Q4 2020 Charah Solutions Inc Earnings Call
Now I'd like to hand, the conference over to Steve Brown, Vice President of legal Affairs, and corporate Secretary for Charter solutions. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us today.
We appreciate your participation in our fourth quarter 2020 earnings call and we look forward to sharing our prepared remarks and answering your questions.
We hope that you've had a chance to review the press release, we issued yesterday after the market close if not you can find the press release as well as the supplemental investor presentation. You may follow during our prepared remarks on the investors section of our website at Www Dot Sharra dot com or IR Dot chart Dot com.
Joining me today on our call are Scott Sewell, President and Chief Executive Officer, and Roger Shannon, Chief Financial Officer and Treasurer.
Following their prepared remarks, we will conduct the customary question and answer session.
Before we begin I would like to remind you that our remarks regarding <unk> solutions include statements that are 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 disclosed in our earnings press release and conference calls.
Those risks include among others matters that we have described in our earnings press release as well as in our filings with the Securities and Exchange Commission, including our quarterly reports on form 10-Q, and our annual reports on form 10-K, we disclaim any obligation to update these forward looking statements.
During this conference call, we will refer to certain non-GAAP financial measures. We provide reconciliation to the nearest applicable GAAP measure in our earnings press release and supplemental presentation.
Again, thank you for joining us today now I would like to turn the call over to Scott Sewell, our president and CEO.
Scott.
Thank you, Steve and good morning, everyone. It's great to have you join us for our earnings call today I'm happy to be speaking with you again and providing an update on our year end performance.
This morning, I'll briefly review, our 2020 accomplishments provide an update on current business developments and update you on our pipeline of opportunities.
I'll then transition the call to Roger to review, our financial performance during the year and an update on our 2021 guidance.
As highlighted in our press release, we had a record year in 2020 with $715 million of New Awards, Our New award for 2020 were up approximately 66% from the $430 million of awards booked in 2019, our previous record year.
We saw new business award activity pick up significantly during the fourth quarter of 2020 and that momentum has accelerated as we begin 2021.
From the fourth quarter through today, we have converted just over 1 billion of our pending bids pipeline until a new long term awards, including $433 million of new business awarded in the fourth quarter of 2020.
Underpinned by the Dominion energy beneficial use project.
During the first three months of this year, we have received additional awards totaling more than $500 million, including two long term remediation projects for a large southeastern utility.
These new business awards will position <unk> solutions for strong growth in revenue earnings and cash flow in 2021 and beyond we.
We continue to believe that the increasing emphasis at the federal and state levels on environmental remediation and the growing demand for fly ash in concrete will continue to create opportunities for <unk> solutions, one stop platform.
Our remediation and compliance services by.
Byproduct sales fossil services, an environmental risk transfer services for years to come.
I hope you have seen our inaugural environmental social and governance report that was issued last week.
As a sustainability leader in.
Our utility services for over 30 years, we are very pleased to be able to showcase.
The full story of solar solutions outstanding environmental stewardship.
We believe <unk> solutions is truly one of America's best examples of resource conservation and recovery through the beneficial recycling of coal Ash <unk>.
Cash impoundment closure services, and the remediation and redevelopment of land for community and commercial use.
Sustainability.
Is a source solutions core value and.
And our focus is on developing innovative solutions to complex environmental issues for the betterment of the planet.
We believe that reporting on sustainability is critical for our stakeholders growing need for information and we are pleased to begin this vital initiative.
Together <unk> solutions management and employees are United in our firm commitment to environmental social and governance responsibilities and we demonstrate that commitment daily.
We also see increasing opportunities to provide creative solutions to utilities, environmental remediation and compliance challenges by expanding our ERP services.
We continued to perform very well on our first ERP project with a utility in the upper Midwest.
We also recently announced the acquisition.
Of the Texas Municipal power Agency's Gibbons Creek steam electric station and reservoir in Grimes County, Texas.
And that we intend to begin remediation and redevelopment of the property immediately.
Leveraging our innovative <unk> services, we will be responsible for the shutdown and decommissioning of the coal power plant and performing all environmental remediation work from our site landfills and ash ponds.
We plan to redevelop the property in an environmentally conscious manner that will expand economic activity and benefit surrounding communities through job creation.
Promotion of industry supported the tax base as well as the Sterling the property to a state that will enable it to be put to its best potential use we believe our ERP offerings deliver turnkey environmental solutions to utilities, while providing attractive growth opportunities and returns to <unk> solutions.
