UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10‑Q

____________________________

(Mark One)

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

For the quarterly period ended ~~March 31,~~June 30, 2020

¨ 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	New York Stock Exchange

____________________________

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 x

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 ~~May~~August 1, 2020, the registrant had ~~29,888,185~~29,985,763 shares of common stock outstanding.

CHARAH SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2020

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,~~June 30, 2020 and December 31, 2019	1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	2
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	3
Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019	45
Notes to Condensed Consolidated Financial Statements	67
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2225
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3136
Item 4. Controls and Procedures	3136

PART II - OTHER INFORMATION	3237
Item 1. Legal Proceedings	3237
Item 1A. Risk Factors	3237
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3338
Item 6. Exhibits	3338

SIGNATURES	3539

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, 2019, Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in Part II, “Item 1A. Risk Factors” of this Quarterly Report and elsewhere herein. 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.

Forward‑looking statements may include statements about:

the impacts from 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 and operating performance;

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; 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 all of the risks and uncertainties, most of 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, 2019, Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and under Part II, “Item 1A. Risk Factors” of this Quarterly Report 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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHARAH SOLUTIONS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except par value amounts)

(Unaudited)


	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Assets
Current assets:
Cash	$	26,310		$	4,913		$	30,359		$	4,913
Restricted cash	1,215			1,215			14,268			1,215
Trade accounts receivable, net	78,890			50,570			56,790			50,570
Receivable from affiliates	82			390			72			390
Contract assets	27,159			20,641			19,733			20,641
Inventory	11,987			14,792			9,736			14,792
Income tax receivable	595			1,374			595			1,374
Prepaid expenses and other current assets	4,878			4,615			4,884			4,615
Total current assets	151,116			98,510			136,437			98,510
Property and equipment, net	79,796			85,294			75,155			85,294
Goodwill	74,213			74,213			74,213			74,213
Intangible assets, net	90,378			92,473			88,321			92,473
Equity method investments	4,781			5,078			4,851			5,078
Other assets	1,384			188			1,192			188
Total assets	$	401,668		$	355,756		$	380,169		$	355,756

Liabilities, mezzanine equity and stockholders’ equity
Current liabilities:
Accounts payable	18,942			25,510			17,433			25,510
Contract liabilities	428			582			14,955			582
Notes payable, current maturities	37,563			34,873			38,721			34,873
Asset retirement obligation, current portion	7,836			9,944			5,845			9,944
Purchase option liability	7,110			7,110			7,110			7,110
Accrued liabilities	59,493			35,490			37,496			35,490
Other current liabilities	1,180			1,116			1,086			1,116
Total current liabilities	132,552			114,625			122,646			114,625
Deferred tax liabilities	1,492			1,492			1,492			1,492
Contingent payments for acquisitions	11,538			11,481			11,586			11,481
Asset retirement obligation	5,151			5,187			5,103			5,187
Line of credit	27,000			19,000			24,500			19,000
Notes payable, less current maturities	160,016			150,698			153,831			150,698
Other liabilities	1,000			—			1,000			—
Total liabilities	338,749			302,483			320,158			302,483

Commitments and contingencies (see Note 15)

Mezzanine equity
Series A Preferred Stock — $0.01 par value; 50,000 shares authorized, 26 shares issued and outstanding as of March 31, 2020; aggregate liquidation preference of $26,000 as of March 31, 2020	23,513			—
Series A Preferred Stock — $0.01 par value; 50,000 shares authorized, 26 shares issued and outstanding as of June 30, 2020; aggregate liquidation preference of $27,000 as of June 30, 2020							24,549			—

Stockholders’ equity
Retained losses	(47,252		)	(33,002		)	(50,788		)	(33,002		)
Common Stock — $0.01 par value; 200,000 shares authorized, 29,745 and 29,624 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively	296			296
Common Stock — $0.01 par value; 200,000 shares authorized, 29,986 and 29,624 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively							300			296
Additional paid-in capital	85,794			85,187			85,380			85,187
Total stockholders’ equity	38,838			52,481			34,892			52,481
Non-controlling interest	568			792			570			792
Total equity	39,406			53,273			35,462			53,273
Total liabilities, mezzanine equity and stockholders’ equity	$	401,668		$	355,756		$	380,169		$	355,756

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						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Revenue	$	164,631		$	163,258		$	133,145		$	120,936		$	297,776		$	284,194
Cost of sales	153,834			147,879			122,411			123,001			276,245			270,880
Gross profit	10,797			15,379
Gross profit (loss)							10,734			(2,065		)	21,531			13,314
General and administrative expenses	12,756			13,985			9,637			17,400			22,393			31,385
Operating (loss) income	(1,959		)	1,394
Operating income (loss)							1,097			(19,465		)	(862		)	(18,071		)
Interest expense, net	(3,630		)	(5,052		)	(4,826		)	(4,102		)	(8,456		)	(9,154		)
Loss on extinguishment of debt	(8,603		)	—			—			—			(8,603		)	—
Income from equity method investment	296			554			326			663			622			1,217
Loss before income taxes	(13,896		)	(3,104		)	(3,403		)	(22,904		)	(17,299		)	(26,008		)
Income tax benefit	—			(761		)	—			(5,628		)	—			(6,389		)
Net loss	(13,896		)	(2,343		)	(3,403		)	(17,276		)	(17,299		)	(19,619		)
Less income attributable to non-controlling interest	354			476			133			750			487			1,226
Net loss attributable to Charah Solutions, Inc.	(14,250		)	(2,819		)	(3,536		)	(18,026		)	(17,786		)	(20,845		)
Accrued Series A Preferred Stock dividends	(111		)	—
Deemed and imputed dividends on Series A Preferred Stock							(167		)	—			(167		)	—
Series A Preferred Stock dividends							(858		)	—			(969		)	—
Net loss attributable to common stockholders	$	(14,361	)	$	(2,819	)	$	(4,561	)	$	(18,026	)	$	(18,922	)	$	(20,845	)

Loss per common share:
Basic	$	(0.48	)	$	(0.10	)	$	(0.15	)	$	(0.61	)	$	(0.64	)	$	(0.71	)
Diluted	$	(0.48	)	$	(0.10	)	$	(0.15	)	$	(0.61	)	$	(0.64	)	$	(0.71	)

Weighted-average shares outstanding used in loss per common share:
Basic	29,644			29,188			29,927			29,559			29,785			29,374
Diluted	29,644			29,188			29,927			29,559			29,785			29,374

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, ~~unless otherwise indicated)~~except share amounts)

(Unaudited)


	For the Three Months Ended March 31, 2019																						For the Three Months Ended June 30, 2019
	Mezzanine Equity			Permanent Equity																			Mezzanine Equity			Permanent Equity
	Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)		Common Stock (Amount)		Additional Paid-In Capital			Retained Losses			Total			Non-Controlling Interest			Total			Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital			Retained Losses			Total			Non-Controlling Interest			Total
Balance, December 31, 2018	—	$	—	29,082,988		$	291	$	82,880		$	9,414		$	92,585		$	805		$	93,390
Balance, March 31, 2019																							—	$	—	29,554,588	$	296	$	83,083		$	6,595		$	89,974		$	699		90,673
Net (loss) income	—	—		—		—		—			(2,819		)	(2,819		)	476			(2,343		)	—	—		—	—		—			(18,026		)	(18,026		)	750			(17,276		)
Distributions	—	—		—		—		—			—			—			(582		)	(582		)	—	—		—	—		—			—			—			(426		)	(426		)
Share-based compensation expense	—	—		—		—		208			—			208			—			208			—	—		—	—		799			—			799			—			799
Shares issued under share-based compensation plans	—	—		500,253		5		(5		)	—			—			—			—			—	—		31,577	—		—			—			—			—			—
Taxes paid related to net settlement of shares	—	—		(28,653	)	—		—			—			—			—			—			—	—		—	—		(201		)	—			(201		)	—			(201		)
Balance, March 31, 2019	—	$	—	29,554,588		$	296	$	83,083		$	6,595		$	89,974		$	699		$	90,673
Balance, June 30, 2019																							—	$	—	29,586,165	$	296	$	83,681		$	(11,431	)	$	72,546		$	1,023		$	73,569


	For the Three Months Ended March 31, 2020																						For the Three Months Ended June 30, 2020
	Mezzanine Equity			Permanent Equity																			Mezzanine Equity			Permanent Equity
	Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)		Common Stock (Amount)		Additional Paid-In Capital			Retained Losses			Total			Non-Controlling Interest			Total			Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)		Common Stock (Amount)		Additional Paid-In Capital			Retained Losses			Total			Non-Controlling Interest			Total
Balance, December 31, 2019	—	$	—	29,622,835		$	296	$	85,187		$	(33,002	)	$	52,481		$	792		$	53,273
Balance, March 31, 2020																							26,000	$	23,513	29,616,882		$	296	$	85,794		$	(47,252	)	$	38,838		$	568		$	39,406
Net (loss) income	—	—		—		—		—			(14,250		)	(14,250		)	354			(13,896		)	—	—		—		—		—			(3,536		)	(3,536		)	133			(3,403		)
Distributions	—	—		—		—		—			—			—			(578		)	(578		)	—	—		—		—		—			—			—			(131		)	(131		)
Share-based compensation expense	—	—		—		—		732			—			732			—			732			—	—		—		—		738			—			738			—			738
Shares issued under share-based compensation plans																							—	—		426,852		4		(4		)	—			—			—			—
Taxes paid related to net settlement of shares	—	—		(5,953	)	—		(14		)	—			(14		)	—			(14		)	—	—		(57,971	)	—		(123		)	—			(123		)	—			(123		)
Issuance of Series A Preferred Stock, net of issuance costs	26,000	23,513		—		—		—			—			—			—			—			—	750		—		—		—			—			—			—			—
Accrued Series A Preferred Stock dividends	—	—		—		—		(111		)	—			(111		)	—			(111		)
Balance, March 31, 2020	26,000	$	23,513	29,616,882		$	296	$	85,794		$	(47,252	)	$	38,838		$	568		$	39,406
Deemed and imputed dividends on Series A Preferred Stock																							—	286		—		—		(167		)				(167		)	—			(167		)
Series A Preferred Stock dividends																							—	—		—		—		(858		)	—			(858		)	—			(858		)
Balance, June 30, 2020																							26,000	$	24,549	29,985,763		$	300	$	85,380		$	(50,788	)	$	34,892		$	570		$	35,462

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 Six Months Ended June 30, 2019
	Mezzanine Equity			Permanent Equity
	Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)		Common Stock (Amount)		Additional Paid-In Capital			Retained Losses			Total			Non-Controlling Interest			Total
Balance, December 31, 2018	—	$	—	29,082,988		$	291	$	82,880		$	9,414		$	92,585		$	805		$	93,390
Net (loss) income	—	—		—		—		—			(20,845		)	(20,845		)	1,226			(19,619		)
Distributions	—	—		—		—		—			—			—			(1,008		)	(1,008		)
Share-based compensation expense	—	—		—		—		1,007			—			1,007			—			1,007
Shares issued under share-based compensation plans	—	—		531,830		5		(5		)	—			—			—			—
Taxes paid related to net settlement of shares	—	—		(28,653	)	—		(201		)	—			(201		)	—			(201		)
Balance, June 30, 2019	—	$	—	29,586,165		$	296	$	83,681		$	(11,431	)	$	72,546		$	1,023		$	73,569



	For the Six Months Ended June 30, 2020
	Mezzanine Equity			Permanent Equity
	Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)		Common Stock (Amount)		Additional Paid-In Capital			Retained Losses			Total			Non-Controlling Interest			Total
Balance, December 31, 2019	—	$	—	29,622,835		$	296	$	85,187		$	(33,002	)	$	52,481		$	792		$	53,273
Net (loss) income	—	—		—		—		—			(17,786		)	(17,786		)	487			(17,299		)
Distributions	—	—		—		—		—			—			—			(709		)	(709		)
Share based compensation expense	—	—		—		—		1,470			—			1,470			—			1,470
Shares issued under share-based compensation plans	—	—		426,852		4		(4		)	—			—			—			—
Taxes paid related to the net settlement of shares	—	—		(63,924	)	—		(137		)	—			(137		)	—			(137		)
Issuance of Series A Preferred Stock, net of issuance costs	26,000	24,263		—		—		—			—			—			—			—
Deemed and imputed dividends on Series A Preferred Stock	—	286		—		—		(167		)				(167		)	—			(167		)
Series A Preferred Stock dividends	—	—		—		—		(969		)	—			(969		)	—			(969		)
Balance, June 30, 2020	26,000	$	24,549	29,985,763		$	300	$	85,380		$	(50,788	)	$	34,892		$	570		$	35,462

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	March 31,						June 30,
	2020			2019			2020			2019
Cash flows from operating activities:
Net loss	$	(13,896	)	$	(2,343	)	$	(17,299	)	$	(19,619	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	6,524			6,257			13,274			11,635
Loss on extinguishment of debt	8,603			—			8,603			—
Paid-in-kind interest on long-term debt	237			—			1,663			—
Amortization of debt issuance costs	—			171			214			342
Deferred income tax benefit	—			(761		)	—			(6,389		)
Loss on sale of fixed assets	54			527			281			1,305
Income from equity method investment	(296		)	(554		)	(622		)	(1,217		)
Distributions received from equity investment	593			512			849			1,059
Non-cash share-based compensation	732			208			1,470			1,007
Loss on interest rate swap	64			1,362
(Gain) loss on interest rate swap							(30		)	1,796
Interest accreted on contingent payments for acquisition	57			67			105			135
Increase (decrease) in cash due to changes in:
Trade accounts receivable	(28,320		)	(3,086		)	(6,220		)	13,036
Contract assets and liabilities	(6,672		)	(8,916		)	15,280			(4,857		)
Inventory	2,724			1,331			4,975			3,491
Accounts payable	(6,379		)	(4,757		)	(7,887		)	4,452
Asset retirement obligation	(2,143		)	(1,847		)	(4,183		)	(5,120		)
Other assets and liabilities	19,798			18,004			(1,245		)	(4,484		)
Net cash (used in) provided by operating activities	(18,320		)	6,175
Net cash provided by (used in) operating activities							9,228			(3,428		)

Cash flows from investing activities:
Proceeds from the sale of equipment	14			470			155			1,507
Purchases of property and equipment	(1,184		)	(7,140		)	(1,604		)	(11,491		)
Net cash used in investing activities	(1,170		)	(6,670		)	(1,449		)	(9,984		)

Cash flows from financing activities:
Net proceeds on line of credit	8,000			701
Net proceeds from line of credit							5,500			15,375
Proceeds from long-term debt	15,000			3,656			15,781			9,994
Principal payments on long-term debt	(5,095		)	(3,721		)	(12,435		)	(8,067		)
Payments of debt issuance costs	(935		)	—			(1,543		)	—
Taxes paid related to net settlement of shares	(14		)	—			(137		)	(201		)
Net proceeds from issuance of convertible Series A Preferred Stock	24,509			—			24,263			—
Distributions to non-controlling interest	(578		)	(582		)	(709		)	(1,008		)
Net cash provided by financing activities	40,887			54			30,720			16,093
Net increase (decrease) in cash, cash equivalents and restricted cash	21,397			(441		)
Net increase in cash, cash equivalents and restricted cash							38,499			2,681
Cash, cash equivalents and restricted cash, beginning of period	6,128			6,900			6,128			6,900
Cash, cash equivalents and restricted cash, end of period	$	27,525		$	6,459		$	44,627		$	9,581

See accompanying notes to condensed consolidated financial statements.


	Three Months Ended				Six Months Ended
	March 31,				June 30,
	2020		2019		2020		2019
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	3,352	$	3,358	$	7,703	$	4,889
Cash refunded during the period for taxes	780		—		779		—

Non-cash investing and financing transactions:
Changes in property and equipment included in accounts payables and accrued expenses	$	676	$	—	$	676	$	—
Sale of equipment through the issuance of a note receivable	1,450		—		1,450		—
Debt issuance costs included in accounts payable and accrued expenses	579		—
Series A Preferred Stock dividends payable included in accrued expenses	111		—		850		—
Series A Preferred Stock issuance costs included in accounts payable and accrued expenses	996		—
Shares issued under share-based compensation plans					4		—

Supplemental Disclosures

As of ~~March 31,~~June 30, 2020, included in the line of credit were gross proceeds from the Revolving Loan of ~~$44,454~~$61,988 and gross payments on the Revolving Loan of ~~$36,454.~~$56,488.

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share data)

(Unaudited)

1. Nature of Business and Basis of Presentation

Organization

Charah Solutions, Inc. (together with its subsidiaries, “Charah Solutions,” the “Company,” “we,” “us” or “our”) was formed as a Delaware corporation in January 2018 and did not conduct any material business operations prior to the reorganization transactions described below other than certain activities related to the initial public offering (the “IPO”), which was completed on June 18, 2018. Charah Solutions is a holding company, the sole material assets of which consist of membership interests in Charah Management LLC, a Delaware limited liability company (“Charah Management”), and Allied Power Holdings, LLC, a Delaware limited liability company (“Allied Power Holdings”). Through the Company’s ownership of Charah Management and Allied Power Holdings, the Company owns the outstanding equity interests in Charah, LLC, a Kentucky limited liability company (“Charah”), and Allied Power Management, LLC, a Delaware limited liability company (“Allied”), the subsidiaries through which Charah Solutions operates its businesses.

