Q3 2022 Charah Solutions Inc Earnings Call
Good day and welcome to the <unk> solutions third quarter 2022 financial results Conference call. Please note today's conference is being recorded.
Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star followed by the number one again.
At this time I would like to turn the conference over to Steve Brim, Vice President Legal Affairs, and corporate Secretary. Mr. Bradley You May begin your conference. Thank.
Thank you operator, good morning, everyone and thank you for joining US today. We appreciate your participation in our third quarter 2022 earnings call and look forward to sharing our prepared remarks and answering your questions.
Joining me today on the call are sharp solutions, New President and Chief Executive Officer, and director, Jonathan Batarseh, and do Chief Financial Officer, and Treasurer, Joe Skidmore.
Following their prepared remarks, we will conduct the customary question and answer session.
We hope 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 and a supplemental investor presentation. You may follow during our prepared remarks on the investors section of our website at www Dot shara dot com or IR at <unk> Dot com.
Before we begin I'd 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 release and conference calls those risks include among others matters. 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 report on Form 10-K.
We disclaim any obligation to update these forward looking statements, except as required by law.
During this conference call, we will refer to certain non-GAAP financial measures.
We provide reconciliations to the nearest applicable GAAP measures in our earnings press release and supplemental presentation.
Before I turn the call over I'd like to thank Scott Sewell for his service to <unk> solution and leadership as the company expanded our product suite.
Scott well in his endeavors.
Also like to welcome our new CEO , Jonathan <unk> and congratulate Joe Skidmore on his promotion to CFO .
Jonathan joined Us about a month ago and has already contributed greatly as we have worked on measures to improve our business with more than 25 years of corporate finance and executive leadership experience in the engineering and construction industries, Jonathan has significant experience driving operational excellence for engineering and construction projects.
Joe joined <unk> solutions with almost a decade of it audit experience, serving both public and private clients with a variety of industries, including those in the industrial manufacturing sector.
Well at the company he assumed the roles of increasing responsibilities most recently as corporate controller for two years.
Thanks, Dave and thanks to everyone for joining us on our call. This morning.
I am excited to join <unk> solutions at this pivotal juncture.
We enable utilities to meet and exceed their ESG goals by Remediated ash ponds, managing coal ash operations recycling fly ash, selling raw materials and solving environmental risks.
I joined the company because we have a world class team focused on delivering leading ESG solutions for our customers' growing needs.
Everyday shara improves our community by producing sustainable environmental solutions for our customers by Remediated, the environmental risks and recycling what was previously considered unusable.
These innovative solutions have and will continue to create tailwind for our business.
As a company we will focus on three priorities as we build upon the heritage established at sharp.
First and foremost we will always prioritize the safety of our people we.
We are committed to the safety and wellbeing of our employees at work at home and at play 24, seven 365 days a year.
We are a people organization from our site operators to our support teams are people are the heartbeat of this company.
Second we will continue to grow through our commitment to providing our customers with environmentally responsible innovative and customized solutions.
Third we will improve profitability through both increasing commercial rigor and risk assessment for new work and improving our project management oversight tools and processes as a team we are committed to continual improvements that drive sustainable growth and improved financial performance.
Of the company.
With the strong market environment related to the regulatory tailwind, we continue to be optimistic that our market opportunity will expand.
I'll review, our recent development that position us for long term growth.
Since reporting our second quarter results, we have fortified our balance sheet to support future growth.
Increased new contract awards.
Strengthened our leadership team.
Completed certain legacy loss projects that have created a drag on our performance for 2022.
And implemented processes to improve our commercial operation and financial rigor and oversight.
While I'm encouraged by these achievements all acknowledge we are disappointed by our financial results during.
During the third quarter. These challenges discussed in previous quarters continued to impact the gross profit and the bottom line.
The three multi year legacy loss projects.
The Ash pond closure project in Arkansas, the landfill construction project in Kentucky in the fly Ash and bottom Ash pond closure project in Missouri.
<unk> to drag on gross profit.
While I'm pleased that we have completed these projects and move them to the demobilization phase we incurred additional expenses during the quarter.
Regarding the two long term beneficial use projects hindered by supply chain and logistics challenges that we've previously discussed we.
