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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 September 30, 2021
or
☐ 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 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 NINE MONTHS ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS
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i

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.
ii

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CHARAH SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except par value amounts)
(Unaudited)
September 30, 2021 December 31, 2020
Assets
Current assets:
Cash and cash equivalents $ 22,400  $ 24,787 
Restricted cash 48,653  4,424 
Trade accounts receivable, net 44,059  46,609 
Receivable from affiliates —  182 
Contract assets 23,511  18,329 
Inventory 5,558  5,917 
Income tax receivable 29  260 
Prepaid expenses and other current assets 7,581  5,287 
Total current assets 151,791  105,795 
Property and equipment, net 64,387  49,470 
Goodwill 62,193  62,193 
Intangible assets, net 60,701  61,426 
Equity method investments 7  831 
Other assets 8,444  1,245 
Total assets $ 347,523  $ 280,960 
Liabilities, mezzanine equity and stockholders’ equity
Current liabilities:
Accounts payable 26,104  15,613 
Contract liabilities 14,145  6,295 
Capital lease obligations, current portion 5,156  2,199 
Notes payable, current maturities 25,533  22,308 
Asset retirement obligations, current portion 32,181  2,043 
Accrued liabilities 21,723  34,937 
Other current liabilities —  935 
Total current liabilities 124,842  84,330 
Deferred tax liabilities 800  368 
Contingent payments for acquisitions 1,950  1,950 
Asset retirement obligations 17,786  3,116 
Line of credit —  12,003 
Capital lease obligations, less current portion 10,587  4,485 
Notes payable, less current maturities 135,573  124,969 
Other liabilities 1,845  2,000 
Total liabilities 293,383  233,221 
Commitments and contingencies (see Note 18)
Mezzanine equity
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
Retained losses (95,995) (88,865)
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 116,088  108,471 
Total stockholders’ equity
20,427  19,906 
Non-controlling interest 275  410 
Total equity 20,702  20,316 
Total liabilities, mezzanine equity and stockholders’ equity
$ 347,523  $ 280,960 
See accompanying notes to condensed consolidated financial statements


1

CHARAH SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
  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.


2

CHARAH SOLUTIONS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)

For the Three 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, June 30, 2021 26,000  $ 31,141  30,518,917  $ 305  $ 104,442  $ (94,318) $ 10,429  $ 319  $ 10,748 
Net (loss) income
—  —  —  —  —  (1,677) (1,677) (44) (1,721)
Issuance of common stock —  —  2,888,889  29  12,971  —  13,000  —  13,000 
Distributions —  —  —  —  —  —  —  —  — 
Share-based compensation expense —  —  —  —  769  —  769  —  769 
Shares issued under share-based compensation plans —  —  —  —  —  —  —  —  — 
Taxes paid related to the net settlement of shares
—  —  —  —  —  —  —  —  — 
Deemed and imputed dividends on Series A Preferred Stock
—  148  —  —  (148) —  (148) —  (148)
Series A Preferred Stock dividends
—  2,149  —  —  (1,946) —  (1,946) —  (1,946)
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 September 30, 2020
Mezzanine Equity Permanent Equity
  Preferred Stock (Shares) Preferred Stock (Amount) Common Stock (Shares) Common Stock (Amount) Additional Paid-In Capital Retained
Losses 		Total Non-Controlling
Interest 		Total
Balance, June 30, 2020 26,000  $ 24,549  29,985,763  $ 300  $ 85,380  $ (50,788) $ 34,892  $ 570  $ 35,462 
Net (loss) income
—  —  —  —  —  (4,216) (4,216) 693  (3,523)
Distributions —  —  —  —  —  —  —  (327) (327)
Share-based compensation expense —  —  —  —  614  —  614  —  614 
Shares issued under share-based compensation plans —  —  —  —  —  —  —  —  — 
Taxes paid related to the net settlement of shares
—  —  —  —  —  —  —  —  — 
Issuance of Series A Preferred Stock, net of issuance costs —  (10) —  —  —  —  —  —  — 
Deemed and imputed dividends on Series A Preferred Stock
—  997  —  —  (147) —  (147) —  (147)
Series A Preferred Stock dividends
—  —  —  —  (877) —  (877) —  (877)
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.


