UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Exact name of registrant as specified in its charter)

      

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10‑Q (the(this “Quarterly Report”) includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) 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 and losses, projected costs, prospects, plans and objectives of management are forward‑looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward‑looking statements, although not all forward‑looking statements contain such identifying words. These forward‑looking statements are based on our current expectations and assumptions about future events and are 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 our Annual Report on Form 10-K for the final prospectus dated June 13, 2018, as filed with the SEC on June 15, 2018 (the “Final Prospectus”).year ended December 31, 2018. 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:

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 “Risk“Item 1A. Risk Factors” in our Final Prospectus.the Annual Report on Form 10-K for the year ended December 31, 2018. 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 statement.note. This cautionary statementnote 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 section,cautionary note, to reflect events or circumstances after the date of this Quarterly Report.

During the ninethree months ended September 30,March 31, 2019 and 2018, (Successor), the Company purchased $13,441 of equipment with seller provided financing.seller-provided financing of $0 and $6,975, respectively.

See accompanying notes to condensed consolidated & combined financial statements.

Notes to Condensed Consolidated & Combined Financial Statements

1. Nature of Business and Basis of Presentation

Charah Solutions, Inc. (“Charah Solutions”(together with its subsidiaries, “Charah Solutions,” the “Company,” “we,” “us” or the “Company”“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”). The Company, which was completed its IPO 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 DelawareKentucky 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 September 30, 2018March 31, 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 on a combined basis for the periods prior to the June 18, 2018 corporate reorganization described below. Allied was formed in May 2017 and did not commence operations until July 2017.reorganization.

On June 18, 2018, pursuant to the terms of the reorganization transactions completed in connection with the IPO, (i) (a) (i) 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, (ii)(b) CEP Holdings, Inc., a Delaware corporation owned by Charles E. Price and certain affiliates, (“CEP Holdings”), 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, (iii)(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 (iv)(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, (b)stock; (ii) each of Charah Management Holdings and Allied Management Holdings distributed the shares of common stock received by them pursuant to clause (a)(i) above to their respective members in accordance with the respective terms of their limited liability company agreementsagreements; and (c)(iii) Charah Holdings distributed a portion of the shares of common stock it received in clause (a)(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.

The Company providesis 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. Services offered includeWe offer 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 and North Carolina, and Louisiana, and principally operates in the eastern and mid centralmid-central United States.

Under the Jumpstart Our Business Startups Act (the "JOBS Act"“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

The Company’s fiscal year ends December 31. The accompanying unaudited condensed consolidated and combined financial statements include the accountsassets, 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 ("SEC") 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"(“GAAP”) have been condensed or omitted. TheseThe accompanying unaudited condensed consolidated and combined financial statements should be read in conjunction with the annual audited consolidated and combined financial statements and notes thereto included in our final prospectus filedthe Annual Report on June 15, 2018.

The unaudited pro forma income information gives effect to the corporate reorganization that occurred in connection with the closing of the IPO and the resulting legal entity of Charah Solutions, which is incorporated as 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 tax rate of 38% for the year ended December 31, 2017 and 25% for the periods from January 1, 2018 through June 17, 2018, plus the actual tax expense for the period fromperiods after June 18, 2018 through September 30, 2018. These rates approximate the calculated statutory tax rate for each period. The tax rate in the preceding sentence for the year ended December 31, 2017 does not reflect the impact of U.S. tax reform, which reduces the federal U.S. statutory tax rate from 35% to 21%, effective in 2018. The tax rates mentioned for the three and nine months ended September 30, 2018 reflect the impact of U.S. tax reform.

2. Business CombinationRecent Accounting Pronouncements

To assess the impact of this ASU, we utilized internal resources to lead the implementation effort and supplemented them with external resources. The acquisitionCompany’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 accounted for underbilled to the acquisition method of accounting incustomer. In accordance with ASC Topic 805, Business Combinations. The purchase price was allocated606, for contracts with fluctuating rates per unit that are not directly related to changes in the assets acquired and liabilities assumedCompany’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.

No revenue or earnings from the acquired business described above iswere included in the Statementsunaudited condensed consolidated statement of Income (Loss) for the 2017 periods. The actual revenue from the acquired business included in the Statements of Income (Loss)operations for the three and nine months ended September 30, 2018 was approximately $14,890 and $31,463, respectively. The actual earnings from the acquired business included in the Statements of Income (Loss) for the three and nine months ended September 30, 2018 was approximately $368 and $1,322, respectively.March 31, 2018.

