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 June 30, ~~2019~~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)

~~12601 Plantside Drive~~

~~Louisville, Kentucky 40299~~

~~(Address of principal executive offices) (Zip Code)~~

~~(502) 245-1353~~

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

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



Title of each class	Trading ~~symbol(s)~~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 August ~~2, 2019,~~1, 2020, the registrant had ~~29,586,165~~29,985,763 shares of common stock outstanding.

CHARAH SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, ~~2019~~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 June 30, ~~2019~~2020 and December 31, ~~2018~~2019	1
Condensed Consolidated ~~& Combined~~ Statements of Operations for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	32
Condensed Consolidated ~~& Combined~~ Statements of Stockholders’ ~~and Members’~~ Equity for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	43
Condensed Consolidated ~~& Combined~~ Statements of Cash Flows for the Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	65
Notes to Condensed Consolidated ~~& Combined~~ Financial Statements	87
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2325
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3536
Item 4. Controls and Procedures	3536

PART II - OTHER INFORMATION	37
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6. Exhibits	38

SIGNATURES	4039

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 ~~revenues~~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, although~~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, ~~2018.~~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, ~~revenues~~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 ~~historical.~~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” ~~in the~~of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~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

(~~dollars~~ in thousands, except ~~per share data)~~par value amounts)

(Unaudited)

June 30,
2019 December 31, 2018

Assets
Current assets:
Cash $ 9,581
$ 6,900
Trade accounts receivable 47,706
60,742
Receivable from affiliates 828
894
Costs and estimated earnings in excess of billings 90,375
86,710
Inventory 22,306
25,797
Prepaid expenses and other current assets 3,946
5,133
Total current assets 174,742
186,176
Property and equipment:
Plant, machinery and equipment 73,482
74,896
Structural fill site improvements 55,760
55,760
Vehicles 19,726
17,407
Office equipment 2,322
1,623
Buildings and leasehold improvements 262
262
Structural fill sites 7,110
7,110
Construction in progress 9,596
3,488
Total property and equipment 168,258
160,546
Less accumulated depreciation (80,969 ) (71,605 )
Property and equipment, net 87,289
88,941
Other assets:
Trade names, net 34,850
34,920
Customer relationships, net 59,951
63,898
Technology, net 1,753
1,853
Non-compete and other agreements, net 108
180
Other intangible assets, net —
22
Goodwill 74,213
74,213
Other assets —
891
Deferred tax asset 9,136
2,747
Equity method investments 5,218
5,060
Total assets $ 447,260
$ 458,901



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

Liabilities, mezzanine equity and stockholders’ equity
Current liabilities:
Accounts payable	17,433			25,510
Contract liabilities	14,955			582
Notes payable, current maturities	38,721			34,873
Asset retirement obligation, current portion	5,845			9,944
Purchase option liability	7,110			7,110
Accrued liabilities	37,496			35,490
Other current liabilities	1,086			1,116
Total current liabilities	122,646			114,625
Deferred tax liabilities	1,492			1,492
Contingent payments for acquisitions	11,586			11,481
Asset retirement obligation	5,103			5,187
Line of credit	24,500			19,000
Notes payable, less current maturities	153,831			150,698
Other liabilities	1,000			—
Total liabilities	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 June 30, 2020; aggregate liquidation preference of $27,000 as of June 30, 2020	24,549			—

Stockholders’ equity
Retained losses	(50,788		)	(33,002		)
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	85,380			85,187
Total stockholders’ equity	34,892			52,481
Non-controlling interest	570			792
Total equity	35,462			53,273
Total liabilities, mezzanine equity and stockholders’ equity	$	380,169		$	355,756

See accompanying notes to condensed consolidated ~~& combined financial statements.~~

~~CHARAH SOLUTIONS, INC.~~

~~Condensed Consolidated Balance Sheets~~

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

~~(Unaudited)~~

June 30,
2019 December 31, 2018
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 29,273
$ 24,821
Billings in excess of costs and estimated earnings 160
1,352
Notes payable, current maturities 108,722
23,268
Accrued payroll and bonuses 11,588
15,480
Asset retirement obligation, current portion 14,126
14,704
Purchase option liability 7,110
10,017
Accrued expenses 20,628
22,473
Other liabilities 905
—
Total current liabilities 192,512
112,115
Long-term liabilities:
Contingent payments for acquisitions 11,349
11,214
Asset retirement obligation, less current portion 6,819
11,361
Line of credit 35,174
19,799
Notes payable, less current maturities 127,837
211,022
Total liabilities 373,691
365,511
Commitments and contingencies (see Note 11)

Stockholders’ equity:
Retained (losses) earnings (11,431 ) 9,414
Common Stock, $0.01 par value; 200,000,000 shares authorized; 29,586,165 and 29,082,988 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively 296
291
Additional paid-in capital 83,681
82,880
Total stockholders’ equity 72,546
92,585
Non-controlling interest 1,023
805
Total equity 73,569
93,390
Total liabilities and equity $ 447,260
$ 458,901

~~See accompanying notes to condensed consolidated & combined~~ financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated ~~& Combined~~ Statements of Operations

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

(Unaudited)

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Revenue $ 120,936
$ 195,723
$ 284,194
$ 351,252
Cost of sales 123,001
165,174
270,880
301,605
Gross (loss) profit (2,065 ) 30,549
13,314
49,647
General and administrative expenses 17,400
18,937
31,385
33,319
Operating (loss) income (19,465 ) 11,612
(18,071 ) 16,328
Interest expense, net (4,102 ) (5,543 ) (9,154 ) (9,674 )
Income from equity method investment 663
699
1,217
1,286
(Loss) income before income taxes (22,904 ) 6,768
(26,008 ) 7,940
Income tax provision (5,628 ) 2,906
(6,389 ) 2,906
Net (loss) income (17,276 ) 3,862
(19,619 ) 5,034
Less income attributable to non-controlling interest 750
642
1,226
1,009
Net (loss) income attributable to Charah Solutions, Inc. $ (18,026 ) $ 3,220
$ (20,845 ) $ 4,025

(Loss) earnings per common share:
Basic $ (0.61 ) $ 0.13
$ (0.71 ) $ 0.17
Diluted $ (0.61 ) $ 0.13
$ (0.71 ) $ 0.16

Weighted-average shares outstanding used in (loss) earnings per common share:
Basic 29,558,752
24,477,829
29,374,295
24,096,186
Diluted 29,558,752
25,347,887
29,374,295
24,942,199

Pro forma net (loss) income information (see Note 1):
Net (loss) income attributable to Charah Solutions, Inc. before provision for income taxes $ (23,654 ) $ 6,126
$ (27,234 ) $ 6,931
Pro forma provision for income taxes (5,628 ) 1,517
(6,389 ) 1,720
Pro forma net (loss) income attributable to Charah Solutions, Inc. $ (18,026 ) $ 4,609
$ (20,845 ) $ 5,211



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Revenue	$	133,145		$	120,936		$	297,776		$	284,194
Cost of sales	122,411			123,001			276,245			270,880
Gross profit (loss)	10,734			(2,065		)	21,531			13,314
General and administrative expenses	9,637			17,400			22,393			31,385
Operating income (loss)	1,097			(19,465		)	(862		)	(18,071		)
Interest expense, net	(4,826		)	(4,102		)	(8,456		)	(9,154		)
Loss on extinguishment of debt	—			—			(8,603		)	—
Income from equity method investment	326			663			622			1,217
Loss before income taxes	(3,403		)	(22,904		)	(17,299		)	(26,008		)
Income tax benefit	—			(5,628		)	—			(6,389		)
Net loss	(3,403		)	(17,276		)	(17,299		)	(19,619		)
Less income attributable to non-controlling interest	133			750			487			1,226
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	)

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

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

See accompanying notes to condensed consolidated ~~& combined~~ financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated ~~& Combined~~ Statements of Stockholders’ ~~and Members’~~ Equity

(~~dollars~~ in ~~thousands)~~thousands, except share amounts)

(Unaudited)


	For the Three Months Ended June 30, 2019																		For the Three Months Ended June 30, 2019
	Charah Solutions, Inc.																		Mezzanine Equity			Permanent Equity
	Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital			Retained Earnings (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, March 31, 2019	29,554,588	$	296	$	83,083		$	6,595		$	89,974		$	699		$	90,673		—	$	—	29,554,588	$	296	$	83,083		$	6,595		$	89,974		$	699		90,673
Net (loss) income	—	—		—			(18,026		)	(18,026		)	750			(17,276		)	—	—		—	—		—			(18,026		)	(18,026		)	750			(17,276		)
Distributions	—	—		—			—			—			(426		)	(426		)	—	—		—	—		—			—			—			(426		)	(426		)
Share-based compensation expense	—	—		799			—			799			—			799			—	—		—	—		799			—			799			—			799
Shares issued under share-based compensation plans	31,577	—		—			—			—			—			—			—	—		31,577	—		—			—			—			—			—
Shares repurchases	—	—		(201		)	—			(201		)	—			(201		)
Taxes paid related to net settlement of shares																			—	—		—	—		(201		)	—			(201		)	—			(201		)
Balance, June 30, 2019	29,586,165	$	296	$	83,681		$	(11,431	)	$	72,546		$	1,023		$	73,569		—	$	—	29,586,165	$	296	$	83,681		$	(11,431	)	$	72,546		$	1,023		$	73,569

For the Three Months Ended June 30, 2018
Charah Solutions, Inc.
Common Stock (Shares) Common Stock (Amount) Additional Paid-In Capital Charah, LLC Members' Interest Allied Power Management, LLC Members' Interest
Retained
Earnings
Total
Non-Controlling
Interest
Total
Balance, March 31, 2018 —
$ —
$ —
$ 19,828
$ 9,687
$ 19,121
$ 48,636
$ 582
$ 49,218
Net income —
—
—
—
—
3,220
3,220
642
3,862
Share based compensation expense —
—
—
104
—
—
104
—
104
Distributions —
—
—
(686 ) —
—
(686 ) (338 ) (1,024 )
Conversion from members' interest to common stock 23,436,398
234
28,699
(19,246 ) (9,687 ) —
—
—
—
Issuance of shares 5,294,117
53
59,188
—
—
—
59,241
—
59,241
Share based common stock issued 372,169
4
(4 ) —
—
—
—
—
—
Shares repurchased (19,696 ) —
—
—
—
—
—
—
—
Share based compensation expense —
—
1,189
—
—
—
1,189
—
1,189
Deferred offering costs —
—
(8,622 ) —
—
—
(8,622 ) —
(8,622 )
Balance, June 30, 2018 29,082,988
$ 291
$ 80,450
$ —
$ —
$ 22,341
$ 103,082
$ 886
$ 103,968



	For the Three 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, March 31, 2020	26,000	$	23,513	29,616,882		$	296	$	85,794		$	(47,252	)	$	38,838		$	568		$	39,406
Net (loss) income	—	—		—		—		—			(3,536		)	(3,536		)	133			(3,403		)
Distributions	—	—		—		—		—			—			—			(131		)	(131		)
Share-based compensation expense	—	—		—		—		738			—			738			—			738
Shares issued under share-based compensation plans	—	—		426,852		4		(4		)	—			—			—			—
Taxes paid related to net settlement of shares	—	—		(57,971	)	—		(123		)	—			(123		)	—			(123		)
Issuance of Series A Preferred Stock, net of issuance costs	—	750		—		—		—			—			—			—			—
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

For the Six Months Ended June 30, 2019
Charah Solutions, Inc.
Common Stock (Shares) Common Stock (Amount) Additional Paid-In Capital
Retained
Earnings (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 ) —
—
—
—
Shares repurchases (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, 2018
Charah Solutions, Inc.
Common Stock (Shares) Common Stock (Amount) Additional Paid-In Capital Charah, LLC Members' Interest Allied Power Management, LLC Members' Interest
Retained
Earnings
Total
Non-Controlling
Interest
Total
Balance, December 31, 2017 —
$ —
$ —
$ 19,718
$ 9,687
$ 18,316
$ 47,721
$ 598
$ 48,319
Net income —
—
—
—
—
4,025
4,025
1,009
5,034
Share based compensation expense —
—
—
214
—
—
214
—
214
Distributions —
—
—
(686 ) —
—
(686 ) (721 ) (1,407 )
Conversion from members' interest to common stock 23,436,398
234
28,699
(19,246 ) (9,687 ) —
—
—
—
Issuance of shares 5,294,117
53
59,188
—
—
—
59,241
—
59,241
Share based common stock issued 372,169
4
(4 ) —
—
—
—
—
—
Shares repurchased (19,696 ) —
—
—
—
—
—
—
—
Share based compensation expense —
—
1,189
—
—
—
1,189
—
1,189
Deferred offering costs —
—
(8,622 ) —
—
—
(8,622 ) —
(8,622 )
Balance, June 30, 2018 29,082,988
$ 291
$ 80,450
$ —
$ —
$ 22,341
$ 103,082
$ 886
$ 103,968

See accompanying notes to condensed consolidated ~~& combined~~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 ~~& Combined~~ Statements of Cash Flows

(~~dollars~~ in thousands)

(Unaudited)

Six Months Ended
June 30, 2019 June 30, 2018
Cash flows from operating activities:
Net (loss) income $ (19,619 ) $ 5,034
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 11,635
17,135
Amortization of debt issuance costs 342
784
Deferred income tax provision (6,389 ) 1,919
Loss on sale of assets 1,305
582
Income from equity method investment (1,217 ) (1,286 )
Distributions received from equity investment 1,059
938
Non-cash share-based compensation 1,007
1,403
Loss (gain) on interest rate swap 1,796
(2,228 )
Interest accreted on contingent earnout liability 135
—
Changes in cash due to changes in:
Trade accounts receivable 13,036
(5,289 )
Receivable from affiliates 66
(82 )
Costs and estimated earnings in excess of billings (3,665 ) (22,305 )
Inventory 3,491
(825 )
Prepaid expenses and other current assets 1,187
(2,126 )
Accounts payable 4,452
8,587
Billings in excess of costs and estimated earnings (1,192 ) (8,783 )
Accrued payroll and bonuses (3,892 ) 1,946
Asset retirement obligation (5,120 ) 14
Accrued expenses (1,845 ) 2,396
Net cash used in operating activities (3,428 ) (2,186 )