We have suspended work on the one with the greatest impact to the bottom line until we reached a resolution with the customer.
We are in discussions with the customer to jointly agree on a path forward.
The ultimate outcome could have a material impact on our backlog.
Therefore, we have decided not to disclose backlog until we agree on a path forward.
The drag from these projects have been costly to that end, we have taken measures and continue to implement corrective actions to avoid similar situations.
As I noted at the onset of this call we have increased commercial operation and.
Financial rigor for new project assessments.
Additionally, we are reviewing and making necessary improvements to our project management tools and processes to identify and mitigate project execution risks as they occur.
It was necessary to strengthen our balance sheet to support current projects and growth.
We worked with our lead Investor Bernhard capital partners to raise $30 million in gross proceeds.
We believe the support validate the market opportunities ahead and creates a runway to accelerate growth.
Also during the quarter, we secured wins from new and existing customers New contract awards grew by $42 million.
We remain excited about our enviro source Beneficiate technology.
However, like all of our projects, we are reviewing opportunities with a critical eye to ensure the economics are favorable.
Earlier this year, we announced an <unk> project that we were awarded and actively working to finalize contract documents.
Because of the construction nature of this project inflationary pressures and supply chain constraints, the underlying economics are challenging.
Therefore, the finalization of the contract is delayed.
When we disclosed new contract awards in the future we will ensure they only include binding awards.
In addition, as we reviewed our pending bid pipeline metric, we found certain pending bids that represented potential projects that were outdated and likely to be rebid.
Therefore for the time being we removed them from the total pending bid pipeline, which represents bids we have submitted but have not yet been awarded.
As of mid November the pending bid pipeline is approximately $1 5 billion.
Our tracking pipeline, which represents anticipated requests for proposals that are projected to be awarded over the next two years has grown based on market activity to be approximately $11 1 billion through mid November .
Before we review the third quarter results in detail I'd like to recognize Joe Skidmore during.
During his tenure at <unk>, he has demonstrated financial acumen and leadership.
I look forward to his expanded contribution as our CFO .
Yesterday, we also announced changes to the board.
We are pleased Bob the sensi accepted the role as executive Chairman.
Bob has decades of experience in the power industry, including senior management roles at four major utilities.
Most recently he served as CEO and director.
<unk> energy our utility services company that provides engineering construction and maintenance to the power generation and power delivery markets.
Under Bob's leadership BHI grew from a single service offering platform to an industry, leading integrated platform capable of servicing every asset owned by utility.
The appointed generation through the entire power delivery lifecycle.
We also think Jay Bachmann for his leadership and are pleased he will continue to serve as a director.
Additionally, we are fortunate to have bill varner join us as an independent director.
He brings over 30 years of experience, leading manufacturing and service companies through both operating turnarounds and growth strategies.
We look forward to their guidance as we implement our improvement plans.
With that I'll turn the call over to Joe to discuss our financial results.
Thanks, Jonathan I believe in <unk> value proposition and I am glad to be serving with greater responsibility at this time.
As discussed the prior challenges continue to impact the financial results. However, we are encouraged by our sequential improvement over the second quarter of 2022, which I'll review now.
Revenue was $81 5 million up compared to $77 1 million for the second quarter of 2022, primarily related to an increase in construction contracts.
Gross profit was $2 9 million compared to $2 7 million for the second quarter of 2022. Both periods included expenses associated with the completion of the three legacy projects as well as continued challenges, resulting from supply chain and logistics issues related to two large.
Beneficial use project as previously discussed.
General and administrative expenses were $9 5 million compared to $9 $2 million.
In the second quarter of 2022, primarily attributable to the timing of certain expenses.
The net impact of other items within operating income with a net loss of $3 2 million compared to net income of $1 8 million in the second quarter of 2022.
Primarily attributable to a decrease in scrap sales volume at <unk> Creek, and an increase in ownership and other costs, including accretion expense, resulting from the Avon Lake and Chadwick environmental risk transfer acquisitions.
Net loss attributable to <unk> solutions was $13 $4 million.
Pair to $9 6 million for the second quarter of 2022.
Adjusted EBITDA was negative zero point $6 million compared to positive adjusted EBITDA of $2 8 million for the second quarter of 2022.
