Market Overview

Charah Solutions, Inc. Announces Second Quarter 2018 Financial Results

Share:

Record Revenue of $195.7 Million, 163% Increase Year Over Year

Comprehensive Suite of Management and Recycling Services Drives
Profitable Growth

Gross Leverage Reduced to 2.8X LTM EBITDA Following Debt Repayment
with Net Proceeds of IPO

Charah Solutions, Inc. (NYSE:CHRA), a leading provider of
mission-critical environmental and maintenance services to the power
generation industry, today announced financial results for its second
quarter ended June 30, 2018. Revenues were $195.7 million, compared to
$74.4 million for the same period in 2017. Net income was $3.2 million
and adjusted EBITDA1 was $26.0 million for the second quarter
of 2018.

"Our second quarter performance marked a strong start to Charah's new
era as a public company," said Charles Price, President and Chief
Executive Officer of Charah. "We generated record revenue, driven by the
addition of our Nuclear Services division within the Maintenance &
Technical Services segment, strong organic growth in our core businesses
and the successful acquisition and integration of SCB International. We
are uniquely positioned as the industry's only broad-based environmental
and maintenance services provider to capitalize on a number of
attractive growth opportunities in our pipeline as we continue to
increase market share and expand our offerings to grow on-site services.
Going forward, we are focused on strengthening our position as the
market leader in environmental and maintenance services to the power
generation industry and creating long-term value for our stockholders."

KEY HIGHLIGHTS FOR THE SECOND QUARTER 2018

For the three months ended June 30, 2018, Charah generated revenue of
$195.7 million, a 163% increase year over year. Gross profit increased
49% year over year to $30.5 million.

Environmental Solutions Segment: Environmental Solutions
generated record revenue of $90.1 million, an increase of 46% from the
second quarter a year ago, reflecting both growing ash sales and the
impact of the SCB acquisition on volumes of materials sold. Gross profit
increased $4.6 million, or 26%, for the three months ended June 30, 2018
to $22.1 million from $17.5 million for the three months ended June 30,
2017.

Maintenance & Technical Services Segment: Maintenance &
Technical Services increased revenue to $105.6 million from $12.8
million in the same quarter a year ago. Gross profit increased $5.5
million, or 183%, for the three months ended June 30, 2018 to $8.5
million from $3.0 million for the three months ended June 30, 2017. The
increases in revenue and gross profit were primarily attributable to the
increased maintenance activities performed at the largest fleet of
nuclear power plants in the United States.

General and administrative expense increased $11.5 million for the three
months ended June 30, 2018 to $18.9 million from $7.5 million for the
three months ended June 30, 2017. The increase was primarily
attributable to additional expenses associated with the addition of
Nuclear Services and SCB, notably $4.3 million in one-time,
non-recurring and non-operating costs.

From its completed IPO, Charah received net proceeds of approximately
$59.2 million, prior to deducting offering expenses and after deducting
underwriting discounts. A portion of the proceeds was used to repay
approximately $40.0 million of long-term debt, which reduced gross
leverage to 2.8X LTM EBITDA.

ADDITIONAL BUSINESS UPDATES FOR THE THIRD QUARTER 2018

Following Charah's acquisition of SCB, which was completed in the first
quarter of 2018, the Company expects to open two facilities in the third
quarter that will use SCB's grinding and thermal beneficiation
technologies to produce high-quality recycled products at a fraction of
the cost of the competition.

The Company completed seven outages at nuclear power plants year-to-date
and a total of 11 since it began providing maintenance services to
nuclear plants in the third quarter of 2017, and expects to perform an
additional seven outages in the second half of 2018.

CONFERENCE CALL

Charah 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
Investor Relations section of the Charah website at ir.charah.com.
To participate via telephone, please dial (866) 393-4306 within the
United States or (734) 385-2616 outside the United States, approximately
15 minutes prior to the scheduled start time. The conference ID for the
call is 2358208 or "Charah Earnings".

A webcast replay will be available on the Investor Relations section of
the Charah website at ir.charah.com
after 12:00 p.m. ET on Tuesday, August 14, 2018. In addition, an audio
replay will be available for one week following the call and will be
accessible by dialing (855) 859-2056 within the United States or (404)
537-3406 outside the United States. The replay ID is 2358208.

