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spk00: Good morning, ladies and gentlemen, and welcome to Charisolution, Inc.' 's fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After today's presentation, we will conduct a question and answer session, and instructions will be given at that time if you would like to ask a question. I would now like to hand the conference over to Steve Brim, Vice President of Legal Affairs and Corporate Secretary for Charisolutions. Please go ahead.
spk03: 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 have had a chance to review the press release we issued yesterday after the market closed. If not, you can find the press release as well as a supplemental investor presentation you may follow during our prepared remarks on the investor section of our website at www.shara.com or ir.shara.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 Shara 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?
spk04: 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 awards 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 into 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 Charo Solutions for strong growth in revenue, earnings, and cash flow in 2021 and beyond. We continue to believe that the increasing emphasis at the federal and state levels on environmental remediation and the growing demand for fly ash and concrete will continue to create opportunities for Charo Solutions' one-stop platform for remediation and compliance services, byproduct sales, fossil services, and 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 Charter Solutions' outstanding environmental stewardship. We believe Shara Solutions is truly one of America's best examples of resource conservation and recovery through the beneficial recycling of coal ash, ash impoundment closure services, and the remediation and redevelopment of land for community and commercial use. Sustainability is a Shara Solutions core value, 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, Charlotte 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 ERT services. We continue to perform very well on our first ERT 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 ERT services, we will be responsible for the shutdown and decommissioning of the coal power plant and performing all environmental remediation work for the 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, support of the tax base, as well as restoring the property to a state that will enable it to be put to its best potential use. We believe our ERT offerings deliver turnkey environmental solutions to utilities while providing attractive growth opportunities and returns to SHARA 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 MP618 ash beneficiation technology as EnviroSource ash beneficiation technology. Through our remediation and compliance work and using our EnviroSource technology, we are able to recover and recycle ash in an environmentally sustainable way to produce concrete to help satisfy the growing infrastructure demands. Ash recycling preserves natural resources while dramatically reducing the need for landfill space. Our EnviroSource 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 EnviroSource ash beneficiation technology to expand the reach of our multi-source 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, beneficiation guidelines, and ash pond impoundment closure deadlines. We continue to see these movements as positive for SHARO 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'm very proud of the way we have partnered with our customers to maintain service continuity safely. And I want to thank, again, our dedicated Shara 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.
spk01: 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 our 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 24, 2021 for further details regarding our segment realignment. I'll 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 for the three months ended December 31, 2019, due primarily to an increase in remediation and compliance revenue from new project work partially offset by a decrease in byproduct sales revenue resulting from lower plants' 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 44.4%, for the three months ended December 31st of 2020, to $4.4 million, compared to $7.9 million in the three months into 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 Shara 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 31st of 2019. The increase in loss was primarily due to an increase in non-cash impairment expense, a 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 a change in contingent payment liability. To provide additional details on these non-cash loss items, our impairment expense increased $31.6 million for the three months into December 31, 2020, primarily due to a $21 million reduction in the Shara Solutions trade name intangible asset. We also reevaluated how certain grinding assets acquired as part of the 2017 acquisition were going to be used in the future, resulting in $10.6 million of non-cash 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 31st, 2020 compared to the three months ended December 31st of 2019 and an increase in our loss from continuing operations before tax. We recorded 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 30.8%, to $4.1 million, as compared to $6 million for the three months ended December 31st, 2019. Now turning to our full year results. Revenue decreased $12.3 million or 5% for the year ended December 31st, 2020 to $232.4 million compared to $244.7 million for the year ended December 31st of 2019 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 to 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 $10 million revenue reversal associated with the completion of the Brighaven deemed termination in 2019 and new project work started during the second half of 2020. Gross profit increased $1.5 million or 7.2% for the year ended December 31st, 2020 to $22.8 million compared to $21.3 million in the year ended December 31st, 2019. As a percentage of revenue, gross profit was 9.8% for the year ended December 31st, 2020 compared to 8.7% for the year ended December 31st, 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 non-cash impairment expense in 2020, partially offset by a $17 million reduction in general and administrative expenses in 2020. The decrease in general 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 a $7.1 million reduction in expense from the expiration of our purchase option liability during the current period. Our net loss attributable to Charles 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 31st, 2020 to $25 million as compared to $18.1 million for the year ended December 31st, 2019. This improvement was due primarily to lower general administrative expenses and higher gross profit. In a previous communication, we indicated that we were engaged in a $5.5 million ERT-related property transaction that 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. And our 2021 guidance will reflect the results of this transaction. Except for this timing-related change from the ERT-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, and 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 31st of 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, the 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 a startup of recently announced customer awards, including ERT 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, a net loss attributable to Shara Solutions, Inc. of $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.