Cash flows from investing activities:
Proceeds from the sale of equipment 1,507
1,102
Purchases of property and equipment (11,491 ) (8,233 )
Payments for business acquisitions, net of cash received —
(19,983 )
Purchase of intangible assets —
(31 )
Net cash used in investing activities (9,984 ) (27,145 )



	Six Months Ended
	June 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(17,299	)	$	(19,619	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	13,274			11,635
Loss on extinguishment of debt	8,603			—
Paid-in-kind interest on long-term debt	1,663			—
Amortization of debt issuance costs	214			342
Deferred income tax benefit	—			(6,389		)
Loss on sale of fixed assets	281			1,305
Income from equity method investment	(622		)	(1,217		)
Distributions received from equity investment	849			1,059
Non-cash share-based compensation	1,470			1,007
(Gain) loss on interest rate swap	(30		)	1,796
Interest accreted on contingent payments for acquisition	105			135
Increase (decrease) in cash due to changes in:
Trade accounts receivable	(6,220		)	13,036
Contract assets and liabilities	15,280			(4,857		)
Inventory	4,975			3,491
Accounts payable	(7,887		)	4,452
Asset retirement obligation	(4,183		)	(5,120		)
Other assets and liabilities	(1,245		)	(4,484		)
Net cash provided by (used in) operating activities	9,228			(3,428		)

Cash flows from investing activities:
Proceeds from the sale of equipment	155			1,507
Purchases of property and equipment	(1,604		)	(11,491		)
Net cash used in investing activities	(1,449		)	(9,984		)

Cash flows from financing activities:
Net proceeds from line of credit	5,500			15,375
Proceeds from long-term debt	15,781			9,994
Principal payments on long-term debt	(12,435		)	(8,067		)
Payments of debt issuance costs	(1,543		)	—
Taxes paid related to net settlement of shares	(137		)	(201		)
Net proceeds from issuance of convertible Series A Preferred Stock	24,263			—
Distributions to non-controlling interest	(709		)	(1,008		)
Net cash provided by financing activities	30,720			16,093
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
Cash, cash equivalents and restricted cash, end of period	$	44,627		$	9,581

Six Months Ended
June 30, 2019 June 30, 2018

Cash flows from financing activities:
Net proceeds on line of credit 15,375
—
Proceeds from long-term debt 9,994
8,400
Principal payments on long-term debt (8,067 ) (45,547 )
Repurchases of shares (201 ) —
Payments of offering costs —
(8,622 )
Issuance of common stock —
59,241
Distributions to non-controlling interest (1,008 ) (721 )
Distributions to members —
(686 )
Net cash provided by financing activities 16,093
12,065
Net increase (decrease) in cash 2,681
(17,266 )
Cash, beginning of period 6,900
32,264
Cash, end of period $ 9,581
$ 14,998

Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 4,889
$ 11,163
Cash paid during the year for taxes $ —
$ —

~~Non-cash investing and financing transactions~~

~~During the six months ended June 30, 2019 and 2018, the Company purchased equipment with seller-provided financing of $0 and $13,441, respectively.~~

See accompanying notes to condensed consolidated ~~& combined~~financial statements.



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

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

Supplemental Disclosures

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

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated ~~& Combined~~ Financial Statements

(~~dollars~~ in thousands, except per share ~~and unit~~ 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. The historical financial data presented herein as of June 30, 2019 and for the periods after the June 18, 2018 corporate reorganization described below is that of Charah and Allied on a consolidated basis, and is on a combined basis for the periods prior to the June 18, 2018 corporate reorganization.

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 ~~is a leading provider of~~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. ~~We offer~~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, ~~Louisiana~~North Carolina, and ~~North Carolina,~~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 ~~financial~~ 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.

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~

Basis for Presentation

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

The accompanying unaudited condensed consolidated ~~and combined~~ 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 ~~and combined~~ financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes thereto included in ~~the~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

~~Unaudited Pro Forma Income Information~~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 ~~unaudited pro forma income information gives effect~~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 ~~corporate reorganization that occurred in connection with~~Environmental Solutions segment. In November 2018, the ~~closing~~$15,000 to be paid over time was reduced by $3,300. As of June 30, 2020, the ~~IPO and the resulting legal entity~~present value of ~~Charah Solutions, which is incorporated as~~these future payments using a “C” Corporation. Prior to the corporate reorganization, the holding companies for Charah and Allied were limited liability companies and generally not subject to income taxes. The pro forma net income, therefore, includes an adjustment for income tax expense as if the holding companies for Charah and Allied had been “C” Corporations for all periods presented at an assumed combined federal, state and local effective income taxdiscount rate of ~~25% for~~2.50% was determined to be $11,586. The Company expects the ~~periods from January 1, 2018 through June 17, 2018, plus the actual tax expense for the periods after June 18, 2018. These rates approximate the calculated statutory tax rate for each period.~~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 pandemic continues 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 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 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 ~~(Topic 606)~~(“ASC 606”), ~~requiring an entity~~which provides a five-step framework to ~~recognize~~determine when and how revenue is recognized. We adopted ASC 606 on January 1, 2019, using the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The core principle of Accounting Standards Codification (“ASC”) Topic 606 is to recognize revenues when a customer obtains control of a good or service, in an amount that reflects the consideration to which an entity is expected to be entitled for those goods or services. Additionally, this ASU requires enhanced qualitative and quantitative disclosures regarding customer contracts. This ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a full retrospective transition method or a modified retrospective with cumulative effect transitionmodified-retrospective method.

To assess the impact of this ASU, we utilized internal resources to lead the implementation effort and supplemented them with external resources. The Company’s adoption activities were performed over three phases: (i) assessment, (ii) design and (iii) implementation using a cross-functional team that included accounting, operational and information technology personnel.

Based on our work to date, we believe we have identified all material contract types, revenues and costs that may be impacted by implementing ASC Topic 606. Generally, the Company believes the majority of its contracts will have similar performance obligations under ASC Topic 606 as compared with the units of account previously identified. We have identified certain contracts where the timing of revenue recognition will change under ASC Topic 606. Prior to the adoption of ASC Topic 606, revenue recorded for certain contracts with fluctuating rates per unit matched the amount that was billed to the customer. In accordance with ASC Topic 606, for contracts with fluctuating rates per unit that are not directly related to changes in the Company’s effort to perform under the contract, the Company will recognize revenue based on the stand-alone selling price per unit, calculated as the average rate per unit over the term of those contractual rates. This accounting treatment will at times create a contract asset or liability for the difference between the revenue recognized and the amount billable/billed to the customer.

~~As a calendar year-end emerging growth company that has elected to take advantage of the extended transition period forcomplying with new or revised~~ Our financial ~~accounting standards, we are required to adopt the new revenue standard~~results for annual reporting periods beginning on January 1, 2019 and for interim ~~periods within annual~~reporting periods beginning on January 1, ~~2020. Accordingly,~~2020 are presented under the ~~interim~~new accounting standard, while financial results for prior periods ~~within the year ending December 31, 2019~~ 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 ~~existing revenue standard, ASC Topic 605, while~~terms of the ~~annual period for~~contract are satisfied which generally occurs with the ~~year ending December 31, 2019 will be reported under ASC Topic 606. For~~transfer of control of the annual period for the year ending December 31, 2019, we will apply the requirements of ASC Topic 606 to all contracts using the modified retrospective with cumulative effect transition method. Accordingly, we will recognize the cumulative effect of initially applying the new revenue standard as an adjustmentgoods or services to the ~~opening balance of retained earnings for the year ending December 31, 2019.~~customer.

CHARAH SOLUTIONS, INC.

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

(~~dollars~~ in thousands, except per share ~~and unit~~ data)

(Unaudited)

The ~~comparative information will not be restated and will continue to be reported under the accounting standards in effect for the comparative periods. Based upon our assessment of the impact of the~~ adoption of ASC ~~Topic~~ 606 ~~we estimate a decrease~~had no impact on cash provided by or used in operating, investing, or financing activities on our accompanying unaudited condensed consolidated statement of ~~approximately $300 to the opening~~cash flows and no impact on our unaudited condensed consolidated statement of comprehensive income. The impact of adoption on our unaudited condensed consolidated balance ~~of retained earnings~~sheet 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 June 30, 2020 was as follows:



				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
	As Reported			Adoption of ASC 606			Higher / (Lower)
Statement of Operations
Revenue	$	297,776		$	297,736		$	40
Loss before income taxes	(17,299		)	(17,339		)	40
Net loss	(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, ~~2019, with an associated decrease in~~2020. The adoption of this ASU did not have a significant impact on the ~~contract asset balance “costs and estimated earnings in excess of billings.”~~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 ~~July 2019,~~June 2020, the FASB ~~tentatively changed~~issued ASU No. 2020-05 and delayed the effective date of this ASU, extending the effective date ~~by one year~~ 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 ~~August~~June 2016, the FASB issued ASU No. ~~2016-15,~~2016-13, ~~Statement~~Financial Instruments - Credit Losses (Topic 326) - Measurement of ~~Cash Flows: Classification~~Credit Losses on Financial Instruments, which introduces a new model for recognizing credit losses on financial instruments based on an estimate of ~~Certain Cash Receipts~~current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and ~~Cash Payments. This~~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 ~~addresses specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after~~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 ~~combination,~~entities and ~~proceeds from~~making the ~~settlement of insurance claims. This~~ ASU is effective for the Company for the fiscal ~~years beginning after~~year ending December ~~15, 2018,~~31, 2023, and interim periods ~~within fiscal years beginning after December 15, 2019. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.~~

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230)~~. This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Upon adopting this ASU, amounts generally described as restricted cash or restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows. ASU No. 2016-18 is effective for the Company for interim and annual periods beginning after December 15, 2018. The Company adopted ASU No. 2016-18 effective January 1, 2019, with retrospective application to our consolidated and combined statements of cash flows so that the consolidated and combined statements of cash flows present a reconciliation of the changes in cash and cash equivalents and restricted cash. The adoption of this ASU did not have a material impact to our consolidated financial statements. As a result of this retrospective adoption, the amount of cash and cash equivalents previously presented in the consolidated and combined statements of cash flows increased by $3,358 to reflect the inclusion of restricted cash in the amount reported for changes in cash, cash equivalents and restricted cash as of beginning and end of the period for the period from January 1, 2017 through January 12, 2017 and as of beginning of the period for the period from January 13, 2017 through December 31, 2017.

~~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. The Company will be required to adopt ASU No. 2017-04 for annual and any interim impairment tests for the periods beginning after December 15, 2019. ASU No. 2017-04 must be applied prospectively,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 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.

~~3. Business Combination~~4. Revenue

~~On March~~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				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Environmental Solutions
Product sales	$	21,400	$	24,890	$	43,161	$	47,402
Construction contracts	15,347		11,900		30,194		46,207
Services	1,115		160		1,172		1,724
Total Environmental Solutions	37,862		36,950		74,527		95,333

Maintenance and Technical Services
Services	95,283		83,986		223,249		188,861
Total Maintenance and Technical Services	95,283		83,986		223,249		188,861
Total revenue	$	133,145	$	120,936	$	297,776	$	284,194



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Environmental Solutions
United States	$	37,651	$	36,950	$	73,681	$	95,333
Foreign	211		—		846		—
Total Environmental Solutions	37,862		36,950		74,527		95,333

Maintenance and Technical Services
United States	95,283		83,986		223,249		188,861
Total Maintenance and Technical Services	95,283		83,986		223,249		188,861
Total revenue	$	133,145	$	120,936	$	297,776	$	284,194

As of June 30, ~~2018, Charah Management completed a transaction~~2020, the Company had remaining performance obligations 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 purchasean aggregate transactions price of ~~$35,000,~~$125,266 on construction contracts for which we recognize revenue over time. We expect to recognize approximately 35% of our remaining performance obligations as revenue during the remainder of 2020, 29% in 2021, 10% in 2022, and 26% thereafter. Revenue associated with ~~$20,000 paid at closing and $15,000~~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 ~~paid over time~~constrained as of June 30, 2020. As of June 30, 2020, we included unapproved change orders associated with project scope changes of $1,655 included in ~~conjunction with~~determining the profit or loss on 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. The allocation of~~construction contracts.

CHARAH SOLUTIONS, INC.

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

(~~dollars~~ in thousands, except per share ~~and unit~~ data)

(Unaudited)

~~purchase price~~5. Balance Sheet Items

Allowance for doubtful accounts

The following table presents the ~~acquisition was finalized as of March 31, 2019 (as summarized below) with~~changes in the ~~recognized goodwill allocated to the Environmental Solutions segment. The total amount of goodwill deductible~~allowance for ~~tax purposes is $2,025.~~

In November 2018, the $15,000 to be paid over time was reduced by $3,300. The present value of the future payments using a discount rate of 2.50% was determined to be $11,014. The Company expects the future payments to occur in 2020 and beyond. The allocation of purchase price for the acquisition is as follows:doubtful accounts:

Cash acquired $ 17
Net working capital, excluding cash 21,255
Property, plant and equipment 5,300
Trade name intangible assets 694
Customer relationship intangible assets 742
Technology 1,972
Non-compete and other agreements 289
Goodwill 745
Total purchase price $ 31,014



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

~~Revenue~~Property and ~~earnings~~equipment, net

The following table shows the components of ~~$16,573~~property and ~~$954, respectively, from the acquired business were included in the unaudited condensed consolidated~~equipment, net:



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

Depreciation expense was $4,692 and ~~combined statement of operations~~$3,285 for the three ~~and six~~ months ended June 30, ~~2018.~~

~~The following unaudited information presents the pro forma consolidated revenue~~2020 and ~~net (loss) income~~2019, respectively, and $9,121 and $10,332 for ~~the three and six months ended June 30, 2019 and 2018 as if the acquisition had been included in the consolidated results of operations beginning January 1, 2017.~~

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Pro forma revenue $ 120,936
$ 195,723
$ 284,194
$ 368,075
Pro forma net (loss) income attributable to Charah Solutions, Inc. (18,026 ) 3,381
(20,845 ) 4,811

The above unaudited pro forma results have been calculated by combining the historical results of the Company and the acquired business as if the acquisition had occurred as of the beginning of the fiscal year prior to the acquisition date, and then adjusting the income tax provisions as if they had been calculated based on the consolidated and combined results. The pro forma results include estimates for additional depreciation related to the fair value of property, plant and equipment and intangible asset amortization.