3

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 Nine Months Ended September 30, 2020
Mezzanine Equity Permanent Equity
  Preferred Stock (Shares) Preferred Stock (Amount) Common Stock (Shares) Common Stock (Amount) Additional Paid-In Capital Retained
Losses 		Total Non-Controlling
Interest 		Total
Balance, December 31, 2019
—  $ —  29,622,835  $ 296  $ 85,187  $ (33,002) $ 52,481  $ 792  $ 53,273 
Net (loss) income
—  —  —  —  —  (22,002) (22,002) 1,180  (20,822)
Distributions
—  —  —  —  —  —  —  (1,036) (1,036)
Share-based compensation expense
—  —  —  —  2,084  —  2,084  —  2,084 
Shares issued under share-based compensation plans —  —  426,852  4  (4) —  —  —  — 
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  24,253  —  —  —  —  —  —  — 
Deemed and imputed dividends on Series A Preferred Stock —  1,283  —  —  (314) —  (314) —  (314)
Series A Preferred Stock dividends
—  —  —  —  (1,846) —  (1,846) —  (1,846)
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.


4

CHARAH SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
  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.


5

Supplemental Disclosures and Non-cash investing and financing transactions
The following table summarizes additional supplemental disclosures and non-cash investing and financing transactions:
  Nine Months Ended
September 30,
  2021 2020
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 5,386  10,349 
Cash paid during the period for taxes 831  779 
Supplemental disclosures and non-cash investing and financing transactions:
Gross proceeds from the line of credit $ 73,817  $ 90,326 
Gross payments on the line of credit (85,820) (83,659)
Sale of structural fill asset through a sales-type lease 6,000  — 
Proceeds from the sale of equipment in accounts receivable, net 1,252  — 
Series A Preferred Stock dividends payable included in accrued expenses 1,946  877 
Deemed and imputed dividends on Series A Preferred Stock 443  — 
Equipment acquired through capital leases 11,980  — 
Changes in property and equipment included in accounts payables and accrued expenses 205  676 
Sale of equipment through the issuance of a note receivable —  1,450 
Debt issuance costs included in accounts payable and accrued expenses 1,019  — 
As reported within the unaudited condensed consolidated balance sheet:
Cash and cash equivalents $ 22,400  $ 30,006 
Restricted cash 48,653  9,161 
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.


6
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”), 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.
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”).
7
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 nine months ended 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 two reporting units, two operating segments and two 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 two 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 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 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 recognized as a component of operating income in the consolidated statements of operations. As of September 30, 2021, we do not expect the remaining liability balance of $1,950 to be paid 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.
8
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 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.

9
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 $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 nine months ended September 30, 2021, respectively. The Company had receivables outstanding from Allied of $23 and $120 at 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 nine months ended 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 Nine Months Ended
  September 30, 2020 September 30, 2020
Revenue $ 55,599  $ 249,794 
Cost of sales (51,890) (234,655)
Gross profit 3,709  15,139 
General and administrative expenses (2,810) (5,878)
Operating income 899  9,261 
Interest expense, net(a)
(780) (2,322)
Income from discontinued operations before income taxes 119  6,939 
Income tax expense —  — 
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
  September 30, 2020
Cash and cash equivalents:
Cash, cash equivalents and restricted cash - continuing operations $ 38,834 
Cash, cash equivalents and restricted cash - discontinued operations 333 
Total cash and cash equivalents $ 39,167 

10
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:
  Nine Months Ended
  September 30, 2020
Cash flows from discontinued operating activities:
Depreciation and amortization $ 633 
Loss on disposal of property and equipment 45 
Non-cash shared-based compensation 283 
Cash flows from discontinued investing activities:
Purchase of property and equipment $ 95 
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
11
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 initially classified as held for sale was subsequently sold to third parties 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 Nine Months Ended
September 30, September 30,
  2021 2020 2021 2020
Byproduct sales $ 22,368  $ 22,940  $ 56,910  $ 66,101 
Construction contracts 48,176  21,590  99,828  51,784 
Services 13,617  18,586  43,048  48,812 
Total revenue $ 84,161  $ 63,116  $ 199,786  $ 166,697 
  Three Months Ended Nine Months Ended
September 30, September 30,
  2021 2020 2021 2020
United States $ 84,161  $ 63,045  $ 199,786  $ 165,780 
Foreign —  71  —  917 
Total revenue $ 84,161  $ 63,116  $ 199,786  $ 166,697 
As of September 30, 2021, the Company had remaining performance obligations with an aggregate transaction price of $491,066 on construction contracts for which we recognize revenue over time. We expect to recognize approximately 13% of our remaining performance obligations as revenue during the remainder of 2021, 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 September 30, 2021. As of September 30, 2021, there were $4,837 of unapproved change orders associated with project scope changes included in determining the profit or loss on certain construction contracts, of which $1,732 were approved subsequent to quarter-end.

