UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

____________________________

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2021

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

For the transition period from ____________ to ____________

Commission File Number: 001-38523

____________________________

CHARAH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

____________________________


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

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

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CHRA

New York Stock Exchange

8.50% Senior Notes due 2026

CHRB

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 ☒

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 6,~~November 1, 2021, the registrant had 33,407,806 shares of common stock outstanding.

CHARAH SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2021

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~~Septe mber 30,, 2021 and December 31, 2020			1
Condensed Consolidated Statements of Operations for the Three and ~~and S~~ixNine Months Ended ~~June~~September 3 0 ,30, 2021 and 2020			2
Condensed Consolidated Statements of Stockholders’ Equity for the Three and ~~and Six~~Nine Months Ended ~~June~~September 3 0 ,30, 2021 and 2020			3
Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~ September 30,, 2021 and 2020			5
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2627
Item 4. Controls and Procedures			3840

PART II - OTHER INFORMATION			3941
Item 1. Legal Proceedings			3941
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3941
Item 5. Other Information			42
Item 6. Exhibits			3942

SIGNATURES			4144

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10‑Q (this “Quarterly Report”) includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects, plans and objectives of management are forward‑looking statements. When used in this Quarterly Report, the words “may,” “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward‑looking statements. However, not all forward‑looking statements contain such identifying words. These forward‑looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. When considering forward‑looking statements, you should keep in mind the risk factors and other cautionary statements included in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 and in Part II, “Item 1A. Risk Factors” of this Quarterly Report and elsewhere herein. These forward‑looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Forward‑looking statements may include statements about:

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

•our business strategy;

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

•our future revenue, income and operating performance;

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

•our ability to maintain acceptable pricing for our services;

•our future capital expenditures;

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

•competition and government regulations;

•our ability to obtain permits and governmental approvals;

•pending legal or environmental matters or liabilities;

•environmental hazards;

•industrial accidents;

•business or asset acquisitions;

•general economic conditions;

•credit markets;

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

•uncertainty regarding our future operating results;

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

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

•our ability to comply with certain debt covenants;

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

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

We caution you that these forward‑looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, the risks described under Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 and under Part II, “Item 1A. Risk Factors” of this Quarterly Report and elsewhere herein. Should one or more of the risks or uncertainties described occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward‑looking statements.

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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHARAH SOLUTIONS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except par value amounts)

(Unaudited)


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	18,081	$	24,787	Cash and cash equivalents	$	22,400	$	24,787
Restricted cash	Restricted cash	39,578		4,424		Restricted cash	48,653		4,424
Trade accounts receivable, net	Trade accounts receivable, net	44,509		46,609		Trade accounts receivable, net	44,059		46,609
Receivable from affiliates	Receivable from affiliates	0		182		Receivable from affiliates	—		182
Contract assets	Contract assets	17,631		18,329		Contract assets	23,511		18,329
Inventory	Inventory	6,045		5,917		Inventory	5,558		5,917
Income tax receivable	Income tax receivable	29		260		Income tax receivable	29		260
Prepaid expenses and other current assets	Prepaid expenses and other current assets	8,274		5,287		Prepaid expenses and other current assets	7,581		5,287
Total current assets	Total current assets	134,147		105,795		Total current assets	151,791		105,795
Property and equipment, net	Property and equipment, net	62,840		49,470		Property and equipment, net	64,387		49,470
Goodwill	Goodwill	62,193		62,193		Goodwill	62,193		62,193
Intangible assets, net	Intangible assets, net	62,675		61,426		Intangible assets, net	60,701		61,426
Equity method investments	Equity method investments	7		831		Equity method investments	7		831
Other assets	Other assets	7,987		1,245		Other assets	8,444		1,245

Total assets	Total assets	$	329,849	$	280,960	Total assets	$	347,523	$	280,960

Liabilities, mezzanine equity and stockholders’ equity	Liabilities, mezzanine equity and stockholders’ equity					Liabilities, mezzanine equity and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	17,600		15,613		Accounts payable	26,104		15,613

Contract liabilities	Contract liabilities	26,076		6,295		Contract liabilities	14,145		6,295
Capital lease obligations, current portion	Capital lease obligations, current portion	4,423		2,199		Capital lease obligations, current portion	5,156		2,199
Notes payable, current maturities	Notes payable, current maturities	28,571		22,308		Notes payable, current maturities	25,533		22,308
Asset retirement obligation, current portion		21,395		2,043
Asset retirement obligations, current portion						Asset retirement obligations, current portion	32,181		2,043
Accrued liabilities	Accrued liabilities	19,985		34,937		Accrued liabilities	21,723		34,937
Other current liabilities	Other current liabilities	2,734		935		Other current liabilities	—		935
Total current liabilities	Total current liabilities	120,784		84,330		Total current liabilities	124,842		84,330
Deferred tax liabilities	Deferred tax liabilities	597		368		Deferred tax liabilities	800		368
Contingent payments for acquisitions	Contingent payments for acquisitions	1,950		1,950		Contingent payments for acquisitions	1,950		1,950
Asset retirement obligation		30,966		3,116
Asset retirement obligations						Asset retirement obligations	17,786		3,116
Line of credit	Line of credit	12,781		12,003		Line of credit	—		12,003
Capital lease obligations, less current portion	Capital lease obligations, less current portion	8,173		4,485		Capital lease obligations, less current portion	10,587		4,485
Notes payable, less current maturities	Notes payable, less current maturities	110,864		124,969		Notes payable, less current maturities	135,573		124,969
Other liabilities	Other liabilities	1,845		2,000		Other liabilities	1,845		2,000
Total liabilities	Total liabilities	287,960		233,221		Total liabilities	293,383		233,221

Commitments and contingencies (see Note 17)		0		0
Commitments and contingencies (see Note 18)						Commitments and contingencies (see Note 18)	0		0

Mezzanine equity	Mezzanine equity					Mezzanine equity
Series A Preferred Stock — $0.01 par value; 50 shares authorized, 26 shares issued and outstanding as of June 30, 2021 and December 31, 2020; aggregate liquidation preference of $30,685 and $28,783 as of June 30, 2021 and December 31, 2020, respectively		31,141		27,423
Series A Preferred Stock — $0.01 par value; 50 shares authorized, 26 shares issued and outstanding as of September 30, 2021 and December 31, 2020; aggregate liquidation preference of $31,682 and $28,783 as of September 30, 2021 and December 31, 2020, respectively						Series A Preferred Stock — $0.01 par value; 50 shares authorized, 26 shares issued and outstanding as of September 30, 2021 and December 31, 2020; aggregate liquidation preference of $31,682 and $28,783 as of September 30, 2021 and December 31, 2020, respectively	33,438		27,423

Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Retained losses	Retained losses	(94,318)		(88,865)		Retained losses	(95,995)		(88,865)
Common Stock — $0.01 par value; 200,000 shares authorized, 30,519 and 30,077 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		305		300
Common Stock — $0.01 par value; 200,000 shares authorized, 33,408 and 30,077 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively						Common Stock — $0.01 par value; 200,000 shares authorized, 33,408 and 30,077 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	334		300
Additional paid-in capital	Additional paid-in capital	104,442		108,471		Additional paid-in capital	116,088		108,471
Total stockholders’ equity	Total stockholders’ equity	10,429		19,906		Total stockholders’ equity	20,427		19,906
Non-controlling interest	Non-controlling interest	319		410		Non-controlling interest	275		410
Total equity	Total equity	10,748		20,316		Total equity	20,702		20,316
Total liabilities, mezzanine equity and stockholders’ equity	Total liabilities, mezzanine equity and stockholders’ equity	$	329,849	$	280,960	Total liabilities, mezzanine equity and stockholders’ equity	$	347,523	$	280,960

See accompanying notes to condensed consolidated financial statements

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenue $ 63,518 $ 52,304 $ 115,625 $ 103,581
Cost of sales (56,598) (47,098) (103,120) (93,480)
Gross profit 6,920 5,206 12,505 10,101
General and administrative expenses (9,379) (8,657) (18,811) (19,325)
Gain on sales-type lease 0 0 5,568 0
Gains on sales of property and equipment, net 2,696 0 3,243 0
Other operating expenses from ERT services (1,007) 0 (1,297) 0
Operating (loss) income (770) (3,451) 1,208 (9,224)
Interest expense, net (3,314) (4,055) (6,549) (6,914)
Loss on extinguishment of debt 0 0 0 (8,603)
(Loss) income from equity method investment (11) 326 191 622
Loss from continuing operations before income taxes (4,095) (7,180) (5,150) (24,119)
Income tax expense 72 0 229 0
Net loss from continuing operations, net of tax (4,167) (7,180) (5,379) (24,119)
Income from discontinued operations, net of tax 0 3,777 0 6,820
Net loss (4,167) (3,403) (5,379) (17,299)
Less (loss) income attributable to non-controlling interest (1) 133 74 487
Net loss attributable to Charah Solutions, Inc. $ (4,166) $ (3,536) $ (5,453) $ (17,786)
Amounts attributable to Charah Solutions, Inc.
Loss from continuing operations, net of tax and non-controlling interest $ (4,166) $ (7,313) $ (5,453) $ (24,606)
Deemed and imputed dividends on Series A Preferred Stock (148) (167) (295) (167)
Series A Preferred Stock dividends (2,148) (858) (4,215) (969)
Net loss from continuing operations attributable to common stockholders (6,462) (8,338) (9,963) (25,742)
Income from discontinued operations, net of tax 0 3,777 0 6,820
Net loss attributable to common stockholders $ (6,462) (4,561) $ (9,963) $ (18,922)
Net loss from continuing operations per common share:
Basic $ (0.21) $ (0.28) $ (0.33) $ (0.86)
Diluted $ (0.21) $ (0.28) $ (0.33) $ (0.86)
Net income from discontinued operations per common share:
Basic $ 0 $ 0.13 $ 0 $ 0.23
Diluted $ 0 $ 0.13 $ 0 $ 0.23
Net loss attributable to common stockholders per common share:
Basic $ (0.21) $ (0.15) $ (0.33) $ (0.64)
Diluted $ (0.21) $ (0.15) $ (0.33) $ (0.64)
Weighted-average shares outstanding used in income (loss) per common share:
Basic 30,450 29,927 30,282 29,785
Diluted 30,450 29,927 30,282 29,785


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenue	$	84,161	$	63,116	$	199,786	$	166,697
Cost of sales	(74,712)		(54,782)		(177,832)		(148,262)
Gross profit	9,449		8,334		21,954		18,435
General and administrative expenses	(9,396)		(2,043)		(28,080)		(21,368)
Gain on sales-type lease	—		—		5,568		—
Gains on sales of property and equipment, net	2,998		—		6,241		—
Gain on ARO settlement	1,127		—		1,127		—
Other operating expenses from ERT services	(817)		—		(2,114)		—
Impairment expense	(700)		(6,399)		(827)		(6,399)
Operating income (loss)	2,661		(108)		3,869		(9,332)
Interest expense, net	(3,541)		(3,551)		(10,090)		(10,465)
Loss on extinguishment of debt	(638)		—		(638)		(8,603)
Income from equity method investment	—		625		191		1,247
Loss from continuing operations before income taxes	(1,518)		(3,034)		(6,668)		(27,153)
Income tax expense	203		608		432		608
Net loss from continuing operations, net of tax	(1,721)		(3,642)		(7,100)		(27,761)
Income from discontinued operations, net of tax	—		119		—		6,939
Net loss	(1,721)		(3,523)		(7,100)		(20,822)
Less (loss) income attributable to non-controlling interest	(44)		693		30		1,180
Net loss attributable to Charah Solutions, Inc.	$	(1,677)	$	(4,216)	$	(7,130)	$	(22,002)

Amounts attributable to Charah Solutions, Inc.
Loss from continuing operations, net of tax and non-controlling interest	$	(1,677)	$	(4,335)	$	(7,130)	$	(28,941)
Deemed and imputed dividends on Series A Preferred Stock	(148)		(147)		(443)		(314)
Series A Preferred Stock dividends	(1,946)		(877)		(6,161)		(1,846)
Net loss from continuing operations attributable to common stockholders	(3,771)		(5,359)		(13,734)		(31,101)
Income from discontinued operations, net of tax	—		119		—		6,939
Net loss attributable to common stockholders	$	(3,771)	(5,240)		$	(13,734)	$	(24,162)

Net loss from continuing operations per common share:
Basic	$	(0.12)	$	(0.18)	$	(0.44)	$	(1.04)
Diluted	$	(0.12)	$	(0.18)	$	(0.44)	$	(1.04)

Net income from discontinued operations per common share:
Basic	$	—	$	0.01	$	—	$	0.23
Diluted	$	—	$	0.01	$	—	$	0.23

Net loss attributable to common stockholders per common share:
Basic	$	(0.12)	$	(0.17)	$	(0.44)	$	(0.81)
Diluted	$	(0.12)	$	(0.17)	$	(0.44)	$	(0.81)

Weighted-average shares outstanding used in income (loss) per common share:
Basic	32,277		29,986		30,955		29,853
Diluted	32,277		29,986		30,955		29,853

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)


		For the Six Months Ended June 30, 2020																	For the Three Months Ended September 30, 2021
		Mezzanine Equity			Permanent Equity														Mezzanine Equity			Permanent Equity
		Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total		Non-Controlling Interest		Total			Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total		Non-Controlling Interest		Total
Balance, December 31, 2019		0	$	0	29,622,835	$	296	$	85,187	$	(33,002)	$	52,481	$	792	$	53,273
Balance, June 30, 2021																		Balance, June 30, 2021	26,000	$	31,141	30,518,917	$	305	$	104,442	$	(94,318)	$	10,429	$	319	$	10,748
Net (loss) income	Net (loss) income	—	—		—	—		—		(17,786)		(17,786)		487		(17,299)		Net (loss) income	—	—		—	—		—		(1,677)		(1,677)		(44)		(1,721)
Issuance of common stock																		Issuance of common stock	—	—		2,888,889	29		12,971		—		13,000		—		13,000
Distributions	Distributions	—	—		—	—		—		—		—		(709)		(709)		Distributions	—	—		—	—		—		—		—		—		—
Share-based compensation expense	Share-based compensation expense	—	—		—	—		1,470		—		1,470		—		1,470		Share-based compensation expense	—	—		—	—		769		—		769		—		769
Shares issued under share-based compensation plans	Shares issued under share-based compensation plans	—	—		426,852	4		(4)		—		—		—		0		Shares issued under share-based compensation plans	—	—		—	—		—		—		—		—		—
Taxes paid related to net settlement of shares		—	—		(63,924)	—		(137)		—		(137)		—		(137)
Issuance of Series A Preferred Stock, net of issuance costs		26,000	24,263		—	—		—		—		—		—		0
Taxes paid related to the net settlement of shares																		Taxes paid related to the net settlement of shares	—	—		—	—		—		—		—		—		—
Deemed and imputed dividends on Series A Preferred Stock	Deemed and imputed dividends on Series A Preferred Stock	—	286		—	—		(167)		—		(167)		—		(167)		Deemed and imputed dividends on Series A Preferred Stock	—	148		—	—		(148)		—		(148)		—		(148)
Series A Preferred Stock dividends	Series A Preferred Stock dividends	—	—		—	—		(969)		—		(969)		—		(969)		Series A Preferred Stock dividends	—	2,149		—	—		(1,946)		—		(1,946)		—		(1,946)
Balance, June 30, 2020		26,000	24,549		29,985,763	$	300	$	85,380	$	(50,788)	$	34,892	$	570	$	35,462
Balance, September 30, 2021																		Balance, September 30, 2021	26,000	$	33,438	33,407,806	$	334	$	116,088	$	(95,995)	$	20,427	$	275	$	20,702


		For the Six Months Ended June 30, 2021																	For the Three Months Ended September 30, 2020
		Mezzanine Equity			Permanent Equity														Mezzanine Equity			Permanent Equity
		Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total		Non-Controlling Interest		Total			Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total		Non-Controlling Interest		Total
Balance, December 31, 2020		26,000	$	27,423	30,077,018	$	300	$	108,471	$	(88,865)	$	19,906	$	410	$	20,316
Balance, June 30, 2020																		Balance, June 30, 2020	26,000	$	24,549	29,985,763	$	300	$	85,380	$	(50,788)	$	34,892	$	570	$	35,462
Net (loss) income	Net (loss) income	—	—		—	—		—		(5,453)		(5,453)		74		(5,379)		Net (loss) income	—	—		—	—		—		(4,216)		(4,216)		693		(3,523)
Distributions	Distributions	—	—		—	—		—		—		—		(165)		(165)		Distributions	—	—		—	—		—		—		—		(327)		(327)
Share-based compensation expense	Share-based compensation expense	—	—		—	—		998		—		998		—		998		Share-based compensation expense	—	—		—	—		614		—		614		—		614
Shares issued under share-based compensation plans	Shares issued under share-based compensation plans	—	—		535,417	6		(6)		—		—		—		0		Shares issued under share-based compensation plans	—	—		—	—		—		—		—		—		—
Taxes paid related to the net settlement of shares	Taxes paid related to the net settlement of shares	—	—		(93,518)	(1)		(511)		—		(512)		—		(512)		Taxes paid related to the net settlement of shares	—	—		—	—		—		—		—		—		—
Issuance of Series A Preferred Stock, net of issuance costs																		Issuance of Series A Preferred Stock, net of issuance costs	—	(10)		—	—		—		—		—		—		—
Deemed and imputed dividends on Series A Preferred Stock	Deemed and imputed dividends on Series A Preferred Stock	��	295		—	—		(295)		—		(295)		—		(295)		Deemed and imputed dividends on Series A Preferred Stock	—	997		—	—		(147)		—		(147)		—		(147)
Series A Preferred Stock dividends	Series A Preferred Stock dividends	—	3,423		—	—		(4,215)		—		(4,215)		—		(4,215)		Series A Preferred Stock dividends	—	—		—	—		(877)		—		(877)		—		(877)
Balance, June 30, 2021		26,000	$	31,141	30,518,917	$	305	$	104,442	$	(94,318)	$	10,429	$	319	$	10,748
Balance, September 30, 2020																		Balance, September 30, 2020	26,000	$	25,536	29,985,763	$	300	$	84,970	$	(55,004)	$	30,266	$	936	$	31,202

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)


	For the Nine Months Ended September 30, 2021
	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, 2020	26,000	$	27,423	30,077,018	$	300	$	108,471	$	(88,865)	$	19,906	$	410	$	20,316
Net (loss) income	—	—		—	—		—		(7,130)		(7,130)		30		(7,100)
Issuance of common stock	—	—		2,888,889	29		12,971		—		13,000		—		13,000
Distributions	—	—		—	—		—		—		—		(165)		(165)
Share-based compensation expense	—	—		—	—		1,767		—		1,767		—		1,767
Shares issued under share-based compensation plans	—	—		535,417	6		(6)		—		—		—		—
Taxes paid related to the net settlement of shares	—	—		(93,518)	(1)		(511)		—		(512)		—		(512)
Deemed and imputed dividends on Series A Preferred Stock	—	443		—	—		(443)		—		(443)		—		(443)
Series A Preferred Stock dividends	—	5,572		—	—		(6,161)		—		(6,161)		—		(6,161)
Balance, September 30, 2021	26,000	$	33,438	33,407,806	$	334	$	116,088	$	(95,995)	$	20,427	$	275	$	20,702


		For the Three Months Ended June 30, 2020																	For the Nine Months Ended September 30, 2020
		Mezzanine Equity			Permanent Equity														Mezzanine Equity			Permanent Equity
		Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total		Non-Controlling Interest		Total			Preferred Stock (Shares)	Preferred Stock (Amount)		Common Stock (Shares)	Common Stock (Amount)		Additional Paid-In Capital		Retained Losses		Total		Non-Controlling Interest		Total
Balance, March 31, 2020		26,000	$	23,513	29,616,882	$	296	$	85,794	$	(47,252)	$	38,838	$	568	$	39,406
Balance, December 31, 2019																		Balance, December 31, 2019	—	$	—	29,622,835	$	296	$	85,187	$	(33,002)	$	52,481	$	792	$	53,273
Net (loss) income	Net (loss) income	—	—		—	—		—		(3,536)		(3,536)		133		(3,403)		Net (loss) income	—	—		—	—		—		(22,002)		(22,002)		1,180		(20,822)
Distributions	Distributions	—	—		—	—		—		—		—		(131)		(131)		Distributions	—	—		—	—		—		—		—		(1,036)		(1,036)
Share-based compensation expense	Share-based compensation expense	—	—		—	—		738		—		738		—		738		Share-based compensation expense	—	—		—	—		2,084		—		2,084		—		2,084
Shares issued under share-based compensation plans	Shares issued under share-based compensation plans	—	—		426,852	4		(4)		—		—		—		0		Shares issued under share-based compensation plans	—	—		426,852	4		(4)		—		—		—		—
Taxes paid related to the net settlement of shares		—	—		(57,971)	—		(123)		—		(123)		—		(123)
Taxes paid related to net settlement of shares																		Taxes paid related to net settlement of shares	—	—		(63,924)	—		(137)		—		(137)		—		(137)
Issuance of Series A Preferred Stock, net of issuance costs	Issuance of Series A Preferred Stock, net of issuance costs	—	750		—	—		—		—		—		—		0		Issuance of Series A Preferred Stock, net of issuance costs	26,000	24,253		—	—		—		—		—		—		—
Deemed and imputed dividends on Series A Preferred Stock	Deemed and imputed dividends on Series A Preferred Stock	—	286		—��	—		(167)		—		(167)		—		(167)		Deemed and imputed dividends on Series A Preferred Stock	—	1,283		—	—		(314)		—		(314)		—		(314)
Series A Preferred Stock dividends	Series A Preferred Stock dividends	—	—		—	—		(858)		—		(858)		—		(858)		Series A Preferred Stock dividends	—	—		—	—		(1,846)		—		(1,846)		—		(1,846)
Balance, June 30, 2020		26,000	$	24,549	29,985,763	$	300	$	85,380	$	(50,788)	$	34,892	$	570	$	35,462
Balance, September 30, 2020																		Balance, September 30, 2020	26,000	25,536		29,985,763	$	300	$	84,970	$	(55,004)	$	30,266	$	936	$	31,202

