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spk00: Good morning, ladies and gentlemen, and welcome to the Shara Solutions Incorporated First Quarter 2022 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 provided at that time for you to ask a question. I would now like to hand the call over to Steve Brehm, Vice President of Legal Affairs and Corporate Secretary for Shara Solutions. Please go ahead.
spk04: Good morning, everyone, and thank you for joining us today. We appreciate your participation in our first quarter 2022 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 the call are Scott Sewell, SHARA's 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 risk and uncertainties that could cause the actual results to be materially different from those discussed 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 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 measure in our earnings press release and supplemental presentation. Now, I would like to turn the call over to Scott Sewell, our President and Chief Executive Officer.
spk03: Thanks, Steve. and thanks to everyone for joining us on our earnings call this morning. The first quarter of the year continued to see supportive developments for Shara's business in the market, and we remain very positive about Shara's prospects for growth over the near term and long term. Today, I'll be providing an update on our business, information on our pipeline of work, and some highlights from our recently published second annual ESG report. After that, I'll pass things to Roger, who will discuss our financial results. During the quarter, SHARA's overall business progress was strong. Our environmental risk transfer, or ERT, business continued its positive momentum, and we are very excited about the future of this business. The Givens Creek ERT project we previously discussed saw continuing strong scrap sales in the quarter while preparing for additional land sales. These sales of 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 ERT projects. The previous announced acquisitions of the Avon Lake and Cheswick coal-fired generating stations from GenOn 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 original estimates on both projects. We have also been encouraged by the very positive community and press responses to these projects. Our ERP services continue to exceed our expectations, and we are devoting additional resources to expanding these opportunities. This is a new service offering for SARA 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 beneficiation 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 our potential 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 It 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, Char continues to win new business and near-to-date wins currently total nearly $88 million. As I discussed on our last call, we believe that the January 11 EPA ruling that expands and strengthens the 2015 CCR regulations affecting coal ash and groundwater management of mandated surface impoundments and 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, is 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 will 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 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 the next 10 to 20 years more than 1,000 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 and 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, as previously discussed, and federal spending accelerates for cleaner infrastructure development. We expect that the infrastructure bill signed into law in November 2021 will have a positive impact on our byproduct services and raw material sales businesses. The substitution of Portland cement with fly ash has almost a pound-for-pound effect in the reduction of CO2 greenhouse gases, while also improves the quality of concrete and providing cost savings. As a leader in the recycling of fly ash, This presents our byproduct services and raw material sales businesses with great opportunities as cleaner operations are required of the 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 will be 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, by-product services, raw material sales, and ERT work. Since our last call, the total value of future opportunities we see being put out to bid in the next two years has expanded from $7 billion to $8 billion across all of our business lines. Capturing even a portion of this universe of work would put Shara Solutions on great footing, as we have demonstrated over the last three years. Setting records for new awards, we are well equipped to go after this work. Thinking about the near-term work and work Shara has bid on, we have $3.15 billion in bids currently pending and which 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 but 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 environmental impact, sustainable practices, and consistent good governance. The nature of our business is to improve these aspects of life and make conditions better for future generations. This counts not only in the work we do for our customers, but in the standards to which we hold ourselves. Our success in maintaining the highest standards is evident in our second annual ESG report. which 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. I'm incredibly proud of the work all of the SHAR team has done to reach these goals. I would encourage all of you to take a look at the report, which is available on our website in the sustainability section. Of course, the quarter was not without challenges. In addition to the first quarter seasonality that Shara typically experiences in our business during colder months, we were 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, and 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 of the second. The company is taking steps to address these issues, and long-term profitability is not expected to be materially impacted. I will let Roger discuss the puts and takes in more detail. In sum, The quarter 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.
spk01: Thanks, Scott. I'll continue with a review of our financial results and provide an update on cash flow, balance sheet, liquidity, and 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 in 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 and has extended the expected ramp of 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 resulted in cost overruns. The projects had originally been scheduled for completion in the fall of 2021. The company has now completed and demobilized at the largest of these projects and expects to complete the other two during the second quarter. Continued strong performance from ERT projects partially offset the negative impacts from these projects. General 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 Sharla 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 an ERT 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 ARO settlement due to the difference between the original estimated cost used in the measurement of the fair value of the company's ARO and the actual cost incurred for the specific remediation tasks. Adjusted EBITDA decreased to $400,000 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 Q1-22, resulting in less AR 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 received from the execution of the Givens Creek ERT contract in the first quarter of last year. The items mentioned above and planned remediation activities on the Givens 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 from ERT projects, which are reflected in cash flows from investing in the cash flow statement, while the AERO remediation spend is reflected in cash flows from operations. Now turning to our balance sheet. Our gross consolidated debt on March 31, 2022, was $175.3 million, which was an increase of $7.7 million from December 31st of 2021. Our liquidity at March 31st consisted of our unrestricted cash of $11.2 million and availability under our asset-based lending credit agreement of $14.2 million after accounting for outstanding letters of credit and borrowing base limits. However, as of May 10th, 2022, if the company were to borrow in excess of $5 million on the credit agreement, the 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 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.
spk03: Thanks, Roger. As we have described, I am very optimistic about Shara's business and prospects going forward. We have expanded our opportunity set, one new business, and see positive catalysts on the horizon. Regulatory updates, stakeholder demands, and market signals are all working in Shara's favor to set up for success in the incredible $75 billion market I have just described. We aren't just standing pat and letting the market come to us. However, as shown by the ramp of our ERT services and the anticipated deployment of our envirosource technology, Char continues to innovate and lead the industry in helping customers take care of their most pressing remediation needs and is at the forefront of the reduction of CO2 in materials production. I hope that you all share our enthusiasm for the business, its positive near-term and long-term catalysts, and the value we are creating every day for our stakeholders. Thank you again for your interest and participation. With that, Operator, let's begin the question and answer session.
spk00: If you would 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 Rajil from B. Riley. Please go ahead. Your line is open.
spk02: 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? Are many of them getting pushed into next year? No.
spk03: Good morning, Alex. I think from a timing perspective, As we noted in the prepared remarks, it's definitely short-term in nature, something that we see happening this year. I think we thought more of the awards would have happened in Q1, Q2, but we probably see that more wait for the back half of the year. And again, as we've stated previously, our goal internally here and as a business is to continue to win awards 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 pending 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.
spk02: That's great. And then as it relates to that pipeline and bids outstanding, what's your historical win rate, and how should we – sort of measure your success relative to that $3 billion number?
spk03: Yeah, we've never quoted a win rate per se, but I would say you can go back and look at the previous years, 2020, 2021, and think in those timeframes we had roughly different points in time, you know, approximately $3 billion impending to $2 billion at times for in that kind of range. and kind of do the math on what we want in those years, and you can kind of get close to a win rate, but something that we don't publicly disclose. But again, the pipeline is just so great and so large for us right now. We're really excited about how it's expanded, where we see it expanding, and the next several years continue to be very promising for us.
spk02: And then lastly, from a competitive standpoint, what does the competitive environment look like right now as you are bidding on some of these projects? Are you competing against a few primary competitors? Is it very random and diversified? Are there a lot of competitors per opportunity or is this a very short list?
spk03: Our competition continues to be fragmented geographically as well as by our different business lines. We compete against different Companies, depending upon the services that we're bidding on or providing for our customers, I would say, though, that the one thing that we believe differentiates us from anybody else is we're the only ones offering the full suite of services at the depth that we do as it relates to ash management, ash 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 ERT that we call it. Really, nobody else is providing that full suite of services. That's helpful. Thank you very much. Good luck. All right. Thanks, Alex.
spk00: As a reminder, to ask a question, please press star 1 on your telephone. Our next question comes from Adit Shrestha from Stiefel. Please go ahead. Your line is open.
spk03: Good morning.
spk00: Adi, your line is open. Once again, to ask a question, please press star followed by the number one on your telephone keypad. We have no further questions in queue. I'll turn the call back over to Scott Sewell for closing remarks.
spk03: 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.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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