12
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 Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Balance, beginning of period $ 558  $ 249  $ 467  $ 146 
Add: provision
—  5  139  124 
Less: deduction and other adjustments
(53) (2) (101) (18)
Balance, end of period $ 505  $ 252  $ 505  $ 252 
Property and equipment, net
The following table shows the components of property and equipment, net:
September 30, 2021 December 31, 2020
Plant, machinery and equipment $ 64,612  $ 68,308 
Structural fill site improvements 55,760  55,760 
Vehicles 11,863  12,824 
Office equipment 600  582 
Buildings and leasehold improvements 267  262 
Land, land improvements and structural fill sites 15,439  432 
Capital lease assets 18,644  6,627 
Construction in progress 764  1,961 
Total property and equipment
$ 167,949  $ 146,756 
Less: accumulated depreciation (103,562) (97,286)
Property and equipment, net
$ 64,387  $ 49,470 
Land, land improvements and structural fill sites includes $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 nine months ended September 30, 2021, the Company capitalized $1,365 and $2,395, respectively, of demolition costs and sold scrap with a cost basis of $1,003 and $1,342, respectively.
Depreciation expense was $4,289 and $4,594 for the three months ended September 30, 2021 and 2020, respectively, and $12,657 and $13,306 for the nine months ended 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
13
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:
September 30, 2021 December 31, 2020
Capital lease assets $ 18,644  $ 6,627 
Less: accumulated depreciation (2,374) (368)
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. 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:
September 30, 2021
Lease receivable $ 5,953 
Less: current portion in prepaid expenses and other current assets (64)
Non-current portion in other assets $ 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
14
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:
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:
September 30, 2021 December 31, 2020
Accrued expenses $ 16,602  $ 19,323 
Accrued working capital adjustment for the Allied Transaction —  6,954 
Accrued payroll and bonuses 2,028  7,227 
Accrued preferred stock dividends 1,946  1,356 
Accrued interest 1,147  77 
Accrued liabilities
$ 21,723  $ 34,937 
Asset Retirement Obligations
The Company owns one structural fill site with continuing maintenance and monitoring requirements after its closure and four tracts of real property with decommissioning, remediation and monitoring requirements. As of September 30, 2021 and December 31, 2020, the Company has accrued $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.

15
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
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 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: 
September 30, 2021 December 31, 2020
Current assets $ 14  $ 1,812 
Noncurrent assets —  282 
Total assets $ 14  $ 2,094 
Current liabilities —  432 
Equity of Charah 7  831 
Equity of joint venture partner 7  831 
Total liabilities and members’ equity $ 14  $ 2,094 

Summarized financial performance of our equity method investment entity is as follows: 
  Three Months Ended Nine Months Ended
September 30, September 30,
  2021 2020 2021 2020
Revenue $ —  $ 2,353  $ 555  $ 5,377 
Net (loss) income —  1,252  382  2,495 
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 Nine Months Ended
September 30, September 30,
  2021 2020 2021 2020
Opening balance $ 7  $ 4,851  $ 831  $ 5,078 
Distributions —  (381) (1,015) (1,230)
Share of net (loss) income —  625  191  1,247 
Closing balance $ 7  $ 5,095  $ 7  $ 5,095 
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 $4 and $111 for the three months ended September 30, 2021 and 2020, respectively, and $83 and $205 for the nine months ended September 30, 2021 and 2020, respectively. The Company had no receivables outstanding from ATC at September 30, 2021 and December 31, 2020. The Company had payables and accrued expenses, net of credit memos, due to ATC of $4 and $29 at 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.
16
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 nine months ended 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 $1,974 and $2,215 for the three months ended September 30, 2021 and 2020, respectively and $5,921 and $6,367 for the nine months ended September 30, 2021 and 2020, respectively.
The Company’s intangible assets consist of the following:
  September 30, 2021 December 31, 2020
  Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Definite-lived intangibles
Customer relationships $ 78,942  $ (36,753) $ 42,189  $ 78,942  $ (30,832) $ 48,110 
Indefinite-lived intangibles
Charah trade name 13,316  13,316 
Water rights 5,196  — 
Total 18,512  13,316 
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
17
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 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 $17,852 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
18
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 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”).
Pursuant to the terms of the Credit Facility and its related amendments, all amounts associated with the Revolving Loan and the Term Loan under the Credit Facility were set to mature in July 2022. The interest rates per annum applicable to the loans under the Credit Facility were based on a fluctuating rate of interest measured by reference to, at our election, either (i) the Eurodollar rate, currently LIBOR, or (ii) an alternative base rate. Various margins were added to the interest rate based upon our consolidated net leverage ratio (as defined in the Credit Facility). Customary fees were payable regarding the Credit Facility and included (i) commitment fees for the unused portions of the Credit Facility and (ii) fees on outstanding letters of credit. Amounts borrowed under the Credit Facility were secured by substantially all of the assets of the Company.
The Credit Facility contained various customary representations, warranties, restrictive covenants, certain affirmative covenants, including reporting requirements, and customary events of default.
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 terminate the Credit Facility, the Company paid $114,123 of outstanding principal on the Closing Date Loan and $12,340 of outstanding loans on the Revolver. Further, the Company paid $2,000 of previously accrued fees required as consideration for Amendment No. 3 to Credit Agreement that was otherwise due and payable on the maturity date. During the three and nine months ended September 30, 2021, the Company wrote off unamortized debt issuance costs of $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.

