Aug 14

Charah Solutions, Inc. Reports Second Quarter 2019 Financial Results

Louisville, KY – August 14, 2019 – 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 and year to date ended June 30, 2019. Revenues for the second quarter of 2019 were $120.9 million with a net loss attributable to Charah Solutions of $(18.0) million, or $(0.61) per basic share. Adjusted net loss1 and adjusted loss per basic share1 were $(9.5) million and $(0.32), respectively. Adjusted EBITDA1 was $(2.4) million. Second quarter results include the impact of a $10 million reversal in revenue associated with the Brickhaven contract termination payment of $80 million.

“While our second quarter results were disappointing, in this transition year, we are committed to making adjustments to improve our operating efficiency, reduce our debt levels and increase our margin potential,” said Scott Sewell, President and Chief Executive Officer of Charah Solutions. “We were pleased to finalize an $80 million recovery for the Brickhaven termination, and we have secured approximately $275 million in new awards year-to-date. Additionally, we have $400 million in verbal awards currently under negotiation, and we continue to expect additional positive proposal developments in the second half of 2019 and 2020. The combination of backlog generated year-to-date and verbal awards under negotiation is trending towards one of our strongest business development years on record.”

“Going forward, we are focused on utilizing our positive cash flows to significantly reduce net debt and position the company to take advantage of the estimated $75+ billion in coal ash remediation opportunities in the U.S. and the increasing demand for coal ash by cement and concrete producers,” said Mr. Sewell. “We believe the growth potential for Charah Solutions remains very strong. More than 1,000 ash ponds and landfills still require EPA-mandated closure or remediation, and we are a leading provider of those services. With our ability to provide custom solutions that combine our market-leading ash management capabilities and our proprietary beneficiation technologies, along with a regulatory environment increasingly conducive to our business, we believe we’re ideally positioned to expand our revenue-generating potential. While our highest priority will always be our commitment to safety, we are intensely focused on capturing a significant share of profitable growth opportunities.”

Second Quarter 2019 Results

Revenue for the second quarter of 2019 was $120.9 million, a decrease of $74.8 million, or 38.2%, from $195.7 million in the second quarter of 2018 due primarily to project completions, reduced nuclear maintenance services and a reversal of revenue related to the Brickhaven termination payment. Gross profit decreased $32.6 million, or (106.8)%, to $(2.1) million from $30.5 million in the second quarter of 2018. Gross profit as a percentage of revenue, or gross margin, declined to (1.7)% from 15.6% in the second quarter of 2018, primarily due to lower gross margin in the Company’s Environmental Solutions segment resulting from the $10 million revenue reversal associated with the Brickhaven contract payment and one project-specific issue continuing from the first quarter of 2019.

Environmental Solutions Segment: Environmental Solutions generated revenue of $37.0 million, a decrease of $53.2 million, or 59.0%, from the second quarter of 2018, primarily driven by the project completions within our remediation and compliance services business and the $10.0 million revenue reversal associated with the Brickhaven contract payment, and one project-specific issue continuing from the first quarter, which was completed in the second quarter. Gross profit declined to $(9.2) million from $22.1 million in the second quarter of 2018 primarily due to a combination of the project-specific issue, which resulted in unanticipated cost increases, the reversal in revenue related to the Brickhaven contract, and the delay in anticipated new business awards. Gross margin declined to (24.9)% from 24.5% in the second quarter of 2018.

Maintenance and Technical Services Segment: Maintenance and Technical Services generated revenue of $84.0 million, a decrease of $21.6 million, or 20.5%, from the second quarter of 2018. The decrease was primarily attributable to lower revenues in the Company’s nuclear services business, which resulted from fewer nuclear refueling outage services. Gross profit decreased $1.3 million, or 15.7%, to $7.1 million from $8.5 million in the second quarter of 2018. Gross margin rose to 8.5% from 8.0% in the second quarter of 2018.

Net loss attributable to Charah Solutions was $(18.0) million, while Adjusted EBITDA1 for the second quarter of 2019 was $(2.4) million, a decrease of $28.4 million from $26.0 million in the second quarter of 2018. Interest expense declined during the second quarter of 2019 by $1.4 million to $4.1 million from $5.5 million in the second quarter of 2018, primarily as a result of a reduction in the cost of debt associated with the refinancing of our term loan in September 2018, partially offset by a non-cash $0.4 million mark-to-market expense associated with the change in value of the Company’s interest rate swap during the period.

