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Edited Transcript of CHRA.N earnings conference call or presentation 14-Aug-19 12:30pm GMT

Q2 2019 Charah Solutions Inc Earnings Call

Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Charah Solutions Inc earnings conference call or presentation Wednesday, August 14, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Roger D. Shannon

Charah Solutions, Inc. - CFO & Treasurer

* Scott Andrew Sewell

Charah Solutions, Inc. - President, CEO & Director

* Tony Semak

Charah Solutions, Inc. - Head of IR

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Conference Call Participants

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* Michael Edward Hoffman

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research

* Michael J. Feniger

BofA Merrill Lynch, Research Division - VP

* Steven Schwartz

First Analysis Securities Corporation, Research Division - Analyst

* Toni Michele Kaplan

Morgan Stanley, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Charah Solutions, Inc.'s Second Quarter 2019 Earnings Call. (Operator Instructions) Thank you.

Tony Semak, Head of Investor Relations, you may begin your conference.

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Tony Semak, Charah Solutions, Inc. - Head of IR [2]

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Thank you, Amy. Good morning, everyone, and thank you for joining us today. We appreciate you taking the time to participate in our second quarter 2019 financial results conference call.

We hope you had a chance to review the press release we issued earlier this morning. But if not, you can find the press release as well as a supplemental investor presentation on the Investor section of our website at www.charah.com or simply ir.charah.com.

Joining me today on the call are Scott Sewell, our President and Chief Executive Officer; and Roger Shannon, Chief Financial Officer and Treasurer.

Following their prepared remarks, we'll conduct the customary question-and-answer session and continue the dialogue.

Before we begin, I'd like to remind you that our remarks regarding Charah Solutions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and conference calls.

Those risks include, among other things, matters that we have described in our earnings release as well as in our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During the call, we will make reference to non-GAAP financial measures. Reconciliations to the applicable GAAP measures can be found in our earnings release, supplemental presentation and on our website.

Again, we really appreciate you joining us today. And now I'd like to turn the call over to Scott Sewell, our President and CEO. Scott?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [3]

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Good morning, everyone, and thank you for choosing to participate on our call today.

If you've had the opportunity to review our press release issued earlier this morning, you'll already know that we have several new topics to discuss in addition to our second quarter results.

But before we begin, I'd like to start by introducing Roger Shannon, our new Chief Financial Officer and Treasurer. Roger officially joined us on June 17. And I'm thrilled to have him here serving alongside me and our senior management team as he brings tremendous amount of public company experience and financial leadership roles.

Roger has more than 30 years of corporate finance and accounting experience, including his most recent role, as CFO with ADTRAN, a publicly traded provider of next-generation networking solutions. You'll be hearing from Roger shortly at the conclusion of my remarks as he provides an overview of our financial results and outlook.

Our interim CFO and Treasurer, Nick Jacoby, will remain as Vice President of Finance. I want to personally thank Nick for his leadership during this transition and for all the work he has done and will continue to do to support our mission.

Nick is a true example of the Charah way, responding to the call to help our company and our team with selfless dedication when we needed him most, and we greatly appreciate it.

This morning, I'll briefly touch -- I'll briefly review our financial results and provide an update on business developments since our previous call, and I will highlight drivers that underlie our growth expectations.

I'm optimistic about Charah Solution's future and our ability to deliver attractive value to our shareholders, which will hopefully become clear as I walk through the plans we have already underway to strengthen our business and put us in the best possible position to capitalize on the substantial opportunities we have before us.

I'll begin with an overview of the second quarter results and then elaborate on a few more significant business developments before I turn the call over to Roger.

Second quarter financial results. I want to start with some positive developments on a topic that we've been discussing for the past few quarters, the Brickhaven deemed termination. On May 29, 2019, the ash remediation contract for Charah's Brickhaven site was deemed terminated consistent with our previously communicated expectations. Per the terms of this contract, the customer is obligated to pay Charah for the recovery of project development cost, expected site closure cost and post maintenance cost upon deemed termination. I'm pleased to report that after negotiations with the customer, we expect the amount of the recover cost to be approximately $80 million, and that payment will be received by the payment deadline of August 27, 2019.