In keeping with our objective to expand our byproduct sales opportunities and our commitment to improving the land and air through environmentally responsible recycling of fossil power generation byproducts.
We are happy to announce that we have rebranded our innovative <unk> hundred 18 Ash Beneficiate technology.
And borrow source ash beneficiate from technology.
Through our remediation and compliance work and using our buyer source technology, we are able to recover and recycle assets in an environmentally sustainable way to produce concrete to help satisfy the growing infrastructure demands.
Asset recycling preserves and natural resources, while dramatically, reducing the need for landfill space our.
Our <unk> technology improves fly ash quality, so that significantly more tons of ash can be recycled and marketed for use.
This technology, notably reduces the environmental carbon.
Footprint created by Portland, cement that would otherwise be emitted into the atmosphere and provides a superior product at lower costs.
Substituting recycled ash to make green concrete.
Also makes it a stronger product for use in bridges highways and buildings.
We remain optimistic about our byproduct sales opportunities driven by expectations for greater infrastructure spending.
And we are excited about our ability to leverage the Empire source ash beneficiate from technology to expand the reach of our multi sourcing materials network and add new customers.
As we have discussed on previous calls states are becoming more prescriptive regarding the means and methods of ash pond remediation.
In addition, we believe that the environmental protection agency under the New administration will accelerate its efforts on its regulatory requirements beneficiary issue guidelines and Ash pond impoundment closure deadlines.
We continue to see these movements as positive for <unk> solutions.
As the partner of choice for solving customers' most complex environmental challenges and as an industry leader in quality safety and compliance. We are ideally situated to help power producers deliver on their impoundment closure requirements and needs.
Our ability to continue to add new customers and New awards with our power generation partners. During these uncertain times speaks to our team's resiliency and the essential nature of our services.
The longer.
Term nature of our New awards establishes a more predictable revenue stream for years to come.
We are working hard to convert future opportunities into more wins that will further add to a predictable revenue stream and earnings growth.
We are building on the successes announced over the past year the future remains bright for our business and we expect to continue announcing more new awards in 2021.
Following our 2020 and year to date 2021 wins, we still have over $3 billion of.
Pending proposals.
We are in contract negotiations on several projects and we expect to make additional official award announcements soon.
We also have visibility into an additional $7 billion.
Of opportunities that we intend to submit proposals on.
Between now and the end of 2022.
I am very proud of the way, we have partnered with our customers to maintain service continuity safely.
And I want to thank again, our dedicated source solutions employees, who are working every day to help our customers address their environmental and recycling needs.
We remain committed to keeping our people safe supporting our customers and growing the business.
With that I'll turn it over to Roger who will discuss our fourth quarter and 2020 financial results and our outlook for 2021.
Thanks, Scott I'll continue with a review of our financial results and provide an update on our balance sheet liquidity and 2021 guidance.
During the fourth quarter of 2020, we realigned our operating segments into one reportable segment to reflect the suite of end to end services, we offer are utilities and power generation partners.
And how our chief operating decision maker reviews consolidated financial information to evaluate results of operations assess performance and allocate resources.
As the company now has a single operating segment all of our required financial segment information can be found in the consolidated financial statements in our press release.
And our annual report on form 10-K.
Our prior year results have been reclassified to conform to this presentation.
Please refer to our annual report on form 10-K filed with the SEC on March 24th 2021 for further details regarding our segment realignment.
I will now start with a review of our fourth quarter results.
Revenue increased $10 $7 million or 19, 5% for the three months ended December 31, 2020 to $65 7 million as compared to $55 million from the three months ended December 31 2019.
Due primarily to an increase in our remediation and compliance revenue from new project work, partially offset by a decrease in byproduct sales revenue, resulting from lower plant ash production that we believe was due to lower demand as a result of the COVID-19 pandemic.
Gross profit decreased $3 5 million or <unk> 44, 4% from the three months ended December 31 2020.
Two $4 4 million compared.
Compared to $7 $9 million in the three months ended December 31 2019.
The decrease in gross profit was primarily due to an inventory reduction associated with slow moving stockpiles at two of our locations and lower revenue associated with our byproduct sales offerings, partially offset by an increase in remediation and compliance revenues from new projects starting.
In 2020.
The inventory valuation reductions are related to impairments of slow moving granulated blast furnace slag stockpiles associated with the grinding activities at two of our locations, which I will discuss in more detail later.
The net loss attributable to <unk> solutions, Inc. Increased $16 million for the three months ended December 31, 2020 to $33 9 million as compared to $17 $9 million for the three months ended December 31 2019.
