Charah Solutions, Inc.

Good morning, ladies and gentlemen, and welcome to the Charis Solutions Incorporated second 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 given at that time if you would like 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 Charis Solutions. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today. We appreciate your participation in our second quarter 2022 earnings call and look forward to sharing our prepared remarks and answering your questions. We hope you've had a chance to review the press release we issued yesterday after the market closed. If not, you can find the press release and 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 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 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. Now, I would like to turn the call over to Scott Sewell, our President and Chief Executive Officer.

Thanks, Steve, and thanks to everyone for joining us on our earnings call this morning. Today, I'll provide some context on our business's exciting transformation, including the announcement of an exciting milestone, commentary on our backlog of work, and new awards. After that, I'll turn the call over to Roger, who will discuss our financial results. As I look at Char Solutions' business today, I cannot help but be amazed at the evolution of our company, and more importantly, the incredible market opportunities we have in front of us. Shara Solutions is not the company it was at the time of our IPO in 2018, or even what it was two years ago. The old Shara had two primary earning streams, remediation and compliance, and byproduct services, or the old fossil services. Those are still great businesses and present great opportunities for us, but today's Shara is so much more. As of August 2022, we have five dynamic earnings streams, more than double what we had just two years ago. In the two new earnings streams, environmental risk transfer and environmental source ash beneficiation technology are positioned to drive the company to greater growth and profitability. After years of anticipation and much hard work to prove out the technology, finalize the design and negotiate the first deployment We are thrilled to announce that we have been awarded and the parties have agreed on the principal terms of a long term contract for EnviroSource with a major utility in the western United States for the first commercial deployment of our ash beneficiation technology. We expect the full agreement to be signed imminently and that we will begin construction on the first unit in the second half of 2022 with commissioning of the unit in 2023. This is a major step for Shara Solutions. Shara Solutions' environmental source technology makes formerly unusable fly ash stored in ponds and landfills marketable to ready-mix concrete producers to be beneficially used in the production of concrete, providing a superior product at a lower cost. By reducing the need for Portland cement, a leading contributor of greenhouse gases, we believe this environmentally sustainable recycling initiative will save over 500,000 tons of CO2 from entering the atmosphere on projects similar in size to our recent announcement. Deployment of our innovative EnviroSource technology should also help reduce groundwater risk in and around current ash storage facilities. We see this first EnviroSource contract and deployment as just the beginning. With an estimated $3 billion addressable market for environmentally friendly Portland cement substitutes, and as the efforts to reduce greenhouse gases in the U.S. continue to accelerate, we believe there are substantial opportunities across the U.S., and even internationally, to deploy our envirosource beneficiation technology to address this need. We are currently in discussions with additional potential customers, and we hope to be announcing several more deployments soon. We believe our envirosource technology will have a tremendous impact on the future of our business and make a significant positive impact for the environment. The second business and income stream we have developed over the past two years is our environmental risk transfer business. We have talked a lot recently about our environmental risk transfer, or ERT, business line and the outstanding growth and cash flow generating opportunities we see for this business. Shara is uniquely positioned to grow and capitalize on this business. We believe no other competitor can match the combination of our ash remediation domain knowledge, demolition and decommissioning capabilities, safety culture, project management experience, land development vision, and commitment to sustaining and improving the environment. Utility customers know they can trust the Shara Environmental Redevelopment Group to get the job done correctly. safely, efficiently, and quickly. We have proven our ability to do this. For the citizens of communities where these shuttered, ash contaminated plants sit, they know that we will deliver something they can be proud of. Something that will benefit all members of the community, drive economic impact, increase the tax base, and create jobs while sustainably redeveloping the site for the betterment of the environment. We have also seen that our ERT projects create compelling cash flows and earnings for our company. So much of the payoff comes at the end of the projects when we sell the real estate parcels. We do typically get significant cash contributions up front and throughout the project as we sell the recycled scrap. Layering in more of these projects will smooth out and further increase our cash flows. Our Givens Creek ERT project continues ahead of schedule. and we expect to close on the sales of the remaining parcels of land over the second half of 2022 and into 2023. Additionally, we expect to complete the remediation by early 2023. We expect that the sale of the remaining parcels will generate over $20 million of additional cash flow and around $10 million of earnings. During the second quarter, we finalized the acquisition of two new ERP projects, Avon Lake and Cheswick, from GenOn Energy. Both of these projects are moving ahead rapidly. In July, we partnered with the mayor of Avon Lake and members of the Avon Lake Community Investment Corporation to publicly unveil our once-in-a-lifetime lakefront transformation project overview and initial redevelopment options to the citizens of the city of Avon Lake. The 300 citizens who attended the meeting were excited about the vision, and we received tremendous local press coverage. In addition to the positive community impacts, the expected returns from the Avon Lake and Cheswick ERTs are exceeding our original expectations. Scrap and equipment sales at both projects began in July and will accelerate over the remainder of the year and all of 2023. On the Cheswick ERT, we received $36 million in restricted and unrestricted cash upfront. This was almost $5 million more than the value of the asset retirement obligations we assumed, even before considering the scrap and land values. Though we had hoped to recognize this gain immediately in the quarter, we did record a $4.5 million deferred gain on cash received for the land over and above the asset retirement obligations. We will recognize this gain into income over the next few years as we perform the ARO and monetize the land. This gain and cash provided benefits from the project even before the start of operations. While we may not see this type of gain on every project, this highlights the favorable returns we expect and are seeing with ERT projects and why we continue to devote more resources to win more jobs. Though we are very excited about the opportunities we expect from these two new streams of earnings, we are also very bullish on our legacy business categories, remediation and compliance, byproduct services, and raw materials. We are winning new awards and building our backlog, all while continuing to expect that the opportunities within our $75 billion astromediation addressable market will accelerate due to the stronger actions by the U.S. EPA and individual states. As a result of this, we are pleased to announce that our year-to-date new awards has increased to $328 million for 2022. In addition to our exciting environmental source award, Since our last earnings call we announced new remediation compliance and byproduct service awards with three different customers across four states. Including a nine year multi pond asher mediation project, one of the largest and longest term projects in the company's history with a long term major southeastern utility customer. As I said before, it comes down to execution. Not only on projects already awarded, but in building that backlog of work through diligent attention to winning new work, tracking RFPs, and engaging the market continuously. We've also been busy in this regard. We now have $3.5 billion in bids currently pending across RNC byproduct services, including the BioSource, and ERT business lines that we expect to be awarded in the near future. We are working hard to win our fair share of these pending bids, many of which will go into the backlog of work that I will discuss. I'm also very pleased to announce that since the end of the first quarter, the total value of our future opportunities we see being put out for bid in the next two years has expanded from $8 billion to over $10 billion across our lines of business. These are opportunities that we are tracking that we believe will be put out for bid. Since our last call, we have seen increased market activity with respect to customer interactions, inquiries, and RFPs following the slowdown earlier this year resulting from the January 11, 2022 EPA announcement. Opportunities across all four of our business categories, particularly our environmental risk transfer business, are increasing. and our pace of new awards is accelerating again. We also expect parcel sales from our Givens Creek ERT projects to resume in the second half, along with the startup and scrap sales from our new Avon Lake and Cheswick ERTs. For the first time this quarter, we have released our backlog of contracted work for our remediation and compliance and byproduct services business lines. The backlog stands at $1.55 billion of contracted work with a 14-year runway to 2036. It's important to recognize that ERT projects and raw material sales are not included in this backlog. Raw material sales are not in the backlog because these materials are not sold under long-term contracts. Historically, however, they have contributed approximately $35 million annually, and we do expect these raw material sales to continue well into the future and provide a steady stream of income and cash. In fact, we expect our raw material sales in 2022 will grow over 30% from last year. While our ERTs are contracted work, earnings from these projects are not recorded through revenue, as we often remind, but rather flow through other income from ERT we sell the parcels and assets of the projects on a cash flow equivalent basis we estimate our existing ERT projects in process to be approximately 215 million dollars communicating our backlog is important for several reasons one is to give an indication of the significant base of existing work that extends well to the future and to which we continue to add new awards the second reason is to indicate the confidence we have in our remediation compliance and byproduct service business lines and their ability to generate revenue and cash flow as our ERT and EnviroSource opportunities ramp up. We trust that you will find this disclosure helpful and we expect to report our backlog quarterly as projects progress and new awards are announced and contracted. In summary, things are moving in the right direction. Though our second quarter continued to be impacted by a few project challenges relating to two long-term beneficial use projects and a timing delay of income recognition on ERT projects being pushed, we closed out several projects that now allow our business to move forward, and we continue to expect strong improvement in the second half. I hope you will agree that Shara's opportunities have never been stronger. Our business is robust, Backlog is increasing. We've stabilized on hiring people. Our commitment to our environmental sustainability and safety culture is unwavering, and our industry-leading team remains focused on delivering for you, our shareholders. With that, I'll turn it over to Roger Shannon, our CFO, to discuss our financial results.