~~The pro forma results reflect the elimination of $573 of direct acquisition costs that were incurred in~~ the six months ended June 30, ~~2018 (since~~2020 and 2019, respectively.

Accrued liabilities



	June 30, 2020		December 31, 2019
Accrued expenses	$	23,120	$	20,456
Accrued payroll and bonuses	12,812		13,273
Accrued dividends	850		—
Accrued interest	714		1,761
Accrued liabilities	$	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 June 30, 2020 and December 31, 2019, the Company has accrued $10,948 and 15,131, respectively, for ~~purposes of~~ the ~~pro forma presentation they have been reflected~~ 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 2017 instead of in 2018). For all periods presented, historical depreciation and amortization expense of the acquired business was adjusted to reflect the acquisition date fair value amounts of the related tangible and intangible assets. No other material pro forma adjustments were deemed necessary, either to conform the acquisition to the Company’s accounting policies or for any other situation. The pro forma information is not necessarily indicative of the results that would have been achieved had the transactions occurred on the date indicated or that may be achieved in the future.thousands, except per share data)

(Unaudited)



	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

4.6. Equity Method ~~Investments~~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 policies of the company. Charah had a receivable due from the equity method investment of ~~$130~~$72 and ~~$108~~$96 at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~

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


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Current assets	$	2,834		$	2,619		$	2,051		$	2,482
Noncurrent assets	451			508			339			395
Total assets	$	3,285		$	3,127		$	2,390		$	2,877
Current liabilities	449			607			288			321
Equity of Charah	5,218			5,060			4,851			5,078
Equity of joint venture partner	(2,382		)	(2,540		)	(2,749		)	(2,522		)
Total liabilities and members’ equity	$	3,285		$	3,127		$	2,390		$	2,877

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


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		June 30,				June 30,
Revenues	$	2,533	$	2,664	$	4,753	$	5,029
									2020		2019		2020		2019
Revenue									$	1,546	$	2,533	$	3,024	$	4,753
Net income	1,325		1,397		2,433		2,572		651		1,325		1,243		2,433
Charah Solutions’ share of net income	663		699		1,217		1,286		326		663		622		1,217

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


													Three Months Ended						Six Months Ended
	Three Months Ended						Six Months Ended						June 30,						June 30,
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			2020			2019			2020			2019
Opening balance	$	5,102		$	5,342		$	5,060		$	5,006		$	4,781		$	5,102		$	5,078		$	5,060
Distributions	(547		)	(687		)	(1,059		)	(938		)	(256		)	(547		)	(849		)	(1,059		)
Share of net income	663			699			1,217			1,286			326			663			622			1,217
Closing balance	$	5,218		$	5,354		$	5,218		$	5,354		$	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 June 30, 2020and December 31, 2019, the receivable from affiliates associated with these distributions were $0 and $294, respectively.

CHARAH SOLUTIONS, INC.

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

(~~dollars~~ in thousands, except per share ~~and unit~~ data)

(Unaudited)

5.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 $64 and $94 for the three and six months ended June 30, 2020, respectively. The Company had no receivables outstanding from ATC at June 30, 2020 and December 31, 2019. The Company had payables and accrued expenses, net of credit memos, due to ATC of $31 and $62 at 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 $871 for the three months ended 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 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 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 for the three months ended 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 June 30, 2020 and December 31, 2019. The Company had a payable due to Price Real Estate of $0 and $2 at June 30, 2020 and December 31, 2019, respectively.

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 for the three months ended June 30, 2020 and 2019, 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:


	June 30, 2019					December 31, 2018					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
Definite-lived intangibles:
Customer relationships	$	78,942	$	(18,991	)	$	78,942	$	(15,044	)	$	78,942	$	(26,885	)	$	78,942	$	(22,938	)
Technology	2,003		(250		)	2,003		(150		)	2,003		(451		)	2,003		(351		)
Non-compete and other agreements	289		(181		)	289		(109		)	289		(289		)	289		(253		)
SCB trade name	694		(174		)	694		(104		)	694		(312		)	694		(243		)
Rail easement	110		(110		)	110		(88		)	110		(110		)	110		(110		)
Total	$	82,038	$	(19,706	)	$	82,038	$	(15,495	)	$	82,038	$	(28,047	)	$	82,038	$	(23,895	)

Indefinite-lived intangibles
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 June 30, ~~2019,~~2020 and December 31, ~~2018,~~2019, definite-lived intangible assets included customer relationships, technology, non-compete and other agreements, the SCB trade name ~~(see Note 3)~~ 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 ~~$2,136~~$2,095 during the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$4,211~~$4,152 and ~~$4,097~~$4,211 during the six months ended June 30, 2020 and 2019, ~~and 2018,~~ 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 June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was $74,213. Our intangible assets, net as of June 30, ~~2019~~2020 and December 31, ~~2018~~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. ~~We determined there~~There were no ~~indicators of~~ impairment attriggering events during the quarter ended June 30, ~~2019 or June 30, 2018~~2020 for the Maintenance and Technical Services reporting unit. AsThe Company identified a ~~result of~~triggering event during the ~~Company’s decline in revenues and the operating loss recognized for the six months~~quarter ended June 30, ~~2019,~~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 ~~first step of the two step~~impairment analysis for the Environmental Solutions reporting unit ~~during the quarter ended June 30, 2019~~ 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 ~~5.4%~~6.0% greater than its book value as of June ~~30, 2019.~~

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~

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 ~~expected~~ 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~~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 ~~75-basis~~50-basis point increase to the discount rate assumption and (ii) a ~~100-basis~~75-basis point decrease to our shorter-term revenue and residual growth rates assumptions, both of which would result in impairment charges.

Approximate Percent Decrease in Estimated Fair Value
+75 bps Discount Rate -100 bps Growth Rate
Environmental Solutions reporting unit 6.5 % 5.7 %



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

6.9. 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.~~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”).

~~All~~

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 ~~September 2023.~~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. ~~Various~~Defined margins are added to the interest rate based upon our ~~consolidated net leverage ratio.~~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 ~~(ranging from 0.25% to 0.35%, based upon our consolidated net leverage ratio)~~ for the unused portions of the Credit Facility and (ii) fees on outstanding letters of ~~credit (ranging from 1.30% to 2.10%, based upon our consolidated net leverage ratio).~~credit. Amounts borrowed under the Credit Facility are secured by ~~essentially~~substantially all of the assets of the Company.

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars~~(as defined in ~~thousands except per share and unit data)~~

~~(Unaudited)~~

~~consolidated net leverage ratio of 3.75 to 1.00 through March 30, 2020, decreasing to 3.50 to 1.00~~the Credit Facility), which have been modified as ~~of March 31, 2020, further decreasing to 3.25 to 1.00 as of March 31, 2021 and finally decreasing to 3.00 to 1.00 as of March 31, 2022 and thereafter.~~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~~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 ($11,980 outstanding as of June 30, 2019).~~credit. As of June 30, ~~2019, $35,174~~2020, $24,500 was outstanding on the Revolving ~~Loan.~~Loan and $14,529 of letters of credit were outstanding.

But for ~~the amendment described below,~~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.~~1.00 under the Credit Facility. On August 13, 2019, we entered into the Second Amendment, ~~No. 2 to Credit Agreement and Waiver (the “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, such that, after giving effect to the Amendment, we are not required to comply with any financial covenants through March 30, 2020. After March 30, 2020, we will be required to comply with a consolidated net leverage ratio of 6.50 to 1.00 from March 31, 2020 through September 29, 2020, decreasing to 3.00 to 1.00which have been modified as of September 30, 2020 and thereafter. After giving effect to the Amendment, we will also be required to comply with a fixed charge coverage ratio of 0.75 to 1.00 as of March 31, 2020, 0.90 to 1.00 as of June 30, 2020 and 1.20 to 1.00 thereafter.

described below. As consideration for ~~the~~these accommodations, ~~described above,~~ we ~~have~~ agreed that amounts borrowed pursuant to the Delayed Draw Commitment ~~will~~would not exceed $15,000 at any one time outstanding (without reducing the overall Delayed Draw Commitment amount). ~~In addition, any Delayed Draw Term Loans shall incur additional interest at a rate equal to 10.0% per annum on all amounts outstanding in excess of $10,000 of Delayed Draw Term Loans.~~ Further, the margin of interest ~~that will be~~ charged on all outstanding loans ~~has been~~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 ~~adds~~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 ~~Company believes collection of the~~$50,000 payment ~~related to the early completion~~was made before September 13, 2019, using proceeds of the Brickhaven deemed termination ~~(see Note 15) is probable before the $50,000 September 13, 2019~~payment. We are required ~~debt payment, and such proceeds will be used~~ to ~~fund this required prepayment. While management believes it is unlikely, any delay in the receipt of this payment could require the Company to amend or obtain a waiver from~~pay the Administrative Agent an amendment fee in an amount equal to ~~remain in compliance with~~1.00% of the ~~Amendment~~total credit exposure under the Credit Facility immediately prior to the ~~Credit Agreement. There is no assurance that we could obtain~~effectiveness of the Second Amendment, with such ~~amendment or waiver.~~

~~Regarding the March~~fee due and payable on August 16, 2020, ~~debt payment of $40,000, management has evaluated its ability to make this payment using our most recent financial forecast. Based on this evaluation, management believes it is probable~~provided that the ~~Company will be able~~Credit Facility has not been terminated prior to make this payment. Management’s assessment is based upon the anticipated availability under the revolving credit facility, projected cash flows from operations, and prudent working capital management. The financial forecast does not anticipate incurring material unexpected losses in existing operations or new work awards being materially delayed. If these or other unanticipated headwinds in our business occur, the Company could be required to amend or obtain a waiver from the Administrative Agent regarding the $40,000 payment due in March 2020, and there is no assurance that we could obtain such ~~amendment or waiver.~~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 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 ~~& Combined~~ Financial Statements, continued

(~~dollars~~ in thousands, except per share ~~and unit~~ data)

(Unaudited)

7.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 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 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 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 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 $1,623 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 June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

June 30, 2019 December 31, 2018
Various equipment notes entered into in November 2017, payable in monthly installments ranging from $5 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 $3,931 as of June 30, 2019. $ 4,450
$ 4,949
Various equipment notes entered into in 2018, payable in monthly installments ranging from $1 to $39, including interest ranging from 5.61% to 6.80%, maturing in March 2023 through May 2025. The notes are secured by equipment with a net book value of $10,779 as of June 30, 2019. 11,375
12,293
Various equipment notes entered into in 2019, payable in monthly installments of $3, including interest of 4.7%, maturing in May 2021 through March 2024. The notes are secured by equipment with a net book value of $249 as of June 30, 2019. 252
—
In June 2018, the Company entered into a $12,000 convertible, non-revolving credit note with a bank. The credit note converted to a term loan on April 10, 2019, with a maturity date of April 10, 2024. Interest on borrowings subsequent to the conversion date is calculated at a fixed rate per annum equal to 4.44%. The note is secured by equipment with a net book value of $10,642 as of June 30, 2019. 11,400
8,299
In April 2019, the Company entered into a $4,000 convertible, non-revolving credit note with a bank. The credit note will convert to a term loan on August 25, 2019, with a maturity date of July 24, 2024. Interest on borrowings is calculated at a fixed rate per annum equal to 4.64%. The note is secured by equipment with a net book value of $999 as of June 30, 2019. 1,029
—
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 note is secured by equipment with a net book value of $7,566 as of June 30, 2019. 8,650
9,563
The Closing Date Term Loan and Delayed Draw Term Loan entered into in September 2018 as part of the Credit Facility (see Note 6). The interest rate applicable to the Closing Date Term Loan and 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 LIBOR, or (ii) an alternative base rate. Principal payments required are $52,563 in September 2019, $2,563 in December 2019, $42,625 in March 2020, $2,625 quarterly through September 2020, $3,938 quarterly through September 2022 and $5,250 quarterly through September 2023. The remaining outstanding amounts will be due in September 2023. The loan is secured by substantially all of the assets of the Company, and is subject to certain financial covenants. 202,313
202,438
Total 239,469
237,542
Less debt issuance costs (2,910 ) (3,252 )
236,559
234,290
Less current maturities (108,722 ) (23,268 )
Notes payable due after one year $ 127,837
$ 211,022



	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 to sell 26,000 shares of Series A Preferred Stock, par value $0.01per share (the “Preferred Stock”), with an initial aggregate liquidation 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 $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, March 16, 2023. As of June 30, 2020, the Company had accrued dividends of $850 associated with the Preferred Stock, which was recorded at a fair value of $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 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 June 30, 2020, the liquidation preference of the Preferred Stock was $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 June 30, 2020, the maximum number of common shares that could be required to be issued if converted is 9,747 (nine million, seven hundred 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.

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-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

~~In order to~~To manage interest rate risk in a cost-efficient manner, the Company entered into an interest rate swap ~~during~~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.~~

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~

expense, net.

As of both June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the notional amount of the interest rate swap was $150,000. A fair value liability of ~~$905~~$1,086 and $1,116 was recorded within other current liabilities in the unaudited condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019, ~~and a fair value asset~~respectively. The total amount of ~~$891 was recorded within other assets~~gain (loss) included in interest expense, net in the unaudited condensed consolidated ~~balance sheet as~~statements of ~~December 31, 2018.~~ operations was $94 and $(434) for the three months ended June 30, 2020 and 2019, respectively, and $30 and $(1,796) for the six months ended June 30, 2020 and 2019, respectively.

13. Contract Assets and Liabilities

The ~~total amount~~timing of ~~loss included~~revenue recognition, billings and cash collections results in ~~interest expense in~~accounts receivable, contract assets, and contract liabilities on the unaudited condensed consolidated ~~statement~~balance sheets.

Our contract assets are as follows:



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

Our contract liabilities are as follows:

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 ~~operations~~$163 and $423 for the three and six months ended June 30, ~~2019~~2020, respectively, that was ~~$434~~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 ~~$1,796, respectively, and~~estimated earnings associated with billings during the ~~total amount of gain subtracted from interest expense in the unaudited condensed combined statement of operations for the~~ three ~~and six~~ months ended June 30, ~~2018 was $604~~2020 for a specific remediation and ~~$2,228, respectively.~~

~~9. Costs and Estimated Earnings on Uncompleted Contracts~~compliance project.

