Charah Solutions, Inc. Reports First Quarter 2019 Financial Results

Bids Outstanding Have Grown to in Excess of $3.5 Billion;
Meaningful Award Potential in 2019

Maintaining 2019 Adjusted EBITDA Guidance and Expectation for
Significant Free Cash Flow

Lowering 2019 Revenue Guidance on Timing of Awards; Maintaining
2020 Outlook for Strong Growth

Key Financial Highlights

  • Revenue of $163.3 million, up 5.0% from first quarter 2018
  • Environmental Solutions segment revenue grew to $58.4 million, a 22%
    increase from first quarter 2018
  • Net loss of $(2.8) million or $(0.10) per diluted share, as compared
    to net income of $0.8 million or $0.03 per diluted share in first
    quarter 2018
  • Adjusted net loss1 of $(2.0) million or $(0.07) per diluted
    share, as compared to adjusted net income of $3.5 million or $0.14 per
    diluted share in first quarter 2018
  • Adjusted EBITDA1 of $8.9 million, as compared to Adjusted
    EBITDA of $17.4 million in first quarter 2018
  • Lowering 2019 revenue guidance range to $550 million to $650 million;
    affirming 2019 Adjusted EBITDA guidance range of $50 million to $65
    million

Business Developments

  • Strong flow of project opportunities continues with meaningful award
    potential in 2019; outstanding bids risen to in excess of $3.5 billion
  • Construction ongoing at two slag grinding facilities, expected
    operational second half of 2019
  • Opened additional fly ash storage terminal in Massachusetts, expanding
    MultiSource® network
  • Final ash received at Brickhaven; expect to receive significant cash
    payment second half of 2019

LOUISVILLE, Ky.–(BUSINESS WIRE)–Charah® Solutions, Inc. (NYSE: CHRA) (“Charah Solutions” or the
“Company”), a leading provider of environmental and maintenance services
to the power generation industry, today announced financial results for
the quarter ended March 31, 2019. Revenues for the first quarter of 2019
were $163.3 million, up 5.0% from the first quarter of 2018, with a net
loss attributable to Charah Solutions of $(2.8) million, or $(0.10) per
diluted share. Adjusted net loss1 and adjusted loss per
diluted share1 were $(2.0) million and $(0.07), respectively.
Adjusted EBITDA was $8.9 million.

“We continue to see growing demand for our environmental and maintenance
solutions and remain excited about the size of the opportunity set. Our
pending bids have grown to in excess of $3.5 billion and we expect to
announce significant new business awards over the remainder of this
year. We are committed to our investment in technology initiatives and
have received an overwhelmingly positive response domestically and from
overseas. As the market leader in ash excavation with a unique ability
to bundle our low-cost ash beneficiation technology in a highly scalable
design, we believe we are in an ideal position to bring differentiated
and customized solutions to our customers’ accelerating need for
remediation and recycling of coal ash,” said Scott Sewell, President and
Chief Executive Officer of Charah Solutions.

Mr. Sewell continued, “Our new business prospects are strong, though
most of the benefit to revenue now is expected to occur in 2020. While a
shift in the timing of awards has impacted our 2019 revenue outlook, we
still expect to have significant free cash flow this year as a result of
the expected cash payment related to the early completion of the
Brickhaven contract, which we will allocate to meaningful debt repayment
and the growth of our business. We remain confident in our 2020 outlook
and continue to anticipate strong growth in revenue and EBITDA.”

Summary of Financial Results

  Three Months Ended March 31,
(Unaudited, in thousands, except per share and margin data) 2019   2018
 
Total revenue $ 163,258 $ 155,529
Gross profit $ 15,379 $ 19,099
Gross profit margin 9.4% 12.3%
Net (loss) income attributable to Charah Solutions, Inc. $ (2,819) $ 806
(Loss) earnings per common share (diluted) $ (0.10) $ 0.03
Cash flow provided by operating activities $ 6,175 $ 4,225
 

Non-GAAP Financial Measures

Adjusted net (loss) income(1) $ (1,962) $ 3,524
Adjusted EBITDA1 $ 8,906 $ 17,364
Adjusted EBITDA margin 5.5% 11.2%
 

First Quarter 2019 Results

Revenue for the first quarter of 2019 was $163.3 million, an increase of
$7.7 million, or 5.0%, from $155.5 million in the first quarter of 2018.
Gross profit decreased $3.7 million, or 19.5%, to $15.4 million from
$19.1 million in the first quarter of 2018. Gross profit as a percentage
of revenue, or gross margin, declined to 9.4% from 12.3% in the first
quarter of 2018, primarily due to lower gross margin in the Company’s
Environmental Solutions segment.

