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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, 2022
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)
____________________________
Delaware82-4228671
(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 classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareCHRANew York Stock Exchange
8.50% Senior Notes due 2026CHRBNew 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, 2022, the registrant had 33,721,705 shares of common stock outstanding.



CHARAH SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS
Page
 
 
 



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, 2021 and in Part II, “Item 1A. Risk Factors” of this Quarterly Report and elsewhere herein.
Forward‑looking statements may include statements about:
•the impacts of 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, operating performance and backlog;
•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 our 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 a number of risks, uncertainties and assumptions, 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, 2021 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, 2022December 31, 2021
Assets
Current assets:
Cash$7,722 $24,266 
Restricted cash44,382 34,908 
Trade accounts receivable, net51,533 49,303 
Contract assets26,993 26,844 
Inventory6,899 6,289 
Prepaid expenses and other current assets8,314 6,113 
Total current assets145,843 147,723 
Real estate, property and equipment, net106,079 70,473 
Goodwill62,193 62,193 
Intangible assets, net47,610 53,531 
Equity method investments7 7 
Other assets10,153 10,180 
Total assets$371,885 $344,107 
Liabilities, mezzanine equity and stockholders’ equity
Current liabilities:
Accounts payable30,070 30,641 
Contract liabilities5,638 6,199 
Capital lease obligations, current portion9,529 6,979 
Notes payable, current maturities12,108 7,567 
Asset retirement obligations, current portion44,030 27,534 
Accrued liabilities25,354 36,874 
Other current liabilities1,101 460 
Total current liabilities127,830 116,254 
Deferred tax liabilities1,259 949 
Contingent payments for acquisitions1,950 1,950 
Asset retirement obligations32,742 14,879 
Asset-based lending credit agreement8,800 — 
Capital lease obligations, less current portion25,626 19,444 
Notes payable, less current maturities129,335 133,661 
Term loan - Related party16,000 — 
Deferred gain and other liabilities4,310 641 
Total liabilities347,852 287,778 
Commitments and contingencies (see Note 14)
Mezzanine equity
Series A Preferred Stock — $0.01 par value; 50,000 shares authorized, 26 shares issued and outstanding as of September 30, 2022 and December 31, 2021; aggregate liquidation preference of $36,006 and $32,712 as of September 30, 2022 and December 31, 2021, respectively
41,636 35,532 
Stockholders’ equity
Retained losses(129,681)(94,679)
Common Stock — $0.01 par value; 200,000 shares authorized 33,722 and 33,408 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
337 334 
Additional paid-in capital111,482 114,880 
Total stockholders’ equity
(17,862)20,535 
Non-controlling interest259 262 
Total equity(17,603)20,797 
Total liabilities, mezzanine equity and stockholders’ equity
$371,885 $344,107 
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 EndedNine Months Ended
September 30,September 30,
 2022202120222021
Revenue$81,540 $84,161 $224,701 $199,786 
Cost of sales(78,681)(74,712)(222,935)(177,832)
Gross profit2,859 9,449 1,766 21,954 
General and administrative expenses(9,493)(9,396)(27,683)(28,080)
Gain on sales-type lease— — — 5,568 
Gains on sales of real estate, property and equipment, net2,601 2,998 8,942 6,241 
Gain on ARO settlement978 1,127 4,986 1,127 
Other operating expenses from ERT services(5,847)(817)(9,100)(2,114)
Impairment expense— (700)— (827)
Operating (loss) income(8,902)2,661 (21,089)3,869 
Interest expense, net(4,534)(3,541)(13,574)(10,090)
Loss on extinguishment of debt— (638)— (638)
Income (loss) from equity method investment— — — 191 
Loss before income taxes(13,436)(1,518)(34,663)(6,668)
Income tax (benefit) expense(77)203 342 432 
Net loss(13,359)(1,721)(35,005)(7,100)
Less (loss) income attributable to non-controlling interest— (44)(3)30 
Net loss attributable to Charah Solutions, Inc.(13,359)(1,677)(35,002)(7,130)
Deemed and imputed dividends on Series A Preferred Stock(150)(148)(449)(443)
Series A Preferred Stock dividends(956)(1,946)(4,617)(6,161)
Net loss attributable to common stockholders$(14,465)$(3,771)$(40,068)$(13,734)
Net loss attributable to common stockholders per common share:
Basic$(0.43)$(0.12)$(1.19)$(0.44)
Diluted$(0.43)$(0.12)$(1.19)$(0.44)
Weighted-average shares outstanding used in loss per common share:
Basic33,722 32,277 33,592 30,955
Diluted33,722 32,277 33,592 30,955
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 Nine Months Ended September 30, 2022
Mezzanine EquityPermanent Equity
 Preferred Stock (Shares)Preferred Stock (Amount)Common Stock (Shares)Common Stock (Amount)Additional Paid-In CapitalRetained
Losses		TotalNon-Controlling
Interest		Total
Balance, December 31, 2021
26,000 $35,532 33,407,806 $334 $114,880 $(94,679)$20,535 $262 $20,797 
Net loss— — — — — (35,002)(35,002)(3)(35,005)
Shares issued under share-based compensation plans— — 480,453 5 (5)— — — — 
Taxes paid related to the net settlement of shares— — (166,554)(2)(698)— (700)— (700)
Share-based compensation expense— — — — 2,371 — 2,371 — 2,371 
Deemed and imputed dividends on Series A Preferred Stock
— 6,104 — — (449)— (449)— (449)
Series A Preferred Stock dividends
— — — — (4,617)— (4,617)— (4,617)
Balance, September 30, 2022
26,000 $41,636 33,721,705 $337 $111,482 $(129,681)$(17,862)$259 $(17,603)

For the Nine Months Ended September 30, 2021
Mezzanine EquityPermanent Equity
 Preferred Stock (Shares)Preferred Stock (Amount)Common Stock (Shares)Common Stock (Amount)Additional Paid-In CapitalRetained
Losses		TotalNon-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 









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 Three Months Ended September 30, 2022
Mezzanine EquityPermanent Equity
 Preferred Stock (Shares)Preferred Stock (Amount)Common Stock (Shares)Common Stock (Amount)Additional Paid-In CapitalRetained
Losses		TotalNon-Controlling
Interest		Total
Balance, June 30, 202226,000 $39,915 33,721,705 $337 $111,754 $(116,322)$(4,231)$259 $(3,972)
Net loss— — — — — (13,359)(13,359)— (13,359)
Share-based compensation expense— — — — 834 — 834 — 834 
Deemed and imputed dividends on Series A Preferred Stock
— 1,721 — — (150)— (150)— (150)
Series A Preferred Stock dividends
— — — — (956)— (956)— (956)
Balance, September 30, 2022