Costs and estimated earnings on uncompleted contracts are as follows:


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Costs incurred on uncompleted contracts	$	369,753		$	314,700		$	91,513		$	65,343
Estimated earnings	84,624			96,176			12,827			9,618
Total costs and estimated earnings	454,377			410,876			104,340			74,961
Less billings to date	(364,162		)	(325,518		)	(102,862		)	(55,782		)
Costs and estimated earnings in excess of billings	$	90,215		$	85,358		$	1,478		$	19,179

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


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Costs and estimated earnings in excess of billings	$	90,375		$	86,710		$	15,968		$	19,256
Billings in excess of costs and estimated earnings	(160		)	(1,352		)	(14,490		)	(77		)
Net balance in process	$	90,215		$	85,358		$	1,478		$	19,179

Anticipated losses on long-term contracts are recognized when such losses become evident. As of June 30, ~~2019,~~2020 and December 31, ~~2018,~~2019, accruals for anticipated losses on long-term contracts were ~~$425~~$251 and ~~$677,~~$322, respectively.

~~10.~~14. Stock/Unit-Based Compensation

The ~~Limited Liability~~ Company ~~Agreement for Charah Management provided for the issuance of up to 1,000 Series C profits interests (the “Charah Series C Profits Interests”). In 2017, Charah Management~~ adopted the Charah Series C Profits Interest Plan and issued 650 of such units to employees. The Charah Series C Profits Interests participated in distributions to Charah members based on specified rates of return being realized on the Charah Management LLC Series A Membership Interests and the Charah Management LLC Series B Membership Interests. The Charah Series C Profits Interest Plan is no longer in place following our corporate reorganization and related IPO. The Charah Series C Profits Interests would have vested ratably in each of the first five anniversaries of their grant date with vesting accelerated upon a change of control. There were 540 Charah Series C Profits Interests unvested at June 18, 2018, which were canceled as a result of the corporate reorganization that occurred upon the closing of the IPO (see further discussion below).

The Limited Liability Company Agreement for Allied provided for the issuance of up to 1,000 Series C profits interests (the “Allied Series C Profits Interests”). In 2017, Allied adopted the Allied Series C Profits Interest Plan and issued 550 of such units to employees. The Allied Series C Profits Interests participated in distributions to Allied members based on specified rates of return being realized on the Allied Power Management, LLC Series A Membership Interests and the Allied Power Management, LLC Series B Membership Interests. The Allied Series C Profits Interest Plan is no longer in place following our corporate reorganization and related IPO. The Allied Series C Profits Interests vested immediately upon grant.

In connection with the corporate reorganization that occurred upon the closing of the IPO, the holders of the Charah Series C Profits Interests and the Allied Series C Profits Interests received 1,215,956 shares of common stock (the “Management Reorganization Consideration”) in exchange for the contribution to the Company of their Charah Series C Profits Interests and Allied Series C Profits Interests. Of these shares, 303,993 vested immediately and 911,963 are subject to time-based vesting

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~

conditions, as well as performance vesting conditions, based on specified EBITDA targets and achievement of certain safety metrics, which will be determined at a future date. In addition, 272,708 shares of common stock were issued under the Charah Solutions, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”). Of these shares, 68,176 vested immediately and 204,532 are subject to the same time-based vesting conditions and performance vesting conditions as the shares issued as part of the Management Reorganization Consideration. The fair value of the awards was calculated initially as $12 per share, and will be updated thereafter for changes at each reporting period until the performance targets are approved by the Company’s board of directors. The fair value of the awards is recognized over the required service period for each grant. As of June 30, 2019, 500,253 of the shares subject to time based and performance vesting conditions were vested.

~~Upon the closing of the IPO, the board of directors of the Company adopted 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 ~~3,006,582~~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.~~Plan.

During the three and six months ended June 30, 2018, the Company issued 44,198 shares under the 2018 Plan that vested after one year. The fair value of the awards was calculated as $12 per share, which was recognized over the one year vesting period. As of June 30, 2019, 31,577 of the shares were vested and 12,621 had been forfeited. During the three months ended September 30, 2018, the Company issued 45,004 shares under the 2018 Plan that vest after one year. The fair value of the awards was calculated as $7.67 per share, which is being recognized over the one year vesting period. As of June 30, 2019, none of the shares were vested.

~~During the three months ended June 30, 2019,~~2020, the Company granted ~~755,455~~287 and 542 restricted stock units ~~("RSUs"~~(“RSUs”), respectively, under the 2018 Plan that are time-based. Of ~~these~~the RSUs ~~116,381~~granted during the six months ended June 30, 2020, 15 vest ~~after one year, 550,106~~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, and 88,968 vest in equal installments over four~~ years. The fair value of these RSUs is based on the market price of the ~~Company's~~Company’s shares on the grant date. ~~As of~~

During the three and six months ended June 30, ~~2019, none of~~2020, the ~~shares were vested. Additionally, we~~Company granted ~~330,628~~121 and 228 performance share units ~~("PSUs"~~(“PSUs”), respectively, under the 2018 Plan that cliff vest after three years. The vesting of these PSUs is dependent upon the ~~Company's achievement~~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 ~~a certain stock price metrics.~~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 ~~was determined using a binomial lattice model based upon the grant date~~are converted into shares of our common stock ~~price, a risk-free interest rate of 2.29% based upon the U.S. Treasury yield curve in effect~~ at the time of the ~~grants, and an assumed volatility rate of 30% based upon a comparable public company analysis. As of June 30, 2019, none of the shares were vested.~~PSU award value is finalized.

A summary of the Company’s non-vested share activity for the six months ended June 30, ~~2019~~2020 is as follows:

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)


	Shares		Weighted-Average Fair Value		Weighted-Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Restricted Stock				Performance Stock				Total
Outstanding as of December 31, 2018	1,198,703		$	11.84	0.77	$	10,009
								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	1,086,083		5.95					542		1.74		228		1.28		770		1.60
Forfeited	(187,327	)	11.21					(71	)	8.86		(15	)	6.19		(86	)	8.85
Vested	(531,830	)	10.69					(426	)	4.82		—		—		(426	)	4.82
Outstanding as of June 30, 2019	1,565,629		$	7.13	1.73	$	8,611
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 ~~shares~~restricted stock issued ~~as part of the Management Reorganization Consideration~~was $591 and ~~the 2018 Plan was $799 and $1,189~~$656 during the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$1,007~~$1,199 and ~~$1,189~~$864 during the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

As of June 30, ~~2019,~~2020, total unrecognized stock-based compensation expense related to non-vested awards of restricted stock, net of estimated forfeitures, was ~~$6,077,~~$2,000, and is expected to be recognized over a weighted-average period of ~~1.97~~1.46 years. The total fair value of awards vested for the three and six months ended June 30, ~~2019~~2020 was ~~$379~~$540 and ~~$5,685,~~$2,054, respectively.

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

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~

~~11.~~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. Dispositive motions filed by us and~~Hearing (“NCOAH”) due to the North Carolina ~~Department~~Superior Court’s having used an improper standard of ~~Environmental Quality are pending before~~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 ~~Office of Administrative Hearing.~~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, contingent upon~~settlement. On July 15, 2020, the court ~~approval. With respect~~granted final approval of the settlement. The parties are continuing to ~~such settlement, the joint motion to approve~~implement the settlement ~~has been submitted to and is pending with the court for approval.~~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.

~~12.~~

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 ~~the following~~two reportable segments, Environmental Solutions (“ES”) and Maintenance and Technical Services (“M&TS”), as each met the quantitative threshold of generating ~~revenues~~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 ~~the~~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, ~~2018.~~2019. Management evaluates the performance of each segment based on segment gross profit, which is calculated as ~~revenues~~revenue less cost of sales. For the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, there were no intersegment ~~revenues~~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, 2019	Environmental Solutions			Maintenance and Technical Services		All Other		Total
Three Months Ended June 30, 2020											ES		M&TS			All Other		Total
Segment revenue	$	36,950		$	83,986	$	—	$	120,936		$	37,862	$	95,283		$	—	$	133,145
Segment gross (loss) profit	(9,188		)	7,123		—		(2,065		)
Segment gross profit											4,233		6,501			—		10,734
Segment depreciation and amortization expense	1,376			2,012		1,990		5,378			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

1922

CHARAH SOLUTIONS, INC.

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

(~~dollars~~ in thousands, except per share ~~and unit~~ data)

(Unaudited)

Three Months Ended June 30, 2018 Environmental Solutions Maintenance and Technical Services
All
Other
Total
Segment revenue $ 90,113
$ 105,610
$ —
$ 195,723
Segment gross profit 22,096
8,453
—
30,549
Segment depreciation and amortization expense 5,334
1,378
1,992
8,704

Six Months Ended June 30, 2019 Environmental Solutions Maintenance and Technical Services
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

Six Months Ended June 30, 2018 Environmental Solutions Maintenance and Technical Services
All
Other
Total
Segment revenue $ 137,897
$ 213,355
$ —
$ 351,252
Segment gross profit 34,565
15,082
—
49,647
Segment depreciation and amortization expense 10,744
2,407
3,984
17,135
Expenditures for segment assets 3,445
4,788
—
8,233

As of June 30, 2019 Environmental Solutions Maintenance and Technical Services
All
Other
Total
Segment property and equipment, net $ 48,578
$ 38,430
$ 281
$ 87,289
Segment goodwill 57,591
16,622
—
74,213

As of December 31, 2018 Environmental Solutions Maintenance and Technical Services
All
Other
Total
Segment property and equipment, net $ 47,467
$ 41,155
$ 319
$ 88,941
Segment goodwill 57,591
16,622
—
74,213

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

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Segment gross (loss) profit $ (2,065 ) $ 30,549
$ 13,314
$ 49,647
General and administrative expenses (17,400 ) (18,937 ) (31,385 ) (33,319 )
Interest expense, net (4,102 ) (5,543 ) (9,154 ) (9,674 )
Income from equity method investment 663
699
1,217
1,286
Income tax provision 5,628
(2,906 ) 6,389
(2,906 )
Net (loss) income $ (17,276 ) $ 3,862
$ (19,619 ) $ 5,034

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~



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

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

As of June 30, 2019 As of December 31, 2018
Segment property and equipment, net $ 87,289
$ 88,941
Segment goodwill 74,213
74,213
Non-segment assets 285,758
295,747
Total assets $ 447,260
$ 458,901

~~Summarized financial information with respect to the types of revenue recognized is as follows:~~

Three Months Ended June 30, 2019 Products Percentage of Completion Services Total
Revenue $ 24,890
$ 11,900
$ 84,146
$ 120,936

Three Months Ended June 30, 2018 Products Percentage of Completion Services Total
Revenue $ 27,401
$ 60,969
$ 107,353
$ 195,723

Six Months Ended June 30, 2019 Products Percentage of Completion Services Total
Revenue $ 47,402
$ 46,207
$ 190,585
$ 284,194

Six Months Ended June 30, 2018 Products Percentage of Completion Services Total
Revenue $ 31,566
$ 102,652
$ 217,034
$ 351,252



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

~~13.~~17. Income Taxes

The ~~Company’s~~Company did not have an income tax provision or benefit ~~was $5,628 and $6,389~~ for the three and six months ended June 30, ~~2019, respectively,~~2020, due to current period operating losses and ~~the income~~a valuation allowance on deferred tax ~~expense was $2,906 for each of the three and six months ended June 30, 2018.~~

~~The Company’s effective income tax rate for~~assets. For the three and six months ended June 30, 2019, the Company’s income tax benefit was ~~24.5%~~ $5,628 and ~~24.9%,~~ $6,389 respectively.

The effective income tax rate for the period was 27.0% without regard to the impact of the valuation allowance and includes the effect of state income taxes, nondeductible items and benefits for ~~noncontrolling~~non-controlling interests. ~~When calculating the annual estimated effective~~The Company’s income ~~tax rate for the three and six months ended June 30, 2019, the Company was~~is subject to a ~~loss limitation rule because~~federal statutory rate of 21% and an estimated state statutory rate of 5.3% prior to considering the year-to-date ordinary loss exceeded the full-year expected ordinary loss. The tax benefit for the year-to-date ordinary loss was limited to the amount that would be recognized if the year-to-date ordinary loss were the anticipated ordinary loss for the full year.valuation allowance.

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, primarily net operating loss and other carryforwards, and our ability to uphold certain tax positions.~~year. The accounting estimates used to compute the provision for income taxes may change as new events occur and additional information is obtained.

At June 30, ~~2019,~~2020, deferred tax ~~assets,~~liabilities, net of deferred tax ~~liabilities,~~assets, was ~~$9,136.~~$1,492. A valuation allowance ishas been recorded iffor the deferred tax assets as the Company has determined that it is not more likely than not that ~~a portion of~~ the ~~Company’s~~tax benefits related to all the deferred tax assets will ~~not~~ be realized. The Company ~~evaluates~~will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets. Realization of net operating losses and other carryforwards is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods, which involves business plans, planning opportunities and expectations about future outcomes. Although realization is not assured, management believes it is more likely than not that our deferred tax assets

~~CHARAH SOLUTIONS, INC.~~

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

~~(dollars in thousands except per share and unit data)~~

~~(Unaudited)~~

will be realized. Therefore, no valuation allowance has been recorded for our deferred tax assets. The Company will continue to evaluate the need for a valuation allowance on its deferred tax assets in future periods.

~~14. (Loss) Earnings~~18. Loss Per Share

Basic ~~(loss) earnings~~loss per share is computed by dividing net ~~(loss) income~~loss attributable to the Company’s stockholders by the weighted-average number of shares outstanding during the period. Diluted ~~(loss) earnings~~loss per share reflects all potential dilutive ordinary shares outstanding during the period and is computed by dividing net ~~(loss) income~~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. ~~For the periods prior to the IPO, the average number of ordinary shares outstanding used to calculate basic~~

Basic and diluted ~~(loss) earnings~~loss per share ~~was based on~~is determined using the ~~ordinary shares that were outstanding at the time~~following information:

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)



	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 ~~IPO.~~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 June 30, 2020 and 2019, the inclusion of all potentially dilutive shares would be anti-dilutive. Therefore, dilutive shares ~~(in thousands)~~ of 10,884 and 1,388 were excluded from the computation of the weighted-average shares for diluted net loss per share for the three months ended 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 ~~three and~~ six months ended June 30, 2020 and 2019, respectively.

