Charah Solutions, Inc.

Good morning, ladies and gentlemen, and welcome to the Shara Solutions Incorporated fourth quarter and year-end 2021 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 Bram, Vice President of Legal Affairs and Corporate Secretary for Shara 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 and year-end 2021 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 a 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's 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 the actual results to be materially different from those disclosed in our earnings releases 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 reports 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. Again, thank you for joining us today. Now, I would like to turn the call over to Scott Sewell, our President and Chief Executive Officer.

Thanks, Steve, and good morning, everyone. Thank you for joining us for our earnings call today. I'm pleased to report that 2021 was an outstanding year for Shara Solutions, with a record level of new business awards, an excellent start to three major projects announced at the beginning of 2021, and strong progress in growing our ERP business. Because safety comes first at Shara and is a cornerstone of our culture, I'm very pleased to report that we maintained a strong safety and operational record during a challenging environment resulting from the COVID-19 pandemic and a tight labor market. Our hard work in 2021 paid off as our financial results for the year were at or above the top end of the revised guidance ranges we provided last November for revenues, adjusted EBITDA, and adjusted free cash flow. This morning, I provided business update covering our new business awards, our bid pipeline, the recent EPA ruling, and other business developments. I'll also update you on our ESG initiatives. Roger will then review our financial performance during the fourth quarter and full year and address our 2022 guidance. Beginning with new awards, 2021 was a record year for us with $840 million of new business awards, which exceeds the record level of $715 million that we set in 2020. In fact, this is our third consecutive record year of new awards. The 2021 awards span all of our lines of business and included two ERT projects, two large and several mid-size and smaller remediation and compliance projects, several ASH marketing agreements, and multiple renewals of existing contracts. The total for the year included approximately $35 million that was awarded after our third quarter 2021 earnings release last November. The most significant of these recent awards was with a Midwestern utility for ash pond closures at one of its coal-fired power plants. Our ability to continue to win new business with both existing and new power generation customers speaks to the essential nature of our services, the reputation, experience, and resiliency of our industry-leading team. We currently have more than $3.1 billion of pending proposals, million since our conference call in November. We also have identified nearly $7.5 billion of opportunities across our businesses. We are optimistic about the prospects for converting some of these opportunities into additional new business that will further add to the predictability of our revenue stream and layer on growth well into the future. At the federal level, We believe that the Environmental Protection Agency under the Biden administration will continue to accelerate its efforts on regulatory requirements, beneficiation guidelines, and ash impoundment closure deadlines, which should result in additional market opportunities for SHARA. On our previous call, I indicated our expectation that 2022 would be a robust year for bid activity, both with respect to the number of solicitations as well as the size of projects. On that note, I'd like to address a ruling issued by the Environmental Protection Agency in January of this year, which advances the EPA's commitment to preventing groundwater contamination from coal ash. The January ruling expands and strengthens regulations affecting coal ash and groundwater management of mandated surface impoundments and landfills. In particular, the 2015 CCR regulations. We review this development The first under the new administration is very positive for our addressable market over the next few years, as it significantly expands the amount of remediation work utilities will be required to perform. However, based on the scope of the EPA's announcement, which was stronger than expected, we expect the 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, which may continue. The regulatory environment continues to be favorable for our business at the state level as well. As we have discussed on previous calls, there continues to be significant activity at a number of states as they move toward a more prescriptive approach to the means and methods of Ash Ponder mediation. As I noted, we remain very optimistic about the size of the addressable market and our competitive positions. As a partner of choice for solving our customers' most complex environmental challenges and as an industry leader in quality, safety, and compliance, we are ideally situated to help utilities and power generation companies deliver on their EPA and state regulatory requirements and needs. The January EPA announcement only adds to that optimism and expectation for future growth, particularly across our remediation and compliance and ERT services. We also believe that the infrastructure bill signed into law in November 2021 will have a positive impact on our byproduct sales services and raw material sales businesses. Though the exact timing of the ramp in construction driven by the infrastructure bill is uncertain, we believe that recycled fly ash demand will grow. Much like the favorable impact we see from the recent EPA announcement, we believe that the demand by state and federal entities and end-use customers and consumers for more environmentally friendly alternatives to Portland cement will result in accelerating growth and utilization of fly ash in green concrete. As we have discussed on past calls, the substitution of Portland cement with fly ash has almost a pound-for-pound effect in the reduction of CO2 greenhouse gas. It improves the qualities of concrete and provides cost savings. As a leader the recycling of flash we are excited about the future growth of this part of our business now turning to an update on our businesses 2021 was an excellent year for the growth of our erd services business our unique ability to provide a single source solution for customers looking to address the environmental and economic challenges associated with retiring older or less economically viable fossil generation assets positions us as a strong partner for existing and potential new customers. In December 2021, we closed on the sale of nearly 80% of the real property acreage at our Gibbons Creek project in Texas for net cash proceeds of $23.6 million. This consisted of parcels that did not require remediation and that were available for immediate sale. Last month, We announced a contract for the sale of the remaining real property acreage with closing expected in the third quarter of this year. This remaining acreage includes remediated parcels and a valuable switch yard and administrative facilities. On the remediation side at Gibbons