Charah Solutions, Inc.
Q3 2019 Earnings Call Transcript
Published:
- Operator:
- Good morning ladies and gentlemen. And welcome to Charah Solutions, Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After today’s presentation, we will conduct a question-and-answer session. [Operator Instructions]I would now like to turn the call over to Mr. Tony Semak, Head of Investor Relations for Charah Solutions. Please go ahead.
- Tony Semak:
- Thank you, operator. Good morning, everyone, and thank you for joining us today. We appreciate your participation in our third quarter 2019 financial results conference call. And we look forward to sharing with you our prepared remarks and answering your questions.We hope you had a chance to review the press release we issued yesterday after the market closed, but if not, you could find the press release as well as the supplemental investor presentation on the Investor section of our website at www.charah.com or ir.charah.com.Joining me today on the call are Scott Sewell, our President and Chief Executive Officer; and Roger Shannon, Chief Financial Officer and Treasurer.Following their prepared remarks, we will conduct the customary question-and-answer session and continue the dialogue.Before we begin, I’d like to remind you that our remarks regarding Charah Solutions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and conference calls.Those risks include, among other things, matters that we have described in our earnings release as well as in our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During this conference call, we will refer to non-GAAP financial measures. We provide reconciliations to the applicable GAAP measures in our earnings release, supplemental presentation and on our website.Again, we want to thank you for joining us today. And now I’d like to turn the call over to Scott Sewell, our President and CEO. Scott?
- Scott Sewell:
- Thanks, Tony. Good morning, everyone. And thank you for choosing to participate in our call today. I'm delighted to report on the operational improvements we've made since we last spoke following the second quarter of this year. I’ll also share on how we've demonstrated success in executing our growth strategy and reducing our debt as anticipated.Our entire leadership team has spent a considerable time and effort to reach our corporate objectives and the accomplishments I'll describe to you shortly will help illustrate the results of that work and how we’ve become better positioned to achieve our performance targets in 2020 and beyond.This morning, I'll briefly review our financial results and provide an update on current business developments, including a review of our significant accomplishments, an update on our pipeline of opportunities, our technology initiatives, and recent regulatory and legislative actions.I'll then transition the call to Roger for a deeper dive into our financial performance during the quarter, and discussion around our financing, activities and our 2019 guidance and 2020 outlook.Revenue decrease 35% as compared to the third quarter of 2018, primarily driven by project completions within the remediation of compliant services component of our environmental solutions segment. Including the completion of the Brickhaven project resulting from the deemed termination, coupled with a decrease in revenue value of projects won and awarded in 2018.This decline was partially offset by an overall net increase in revenue from our byproduct sales offerings. Revenue also declined within our maintenance and technical services segment, though to a lesser extent, due to a reduced scope of nuclear out services and fewer outages partially offset by an overall net increase in revenue from our fossil service offerings.Gross profit declined as well driven by the decrease in revenue in our environmental solutions segment, due to the early termination of the Brickhaven project, and the roll-off of other remediation and compliance services contracts.Along with losses related to one project specific issue continuing from the first quarter of 2019, partially offset by a net overall increase in gross profit from byproduct sales. However, gross profit increased our maintenance and technical service segment due to primarily higher gross profit from our fossil service offerings, partially offset by a reduced scope of nuclear outages and fewer outages in the period.On August 30, 2019, we announced that we reached an agreement related to the early termination of the contract or Charah’s Brickhaven location. In connection with the settlement, our customer agreed to pay Charah $80 million consistent with our previously communicated expectations we received the payment and applied $50 million of proceeds to the reduction of our term loan consistent with our prior guidance, with the balance applied to our revolving credit agreement.Next, I’ll review several vital accomplishments during the quarter that demonstrate the success of our growth strategy. Most notably, we are on a strong pace in business development activities having now won approximately $385 million in new awards year-to-date. Additionally, we have more than $300 million in verbal awards currently under negotiation.Our year-to-date success rate in winning awards under contract based on total project revenue is approximately four times higher than the year ago period. These awards include multiple new contracts, as well as contract extensions that have expanded our customer base. We continued to make progress and receive keen interest on our MP618 ash beneficiation technology from utility customers, both domestically and internationally.And we hope to convert this interest into award soon. We reduced our total debt significantly because it's consistent with our prior guidance. And we continued to receive awards and recognitions for excellent safety performance, which further demonstrates our commitment to our employees and our customers. We have faced a few challenging quarters as our business transitions towards competing for contracts with increased complexity and scope. However, we believe that we are positioning ourselves to take advantage