chra-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

____________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 001-38523

____________________________

CHARAH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

____________________________


Delaware			82-4228671
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

12601 Plantside Drive Louisville, Kentucky			40299
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (502) 245-1353

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CHRA

OTC Markets*

8.50% Senior Notes due 2026

CHRB

OTC Markets*

*On April 3, 2023, Charah Solutions, Inc. common stock and 8.50% Senior Notes due 2026 were suspended from trading on the New York Stock Exchange. On April 4, 2023, Charah Solutions, Inc. common stock and 8.50% Senior Notes due 2026 began trading on the OTC Markets operated by the OTC Markets Group, Inc., under the trading symbols CHRA and CHRB, respectively.

____________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer x

Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No x

As of June 15, 2023, the registrant had 3,402,624 shares of common stock outstanding.

CHARAH SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2023

TABLE OF CONTENTS


			Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			ii

PART I - FINANCIAL INFORMATION			1
Item 1. Financial Statements (Unaudited)			1
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 202 2			1
Condensed Consolidated Statements of Operations for the Three Months Ended March 31 , 2023 and 2022			2
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31 , 2023 and 2022			3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31 , 2023 and 2022			4
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 4. Controls and Procedures			34

PART II - OTHER INFORMATION			37
Item 1. Legal Proceedings			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. Exhibits			37

SIGNATURES			39

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10‑Q (this “Quarterly Report”) includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects, plans and objectives of management are forward‑looking statements. When used in this Quarterly Report, the words “may,” “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward‑looking statements. However, not all forward‑looking statements contain such identifying words. These forward‑looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. When considering forward‑looking statements, you should keep in mind the risk factors and other cautionary statements included in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, and elsewhere herein.

On April 16, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Acquisition Parent 0423 Inc., a Delaware corporation (the “Parent”), and Acquisition Sub April 2023, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent (“Acquisition Sub”), pursuant to which, and subject to the terms and conditions therein, Acquisition Sub will be merged with and into the Company, with the Company continuing as the surviving corporation in the merger (the “Merger”). See Note 18, Subsequent Events, to the accompanying unaudited condensed consolidated financial statements. Various forward-looking statements in this Quarterly Report relate to the acquisition by Parent of the Company. Important transaction-related and other risk factors that could cause actual results and events to differ materially from those expressed or implied in the forward-looking statements include: (i) the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; (ii) the completion of the transaction on unanticipated terms and timing, including delays in obtaining required stockholder and regulatory approvals, and in satisfying the other conditions to the completion of the transaction; (iii) significant transaction costs associated with the transaction; (iv) potential litigation relating to the transaction, including the effects of any outcomes related thereto; (v) the risk that disruptions from the transaction will harm the Company’s business, including current plans and operations; (vi) the ability of the Company to retain and hire key personnel; and (vii) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the transaction.

Forward‑looking statements may include statements about:

•the impacts of the COVID-19 pandemic on the Company's business;

•our business strategy;

•our operating cash flows, the availability of capital and our liquidity;

•our future revenue, income, operating performance and backlog;

•our ability to sustain and improve our utilization, revenue and margins;

•our ability to maintain acceptable pricing for our services;

•our future capital expenditures;

•our ability to finance equipment, working capital and capital expenditures;

•competition and government regulations;

•our ability to obtain permits and governmental approvals;

•pending legal or environmental matters or liabilities;

•environmental hazards;

•industrial accidents;

•business or asset acquisitions;

•general economic conditions;

•credit markets;

•our ability to successfully develop our research and technology capabilities and to implement technological developments and enhancements;

•uncertainty regarding our future operating results;

•our ability to obtain additional financing on favorable terms, if required, to fund the operations and growth of our business;

•timely review and approval of permits, permit renewals, extensions and amendments by regulatory authorities;

•our ability to comply with our debt covenants and the covenants contained in the Merger Agreement;

•our expectations relating to dividend payments and our ability to make such payments, if any; and

•plans, objectives, expectations and intentions, as well as any other statement contained in this Quarterly Report that are not

statements of historical fact.

We caution you that these forward‑looking statements are subject to a number of risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, the risks described under Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, and elsewhere herein. Should one or more of the risks or uncertainties described occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward‑looking statements.

All forward‑looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary note. This cautionary note should also be considered in connection with any subsequent written or oral forward‑looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward‑looking statements, all of which are expressly qualified by the statements in this cautionary note, to reflect events or circumstances after the date of this Quarterly Report.

iii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHARAH SOLUTIONS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

(Unaudited)


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash	$	11,876	$	21,559
Restricted cash	36,536		40,100
Trade accounts receivable, net	46,930		45,696
Contract assets	23,390		20,981
Inventory	4,986		5,204
Prepaid expenses and other current assets	5,716		4,709
Total current assets	129,434		138,249
Real estate, property and equipment, net	89,601		93,940
Operating right-of-use assets	29,797		32,748
Goodwill	62,193		62,193
Other assets	9,744		11,413

Total assets	$	320,769	$	338,543

Liabilities, mezzanine equity and stockholders’ equity
Current liabilities:
Accounts payable	32,625		36,475

Contract liabilities	8,991		8,418
Finance lease obligations, current portion	10,156		10,592
Operating lease obligations, current portion	11,425		12,483
Notes payable, current maturities	8,131		9,649
Asset-based lending credit agreement	8,500		—
Asset retirement obligations, current portion	30,301		37,982
Accrued liabilities	26,621		26,296
Other current liabilities	1,027		1,027
Total current liabilities	137,777		142,922
Deferred tax liabilities	894		819
Contingent payments for acquisitions	1,950		1,950
Asset retirement obligations	28,338		30,579
Finance lease obligations, less current portion	22,472		24,585
Operating lease obligations, less current portion	21,208		23,621
Notes payable, less current maturities	149,246		149,584
Deferred gain and other liabilities	3,915		4,192
Total liabilities	365,800		378,252