Environmental Solutions Segment: Environmental Solutions
generated revenue of $58.4 million, an increase of $10.6 million, or
22.2%, from the first quarter of 2018, primarily due to the acquisition
of SCB Materials International, Inc. and affiliated entities (“SCB”) in
March 2018, which contributed $13.3 million in revenue, partially offset
by lower revenues from the Company’s remediation and compliance
services. Gross profit declined to $8.3 million from $12.5 million in
the first quarter of 2018, primarily due to a combination of adverse
weather impacts across the segment and project-specific issues at three
sites, which resulted in project delays and unanticipated cost
increases. Gross margin declined to 14.2% from 26.1% in the first
quarter of 2018.

Maintenance and Technical Services Segment: Maintenance and
Technical Services generated revenue of $104.9 million, a decrease of
$2.9 million, or 2.7%, from the first quarter of 2018. The decrease was
primarily attributable to lower revenues in the Company’s nuclear
services business, which resulted from reduced scope leading to fewer
outage days during the period, partially offset by the commencement of
the APS fossil maintenance contract. Gross profit increased $0.5
million, or 7.3%, to $7.1 million from $6.6 million in the first quarter
of 2018. Gross margin rose to 6.8% from 6.2% in the first quarter of
2018.

Net loss attributable to Charah Solutions was $(2.8) million, while
Adjusted EBITDA for the first quarter of 2019 was $8.9 million, a
decrease of $8.5 million, or 48.7%, from $17.4 million in the first
quarter of 2018. Interest expense rose during the first quarter of 2019
by $0.9 million from $4.1 million in the first quarter of 2018, as a
result of a non-cash $1.4 million mark-to-market expense associated with
the change in value of the Company’s interest rate swap during the
period. Cash flow from operating activities was $6.2 million, an
increase of nearly $2.0 million or 46.2% above the first quarter of 2018
results.

2019 Guidance

  • Revenues of $550 million to $650 million
  • Net income of $5 million to $15 million
  • Adjusted EBITDA of $50 million to $65 million
  • Significantly cash flow positive

As a result of delays in the timing of new business awards, the Company
has lowered its 2019 revenue guidance to a range of $550 million to $650
million from the previous range of $650 million to $800 million.
However, a substantial majority of the lower end of the revenue guidance
can be achieved through existing business and awards received to date.
As compared to 2018, revenues are expected to be lower in the
Environmental Solutions segment (with growth in byproduct sales offset
by lower revenues in remediation and compliance services) and modestly
lower in the Maintenance and Technical Services segment (with growth in
fossil services offset by the impact of fewer scheduled nuclear outages
on the nuclear services business).

The Company has affirmed its 2019 Adjusted EBITDA guidance of $50
million to $65 million and revised its 2019 net income guidance to a
range of $5 million to $15 million.

The Company continues to expect to have significant positive cash flow
in 2019 as a result of the expected cash payment later this year in
connection with the early completion of the Brickhaven contract.

2020 Outlook

The Company continues to anticipate revenue growth of at least 20% from
its previous 2019 revenue guidance of $650 million to $800 million,
based on the likelihood of meaningful new business awards during the
remainder of 2019 that should boost revenue in 2020. Management’s
confidence in winning future awards is driven by its compelling value
proposition to customers, favorable market dynamics, and regulatory
trends that continue to expand its potential to win project mandates,
further diversify its customer composition, and broaden the opportunity
set. Revenue and margin enhancement potential is further supported by
the planned rollout of the Company’s technology initiatives. In
addition, the Company also expects Adjusted EBITDA margins in 2020
comparable to or higher than the revised 2019 guidance level, due to the
higher-margin profile of the expected sources of growth in revenue and
the ability to grow revenues without materially scaling up general and
administrative expenses.

Business Update

Currently, the Company has more than $3.5 billion in bids outstanding,
which has increased from more than $3.0 billion at the end of March. As
bids outstanding have grown, the Company’s success rate in winning bids
has remained in line with historical levels. About 15% of the current
bid pipeline has been verbally awarded to the Company and exclusive
negotiations are underway, with execution of contracts expected by the
end of the third quarter. Management has also received an enthusiastic
response from customers evaluating its MP618TM fly ash
beneficiation technology and expects to execute agreements later this
year. Two grinding facilities are currently in construction and expected
to become operational in the second half of 2019, and two additional
facilities are expected to begin construction before year-end. Further,
the Company continued to execute on its technology deployment
initiatives and expand its MultiSource network with an additional fly
ash storage terminal opened in Massachusetts during the first quarter.