For the Three Months Ended June 30, 2021
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, 2021 26,000 $ 28,926 30,228,385 $ 302 $ 106,552 $ (90,152) $ 16,702 $ 485 $ 17,187
Net (loss) income — — — — — (4,166) (4,166) (1) (4,167)
Distributions — — — — — — — (165) (165)
Share-based compensation expense — — — — 699 — 699 — 699
Shares issued under share-based compensation plans — — 383,080 4 (4) — — — 0
Taxes paid related to the net settlement of shares — — (92,548) (1) (509) — (510) — (510)
Deemed and imputed dividends on Series A Preferred Stock — 2,215 — — (148) — (148) — (148)
Series A Preferred Stock dividends — — — — (2,148) — (2,148) — (2,148)
Balance, June 30, 2021 26,000 $ 31,141 30,518,917 $ 305 $ 104,442 $ (94,318) $ 10,429 $ 319 $ 10,748

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Six Months Ended
June 30,
2021 2020
Cash flows from operating activities:
Net loss $ (5,379) $ (17,299)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 12,315 13,274
Loss on extinguishment of debt 0 8,603
Paid-in-kind interest on long-term debt 2,448 1,663
Impairment expense 127 0
Amortization of debt issuance costs 331 214
Deferred income taxes 229 0
Gain on sales-type lease (5,568) 0
(Gains) losses on sales of property and equipment (4,140) 281
Income from equity method investment (191) (622)
Distributions received from equity method investment 0 849
Non-cash share-based compensation 998 1,470
Gain on interest rate swap (201) (30)
Interest accreted on contingent payments for acquisition 0 105
Increase (decrease) in cash due to changes in:
Trade accounts receivable 4,695 (6,220)
Contract assets and liabilities 20,479 15,280
Inventory (607) 4,975
Accounts payable 1,986 (7,887)
Asset retirement obligation (3,387) (4,183)
Other assets and liabilities (13,893) (1,245)
Net cash provided by operating activities 10,242 9,228
Cash flows from investing activities:
Proceeds from the sales of property and equipment 4,232 155
Purchases of property and equipment (2,829) (1,604)
Cash and restricted cash received from ERT transaction 34,900 0
Payments of working capital adjustment and other items for the sale of subsidiary (7,367) 0
Distributions received from equity method investment 1,015 0
Net cash provided by (used in) investing activities 29,951 (1,449)
Cash flows from financing activities:
Proceeds from the line of credit 778 5,500
Proceeds from long-term debt 1,009 15,781
Principal payments on long-term debt (11,631) (12,435)
Payments of debt issuance costs 0 (1,543)
Principal payments on capital lease obligations (1,224) 0
Taxes paid related to net settlement of shares (512) (137)
Net proceeds from issuance of convertible Series A Preferred Stock 0 24,263
Distributions to non-controlling interest (165) (709)
Net cash (used in) provided by financing activities (11,745) 30,720
Net increase in cash, cash equivalents and restricted cash 28,448 38,499
Cash, cash equivalents and restricted cash, beginning of period 29,211 6,128
Cash, cash equivalents and restricted cash, end of period $ 57,659 $ 44,627


	Nine Months Ended
	September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(7,100)	$	(20,822)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	18,578		13,196
Loss on extinguishment of debt	638		8,603
Paid-in-kind interest on long-term debt	2,844		3,093
Impairment expense	827		6,399
Amortization of debt issuance costs	590		396
Deferred income taxes	432		608
Gain on sales-type lease	(5,568)		—
(Gains) losses on sales of property and equipment	(7,638)		581
Income from equity method investment	(191)		(1,247)
Distributions received from equity method investment	—		1,230
Non-cash share-based compensation	1,767		2,084
Gain on interest rate swap	(190)		(95)
Interest rate swap settlement	(745)		—
Gain on ARO settlement	(1,127)		—
Interest accreted on contingent payments for acquisition	—		143
Increase (decrease) in cash due to changes in:
Trade accounts receivable	5,288		(15,852)
Contract assets and liabilities	2,667		14,904
Inventory	(147)		5,477
Accounts payable	9,471		(3,740)
Asset retirement obligation	(4,654)		(7,905)
Other assets and liabilities	(13,714)		3,846
Net cash provided by operating activities	2,028		10,899

Cash flows from investing activities:
Proceeds from the sales of property and equipment	10,114		698
Purchases of property and equipment	(7,024)		(3,556)
Cash and restricted cash received from ERT transaction	34,900		—
Payments of working capital adjustment and other items for the sale of subsidiary	(7,367)		—
Distributions received from equity method investment	1,015		—
Net cash provided by (used in) investing activities	31,638		(2,858)

Cash flows from financing activities:
Net (payments) proceeds on the line of credit	(12,003)		6,667
Proceeds from long-term debt	156,301		18,353
Principal payments on long-term debt	(134,613)		(21,479)
Payments of debt issuance costs	(10,912)		(1,623)
Principal payments on capital lease obligations	(2,920)		—
Taxes paid related to net settlement of shares	(512)		(137)
Net proceeds from issuance of convertible Series A Preferred Stock	—		24,253
Proceeds from issuance of common stock	13,000		—
Distributions to non-controlling interest	(165)		(1,036)
Net cash provided by financing activities	8,176		24,998
Net increase in cash, cash equivalents and restricted cash	41,842		33,039
Cash, cash equivalents and restricted cash, beginning of period	29,211		6,128
Cash, cash equivalents and restricted cash, end of period	$	71,053	$	39,167

See accompanying notes to condensed consolidated financial statements.

Supplemental Disclosures and Non-cash investing and financing transactions

The following table summarizes additional supplemental disclosures and non-cash investing and financing transactions:


		Six Months Ended					Nine Months Ended
		June 30,					September 30,
		2021		2020			2021		2020
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during the period for interest	Cash paid during the period for interest	$	4,049	7,703		Cash paid during the period for interest	$	5,386	10,349
Cash paid during the period for taxes	Cash paid during the period for taxes	534		779		Cash paid during the period for taxes	831		779

Supplemental disclosures and non-cash investing and financing transactions:	Supplemental disclosures and non-cash investing and financing transactions:					Supplemental disclosures and non-cash investing and financing transactions:
Gross proceeds from the line of credit	Gross proceeds from the line of credit	$	60,590	$	61,988	Gross proceeds from the line of credit	$	73,817	$	90,326
Gross payments on the line of credit	Gross payments on the line of credit	(59,812)		(56,488)		Gross payments on the line of credit	(85,820)		(83,659)
Sale of structural fill asset through a sales-type lease	Sale of structural fill asset through a sales-type lease	6,000		0		Sale of structural fill asset through a sales-type lease	6,000		—
Proceeds from the sale of equipment in accounts receivable, net	Proceeds from the sale of equipment in accounts receivable, net	1,109		0		Proceeds from the sale of equipment in accounts receivable, net	1,252		—
Series A Preferred Stock dividends payable included in accrued expenses	Series A Preferred Stock dividends payable included in accrued expenses	2,148		850		Series A Preferred Stock dividends payable included in accrued expenses	1,946		877
Deemed and imputed dividends on Series A Preferred Stock	Deemed and imputed dividends on Series A Preferred Stock	295		0		Deemed and imputed dividends on Series A Preferred Stock	443		—
Series A Preferred Stock issuance costs included in accounts payable and accrued expenses		0		996

Equipment acquired through capital leases	Equipment acquired through capital leases	7,137		0		Equipment acquired through capital leases	11,980		—
Changes in property and equipment included in accounts payables and accrued expenses	Changes in property and equipment included in accounts payables and accrued expenses	205		676		Changes in property and equipment included in accounts payables and accrued expenses	205		676
Sale of equipment through the issuance of a note receivable	Sale of equipment through the issuance of a note receivable	0		1,450		Sale of equipment through the issuance of a note receivable	—		1,450
Debt issuance costs included in accounts payable and accrued expenses	Debt issuance costs included in accounts payable and accrued expenses	0		579		Debt issuance costs included in accounts payable and accrued expenses	1,019		—

As reported within the unaudited condensed consolidated balance sheet:	As reported within the unaudited condensed consolidated balance sheet:					As reported within the unaudited condensed consolidated balance sheet:
Cash and cash equivalents	Cash and cash equivalents	$	18,081	$	30,359	Cash and cash equivalents	$	22,400	$	30,006
Restricted cash	Restricted cash	39,578		14,268		Restricted cash	48,653		9,161
Total cash, cash equivalents and restricted cash as presented in the balance sheet	Total cash, cash equivalents and restricted cash as presented in the balance sheet	$	57,659	$	44,627	Total cash, cash equivalents and restricted cash as presented in the balance sheet	$	71,053	$	39,167

See accompanying notes to condensed consolidated financial statements.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share data)

(Unaudited)

1. Nature of Business and Basis of Presentation

Organization

Charah Solutions, Inc. and 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 before the transactions described below other than certain activities related to its initial public offering, which was completed on June 18, 2018 (the “IPO”). 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”). Through the Company’s ownership of Charah Management, the Company owns the outstanding equity interests in Charah, LLC, a Kentucky limited liability company (“~~Charah”~~Charah��), the subsidiary through which Charah Solutions operates its businesses.

Description of Business Operations

The Company is a leading national service provider of mission-critical environmental services and byproduct sales to the power generation industry, enabling our customers to address challenges related to the remediation of coal ash ponds and landfills at open and closed power plant sites while continuously operating and providing necessary electric power to communities nationwide. Services offered include a suite of remediation and compliance services, byproduct sales and marketing, fossil services and environmental risk transfer (“ERT”) services. The Company has corporate offices in Kentucky and North Carolina and principally operates in the eastern and mid-central United States.

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

Basis for Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included, which consist of normal recurring adjustments. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Going Concern

As of June 30, 2021, borrowings under the Company’s Credit Facility (as defined in Note 11) totaled $132,788 and were scheduled to mature in July 2022. However, as of June 30, 2021, the Company did not have sufficient cash on hand or available liquidity to repay the credit facility upon maturity. As discussed in Note 11 and Note 14, during the quarter ended September 30, 2021, the Company fully repaid and terminated the Credit Facility set to mature on July 31, 2022 using the proceeds before payment of expenses and other fees of $135,000 from the Company's 8.50% Senior Notes maturing August 31, 2026 (the "Notes") and proceeds of $13,000 from issuance of the Company's common stock. As a result of the debt refinancing and equity proceeds, there is no longer substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

As of June 30, 2021, borrowings under the Company’s credit facility total $132,788 and will mature in July 2022. In addition, in August 2021, the Company entered into an amendment to its credit facility as further discussed in Note 11, Credit Agreement, to waive non-compliance with certain financial covenants as of June 30, 2021 and to amend certain financial covenants as of September 30, 2021 in order to avoid projected non-compliance that could result in acceleration of maturity. The Company does not have sufficient cash on hand or available liquidity to repay the maturing credit facility debt as it becomes due within one year after the date that these condensed consolidated financial statements are issued. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

In response, the Company is currently pursuing a plan to offer senior unsecured notes due in 2026 in a registered underwritten public offering. However, this offering is subject to market conditions and not within the Company’s control, and therefore, implementation of management’s plans cannot be deemed probable. As a result, management has concluded these plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

The accompanying unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Discontinued Operations

On November 19, 2020, the Company sold its Allied Power Holdings LLC (“Allied”) subsidiary engaged in maintenance, modification and repair services to the nuclear and fossil power generation industry to an affiliate of Bernhard Capital Partners Management, LP (“BCP”), the Company’s majority shareholder, in an all-cash deal for $40,000 (the “Allied Transaction”), subject to adjustments for working capital and certain other adjustments as set forth in the purchase agreement (the “Purchase Agreement”).

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

Discontinued operations comprise those activities that were disposed of during 2020 and represent a separate major line of business that can be clearly distinguished for operational and financial reporting purposes. Accordingly, the accompanying unaudited condensed consolidated statements of operations and the notes to condensed consolidated financial statements reflect the Allied results as discontinued operations for all 2020 periods presented. Unless otherwise specified, disclosures in these condensed consolidated financial statements reflect continuing operations only. The accompanying unaudited condensed consolidated statements of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2021 include both continuing and discontinued operations. Refer to Note 4, Discontinued Operations, for further information on the discontinued operations relating to the Allied Transaction.

Segment Information

The Company had 2 reporting units, 2 operating segments and 2 reportable segments in 2019 and in 2020 through the date of the Allied Transaction, Environmental Solutions (“ES”) and Maintenance and Technical Services (“M&TS”). The Company determined that it had 2 reporting units because of the way the reporting units were managed.

After the Allied Transaction, the Company realigned our segment reporting into a single operating segment to reflect the suite of end-to-end services we offer our utility partners and how our Chief Operating Decision Maker (“CODM”) reviews consolidated financial information to evaluate results of operations, assess performance and allocate resources. Due to the nature of the Company’s business, the Company's Chief Executive Officer, who is also the CODM, evaluates the performance of the Company and allocates resources of the Company based on consolidated gross profit, general and administrative expenses, balance sheet, liquidity, capital spending, safety statistics and business development reports for the Company as a whole. Since the Company has a single operating segment, all required financial segment information can be found in the consolidated financial statements. The prior period results in the accompanying unaudited condensed consolidated statements of operations were reclassified to conform to this presentation.

We provide the following services through our 1 segment: remediation and compliance services, byproduct sales, fossil services and ERT services. Remediation and compliance services are associated with our customers’ need for multi-year environmental improvement and sustainability initiatives, whether driven by regulatory requirements, power generation customer initiatives or consumer expectations and standards. Byproduct sales support both our power generation customers’ desire to recycle their recurring and legacy volumes of coal combustion residuals (“CCRs”), commonly known as coal ash, and our ultimate end customers’ need for high-quality, cost-effective raw material substitutes. Fossil services consist of recurring and mission-critical coal ash management and operations for coal-fired power generation facilities. ERT services represent an innovative solution designed to meet the evolving and increasingly complex needs of utility customers. These customers need to retire and decommission older or underutilized assets while maximizing the asset's value and improving the environment. Our ERT services manage the sites' environmental remediation requirements, which benefits the communities and lowers the utility customers' cost.

Seasonality of Business

Based on historical trends, we expect our operating results to vary seasonally. Variations in normal weather patterns can cause changes in energy consumption, 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. Inclement weather can also impact decommissioning and demolition, land redevelopment and scrap sales activities, which affects the timing of income generation for our ERT services. Our byproduct sales are also negatively affected during winter months when the use of cement and cement products is generally lower.

Business Combinations

On March 30, 2018, Charah Management completed a transaction with SCB Materials International, Inc. and affiliated entities (“SCB”), a previously unrelated third party, pursuant to which Charah Solutions acquired certain assets and liabilities of SCB for a purchase price of $35,000, with $20,000 paid at closing and $15,000 to be paid over time in conjunction with certain performance metrics. The contract also contained various mechanisms for a working capital true-up. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations with the allocation of the purchase price for the acquisition finalized as of March 31, 2019. The recognized goodwill from the transaction was allocated to the Environmental Solutions segment. In November 2018, the $15,000 contingent consideration to be paid over time was reduced by $3,300. During the year ended December 31, 2020, the Company evaluated the recoverability of certain grinding technology assets. As part of that review, we assessed the likelihood of paying the contingent liability based on achieving certain performance sales levels using these technology assets. In the fourth quarter of 2020, the Company concluded that certain sales levels would not be achieved, and we reduced the corresponding liability by $9,702, which was

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

recognized as a component of operating income in the consolidated statements of operations. As of ~~June~~September 30, 2021, we do not expect the remaining liability balance of $1,950 to be paid ~~in 2022 and beyond.~~within the next 12 months. The fair value of the contingent consideration was estimated using unobservable inputs of future cash flows, which we consider to be Level 3 measurements.

Fair Value Disclosure

The Company did not have any recurring or non-recurring level 3 fair value measurements as of September 30, 2021 and 2020 other than the value of certain remaining grinding technology related equipment upon impairment as described in Note 7, Balance Sheet Items, the measurement of the preferred stock paid-in-kind dividends as described in Note 13, Mezzanine Equity, and the application of stock-based compensation accounting as described in Note 17, Stock/Unit-Based Compensation. There have been no transfers between levels of the fair value hierarchy during the three and nine months ended September 30, 2021.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

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 provided a payment delay of certain employer payroll taxes during 2020. The Company deferred $1,637 of employer payroll taxes otherwise due in 2020, with 50% due by December 31, 2021 and the remaining 50% due by December 31, 2022.

3. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the guidance on accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible debt with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt and convertible preferred stock wholly as preferred stock unless certain other conditions are met. Also, the ASU requires the application of the if-converted method for calculating diluted earnings per share, and the treasury stock method will no longer be available. The Company early adopted ASU No. 2020-06, as permitted by the standard, as of January 1, 2021 with no significant impact on its 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 June 2020, the FASB issued ASU No. 2020-05 and delayed the effective date of this ASU, extending the effective date for non-public business entities, and making the ASU effective for the Company for the fiscal year ending December 31, 2022, and interim periods within the fiscal year ending December 31, 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.

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

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference ~~LIBOR~~the London Inter-bank Offered Rate (“LIBOR”) or another rate that is expected to be discontinued. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). This ASU provides supplemental guidance and clarification to ASU No. 2020-04, and these updates must be adopted concurrently, cumulatively referred to as “Topic 848.” The amendments in Topic 848 are currently effective for all entities, and upon adoption, may be applied prospectively to contract modifications made on or before December 31, 2022. The Company is still assessing the impact of Topic 848 on its consolidated financial statements.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

4. Discontinued Operations

On November 19, 2020, the Company completed the Allied Transaction through an all-cash deal for $40,000, subject to adjustments for working capital and certain other adjustments as set forth in the Purchase Agreement, which are described below. The Allied Transaction was approved by a special committee of the Company’s board of directors consisting solely of independent directors, which obtained a fairness opinion in connection with the Allied Transaction. The Allied Transaction has been treated as a sale to an entity under common control, with $25,506 recognized as a contribution to equity during 2020.

The parties made customary representations and warranties and have agreed to customary covenants in the Purchase Agreement. The Company entered into a non-competition and non-solicitation arrangement under the Purchase Agreement with the Purchaser, subject to customary exceptions. In addition, the parties also entered into a Transition Services Agreement pursuant to which the Company provided Allied and the Purchaser with certain transition assistance services from the date of the Allied Transaction until April 30, 2021 in exchange for payment. The Transition Services Agreement was subsequently amended and extended with certain transition assistance services to be provided until August 30, 2021. The Company recognized ~~$17~~$0 and $60 resulting from the Transition Services Agreement as a credit within cost of sales in our accompanying unaudited condensed consolidated statements of operations during the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. The Company had receivables outstanding from Allied of $5$23 and $120 at ~~June~~September 30, 2021 and December 31, 2020, respectively. In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Allied Transaction are presented as discontinued operations and, as such, have been excluded from continuing operations for all periods presented.

The Company received cash proceeds of $37,860, which was net of transaction costs of $1,900 and Allied restricted cash of $240. The Company retained Allied liabilities of $3,500, recorded a $301 increase to paid-in-capital for the income tax impact related to the Allied Transaction and recognized accruals of $6,954 for working capital adjustments and $413 for other acquisition-related charges in accrued expenses in our Consolidated Balance Sheet as of December 31, 2020, to be paid in 2021. The Company paid the working capital settlement of $6,954 to the Purchaser as well as $3,500 of retained Allied liabilities and $413 of acquisition-related charges during the ~~six~~nine months ended ~~June~~September 30, 2021.