19
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 September 30, 2021 and December 31, 2020: 
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
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
20
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 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 September 30, 2021 and December 31, 2020, the Company had accrued dividends of $997 and $906, respectively, associated with the Preferred Stock, which was recorded at a fair value of $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 September 30, 2021, the liquidation preference of the Preferred Stock was $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 September 30, 2021, the maximum number of common shares that could be required to be issued if converted is 11,438 (eleven million four hundred thirty-eight thousand). The conversion rate is subject to the following customary anti-dilution and other adjustments:
•the issuance of common stock as a dividend or the subdivision, combination, or reclassification of common stock into a greater or lesser number of shares of common stock;
•the dividend, distribution or other issuance of rights, options or warrants to holders of common stock entitling them to subscribe for or purchase shares of common stock at a price per share that is less than the market value for such issuance;
•the issuance of a dividend or similar distribution in-kind, which can include shares of any class of capital stock, evidences of the Company’s indebtedness, assets or other property or securities, to holders of common stock;
•a transaction in which a subsidiary of the Company ceases to be a subsidiary of the Company as a result of the distribution of the equity interests of the subsidiary to the holders of the Company’s common stock; and
•the payment of a cash dividend to the holders of common stock.
On or 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
21
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”).
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
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. On August 19, 2021, the Company terminated the interest rate swap 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 consolidated balance sheet by paying $745 to the counterparty, which represented the fair value of the swap as of the termination date.
     The total amount of gain (loss) included in interest expense, net in the accompanying unaudited condensed consolidated statements of operations was ($11) and $65 for the three months ended September 30, 2021 and 2020, respectively, and $190 and $95 for the nine months ended September 30, 2021 and 2020, respectively.
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:
September 30, 2021 December 31, 2020
Costs and estimated earnings in excess of billings $ 15,395  $ 12,196 
Retainage 8,116  6,133 
Total contract assets $ 23,511  $ 18,329 
Our contract liabilities are as follows:
September 30, 2021 December 31, 2020
Billings in excess of costs and estimated earnings $ 12,447  $ 6,167 
Deferred revenue 1,698  128 
Total contract liabilities $ 14,145  $ 6,295 
22
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
We recognized revenue of $0 and $6,295 for the three and nine months ended 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 nine months ended September 30, 2021 for a specific remediation and compliance project.
The Company's net position on uncompleted contracts is as follows:
September 30, 2021 December 31, 2020
Costs incurred on uncompleted contracts $ 169,576  $ 123,339 
Estimated earnings 19,019  18,425 
Total costs and estimated earnings 188,595  141,764 
Less billings to date (185,647) (135,735)
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: 
September 30, 2021 December 31, 2020
Costs and estimated earnings in excess of billings $ 15,395  $ 12,196 
Billings in excess of costs and estimated earnings (12,447) (6,167)
Net balance in process $ 2,948  $ 6,029 
Anticipated losses on long-term contracts are recognized when such losses become evident. As of September 30, 2021 and December 31, 2020, accruals for anticipated losses on long-term contracts were $143 and $155, respectively.
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 nine months ended 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 nine months ended September 30, 2021, the Company granted 501 restricted stock units (“RSUs”) under the 2018 Plan that are time-based. Of the RSUs granted during the nine months ended 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 nine months ended 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 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 nine months ended September 30, 2021 is as follows:
Restricted Stock Performance Stock Total
Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value
Balance as of December 31, 2020
981  $ 5.08  453  $ 4.02  1,434  $ 4.74 
Granted 501  5.41  235  4.74  736  5.20 
Forfeited (62) 7.54  (40) 4.76  (102) 6.45 
Vested (535) 5.88  —  —  (535) 5.88 
Balance as of September 30, 2021
885  $ 4.62  648  $ 4.24  1,533  $ 4.46 
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CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
Restricted Stock Performance Stock Total
Weighted Average Remaining Contractual Terms (Years) Aggregate Intrinsic Value Weighted Average Remaining Contractual Terms (Years) Aggregate Intrinsic Value Weighted Average Remaining Contractual Terms (Years) Aggregate Intrinsic Value
Balance as of December 31, 2020
0.79 $ 2,817  1.68 $ 1,299  1.07 $ 4,116 
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 $550 and $398 during the three months ended September 30, 2021 and 2020, respectively and $1,308 and $1,413 during the nine months ended September 30, 2021 and 2020. As of September 30, 2021, total unrecognized stock-based compensation expense related to non-vested awards of restricted stock, net of estimated forfeitures, was $2,033, and is expected to be recognized over a weighted-average period of 1.37 years. The total fair value of awards vested for the three and nine months ended September 30, 2021 was $2,463.
Stock-based compensation expense related to the performance stock issued was $219 and $149 during the three months ended September 30, 2021 and 2020, respectively, and $459 and $388 during the nine months ended September 30, 2021 and 2020. As of September 30, 2021, total unrecognized stock-based compensation expense related to non-vested awards of performance stock, net of estimated forfeitures, was $1,128, and is expected to be recognized over a weighted-average period of 2.00 years.
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.
19. Income Taxes
The Company had income tax expense of $203 and $608 for the three months ended September 30, 2021 and 2020, respectively, and $432 and $608 for the nine months ended 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 September 30, 2021 was 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 5.1% 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.
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CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
At September 30, 2021, deferred tax liabilities, net of deferred tax assets, was $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 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.
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
Nine Months Ended
  September 30, September 30,
2021 2020 2021 2020
Numerator:
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)
Net income from discontinued operations —  119  —  6,939 
Net loss attributable to common stockholders $ (3,771) $ (5,240) $ (13,734) $ (24,162)
Denominator:
Weighted average shares outstanding 32,277  29,986  30,955  29,853
Dilutive share-based awards —  —  —  — 
Total weighted average shares outstanding, including dilutive shares 32,277  29,986  30,955  29,853 
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)
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 nine months ended September 30, 2021 and 2020, the inclusion of all potentially dilutive shares would be anti-dilutive. Therefore, dilutive shares of 12,379 and 11,430 were excluded from the computation of the weighted-average shares for diluted net loss per share for the three months ended September 30, 2021 and 2020, respectively, and dilutive shares of 12,064 and 8,453 were excluded from the computation of the weighted-average shares for diluted net loss per share for the nine months ended September 30, 2021 and 2020, respectively.

