- Third Quarter Revenues Increased 14 Percent From The Second Quarter To $509 Million As COVID-19 Business Impacts Began To Ease; Revenues Increased 20 Percent From Prior Year Third Quarter Due Mainly To ESOL Acquisition
- Third Quarter GAAP Operating Income Of $5 Million And GAAP Diluted Loss Per Share Of $0.10 Including Planned ESOL Integration Expenditures
- Q3 Adjusted Earnings Per Share of $0.08
- Adjusted Q3 EBITDA Of $59 Million
- Net Cash Provided By Operating Activities Of $21 Million And Free Cash Flow Increased To $18 Million In Q3 As A Result Of Capital Spending Discipline And Working Capital Initiatives
- Q4 Adjusted EBITDA Anticipated To Be Between $58 Million To $63 Million; Q4 Free Cash Flow Expected To Be Between $20 Million And $25 Million
CAMP HILL, PA (November 3, 2020) - Harsco Corporation (NYSE: HSC) today reported third quarter 2020 results. On a U.S. GAAP ("GAAP") basis, third quarter of 2020 diluted loss per share from continuing operations was $0.10 including acquisition integration costs. Adjusted diluted earnings per share from continuing operations in the third quarter of 2020 was $0.08. These figures compare with third quarter of 2019 GAAP diluted earnings per share from continuing operations of $0.22 and adjusted diluted earnings per share from continuing operations of $0.36.
GAAP operating income from continuing operations for the third quarter of 2020 was $5 million, while adjusted EBITDA excluding unusual items totaled $59 million in the quarter.
“Underlying market fundamentals within Harsco Environmental and Clean Earth steadily improved during the quarter and our businesses continued to execute well,” said Chairman and CEO Nick Grasberger. “In recent months, we also have made strong progress on our key initiatives, including our focus on preserving financial flexibility and integrating ESOL. With respect to ESOL, during the third quarter we began executing on major improvement initiatives to strengthen operational and commercial performance, after spending our initial 100-days focused on foundation-building integration. We're confident these actions will enable us to achieve our long-term financial goals at ESOL.”
“Looking forward, while we expect business conditions to continue improving in the fourth quarter, our visibility remains limited and the economic environment remains fluid. In this context, we continue to focus on factors within our control, including the safety and well-being of our employees and operational excellence in all functions of our business, as well as ongoing cost and capital-spending management to preserve our financial flexibility. We believe these actions will position us to continue our progress towards becoming a single-thesis environmental solutions company and to capitalize on growth opportunities as the global economy recovers.”
Harsco Corporation—Selected Third Quarter Results
|($ in millions, except per share amounts)||Q3 2020||Q3 2019||Q2 2020|
|Revenues||$ 509||$ 423||$ 447|
|Operating income from continuing operations - GAAP||$ 5||$ 47||$ 2|
|Diluted EPS from continuing operations - GAAP||$ (0.10)||$ 0.22||$ (0.14)|
|Adjusted EBITDA - excluding unusual items||$ 59||$ 87||$ 59|
|Adjusted EBITDA margin - excluding unusual items||11.6 %||20.5 %||13.2 %|
|Adjusted diluted EPS from continuing operations - excluding unusual items||$ 0.08||$ 0.36||$ 0.13|
Note: Adjusted earnings per share and adjusted EBITDA details presented throughout this release are adjusted for unusual items; in addition, adjusted earnings per share details are adjusted for acquisition-related amortization expense.
Consolidated Third Quarter Operating Results
Consolidated total revenues from continuing operations were $509 million, an increase of 20 percent compared with the prior-year quarter due to the acquisition of ESOL in April, 2020 and higher revenues in the Rail segment. Foreign currency translation impacts on third quarter 2020 revenues were nominal compared with the prior-year period.
GAAP operating income from continuing operations was $5 million for the third quarter of 2020, compared with $47 million in the same quarter of last year. Meanwhile, adjusted EBITDA totaled $59 million in the third quarter of 2020 versus $87 million in the third quarter of 2019. This EBITDA change is attributable to COVID-19 impacts in each business segment, partially offset by ESOL contributions following its acquisition earlier in 2020.
Third Quarter Business Review
|($ in millions)||Q3 2020||Q3 2019||Q2 2020|
|Revenues||$ 223||$ 261||$ 204|
|Operating income - GAAP||$ 12||$ 33||$ 14|
|Adjusted EBITDA - excluding unusual items||$ 40||$ 60||$ 40|
|Adjusted EBITDA margin - excluding unusual items||17.9 %||22.9 %||19.7 %|
Environmental revenues totaled $223 million in the third quarter of 2020, compared with $261 million in the prior-year quarter. The segment's GAAP operating income and adjusted EBITDA totaled $12 million and $40 million, respectively, in the third quarter of 2020. These figures compare with GAAP operating income of $33 million and adjusted EBITDA of $60 million in the prior-year period. The change in the segment's adjusted EBITDA relative to the prior-year quarter is principally attributable to lower demand for environmental services and applied products as a result of COVID-19. Environmental's adjusted EBITDA margin was 17.9 percent in the third quarter of 2020.
|($ in millions)||Q3 2020||Q3 2019||Q2 2020|
|Revenues||$ 194||$ 88||$ 162|
|Operating income - GAAP||$ 9||$ 11||$ -|
|Adjusted EBITDA - excluding unusual items||$ 20||$ 19||$ 11|
|Adjusted EBITDA margin - excluding unusual items||10.4 %||21.4 %||7.0 %|
Note: The 2019 financial information provided above and discussed below for Clean Earth does not include a corporate cost allocation and does not include ESOL.