of current developments.I’ll discuss elements of these developments in a bit more detail. We believe Charah Solutions will be a key environmental solutions player over the coming decade. We believe, we are very well positioned to benefit from the market and regulatory momentum for responsibly recycling and remediating coal ash.More than 1000 ash pounds in landfill store require EPA mandated closure or remediation rating and estimated $75 billion in coal ash remediation opportunities in the US. And we believe, we are well positioned to be a leading provider for those services. We also continue to see regulatory and public policy trends is increasingly driving customer needs for creative remediation solutions, including for beneficiation where recycling of ash plays a significant role. We continue to believe that our MP618 ash beneficiation technology positions us well to capitalize on this opportunity.Though there have been delays in announcing new business awards over the past couple of years, we expect the size of utility RFPs to increase over the coming periods. Our total bid submitted year-to-date are well above the year ago period. And we expect to be around four times above the year ago period and dollar value under signed contracts won by the end of the year.Further, increasing complexity and scope of pending project opportunities are also increasing our future growth potential. These upcoming opportunities continue to be weighted more heavily toward our environmental solutions segment. We have secured approximately $385 million in new awards here today. Additionally, we have more than $300 million in verbal awards currently under negotiation. We continue to expect the conversion of these verbal awards into contractual works during the remainder of 2019. We expect the combination of new awards generated year-to-date and verbal awards under negotiation to result in our most active business development year on record.With our ability to write custom solutions that combine our market leading ash management capabilities, and our proprietary beneficiation technologies, along with a regulatory environment, increasingly conducive to our business, we believe, we are ideally positioned to expand our revenue generating potential. While our highest priority will always be our commitment to safety, we are intensely focused on capturing a significant share of profitable growth opportunities.Next, I’ll provide an update on developments and our technology initiatives. Our thermal beneficiation technology known as MP618 is continuing to gain a strong positive reception from utility customers. But what excites me most about this proprietary technology is that it enables us to transform coal ash waste into beneficial use products in an economical and environmentally friendly manner. It is compelling to our utility customers, while meeting the high demand from the ready mix concrete market for purposes of making stronger, more durable concrete for the construction of buildings, roads and bridges.We are holding discussions with utility customers to begin deploying this technology in their businesses. And we are also in discussions with interested international customers to deploy this technology. While our technology rollouts have been slower than previously anticipated, we continue to expect the MP618 technology initiative to be a key growth driver for our byproduct sales business.We continue to see a trend in coal ash regulation toward more prescriptive approaches at the state level that dictate the means and methods, for ash pond closures that are required at a federal level.States like Kentucky, South Carolina, and North Carolina, Virginia, Oklahoma, Missouri, Indiana and Illinois, have already developed their own rules for coal ash management and some utility customers in other states are proceeding with coal ash closure plants more proactively, which we expect will contribute to the anticipated growth and new work awards in the coming quarters.As we've discussed in prior quarters, we continue to see much discussion and reporting of potential groundwater contamination at or near coal plants, and ash disposal sites. The widespread reporting on this issue is another example of growing environmental concerns about this issue, which could result in remediation plans that create opportunities for Charah to provide them environmentally friendly solutions.At the federal level, due to the prompting of the DC Circuit Court of Appeals in 2018, the EPA has released proposed amendments to its 2015 coal combustion residuals or CCR regulations that change the criteria for clean closure from a size-based approach to a location based approach.This means closure determinations will be based on the risk to waterways and groundwater contamination, rather than the tonnage. The current period is underway, and a final ruling could be established by year end.Earlier this month, the EPA also proposed additional revisions to the 2015 CCR rule, that include a change in a classification of clay-lined and soil-lined surface impediments to unlined, which requires closure and brings forward the deadline for unlined or failing CCR units to stop receiving ash and initiate closure to August 31 2020, from October 31 2020.These and other recent examples reinforce our expectation for regulatory and public policy trends to increasingly drive customer needs for creative remediation solutions, including where beneficiation plays a significant role. We believe, our ability to bundle our proprietary technologies with more traditional remediation approaches puts us in a strong competitive position to develop these creative and cost effective solutions.Growing concerns about potential ground water contamination could prompt actions in other states to require clean closure. Also, approaching regulatory deadlines, are likely to increase utilities focus on developing their compliance plans. These developments have been key drivers in our expanding pipeline of opportunities and further support our confidence in the future of our business.With that, I'll turn it over to Roger to provide a review of our financial results.