For the quarter, revenue decreased 33% as compared to the second quarter of 2018, driven by fewer nuclear fueling outages that collectively were smaller in scope and the completion of 3 environmental solutions projects, including Brickhaven and Riverbend during the first quarter and a third project during the second quarter.

Gross profit and EBITDA declined, primarily in our Environmental Solutions segment due to the completion of Brickhaven and Riverbend and a roll-off of other remediation compliance service contracts, along with the impact of increased costs associated with a specific -- a project-specific issue on the remediation site that carried over from a prior quarter and through -- though this project has since been completed.

Next, I'll review several accomplishments during the quarter that demonstrate our commitment to our mission. Our Brickhaven site was deemed terminated, leading to a positive cash flow. We were awarded contract renewals at multiple sites. Our success rate in winning awards year-to-date is higher than a year ago period. We earned the recognition of being named one of Engineering News-Record's top contractors in the power sector. We announced a third facility using our new patented grinding technologies to create supplementary cementitious materials. We were awarded a new contract for the construction of an ash landfill. We continued to receive strong interest in our MP618 ash beneficiation technology from utility customers, both domestically and internationally, and we expect to convert this interest to awards in the second half of 2019.

We continued to receive awards and recognitions for our excellent safety performance, which further demonstrates our commitment to our employees and our customers.

I'll discuss elements of these developments in a bit more detail. Pipeline of opportunities. Charah is well positioned to benefit from the market momentum for responsibly recycling or remediating coal ash. With an estimated over $75 billion in coal ash remediation opportunities in the U.S., we continue to see regulatory and policy trends as increasingly driving customer needs for creative remediation solutions, including where beneficiation or recycling of ash plays a significant role. We continue to believe that our MP618 ash beneficiation technology positions us well to capitalize on this opportunity.

We have experienced some delays in announcing proposal awards in the first half of 2019, but we are tracking above the year-ago period in the rate of proposals won.

Further, our total proposals submitted year-to-date are higher than the year ago period, and the increasing complexity and scope of the pending project opportunities is increasing our future growth potential. These pending opportunities continue to be weighted more heavily towards the Environmental Solutions segment.

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 negotiations is trending towards one of our strongest business development years on record.

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 the leading provider -- we are a leading provider of those services.

With our ability to provide custom solutions that combine our market leading ash management capabilities in our proprietary beneficiation technologies, along with a regulatory environmental -- environment increasingly conducive to our business, we believe we are 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 significant market share of profitable growth opportunities.

Next I'll provide an update from the developments in our byproduct sales business and our technology initiatives.

Near the end of the second quarter, we announced a third facility utilizing our patented grinding technology to create SCMs for the use of (technical difficulty) in production of concrete.

This facility located in Oxnard, California will be accessible by truck and rail, and will sell pozzolan and other materials to concrete product manufacturers throughout Southern California.

With increasing difficulty in sourcing fly ash in California, natural pozzolan is generating significant interest in construction industry as an alternative SCM.

So our new Oxnard facility serves as a need and a creative solution that addresses market demand and expands our multisource network.

With respect to our thermal beneficiation technology known as MP618 we continue to see strong interest from potential utility customers and are currently negotiating with some of them to begin deploying this technology in their businesses.

In a couple of cases, as I previously noted, we have been given verbal awards and are currently negotiating contract terms. These projects will likely benefit 2020 results. We are also in discussion with interested international customers. Testing activities with these customers has progressed well, and we anticipate decisions by year-end.

Although our technology rollouts have been slower than previously anticipated, we continue to expect both technology initiatives to be growth drivers for our byproduct sales business in 2020 and beyond.

Regulatory and legislative updates. We continue to see a growing trend in coal ash regulation at the state level. In addition to recent developments in states like South Carolina, North Carolina and Virginia, Illinois has developed their own rules for coal ash management.

On July 30, 2019, the governor of Illinois signed a legislation establishing new requirements for the management and closure of coal ash impoundments. This new law, known as SB9, prohibits coal ash discharge in the environment and requires Illinois environmental protection agency approval for the closure of ash impoundments and guaranteed financial assistance from owners or operators of those impoundments for future closure and maintenance cost.

