Q1 2022 Charah Solutions Inc Earnings Call
As required by law.
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.
Now.
I would like to turn the call over to Scott tool, our President and Chief Executive Officer.
Thanks, Steve and thanks to everyone for joining us on our earnings call. This morning, the first quarter of the year continuing to see supportive developments for <unk> business in the market and we remain very positive about <unk> prospects for growth over the near term and long term.
Today, I'll be providing an update on our business.
Formations on our pipeline of work and some highlights from our recently published second annual ESG report.
After that I will pass things to Roger who will discuss our financial results.
During the quarter.
Overall business progress was strong.
Our environmental risk transfer our ERP business continued its positive momentum and we are very excited about the future of this business.
The Gibbons Creek ERP project, we previously discussed saw continuing strong scrap sales in the quarter.
While preparing for additional land sales.
These sales of it.
The remaining Gibbons Creek acreage are expected to close over the next several quarters and into 2023.
On the Gibbons Creek property remediation side.
We are running ahead of schedule and we expect this project to be completed in 2023.
Since the end of the quarter in April we closed on two more ERP projects. The previously announced acquisitions of the Avon Lake and <unk> coal fired generating stations from Gen on energy.
We have moved quickly to engage local vendors.
Contractors and workforce to support the work at these properties.
And we have already begun remediation and parcel marketing efforts.
Now that we've taken ownership of the properties, we believe our income generation and returns will exceed our original estimates on both projects.
We've also been encouraged by the very positive community impressed responses to these projects.
Our <unk> services continue to exceed our expectations and we are devoting additional resources to expanding these opportunities.
This is a new service offering for sorrow that did not exist five years ago.
But we believe we are uniquely situated to meet the growing needs of utilities independent power producers and municipalities through these high value added services.
And we will continue to aggressively pursue new ERP opportunities.
We also made excellent progress towards the first commercial deployment of our proprietary and viral source ash beneficiary of <unk> technology, and we are pursuing opportunities with additional utility customers across the U S.
We made substantial progress in the quarter toward finalizing an agreement with <unk>.
<unk> customer.
And we are confident that we will soon announce our first contract.
We are eager to move forward with our first commercial deployment of this technology and will provide more environmentally friendly alternatives to Portland cement and result in accelerating growth in the utilization of fly ash and green concrete.
As we execute on our current backlog of work.
<unk> continues to win new business and year to date wins currently total nearly $88 million.
As I discussed on our last call, we believe that the January 11.
Ruling that expands and strengthens the 2015, CCR regulations affecting coal ash and groundwater management of mandated surface impoundments in landfills.
Is very positive for our addressable market over the next few years.
As it significantly increases the amount of remediation work utilities will be required to perform.
However, as stated on our last call. We expect that power generation owners will require time to assess the ruling in order to develop or revise their compliance plans.
Since the January EPA announcement.
We have seen an impact on timing of pending and anticipated bids for this reason.
We do expect this delay to be short term in nature and we remain confident.
That New award activity will pick up in the second half of the year.
For us what's really exciting beyond the awards. We have won so far this year, which added to our record New awards over the past few years as the total market opportunity.
And positive supportive factors that are setting up to drive our business forward for years to come.
The first is the sheer size of the opportunity over the next several years demands by regulatory bodies.
As well as company stakeholders are generating significant momentum for our business.
Requirements for site remediation.
And the cleaner production of concrete through the use of fly ash as a substitution for Portland cement are only increasing.
And we'll continue to expand.
We believe that the total addressable market for our remediation and compliance business is around $75 billion and growing.
Our byproduct services side, we see a $1 billion in annual sales market with over 25 million tons of byproducts used annually.
We believe this because of the number of opportunities that we have identified over.
Over the next 10 to 20 years more than 1000, ash ponds and landfills at sites across the country will require remediation of over $1 5 billion tons of coal ash.
This is the bread and butter of our business.
In an area, where we expect to broaden our reach.
Along with current numbers. We also believe the opportunity set is expanding as new more stringent regulations are put into place.
Recently discussed.
Federal spending accelerates for cleaner infrastructure development.
We expect that the infrastructure Bill signed into law in November 2021.
Had a positive impact on our byproduct services and raw materials sales businesses.
The substitution of Portland cement with fly ash as almost a pound per pound effect and the reduction of Sidoti greenhouse gases.
While also improves the quality of concrete and providing cost savings.
As a leader in the recycling of fly ash.
<unk>, our byproduct services and raw materials sales businesses with great opportunities.
Cleaner operations are required.
Business building under the bipartisan infrastructure law.
Even in an overall supportive environment. It is still up to us to execute on these opportunities.
To make sure that we do that we closely track all anticipated potential work that we put out to bid in the next several years.
As it stands this pipeline is growing thanks to the anticipated work that regulations and laws I spoke about will result in.
As well as normal course remediation byproduct services raw material sales and ERP work.
Since our last call the total value of future opportunities, we see being put out to bid.
<unk> in the next few years has expanded from $7 billion to $8 billion.
Across all of our business lines.