The increase in loss was primarily due to an increase in non cash impairment expense.
Our loss from our equity method investment.
And the previously mentioned decrease in gross profit, partially offset by an increase in our income tax benefit and a gain on change in contingent payment liability.
To provide additional details on these noncash loss items.
Our impairment expense increased $31 $6 million for the three months ended December 31, 2020, primarily due to a $21 million reduction in the charter solutions trade name intangible asset.
We also reevaluated, how certain grinding assets acquired as part of the 2017 acquisition, we're going to be used in the future, resulting in $10 $6 million of noncash impairment.
For grinding technology related construction in progress assets equipment and intangible asset.
The loss from our equity method investment.
Was primarily due to a $3 8 million impairment of the December 31, 2020 carrying value of our investment in the joint venture due to the joint venture ending in the first quarter of 2021.
The increase in the income tax benefit was primarily driven by a decrease in the amount of the valuation allowance recorded during the three months ended December 31 2020.
Compared to the three months ended December 31, 2019, and an increase in our loss from continuing operations before tax.
We reported a $9 $7 million gain on a change in contingent payment liability.
Due to a reduction of a contingent liability as we determined that certain performance sales levels using the previously mentioned grinding technology assets would not be achieved.
For the quarter, our adjusted EBITDA decreased $1 9 million or 38% to $4 $1 million.
As compared to $6 million for the three months ended December 31 2019.
Now turning to our full year results.
Revenue decreased $12 $3 million or 5% for the year ended December 31, 2020 to $232 4 million compared to $244 $7 million for the year ended December 31, 2019 drew.
Driven primarily by a decrease in byproduct sales as a result of lower plant ash production that we believe was due to lower consumer power demand, resulting from the COVID-19, pandemic and two hurricanes that disrupted plant operations across our footprint.
This decrease was partially offset by increased remediation and compliance revenue.
Resulting from the non recurrence of the $2 million revenue reversal associated with the completion of the Brookhaven deemed termination in 2019 and New project work started during the second half of 2020.
Gross profit increased $1 5 million or seven 2% for the year ended December 31, 2020 to $22 8 million compared to $21 $3 million in the year ended December 31 2019.
As a percentage of revenue gross profit was nine 8% for the year ended December 31, 2020 compared to eight 7% per the year ended December 31 2019.
Our operating loss for the fiscal year, 2020 increased $9 8 million to $39 $6 million compared to a loss of $29 8 million in fiscal 2019.
The increase in operating loss was due to the $38 million of noncash impairment expense in 2020.
Partially offset by a $17 million reduction in general and administrative expenses in 2020.
The decrease in general and administrative expenses was primarily attributable to staff reductions and cost cutting measures implemented in late 2019.
Additional cost cutting measures implemented in April of 2020 in response to the COVID-19 pandemic.
Other cost saving initiatives and lower transaction costs in the current period related to the credit facility and $7 $1 million reduction in expense from the exploration of our purchase option liability during the current period.
Our net loss attributable to <unk> solutions, Inc. For the year ended December 31, 2020 increased $13 8 million to $55.9 million compared to $42 1 million for the year ended December 31 2019.
The increase was primarily attributable to the previously discussed non cash impairment expenses recorded in 2020.
A loss on extinguishment of debt.
And the loss from an equity method investment, partially offset by higher gross profit.
And the previously mentioned reduction in general and administrative expenses and an increase in our income tax benefit.
For the year, adjusted EBITDA increased $6 $9 million or 37, 7% for the year ended December 31, 2000, $20 million to $25 million as compared to $18.1 million for the year ended December 31 2019.
This improvement was due primarily to lower general and administrative expenses and higher gross profit.
In our previous communication, we indicated that we were engaged in a $5 $5 million E. R. T related property transaction. The we expected to close in the fourth quarter of 2020, but that could slip into 2021.
That transaction did close in January of 2021, and therefore will be reflected in our first quarter 2021 results.
In our 2021 guidance will reflect the results of this transaction.
Except for this timing related change from the E. R T related transaction and after accounting for the disposal of our Allied power subsidiary during the fourth quarter.
Our 2020 results were broadly in line with our expectations.
Turning to our balance sheet and liquidity for 2020, our operating cash flow was $12 $5 million in Capex for the year was positive $4 $2 million, resulting in free cash flow of $16 $7 million.
After accounting for a large customer payment due in December that was delayed due to systems issues, our free cash flow for 2020 exceeded our expectations.