Corporate Reorganization

On June 18, 2018, pursuant to the terms of the reorganization transactions completed in connection with the IPO, (i) (a) Charah Holdings LP, a Delaware limited partnership (“Charah Holdings”) owned by Bernhard Capital Partners Management, LP and certain related affiliates (“BCP”), contributed all of its interests in Charah Management and Allied Power Holdings to the Company in exchange for 17,514,745 shares of common stock, (b) CEP Holdings, Inc., a Delaware corporation owned by Charles E. Price and certain affiliates, contributed all of its interests in Charah Management and Allied Power Holdings to the Company in exchange for 4,605,465 shares of common stock, (c) Charah Management Holdings LLC, a Delaware limited liability company (“Charah Management Holdings”), contributed all of its interests in Charah Management and Allied Power Holdings to the Company in exchange for 907,113 shares of common stock and (d) Allied Management Holdings, LLC, a Delaware limited liability company (“Allied Management Holdings”), contributed all of its interests in Charah Management and Allied Power Holdings to the Company in exchange for 409,075 shares of common stock; (ii) each of Charah Management Holdings and Allied Management Holdings distributed the shares of common stock received by them pursuant to clause (i) above to their respective members in accordance with the respective terms of their limited liability company agreements; and (iii) Charah Holdings distributed a portion of the shares of common stock it received in clause (i) above to certain direct and indirect blocker entities which ultimately merged into the Company, with the Company surviving, and affiliates of BCP received shares of common stock as consideration in the mergers.

Description of Business Operations

The Company provides mission-critical environmental and maintenance services to the power generation industry, enabling our customers to address challenges related to the remediation of coal ash ponds and landfills at open and closed power plant sites while continuously operating and providing necessary electric power to communities nationwide. Services offered include a suite of coal ash management and recycling, environmental remediation, and outage maintenance services. The Company also designs and implements solutions for complex environmental projects (such as coal ash pond closures) and facilitates coal ash recycling through byproduct sales and other beneficial use services. The Company has corporate offices in Kentucky, North Carolina, and Louisiana, and principally operates in the eastern and mid-central United States.

Under the Jumpstart Our Business Startups Act (the “JOBS Act”), the Company meets the definition of an “emerging growth company,” which allows the Company to have an extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. The Company intends to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until the Company is no longer an emerging growth company. Among other things, we are not required to provide an auditor attestation report on the assessment of the internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002 and our disclosure obligations regarding executive compensation may be reduced. We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the IPO, or December 31, 2023. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.07 billion, or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

Basis for Presentation

The Company’s fiscal year ends December 31. The accompanying unaudited condensed consolidated financial statements include the assets, liabilities, stockholders’ equity and results of operations of the Company and its consolidated subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included, which consist of normal recurring adjustments. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

Seasonality of Business

Based on historical trends, we expect our operating results to vary seasonally. Nuclear power generators perform turnaround and outages in the off-peak months when demand is lower and generation capacity is less constrained. As a result, our nuclear services offerings may have higher revenue volume in the spring and fall months. Variations in normal weather patterns can also cause changes in the consumption of energy, which may influence the demand and timing of associated services for our fossil services offerings. Inclement weather can impact construction-related activities associated with pond and landfill remediation, which affects the timing of revenue generation for our remediation and compliance services. Our byproduct sales are also seasonally impacted during winter months when the utilization of cement and cement products is generally lower.

Business Combinations

On March 30, 2018, Charah Management completed a transaction with SCB Materials International, Inc. and affiliated entities (“SCB”), a previously unrelated third party, pursuant to which Charah Solutions acquired certain assets and liabilities of SCB for a purchase price of $35,000, with $20,000 paid at closing and $15,000 to be paid over time in conjunction with certain performance metrics. The contract also contained various mechanisms for a working capital true-up. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations with the allocation of the purchase price for the acquisition finalized as of March 31, 2019 with the recognized goodwill allocated to the Environmental Solutions segment. In November 2018, the $15,000 to be paid over time was reduced by $3,300. As of ~~March 31,~~June 30, 2020, the present value of these future payments using a discount rate of 2.50% was determined to be ~~$11,538.~~$11,586. The Company expects the future payments to occur in 2021 and beyond.

2. Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization categorized the disease caused by a novel coronavirus (“COVID-19”) as a pandemic and the President of the United States declared the COVID-19 pandemic to be a national emergency. The Company is a mission-critical contractor to the power generation industry, which has been identified as part of the Department of Homeland Security’s Critical Infrastructure Sector.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which includes modifications to the limitation on business interest expense and net operating loss carryforward provisions and provides a payment delay of certain employer payroll taxes during 2020. The Company estimates the payment of approximately $9,700 of employer payroll taxes otherwise due in 2020 will be delayed with 50% due by December 31, 2021 and the remaining 50% due by December 31, 2022. The CARES Act is not expected to have a material impact on the Company’s consolidated financial statements.

Our commitment to safety is a core value and an integral component of our culture. As the COVID-19 ~~disease~~pandemic continues ~~to expand~~ within the United States and around the world, our highest priority remains the safety of our employees and customers. Our business was built on an unwavering commitment to safety. To that end, we have taken immediate action to protect our employees, our customers, and our business. The mission-critical nature of our and our customers’ operations made it imperative to quickly initiate a series of contingency plans to ensure business continuity for our customers, the vast majority of whom are highly-regulated and who must continue operating to provide safe and reliable power to the country. In March 2020, as a response to the ongoing COVID-19 pandemic, we established a COVID-19 task force to oversee the Company’s initiatives, procedures and responses to addressing the potential impact of COVID-19. We have implemented measures to manage through possible service interruptions, and we are maintaining real-time communication across our entire organization and with our customers. As of ~~May 12,~~August 11, 2020, we have not had any work stoppages.

With respect to our business operations, we have not observed any significant slowdown in activity on existing job sites as a result of the COVID-19 pandemic at this time and are in ~~constant~~continuous communication with our utility customers. We have a shared commitment to partner with them in keeping all employees safe by abiding with their health and hygiene policies and aligning with their health risk mitigation procedures. In April 2020, we implemented a series of preemptive cost cutting and cost savings initiatives across the company including reductions in employee compensation, reductions in cash-based retainers to our Board of Directors, reduced hiring and significantly reducing discretionary spending including travel restrictions. In addition, we are implementing applicable benefits of the CARES Act.

3. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which provides a five-step framework to determine when and how revenue is recognized. We adopted ASC 606 on January 1, 2019, using the modified-retrospective method. Our financial results for annual reporting periods beginning January 1, 2019 and for interim reporting periods beginning January 1, 2020 are presented under the new accounting standard, while financial results for prior periods will continue to be reported in accordance with our historical accounting policy.

Revenue is measured based on the amount of consideration specified in a contract with a customer. Revenue is recognized when our performance obligations under the terms of the contract are satisfied which generally occurs with the transfer of control of the goods or services to the customer.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

The adoption of ASC 606 had no impact on cash provided by or used in operating, investing, or financing activities on our accompanying unaudited condensed consolidated statement of cash flows and no impact on our unaudited condensed consolidated statement of comprehensive income. The impact of adoption on our unaudited condensed consolidated balance sheet ~~and~~as of June 30, 2020 was as follows:



				Balances Without			Effect of Change
	As Reported			Adoption of ASC 606			Higher / (Lower)
Assets
Accounts receivable, net	$	56,790		$	60,555		$	(3,765	)
Contract assets	19,733			15,968			3,765

Liabilities
Contract liabilities	14,955			14,490			465

Equity
Retained losses	$	(50,788	)	$	(50,323	)	$	(465	)

The impact of adoption on our unaudited statement of operations for the three months ended ~~March 31,~~June 30, 2020 was as follows:

Balances Without Effect of Change
As Reported Adoption of ASC 606 Higher / (Lower)
Assets
Accounts receivable, net $ 78,890
$ 80,985
$ (2,095 )
Contract assets 27,159
25,064
2,095

Liabilities
Contract liabilities 428
3
425

Equity
Retained losses $ (47,252 ) $ (47,332 ) $ 80



				Balances Without			Effect of Change
	As Reported			Adoption of ASC 606			Higher / (Lower)
Statement of Operations
Revenue	$	133,145		$	133,185		$	(40	)
Loss before income taxes	(3,403		)	(3,363		)	(40		)
Net loss	(3,403		)	(3,363		)	(40		)

The impact of adoption on our unaudited statement of operations for the six months ended June 30, 2020 was as follows:


				Balances Without			Effect of Change					Balances Without			Effect of Change
	As Reported			Adoption of ASC 606			Higher / (Lower)		As Reported			Adoption of ASC 606			Higher / (Lower)
Statement of Operations
Revenue	$	164,631		$	164,551		$	80	$	297,776		$	297,736		$	40
Loss before income taxes	(13,896		)	(13,976		)	80		(17,299		)	(17,339		)	40
Net loss	(13,896		)	(13,976		)	80		(17,299		)	(17,339		)	40

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the measurement of goodwill impairment by eliminating the requirement that an entity compute the implied fair value of goodwill based on the fair values of its assets and liabilities to measure impairment. Instead, goodwill impairment will be measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit. This ASU also clarifies the treatment of the income tax effect of tax-deductible goodwill when measuring goodwill impairment loss. In October 2019, the FASB delayed the effective date for implementation of ASU No.2017-04. The Company adopted ASU No. 2017-04 as of April 1, 2020. The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), requiring all leases to be recognized on the balance sheet as a right-of-use asset and a lease liability, unless the lease is a short-term lease (generally a lease with a term of 12 months or less). At the commencement date of the lease, the Company will recognize: (i) a lease liability for the Company’s obligation to make payments under the lease agreement, measured on a discounted basis; and (ii) a right-of-use asset that represents the Company’s right to use, or control the use of, the specified asset for the lease term. This ASU originally required recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective transition method. In July 2018, the FASB issued ASU No. 2018-11, which provided an additional (and optional) transition method that permits application of this ASU at the adoption date with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In ~~October 2019,~~June 2020, the FASB issued ASU No. 2020-05 and delayed the effective date of this ASU, extending the effective date for non-public business entities, and making the ASU effective for the Company for the fiscal year ending December 31, ~~2021,~~2022, and interim periods within the fiscal year ending December 31, ~~2022,~~2023, with early adoption permitted. The Company has not yet selected a transition method and is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. The amendments contained in this ASU will be applied through a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2018, the FASB issued ASU No. 2018-19, which amended the effective date of ASU No. 2016-13 and clarified that receivables arising from operating leases are not within the scope of Subtopic 326-20. In October 2019, the FASB delayed the effective date of this ASU, extending the effective date for non-public business entities and making the ASU effective for the Company for the fiscal year ending December 31, 2023, and interim periods therein, with early adoption permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.

In ~~January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. This ASU simplifies the measurement of goodwill impairment by eliminating the requirement that an entity compute the implied fair value of goodwill based on the fair values of its assets and liabilities to measure impairment. Instead, goodwill impairment will be measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit. This ASU also clarifies the treatment of the income tax effect of tax-deductible goodwill when measuring goodwill impairment loss. In October 2019, the FASB delayed the effective date for implementation of ASU No.2017-04. The Company will be required to adopt ASU No. 2017-04 for annual and any interim impairment

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~

tests for the periods beginning on January 1, 2023. ASU No. 2017-04 must be applied prospectively, with early adoption permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU will be effective for annual reporting periods beginning after December 15, 2021 and interim periods in fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company is still assessing the impact of ASU No. 2019-12 on its consolidated financial statements.

4. Revenue

We disaggregate our revenue from customers by type of service and by geographic region as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below.


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31, 2020		March 31, 2019		June 30,				June 30,
Environmental Services
					2020		2019		2020		2019
Environmental Solutions
Product sales	$	21,761	$	22,512	$	21,400	$	24,890	$	43,161	$	47,402
Construction contracts	14,847		26,911		15,347		11,900		30,194		46,207
Services	57		8,960		1,115		160		1,172		1,724
Total Environmental Services	36,665		58,383
Total Environmental Solutions					37,862		36,950		74,527		95,333

Maintenance and Technical Services
Services	127,966		104,875		95,283		83,986		223,249		188,861
Total Maintenance and Technical Services	127,966		104,875		95,283		83,986		223,249		188,861
Total revenue	$	164,631	$	163,258	$	133,145	$	120,936	$	297,776	$	284,194


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31, 2020		March 31, 2019		June 30,				June 30,
Environmental Services
					2020		2019		2020		2019
Environmental Solutions
United States	$	36,030	$	58,383	$	37,651	$	36,950	$	73,681	$	95,333
Foreign	635		—		211		—		846		—
Total Environmental Services	36,665		58,383
Total Environmental Solutions					37,862		36,950		74,527		95,333

Maintenance and Technical Services
United States	127,966		104,875		95,283		83,986		223,249		188,861
Total Maintenance and Technical Services	127,966		104,875		95,283		83,986		223,249		188,861
Total revenue	$	164,631	$	163,258	$	133,145	$	120,936	$	297,776	$	284,194

~~On March 31,~~As of June 30, 2020, wethe Company had ~~$95,206 of the transaction price allocated to~~ remaining performance ~~obligations.~~obligations with an aggregate transactions price of $125,266 on construction contracts for which we recognize revenue over time. We expect to recognize approximately ~~45%~~35% of our remaining performance obligations as revenue during the remainder of 2020, ~~12%~~29% in 2021, 8%10% in 2022, and ~~35%~~26% thereafter. Revenue associated with our remaining performance obligations includes performance obligations related to our construction contracts. The balance of remaining performance obligations does not include variable consideration that was determined to be constrained as of ~~March 31,~~June 30, 2020. As of ~~March 31,~~June 30, 2020, ~~there are no~~we included unapproved change orders associated with project scope changes of $1,655 included in determining the profit or loss on certain construction contracts.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

5. Balance Sheet Items

Allowance for doubtful accounts

The following table presents the changes in the allowance for doubtful accounts:

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~


						Three Months Ended					Six Months Ended
	March 31,					June 30,					June 30,
	2020			2019		2020			2019		2020			2019
Balance, beginning of period	$	146		$	—	$	254		$	—	$	146		$	—
Add: provision	119			—		—			—		119			—
Less: deduction and other adjustments	(11		)	—		(5		)	—		(16		)	—
Balance, end of period	$	254		$	—	$	249		$	—	$	249		$	—

Property and equipment, net

The following table shows the components of property and equipment, net:


	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Plant, machinery and equipment	$	78,960		$	75,578		$	79,046		$	75,578
Structural fill site improvements	55,760			55,760			55,760			55,760
Vehicles	19,288			19,163			19,263			19,163
Office equipment	2,960			2,741			2,785			2,741
Buildings and leasehold improvements	262			262			262			262
Structural fill sites	7,110			7,110			7,110			7,110
Construction in progress	7,456			12,324			7,519			12,324
Total property and equipment	$	171,796		$	172,938		$	171,745		$	172,938
Less: accumulated depreciation	(92,000		)	(87,644		)	(96,590		)	(87,644		)
Property and equipment, net	$	79,796		$	85,294		$	75,155		$	85,294

Depreciation expense was $4,692 and $3,285 for the three months ended ~~March 31,~~June 30, 2020 and 2019, ~~was $4,429~~respectively, and ~~$7,047,~~$9,121 and $10,332 for the six months ended June 30, 2020 and 2019, respectively.

Accrued liabilities


	March 31, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Accrued expenses	$	24,414	$	20,456	$	23,120	$	20,456
Accrued payroll and bonuses	33,263		13,273		12,812		13,273
Accrued dividends					850		—
Accrued interest	1,816		1,761		714		1,761
Accrued liabilities	$	59,493	$	35,490	$	37,496	$	35,490

Asset Retirement Obligations

The Company owns and operates two structural fill sites that will have continuing maintenance and monitoring requirements subsequent to their closure. As of ~~March 31,~~June 30, 2020 and December 31, 2019, the Company has accrued ~~$12,987~~$10,948 and ~~$15,131,~~15,131, respectively, for the asset retirement obligation.

