Charah Solutions, Inc. (CHRA) is a leading national service provider of mission-critical environmental services and byproduct recycling to the power generation industry. The company's comprehensive suite of offerings enables its utility partners to address complex environmental challenges while maintaining critical power generation operations.

Business Overview

Charah Solutions operates as a single segment, providing a diverse range of services to its customers. The company's remediation and compliance services focus on designing, constructing, managing, remediating, and closing ash ponds and landfills on customer-owned sites. Its byproduct services include recycling recurring and contracted volumes of coal-fired power generation waste byproducts, such as fly ash, bottom ash, IGCC slag, and gypsum, which can be used for various industrial purposes. Additionally, the company's raw material sales provide customers with essential raw materials, while also managing the sourcing, logistics, and distribution of these materials globally.

Charah Solutions' innovative Environmental Risk Transfer (ERT) services represent a unique solution designed to meet the evolving and increasingly complex plant closure and environmental remediation needs of its coal-fired plant energy providers. These services allow customers to retire and decommission older or underutilized assets while maximizing the asset's value and improving the environment.

Financials

Financial Performance

For the full year 2022, Charah Solutions reported annual revenue of $293.2 million, a decrease of 3.2% compared to the prior year. The company's net loss for the year was $128.1 million, compared to a net loss of $12.0 million in 2021. The company's operating cash flow for the year was -$77.1 million, and its free cash flow was -$82.3 million.

In the first quarter of 2023, Charah Solutions generated revenue of $70.9 million, an increase of 7.4% compared to the same period in 2022. The company reported a net loss of $6.1 million, a significant improvement from the $12.0 million net loss in the first quarter of 2022. Operating cash flow for the quarter was -$19.8 million, and free cash flow was -$18.4 million.

Segmental Performance

Charah Solutions' Construction and Service segment, which includes remediation and compliance services, as well as byproduct services, generated revenue of $61.8 million in the first quarter of 2023, an increase of 12.7% compared to the same period in 2022. This increase was primarily driven by higher byproduct services revenue and improved performance on certain construction projects.

The company's Raw Material Sales segment reported revenue of $9.1 million in the first quarter of 2023, a decrease of 19.0% compared to the same period in 2022, due to lower shipment volumes.

Liquidity

As of March 31, 2023, Charah Solutions had $48.4 million in cash and restricted cash, a decrease of $13.2 million from the end of 2022. The company's working capital deficit was $8.3 million as of March 31, 2023, compared to a deficit of $4.7 million at the end of 2022.

The company's primary sources of liquidity are cash on the balance sheet and borrowings under its senior notes, and availability under its asset-based lending credit agreement. However, the company does not have sufficient cash on hand or available liquidity to repay its maturing credit agreement debt, including outstanding letters of credit, as it becomes due within the next year. This, combined with the company's recurring losses and negative operating cash flows, raises substantial doubt about Charah Solutions' ability to continue as a going concern.

In response, the company has entered into a definitive agreement to be acquired by SER Capital Partners, which management anticipates will bring the necessary funding to support the company's ongoing operations. Additionally, Charah Solutions has implemented certain cost-saving strategies to preserve liquidity and is pursuing a plan to refinance its credit agreement before the maturity date.

Risks and Challenges

Charah Solutions faces several risks and challenges, including inflationary market pressures, a competitive labor market, and supply chain disruptions. The company is experiencing the general impact of inflationary pressures in its supply chain, labor, and subcontractor markets, which could impact its ability to secure new projects and maintain profitability. Additionally, the company continues to compete for qualified personnel in a tight labor market, which could limit its ability to capitalize on available opportunities.

Furthermore, Charah Solutions is experiencing supply chain disruptions related to delays in receiving materials and equipment, as well as increased logistics costs. These factors could adversely affect the company's profitability and cash flow.

Outlook

Charah Solutions has not provided any formal guidance or outlook for the full year 2023. However, the company's management has indicated that it is focused on implementing cost-saving strategies, securing additional liquidity, and completing the proposed acquisition by SER Capital Partners to support the company's ongoing operations and future growth.

Conclusion

Charah Solutions is navigating a challenging operating environment, marked by inflationary pressures, labor shortages, and supply chain disruptions. The company's comprehensive suite of environmental services and innovative ERT solutions position it as a valuable partner for its utility customers. However, the company's recurring losses, negative operating cash flows, and lack of available liquidity raise substantial doubt about its ability to continue as a going concern. The proposed acquisition by SER Capital Partners, if completed, could provide the necessary funding and support to help Charah Solutions overcome these challenges and position the company for long-term success in the evolving environmental services landscape.