Consistent with the Company’s exceptional track record of safe
operations and commitment to safety excellence, several new safety
awards have been received year-to-date in recognition of low incidence
rates, including those from the North Carolina Department of Labor, the
Willis Towers Watson Construction Safety Excellence Committee and the
Coalition of Construction Safety.

CONFERENCE CALL

Charah Solutions will host a conference call at 8:30 a.m. ET today to
discuss the first quarter results. Information contained within this
press release will be referenced and should be considered in conjunction
with the call.

Participants may access the conference call live via webcast on the
Investors section of the Charah Solutions website at ir.charah.com.
To participate via telephone, please dial (877) 273-7219 within the
United States or (647) 689-5395 outside the United States, approximately
15 minutes prior to the scheduled start time. The conference ID for the
call is 4093428.

A webcast replay will be available on the Investors section of the
Charah Solutions website at ir.charah.com after 11:30 a.m. ET on
Wednesday, May 15, 2019. In addition, an audio replay will be available
for one week following the call and will be accessible by dialing (800)
585-8367 within the United States or (416) 621-4642 outside the United
States. The replay ID is 4093428.

A supplementary presentation will also be available on the Investors
section of the Charah Solutions website at ir.charah.com.

ABOUT CHARAH SOLUTIONS

With 30 years of experience, Charah® Solutions, Inc. is a
leading provider of environmental and maintenance services to the power
generation industry, with operations in fossil fuel and nuclear power
generation sites across the country. Based in Louisville, Kentucky,
Charah Solutions assists utilities with all aspects of managing and
recycling ash byproducts generated from the combustion of coal in the
production of electricity as well as routine power plant maintenance and
outage services for the fossil fuel and nuclear power generation
industry. The company also designs and implements solutions for ash pond
management and closure, landfill construction, fly ash and slag sales,
and structural fill projects. Charah Solutions is the partner of choice
for solving customers’ most complex environmental challenges, and as an
industry leader in quality, safety, and compliance, the company is
committed to reducing greenhouse gas emissions for a cleaner energy
future. For more information, please visit www.charah.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. All statements, other than
statements of historical facts, included in this press release that
address activities, events or developments that the Company expects,
believes or anticipates will or may occur in the future are
forward-looking statements. These forward-looking statements are
identified by their use of terms and phrases such as “may,” “expect,”
“estimate,” “project,” “plan,” “believe,” “intend,” “achievable,”
“anticipate,” “will,” “continue,” “potential,” “should,” “could,” and
similar terms and phrases. These statements are based on certain
assumptions made by the Company based on management’s experience and
perception of historical trends, current conditions, anticipated future
developments and other factors believed to be appropriate. Such
statements are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the Company,
which may cause actual results to differ materially from those implied
or expressed by the forward-looking statements.

Any forward-looking statement speaks only as of the date on which such
statement is made and the Company undertakes no obligation to correct or
update any forward-looking statement, whether as a result of new
information, future events or otherwise, except as required by
applicable law.

NON-GAAP FINANCIAL MEASURES

Adjusted net (loss) income and Adjusted (loss) earnings per diluted
share are not financial measures determined in accordance with GAAP.
Charah Solutions defines Adjusted net (loss) income as Net (loss) income
attributable to Charah Solutions plus, on a post-tax basis,
non-recurring legal and start-up costs and expenses, and
transaction-related expenses and other items. Adjusted (loss) earnings
per diluted share is based on Adjusted Net (loss) income.

Adjusted EBITDA and Adjusted EBITDA margin are not financial measures
determined in accordance with GAAP. Charah Solutions defines Adjusted
EBITDA as net (loss) income before interest expense, income taxes,
depreciation and amortization, equity-based compensation, non-recurring
legal and start-up costs and expenses, and transaction-related expenses
and other items. Adjusted EBITDA margin represents the ratio of Adjusted
EBITDA to total revenues.