26,000 $41,636 33,721,705 $337 $111,482 $(129,681)$(17,862)$259 $(17,603)

For the Three Months Ended September 30, 2021
Mezzanine EquityPermanent Equity
 Preferred Stock (Shares)Preferred Stock (Amount)Common Stock (Shares)Common Stock (Amount)Additional Paid-In CapitalRetained
Losses		TotalNon-Controlling
Interest		Total
Balance, June 30, 202126,000 $31,141 30,518,917 $305 $104,442 $(94,318)$10,429 $319 $10,748 
Net loss— — — — — (1,677)(1,677)(44)(1,721)
Issuance of common stock— — 2,888,889 29 12,971 — 13,000 — 13,000 
Share-based compensation expense— — — — 769 — 769 — 769 
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 
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,
 20222021
Cash flows from operating activities:
Net loss$(35,005)$(7,100)
Adjustments to reconcile net loss to net cash and restricted cash (used in) provided by operating activities:
Depreciation and amortization20,398 18,578 
Loss on extinguishment of debt— 638 
Paid-in-kind interest on long-term debt— 2,844 
Impairment expense— 827 
Amortization of debt issuance costs1,732 590 
Deferred income taxes310 432 
Gain on sales-type lease— (5,568)
Gains on sales of real estate, property and equipment(8,664)(7,638)
Income from equity method investment— (191)
Non-cash share-based compensation
2,371 1,767 
Gain on interest rate swap— (190)
Interest rate swap settlement— (745)
Gain on ARO settlements(4,986)(1,127)
Realization of deferred gain on ERT project performance(167)— 
Increase (decrease) in cash and restricted cash due to changes in:
Trade accounts receivable(2,137)5,288 
Contract assets and liabilities(710)2,667 
Inventory(610)(147)
Accounts payable727 9,471 
Asset retirement obligation(25,133)(4,654)
Other assets and liabilities(13,863)(13,714)
Net cash and restricted cash (used in) provided by operating activities(65,737)2,028 
Cash flows from investing activities:
Net proceeds from the sales of real estate, property and equipment11,951 10,114 
Purchases of property and equipment(3,655)(7,024)
Cash and restricted cash received from ERT transactions38,239 34,900 
Payments of working capital adjustment and other items for the sale of subsidiary— (7,367)
Distribution received from equity method investment— 1,015 
Net cash and restricted cash provided by investing activities46,535 31,638 
Cash flows from financing activities:
Net proceeds on the line of credit— (12,003)
Proceeds on asset-based lending credit agreement13,000 — 
Payments on asset-based lending credit agreement(4,200)— 
Proceeds from long-term debt
3,023 156,301 
Proceeds on Term loan - Related party16,000 — 
Principal payments on long-term debt
(7,908)(134,613)
Payments of debt issuance costs(677)(10,912)
Principal payments on capital lease obligations(6,406)(2,920)
Taxes paid related to net settlement of shares(700)(512)
Proceeds from issuance of common stock— 13,000 
Distributions to non-controlling interest— (165)
Net cash and restricted cash provided by financing activities12,132 8,176 
Net (decrease) increase in cash and restricted cash(7,070)41,842 
Cash and restricted cash, beginning of period59,174 29,211 
Cash and restricted cash, end of period$52,104 $71,053 
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,
 20222021
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$11,652 5,386 
Cash paid during the period for taxes98 831 
Supplemental disclosures and non-cash investing and financing transactions:
Gross proceeds from lines of credit$— $73,817 
Gross payments on lines of credit— (85,820)
Sale of structural fill asset through a sales-type lease— 6,000 
Proceeds from the sale of equipment in accounts receivable, net93 1,252 
Series A Preferred Stock dividends payable included in accrued expenses956 1,946 
Deemed and imputed dividends on Series A Preferred Stock6,104 443 
Equipment acquired through capital leases15,138 11,980 
Property and equipment included in accounts payable and accrued expenses95 205 
As reported within the unaudited condensed consolidated balance sheet:
Cash$7,722 $22,400 
Restricted cash44,382 48,653 
Total cash and restricted cash as presented in the balance sheet$52,104 $71,053 



















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. (together with its wholly-owned subsidiaries, “Charah Solutions,” the “Company,” “we,” “us, or “our”) is a holding company formed in Delaware in January 2018. The Company's majority shareholder is Bernhard Capital Partners Management, LP and its affiliates (collectively, “BCP”). As of September 30, 2022, BCP owns approximately 60% of the total voting power of our outstanding shares of common stock and the outstanding Series A Preferred Stock (“Preferred Stock”) on an as-converted basis. BCP owns all of the outstanding shares of Preferred Stock, and it is convertible at BCP's option at any time into shares of common stock.
Description of Business Operations
The Company is a leading national service provider of mission-critical environmental services and byproduct recycling 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 services, raw material sales 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 the reduced reporting requirements and exemptions, including the longer phase-in periods for adopting 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 financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.
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.
In response to recurring operating losses and liquidity needs, the Company has frequently secured additional financing or equity contributions from its majority shareholder, BCP, to fund the Company’s operations and meet working capital requirements. BCP is not obligated to provide future funding or equity contributions to the Company were they to be needed. As discussed in Note 9, Long-term Debt, on August 15, 2022, the Company, through its wholly-owned special purpose vehicle subsidiary Gibbons Creek Environmental Redevelopment Group (“GCERG”), entered into a term loan agreement (the “Term Loan Agreement”) with BCP that provides for a delayed-draw term loan in an aggregate principal amount of $20,000. Additionally, as discussed in Note 17, Subsequent Events, on November 14, 2022, the Company entered into an investment agreement with BCP to sell 30 (thirty thousand) shares of Series B Preferred Stock for gross proceeds of $30,000 and resulted in net proceeds to the Company of $28,800.
Segment Information
The Company operates as one reportable segment, reflecting 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
7
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
whole. Since the Company has a single operating segment, all required financial segment information can be found in the unaudited condensed consolidated financial statements.
