Executive Summary / Key Takeaways

• Strategic Transformation Underway: Enviri Corporation is undergoing a significant transformation, pivoting towards a specialized environmental solutions portfolio, with Clean Earth as its primary growth engine and a strategic intent to divest Harsco Rail.
• Clean Earth's Robust Performance: Clean Earth continues to be a standout performer, delivering record Q2 2025 profits and strong margins (16.3%), driven by pricing, volume growth, and efficiency initiatives, with management projecting double-digit EBITDA growth for 2025.
• Harsco Rail's Turnaround & Value Unlock: Despite recent demand softness and ETO contract challenges, Harsco Rail is undergoing a significant operational overhaul and risk mitigation, with its eventual stabilization and planned divestiture expected to materially boost consolidated free cash flow.
• Revised 2025 Outlook & Long-Term Targets: Enviri has revised its 2025 adjusted EBITDA guidance to $290 million-$310 million and free cash flow to $15 million-$35 million, primarily due to Rail's demand weakness, but maintains its 2027 targets of over $400 million EBITDA and $150 million+ free cash flow.
• Strategic Alternatives Review: The company initiated a formal review of strategic alternatives in August 2025, including a potential tax-efficient sale or separation of Clean Earth, aiming to address the persistent gap between its market valuation and the sum of its parts.

Enviri's Strategic Pivot: A New Era of Environmental Solutions

Enviri Corporation, with roots tracing back to 1853, has undergone a profound transformation, rebranding from Harsco Corporation in June 2023 to underscore its sharpened focus on environmental solutions. This strategic pivot aims to build a portfolio centered on specialty waste streams, promising higher underlying growth rates and robust cash flow generation. The company's operations are structured into three distinct segments: Harsco Environmental (HE), Clean Earth (CE), and Harsco Rail. This shift is not merely cosmetic; it represents a deliberate reorientation towards sustainability-driven markets, positioning Enviri as a specialized leader in a critical global industry.

In the competitive landscape, Enviri carves out a niche in specialized industrial and hazardous waste management, differentiating itself from larger, more diversified players like Waste Management Inc. (WM) and Republic Services Inc. (RSG). While WM and RSG command broader market share through extensive collection, disposal, and recycling networks, Enviri's strength lies in its tailored, on-site services for metals manufacturing (HE) and advanced processing of contaminated materials (CE). Compared to Clean Harbors Inc. (CLH), which excels in hazardous waste and emergency remediation, Enviri's focus on beneficial reuse and long-term industrial contracts provides a distinct competitive edge. Similarly, against Stericycle Inc. (SRCL), primarily focused on medical waste, Enviri's broader industrial waste capabilities offer greater diversification.

Enviri's competitive moat is built on several pillars. Its long-term contracts, particularly in Harsco Environmental, provide recurring revenue and foster deep customer loyalty, contributing to stable cash flow and potentially superior margins in niche markets. The company's proprietary resource recovery processes, such as the SteelPhalt™ technology, exemplify its technological differentiation. This technology, which converts steel slag into high-quality asphalt without natural aggregates, offers a true circular economy route for industrial byproducts. The recent opening of the first SteelPhalt™ plant outside the UK in Murga, Spain, in March 2025, expands this eco-friendly solution globally. In Clean Earth, the company's expertise in specialty waste processing, treatment, recycling, and beneficial reuse, including capabilities for PFAS-contaminated wastewater, positions it for growth in emerging environmental challenges. These technological advantages, while not always quantified with specific metrics in public disclosures, are stated to drive "significantly higher efficiency" in material reuse and "superior efficiency in waste stream valorization," directly enhancing Enviri's competitive standing and financial performance through lower costs and improved resource utilization.

Clean Earth: The Engine of Growth and Value

Clean Earth has emerged as Enviri's primary growth engine, consistently delivering strong financial results and significantly contributing to the company's strategic transformation. Since its full integration in 2021, Clean Earth's contribution to Enviri's consolidated EBITDA has surged from 25% to over 50% by the end of 2024, demonstrating its increasing value. This growth is fueled by improved pricing dynamics, productivity initiatives, and enhanced customer service, positioning Clean Earth as a valuable asset in an attractive and consolidating industry.