The following table reflects the activity for the asset retirement obligation:

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

March 31,
2020 2019
Balance, beginning of period $ 15,131
$ 26,065
Liabilities incurred —
1,017
Liabilities settled (2,332 ) (3,207 )
Accretion 188
343
Balance, end of period 12,987
24,218
Less: current portion (7,836 ) (15,196 )
Non-current portion $ 5,151
$ 9,022



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Balance, beginning of period	$	12,987		$	24,218		$	15,131		$	26,065
Liabilities incurred	—			—			—			1,017
Liabilities settled	(2,201		)	(3,575		)	(4,533		)	(6,782		)
Accretion	162			302			350			645
Balance, end of period	10,948			20,945			10,948			20,945
Less: current portion	(5,845		)	(14,126		)	(5,845		)	(14,126		)
Non-current portion	$	5,103		$	6,819		$	5,103		$	6,819

6. Equity Method Investment

Charah has an investment in a company that provides ash management and remarketing services to the electric utility industry. Charah accounts for its investment under the equity method of accounting because Charah has significant influence over the financial and operating

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~

policies of the company. Charah had a receivable due from the equity method investment of ~~$82~~$72 and $96 at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

Summarized balance sheet information of our equity method investment entity is as follows:


	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Current assets	$	1,880		$	2,482		$	2,051		$	2,482
Noncurrent assets	367			395			339			395
Total assets	$	2,247		$	2,877		$	2,390		$	2,877
Current liabilities	285			321			288			321
Equity of Charah	4,781			5,078			4,851			5,078
Equity of joint venture partner	(2,819		)	(2,522		)	(2,749		)	(2,522		)
Total liabilities and members’ equity	$	2,247		$	2,877		$	2,390		$	2,877

Summarized financial performance of our equity method investment entity is as follows:


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31,				June 30,				June 30,
	2020		2019		2020		2019		2020		2019
Revenue	$	1,478	$	2,220	$	1,546	$	2,533	$	3,024	$	4,753
Net income	592		1,108		651		1,325		1,243		2,433
Charah Solutions’ share of net income	296		554		326		663		622		1,217

The following table reflects our proportional ownership activity in our investment account:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Opening balance	$	5,078		$	5,060		$	4,781		$	5,102		$	5,078		$	5,060
Distributions	(593		)	(512		)	(256		)	(547		)	(849		)	(1,059		)
Share of net income	296			554			326			663			622			1,217
Closing balance	$	4,781		$	5,102		$	4,851		$	5,218		$	4,851		$	5,218

7. Distributions to Stockholders, Receivable from Affiliates, and Related Party Transactions

Prior to the Company’s June 18, 2018 corporate reorganization, the Company made certain distributions to stockholders and members to cover their tax liabilities. As of ~~March 31,~~June 30, 2020 and December 31, 2019,, the receivable from affiliates associated with these distributions were $0 and $294, respectively.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

ATC Group Services LLC (“ATC”), an entity owned by BCP, our majority stockholder, provided environmental consulting and engineering services at certain service sites. Expenses to ATC were ~~$30~~$64 and $0$94 for the three and six months ended ~~March 31,~~June 30, 2020, ~~and 2019,~~ respectively. The Company had no receivables outstanding from ATC at ~~March 31,~~June 30, 2020 and December 31, 2019. The Company had payables and accrued expenses, net of credit memos, due to ATC of ~~$23~~$31 and $62 at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

Brown & Root Industrial Services, LLC (“B&R”), an entity 50% owned by BCP, our majority stockholder, provided subcontracted construction services at one of our remediation and compliance service sites. Expenses to B&R were $0 and ~~$440~~$871 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively and $0 and $1,311 for the six months ended June 30, 2020 and 2019, respectively. The Company had no receivables outstanding from B&R at ~~March 31,~~June 30, 2020 and December 31, 2019. The Company had payables and accrued expenses, net of credit memos, due to B&R of $0 and $254 at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

The Company rented their corporate office through October 2019 through a triple net lease and rented housing at work sites and a condo through March 2020 from Price Real Estate, LLC (“Price Real Estate”), an entity owned by a stockholder of the Company. Rental expense associated with Price Real Estate was $0 and ~~$116~~$116 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively and $0 and $232 for the six months ended June 30, 2020 and 2019, respectively. The Company had no receivables outstanding from Price Real Estate at ~~March 31,~~June 30, 2020 and December 31, 2019. The Company had a payable due to Price Real Estate of $0 and $2 at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~

PriceFlight, LLC (“PriceFlight”), an entity owned by a stockholder of the Company, provided flight services to the Company. Expenses to PriceFlight for flight services were $0 ~~and $85~~ for the three months ended ~~March 31,~~June 30, 2020 and 2019, ~~respectively.~~respectively and $0 and $85 for the six months ended June 30, 2020 and 2019, respectively

Management determined that Price Real Estate and PriceFlight are variable interest entities. The Company has variable interests in them through the common ownership and contractual agreements discussed above. The Company is not considered to be the primary beneficiary. Management considers the likelihood to be remote that the Company will be required to make future funds available to Price Real Estate and PriceFlight. However, were the Company required to make funds available the maximum exposure to the Company would be any excess of the debt obligations of Price Real Estate and PriceFlight over the fair value of their respective assets.

As further discussed in Note 11, in March 2020, the Company entered into an agreement with an investment fund affiliated with BCP to sell 26,000 shares of Preferred Stock.

8. Goodwill and Intangible Assets

The Company’s goodwill and intangible assets consist of the following:


	March 31, 2020					December 31, 2019					June 30, 2020					December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Definite-lived intangibles:
Customer relationships	$	78,942	$	(24,912	)	$	78,942	$	(22,938	)	$	78,942	$	(26,885	)	$	78,942	$	(22,938	)
Technology	2,003		(401		)	2,003		(351		)	2,003		(451		)	2,003		(351		)
Non-compete and other agreements	289		(289		)	289		(253		)	289		(289		)	289		(253		)
SCB trade name	694		(278		)	694		(243		)	694		(312		)	694		(243		)
Rail easement	110		(110		)	110		(110		)	110		(110		)	110		(110		)
Total	$	82,038	$	(25,990	)	$	82,038	$	(23,895	)	$	82,038	$	(28,047	)	$	82,038	$	(23,895	)

Indefinite-lived intangibles:
Charah trade name	$	34,330				$	34,330				$	34,330				$	34,330
Goodwill	74,213					74,213					74,213					74,213
Total	$	108,543				$	108,543				$	108,543				$	108,543

Definite-Lived Intangible Assets

As of ~~March 31,~~June 30, 2020 and December 31, 2019, definite-lived intangible assets included customer relationships, technology, non-compete and other agreements, the SCB trade name and a rail easement. These assets are amortized on a straight-line basis over their estimated useful lives as shown in the table below. Amortization expense was ~~$2,095~~$2,057 and ~~$2,116~~$2,095 during the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $4,152 and $4,211 during the six months ended June 30, 2020 and 2019, respectively.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)



Definite-Lived Intangible Asset		Useful Life
Customer relationships		10 years
Technology		10 years
Non-compete and other agreements		2 years
SCB trade name		5 years
Rail easement		2 years

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess purchase price over the fair value of the net assets acquired in a business combination. Our goodwill included in the unaudited condensed consolidated balance sheets as of ~~March 31,~~June 30, 2020 and December 31, 2019 was $74,213. Our intangible assets, net as of ~~March 31,~~June 30, 2020 and December 31, 2019 include a trade name valued at $34,330 that is considered to have an indefinite life.

Goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment annually or more often if events or changes in circumstances indicate that the fair value of the asset may have decreased below its carrying value. We perform our impairment test effective October 1st of each year and evaluate for impairment indicators between annual impairment tests. There were no impairment triggering events during the ~~three months~~quarter ended ~~March 31, 2020.~~June 30, 2020 for the Maintenance and Technical Services reporting unit. The Company identified a triggering event during the quarter ended June 30, 2020 for the Environmental Solutions reporting unit that was primarily attributable to the declining macroeconomic environment resulting from the COVID-19 pandemic and its potential impact on the Company and its industry. The Company performed the impairment analysis for the Environmental Solutions reporting unit and determined that no impairment of goodwill occurred as a result of this triggering event. The Environmental Solutions reporting unit’s fair value, as calculated, was approximately 6.0% greater than its book value as of June 1, 2020, the date of our impairment analysis.

The valuation used to test goodwill for impairment is dependent upon a number of significant estimates and assumptions, including macroeconomic conditions, growth rates, competitive activities, cost containment, margin expansion and the Company's business plans. We believe these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values. As a result of these factors and the related cushion as of the date of the previous annual impairment test, goodwill for the Environmental Solutions reporting unit is more susceptible to impairment risk.

The most significant assumptions utilized in the determination of the estimated fair value of the Environmental Solutions reporting unit are the net sales and earnings growth rates (including residual growth rates) and the discount rate. The residual growth rate represents the rate at which the reporting unit is expected to grow beyond the shorter-term business planning period. The residual growth rate utilized in our fair value estimate is consistent with the reporting unit operating plans and approximates expected long-term category market growth rates and inflation. The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by adverse changes in the macroeconomic environment, volatility in the equity and debt markets or other factors.

While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the reporting unit's goodwill balance. The table below provides a sensitivity analysis for the Environmental Solutions reporting unit, utilizing reasonably possible changes in the assumptions for the shorter-term revenue and residual growth rates and the discount rate, to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to (i) a 50-basis point increase to the discount rate assumption and (ii) a 75-basis point decrease to our shorter-term revenue and residual growth rates assumptions, both of which would result in impairment charges.

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~



	Approximate Percent Decrease in Estimated Fair Value
	+50 bps Discount Rate		-75 bps Growth Rate
Environmental Solutions reporting unit	6.3	%	7.9	%

9. Credit Agreement

On September 21, 2018, we entered into a credit agreement (the “Credit Facility”) by and among us, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent (the “Administrative Agent”). The Credit Facility includes:

•a revolving loan not to exceed $50,000 (the “Revolving Loan”);

•a term loan of $205,000 (the “Closing Date Term Loan”); and

a commitment to loan up to a further $25,000 in term loans, which expires in March 2020 (the “Delayed Draw Commitment” and the term loans funded under such Delayed Draw Commitment, the “Delayed Draw Term Loan”, together with the Closing Date Term Loan, the “Term Loan”).

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

After the Third Amendment (as defined below), all amounts associated with the Revolving Loan and the Term Loan under the Credit Facility will mature in July 2022 as discussed more fully below. The interest rates per annum applicable to the loans under the Credit Facility are based on a fluctuating rate of interest measured by reference to, at our election, either (i) the Eurodollar rate, currently the London Inter-bank Offered Rate (“LIBOR”), or (ii) an alternative base rate. Defined margins are added to the interest rate based upon our election of either the Eurodollar rate or the base rate. Customary fees are payable in respect of the Credit Facility and include (i) commitment fees for the unused portions of the Credit Facility and (ii) fees on outstanding letters of credit. Amounts borrowed under the Credit Facility are secured by substantially all of the assets of the Company.

The Credit Facility contains various customary representations and warranties, and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of us and our restricted subsidiaries to grant liens, incur indebtedness (including guarantees), make investments, engage in mergers and acquisitions, make dispositions of assets, make restricted payments or change the nature of our or our subsidiaries’ business. The Credit Facility contains financial covenants related to the consolidated net leverage ratio and the fixed charge coverage ratio (as defined in the Credit Facility), which have been modified as described below.

The Credit Facility also contains certain affirmative covenants, including reporting requirements, such as the delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

The Credit Facility includes customary events of default, including non-payment of principal, interest or fees as they come due, violation of covenants, inaccuracy of representations or warranties, cross-default to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.

The Revolving Loan provides a principal amount of up to $50,000, reduced by outstanding letters of credit. As of ~~March 31,~~June 30, 2020, ~~$27,000~~$24,500 was outstanding on the Revolving Loan and ~~$12,029~~$14,529 of letters of credit were outstanding.

But for Amendment No. 2 to Credit Agreement and Waiver (the “Second Amendment”), as of June 30, 2019, we would not have been in compliance with the requirement to maintain a consolidated net leverage ratio of 3.75 to 1.00 under the Credit Facility. On August 13, 2019, we entered into the Second Amendment, pursuant to which, among other things, the required lenders agreed to waive such non-compliance.

In addition, pursuant to the terms of the Second Amendment, the Credit Facility was amended to revise the required financial covenant ratios, which have been modified as described below. As consideration for these accommodations, we agreed that amounts borrowed pursuant to the Delayed Draw Commitment would not exceed $15,000 at any one time outstanding (without reducing the overall Delayed Draw Commitment amount). Further, the margin of interest charged on all outstanding loans was increased to 4.00% for loans based on LIBOR and 3.00% for loans based on the alternative base rate. The Second Amendment revised the amount of (i) the commitment fees to 0.35% at all times for the unused portions of the Credit Facility and (ii) fees on outstanding letters of credit to 3.35% at all times. The Second Amendment also added a requirement to make two additional scheduled prepayments of outstanding loans under the Credit Facility, including a payment of $50,000 on or before September 13, 2019 and an additional payment of $40,000 on or before March 31, 2020. The $50,000 payment was made before September 13, 2019, using proceeds of the Brickhaven deemed termination payment. We are required to pay the Administrative Agent an amendment fee in an amount equal to 1.00% of the total credit exposure under the Credit Facility immediately prior to the effectiveness of the Second Amendment, with such fee due and payable on August 16, 2020, provided that the Credit Facility has not been terminated prior to such date.

In March 2020, the Company entered into Amendment No. 3 to Credit Agreement (the “Third Amendment”).

Pursuant to the terms of the Third Amendment, the Credit Facility was amended to waive the mandatory $40,000 prepayment due on or before March 31, 2020, and to revise the required financial covenant ratios such that, after giving effect to the Third Amendment, we are not required to comply with any financial covenants through December 30, 2020. After December 30, 2020, we will be required to comply with a maximum consolidated net leverage ratio of 6.50 to 1.00 from December 31, 2020 through June 29, 2021, decreasing to 6.00 to 1.00 from June 30, 2021 through December 30, 2021, and to 3.50 to 1.00 as of December 31, 2021 and thereafter. After giving effect to the Third Amendment, we

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~

will also be required to comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of December 31, 2020, increasing to 1.20 to 1.00 as of March 31, 2021 and thereafter. Our ability to comply with such financial covenants is dependent upon the Company’s forecasted leverage and adjusted EBITDA for the applicable periods, which could be impacted by the effects of COVID-19 or other unforeseen factors. In the event that we are unable to comply in the future with such financial covenants upon delivery of our financial statements pursuant to the terms of the Credit Facility, an Event of Default (as defined in the Credit Facility) will have occurred and the Administrative Agent can then, following a specified cure period, declare the unpaid principal amount of all outstanding loans, all interest accrued and unpaid thereon, and all other amounts payable to be immediately due and payable by the Company.

The Third Amendment increased the maximum amount available to be borrowed pursuant to the Delayed Draw Commitment from $15,000 to $25,000, subject to certain quarterly amortization payments. The Third Amendment also included revisions to the restrictive covenants, including increasing the amount of indebtedness that the Company may incur in respect of certain capitalized leases from $50,000 to $75,000.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

Under the Third Amendment, the Company has agreed to make monthly amortization payments in respect of term loans beginning in April 2020, and to move the maturity date for all loans under the Credit Facility to July 31, 2022 (the “Maturity Date”). In addition, if at any time ~~after August 13, 2019,~~ the outstanding principal amount of the Delayed Draw Term Loans exceeds $10,000, we will incur additional interest at a rate equal to 10.0% per annum on all daily average amounts exceeding $10,000 ~~payable~~which was paid at March 31, 2020 and will be payable at the Maturity Date. Further, the Third Amendment requires mandatory prepayments of revolving loans with any cash held by the Company in excess of $10,000, which excludes the amount of proceeds received in respect of the Preferred Stock Offering (as defined below) to the extent such funds are used for liquidity and general corporate purposes. The Company has also agreed to an increase of four percent (4%) to the interest rate applicable to the Closing Date Term Loan that will be compounded monthly and paid ~~in kind~~in-kind by adding such portion to the outstanding principal amount.

As a condition to entering into the Second Amendment, we are required to pay the Administrative Agent an amendment fee (the “Second Amendment Fee”) in an amount equal to 1.50% of the total credit exposure under the Credit Facility, immediately prior to the effectiveness of the Second Amendment. Of the Second Amendment Fee, 0.50% was due and paid on October 15, 2019 and 1.00% of such Second Amendment Fee will become due and payable on August 16, 2020 if the facility has not been terminated on or prior to August 15, 2020. We are also required to pay the Administrative Agent an amendment fee associated with the Third Amendment (the “Third Amendment Fee”) in an amount equal to 0.20% of the total credit exposure under the Credit Facility, immediately prior to the effectiveness of the Third Amendment, with such Third Amendment Fee ~~being due and payable~~paid on June 30, 2020. Finally, we will pay an additional fee with respect to the Third Amendment in the amount of $2,000 with such fee being due and payable on the Maturity Date; provided that if the facility is terminated by December 31, 2020, 50% of this fee shall be waived.