We provide the following services through our one segment: remediation and compliance services, byproduct services, raw material sales 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 services consist of recurring and mission-critical coal ash management and operations for coal-fired power generation facilities while also supporting 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 supplemental cementitious materials (“SCMs”) that provide a sustainable, environmentally-friendly substitute for Portland cement in concrete. Our raw material sales provide customers with the raw materials essential to their business while also providing the sourcing, logistics, and management needed to facilitate these raw material transactions around the globe. ERT services represent an innovative solution designed to meet our coal-fired plant energy providers’ evolving and increasingly complex plant closure and environmental remediation needs. These customers need to retire and decommission older or underutilized assets while maximizing the assets’ value and improving the environment. Our ERT services manage the sites’ environmental remediation requirements, benefiting the communities and lowering the coal-fired plant energy providers’ costs.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization categorized the disease caused by a novel coronavirus (“COVID-19”) to be a pandemic. Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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% paid in the year ended December 31, 2021 and the remaining 50% due by December 31, 2022.
2. Recent Accounting Pronouncements
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 the 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, while we are still in the process of assessing the impact of this new standard on our consolidated financial position, results of operations and cash flows, we expect the adoption of this standard will have a material impact on our consolidated financial position due to the recognition of the right-of-use asset and lease liability related to operating leases. We had operating leases with remaining rental payments of approximately $21,710 as of September 30, 2022. The discounted minimum remaining rental payments will be the starting point for determining the right-of-use asset and lease liability.
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
8
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
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.
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 for 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. This ASU will be effective for the Company for the fiscal year ending December 31, 2024, 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.
3. Asset Acquisitions
The Company closed on two acquisitions during the nine months ended September 30, 2022 and one acquisition during the nine months ended September 30, 2021 as part of its ERT service offerings.
As each asset group lacked the necessary elements of a business, these transactions were accounted for as asset acquisitions in accordance with ASC 805, Business Combinations, with the assumed liabilities, plus expenses and cash paid by or owed to the seller, comprising the purchase price. Since the fair value of the net assets acquired was different than the purchase price of the assets, the Company allocated the difference pro rata on the basis of relative fair values to reduce the basis of land, land improvements and structural fill sites, property and equipment and other assets acquired. For one acquisition, the Company recognized a deferred gain representing the difference between the fair value of the assets acquired and the consideration given (including transaction costs incurred).
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 based on quotes rates from third parties and amounts paid for similar work to 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 using an estimated inflation rate and discounted those expected future costs back 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 specific asset retirement obligation. Gains on ARO settlements result from the requirement to record costs plus an estimate of third-party profit in determining the ARO. When we perform the work using internal resources and reduce the ARO for work performed, we recognize a gain if actual costs are less than the estimated costs plus the third-party profit.
Because these obligations are measured at estimated fair value using present value techniques, changes in the estimated cost or timing of future closure, demolition, 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 timing or extent of future final closure and post-closure activities typically result in a current adjustment to the recorded liability and land, land improvements and structural fill sites asset.
Avon Lake Asset Acquisition
On April 4, 2022, the Company, through its wholly-owned special purpose vehicle subsidiary Avon Lake Environmental Redevelopment Group, LLC (“ALERG”), completed the full acquisition of the Avon Lake Generating Station and adjacent property (the "Avon Lake Property") from GenOn Power Midwest, LP, (“GenOn”) and has begun environmental remediation and sustainable redevelopment of the property.
As part of this agreement, the Company acquired the Avon Lake Property, which is a 40-acre area located on Lake Erie that consists of multiple parcels of land adjacent to the retired generating plant, including the generating station, which ceased electric generation in March 2022, submerged lands lease in Lake Erie, substation/switch gear and transformers, administrative offices and structures, coal rail and storage yard parcels. ALERG assumed all liabilities related to the Avon Lake Property and will be responsible for the shutdown and decommissioning
9
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
of the coal power plant and performing all environmental remediation and redevelopment work at the site. The decommissioning of the coal power plant and redevelopment of the property are expected to be completed within 36 months from the date of acquisition.
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$(34,300)
Direct transaction costs(1,345)
Total consideration and transaction costs incurred$(35,645)
Assets Acquired:
Restricted Cash$2,900 
Land, land improvements and structural fill sites32,109 
Plant, machinery and equipment623 
Vehicles13 
Total allocated value of assets acquired$35,645 
A summary of the other assumptions included in the fair value measurement of the asset retirement obligations to be recognized upon closing of the APA consisted of the following:
Other Assumptions:
Inflation rate2.50 %
Weighted average rate applicable to our long-term asset retirement obligations7.35 %
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 $505 that was initially classified as held for sale were sold to third parties as of September 30, 2022. The Company received proceeds of $1,565 and recorded a gain of $1,060 within gains on sales of real estate, property and equipment, net, in the Company's condensed consolidated statements of operations. The proceeds were recorded in cash flows from investing activities in the Company's condensed consolidated statements of cash flows. The amount of land, land improvements and structural fill sites acquired includes fair value estimates for real estate and scrap to be sold from the demolition of the coal power plant.
Restricted cash is exclusively used to fund initial costs related to the acquisition and the remaining balance will be used to fund a portion of the asset retirement obligations. Restricted cash is held and will be disbursed by an escrow agent. Funds will be released to the Company as asset retirement obligation costs are incurred and performance of remediation activities are certified by an authorized representative of GenOn.
Cheswick Generating Station Asset Acquisition
On April 6, 2022, the Company, through its wholly-owned special purpose vehicle subsidiaries, Cheswick Plant Environmental Redevelopment Group, LLC, Cheswick Lefever, LLC and Harwick Operating Company, LLC (collectively, “CPERG”), completed the full acquisition of the Cheswick Generating Station, the Lefever Ash Landfill and the Monarch Wastewater Treatment Facility (the "Cheswick Property") from GenOn and will begin environmental remediation and sustainable redevelopment of the Pennsylvania properties immediately. The Cheswick Generating Station ceased electrical generation operations on March 31, 2022.
As part of this agreement, the Company, through CPERG, has acquired properties consisting of:
▪The retired Cheswick Generating Station, a 565 MW coal-fired plant previously operated by GenOn, located in Springdale, PA. The 56-acre primary generating station site, along with an adjacent 27-acre parcel, consists of an operating rail line, a coal yard, bottom ash emergency and recycle ponds, waste ponds and a coal pile runoff pond, coal delivery equipment, and an ash handling parcel. CPERG will be responsible for the shutdown and decommissioning of the coal power plant, the remediation of the two ash ponds and performing all environmental remediation and redevelopment work at the site.
▪The Lefever Ash Landfill in Cheswick, PA. The 182-acre site, including the 50-acre landfill facility, provided disposal of coal combustion residuals (CCR) and residual waste from the Cheswick Generating Station. CPERG will be responsible for the closure design, remediation closure work and post-closure monitoring of the landfill.
▪The Monarch Wastewater Treatment Facility in Allegheny County, PA. CPERG will be responsible for management and compliance with all applicable environmental regulations.
In the process of accounting for this transaction, the basis of the land, property and equipment acquired was reduced to zero, resulting in an excess of financial assets over and above the purchase price. The Company recorded a deferred gain of $4,476, representing the difference between the fair value of the assets acquired and the consideration given (including transaction costs incurred). This deferred gain will be recognized ratably over the entire project as remediation costs are incurred in proportion to total estimated remediation costs.
10
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
During the three and nine months ended September 30, 2022, the Company recognized $167 of the deferred gain within gains on sales of real estate, property and equipment, net, in the Company's condensed consolidated statements of operations. The decommissioning of the coal power plant and redevelopment of these properties are expected to be completed within 42 months from the date of acquisition, and the post-closure monitoring associated with the Lefever Ash Landfill and Monarch Wastewater Treatment Facility will occur for 30 years after the closure of the sites.
The assets acquired and liabilities assumed as recognized within the Company's condensed consolidated balance sheet upon closing on the APA consisted of the following:
Consideration and direct transaction costs:
Asset retirement obligations$(30,179)
Direct transaction costs and accrued expenses(684)
Total consideration and transaction costs incurred$(30,863)
Assets Acquired:
Cash$5,577 
Restricted cash29,762 
Total allocated value of assets acquired$35,339 
Excess of fair value of assets acquired over total consideration – deferred gain$(4,476)
A summary of the other assumptions included in the fair value measurement of the asset retirement obligations to be recognized upon closing of the APA consisted of the following:
Other Assumptions:
Inflation rate2.50 %
Weighted average rate applicable to our long-term asset retirement obligations7.45 %
As part of the acquisition, the Company acquired certain plant, machinery and equipment and vehicles for which management committed to a plan to sell. The Company received proceeds and recorded a gain of $387 within gains on sales of real estate, property and equipment, net, in the Company's condensed consolidated statements of operations. The proceeds were recorded in cash flows from investing activities in the Company's condensed consolidated statements of cash flows.
Restricted cash is exclusively used to fund initial costs related to the acquisition and the remaining balance will be used to fund a portion of the asset retirement obligations. Restricted cash is held and will be disbursed by an escrow agent. Funds will be released to the Company as certain project milestones are met and performance of remediation activities are certified by an authorized representative of GenOn.
Gibbons Creek Asset Acquisition
In February 2021, the Company, through its GCERG subsidiary, 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 decommissioning the coal power plant and 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, is redeveloping the property in an environmentally conscious manner which the Company expects to 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 has been 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.

11
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
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)
Assets Acquired:
Cash$6,354 
Restricted cash28,546 
Water rights5,196 
Land, land improvements and structural fill sites14,385 
Plant, machinery and equipment610 
Vehicles64 
Total allocated value of assets acquired$55,155 
A summary of the other assumptions included in the fair value measurement of the asset retirement obligations to be recognized upon closing of the APA consisted of the following:
Other Assumptions:
Inflation rate3.00 %
Weighted average rate applicable to our long-term asset retirement obligations4.50 %
Demolition costs will be capitalized as part of land, land improvements and structural fill sites 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.
To date, the Company has completed the sale of nearly 80% of the real property acreage acquired through the Gibbons Creek Transaction. The sale of property included 4,860 acres of the 6,166-acre area, the 3,500-acre reservoir, dam and spillway. There were no sales of real property acreage for the three and nine months ended September 30, 2022 and 2021, respectively.
4. Revenue
We disaggregate our revenue from customers by customer arrangement 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 table below.
 Three Months EndedNine Months Ended
September 30,September 30,
 2022202120222021
Construction contracts$40,402 $48,176 $107,338 $99,828 
Byproduct services30,106 26,643 81,529 76,508 
Raw material sales11,032 9,342 35,834 23,450 
Total revenue$81,540 $84,161 $224,701 $199,786 
As of September 30, 2022, the Company had remaining performance obligations with an aggregate transaction price of $530,373 on construction contracts for which we recognize revenue over time. We expect to recognize approximately 10% of our remaining performance obligations as revenue during the remainder of 2022, 13% in 2023, 15% in 2024, 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, 2022. As of September 30, 2022, there were $354 of unapproved change orders associated with project scope changes included in determining the profit or loss on certain construction contracts, of which $0 were approved subsequent to quarter-end.
The Company did not have any foreign revenue for the three and nine months ended September 30, 2022 and 2021.

12
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
5. Balance Sheet Items
Real estate, property and equipment, net
The following table shows the components of real estate, property and equipment, net:
September 30, 2022December 31, 2021
Plant, machinery and equipment$65,370 $63,937 
Structural fill site improvements55,760 55,760 
Vehicles11,850 11,718 
Office equipment600 600 
Buildings and leasehold improvements267 267 
Land, land improvements and structural fill sites43,838 12,231 
Capital lease assets46,310 31,172 
Construction in progress616 1,522 
Total real estate, property and equipment$224,611 $177,207 
Less: accumulated depreciation(118,532)(106,734)
Real estate, property and equipment, net$106,079 $70,473 
Land, land improvements and structural fill sites include $5,870 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, 2022, the Company capitalized $192 and $1,802, respectively, of demolition costs and sold scrap with a cost basis of $348 and $2,304, respectively. 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 $5,034 and $4,289 for the three months ended September 30, 2022 and 2021, respectively, and $14,477 and $12,657 for the nine months ended September 30, 2022 and 2021, respectively.
Capital leases
The following table shows the components of capital lease assets, net:
September 30, 2022December 31, 2021
Capital lease assets$46,310 $31,172 
Less: accumulated depreciation(10,305)(3,606)
Capital lease assets, net$36,005 $27,566 
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 for the nine months ended September 30, 2021.

13
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
The following table reflects the classification of the lease receivable within our accompanying unaudited condensed consolidated balance sheet:
September 30, 2022December 31, 2021
Lease receivable$5,875 $5,937 
Less: current portion in prepaid expenses and other current assets(67)(65)
Non-current portion in other assets$5,808 $5,872 
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 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 following table reflects the classification of the note receivable within our unaudited condensed consolidated balance sheet:
September 30, 2022December 31, 2021
Note receivable$1,102 $1,352 
Less: current portion in prepaid expenses and other current assets(500)(500)
Non-current portion in other assets$602 $852 
Accrued liabilities
The following table shows the components of accrued liabilities:
September 30, 2022December 31, 2021
Accrued expenses$19,815 $25,074 
Accrued interest2,362 2,008 
Accrued preferred stock dividends957 1,994 
Accrued payroll and bonuses2,220 7,798 
Accrued liabilities$25,354 $36,874 
6. Asset Retirement Obligations
As of September 30, 2022, the Company owns two structural fill sites with continuing maintenance and monitoring requirements after their closure, one wastewater treatment facility with continuing maintenance and monitoring requirements, and eight tracts of real property with decommissioning, remediation and monitoring requirements. As of September 30, 2022 and December 31, 2021, the Company has accrued $76,772 and $42,413, respectively, for the asset retirement obligations (“ARO”).