Criteria for cleaning ash impoundments still follow existing EPA rules and the eventual cleanup options and actions remain the same.

As we discussed in prior quarters, we continue to see much discussion and reporting of potential groundwater contamination at or near coal plants and ash disposal sites. The widespread reporting on this issue is another example of growing environmental concerns about this issue which could result in remediation plans that create opportunities for Charah to provide environmental solutions.

Regulatory and public policy trends are increasingly driving customer needs for creative remediation solutions, including those for beneficiation where recycling of ash plays a significant role. Our ability to bundle proprietary technology with traditional remediation approaches puts us in a uniquely competitive position to develop these creative and cost-effective solutions.

Growing concerns about potential groundwater contamination could stimulate actions in other states to require clean closure. Also, approaching regulatory deadlines are likely to increase utilities' focus on developing their compliance plans.

These developments have been key drivers in our expanding pipeline of opportunities and further support our confidence in the future of our business,

With that, I'll turn it over to Roger to provide a review of our financial results and updated outlook.

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Roger D. Shannon, Charah Solutions, Inc. - CFO & Treasurer [4]

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Thanks, Scott. Before I review our financial results for the quarter, I want to express my gratitude and enthusiasm for the opportunity to join Charah Solutions as CFO and Treasurer. I'm excited to lead our finance group and help this management team drive profitable growth and shareholder returns.

I look forward to getting to know each of you on the call later better and to spend more time with you as we get out on the road over the coming months to share our story.

Now I'll continue with a review of our financial results and provide an update on our balance sheet, liquidity and review our 2019 and 2020 guidance and outlook.

Revenues for the second quarter of 2019 decreased $75 million or 38% from the year-ago period to $121 million, driven by 3 primary factors: a $31 million revenue decline from fewer nuclear refueling outages; a $10 million revenue reversal related to the Brickhaven deemed termination payment; and the completion of 3 Environmental Solutions projects, including Brickhaven and Riverbend during the first quarter of this year and third project during the second quarter.

Gross profit decreased $33 million to a negative $2 million, while gross margin declined to 1.7% from 15.6% in the same period last year. These declines were driven primarily by project completions in our Environmental Solutions segment, the $10 million Brickhaven reversal and to a lesser extent, increased costs associated with the project-specific issue that continued from the first quarter.

Importantly, we completed this project in May, so we do not anticipate any further unexpected costs. We should note that the circumstances giving rise to these costs are isolated and have no relation with any other current or anticipated projects.

We reported a GAAP net loss for the quarter of $18 million compared to a net profit of $3 million in the year-ago period. The decline was primarily attributable to lower gross profit, partially offset by a $2 million decline in G&A expenses from the nonrecurring charges during the year-ago period associated with legal and startup costs related to Allied Power. We recognized the $5.6 million income tax benefit in the current quarter as compared to a $2.9 million income tax expense a year ago.

Interest expense was also lower as compared to the year-ago period, primarily as a result of term loan interest declining by $2.5 million, following the refinancing of the term loan debt in September of 2018.

Adjusted EBITDA of negative $2 million was down $28 million from the year-ago period due primarily to lower gross profit combined with an increase in recurring G&A expenses.

Although we do not provide quarterly guidance, I would reiterate that we had expected second quarter to be the weakest quarter of the year.

Now I'll discuss results at our reporting segment level.

In our Environmental Solutions segment, revenue decreased $53 million or 59% to $37 million. Byproduct sales accounted for $3 million of the decrease in segment revenues, while remediation and compliance services declined $50 million due to the net impact of remediation contracts rolling off and the previously mentioned $10 million reduction in the anticipated Brickhaven-related payment.

Gross profit for the segment decreased $32 million to a negative $9 million, and our gross margin declined to negative 25.6% from 24.5%.

Most of the declines in gross profit and gross margin in this segment were due to the Brickhaven reversal, projects rolling off and the project-specific issue at 1 remediation site all as highlighted previously.

In our Maintenance & Technical Services segment, revenue decreased $22 million or 20% to $84 million. In our nuclear services business, we completed 4 refueling outages as compared to 5 in the second quarter of 2018. Year-to-date, through June 30, we've completed 6 outages compared to 7 outages during the year-ago period. The 2019 outages were also lower in scope relative to 2018 as we anticipated. As expected, these factors lead to lower nuclear service revenues for the quarter as compared to last year.