- Roger Shannon:
- Thanks, Scott. Now I’ll continue with a review of our financial results and provide an update on our balance sheet and liquidity and review our 2019 guidance and 2020 outlook before turning it back to Scott for closing remarks.Revenue for the third quarter decreased $64.9 million or 35% from the year ago period to $121.1 million driven by project completions within our remediation and compliance services component, including the completion of Brickhaven project during the first quarter of 2019, resulting from the previously discussed deemed termination and a decrease in the value of project one in 2018, and to a lesser extent by fewer nuclear refueling outages and a reduced scope of nuclear outages.Gross profit decreased $12.8 million to $13.9 million during the quarter, while gross margin declined to 11.4% from 14.4% in the same period last year. These declines were driven primarily by project completions and our environmental solutions segment, and to a lesser extent by increased costs associated with a project specific issue that continued from the second quarter.As we have previously discussed, the circumstances giving rise to these costs are isolated and have no relation with any other current or anticipated projects. We reported a GAAP net loss for the quarter of $2.3 million as compared to a net loss of $16.5 million in the year ago period. The decline in the net loss was primarily attributable to an $18.5 million decrease in G&A expenses, and a $13.2 million decrease in interest expense, partially offset by lower gross profit.Our G&A expenses were $14.1 million in the last quarter compared to $32.6 million in the year ago period. The reduction was due primarily to non-recurring charges during the year ago period, associated with legal costs.Interest expense was also lower as compared to the year ago period, primarily as a result of term loan interest declining following the refinancing of the term loan debt in September 2018. We recognized a $1.1 million income tax benefit in the current quarter as compared to a $5.7 million income tax benefit a year ago.Q3 adjusted EBITDA of $5.6 million was down $26.9 million from a year ago period, due primarily to lower gross profit, offset slightly by decrease in recurring G&A expenses. CapEx in the quarter was approximately $2 million down from the $6.5 million during the year ago period, primarily as a result of slower than anticipated rollouts of our technology initiatives, and an increase in lease financing activity.Now I’ll discuss results and our reporting segment level. In our environmental solution segment, revenue decreased $57.8 million, or 56% to $46 million. Remediation and compliance services revenue declined $16.6 million due to the net impact for remediation contracts rolling off and a decrease in the value of projects one in 2018, while byproduct sales accounted for a $2.8 million increase in segment revenues.Gross profit for the segment decreased $13.1 million to $6.8 million, and gross margin declined to 14.8% from 19.1%. Most of the decline in gross profit and gross margin in this segment was attributable to the previously mentioned projects rolling off and the project specific issue at one remediation side.In our maintenance and technical services segment, revenue decrease $7.1 million or 9% to $75.1 million. In our nuclear services business, we had refueling outages underway, but none completed as compared to one refueling outage completion in the third quarter of 2018.Year-to-date through September 30, we have completed six outages compared to eight outages during the year ago period. The 2019 outages were also reduced in scope relative to 2018 as we anticipated. As expected, these factors led to lower nuclear services revenue for the quarter, as compared to last year.The decrease in nuclear services revenue was partially offset by increased fossil services revenue. Maintenance and technical services gross profit increased approximately $200,000 or 3% to $7 million as a result of higher gross profit in the fossil services business, partially offset by lower gross profit from the nuclear services segment. Maintenance and technical services gross margins increased to 9.4% from 8.3%.Now turning to our balance sheet and liquidity. At September 30 2019, we had gross consolidated debt of $199.3 million, which is a decrease of approximately $72 million from the prior quarter, and a decrease of $54.8 million from year-end 2018 levels. Proceeds from the Brickhaven deemed termination payments were used to reduce our term loan balance by $50 million, with the remainder applied toward our line of credit. Our liquidity was approximately $40.4 million as of September 30 2019, down from $50 million at the end of the fourth quarter of 2018.Next, I'll address our 2019 guidance. As detailed on slide 15 of our presentation, we are tightening our 2019 guidance ranges for revenue, net income attributable to Charah Solutions and adjusted EBITDA to reflect better visibility in the full year outcome. The 2019 revenue guidance range has narrowed from the previous range of $510 million to $560 million to a new range of $520 million to $540 million.The net income attributable to Charah Solutions guidance range has narrowed from the loss of $27 million to a loss of $20 million now to be a loss of $26 million to a loss of $24 million.The adjusted EBITDA guidance range is narrowed from $25 million to $30 million now to the $25 million to $27 million. Regarding our 2020 outlook, we are affirming our previous outlook of our revenue range of $560 million to $610 million.Our adjusted EBITDA range of $45 million to $50 million and our net income range of $9 million to $14 million as described on slide 16 of our earnings presentation. With respect to technology CapEx, the rollout of slag grinding technologies is at our discretion and driven by our assessment of market conditions while the MP618 technology rollout is customer driven. As Scott noted, we’re seeing strong interest by potential utility customers and we are optimistic that we will soon be able to announce contracts.With that, I’ll now turn the call back over to Scott.