In accordance with ASC 470, Debt, the Company calculated the present value of the cash flows for purposes of applying the 10 percent cash flow test for the Third Amendment and concluded that the original and new debt instruments were substantially different, necessitating that the Third Amendment be accounted for as an extinguishment. The Company capitalized third-party fees of ~~$1,514~~$1,623 associated with the Third Amendment that will be amortized prospectively through interest expense, net in the consolidated statement of operations using the effective interest method through the Maturity Date. Fees payable to the lenders (as discussed above) of $5,162 were associated with the extinguishment of the old debt instrument and included in loss on extinguishment of debt in the accompanying unaudited condensed consolidated statements of operations. The Company wrote-off unamortized debt issuance costs of $3,441, which is included in loss on extinguishment of debt in the accompanying unaudited condensed consolidated statements of operations.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

10. Notes Payable

The following table summarizes the major components of debt at each balance sheet date and provides maturities and interest rate ranges for each major category as of ~~March 31,~~June 30, 2020 and December 31, 2019:

March 31, 2020 December 31, 2019
Various equipment notes entered into in November 2017, payable in monthly installments ranging from $6 to $24, including interest at 5.2%, maturing in December 2022 through December 2023. The notes are secured by equipment with a net book value of $3,046 as of March 31, 2020. $ 3,676
$ 3,937
Various equipment notes entered into in 2018, payable in monthly installments ranging from $1 to $39, including interest ranging from 5.6% to 6.8%, maturing in March 2023 through May 2025. The notes are secured by equipment with a net book value of $9,262 as of March 31, 2020. 9,944
10,429
Various equipment notes entered into in 2019, payable in monthly installments ranging from $2 to $23, including interest ranging from 3.9% to 6.4%, maturing in April 2021 through December 2024. The notes are secured by equipment with a net book value of $3,579 as of March 31, 2020. 4,126
4,333
In June 2018, the Company entered into a $12,000 non-revolving credit note with a bank. The credit note converted to a term loan on April 10, 2019 and was amended in November 2019, December 2019 and April 2020. Pursuant to the terms of the amendment, this loan was amended to require a maturity date of December 31, 2020 and interest on borrowings to be calculated at a fixed rate per annum equal to 5.9%. The note is secured by equipment with a net book value of $7,836 as of March 31, 2020. 9,241
9,900
In July 2019, the Company entered into a commercial insurance premium financing agreement, payable in monthly installments of $169, including interest of 4.4%, maturing in March 2020. —
506
A $10,000 equipment line with a bank, entered into in December 2017, secured by all equipment purchased with the proceeds of the loan. Interest is calculated on any outstanding amounts using a fixed rate of 4.5%. The equipment line converted to a term loan in September 2018, with a maturity date of June 22, 2023. The term loan is secured by equipment with a net book value of $6,166 as of March 31, 2020. 7,244
7,719
Pursuant to the terms of the Third Amendment, the Closing Date Term Loan and the Delayed Draw Term Loan entered into in September 2018 as part of the Syndicated Credit Facility (see also Note 9), maturing July 2022. The interest rate applicable to the Closing Date Term Loan and the Delayed Draw Term Loan is based on a fluctuating rate of interest measured by reference to, at the Company’s election, either (i) the Eurodollar rate, currently the LIBOR rate, or (ii) an alternative base rate. With respect to the Closing Date Term Loan, principal payments required are $854 monthly from April 2020 through September 2020, $1,153 monthly from October 2020 through December 2020, $1,280 monthly from January 2021 through December 2021, and $1,500 monthly thereafter. With respect to the Delayed Draw Term Loan, principal payments required are $2,500 in June 2020 and $833 monthly from July 2020 through March, 2021. Beginning in April 2021, the then outstanding principal balance of the Delayed Draw Term Loans will be payable in sixteen equal installments monthly thereafter. The term loan is secured by substantially all the assets of the Company and is subject to certain financial covenants. 164,862
152,188
Total 199,093
189,012
Less debt issuance costs (1,514 ) (3,441 )
197,579
185,571
Less current maturities (37,563 ) (34,873 )
Notes payable due after one year $ 160,016
$ 150,698



	June 30, 2020			December 31, 2019
Various equipment notes entered into in November 2017, payable in monthly installments ranging from $6 to $24, including interest at 5.2%, maturing in December 2022 through December 2023. The notes are secured by equipment with a net book value of $2,752 as of June 30, 2020.	$	3,411		$	3,937
Various equipment notes entered into in 2018, payable in monthly installments ranging from $1 to $39, including interest ranging from 5.6% to 6.8%, maturing in March 2023 through May 2025. The notes are secured by equipment with a net book value of $8,756 as of June 30, 2020.	9,453			10,429
Various equipment notes entered into in 2019, payable in monthly installments ranging from $2 to $23, including interest ranging from 3.9% to 6.4%, maturing in April 2021 through December 2024. The notes are secured by equipment with a net book value of $3,386 as of June 30, 2020.	3,917			4,333
In June 2018, the Company entered into a $12,000 non-revolving credit note with a bank. The credit note converted to a term loan on April 10, 2019 and was amended in November 2019, December 2019 and April 2020. Pursuant to the terms of the amendment, this loan was amended to require a maturity date of December 31, 2020 and interest on borrowings to be calculated at a fixed rate per annum equal to 5.9%. The note is secured by equipment with a net book value of $7,406 as of June 30, 2020.	8,641			9,900
In July 2019, the Company entered into a commercial insurance premium financing agreement, payable in monthly installments of $169, including interest of 4.4%, that matured in March 2020.	—			506
In April 2020, the Company entered into a commercial insurance premium financing agreement, payable in monthly installments ranging from $22 to $57, including interest of 3.4%, maturing in February 2021.	549			—
A $10,000 equipment line with a bank, entered into in December 2017, secured by all equipment purchased with the proceeds of the loan. Interest is calculated on any outstanding amounts using a fixed rate of 4.5%. The equipment line converted to a term loan in September 2018, with a maturity date of June 22, 2023. The term loan is secured by equipment with a net book value of $5,689 as of June 30, 2020.	6,766			7,719
Pursuant to the terms of the Third Amendment, the Closing Date Term Loan and the Delayed Draw Term Loan entered into in September 2018 as part of the Syndicated Credit Facility (see also Note 9), maturing July 2022. The interest rate applicable to the Closing Date Term Loan and the Delayed Draw Term Loan is based on a fluctuating rate of interest measured by reference to, at the Company’s election, either (i) the Eurodollar rate, currently the LIBOR rate, or (ii) an alternative base rate. With respect to the Closing Date Term Loan, principal payments required are $854 monthly from July 2020 through September 2020, $1,153 monthly from October 2020 through December 2020, $1,280 monthly from January 2021 through December 2021, and $1,500 monthly thereafter. With respect to the Delayed Draw Term Loan, principal payments required are $833 monthly from July 2020 through March 2021. Beginning in April 2021, the then outstanding principal balance of the Delayed Draw Term Loans will be payable in sixteen equal installments monthly thereafter. The term loan is secured by substantially all the assets of the Company and is subject to certain financial covenants.	161,225			152,188
Total	193,962			189,012
Less debt issuance costs	(1,410		)	(3,441		)
	192,552			185,571
Less current maturities	(38,721		)	(34,873		)
Notes payable due after one year	$	153,831		$	150,698

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

11. Mezzanine Equity

As a condition to the Third Amendment, the Company entered into an agreement with an investment fund affiliated with BCP ~~(the “Holder”)~~ to sell 26,000 shares of Series A Preferred Stock, par value $0.01per share (the “Preferred Stock”), with an initial aggregate liquidation

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~

preference of $26,000, net of a 3% Original Issue Discount (“OID”) of $780 for net proceeds of $25,220 in a private placement (the “Preferred Stock Offering”). Proceeds from the Preferred Stock Offering will be used for liquidity and general corporate purposes. In connection with the issuance of the Preferred Stock, the Company incurred direct expenses of ~~$1,707,~~$956, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. The Preferred Stock was initially recorded net of OID and direct expenses, which will be accreted through paid-in-capital as a deemed dividend from the date of issuance through the first possible known redemption ~~date.~~date, March 16, 2023. As of ~~March 31,~~June 30, 2020, the Company had accrued dividends of ~~$141~~$850 associated with the Preferred Stock, which was recorded at a fair value of ~~$111~~$850 using observable information for similar items and is classified as a level 2 fair value measurement.

Dividend Rights The Preferred Stock ranks senior to the shares of the Company’s common stock, with respect to dividend rights and rights on the distribution of assets in any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock had an initial liquidation preference of $1 (one thousand dollars) per share.

The holders of the Preferred Stock are entitled to a cumulative dividend paid in cash at the rate of 10.0% per annum, payable on a quarterly basis. If we do not declare and pay a dividend to the holders of the Preferred Stock, the dividend rate will increase to 13.0% per annum and the dividends are ~~paid in-kind~~paid-in-kind by adding such amount to the liquidation preference. The Company’s intention is to pay dividends in-kind for the foreseeable future. The dividend rate will increase to 16.0% per annum upon the occurrence and during the continuance of an event of default. As of ~~March 31,~~June 30, 2020, the liquidation preference of the Preferred Stock was ~~$26,141.~~$27,000.

Conversion Features The Preferred Stock is convertible at the option of the holders at any time on and subsequent to the three-month anniversary of the date of issuance into shares of common stock at a conversion price of $2.77 per share (the “Conversion Price”), which represents a 30% premium to the 20-day volume-weighted average price ended March 4, 2020. As of ~~March 31,~~June 30, 2020, the maximum number of common shares that could be required to be issued if converted is ~~9,437~~9,747 (nine million, ~~four~~seven hundred ~~thirty-seven~~forty-seven thousand). The conversion rate is subject to the following customary anti-dilution and other adjustments:

the issuance of common stock as a dividend or the subdivision, combination, or reclassification of common stock into a greater or lesser number of shares of common stock;

the dividend, distribution or other issuance of rights, options or warrants to holders of common stock entitling them to subscribe for or purchase shares of common stock at a price per share that is less than the market value for such issuance;

the issuance of a dividend or similar distribution in-kind, which can include shares of any class of capital stock, evidences of the Company’s indebtedness, assets or other property or securities, to holders of common stock;

a transaction in which a subsidiary of the Company ceases to be a subsidiary of the Company as a result of the distribution of the equity interests of the subsidiary to the holders of the Company’s common stock; and

the payment of a cash dividend to the holders of common stock.

On or subsequent to the three-year anniversary of the date of issuance, if the holders have not elected to convert all their shares of Preferred Stock, the Company may give 30 days’ notice to the holders giving the holders the option to choose, in their sole discretion, to have all outstanding shares of Preferred Stock converted into shares of common stock or redeemed in cash at the then applicable Redemption Price (as defined below). The Company may not issue this conversion notice unless (i) the average volume-weighted average price per share of the Company’s common stock during each of the 20 consecutive trading days prior to the conversion is greater than 120% of the conversion price; (ii) the Company’s common stock is listed on a national securities exchange; (iii) a registration statement for the re-sale of the Common Stock is then effective; and (iv) the Company is not then in possession of material non-public information as determined by Regulation FD promulgated under the Exchange Act.

The Preferred Stock and the associated dividend payable on March 31, 2020, did not generate a beneficial conversion feature (“BCF”) upon issuance as the fair value of the Company’s common stock was less than the conversion price. The Company will determine and, if required, measure a BCF based on the fair value of our stock price on the date dividends are declared for each subsequent dividend. If a BCF is recognized, a reduction to paid-in capital and the Preferred Stock will be recorded, and then subsequently accreted through the first redemption date.

Additionally, the Company determined that the nature of the Preferred Stock was more akin to an equity instrument and that the economic characteristics and risks of the embedded conversion options were clearly and closely related to the Preferred Stock. As such, the conversion options were not required to be bifurcated from the host under ASC 815, Derivatives and Hedging.

Redemption Rights If the Company undergoes certain change of control transactions, the Company will be required to immediately make an offer to repurchase all of the then-outstanding shares of Preferred Stock for cash consideration per share equal to the greater of (i) 100% of the Liquidation Preference, plus accrued and unpaid dividends, if any, plus, if applicable for a transaction occurring prior to the third anniversary of the closing, a make-whole premium determined pursuant to a calculation of the present value of the dividends that would have accrued through such anniversary, discounted at a rate equal to the applicable treasury rate plus 0.50% (the “Make-Whole Premium”); provided that if the transaction occurs prior to the first anniversary of the closing, the Make-Whole Premium shall be no greater than $4,000 and (ii) the closing sale

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

price of the common stock on the date of such redemption multiplied by the number of shares of common stock issuable upon conversion of the outstanding Preferred Stock.

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~

On or subsequent to the three-year anniversary of the issuance of the Preferred Stock, the Company may redeem the Preferred Stock, in whole or in part, for an amount in cash equal to the greater of (i) the closing sale price of the common stock on the date the Company delivers such notice multiplied by the number of shares of common stock issuable upon conversion of the outstanding Preferred Stock and (ii) (x) if the redemption occurs prior to the fourth anniversary of the date of the closing, 103% of the Liquidation Preference, plus accrued and unpaid dividends, or (y) if the redemption occurs on or after the fourth anniversary of the date of the closing, the Liquidation Preference plus accrued and unpaid dividends (the foregoing clauses (i) or (ii), as applicable, the “Redemption Price”).

On or subsequent to the ~~seven-anniversary~~seven-year anniversary of the date of issuance, the holders have the right, subject to applicable law, to require the Company to redeem the Preferred Stock, in whole or in part, into cash consideration equal to the liquidation preference, plus all accrued and unpaid dividends, from any source of funds legally available for such purpose

Since the redemption of the Preferred Stock is contingently or optionally redeemable, and therefore not certain to occur, the Preferred Stock is not required to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity. As the Preferred Stock is redeemable in certain circumstances at the option of the holder and is redeemable in certain circumstances upon the occurrence of an event that is not solely within our control, we have classified the Preferred Stock in mezzanine equity in the accompanying unaudited condensed consolidated balance sheets.

Liquidation Rights In the event of any liquidation, winding-up or dissolution of the Company, whether voluntary or involuntary, the holders of the Preferred Stock will receive an amount in cash equal to the greater of (i) 100% of the liquidation preference plus a Make-Whole Premium and (ii) the amount such holders would be entitled to receive at such time if the Preferred Stock were converted into Company common stock immediately prior to the liquidation event. The Make-Whole Premium is removed from the calculation for a liquidation event occurring subsequent to the third anniversary of the issuance date.

Voting Rights The holders of the Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis in addition to voting as a separate class as provided by applicable Delaware law and the Company’s organizational documents. The holders, acting exclusively and as a separate class, shall have the right to appoint either a non-voting observer to the Company’s Board of Directors or one director to the Company’s Board of Directors.

Registration Rights The holders of the Preferred Stock have certain customary registration rights with respect to the Preferred Stock and the shares of common stock into which they are converted, pursuant to the terms of a registration rights agreement.

12. Interest Rate Swap

To manage interest rate risk in a cost-efficient manner, the Company entered into an interest rate swap in December 2017 whereby the Company agreed to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount. The interest rate swap is not designated for hedge accounting. The change in fair value of the interest rate swap is immediately recognized in earnings, within interest expense, net.

As of both ~~March 31,~~June 30, 2020 and December 31, 2019, the notional amount of the interest rate swap was $150,000. A fair value liability of ~~$1,180~~$1,086 and $1,116 was recorded within other current liabilities in the unaudited condensed consolidated balance sheet as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The total amount of ~~loss~~gain (loss) included in interest expense, net in the unaudited condensed consolidated statements of operations was $94 and $(434) for the three months ended ~~March 31,~~June 30, 2020 and ~~was $64~~2019, respectively, and ~~$1,362,~~$30 and $(1,796) for the six months ended June 30, 2020 and 2019, respectively.

13. Contract Assets and Liabilities

The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets, and contract liabilities on the unaudited condensed consolidated balance sheets.

Our contract assets are as follows:


	March 31, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Costs and estimated earnings in excess of billings	$	25,064	$	19,256	$	15,968	$	19,256
Retainage	2,095		1,385		3,765		1,385
Total contract assets	$	27,159	$	20,641	$	19,733	$	20,641

Our contract liabilities are as follows:

March 31, 2020 December 31, 2019
Deferred revenue $ 425
$ 505
Billings in excess of costs and estimated earnings 3
77
Total contract liabilities $ 428
$ 582

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)



	June 30, 2020		December 31, 2019
Deferred revenue	$	465	$	505
Billings in excess of costs and estimated earnings	14,490		77
Total contract liabilities	$	14,955	$	582

We recognized revenue of ~~$260~~$163 and $423 for the three and six months ended ~~March 31,~~June 30, 2020, respectively, that was previously included in contract liabilities at December 31, 2019. The increase in contract liabilities was primarily due to an increase in billings in excess of costs and estimated earnings associated with billings during the three months ended June 30, 2020 for a specific remediation and compliance project.

Costs and estimated earnings on uncompleted contracts are as follows:


	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Costs incurred on uncompleted contracts	$	78,327		$	65,343		$	91,513		$	65,343
Estimated earnings	10,830			9,618			12,827			9,618
Total costs and estimated earnings	89,157			74,961			104,340			74,961
Less billings to date	(64,096		)	(55,782		)	(102,862		)	(55,782		)
Costs and estimated earnings in excess of billings	$	25,061		$	19,179		$	1,478		$	19,179

The net balance in process classified on the unaudited condensed consolidated balance sheets is as follows:


	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Costs and estimated earnings in excess of billings	$	25,064		$	19,256		$	15,968		$	19,256
Billings in excess of costs and estimated earnings	(3		)	(77		)	(14,490		)	(77		)
Net balance in process	$	25,061		$	19,179		$	1,478		$	19,179

Anticipated losses on long-term contracts are recognized when such losses become evident. As of ~~March 31,~~June 30, 2020 and December 31, 2019, accruals for anticipated losses on long-term contracts were ~~$272~~$251 and $322, respectively.

14. Stock/Unit-Based Compensation

The Company adopted the Charah Solutions, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”), pursuant to which employees, consultants, and directors of the Company and its affiliates, including named executive officers, are eligible to receive awards. The 2018 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock, dividend equivalents, other stock-based awards, substitute awards, annual incentive awards, and performance awards intended to align the interests of participants with those of Company stockholders. The Company has reserved 3,007 shares of common stock for issuance under the 2018 Plan, and all future equity awards described above will be issued pursuant to the 2018 Plan.

During the three and six months ended ~~March 31,~~June 30, 2020, the Company granted ~~255~~287 and 542 restricted stock units (“RSUs”), respectively, under the 2018 Plan that are ~~time-based~~time-based. Of the RSUs granted during the six months ended June 30, 2020, 15 vest at the end of an eleven-month period, 90 vest at the end of a one-year period, and 437 vest in equal installments over three years. The fair value of these RSUs is based on the market price of the Company’s shares on the grant date.

During the three and six months ended ~~March 31,~~June 30, 2020, the Company granted ~~107~~121 and 228 performance share units (“PSUs”), respectively, under the 2018 Plan that cliff vest after three years. The vesting of these PSUs is dependent upon the following performance goals during the period January 1, 2020 through December 31, 2022 (the “Performance Period”): (i) the relative total stockholder return percentile ranking of the Company as compared to the specified performance peer group and (ii) cumulative revenue. Each performance goal is weighted at 50% in determining the number of PSUs that become earned PSUs. The maximum number of earned PSUs for the Performance Period is 200% of the target number of PSUs. The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU. Compensation cost for each PSU is recognized during the Performance Period based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.