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 coal-fired and nuclear power
generation sites across the country. Based in Louisville, Kentucky,
Charah 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 coal and nuclear energy providers. 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 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. Without limiting the generality of the
foregoing, forward-looking statements contained in this press release
specifically include the expectations of plans, strategies, objectives
and anticipated financial and operating results of the Company. 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. These include the timing of planned capital expenditures,
availability of acquisitions, economic and competitive conditions, the
condition of the capital markets generally, as well as the Company's
ability to access them and uncertainties regarding environmental
regulations or litigation and other legal or regulatory developments
affecting the Company's business and other important factors that could
cause actual results to differ materially from those projected as
described in the Company's reports filed with the SEC.

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 EBITDA and Adjusted EBITDA margin are not financial measures
determined in accordance with GAAP.

Charah defines Adjusted EBITDA as net income before interest expense,
income taxes, depreciation and amortization, equity-based compensation,
elimination of certain legacy expenses, amounts from a non-acquired
business line 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 income in arriving at Adjusted
EBITDA because these amounts are either non-recurring or can vary
substantially within Charah's 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 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's 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's computations of Adjusted EBITDA may not be identical to
other similarly titled measures of other companies. Charah 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 income, Charah's most directly comparable
financial measure calculated and presented in accordance with GAAP,
along with the Company's Adjusted EBITDA margin is included in the
supplemental financial data attached to this press release.

CHARAH SOLUTIONS, INC.

Condensed Consolidated & Combined Balance Sheets

(dollars in thousands unless otherwise indicated)

(Unaudited)

June 30,

2018

 

December 31,

2017

 
Assets
Current assets:
Cash $ 14,998 $ 32,264
Trade accounts receivable 58,364 47,227
Receivable from affiliates 120 38
Costs and estimated earnings in excess of billings ("CIE") 30,264 7,959
Inventory 20,902 1,666
Prepaid expenses and other current assets 6,899   4,644  
Total current assets 131,547 93,798
Property and equipment:
Plant, machinery and equipment 68,321 42,565
Structural fill site improvements 55,760 55,760
Vehicles 15,670 16,478
Office equipment 712 638
Buildings and leasehold improvements 239 240
Structural fill sites 7,110   7,110  
Total property and equipment 147,812 122,791
Less accumulated depreciation and amortization (38,159 ) (22,861 )
Property and equipment, net 109,653 99,930
Other assets:
Trade name, net 34,931 34,330
Customer relationship, net 68,513 71,032
Technology, net 2,080
Non-compete and other agreements, net 1,319
Other intangible assets, net 75 87
Goodwill 76,431 73,468
Other assets 2,030
Equity method investments 5,354   5,006  
Total assets $ 431,933   $ 377,651  
 
Liabilities and members' equity
Current liabilities:
Accounts payable $ 24,322 $ 15,247
Billings in excess of costs and estimated earnings ("BIE") 7,099 15,882
Notes payable, current maturities 8,185 19,996
Accrued payroll and bonuses 17,982 16,036
Asset retirement obligation 1,086 1,072
Purchase option liability, current portion 5,061 5,061
Accrued expenses 13,070 7,959
Other liabilities   198  
Total current liabilities 76,805 81,451
Long-term liabilities:
Purchase option liability, less current portion 17,653 20,183
Contingent earnout liability 15,000
Deferred tax liability 1,919
Notes payable, less current maturities 216,588   227,698  
Total liabilities 327,965 329,332
Commitments and contingencies (see Note 11)
Stockholders' and members' equity
Retained earnings 22,341 18,316

Common Stock - Charah Solutions, Inc.—$0.01 par value; 200,000,000
shares

authorized, 29,082,988 shares issued and outstanding

291
Additional paid in capital - Charah Solutions, Inc. 80,450

Members' interest—Charah, LLC Series A, no par, 200,000,000
members'

interest authorized (104,109,890 issued and outstanding) as of
December 31,

2017. Series B, no par, 100,000,000 members' interest authorized
(35,199,063

issued and outstanding) as of December 31, 2017

19,718

Members' interest—Allied Power Management, LLC, Series A, no par,

200,000,000 members' interest authorized (7,210,555 issued and
outstanding)

as of December 31, 2017. Series B, no par, 100,000,000 members'
interest

authorized (2,437,855 issued and outstanding) as of December 31,
2017

 

9,687

 
Total stockholders' and members' equity 103,082 47,721
Non-controlling interest 886   598  
Total equity 103,968   48,319  
Total liabilities and equity $ 431,933   $ 377,651  

CHARAH SOLUTIONS, INC.

