Business Overview: From Industrial Conglomerate to Environmental Solutions Provider

Enviri Corporation was incorporated in 1956 as a metal recycling business. Over the years, the company diversified into various industrial and infrastructure-related segments, including railway equipment manufacturing and maintenance services. However, in the late 2010s, Enviri embarked on a transformative journey, shedding its legacy businesses to focus on the growing demand for comprehensive environmental solutions.

The cornerstone of this transformation was the acquisition of Clean Earth in 2019, a leading provider of specialty waste processing and beneficial reuse solutions for hazardous and non-hazardous materials. This strategic move significantly bolstered Enviri's environmental services capabilities, accounting for over 50% of the company's consolidated EBITDA as of 2024. The integration of Clean Earth has been a resounding success, with the business's EBITDA more than doubling since the acquisition, driven by improved pricing dynamics, productivity initiatives, and enhanced customer service.

Alongside Clean Earth, Enviri's Harsco Environmental (HE) segment remains a crucial pillar of the company's operations. HE is a global leader in providing on-site environmental services and material processing to the steel and metals industries, including resource recovery, metal recycling, and the production of value-added downstream products. Despite facing challenging market conditions in the steel industry, HE has demonstrated resilience, maintaining a stable EBITDA in 2024 through capital efficiency improvements and better equipment maintenance practices.

The company's third segment, Harsco Rail, has been the most challenging in recent years, primarily due to the execution of large, complex engineering-to-order (ETO) contracts. These projects, plagued by supply chain disruptions and inflationary pressures, have weighed on Enviri's cash flow and financial performance. However, the company is actively working to conclude these obligations, with the remaining ETO projects expected to be completed by the end of 2025. As these projects are finalized, Enviri anticipates the Rail segment to contribute a more stable EBITDA of $35-$40 million annually, with a healthier cash flow profile.

In 2020, Enviri further expanded its environmental solutions offerings through the acquisition of ESOL, a provider of environmental services for the retail and healthcare industries. This acquisition, along with the Clean Earth purchase, has reduced Enviri's portfolio complexity and increased the proportion of its revenues from environmental solutions to over 85% in recent years. Around the same time as the Clean Earth acquisition, Enviri also divested its energy-linked business, further reducing portfolio complexity and cyclicality.

Throughout its history, Enviri has faced challenges, including navigating cyclical downturns in the steel industry that impacted its Harsco Environmental segment. The company has worked to mitigate these challenges through operational improvements, cost reductions, and strategic portfolio management. Despite these headwinds, Enviri has transformed into a more resilient environmental solutions provider through its strategic actions.

Financial Performance and Outlook: Leveraging Strength in Environmental Solutions

Enviri's financial performance in 2024 was a mixed bag, reflecting the diversity of its business segments. The company reported total revenues of $2.34 billion, with organic growth of 3% year-over-year. Adjusted EBITDA reached $319 million, representing an 11% organic increase compared to the prior year, driven by the strong performance of the Clean Earth segment. This performance marked the highest adjusted EBITDA in over ten years, with a 100 basis point lift in margins.

Clean Earth's EBITDA more than doubled in 2024 compared to 2021, the first full year of Enviri's ownership, showcasing the value-accretive nature of this acquisition. The segment's EBITDA margin approached 17% in 2024, further cementing its position as a high-performing and resilient business within Enviri's portfolio. Clean Earth's revenues were $940 million in 2024, an increase of 1.2% from the prior year, primarily due to favorable pricing and mix changes in the hazardous waste business.

However, the company's overall financial results were impacted by challenges in the Harsco Environmental and Rail segments. HE's revenues were $1.11 billion in 2024, down 2.6% from the prior year, primarily due to lower volumes and service mix changes. The Rail segment's revenues were $291 million, down 1.9% from the prior year, mainly due to changes in revenue adjustments related to large long-term fixed-price contracts.

Despite these challenges, Enviri's net income for 2024 was -$128 million, with operating cash flow of $78 million and free cash flow of -$60 million. The fourth quarter of 2024 showed some improvement, with revenue of $559 million, net income of -$82 million, operating cash flow of $36 million, and free cash flow of $8 million.

Looking ahead to 2025, Enviri expects to offset the year-over-year decline in HE's EBITDA and see an improvement in the Rail segment's performance as the ETO projects are completed. The company's guidance projects adjusted EBITDA in the range of $305-$325 million, representing organic growth of 5%. Revenues are expected to increase less than 5% on a similar organic basis, with a headwind of around $100 million from divestitures and foreign exchange. Free cash flow is anticipated to improve significantly, reaching $30-$50 million, driven by the conclusion of the Rail ETO contracts and a reduction in pension contributions.

For the first quarter of 2025, adjusted EBITDA is expected to range from $57 million to $62 million. Clean Earth's results are expected to be above the prior year quarter, while Harsco Environmental and Rail are expected to be lower year-over-year.