Capturing even a portion of this universe of work with the <unk> solutions on great footing as we have demonstrated over the last few years.
Setting records for New awards, we are well equipped to go after this work.
Thinking about the near term work and workshop has been on.
We have three <unk>, one 5 billion in bids currently pending.
We expect to be awarded soon across all our business lines.
The portion of work we will win from these pending bids will go into our backlog of work.
Which represents the work we have been awarded.
Have not yet completed.
Much of it because of the multi year nature term of our contracts we have not given this breakdown before but plan to report on our large growing backlog of contracted future revenue generating work soon.
What is clear to our team is that the success. We have had to this point is deeply rooted and how seriously we take our obligations with regard to our environmental impact.
Sustainable practices and.
And consistent good governance.
Nature of our business is to improve these aspects of life and may conditions better for future generations.
Discounts not only in the work, we do for our customers and the standards to which we hold ourselves.
Our success in maintaining the highest standards is evident in our second annual ESG report.
We published in April .
As I mentioned on our last call.
We met or exceeded substantially all of our goals set out for 2021 across all areas and.
I'm incredibly proud of the work all of the <unk> team has done to reach these goals that.
I would encourage all of you to take a look at the report.
Which is available on our web site and a sustainability section.
Of course, the quarter was not without challenges.
In addition to the first quarter seasonality that sort of typically experiences in our business during the colder months.
We're impacted by weather events that delayed project progress in particular three projects that were nearing completion, but then experienced cost overruns due to weather delays.
We have now completed and demobilized from the largest of these projects.
We are rapidly nearing completion on the other two.
Additionally, supply chain and logistics issues affected the expected ramp of two long term beneficial use projects.
Challenges in receiving material and obtaining necessary rail and trucking resources resulted in a delay to the start of one large project and has pushed back the expected ramp up of the second.
The company is taking steps to address these issues.
And the long term profitability is not expected to be materially impacted.
I'll, let Roger discussed the puts and takes in more detail.
Income.
<unk> was another one in which our future prospects expanded and I'm positive about the direction we're headed.
With that I'll now turn it over to Roger Shannon, our CFO to discuss our financial results.
Thanks, Scott I'll continue with a review of our financial results and provide an update on cash flow balance sheet and liquidity in 2022 guidance.
Revenue increased to $66 1 million for the first quarter of 2022 as compared to $52 1 million for the first quarter of 2021.
This increase was primarily driven by increases in remediation and compliance services revenue of $10 9 million from the net commencement of new project work and raw material sales of $5 $5 million from an increase in shipments.
This increase was partially offset by lower byproduct services revenue of $2 5 million.
Primarily due to net completions of operations work.
Gross profit decreased to negative $3 8 million for the first quarter of 2022.
As compared to positive $5 6 million for the first quarter of 2021.
Gross profit and gross profit margin were directly affected by several factors.
Most notably supply chain and logistics issues affected the expected ramp of two long term beneficial use projects and significant weather challenges pushed the completion of three projects during the quarter, resulting in cost overruns.
Delays in receiving material and obtaining necessary rail and trucking resources resulted in a delay in the start of one large project.
Extended the expected ramp in the second long term project.
The company is taking steps to address these issues and long term profitability is not expected to be materially impacted.
Additionally, significant rain events at three construction projects extended the final completion dates and risk tilted.
Cost overruns.
The projects had originally been scheduled for completion in the fall of 2021.
The company has now completed and Demobilised hit the largest of these projects and expect to complete the other two during the second quarter.
Continued strong performance from <unk> projects, partially offset the negative impacts from these projects.
General and administrative expenses decreased to $9 million during the first quarter of 2022 as compared to $9 4 million in the first quarter of 2021, primarily attributable to improved expense management.
Net loss attributable to <unk> solutions increased to $12 million for the first quarter of 2022.
As compared to $1 3 million in the first quarter of 2021.
The increase was primarily driven by the impact from the decrease in gross profit as previously discussed.
The absence of the recognition of a parcel transferred under a sales type lease at or near two project.
And an increase in net interest expense.
This increase was partially offset by increase in gains on sales of real estate property and equipment net due to increased scrap sales from the demolition of the Gibbons Creek power plant and an increase in gains on the <unk> settlement due to the difference between the original estimated cost Houston.
The measurement of the fair value of the Companys arrow and the actual costs incurred.
Specific remediation task.
Adjusted EBITDA decreased to $400000 for the first quarter of 2022 as compared to $9 5 million for the first quarter of 2021 due to the impacts previously noted.
Now turning to our cash flow.
Operating cash flow was negative $23 9 million for the first quarter of 2022 as compared to positive $14 1 million for the first quarter of 2021.
This decrease was primarily driven by an increase in our DSO in Q1, 'twenty, two resulting as Leslie our collections in the quarter, coupled with the net loss for the quarter and higher vendor payments as a result of the previously discussed specific project overruns.
Adjusted free cash flow decreased to negative $22 9 million for the first quarter of 2022.
As compared to positive $47 9 million for the first quarter of 2021.
This was a result of the absence of $34 $9 million of cash and restricted cash.
