Enviri's Q3 2025: Contradictions Emerge on Rail Demand, Clean Earth Performance, Strategic Review, and EBITDA Projections

Date of Call: None provided

Financials Results

• Revenue: $575 million, unchanged as reported and up 1% organic vs prior-year quarter (Q3)
• EPS: $0.08 adjusted diluted loss per share for the quarter (excluding $12M pre-tax unusual items)
• Gross Margin: Clean Earth adjusted EBITDA margin 17.3% (record quarterly); Harsco Environmental margin ~17% in Q3

Guidance:

• Q4 adjusted EBITDA expected to be $62M–$72M.
• Clean Earth expected to deliver year-over-year growth in Q4.
• Harsco Environmental earnings expected modestly below prior-year quarter due to contract exits.
• Rail results projected lower in Q4 mainly due to weak volumes; removed unsupported unsold equipment/parts from outlook.
• Full-year midpoint of EBITDA guidance reduced by $27M; midpoint free cash flow reduced by $50M; some rail milestone payments deferred into 2026.
• Credit agreement amended to enable potential Clean Earth sale/spin; post-transaction net leverage target ≤2x initial, maximum 3x.

Business Commentary:

• Strategic Review and Clean Earth Disposition:
• Enviri Corporation is in the final stages of a strategic review process aims to unlock value from its portfolio, particularly the Clean Earth business.

• The process is expected to conclude before the end of the year, and the company is considering a simultaneous sale of Clean Earth alongside a taxable spin of Harsco Environmental and Rail businesses.

• Clean Earth Performance:

• Clean Earth reported revenue growth of 6% and EBITDA margin of 17.3% in Q3, supported by volume growth in hazardous waste.

• The growth was driven by execution on a new growth strategy implemented a year ago and a strong business backlog.

• Harsco Environmental Improvement:

• Harsco Environmental's margin reached 17% in Q3, and the business generated $30 million in free cash flow.

• Improvement was attributed to new contracts and cost inflation management through price increases and cost-out actions.

• Challenges in Harsco Rail:

• Harsco Rail's EBITDA loss was $4 million in Q3, with lower equipment and service volumes adding to the weakness.

• The challenges in Rail are largely due to weak demand for standard equipment and aftermarket parts, although the business remains profitable and cash generative.

• Lowered Outlook:

• Enviri Corporation lowered its full-year EBITDA guidance by $27 million and free cash flow by $50 million.
• The reduction was primarily due to reduced expectations from the Rail segment, with some impact from HE, attributed to weaker-than-expected performance and revisions to contract outlook.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted strong Clean Earth performance and active sale/spin process but cut full-year outlook (EBITDA midpoint down $27M, FCF midpoint down $50M). Q3 beats at CE and de-risking progress on rail ETOs offset by weaker rail volumes and HE cost pressures; amended credit agreement to support transactions.

Q&A:

• Question from Larry Slough (CJS Securities): You sound confident the strategic process is nearing an end — will we actually hear something before year-end?
  Response: Management: Strong interest in Clean Earth and multiple viable structures; confident process is progressing and expects to conclude the review prior to year-end but cannot provide further details now.

• Question from Larry Slough (CJS Securities): Can you give more granularity on the $27 million EBITDA delta — is it mostly rail?
  Response: Management: Yes — the majority of the $27M reduction is rail; guidance was de-risked by removing volumes not supported by firm orders or clear pipeline visibility; HE was modestly reduced reflecting Q3 momentum.

• Question from Larry Slough (CJS Securities): On Clean Earth, why was SDM contribution down versus last year — was last year exceptional?
  Response: Management: Hazardous waste expected +15% YTD while SDM down ~15%; SDM is lumpy — current weakness reflects timing and mix delays in project starts, not overall demand or share loss; backlog remains strong.

• Question from Rob Brown (Lake Street Capital Markets): Are you comfortable that transaction multiples in the market are sustaining and in line with precedent?
  Response: Management: Yes — expected sale multiples would be consistent with precedent transactions observed in the specialty waste/peer group.