The following amounts related to discontinued operation were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations in our accompanying unaudited condensed consolidated statements of operations:


		Three Months Ended		Six Months Ended			Three Months Ended		Nine Months Ended
		June 30, 2020		June 30, 2020			September 30, 2020		September 30, 2020
Revenue	Revenue	$	80,841	$	194,195	Revenue	$	55,599	$	249,794
Cost of sales	Cost of sales	(75,313)		(182,765)		Cost of sales	(51,890)		(234,655)
Gross profit	Gross profit	5,528		11,430		Gross profit	3,709		15,139
General and administrative expenses	General and administrative expenses	(980)		(3,068)		General and administrative expenses	(2,810)		(5,878)
Operating income	Operating income	4,548		8,362		Operating income	899		9,261
Interest expense, net(a)	Interest expense, net(a)	(771)		(1,542)		Interest expense, net(a)	(780)		(2,322)
Income from discontinued operations before income taxes	Income from discontinued operations before income taxes	3,777		6,820		Income from discontinued operations before income taxes	119		6,939
Income tax expense	Income tax expense	0		0		Income tax expense	—		—
Income from discontinued operations	Income from discontinued operations	$	3,777	$	6,820	Income from discontinued operations	$	119	$	6,939

(a) Interest expense was allocated to discontinued operations due to the requirement in Amendment No. 4 to Credit Agreement that cash generated from the Allied Transaction was required to be used to reduce our debt balances.

The following table provides supplemental cash, cash equivalent and restricted cash information related to discontinued operations:


	As of
	~~June~~September 30, 2020
Cash and cash equivalents:
Cash, cash equivalents and restricted cash - continuing operations	$	~~44,319~~38,834
Cash, cash equivalents and restricted cash - discontinued operations	~~308~~333
Total cash and cash equivalents	$	~~44,627~~39,167

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

The depreciation and amortization, capital expenditures and significant operating noncash items of Allied were as follows:


	~~Six~~Nine Months Ended
	~~June~~September 30, 2020
Cash flows from discontinued operating activities:
Depreciation and amortization	$	~~409~~633
Loss on disposal of property and equipment	2245
Non-cash shared-based compensation	~~214~~283

Cash flows from discontinued investing activities:
Purchase of property and equipment	$	7995

5. Asset Acquisition

As part of our ERT service offerings, in February 2021, the Company, through its wholly-owned special purpose vehicle subsidiary Gibbons Creek Environmental Redevelopment Group (“GCERG”), closed on an Asset Purchase Agreement (the “APA” or the “Agreement”) with Texas Municipal Power Agency to acquire, remediate and redevelop the Gibbons Creek Steam Electric Station and Reservoir (the “Gibbons Creek Transaction”). As part of this Agreement, GCERG took ownership of the 6,166 acre area (collectively, the “Purchased Assets”), which includes the closed power station and adjacent property, the 3,500 acre reservoir, dam and floodway. GCERG assumed all environmental responsibilities and became responsible for the decommissioning of the coal power plant as well as performing all environmental remediation work for the site landfills and ash ponds. At closing of the APA, GCERG became liable for and expressly fully assumed any and all environmental liabilities and environmental compliance, as well as, without limitation, any remediation, investigation, management, mitigation, closure, maintenance, reporting, removal, disposal of and any other actions with respect to any hazardous substances at, on, in, under, or emanating from the Purchased Assets.

GCERG, at its discretion, plans to redevelop the property in an environmentally conscious manner that will expand economic activity and benefit the surrounding communities as well as restore the property to a state that will enable it to be put to its best potential use. The existing power plant is being demolished, and GCERG is working with the Texas Commission on Environmental Quality to complete all environmental remediation required for the property and then plans to redevelop the remediated property within all zoning restrictions. The redevelopment of the property is expected to be completed within 34 months from the date of acquisition.

The Gibbons Creek Transaction was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations, with the assumed liabilities net of cash received or owed to us by the seller comprising the purchase price. Since the fair value of the net assets acquired exceeded the cost, the Company allocated the difference pro rata on the basis of relative fair values to reduce land, property and equipment, and intangible assets acquired.

The assets acquired and liabilities assumed as recognized within the Company's condensed consolidated balance sheet upon closing on the APA consisted of the following:


Consideration and direct transaction costs:
Asset retirement obligations	$	(50,590)
Bond and insurance accrued expenses, net	(2,229)
Direct transaction costs	(2,336)
Total consideration and transaction costs incurred	$	(55,155)

Asset Received:
Cash	$	6,354
Restricted cash	28,546
Water rights	5,196
Land	14,385
Plant, machinery and equipment	610
Vehicles	64
Total allocated value of assets acquired	$	55,155

The Company has identified asset retirement obligations within the assumed liabilities to be initially measured and valued in accordance with ASC 410, Asset Retirement and Environmental Obligations. We developed our estimates of these obligations using input from our operations personnel. Our estimates are based on our interpretation of current requirements and proposed regulatory changes and are intended to approximate fair value. Absent quoted market prices, the estimate of fair value is based on the best available information, including the results of present value techniques. We use professional engineering judgment and estimated prices paid for similar work to

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

determine the fair value of these obligations. We are required to recognize these obligations at market prices whether we plan to contract with third parties or perform the work ourselves.

Once we determined the estimated closure and post-closure costs for each asset retirement obligation, we inflation-adjusted those costs to the expected time of payment and discounted those expected future costs back to present value using an inflation rate of 3.0%. We discounted these costs to present value using the credit-adjusted, risk-free rate effective at the time the obligation was incurred, consistent with the expected cash flow approach. Any changes in expectations that result in an upward revision to the estimated cash flows are treated as a new liability and discounted at the current rate, while downward revisions are discounted at the historical weighted average rate of the recorded obligation. The credit-adjusted, risk-free discount rate used to calculate the present value of an obligation is specific to each individual asset retirement obligation. The weighted average rate applicable to our long-term asset retirement obligations related to the Gibbons Creek Transaction was approximately 4.5% at the acquisition date.

Because these obligations are measured at estimated fair value using present value techniques, changes in the estimated cost or timing of future final capping, closure, and post-closure activities could result in a material change in these liabilities, related assets, and results of operations. We assess the appropriateness of the estimates used to develop our recorded balances annually, or more often if conditions warrant. Changes in inflation rates or the estimated costs, timing, or extent of future final closure and post-closure activities typically result in a current adjustment to the recorded liability and land asset.

Demolition costs will be capitalized as part of the land as incurred as part of preparing the site for sale, since, at the acquisition date, (i) we planned to demolish the existing structure as part of the redevelopment plan for the acquired property, (ii) demolition is expected to occur within a reasonable period of time after acquisition, and (iii) such expected costs will be incurred to make the land saleable to a third party.

As part of the acquisition, the Company acquired certain plant, machinery and equipment and vehicles for which management committed to a plan to sell. Property and equipment of $193 that was ~~previously~~initially classified as held for sale was subsequently sold to third parties ~~as of June~~during the nine months ended September 30, 2021.

6. Revenue

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


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Byproduct sales	Byproduct sales	$	19,444	$	21,400	$	34,542	$	43,161	Byproduct sales	$	22,368	$	22,940	$	56,910	$	66,101
Construction contracts	Construction contracts	31,713		15,347		51,652		30,194		Construction contracts	48,176		21,590		99,828		51,784
Services	Services	12,361		15,557		29,431		30,226		Services	13,617		18,586		43,048		48,812
Total revenue	Total revenue	$	63,518	$	52,304	$	115,625	$	103,581	Total revenue	$	84,161	$	63,116	$	199,786	$	166,697


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
United States	United States	$	63,518	$	52,093	$	115,625	$	102,735	United States	$	84,161	$	63,045	$	199,786	$	165,780
Foreign	Foreign	0		211		0		846		Foreign	—		71		—		917
Total revenue	Total revenue	$	63,518	$	52,304	$	115,625	$	103,581	Total revenue	$	84,161	$	63,116	$	199,786	$	166,697

As of ~~June~~September 30, 2021, the Company had remaining performance obligations with an aggregate transaction price of ~~$493,205~~$491,066 on construction contracts for which we recognize revenue over time. We expect to recognize approximately ~~16%~~13% of our remaining performance obligations as revenue during the remainder of 2021, ~~12%~~15% in 2022, 10% in 2023, and 62% thereafter. Revenue associated with our remaining performance obligations includes performance obligations related to our construction contracts. The balance of remaining performance obligations does not include variable consideration that was determined to be constrained as of ~~June~~September 30, 2021. As of ~~June~~September 30, 2021, there were no$4,837 of unapproved change orders associated with project scope changes included in determining the profit or loss on certain construction ~~contracts.~~contracts, of which $1,732 were approved subsequent to quarter-end.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

7. Balance Sheet Items

Allowance for doubtful accounts

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


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Balance, beginning of period	Balance, beginning of period	$	558	$	254	$	467	$	146	Balance, beginning of period	$	558	$	249	$	467	$	146
Add: provision	Add: provision	46		0		139		119		Add: provision	—		5		139		124
Less: deduction and other adjustments	Less: deduction and other adjustments	(46)		(5)		(48)		(16)		Less: deduction and other adjustments	(53)		(2)		(101)		(18)
Balance, end of period	Balance, end of period	$	558	$	249	$	558	$	249	Balance, end of period	$	505	$	252	$	505	$	252

Property and equipment, net

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


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Plant, machinery and equipment	Plant, machinery and equipment	$	66,735	$	68,308	Plant, machinery and equipment	$	64,612	$	68,308
Structural fill site improvements	Structural fill site improvements	55,760		55,760		Structural fill site improvements	55,760		55,760
Vehicles	Vehicles	12,791		12,824		Vehicles	11,863		12,824
Office equipment	Office equipment	600		582		Office equipment	600		582
Buildings and leasehold improvements	Buildings and leasehold improvements	267		262		Buildings and leasehold improvements	267		262
Land, land improvements and structural fill sites	Land, land improvements and structural fill sites	15,076		432		Land, land improvements and structural fill sites	15,439		432
Capital lease assets	Capital lease assets	13,764		6,627		Capital lease assets	18,644		6,627
Construction in progress	Construction in progress	1,549		1,961		Construction in progress	764		1,961
Total property and equipment	Total property and equipment	$	166,542	$	146,756	Total property and equipment	$	167,949	$	146,756
Less: accumulated depreciation	Less: accumulated depreciation	(103,702)		(97,286)		Less: accumulated depreciation	(103,562)		(97,286)
Property and equipment, net	Property and equipment, net	$	62,840	$	49,470	Property and equipment, net	$	64,387	$	49,470

Land, land improvements and structural fill sites includes ~~$5,158~~$5,158 of real property acquired in the Gibbons Creek Transaction that the Company is actively demolishing and for which depreciation expense is not being recorded. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company capitalized ~~$882~~$1,365 and ~~$1,030,~~$2,395, respectively, of demolition costs and sold scrap with a cost basis of ~~$339.~~$1,003 and $1,342, respectively.

Depreciation expense was ~~$4,195~~$4,289 and ~~$4,481~~$4,594 for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$8,368~~$12,657 and ~~$8,712~~$13,306 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

Impairment of Long-Lived Assets Other than Goodwill

Long-lived assets other than goodwill and indefinite-lived intangible assets, held and used by the Company, including property and equipment and long-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset to determine if the carrying value is not recoverable. If the carrying value is not recoverable, the Company fair values the asset and compares that fair value to the carrying value. If the asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.

During the three months ended September 30, 2021, the Company determined that a triggering event occurred that indicated that the carrying value of certain remaining grinding technology related equipment may not be recoverable. The fair value of the assets was determined through a market approach using the net realizable value of the assets, which indicated that the assets were impaired and resulted in an impairment change of $673 during the three and nine months ended September 30, 2021. The long-lived assets impaired had a remaining fair value of $148.

During the three months ended September 30, 2020, as a result of the expiration of the purchase option previously held by a customer and a third party on the Company's structural fill sites, the Company determined that a triggering event had occurred that indicated that the asset group may not be recoverable as the option expiration led to a significant adverse change in the manner in which the long-lived asset was being used. The Company evaluated the recoverability of the structural fill site assets to be held and used by comparing the carrying amount of the asset group to the future net undiscounted cash flows expected to be generated to determine if the carrying value is not recoverable. The recoverability test indicated that these assets were not recoverable. The fair value of the assets was determined using an income approach of the discounted cash flows expected from the assets and compared to the assets' carrying value, which indicated that the

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

assets were impaired and resulted in an impairment charge. The Company recognized an impairment charge of $6,399 during the three and nine months ended September 30, 2020.

Purchase option liability

As part of the transaction in which BCP acquired a 76% equity position of Charah Management (the “BCP transaction”), Charah recorded the fair value of a bargain purchase liability for options held by a customer and a third party for the structural fill sites. The purchase option liability was calculated as the difference between the estimated fair value of the structural fill sites at the date of the BCP transaction and the option price to be paid by the customer or third party. The purchase options were exercisable after completion of work at the structural fill sites. The options expired without exercise in August 2020, and the remaining purchase option liability was reduced through amortization expense within general and administrative expenses in our unaudited condensed consolidated statement of operations.

The following table reflects activity related to the bargain purchase liability:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance, beginning of period	$	—	$	7,110	$	—	$	7,110
Amortization expense: provision	—		(7,110)		—		(7,110)
Balance, end of period	$	—	$	—	$	—	$	—

Capital leases

The following table shows the components of capital lease assets, net:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Capital lease assets	Capital lease assets	$	13,764	$	6,627	Capital lease assets	$	18,644	$	6,627
Less: accumulated depreciation	Less: accumulated depreciation	(1,524)		(368)		Less: accumulated depreciation	(2,374)		(368)
Capital lease assets, net	Capital lease assets, net	$	12,240	$	6,259	Capital lease assets, net	$	16,270	$	6,259

The Company's depreciation of capital lease assets is included within depreciation expense as disclosed above.

Sales-type lease

In March 2021, the Company amended an existing ground lease with a third party concerning one of the Company's structural fill assets with a 30-year term expiring on December 31, 2050. The lease includes multiple options that may be exercised at any time during the lease term for the lessee to purchase all or a portion of the premises as well as a put option (the “Put Option”) that provides the Company the option to require the lessee to purchase all of the premises at the end of the lease term.

In accordance with ASC 840, Leases, the Company considered whether this lease, as amended, met any of the following four criteria as part of classifying the lease at the amendment date: (a) the lease transfers ownership of the property to the lessee by the end of the lease term; (b) the lease contains a bargain purchase option; (c) the lease term is equal to 75 percent or more of the estimated economic life of the lease property; and (d) the present value of the minimum lease payments, excluding executory costs, equals or exceeds 90 percent of the excess of the fair value of the lease property to the lessor at lease inception. This lease was recorded as a sales-type capital lease due to the Put Option provision contained within the lease agreement that represents a transfer of ownership of the property by the end of the lease term.

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

Additionally, the Company determined that collectability of the lease payments was reasonably assured and that there were not any significant uncertainties related to costs that it has yet to incur with respect to the lease.

At the amendment date of the lease, a discount rate of 3.9% implicit in the sales-type lease was used to calculate the present value of the minimum lease payments, which the Company recorded as a lease receivable. The Company recognized a gain of $5,568 within operating income in the accompanying unaudited condensed consolidated statements of operations.

The following table reflects the classification of the lease receivable within our accompanying unaudited condensed consolidated balance sheet:


	~~June~~September 30, 2021
Lease receivable	$	~~5,969~~5,953
Less: current portion in prepaid expenses and other current assets	(64)
Non-current portion in other assets	$	~~5,905~~5,889

Asset sale agreement

In June 2021, the Company consummated an asset sale with an unrelated third party in which the Company assigned a lease agreement to the purchaser and sold certain grinding-related inventory and fixed assets for an aggregate sale price of $2,852. The Company

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

received $1,250 in cash at closing with the remaining portion to be paid over time on specified dates, with the final payment to be received 36 months from the closing date.

The Company determined that the note receivable included a significant financing component. As a result, the sale price and gain on sale were determined on a discounted cash flow basis. The Company recognized a gain of $1,187 within gains on sales of fixed assets in the accompanying unaudited condensed consolidated statements of operations.

The following table reflects the classification of the note receivable within our accompanying unaudited condensed consolidated balance sheet:


	~~June~~September 30, 2021
Note receivable	$	1,602
Less: current portion in prepaid expenses and other current assets	(500)
Non-current portion in other assets	$	1,102

Accrued liabilities

The following table shows the components of accrued liabilities:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Accrued expenses	Accrued expenses	$	15,162	$	19,323	Accrued expenses	$	16,602	$	19,323
Accrued working capital adjustment for the Allied Transaction	Accrued working capital adjustment for the Allied Transaction	0		6,954		Accrued working capital adjustment for the Allied Transaction	—		6,954
Accrued payroll and bonuses	Accrued payroll and bonuses	2,588		7,227		Accrued payroll and bonuses	2,028		7,227
Accrued preferred stock dividends	Accrued preferred stock dividends	2,148		1,356		Accrued preferred stock dividends	1,946		1,356
Accrued interest	Accrued interest	87		77		Accrued interest	1,147		77
Accrued liabilities	Accrued liabilities	$	19,985	$	34,937	Accrued liabilities	$	21,723	$	34,937

Asset Retirement Obligations

The Company owns 1 structural fill site with continuing maintenance and monitoring requirements after its closure and 4 tracts of real property with decommissioning, remediation and monitoring requirements. As of ~~June~~September 30, 2021 and December 31, 2020, the Company has accrued ~~$52,361~~$49,967 and $5,159, respectively, for these asset retirement obligations.

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


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2021	2020		2021		2020
Balance, beginning of period	52,361	$	10,948	$	5,159	$	15,131
Liabilities acquired (See Note 5)	—	—		50,590		—
Liabilities settled	(1,805)	(2,009)		(5,980)		(6,542)
Gain on ARO settlement	(1,127)	—		(1,127)		—
Change in estimated cash flows	—	(2,127)		—		(2,127)
Accretion	538	135		1,325		485
Balance, end of period	49,967	6,947		49,967		6,947
Less: current portion	(32,181)	(2,921)		(32,181)		(2,921)
Non-current portion	17,786	$	4,026	$	17,786	$	4,026

During the three and nine months ended September 30, 2021, the Company recognized a gain on ARO settlement of $1,127 representing differences between the estimated costs used in the measurement of the fair value of the Company's AROs and the actual expenditures incurred for specific remediation tasks performed during the three and nine months ended September 30, 2021.

During the three and nine months ended September 30, 2020, the Company performed a review of the asset retirement obligation to determine if there had been changes in the estimated amount or timing of cash flows. The Company identified a downward adjustment of $2,127 primarily due to the refinement of cost information associated with project bonding and insurance and the decrease in actual closure costs incurred since the site has ceased operations. The Company views the asset retirement obligation and the related structural fill site asset as a single asset so we first recorded a reduction of $279 to the carrying value of the asset and then recorded the excess balance of $1,848 as a reduction to cost of sales in the accompanying unaudited condensed consolidated statement of operations.

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,
2021 2020 2021 2020
Balance, beginning of period 54,112 $ 12,987 $ 5,159 $ 15,131
Liabilities acquired (See Note 5) 0 0 50,590 0
Liabilities settled (2,305) (2,201) (4,175) (4,533)
Accretion 554 162 787 350
Balance, end of period 52,361 10,948 52,361 10,948
Less: current portion (21,395) (5,845) (21,395) (5,845)
Non-current portion 30,966 $ 5,103 $ 30,966 $ 5,103

8. Equity Method Investment

Charah has an investment in a company that provides ash management and remarketing services to the electric utility industry. Charah accounts for its investment under the equity method of accounting because Charah has significant influence over the financial and operating policies of the company. Charah had a payable to the equity method investment of $2 at ~~June~~September 30, 2021 and a receivable due from the equity method investment of $182 at December 31, 2020. In December 2020, the Company informed our joint venture partner of our decision to exit the joint venture due to unfavorable economic conditions associated with a new contract that would adversely impact the future earnings capacity of our investment. In 2021, the joint venture sold its property and equipment at an amount exceeding carrying value and continues to settle its remaining current assets and liabilities through the normal course of business.