~~Basic and~~A summary of securities excluded from the computation of diluted ~~(loss)~~ earnings per share is ~~determined using the following information:~~presented below:

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Numerator:
Net (loss) income attributable to Charah Solutions, Inc. $ (18,026 ) $ 3,220
$ (20,845 ) $ 4,025

Denominator (in thousands):
Weighted-average shares outstanding 29,559
24,478
29,374
24,096
Dilutive share-based awards —
870
—
846
Total weighted-average shares outstanding, including dilutive shares 29,559
25,348
29,374
24,942

Basic (loss) earnings per share $ (0.61 ) $ 0.13
$ (0.71 ) $ 0.17
Diluted (loss) earnings per share $ (0.61 ) $ 0.13
$ (0.71 ) $ 0.16

~~15. Subsequent Event~~

On May 29, 2019, the ash remediation contract for the Company’s Brickhaven location was deemed terminated, consistent with the Company’s previously communicated expectations. Per the terms of this contract, the customer is obligated to pay the Company for the recovery of project development costs, expected site closure costs, and post-maintenance costs upon deemed termination. After negotiations to date with customer, the Company expects the amount of the recovered costs will be approximately $80,000 and expects the payment of these costs to be received by the payment deadline of August 27, 2019.



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2020	2019	2020	2019
Diluted earnings per share:
Anti-dilutive restricted and performance stock units	1,440	1,388	1,400	1,191
Anti-dilutive Series A Preferred Stock convertible into common stock	9,444	—	5,547	—
Potentially dilutive securities, excluded as anti-dilutive	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.

~~Our Predecessor and~~ Charah Solutions, Inc.

. Through ~~our~~the Company’s ownership of Charah Management and Allied Power Holdings, ~~we own~~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 ~~we operate our~~Charah Solutions operates its businesses.

~~Overview~~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, ~~were formed~~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 ~~January 2018 in anticipation~~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 ~~IPO~~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 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 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 ~~a holding company~~sufficient to cover our working capital requirements and debt obligations for ~~Charah Management~~the next 12 months from the issuance of this Quarterly Report. However, the extent to which the COVID-19 pandemic and ~~Allied Power Holdings.~~ 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 ~~historical financial data presented herein as~~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 June 30, 2020.

Despite improvements in operating income during the three months ended June 30, 2020 and reductions in operating loss during the six months ended June 30, 2020, as further discussed below, our results were 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 ~~for~~during the ~~periods after~~six months ended June 30, 2020 was not sufficient to offset the ~~June 18, 2018 corporate reorganization is that~~impact of ~~Charah~~projects completed during 2019 and ~~Allied on a consolidated basis,~~2020 to date. However, the significant majority

of revenue contributions from these new awards will be recognized in the second half of 2020 and ~~is on a combined basis for the periods prior to the June 18, 2018 corporate reorganization. Allied was formed in May 2017 and did not commence operations until July 2017.~~beyond.

Overview

We are a leading provider of mission-critical environmental and maintenance services to the power generation industry, enabling our customers to address challenges related to the remediation of ash ponds and landfills at open and closed power plant sites while continuously operating and providing necessary electric power to communities nationwide.industry. We offer a suite of coal ash management and recycling, environmental remediation, and ~~outage~~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 ~~operate in over 20 states, resulting in an overall footprint~~believe we are a partner-of-choice for the power generation industry due to our quality, safety, domain experience, and ~~density in~~compliance record, all of which are key ~~markets that~~criteria for our customers. In 2019, we ~~believe is difficult to replicate.~~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 offerings.~~sales. Remediation and compliance services are associated with our customers’ need for multi-year environmental improvement and sustainability initiatives, whether driven by ~~proactive engagement,~~regulatory requirements, by power generation customers initiatives, by ~~regulatory requirements~~our proactive engagement or by consumer expectations and standards. Byproduct sales support both our power generation customers’ desire to ~~profitably~~ recycle their recurring and ~~historic~~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 ~~facility maintenance~~ 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).

~~Initial Public Offering~~

On June 18, 2018, we completed the IPO of 7,352,941 shares of the Company’s common stock, par value $0.01 per share. The net proceeds of the IPO to us prior to offering expenses were approximately $59.2 million. We used a portion of the IPO proceeds to pay off approximately $40.0 million of the borrowings outstanding under the Term Loan (as defined below), and any remaining net proceeds were used to pay offering expenses or used for general corporate purposes.

How We Evaluate Our Operations

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

•~~Revenues;~~Revenue;

•Gross Profit;

•Operating Income;

•Adjusted EBITDA; and

•Adjusted EBITDA Margin.

~~Revenues~~Revenue

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

Gross Profit

We analyze our gross profit, which we define as ~~revenues~~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 ~~revenues~~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.~~ 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) income~~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, ~~and expenses,~~ 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 ~~revenues.~~revenue. See “—Non-GAAP Financial Measures” below for more information and a reconciliation of Adjusted EBITDA to net ~~(loss) income,~~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 ~~contingent~~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

Based on ~~historic~~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 ~~offerings~~ are also seasonally impacted during ~~the~~ winter months when the utilization of cement and cement products is generally lower.

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 ~~long~~longer periods of time. As a result, our ~~revenues~~revenue from these projects can fluctuate over time. Some of our ~~revenues~~revenue from projects ~~are~~ is recognized over time using the ~~percentage of completion~~cost-to-cost input method of accounting for GAAP ~~purposes.~~purposes, based primarily on contract costs incurred to date compared to total estimated contract costs. This method is the most accurate measure of ~~revenue recognition is determined by estimating~~our contract performance because it depicts the ~~percentage~~company’s performance in transferring control of ~~completion on~~goods or services promised to customers according to a ~~job and~~reasonable measure of progress toward complete satisfaction of the ~~ultimate estimated gross profit margin on the job.~~ performance obligation. The timing of ~~revenues~~revenue recorded for financial reporting purposes may differ from actual billings to customers, sometimes resulting in costs and billings in excess of actual ~~revenues.~~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 ~~in addition to the~~driven by market forces and governmental regulations ~~driving~~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 ~~in addition to~~as well as the chemical and physical properties of the ash. As demand increases for the end-products that use ~~recycled coal-fired power generation waste byproducts~~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 offerings.~~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 ~~Revenues~~Revenue

The Environmental Solutions segment generates revenue through our remediation and compliance services, as well as our byproduct ~~sales offerings.~~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. ~~Our platform of services is contracted for terms generally ranging from 18 months to five years, thereby reducing financial volatility. In excess of~~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 anthe environmental service need of our customers in handling their waste byproducts. Over the last five years, ~~we have achieved an approximately 90%~~our renewal rate for ~~contracts in our~~ fossil services ~~offerings up for renewal.~~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 ~~between~~from three to five years. ~~Revenues are~~Revenue is billed and paid during the periods of time work is being executed. ~~Our nuclear services revenues tend to be seasonal and may experience significant increases during periods of maintenance outages.~~ 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.

~~Factors Impacting the Comparability of~~ Results of Operations

~~Public Company Costs~~Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

~~As a new public company, we have incurred,~~



	Three Months Ended
	June 30,						Change
	2020			2019			$			%
	(dollars in thousands)
Revenue:
Environmental Solutions	$	37,862		$	36,950		$	912		2.5	%
Maintenance and Technical Services	95,283			83,986			11,297			13.5	%
Total revenue	133,145			120,936			12,209			10.1	%
Cost of sales	122,411			123,001			(590		)	(0.5	)%
Gross Profit (Loss):
Environmental Solutions	4,233			(9,188		)	13,421			146.1	%
Maintenance and Technical Services	6,501			7,123			(622		)	(8.7	)%
Total gross profit (loss)	10,734			(2,065		)	12,799			619.8	%
General and administrative expenses	9,637			17,400			(7,763		)	(44.6	)%
Operating income (loss)	1,097			(19,465		)	20,562			105.6	%
Interest expense, net	(4,826		)	(4,102		)	(724		)	(17.6	)%
Income from equity method investment	326			663			(337		)	(50.8	)%
Loss before taxes	(3,403		)	(22,904		)	19,501			85.1	%
Income tax benefit	—			(5,628		)	5,628			(100.0	)%
Net loss	(3,403		)	(17,276		)	13,873			80.3	%
Less income attributable to non-controlling interest	133			750			(617		)	(82.3	)%
Net loss attributable to Charah Solutions, Inc.	(3,536		)	(18,026		)	14,490			80.4	%
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	$	(4,561	)	$	(18,026	)	$	13,465		74.7	%

Revenue. Revenue increased $12.2 million, or 10.1%, for the three months ended June 30, 2020 to $133.1 million as compared to $120.9 million for the three months ended June 30, 2019, driven by an increase in revenue in the Maintenance and ~~expect~~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 ~~continue~~$37.9 million as compared to ~~incur, incremental recurring and certain non-recurring costs related to our transition to a publicly traded and taxable corporation, including~~$37.0 million for the ~~costs~~three months ended June 30, 2019. The increase in revenue was primarily driven by the absence during the current period of the IPO and the costs associated with the initial implementation of our Sarbanes-Oxley Section 404 internal control implementation and testing. We also have incurred, and expect to incur, additional significant and recurring expenses as a publicly traded company, including costs associated with the employment of additional personnel, compliance under the Exchange Act, annual and quarterly reports to common stockholders, registrar and transfer agent fees, national stock exchange fees, audit fees, incremental director and officer liability insurance costs, and director and officer compensation.

~~Income Taxes~~

Charah Solutions is a “C” Corporation under the Internal Revenue Code of 1986, as amended, and, as a result, will be subject to U.S. federal, state and local income taxes. In connection with the IPO, Charah and Allied, which previously were flow-through entities for income tax purposes and were indirect subsidiaries of two partnerships, Charah Management and Allied Power Holdings, respectively, became indirect subsidiaries of the Company. Prior to the contribution, Charah and Allied passed through their taxable income to the owners of the partnerships for U.S. federal and other state and local income tax purposes and, thus, were not subject to U.S. federal income taxes or other state or local income taxes, except for franchise tax at the state level (at less than 1% of modified pre-tax earnings). Accordingly, the financial data attributable to Charah and Allied prior to the contribution on June 18, 2018 contains no provision for U.S. federal income taxes or income taxes in any state or locality other than franchise taxes.

~~Results of Operations~~

~~Overview of Financial Results~~

~~Delays in new work awards,~~ the $10.0 million revenue reversal associated with the completion of the Brickhaven ~~contract payment (as discussed below), and unanticipated cost increases at one remediation site led to disappointing results in~~project resulting from the deemed termination during the second quarter of 2019. ~~As a result of long sales cycles, driven~~This increase was partially offset by ~~the increase in the size, scope and complexity of remediation and compliance projects that we are bidding on, the pace of new awards~~project completions in 2019 has not been sufficient to offset the impact of projects completed during the year. As these projects have gotten larger and more complex, utility customers are seeking regulatory clarity as well as cost recovery through rate relief. Though this delay is adversely impacting our 2019 results, we expect demand forwithin our remediation and compliance services component and a decrease in byproduct sales offerings as compared to ~~grow as more than 1,000 ash ponds~~the second quarter of 2019.

Maintenance and ~~landfills still require EPA-mandated closure~~Technical Services Revenue. Maintenance and Technical Services segment revenue increased $11.3 million, or ~~remediation. In addition, our success rate in winning awards~~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, ~~has been~~driven by an increase in ~~line with~~revenue in the ~~three~~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 $20.8 million, or 21.8%, for the six months ended June 30, ~~2018, though~~2020 to $74.5 million as compared to $95.3 million for the ~~size~~six months ended 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 ~~projects awarded has been smaller than anticipated.~~

~~On May 29, 2019,~~ the ~~ash remediation contract for our~~ Brickhaven ~~location was deemed terminated, consistent~~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 our previously communicated expectations. Per the terms of this contract, the customer is obligated to pay us for the recovery of project development costs, expected site closure costs, and post-maintenance costs upon deemed termination. After negotiations to date with customer, we expect the amountcompletion of the ~~recovered costs will be approximately $80 million~~Brickhaven project resulting from the deemed termination during the second quarter of 2019.

Maintenance and ~~expect the payment of these costs to be received by the payment deadline of August 27, 2019.~~

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

Gross Profit. Gross profit increased $8.2 million, or 61.7%, for the six months ended June 30, 2020 to $21.5 million as compared to $13.3 million for the six months ended June 30, 2019. As a percentage of revenue, gross profit was 7.2% and 4.7% for the six 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 $9.0 million, or 977.9%, for the six months ended June 30, 2020 to $8.1 million as compared to a gross loss of $0.9 million for the six months ended June 30, 2019. The 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 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 $0.8 million, or 5.5%, for the six months ended June 30, 2020 to $13.4 million as compared to $14.2 million for the six months ended June 30, 2019. The decrease in gross profit was primarily attributable to margin improvements within our nuclear services offerings during the six months ended June 30, 2019 ~~were in line with our expectations but were lower than~~that did not reoccur during the ~~results for the three and~~ six months ended June 30, ~~2018~~2020, partially offset by an increase in gross profit from our fossil services offerings.

General and Administrative Expenses. General and administrative expenses decreased $9.0 million, or 28.7%, for the six months ended June 30, 2020 to $22.4 million as compared to $31.4 million for the six months ended 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, partially offset by $2.9 million in lower non-cash general and administrative expenses during the six months ended 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 $0.7 million, or 7.6%, for the six months ended June 30, 2020 to $8.5 million as compared to $9.2 million for the six months ended June 30, 2019. The decrease was primarily attributable to lower debt balances during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 and a $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 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 six months ended 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 $0.6 million, or 48.9%, for the six months ended June 30, 2020 to $0.6 million as compared to $1.2 million for the six months ended 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 $6.4 million as no tax benefit was recorded during the six months ended June 30, 2020 as a result of ~~fewer nuclear refueling outages~~the full valuation allowance recorded by the Company for the year ended December 31, 2019.

Net Loss.Net loss decreased $2.3 million, or 11.8%, for the six months ended June 30, 2020 to $17.3 million as compared to $19.6 million for the six 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 the loss on extinguishment of debt and a ~~reduction~~decrease in ~~the scope of work. A substantial portion~~income tax benefit.