Management believes Adjusted EBITDA and Adjusted EBITDA margin are
useful performance measures because they allow for an effective
evaluation of our operating performance when compared to our peers,
without regard to our financing methods or capital structure. Management
excludes the items listed above from net (loss) income in arriving at
Adjusted EBITDA because these amounts are either non-recurring or can
vary substantially within Charah Solutions’ industry depending upon
accounting methods and book values of assets, capital structures and the
method by which the assets were acquired. Adjusted EBITDA should not be
considered as an alternative to, or more meaningful than, net (loss)
income determined in accordance with GAAP. Certain items excluded from
Adjusted EBITDA are significant components in understanding and
assessing a company’s financial performance, such as a company’s cost of
capital and tax structure, as well as the historic costs of depreciable
assets, none of which are reflected in Adjusted EBITDA. Charah
Solutions’ presentation of Adjusted EBITDA should not be construed as an
indication that the Company’s results will be unaffected by the items
excluded from Adjusted EBITDA. Charah Solutions’ computations of
Adjusted EBITDA may not be identical to other similarly titled measures
of other companies. Charah Solutions uses Adjusted EBITDA margin to
measure the success for the Company’s business in managing its cost base
and improving profitability. A reconciliation between Adjusted EBITDA to
net (loss) income, Charah Solutions’ most directly comparable financial
measure calculated and presented in accordance with GAAP, along with a
calculation of the Company’s Adjusted EBITDA margin is included in the
supplemental financial data attached to this press release.

 
CHARAH SOLUTIONS, INC.
 
Condensed Consolidated Balance Sheets
(dollars in thousands except per share data)
(Unaudited)
 
 

March 31,
2019

 

December 31,
2018

 
Assets
Current assets:
Cash $ 6,459 $ 6,900
Trade accounts receivable 63,828 60,742
Receivable from affiliates 893 894
Costs and estimated earnings in excess of billings 95,326 86,710
Inventory 24,466 25,797
Prepaid expenses and other current assets 4,584   5,133  
Total current assets 195,556 186,176
Property and equipment:
Plant, machinery and equipment 74,085 74,896
Structural fill site improvements 55,760 55,760
Vehicles 20,523 17,407
Office equipment 1,882 1,623
Buildings and leasehold improvements 262 262
Structural fill sites 7,110 7,110
Construction in progress 6,790   3,488  
Total property and equipment 166,412 160,546
Less accumulated depreciation (78,375 ) (71,605 )
Property and equipment, net 88,037 88,941
Other assets:
Trade names, net 34,885 34,920
Customer relationships, net 61,925 63,898
Technology, net 1,803 1,853
Non-compete and other agreements, net 144 180
Other intangible assets, net 22
Goodwill 74,213 74,213
Other assets 891
Deferred tax asset 3,508 2,747
Equity method investments 5,102   5,060  
Total assets $ 465,173   $ 458,901  
 
 
CHARAH SOLUTIONS, INC.
 
Condensed Consolidated Balance Sheets
(dollars in thousands except per share data)
(Unaudited)
 
 

March 31,
2019

 

December 31,
2018

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 20,064 $ 24,821
Billings in excess of costs and estimated earnings 1,052 1,352
Notes payable, current maturities 17,095 23,268
Accrued payroll and bonuses 33,843 15,480
Asset retirement obligation, current portion 15,196 14,704
Purchase option liability, current portion 7,110 10,017
Accrued expenses 21,564 22,473
Other liabilities 471  
Total current liabilities 116,395 112,115
Long-term liabilities:
Contingent payments for acquisitions 11,281 11,214
Asset retirement obligation, less current portion 9,022 11,361
Line of credit 20,500 19,799
Notes payable, less current maturities 217,302   211,022
Total liabilities 374,500 365,511
Commitments and contingencies
Stockholders’ equity:
Retained earnings 6,595 9,414

Common Stock, $0.01 par value; 200,000,000 shares authorized;
29,554,588
and 29,082,988 shares issued and outstanding as of March
31,
2019 and December 31, 2018, respectively

296 291
Additional paid-in capital 83,083   82,880
Total stockholders’ equity 89,974 92,585
Non-controlling interest 699   805
Total equity 90,673   93,390
Total liabilities and equity $ 465,173   $ 458,901
 
 
CHARAH SOLUTIONS, INC.
 
Condensed Consolidated & Combined Statements of Operations
(dollars in thousands except per share data)
(Unaudited)
 
  Three Months Ended
March 31, 2019   March 31, 2018
Revenue $ 163,258 $ 155,529
Cost of sales 147,879   136,430  
Gross profit 15,379 19,099
General and administrative expenses 13,985   14,382  
Operating income 1,394 4,717
Interest expense, net (5,052 ) (4,131 )
Income from equity method investment 554   587  
(Loss) income before income taxes (3,104 ) 1,173
Income tax provision (761 )  
Net (loss) income (2,343 ) 1,173
Less income attributable to non-controlling interest 476   367  
Net (loss) income attributable to Charah Solutions, Inc. $ (2,819 ) $ 806  
 
(Loss) earnings per common share:
Basic $ (0.10 ) $ 0.03
Diluted $ (0.10 ) $ 0.03
 

Weighted-average shares outstanding used in (loss) earnings per
common
share:

Basic 29,187,788 23,710,303
Diluted 29,187,788 24,532,003
 
Pro forma net (loss) income information:

Net (loss) income attributable to Charah Solutions, Inc. before
provision for
income taxes

$ (3,580 ) $ 806
Pro forma provision for income taxes (761 ) 202  
Pro forma net (loss) income attributable to Charah Solutions, Inc. $ (2,819 ) $ 604  
 
 
CHARAH SOLUTIONS, INC.
 