The decrease in nuclear service revenues were partially offset by increased fossil services revenues. Maintenance & Technical Services in gross profit decreased approximately $1 million to $7 million from $8 million in the prior period, as higher gross profit in the fossil services business was offset by lower gross profit from the nuclear services segment.

M&TS gross margins increased to 8.5% from 8% in the prior period.

CapEx in the quarter was approximately $3 million, down slightly from $4 million during the year-ago period primarily as a result of slower-than-anticipated rollout of our technology initiatives and an increase in lease financing activity.

Before discussing our balance sheet and liquidity, I'd like to provide an overview of the amendment to our credit agreement we announced earlier this morning as part of our earnings press release.

On August 13, the company entered into an amendment to its existing credit agreement that provided for a financial covenant holiday through March 30, 2020. Modified covenants for the March 31, 2020, through the September 29, 2020 period and amended our borrowing rate to LIBOR plus 400 basis points.

This amendment to the credit agreement increases our financial flexibility and provides for significant debt reduction as we work to position our capital structure for future growth. We are very appreciative of the commitment and support we've received from our banking partners and we look forward to executing on the debt reductions committed under the amended credit facility.

Turning to our balance sheet and liquidity. At June 30, 2019, we had gross consolidated debt of $272 million, which is an increase of approximately $17 million from the prior quarter and year end 2018 levels.

Proceeds from this increase in debt were used to finance operating activities and capital expenditures. Our net leverage ratio at June 30 2019, was 4.24x, which is up from the 2.75x at the end of the first quarter, due primarily to declining EBITDA on a trailing 12-month basis. Our liquidity was approximately $23 million as of June 30, 2019.

Next, I'll address our 2019 guidance. As detailed on Slide 16 of our supplemental presentation, we are adjusting our 2019 revenue guidance to a range of $510 million to $560 million from the previous range of $550 million to $650 million.

Though we remain confident about our prospects for converting submitted proposals for new work awards, the timing of these awards has slipped relative to our previous expectations. The $10 million revenue reversal resulting from the Brickhaven termination also contributed to this adjustment.

The lower end of our revised guidance range of $510 million is substantially underpinned by existing business and new work awarded to date.

Further, we're revising our 2019 adjusted EBITDA guidance to a range of $25 million to $30 million. We've provided a bridge detailing the drivers of the change from our original 2019 guidance on Slide 17 of the supplemental presentation.

Regarding our 2020 outlook, we are currently projecting revenue in the range of $560 million to $610 million. We expect adjusted EBITDA to be in the range of $45 million to $50 million, and net income to be in the range of $9 million to $14 million, all is described on Slide 18 of the supplemental presentation.

I'd also like to provide an update on 2019 capital expenditures. Our forecast has changed from our first quarter commentary. We now expect total CapEx of approximately $20 million, which is an additional $8.5 million beyond the $11.5 million spent to date.

The reduction in our full-year CapEx spend is tied to delays in new work awards, including the slower-than-expected technology rollout. With respect to technology CapEx, the rollout of slag grinding technologies is at our discretion and driven by our assessment of market conditions while the MP618 technology rollout is customer driven. As Scott noted, we're seeing strong interest by potential utility customers and we are optimistic that we'll be able to announce contracts later this year.

With that, I'll turn the call back over to Scott.

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [5]

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Thank you, Roger. Given our competitive strengths, favorable market and regulatory dynamics and the expanding pipeline of opportunities before us, we are in an ideal position to capitalize on these opportunities as we partner with customers to bring customized solutions to their complex environmental challenges.

The market opportunity is the largest in our company's history. We continue to build backlog and there is significant interest in our MP618 fly ash beneficiation technology, which should enable larger bundled projects.

In this transition year, we are committed to making adjustments to improve our operating efficiency, reduce our debt levels and increase our margin potentials. In addition to finalizing the Brickhaven termination payment, and securing meaningful new awards, we've also achieved several milestones of success in strengthening our business during the last several months that are not always visible, particularly with respect to continued development of our people and processes. In summary, we have strong confidence and enthusiasm for the growth potential of our business. We have the necessary experience and expertise to deliver competitive and innovative solutions for our customers, and we have the right team in place to achieve our goals.