spk04: Thanks, Roger. In closing, we hope you agree that our growth in contract awards, 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 Charo 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.
spk00: At this time, we would like to take any questions you may have for us today. To ask a question, please press star 1 on your telephone keypad. Again, that star falls by the number one to ask a question. Your first question is for Michael Hoffman with Stiefel. Your line is open.
spk02: Thank you very much for taking the questions. If I start with just reconciling the you 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 430 is allied-related awards, and that's the difference.
spk04: Yeah, good morning, Michael. Absolutely, that's the difference. That's the difference from what we previously reported.
spk02: Great. And then when I think about adding that 430 and the 715 all in the last two years, so a billion one and change, almost a billion two, what's your suggestion to us who have to make a living modeling? What's the burn rate of that or the duration of the cadence as it peels off into revenues?
spk04: Yeah, so I think that's one of the things that we've been really excited about with the the awards that we've been winning is their longer term nature versus uh you know previous historic contracts that we had that were two or three years in nature uh the majority of these awards we've brought on are um eight to ten years i would say so i mean it's a longer term uh than previously so i think from a burn perspective i would go with maybe seven years michael okay
spk02: And the simple math is divide by seven, and then if you keep growing this, I just keep stacking it up. I mean, that's the way to think about it, right?
spk04: Yeah, absolutely. And, you know, I mean, we're going to ramp these projects through this year. And, you know, they're going to be pretty flat once they reach kind of a plateau for the next seven years.
spk02: Right. And I get why you've aggregated everything together. But before you had done that, you know, we used to talk about fossil byproduct remediation and obviously nuclear. And the fossil was sort of a, you know, the day-to-day operations was about a $70-ish million business growing a few percentage points a year. That's still the right way to think about that?
spk04: Yeah, so we haven't really discussed it too much. There's some information in the K. Roger, you want to discuss where you can find some of that?
spk01: Yeah, so we, you know, we break down the revenue. by the types of service. And so you can see, like if you look at note four in the K, for 2020, by-product sales were about 85 million. From construction contracts, about $81 million, and the services, $67 million. So that gets you to your $232 million.
spk04: Yeah, so that would be a historical look at it, Michael, but I think on a go-forward basis, you're going to see the remediation work continue. When you think about our mix, remediation is going to continue to grow.
spk02: And that would be remediation would go into the construction contracts? Yes.
spk04: Yes, as well as byproduct sales. 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.
spk02: Right, and so the two drivers in the product sales will be the Dominion Award when that starts to kick in. So there's some mobilization dollars that show up in there in 21, but then the real byproduct selling number shows up in 22, right?
spk04: That's correct. That's going to show up in 22 as well as just with this infrastructure spend that we see right now. Our ability to use our multi-source network to grow the byproduct sales side of the business is going to be very significant for us. Okay.
spk02: And it'll take me a while to stop saying MP618. Well, you got me so used to using it, now I've got to expunge it. Do you expect to cite one of those this year?
spk04: That's our goal. We're in some significant talks right now on that EnviroSource technology and really see some opportunities. I know we've spoke about in the past, I think, you know, just some – difficulties with COVID and, you know, just getting 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.