A summary of the Company’s non-vested share activity for the ~~three~~six months ended ~~March 31,~~June 30, 2020 is as follows:

Restricted Stock Performance Stock Total
Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value
Balance as of December 31, 2019 1,120
$ 6.87
301
$ 6.14
1,421
$ 6.72
Granted 255
1.71
107
1.30
362
1.21
Forfeited (50 ) 8.93
(8 ) 6.19
(58 ) 8.56
Vested (126 ) 12.00
—
—
(126 ) 12.00
Balance as of March 31, 2020 1,199
$ 5.97
400
$ 4.85
1,599
$ 5.69

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)


	Restricted Stock			Performance Stock			Total			Restricted Stock				Performance Stock				Total
	Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Balance as of December 31, 2019	0.99	$	2,731	1.69	$	733	1.26	$	3,464	1,120		$	6.87	301		$	6.14	1,421		$	6.72

Balance as of March 31, 2020	1.11	$	2,051	2.27	$	684	1.40	$	2,735
Granted										542		1.74		228		1.28		770		1.60
Forfeited										(71	)	8.86		(15	)	6.19		(86	)	8.85
Vested										(426	)	4.82		—		—		(426	)	4.82
Balance as of June 30, 2020										1,165		$	4.79	514		$	3.98	1,679		$	4.52



	Restricted Stock			Performance Stock			Total
	Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value
Balance as of December 31, 2019	0.99	$	2,731	1.69	$	733	1.26	$	3,464

Balance as of June 30, 2020	1.27	$	3,706	2.19	$	1,632	1.55	$	5,338

Stock-based compensation expense related to the restricted stock issued was ~~$608~~$591 and ~~$208~~$656 during the three months ended ~~March 31,~~June 30, 2020 and ~~2019.~~2019, respectively, and $1,199 and $864 during the six months ended June 30, 2020 and 2019, respectively. As of ~~March 31,~~June 30, 2020, total unrecognized stock-based compensation expense related to non-vested awards of restricted stock, net of estimated forfeitures, was ~~$1,936,~~$2,000, and is expected to be recognized over a weighted-average period of ~~1.72~~1.46 years. The total fair value of awards vested for the three and six months ended ~~March 31,~~June 30, 2020 was ~~$1,514.~~$540 and $2,054, respectively.

Stock-based compensation expense related to the performance stock issued was ~~$124~~$147 and $0$143 during the three months ended ~~March 31,~~June 30, 2020 and ~~2019.~~2019, respectively, and $271 and $143 during the six months ended June 30, 2020 and 2019, respectively. As of ~~March 31,~~June 30, 2020, total unrecognized stock-based compensation expense related to non-vested awards of performance stock, net of estimated forfeitures, was ~~$1,351,~~$1,211, and is expected to be recognized over a weighted-average period of ~~1.83~~1.98 years.

15. Commitments and Contingencies

We are party to a lawsuit filed against North Carolina by an environmental advocacy group alleging that the issuance by the state of certain permits associated with our Brickhaven clay mine reclamation site exceeded the state’s power. Although the state’s authority to issue the bulk of the permits (i.e., the allowance to reclaim the original site with coal ash) was upheld, the portion of the permits that allows us to “cut and prepare” an additional portion of the site was held by the North Carolina Superior Court to exceed the relevant agency’s statutory authority. The North Carolina Superior Court’s decision was reversed and remanded back to the North Carolina Office of Administrative Hearing (“NCOAH”) due to the North Carolina Superior Court’s having used an improper standard of review. While the NCOAH upheld the state’s authority to issue the bulk of the permits, it too held that a portion of the permits that allowed us to “cut and prepare” an additional portion of the site exceeded the relevant agency’s authority. We have filed a petition for judicial review with the North Carolina Superior Court. All customer related work at the Brickhaven site has been completed.

Allied Power Services, LLC and its affiliate, Allied Power Resources, LLC, have been named in a collective action lawsuit filed in the U.S. District Court for the Northern District of Illinois, alleging violations of the Fair Labor Standards Act, and which includes related class claims alleging violations of the Illinois Minimum Wage Law and the Pennsylvania Minimum Wage Act for failure to pay overtime. This case is one of a series filed against companies in the oil, gas and energy industries in Illinois and Texas. The parties mediated this case in November 2018 and reached a ~~settlement, which received conditional~~settlement. On July 15, 2020, the court granted final approval ~~from~~of the ~~court.~~settlement. The parties are ~~working on implementing~~continuing to implement the settlement ~~terms and the plaintiffs in the case will submit a motion for final approval in June 2020 prior to the court’s scheduled hearing.~~terms.

In addition to the above matters, we are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Although it is difficult to predict the ultimate outcome of these lawsuits, claims and proceedings, we do not believe that the ultimate disposition of any of these matters, individually or in the aggregate, would have a material adverse effect on our results of operations, financial position or cash flows. We maintain liability insurance for certain risks that is subject to certain self-insurance limits.

We believe amounts previously recorded are sufficient to cover any liabilities arising from the proceedings with all outstanding legal claims. Except as reflected in such accruals, we are currently unable to estimate a range of reasonably possible loss, or a range of reasonably possible loss in excess of the amount accrued, for outstanding legal matters.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

16. Business Segment and Related Information

The Company has identified two reportable segments, Environmental Solutions (“ES”) and Maintenance and Technical Services (“M&TS”), as each met the quantitative threshold of generating revenue equal to or greater than 10% of the combined revenue of all operating segments.

The accounting policies applied to determine the segment information are the same as those described under “Critical Accounting Policies and Estimates” in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019. Management evaluates the performance of each segment based on segment gross profit, which is calculated as revenue less cost of sales. For the three and six months ended ~~March 31,~~June 30, 2020 and 2019, there were no intersegment revenue or other intersegment transactions. Segment assets are also evaluated by management based on each segment’s investment in property and equipment. Assets (other than property and equipment and goodwill) are not allocated to segments.

Summarized financial information with respect to the reportable segments is as follows:



Three Months Ended June 30, 2020	ES		M&TS			All Other		Total
Segment revenue	$	37,862	$	95,283		$	—	$	133,145
Segment gross profit	4,233		6,501			—		10,734
Segment depreciation and amortization expense	2,258		2,520			1,972		6,750
Expenditures for segment assets	497		(83		)	6		420



Three Months Ended June 30, 2019	ES			M&TS		All Other		Total
Segment revenue	$	36,950		$	83,986	$	—	$	120,936
Segment gross (loss) profit	(9,188		)	7,123		—		(2,065		)
Segment depreciation and amortization expense	1,376			2,012		1,990		5,378
Expenditures for segment assets	3,186			1,133		32		4,351



Six Months Ended June 30, 2020	ES		M&TS		All Other		Total
Segment revenue	$	74,527	$	223,249	$	—	$	297,776
Segment gross profit	8,085		13,446		—		21,531
Segment depreciation and amortization expense	4,338		4,993		3,943		13,274
Expenditures for segment assets	1,059		512		33		1,604



Six Months Ended June 30, 2019	ES			M&TS	All Other		Total
Segment revenue	$	95,333		188,861	$	—	$	284,194
Segment gross (loss) profit	(921		)	14,235	—		13,314
Segment depreciation and amortization expense	3,690			3,966	3,979		11,635
Expenditures for segment assets	6,957			4,502	32		11,491



As of June 30, 2020	ES		M&TS		All Other		Total
Segment property and equipment, net	$	43,821	$	31,108	$	226	$	75,155
Segment goodwill	57,591		16,622		—		74,213



As of December 31, 2019	ES		M&TS		All Other		Total
Segment property and equipment, net	$	47,856	$	37,251	$	187	$	85,294
Segment goodwill	57,591		16,622		—		74,213

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

~~Summarized financial information with respect to the reportable segments is as follows:~~

Three Months Ended March 31, 2020 ES M&TS All Other Total
Segment revenue $ 36,665
$ 127,966
$ —
$ 164,631
Segment gross profit 3,852
6,945
—
10,797
Segment depreciation and amortization expense 2,080
2,473
1,971
6,524
Expenditures for segment assets 562
595
27
1,184

Three Months Ended March 31, 2019 ES M&TS All Other Total
Segment revenue $ 58,383
$ 104,875
$ —
$ 163,258
Segment gross profit 8,267
7,112
—
15,379
Segment depreciation and amortization expense 2,314
1,954
1,989
6,257
Expenditures for segment assets 3,771
3,369
—
7,140

As of March 31, 2020 ES M&TS All Other Total
Segment property and equipment, net $ 45,550
$ 34,019
$ 227
$ 79,796
Segment goodwill 57,591
16,622
—
74,213

As of December 31, 2019 ES M&TS All Other Total
Segment property and equipment, net $ 47,856
$ 37,251
$ 187
$ 85,294
Segment goodwill 57,591
16,622
—
74,213

The following is a reconciliation of segment gross profit (loss) to net loss:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
Segment gross profit	$	10,797		$	15,379
Segment gross profit (loss)							$	10,734		$	(2,065	)	$	21,531		$	13,314
General and administrative expenses	(12,756		)	(13,985		)	(9,637		)	(17,400		)	(22,393		)	(31,385		)
Interest expense, net	(3,630		)	(5,052		)	(4,826		)	(4,102		)	(8,456		)	(9,154		)
Loss on extinguishment of debt	(8,603		)	—			—			—			(8,603		)	—
Income from equity method investment	296			554			326			663			622			1,217
Income tax benefit	—			761			—			5,628			—			6,389
Net loss	$	(13,896	)	$	(2,343	)	$	(3,403	)	$	(17,276	)	$	(17,299	)	$	(19,619	)

The following is a reconciliation of segment assets to total assets as of:


	March 31, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Segment property and equipment, net	$	79,796	$	85,294	$	75,155	$	85,294
Segment goodwill	74,213		74,213		74,213		74,213
Non-segment assets	247,659		196,249		230,801		196,249
Total assets	$	401,668	$	355,756	$	380,169	$	355,756

17. Income Taxes

The Company did not have an income tax provision or benefit for the three and six months ended ~~March 31,~~June 30, 2020, due to current period operating losses and a valuation allowance on deferred tax assets. For the three and six months ended ~~March 31,~~June 30, 2019, the Company’s income tax benefit was ~~$761.~~$5,628 and $6,389 respectively.

The effective income tax rate for the period was ~~14.5%~~27.0% without regard to the impact of the valuation allowance and includes the effect of state income taxes, nondeductible items and benefits for non-controlling interests. The Company’s income is subject to a federal statutory rate of 21% and an estimated state statutory rate of 5.3% prior to considering the valuation allowance.

~~CHARAH SOLUTIONS, INC.~~

~~Notes to Condensed Consolidated Financial Statements, continued~~

~~(in thousands, except per share data)~~

~~(Unaudited)~~

The Company evaluates its effective income tax rate at each interim period and adjusts it accordingly as facts and circumstances warrant. The determination of the annual estimated effective income tax rate at each interim period requires certain estimates and judgments including, but not limited to, the expected operating income for the year, estimated permanent differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur and additional information is obtained.

At ~~March 31,~~June 30, 2020, deferred tax liabilities, net of deferred tax assets, was $1,492. A valuation allowance has been recorded for the deferred tax assets as the Company has determined that it is not more likely than not that the tax benefits related to all the deferred tax assets will be realized. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets.

18. Loss Per Share

Basic loss per share is computed by dividing net loss attributable to the Company’s stockholders by the weighted-average number of shares outstanding during the period. Diluted loss per share reflects all potential dilutive ordinary shares outstanding during the period and is computed by dividing net loss attributable to the Company’s stockholders by the weighted-average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities.

Basic and diluted loss per share is determined using the following information:

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

Three Months Ended
March 31,
2020 2019
Numerator:
Net loss attributable to Charah Solutions, Inc. $ (14,250 ) $ (2,819 )
Accrued Series A Preferred Stock dividends (111 ) —
Net loss attributable to common stockholders (14,361 ) (2,819 )

Denominator:
Weighted-average shares outstanding 29,644
29,188
Dilutive share-based awards —
—
Total weighted-average shares outstanding, including dilutive shares 29,644
29,188

Basic loss per share $ (0.48 ) $ (0.10 )
Diluted loss per share $ (0.48 ) $ (0.10 )



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Numerator:
Net loss attributable to Charah Solutions, Inc.	$	(3,536	)	$	(18,026	)	$	(17,786	)	$	(20,845	)
Deemed and imputed dividends on Series A Preferred Stock	(167		)	—			(167		)	—
Series A Preferred Stock dividends	(858		)	—			(969		)	—
Net loss attributable to common stockholders	(4,561		)	(18,026		)	(18,922		)	(20,845		)

Denominator:
Weighted-average shares outstanding	29,927			29,559			29,785			29,374
Dilutive share-based awards	—			—			—			—
Total weighted-average shares outstanding, including dilutive shares	29,927			29,559			29,785			29,374

Basic loss per share	$	(0.15	)	$	(0.61	)	$	(0.64	)	$	(0.71	)
Diluted loss per share	$	(0.15	)	$	(0.61	)	$	(0.64	)	$	(0.71	)

The holders of the Preferred Stock have nonforfeitable rights to common stock dividends or common stock dividend equivalents. Accordingly, the Preferred Stock qualifies as participating securities.

As a result of the net loss per share for the three and six months ended ~~March 31,~~June 30, 2020 and 2019, the inclusion of all potentially dilutive shares would be anti-dilutive. Therefore, dilutive shares of ~~3,012~~10,884 and ~~991~~1,388 were excluded from the computation of the weighted-average shares for diluted net loss per share for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and dilutive shares of 6,947 and 1,191 were excluded from the computation of the weighted-average shares for diluted net loss per share for the six months ended June 30, 2020 and 2019, respectively.

A summary of securities excluded from the computation of diluted earnings per share is presented below:


	Three Months Ended		Three Months Ended		Six Months Ended
	March 31,		June 30,		June 30,
	2020	2019	2020	2019	2020	2019
Diluted earnings per share:
Anti-dilutive restricted and performance stock units	1,361	991	1,440	1,388	1,400	1,191
Anti-dilutive Series A Preferred Stock convertible into common stock	1,651	—	9,444	—	5,547	—
Potentially dilutive securities, excluded as anti-dilutive	3,012	991	10,884	1,388	6,947	1,191

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the historical financial statements and related notes included in Part I, “Item 1. Financial Statements” of this Quarterly Report. This discussion contains “forward‑looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward‑looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, public health threats or outbreaks of communicable diseases, such as the ongoing novel coronavirus “COVID-19” pandemic and its impact on our business, customers, employees or customers facilities, capital expenditures, economic and competitive conditions, and regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this Quarterly Report. Please read “Cautionary Note Regarding Forward‑Looking Statements” included elsewhere in this Quarterly Report. Except as otherwise required by applicable law, we assume no obligation to update any of these forward‑looking statements.

Charah Solutions, Inc.

Charah Solutions, Inc. (together with its subsidiaries, “Charah Solutions,” the “Company,” “we,” “us” or “our”) was formed as a Delaware corporation in January 2018 and did not conduct any material business operations prior to a reorganization and certain activities related to the initial public offering (the “IPO”), which was completed on June 18, 2018. Charah Solutions, Inc. is a holding company, the sole material assets of which consist of membership interests in Charah Management LLC, a Delaware limited liability company (“Charah Management”), and Allied Power Holdings, LLC, a Delaware limited liability company (“Allied Power Holdings”). Through the Company’s ownership of Charah Management and Allied Power Holdings, the Company owns the outstanding equity interests in Charah, LLC, a Kentucky limited liability company (“Charah”), and Allied Power Management, LLC, a Delaware limited liability company (“Allied”), the subsidiaries through which Charah Solutions operates its businesses.

~~Recent Developments~~COVID-19 Update

The pandemic caused by a novel coronavirus (“COVID-19”) has impacted many aspects of our operations, directly and indirectly, including our employees, the services we provide at our customers’ power generation facilities, our suppliers and the overall market for our products and services. We, along with our utility partners, have implemented the precautionary health and safety measures recommended by the Centers for Disease Control and Prevention (the “CDC”) in response to the COVID-19 pandemic, including, but not limited to: an employee health status questionnaire, taking daily temperatures, enhanced sanitation practices and cleaning surfaces throughout each shift, and increasing the number of hand sanitizing stations. We have also increased social distancing measures, such as staggered shift start and stop times and break times with additional break spaces to support social distancing as well as safety meetings being held outside of the site trailer. Furthermore, we have implemented work-from-home measures for the majority of office employees. With the understanding that the COVID-19 challenge is evolving, based on new information and feedback, we continue to monitor the situation and update our proactive measures in coordination with our customers.

Multiple nuclear and fossil outages have been completed ~~and several are currently in progress~~ with little to no interruption to date. We continue to work closely with our utility partners and concrete producer customers to meet their needs and are monitoring any potential slowdowns of byproduct sales ~~given~~in the event there is decreased demand for construction materials. We have had no significant contracts canceled at this time. However, projections for power generation demand have been lowered and there is the potential for decreased demand for our byproduct sales in the construction market as capital budgets are reduced and construction activity slows.

In light of the uncertain and rapidly evolving situation relating to the COVID-19 pandemic, in April 2020, we implemented a series of preemptive cost-cutting and cost savings initiatives across the Company including reductions in employee compensation, reductions in cash-based retainers to our Board of Directors, reduced hiring and significantly reducing discretionary spending including travel restrictions. In addition, we are implementing applicable benefits of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

While we anticipate that these measures are temporary, we cannot predict the duration for which these precautionary measures will stay in effect, and we may elect or need to take additional measures as the information available to us continues to develop, including with respect to our employees, relationships with our third-party vendors, and our customers. Subject to our assumptions regarding the duration and severity of the COVID-19 pandemic, our currently anticipated responses thereto and our current projections, we believe our cash on hand and cash generated from operations will be sufficient to cover our working capital requirements and debt obligations for the next 12 months from the issuance of this Quarterly Report. However, the extent to which the COVID-19 pandemic and our precautionary measures in response thereto may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with certainty at this time.

The COVID-19 pandemic presents potential new risks to the Company’s business. A sustained downturn may result in the carrying value of our long-lived assets exceeding their fair value, which may require us to recognize an impairment to those assets. Furthermore, delays in customer payments for our services may impact the collectability of our trade accounts receivable. Although there have been logistical and other challenges to date, there was no material adverse impact resulting from the COVID-19 pandemic on the Company’s results of operations for the three or six months ended ~~March 31,~~June 30, 2020.