With that operator, let's open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Toni Kaplan, with Morgan Stanley.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [2]

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You've cut your revenue guidance by about 26% since the original guidance that you gave with the 4Q earnings, and there's clearly the delays in technology and timing of awards. But I guess could you give us some incremental info to give us a little more confidence in the new guidance range. I know you mentioned that the bottom end was pinned to sort of existing business. But if you could just help us get some more confidence there.

And then, secondly, just how much of the guide down is from the current quarter's results versus lower expectation for the second half of the year?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [3]

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Thanks, Toni. Yes, I think, very fair question as it relates to the change in guidance. I think you've hit on a very key point there, we are targeting and pinning that more to the existing business. And when we look towards kind of performance, I think, we can point you to the EBITDA bridge on Slide 17, kind of help you with that walk there as well. Roger, do you have anything to add?

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Roger D. Shannon, Charah Solutions, Inc. - CFO & Treasurer [4]

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That's right. We are focused on guidance that is -- that does have a high degree of confidence to both be able to discuss the large impending projects that we've talked about in prior quarters that we do see on the horizon and that, as we just talked about, see as continuing to get larger. But at the same time, we are focused on being able to deliver numbers and have a high degree of confidence behind those numbers.

To the second part of your question, I think a -- the results in the current quarter certainly did play into it. We had, as we mentioned in our prepared remarks, losses from 1 particular remediation site that was unusual and we -- not expected to recur, that certainly affected the second quarter results.

But also, as we just discussed the impact of delayed technology and the push out of these awards as they continue to get more complex and larger has certainly played into our outlook for the rest of this year.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [5]

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Got it. And then just given the magnitude of the EBITDA guidance reduction, like, I guess, my thinking is that most of your contracts are cost-plus and so I guess I'm just a little bit surprised about the magnitude. Is it -- are you getting negative operating leverage or, I guess, if you could just help explain how contracts which are generally cost-plus could result in sort of such a big delta versus expectations.

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [6]

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Yes, Toni, I think if you -- again, if you kind of -- when you speak towards EBITDA and kind of the way we look at it and we bridge from the midpoint down to the kind of the new midpoint, at the 28 range. Majority of that was related to delays and losses of new work. So that's a big component of it, and I think we spoke in the prepared remarks as well as in the release this morning that, if you look at first half of the year, specifically Q2 and that being a down quarter that we've spoken about before and kind of projecting that to be a down quarter, a significant portion of that has to do with the revenue reversal on Brickhaven, right? So not necessarily specific to kind of the fundamentals of the business. So, again, some onetime events there.

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Operator [7]

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Your next question comes from the line of Michael Feniger with Bank of America.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [8]

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Just based on your revised guide, and if we include the Brickhaven settlement and your update on the CapEx, what do you guys expect the -- your leverage to be at the end of 2019?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [9]

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Thanks, Michael. We've got, again, in the slide deck as well a leverage number on slide -- okay. So I think the better way to probably look at that is just thinking about net debt and where we're going to guide to from a debt perspective and how we are going to use those Brickhaven funds. So I think -- if you think about the way we've discussed this historically, we've kind of pointed you guys towards our CIE section, and tried to guide you to a number there, but now we've been able to come out and be more prescriptive in the $80 million. When we look at -- on Slide 10, that pro forma net leverage of 2.9 would be reflective of that after we pay down the -- use the Brickhaven proceeds.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [10]

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Okay. All right, because you're currently at 4.2x, right? And you're saying that then you factor in the Brickhaven contract, is that what ends up getting you from -- because I think I'm looking at a slide that says like currently you guys are at 4.2x net leverage, right?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [11]

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Correct.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [12]

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Okay and then you get the Brick -- okay.