Condensed Consolidated & Combined Statements of Income

(dollars in thousands unless otherwise indicated)

(Unaudited)

Successor       Predecessor
Three Months Ended June 30, 2018     Three Months Ended June 30, 2017     Six Months Ended June 30, 2018     Period from January 13, 2017 through June 30, 2017 Period from

January 1,

2017 through

January 12,

2017

Revenue $ 195,723 $ 74,404 $ 351,252 $ 133,369 $ 9,130
Cost of sales 165,174   53,910   301,605   97,146   7,301  
Gross profit 30,549 20,494 49,647 36,223 1,829
General and administrative expenses 18,937   7,463   33,319   13,979   3,170  
Operating income (loss) 11,612 13,031 16,328 22,244

(1,341)

 

Interest expense

(5,543)

 

(1,728)

 

(9,674)

 

(2,783)

 

(4,181)

 

Income from equity method investment 699   270   1,286   477   48  
Income (loss) before income taxes 6,768 11,573 7,940 19,938

(5,474)

 

Income tax expense 2,906     2,906      
Net income (loss) 3,862 11,573 5,034 19,938

(5,474)

 

Less income attributable to non-controlling interest 642   802   1,009   1,072   54  
Net income (loss) attributable to Charah Solutions, Inc. $ 3,220   $ 10,771   $ 4,025   $ 18,866   $

(5,528)

 

Basic earnings (losses) per share $ 0.13 $ 0.45 $ 0.17 $ 0.80 N/A
Diluted earnings (losses) per share $ 0.13 $ 0.44 $ 0.16 $ 0.77 N/A
Pro forma net income (loss) information (see Note 1):

Net income (loss) attributable to Charah

Solutions, Inc. before provision for

income taxes

$ 6,126 $ 10,771 $ 6,931 $ 18,866 $

(5,528)

 

Pro forma provision for income taxes 1,517   4,093   1,720   7,169  

(2,101)

 

Pro forma net income (loss) attributable to Charah Solutions, Inc. $ 4,609   $ 6,678   $ 5,211   $ 11,697   $

(3,427)

 

CHARAH SOLUTIONS, INC.

Condensed Consolidated & Combined Statements of Cash Flows

(dollars in thousands unless otherwise indicated)

(Unaudited)

Successor   Predecessor
Six Months Ended June 30, 2018   Period from January 13, 2017 through June 30, 2017 Period

from

January 1

2017,

through

January 12,

2017

Cash flows from operating activities:
Net income (loss) $ 5,034 $ 19,938 $ (5,474 )
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 17,135 12,799 763
Amortization of debt issuance costs 784 305
Deferred income tax expense 1,919
Loss on sale of assets 582 169 123
Income from equity method investment (1,286 ) (477 ) (48 )
Distributions received from equity investment 938 651
Non-cash share-based compensation 1,403 141
Payment related to deferred stock plan (18,888 )
Gain on interest rate swap (2,228 )
Increase (decrease) in cash due to changes in:
Trade accounts receivable (5,289 ) 9,494 (3,977 )
Receivable from affiliates (82 ) (474 )
Costs and estimated earnings in excess of billing (22,305 ) (6,454 ) 2,185
Inventory (825 ) (390 ) 278
Prepaid expenses and other current assets (2,126 ) (1,604 ) 71
Accounts payable 8,587 (7,420 ) 4,380
Billings in excess of costs and estimated earnings (8,783 ) 3,007 6
Accrued payroll and bonuses 1,946 (518 ) (318 )
Asset retirement obligation 14 135
Accrued expenses 2,396   3,940   (2,407 )
Net cash (used in) provided by operating activities (2,186 ) 14,354 (4,418 )
Cash flows from investing activities:
Proceeds from the sale of equipment 1,102 314
Purchases of property and equipment (8,233 ) (4,438 )
Payments for business acquisitions, net of cash received (19,983 )
Purchase of intangible assets (31 )
Decrease (increase) in restricted cash   2,753    
Net cash used in investing activities (27,145