Condensed Consolidated & Combined Statements of Cash Flows
(dollars in thousands)
(Unaudited)
 
  Three Months Ended
March 31, 2019   March 31, 2018
Cash flows from operating activities:
Net (loss) income $ (2,343 ) $ 1,173

Adjustments to reconcile net (loss) income to net cash provided by
operating
activities:

Depreciation and amortization 6,257 8,431
Amortization of debt issuance costs 171 555
Deferred income tax provision (761 )
Loss on sale of assets 527 131
Income from equity method investment (554 ) (587 )
Distributions received from equity investment 512 252
Non-cash share-based compensation 208 110
Loss (gain) on interest rate swap 1,362 (1,623 )
Interest accreted on contingent earnout liability 67
Changes in cash due to changes in:
Trade accounts receivable (3,086 ) (8,116 )
Receivable from affiliates 1 (51 )
Costs and estimated earnings in excess of billings (8,616 ) (9,222 )
Inventory 1,331 (828 )
Prepaid expenses and other current assets 549 (87 )
Accounts payable (4,757 ) 485
Billings in excess of costs and estimated earnings (300 ) (2,807 )
Accrued payroll and bonuses 18,363 15,749
Asset retirement obligation (1,847 ) 14
Accrued expenses (909 ) 646  
Net cash provided by operating activities 6,175 4,225
 
Cash flows from investing activities:
Proceeds from the sale of equipment 470 480
Purchases of property and equipment (7,140 ) (3,373 )
Payments for business acquisitions, net of cash received   (19,983 )
Net cash used in investing activities (6,670 ) (22,876 )
 
Cash flows from financing activities:
Net proceeds on line of credit 701
Proceeds from long-term debt 3,656 4,976
Principal payments on long-term debt (3,721 ) (4,968 )
Payments of offering costs (3,955 )
 
Distributions to non-controlling interest (582 ) (383 )
Net cash provided by (used in) financing activities 54   (4,330 )
Net decrease in cash (441 ) (22,981 )
Cash, beginning of period 6,900   32,264  
Cash, end of period $ 6,459   $ 9,283  
 
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 3,358 $ 5,297
Cash paid during the year for taxes $ $
 
 
CHARAH SOLUTIONS, INC.
 
Segment Results and Adjusted EBITDA
(dollars in thousands unless otherwise indicated)
  Three Months Ended    
March 31, Change
2019   2018 $ %
 
Revenues:
Environmental Solutions $ 58,383 $ 47,785 $ 10,598 22.2 %
Maintenance and Technical Services 104,875   107,744   (2,869 )   (2.7 )%
Total revenue 163,258 155,529 7,729 5.0 %
Cost of sales 147,879   136,430   11,449   8.4 %
Gross Profit:
Environmental Solutions 8,267 12,469 (4,202 ) (33.7 )%
Maintenance and Technical Services 7,112   6,630   482   7.3 %
Total gross profit 15,379 19,099 (3,720 ) (19.5 )%
General and administrative expenses 13,985   14,382   (397 )   (2.8 )%
Operating income 1,394 4,717 (3,323 ) (70.4 )%
Interest expense, net (5,052 ) (4,131 ) (921 ) (22.3 )%
Income from equity method investment 554   587   (33 )   (5.6 )%
(Loss) income before taxes (3,104 ) 1,173 (4,277 ) (364.6 )%
Income tax provision (761 )     (761 )   (100.0 )%
Net (loss) income (2,343 ) 1,173 (3,516 ) (299.7 )%
Less income attributable to non-controlling interest 476   367   109   29.7 %
Net (loss) income attributable to Charah Solutions, Inc. (2,819 )   806   (3,625 )   (449.8 )%
Adjusted EBITDA(1) $ 8,906 $ 17,364 $ (8,458 ) (48.7 )%
Adjusted EBITDA margin(1) 5.5 % 11.2 % (5.7 )% N/A
 

Contacts

Investors
Tony Semak, Head of Investor Relations
Charah
Solutions, Inc.
tsemak@charah.com
(502)
815-5013

Media
Ed Trissel / Kate Clark / Tim Ragones
Joele
Frank, Wilkinson Brimmer Katcher
(212) 355-4449

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