Enviri's strategic focus on environmental solutions has not only transformed its business mix but also enhanced its financial profile. The company's efforts to shift its portfolio towards the higher-growth, higher-margin Clean Earth segment have paid dividends, with this business now accounting for over 50% of Enviri's consolidated EBITDA. As the company continues to execute on its strategy, investors can expect a more stable and resilient financial performance, underpinned by the steady growth of the environmental services business.

Liquidity and Capital Structure

Enviri has maintained a focus on improving its liquidity position and optimizing its capital structure. As of the end of 2024, the company reported total liquidity of approximately $300 million, consisting of cash on hand and available credit facilities. This liquidity provides Enviri with financial flexibility to navigate potential challenges and pursue strategic opportunities.

The company's cash balance stood at $88 million, with an additional $238 million available under its revolving credit facility. Enviri's current ratio was 1.25, and its quick ratio was 0.93, indicating a reasonably stable short-term liquidity position. However, the company's debt-to-equity ratio of 3.68 suggests a relatively high level of leverage.

Enviri has made progress in reducing its leverage, with a net debt to adjusted EBITDA ratio of 3.5x as of the end of 2024. The company's management has expressed a commitment to further deleveraging, targeting a ratio of 2.5x to 3.0x in the medium term. This focus on debt reduction is expected to improve the company's financial flexibility and lower its interest expenses over time. The planned divestiture of the Rail business, when market conditions are appropriate, is expected to contribute to this deleveraging effort.

Geographical Footprint and Market Dynamics

Enviri operates in approximately 30 countries, with 43% of its 2024 revenues generated outside the United States. This global presence provides the company with diversification benefits but also exposes it to currency fluctuations and varying regional economic conditions.

The fastest-growing region for Enviri has been India, the Middle East, and Africa, with volume growth of 3-4% expected in 2025. Other regions, including North America, Europe, and Latin America, are anticipated to show relatively flat performance in 2025. This geographical diversification allows Enviri to tap into growth opportunities in emerging markets while maintaining a strong presence in more mature economies.

Segment Performance and Strategic Focus

Harsco Environmental (HE) operates primarily under long-term contracts, providing critical environmental services and material processing to the global steel and metals industries. HE's diverse customer base includes the largest steel producers in the regions where it operates, serving a mix of mini-mill and integrated operations. In 2024, HE's top five customers accounted for approximately 32% of the segment's revenues and 15% of the company's consolidated revenues.

Clean Earth (CE) provides specialty waste processing solutions for customers in the industrial, retail, healthcare, and construction industries. CE operates 19 RCRA Part B permitted treatment, storage, and disposal facilities (TSDFs), wastewater treatment facilities, and supporting 10-day transfer facilities across the U.S., serving approximately 90,000 customer locations. In 2024, CE's top five customers accounted for approximately 27% of the segment's revenues and 11% of the company's consolidated revenues.

The Rail segment, while facing challenges with its ETO contracts, continues to provide railway track maintenance equipment, aftermarket parts and services, and safety and diagnostic technology systems to major railways, mass transit systems, and equipment leasing companies worldwide. As of December 31, 2024, Rail had an order backlog of $206 million, providing visibility into future revenue.

Risks and Challenges: Managing Cyclicality and Operational Complexities

While Enviri's transformation has been largely successful, the company is not without its risks and challenges. The steel industry, which is a key customer base for the Harsco Environmental segment, is inherently cyclical, and Enviri's performance is closely tied to the health of this sector. Periods of weak steel production, such as the one experienced in 2024, can adversely impact HE's revenues and profitability.

Additionally, the company's reliance on large, complex ETO contracts in the Rail segment has proven to be a significant operational and financial burden. The execution of these projects has been plagued by supply chain disruptions, inflationary pressures, and cost overruns, leading to substantial forward loss provisions and cash consumption. Enviri's ability to effectively manage and complete these remaining ETO contracts will be crucial in unlocking the true potential of the Rail business.

The specialty waste processing and recycling industry in which Clean Earth operates is also subject to stringent environmental regulations, which can create compliance challenges and increase operating costs. Any changes in these regulations or the enforcement thereof could impact the segment's profitability.

Furthermore, Enviri's global footprint exposes the company to currency exchange rate fluctuations, which can have a material impact on its financial results. The strengthening of the U.S. dollar, for instance, weighed on HE's performance in 2024, highlighting the need for effective currency risk management strategies.

Conclusion: Enviri's Transformation Paves the Way for Sustainable Growth

Enviri Corporation's transformation from an industrial conglomerate to a leading provider of environmental solutions has been a remarkable journey. The acquisition of Clean Earth and the strategic focus on the growing demand for sustainable waste management services have positioned the company for long-term success.

While the company has faced its share of challenges, particularly in the Rail segment, Enviri's management team has demonstrated its ability to navigate complex operational and financial hurdles. The completion of the remaining ETO projects and the continued growth of the Clean Earth business are expected to drive a stronger financial profile, with improved cash flow generation and reduced leverage.

As Enviri continues to execute on its strategic priorities, investors can look forward to a more stable and resilient business model, underpinned by the steady expansion of the environmental services segment. The company's deep expertise, innovative solutions, and commitment to sustainability make it a compelling investment opportunity in the rapidly evolving environmental services industry.