At December 31, 2020, we had gross consolidated debt of $166 million.
The decrease in total debt during the year is primarily due to principal payments on our term loans, including our application of the proceeds from the sale of Allied power being used to repay debt.
Our liquidity was approximately $51.7 million as of December 31, 2020, compared to $28 $6 million at December 31, 2019.
Now I'll address our 2021 guidance.
As we've discussed in previous calls we provide mission critical services to a diversified base of customers a majority of whom are investment grade regulated utilities that must continue to produce power through the current economic uncertainties.
Though we are not currently seeing any significant disruptions to our business due to the critical nature of our customers' operations.
The COVID-19, pandemic and resulting potential for the significant business disruptions beyond our control have created a higher level of uncertainty.
Including but not limited to further uncertainties around demand driven power generation.
There are also timing uncertainties associated with the startup of recently announced customer awards, including E. R. T Awards.
As with our 2020 results the impact of weather, including Hurricanes excessive rain or moderate temperatures could also adversely affect our results.
Considering these uncertainties, we are providing guidance within the following ranges.
We expect revenue between $260 million to $300 million.
Our net loss attributable to Charlotte Solutions, Inc.
$5 million to zero.
Adjusted EBITDA of $35 million to $40 million.
And free cash flow of $33 million to $38 million.
With that I'll now turn the call back over to Scott.
Thanks Roger.
In closing, we hope you agree that our growth in contract awards and expansion of service offerings and laser focus on environmental sustainability will continue to position the company for long term success.
We remain committed to taking actions expected to preserve cash support our balance sheet and enhance the long term value while positioning ourselves to take advantage of the expanding market opportunities.
Importantly, we are closely aligned with our power generation partners environmental remediation and sustainability initiatives.
Which should provide <unk> solutions with significant growth potential for many years to come.
Thank you again for your interest and participation.
And with that operator, let's begin the Q&A session.
Finally, I'd like to take any questions you may have from today.
Your question please.
One on your telephone keypad.
Number one to ask a question.
Your first question is from Michael Hoffman with Stifel. Your line is open.
Thank you very much for taking the questions.
If I start with just.
Reconciling the.
It used to have Allied you don't have allied and just comparing numbers you had originally a $583 million award level in 19, and the difference between what you're showing on your slide at the $4 30 is allied related.
Awards.
That's the difference.
Good morning, Michael absolutely that's the difference.
For total previously reported.
And then when I think about adding that $4 30, and the 715 all in the last two years, so a $1 billion, one and change almost 1 billion too.
What's your suggestion to US you have to make.
I'll make a living modeling how we.
What's the burn rate of that or the duration of the cadence.
I'll hop into revenues.
Yes, I think that's one of the things that we've been really excited about with.
The awards that we've been winning is there longer term nature versus.
Previous historic contracts that we had that were two or three years in nature.
The majority of these awards, we have brought on our.
Eight to 10 years I would say so I mean, it's a longer term.
Than previously so I think from a burn perspective.
I would go with set maybe seven years Michael.
Okay.
And the simple math is divide by 7%.
If you keep growing this I just keep stacking it out.
The way to think about it right yes.
Yes, absolutely and we're working on a ramp these projects through this year.
And you know.
We're going to be pretty flat once they reach a kind of a plateau for the next seven years right.
And.
And I get why you've aggregated everything together.
Before you had done that.
Can you talk about possible byproduct remediation and obviously nuclear and fossil with sort of the day to day operations has about a 70 ish million dollar business growing a few percentage points a year, that's still the right way to think about that.
Yeah, So we haven't really.
Discuss it too much or some information in the K a Roger you want to discuss where you can find some of them. Yeah. So we break down the revenue.
From.
You know by the types of service and so you can see like if you look at note four in the K.
For 2020 product sales by product sales were about $85 million.
From construction contracts about $81 million and the services $67 million. So that that gets you to your $232 million. Yeah. So that that would be a historical look at it Michael but I think on a go forward basis youre going to see the remediation work.
Can you when you think about our mix.
Mediation is going to continue to grow.
And thats that would be remediation will go into the construction contracts.
Yes, yes, yes, as well as byproduct sales so those two and I think we've spoken to it a lot here in our prepared remarks, just our excitement around the growth opportunities in both of those areas right now it's pretty tremendous.
And so the two drivers in the product sales will be.
Dominion Award when that starts to.
Kick in.
So theres some theres some mobilization dollars would show up in there in 'twenty, one, but then the real byproducts selling number shows up in 'twenty two right.
That's correct.