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


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Current assets	Current assets	$	14	$	1,812	Current assets	$	14	$	1,812
Noncurrent assets	Noncurrent assets	0		282		Noncurrent assets	—		282
Total assets	Total assets	$	14	$	2,094	Total assets	$	14	$	2,094

Current liabilities	Current liabilities	0		432		Current liabilities	—		432
Equity of Charah	Equity of Charah	7		831		Equity of Charah	7		831
Equity of joint venture partner	Equity of joint venture partner	7		831		Equity of joint venture partner	7		831
Total liabilities and members’ equity	Total liabilities and members’ equity	$	14	$	2,094	Total liabilities and members’ equity	$	14	$	2,094

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


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Revenue	Revenue	$	0	$	1,546	$	555	$	3,024	Revenue	$	—	$	2,353	$	555	$	5,377
Net (loss) income	Net (loss) income	(22)		651		382		1,243		Net (loss) income	—		1,252		382		2,495
Charah Solutions’ share of net (loss) income	Charah Solutions’ share of net (loss) income	(11)		326		191		622		Charah Solutions’ share of net (loss) income	—		625		191		1,247

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


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Opening balance	Opening balance	$	40	$	4,781	$	831	$	5,078	Opening balance	$	7	$	4,851	$	831	$	5,078
Distributions	Distributions	(22)		(256)		(1,015)		(849)		Distributions	—		(381)		(1,015)		(1,230)
Share of net (loss) income	Share of net (loss) income	(11)		326		191		622		Share of net (loss) income	—		625		191		1,247
Closing balance	Closing balance	$	7	$	4,851	$	7	$	4,851	Closing balance	$	7	$	5,095	$	7	$	5,095

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

9. Related Party Transactions

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 ~~$25~~$4 and ~~$64~~$111 for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$79~~$83 and ~~$94~~$205 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. The Company had 0no receivables outstanding from ATC at ~~June~~September 30, 2021 and December 31, 2020. The Company had payables and accrued expenses, net of credit memos, due to ATC of $5$4 and $29 at ~~June~~September 30, 2021 and December 31, 2020, respectively.

As further discussed in Note 4, Discontinued Operations, in November 2020, the Company sold its Allied subsidiary to an affiliate of BCP.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

As further discussed in Note 11, Long-term Debt, in August 2021, the Company completed an offering of $135,000, in the aggregate, of the Company’s 8.50% Senior Notes due 2026 (the “Notes”), which amount included the exercise by the underwriters of their option to purchase an additional $5,000 aggregate principal amount of Notes. B. Riley Securities, Inc. (“B. Riley”), a shareholder of the Company with board representation, served as the lead book-running manager and underwriter for this offering, purchasing a principal amount of $80,325 of the Notes. Fees paid to B. Riley related to this offering were $7,914 for the three and nine months ended September 30, 2021. These fees were capitalized as debt issuance costs within notes payable, less current maturities in the accompanying unaudited condensed consolidated balance sheets and will be amortized prospectively through interest expense, net in the accompanying unaudited condensed consolidated statements of operations using the effective interest method through the maturity date of the Notes. In addition, Charah, LLC, a Kentucky limited liability company and indirect subsidiary of the Company, issued a promissory note in exchange for cash in favor of B. Riley Commercial Capital, LLC, an affiliate of B. Riley, evidencing a loan in aggregate principal amount of $17,852.

As further discussed in Note 13, Mezzanine Equity, in March 2020, the Company entered into an agreement with an investment fund affiliated with BCP to sell 26,000 shares of Preferred Stock.

10. Goodwill and Intangible Assets

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, of which there were none. There was no goodwill activity during the ~~six~~nine months ended ~~June~~September 30, 2021.

Indefinite-Lived and Definite-Lived Intangible Assets

Our intangible assets, net include a trade name and water rights that are considered to have indefinite lives. As further discussed in Note 5, Asset Acquisition, in February 2021, the Company acquired an indefinite-lived intangible asset for water rights through the Gibbons Creek Transaction.

Our intangible assets, net include customer relationships that are considered to have a definite life. Our customer relationships are amortized on a straight-line basis over their estimated useful lives of 10 years. The amortization expense of our definite-lived intangible assets was ~~$1,973~~$1,974 and ~~$2,057~~$2,215 for the three months ended ~~June~~September 30, 2021 and 2020, respectively and ~~$3,947~~$5,921 and ~~$4,152~~$6,367 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

The Company’s intangible assets consist of the following:


		June 30, 2021						December 31, 2020							September 30, 2021						December 31, 2020
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Definite-lived intangibles	Definite-lived intangibles													Definite-lived intangibles
Customer relationships	Customer relationships	$	78,942	$	(34,779)	$	44,163	$	78,942	$	(30,832)	$	48,110	Customer relationships	$	78,942	$	(36,753)	$	42,189	$	78,942	$	(30,832)	$	48,110

Indefinite-lived intangibles	Indefinite-lived intangibles													Indefinite-lived intangibles
Charah trade name	Charah trade name					13,316						13,316		Charah trade name					13,316						13,316
Water rights	Water rights					5,196						0		Water rights					5,196						—
Total	Total					18,512						13,316		Total					18,512						13,316

Total	Total					$	62,675					$	61,426	Total					$	60,701					$	61,426

11. Long-term Debt

Senior Notes

On August 25, 2021, the Company completed an offering of $135,000, in the aggregate, of the Company’s Notes, which amount includes the exercise by the underwriters of their option to purchase an additional $5,000 aggregate principal amount of Notes.

The Notes were sold pursuant to the Company’s Registration Statement on Form S-1, as amended (File No. 333-258650), which was declared effective by the Securities and Exchange Commission on August 20, 2021. The Notes were issued pursuant to the First Supplemental Indenture (the “First Supplemental Indenture”), dated as of August 25, 2021, between the Company and Wilmington Savings Fund Society, FSB, as trustee (the “Trustee”). The First Supplemental Indenture supplements the Indenture entered into by and between the Company and the Trustee, dated as of August 25, 2021 (the “Base Indenture” and, together with the First Supplemental Indenture, the “Indenture”).

The public offering price of the Notes was 100.0% of the principal amount. The Company received proceeds before payment of expenses and other fees of $135,000. The Company used the proceeds, along with cash from the sale of equity to B. Riley, to fully repay and

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

terminate the Company’s Credit Facility, as defined below, with any remaining proceeds to be used for general corporate purposes, including funding future acquisitions and investments, repaying indebtedness, making capital expenditures and funding working capital.

The Notes bear interest at the rate of 8.50% per annum. Interest on the Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing October 31, 2021. The Notes will mature on August 31, 2026.

The Company may redeem the Notes for cash in whole or in part at any time (i) on or after August 31, 2023 and prior to August 31, 2024, at a price equal to 103% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or after August 31, 2024 and prior to August 31, 2025, at a price equal to 102% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption, and (iii) on or after August 31, 2025 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed Notes. If the Company is redeeming less than all of the Notes, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances.

The Indenture also contains customary event of default and cure provisions. If an uncured default occurs and is continuing, the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes may declare the Notes to be immediately due and payable.

The Notes are senior unsecured obligations of the Company and rank equal in right of payment with the Company’s existing and future senior unsecured indebtedness.

As a result of the issuance of the Notes, $11,932 of third-party fees were capitalized as debt issuance costs that will be amortized through interest expense, net in the accompanying unaudited condensed consolidated statements of operations using the effective interest method through the maturity date of the Notes.

Asset-Based Lending Credit Agreement

On November 9, 2021, the Company entered into a new Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein. The Credit Agreement provides for a four-year senior secured revolving credit facility with initial aggregate commitments from the lenders of $30,000, which includes $5,000 available for swingline loans, plus an additional $5,000 of capacity available for the issuance of letters of credit if supported by cash collateral provided by the Company (with a right to increase such amount by up to an additional $5,000) (“Aggregate Revolving Commitments”). Availability under the Credit Agreement is subject to a borrowing base calculated based on the value of certain eligible accounts receivable, inventory, and equipment of the Company and subject to redeterminations made in good faith and in the exercise of permitted discretion of JPMorgan. Proceeds of the Credit Agreements may be used for working capital and general corporate purposes.

The Credit Agreement provides for borrowings of either base rate loans or Eurodollar loans. Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable (i) with respect to base rate loans, monthly and (ii) with respect to Eurodollar loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a Eurodollar loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. Eurodollar Loans bear interest at a rate per annum equal to the Adjusted LIBOR for one, three or six months (the “Interest Period”), plus an applicable margin of 2.25%. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Adjusted LIBOR loans plus 100 basis points, plus an applicable rate of 125 basis points.

The Credit Agreement is guaranteed by certain of the Company’s subsidiaries and is secured by substantially all of the Company’s and such subsidiaries’ assets. The Credit Agreement contains customary restrictive covenants for asset-based loans that may limit the Company’s ability to, among other things: incur additional indebtedness, sell assets, make loans to others, make investments, enter into mergers, make certain restricted payments, incur liens, and engage in certain other transactions without the prior consent of the lenders.

A covenant testing period (“Covenant Testing Period”) is a period in which excess availability (which is defined in the Credit Agreement as the sum of availability and an amount up to $1,000), is less than the greater of (a) 12.5% of the lesser of the aggregate revolving commitments and the borrowing base, (b) the lesser of $7,500 and the PP&E Component as defined in the Credit Agreement, and (c) $3,500, for 3 consecutive business days. During a Covenant Testing Period, the Credit Agreement requires the Company to maintain a fixed charge coverage ratio as defined in the Credit Agreement, determined for any period of twelve (12) consecutive months ending on the last day of each fiscal quarter, of at least 1.00 to 1.00.

Letter of Credit Cash Collateralization Promissory Note

On August 25, 2021, Charah, LLC issued a Secured Promissory Note (the “Promissory Note”), as the borrower, in favor of B. Riley Commercial Capital, LLC, as the noteholder (the “Noteholder”), evidencing a loan in aggregate principal amount of $17,852 made by the Noteholder to Charah, LLC. The loan outstanding under the Promissory Note bears interest at a rate of eight percent (8%) per annum and matures on the thirteen-month anniversary of the effective date of the Promissory Note. The proceeds of the Promissory Note will be used by the Company and its subsidiaries to collateralize the Company's existing letters of credit issued through Bank of America, N.A., and will be repaid as such cash collateral is released to the Company or Charah, LLC, as applicable. The cash proceeds from the Promissory Note are classified within restricted cash in the accompanying unaudited condensed consolidated balance sheets as such cash is maintained in a

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

restricted bank account until such cash collateral is released. Outstanding letters of credit were $17,459 and $11,079 as of September 30, 2021 and December 31, 2020.

Pursuant to the terms of the Promissory Note, Charah, LLC will be subject to certain covenants and restrictive provisions which will, among other things, limit Charah, LLC’s ability to incur additional indebtedness for borrowed money or additional liens; consolidate, merge or transfer all or substantially all of our assets; make certain restricted payments; modify certain material agreements; engage in certain types of transactions with affiliates; each of which will be subject to customary and usual exceptions and baskets. The loan evidenced by the Promissory Note is secured by a pledge of substantially all of the assets of Charah, LLC, subject to certain customary exceptions and limitations.

Credit Agreement

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

•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 expired in March 2020 (the “Delayed Draw Commitment” and the term loans funded under such Delayed Draw Commitment, the “Delayed Draw Term Loan,” together with the Closing Date Term Loan, the “Term Loan”).

~~After~~Pursuant to the ~~Fourth Amendment,~~terms of the Credit Facility and its related amendments, all amounts associated with the Revolving Loan and the Term Loan under the Credit Facility ~~will~~were set to mature in July ~~2022, as discussed more fully below.~~2022. The interest rates per annum applicable to the loans under the Credit Facility ~~are~~were 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”),~~LIBOR, or (ii) an alternative base rate. Various margins ~~are~~were added to the interest rate based upon our consolidated net leverage ratio (as defined in the Credit Facility). Customary fees ~~are~~were payable regarding the Credit Facility and ~~include~~included (i) commitment fees for the unused

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

portions of the Credit Facility and (ii) fees on outstanding letters of credit. Amounts borrowed under the Credit Facility ~~are~~were secured by substantially all of the assets of the Company.

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

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

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

~~The Revolving Loan provides a principal amount of up to $50,000, reduced by outstanding letters of credit. As of June~~During the three months ended September 30, 2021, using the proceeds from the Notes, along with cash from the sale of equity to B. Riley, to fully repay and ~~December 31, 2020, $12,781 and $12,003, respectively, was outstanding on the Revolving Loan and $17,459 and $11,079, respectively, of letters of credit were outstanding.~~

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

~~Also, according to the terms of the Second Amendment,~~terminate the Credit Facility, ~~was amended to revise~~ the required financial covenant ratios, which have been modified as described below. As consideration for these accommodations, we agreed that amounts borrowed under the Delayed Draw Commitment would not exceed $15,000 at any one timeCompany paid $114,123 of outstanding (without reducing the overall Delayed Draw Commitment amount). Further, the margin of interest charged on all outstanding loans was increased to 4.00% for loans based on LIBOR and 3.00% for loans basedprincipal 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~~Closing Date Loan and ~~(ii) fees on outstanding letters of credit to 3.35% at all times. The Second Amendment also added a requirement to make 2 additional scheduled prepayments~~$12,340 of outstanding loans ~~under~~on the Credit Facility, including a payment of $50,000 on or before September 13, 2019, and an additional payment of $40,000 on or before March 31, 2020. The $50,000 payment was made before September 13, 2019, using proceeds of the Brickhaven deemed termination payment. The Second Amendment requiredRevolver. Further, the Company ~~to pay the Administrative Agent an amendment fee in an amount equal to 1.00%~~paid $2,000 of ~~the total credit exposure under the Credit Facility immediately before the effectiveness of the Second Amendment, and this fee was paid on August 16, 2020.~~

The Second Amendment also included revisions to the restrictive covenants, including removing certain exceptions to the restrictions on our ability to make acquisitions, investments and dividends or other distributions. After giving effect to the Second Amendment, we will not be permitted to make any distributions or dividends to our stockholders without thepreviously accrued fees required ~~lenders’ consent.~~

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

Under 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 were not required to comply with any financial covenants through December 30, 2020. After December 30, 2020, we were 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 were also 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. In the event that we were unable to comply in the future with such financial covenants upon delivery of our financial statements under 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 under 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 regarding certain capitalized leases from $50,000 to $75,000.

Under the Third Amendment, the Company agreed to make monthly amortization payments in respect of term loans beginning in April 2020 and move the maturity date for all loans under the Credit Facility to July 31, 2022 (the “Maturity Date”). Also, if at any time after August 13, 2019, the outstanding principal amount of the Delayed Draw Term Loans exceeds $10,000, we will incur additional interest at a rate equal to 10.0% per annum on all daily average amounts exceeding $10,000 payable at March 31, 2020 and at the Maturity Date. Further, the Third Amendment requires mandatory prepayments of revolving loans with any cash held by the Company over $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

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

and general corporate purposes. The Company also agreed to an increase of four percent (4%) to the interest rate applicable to the Closing Date Term Loan 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 were 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 before 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 was paid on August 16, 2020. We were 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 before the effectiveness of the Third Amendment, with such Third Amendment Fee paid on June 30, 2020. Finally, the third amendment also required payment of 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.

~~In November 2020, the Company entered into Amendment No. 4 to Credit Agreement (the “Fourth Amendment”).~~

Under the terms of the Fourth Amendment, the Credit Facility was amended to revise the required financial covenant ratios such that, after giving effect to the Fourth Amendment, for the periods ending December 31, 2020 through March 30, 2021, we were required to comply with a maximum consolidated leverage ratio of 5.50 to 1.00, decreasing to 4.80 to 1.00 for the periods ended March 31, 2021 through September 29, 2021, to 4.50 to 1.00 for the periods ending September 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 Fourth Amendment, we were also required to comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of March 31, 2021, increasing to 1.20 to 1.00 as of June 30, 2021 and thereafter.

In August 2021, the Company entered into Amendment No. 5 to Credit Agreement and Waiver (the “Fifth Amendment”). But for this amendment, as of June 30, 2021, we would not have been in compliance with the requirement to maintain a consolidated net leverage ratio of 4.80 to 1.00 or a minimum fixed charge coverage ratio of 1.20 to 1.00. Under the terms of the Fifth Amendment, the required lenders agreed to waive such non-compliance. In addition, the Credit Facility was amended to revise the financial covenant ratios such that, after giving effect to the Fifth Amendment, we will be required to comply with a maximum consolidated net leverage ratio of 5.50 to 1.00 and a minimum fixed charge coverage ratio of 1.10 to 1.00 as of September 30, 2021. As consideration for these accommodations, upon execution of the Fifth Amendment, the Company was required to make an additional scheduled prepayment of $5,000 of outstanding loans under the Credit Facility and accelerate payment of the previously accrued $2,000 fee required as consideration for the Third Amendment that was otherwise due and payable on the ~~Maturity Date.~~

~~Our ability to comply with such financial covenants depends on~~maturity date. During the ~~Company’s forecasted leverage~~three and ~~adjusted EBITDA for~~nine months ended September 30, 2021, the applicable periods, which could be adversely impacted by unforeseen factors. Our financial forecasts, which we believe are reasonable given current market conditions, indicate that the Company will be in compliance with all financial covenants through the Maturity Date. Those financial forecasts are highly dependent upon the demand for our byproduct sales, timing in new contract awards and completion of existing work. The current pandemic is making it more difficult to forecast future results, and as a result, it may have a significant impact on the Company’s results of operations, financial position, liquidity or capital resources. These significant risks may also have an adverse impact and cause us not to comply with our financial covenants. If we are not in compliance with our financial covenants, the Company could be required to seek waivers, forbearance or amendments from the Administrative Agent. There can be no assurance that we could obtain such waivers, forbearance, or amendments as any future agreements with the Administrative Agent are not considered in the Company’s control. If we are unable to comply in the future with such financial covenants upon delivery of our financial statements according to the terms of the Credit Facility, an Event of Default (as defined in the Credit Facility) will have occurred. 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.

~~In accordance with ASC 470,~~ ~~Debt~~, the Company calculated the present value of the cash flows for purposes of applying the 10% 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 that will be amortized prospectively through interest expense, net in the accompanying unaudited condensed consolidated statements 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,~~$638 as a result of this refinancing, which is included in loss on extinguishment of debt in the accompanying unaudited condensed consolidated statements of operations. The Company also calculated the present value of the cash flows for purposes of applying the 10% cash flow test for the Fourth and Fifth Amendments and concluded that the original and new debt instruments were not substantially different, necessitating that the Fourth and Fifth Amendments be accounted for as modifications.

1819

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

12. 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~~September 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020
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 $1,572 as of June 30, 2021. $ 2,317 $ 2,871
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 $6,733 as of June 30, 2021. 7,433 8,446
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 2024 through December 2024. The notes are secured by equipment with a net book value of $2,596 as of June 30, 2021. 3,059 3,490
Various equipment notes entered into in 2020, payable in monthly installments ranging from $9 to $10, including interest of 5.4%, maturing in August 2025. The notes are secured by equipment with a net book value of $2,001 as of June 30, 2021. 1,820 2,011
Various equipment notes entered into in 2021, payable in monthly installments ranging from $3 to $8, including interest of 5.4%, maturing in February 2026. The notes are secured by equipment with a net book value of $801 as of June 30, 2021. 727 0
Various commercial insurance premium financing agreements entered into in 2020, payable in monthly installments ranging from $22 to $126, including interest ranging from 3.4% to 3.8%, that matured in February and March 2021. 0 453
A commercial insurance premium financing agreement entered into in 2021, payable in monthly installments of $24, including interest of 3.9%, maturing in October 2021. 96 0
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 $3,244 as of June 30, 2021. 4,669 5,791
Pursuant to the terms of the Third and Fifth Amendments, 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 11), 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 $1,280 in July 2021, $6,280 in August 2021, $1,280 monthly from September 2021 through December 2021, and $1,500 monthly thereafter. The term loan is secured by substantially all the assets of the Company and is subject to certain financial covenants. 120,007 125,239
Total 140,128 148,301
Less debt issuance costs, net (693) (1,024)
139,435 147,277
Less current maturities (28,571) (22,308)
Notes payable due after one year $ 110,864 $ 124,969


	September 30, 2021		December 31, 2020
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 $1,277 as of September 30, 2021.	$	2,034	$	2,871
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 $5,960 as of September 30, 2021.	6,465		8,446
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 2024 through December 2024. The notes are secured by equipment with a net book value of $2,748 as of September 30, 2021.	2,847		3,490
Various equipment notes entered into in 2020, payable in monthly installments ranging from $9 to $10, including interest of 5.4%, maturing in August 2025. The notes are secured by equipment with a net book value of $1,882 as of September 30, 2021.	1,723		2,011
Various equipment notes entered into in 2021, payable in monthly installments ranging from $3 to $9, including interest ranging from 4.0% to 6.5%, maturing in February 2026 through August 2026. The notes are secured by equipment with a net book value of $1,789 as of September 30, 2021.	1,953		—
Various commercial insurance premium financing agreements entered into in 2020, payable in monthly installments ranging from $22 to $126, including interest ranging from 3.4% to 3.8%, that matured in February and March 2021.	—		453
Various commercial insurance premium financing agreements entered into in 2021, payable in monthly installments ranging from $24 to $117, including interest ranging from 3.0% to 3.9%, maturing in October 2021 through April 2022.	837		—
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 $2,700 as of September 30, 2021.	4,123		5,791
The Closing Date Term Loan and the Delayed Draw Term Loan entered into in September 2018 as part of the Syndicated Credit Facility (see Note 11). In August 2021, the Credit Facility was terminated and the full outstanding principal balance was repaid.	—		125,239
The Notes entered into in August 2021 (see Note 11). The Notes are senior unsecured obligations of the Company and rank equal in right of payment with the Company’s existing and future senior unsecured indebtedness.	135,000		—
The Promissory Note entered into in August 2021 as part of the Letter of Credit Cash Collateralization Promissory Note (see Note 11). The loan evidenced by the Promissory Note is secured by a pledge of substantially all of the assets of Charah, LLC, subject to certain customary exceptions and limitations.	17,852		—
Total	172,834		148,301
Less debt issuance costs, net	(11,728)		(1,024)
	161,106		147,277
Less current maturities	(25,533)		(22,308)
Notes payable due after one year	$	135,573	$	124,969

13. Mezzanine Equity

~~As a condition to the Third Amendment in~~In March 2020, the Company entered into an agreement with an investment fund affiliated with BCP to sell 26 (twenty-six thousand) shares of Series A Preferred Stock, par value $0.01 per 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 were used for liquidity and general corporate purposes. In

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

connection with the issuance of the Preferred Stock, the Company incurred direct expenses of $966, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. The Preferred Stock was initially recorded net of OID and direct

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

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~~September 30, 2021 and December 31, 2020, the Company had accrued dividends of ~~$966~~$997 and $906, respectively, associated with the Preferred Stock, which was recorded at a fair value of ~~$2,148~~$1,946 and $1,356, respectively, 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 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~~September 30, 2021, the liquidation preference of the Preferred Stock was ~~$30,685.~~$31,682.