Condensed Consolidated Balance Sheets

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



	June 30, 2020		December 31, 2019		Change
	(in thousands)
Total assets	$	380,169	$	355,756	$	24,413
Total liabilities	320,158		302,483		17,675
Mezzanine equity	24,549		—		24,549
Total equity	35,462		53,273		(17,811		)

Assets

Total assets increased $24.4 million driven primarily by a $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 and other operations. Furthermore, restricted cash increased $13.0 million related to a specific remediation and compliance project that started operations ~~are~~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 $10.1 million decrease in property and equipment, net as depreciation expense exceeded new additions, a $5.1 million decrease in inventory from improved inventory management, a $4.2 million decrease in intangible assets, net due to amortization and a $0.8 million decrease in income tax receivable from the collection of state refunds.

Liabilities

Total liabilities increased $17.7 million driven by ~~scheduled nuclear maintenance outages, which are typically planned for every 12~~a $14.3 million increase in contract liabilities due to ~~24 months.~~

~~Within our byproduct sales offerings, which is~~billings in excess of costs and earnings associated with a ~~part~~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 increased $3.0 million associated with the deferral of ~~our Environmental Solutions segment,~~certain employer payroll taxes under the ~~roll-out~~CARES Act and fees associated with the Third Amendment of ~~our technology initiatives, including our MP618 thermal beneficiation technology~~the Credit Facility as discussed further below in “—Liquidity and our grinding technology, has been slower than previously anticipated, resulting in a lower than expected contribution to operating results. Customer interest in the MP618 technology appears to be strong, and contracts are currently under negotiation.

Capital Resources—Our second quarter results did not meet expectations, but we continue to believe our market opportunities remain strong. We have signed approximately $275 million in new contracts year-to-date and are in exclusive negotiations on approximately $400 million in additional contracts. ThoughDebt Agreements—Existing Credit Facility” partially offset by the timing of ~~future awards is difficult~~payroll liabilities associated with the Allied spring outage nuclear services. These increases were partially offset by a $8.0 million decrease in accounts payable and a $4.2 million decrease in our asset retirement obligation associated with our maintenance and monitoring requirement payments.

Mezzanine Equity

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

Equity

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

Liquidity and ~~growing addressable market.~~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 (as defined below).~~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 ~~unexpected 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. On August 13, 2019, we entered into an amendment to the Credit Facility. See “—Liquidity and Capital Resources—Our Debt Agreements—Existing Credit Facility” below for more information about the Credit Facility and the amendment.

~~Additional information regarding the results of operations follows below.~~

~~Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018~~

Three Months Ended
June 30, Change
2019 2018 $ %
(dollars in thousands)
Revenues:
Environmental Solutions $ 36,950
$ 90,113
$ (53,163 ) (59.0 )%
Maintenance and Technical Services 83,986
105,610
(21,624 ) (20.5 )%
Total revenue 120,936
195,723
(74,787 ) (38.2 )%
Cost of sales 123,001
165,174
(42,173 ) (25.5 )%
Gross (Loss) Profit:

Environmental Solutions (9,188 ) 22,096
(31,284 ) (141.6 )%
Maintenance and Technical Services 7,123
8,453
(1,330 ) (15.7 )%
Total gross (loss) profit (2,065 ) 30,549
(32,614 ) (106.8 )%
General and administrative expenses 17,400
18,937
(1,537 ) (8.1 )%
Operating (loss) income (19,465 ) 11,612
(31,077 ) (267.6 )%
Interest expense, net (4,102 ) (5,543 ) 1,441
26.0 %
Income from equity method investment 663
699
(36 ) (5.2 )%
(Loss) income before taxes (22,904 ) 6,768
(29,672 ) (438.4 )%
Income tax provision (5,628 ) 2,906
(8,534 ) (100.0 )%
Net (loss) income (17,276 ) 3,862
(21,138 ) (547.3 )%
Less income attributable to non-controlling interest 750
642
108
16.8 %
Net (loss) income attributable to Charah Solutions, Inc. (18,026 ) 3,220
(21,246 ) (659.8 )%
Adjusted EBITDA⁽¹⁾
$ (2,353 ) $ 25,999
$ (28,352 ) (109.1 )%
Adjusted EBITDA margin⁽¹⁾
(1.9)% 13.3% (15.2)% N/A


~~(1)~~	Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a definition of Adjusted EBITDA and Adjusted EBITDA margin, as well as a reconciliation of Adjusted EBITDA to net (loss) income, our most directly comparable GAAP financial measure, and a calculation of Adjusted EBITDA, please read “—Non-GAAP Financial Measures” below.

~~Revenues~~. Revenues decreased $74.8 million, or 38.2%, for the three months ended June 30, 2019 to $120.9 million as compared to $195.7 million for the three months ended June 30, 2018. The change in revenues by segment was as follows:

~~Environmental Solutions Revenues.~~ Environmental Solutions segment revenues decreased $53.2 million, or 59.0%, for the three months ended June 30, 2019 to $37.0 million as compared to $90.1 million for the three months ended June 30, 2018. The decrease in revenues was primarily driven by the project completions within our remediation and compliance services business and the $10.0 million revenue reversal associated with the Brickhaven contract payment.

~~Maintenance and Technical Services Revenues.~~ Maintenance and Technical Services revenues decreased $21.6 million, or 20.5%, for the three months ended June 30, 2019 to $84.0 million as compared $105.6 million for the three months ended June 30, 2018. The decrease was primarily attributable to reduced scope of nuclear outages and fewer outages in the period, partially offset by a net overall increase in revenues from our fossil services offerings.

~~Gross (Loss) Profit~~. Gross (loss) profit decreased $32.6 million, or 106.8%, for the three months ended June 30, 2019 to a gross loss of $2.1 million as compared to a gross profit of $30.5 million for the three months ended June 30, 2018. As a percentage of revenue, gross profit was (1.7)% and 15.6% for the three months ended June 30, 2019 and 2018, respectively. The decrease in gross profit margin was primarily driven by the $10.0 million revenue reversal associated with the Brickhaven contract payment and one project-specific issue continuing from the first quarter of 2019. The change in gross profit by segment was as follows:

~~Environmental Solutions Gross (Loss) Profit.~~ Gross (loss) profit for our Environmental Solutions segment decreased $31.3 million, or 141.6%, for the three months ended June 30, 2019 to a gross loss of $9.2 million as compared to a gross profit of $22.1 million for the three months ended June 30, 2018. The decrease in gross profit was primarily driven by the $10.0 million revenue reversal associated with the Brickhaven contract payment, project completions and one project-specific issue continuing from the first quarter of 2019.

~~Maintenance and Technical Services Gross Profit.~~ Gross profit for our Maintenance and Technical Services segment decreased $1.3 million, or 15.7%, for the three months ended June 30, 2019 to $7.1 million as compared to $8.5 million for the three months ended June 30, 2018. The decrease was primarily attributable to reduced scope of nuclear outages and fewer outages in the period, partially offset by a net overall increase in gross profit from our fossil services offerings.

~~General & Administrative Expenses~~. ~~General and administrative expenses decreased $1.5 million, or 8.1%, for the three months ended June 30, 2019 to $17.4 million as compared to $18.9 million~~ for the three months ended June 30, 2018. The decrease was primarily attributable to a reduction in non-recurring legal costs and expenses, non-recurring start-up costs and non-recurring transaction costs, as disclosed in our Adjusted EBITDA calculation included herein, partially offset by increased expenses due to incremental costs associated with being a public company as of June 2018.

~~Interest Expense, Net~~.Interest expense, net decreased $1.4 million, or 26.0%, for the three months ended June 30, 2019 to $4.1 million as compared to $5.5 million for the three months ended June 30, 2018. The decrease was primarily attributable to a reduction in interest rates associated with the refinancing of our term loan in September 2018, partially offset by a non-cash $0.4 million mark-to-market expense associated with the change in value of our interest rate swap.

~~Income from Equity Method Investment~~. Income from equity method investment remained at $0.7 million for the three months ended June 30, 2019 as compared to $0.7 million for the three months ended June 30, 2018. There was a slight decrease period-over-period, which was primarily attributable to a reduction in ash volumes generated by the utility and available for sale by us.

~~Net (Loss) Income~~.Net income decreased $21.1 million, or 547.3%, for the three months ended June 30, 2019 to a net loss of $17.3 million as compared to net income of $3.9 million for the three months ended June 30, 2018. The decrease was primarily attributable to decreased gross profit as disclosed above, offset by the change in income tax provision of $8.5 million.

~~Adjusted EBITDA and Adjusted EBITDA Margin~~. Adjusted EBITDA decreased $28.4 million, or 109.1%, for the three months ended June 30, 2019 to $(2.4) million as compared to $26.0 million for the three months ended June 30, 2018, and our Adjusted EBITDA margin for the three months ended June 30, 2019 was (1.9)%, a decrease of 15.2% from 13.3% for the three months ended June 30, 2018.

For a definition of Adjusted EBITDA and Adjusted EBITDA margin, as well as a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measure, and a calculation of Adjusted EBITDA, see “—Non-GAAP Financial Measures” below.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

Six Months Ended
June 30, Change
2019 2018 $ %
(dollars in thousands)
Revenues:
Environmental Solutions $ 95,333
$ 137,897
$ (42,564 ) (30.9 )%
Maintenance and Technical Services 188,861
213,355
(24,494 ) (11.5 )%
Total revenue 284,194
351,252
(67,058 ) (19.1 )%
Cost of sales 270,880
301,605
(30,725 ) (10.2 )%
Gross (Loss) Profit: —

Environmental Solutions (921 ) 34,565
(35,486 ) (102.7 )%
Maintenance and Technical Services 14,235
15,082
(847 ) (5.6 )%
Total gross profit 13,314
49,647
(36,333 ) (73.2 )%
General and administrative expenses 31,385
33,319
(1,934 ) (5.8 )%
Operating (loss) income (18,071 ) 16,328
(34,399 ) (210.7 )%
Interest expense, net (9,154 ) (9,674 ) 520
(5.4 )%
Income from equity method investment 1,217
1,286
(69 ) (5.4 )%
(Loss) income before taxes (26,008 ) 7,940
(33,948 ) (427.6 )%
Income tax provision (6,389 ) 2,906
(9,295 ) (319.9 )%
Net (loss) income (19,619 ) 5,034
(24,653 ) (489.7 )%
Less income attributable to non-controlling interest 1,226
1,009
217
21.5 %
Net (loss) income attributable to Charah Solutions, Inc. (20,845 ) 4,025
(24,870 ) (617.9 )%
Adjusted EBITDA⁽¹⁾
$ 6,553
$ 43,361
$ (36,808 ) (84.9 )%
Adjusted EBITDA margin⁽¹⁾
2.3% 12.3% (10.0)% N/A


~~(1)~~	Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a definition of Adjusted EBITDA and Adjusted EBITDA margin, as well as a reconciliation of Adjusted EBITDA to net (loss) income, our most directly comparable GAAP financial measure, and a calculation of Adjusted EBITDA, please read “—Non-GAAP Financial Measures” below.

~~Revenues~~. Revenues decreased $67.1 million, or 19.1%, for the six months ended June 30, 2019 to $284.2 million as compared to $351.3 million for the six months ended June 30, 2018. The change in revenues by segment was as follows:

~~Environmental Solutions Revenues.~~ Environmental Solutions segment revenues decreased $42.6 million, or 30.9%, for the six months ended June 30, 2019 to $95.3 million as compared to $137.9 million for the six months ended June 30, 2018. The decrease was primarily attributable to project completions and the $10.0 million revenue reversal associated with the Brickhaven contract payment, partially offset by a net overall increase in revenues from our byproduct sales offerings.

~~Maintenance and Technical Services Revenues.~~ Maintenance and Technical Services revenues decreased $24.5 million, or 11.5%, for the six months ended June 30, 2019 to $188.9 million as compared $213.4 million for the six months ended June 30, 2018. The decrease was primarily attributable to reduced scope of nuclear outages and fewer outages in the period, partially offset by a net overall increase in revenues from our fossil services offerings.

~~Gross (Loss) Profit~~. Gross (loss) profit decreased $36.3 million, or 73.2%, for the six months ended June 30, 2019 to $13.3 million as compared to $49.6 million for the six months ended June 30, 2018. As a percentage of revenue, gross profit was 4.7% and 14.1% for the six months ended June 30, 2019 and 2018, respectively. The decrease in gross profit margin was primarily driven by project completions, the $10.0 million revenue reversal associated with the Brickhaven contract payment, adverse weather-related impacts and site-specific issues at three remediation sites. The change in gross profit by segment was as follows:

~~Environmental Solutions Gross (Loss) Profit.~~ ~~Gross (loss) profit for our Environmental Solutions segment decreased $35.5 million, or 102.7%, for the six months ended June 30, 2019 to a gross loss of $0.9 million as compared to a gross profit of~~

$34.6 million for the six months ended June 30, 2018. The decrease in gross profit was primarily driven by the net roll off of certain jobs within our remediation and compliance services offerings, the $10.0 million revenue reversal associated with the Brickhaven contract payment, adverse weather-related impacts and site-specific issues at three remediation sites.

~~Maintenance and Technical Services Gross Profit.~~ Gross profit for our Maintenance and Technical Services segment decreased $0.8 million, or 5.6%, for the six months ended June 30, 2019 to $14.2 million as compared to $15.1 million for the six months ended June 30, 2018. The decrease was primarily attributable to a net overall reduction in gross profit from our fossil services offerings, partially offset by a net overall increase in gross profit from our nuclear services offerings.

~~General & Administrative Expenses~~. General and administrative expenses decreased $1.9 million, or 5.8%, for the six months ended June 30, 2019 to $31.4 million as compared to $33.3 million for the six months ended June 30, 2018. The decrease was primarily attributable to a reduction in non-recurring legal costs and expenses, non-recurring start-up costs and non-recurring transaction costs, as disclosed in our Adjusted EBITDA calculation included herein, partially offset by increased expenses due to the addition of SCB in March 2018 and incremental costs associated with being a public company as of June 2018.

~~Interest Expense, Net~~.Interest expense, net decreased $0.5 million, or 5.4%, for the six months ended June 30, 2019 to $9.2 million as compared to $9.7 million for the six months ended June 30, 2018. The decrease was primarily attributable to a reduction in interest rates associated with the refinancing of our term loan in September 2018, partially offset by non-cash $1.8 million mark-to-market expenses associated with the change in value of our interest rate swap.