)

  (1,371 )    
Cash flows from financing activities:
Net (payments) proceeds on line of credit (43,801 ) 4,605
Proceeds from long-term debt 8,400 145,508 298
Principal payments on long-term debt (45,547 ) (122,299 ) (440 )
Payments of offering costs (8,622 )
Proceeds from note payable to related party, net 25,230
Issuance of common stock 59,241
Distributions to non-controlling interest (721 ) (840 )
Distributions to members (686 ) (15,498 )  
Net cash provided by (used in) financing activities 12,065   (11,700 ) 4,463  
Net (decrease) increase in cash (17,266 ) 1,283 45
Cash, beginning of period 32,264   1,046   1,001  
Cash, end of period $ 14,998   $ 2,329   $ 1,046  
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 11,163 $ 3,167 $ 104

CHARAH SOLUTIONS, INC.

Financial Reconciliation: GAAP to Non-GAAP

(dollars in thousands unless otherwise indicated)

(Unaudited)

Successor(1)       Predecessor(2)
        Six Months Ended June 30, 2018     Period from

January 13, 2017

through June 30, 2017

Period from

January 1, 2017

through January 12, 2017

Three Months Ended
June 30,
2018 2017
(in thousands)
Net income (loss) attributable to Charah Solutions, Inc. $ 3,220 $ 10,771 $ 4,025 $ 18,866 $ (5,528 )
Interest expense 5,543 1,728 9,674 2,783 4,181
Income tax expense 2,906 2,906
Depreciation and amortization 8,704 6,642 17,135 12,799 763
Elimination of certain non-recurring and non-operating legal costs(3) 2,489 19 5,169 19
Elimination of certain non-recurring startup costs(4) 688 447 1,480 447
Equity-based compensation 1,292 85 1,403 141
Transaction related expenses and other items 1,157   212   1,569   276   162  
Adjusted EBITDA $ 25,999   $ 19,904   $ 43,361   $ 35,331   $ (422 )
Adjusted EBITDA margin(5) 13.3% 26.8% 12.3% 26.5% (4.6)%

(1) The successor columns represent the combined financial information
of Charah and Allied for the period from January 13, 2017 through June
30, 2017 and January 1, 2018 through June 30, 2018 as applicable, as
reflected in our financial statements included elsewhere in this
Quarterly Report. The predecessor and successor columns together
represent our accounting Predecessor for purposes of this Quarterly
Report.

(2) The predecessor columns represent the financial information of
Charah for the period from January 1, 2017 through January 12, 2017 as
reflected in our audited financial statements included elsewhere in this
Quarterly Report. The predecessor and successor columns together
represent our accounting Predecessor for purposes of this Quarterly
Report.

(3) For the three and six months ended June 30, 2018, represents
non-recurring legal expenses associated with the lawsuit filed by APTIM
Corp. against Allied in July 2017. As a result, these costs will be
non-recurring following the resolution of the APTIM litigation and are
not representative of legal costs that we will incur from time to time
in the ordinary course of our business.

(4) Represents non-recurring start-up costs associated with the startup
of Allied and our nuclear services offerings, including the setup of
financial operations systems and modules, pre-contract expenses to
obtain initial contracts and the hiring of operational staff. Because
these costs are associated with the initial setup of the Allied business
to initiate the operations involved in our nuclear services offerings,
these costs are non-recurring in the normal course of our business.

(5) Adjusted EBITDA margin is a non-GAAP measure that represents the
ratio of Adjusted EBITDA to total revenues. We use Adjusted EBITDA
margin to measure the success of our businesses in managing our cost
base and improving profitability.

1 Adjusted EBITDA is a non-GAAP financial measure and the
reconciliation is included above.

View Comments and Join the Discussion!