Conversion Features The Preferred Stock is convertible at the option of the holders at any time on and after 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~~September 30, 2021, the maximum number of common shares that could be required to be issued if converted is ~~11,078~~11,438 (NaN). 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 after 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 before 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. If a BCF is recognized, a reduction to paid-in capital and the Preferred Stock will be recorded and 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 before 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 before the first anniversary of the closing, the Make-Whole Premium shall be no greater than $4,000 and (ii) the closing sale 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 after 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 before the fourth anniversary of the date of the closing, 103% of the Liquidation Preference, plus accrued and unpaid

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

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”).

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

On or after 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 would 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 before the liquidation event. The Make-Whole Premium is removed from the calculation for a liquidation event occurring after 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 shares of common stock into which the Preferred Stock is converted, pursuant to the terms of a registration rights agreement.

14. Common Stock Issuances

During the three and nine months ended September 30, 2021, the Company executed a stock purchase agreement with a previously unrelated third party, B. Riley, and issued 2,889 shares of common stock at $4.50 per share in a private placement for total proceeds of $13,000. Pursuant to the terms of the stock purchase agreement, B. Riley entered into an Investor Rights Agreement and appointed one director to the Company's board of directors.

15. Interest Rate Swap

~~To manage interest rate risk in a cost-efficient manner, the~~The Company entered into an interest rate swap in December 2017 whereby the Company agreed to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount. ~~The~~On August 19, 2021, the Company terminated the interest rate swap ~~is not designated for hedge accounting. The interest rate swap is~~in conjunction with the termination of the Credit Facility and issuance of the Notes. In conjunction with the termination, the Company settled the outstanding liability that was previously classified within other liabilities in the ~~accompanying unaudited condensed~~ consolidated balance ~~sheets at June 30, 2021 and December 31, 2020 and is considered~~sheet by paying $745 to ~~be level 2 in~~ the ~~fair value hierarchy. The change in~~counterparty, which represented the fair value of the ~~interest rate~~ swap ~~is immediately recognized in earnings, within interest expense, net.~~

~~As of both June 30, 2021 and December 31, 2020, the notional amount~~as of the interest rate swap was $150,000. A fair value liability of $734 and $935 was recorded within other current liabilities in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, respectively.termination date.

The total amount of gain (loss) included in interest expense, net in the accompanying unaudited condensed consolidated statements of operations was ~~$81~~($11) and ~~$94~~$65 for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$201~~$190 and ~~$30~~$95 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

~~15.~~16. Contract Assets and Liabilities

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

Our contract assets are as follows:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Costs and estimated earnings in excess of billings	Costs and estimated earnings in excess of billings	$	10,661	$	12,196	Costs and estimated earnings in excess of billings	$	15,395	$	12,196
Retainage	Retainage	6,970		6,133		Retainage	8,116		6,133
Total contract assets	Total contract assets	$	17,631	$	18,329	Total contract assets	$	23,511	$	18,329

Our contract liabilities are as follows:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Billings in excess of costs and estimated earnings	Billings in excess of costs and estimated earnings	$	24,068	$	6,167	Billings in excess of costs and estimated earnings	$	12,447	$	6,167
Deferred revenue	Deferred revenue	2,008		128		Deferred revenue	1,698		128
Total contract liabilities	Total contract liabilities	$	26,076	$	6,295	Total contract liabilities	$	14,145	$	6,295

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

We recognized revenue of ~~$586~~$0 and $6,295 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, that was previously included in contract liabilities at December 31, 2020. The increase in contract liabilities was primarily due to an increase in billings in excess of costs and estimated earnings associated with billings during the three and ~~six~~nine months ended ~~June~~September 30, 2021 for a specific remediation and compliance project.

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

The Company's net position on uncompleted contracts is as follows:


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Costs incurred on uncompleted contracts	Costs incurred on uncompleted contracts	$	165,642	$	123,339	Costs incurred on uncompleted contracts	$	169,576	$	123,339
Estimated earnings	Estimated earnings	26,050		18,425		Estimated earnings	19,019		18,425
Total costs and estimated earnings	Total costs and estimated earnings	191,692		141,764		Total costs and estimated earnings	188,595		141,764
Less billings to date	Less billings to date	(205,099)		(135,735)		Less billings to date	(185,647)		(135,735)
Net balance in process	Net balance in process	$	(13,407)	$	6,029	Net balance in process	$	2,948	$	6,029

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


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Costs and estimated earnings in excess of billings	Costs and estimated earnings in excess of billings	$	10,661	$	12,196	Costs and estimated earnings in excess of billings	$	15,395	$	12,196
Billings in excess of costs and estimated earnings	Billings in excess of costs and estimated earnings	(24,068)		(6,167)		Billings in excess of costs and estimated earnings	(12,447)		(6,167)
Net balance in process	Net balance in process	$	(13,407)	$	6,029	Net balance in process	$	2,948	$	6,029

Anticipated losses on long-term contracts are recognized when such losses become evident. As of ~~June~~September 30, 2021 and December 31, 2020, accruals for anticipated losses on long-term contracts were ~~$81~~$143 and $155, respectively.

~~16.~~17. Stock/Unit-Based Compensation

The Company adopted the Charah Solutions, Inc. 2018 Omnibus Incentive Plan (the “2018 Plan”), pursuant to which employees, consultants, and directors of the Company and its affiliates, including named executive officers, are eligible to receive awards. The 2018 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock, dividend equivalents, other stock-based awards, substitute awards, annual incentive awards, and performance awards intended to align the interests of participants with those of Company's stockholders. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company amended the 2018 Plan to reserve an additional 2,000 shares of common stock, for a total of 5,007 shares of common stock reserved for issuance under the 2018 Plan.

During the ~~three and six~~nine months ended ~~June~~September 30, 2021, the Company granted ~~498 and~~ 501 restricted stock units (“RSUs”)~~, respectively,~~ under the 2018 Plan that are time-based. Of the RSUs granted during the ~~six~~nine months ended ~~June~~September 30, 2021, 3 vested immediately, 90 vest at the end of a one-year period, and 408 vest in equal installments over three years. The fair value of these RSUs is based on the market price of the Company’s shares on the grant date.

During the ~~three and six~~nine months ended ~~June~~September 30, 2021, the Company granted 235 performance share units (“PSUs”) under the 2018 Plan that cliff vest after three years. The vesting of these PSUs is dependent upon the following performance goals during the period January 1, 2021 through December 31, 2023 (the “Performance Period”): (i) the relative total stockholder return percentile ranking of the Company as compared to the specified performance peer group and (ii) cumulative revenue. Each performance goal is weighted at 50% in determining the number of PSUs that become earned PSUs. The maximum number of earned PSUs for the Performance Period is 200% of the target number of PSUs. The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology, which factors in the value of the ~~TSR~~total stockholder return market condition when determining the grant date fair value of the PSU. Compensation cost for each PSU is recognized during the Performance Period based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.

A summary of the Company’s non-vested share activity for the ~~six~~nine months ended ~~June~~September 30, 2021 is as follows:


		Restricted Stock			Performance Stock			Total				Restricted Stock			Performance Stock			Total
		Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value			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, 2020	Balance as of December 31, 2020	981	$	5.08	453	$	4.02	1,434	$	4.74	Balance as of December 31, 2020	981	$	5.08	453	$	4.02	1,434	$	4.74
Granted	Granted	501	5.41		235	4.74		736	5.20		Granted	501	5.41		235	4.74		736	5.20
Forfeited	Forfeited	(62)	7.54		(40)	4.76		(102)	6.45		Forfeited	(62)	7.54		(40)	4.76		(102)	6.45
Vested	Vested	(535)	5.88		0	0		(535)	5.88		Vested	(535)	5.88		—	—		(535)	5.88
Balance as of June 30, 2021		885	$	4.62	648	$	4.24	1,533	$	4.46
Balance as of September 30, 2021											Balance as of September 30, 2021	885	$	4.62	648	$	4.24	1,533	$	4.46

2223

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)


		Restricted Stock			Performance Stock			Total				Restricted Stock			Performance Stock			Total
		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value		Weighted Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value			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, 2020	Balance as of December 31, 2020	0.79	$	2,817	1.68	$	1,299	1.07	$	4,116	Balance as of December 31, 2020	0.79	$	2,817	1.68	$	1,299	1.07	$	4,116

Balance as of June 30, 2021		1.38	$	4,471	1.76	$	3,270	1.54	$	7,741
Balance as of September 30, 2021											Balance as of September 30, 2021	1.13	$	4,072	1.51	$	2,979	1.29	$	7,051

Stock-based compensation expense related to the restricted stock issued was ~~$501~~$550 and ~~$400~~$398 during the three months ended ~~June~~September 30, 2021 and 2020, respectively and ~~$758~~$1,308 and ~~$1,015~~$1,413 during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020. As of ~~June~~September 30, 2021, total unrecognized stock-based compensation expense related to non-vested awards of restricted stock, net of estimated forfeitures, was ~~$2,584,~~$2,033, and is expected to be recognized over a weighted-average period of ~~1.52~~1.37 years. The total fair value of awards vested for the three and ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$2,704.~~$2,463.

Stock-based compensation expense related to the performance stock issued was ~~$198~~$219 and ~~$129~~$149 during the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$240~~$459 and ~~$239~~$388 during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020. As of ~~June~~September 30, 2021, total unrecognized stock-based compensation expense related to non-vested awards of performance stock, net of estimated forfeitures, was ~~$1,337,~~$1,128, and is expected to be recognized over a weighted-average period of ~~2.15~~2.00 years.

~~17.~~18. Commitments and Contingencies

We were 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. In December 2020, the Company, the environmental advocacy group and the state settled, resolved and dismissed all matters. Before the settlement, all customer-related work at the Brickhaven site had been completed. The settlement allows for all completed work to remain unchanged. Per the settlement, the Company will not place any additional material at the site, will place a deed restriction requiring engineering oversight for the future development of the site and will continue groundwater monitoring at the site. In April 2021, the state approved the Company’s application to modify its permit to conform to the work as completed. The Company will continue its work with the state to complete the remaining site closure operations.

Allied Power Services, LLC and its affiliate, Allied Power Resources, LLC, were 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. This lawsuit included related class claims alleging violations of the Illinois Minimum Wage Law and the Pennsylvania Minimum Wage Act for failure to pay overtime. This case was 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. As part of the Allied Transaction, the Company assumed the remaining settlement liability. On July 15, 2020, the court granted final approval of the settlement, and the final settlement payment was made in April 2021.

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.

~~18.~~19. Income Taxes

The Company had income tax expense of ~~$72~~$203 and~~$0 f~~or $608 for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$229~~$432 and $0$608 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively, due to adjustments to the valuation allowance on deferred tax assets.

The effective income tax rate for the three months ended ~~June~~September 30, 2021 was ~~27.6%~~23.7% without regard to the impact of the valuation allowance and includes the effect of state income taxes, nondeductible items and benefits for non-controlling interests. The Company’s income is subject to a federal statutory rate of 21.0% and an estimated state statutory rate of ~~5.0%~~5.1% before considering the 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. The accounting estimates used to compute the provision for income taxes may change as new events occur and additional information is obtained.

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

At ~~June~~September 30, 2021, deferred tax liabilities, net of deferred tax assets, was ~~$597~~.$800. A valuation allowance has been recorded for the deferred tax assets as the Company has determined that it is not more likely than not that the tax benefits related to all the deferred tax assets

~~CHARAH SOLUTIONS, INC.~~

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

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

~~(Unaudited)~~

will be realized. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets.

~~19.~~20. Loss Per Share

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

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


		Three months ended				Six Months Ended					Three months ended				Nine Months Ended
		June 30,				June 30,					September 30,				September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Numerator:	Numerator:									Numerator:
Loss from continuing operations, net of tax and non-controlling interest	Loss from continuing operations, net of tax and non-controlling interest	$	(4,166)	$	(7,313)	$	(5,453)	$	(24,606)	Loss from continuing operations, net of tax and non-controlling interest	$	(1,677)	$	(4,335)	$	(7,130)	$	(28,941)
Deemed and imputed dividends on Series A Preferred Stock	Deemed and imputed dividends on Series A Preferred Stock	(148)		(167)		(295)		(167)		Deemed and imputed dividends on Series A Preferred Stock	(148)		(147)		(443)		(314)
Series A Preferred Stock dividends	Series A Preferred Stock dividends	(2,148)		(858)		(4,215)		(969)		Series A Preferred Stock dividends	(1,946)		(877)		(6,161)		(1,846)
Net loss from continuing operations attributable to common stockholders	Net loss from continuing operations attributable to common stockholders	(6,462)		(8,338)		(9,963)		(25,742)		Net loss from continuing operations attributable to common stockholders	(3,771)		(5,359)		(13,734)		(31,101)
Net income from discontinued operations	Net income from discontinued operations	0		3,777		0		6,820		Net income from discontinued operations	—		119		—		6,939
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(6,462)	$	(4,561)	$	(9,963)	$	(18,922)	Net loss attributable to common stockholders	$	(3,771)	$	(5,240)	$	(13,734)	$	(24,162)

Denominator:	Denominator:									Denominator:
Weighted average shares outstanding	Weighted average shares outstanding	30,450		29,927		30,282		29,785		Weighted average shares outstanding	32,277		29,986		30,955		29,853
Dilutive share-based awards	Dilutive share-based awards	0		0		0		0		Dilutive share-based awards	—		—		—		—
Total weighted average shares outstanding, including dilutive shares	Total weighted average shares outstanding, including dilutive shares	30,450		29,927		30,282		29,785		Total weighted average shares outstanding, including dilutive shares	32,277		29,986		30,955		29,853

Net loss from continuing operations per common share	Net loss from continuing operations per common share									Net loss from continuing operations per common share
Basic	Basic	$	(0.21)	$	(0.28)	$	(0.33)	$	(0.86)	Basic	$	(0.12)	$	(0.18)	$	(0.44)	$	(1.04)
Diluted	Diluted	$	(0.21)	$	(0.28)	$	(0.33)	$	(0.86)	Diluted	$	(0.12)	$	(0.18)	$	(0.44)	$	(1.04)

Net income from discontinued operations per common share	Net income from discontinued operations per common share									Net income from discontinued operations per common share
Basic	Basic	$	0	$	0.13	$	0	$	0.23	Basic	$	—	$	0.01	$	—	$	0.23
Diluted	Diluted	$	0	$	0.13	$	0	$	0.23	Diluted	$	—	$	0.01	$	—	$	0.23

Net loss attributable to common stockholders per common share	Net loss attributable to common stockholders per common share									Net loss attributable to common stockholders per common share
Basic	Basic	$	(0.21)	$	(0.15)	$	(0.33)	$	(0.64)	Basic	$	(0.12)	$	(0.17)	$	(0.44)	$	(0.81)
Diluted	Diluted	$	(0.21)	$	(0.15)	$	(0.33)	$	(0.64)	Diluted	$	(0.12)	$	(0.17)	$	(0.44)	$	(0.81)

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

As a result of the net loss per share for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the inclusion of all potentially dilutive shares would be anti-dilutive. Therefore, dilutive shares of ~~12,018~~12,379 and ~~10,884~~11,430 were excluded from the computation of the weighted-average shares for diluted net loss per share for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and dilutive shares of ~~11,903~~12,064 and ~~6,947~~8,453 were excluded from the computation of the weighted-average shares for diluted net loss per share for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

2425

CHARAH SOLUTIONS, INC.

Notes to Condensed Consolidated Financial Statements, continued

(in thousands, except per share data)

(Unaudited)

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

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Diluted earnings per share:
Anti-dilutive restricted and performance stock units 1,285 1,440 1,338 1,400
Anti-dilutive Series A Preferred Stock convertible into common stock 10,733 9,444 10,565 5,547
Potentially dilutive securities, excluded as anti-dilutive 12,018 10,884 11,903 6,947

~~20. Subsequent Event~~

On August 6, 2021, the Company executed a stock purchase agreement with a previously unrelated third party and issued 2,889 shares of common stock at $4.50 per share in a private placement for total proceeds of $13,000.


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021	2020	2021	2020
Diluted earnings per share:
Anti-dilutive restricted and performance stock units	1,298	1,679	1,325	1,494
Anti-dilutive Series A Preferred Stock convertible into common stock	11,081	9,751	10,739	6,959
Potentially dilutive securities, excluded as anti-dilutive	12,379	11,430	12,064	8,453

2526

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

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

Charah Solutions, Inc.

Charah Solutions, Inc. (together with its subsidiaries, “Charah Solutions,” the “Company,” “we,” “us” or “our”) was incorporated in Delaware in 2018 in connection with our initial public offering in June 2018 and, together with its predecessors, has been in business since 1987. Since our founding, we have continuously worked to anticipate our customers’ evolving environmental needs, increasing the number of services we provide through our embedded presence at their power generation facilities. Our multi-service platform allows customers to gain efficiencies from sourcing multiple required offerings from a single, trusted partner compared to service providers with more limited scope.

Overview

We are a leading national service provider of mission-critical environmental services and byproduct sales to the power generation industry. We offer a suite of remediation and compliance services, byproduct sales and marketing, fossil services and environmental risk transfer ("ERT") services. We also design and implement solutions for complex environmental projects (such as coal ash pond closures) and facilitate coal ash recycling through byproduct sales and other beneficial use services. We believe we are a partner-of-choice for the power generation industry due to our quality, safety, domain experience, and compliance record, all of which are key criteria for our customers. In 2020, we performed work at more than 40 coal-fired generation sites nationwide.

On November 19, 2020, the Company sold its Allied Power Holdings LLC (“Allied”) subsidiary engaged in maintenance, modification and repair services to the nuclear and fossil power generation industry to an affiliate of Bernhard Capital Partners Management, LP (“BCP”), the Company’s majority shareholder, in an all-cash deal for $40 million (the “Allied Transaction”) subject to customary adjustments for working capital and other adjustments as set forth in the Purchase Agreement. The Company has presented Allied as discontinued operations in the accompanying unaudited condensed consolidated financial statements and related notes.

During the fourth quarter of 2020, we realigned our segment reporting into a single operating segment to reflect the suite of end-to-end services we offer our utility partners and how our chief operating decision maker reviews consolidated financial information to evaluate results of operations, assess performance and allocate resources for these services. We provide the following services through our one segment: remediation and compliance services, byproduct sales, fossil services and ERT services. Remediation and compliance services are associated with our customers’ need for multi-year environmental improvement and sustainability initiatives, whether driven by regulatory requirements, power generation customer initiatives or consumer expectations and standards. Byproduct sales support both our power generation customers’ desire to recycle their recurring and legacy volumes of coal combustion residuals (“CCRs”), commonly known as coal ash, and our ultimate end customers’ need for high-quality, cost-effective raw material substitutes. Fossil services consist of ~~fossil plant maintenance~~recurring and ~~daily onsite~~mission-critical coal ash management ~~of coal ash~~and operations for coal-fired power generation facilities. ERT services represent an innovative solution designed to meet the evolving and increasingly complex needs of utility customers. These customers need to retire and decommission older or underutilized assets while maximizing their value and improving the environment. Our ERT services manage the sites' environmental remediation requirements benefiting the communities and lowering the utility customers' cost.