- Scott Sewell:
- Thanks Roger. As I conclude, I want to emphasize again that we believe Charah Solutions is strongly positioned in its ability to deliver a full suite of coal ash management and recycling, byproducts sales, environmental remediation and outage maintenance services to the power generation industry. So we believe, we're in an ideal position to capitalize on the growing list of opportunities as we partner with customers to bring customized solutions to their complex environmental challenges.The current market opportunity is the largest in our company's history. Market and regulatory dynamics remain favorable. We're currently winning new awards at a record pace, and our significant interest in our MP618 fly ash beneficiation technology, which should facilitate larger bundled projects.And as we pursue our expanding pipeline of opportunities, we are committed to making further adjustments to improve our operating efficiency, reduce our debt levels and increase our operating margin potential. We remain convinced of the opportunities for our business and our ability to grow our company and capture additional market share. Our industry leading track record for quality, safety and compliance continues. And there is an extraordinary amount of available work to be done. So I'm very enthusiastic about our future. I'm also optimistic about Charah Solutions ability to deliver attractive value to our shareholders, particularly given our compelling peer group valuation comparisons, and significant investor awareness growth potential. I believe, the strategic and corporate action plans we already have underway to strengthen our business should put us in a strong position to capitalize on the substantial opportunities we have before us, and confirm the confidence our shareholders have placed in us.With that operator, let's open it up to questions.
- Operator:
- [Operator instructions] Your first question comes from the line of Toni Kaplan with Morgan Stanley.
- Toni Kaplan:
- Thank you. You mentioned that your win rate is higher than last year. Could you just talk about what the reasons might be that are driving that? Are there any changes in strategy that you’d call out that's driving this success?
- Scott Sewell:
- Sure. Good morning, Tony. This is Scott. Good question. And I think, we are really now rounding the turn. I know we've talked about delay and timing of awards and everything else here for the last several quarters. And we're very excited to be, really communicating some big awards. And really what we see is potentially the largest year on, on record for Charah Solutions in backlog generation. And that, that win rates really, really driven by a more disciplined bit approach, from our perspective, kind of coupled with, just the release of awards and work from our customers right now. So really, all good things happening on our side here right now. So we're really excited to be talking about that.
- Toni Kaplan:
- Okay. Great. And then, you mentioned some cost savings initiatives that you're implementing next year to get you to the 320 basis points of margin expansion at the midpoint of the guidance. How much of the expansion is from the cost savings initiatives versus how much from the three projects that you identified and versus how much from other factors you're trying to get a breakdown? Thanks.
- Scott Sewell:
- Sure, Tony. And I'll let Roger expand on anything here that that I miss. But really if you think about it, kind of in and kind of those big buckets not sure if we can go into exact percentages of where we see that, that margin increase coming from on the call, but really, the major movements are, our shift in, in business, we see a predominantly large shift to the environmental solution side of our business, which is again is that higher margin business, especially as we talk about a lot of the regulatory tailwinds, as well as the big pipeline that we're seeing, everything else really exciting us about the inner side of the house. So seeing growth in that area is going to help increase margins into next year, as well as a lot of the initiatives that we've taken place, that have taken place. Starting in 2019, from a cost savings perspective, whether it be at the SG&A level or at the project level, and seeing those results really come through in 2020.Roger, not sure if there's anything you want to expand on that?
- Roger Shannon:
- Sure. Just add to that, a little the you know as we've discussed last quarter, we had some gross margin impact from an adjustment to the amount we received from Brickhaven termination. So we see margin expansion going into 2020, as Scott said, from an increasing shift to our environmental solutions business.We did start taking very, concrete and rapid steps to right size our G&A middle of the year going into the end of this year, those initiatives continue. We still have a number of initiatives on the forefront that will continue to the end of this year beginning of next year, getting to the run rate that we're targeting, going toward the end of next year of call it a 7% to 8% G&A as a percentage of revenue, on a cash basis.
- Toni Kaplan:
- Perfect. One last one from me, just read a number of articles around the EPA relaxing regulations around coal ash and even exempting some utility operators from the Obama era regulations. I guess, how should we be thinking about the risk to the business from that or risk to the addressable market from those relapsed and the regulations? Thank you.
- Scott Sewell:
- Sure Tony, good question. And one that, we've gotten here over the last couple of weeks from several folks. And really the way we think about it, is we don't necessarily think about it as a rollback of the existing rules, but rather further clarification of the existing rules. That also kind of pulls in the addition of the more CCR impairments that are intended for closure. So really, we see it kind of kind of the opposite of the way that you presented it, we see it as an opportunity to pull in more of those entitlements into our addressable market that were not there previously.So if you think about it, the rules now require clay line impairments to be considered online impairments. Just kind of further clarification of some of the the rule changes we saw back in 2018. So really, it's just clarifying a lot of things that EPA had signaled previously. We see as a good balance, kind of with equal weighting for environmental and economic objectives out there. So, we really see it as a positive for us.And then also, as we talked to our customers and they're well educated and they understand where they believe the federal regulations are going. A lot of this stuff, they've already started kind of baking into their plans, especially we talked about these large projects out there, they're coming down the pipeline that we're starting to convert right now, a lot of those already took into consideration, some of these we call clarifications that are there in the current rule, so we don't, we don't see it as a risk of the business but more of a positive.
- Toni Kaplan:
- Perfect. Thank you.
- Operator:
- Your next question comes from the line of a Michael Feniger with Bank of America.
- Scott Sewell:
- Good morning, Michael.
- Michael Feniger:
- Good morning, guys. Thanks for taking my question. Just piggybacking off that, sort of update from the EPA on November I guess it’s fifth. I'm just a little confused like I, I get that it's -- it's more stringent. But does it also allow utilities more time to make a decision? Is that also part of the updates from the EPI? I'm just curious, if you could help me -- help us understand that?
- Scott Sewell:
- Yes, sir. There is a little bit of an extension allowed in there for the utilities and decision making process. However, we don't, we don't see that impacting the award rate as we move forward, just based on the projects that we currently have in the pipeline or anything else like that. So and again, that the kind of the time differences are very, minor. So nothing that we see moving the needle in that perspective. You know, more importantly, I think, kind of moreover, more importantly, from our point of view was the you know, the time difference is that weighed significantly in our, from our perspective by the inclusion of all the online ponds out there and really increasing that addressable market.
- Michael Feniger:
- Understood. And I think you mentioned that there were, these three remediation projects that had some issues, and I believe they'll be completed by 2020. What were the exact issues again, and if you could remind us on, your contract structure there, how much of its like costs reimbursable versus fixed?
- Scott Sewell:
- Yes, so for overall for the business, and I think we've been pretty clear on this, probably 90% of our business, including maintenance technical services as well as environmental solutions is either rate or reimbursable in some fashion. So, if you think about our whole suite of services, that's, that's the way we view the business on these three discrete projects and which were actually in the DNS side of the house. I think when you think back to Q1 and Q2 this year, predominantly Q1; we're talking about these events. They had to do a lot with project management and some mistakes that we made on our side. However, they were discreet in that period of time and, and two of those three projects have completed and they completed in that quarter. The third you know will end in 2020. However, there's any of the impacts from 2020 or from the queue, the earlier the previous quarter are not going to roll through into the future from a work in a field perspective.