~~Our results for~~Despite improvements in operating income during the three months ended ~~March 31,~~June 30, 2020 and reductions in operating loss during the six months ended June 30, 2020, as further discussed below, our results were ~~primarily~~still driven by the timing of our contract awards and the commencement and progress of work awarded under contract. Revenue generated from new awards won prior to 2019, during 2019 and during the ~~three~~six months ended ~~March 31,~~June 30, 2020 was not sufficient to offset the impact of projects completed during ~~2019.~~2019 and 2020 to date. However, the significant majority

of revenue contributions from these new awards will be recognized in the second half of 2020 and beyond.

Overview

We are a leading provider of mission-critical environmental and maintenance services to the power generation industry. We offer a suite of coal ash management and recycling, environmental remediation, and utility plant outage-related maintenance services. We also design and implement solutions for complex environmental projects (such as coal ash pond closures) and facilitate coal ash recycling through byproduct sales and other beneficial use services. We believe we are a partner-of-choice for the power generation industry due to our quality, safety, domain experience, and compliance record, all of which are key criteria for our customers. In 2019, we performed work at more than 50 coal-fired and nuclear power generation sites nationwide.

We are an environmental remediation and maintenance company and we conduct our operations through two segments: (i) Environmental Solutions and (ii) Maintenance and Technical Services.

Environmental Solutions. Our Environmental Solutions segment includes remediation and compliance services, as well as byproduct sales. Remediation and compliance services are associated with our customers’ need for multi-year environmental improvement and sustainability initiatives, whether driven by regulatory requirements, by power generation customers initiatives, by our proactive engagement or by consumer expectations and standards. Byproduct sales support both our power generation customers’ desire to recycle their recurring and legacy volumes of coal combustion residuals (“CCRs”), commonly known as coal ash, and our ultimate end customers’ need for high-quality, cost-effective raw material substitutes.

Maintenance and Technical Services. Our Maintenance and Technical Services segment includes fossil services and, from and after May 2017 when Allied was created, nuclear services. Fossil services are the recurring and mission-critical management of coal ash and the routine maintenance, outage services and staffing solutions for coal-fired power generation facilities. Nuclear services, which we market under the Allied Power brand name, include routine maintenance, outage services, facility maintenance, and staffing solutions for nuclear power generation facilities. The Maintenance and Technical Services segment offerings are most closely associated with the ongoing operations of power plants, whether in the form of daily environmental management or required maintenance services (typically during planned outages).

How We Evaluate Our Operations

We use a variety of financial and operational metrics to assess the performance of our operations, including:

•Revenue;

•Gross Profit;

•Operating Income;

•Adjusted EBITDA; and

•Adjusted EBITDA Margin.

Revenue

We analyze our revenue by comparing actual revenue to our internal projections for a given period and to prior periods to assess our performance. We believe that revenue is a meaningful indicator of the demand and pricing for our services.

Gross Profit

We analyze our gross profit, which we define as revenue less cost of sales, to measure our financial performance. We believe that gross profit is a meaningful metric because it provides insight on financial performance of our revenue streams without consideration of company overhead. When analyzing gross profit, we compare actual gross profit to our internal projections for a given period and to prior periods to assess our performance.

Operating Income

We analyze our operating income, which we define as revenue less cost of sales and general and administrative expenses, to measure our financial performance. We believe that operating income is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets. When analyzing operating income, we compare actual operating income to our internal projections for a given period and to prior periods to assess our performance.

Adjusted EBITDA and Adjusted EBITDA Margin

We view Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures, as important indicators of performance because they allow for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure.

We define Adjusted EBITDA as net loss attributable to Charah Solutions, Inc. before loss on extinguishment of debt, interest expense, income taxes, depreciation and amortization, equity-based compensation, non-recurring legal costs and expenses and start-up costs, the Brickhaven contract deemed termination revenue reversal, and transaction-related expenses and other items. Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total revenue. See “—Non-GAAP Financial Measures” below for more information and a reconciliation of Adjusted EBITDA to net loss attributable to Charah Solutions, Inc., the most directly comparable financial measure calculated and presented in accordance with GAAP.

Key Factors Affecting Our Business and Financial Statements

Ability to Capture New Contracts and Business Opportunities

Our ability to grow revenue and earnings is dependent on maintaining and increasing our market share, renewing existing contracts, and obtaining additional contracts from proactive bidding on contracts with new and existing customers. We proactively work with existing customers ahead of contract end dates to attempt to secure contract renewals. We also leverage the embedded long-term nature of our customer relationships to obtain insight into and to capture new business opportunities across our platform.

Seasonality of Business

Project-Based Nature of Environmental Remediation Mandates

We believe there is a significant pipeline of coal ash ponds and landfills that will require remediation and/or closure in the future. Due to their scale and complexity, these environmental remediation projects are typically completed over longer periods of time. As a result, our revenue from these projects can fluctuate over time. Some of our revenue from projects is recognized over time using the cost-to-cost input method of accounting for GAAP purposes, based primarily on contract costs incurred to date compared to total estimated contract costs. This method is the most accurate measure of our contract performance because it depicts the company’s performance in transferring control of goods or services promised to customers according to a reasonable measure of progress toward complete satisfaction of the performance obligation. The timing of revenue recorded for financial reporting purposes may differ from actual billings to customers, sometimes resulting in costs and billings in excess of actual revenue. Because of the risks in estimating gross profit margins for long-term jobs, actual results may differ from these estimates.

Byproduct Recycling Market Dynamics

There is a growing demand for recycled coal ash across a variety of applications driven by market forces and governmental regulations creating the need to dispose of coal ash in an environmentally sensitive manner. Pricing of byproduct sales is driven by supply and demand market dynamics as well as the chemical and physical properties of the ash. As demand increases for the end-products that use CCRs’ (i.e., concrete for construction and infrastructure projects), the demand for recycled coal ash also typically rises. These fluctuations affect the relative demand for our byproduct sales. In recessionary periods, construction and infrastructure spending and the corresponding need for concrete may decline. However, this unfavorable effect may be partially offset by an increase in the demand for recycled coal ash during recessionary periods given that coal ash is more cost-effective than other alternatives.

Power Generation Industry Spend on Environmental Liability Management and Regulatory Requirements

The power generation industry has increased annual spending on environmental liability management. We believe this is the result of not only regulatory requirements and consumer pressure, but also the industry’s increasing focus on environmental stewardship. Continued increases in spending on environmental liability management by our customers should result in increased demand for services across our platform.

Cost Management and Capital Investment Efficiency

Our main operating costs consist of labor, material and equipment costs and equipment maintenance. We maintain a focus on cost management and efficiency, including monitoring labor costs, both in terms of wage rates and headcount, along with other costs such as materials and equipment. We believe we maintain a disciplined approach to capital expenditure decisions, which are typically associated with specific contract requirements. Furthermore, we strive to extend the useful life of our equipment through the application of a well-planned routine maintenance program.

How We Generate Revenue

The Environmental Solutions segment generates revenue through our remediation and compliance services, as well as our byproduct sales. Our remediation and compliance services primarily consist of designing, constructing, managing, remediating and closing ash ponds and landfills on customer-owned sites. Our byproduct sales offerings include the recycling of recurring and contracted volumes of coal-fired power generation waste byproducts, such as bottom ash, fly ash and gypsum byproduct, each of which can be used for various industrial purposes. More than 90% of our services work is structured as time and materials, cost reimbursable or unit price contracts, which significantly reduces the risk of loss on contracts and provides gross margin visibility. Revenue from management contracts is recognized when the ash is hauled to the landfill or the management services are provided. Revenue from the sale of ash is recognized when it is delivered to the customer. Revenue from construction contracts is recognized using the cost-to-cost input method.

The Maintenance and Technical Services segment generates revenue through our fossil services and nuclear services offerings. Maintenance and Technical Services segment offerings are most closely associated with the ongoing operations of power plants, whether in the form of daily environmental management or required maintenance services (typically during planned outages). Our fossil services offerings

focus on recurring and mission-critical management of coal ash and routine maintenance, outage services and staffing solutions for coal-fired power generation facilities to fulfill the environmental service need of our customers in handling their waste byproducts. Over the last five years,

our renewal rate for fossil services contracts has been approximately 90%. Our nuclear services operations, which we market under the Allied Power brand name, consist of a broad platform of mission-critical professional, technical and craft services spanning the entire asset life cycle of a nuclear power generator. The services are performed on the customer’s site and the contract terms typically range from three to five years. Revenue is billed and paid during the periods of time work is being executed. This combination of the maintenance and environmental-related services deepens customer connectivity and drives long-term relationships which we believe are critical for renewing existing contracts, winning incremental business from existing customers at new sites and adding new customers.

Results of Operations

~~The table below sets forth our selected operating data for the three months ended March 31, 2020 and 2019.~~

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~March 31,~~June 30, 2019


	Three Months Ended											Three Months Ended
	March 31,						Change					June 30,						Change
	2020			2019			$			%		2020			2019			$			%
	(dollars in thousands)											(dollars in thousands)
Revenue:
Environmental Solutions	$	36,665		$	58,383		$	(21,718	)	(37.2	)%	$	37,862		$	36,950		$	912		2.5	%
Maintenance and Technical Services	127,966			104,875			23,091			22.0	%	95,283			83,986			11,297			13.5	%
Total revenue	164,631			163,258			1,373			0.8	%	133,145			120,936			12,209			10.1	%
Cost of sales	153,834			147,879			5,955			4.0	%	122,411			123,001			(590		)	(0.5	)%
Gross Profit:
Gross Profit (Loss):
Environmental Solutions	3,852			8,267			(4,415		)	(53.4	)%	4,233			(9,188		)	13,421			146.1	%
Maintenance and Technical Services	6,945			7,112			(167		)	(2.3	)%	6,501			7,123			(622		)	(8.7	)%
Total gross profit	10,797			15,379			(4,582		)	(29.8	)%
Total gross profit (loss)												10,734			(2,065		)	12,799			619.8	%
General and administrative expenses	12,756			13,985			(1,229		)	(8.8	)%	9,637			17,400			(7,763		)	(44.6	)%
Operating (loss) income	(1,959		)	1,394			(3,353		)	(240.5	)%
Operating income (loss)												1,097			(19,465		)	20,562			105.6	%
Interest expense, net	(3,630		)	(5,052		)	1,422			28.1	%	(4,826		)	(4,102		)	(724		)	(17.6	)%
Loss on extinguishment of debt	(8,603		)	—			(8,603		)	100.0	%
Income from equity method investment	296			554			(258		)	(46.6	)%	326			663			(337		)	(50.8	)%
Loss before taxes	(13,896		)	(3,104		)	(10,792		)	347.7	%	(3,403		)	(22,904		)	19,501			85.1	%
Income tax benefit	—			(761		)	761			(100.0	)%	—			(5,628		)	5,628			(100.0	)%
Net loss	(13,896		)	(2,343		)	(11,553		)	493.1	%	(3,403		)	(17,276		)	13,873			80.3	%
Less income attributable to non-controlling interest	354			476			(122		)	(25.6	)%	133			750			(617		)	(82.3	)%
Net loss attributable to Charah Solutions, Inc.	(14,250		)	(2,819		)	(11,431		)	405.5	%	(3,536		)	(18,026		)	14,490			80.4	%
Accrued Series A Preferred Stock dividends	(111		)	—			(111		)	(100.0	)%
Deemed and imputed dividends on Series A Preferred Stock												(167		)	—			(167		)	(100.0	)%
Series A Preferred Stock dividends												(858		)	—			(858		)	(100.0	)%
Net loss attributable to common stockholders	$	(14,361	)	$	(2,819	)	(11,542		)	409.4	%	$	(4,561	)	$	(18,026	)	$	13,465		74.7	%

Revenue. Revenue increased ~~$1.4~~$12.2 million, or ~~0.8%~~10.1%, for the three months ended ~~March 31,~~June 30, 2020 to ~~$164.6~~$133.1 million as compared to ~~$163.3~~$120.9 million for the three months ended ~~March~~June 30, 2019, driven by an increase in revenue in the Maintenance and Technical Services segment and in the Environmental Solutions segment. The change in revenue by segment was as follows:

Environmental Solutions Revenue. Environmental Solutions segment revenue increased $0.9 million, or 2.5%, for the three months ended June 30, 2020 to $37.9 million as compared to $37.0 million for the three months ended June 30, 2019. The increase in revenue was primarily driven by the absence during the current period of the $10.0 million revenue reversal associated with the completion of the Brickhaven project resulting from the deemed termination during the second quarter of 2019. This increase was partially offset by project completions in 2019 within our remediation and compliance services component and a decrease in byproduct sales offerings as compared to the second quarter of 2019.

Maintenance and Technical Services Revenue. Maintenance and Technical Services segment revenue increased $11.3 million, or 13.5%, for the three months ended June 30, 2020 to $95.3 million as compared to $84.0 million for the three months ended June 30, 2019. The increase in revenue was primarily attributable to additional spring nuclear outage work in the three months ended June 30, 2020, and an increase in revenue from our fossil services offerings.

Gross Profit (Loss). Gross profit increased $12.8 million, or 619.8%, for the three months ended June 30, 2020 to $10.7 million as compared to a gross loss of $2.1 million for the three months ended June 30, 2019. As a percentage of revenue, gross profit (loss) was 8.1% and (1.7)% for the three months ended June 30, 2020 and 2019, respectively. The change in gross profit by segment was as follows:

Environmental Solutions Gross Profit. Gross profit for our Environmental Solutions segment increased $13.4 million, or 146.1%, for the three months ended June 30, 2020 to $4.2 million as compared to a gross loss of $9.2 million for the three months ended June 30, 2019. The

increase in gross profit was primarily driven by the absence during the current period of the $10.0 million revenue reversal associated with the completion of the Brickhaven project resulting from the deemed termination and one project-specific issue that occurred during the second quarter of 2019. This increase was partially offset by a decrease in revenue associated with our byproduct sales offerings.

Maintenance and Technical Services Gross Profit. Gross profit for our Maintenance and Technical Services segment decreased $0.6 million, or 8.7%, for the three months ended June 30, 2020 to $6.5 million as compared to $7.1 million for the three months ended June 30, 2019. The decrease in gross profit was primarily attributable to a decrease in gross profit from our fossil services offerings.

General and Administrative Expenses. General and administrative expenses decreased $7.8 million, or 44.6%, for the three months ended June 30, 2020 to $9.6 million as compared to $17.4 million for the three months ended June 30, 2019. The decrease was primarily attributable to a $1.8 million insurance recovery received during the current period, reductions in staff, cost-cutting measures implemented in April 2020 in response to the COVID-19 pandemic and other cost-savings initiatives.

Interest Expense, Net.Interest expense, net increased $0.7 million, or 17.6%, for the three months ended June 30, 2020 to $4.8 million as compared to $4.1 million for the three months ended June 30, 2019. The increase was primarily attributable to higher interest rates and paid in-kind interest related to the amendments to the Credit Facility as discussed below in “—Liquidity and Capital Resources—Our Debt Agreements—Existing Credit Facility” partially offset by lower debt balances.

Income from Equity Method Investment. Income from equity method investment decreased $0.3 million, or 50.8%, for the three months ended June 30, 2020 to $0.3 million as compared to $0.7 million for the three months ended June 30, 2019. The decrease was primarily attributable to a reduction in ash volumes generated by the utility and available for sale by us.

Income Tax Benefit. Income tax benefit decreased by $5.6 million as no tax benefit was recorded during the three months ended June 30, 2020 as a result of the full valuation allowance recorded by the Company for the year ended December 31, 2019.

Net Loss.Net loss decreased $13.9 million, or 80.3%, for the three months ended June 30, 2020 to $3.4 million as compared to $17.3 million for the three months ended June 30, 2019. The decrease was primarily attributable to higher gross profit and lower general and administrative expenses, as discussed above, partially offset by a decrease in income tax benefit and an increase in interest expense, net.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019



	Six Months Ended
	June 30,						Change
	2020			2019			$				%
	(dollars in thousands)
Revenue:
Environmental Solutions	$	74,527		$	95,333		$	(20,806	)		(21.8	)%
Maintenance and Technical Services	223,249			188,861			34,388				18.2	%
Total revenue	297,776			284,194			13,582				4.8	%
Cost of sales	276,245			270,880			5,365				2.0	%
Gross Profit (Loss):
Environmental Solutions	8,085			(921		)	9,006				977.9	%
Maintenance and Technical Services	13,446			14,235			(789		)		(5.5	)%
Total gross profit	21,531			13,314			8,217				61.7	%
General and administrative expenses	22,393			31,385			(8,992		)		(28.7	)%
Operating loss	(862		)	(18,071		)	17,209				95.2	%
Interest expense, net	(8,456		)	(9,154		)	698				7.6	%
Loss on extinguishment of debt	(8,603		)	—			(8,603		)		(100.0	)%
Income from equity method investment	622			1,217			(595		)	��	(48.9	)%
Loss before taxes	(17,299		)	(26,008		)	8,709				33.5	%
Income tax benefit	—			(6,389		)	6,389				(100.0	)%
Net loss	(17,299		)	(19,619		)	2,320				11.8	%
Less income attributable to non-controlling interest	487			1,226			(739		)		(60.3	)%
Net loss attributable to Charah Solutions, Inc.	(17,786		)	(20,845		)	3,059				14.7	%
Deemed and imputed dividends on Series A Preferred Stock	(167		)	—			(167		)		(100.0	)%
Series A Preferred Stock dividends	(969		)	—			(969		)		(100.0	)%
Net loss attributable to common stockholders	$	(18,922	)	$	(20,845	)	$	1,923			9.2	%

Revenue. Revenue increased $13.6 million, or 4.8%, for the six months ended June 30, 2020 to $297.8 million as compared to $284.2 million for the six months ended June 30, 2019, driven by an increase in revenue in the Maintenance and Technical Services segment, partially offset by a decrease in revenue in the Environmental Solutions segment. The change in revenue by segment was as follows:

Environmental Solutions Revenue. Environmental Solutions segment revenue decreased ~~$21.7~~$20.8 million, or ~~37.2%~~21.8%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$36.7~~$74.5 million as compared to ~~$58.4~~$95.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The decrease in revenue was primarily driven by project completions in 2019 within our remediation and compliance services component, including the completion of the Brickhaven project and a decrease in byproduct sales offerings partially offset by the absence during the current period of the $10.0 million revenue reversal associated with the completion of the Brickhaven project resulting from the deemed termination during the second quarter of 2019.