On February 10, 2021, the Company purchased the Texas Municipal Power Agency’s Gibbons Creek Steam Electric Station and Reservoir’s related assets in Grimes County, Texas (“the Gibbons Creek Transaction”). The Company acquired the 6,166-acre area, including the closed power station, a 3,500-acre reservoir, dam and spillway and other property. As part of our ERT services, the Company will be responsible for the decommissioning of the coal power plant, and as part of the acquisition, the Company will be assuming an asset retirement obligation for the site landfill and ash pond environmental remediation work.

As a result of our comprehensive offerings, the embedded nature of our on-site presence, our domain experience, and our track record of successful execution, we have built long-term relationships with leading U.S. regulated utilities and independent power producers, including Dominion Energy, Inc., Duke Energy Corporation, Dynegy Inc., PPL Corporation, The Southern Company, and Consumers Energy, among others. These relationships have spanned over 20 years in some cases. Our operational footprint’s national scale is also a key competitive differentiator, as many competitors are localized, focusing on a single geographic area (sometimes isolated to a single plant). We operate in more than 20 states, resulting in an overall footprint and density in key markets that we believe are difficult to replicate. We believe our national reach enables us to successfully pursue new business within our existing customer base and attract new customers while providing consistent quality, safety, and compliance standards.

Our services platform is led by a senior executive team with deep industry experience and supported by a highly skilled labor force. The nature of our work requires employees to have specialized skills, training, and certifications for them to be allowed on-site at our customers’ facilities. Collectively, our focus on human capital management enables us to maintain and develop a labor force of highly qualified, well-trained personnel capable of handling our customers’ needs.

COVID-19 Update

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

We continue to work closely with our utility partners and concrete producer customers to meet their needs and monitor any potential slowdowns of byproduct sales if 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 reducing employee compensation, cash-based retainers to our Board of Directors, hiring and discretionary spending including travel restrictions. Also, we implemented applicable benefits of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). In October 2020, we returned employee compensation and cash-based retainers to our Board of Directors to their pre-COVID-19 pandemic annual base levels. We may elect or need to take additional measures as the information available to us continues to develop, including measures concerning our employees, relationships with our third-party vendors, and our customers.

The COVID-19 pandemic presents potential new risks to the Company’s business. A sustained downturn may result in the carrying value of our long-lived assets exceeding their fair value, which may require us to recognize an impairment to those assets. Furthermore, delays in customer payments for our services may impact the collectability of our trade accounts receivable. The COVID-19 pandemic has caused logistical, supply chain and other challenges and may continue to affect demand for our byproduct sales, which are driven by construction activity, and the timing of our remediation and compliance services projects, due to delays in new contract awards.

On September 9, 2021, President Biden announced (i) an executive order requiring federal contractors to require that their employees be fully vaccinated against COVID-19 (the "vaccine mandate") and (ii) a proposed new rule requiring all employers with at least 100 employees to require that their employees be fully vaccinated against COVID-19 or tested weekly (the "testing mandate"). The vaccine mandate in the executive order is proposed to take effect in December 2021, but specific application to the Company also depends on timing of incorporation into existing federal contracts. OSHA is currently drafting an emergency regulation to carry out the testing mandate for large employers, which is expected to take effect in the coming weeks. At this time, it is unclear, among other things, if and when the Company will be subject to the vaccine mandate, if the vaccine mandate and the testing mandate will apply to all employees or only to certain employees, and how compliance will be documented. If the Company is subject to the vaccine mandate, it could result in employee attrition and increased costs, which could adversely affect the Company’s business and results of operations. Until the details of the vaccine mandate and the testing mandate are finalized, and any resulting litigation is resolved, the Company cannot predict with certainty the exact impact such mandates will have on the Company or its workforce.

The full extent to which the COVID-19 pandemic will impact our results is unknown and evolving and will depend on future developments, which are highly uncertain and cannot be predicted. These include the severity, duration and spread of COVID-19, the efficacy and public acceptance of vaccination programs in curbing the spread of the virus, the introduction and spread of new variants of the virus, which may prove resistant to currently approved vaccines, the success of actions taken by governments and health organizations to combat the disease and treat its effects, including additional remedial legislation, and the extent to which, and when, general economic and operating conditions recover. Accordingly, we cannot reasonably estimate any resulting financial impact at this time but such amounts may be material.

How We Evaluate Our Operations

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

•Revenue;

•Gross Profit;

•Operating Income;

•Adjusted EBITDA; and

•Adjusted EBITDA Margin.

Revenue

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

Gross Profit

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

Operating Income

We analyze our operating income, which we define as revenue less cost of sales and general and administrative expenses, to measure our financial performance. We believe that operating income is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets. Additionally, due to the nature of the accounting requirements

relating to our ERT services, the gains from the sales of fixed assets and the costs associated with ERT fixed asset sales are recorded as a component of operating income. When analyzing operating income, we compare actual operating income to our internal projections for a given period and to prior periods to assess our performance.

Adjusted EBITDA and Adjusted EBITDA Margin

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

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

Key Factors Affecting Our Business and Financial Statements

Ability to Capture New Contracts and Opportunities

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

Seasonality of Business

Project-Based Nature of Environmental Remediation Mandates

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

Byproduct Recycling Market Dynamics

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

Power Generation Industry Spend on Environmental Liability Management and Regulatory Requirements

The power generation industry has increased annual spending on environmental liability management. We believe this results from regulatory requirements and consumer pressure, and 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.

Many power generation entities are experiencing an increased need to retire and decommission older or less economically viable generating assets while minimizing costs and maximizing the value of the assets and improving the environment. Our ERT services allow these partners to remove the environmental risk and insurance obligations and place control and oversight with a company specializing in these complex remediation and reclamation projects. We believe our broad set of service capabilities, track record of quality service and safety, exacting environmental standards, and a dependable and experienced labor force is a significant competitive advantage. Our work, mission and culture are directly aligned with meeting environmental, sustainability, and governance (“ESG”) standards and providing innovative services to solve our utility customers’ most complex environmental challenges.

In March 2021, we issued our inaugural ESG Report to showcase our Company’s significant milestones in fulfilling our ESG

commitments and sustainably preserving our natural resources for the betterment of our planet, our communities, and our customers. As a leading provider of mission critical environmental services and byproduct sales to the power generation industry for over 30 years, Charah Solutions is dedicated to preserving natural resources in an environmentally-conscious manner. We believe that we are an industry leader in quality, safety, and compliance, and we are committed to reducing greenhouse gas emissions and preserving our environment for a cleaner energy future.

Cost Management and Capital Investment Efficiency

Our principal operating costs consist of labor, material and equipment costs and equipment maintenance. We 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, typically associated with specific contract requirements. Furthermore, we strive to extend our equipment's useful life through a well-planned routine maintenance program.

How We Generate Revenue

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 recycling recurring and contracted volumes of coal-fired power generation waste byproducts, such as bottom ash, fly ash and gypsum byproduct, each of which can be used for various industrial purposes. More than 90% of our services work is time and materials based, 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.

Our fossil services offerings focus on recurring and daily onsite management for coal-fired power generation facilities to fulfill our customers' environmental service needs in handling their waste byproducts. Over the last five years, our renewal rate for fossil services contracts has been approximately 90%. Coal ash management is mission-critical to the power plants' daily operations as they generally only have on-site storage capacity for three to four days of CCR waste accumulation. These services include silo management, on-site ash transportation, landfill management, and capture and disposal of ash byproducts from coal power operations. This combination of one-stop related services deepens customer connectivity and drives long-term relationships which we believe are critical for renewing existing contracts, winning incremental business from existing customers at new sites and adding new customers.

Results of Operations

Three Months Ended ~~June~~September 30, 2021 Compared to Three Months Ended ~~June~~September 30, 2020


		Three Months Ended									Three Months Ended
		June 30,				Change					September 30,				Change
		2021		2020		$		%			2021		2020		$		%
		(dollars in thousands)									(dollars in thousands)
Revenue	Revenue	$	63,518	$	52,304	$	11,214	21.4	%	Revenue	$	84,161	$	63,116	$	21,045	33.3	%
Cost of sales	Cost of sales	(56,598)		(47,098)		(9,500)		20.2	%	Cost of sales	(74,712)		(54,782)		(19,930)		36.4	%
Gross profit	Gross profit	6,920		5,206		1,714		32.9	%	Gross profit	9,449		8,334		1,115		13.4	%
General and administrative expenses	General and administrative expenses	(9,379)		(8,657)		(722)		8.3	%	General and administrative expenses	(9,396)		(2,043)		(7,353)		359.9	%

Gains on sales of property and equipment, net	Gains on sales of property and equipment, net	2,696		—		2,696		100.0	%	Gains on sales of property and equipment, net	2,998		—		2,998		100.0	%
Gain on ARO settlement										Gain on ARO settlement	1,127		—		1,127		100.0	%
Other operating expenses from ERT services	Other operating expenses from ERT services	(1,007)		—		(1,007)		100.0	%	Other operating expenses from ERT services	(817)		—		(817)		(100.0)	%
Operating loss		(770)		(3,451)		2,681		77.7	%
Impairment expense										Impairment expense	(700)		(6,399)		5,699		(89.1)	%
Operating income (loss)										Operating income (loss)	2,661		(108)		2,769		2,563.9	%
Interest expense, net	Interest expense, net	(3,314)		(4,055)		741		18.3	%	Interest expense, net	(3,541)		(3,551)		10		0.3	%

(Loss) income from equity method investment		(11)		326		(337)		103.4	%
Loss on extinguishment of debt										Loss on extinguishment of debt	(638)		—		(638)		(100.0)	%
Income from equity method investment										Income from equity method investment	—		625		(625)		(100.0)	%
Loss from continuing operations before income taxes	Loss from continuing operations before income taxes	(4,095)		(7,180)		3,085		(43.0)	%	Loss from continuing operations before income taxes	(1,518)		(3,034)		1,516		(50.0)	%
Income tax expense	Income tax expense	72		—		72		100.0	%	Income tax expense	203		608		(405)		(66.6)	%
Net loss from continuing operations, net of tax	Net loss from continuing operations, net of tax	(4,167)		(7,180)		3,013		(42.0)	%	Net loss from continuing operations, net of tax	(1,721)		(3,642)		1,921		(52.7)	%
Income from discontinued operations, net of tax	Income from discontinued operations, net of tax	—		3,777		(3,777)		(100.0)	%	Income from discontinued operations, net of tax	—		119		(119)		(100.0)	%
Net loss	Net loss	(4,167)		(3,403)		(764)		(22.5)	%	Net loss	(1,721)		(3,523)		1,802		51.1	%
Less (loss) income attributable to non-controlling interest	Less (loss) income attributable to non-controlling interest	(1)		133		(134)		100.8	%	Less (loss) income attributable to non-controlling interest	(44)		693		(737)		106.3	%
Net loss attributable to Charah Solutions, Inc.	Net loss attributable to Charah Solutions, Inc.	$	(4,166)	$	(3,536)	(630)		(17.8)	%	Net loss attributable to Charah Solutions, Inc.	$	(1,677)	$	(4,216)	2,539		60.2	%

Amounts attributable to Charah Solutions, Inc.	Amounts attributable to Charah Solutions, Inc.									Amounts attributable to Charah Solutions, Inc.
Loss from continuing operations, net of tax and non-controlling interest	Loss from continuing operations, net of tax and non-controlling interest	$	(4,166)	$	(7,313)	3,147		43.0	%	Loss from continuing operations, net of tax and non-controlling interest	$	(1,677)	$	(4,335)	2,658		61.3	%
Deemed and imputed dividends on Series A Preferred Stock	Deemed and imputed dividends on Series A Preferred Stock	(148)		(167)		19		11.4	%	Deemed and imputed dividends on Series A Preferred Stock	(148)		(147)		(1)		(0.7)	%
Series A Preferred Stock dividends	Series A Preferred Stock dividends	(2,148)		(858)		(1,290)		(150.3)	%	Series A Preferred Stock dividends	(1,946)		(877)		(1,069)		(121.9)	%
Net loss from continuing operations attributable to common stockholders	Net loss from continuing operations attributable to common stockholders	(6,462)		(8,338)		1,876		22.5	%	Net loss from continuing operations attributable to common stockholders	(3,771)		(5,359)		1,588		29.6	%
Income from discontinued operations, net of tax	Income from discontinued operations, net of tax	—		3,777		(3,777)		100.0	%	Income from discontinued operations, net of tax	—		119		(119)		(100.0)	%
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(6,462)	$	(4,561)	(1,901)		(41.7)	%	Net loss attributable to common stockholders	$	(3,771)	$	(5,240)	1,469		28.0	%

Revenue. Revenue increased ~~$11.2~~$21.0 million, or ~~21.4%~~33.3%, for the three months ended ~~June~~September 30, 2021 to ~~$63.5~~$84.2 million as compared to ~~$52.3~~$63.1 million for the three months ended ~~June~~September 30, 2020, primarily driven by an increase in remediation and compliance services revenue from the commencement of new project work, partially offset by a decrease in fossil services revenue due to project completions and a slight decrease in byproduct sales due to ~~an increase in shipping rates,~~ the dissolution of our ~~joint venture in~~ Ash Venture LLC joint venture in the second quarter of 2021 and ~~a decrease~~decreases in ~~fossil services revenue~~supply from international sources due to ~~project completions.~~increases in shipping rates, partially offset by increased plant production as utility customers’ production recovered from the impacts of the pandemic and the 2020 hurricanes.

Gross Profit. Gross profit increased ~~$1.7~~$1.1 million, or ~~32.9%~~13.4%, for the three months ended ~~June~~September 30, 2021 to ~~$6.9~~$9.4 million as compared to ~~$5.2~~$8.3 million for the three months ended ~~June~~September 30, 2020, primarily driven by an increase in gross profit from our remediation and compliance services from the commencement of new project work, ~~and a better gross profit margin on our byproduct sales during the three months ended June 30, 2021,~~ partially offset by ~~a decrease in gross profit due to the dissolution of our joint venture in Ash Venture LLC in the second quarter of 2021 and~~ a decrease in gross profit on our fossil services due to project ~~completions.~~completions and a decrease in gross profit on our byproduct sales due to the dissolution of our Ash Venture LLC joint venture in the second quarter of 2021. As a percentage of revenue, gross profit was ~~10.9%~~11.2% and ~~10.0%~~13.2% for the three months ended ~~June~~September 30, 2021 and 2020, respectively.

General and Administrative Expenses. General and administrative expenses increased ~~$0.7~~$7.4 million, or ~~8.3%~~359.9%, for the three months ended ~~June~~September 30, 2021 to $9.4 million as compared to ~~$8.7~~$2.0 million for the three months ended ~~June~~September 30, 2020, primarily attributable to ~~certain temporary cost-cutting measures implemented~~the absence of a $7.1 million reduction in ~~April 2020 in response to~~expense from the ~~COVID-19 pandemic that returned to pre-COVID levels in October 2020.~~expiration of our purchase option liability on our structural fill sites.

Gains on Sales of Property and Equipment, Net. Gains on sales of property and equipment, net increased ~~$2.7~~$3.0 million for the three months ended ~~June~~September 30, 2021 due to the commencement of operations on the Gibbons Creek ERT project in 2021.

Gain on ARO settlement. Gain on ARO settlement increased $1.1 million for the three months ended September 30, 2021 due to differences between the estimated costs used in the measurement of the fair value of the Company's AROs and the ~~completion of an asset purchase agreement with a third-party~~actual expenditures incurred for ~~the sale of certain grinding-related assets.~~specific remediation tasks.

Other Operating Expenses from ERT Services. Other operating expenses from ERT services increased ~~$1.0~~$0.8 million for the three months ended ~~June~~September 30, 2021 due to expenses associated with the commencement of operations on the Gibbons Creek ERT project in 2021.

Impairment Expense. Impairment expense decreased $5.7 million for the three months ended September 30, 2021 due to absence of the expiration of the purchase option liability that occurred in the three months ended September 30, 2020 and resulted in a non-cash impairment charge related to the associated land asset.

Interest Expense, Net. Interest expense, net decreased ~~$0.7 million, or 18.3%,~~ for the three months ended ~~June~~September 30, 2021 to ~~$3.3~~$3.5 million as compared to ~~$4.1~~$3.6 million for the three months ended ~~June~~September 30, 2020. The decrease was primarily attributable to lower debt balances during the three months ended ~~June~~September 30, 2021 as compared to the three months ended ~~June~~September 30, ~~2020.~~2020, partially offset by a higher weighted-average cost of capital associated with equipment financing and an increase in amortization of debt issuance costs.

~~(Loss)~~ Loss on Extinguishment of Debt. Loss on extinguishment of debt increased $0.6 million, or 100%, for the three months ended September 30, 2021 to $0.6 million as compared to $0.0 million for the three months ended September 30, 2020, primarily due to the write-off on unamortized debt issuance costs related to the Credit Facility.

Income from Equity Method Investment. ~~(Loss) income~~Income from equity method investment decreased ~~$0.3~~$0.6 million for the three months ended ~~June~~September 30, 2021 as compared to the three months ended ~~June~~September 30, 2020, primarily due to the dissolution of our joint venture in CV Ash in the first quarter of 2021.

Income Tax Expense. Income tax expense ~~increased $0.1~~decreased $0.4 million, or 66.6%, for the three months ended ~~June~~September 30, 2021 to $0.2 millionas compared to$0.6 million for the three months ended ~~June~~September 30, 2020, primarily due to limitations of the utilization of deferred tax assets against the reversal of deferred tax liabilities.

Income from Discontinued Operations, Net of Tax. Income from discontinued operations, net of tax decreased ~~$3.8~~$0.1 million for the three months ended ~~June~~September 30, 2021 as compared to the three months ended ~~June~~September 30, 2020, due to the Company's sale of its Allied subsidiary in November 2020.

Net Loss. Net loss ~~increased $0.8~~decreased $1.8 million, or ~~22.5%~~51.1%, for the three months ended ~~June~~September 30, 2021 to ~~$4.2~~$1.7 million as compared to ~~$3.4~~$3.5 million for the three months ended ~~June~~September 30, 2020.