Clean Earth revenues totaled $194 million in the third quarter of 2020, compared with $88 million in the prior-year quarter. Segment operating income was $9 million and adjusted EBITDA totaled $20 million in the third quarter of 2020. These figures compare with $11 million and $19 million, respectively, in the prior-year period. The increase in revenues and adjusted EBITDA is attributable to the ESOL acquisition in the second quarter of 2020 and higher contributions from dredged material processing, partially offset by lower demand for hazardous and contaminated materials services as a result of the COVID-19 pandemic.
|($ in millions)||Q3 2020||Q3 2019||Q2 2020|
|Revenues||$ 93||$ 75||$ 82|
|Operating income - GAAP||$ 4||$ 12||$ 9|
|Adjusted EBITDA - excluding unusual items||$ 5||$ 14||$ 10|
|Adjusted EBITDA margin - excluding unusual items||5.8 %||19.1 %||12.2 %|
Rail revenues increased 24 percent compared with the prior-year quarter to $93 million. This change reflects higher equipment sales including revenues from long-duration supply contracts. The segment's operating income and adjusted EBITDA totaled $4 million and $5 million, respectively, in the third quarter of 2020. These figures compare with operating income of $12 million and adjusted EBITDA of $14 million in the prior-year quarter. The EBITDA change year-on-year is attributable to a less favorable product mix and lower aftermarket parts and technology product volumes.
Net cash provided by operating activities totaled $21 million in the third quarter of 2020, compared with net cash provided by operating activities of $45 million in the prior-year period. Free cash flow was $18 million (before transaction expenses) in the third quarter of 2020, compared with $5 million in the prior-year period. The improvement in free cash flow compared with the prior-year quarter is attributable to changes in net cash from operating activities, including cash generated from working capital, and lower capital expenditures.
Fourth Quarter Outlook
Underlying business conditions improved during the third quarter. However, the improvement
realized was uneven and the pace of recovery varied within relevant end-markets. Fundamental improvement was most apparent within Harsco Environmental and Clean Earth and we expect these positive trends to continue in the fourth quarter. Meanwhile, Rail has yet to see a positive inflection as customers, particularly in North America, continue to defer capital spending as a result of pandemic-related pressures within the freight and passenger rail market. In total, the Company anticipates that its adjusted EBITDA in the fourth quarter will modestly improve, at the mid-point of guidance, versus the just-completed quarter. Specifically, Harsco expects its Q4 EBITDA to be within a range of $58 million to $63 million. This outlook also assumes that Corporate spending will be modestly higher in the fourth quarter compared with Q3 due to the timing of certain expenses.
Additionally, measures implemented earlier in 2020 to control costs remain in place and the Company is mindful that further cost actions may be necessary if the pace of economic recovery slows. The Company is also maintaining its capital spending and working capital discipline to support positive free cash flow. These ongoing actions are expected to enable Harsco to generate free cash flow of $20 million to $25 million in the final quarter of the year.
Lastly, this outlook is subject to certain risks related to COVID-19 and other factors and it assumes that any such factors will not alter the ongoing recovery in the fourth quarter.
The Company will hold a conference call today at 9:00 a.m. Eastern Time to discuss its results and respond to questions from the investment community. The conference call will be broadcast live through the Harsco Corporation website at www.harsco.com. The Company will refer to a slide presentation that accompanies its formal remarks. The slide presentation will be available on the Company’s website.
The call can also be accessed by telephone by dialing (844) 467-8153 or (270) 855-8732. Enter Conference ID number 7674605. Listeners are advised to dial in at least five minutes prior to the call.
The nature of the Company's business, together with the number of countries in which it operates, subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor" provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, sales, cash flows, and earnings. Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "plan" or other comparable terms.
Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including changes in general economic conditions or changes due to COVID-19 and governmental and market reactions to COVID-19; (2) changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs; (3) changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards and amounts; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure; (8) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company's business; (11) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integration of the Company's strategic acquisitions; (13) potential severe volatility in the capital markets; (14) failure to retain key management and employees; (15) the amount and timing of repurchases of the Company's common stock, if any; (16) the outcome of any disputes with customers, contractors and subcontractors; (17) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged, have inadequate liquidity or whose business is significantly impacted by COVID-19) to maintain their credit availability; (18) implementation of environmental remediation matters; (19) risk and uncertainty associated with intangible assets and (20) other risk factors listed from time to time in the Company's SEC reports. A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, together with those described in Item 1A, "Risk Factors," of the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2020. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements except as may be required by law.
Harsco Corporation is a global market leader providing environmental solutions for industrial and specialty waste streams and innovative technologies for the rail sector. Based in Camp Hill, PA, the 13,000-employee company operates in more than 30 countries. Harsco’s common stock is a component of the S&P SmallCap 600 Index and the Russell 2000 Index. Additional information can be found at www.harsco.com
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