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Roger D. Shannon, Charah Solutions, Inc. - CFO & Treasurer [13]

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Yes, Michael, it's Roger. Just a couple of things there. As we look at the pro forma numbers that we've discussed with -- that we're evaluating and we discussed with our bank group as we grow forward, a couple of things, the impact of the $10 million for -- on the Brickhaven payment relative to what was booked last year as well as the total impact of extraordinary losses at this one particular project. So both of those things as we look at it, if we add that back or kind of credit facility adjusted EBITDA that would put us at kind of 2.9x number at year end.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [14]

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Okay, all right. Okay. And then, can you just -- the delay in the technology and then on the bridge delaying technology and lost awards, are these -- I'm interested, is it -- are they kind of in line with one another? What I mean is like -- I -- my understanding is like more of these awards that are coming out, it's bigger in scope, many of remediation contracts will also include using some of this technology. So does it go hand-in-hand when we see awards slipping and then also something on technology? Or are they completely different type of events playing out right now?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [15]

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Yes. I think that's -- I think we need to -- when you think about our technology, I think you definitely need to bifurcate the grinding technology from the beneficiation technology, and I think the best way to look at that or think about it is the beneficiation technology is getting received very well by the -- our utility customer base. But that goes hand-in-hand with kind of the overall theme of delay in awards. And I think, separately, when you think about grinding and the delays there -- and it's not necessarily -- it is delays from our expectation because we're trying to continue to optimize that technology and secure the right locations to support the grinding technology. So kind of 2 different impacts as to why both those technologies have been delayed in their ramp up and their rollout in 2019. I think Roger wanted...

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Roger D. Shannon, Charah Solutions, Inc. - CFO & Treasurer [16]

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Real quick, I just want to circle back to that last comment. The -- misspoke. The expected leverage at year-end is 5.5x. Again, given the add-backs we discussed and the net debt pay down that we are factoring, obviously driven by the lower TTM EBITDA trend, so that is that's why we've adjusted our Q1 and Q2 leverage covenants per the credit agreement amendment.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [17]

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Okay, yes -- and that makes sense. And then, when I think of the guide for this year, is it -- I think EBITDA was minus $2 million for the quarter. So it's, obviously, a lot in the back half. Do you guys have an idea of how much of this is more Q3 weighted, fourth quarter weighted? Any idea how we should think about that playing out in the second half?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [18]

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Michael, you're exactly right. Definitely performance this year constrained by what's happened in the first half of the year. We think the second half of the year is more indicative of the fundamentals of the business and how we're going to move forward. If you think about -- again, we don't necessarily give guidance on a quarterly basis, but I would say that it's weighted a little bit heavier towards Q4 than Q3.

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Operator [19]

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(Operator Instructions) Your next question comes from the line of Michael Hoffman with Stifel.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [20]

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So you've touched on a lot of this, but just so I'm clear. I mean, you've dropped down to sort of low-teens revenues per quarter in remediation and were somewhere in the mid-60s in nuclear, is that the right way to think about it for the remainder of the year? This is dollars or revenues.

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [21]

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Yes, Michael. That's probably a decent way to look at it, maybe shifted a little bit. Roger?

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Roger D. Shannon, Charah Solutions, Inc. - CFO & Treasurer [22]

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Right a little bit more toward the third quarter is we'll be going into another outage cycle that is starting to ramp up in September in nuclear. So there will probably be a heavier focus in nuclear in Q4 as we kind of get into that cycle.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [23]

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Okay. All right, that's helpful. And then, where are you going internationally, that's a little bit of new news, or maybe you've said it before and I just missed it. And if I did, I apologize.

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [24]

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Well, I mean, I think, a couple of things, and we touched on a little bit in the loss of opportunity -- the delay in the lost opportunities. We were -- we had a significant international business opportunity on the maintenance side that we were anticipating that, that kind of impacted the downward trend in guidance. But I think more importantly as we look to the acceptance of the MP618 technology, we're seeing significant response from overseas in Europe and other parts of the world really giving us an opportunity to take that technology overseas and develop and use it or license it as well. So hopefully, to give you more color on that next time we talk.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [25]

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And so clearly, this is a tie-in, take ash, rebeneficiate it and sell it into the cement industry like you would be here, it's sort of -- that's the play?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [26]

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Yes. Absolutely same play. Absolutely same play.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [27]

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Okay. Okay. And then I guess there's huge opportunity, but this is starting to have a feeling like asbestos, where there was this big windfall coming and then there was this real huge push by building owners to go slow. How much of this is go slow by utilities versus the state PUCs who have changed the terms from a variety of cap-in-place and clean closure to all clean closure and there's this massive sort of reassessment having to go on and that's what's slowing everything down.