3032

~~Six~~Nine Months Ended ~~June~~September 30, 2021 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2020


		Six Months Ended									Nine Months Ended
		June 30,				Change					September 30,				Change
		2021		2020		$		%			2021		2020		$		%
		(dollars in thousands)									(dollars in thousands)
Revenue	Revenue	$	115,625	$	103,581	$	12,044	11.6	%	Revenue	$	199,786	$	166,697	$	33,089	19.8	%
Cost of sales	Cost of sales	(103,120)		(93,480)		(9,640)		10.3	%	Cost of sales	(177,832)		(148,262)		(29,570)		19.9	%
Gross profit	Gross profit	12,505		10,101		2,404		23.8	%	Gross profit	21,954		18,435		3,519		19.1	%
General and administrative expenses	General and administrative expenses	(18,811)		(19,325)		514		(2.7)	%	General and administrative expenses	(28,080)		(21,368)		(6,712)		31.4	%
Gain on sales-type lease	Gain on sales-type lease	5,568		—		5,568		100.0	%	Gain on sales-type lease	5,568		—		5,568		100.0	%
Gains on sales of property and equipment, net	Gains on sales of property and equipment, net	3,243		—		3,243		100.0	%	Gains on sales of property and equipment, net	6,241		—		6,241		100.0	%
Gain on ARO settlement										Gain on ARO settlement	1,127		—		1,127		100.0	%
Other operating expenses from ERT services	Other operating expenses from ERT services	(1,297)		—		(1,297)		100.0	%	Other operating expenses from ERT services	(2,114)		—		(2,114)		(100.0)	%
Operating (loss) income		1,208		(9,224)		10,432		113.1	%
Impairment expense										Impairment expense	(827)		(6,399)		5,572		(87.1)	%
Operating income (loss)										Operating income (loss)	3,869		(9,332)		13,201		141.5	%
Interest expense, net	Interest expense, net	(6,549)		(6,914)		365		5.3	%	Interest expense, net	(10,090)		(10,465)		375		3.6	%
Loss on extinguishment of debt	Loss on extinguishment of debt	—		(8,603)		8,603		(100.0)	%	Loss on extinguishment of debt	(638)		(8,603)		7,965		(92.6)	%
Income from equity method investment	Income from equity method investment	191		622		(431)		69.3	%	Income from equity method investment	191		1,247		(1,056)		84.7	%
Loss from continuing operations before income taxes	Loss from continuing operations before income taxes	(5,150)		(24,119)		18,969		(78.6)	%	Loss from continuing operations before income taxes	(6,668)		(27,153)		20,485		(75.4)	%
Income tax expense	Income tax expense	229		—		229		100.0	%	Income tax expense	432		608		(176)		(28.9)	%
Net loss from continuing operations, net of tax	Net loss from continuing operations, net of tax	(5,379)		(24,119)		18,740		(77.7)	%	Net loss from continuing operations, net of tax	(7,100)		(27,761)		20,661		(74.4)	%
Income from discontinued operations, net of tax	Income from discontinued operations, net of tax	—		6,820		(6,820)		(100.0)	%	Income from discontinued operations, net of tax	—		6,939		(6,939)		(100.0)	%
Net loss	Net loss	(5,379)		(17,299)		11,920		68.9	%	Net loss	(7,100)		(20,822)		13,722		65.9	%
Less income attributable to non-controlling interest	Less income attributable to non-controlling interest	74		487		(413)		84.8	%	Less income attributable to non-controlling interest	30		1,180		(1,150)		97.5	%
Net loss attributable to Charah Solutions, Inc.	Net loss attributable to Charah Solutions, Inc.	$	(5,453)	$	(17,786)	12,333		69.3	%	Net loss attributable to Charah Solutions, Inc.	$	(7,130)	$	(22,002)	14,872		67.6	%

Amounts attributable to Charah Solutions, Inc.	Amounts attributable to Charah Solutions, Inc.									Amounts attributable to Charah Solutions, Inc.
Loss from continuing operations, net of tax and non-controlling interest	Loss from continuing operations, net of tax and non-controlling interest	$	(5,453)	$	(24,606)	19,153		77.8	%	Loss from continuing operations, net of tax and non-controlling interest	$	(7,130)	$	(28,941)	21,811		75.4	%
Deemed and imputed dividends on Series A Preferred Stock	Deemed and imputed dividends on Series A Preferred Stock	(295)		(167)		(128)		(76.6)	%	Deemed and imputed dividends on Series A Preferred Stock	(443)		(314)		(129)		(41.1)	%
Series A Preferred Stock dividends	Series A Preferred Stock dividends	(4,215)		(969)		(3,246)		(335.0)	%	Series A Preferred Stock dividends	(6,161)		(1,846)		(4,315)		(233.7)	%
Net loss from continuing operations attributable to common stockholders	Net loss from continuing operations attributable to common stockholders	(9,963)		(25,742)		15,779		61.3	%	Net loss from continuing operations attributable to common stockholders	(13,734)		(31,101)		17,367		55.8	%
Income from discontinued operations, net of tax	Income from discontinued operations, net of tax	—		6,820		(6,820)		100.0	%	Income from discontinued operations, net of tax	—		6,939		(6,939)		(100.0)	%
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(9,963)	$	(18,922)	8,959		47.3	%	Net loss attributable to common stockholders	$	(13,734)	$	(24,162)	10,428		43.2	%

Revenue. Revenue increased ~~$12.0~~$33.1 million, or ~~11.6%~~19.8%, for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$115.6~~$199.8 million as compared to ~~$103.6~~$166.7 million for the ~~six~~nine months ended ~~June~~September 30, 2020, primarily driven by an increase in remediation and compliance services revenue from the commencement of new project work, partially offset by a decrease in byproduct sales due to lower plant production that we believe was due to lower demand as a result of the COVID-19 pandemic, an increase in shipping rates, the dissolution of our joint venture in Ash Venture LLC in the second quarter of 2021 and a decrease in fossil services revenue due to project completions. The decrease in byproduct sales was primarily due to a decrease in supply from international sources due to increases in shipping rates, and the dissolution of our Ash Venture LLC joint venture in the second quarter of 2021, partially offset by increased plant production, as previously mentioned, and new ash sales sites.

Gross Profit. Gross profit increased ~~$2.4~~$3.5 million, or ~~23.8%~~19.1%, for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$12.5~~$22.0 million as compared to ~~$10.1~~$18.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020, primarily driven by an increase in gross profit from our remediation and compliance services from the commencement of new project work, partially offset by a decrease in gross profit on byproduct sales due to the dissolution of our ~~joint venture in~~ Ash Venture LLC joint venture in the second quarter of 2021 and a decrease in gross profit on our fossil services due to project completions. As a percentage of revenue, gross profit was ~~10.8%~~11.0% and ~~9.8%~~11.1% for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

General and Administrative Expenses. General and administrative expenses ~~decreased $0.5~~increased $6.7 million, or ~~2.7%~~31.4%, for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$18.8~~$28.1 million as compared to ~~$19.3~~$21.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020, primarily attributable to ~~reductions~~the absence of a $7.1 million reduction in ~~staff and other temporary cost-cutting measures implemented in April 2020 in response to~~expense from the ~~COVID-19 pandemic and a decrease in equity-based compensation~~expiration of ~~$0.3 million, partially offset by an increase in transaction-related expenses and other items of $0.6 million.~~our purchase option liability on our structural fill sites.

Gain on Sales-type Lease. Gain on sales-type lease increased $5.6 million for the ~~six~~nine months ended ~~June~~September 30, 2021 due to the recognition of the sales-type lease discussed in Note 7, Balance Sheet Items, to the accompanying unaudited condensed consolidated financial statements.

Gains on Sales of Property and Equipment, Net. Gains on sales of property and equipment, net increased ~~$3.2~~$6.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021 due to the commencement of operations on the Gibbons Creek ERT project in 2021 and the completion of an asset purchase agreement with a third-party for the sale of certain grinding-related assets.

Gain on ARO settlement.

Gain on ARO settlement increased $1.1 million for the nine months ended September 30, 2021 due to differences between the estimated costs used in the measurement of the fair value of the Company's AROs and the actual expenditures incurred for specific remediation tasks.

Other Operating Expenses from ERT Services. Other operating expenses from ERT services increased ~~$1.3~~$2.1 million for the ~~three~~nine months ended ~~June~~September 30, 2021 due to expenses associated with the commencement of operations on the Gibbons Creek ERT project in 2021.

Impairment Expense. Impairment expense decreased $5.6 million for the nine months ended September 30, 2021 due to absence of the expiration of the purchase option liability that occurred in the nine months ended September 30, 2020 and resulted in a non-cash impairment charge related to the associated land asset.

Interest Expense, Net. Interest expense, net decreased $0.4 million, or ~~5.3%~~3.6%, for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$6.5~~$10.1 million as compared to ~~$6.9~~$10.5 million for the ~~six~~nine months ended ~~June~~September 30, 2020. The ~~increase~~decrease was primarily attributable to lower debt balances and an increase in the non-cash mark-to-market gain associated with the change in value of our interest rate swap, partially offset by an increase in paid in-kind interest related to the amendments to the Credit ~~Facility as discussed below “—Liquidity and Capital Resources—Our Debt Agreements—Existing Credit~~ Facility.”

Loss on Extinguishment of Debt. Loss on extinguishment of debt decreased $8.0 million, or 92.6%, for the nine months ended September 30, 2021 to $0.6 million as compared to $8.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2021~~2020, primarily due to the absence of expenses incurred as a result of the Company’s Amendment No. 3 to Credit Agreement (the “Third Amendment”) of our ~~existing~~ Credit Facility for the ~~six~~nine months ended ~~June~~September 30, ~~2020 as discussed below in “—Liquidity and Capital Resources—Our Debt Agreements—Existing Credit Facility.”~~2020. The Company expensed $5.2 million in amendment fees and wrote off $3.4 million in previously capitalized debt issuance costs as a result of the Third Amendment during the ~~six~~nine months ended ~~June~~September 30, 2020.

Income from Equity Method Investment. Income from equity method investment decreased ~~$0.4~~$1.1 million, or ~~69.3%~~84.7%, for the ~~six~~nine months ended ~~June~~September 30, 2021 to $0.2 million as compared to ~~$0.6~~$1.2 million for the ~~six~~nine months ended ~~June~~September 30, 2020, primarily due to the dissolution of our joint venture in CV Ash in the first quarter of 2021.

Income Tax Expense. Income tax expense ~~increased~~decreased $0.2 million, or 28.9%, for the ~~six~~nine months ended ~~June~~September 30, 2021 to $0.4 million as compared to $0.6 million for the ~~six~~nine months ended ~~June~~September 30, 2020, primarily due to limitations of the utilization of deferred tax assets against the reversal of deferred tax liabilities.

Income from Discontinued Operations, Net of Tax. Income from discontinued operations, net of tax decreased ~~$6.8~~$6.9 million for the ~~six~~nine months ended ~~June~~September 30, 2021 as compared to the ~~six~~nine months ended ~~June~~September 30, 2020, primarily due to the Company's sale of its Allied subsidiary in November 2020.

Net Loss. Net loss decreased ~~$11.9~~$13.7 million, or ~~68.9%~~65.9%, for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$5.4~~$7.1 million as compared to ~~$17.3~~$20.8 million for the ~~six~~nine months ended ~~June~~September 30, 2020.

Condensed Consolidated Balance Sheets

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


		June 30, 2021		December 31, 2020		Change			September 30, 2021		December 31, 2020		Change
		(in thousands)							(in thousands)
Total assets	Total assets	$	329,849	$	280,960	$	48,889	Total assets	$	347,523	$	280,960	$	66,563
Total liabilities	Total liabilities	287,960		233,221		54,739		Total liabilities	293,383		233,221		60,162
Mezzanine equity	Mezzanine equity	31,141		27,423		3,718		Mezzanine equity	33,438		27,423		6,015
Total equity	Total equity	10,748		20,316		(9,568)		Total equity	20,702		20,316		386

Assets

Total assets increased ~~$48.9~~$66.6 million driven primarily by ~~$55.2~~(i) fixed asset additions of $33.9 million, (ii) an increase in ~~assets acquired as part~~restricted cash of $44.2 million from the Gibbons Creek Transaction discussed in Note 5, Asset Acquisition, to the accompanying unaudited condensed consolidated financial statements, ~~an increase~~the cash maintained in a restricted ~~cash~~account to collateralize the Company’s outstanding letters of ~~$8.7 million related to~~credit, and a specific remediation and compliance project, ~~and~~(iii) a lease receivable of $6.0 million resulting from the sales-type lease discussed in Note 7, Balance Sheet Items, to the accompanying unaudited condensed consolidated financial ~~statements.~~statements, and (iv) intangible asset additions of $5.2 million resulting from the acquisition of water rights in the Gibbons Creek Transaction. These increases were partially offset by depreciation and amortization expense of ~~$12.3~~$18.6 million and fixed asset disposals, net of the ~~cash payments~~related accumulated depreciation, of ~~$7.4 million for the working capital adjustment and other items for the Allied Transaction.~~$5.6 million.

Liabilities

Total liabilities increased ~~$54.7~~$60.2 million driven primarily by ~~the~~(i) proceeds from long-term debt of $156.3 million discussed in Note 11,Long-term Debt, (ii) an increase in asset retirement obligations (“AROs”) of $44.8 million due to the AROs acquired ~~of $50.6 million as part of the~~in Gibbons Creek Transaction ~~discussed~~and partially offset by ARO liabilities settled and gain on ARO settlement during the nine months ended September 30, 2021, (iii) an increase in ~~Note 5, Asset Acquisition,~~accounts payable of $10.5 million due to project commencements during the ~~accompanying unaudited condensed consolidated financial statements,~~nine months ended September 30, 2021 and the

timing of payments, (iv) an increase in capital lease obligations of $9.1 million, (v) an increase of ~~$19.8~~$7.9 million in contract liabilities from billings in excess of costs and estimated earnings associated with billings during the ~~six~~nine months ended ~~June~~September 30, 2021 for a specific remediation and compliance project and other new ~~projects.~~ projects, and (vi) $2.8 million for paid-in-kind interest on the Credit Facility.

These increases were partially offset by ~~$7.4~~principal payments on long-term debt of $134.6 million, ~~for the~~debt issuance costs of $11.9 million, payments of the working capital adjustment and other items for the Allied Transaction ~~and~~of $7.4 million, accrued bonus payments of $3.8 million ~~for the payment of accrued bonuses~~ and ~~$3.5 million for the payment~~payments of certain liabilities assumed through the Allied ~~Transaction.~~Transaction of $3.5 million.

Mezzanine Equity

Total mezzanine equity increased ~~$3.7~~$6.0 million related to the paid in-kind dividends and accretion associated with the Preferred Stock Offering.

Equity

Total equity ~~decreased $9.6~~increased $0.4 million driven primarily by $13 million from the ~~$5.4~~issuance of common stock and $1.8 million in share-based compensation, partially offset by the $7.1 million net loss, ~~$4.5~~$6.6 million in paid in-kind and deemed dividends associated with our Preferred Stock and $0.5 million in taxes paid related to the net settlement of ~~shares, partially offset by $1.0 million in share-based compensation.~~

shares.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash on the balance sheet, cash flows generated by operating activities and borrowings under the ~~Credit Facility.~~Notes. Due to longer sales cycles, driven by the increase in the size, scope and complexity of remediation and compliance projects that we are bidding on, we have experienced contract initiation delays and project completion delays that 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 typically fund our expenditures.

As of ~~June~~September 30, 2021, we had ~~total liquidity of $37.9 million, comprised of $18.1~~$22.4 million of cash on hand and $19.8 million availability under the Revolving Loan. As of June 30, 2021, borrowings under the Company’s Credit Facility total $132.8 million and will mature in July 2022. In addition, in August 2021, the Company entered into an amendment to its Credit Facility as further discussed in Note 11, Credit Agreement, to the accompanying unaudited condensed consolidated financial statements, to waive non-compliance with certain financial covenants as of June 30, 2021 and to amend certain financial covenants as of September 30, 2021 in order to avoid projected non-compliance that could result in acceleration of maturity. The Company does not have sufficienthand. We believe our cash on hand ~~or available liquidity~~and cash generated from operations will be sufficient to ~~repay~~cover our working capital requirements and debt obligations for the maturing credit facility debt as it becomes due within one year after the date that these condensed consolidated financial statements are issued. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might resultnext 12 months from the ~~outcome~~issuance of this ~~uncertainty.~~Quarterly Report.

Cash Flows

The following table sets forth our cash flow data:


		Six Months Ended							Nine Months Ended
		June 30,				Change			September 30,				Change
		2021		2020		$			2021		2020		$
		(dollars in thousands)							(dollars in thousands)
Net cash provided by operating activities	Net cash provided by operating activities	10,242		9,228		$	1,014	Net cash provided by operating activities	2,028		10,899		$	(8,871)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	29,951		(1,449)		31,400		Net cash provided by (used in) investing activities	31,638		(2,858)		34,496
Net cash (used in) provided by financing activities		(11,745)		30,720		(42,465)
Net cash provided by financing activities								Net cash provided by financing activities	8,176		24,998		(16,822)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	$	28,448	$	38,499	$	(10,051)	Net change in cash, cash equivalents and restricted cash	$	41,842	$	33,039	$	8,803

Operating Activities

Net cash provided by operating activities ~~increased $1.0~~decreased $8.9 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$10.2~~$2.0 million as compared to ~~$9.2~~$10.9 million ~~of net cash provided by operating activities~~ for the ~~six~~nine months ended ~~June~~September 30, 2020. The change in cash flows provided by operating activities was primarily attributable to:

•a decrease in net loss of ~~$11.9 million,~~$13.7 million.

•a decrease in non-working capital adjustments to net loss of ~~$19.5~~$24.8 million, primarily due to ~~a gain on sales-type lease of~~ ~~$5.6 million for the six months ended June 30, 2021,~~ an increase in the gain on sale of fixed assets of ~~$4.4~~$8.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021, ~~and the~~a decrease in loss on extinguishment of debt of ~~$8.6~~$8.0 million for the ~~six~~nine months ended ~~June~~September 30, ~~2020,~~2021, a gain on sales-type lease of $5.6 million for the nine months ended September 30, 2021, and a decrease in impairment expense of $5.6 million. These changes were partially offset by the increase of $5.4 million in depreciation and amortization during the nine months ended September 30, 2021.

•an increase of ~~$8.6~~$2.2 million from all other operating activities, which was primarily driven by the absence of discontinued ~~operations~~operations and its net working capital requirements.

Investing Activities

Net cash provided by investing activities increased ~~$31.4~~$34.5 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$30.0~~$31.6 million as compared to ~~$1.4~~$2.9 million of net cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2020. The change in cash flows provided by investing activities was primarily attributable to an increase of $34.9 million from proceeds for liabilities assumed as part of the Gibbons Creek Transaction discussed in Note 5, Asset Acquisition, to the accompanying unaudited condensed consolidated financial statements, ~~and~~ an increase in proceeds from the sales of property and equipment primarily due to scrap sales from ERT projects and the sale of other fixed assets. and distributions received of $1.0 million from our equity method investment. These increases were partially offset by a

decrease of $7.4 million for the payment of the working capital adjustment and other items resulting from the Allied ~~Transaction.~~Transaction and an increase in purchases of property and equipment.

Financing Activities

Net cash ~~used in~~provided by financing activities decreased ~~$42.5~~$16.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$11.7~~$8.2 million as compared to ~~$30.7~~$25.0 million ~~of net cash provided by financing activities~~ for the ~~six~~nine months ended ~~June~~September 30, 2020. During the ~~six~~nine months ended ~~June~~September 30,

2021, the change in cash flows provided by financing activities was primarily attributable to ~~a decrease~~an increase of ~~$19.5~~$116.1 million in ~~proceeds received from~~principal payments on long-term debt and ~~the line of credit and~~capital lease obligations, the absence of $24.3 million of proceeds received from Preferred Stock ~~issuance.~~issuance, the change in net activity of $18.7 million on the line of credit, and an increase of $9.3 million in payments of debt issuance costs. These changes were offset by an increase of $137.9 million in proceeds received from long-term debt and $13.0 million of proceeds received from the issuance of common stock.

Working Capital

Our working capital, which we define as total current assets less total current liabilities, totaled ~~$13.4~~$26.9 million at ~~June~~September 30, 2021 as compared to $21.5 million at December 31, 2020. This ~~decrease~~increase in net working capital for the ~~six~~nine months ended ~~June~~September 30, 2021 was primarily due to:

•an increase in restricted cash primarily due to the Gibbons Creek Transaction discussed in Note 5, Asset Acquisition, to the accompanying unaudited condensed consolidated financial statements, the cash maintained in a restricted account to collateralize the Company’s outstanding letters of credit, and a specific remediation and compliance project,

•increases in prepaid expenses and other current assets due to the lease receivable resulting from a sales type lease,

•increases in contract assets due to an increase in retainage amounts, new project commencements, and the timing of costs and estimated earnings in excess of billings for certain remediation and compliance projects, and

•decreases in accrued expenses due to the payment of the working capital adjustment resulting from the sale of Allied, the payment of the bonus accrual during the nine months ended September 30, 2021, and the timing of payments for project-specific payables and accruals.

These changes were partially offset by:

•increases in asset retirement obligations due to the liabilities assumed in the Gibbons Creek Transaction,

•increases in accounts payable due to project commencements and the timing of payments,

•increases in contract liabilities due to the timing of billings in excess of costs and earnings for certain remediation and compliance projects,

•~~increases in asset retirement obligations due to the liabilities assumed in the Gibbons Creek Transaction,~~ and

•increases in capital lease obligations and notes payables due to new long-term debt financing and capital leases entered into during the ~~six~~nine months ended ~~June~~September 30, 2021.

~~This increase was partially offset by:~~

•~~increases in cash and restricted cash due to proceeds received from the Gibbons Creek Transaction and a specific remediation and compliance project, and~~

•decreases in accounts payable and accrued expenses due to the payment of the working capital adjustment resulting from the sale of Allied, the payment of the bonus accrual during the six months ended June 30, 2021, and the timing of payments for project-specific payables and accruals.

Our Debt Agreements

~~Existing~~Senior Notes

On August 25, 2021, the Company completed an offering of $135.0 million, in the aggregate, of the Company’s Notes, which amount includes the exercise by the underwriters of their option to purchase an additional $5.0 million aggregate principal amount of Notes.

The public offering price of the Notes was 100.0% of the principal amount. The Company received net proceeds before payment of expenses and other fees of $135.0 million. The Company used the proceeds, along with cash from the sale of equity to B. Riley, to fully repay and terminate the Company’s Credit Facility, as defined below, with any remaining proceeds to be used for general corporate purposes, including funding future acquisitions and investments, repaying indebtedness, making capital expenditures and funding working capital.

such method as the Trustee deems fair and appropriate in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances.

The Notes are senior unsecured obligations of the Company and rank equal in right of payment with the Company’s existing and future senior unsecured indebtedness.

As a result of the issuance of the Notes, $11.9 million of third-party fees were capitalized as debt issuance costs that will be amortized prospectively through interest expense, net in the accompanying unaudited condensed consolidated statements of operations using the effective interest method through the maturity date of the Notes.

Asset-Based Lending Credit Agreement

On November 9, 2021, the Company entered into a new Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein. The Credit Agreement provides for a four-year senior secured revolving credit facility with initial aggregate commitments from the lenders of $30.0 million, which includes $5.0 million available for swingline loans, plus an additional $5 million of capacity available for the issuance of letters of credit if supported by cash collateral provided by the Company (with a right to increase such amount by up to an additional $5.0 million) (“Aggregate Revolving Commitments”). Availability under the Credit Agreement is subject to a borrowing base calculated based on the value of certain eligible accounts receivable, inventory, and equipment of the Company and subject to redeterminations made in good faith and in the exercise of permitted discretion of JPMorgan. Proceeds of the Credit Agreements may be used for working capital and general corporate purposes.