Commitments and contingencies (see Note 15)

Mezzanine equity
Series A Preferred Stock — $0.01 par value; 26,000 shares authorized, issued and outstanding as of March 31, 2023 and December 31, 2022; aggregate liquidation preference of $38,385 and $37,176 as of March 31, 2023 and December 31, 2022, respectively	43,558		42,743
Series B Preferred Stock — $0.01 par value; 30,000 shares authorized, issued and outstanding as of March 31, 2023 and December 31, 2022; aggregate liquidation preference of $30,000 as of March 31, 2023 and December 31, 2022	28,800		28,800

Stockholders’ equity
Retained losses	(228,608)		(222,522)
Common Stock — $0.01 par value; 200,000,000 shares authorized, 3,379,605 shares issued and outstanding as of March 31, 2023 and December 31, 2022	339		339
Additional paid-in capital	110,880		110,931
Total stockholders’ equity	(117,389)		(111,252)
Total liabilities, mezzanine equity and stockholders’ equity	$	320,769	$	338,543

See accompanying notes to condensed consolidated financial statements

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)


	Three Months Ended
	March 31,
		2023		2022
Construction and service revenue		$	61,846	$	54,858
Raw material sales		9,067		11,193
Total revenues		70,913		66,051
Construction and service cost of sales		(57,109)		(59,242)
Raw material cost of sales		(7,772)		(10,576)
Total cost of sales		(64,881)		(69,818)
Gross profit (loss)		6,032		(3,767)
General and administrative expenses		(6,234)		(8,952)
Gains on sales of real estate, property and equipment, net		2,975		3,543
(Loss) gain on ARO settlement		(41)		2,451
Other operating expenses from ERT services		(3,813)		(667)
Operating loss		(1,081)		(7,392)
Interest expense, net		(4,890)		(4,573)
Loss before income taxes		(5,971)		(11,965)
Income tax expense		(115)		(78)
Net loss		(6,086)		(12,043)
Less (loss) attributable to non-controlling interest		—		(3)
Net loss attributable to Charah Solutions, Inc.		(6,086)		(12,040)
Deemed and imputed dividends on Series A Preferred Stock		(126)		(149)
Series A Preferred Stock dividends		(677)		(2,090)
Net loss attributable to common stockholders		$	(6,889)	$	(14,279)

Net loss attributable to common stockholders per common share:
Basic		$	(2.04)	$	(4.27)
Diluted		$	(2.04)	$	(4.27)

Weighted-average shares outstanding used in loss per common share:
Basic		3,380		3,341
Diluted		3,380		3,341

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)


	For the Three Months Ended March 31, 2023
	Mezzanine Equity						Permanent Equity
	Series A Preferred Stock (Shares)	Series A Preferred Stock (Amount)		Series B Preferred Stock (Shares)	Series B Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total
Balance, December 31, 2022	26,000	$	42,743	30,000	$	28,800	3,379,605	$	339	$	110,931	$	(222,522)	$	(111,252)
Net (loss) income	—	—		—	—		—	—		—		(6,086)		(6,086)
Share based compensation expense	—	—		—	—		—	—		752		—		752
Deemed and imputed dividends on Series A Preferred Stock	—	815		—	—		—	—		(126)		—		(126)
Series A Preferred Stock Dividends	—	—		—	—		—	—		(677)		—		(677)
Balance, March 31, 2023	26,000	$	43,558	30,000	$	28,800	3,379,605	$	339	$	110,880	$	(228,608)	$	(117,389)


	For the Three Months Ended March 31, 2022
	Mezzanine Equity			Permanent Equity
	Series A Preferred Stock (Shares)	Series A Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total		Non-Controlling Interest		Total
Balance, December 31, 2021	26,000	$	35,532	3,340,780	$	334	$	114,880	$	(94,679)	$	20,535	$	262	$	20,797
Net (loss) income	—	—		—	—		—		(12,040)		(12,040)		(3)		(12,043)
Share-based compensation expense	—	—		—	—		791		—		791		—		791
Shares issued under share-based compensation plans	—	—		75	—		—		—		—		—		—
Taxes paid related to the net settlement of shares	—	—		(26)	—		—		—		—				—
Deemed and imputed dividends on Series A Preferred Stock	—	2,144		—	—		(149)		—		(149)		—		(149)
Series A Preferred Stock dividends	—	—		—	—		(2,090)		—		(2,090)		—		(2,090)
Balance, March 31, 2022	26,000	$	37,676	3,340,829	$	334	$	113,432	$	(106,719)	$	7,047	$	259	$	7,306

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(6,086)	$	(12,043)
Adjustments to reconcile net loss to net cash and restricted cash (used in) provided by operating activities:
Depreciation and amortization	3,836		6,571
Non-cash lease expense	2,951		—
Amortization of debt issuance costs	686		561
Deferred income taxes	75		36
Gains on sales of real estate, property and equipment	(2,696)		(3,543)
Non-cash share-based compensation	752		791
Loss (gain) on ARO settlements	41		(2,451)
Realization of deferred gain on ERT project performance	(278)		—
Increase (decrease) in cash and restricted cash due to changes in:
Trade accounts receivable	(1,234)		279

SEC Form 10-Q filed by Charah Solutions Inc.