- Michael Feniger:
- Okay, and then just I guess, I'm just trying to understand it but, with projects becoming larger and more complex, how do we view some of these, these issues that you faced this year with these projects in the context of these projects are now becoming larger and, and more complex?
- Scott Sewell:
- Yes. I think the way we view it, especially when we think about the complexity of the projects, that it's really, I guess, when we're using the term complex, it's bundling services that we provide that were already on the leader in the industry on. So I think they're complex in nature because we are coupling or bundling multiple services together. However, I think the benefit that we have in these situations that our project management teams are already very well versed in how to handle these types of projects and we’ll continue to see that as we as we move forward.I think also for a contracting structure standpoint, we’ll be very diligent to de-risk the contracts as much as possible as we move forward.
- Michael Feniger:
- Excellent. And then can you help me with the I mean, we can see the implied fourth quarter on the EBITDA side. How should we think about on the -- on the cash flow side, cash from ops and free cash flow in the fourth quarter? And any update on the timeline of debt repayment or schedule? I think, I think there's something in March 2020. Can you just help, give us a reminder there?
- Roger Shannon:
- Sure, Michael, it's Roger. So, we are scheduled to make an additional debt repayment of $40 million by the end of Q1 by 3/31/2020. And we remain on track to do that. From a cash flow perspective, obviously you can see either the cash flow for the quarter. So what we're projecting over Q4 is to essentially be flat on a cash flow basis. We're in -- right now we're in the beginning of the quarter. This quarter, we had gone into outage with from this nuclear outage maintenance side that requires some cash flow in the first part of the quarter is working capital builds those cycles unwind very quickly, and will unwind really by the end of November. So taking all those into consideration, we expect cash flow to be to be flat for the quarter.
- Michael Feniger:
- Okay, that's, that's helpful. And then just like, on, I think you said 385 million in new awards [ph] your date, do you say that's a record. Just help us how much does that convert actually to, to 2020? And the other question is, as you start doing these new projects in 2020, is that and that just help us understand that I think they're multi-year is it, is it a cash used in the beginning of the project and then it flips positive towards the end. I guess just help us understand, the timeline of that.
- Scott Sewell:
- Sure. And I think Roger and I'll tag team this one, again like the previous couple here. But, if you think about the new awards, yes the 385 and really helped to convert a considerable not more the other 300 between now and the end of the year, it’s going to be a significant on 2020 and beyond. And if the way we look at those projects and the way we framed it, I believe on previous calls, as well as a lot of those projects are will say two to eight years in nature, probably more of a, if you want to split it in the middle, more of a five year average, but a sub segment of those, those projects and to contribute heavily to 2020, and the others are going to help build the foundation for predictable revenue streams in the future years as well.So, it's a really good mix. I'm not sure how to exactly frame the exact contribution of 2020 on this call right now. But I will say when you think about it, there are some significant projects in there that have a two year horizon that will contribute significantly in 2020. And then others that will lay that foundation for a long predictable revenue stream sports.
- Roger Shannon:
- Yes, so it's just to add to that as we think about 2020. It's, really a combination of three things. It's the ongoing projects that have remaining lives of several years that will that are contributing this year, and we've spoken, at least that the issues that we're facing this year are directly a result of projects in 2017 and 2018 getting pushed out. So lower in terms of project awards in those years. We're seeing a very significant pickup this year. I guess a couple of which will even begin to add to revenue at the end of this year, not in material way but be starting in the fourth quarter or have started in the fourth quarter, contribute over the course of 2020. Then there's a projects that have been won this year, the starts contribute in 2020 and then on top of that, there is the pickup and new business that invariably happens each year, as we go throughout the year.Just do you know to address your questions on cash flow, when we look at a project it -- can be certainly there is a little bit of timing mismatch between you paying for different types of costs on the project versus when cash starts to come in from a billing perspective, we're certainly cognizant of that. And we've got some initiatives underway to from a financing perspective to work to bring that back in line to be more neutral from a cash flow perspective. On different projects, there are, often mobilization type economics that help with the deployment.And then there's a part that's incumbent on us to, to manage our CapEx and our own deployment, to kind of minimize the disruption to cash flow. So all those things go into the equation for us, as we look to build out these projects, but it's, it's a priority for us as these new projects come online, you have to make sure that we managed to work in capital in a way you to balance the inflows and outflows, balance the risk with those and into manage our working -- sorry, excuse me our capital expenditures efficiently using the existing equipment and how we finance new equipment.