The following table reflects the activity for our asset retirement obligations:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Balance, beginning of period$83,729 $52,361 $42,413 $5,159 
Liabilities acquired— — 64,479 50,590 
Liabilities settled(8,408)(1,805)(28,291)(5,980)
Accretion2,429 538 3,157 1,325 
Gain on ARO settlement(978)(1,127)(4,986)(1,127)
Balance, end of period76,772 49,967 76,772 49,967 
Less: current portion(44,030)(32,181)(44,030)(32,181)
Non-current portion$32,742 $17,786 $32,742 $17,786 

14
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
7. 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 $1 and $4 for the three months ended September 30, 2022 and 2021, respectively, and $26 and $83 for the nine months ended September 30, 2022 and 2021. The Company had no receivables outstanding from ATC at September 30, 2022 and December 31, 2021. The Company had payables and accrued expenses, net of credit memos, due to ATC of $0 and $4 at September 30, 2022 and December 31, 2021, respectively.
As further discussed in Note 9, 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. 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.
As further discussed in Note 9, Long-term Debt, on August 15, 2022, the Company, through its GCERG subsidiary, entered into the Term Loan Agreement with BCP that provides for a delayed-draw term loan in an aggregate principal amount of $20,000.
As further discussed in Note 11, Mezzanine Equity, in March 2020, the Company entered into an agreement with an investment fund affiliated with BCP to sell 26 shares of Preferred Stock.
As discussed in Note 17, Subsequent Events, on November 14, the Company entered into an investment agreement with BCP to sell 30 (thirty-thousand) shares of Series B Preferred Stock for gross proceeds of $30,000 and resulted in net proceeds to the Company of $28,800.
8. 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, 2022.
Indefinite-Lived and Definite-Lived Intangible Assets
Our intangible assets, net include a trade name that is considered to have an indefinite life and 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 for the three months ended September 30, 2022 and 2021 and $5,921 for the nine months ended September 30, 2022 and 2021.
In performing the evaluation for potential impairment indicators with respect to the Company's long-lived assets, including the trade name indefinite-lived intangible as of September 30, 2022, we considered the impact of the Company's recent operating results on forecasts of future cash flows attributable to such trade name. While the financial results in our near-term and terminal forecast periods remain relatively consistent with prior forecasts, we continue to analyze the rapidly changing regulatory and political environment and the potential impacts to our trade name from our existing revenue-generating activities and an expansion of our ERT offerings. We continue to assess strategic initiatives to maximize the potential in our existing backlog and pipeline of opportunities.
Changes resulting from the Company's strategic decisions and initiatives, the current economic environment and other external factors, including inflationary market pressures and supply chain disruption, could result in significant adverse changes to the Company’s assumptions related to the estimated fair value of the intangible asset that could lead to reduction in the fair value of our trade name. Any future impairment charges on our trade name indefinite-lived intangible asset could have a material adverse impact on the Company’s consolidated financial condition and results of operations.
15
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
The Company’s intangible assets consist of the following:
 September 30, 2022December 31, 2021
 Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Definite-lived intangibles
Customer relationships$78,942 $(44,648)$34,294 $78,942 $(38,727)$40,215 
Indefinite-lived intangibles
Charah trade name13,316 13,316 
Total$47,610 $53,531 
9. Long-term Debt
Senior Notes
On August 25, 2021, the Company completed a public 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 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 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, $12,116 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
16
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
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 contains a provision for sustainability adjustments annually that will impact the applicable margin by between positive 0.05% and negative 0.05% based on the achievement, or lack thereof, of certain metrics agreed upon between JPMorgan and the Company and publicly reported through the Company’s annual non-financial sustainability report.
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.
As of September 30, 2022, the Company has $8,800 drawn on the Credit Agreement. Outstanding letters of credit were $10,687 and $19,027 as of September 30, 2022 and December 31, 2021. As of September 30, 2022, all outstanding letters of credit were issued with JPMorgan.
On August 15, 2022, the Company entered into Amendment No. 1 to the Credit Agreement (the “Credit Agreement Amendment”) with JPMorgan Chase Bank, N.A., as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein. The Credit Agreement Amendment, among other things, permitted the Company (and certain of its subsidiaries) to execute the Term Loan Agreement and guarantee the Term Loan Agreement borrower’s obligations under the Term Loan Agreement. Additionally, the Credit Agreement Amendment permits the Company to include certain gains on ARO settlements and cash received for deferred gains from ERT projects in the calculation of the Company’s fixed charge coverage ratio under the Credit Agreement's financial covenant.
On November 14, 2022, the Company entered into Amendment No. 2 to the Credit Agreement (the “ Second Credit Agreement Amendment”) with JPMorgan Chase Bank, N.A., as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein. The Second Credit Agreement Amendment, among other things, changed the benchmark rate floor on such loans from the LIBO Rate to the Adjusted Term SOFR Rate, increased the revolver Term Benchmark spread from 2.25% to 2.75%, and modified the test for the Covenant Testing Period such that any excess borrowing base over the revolving commitment amount could reduce the threshold that triggers the covenant test up to $2,000. Additionally, the Second Credit Agreement Amendment permits the Company to include $15,000 of equity contributions in "EBITDA", as defined in the Second Credit Agreement Amendment, for the fourth quarter of 2022.
As of November 14, 2022, based on the undrawn letters of credit utilization of $10,687, borrowings of $8,800 under the Credit Agreement and applicable financial covenant requirements, springing covenants would become applicable if the Company were to borrow an additional $3,898 under the Credit Agreement. As of September 30, 2022, after taking into account the terms of the Credit Agreement Amendment, the Company would not have met the financial covenant had there been a Covenant Testing Period and the financial covenant had been in effect.
As a result of entering into the Credit Agreement, $1,443 of third-party fees were capitalized as debt issuance costs that will be amortized through interest expense, net in the unaudited condensed consolidated Statements of Operations using the straight-line method through the maturity date of the Credit Agreement. Unamortized debt issuance costs as of September 30, 2022 and December 31, 2021 were $1,142 and $1,338, respectively, and classified in other assets in the accompanying unaudited condensed consolidated balance sheets.