~~Income from Equity Method Investment~~. Income from equity method investment decreased $0.1 million, or 5.4%, for the six months ended June 30, 2019 to $1.2 million as compared to $1.3 million for the six months ended June 30, 2018. There was a slight decrease period-over-period, which was primarily attributable to a reduction in ash volumes generated by the utility and available for sale by us.

~~Net (Loss) Income~~.Net (loss) income decreased $24.7 million, or 489.7%, for the six months ended June 30, 2019 to a net loss of $19.6 million as compared to net income of $5.0 million for the six months ended June 30, 2018. The decrease was primarily attributable to decreased gross profit as disclosed above, offset by an income tax provision of $9.3 million.

~~Adjusted EBITDA and Adjusted EBITDA Margin~~. Adjusted EBITDA decreased $36.8 million, or 84.9%, for the six months ended June 30, 2019 to $6.6 million as compared to $43.4 million for the six months ended June 30, 2018, and our Adjusted EBITDA margin for the six months ended June 30, 2019 was 2.3%, a decrease of 10.0% from 12.3% for the six months ended June 30, 2018.

~~Liquidity and Capital Resources~~

Our primary sources of liquidity and capital resources are cash flows generated by operating activities and borrowings under the Credit Facility (as defined below). 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 unexpected 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. But for the Amendment (as defined below), 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 Amendment, pursuant to which, among other things, the lenders agreed to waive such non-compliance. In addition, pursuant to the terms of the Amendment, the Credit Facility was amended to revise the required financial covenant ratios so that we are not required to comply with any financial covenants through March 30, 2020. The Amendment also adds 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. See “—Our Debt Agreements—Existing Credit Facility” below for more information about the Credit Facility and the Amendment.

As of June 30, ~~2019,~~2020, we had ~~approximately $9.6~~total liquidity of $41.3 million, ~~in cash and believe that we will have sufficient liquidity from~~comprised of $30.4 million of cash on hand and $10.9 million availability under the Revolving Loan. We believe our cash on hand and cash generated from operations ~~including the Brickhaven deemed termination payment,~~will be sufficient to cover our working capital requirements and ~~our existing credit facilities to fund our business~~debt obligations for the next 12 ~~months. If our liquidity is not sufficient to satisfy our debt payment obligations under~~months from the ~~Amendment or our planned operations, we may need to alter our operating activities or consider other sources~~issuance of liquidity, such as refinancing all or part of our existing debt, selling assets, borrowing additional funds or issuing additional equity and debt, which we may not be able to do on commercially reasonable terms or at all.

this Quarterly Report.

Cash Flows

The following table sets forth our cash flow data:


	Six Months Ended											Six Months Ended
	June 30,						Change					June 30,						Change
	2019			2018			$			%		2020			2019			$
	(dollars in thousands)											(dollars in thousands)
Cash flows used in operating activities	$	(3,428	)	$	(2,186	)	$	(1,242	)	56.8	%
Cash flows provided by (used in) operating activities												$	9,228		$	(3,428	)	$	12,656
Cash flows used in investing activities	(9,984		)	(27,145		)	17,161			(63.2	)%	(1,449		)	(9,984		)	8,535
Cash flows provided by financing activities	16,093			12,065			4,028			33.4	%	30,720			16,093			14,627
Net change in cash	$	2,681		$	(17,266	)	$	19,947		115.5	%	$	38,499		$	2,681		$	35,818

Operating Activities

Net cash ~~used in~~provided by operating activities increased ~~$1.2 million, or 56.8%, for the six months ended June 30, 2019 to $3.4 million as compared to $2.2~~$12.7 million for the six months ended June 30, ~~2018.~~2020 to $9.2 million as compared to $3.4 million of net cash used in operating activities for the six months ended June 30, 2019. The change in cash flows ~~used in~~provided by operating activities was primarily attributable to the ~~period over period decrease~~$10.9 million reduction in net ~~income.~~loss, excluding the $8.6 million loss in extinguishment of debt, and a $3.8 million increase in 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 six months ended June 30, 2020.

Investing Activities

Net cash used in investing activities decreased ~~$17.2 million, or 63.2%, for the six months ended June 30, 2019 to $10.0 million as compared to $27.1~~$8.5 million for the six months ended June 30, ~~2018.~~2020 to $1.4 million as compared to $10.0 million for the six months ended June 30, 2019. The change in cash flows used in investing activities was primarily attributable to decreases in capital expenditures during the non-recurrence of the $20.0 million used for business acquisitions in March 2018, net of cash received, partially offset by a $3.3 million increase in purchases of property and equipment in the first half of 2019.six months ended June 30, 2020.

Financing Activities

Net cash provided by financing activities increased ~~$4.0 million, or 33.4%, for the six months ended June 30, 2019 to $16.1 million as compared to $12.1~~$14.6 million for the six months ended June 30, ~~2018.~~2020 to $30.7 million as compared to $16.1 million the six months ended June 30, 2019. The change in cash flows provided by financing activities was primarily attributable to a ~~$15.4~~$24.2 million net increase in proceeds received from the Preferred Stock offering during the six months ended June 30, 2020. This increase was partially offset by a $8.5 million net decrease in Credit Facility and other debt proceeds received during the six months ended June 30, 2020 and a $1.5 million increase in debt issuance costs paid during the ~~principal balance on the revolver.~~six months ended June 30, 2020.

Working Capital

Our working capital, which we define as total current assets less total current liabilities, totaled ~~$(17.8) million and $74.1~~$13.8 million at June 30, ~~2019 and~~2020 as compared to a working capital deficit of $16.1 million at December 31, ~~2018, respectively.~~2019. This ~~decrease~~increase in net working capital for the six months ended June 30, ~~2019~~2020 was primarily due to increases in cash associated with proceeds from the ~~result of~~Preferred Stock offering and borrowings under the ~~increase~~Credit Facility, increases in ~~notes payable, current maturities,~~restricted cash related to a specific remediation and compliance project, increases in accounts receivable 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 from the ~~Company's recent Credit Facility amendment.~~deferral of certain employer payroll taxes under the CARES Act.

Our Debt Agreements

~~Former Credit Agreement~~

On October 25, 2017, we entered into a credit agreement (the “2017 Credit Agreement”) by and among us, the lenders party thereto from time to time and Regions Bank, as administrative agent. The 2017 Credit Agreement provided for a revolving credit facility (the “2017 Credit Facility”) with a principal amount of up to $45.0 million. The 2017 Credit Facility permitted extensions of credit up to the lesser of $45.0 million and a borrowing base that was calculated by us based upon a percentage of the value of our eligible accounts receivable and eligible inventory, and approved by the administrative agent.

The interest rates per annum applicable to the loans under the 2017 Credit Facility were based on a fluctuating rate of interest measured by reference to, at our election, either (i) an adjusted London Inter-bank Offered Rate (“LIBOR”) plus a 2.00% borrowing margin, or (ii) an alternative base rate plus a 1.00% borrowing margin. Customary fees were payable in respect of the 2017 Credit Facility and included (i) commitment fees in an amount equal to 0.50% of the daily unused portions of the 2017 Credit Facility and (ii) a 2.00% fee on outstanding letters of credit. The 2017 Credit Facility contained various representations and warranties, and restrictive covenants. If excess availability under the 2017 Credit Facility fell below the greater of 15% of the loan cap amount or $6.75 million, we were required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0. The 2017 Credit Facility did not otherwise contain financial maintenance covenants.

~~The 2017 Credit Facility had a scheduled maturity date of October 25, 2022; however, all amounts outstanding were repaid in September 2018 as a result of the refinancing discussed below.~~

~~Former CS Term Loan~~

On October 25, 2017, we entered into a credit agreement by and among us, the lenders party thereto from time to time and Credit Suisse AG, Cayman Islands Branch, as administrative agent, providing for a term loan (the “2017 CS Term Loan”) with an initial commitment of $250.0 million. The 2017 CS Term Loan provided that we had the right at any time to request incremental term loans up to the greater of (i) the excess, if any, of $25.0 million over the aggregate amount of all incremental 2017 Credit Facility commitments and incremental 2017 CS Term Loan commitments previously utilized and (ii) such other amount so long as such amount at such time could be incurred without causing the pro forma consolidated secured leverage ratio to exceed 3.25 to 1.00.

The interest rates per annum applicable to the loans under the 2017 CS Term Loan were based on a fluctuating rate of interest measured by reference to, at our election, either (i) LIBOR plus a 6.25% borrowing margin or (ii) an alternative base rate plus a 5.25% borrowing margin. The 2017 CS Term Loan contained various representations and warranties, and restrictive covenants. In addition, we were required to comply with a maximum senior secured net leverage ratio of 5.00 to 1.00 beginning March 31, 2018, decreasing to 4.50 to 1.00 as of March 31, 2019, and further decreasing to 4.00 to 1.00 as of March 31, 2020 and thereafter. The principal amount of the 2017 CS Term Loan amortized at a rate of 7.5% per annum with all remaining outstanding amounts under the 2017 CS Term Loan due on the 2017 CS Term Loan maturity date. We received net proceeds from the IPO of $59.2 million prior to deducting offering expenses. We used these net proceeds to pay offering expenses and to pay off $40.0 million of the borrowings outstanding under the 2017 CS Term Loan, which would otherwise have been required through June 2020.

~~The 2017 CS Term Loan had a scheduled maturity date of October 25, 2024; however, all amounts outstanding were repaid in September 2018 as a result of the refinancing discussed below.~~

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:

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

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

aA 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”,~~Loan,” together with the Closing Date Term Loan, the “Term Loan”).

~~All~~After the Third Amendment all amounts associated with the Revolving Loan and the Term Loan under the Credit Facility will mature in ~~September 2023, the~~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 ~~LIBOR,~~the London Inter-bank Offered Rate (“LIBOR”), or (ii) an alternative base rate. ~~Various~~Defined margins are added to the interest rate based upon our ~~consolidated net leverage ratio.~~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 ~~(ranging from 0.25% to 0.35% based upon our consolidated net leverage ratio)~~ for the unused portions of the Credit Facility and (ii) fees on outstanding letters of ~~credit (ranging from 1.30% to 2.10% based upon our consolidated net leverage ratio).~~credit. Amounts borrowed under the Credit Facility are secured by ~~essentially~~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 ~~their~~our subsidiaries’ business. The Credit Facility contains financial covenants related to the consolidated net leverage ratio and the fixed charge coverage ratio ~~(of 1.20 to 1.00). As of June 30, 2019, we were required to comply with a consolidated net leverage ratio of 3.75 to 1.00 through March 30, 2020, decreasing to 3.50 to 1.00~~(as defined in the Credit Facility), which have been modified as ~~of March 31, 2020, further decreasing to 3.25 to 1.00 as of March 31, 2021 and finally decreasing to 3.00 to 1.00 as of March 31, 2022 and thereafter.~~described below.

The Revolving Loan provides a principal amount of up to $50.0 million, reduced by outstanding letters of credit. As of June 30, ~~2019, $35.2~~2020, $24.5 million was outstanding on the Revolving Loan and ~~$12.0~~$14.5 million of letters of credit were outstanding.

But for ~~the amendment described below,~~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.~~1.00 under the Credit Facility. On August 13, 2019, we entered into the Second Amendment, ~~No. 2 to Credit Agreement and Waiver (the “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, such that, after giving effect to the Amendment, we are not required to comply with any financial covenants through March 30, 2020. After March 30, 2020, we will be required to comply with a consolidated net leverage ratio of 6.50 to 1.00 from March 31, 2020 through September 29, 2020, decreasing to 3.00 to 1.00which have been modified as of September 30, 2020 and thereafter. After giving effect to the Amendment, we will also be required to comply with a fixed charge coverage ratio of .75 to 1.00 as of March 31, 2020, .90 to 1.00 as of June 30, 2020 and 1.20 to 1.00 thereafter.

described below. As consideration for ~~the~~these accommodations, ~~described above,~~ we ~~have~~ agreed that amounts borrowed pursuant to the Delayed Draw Commitment ~~will~~would not exceed $15.0 million at any one time outstanding (without reducing the overall Delayed Draw Commitment amount). ~~In addition, any loans Delayed Draw Term Loans shall incur additional interest at a rate equal to 10.0% per annum on all amounts outstanding in excess of $10.0 million of Delayed Draw Term Loans.~~ Further, the margin of interest ~~that will be~~ charged on all outstanding loans ~~has been~~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 ~~adds~~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 ~~Company believes collection of the~~$50.0 million payment ~~related to the early completion~~was made before September 13, 2019, using proceeds of the Brickhaven deemed termination (see Note 15) is probable before the $50.0 million September 13, 2019 required debt payment, and such proceeds will be used to fund this required prepayment. While management believes it is unlikely, any delay in the receipt of this payment could require the Company to amend or obtain a waiver from the Administrative Agent to remain in compliance with the Amendment to the Credit Agreement. There is no assurance that we could obtain such amendment or waiver.

Regarding the March 2020 debt payment of $40.0 million, management has evaluated its ability to make this payment using our most recent financial forecast. Based on this evaluation, management believes it is probable that the Company will be able to make this payment. Management’s assessment is based upon the anticipated availability under the revolving credit facility, projected cash flows from operations, and prudent working capital management. The financial forecast does not anticipate incurring material unexpected losses in existing operations or new work awards being materially delayed. If these or other unanticipated headwinds in our business occur, the Company could be required to amend or obtain a waiver from the Administrative Agent regarding the $40.0 million payment due in March 2020, and there is no assurance that we could obtain such amendment or waiver.