Maintenance and Technical Services Revenue. Maintenance and Technical Services segment revenue increased ~~$23.1~~$34.4 million, or ~~22.0%~~18.2%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$128.0~~$223.2 million as compared to ~~$104.9~~$188.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The increase in revenue was primarily attributable to additional spring nuclear outage work in the ~~three~~six months ended ~~March 31,~~June 30, 2020, and an increase in revenue from our fossil services offerings.

Gross Profit. Gross profit ~~decreased $4.6~~increased $8.2 million, or ~~29.8%~~61.7%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$10.8~~$21.5 million as compared to ~~$15.4~~$13.3 million for the ~~three~~six months ended ~~March 31, 2019, driven primarily by a decrease in revenue in our Environmental Solutions segment.~~June 30, 2019. As a percentage of revenue, gross profit was ~~6.6%~~7.2% and ~~9.4%~~4.7% for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively. The change in gross profit by segment was as follows:

Environmental Solutions Gross Profit. Gross profit for our Environmental Solutions segment ~~decreased $4.4~~increased $9.0 million, or ~~53.4%~~977.9%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$3.9~~$8.1 million as compared to ~~$8.3~~a gross loss of $0.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The ~~decrease~~

increase in gross profit was primarily driven by the absence in the current period of the $10.0 million revenue reversal associated with the completion of the Brickhaven project resulting from the deemed termination that occurred during the six months ended June 30, 2019. These increases were partially offset by project completions in 2019 within our remediation and compliance services component ~~including the completion of the Brickhaven project resulting from the deemed termination during the second quarter of 2019.~~and a decrease in revenue associated with our byproduct sales offerings.

Maintenance and Technical Services Gross Profit. Gross profit for our Maintenance and Technical Services segment decreased ~~$0.2~~$0.8 million, or ~~2.3%~~5.5%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$6.9~~$13.4 million as compared to ~~$7.1~~$14.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The decrease in gross profit was primarily attributable to margin improvements within our nuclear services offerings during the ~~three~~six months ended ~~March 31,~~June 30, 2019 that did not reoccur during the ~~three~~six months ended ~~March 31,~~June 30, 2020, partially offset by an increase in gross profit from our fossil services offerings.

General and Administrative Expenses. General and administrative expenses decreased ~~$1.2~~$9.0 million, or ~~8.8%~~28.7%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$12.8~~$22.4 million as compared to ~~$14.0~~$31.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The decrease was primarily attributable to $2.1 million in insurance recoveries received during the current period, reductions in staff, cost-cutting measures implemented in April 2020 in response to the COVID-19 pandemic and other cost-savings initiatives, ~~implemented by the Company,~~ partially offset by $2.9 million in lower non-cash general and administrative expenses during the ~~three~~six months ended ~~March 31,~~June 30, 2019 associated with the amortization of the purchase option liability due to the deemed termination of the Brickhaven contract.

Interest Expense, Net. Interest expense, net decreased ~~$1.4~~$0.7 million, or ~~28.1%~~7.6%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$3.6~~$8.5 million as compared to ~~$5.1~~$9.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The decrease was primarily attributable to lower debt balances during the ~~three~~six months ended ~~March 31,~~June 30, 2020 as compared to the ~~three~~six months ended ~~March 31,~~June 30, 2019 and a ~~$1.3~~$1.8 million decrease in the non-cash mark-to-market expense associated with the change in value of our interest rate swap, partially offset by ~~an increase in~~higher interest rates and paid in-kind interest related to the amendments to the Credit Facility as discussed below in “—Liquidity and Capital Resources—Our Debt Agreements—Existing Credit Facility.”

Loss on Extinguishment of Debt. Loss on extinguishment of debt increased $8.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 due to the Company’s Amendment No. 3 to Credit Agreement (the “Third Amendment”) of our existing Credit Facility as discussed below in “—Liquidity and Capital Resources—Our Debt Agreements—Existing Credit Facility.” The Company expensed $5.2 million in amendment fees and wrote off $3.4 million in previously capitalized debt issuance costs.

Income from Equity Method Investment. Income from equity method investment decreased ~~$0.3~~$0.6 million, or ~~46.6%~~48.9%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$0.3~~$0.6 million as compared to ~~$0.6~~$1.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The decrease period-over-period was primarily attributable to a reduction in ash volumes generated by the utility and available for sale by us.

Income Tax Benefit. Income tax benefit decreased by ~~$0.8~~$6.4 million as no tax benefit was recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2020 as a result of the full valuation allowance recorded by the Company for the year ended December 31, 2019.

Net Loss. Net loss ~~increased $11.6~~decreased $2.3 million, or ~~493.1%~~11.8%, for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$13.9~~$17.3 million as compared to ~~$2.3~~$19.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The ~~increase~~decrease was primarily attributable to higher gross profit and lower general and administrative expenses as discussed above partially offset by the loss on extinguishment of debt ~~as discussed above~~ and ~~lower gross profit, partially offset by lower general and administrative expenses and interest expense, net.~~ a decrease in income tax benefit.

Condensed Consolidated Balance Sheets

The following table is a summary of our overall financial position:


	March 31, 2020		December 31, 2019		Change			June 30, 2020		December 31, 2019		Change
	(in thousands)							(in thousands)
Total assets	$	401,668	$	355,756	$	45,912		$	380,169	$	355,756	$	24,413
Total liabilities	338,749		302,483		36,266			320,158		302,483		17,675
Mezzanine equity	23,513		—		23,513			24,549		—		24,549
Total equity	39,406		53,273		(13,867		)	35,462		53,273		(17,811		)

Assets

Total assets increased ~~$45.9~~$24.4 million driven primarily by a ~~$28.3 million increase in accounts receivable associated with the Allied spring outage nuclear services and a $21.4~~$25.4 million increase in cash as proceeds associated with our Series A Preferred Stock (the “Preferred Stock”) offering and borrowings under the Credit Facility (as defined below) were used to fund working capital requirements ~~related to the spring outage services~~ and other operations. Furthermore, ~~contact assets~~restricted cash increased ~~$6.5~~$13.0 million ~~associated with costs and estimated earnings in excess of billings~~ related to ~~our~~a specific remediation and compliance ~~services.~~project that started operations during the second quarter of 2020. Finally, accounts receivable increased $6.2 million due to timing of collections. These increases were partially offset by a ~~$5.5~~$10.1 million decrease in property and equipment, net as depreciation expense exceeded new additions, a ~~$2.8~~$5.1 million decrease in inventory from improved inventory management, ~~and~~ a ~~$2.1~~$4.2 million decrease in intangible assets, net due to ~~amortization.~~amortization and a $0.8 million decrease in income tax receivable from the collection of state refunds.

Liabilities

Total liabilities increased ~~$36.3~~$17.7 million driven by a ~~$25.0~~$14.3 million increase in ~~accrued~~contract liabilities due to billings in excess of costs and earnings associated with a specific remediation and compliance project and a $12.5 million net increase in amounts owed under the Credit Facility to fund operations. Accrued and other liabilities ~~related to payroll and benefit expenses~~increased $3.0 million associated with the ~~Allied spring outage nuclear services~~deferral of certain employer payroll taxes under the CARES Act and fees associated with ~~the Preferred Stock Offering (as defined below) and~~ the Third Amendment of the Credit Facility as discussed further below in “—Liquidity and Capital Resources—Our Debt Agreements—Existing Credit Facility” ~~and a $20.0 million net increase in amounts owed under~~partially offset by the ~~Credit Facility to fund operations.~~timing of payroll liabilities associated with the Allied spring outage nuclear services. These increases were partially offset by a ~~$6.6~~$8.0 million decrease in accounts payable and a ~~$2.1~~$4.2 million decrease in our asset retirement obligation associated with our maintenance and monitoring requirement payments.

Mezzanine Equity

Total mezzanine equity increased ~~$23.5~~$24.5 million related to the initial liquidation preference of $26.0 million, net of offering costs, Original Issue Discount ("OID"), paid in-kind dividends and ~~OID~~accretion associated with the Preferred Stock Offering.

Equity

Total equity decreased ~~$13.9~~$17.8 million driven primarily by the ~~$13.9~~$17.3 million net loss, a ~~$0.6~~decrease of $1.1 million from paid in-kind and deemed dividends associated with our Preferred Stock, a $0.7 million decrease related to distributions to our non-controlling interest and a ~~decrease of~~ $0.1 million decrease related to taxes paid from ~~accrued paid-in-kind dividends associated with our Preferred Stock,~~the net settlement of shares vested, partially offset by an increase of ~~$0.7~~$1.5 million in share-based compensation.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash on the balance sheet, cash flows generated by operating activities and borrowings under the Credit Facility. In part due to longer sales cycles, driven by the increase in the size, scope and complexity of remediation and compliance projects that we are bidding on, we have experienced contract initiation delays and project completion delays which have adversely affected our revenue and overall liquidity. Our lengthy and complex projects require us to expend large sums of working capital and delays in payment receipts, project commencement or project completion can adversely affect our financial position and the cash flows that normally would fund our expenditures.

As of ~~March 31,~~June 30, 2020, we had total liquidity of ~~$37.3~~$41.3 million, comprised of ~~$26.3~~$30.4 million of cash on hand and ~~$11.0~~$10.9 million availability under the Revolving Loan. We believe our cash on hand and cash generated from operations will be sufficient to cover our working capital requirements and debt obligations for the next 12 months from the issuance of this Quarterly Report.

Cash Flows

The following table sets forth our cash flow data:


	Three Months Ended									Six Months Ended
	March 31,						Change			June 30,						Change
	2020			2019			$			2020			2019			$
	(dollars in thousands)									(dollars in thousands)
Cash flows (used in) provided by operating activities	$	(18,320	)	$	6,175		$	(24,495	)
Cash flows provided by (used in) operating activities										$	9,228		$	(3,428	)	$	12,656
Cash flows used in investing activities	(1,170		)	(6,670		)	5,500			(1,449		)	(9,984		)	8,535
Cash flows provided by financing activities	40,887			54			40,833			30,720			16,093			14,627
Net change in cash	$	21,397		$	(441	)	$	21,838		$	38,499		$	2,681		$	35,818

Operating Activities

Net cash provided by operating activities increased $12.7 million for the six months ended June 30, 2020 to $9.2 million as compared to $3.4 million of net cash used in operating activities ~~increased $24.5 million~~ for the ~~three~~six months ended ~~March 31, 2020 to $18.3 million as compared to $6.2 million of net cash provided by operating activities for the three months ended March 31,~~June 30, 2019. The change in cash flows ~~used in~~provided by operating activities was primarily attributable to the ~~$3.0~~$10.9 million ~~increase~~reduction in net loss, excluding the $8.6 million loss in extinguishment of debt, and a ~~$21.7~~$3.8 million increase in ~~working capital requirements related to increased spring outage nuclear services~~other asset and liabilities associated with the deferral of certain employer payroll taxes under the CARES Act partially offset by a $2.8 million increase in cash paid for interest during the ~~three~~six months ended ~~March 31, 2020 and a decrease in cash collected of trade receivables during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.~~June 30, 2020.

Investing Activities

Net cash used in investing activities decreased ~~$5.5~~$8.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$1.2~~$1.4 million as compared to ~~$6.7~~$10.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The change in cash flows used in investing activities was primarily attributable to decreases in capital expenditures during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

Financing Activities

Net cash provided by financing activities increased ~~$40.8~~$14.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 to ~~$40.9~~$30.7 million as compared to ~~$0.1~~$16.1 million the ~~three~~six months ended ~~March 31,~~June 30, 2019. The change in cash flows provided by financing activities was primarily attributable to a ~~$24.5~~$24.2 million net increase in proceeds received from the Preferred Stock offering during the ~~three~~six months ended ~~March 31, 2020 and~~June 30, 2020. This increase was partially offset by a $8.5 million net ~~increase of $17.3 million~~decrease in Credit Facility and other debt proceeds received during the ~~three~~six months ended ~~March 31, 2020. These increases were partially offset by~~June 30, 2020 and a ~~$0.9~~$1.5 million increase in debt issuance costs paid during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

Working Capital

Our working capital, which we define as total current assets less total current liabilities, totaled $~~18.6~~13.8 million at ~~March 31,~~June 30, 2020 as compared to a working capital deficit of $16.1 million at December 31, 2019. This increase in net working capital for the ~~three~~six months ended ~~March 31,~~June 30, 2020 was primarily due to increases in cash associated with proceeds from the Preferred Stock offering and borrowings under the Credit Facility, increases in restricted cash related to a specific remediation and compliance project, increases in accounts receivable ~~resulting from the spring nuclear outage season~~due to timing of collections and a decrease in accounts payable. These changes were partially offset by increases in contract liabilities due to billings in excess of costs and earnings associated with a specific remediation and compliance project and increases in accrued liabilities ~~related to~~from the ~~spring nuclear outage season and fees associated with~~deferral of certain employer payroll taxes under the ~~Preferred Stock offering.~~CARES Act.

Our Debt Agreements

Existing Credit Facility

On September 21, 2018, we entered into a credit agreement (the “Credit Facility”) by and among us, the lenders party thereto from time to time, and Bank of America, N.A., as administrative agent (the “Administrative Agent”). The Credit Facility includes:

A revolving loan not to exceed $50.0 million (the “Revolving Loan”);

A term loan of $205.0 million (the “Closing Date Term Loan”); and

A commitment to loan up to a further $25.0 million in term loans, which expires in March 2020 (the “Delayed Draw Commitment” and the term loans funded under such Delayed Draw Commitment, the “Delayed Draw Term Loan,” together with the Closing Date Term Loan, the “Term Loan”).

After the Third Amendment all amounts associated with the Revolving Loan and the Term Loan under the Credit Facility will mature in July 2022, as discussed more fully below. The interest rates per annum applicable to the loans under the Credit Facility are based on a fluctuating rate of interest measured by reference to, at our election, either (i) the Eurodollar rate, currently the London Inter-bank Offered Rate (“LIBOR”), or (ii) an alternative base rate. Defined margins are added to the interest rate based upon our election of either the Eurodollar rate or the base rate. Customary fees are payable in respect of the Credit Facility and include (i) commitment fees for the unused portions of the Credit Facility and (ii) fees on outstanding letters of credit. Amounts borrowed under the Credit Facility are secured by substantially all of the assets of the Company.

The Revolving Loan provides a principal amount of up to $50.0 million, reduced by outstanding letters of credit. As of ~~March 31,~~June 30, 2020, $~~27.0~~24.5 million was outstanding on the Revolving Loan and ~~$12.0~~$14.5 million of letters of credit were outstanding.

In addition, pursuant to the terms of the Second Amendment, the Credit Facility was amended to revise the required financial covenant ratios, which have been modified as described below. As consideration for these accommodations, we agreed that amounts borrowed pursuant to the Delayed Draw Commitment would not exceed $15.0 million at any one time outstanding (without reducing the overall Delayed Draw Commitment amount). Further, the margin of interest charged on all outstanding loans was increased to 4.00% for loans based on LIBOR and 3.00% for loans based on the alternative base rate. The Second Amendment revised the amount of (i) the commitment fees to 0.35% at all times for the unused portions of the Credit Facility and (ii) fees on outstanding letters of credit to 3.35% at all times. The Second Amendment also added a requirement to make two additional scheduled prepayments of outstanding loans under the Credit Facility, including a payment of $50.0 million on or before September 13, 2019 and an additional payment of $40.0 million on or before March 31, 2020. The $50.0 million payment was made before September 13, 2019, using proceeds of the Brickhaven deemed termination payment.

The Second Amendment also included revisions to the restrictive covenants, including removing certain exceptions to the restrictions on our ability to make acquisitions, to make investments and to make dividends or other distributions. After giving effect to the Second Amendment, we will not be permitted to make any distributions or dividends to our stockholders without the consent of the required lenders. We are required to pay the Administrative Agent an amendment fee in an amount equal to 1.00% of the total credit exposure under the Credit Facility immediately prior to the effectiveness of the Second Amendment, with such fee due and payable on August 16, 2020, provided that the Credit Facility has not been terminated prior to such date.

In March 2020, the Company entered into Amendment No. 3 to Credit Agreement (the “Third Amendment”).

Pursuant to the terms of the Third Amendment, the Credit Facility was amended to waive the mandatory $40.0 million prepayment due on or before March 31, 2020, and to revise the required financial covenant ratios such that, after giving effect to the Third Amendment, we are not required to comply with any financial covenants through December 30, 2020. After December 30, 2020, we will be required to comply with a maximum consolidated net leverage ratio of 6.50 to 1.00 from December 31, 2020 through June 29, 2021, decreasing to 6.00 to 1.00 from June 30, 2021 through December 30, 2021, and to 3.50 to 1.00 as of December 31, 2021 and thereafter. After giving effect to the Third Amendment, we will also be required to comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of December 31, 2020, increasing to 1.20 to 1.00 as of March 31, 2021 and thereafter. Our ability to comply with such financial covenants is dependent upon the Company’s forecasted leverage and adjusted EBITDA for the applicable periods, which could be impacted by the effects of COVID-19 or other unforeseen factors. In the event that we are unable to comply in the future with such financial covenants upon delivery of our financial statements pursuant to the terms of the Credit Facility, an Event of Default (as defined in the Credit Facility) will have occurred

and the Administrative Agent can then, following a specified cure period, declare the unpaid principal amount of all outstanding loans, all interest accrued and unpaid thereon, and all other amounts payable to be immediately due and payable by the Company.

