to Slide 7 and our Rail business. Rail revenues totaled $64 million and its adjusted EBITDA loss was $4 million in the quarter. Compared with the prior year quarter, lower equipment and service volumes as well as higher manufacturing costs and a weaker business mix were partially offset by higher aftermarket sales. Operationally, rail continues to make steady progress, as Nick mentioned, although further manufacturing and supply chain improvements are needed and targeted to strengthen the business.

On rails large European ETOs, we continue to make steady progress as well, particularly with Deutsche Bahn and SBB. For Deutsche Bahn or DB, the next key milestone is for the first 3 vehicles to progress through homologation or the formal acceptance process. The first vehicle has already started this process, and we expect that all 3 vehicles will be undergoing homologation as we move into the first half of 2026. As we've said before, once we complete homologation, the risk on this project from a cost and schedule perspective will significantly diminish and we would move into a repeatable manufacturing process for the remaining vehicles.

For SBB, delivery of the first group of vehicles is to be completed by January 2026. The second vehicle type is currently undergoing homologation and we expect to complete all deliveries of this second group of vehicles in early 2027. On the network rail contract, negotiations with the customers have continued to progress. Although progress has been slower than we would like, our customer is focused on the delivery of the machines and is negotiating in good faith.

Good progress has been made recently to gain alignment on several technical design areas, which had been open. This is an important step for us to be able to complete manufacturing the machines. Additionally, we are seeking a meaningful improvement in the economics of this contract in order for us to continue or we will negotiate a mutually acceptable exit from the contract.

Now let me turn to our full year outlook on Slide 8. The midpoint of EBITDA guidance is reduced by $27 million, and the point for free cash flow is reduced by $50 million. The EBITDA change is largely driven to by rail and to a lesser extent, HE. For rail, we have removed from our outlook certain unsold equipment and parts that aren't supported by our order books and pipelines, and for AG, we anticipate that the challenges in Q3 will persist through year-end.

Our updated free cash flow guidance reflects this revised earnings outlook as well as some previously anticipated milestone payments on certain rail contracts being deferred into 2026. Let me conclude on Slide 9 with our fourth quarter guidance. Q4 adjusted EBITDA is expected to range from $62 million to $72 million. Cleaners is again expected to show nice year-over-year growth in Q4. Hospital environmental earnings are anticipated to be modestly below the prior year quarter due to contract exits and rail results are projected to be lower due mainly to volumes.

Thanks, and I'll now hand the call back to the operator of Q&A.

[Operator Instructions]

Our first question today comes from Larry Solow from CJS Securities.

Great. Nick, wondering if you could I know you can't give us too much detail, but just any more color on the you sound pretty confident, at least on the process that the process is nearing an end or you'll have some kind of something in the next few weeks, it sounds like by year-end. So can you just give us any more is it you're confident that we'll will we actually hear something before year-end? Or just anything will be great on that front.

Larry, honestly, there's not much more we can say at this point. As I indicated, we've had, as we expected, very strong interest in the business we've created a tremendous amount of value in Clean Earth over the past couple of years. It's not in our share price. We need to find a way to unlock that. That's what we've been doing. The specialty waste industry is consolidating and you've likely seen some of the values that have been paid for like businesses that have transacted over the past couple of years. So we're happy with where we are. It's been it's been a strong process, and we're well supported by our advisers and of course, and most importantly, the cleaner leadership team has just been doing a tremendous job. .

Great. I appreciate that. Just on the guidance and the outlook, a pretty significant drop. It looks like a lot more actually, Q3 was a bit of a miss, but the outlook Q4 is even looks like it's somewhat even worse and you mentioned it's predominantly rail, but just trying to Tom, maybe you can help us a little bit with that $27 million delta? Is it like mostly rail there? I'm just trying to get a little more granularity there.

Yes. versus our last guidance, Larry. The bulk the highest variation is on rail. And as I said in my remarks, what that consists of is we're trying to kind of derisk our outlook for the remainder of the year. So we took out from that any volume that is currently unsupported by either firm orders or good visibility in our pipeline. And so that's what that is mainly and then on AG, We've also taken it down somewhat partially most of it is basically the miss in Q3, but just reflecting the pace that we're on in Q3 expected to largely continue into Q4.

Okay. If I can just squeeze 1 more in. Just on cleaner. Another good quarter, especially on the hazardous side. Was the soil did they have an exceptionally good year last year? It looks a pretty good year-over-year drop in EBITDA contribution in the quarter for kind of a minority part of the business. And then you mentioned various distractions. Any more color on that on Clean Earth.

Yes. Just maybe for context for the full year, we're expecting EBITDA in hazardous waste to be up about 15% and down 15% in SDM likely know hazardous waste is 5 to 6x the size of STM. But SDM, as we've indicated before, can be a very lumpy business. We have a very attractive backlog of projects and we try to anticipate when they're going to begin. And; oftentimes, they're delayed. And that's what we're facing now. There's also a mix component within SDM. There are some projects that have margins that are 15 to 20 points higher than others.

And so what we've seen in the second half of this year is both a mix challenge as well as the starts of the projects being pushed out. But again, the backlog is very good. The mix is good in the backlog it's not an overall demand issue. It's not a market share issue. It's just a timing issue in SM.

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

Congrats on the sale process, I think you talked about sort of a peer group that's with consolidation, the multiples that are in the peer group, I guess, are you sort of comfortable that those multiples are sustaining out there in the industry and just a sense on [indiscernible] multiples?

Yes. Yes. I would say if you look at precedent transactions, the multiple that we would expect would certainly be consistent with those Okay.

Great. And then in terms of the I think at 1 point you talked about rail kind of the baseline business, excluding ETO contracts of sort of $30 million to $35 million or so maybe things are a little weaker now but what's sort of the baseline rail business kind of run rate in the current environment in terms of EBITDA?

Yes. So it is Larry, it is a little lower, reflecting the current drop in demand. We don't expect that to be long-standing and it should be short-lived because we think the demand will come back at some point during 2026. So on a longer-term basis, on a sustainable basis, if you're trying to model this it would be in that $35 million to $40 million range on a stand-alone base business. Today, you're probably looking at a range of in the 30s.

And again, the visibility to that is fairly good because we have a good sense of when these ETO contracts are going to be completed and when we'll get paid for them, yes that can slip by a quarter or 2, as we've seen recently on some of the smaller contracts. And there's a good bit of overhead cost in our business that supports those contracts that will be removed. So it's not difficult to adjust the current performance of the business for what will happen at the end of those ETO contracts. And it's there's just a lot of costs embedded in the business that will be removed.

Ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Dave Mart for any closing remarks.

Thank you all that joined us today, and thanks, Jamie for hosting our call. Feel free to reach out to me with any follow-up questions. And as always, appreciate your interest in Enviri and look forward to speaking with many of you shortly. Take care. .

And with that, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.