The Second Amendment also ~~includes~~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 ~~shareholders~~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 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 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 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 $1.6 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”) 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 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 June 30, ~~2019,~~2020, we had ~~equipment lines of credit allowing borrowings of $4.0 million, of which $1.0 million was utilized. In addition, we had $36.1~~$32.2 million of equipment notes ~~outstanding as of June 30, 2019.~~outstanding. Each of the Equipment Financing Facilities includes non-financial covenants, and, as of June 30, ~~2019,~~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) income~~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) income~~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) income,~~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					Six Months Ended					Three Months Ended						Six Months Ended
	June 30,					June 30,					June 30,						June 30,
	2019			2018		2019			2018		2020			2019			2020			2019
	(dollars in thousands)										(in thousands)
Net (loss) income attributable to Charah Solutions, Inc.	$	(18,026	)	$	3,220	$	(20,845	)	$	4,025
Net loss attributable to Charah Solutions, Inc.											$	(3,536	)	$	(18,026	)	$	(17,786	)	$	(20,845	)
Interest expense, net	4,102			5,543		9,154			9,674		4,826			4,102			8,456			9,154
Income tax provision	(5,628		)	2,906		(6,389		)	2,906
Loss on extinguishment of debt											—			—			8,603			—
Income tax benefit											—			(5,628		)	—			(6,389		)
Depreciation and amortization	5,378			8,704		11,635			17,135		6,750			5,378			13,274			11,635
Elimination of certain non-recurring legal costs and expenses⁽¹⁾	—			2,489		(746		)	5,169		(1,873		)	—			(2,137		)	(746		)
Elimination of certain non-recurring start-up costs⁽²⁾	—			688		—			1,480
Equity-based compensation	799			1,292		1,007			1,403		738			799			1,470			1,007
Brickhaven contract deemed termination revenue reversal	10,000			—		10,000			—		—			10,000			0			10,000
Transaction-related expenses and other items⁽³⁾⁽²⁾	1,022			1,157		2,737			1,569		599			1,022			817			2,737
Adjusted EBITDA	$	(2,353	)	$	25,999	$	6,553		$	43,361	$	7,504		$	(2,353	)	$	12,697		$	6,553
Adjusted EBITDA margin⁽⁴⁾⁽³⁾	(1.9)%			13.3%		2.3%			12.3%		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 ~~non-recurring start-up costs~~expenses associated with the ~~startup of Allied and our nuclear services offerings, including~~Amendment to the setup of financial operations systems and modules, pre-contract expenses to obtain initial contracts and the hiring of operational staff. Because these costs are associated with the initial setup of the Allied business to initiate the operations involved in our nuclear services offerings, these costs are non-recurring in the normal course of our business.


~~(3)~~	~~Represents~~Credit Facility, SCB transaction expenses, executive severance costs, IPO-related costs, and other miscellaneous items.


~~(4)~~(3)	Adjusted EBITDA margin is a non-GAAP financial measure that represents the ratio of Adjusted EBITDA to total ~~revenues.~~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.~~

~~Contractual Obligations~~

~~As of June 30, 2019, there have been no material changes, outside the ordinary course of business, in our outstanding contractual obligations from those disclosed~~arrangements except for operating leases as referenced within ~~“Management’s~~Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation,” ~~as contained~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~Subsequent to~~Contractual Obligations

As of June 30, ~~2019, we entered into~~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 Amendment to the Credit Facility, pursuant to which, among other things, a requirement was added 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 Marchyear ended December 31, ~~2020.~~2019.

Critical Accounting Policies and Estimates

There were no changes to our critical accounting policies from those disclosed in ~~the~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Recent Accounting Pronouncements

Please see Note 2, “Recent Accounting Pronouncements,” to the accompanying unaudited condensed consolidated ~~and combined~~ financial statements included elsewhere in this Quarterly Report and Note 2, “Summary of Significant Accounting Policies,” to ~~our~~the consolidated and combined financial statements in ~~the~~our Annual Report on Form 10-K for the year ended December 31, ~~2018~~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 June 30, ~~2019,~~2020, we had ~~$202.3~~$161.2 million of debt outstanding under the Term Loan and the Delayed Draw Commitment and ~~$35.2~~$24.5 million of debt outstanding under the Revolving Loan, with ~~a weighted-average~~an interest rate of ~~5.1%~~4.1%. A 1.0% increase or decrease in the ~~weighted-average~~ interest rate would increase or decrease interest expense by approximately ~~$2.4~~$1.9 million per year assuming a consistent debt balance and ~~before~~without taking into consideration any impact from the change in fair value of our interest rate ~~cap.~~swap. We currently have an interest rate ~~cap~~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.

~~Subsequent~~ A fair value liability of $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 June 30, 2020 and December 31, 2019, we entered into the Amendment to the Credit Facility, pursuant to which, among other things, (i) any Delayed Draw Term Loans shall incur additional interest at a rate equal to 10.0% per annum on all amounts outstanding in excess of $10.0 million of Delayed Draw Term Loans and (ii) the margin of interest that will be charged on all outstanding loans under the Credit Facility has been increased to 4.00% for loans based on LIBOR and 3.00% for loans based on the alternative base rate.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 June 30, ~~2019,~~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 June 30, ~~2019~~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. Dispositive motions filed by us and~~Hearing (“NCOAH”) due to the North Carolina ~~Department~~Superior Court’s having used an improper standard of ~~Environmental Quality are pending before~~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 ~~Office of Administrative Hearing.~~Superior Court. All customer related work at the Brickhaven site has been completed.

Item 1A. Risk Factors

~~Except as noted below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.~~ 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~~“Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018. Additional~~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, 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 ~~not currently known to us or that we currently deem to be immaterial also may~~enumerated in the Annual Report and could materially adversely affect our business, financial condition, results of operations and/or ~~future results.~~stock price.

~~We may not be able to generate sufficient cash to service~~While we are currently in compliance with all NYSE listing requirements, we have been out of ~~our indebtedness~~compliance in the past and may be ~~forced~~out of compliance in the future. Failure to ~~take other actions~~remain compliant with all NYSE listing standards could lead to ~~satisfy our obligations under our debt agreements, which may not be successful.~~

Our ability to make scheduled payments, including a prepayment of $50.0 million on or before September 13, 2019 and an additional prepayment of $40.0 million on or before March 31, 2020 on outstanding loans under the Credit Facility, or to refinance debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to pay the principal, premium (if any), and interest on our indebtedness.

~~If cash flows and capital resources are insufficient to service our debt, we may be forced to refinance all or part~~delisting of our existing debt, sell assets, borrow more money or sell securities, which we may not be able to do on commercially reasonable terms or at all, or we may be required to search for alternative measures to finance current and ongoing obligations of our business. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

~~We rely on technology in our business and any technology disruption or delay in implementing new technology could adversely affect our business.~~

We believe investments in new technology and processes present opportunities to provide higher-margin offerings while also improving the environment. We also depend on digital technologies to process and record financial and operating data and rely on sophisticated information technology systems and infrastructure to support our business, including process control technology. The failure of our technology initiatives and systems to perform as we anticipate or delay in implementing new technology could adversely affect our financial condition, results of operations and cash flows. For example, within our byproduct sales offerings, which is part of our Environmental Solutions segment, the roll-out of our technology initiatives, including our MP618 thermal beneficiation technology and our grinding technology, has been slower than previously anticipated, resulting in lower than expected contribution to operating results.

Additionally, if competitors implement new technologies before we do, allowing such competitors to provide lower priced or enhanced services of superior quality compared to those we provide, this could have an adverse effect on our financial condition, results of operations and cash flows.

~~Our financial condition and results of operations could suffer and be adversely affected if we incur an impairment of goodwill or other intangible assets.~~

We are required to test goodwill and other intangible assets annually and on an interim basis if an event occurs or there is a change in circumstance that would more likely than not reduce the fair value of our reporting unit below its carrying values or that indicates that the carrying value of such intangible asset is not recoverable. When the carrying value of a reporting unit exceeds its fair value, a charge to operations, up to the total amount of the intangible, is recorded. If the carrying amount of an intangible asset is not recoverable, a charge to operations is recognized. Either event would result in incremental expenses for that period, which would reduce any earnings or increase any loss for the period in which the impairment was determined to have occurred.

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 our 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. If the assumptions used in our analysis are not realized, it is possible that an impairment charge may need to be recorded in the futurecommon stock which could have a material, adverse effect on our business, operating results and financial ~~condition~~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, ~~results~~as of ~~operations.~~

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.

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 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
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~~8-K filed June 22, 2018 (File No. ~~001‑38523)~~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~~8-K filed June 22, 2018 (File No. ~~001‑38523)~~001-38523)).
~~10.1*†~~4.1		~~Form~~ Waiver of ~~Performance Share Unit Grant Notice (Form for grantee with employment agreement)~~
~~10.2*†~~		~~Form~~Right Under Stockholders’ Agreement (CEP Holdings, Inc.) of ~~Performance Share Unit Grant Notice (Form for grantee without employment agreement)~~
~~10.3*†~~		~~Form of Restricted Stock Unit Grant Notice (Form for grantee with employment agreement)~~
~~10.4*†~~		~~Form of Restricted Stock Unit Grant Notice (Form for grantee without employment agreement)~~
~~10.5†~~		~~Employment Agreement between Charah, LLC, Charah Solutions,~~CEP Holdings, Inc. ~~and Roger D. Shannon,~~, dated ~~June 17, 2019~~July 9, 2020 (incorporated by reference to Exhibit ~~10.1~~4.1 to the Current Report on Form 8-K filed ~~June 14, 2019~~July 15, 2020 (File No. 001-38523)).
~~10.6†~~		Amended and Restated Employment Agreement between Charah, LLC, Charah Solutions, Inc. and Scott A. Sewell, dated June 10, 2019 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed June 14, 2019 (File No. 001-38523)).
~~10.7~~		Amendment No. 2 to Credit Agreement and Waiver between Charah Solutions, Inc., Bank of America, N.A., as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein, dated August 13, 2019 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed August 14, 2019 (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.CAL*		~~XBRL Calculation Linkbase Document.~~
101.DEF*		~~XBRL Definition Linkbase Document.~~
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.~~
101.SCH*		~~XBRL Schema~~ Document.

___________



*		Filed herewith.
**		Furnished herewith.
†		~~Indicates a management contract or compensatory plan or arrangement.~~

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.


August ~~14, 2019~~11, 2020	By:	/s/ Scott A. Sewell
	Name:	Scott A. Sewell
	Title:	President and Chief Executive Officer ~~and Director~~
		(Principal Executive Officer)


August ~~14, 2019~~11, 2020	By:	/s/ Roger D. Shannon
	Name:	Roger D. Shannon
	Title:	Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

4039



	June 30, 2019			December 31, 2018
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	29,273		$	24,821
Billings in excess of costs and estimated earnings	160			1,352
Notes payable, current maturities	108,722			23,268
Accrued payroll and bonuses	11,588			15,480
Asset retirement obligation, current portion	14,126			14,704
Purchase option liability	7,110			10,017
Accrued expenses	20,628			22,473
Other liabilities	905			—
Total current liabilities	192,512			112,115
Long-term liabilities:
Contingent payments for acquisitions	11,349			11,214
Asset retirement obligation, less current portion	6,819			11,361
Line of credit	35,174			19,799
Notes payable, less current maturities	127,837			211,022
Total liabilities	373,691			365,511
Commitments and contingencies (see Note 11)
Stockholders’ equity:
Retained (losses) earnings	(11,431		)	9,414
Common Stock, $0.01 par value; 200,000,000 shares authorized; 29,586,165 and 29,082,988 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	296			291
Additional paid-in capital	83,681			82,880
Total stockholders’ equity	72,546			92,585
Non-controlling interest	1,023			805
Total equity	73,569			93,390
Total liabilities and equity	$	447,260		$	458,901



	For the Six Months Ended June 30, 2018
	Charah Solutions, Inc.
	Common Stock (Shares)		Common Stock (Amount)		Additional Paid-In Capital			Charah, LLC Members' Interest			Allied Power Management, LLC Members' Interest			Retained Earnings		Total			Non-Controlling Interest			Total
Balance, December 31, 2017	—		$	—	$	—		$	19,718		$	9,687		$	18,316	$	47,721		$	598		$	48,319
Net income	—		—		—			—			—			4,025		4,025			1,009			5,034
Share based compensation expense	—		—		—			214			—			—		214			—			214
Distributions	—		—		—			(686		)	—			—		(686		)	(721		)	(1,407		)
Conversion from members' interest to common stock	23,436,398		234		28,699			(19,246		)	(9,687		)	—		—			—			—
Issuance of shares	5,294,117		53		59,188			—			—			—		59,241			—			59,241
Share based common stock issued	372,169		4		(4		)	—			—			—		—			—			—
Shares repurchased	(19,696	)	—		—			—			—			—		—			—			—
Share based compensation expense	—		—		1,189			—			—			—		1,189			—			1,189
Deferred offering costs	—		—		(8,622		)	—			—			—		(8,622		)	—			(8,622		)
Balance, June 30, 2018	29,082,988		$	291	$	80,450		$	—		$	—		$	22,341	$	103,082		$	886		$	103,968



Cash acquired	$	17
Net working capital, excluding cash	21,255
Property, plant and equipment	5,300
Trade name intangible assets	694
Customer relationship intangible assets	742
Technology	1,972
Non-compete and other agreements	289
Goodwill	745
Total purchase price	$	31,014



	Approximate Percent Decrease in Estimated Fair Value
	+75 bps Discount Rate		-100 bps Growth Rate
Environmental Solutions reporting unit	6.5	%	5.7	%



Three Months Ended June 30, 2018	Environmental Solutions		Maintenance and Technical Services		All Other		Total
Segment revenue	$	90,113	$	105,610	$	—	$	195,723
Segment gross profit	22,096		8,453		—		30,549
Segment depreciation and amortization expense	5,334		1,378		1,992		8,704



Six Months Ended June 30, 2018	Environmental Solutions		Maintenance and Technical Services		All Other		Total
Segment revenue	$	137,897	$	213,355	$	—	$	351,252
Segment gross profit	34,565		15,082		—		49,647
Segment depreciation and amortization expense	10,744		2,407		3,984		17,135
Expenditures for segment assets	3,445		4,788		—		8,233



As of June 30, 2019	Environmental Solutions		Maintenance and Technical Services		All Other		Total
Segment property and equipment, net	$	48,578	$	38,430	$	281	$	87,289
Segment goodwill	57,591		16,622		—		74,213



As of December 31, 2018	Environmental Solutions		Maintenance and Technical Services		All Other		Total
Segment property and equipment, net	$	47,467	$	41,155	$	319	$	88,941
Segment goodwill	57,591		16,622		—		74,213



Three Months Ended June 30, 2019	Products		Percentage of Completion		Services		Total
Revenue	$	24,890	$	11,900	$	84,146	$	120,936