In the second quarter of 2025, Clean Earth reported revenues of $246.3 million, a 4.3% increase over Q2 2024, and achieved record adjusted EBITDA of $25 million, growing 5% year-over-year. Its operating margin reached 10.0% for the quarter. For the first six months of 2025, revenues totaled $481.5 million, up 4.2% from the prior year, with an operating income of $47.3 million. These results were achieved despite temporary headwinds, including weather-related pressures, a weaker business mix in soil and dredge, and a temporary rise in disposal costs due to primary service provider outages. Management noted these issues improved in early Q3 2025, indicating their transient nature.

Clean Earth's strategic initiatives include expanding service capabilities, driving business growth, and maintaining industry-leading customer service. Investments in commercial resources are yielding results, evidenced by a robust business pipeline. The segment's ongoing project to implement a common IT platform is on track, with further productivity benefits anticipated in 2026 from its completion. Clean Earth also rolled out a new fleet of 132 Class 7 and Class 8 straight trucks nationwide in April 2025, enhancing sustainability and service efficiency for its retail and healthcare customers. The outlook for Clean Earth's earnings, margins, and free cash flow is positive, expected to outpace other segments and exceed financial targets set at the Analyst Day in June 2024, with margins projected to approach 17% for the full year 2025.

Harsco Environmental: Resilience Amidst Global Steel Headwinds

Harsco Environmental (HE) operates under long-term contracts, providing critical environmental services and material processing to the global steel and metals industries. This segment is managing through a challenging period in the global steel market, characterized by excess capacity from China and diminished demand in key regions. In Q2 2025, HE reported revenues of $258.0 million, a decline of 11.9% from Q2 2024, with operating income at $4.3 million and an operating margin of 1.6%. For the first six months of 2025, revenues were $501.1 million, down 15.3% year-over-year, with an operating income of $14.3 million.

The decline in HE's performance reflects lower service levels due to reduced steel production by customers and site exits, including a $7.4 million impairment charge in Q2 2025 related to exiting a downstream products business in France. Despite these pressures, HE has demonstrated resilience through aggressive cost management, flexible capital expenditures, and efficiency programs. A modest uptick in U.S. volumes due to trade protections has been observed, though offset by declines elsewhere, resulting in flat overall volumes. Management anticipates HE's results to improve considerably in the second half of 2025, driven by new sites ramping up, cost reduction initiatives, and performance improvements at underperforming locations. The segment's cash flow profile has also improved, generating $75 million-$90 million per annum in free cash flow in recent years, significantly higher than previous averages.

Harsco Rail: The Turnaround Catalyst

Harsco Rail, a provider of highly engineered maintenance equipment and services for railways, has been Enviri's most challenging business. Its performance in Q2 2025 saw revenues of $58.0 million, a 28.4% decrease from Q2 2024, but a notable operating income of $20.3 million, yielding a 35.1% operating margin. This significant margin improvement was primarily due to a favorable net change in forward estimated loss provisions related to long-term contracts, particularly an amendment to the Deutsche Bahn contract in Q1 2025. However, year-to-date orders are down over 30%, reflecting a cautious view on maintenance spending by customers in the U.S., Mexico, Canada, and China due to economic and global trade uncertainty.

The core challenge for Rail lies in its highly engineered-to-order (ETO) contracts, which have faced unprecedented supply chain disruptions, inflation, and operational bottlenecks. Enviri has strengthened Rail's leadership team, focusing on operational improvements, supply chain management, and risk mitigation for these ETO contracts. The company has explicitly stated it will not sign new ETO contracts in the future. As of June 30, 2025, the Network Rail, Deutsche Bahn, and SBB contracts are 66%, 52%, and 91% complete, respectively. Most smaller ETO contracts are expected to conclude in 2025, with the remaining two by 2026. Deliveries for SBB's first vehicle type are expected by end of 2025, and the second type by end of 2026. For Deutsche Bahn, the first three vehicles will commence formal acceptance by end of 2025, with the remaining 20 delivered by end of 2027.

These ETO contracts are projected to consume approximately $50 million in cash in 2025, an improvement from $80 million in 2024, with similar cash impacts expected in 2026 before turning cash flow positive. Management anticipates project cash flows on these ETO contracts to be neutral on a go-forward basis. The company is also implementing restructuring plans in late Q3 2025, fully by Q1 2026, to rightsize the organization in line with lower demand. The ultimate goal is to stabilize Rail and position it for divestiture, which is expected to significantly boost consolidated free cash flow.