C from the execution at the Gibbons Creek <unk> contract.
In the first quarter of last year.
The items mentioned above and planned remediation activities on the Gibbons Creek Ash ponds.
As we have discussed on previous calls.
Adjusted free cash flow includes the gains on the sale of real estate property and equipment net for ERP projects, which are reflected in cash flows from investing in the cash flow statement.
The <unk> remediation spend is reflected in cash flows from operations.
Now turning to our balance sheet.
Our gross consolidated debt in March 31, 2022 was $175 3 million.
Which was an increase of $7 7 million from December 31, 2021.
Our liquidity at March 31 consisted of our unrestricted cash of $11 2 million and availability under our asset based lending credit agreement, a $14 $2 million after accounting for outstanding letters of credit and borrowing base limits.
However, as of May 10, 2022.
Any where to borrow in excess of $5 million on the credit agreement with.
Financial covenants associated with the credit agreement would become applicable.
In closing I would like to reiterate the guidance ranges, we gave on our fourth quarter call.
With that said.
We project that our adjusted EBITDA will come in the lower end of the guidance range due to the impacts of our first quarter results and current expectations for the remainder of the year.
Lastly, as we've discussed in our previous calls.
Our guidance is predicated on certain assumptions, which are discussed in more detail in our earnings release.
With that I'll turn the call back to Scott.
Thanks, Roger as we have described I am very optimistic about <unk> business and prospects going forward.
We have expanded our opportunity set.
One new business and.
And see positive catalysts on the horizon.
Regulatory updates.
Holder demands.
End market signals are all working in <unk> favor to set up for success and the incredible $75 billion market I have just described.
We arent just standing Pat and letting the market come to us.
However.
As shown by the ramp of our ERP services.
And the anticipated deployment of our <unk> technology <unk> continues to innovate and lead the industry in helping customers take care of their most pressing remediation needs.
And is.
It is at the forefront of the reduction of Cotwo and materials production.
I hope you all share arent vesey hasn't for the business.
It's positive near term and long term catalysts and the value we are creating everyday for our stakeholders.
Thank you again for your interest and participation.
With that operator, let's begin the question and answer session.
Thank you I'd like to ask a question over the phone. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again, we'll pause for just a moment to compile the Q&A roster.
Our first question comes from Alex Rygiel from B Riley. Please go ahead. Your line is open.
Good morning, and thank you for taking my question first question here.
Following the January EPA ruling.
And the delays created by this.
What's your current sense now as to when these opportunities are going to kind of redevelop is it likely this year. Many of them are getting pushed into next year.
No good morning learning Alex.
I think from a timing perspective.
As we noted in the prepared remarks, it's definitely short term in nature or something that we see.
<unk>.
Happening this year.
Yes, I think we thought more of the awards would have happened in Q1 Q2.
But.
We probably see that more weighted to the back half of the year and again as we've stated previously our.
Our goal internally here and as a business is to.
Continue to win record New awards year over year, and that's still our plan and we still see a path to do so.
With our $3 billion.
Lending in.
The pipeline as well as the $8 billion right behind that so we see a lot of activity here in the back half of the year.
That's great and then as it relates to that pipeline and bids outstanding.
Once your historical win rate and how should we sort of measure your success relative to that $3 billion number.
Yes, we have never quoted a win rate per se, but I would say you can go back and look at the previous year's 2000, 22021 and think in those.
Timeframes, we had roughly.
Different points in time.
Approximately $3 billion in pending.
Two $2 billion times, four and that kind of range pending and kind of do the math and what we want in those years and you can kind of get close.
To do a win rate, but its something that we don't publicly disclose.
But again.
The pipeline is just so great. So large for US right now we're really excited about how it's expanded where we see it expanding in the next several years continue to be very promising for us.
And then lastly from a competitive standpoint.
The environment looks like right now.
As you are bidding on some of these projects are you competing against.
A few primary competitors it is a very random and diversified.
Are there a lot of competitors per opportunity.
Whereas in this very short list.
Our competition continues to be fragmented.
Geographically as well as.
By our different business lines, so we compete against different.
Companies, depending upon the services that were that were bidding on are providing for our.
For our customers I would say, though that the.
The one thing that we believe differentiates us from anybody else is we're the only ones offering a full suite of services at the depth that we do as it relates to.
<unk>.
Cash management cash sales.
The large remediation work that we perform and then especially here since we've added on our new business line of environmental risk transfer or ERP that we call it.
Nobody else is providing a full suite of services.
That's helpful. Thank you very much good luck alright.
Alright, Thanks, Alex.
As a reminder to ask a question. Please press star one on your telephone. Our next question comes from Ed Firth from Stifel. Please go ahead. Your line is open.
Good morning.
Your line is open.
Once again to ask a question. Please press star followed by the number one on your telephone keypad.
[noise].
We have no further questions. Thank you I will turn the call back over to Scott Shaw for closing remarks.
Great. Thank you operator, and thank you everyone else for joining US today, we appreciate as usual your time and interest in the business and look forward to talking to you.
Next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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Yeah.