• Question from Rob Brown (Lake Street Capital Markets): What is the baseline rail run-rate EBITDA today versus longer-term sustainable level?
  Response: Management: Sustainable standalone rail EBITDA is roughly $35M–$40M; current run-rate is nearer the $30M range due to weak demand; rail cash flow profile should turn positive as ETO contracts mature (targeting 2027).

Contradiction Point 1

Rail Business Demand and Outlook

It involves differing perspectives on the outlook and demand for the Rail business, which impacts expectations and strategic decisions regarding the business.

What caused the $27 million reduction in EBITDA guidance? - Larry Slough(CJS Securities)

2025Q3: The reduction is mainly due to rail, with adjustments to remove unsupported volumes from the outlook. - Tom Vadaketh(CFO)

Is the reduced outlook entirely due to Rail? Is the currency impact due to the weaker dollar? - Lawrence Scott Solow(CJS Securities)

2025Q2: Yes. The reduction in outlook for the year is entirely due to the Rail reductions stemming from demand issues and market challenges. - Thomas G. Vadaketh(CFO)

Contradiction Point 2

Clean Earth Performance and Market Conditions

It involves differing accounts of the performance and market conditions for the Clean Earth segment, which affects investor perceptions and strategic decisions.

Can you elaborate on Clean Earth's Q3 performance in Soils and Dredge Materials (SDM)? - Larry Slough(CJS Securities)

2025Q3: Hazardous waste EBITDA is expected to increase by 15% this year, while SDM will decrease by 15%. SDM's volatility is due to project timing and mix. - Nick Grasberger(CEO)

Have you seen tariff impacts from Clean Earth? Why were margins flat? - Robert Duncan Brown(Lake Street Capital Markets)

2025Q2: In fact, manufacturing and industrial segment orders are strong. - F. Nicholas Grasberger(CEO)

Contradiction Point 3

Strategic Review Process and Expectations

It involves differing expectations and progress in the strategic review process, which is crucial for shareholder value and strategic direction.

Can you provide more details on the strategic review process and whether there will be an update by year-end? - Larry Slough(CJS Securities)

2025Q3: Minimal tax leakage is expected for investors and a significant cash payment to shareholders upon sale. Process completion is expected by year-end. - Nick Grasberger(CEO)

What triggered the strategic review announcement, and has there been inbound interest? - Devin Dodge(BMO Capital Markets)

2025Q2: The process is more formal now, with increased confidence in potential outcomes. - F. Nicholas Grasberger(CEO)

Contradiction Point 4

Clean Earth's EBITDA Margin Projections

It involves changes in financial forecasts, specifically regarding Clean Earth's EBITDA margin projections, which are critical indicators for investors.

Are you comfortable with the peer group's sustaining multiples for the potential Clean Earth sale? - Rob Brown(Lake Street Capital Markets)

2025Q3: We expect margins to exceed our initial projection of 17% by 2027. - Nick Grasberger(CEO)

How sustainable is Clean Earth's margin expansion, and how much more margin expansion can IT improvements drive? - Rob Brown(Lake Street Capital Markets)

2025Q1: Clean Earth margins have been improving steadily over the past three years, influenced by mix within soil and dredge projects. We expect margins to exceed our initial projection of 17% by 2027. - Nick Grasberger(CEO)

Contradiction Point 5

Harsco Rail EBITDA Expectations

It involves changes in financial forecasts for Harsco Rail's EBITDA, which are critical indicators for investors and strategic decision-making.

Can you update the baseline EBITDA for the rail business, excluding ETO contracts? - Rob Brown(Lake Street Capital Markets)

2025Q3: The current baseline EBITDA for Harsco Rail is around $30 million, but it should return to the $35 million-$40 million range once demand recovers. - Tom Vadaketh(CFO)

For the rail business, what is the visibility of incremental costs and when will they subside? - Rob Brown(Lake Street Capital Markets)

2024Q4: Today, we see further work in our portfolio to stabilize demand, address supply chain issues, and align our operations for long-term success. - Tom Vadaketh(CFO)