25
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 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 
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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 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 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.
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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.
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
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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
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.
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 (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
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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.

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Results of Operations    
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
  Three Months Ended
  September 30, Change
  2021 2020 $ %
(dollars in thousands)
Revenue $ 84,161  $ 63,116  $ 21,045  33.3  %
Cost of sales (74,712) (54,782) (19,930) 36.4  %
Gross profit 9,449  8,334  1,115  13.4  %
General and administrative expenses (9,396) (2,043) (7,353) 359.9  %
Gains on sales of property and equipment, net 2,998  —  2,998  100.0  %
Gain on ARO settlement 1,127  —  1,127  100.0  %
Other operating expenses from ERT services (817) —  (817) (100.0) %
Impairment expense (700) (6,399) 5,699  (89.1) %
Operating income (loss) 2,661  (108) 2,769  2,563.9  %
Interest expense, net (3,541) (3,551) 10  0.3  %
Loss on extinguishment of debt (638) —  (638) (100.0) %
Income from equity method investment —  625  (625) (100.0) %
Loss from continuing operations before income taxes (1,518) (3,034) 1,516  (50.0) %
Income tax expense 203  608  (405) (66.6) %
Net loss from continuing operations, net of tax (1,721) (3,642) 1,921  (52.7) %
Income from discontinued operations, net of tax —  119  (119) (100.0) %
Net loss (1,721) (3,523) 1,802  51.1  %
Less (loss) income attributable to non-controlling interest (44) 693  (737) 106.3  %
Net loss attributable to Charah Solutions, Inc. $ (1,677) $ (4,216) 2,539  60.2  %
Amounts attributable to Charah Solutions, Inc.
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 (148) (147) (1) (0.7) %
Series A Preferred Stock dividends (1,946) (877) (1,069) (121.9) %
Net loss from continuing operations attributable to common stockholders (3,771) (5,359) 1,588  29.6  %
Income from discontinued operations, net of tax —  119  (119) (100.0) %
Net loss attributable to common stockholders $ (3,771) $ (5,240) 1,469  28.0  %
Revenue. Revenue increased $21.0 million, or 33.3%, for the three months ended September 30, 2021 to $84.2 million as compared to $63.1 million for the three months ended 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 the dissolution of our Ash Venture LLC joint venture in the second quarter of 2021 and decreases in supply from international sources due to 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 $1.1 million, or 13.4%, for the three months ended September 30, 2021 to $9.4 million as compared to $8.3 million for the three months ended 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 our fossil services due to project 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 11.2% and 13.2% for the three months ended September 30, 2021 and 2020, respectively.
General and Administrative Expenses. General and administrative expenses increased $7.4 million, or 359.9%, for the three months ended September 30, 2021 to $9.4 million as compared to $2.0 million for the three months ended September 30, 2020, primarily attributable to the absence of a $7.1 million reduction in expense from the 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 $3.0 million for the three months ended September 30, 2021 due to the commencement of operations on the Gibbons Creek ERT project in 2021.
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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 actual expenditures incurred for specific remediation tasks.
Other Operating Expenses from ERT Services. Other operating expenses from ERT services increased $0.8 million for the three months ended 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 for the three months ended September 30, 2021 to $3.5 million as compared to $3.6 million for the three months ended September 30, 2020. The decrease was primarily attributable to lower debt balances during the three months ended September 30, 2021 as compared to the three months ended September 30, 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 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. Income from equity method investment decreased $0.6 million for the three months ended September 30, 2021 as compared to the three months ended 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 decreased $0.4 million, or 66.6%, for the three months ended September 30, 2021 to $0.2 million as compared to $0.6 million for the three months ended 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 $0.1 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, due to the Company's sale of its Allied subsidiary in November 2020.
Net Loss. Net loss decreased $1.8 million, or 51.1%, for the three months ended September 30, 2021 to $1.7 million as compared to $3.5 million for the three months ended September 30, 2020.