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [28]

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Michael, I think there's probably an element of both, but primarily what we're seeing right now was this reassessment period. I think if you would ask all the utilities a couple of years ago what their plans were, I think you would have -- and you did hear a lot of we're going to cap-in-place, we're going to do this, we're going to do that. And I think as we point to some of these trends as the states start being more prescriptive in the means and methods by which they close, you're starting to see some massive reassessments, right? I mean the engineering changed to just go out to an ash pond and put some dirt and a liner over the top of it versus the engineering behind completely excavating an online pond and then developing a line landfill somewhere else and hauling the material between the 2 places. Totally different engineering profiles as well as cost profiles to get rate recovery.

So I believe it's more in the reassess bucket than the delay bucket based off of what we see and what we hear from our customers.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [29]

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And do you think that the pushbacks from the PUCs on rate recovery will ultimately survive in court and the utilities will get their rate recoveries? Or is this a potential point of further delay, is that they struggle to get rate relief?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [30]

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I think you can see the acceptance in the -- I think in a lot of states, the PUCs as well as the states and the utilities are working well. I think the transparency in Virginia is a good example of that. And my hope would be that they do get recovery, and that would be our anticipation at this point in time.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [31]

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And one of the things that you always liked about this business model is that byproduct and fossil were very repeatable recurring revenues and nuclear has its season -- has its cycle because one year is smaller number of outages than another year. Is there anything that we are worrying about changing about the repeatability of fossil and byproduct, that sort of recurring over and over and over again?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [32]

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No. Not from our perspective. And as we continue to try to gain market share in both ash management on the fossil side as well as the byproduct sales side, and that's definitely evidenced by the renewals that we've picked up as well as the new awards. We're going to continue to see those to be very balanced in the future, and that's something that we're very excited about.

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Operator [33]

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Gentlemen, your next question comes from the line of Steve Schwartz with First Analysis.

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Steven Schwartz, First Analysis Securities Corporation, Research Division - Analyst [34]

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With respect to the project issue, on the first quarter, you had a couple of projects that were subject to some weather impact. Is that the same driver here with this 1 project in the second quarter?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [35]

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No. Not related to weather. I think a lot of you guys are happy to hear us say -- not hear the word weather this -- on this release. This was very different, related specifically to a subcontractor that we had used and don't plan to use in the future. That's probably all I can go into on that one. But it wasn't a weather issue and it wasn't a performance issue.

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Steven Schwartz, First Analysis Securities Corporation, Research Division - Analyst [36]

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Okay. That's good to know, specifically that. With respect to your guidance, 2020 versus 2019, you are showing an EBITDA margin improvement of about 300 basis points, and I think in the deck you do talk a little bit about what you believe is behind that improvement. We do have nuclear outages expected to increase in 2020, right? And that would be a headwind to margin, is that correct?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [37]

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Yes. However, I think if you're looking year-over-year, you've got to think of kind of the first half of 2019 being an anomaly. So those margin levels would be higher in the outer years.

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Roger D. Shannon, Charah Solutions, Inc. - CFO & Treasurer [38]

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Just more specifically, I mean, you're right there -- we do expect higher revenue from nuclear outages in 2020, but that will be offset from a margin perspective by lapping the impact of the negative margins from this job that we are talking about specifically.

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Steven Schwartz, First Analysis Securities Corporation, Research Division - Analyst [39]

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Yes. So I mean really though the improvement in the part of the business that's related to fossil and project work is -- certainly represents more than a 300-basis-point EBITDA margin improvement, right? I guess that's my point, right?

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Roger D. Shannon, Charah Solutions, Inc. - CFO & Treasurer [40]

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That's correct. That's right. So better than that, slightly tempered by -- somewhat tempered by the increase in the nuclear outage business.