For the nine month period ended September 32022, our results were as follows.
Revenue increased to $224 7 million compared to $199 8 million for the nine months ended September 32021, driven by growth in all of our revenue streams.
Net loss attributable to <unk> solutions was $35 million compared to $7 1 million in the nine months ended September 32021.
And adjusted EBITDA was $2 5 million compared to $26 4 million for the nine months ended September 32021.
Turning to our balance sheet at September 30 of 2022, we had $7 $7 million of cash on hand, $2 $7 million of borrowing capacity under our credit agreement and $4 million of borrowing capacity under our term loan agreement for a total liquidity.
$14 4 million.
On November eight we drew down the remaining $4 million on the term loan agreement to fund operating activities.
On November 14th we entered into a private placement with a BCP affiliates to sell series B preferred stock for net proceeds of $28 8 million.
In conjunction with our preferred stock investment the company entered into a binding agreement to convert the outstanding balance of $20 million the commitment fee of $1 million and all applicable accrued interest under its term loan agreement and to an entity that owns 100% of Gibbons Creek and Chatswood Glenn.
Together with the remaining availability under the asset based lending credit agreements. These transactions will strengthen the company's balance sheet and provide additional resources to achieve the long term working capital needs of the company.
Looking ahead, we are assessing all aspects of the company, including ongoing projects and future opportunity. Therefore, we are suspending guidance and we'll revisit it in the future.
Finally, we announced this morning that the board authorized a one for 10 reverse stock split.
With that I'll turn the call back to Jonathan.
Thanks, Joe for over 35 years, we have provided ESG solutions to the power generation suppliers.
Our ash remediation recycling in management raw material sales and environmental risk solutions have set industry standards and delivered leading technology.
We have taken and continue to take actions to improve the profitability of our projects.
Having set a solid foundation for long term growth, we expect to benefit from the positive tailwind in 2023, which we believe will deliver value to our shareholders.
Thank you again for your interest and participation with that operator, let's begin the question and answer session.
At this time I would like to remind everyone.
To ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Brian Butler with Stifel.
Good morning can you guys hear me.
Good morning, Good morning, Brian .
Thanks for taking my questions. The first one I guess on the guidance suspension.
What I guess what makes the next one five months on predictable that we can get some level of guidance and then I guess follow up would be what needs to happen to reinstate guidance for 2023.
Yes.
Brian as I mentioned in our opening comments.
For Joe we just want to be able to look at the projects look at the opportunities that we have coming up make sure give guidance to this guidance that debt.
As accurate and informative to everyone.
As we look long term.
Would be able to when would we be able to reset guidance.
Kind of refer to some of our opening remarks.
Want to focus on the building blocks of safety clients and predictability in our profit margins predictability and our profitability overall as a company, we talked a little bit about that in our opening comments.
We want to make sure we have the right commercial rigor on the front end of reviewing opportunities make sure. We have the right project management tools and processes and we're working through.
Projects and also probably goes without saying, but we are reviewing the cost structure of the business to ensure that we can be.
<unk> cost efficient as possible, which will help improve our profitability and also help us be more competitive as we win and pursue other opportunities.
I can't commit to a date that we will restart guidance I can just commit to.
Focus on the things that are going to create stability in our profits and on our business that will allow us to.
Provide guidance in the future.
Okay, and then on your suspended contracts that you discussed.
How big of a drag was it in the third quarter and maybe year to date and as you work through with the client on.
Fixing that is that something that can be remediated in 2022 or is that going to be rolling into 2023.
Yes, thanks, Brian in terms of a drag on the profitability and.
But quarter to date and year to date I can't specifically comment on the one beneficial use contract, but overall as a group.
Due to beneficial use contracts that have a drag on our profitability.
Directly impact from a quarter to date perspective around a little over $2 million from a year to date perspective nine $9 million.
I will say the one that we've suspended.
The larger of the two contracts.
Makes up that vast majority of that loss.
Yes.
Jonathan I'll tell you.
Have discussions with the customer.
There are some costs that we've committed and it could be equipment costs and those type of things that we're continuing to redeploy to other projects and make sure they are utilized.
As best as possible. So there could be a little bit of continued cost going into the fourth quarter and potentially go into the next year, we're trying to reduce the cost that we have associated with that project as quickly as possible.