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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
  Nine Months Ended
  September 30, Change
  2021 2020 $ %
(dollars in thousands)
Revenue $ 199,786  $ 166,697  $ 33,089  19.8  %
Cost of sales (177,832) (148,262) (29,570) 19.9  %
Gross profit 21,954  18,435  3,519  19.1  %
General and administrative expenses (28,080) (21,368) (6,712) 31.4  %
Gain on sales-type lease 5,568  —  5,568  100.0  %
Gains on sales of property and equipment, net 6,241  —  6,241  100.0  %
Gain on ARO settlement 1,127  —  1,127  100.0  %
Other operating expenses from ERT services (2,114) —  (2,114) (100.0) %
Impairment expense (827) (6,399) 5,572  (87.1) %
Operating income (loss) 3,869  (9,332) 13,201  141.5  %
Interest expense, net (10,090) (10,465) 375  3.6  %
Loss on extinguishment of debt (638) (8,603) 7,965  (92.6) %
Income from equity method investment 191  1,247  (1,056) 84.7  %
Loss from continuing operations before income taxes (6,668) (27,153) 20,485  (75.4) %
Income tax expense 432  608  (176) (28.9) %
Net loss from continuing operations, net of tax (7,100) (27,761) 20,661  (74.4) %
Income from discontinued operations, net of tax —  6,939  (6,939) (100.0) %
Net loss (7,100) (20,822) 13,722  65.9  %
Less income attributable to non-controlling interest 30  1,180  (1,150) 97.5  %
Net loss attributable to Charah Solutions, Inc. $ (7,130) $ (22,002) 14,872  67.6  %
Amounts attributable to Charah Solutions, Inc.
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 (443) (314) (129) (41.1) %
Series A Preferred Stock dividends (6,161) (1,846) (4,315) (233.7) %
Net loss from continuing operations attributable to common stockholders (13,734) (31,101) 17,367  55.8  %
Income from discontinued operations, net of tax —  6,939  (6,939) (100.0) %
Net loss attributable to common stockholders $ (13,734) $ (24,162) 10,428  43.2  %
Revenue. Revenue increased $33.1 million, or 19.8%, for the nine months ended September 30, 2021 to $199.8 million as compared to $166.7 million for the nine months ended 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 and 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 $3.5 million, or 19.1%, for the nine months ended September 30, 2021 to $22.0 million as compared to $18.4 million for the nine months ended 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 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 11.0% and 11.1% for the nine months ended September 30, 2021 and 2020, respectively.
General and Administrative Expenses. General and administrative expenses increased $6.7 million, or 31.4%, for the nine months ended September 30, 2021 to $28.1 million as compared to $21.4 million for the nine months ended September 30, 2020, primarily attributable to the absence of a $7.1 million reduction in expense from the expiration of 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 nine months ended 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.
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Gains on Sales of Property and Equipment, Net. Gains on sales of property and equipment, net increased $6.2 million for the nine months ended 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 $2.1 million for the nine months ended 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 3.6%, for the nine months ended September 30, 2021 to $10.1 million as compared to $10.5 million for the nine months ended September 30, 2020. The 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.
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 nine months ended September 30, 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 Credit Facility for the nine months ended September 30, 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 nine months ended September 30, 2020.
Income from Equity Method Investment. Income from equity method investment decreased $1.1 million, or 84.7%, for the nine months ended September 30, 2021 to $0.2 million as compared to $1.2 million for the nine months ended 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 decreased $0.2 million, or 28.9%, for the nine months ended September 30, 2021 to $0.4 million as compared to $0.6 million for the nine months ended 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 $6.9 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to the Company's sale of its Allied subsidiary in November 2020.
Net Loss. Net loss decreased $13.7 million, or 65.9%, for the nine months ended September 30, 2021 to $7.1 million as compared to $20.8 million for the nine months ended September 30, 2020.     
Condensed Consolidated Balance Sheets
The following table is a summary of our overall financial position:
September 30, 2021 December 31, 2020 Change
(in thousands)
Total assets $ 347,523  $ 280,960  $ 66,563 
Total liabilities 293,383  233,221  60,162 
Mezzanine equity 33,438  27,423  6,015 
Total equity 20,702  20,316  386 
Assets
Total assets increased $66.6 million driven primarily by (i) fixed asset additions of $33.9 million, (ii) an increase in 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, the cash maintained in a restricted account to collateralize the Company’s outstanding letters of credit, and a specific remediation and compliance project, (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, 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 $18.6 million and fixed asset disposals, net of the related accumulated depreciation, of $5.6 million.