That's going to show up in 'twenty, two as well as just with this infrastructure spend that we see right now is our ability to.
Use our multi source network to to grow the byproduct sales side of the business is going to be.
Significant force.
I will take me, a while to stop saying MP six to 18 months.
Good day.
Well you got me so used to using it now I got to expunge it.
Effect of site one of those this year.
That's that's our that's our goal where we're in some significant talks right now.
On that and viral source technology, and and really see.
Some opportunities I know, we spoke about in the past.
Adding to.
To sum.
Difficulties with Covid and and just getting the the financing set up for it.
Kind of delayed us a little bit here, but the customer interest is at an all time high there.
So we are.
We've talked about we are I'm, sorry, Mark I'd like to talk about before we are.
Still advancing the conversations with a specific customer kind of getting your farther down the road of Av.
You are getting to agreement on that and we do feel like we have made.
Some pretty significant progress in the financing as well. So so I think we do expect to be able to announce one of these in 2021.
Okay and that was going to be my follow up to that is.
So you have found a source of project financing, where it look somewhat similar to a normal project financing.
60% to 80% project finance from the rest of your equity.
Yes, I mean, I think those those numbers are roughly correct I'd say, probably more 70 to 80 project finance.
Or do you know 20 or 30 equity area.
We are I think we've honed in on a couple of good opportunities for project Finance I can't say that we've signed the contract yet on that.
But as you know as you've seen over the course of the year, we've made significant improvement in our.
And our balance sheet leverage numbers and our liquidity so those those.
<unk> or a lot easier to have now when we're talking about project finance opportunities.
Well as.
Just some other structures now as you know once we are seeing additional.
Additional opportunities from customers too.
Where there is more interest in.
Customer type financing again, not ready to announce that sort of thing yet, but but through some new relationships, we're kind of starting to see that a little bit.
Fair enough.
Can you help us with some things that we would need to do from modeling like what what's the base.
Capital number that we should think of and then.
If I made my own decision to add one of these what do I use as a starting revenue number.
Yeah, Michael that's going to vary from site to site.
And probably something that.
<unk>.
We haven't shared for also for some competitive reasons as well from.
Capex perspective, and from a revenues perspective, so let us let us let's think on the right way to model that but it really I think as we think about 'twenty one there wouldn't be any any impact 'twenty one even if we.
We're too.
Sign one this year because it is about a 12 month construction lead times. So anything we do this year would impact 2022 and beyond and we'll make sure.
Far enough in advance that we get you the right information there, Okay fair enough and then.
Is there any visibility on dominion, releasing the remediation portion of that.
But they want to do it.
What's it called Chesapeake.
Well, yes, Chesterfield and not to.
Really not in a position to speak for for Dominion, but I would say, it's going to have to be.
Awarded prior to.
Our our contract being able to ship out. So you would one would expect it would be in this in this calendar year.
And on a practical basis based on your contract from you're supposed to be getting asked by beginning of 'twenty two when that have to happen pretty soon in order for whoever gets it.
To actually start doing enough work that they can deliver you ash.
It would.
Again that was a logical way to think about it will be the logical way to think about it but again I can't speak for Dominion got it and then Roger or an accounting issue.
Why not be able to walk down from the goodwill verses intangibles on Allied goes well what was behind that.
Now we did we made a carve out of part of the goodwill over.
Over to Allied.
We did that separation so.
Sure.
Pull that section up in the.
In the K, so kind of look at it in note three of.
Discontinued operations.
So it looks like $12 million.
It was carved out Michael over.
With the goodwill.
Moving to goodwill went over with Allied as part of discontinued operations.
Okay.
Okay.
That's all on my part Thanks last one im assuming all the free cash is going to be used to repay debt.
Yeah, Yeah, yeah, Okay. So that puts you at the midpoint of your guidance if you take care.
Slide pay down the debt.
Just with the cash free cash flow your sub three times.
Am I did I do that math wrong.
You did not do that math wrong okay.
Okay, great color.
Thanks.
Thank you Michael Thank you for your continued interest in the business, let's appreciate it when we got a nice business I'll spend a day.
Yeah. Thank you.
We have no further questions at this time I'll turn the call back to presenters for closing remarks.
Okay great.
Thank you operator, and thanks, everyone for listening today.
We appreciate everyone's interest in <unk> and look forward to a.
Great 2021, we've got a lot of momentum and excited about being able to get everybody back on the phone here in a couple of months and report out on Q1. So thank you.
This concludes today's conference you may now disconnect.
Yes.
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