The following unaudited information presents the pro forma consolidated revenue and net (loss) income for the periods indicatedthree months ended March 31, 2019 and 2018 as if the acquisition had been included in the consolidated results of operations beginning January 1, 2017.

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 resulting,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 and therefore will change when the final asset values and useful lives have been determined.amortization.

The pro forma results reflect the elimination of $589$413 of direct acquisition costs that were incurred in the ninethree months ended September 30,March 31, 2018 (since for purposes of the pro forma presentation they have been reflected 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.

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 $146$200 and $61$108 at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.

Goodwill represents the excess of the cost of an acquisitionpurchase price over the fair value of acquiredthe net assets and such amounts are reported separately asacquired in a business combination. Our goodwill on ourincluded in the unaudited condensed consolidated balance sheets as of March 31, 2019 and combined balance sheets.December 31, 2018 was $74,213. Our intangible assets as of March 31, 2019 and December 31, 2018 include a trade name valued at $34,330 that is considered to have an indefinite life.

Indefinite livedGoodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment annually or on an interim basismore often if events or changes in circumstances indicate that the fair value of the asset hasmay have decreased below its carrying value.

We perform our impairment test effective October 31st1st of each year. Each quarter, we evaluate if there are any indicators of impairment, and we determined there were no indicators of impairment at September 30, 2018March 31, 2019 and 2017.2018.

5.6. Credit Agreement

The Company hadOn September 21, 2018, we entered into a credit agreement with a bank providing for a revolving credit facility (the “Credit Facility”) with a principal amountby and among us, the lenders party thereto from time to time and Bank of up to $45,000. The interest rates per annum applicable to the loans under the Credit Facility were based on a fluctuating rate of interest measured by reference to, at the Company’s election, either (1) an adjusted London Inter-Bank Offered Rate ("LIBOR") plus a 2.00% borrowing margin, or (2) an alternative base rate plus a 1.00% borrowing margin. Customary fees were payable in respect of the Credit Facility and included (1) commitment fees in an annual amount equal to 0.50% of the daily unused portions of the Credit Facility, and (2) a 2.00% fee on outstanding letters of credit.America, as administrative agent. The Credit Facility had a maturity date of October 25, 2022. There were no amounts drawn on the revolving credit facility as of December 31, 2017. The Credit Facility was terminated in September 2018 and all amounts outstanding were repaid.includes:

IncludedThe Credit Facility contains various 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 interest expensemergers and acquisitions, make dispositions of assets, make restricted payments or change the nature of our or their 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). We are 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 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.

As of March 31, 2019, we were in compliance with all covenants related to the Credit Facility. As of March 31, 2019, our consolidated net leverage ratio was 2.79 to 1.00 and our fixed charge coverage ratio was 2.27 to 1.00. Management evaluated its future compliance with these financial covenants using management's most recent financial forecast. Based on this evaluation, management believes the Company will continue to remain in compliance with these covenants. Management’s forecast does not anticipate existing operations incurring material unexpected losses, new work awards being materially delayed, or delay in the condensed consolidatedreceipt of payment from our customer related to the early completion of the Brickhaven contract. 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 to remain in compliance with such covenants, although there is no assurance that we could obtain such amendment or waiver.

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

The Revolving Loan provides a principal amount of up to $50,000, reduced by outstanding letters of credit ($11,980 outstanding as of March 31, 2019). As of March 31, 2019, $20,500 was outstanding on the three and nine months ended September 30, 2018 was $12.5 million of costs incurred in conjunction with the refinance of our term loan, consisting of a $10.4 million non-cash write-off of debt issue costs and a $2.1 million prepayment penalty.Revolving Loan.

8. Interest Rate Swap

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

variable interest amounts calculated by reference to a notional amount. The interest rate swap is not designatedoperations for hedge accounting. The change in fair values of the interest rate swap are immediately recognized in earnings, within interest expense.