Liabilities
Total liabilities increased $60.2 million driven primarily by (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 in Gibbons Creek Transaction and partially offset by ARO liabilities settled and gain on ARO settlement during the nine months ended September 30, 2021, (iii) an increase in accounts payable of $10.5 million due to project commencements during the nine months ended September 30, 2021 and the
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timing of payments, (iv) an increase in capital lease obligations of $9.1 million, (v) an increase of $7.9 million in contract liabilities from billings in excess of costs and estimated earnings associated with billings during the nine months ended September 30, 2021 for a specific remediation and compliance project and other new projects, and (vi) $2.8 million for paid-in-kind interest on the Credit Facility.
These increases were partially offset by principal payments on long-term debt of $134.6 million, debt issuance costs of $11.9 million, payments of the working capital adjustment and other items for the Allied Transaction of $7.4 million, accrued bonus payments of $3.8 million and payments of certain liabilities assumed through the Allied Transaction of $3.5 million.
Mezzanine Equity
Total mezzanine equity increased $6.0 million related to the paid in-kind dividends and accretion associated with the Preferred Stock Offering.
Equity
Total equity increased $0.4 million driven primarily by $13 million from the issuance of common stock and $1.8 million in share-based compensation, partially offset by the $7.1 million net loss, $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.
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 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 September 30, 2021, we had $22.4 million of cash on hand. We believe our cash on hand and cash generated from operations will be sufficient to cover our working capital requirements and debt obligations for the next 12 months from the issuance of this Quarterly Report.
Cash Flows
The following table sets forth our cash flow data:
  Nine Months Ended  
  September 30, Change
  2021 2020 $
(dollars in thousands)
Net cash provided by operating activities 2,028  10,899  $ (8,871)
Net cash provided by (used in) investing activities 31,638  (2,858) 34,496 
Net cash provided by financing activities 8,176  24,998  (16,822)
Net change in cash, cash equivalents and restricted cash $ 41,842  $ 33,039  $ 8,803 
Operating Activities
Net cash provided by operating activities decreased $8.9 million for the nine months ended September 30, 2021 to $2.0 million as compared to $10.9 million for the nine months ended September 30, 2020. The change in cash flows provided by operating activities was primarily attributable to:
•a decrease in net loss of $13.7 million.
•a decrease in non-working capital adjustments to net loss of $24.8 million, primarily due to an increase in the gain on sale of fixed assets of $8.2 million for the nine months ended September 30, 2021, a decrease in loss on extinguishment of debt of $8.0 million for the nine months ended September 30, 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 $2.2 million from all other operating activities, which was primarily driven by the absence of discontinued operations and its net working capital requirements.
Investing Activities
Net cash provided by investing activities increased $34.5 million for the nine months ended September 30, 2021 to $31.6 million as compared to $2.9 million of net cash used in investing activities for the nine months ended 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, 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
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decrease of $7.4 million for the payment of the working capital adjustment and other items resulting from the Allied Transaction and an increase in purchases of property and equipment.
Financing Activities
Net cash provided by financing activities decreased $16.8 million for the nine months ended September 30, 2021 to $8.2 million as compared to $25.0 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, the change in cash flows provided by financing activities was primarily attributable to an increase of $116.1 million in principal payments on long-term debt and capital lease obligations, the absence of $24.3 million of proceeds received from Preferred Stock 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 $26.9 million at September 30, 2021 as compared to $21.5 million at December 31, 2020. This increase in net working capital for the nine months ended 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, and
•increases in capital lease obligations and notes payables due to new long-term debt financing and capital leases entered into during the nine months ended September 30, 2021.
Our Debt Agreements
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 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 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.
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
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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, $11.9 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.