Term Loan Agreement
On August 15, 2022, the Company, through its GCERG subsidiary (the “Term Loan Borrower”), entered into a term loan agreement (the “Term Loan Agreement”) with Charah Preferred Stock Aggregator, LP, an affiliate of Bernhard Capital Partners Management, LP (“BCP”). As a result of unexpected operating losses, an increase in contract assets and accelerated cash outflows for remediation activities on an ERT project that led to a decrease in cash during the six months ended June 30, 2022, the Company sought additional financing options to fund ongoing operations and project level investment. The Term Loan Agreement was executed to provide additional liquidity for the Company and accelerate the timing of the Company's cash flows for anticipated sales of the GCERG real estate parcels. The Term Loan Agreement provides for a delayed-draw term loan in an aggregate principal amount of $20,000. Borrowings can be requested at any date before October 24, 2022. The Term Loan Agreement is scheduled to mature on the earlier of the sale of the remaining GCERG real estate parcels or April 15, 2024. Borrowings under the Term Loan Agreement accrue interest at a percentage per annum equal to 12.0%, with interest payments due on the first business day of each calendar quarter following the effective date of the Term Loan Agreement and on the maturity date. The Term Loan Borrower agreed to pay a commitment fee equal to $1,000 that is payable on the earliest of (i) April 15, 2024, (ii) the date on which the loans are redeemed in full and all commitments are terminated and (iii) the date on which all commitments are
17
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
terminated in full. The Term Loan Agreement is secured by a lien on, and security interest in, substantially all of the Term Loan Borrower’s assets, including real property, and is guaranteed on an unsecured basis by the Company and Charah, LLC. Voluntary prepayments are permitted at any time, without premium or penalty.
The Term Loan Agreement contains certain customary representations and warranties and affirmative and negative covenants. The negative covenants include, subject to customary exceptions, limitations on indebtedness, investments and acquisitions, mergers and consolidations, restricted payments, transactions with affiliates, liens and dispositions. The Term Loan Agreement allows the Term Loan Borrower to make distributions to its equity holders with the proceeds of the loans made thereunder. The Term Loan Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may declare all loans to be immediately due and payable.
As of September 30, 2022, the Term Loan Borrower had borrowings of $16,000 under the Term Loan Agreement. On November 8, 2022, the Company elected to draw down the remaining $4,000 available under the Term Loan Agreement to fund operating activities.
As a result of entering into the Term Loan Agreement, $487 of third-party fees were capitalized as debt issuance costs that will be amortized through interest expense, net in the unaudited condensed consolidated statements of operations using the effective interest method through the maturity date of the Term Loan Agreement.
Previous Credit Facility
On September 21, 2018, we entered into a credit agreement (the “Credit Facility”) by and among us, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent (the “Administrative Agent”). The Credit Facility 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.

18
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
10. Notes Payable
The following table summarizes the major components of debt at each balance sheet date and provides maturities and interest rate ranges for each major category as of September 30, 2022 and December 31, 2021: 
September 30, 2022December 31, 2021
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 $96 as of September 30, 2022.
$847 $1,748 
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 $3,948 as of September 30, 2022.
4,364 5,952 
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 $1,603 as of September 30, 2022.
1,973 2,633 
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 $1,410 as of September 30, 2022.
1,320 1,624 
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 $1,749 as of September 30, 2022.
1,580 1,861 
An equipment note entered into in 2022 with a customer, payable in monthly installments of $68 with no interest component, maturing with a balloon payment of the remaining outstanding balance in April 2023. The note is secured by equipment with a net book value of $3,991 as of September 30, 2022.
3,991 — 
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.
— 467 
Various commercial insurance premium financing agreements entered into in 2022, payable in monthly installments ranging from $19 to $143, including interest ranging from 4.2% to 5.3%, maturing in November 2022 through June 2023.
1,300 — 
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 $1,012 as of September 30, 2022.
1,541 3,387 
Senior Unsecured Notes, issued August 2021 (see Note 9). The Notes are senior unsecured obligations of the Company, bearing stated interest at 8.5%, and rank equal in right of payment with the Company’s existing and future senior unsecured indebtedness.
135,000 135,000 
Total151,916 152,672 
Less debt issuance costs, net(10,473)(11,444)
141,443 141,228 
Less current maturities(12,108)(7,567)
Notes payable due after one year$129,335 $133,661 
11. 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 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, 2022 and December 31, 2021, the Company had accrued dividends of $1,133 and $1,030, respectively,
19
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
associated with the Preferred Stock, which was recorded at a fair value of $957 and $1,994, 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 on the liquidation preference, payable on a quarterly basis. If we do not declare and pay a cash dividend to the holders of the Preferred Stock, the dividend rate will increase to 13.0% per annum, and the dividends will be paid-in-kind by adding such amount to the liquidation preference. The Company’s intention is to declare and pay in-kind dividends 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, 2022, the liquidation preference of the Preferred Stock was $36,006.
Conversion Features The Preferred Stock is convertible at the option of the holders at any time into shares of common stock by dividing the liquidation preference by 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, 2022, the maximum number of common shares that could be required to be issued if converted is 12,999 (twelve million nine hundred ninety-nine 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, including 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, including accrued and unpaid dividends, or (y) if the redemption occurs on or after the fourth anniversary of the date of the closing, the liquidation preference plus accrued and unpaid dividends (the foregoing clauses (i) or (ii), as applicable, the “Redemption Price”).
20
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
On or after the seven-year anniversary of the date of issuance, the holders have the right, subject to applicable law, to require the Company to redeem the Preferred Stock, in whole or in part, into cash consideration equal to the liquidation preference, including 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.
12. 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, 2022December 31, 2021
Costs and estimated earnings in excess of billings$17,555 $17,163 
Retainage9,438 9,681 
Total contract assets$26,993 $26,844 
Our contract liabilities are as follows:
September 30, 2022December 31, 2021
Billings in excess of costs and estimated earnings$4,053 $5,716 
Deferred revenue1,585 483 
Total contract liabilities$5,638 $6,199 
We recognized revenue of $57 and $5,886 for the three and nine months ended September 30, 2022 that was previously included in contract liabilities at December 31, 2021.