Financial Health and Strategic Flexibility

Enviri's consolidated revenues for Q2 2025 were $562.3 million, down 7.8% year-over-year, and $1.11 billion for the first six months of 2025, down 8.2%. The company reported a consolidated loss from continuing operations of $46 million for Q2 2025. Adjusted EBITDA for Q2 2025 was $65 million, with a diluted loss per share of $0.22 (excluding unusual items). The decline in revenues was partly due to foreign currency translation, which unfavorably impacted revenues by $4.7 million in Q2 2025. Selling, General, and Administrative expenses increased, driven by higher compensation and professional fees, though partially offset by a reduction in credit loss provisions.

Liquidity remains sufficient, supported by cash flow forecasts, existing cash, and available borrowings under the Senior Secured Credit Facilities and the AR Facility. An amendment to the Credit Agreement in February 2025 reset debt covenants, with the Net Debt to Consolidated Adjusted EBITDA ratio at 4.75x and interest coverage ratio at 2.84x as of June 30, 2025, both in compliance. The company has headroom to increase net debt by $76.6 million or absorb a $15.3 million decrease in Consolidated Adjusted EBITDA while remaining compliant. The AR Facility was also expanded to $160 million in February 2025. Adjusted free cash flow for Q2 2025 was a negative $14 million, in line with expectations, with improvements anticipated in Q3 and Q4. The UK pension plan is now fully funded, eliminating future cash contributions, a significant positive for cash flow.

Outlook and Value Creation

Enviri has revised its full-year 2025 adjusted EBITDA guidance to a range of $290 million-$310 million and free cash flow to $15 million-$35 million. This reduction, primarily driven by the demand weakness in Harsco Rail, reflects management's prudent approach amidst economic uncertainty. For Q3 2025, adjusted EBITDA is expected to range from $76 million-$86 million, with sequential improvements across all segments.

The long-term vision remains robust, with management reaffirming its 2027 targets of over $400 million in EBITDA and more than $150 million in free cash flow, alongside a net leverage target of 2.5x-3x EBITDA. This trajectory is underpinned by Clean Earth's continued growth, HE's resilience and operational improvements, and the eventual stabilization and divestiture of Harsco Rail. The completion of ETO contracts in Rail, coupled with lower pension contributions and reduced interest expense, are key catalysts for this significant cash flow inflection.

In August 2025, Enviri announced a formal review of strategic alternatives, including a potential tax-efficient sale or separation of the Clean Earth business. This evaluation aims to unlock shareholder value and address the "significant and persistent gap between our market valuation and the sum of the parts value of the company." This strategic flexibility, combined with the underlying strength of its environmental segments and the ongoing turnaround in Rail, positions Enviri for a potentially transformative period.

Risks to the Investment Thesis

While Enviri's strategic direction is clear, several risks warrant investor attention. The ongoing global steel market softness, particularly from Chinese excess capacity, could continue to pressure Harsco Environmental's performance, despite mitigation efforts. Harsco Rail's ETO contracts, while progressing, still carry execution risks, with potential for further forward loss provisions if cost estimates or delivery schedules change. The company is actively negotiating with Network Rail, and a mutually acceptable exit or substantial revision of economic terms is being explored, which could result in a material loss if an exit occurs.

Furthermore, the announced strategic review of Clean Earth, while aimed at unlocking value, introduces uncertainty. There is no guarantee a transaction will be completed on favorable terms or at all, and the process itself could disrupt business relationships and divert management attention. Environmental liabilities, such as the Bahrain salt cakes and the Brazil slag dispute, present potential financial exposures, although the company does not currently believe a material loss is probable or estimable for most. The significant number of pending asbestos actions also represents a long-tail risk, albeit one covered by insurance.

Conclusion

Enviri Corporation stands at a pivotal juncture, actively transforming its portfolio into a focused environmental solutions enterprise. The robust performance of Clean Earth, coupled with the strategic overhaul and planned divestiture of Harsco Rail, forms the core of its value creation narrative. Despite near-term headwinds in the global steel market and the complexities of its legacy Rail ETO contracts, Enviri's commitment to operational excellence, technological differentiation in resource recovery, and disciplined capital allocation positions it for substantial long-term free cash flow generation.

The ongoing evaluation of strategic alternatives, particularly for the high-performing Clean Earth segment, signals a proactive approach to addressing market valuation discrepancies. Investors should closely monitor the progress of this review, the continued operational improvements in Rail, and the resilience of Harsco Environmental. Enviri's journey from a diversified industrial conglomerate to a specialized environmental leader, underpinned by its unique technological capabilities and strategic portfolio optimization, presents a compelling, albeit not without risk, investment thesis for discerning investors.