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 $1.0 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.
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 included:
•A revolving loan not to exceed $50.0 million (the “Revolving Loan”);
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•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”).
Pursuant to the terms of the Credit Facility and its related amendments, all amounts associated with the Revolving Loan and the Term Loan under the Credit Facility were set to mature in July 2022. The interest rates per annum applicable to the loans under the Credit Facility were based on a fluctuating rate of interest measured by reference to, at our election, either (i) the Eurodollar rate, currently LIBOR, or (ii) an alternative base rate. Various margins were added to the interest rate based upon our consolidated net leverage ratio (as defined in the Credit Facility). Customary fees were payable regarding the Credit Facility and included (i) commitment fees for the unused portions of the Credit Facility and (ii) fees on outstanding letters of credit. Amounts borrowed under the Credit Facility were secured by substantially all of the assets of the Company.
The Credit Facility contained various customary representations, warranties, restrictive covenants, certain affirmative covenants, including reporting requirements, and customary events of default.
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 terminate the Credit Facility, the Company paid $114.1 million of outstanding principal on the Closing Date Loan, $12.3 million of outstanding loans on the Revolver and $2.0 million of previously accrued fees required as consideration for Amendment No. 3 to Credit Agreement that was otherwise due and payable on the maturity date. During the three and nine months ended September 30, 2021, the Company wrote off unamortized debt issuance costs of $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.
Equipment Financing Facilities
We have entered into various equipment financing arrangements to finance the acquisition of certain equipment (the “Equipment Financing Facilities”). As of September 30, 2021, we had $19.1 million of equipment notes outstanding. Each of the Equipment Financing Facilities includes non-financial covenants, and, as of September 30, 2021, we were in compliance with these covenants.
Series A Preferred Stock
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 Issuances
In August 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, income taxes, depreciation and amortization, equity-based compensation, 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 Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Net loss attributable to Charah Solutions, Inc. $ (1,677) $ (4,216) $ (7,130) $ (22,002)
Income from discontinued operations, net of tax —  (119) —  (6,939)
Interest expense, net(1)
3,541  3,551  10,090  10,465 
Loss on extinguishment of debt(1)
638  —  638  8,603 
Income tax expense(1)
203  608  432  608 
Depreciation and amortization(1)
6,263  (301) 18,578  12,563 
Equity-based compensation(1)
769  546  1,767  1,801 
Impairment expense(1)
700  6,399  827  6,399 
Transaction-related expenses and other items(1)(2)
(73) 436  1,174  1,088 
Adjusted EBITDA $ 10,364  $ 6,904  $ 26,376  $ 12,586 
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 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 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 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.
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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.
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 and results of 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 subcontractors that work on or in support of U.S. government contracts are fully vaccinated by December 8, 2021, which deadline is expected to be extended to January 4, 2022. The 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 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 produce, on a weekly basis, a negative COVID test (the "vaccine mandate"). OSHA issued the ETS on November 4, 2021, requiring covered employers to comply with the vaccine mandate beginning with January 4, 2022 or face substantial penalties for non-compliance. Additional, more protective vaccine mandates may be announced by the state or local jurisdictions in which our businesses operate. Although it is not possible to predict with certainty the impact of these measures on our business 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 national supply chain, all of which could have a material adverse effect on our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities
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.
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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 $1.0 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 any period of twelve (12) consecutive months ending on the last day of each fiscal quarter, of at least 1.00 to 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
3.2
3.3
4.1
4.2
4.3
4.4
 
 
 
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.

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