spk01: So we are, like we talked about, we are, I'm sorry, Malcolm, like we talked about before, we are you know, still advancing the conversations with a specific customer kind of getting, you know, farther down the road of, you know, getting to an agreement on that. And we do feel like we have made some pretty significant progress in the financing as well. So, you know, so I think, you know, we do expect to be able to announce one of these in 2021. Okay.
spk02: And that was going to be my follow-up to that is, you know, So you have found a source of project financing where it would look somewhat similar to normal project financing, a 60% to 80% project finance, and the rest is your equity?
spk01: Yeah. I mean, I think those numbers are roughly correct. I'd say probably more, you know, 70% to 80% project finance, more, you know, 20% to 30% equity area. We are, you know, I think we've, honed in on a couple good opportunities for project finance. You know, I can't say that we've signed a contract yet on that. But, you know, as you've seen over the course of the year, we've made significant improvement in our balance sheet leverage numbers and our liquidity. So those conversations are a lot easier to have now when we're talking about project finance opportunities. You know, as well as... you know, just some other structures. Now, you know, once we are seeing additional opportunities from customers to where there is more interest in customer-type financing, again, not ready to announce that sort of thing yet, but through some new relationships, we're kind of starting to see that a little bit.
spk02: Fair enough. Can you help us with some things that we would need to do for modeling? Like what's a base structure? capital number that we should think of? And then, you know, if I made my own decision to add one of these, what do I use as a starting revenue number?
spk04: Yeah, Michael, that's going to vary from site to site and probably something that we haven't shared also for some competitive reasons as well from a CapEx perspective and from a revenues perspective. So let us think on the right way to model that. But, you know, really I think as we think about 21, there wouldn't be any impact to 21 even if we – were to sign one this year because it is about a 12-month construction lead time. 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.
spk02: Okay, fair enough. And then is there any visibility on Dominion releasing the remediation portion of that work that they want to do at the, what's it called, Chesapeake?
spk04: Well, yes, Chesterfield, and really not in a position to speak for Dominion, but I would say it's going to have to be awarded prior to our contract being able to ship ash. One would expect it would be in this calendar year.
spk02: And on a practical basis, based on your contract, and you're supposed to be getting ASH by the beginning of 22, wouldn't that have to happen pretty soon in order for whoever gets it to actually start doing enough work that they can deliver you ASH?
spk04: It would.
spk02: That's sort of a logical way to think about it?
spk04: It would be the logical way to think about it, but again, can't speak for Dominion.
spk02: Got it. And then, Roger, an accounting issue. Why not be able to walk down some of the goodwill versus intangibles when allied goes? What was behind that?
spk01: No, we did. We made a carve-out of part of the goodwill over to allied. We did that separation. So let me pull that section up in the – in the K. So kind of look at it in note three of discontinued operations. It looks like $12 million was carved out, Michael, over and went with the Goodwill. Sorry, $12 million in Goodwill went over with Allat as part of discontinued operations.
spk02: Okay. Okay. That's all on my part. Thanks. Oh, well, last one. I'm assuming all the free cash is going to be used to repay debt? Yeah. Yeah. Okay. So that puts you at the midpoint of your guidance if you take your slide, pay down the debt, just with the free cash flow, you're sub three times. Did I do that math wrong?
spk01: You did not do that math wrong.
spk02: Okay. That's what I thought. Okay.
spk01: Correct.
spk02: Cool. Thanks.
spk04: No, thank you, Michael. Thank you for your continued interest in the business. Much appreciated.
spk02: Well, you've got a nice business, so it's fun to do.
spk04: Thank you.
spk00: We have no further questions at this time. I turn the call back to presenters for closing remarks.
spk04: Okay, great. Thank you, Operator, and thanks, everyone, for listening today. We appreciate everyone's interest in Shara 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 months and report out on Q1. So thank you.
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