The Third Amendment increased the maximum amount available to be borrowed pursuant to the Delayed Draw Commitment from $15.0 million to $25.0 million, subject to certain quarterly amortization payments. The Third Amendment also included revisions to the restrictive covenants, including increasing the amount of indebtedness that the Company may incur in respect of certain capitalized leases from $50.0 million to $75.0 million.

Under the Third Amendment, the Company has agreed to make monthly amortization payments in respect of term loans beginning in April 2020, and to move the maturity date for all loans under the Credit Agreement to July 31, 2022 (the “Maturity Date”). In addition, if at any time after August 13, 2019, the outstanding principal amount of the Delayed Draw Term Loans exceeds $10.0 million, we will incur additional interest at a rate equal to 10.0% per annum on all daily average amounts exceeding $10.0 million ~~payable at~~which was paid on March 31, 2020 and will also be payable at the Maturity Date. Further, the Third Amendment requires mandatory prepayments of revolving loans with any cash held by the Company in excess of $10.0 million, which excludes the amount of proceeds received in respect of the Preferred Stock Offering (as defined below) to the extent such funds are used for liquidity and general corporate purposes. The Company has also agreed to an increase of four percent (4%) to the interest rate applicable to the Closing Date Term Loan that will be compounded monthly and paid ~~in kind~~in-kind by adding such portion to the outstanding principal amount.

As a condition to entering into the Second Amendment, we are required to pay the Administrative Agent an amendment fee (the “Second Amendment Fee”) in an amount equal to 1.50% of the total credit exposure under the Credit Facility, immediately prior to the effectiveness of the Second Amendment. Of the Second Amendment Fee, 0.50% was due and paid on October 15, 2019, and 1.00% of such Second Amendment Fee will become due and payable on August 16, 2020 if the facility has not been terminated on or prior to August 15, 2020. We are also required to pay the Administrative Agent an amendment fee associated with the Third Amendment (the “Third Amendment Fee”) in an amount equal to 0.20% of the total credit exposure under the Credit Facility, immediately prior to the effectiveness of the Third Amendment, with such Third Amendment Fee ~~being due and payable~~paid on June 30, 2020. Finally, we will also pay an additional fee with respect to the Third Amendment in the amount of $2.0 million with such fee being due and payable on the Maturity Date; provided that if the facility is terminated by December 31, 2020, 50% of this fee shall be waived.

In accordance with ASC 470, Debt, the Company calculated the present value of the cash flows for purposes of applying the 10 percent cash flow test for the Third Amendment and concluded that the original and new debt instruments were substantially different, necessitating that the Third Amendment be accounted for as an extinguishment. As a result of the Company’s Third Amendment, the Company capitalized ~~$1.5~~$1.6 million in third-party fees which will be amortized as interest expense until July 31, 2022. In addition, the Company expensed $5.2 million in amendment fees as discussed above which is included in loss on extinguishment of debt in the accompanying Condensed Consolidated Statements of Operations. Finally, the Company wrote off $3.4 million in debt issuance costs which is included in loss on extinguishment of debt in the accompanying Condensed Consolidated Statements of Operations.

Series A Preferred Stock

As a condition to the Third Amendment, the Company entered into an agreement with an investment fund affiliated with Bernhard Capital Partners Management, LP (“BCP” ~~or the “Holder”~~) to sell 26,000 shares of Series A Preferred Stock, par value $0.01 per share (the “Preferred Stock”), for net proceeds of approximately $25.2 million in a private placement (the “Preferred Stock Offering”). The Preferred Stock will have an initial liquidation preference of $1,000 per share and will pay a dividend at the rate of 10% per annum in cash, or 13% if the Company elects to pay ~~dividends-in-kind~~dividends in-kind by adding such amount to the liquidation preference. The Company’s intention is to pay dividends-in-kind for the foreseeable future. Proceeds from the Preferred Stock Offering will be used for liquidity and general corporate purposes.

For more information related to the Series A Preferred Stock, see Note 11 “Mezzanine Equity” to the accompanying unaudited condensed consolidated financial statements.

Equipment Financing Facilities

We have entered into various equipment financing arrangements to finance the acquisition of certain equipment (the “Equipment Financing Facilities”). As of ~~March 31,~~June 30, 2020, we had ~~$34.2~~$32.2 million of equipment notes outstanding. Each of the Equipment Financing Facilities includes non-financial covenants, and, as of ~~March 31,~~June 30, 2020, we were in compliance with these covenants.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are not financial measures determined in accordance with GAAP.

We believe Adjusted EBITDA and Adjusted EBITDA margin are useful performance measures because they allow for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net loss attributable to Charah Solutions, Inc. in arriving at Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net loss attributable to Charah Solutions, Inc. determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from Adjusted EBITDA. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies. We use Adjusted EBITDA margin to measure the success of our business in managing our cost base and improving profitability. The following table presents a reconciliation of Adjusted EBITDA to net loss attributable to Charah Solutions, Inc., our most directly comparable financial measure calculated and presented in accordance with GAAP, along with our Adjusted EBITDA margin.


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2020			2019			2020			2019			2020			2019
	(in thousands)						(in thousands)
Net loss attributable to Charah Solutions, Inc.	$	(14,250	)	$	(2,819	)	$	(3,536	)	$	(18,026	)	$	(17,786	)	$	(20,845	)
Interest expense, net	3,630			5,052			4,826			4,102			8,456			9,154
Loss on extinguishment of debt	8,603			—			—			—			8,603			—
Income tax benefit	—			(761		)	—			(5,628		)	—			(6,389		)
Depreciation and amortization	6,524			6,257			6,750			5,378			13,274			11,635
Elimination of certain non-recurring legal costs and expenses⁽¹⁾	(264		)	(746		)	(1,873		)	—			(2,137		)	(746		)
Equity-based compensation	732			208			738			799			1,470			1,007
Brickhaven contract deemed termination revenue reversal							—			10,000			0			10,000
Transaction-related expenses and other items⁽²⁾	218			1,715			599			1,022			817			2,737
Adjusted EBITDA	$	5,193		$	8,906		$	7,504		$	(2,353	)	$	12,697		$	6,553
Adjusted EBITDA margin⁽³⁾	3.2%			5.5%			5.6%			(1.9)%			4.3%			2.3%


(1)	Represents non-recurring legal costs and expenses, which amounts are not representative of those that we historically incur in the ordinary course of our business. Negative amounts represent insurance recoveries related to these matters.


(2)	Represents expenses associated with the Amendment to the Credit Facility, SCB transaction expenses, executive severance costs, IPO-related costs, and other miscellaneous items.


(3)	Adjusted EBITDA margin is a non-GAAP financial measure that represents the ratio of Adjusted EBITDA to total revenue. We use Adjusted EBITDA margin to measure the success of our businesses in managing our cost base and improving profitability.

Off-Balance Sheet Arrangements

We currently have no material off-balance sheet arrangements except for operating leases as referenced within Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation,” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Contractual Obligations

As of ~~March 31,~~June 30, 2020, there have been no material changes in our outstanding contractual obligations from those disclosed within Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation,” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Critical Accounting Policies and Estimates

There were no changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recent Accounting Pronouncements

Please see Note 2, “Recent Accounting Pronouncements,” to the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report and Note 2, “Summary of Significant Accounting Policies,” to the consolidated and combined financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of recent accounting pronouncements.

Under the Jumpstart Our Business Startups Act (the “JOBS Act”), we meet the definition of an “emerging growth company,” which allows us to have an extended transition period for complying with new or revised financial accounting standards pursuant to Section 107(b) of the JOBS Act. We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until we are no longer an emerging growth company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. Currently, our market risks relate to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates. Going forward, our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.

Interest Rate Risk

As of ~~March 31,~~June 30, 2020, we had ~~$164.9~~$161.2 million of debt outstanding under the Term Loan and the Delayed Draw Commitment and ~~$27.0~~$24.5 million of debt outstanding under the Revolving Loan, with an interest rate of ~~5.0%~~4.1%. A 1.0% increase or decrease in the interest rate would increase or decrease interest expense by approximately $1.9 million per year assuming a consistent debt balance and without taking into consideration any impact from the change in fair value of our interest rate swap. We currently have an interest rate swap in place with respect to outstanding indebtedness under the Term Loan that provides a ceiling on three-month LIBOR at 2.5% for a notional amount of $150.0 million. A fair value liability of ~~$1.2 million and~~ $1.1 million was recorded with respect to our interest rate cap in the unaudited condensed consolidated balance sheets within other current liabilities as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively.

Credit Risk

While we are exposed to credit risk in the event of non-performance by counterparties, the majority of our customers are investment grade companies and we do not anticipate non-performance. We mitigate the associated credit risk by performing credit evaluations and monitoring the payment patterns of our customers.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d‑15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based on such evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2020, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended ~~March 31,~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In response to the COVID-19 pandemic, the majority of our office employees have been working remotely since the middle of March 2020. We have taken precautionary measures to ensure our internal control over financial reporting addressed risks working in a remote environment. We are continually monitoring and assessing the COVID-19 potential effects on the design and operating effectiveness of our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are party to a lawsuit filed against North Carolina by an environmental advocacy group alleging that the issuance by the state of certain permits associated with our Brickhaven clay mine reclamation site exceeded the state’s power. Although the state’s authority to issue the bulk of the permits (i.e., the allowance to reclaim the original site with coal ash) was upheld, the portion of the permits that allows us to “cut and prepare” an additional portion of the site was held by the North Carolina Superior Court to exceed the relevant agency’s statutory authority. The North Carolina Superior Court’s decision was reversed and remanded back to the North Carolina Office of Administrative Hearing (“NCOAH”) due to the North Carolina Superior Court’s having used an improper standard of review. While the NCOAH upheld the state’s authority to issue the bulk of the permits, it too held that a portion of the permits that allowed us to “cut and prepare” an additional portion of the site was in excess of the relevant agency’s authority. We have filed a petition for judicial review with the North Carolina Superior Court. All customer related work at the Brickhaven site has been completed.

Item 1A. Risk Factors

For a detailed discussion of known material factors which could materially affect our business, financial condition or future results, refer to Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”). and under Part II, Item 1A of the Company's Quarterly Report on Form 10-Q for the first quarter 2020. There have been no material changes in our risk factors, ~~from those included in the Annual Report,~~ except as noted below.

Our results of operations could be materially adversely impacted by the COVID-19 pandemic.

The global spread of the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic and actions taken in response on economic activity; the effect on our ability to perform our services offerings to our customers; the effect on demand for our byproduct sales, which is largely driven by the amount of construction activity; delays in new contract awards, work-from-home programs and customers seeking to mitigate capital-intensive expenditures and conserve cash flow; the ability of our customers to pay for our goods and services; and any closures of our offices and of our customers’ plants and facilities. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements.

Further, the effects of the pandemic may also increase our cost of capital or make additional capital, including the refinancing of the Credit Facility, more difficult or available only on terms less favorable to us, if at all. A sustained downturn may also result in the carrying value of our long-lived assets exceeding their fair value, which may require us to recognize an impairment to those assets. The effects of the COVID-19 pandemic, including remote working arrangements for employees, may also impact our financial reporting systems and internal control over financial reporting, including our ability to ensure information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Any of these events could cause or contribute to the risks and uncertainties enumerated in the Annual Report and could materially adversely affect our business, financial condition, results of operations and/or stock price.

WeWhile we are ~~not~~currently in compliance with ~~certain~~all NYSE ~~continued~~ listing requirements, we have been out of compliance in the past and ~~sustained non-compliance~~may be out of compliance in the future. Failure to remain compliant with all NYSE listing standards could lead to the delisting of our common stock which could have a material, adverse effect on our business, operating results and financial condition.

On May 12, 2020, we disclosed that we were not in compliance with an NYSE continued listing standard because our average global market capitalization over a 30-trading day period was below the NYSE requirement of $50 million and, as of March 31, 2020, our stockholder’s equity was below the NYSE’s requirement of $50 million (the “Market Capitalization Listing Requirement”). Currently, our average global market capitalization over a 30-trading day period was above the $50 million requirement and we are in compliance with all NYSE continued listing standards.

It is possible that the price of our common stock may decline in the future such that we are no longer in compliance with the Market Capitalization Listing Requirement. Our non-compliance with the Market Capitalization Listing Requirement could lead to our common stock being delisted from the NYSE. If our common stock were to be suspended or delisted, it would become more difficult to trade our common stock, which would reduce the liquidity and price of our common stock. Further, delisting may adversely affect our relationships with our business partners and suppliers and customers’ and potential customers’ decisions to purchase our products and services and could have a material, adverse impact on our business, operating results and financial condition.

If we do not regain compliance with the Market Capitalization Listing Requirement, our common stock will be subject to the NYSE’s suspension and delisting procedures. If our common stock were to be suspended or delisted, it would become more difficult to trade our common stock, which would reduce the liquidity and price of our common stock.

We expect to submit to the NYSE a plan of definitive action we are taking that we believe will bring us into compliance with the Market Capitalization Listing Requirement. If our plan is accepted, we will remain listed on the NYSE and the NYSE will closely monitor our attempt to implement our plan over the cure period allowed under the rules of the NYSE and a failure to achieve the initiatives and goals included in the plan will result in our being subject to a NYSE trading suspension at the time any initiative or goal is not met. In order to regain compliance with the Market Capitalization Listing Requirement, we will either have to maintain a 30-trading day average of $50 million global market capitalization for two consecutive quarters within the plan period or exceed the 30-day average $50 million global market capitalization requirement at the end of the plan period. Our failure to do so will result in a suspension by the NYSE of trading in our common stock and the initiation of procedures to delist our common stock.

In addition, if our average global market capitalization over a consecutive 30-trading day period is less than $15 million, the NYSE will promptly initiate suspension and delisting procedures and, under the NYSE’s continued listing standards, we will not have any opportunity to regain compliance and our common stock will be delisted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities

The following table provides information about repurchases of our common stock during the three months ended ~~March 31,~~June 30, 2020:

Period
Total Number of Shares Purchased⁽¹⁾
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2020 through January 31, 2020 —
$ —
—
$ —
February 1, 2020 through February 29, 2020 —
—
—
—
March 1, 2020 through March 31, 2020 5,953
2.19
—
—
Total 5,953
—



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2020 through April 30, 2020	57,971	$	1.71	—	$	—
May 1, 2020 through May 31, 2020	—	—		—	—
June 1, 2020 through June 30, 2020	—	—		—	—
Total	57,971			—


(1)	Represents shares of common stock withheld for income tax purposes in connection with the vesting of shares of restricted stock issued to employees.

Item 6. Exhibits



Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of Charah Solutions, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed June 22, 2018 (File No. 001-38523)).
3.2		Certificate of Designations of Series A Preferred Stock, dated March 16, 2020 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed March 18, 2020 (File No. 001-38523)).
3.3		Amended and Restated Bylaws of Charah Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed June 22, 2018 (File No. 001-38523)).
4.1		~~Amendment No. 1 to Registration Rights~~Waiver of Right Under Stockholders’ Agreement (CEP Holdings, Inc.) of CEP Holdings, Inc., dated ~~March 16,~~July 9, 2020 ~~by and between Charah Solutions, Inc. and BCP Energy Services Fund, LP, BCP Energy Services Fund-A, LP, Charah Holdings LP, and Charah Preferred Stock Aggregator, LP~~ (incorporated by reference to Exhibit ~~3.1~~4.1 to the Current Report on Form 8-K filed ~~March 18, 2020 (File No. 001-38523)).~~
~~10.1~~		Series A Preferred Stock Purchase Agreement between Charah Solutions, Inc. and Charah Preferred Stock Aggregator, LP, as purchaser, dated March 5, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed March 6, 2020 (File No. 001-38523)).
~~10.2~~		Amendment No. 3 to Credit Agreement and Waiver, by and among Charah Solutions, Inc., Bank of America, N.A., as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein, dated March 5, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed March 6,July 15, 2020 (File No. 001-38523)).
31.1*		Certification of Principal Executive Officer pursuant to Rule 13a‑14(a)/15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer pursuant to Rule 13a‑14(a)/15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

___________



*		Filed herewith.
**		Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	CHARAH SOLUTIONS, INC.


~~May 12,~~August 11, 2020	By:	/s/ Scott A. Sewell
	Name:	Scott A. Sewell
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)


~~May 12,~~August 11, 2020	By:	/s/ Roger D. Shannon
	Name:	Roger D. Shannon
	Title:	Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

3539



Three Months Ended March 31, 2020	ES		M&TS		All Other		Total
Segment revenue	$	36,665	$	127,966	$	—	$	164,631
Segment gross profit	3,852		6,945		—		10,797
Segment depreciation and amortization expense	2,080		2,473		1,971		6,524
Expenditures for segment assets	562		595		27		1,184



Three Months Ended March 31, 2019	ES		M&TS		All Other		Total
Segment revenue	$	58,383	$	104,875	$	—	$	163,258
Segment gross profit	8,267		7,112		—		15,379
Segment depreciation and amortization expense	2,314		1,954		1,989		6,257
Expenditures for segment assets	3,771		3,369		—		7,140



As of March 31, 2020	ES		M&TS		All Other		Total
Segment property and equipment, net	$	45,550	$	34,019	$	227	$	79,796
Segment goodwill	57,591		16,622		—		74,213