The Company's net position on uncompleted contracts is as follows:
September 30, 2022December 31, 2021
Costs incurred on uncompleted contracts$245,077 $227,195 
Estimated earnings15,360 22,331 
Total costs and estimated earnings260,437 249,526 
Less billings to date(246,935)(238,079)
Net balance in process$13,502 $11,447 
The net balance in process classified on the accompanying unaudited condensed consolidated balance sheets is as follows: 
September 30, 2022December 31, 2021
Costs and estimated earnings in excess of billings$17,555 $17,163 
Billings in excess of costs and estimated earnings(4,053)(5,716)
Net balance in process$13,502 $11,447 
21
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
Anticipated losses on long-term contracts are recognized when such losses become evident. As of September 30, 2022 and December 31, 2021, accruals for anticipated losses on long-term contracts were $2 and $159, respectively.
13. Stock-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. The Company has reserved 5,007 shares of common stock for issuance under the 2018 Plan.
A summary of the Company’s non-vested share activity for the nine months ended September 30, 2022 is as follows:
Restricted StockPerformance StockTotal
SharesWeighted-Average Grant Date Fair ValueSharesWeighted-Average Grant Date Fair ValueSharesWeighted-Average Grant Date Fair Value
Balance as of December 31, 2021
885 $4.62 648 $4.24 1,533 $4.46 
Granted729 4.10 313 2.97 1,042 3.76 
Forfeited(7)3.21 (231)6.14 (238)6.05 
Vested(480)4.73 — — (480)4.73 
Balance as of September 30, 2022
1,127 $4.24 730 $3.11 1,857 $3.79 
Restricted StockPerformance StockTotal
Weighted Average Remaining Contractual Terms (Years)Aggregate Intrinsic ValueWeighted Average Remaining Contractual Terms (Years)Aggregate Intrinsic ValueWeighted Average Remaining Contractual Terms (Years)Aggregate Intrinsic Value
Balance as of December 31, 2021
0.88$4,072 1.26$2,979 1.04$7,051 
Balance as of September 30, 2022
1.15$2,063 1.68$1,336 1.36$3,399 
Stock-based compensation expense related to the restricted stock issued was $664 and $550 during the three months ended September 30, 2022 and 2021, respectively and $1,813 and $1,308 for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, total unrecognized stock-based compensation expense related to non-vested awards of restricted stock, net of estimated forfeitures, was $2,943, and is expected to be recognized over a weighted-average period of 1.35 years. The total fair value of awards vested for the three and nine months ended September 30, 2022 was $0 and $2,018, respectively.
Stock-based compensation expense related to the performance stock issued was $169 and $219 during the three months ended September 30, 2022 and 2021, respectively and $559 and $459 for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, total unrecognized stock-based compensation expense related to non-vested awards of performance stock, net of estimated forfeitures, was $1,200, and is expected to be recognized over a weighted-average period of 2.02 years.
14. Commitments and Contingencies
From time to time, we are party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. For 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.
15. Income Taxes
The Company had income tax benefit of $77 for the three months ended September 30, 2022 and income tax expense of $203 for the three months ended September 30, 2021, and income tax expense of $342 and $432 for the nine months ended September 30, 2022 and 2021, respectively, due to current state income tax expense and adjustments to the valuation allowance on deferred tax assets.
The effective income tax rate for the nine months ended September 30, 2022 was negative 1.0% and includes the effect of the valuation allowance, state income taxes and nondeductible items. The effective income tax rate for the nine months ended September 30, 2022 was less than the federal and state statutory rates primarily due to changes in the valuation allowance, which had an impact of 24.8%.
22
CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
The Company’s income is subject to a federal statutory rate of 21.0% and an estimated state statutory rate of 4.3% 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.
At September 30, 2022, deferred tax liabilities, net of deferred tax assets, was $1,259. A valuation allowance has been recorded for the deferred tax assets as the Company has determined that it is not more likely than not that the tax benefits related to all the deferred tax assets will be realized. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance on its deferred tax assets.
16. Loss Per Share
Basic loss per share is computed by dividing net loss attributable to the Company’s stockholders by the weighted-average number of shares outstanding during the period. Diluted loss per share reflects all potentially dilutive ordinary shares outstanding during the period and is computed by dividing net loss attributable to the Company’s stockholders by the weighted-average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities.
Basic and diluted loss per share is determined using the following information:
Three months ended
Nine Months Ended
 September 30,September 30,
2022202120222021
Numerator:
Net loss attributable to Charah Solutions, Inc.$(13,359)$(1,677)$(35,002)$(7,130)
Deemed and imputed dividends on Series A Preferred Stock(150)(148)(449)(443)
Series A Preferred Stock dividends(956)(1,946)(4,617)(6,161)
Net loss attributable to common stockholders$(14,465)$(3,771)$(40,068)$(13,734)
Denominator:
Weighted average shares outstanding33,722 32,27733,592 30,955
Dilutive share-based awards— — — — 
Total weighted average shares outstanding, including dilutive shares33,722 32,277 33,592 30,955 
Net loss attributable to common stockholders per common share
Basic$(0.43)$(0.12)$(1.19)$(0.44)
Diluted$(0.43)$(0.12)$(1.19)$(0.44)
The holders of the Preferred Stock have non-forfeitable 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, 2022 and 2021, the inclusion of all potentially dilutive shares would be anti-dilutive. Therefore, dilutive shares of 14,640 and 12,379 were excluded from the computation of the weighted-average shares for diluted net loss per share for the three months ended September 30, 2022 and 2021, respectively and dilutive shares of 13,976 and 12,064 were excluded from the computation of the weighted-average shares for diluted net loss per share for the nine months ended September 30, 2022 and 2021, respectively.
23
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 EndedNine Months Ended
September 30,September 30,
2022202120222021
Diluted earnings per share:
Anti-dilutive restricted and performance stock units2,046 1,298 1,772 1,325 
Anti-dilutive Series A Preferred Stock convertible into common stock12,594 11,081 12,204 10,739 
Potentially dilutive securities, excluded as anti-dilutive14,640 12,379 13,976 12,064 
17. Subsequent Events
Preferred Stock and Debt Conversion Investments
On November 14, 2022, the Company and an investment fund affiliated with BCP entered into (i) an agreement to sell 30 (thirty thousand) shares of Series B Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), with an initial aggregate liquidation preference of $30,000, net of a 4% Original Issue Discount (“OID”) of $1,200 for net proceeds of $28,800 in a private placement (the “Preferred Stock Investment”), and (ii) a binding term sheet to convert the then-outstanding loans under the Term Loan Agreement into equity interests in the remaining real estate associated with our GCERG and CPERG subsidiaries (the “Debt Conversion Investment”). This real estate has a carrying value of $12,077 and is classified within real estate, property and equipment, net in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2022.