Brickhaven Payment Update

On May 29, 2019, the ash remediation contract for Charah’s Brickhaven location was deemed terminated, consistent with the Company’s previously communicated expectations. Per the terms of this contract, the customer is obligated to pay Charah for the recovery of project development costs, expected site closure costs, and post-maintenance costs upon deemed termination. After negotiations to date with customer, the Company expects the amount of the recovered costs will be approximately $80 million and expects the payment of these costs to be received by the payment deadline of August 27, 2019.

Credit Agreement Amendment

On August 13, 2019, the Company entered into an amendment to its existing credit agreement that provided for a financial covenant holiday through December 31, 2019, and amends the financial covenants for the period beginning March 31, 2020, through September 29, 2020. In recognition of the covenant relief, the amendment provides for scheduled debt reductions and reprices the borrowing rates.

2019 and 2020 Guidance

Our current guidance for 2019 and our outlook for 2020 have been lowered to reflect delays in new awards and the loss of a significant international business opportunity. Our current expectations for 2019 and our outlook for 2020 include incremental revenue that is mostly represented by booked projects, contract renewals, verbal awards and only a modest amount of new prospective awards. Our current 2020 outlook reflects a level of conservatism based on high confidence projections. The outcome in 2020 could be better than the upper end of our range in the event we are awarded one or more large prospective contracts from current or future proposals. Our current 2019 guidance has been revised as follows:

• Revenues of $510 million to $560 million
• Net (loss) of $(27) million to $(20) million
• Adjusted EBITDA2 of $25 million to $30 million
• Free cash flow positive

Our 2020 outlook has been revised as follows:

• Revenues of $560 million to $610 million
• Net income of $9 million to $14 million
• Adjusted EBITDA2 of $45 million to $50 million
• Free cash flow positive

2 The forward looking measures of 2019 and 2020 Adjusted EBITDA are non-GAAP financial measures that cannot be reconciled to net income as the most directly comparable GAAP financial measure without unreasonable effort primarily because of the uncertainties involved in estimating forward-looking measures.

Business Update

Delays in new work awards coupled with unanticipated cost increases at one remediation site led to disappointing results in the second quarter of 2019. The pace of new awards in 2019 has not been sufficient to offset the impact of projects rolling off during the year due to an increase in the size, scope, and complexity of remediation and compliance projects. As these projects have become larger and more complex, utility customers are seeking regulatory clarity as well as cost recovery through rate relief. Though this delay is impacting our 2019 results, we expect demand for our remediation and compliance services to grow as more than 1,000 ash ponds and landfills still require EPA-mandated closure or remediation. Our success rate in winning awards for the three and six months ended June 30, 2019, has been in line with the three and six months ended June 30, 2018, though the size of projects awarded has been smaller than anticipated. We have signed approximately $275 million in new contracts year-to-date and are in exclusive negotiations on approximately $400 million in additional contracts. Though the timing of future awards is difficult to determine, we believe we are well-positioned to capture a significant portion of a large and growing addressable market.

The maintenance and technical services segment results for the three and six months ended June 30, 2019, were in line with our expectations but were lower than the results for the three and six months ended June 30, 2018, primarily as a result of fewer nuclear refueling outages and a reduction in the scope of work. A substantial portion of our nuclear services operations is driven by scheduled nuclear maintenance outages, which are typically planned for every 12 to 24 months.

Within our byproduct sales offerings, which is a part of our environmental solutions segment, the roll-out of our technology initiatives, including our MP618 thermal beneficiation technology and our grinding technology, has been slower than previously anticipated, resulting in a lower than expected contribution to operating results. Customer interest in our MP618 technology has been strong, and contracts are currently under negotiation.

Management continues to see regulatory and public policy trends as increasingly driving customer needs for creative remediation solutions, including where beneficiation, or recycling of ash, plays a significant role. The EPA recently finalized the Affordable Clean Energy regulations and released proposed amendments to the 2015 Coal Combustion Residuals regulations that clarify issues identified by ash producers and the ash management and recycling industry. In each case, management believes the EPA will continue to extend its support for the beneficial use of coal ash consistent with its objective of reducing the carbon footprint in the U.S.

CONFERENCE CALL

Charah Solutions will host a conference call at 8:30 a.m. ET today to discuss the second 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 4583919.

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, August 14, 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 4583919.

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 basic/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 basic/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, Brickhaven termination revenue reversal, 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.

Investor Contact
Tony Semak, Head of Investor Relations
Charah Solutions, Inc.
ir@charah.com
(502) 245-1353

Media Contact
Katrina Gallagher
PriceWeber Marketing
media@charah.com
(502) 472-6003