- Scott Sewell:
- And I’ll just piggyback on that with one brief comment that I think you'll see us. We've made a strategic shift you will not see, we've spoken a lot in the last 18 months about projects that had built big upfront capital spends. I think we've taken a strategic shift away from that as we move forward, so you will not see some of these large costs and excess builds like we had on our balance sheet previously, definitely a shift we're making here.
- Operator:
- [Operator Instructions] Your next question comes from the line of a Brian Butler with Stifel.
- Brian Butler:
- Good morning. Thanks for taking my questions.
- Scott Sewell:
- Good morning, Brian.
- Brian Butler:
- Just to put a finer point I think on the 2020 guidance, and understanding kind of where the growth is coming from. So midpoint, the midpoint is about 55 million. Can you -- can you just I guess you talked about it, but just put a make it a little clearer on how much of that is from contracts already awarded? How much is from the verbal contracts and how much is from I guess, contracts to be won? I’m just trying to understand what, kind of risk to those expectations are out there?
- Scott Sewell:
- Yes, so I guess the best answer that is say, just to repeat what you said I think the last quarters we talked about this and as these projects continue to, to get booked. The -- we said the wording the substantial piece of our 2020 guidance is, is underpinned by existing business awards under contract and in business that we have a very high degree of confidence in, so we've, we talked last quarter, started about how we, you know, think about this guidance methodology. So, you know really nothing out there from a from a blue sky perspective and you know minimizing the, the what we call the go get that substantially underpin to very high percentage by existing business and very high confidence business.
- Brian Butler:
- Okay, I mean substantial that like 80% I mean is that ballpark?
- Scott Sewell:
- We don't -- I can't really go there in terms of giving that number out. It is -- it is a high percentage. I understated you are looking for that number, but it's not something we've historically given out.
- Brian Butler:
- Okay, I mean, you got to put an outlook there and people are just trying to understand how much is, you know, that confidence level. And I get an -- substandard is, a metric. But that's what I'm struggling with. I guess on the outlook for EBITDA for 2020. That's another $21 million. And you talked about the margin on the cost savings and G&A. So that sounds like, that's about $9 million to $10 million. So the call it $10 million to $11 million is coming from the shift in growth in the ES business. Is that, is that correct?
- Scott Sewell:
- That's correct.
- Brian Butler:
- Okay. And did you give out… Go ahead.
- Scott Sewell:
- Margin expansion and growth in the ES business, like you said.
- Brian Butler:
- Right. And that split though, is about right. It's about 50
- Scott Sewell:
- It's slightly more weighted to the to the gross margin side. Because we, we've got like we talked about earlier on the call. And last quarter, we've got these weaker projects that are rolling off. We have new projects rolling on. These projects we talked about that have been a drag on margin. So at -- your model, I'd weigh it were slightly heavily toward gross margin improvement. But also, with obviously with their contribution you mentioned from G&A saves.
- Brian Butler:
- Okay, and then just lastly, I apologize if I missed this, did you give a win rate on the 385 million of new awards?
- Scott Sewell:
- We did not give a win rate. I think always said specific to that is that it's both the win rates as well as the value exceed previous levels.
- Brian Butler:
- Okay, thank you for taking my questions.
- Scott Sewell:
- Thanks, Brian.
- Operator:
- We have no further questions. I now turn the call back to Scott for closing remarks.
- Scott Sewell:
- Great. Again, thank you. Just want to thank everybody for joining us today. Hope you found the call very helpful. And we look forward to updating you on our progress in the future, and see many of you on the road again, so have a great day. Thank you very much.
- Operator:
- This concludes today's conference call. You may now disconnect.
Other Charah Solutions, Inc. earnings call transcripts:
- Q3 (2022) CHRA earnings call transcript
- Q2 (2022) CHRA earnings call transcript
- Q1 (2022) CHRA earnings call transcript
- Q4 (2021) CHRA earnings call transcript
- Q3 (2021) CHRA earnings call transcript
- Q2 (2021) CHRA earnings call transcript
- Q1 (2021) CHRA earnings call transcript
- Q4 (2020) CHRA earnings call transcript
- Q2 (2020) CHRA earnings call transcript
- Q1 (2020) CHRA earnings call transcript