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Steven Schwartz, First Analysis Securities Corporation, Research Division - Analyst [41]

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Yes, okay. And then my last question. On the EBITDA bridge for the year, that slide you show the $6 million in G&A and other cost savings. Can you describe a little bit of what is behind that? Is it personnel? Is it something in terms of fixed cost? Because it looks like you expect to carry through that savings through 2020 as well. Am I reading that correctly?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [42]

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Yes, you are, Steve. And I think we referred to 2019 as a transition year multiple times. That's the way we view it here as a business and not just the transition and changes associated with the leadership of the business, but how we look, feel and act as a public company and as a service provider.

So we have made G&A cuts from a personnel level as well to streamline and rightsize the business, integrating the SED office as part of the acquisition is an example of that. But also included in there is job performance. We've been very focused on -- by enhancing our job performance at the field level, and we've seen areas where we've been able to increase margins and we believe that we can continue to hold those just by becoming better operators and becoming more accountable for our actions.

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Steven Schwartz, First Analysis Securities Corporation, Research Division - Analyst [43]

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Yes. Is the $6 million in savings predominately in the second half and then as we model 2020, should we be thinking about it in terms of a $12 million annual run rate?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [44]

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I wouldn't go that far, Steve. But the $6 million definitely carries through, and incrementally, probably a little bit more than that. But not a 2x effect.

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Operator [45]

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Gentlemen, your next question comes from the line of Michael Feniger with Bank of America.

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [46]

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I just had a quick follow-up. Is there anything changing in terms of the profitability on these remediation contracts or the contract structure? They're getting bigger in scope it sounds like, maybe engineering complexity, it sounds like it's also increasing. Can you just help us understand again how these contracts are typically structured especially following some issue you had with some subcontractor in Q2, which seems like it's resolved, but just give us a reminder of how these contracts are structured again and is there anything changing going forward as this industry evolves?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [47]

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Sure. And I think that's still yet to be determined. I think we've spoken previously some about the sole-source opportunities that we have out there which definitely allow us to negotiate the proper terms for our business and what we're looking to do. I think the major difference is when you're looking at the structure of the projects is that, spoke to it earlier, the cap-in-place versus full excavation and then also when we start adding technology in there we start beneficiating ash and bundling those technologies together, our anticipation is that we -- they do have higher margin profile and that we kind of position ourselves outside of the competitive bid process in our ability there. So I think that will have some impacts on margin and then just from a contract structure perspective, it's going to be a lot of rate type work as well as I think differently than what you saw in the Brickhaven contract where we put all the capital in front end of the project, I think as we move forward, our intent is to not have that pending end of contract payment and have a lot of that done more upfront by the utilities as well. That's the direction we're moving in versus what you've seen from us historically. Is that's helpful?

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Michael J. Feniger, BofA Merrill Lynch, Research Division - VP [48]

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Yes, that's helpful. And then just lastly are you seeing any -- because these projects are getting bigger, Scott, any type of different competitive dynamics playing out? Are you seeing different type of contractors coming forward to put their hand up and look at the size of these projects and say maybe this is an attractive market to compete against? Just curious if you are seeing any other type of different competitive dynamics out there as well with some of these projects?

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [49]

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No, thanks. We're really not seeing anything much different from a competitive standpoint. Again, when you think about the remediation side, it's very fragmented kind of locally and regionally. And then on the ash byproduct sales side, there are some national scale players. So we really haven't seen a difference in the competitive landscape here in the last near-term.

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Operator [50]

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This concludes our question-and-answer session. I will now turn the call back over to Charah management for closing remarks.

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Scott Andrew Sewell, Charah Solutions, Inc. - President, CEO & Director [51]

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Thank you, and thanks for the questions today as well. Again, I just want to thank everybody for joining today. Hopefully you found the call helpful. We remain deeply convinced that the opportunities for our business and our ability to grow our company and capture additional market share. We are the best at what we do and there's an extraordinary amount of available work to be done. So I am very enthusiastic about our growth prospects. We look forward to announcing new awards as they come and we look forward to updating you on our progress in the third quarter call in November and hopefully seeing many of you on the road before then. Thank you again for joining the call and have a great day.

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Operator [52]

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This concludes today's conference call. On behalf of Charah Solutions, thank you for your participation. You may now disconnect.