The Credit Agreement provides for borrowings of either base rate loans or Eurodollar loans. Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable (i) with respect to base rate loans, monthly and (ii) with respect to Eurodollar loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a Eurodollar loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. Eurodollar Loans bear interest at a rate per annum equal to the Adjusted London Inter-bank Offered Rate (“LIBOR”) for one, three or six months (the “Interest Period”), plus an applicable margin of 2.25%. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Adjusted LIBOR loans plus 100 basis points, plus an applicable rate of 125 basis points.

A covenant testing period (“Covenant Testing Period”) is a period in which excess availability (which is defined in the Credit Agreement as the sum of availability and an amount up to $1.0 million), is less than the greater of (a) 12.5% of the lesser of the aggregate revolving commitments and the borrowing base, (b) the lesser of $7.5 million and the PP&E Component as defined in the Credit Agreement, and (c) $3.5 million, for three consecutive business days. During a Covenant Testing Period, the Credit Agreement requires the Company to maintain a fixed charge coverage ratio as defined in the Credit Agreement, determined for any period of twelve (12) consecutive months ending on the last day of each fiscal quarter, of at least 1.00 to 1.00.

Letter of Credit Cash Collateralization Promissory Note

On August 25, 2021, Charah, LLC issued a Secured Promissory Note (the “Promissory Note”), as the borrower, in favor of B. Riley Commercial Capital, LLC, as the noteholder (the “Noteholder”), evidencing a loan in aggregate principal amount of $17.9 million made by the Noteholder to Charah, LLC. The loan outstanding under the Promissory Note bears interest at a rate of eight percent (8%) per annum and matures on the thirteen month anniversary of the effective date of the Promissory Note. The proceeds of the Promissory Note will be used by the Company and its subsidiaries to collateralize the Company's existing letters of credit issued through Bank of America, N.A., and will be repaid as such cash collateral is released to the Company or Charah, LLC, as applicable. Outstanding letters of credit were $17.5 million and $11.1 million as of September 30, 2021 and December 31, 2020. The cash paid to Bank of America, N.A. is recognized as a deposit within prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets.

Credit Agreement

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

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

•A commitment to loan up to a further $25.0 million in term loans, which expired 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”).

~~The Revolving Loan provides a principal amount of up to $50.0 million, reduced by outstanding letters of credit. As of June~~During the three months ended September 30, 2021, ~~$12.8 million was outstanding on~~using the ~~Revolving Loan,~~proceeds from the Notes, along with cash from the sale of equity to B. Riley, to fully repay and ~~$17.5 million of letters of credit were outstanding.~~

~~Commitment amount). Further, the margin of interest charged on all outstanding loans was increased to 4.00% for loans based on LIBOR and 3.00% for loans based~~principal on the alternative base rate. The Second Amendment revised the amount of (i) the commitment fees to 0.35% at all times for the unused portions of the Credit Facility and (ii) fees on outstanding letters of credit to 3.35% at all times. The Second Amendment also added a requirement to make two additional scheduled prepaymentsClosing Date Loan, $12.3 million of outstanding loans ~~under~~on the ~~Credit Facility, including a payment~~Revolver and $2.0 million of $50.0 million on or before September 13, 2019 and an additional payment of $40.0 million on or before March 31, 2020. The $50.0 million payment was made before September 13, 2019, using proceeds of the Brickhaven deemed termination payment. The Second Amendmentpreviously accrued fees required the Company 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 before the effectiveness of the Second Amendment, and this fee was paid on August 16, 2020.

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

The Third Amendment increased the maximum amount available to be borrowed under 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 regarding 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 move the maturity date for all loans under the Credit Facility to July 31, 2022 (the “Maturity Date”). Also, if at any time after August 13, 2019, the outstanding principal amount of the Delayed Draw Term Loans exceeds $10.0 million, we will incur additional interest at a rate equal to 10.0% per annum on all daily average amounts exceeding $10.0 million payable at March 31, 2020 and at the Maturity Date. Further, the Third Amendment requires mandatory prepayments of revolving loans with any cash held by the Company over $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 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 were 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 before 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 was paid on August 16, 2020. We were 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 before 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.

~~In November 2020, the Company entered into Amendment No. 4 to Credit Agreement (the “Fourth Amendment”).~~

Under the terms of the Fourth Amendment, the Credit Facility was amended to revise the required financial covenant ratios such that, after giving effect to the Fourth Amendment, for the periods ending December 31, 2020 through March 30, 2021, we will be required to comply with a maximum consolidated leverage of 5.50 to 1.00, decreasing to 4.80 to 1.00 for the periods ended March 31, 2021 through September 29, 2021, to 4.50 to 1.00 for the periods ending September 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 Fourth Amendment, we will also be required to comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of March 31, 2021, increasing to 1.20 to 1.00 as of June 30, 2021 and thereafter.

~~the Credit Facility and accelerate payment of the previously accrued $2.0 million fee required as consideration for the Third Amendment~~ that was otherwise due and payable on the ~~Maturity Date.~~

~~Our ability to comply with such financial covenants depends on~~maturity date. During the ~~Company’s forecasted leverage~~three and ~~adjusted EBITDA for~~nine months ended September 30, 2021, the applicable periods, which could be adversely impacted by the effects of COVID-19 or other unforeseen factors. Our financial forecasts, which we believe are reasonable given current market conditions, indicate that the Company will be in compliance with all financial covenants through the one-year period following the issuance of these financial statements. Those financial forecasts are highly dependent upon the demand for our byproduct sales, timing in new contract awards and completion of existing work. The current pandemic is making it more difficult to forecast future results, and as a result, it may have a significant impact on the Company’s results of operations, financial position, liquidity or capital resources. These significant risks may also have an adverse impact and cause us not to comply with our financial covenants. If we are not in compliance with our financial covenants, the Company could be required to seek waivers, forbearance or amendments from the Administrative Agent. There can be no assurance that we could obtain such waivers, forbearance, or amendments as any future agreements with the Administrative Agent are not considered in the Company’s control. If we are unable to comply in the future with such financial covenants upon delivery of our financial statements according to the terms of the Credit Facility, an Event of Default (as defined in the Credit Facility) will have occurred. 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.

~~In accordance with ASC 470,~~ ~~Debt~~, the Company calculated the present value of the cash flows for purposes of applying the 10% 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 $1.6 million that will be amortized prospectively through interest expense, net in the accompanying unaudited condensed consolidated statements of operations using the effective interest method through the Maturity Date. Fees payable to the lenders (as discussed above) of $5.2 million 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 ~~$3.4~~$0.6 million as a result of this refinancing, which is included in loss on extinguishment of debt in the accompanying unaudited condensed consolidated statements of operations. The Company also calculated the present value of the cash flows for purposes of applying the 10% cash flow test for the Fourth and Fifth Amendments and concluded that the original and new debt instruments were not substantially different, necessitating that the Fourth and Fifth Amendments be accounted for as modifications.

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~~September 30, 2021, we had ~~$20.0~~$19.1 million of equipment notes outstanding. Each of the Equipment Financing Facilities includes non-financial covenants, and, as of ~~June~~September 30, 2021, we were in compliance with these covenants.

Series A Preferred Stock

~~As a condition to the Third Amendment,~~In March 2020, 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 $0.01 per share (the “Preferred Stock”), for net proceeds of approximately $25.2 million in a private placement (the “Preferred Stock Offering”). The Preferred Stock had an initial liquidation preference of $1,000 per share and pays 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 intends 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 13, Mezzanine Equity, to the accompanying unaudited condensed consolidated financial statements.

Common Stock ~~Issuance~~Issuances

OnIn August 6, 2021, the Company executed a stock purchase agreement with a previously unrelated third party, B. Riley, and issued 2.9 million shares of common stock at $4.50 per share in a private placement for total proceeds of $13.0 million. Pursuant to the terms of the stock purchase agreement, B. Riley entered into an Investor Rights Agreement and appointed one director to the Company's board of directors.

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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 define Adjusted EBITDA as net loss attributable to Charah Solutions, Inc. before income from discontinued operations, net of tax, interest expense, net, loss on extinguishment of debt, ~~impairment expense, interest expense, net,~~ income taxes, depreciation and amortization, equity-based compensation, ~~non-recurring legal costs and expenses~~impairment expense and transaction-related expenses and other items. Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total revenue.

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


		Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
		June 30,						June 30,							September 30,						September 30,
		2021			2020			2021			2020				2021			2020			2021			2020
		(in thousands)													(in thousands)
Net loss attributable to Charah Solutions, Inc.	Net loss attributable to Charah Solutions, Inc.	$	(4,166)		$	(3,536)		$	(5,453)		$	(17,786)		Net loss attributable to Charah Solutions, Inc.	$	(1,677)		$	(4,216)		$	(7,130)		$	(22,002)
Income from discontinued operations, net of tax	Income from discontinued operations, net of tax	—			(3,777)			—			(6,820)			Income from discontinued operations, net of tax	—			(119)			—			(6,939)
Interest expense, net(1)	Interest expense, net(1)	3,314			4,055			6,549			6,914			Interest expense, net(1)	3,541			3,551			10,090			10,465
Loss on extinguishment of debt(1)	Loss on extinguishment of debt(1)	—			—			—			8,603			Loss on extinguishment of debt(1)	638			—			638			8,603
Income tax expense(1)	Income tax expense(1)	72			—			229			—			Income tax expense(1)	203			608			432			608
Depreciation and amortization(1)	Depreciation and amortization(1)	6,169			6,538			12,315			12,864			Depreciation and amortization(1)	6,263			(301)			18,578			12,563
Equity-based compensation(1)	Equity-based compensation(1)	699			530			998			1,255			Equity-based compensation(1)	769			546			1,767			1,801
Impairment expense(1)	Impairment expense(1)	127			—			127			—			Impairment expense(1)	700			6,399			827			6,399
Transaction-related expenses and other items(1)(2)	Transaction-related expenses and other items(1)(2)	277			434			1,247			652			Transaction-related expenses and other items(1)(2)	(73)			436			1,174			1,088
Adjusted EBITDA	Adjusted EBITDA	$	6,492		$	4,244		$	16,012		$	5,682		Adjusted EBITDA	$	10,364		$	6,904		$	26,376		$	12,586
Adjusted EBITDA margin(3)	Adjusted EBITDA margin(3)	10.2		%	8.1		%	13.8		%	5.5		%	Adjusted EBITDA margin(3)	12.3		%	10.9		%	13.2		%	7.6		%

(1)Represents amounts for continuing operations only.

(2)Represents expenses associated with the Amendment to the Credit Facility, non-recurring legal costs and expenses and other miscellaneous items. Negative amounts represent settlement recoveries related to these matters.

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

Off-Balance Sheet Arrangements

We currently have no material off-balance sheet arrangements except for operating leases as referenced within Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Contractual Obligations

As of ~~June~~September 30, 2021, 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 Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Critical Accounting Policies and Estimates

There were no changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, except as noted below.

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Asset Retirement Obligations

The Company has land and structural fill assets with corresponding obligations to restore such assets at the end of its operation. Estimating the future closure and post-closure costs is difficult and requires management to make estimates and judgments because these obligations are over many years in the future. Asset retirement obligations (“ARO”) associated with retiring long-lived assets are recognized as a liability in the period in which a legal obligation is incurred and becomes determinable. The ARO liability reflects the estimated present value of the closure and post-closure activities associated with the Company’s land and structural fill assets. The Company utilizes current retirement costs to estimate the expected cash outflows for retirement obligations.

Inherent in the present value calculation are numerous assumptions and judgments, including the ultimate settlement amounts, inflation factors, credit-adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the land and/or structural fill balance. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value.

Recent Accounting Pronouncements

Please see Note 3, Recent Accounting Pronouncements, to the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report and Note 2, Summary of Significant Accounting Policies, to the consolidated and combined financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 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 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~~September 30, 2021, 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~~September 30, 2021 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.

3840

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

The following risk factor is in addition to the risks and uncertainties described under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 24, 2021. The effects of the events and circumstances described in the following risk factor have the potential to affect our business, financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner.

~~If we are unable to successfully implement~~The U.S. presidential executive order concerning mandatory COVID-19 vaccination for certain U.S. government contractors and the new OSHA vaccine mandate for employers with more than 100 employees could have a material adverse impact on our business ~~plans~~ and ~~strategies, our consolidated~~ results of ~~operations, financial position, liquidity~~operations.

On September 9, 2021, President Biden issued an executive order requiring all employers with U.S. government contracts to ensure that their U.S.-based employees, contractors and ~~ability~~subcontractors that work on or in support of U.S. government contracts are fully vaccinated by December 8, 2021, which deadline is expected to ~~continue as a going concern could~~ be ~~negatively affected.~~

As noted elsewhere in this Quarterly Report on Form 10-Q, the accompanying unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicableextended to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2021, we had total liquidity of $37.9 million, comprised of $18.1 million of cash on hand and $19.8 million availability under the Revolving Loan. As of June 30, 2021, borrowings under the Company’s Credit Facility total $132.8 million and will mature in JulyJanuary 4, 2022. The ~~Company does not have sufficient cash~~executive order includes on-site and remote U.S.-based employees, contractors and subcontractors and it only permits limited exceptions for medical and religious reasons. In addition, on ~~hand~~September 9, 2021, President Biden announced plans for the federal Occupational Safety and Health Administration (“OSHA”) to issue an “Emergency Temporary Standard” (“ETS”) mandating that all employers with more than 100 employees ensure their workers are either fully vaccinated against COVID-19 or ~~available liquidity~~produce, on a weekly basis, a negative COVID test (the "vaccine mandate"). OSHA issued the ETS on November 4, 2021, requiring covered employers to ~~repay~~comply with the ~~maturing credit facility debt as it becomes due within one year after the date of this filing. These conditions and events raise~~vaccine mandate beginning with January 4, 2022 or face substantial ~~doubt about the Company’s ability to continue as a going concern.~~

We have taken, and intend to take, actions to improve our liquidity position and to address the uncertainty about our ability to operate as a going concern, but these actions are subject to a number of assumptions, projections, market conditions and analyses. If these assumptions prove to be incorrect or if market conditions are adversely impacted, wepenalties for non-compliance. Additional, more protective vaccine mandates may be ~~unsuccessful~~announced by the state or local jurisdictions in ~~executing~~which our businesses operate. Although it is not possible to predict with certainty the impact of these measures on our business ~~plans or achieving~~and workforce, these requirements may result in increased costs and attrition, including attrition of critically skilled labor, and difficulty securing future labor needs, and may further disrupt the ~~projected results,~~national supply chain, all of which could ~~adversely impact~~have a material adverse effect on our business, financial ~~results~~condition and liquidity. There are no assurances our actions will prove to be successful or be consistent with our expectations, and therefore, implementation of management’s plans cannot be deemed probable. As a result, our results of ~~operations, financial position and liquidity could be negatively impacted.~~operations.

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

Purchases of Equity Securities

~~The following table provides information about~~There were no repurchases of our common stock during the three months ended September 30, 2021.

Item 5. Other Information

On November 9, 2021, Charah Solutions, Inc. (the “Company”) entered into a new Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein.

The Credit Agreement provides for a four-year senior secured revolving credit facility with initial aggregate commitments from the lenders of $30 million, which includes $5 million available for swingline loans and $25 million available for letters of credit, plus an additional $5 million of capacity available for the issuance of letters of credit if supported by cash collateral provided by the Company (with a right to increase such amount by up to an additional $5 million). Availability under the Credit Agreement is subject to a borrowing base calculated based on the value of certain eligible inventory, accounts receivable and equipment of the Company and subject to redeterminations made in good faith and in the exercise of permitted discretion of JPMorgan. Proceeds of the Credit Agreement may be used, in part, to issue certain letters of credit in replacement of existing letters of credit backstopped by the loans under that certain Secured Promissory Note between Charah, LLC, an indirect subsidiary of the Company, and B. Riley Commercial Capital, LLC, as noteholder, dated August 25, 2021, as well as for working capital and general corporate purposes.

As of November 9, 2021 the Company had no borrowings and no letters of credit outstanding under the Credit Agreement.

The Credit Agreement provides for borrowings of either base rate loans or Eurodollar loans. Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable (i) with respect to base rate loans, monthly and (ii) with respect to Eurodollar loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a Eurodollar loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. Eurodollar Loans bear interest at a rate per annum equal to the Adjusted LIBO Rate for one, three or six months (the “Interest Period”), plus an applicable margin of 2.25%. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Adjusted LIBO Rate loans plus 100 basis points, plus an applicable rate of 125 basis points.

•~~June 30, 2021~~:incur additional indebtedness;

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, 2021 through April 30, 2021 92,548 $ 5.50 — —
May 1, 2021 through May 31, 2021 — — — —
June 1, 2021 through June 30, 2021 — — — —
Total 92,548 $ 5.50
•sell assets;

~~(1)~~•~~Represents shares~~make loans to others;

•make investments;

•enter into mergers;

•make certain restricted payments;

•incur liens; and

•engage in certain other transactions without the prior consent of ~~common stock withheld~~the lenders.

A covenant testing period (“Covenant Testing Period”) is a period in which excess availability (which is defined in the Credit Agreement as the sum of availability and an amount up to $1.0 million), is less than the greater of (a) 12.5% of the lesser of the aggregate revolving commitments and the borrowing base, (b) the lesser of $7.5 million and the PP&E Component (as defined in the Credit Agreement), and (c) $3.5 million. During a Covenant Testing Period, the Credit Agreement requires the Company to maintain a fixed charge coverage ratio (as defined in the Credit Agreement), determined for ~~income tax purposes connected with~~any period of twelve (12) consecutive months ending on the ~~vesting~~last day of ~~shares~~each fiscal quarter, of ~~restricted stock issued~~at least 1.00 to ~~employees.~~1.00.

Certain parties to the Credit Agreement and certain of their respective affiliates have performed in the past, and may from time to time perform in the future, banking, investment banking and/or other advisory services for the Company and its affiliates for which they have received, and/or will receive, customary fees and expenses.

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Item 6. Exhibits


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Charah Solutions, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed June 22, 2018 (File No. 001-38523)).
3.2						Certificate of Designations of Series A Preferred Stock, dated March 16, 2020 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed March 18, 2020 (File No. 001-38523)).
3.3						Amended and Restated Bylaws of Charah Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed June 22, 2018 (File No. 001-38523)).
4.1						Waiver of Right Under Stockholders’ Agreement (CEP Holdings, Inc.) of CEP Holdings, Inc., dated July 9, 2020 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed July 15, 2020 (File No. 001-38523)).
~~10.1~~4.2						Indenture dated as of August 25, 2021, between Charah Solutions, Inc. and Wilmington Savings Fund Society, FSB, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed August 26, 202 1 (File No. 001-38523)).
4.3						First Supplemental Indenture dated as of August 25, 2021, between Charah Solutions, Inc. and Wilmington Savings Fund Society, FSB, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on August 26, 2021 (File No. 001-38523)).
4.3.1						Form of ~~Performance Share Unit Grant Notice (form for grantee with employment agreement)~~8.50% Senior Note due 2026 (included as Exhibit A to Exhibit 4.3 above (File No. 001-38523)).
4.4						Investor Rights Agreement, dated as of August 6, 2021, by and among Charah Solutions, Inc., B. Riley Securities, Inc. and B. Riley Financial, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 9, 2021 (File No. 001-38523)).
10.1						Stock Purchase Agreement, dated as of August 6, 2021, by and among Charah Solutions, Inc. and the purchaser named on Schedule A thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed ~~April 29,~~on August 9, 2021 ~~(File~~(File No. 001-38523)).
10.2						Amendment No. 5 to Credit Agreement and Waiver, dated as of August 3, 2021, among Charah Solutions, Inc. ~~2018 Omnibus Incentive Plan,~~, as ~~amended by First Amendment approved by stockholders June 9, 2021~~borrower, Bank of America, N.A., as administrative agent for the lenders, the lenders party thereto, and the guarantors party thereto (incorporated by reference to Exhibit ~~10.1~~10.2 to the Registrant’s Current Report on Form 8-K filed ~~June 16,~~on August 9, 2021 ~~(File~~(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.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*						Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

___________


*						Filed herewith.
**						Furnished herewith.

4043

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 9,~~November 10, 2021	By:	/s/ Scott A. Sewell
	Name:	Scott A. Sewell
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)


~~August 9,~~November 10, 2021	By:	/s/ Roger D. Shannon
	Name:	Roger D. Shannon
	Title:	Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

4144


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, 2021 through April 30, 2021	92,548	$	5.50	—	—
May 1, 2021 through May 31, 2021	—	—		—	—
June 1, 2021 through June 30, 2021	—	—		—	—
Total	92,548	$	5.50