Costs and estimated earnings on uncompleted contracts are as of:

10. Stock/Unit BasedUnit-Based Compensation

The Charah Management LLC Limited Liability Company Agreement for Charah Management provided for the issuance of up to 1,000 Series C profits interests ("Charah(the “Charah Series C Profits Interests"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 toon the Charah Management LLC Series A Membership Interests and the Charah Management LLC Series B membership interest.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, andwhich were canceled as a result of the corporate reorganization that occurred upon the closing of the IPO (see further discussion below). The Charah Series C Profits

The Allied Power Management LLC Limited Liability Company Agreement for Allied provided for the issuance of up to 1,000 Allied Series C profits interests (“Allied(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. Allied Series C Profits Interests participated in distributions to Allied members based upon specified rates of return being realized to the Allied Series A and Allied Series B membership interest.The Allied Series C Profits Interests vested immediately upon grant. The Allied Series C Profits Interests were valued based upon a contingent claims analysis to allocate the total implied equity value as of the valuation date amongst the various equity securities classes, with breakpoints estimated considering relative seniority, liquidation preferences and conversion features. An assumed volatility of 32.5% based upon a comparable public company analysis was used in the determination of fair value. The averageweighted-average grant date fair value of the Allied Series C Profits InterestInterests granted during 2017

was $69 per unit. No compensation expense was recognized during the three and nine months ended September 30,March 31, 2019 and 2018 (Successor). For both the three months ended September 30, 2017 (Successor) and the period from January 13, 2017 through September 30, 2017 (Successor), $38 of compensation expense was recognized. No compensation expense was recognized during the period from January 1, 2017 through January 12, 2017 (Predecessor) related to the Allied Series C Profits Interests.

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,Interests. Of these shares, 303,993 vested immediately and 911,963 of the shares are subject to time basedtime-based vesting 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”) (see further discussion below), of which. Of these shares, 68,176 vested immediately and 204,532 shares are subject to the same time-based vesting conditions and performance vesting conditions as the shares issued in accordance with 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 March 31, 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 Omnibus Incentive Plan, (the “2018 Plan”), pursuant to which employees, consultants and directors of the Company and its affiliates, including named executive officers, are eligible to receive awards. The 2018 Plan provides for the grant of stock options, stock appreciation rights,

During the three and nine months ended September 30,March 31, 2019 and 2018, (Successor), $1,046$208 and $2,235, respectively,$0 of compensation expense, respectively, was recognized related to the shares issued in accordance with the Management Reorganization Consideration and the 2018 Plan. As of September 30, 2018, thereMarch 31, 2019, total unrecognized stock-based compensation expense related to non-vested awards, net of estimated forfeitures, was approximately $3,483$1,124, and is expected to be recognized over a weighted-average period of approximately 1.16 years. The total compensation expense, subject to changes in fair value asof awards vested for the performance targets are approved by the board of directors, related to unvested awards not yet recognized, which will be recognized in future periods in accordance with applicable vesting terms.three months ended March 31, 2019 was $5,306.

11. Commitments and Contingencies

We are party to a lawsuit filed against North Carolina by a certainan 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 (“OAH”). If the OAH determines North Carolina exceeded its permitting authority with respectHearing. A court stay expired on April 5, 2019. A new case schedule is expected

Allied 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. 

In addition to the above matters, we are from time to time party to various lawsuits, claims and other legal proceedings arisingthat arise in the ordinary course of our business. WhileWith 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 suchthese lawsuits, claims and proceedings, cannot be predicted with certainty, we do not expect them tobelieve that the ultimate disposition of any of these matters, individually or in the aggregate, would have a material adverse impacteffect on the Company.our results of operations, financial position or cash flows. We maintain liability insurance for certain risks that is subject to certain self-insurance limits.

12. Business Segment and Related Information

The Company has identified the following reportable segments, Environmental Solutions and Maintenance &and Technical Services, as each met the quantitative threshold of generating revenues equal to or greater than 10 percent10% 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 Annual Report on Form 10-K for the year ended December 31, 2018. Management evaluates the performance of each segment based on segment gross profit, which is calculated as revenues less cost of sales. For the three months ended September 30,March 31, 2019 and 2018, (Successor), the three months ended September 30, 2017 (Successor), the nine months ended September 30, 2018 (Successor), the period from January 13, 2017 through September 30, 2017 (Successor) and the period January 1, 2017 through January 12, 2017 (Predecessor), there arewere no intersegment revenues 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: