?? Second Quarter GAAP Loss of $10 Million or $0.14 Per Share Including Anticipated Acquisition, Integration and Financing Costs; Adjusted Earnings Per Share of $0.13
?? Adjusted EBITDA Totaled $59 Million, Highlighting Positive Operational and Cost Performance While Facing COVID-19 Headwinds, as Well as Timing of Expenditures and Acquisition Contributions
?? Net Cash Provided by Operating Activities of $33 Million in Q2; Free Cash Flow Totaled $18 Million Driven by Actions to Lower Capital Spending as Well as Working Capital Initiatives
?? Company Net Leverage Ratio of 3.9x and Liquidity Position Exceeded $390 Million at Quarter-End
?? Business Continuity Actions In Response to COVID-19 Driving Significant Cost Reductions; ?Company Remains Committed to Lower Capital Spending and Positive Free Cash Flow
Camp Hill, PA (August 5, 2020)?-?Harsco Corporation (NYSE: HSC) today reported second quarter 2020 results. On a U.S. GAAP ("GAAP") basis, second quarter of 2020 diluted loss per share from continuing operations was $0.14, which included acquisition and integration costs as well as expenses incurred to amend the Company's credit facilities. Adjusted diluted earnings per share from continuing operations in the second quarter of 2020 were $0.13. These figures compare with second quarter of 2019 GAAP diluted loss per share from continuing operations of $0.04 and adjusted diluted earnings per share from continuing operations of $0.23.
GAAP operating income from continuing operations for the second quarter of 2020 was $2 million, while adjusted EBITDA excluding unusual items totaled $59 million in the quarter. “Against a challenging operating environment in the second quarter, we took further action to control costs, optimize spending and enhance our overall financial flexibility,” said Chairman and CEO Nick Grasberger. “Working together, we are controlling what we can control and moving the company forward with a focus on safety, cost management, and the flawless execution of operational initiatives.”
“Despite persistent headwinds, we made significant progress in the quarter on a number of key strategic and operational initiatives. Our transformation into a pure-play environmental solutions company continued as we began the integration of ESOL with Clean Earth, and reached our first 100-days of ownership. ESOL represents a tremendous value-creating opportunity and the integration process has been running smoothly, with a focus on instilling greater process discipline within the organization and strengthening its operational and commercial effectiveness. In addition, Rail’s SCOR program remains on pace to achieve its objectives.
"While we are cautiously optimistic that business activity in our end markets troughed in the second quarter, we expect the impact from the COVID-19 pandemic and market volatility to persist. We continue to believe that our ongoing transformation efforts position Harsco to be a stronger, more resilient company, poised to capitalize on growth opportunities. I am confident that our continued focus on costs, cash flow, debt reduction and serving our customers will continue to help us navigate these uncertain times and guide us as the global economy recovers.”?
Harsco Corporation -?Selected Second Quarter Results
|($ in millions, except per share amounts)?||Q2 2020||Q2 2019|
|Revenues||$ 447 ?||$ 351|
|Operating income from continuing operations - GAAP?||$ 2||$ 18 ??|
|Diluted EPS from continuing operations - GAAP||$ (0.14)||$ (0.04)|
|Adjusted EBITDA - excluding unusual items?||$ 59 ??||$ 63 ?|
|Adjusted EBITDA margin - excluding unusual items||13.2 %||18.0 %|
|Adjusted diluted EPS from continuing operations - excluding unusual items||$ 0.13||$ 0.23 ??|
Note: Income statement details above and commentary below reflect that the prior Industrial segment was reclassified as Discontinued Operations in 2019. Also, 2020 details include ESOL from the date the business was acquired on April 6, 2020 and ESOL results are reported within the Clean Earth segment. 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 also adjusted for acquisition-related amortization expense.
Consolidated Second Quarter Operating Results
Consolidated total revenues from continuing operations were $447 million, an increase of 27 percent compared with the prior-year quarter due to acquisitions (Clean Earth and ESOL) since mid-2019. The revenue contributions from the acquired businesses were partially offset by lower demand for products and services as a result of the COVID-19 pandemic and FX impacts. Foreign currency translation negatively impacted second quarter 2020 revenues by approximately $13 million compared with the prior-year period.?
GAAP operating income from continuing operations was $2 million for the second quarter of 2020, compared with $18 million in the same quarter of last year. ?Meanwhile, adjusted EBITDA totaled $59 million in the second quarter of 2020 versus $63 million in the second quarter of 2019. This change is attributable to lower profitability in the Harsco Environmental and Rail segments due to COVID-19, partially offset by acquisition contributions and lower adjusted Corporate spending.
Second Quarter Business Review
|($ in millions)?||Q2 2020??||Q2 2019??||% Change|
|Revenues||$ 204||$ 269 ?||(24) %|
|Operating income - GAAP||$ 14||$ 28||(51) %|
|Adjusted EBITDA - excluding unusual items?||$ 40 ?||$ 58||(30) %|
|Adjusted EBITDA margin - excluding unusual items||19.7 %||21.4 %||?|
Environmental revenues totaled $204 million in the second quarter of 2020, compared with $269 million in the prior-year quarter. This change is principally attributable to lower demand for environmental services and applied products as a result of COVID-19 and foreign currency translation impacts. The segment's GAAP operating income and adjusted EBITDA totaled $14 million and $40 million, respectively, in the second quarter of 2020. These figures compare with GAAP operating income of $28 million and adjusted EBITDA of $58 million in the prior-year period. The change in the segment's adjusted EBITDA relative to the prior-year quarter is attributable to the above factors, partially offset by lower SG&A and operating costs resulting from Company actions to mitigate the COVID-19 economic headwinds. Environmental's adjusted EBITDA margin was 19.7 percent in the second quarter of 2020.
|($ in millions)?||Q2 2020?||Q2 2019||% Change|
|Revenues||$ 162||$ 69||134 %|
|Operating income - GAAP||$? — ?||$ 4||nmf|
|Adjusted EBITDA - excluding unusual items||11.3||10.8||5 %|
|Adjusted EBITDA ?margin - excluding unusual items||7.0 %?||15.6 %?||?|
Note: The 2019 financial information provided above and discussed below for Clean Earth is not incorporated within Harsco's consolidated results and is provided only for comparison purposes. Also, these prior-year figures do not include a corporate cost allocation and do not include ESOL.
Clean Earth revenues totaled $162 million in the second quarter of 2020, compared with $69 million in the prior-year quarter. Segment operating income was nominal and adjusted EBITDA totaled $11 million in the second quarter of 2020. These figures compare with $4 million and $11 million, respectively, in the prior-year period. The increase in revenues is attributable to the ESOL acquisition in April 2020, while the EBITDA comparison for the periods reflects that the positive acquisition contributions were offset by lower demand for hazardous and non-hazardous materials services as a result of COVID-19 pandemic.
|($ in millions)?||Q2 2020||Q2 2019||% Change|
|Revenues??||$ 82||$ 82||—? %|
|Operating income - GAAP||$ 8.6 ??||$ 9.4||(9) %|
|Adjusted EBITDA - excluding unusual items||$ 10||$ 12||(16) %|
|Adjusted EBITDA margin - excluding unusual items??||12.2 %||14.5 %||?|
Rail revenues were essentially unchanged at $82 million. The segment's operating income and adjusted EBITDA totaled $9 million and $10 million, respectively, in the second quarter of 2020. These figures compare with operating income of $9 million and adjusted EBITDA of $12 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, partially offset by higher contracting contributions and lower administrative expenses. Rail's adjusted EBITDA margin was 12.2 percent in the second quarter of 2020.
Net cash provided by operating activities totaled $33 million in the second quarter of 2020, compared with net cash used by operating activities of $9 million in the prior-year period. Free cash flow was $18 million (before transaction expenses) in the second quarter of 2020, compared with $(45) 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.
COVID-19 Update / Outlook
The Company believes that underlying business volumes stabilized early in the second quarter. However, business conditions remain dynamic and uneven across various markets, and the pace of the recovery remains slow. In this context, Harsco continues to take the necessary steps to minimize the operational and financial impacts of the pandemic on the business, while providing critical services and products to its customers and adhering to its Global Principles, which set operating standards for current business needs as well as workplace safety and flexibility measures.
Capital expenditures will remain tightly controlled for the foreseeable future and Harsco continues to defer certain tax and pension payments. These efforts will strengthen the Company's free cash flow and preserve its financial flexibility. The Company is also taking more aggressive actions to further flex its cost structure. In this regard, the Company is now targeting cost savings of $20 million for the year, versus $15 million previously.?
As previously announced, Harsco will not be providing detailed guidance given the uncertainty around the pandemic and its evolving impact on relevant markets. The Company's forward-looking guidance is limited to directional comments about the third quarter of 2020. Based on recent and current market conditions and the Company's performance, Harsco anticipates that its revenues in the third quarter will increase relative to the second quarter of 2020. However, the Company believes that its third quarter adjusted EBITDA will be slightly below second quarter 2020 results. This outlook contemplates some modest improvement in end-markets during the third quarter, with this positive impact offset by the timing of certain expenditures which were less impactful on the Company's second quarter 2020 results.
2019 - 2020 ESG Report
Harsco released its?2019-2020 Environmental, Social and Governance (ESG) Report, which highlights the company’s sustainability accomplishments throughout the 2019 fiscal year and the first half of 2020. Harsco’s most comprehensive sustainability report to date provides a detailed look at the company’s vision, strategy, governance and key focus areas where Harsco delivers value for its business and positive outcomes for stakeholders – Innovative Solutions, Safe Workplaces, Inspired People and Thriving Environment.
The Company will hold a conference call today at 8:30 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.ui653.cn. 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 5787610. 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 March 31, 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.ui653.cn.
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