Creek, we completed the planned implosion and demolition of the plant last October. The demolition completed Scrap sales accelerated in the fourth quarter and we expect that to continue into the first half of 2022. Additionally, we were able to recognize gains on our AROs at Givenstreet due to the differences between the estimated costs used in the measurement of the fair value of the AROs and the actual expenditures incurred for specific remediation tasks. Our remediation work continues ahead of plan and is expected to be substantially completed in 2023. In April, we expect to close on the acquisitions of the Avon Lake and Cheswick coal-fired generating stations from Gen-On after the plant's cease operation. The Cheswick acquisition is a new ERT project that we announced in December 2021. We assume responsibility for demolition of the plant and environmental remediation, and sustainable redevelopment of the site. We have commenced environmental remediation and site redevelopment planning efforts for both projects, and after closing, we will immediately start plant and coal yard remediation. We plan to engage local vendors, contractors, and workforce to support the remediation of these properties. In all, we are very pleased with our performance at our ongoing ERT projects. particularly at Gibbons Creek, where the timing and results have exceeded our expectations. We continue to believe that SHAR possesses unique competitive advantages and benefits for our utility customers compared with other alternatives. ERT represents an area for significant growth and profitability, and we continue to devote resources to expand those opportunities. Now we'll turn to our remediation and compliance business. Prior to year-end, we successfully completed the first phase of the COAS reclamation project for Dominion Energy, and we are moving into phase two of that project. Additionally, the two long-term Ash Pond closure projects and a major southeastern utility that we announced in early 2021 are continuing to ramp and progressing very well. We also commenced work on multiple mid-size projects, including the recently awarded Ash Pond closure project in the Midwest. As we noted in our press release, we experienced construction delays, much of which were a result of adverse weather conditions over the winter and supply chain issues at certain remediation and compliance projects. These issues affected our fourth quarter 2021 gross margins. The construction delays occurred at projects, most of which are expected to be completed by mid-year. As utilities and power generation companies deliver on their EPA and state regulatory remediation and closure obligations. They evaluate the options of beneficially reusing the coal ash or placing it into on-site or off-site conforming landfills. SHARA is ideally situated to support our utility partners in either of these paths. The Dominion project is an excellent example of a beneficial reuse project and the projects at the major southeastern utility demonstrate our ability to close ash ponds. In our byproduct services business, we remain in contract discussions with potential utility customers and are optimistic that we will achieve our first commercial agreement for the use of our EnviroSource technology in the first half of this year. This technology can be used for the beneficiation of both wet and dry fly ash. As a reminder, EnviroSource has a significantly lower cost profile than the competing technologies, has a versatile design and scalability, and can be deployed in months. It reduces utility customers' needs for landfill, ash ponds, and other disposal methods. I'll close this business update with a comment about the impact of certain macroeconomic developments on our business. The labor market has become tighter and increasingly competitive. In addition, supply chain and logistics issues have affected many sectors of the economy. We have experienced some delays in obtaining certain construction materials, but for us, the primary concern is transportation logistics, particularly rail and third-party trucking, where labor constraints in the pandemic have reduced the availability of truck drivers and increased rail congestion. This has affected our raw material sales business, which is comprised of our international raw materials brokering business and includes importing raw materials and providing the sourcing, logistics, and management needed to facilitate these raw materials transactions around the globe. Sales decreased in 2021 due to the logistical issues that affected the movement of coal ash by ship, barge, rail, and truck, in part due to the tight labor market and the impacts of the COVID-19 pandemic. As a result, we did not import coal ash from Europe, and we imported less ash from Asia than expected. We have continued to monitor the international supply chain situation, and we are staying in contact with our global raw material suppliers and partners in the event that shipping conditions improve. In terms of our workforce, we have been successful in retaining our leadership and middle management. Wages have been increasing, but to date, there have not been availability constraints that have hindered our ability to perform the work. The majority of our contracts contain pass-through clauses for cost increases in fuel, resin, liner, and certain other commodities. Next, I'd like to review our performance with respect to our ESG initiatives. As we've indicated previously, sustainability is at the heart of our business. I am pleased to report that we achieved substantially all of our one-year ESG objectives in the key areas of environmental performance, notably sustainable and land redevelopment, water, electricity, and fuel consumption, and waste disposal, as well as diversity and inclusion and safety. In the key area of safety, we had no lost time incidents, and we had a total recordable incident rate of 0.32, which is below our goal of 0.46 or lower. Our safety performance was recognized with several awards for construction safety and employee safety in 2021. In terms of environmental performance, we are on track to remediate or redevelop substantially 90% of the land owned, such as at the Brickhaven, BC Cobb, and Gibbons Creek sites. We have increased both the number and quality of site audits and inspections, with site team environmental compliance inspections nearly doubling since 2020. We did not receive any notices of violation or notices of deficiency in 2021. We also made progress in evaluating our water consumption to reduce use or replace with recycled water. We have developed methods to track our electricity and fuel consumption and our waste production at individual sites. I would also note that we expect to issue our second annual ESG report early in the second quarter of 2022, showcasing our significant leadership in fulfilling our ESG commitments and sustainably preserving our natural resources for the betterment of our planet, our communities, and our customers. Before turning the call over to Roger, I'd like to thank our dedicated Shara Solutions employees who are working every day to help our customers ensure service reliability and to address their environmental and recycling needs. We remain committed to keeping our people safe, supporting our customers, and growing our business. With that, I'll turn it over to Roger Shannon, our CFO. Thanks, Scott.