Im not sure and can't commit right now as to when or whether we will restart operations on this project I would just need to be something that is mutually beneficial for us and for the customer.
We continue to have good dialogue with the customer, but can't commit to when we would restart and what that would look like.
We're just doing our best to reduce cost and get.
Equipment utilized.
At other projects.
Okay. That's helpful on <unk> source on that contract yet to be finalized I guess, how delayed is that I mean buyers source has been it's been a long process is that now.
2023, or 2022, how should we think about that piece of moments.
Well, let me talk about <unk> as a whole and then we'll talk about this specific opportunity. So we love the technology. It works is great.
<unk> ability and a lot of different.
Areas can help solve some problems for our utilities Britt to Britt to work.
To have a balanced risk approach with the utility partner in this particular contract.
There was too much risk economic risk that we were bearing around construction and really offtake risk and those type of things, which.
With the inflationary market that were in put pressure on pricing put pressure on financing, but pressure on schedule and then again the long term risk that we have with the offtake. So.
I can't answer when this project will or we will go forward.
But we are continuing to progress conversations with a couple of other customers that.
I can't commit to a timeline, but but those conversations are a little bit more in the balanced risk approach. So as we continue to move those conversations forward. We hope to have good news in the future that we have.
Other enviro source opportunities that are getting there.
<unk> the finish line.
Okay, and then on ERP.
Can we can we maybe.
Look at what contracts that have been awarded I guess, what opportunity or what potential EBITDA can be generated from that piece of business and cash flow.
Because theyre not always length, but.
Over the next I guess the year maybe longer.
Just kind of put that in perspective on the magnitude of that ERP and maybe any help you can give on timing of some of those flows.
Yes, I can speak on the one I'll start with kind of the ones that we have currently signed to date in that area and our.
And our book of business right now so essentially yes.
All are aware, we haven't given creek Avon Lake and <unk> projects.
As we look at Gibbons Creek that that's kind of wrapped up in terms of the scrap sales, whereas Avon Lake and <unk>, we are ramping up so as we look to kind of the remainder of this year.
Of opportunities, it's going to be limited to those 330 projects with obviously Avon Lake Chadwick providing.
Some of the cash flow, whereas Gibbons Creek, we're still performing those remediation activities and so as we look at the 30 collectively.
Looking at it pretty much a breakeven adjusted EBITDA and cash flow for the remaining of the year. If you look into 2023, we will be.
And we will have contribution adjusted EBITDA wise and cash flow.
But the majority of those will be.
From those three projects.
Yes, as we look to the future <unk> opportunities, we are actively pursuing identifying and pursuing and working on.
Again, the next generation or the next the lifecycle of PRT projects, but.
Right now I can't.
To win one when the next one will be awarded the timing of that award the magnitude of the award but it continues to be a priority for us because we see a lot of value.
And what we can bring to our utility customers and helping them remediate these properties and manage that environmental risk. It's good for the customer it's good for our utility partners. It's good for US. So we're excited about the ERP projects, but can't commit to the timing of the next award.
Okay, and then one last one maybe on accounting just on a fully.
As converted what would be the fully diluted share count post all the all the capital.
Adjustments you've made here.
Yes, we're working through the.
I guess detailed analysis of that but overall, we're looking at about 6500 shares fully diluted after if we can assume for conversion of all of the preferred stock in place.
Okay. Thank you very much for taking the questions.
Thank you.
There are no further questions at this time I will turn the call over to Jonathan <unk> for closing remarks.
Thank you everyone for joining today as I said earlier this is an exciting opportunity.
Personally, it's an exciting opportunity for the team here at <unk>, we look forward to.
Creating value for our shareholders as we focus on again safety for our employees growing our business by continuing to partner and provide excellent service to our customers and creating stability in our profitability going forward by increasing our commercial rigor on new opportunities.
Ensuring we've got the proper tools and processes in place.
Two two.
Identify and mitigate risk at the project level and again, ensuring that we have the most efficient cost structure process possible. So that we can improve profitability and be competitive and future awards.
You for your time and your continued interest in our business.
Thank you for participating. This concludes today's conference you may disconnect at this time.
Please wait the conference will begin shortly.
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