The Series B Preferred Stock shall rank senior to all classes or series of equity securities of the Company with respect to dividend rights and rights on liquidation. In the event of any liquidation or winding up of the Company, the holder of each share of the Series B Preferred Stock will receive in preference to the holders of the Company common stock a per share amount equal to the greater of (i) the stated value of the Series B Preferred Stock and (ii) the amount such holders would be entitled to receive at such time if the Preferred Stock were converted into Company common stock. Proceeds from the Preferred Stock Investment will be used for liquidity and general corporate purposes.
Conversion Features The holder of the Series B Preferred Stock may at any time following the 3-month anniversary of issuance convert all or a portion of the Preferred Stock into common stock of the Company. Each share of Series B Preferred Stock will be convertible into a number of shares of common stock of the Company equal to the purchase price of such share divided by the conversion price, which will be set at an amount representing the volume-weighted average closing price of the Company common stock for the 20-trading days immediately preceding the public announcement of this transaction.
At any time after the three-year anniversary of the date of issuance, if the holders have not elected to convert all their shares of Series B Preferred Stock, the Company will have the option to convert all of the then-outstanding shares of Series B Preferred Stock; provided that (i) the closing price of the Company’s common stock exceeds 120% of the conversion price for each of the 20 consecutive trading days prior to the date of conversion, (ii) the Company’s common stock is then listed on a national securities exchange, (iii) a registration statement for re-sale of the Company’s common stock is then effective and (iv) the Company is not then in possession of material non-public information. The Company will provide the holders with 30 days’ notice of its intention to convert the Series B Preferred Stock and the holders will then have the option, in their sole discretion, to have their Series B Preferred Stock converted at the then-applicable Conversion Price or redeemed in cash at the Company’s redemption price as defined in the agreement. In the event the holders elect to have the Series B Preferred Stock redeemed in cash and the Company is unable to redeem the Series B Preferred Stock in cash, then the holders shall not be required to participate in any conversion and shall retain their then-outstanding Series B Preferred Stock in all respects.
Redemption Rights If a change of control of the Company occurs, subject to the payment in full of all obligations under the Credit Agreement, the Company will be required to immediately make an offer to repurchase all of the then-outstanding shares of Series B Preferred Stock for cash consideration per share equal to the Company’s redemption price as defined in the agreement. Unless the holders buy all or substantially all of the Company’s assets in a transaction or a series of related transactions approved by the Company’s board of directors, no acquisition or disposition of securities by the holders shall constitute a change of control hereunder.
At any time after the 30-month anniversary of the date of closing, the holders will have the option to require the Company to redeem any or all of the then-outstanding shares of Series B Preferred Stock for cash consideration equal to the stated value provided that the Company has the financial means and subject to the approval of the Company's lender if required under a customary credit facility.
At any time after the 30-month anniversary of the date of closing, and upon not less than 30 days prior written notice, if the holders have not elected to convert or redeem all their shares of Series B Preferred Stock, the Company may elect to redeem all shares of Series B Preferred Stock for an amount 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 Series B Preferred Stock and (ii) the stated value.
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CHARAH SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements, continued
(in thousands, except per share data)
(Unaudited)
Voting Rights The holders of the Series B Preferred Stock are entitled to vote with the holders of the common stock on an as-converted basis and not as a separate class. The voting power of the Series B Preferred Stock will be limited to 5.0% of the outstanding common stock of the Company.
Registration Rights The holders of the Series B Preferred Stock will receive (i) customary transferable shelf registration rights pertaining to the Preferred Stock and any shares of Company common stock issued upon the conversion thereof and (ii) customary piggyback and demand rights in respect of any Company common stock issued upon the conversion of any preferred stock, in each case, by amendment to the Company’s current registration rights agreement or otherwise and on terms consistent therewith.
Debt Conversion Investment: Under the binding terms of the Debt Conversion Investment, the Company, through its wholly-owned subsidiary Charah Environment Redevelopment Group ("CERG"), shall maintain responsibility for any abatement, investigation, clean-up, removal action, remedial action, restoration, repair, response action, corrective action, monitoring, sampling and analysis, installation, reclamation, closure, or post-closure in connection with the suspected, threatened or actual release of hazardous materials in connection with the environmental conditions or environmental compliance of GCERG or CPERG. Additionally, CERG shall indemnify and save and hold harmless the holders of the investment and its respective affiliates (including each of its and their respective officers, directors, employees, direct and indirect equity holders, agents, affiliates, representatives, successors and assigns) harmless from and against any and all losses suffered or incurred in connection with any liability arising out of or resulting from environmental conditions or environmental compliance associated with GCERG or CPERG.
CERG shall accept and retain and be responsible for, and pay, satisfy and discharge when due, any and all liabilities, whether arising before, on or after the date of the closing, and irrespective of whether such liabilities attached or accrue to GCERG or CPERG, CERG, or the holders in the first instance, relating to, resulting from or arising out of any environmental conditions or environmental compliance associated with GCERG or CPERG.
Reverse Stock Split
The Company's Board of Directors approved a one-for-ten reverse stock split on November 14, 2022, subject to shareholder approval, amongst other required notifications and approvals. Once this reverse stock split has been effectuated in the fourth quarter, we will update the financial statements and will recast prior periods for the change in outstanding shares.
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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 a more limited scope.
Overview
We are a leading national service provider of mission-critical environmental services and byproduct recycling to the power generation industry. We offer a suite of remediation and compliance services, byproduct services, raw material sales 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 marketing 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 2021, we performed work at more than 40 coal-fired generation sites nationwide.
We operate as a single operating segment, reflecting 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 services, raw material sales 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 services consist of recurring and mission-critical coal ash management and operations for coal-fired power generation facilities while also supporting 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 supplemental cementitious materials (“SCMs”) that provide a sustainable, environmentally-friendly substitute for Portland cement in concrete. Our raw material sales provide customers with the raw materials that are essential to their business while also providing the sourcing, logistics, and management needed to facilitate these raw material transactions around the globe. ERT services represent an innovative solution designed to meet coal-fired plant energy providers’ evolving and increasingly complex plant closure and environmental remediation needs. These customers need to retire and decommission older or underutilized assets while maximizing the assets value and improving the environment. Our ERT services manage the sites' environmental remediation requirements, benefiting the communities and lowering the coal-fired plant energy providers’ costs.
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. 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 and we follow current CDC guidelines and recommendations. Understanding that the COVID-19 challenge is evolving, we continue to monitor the situation and update our proactive measures in coordination with our customers based on new information and feedback. We continue to work closely with our utility partners and concrete producer customers to meet their needs and monitor any potential slowdowns of byproduct recycling and marketing services if there is decreased demand for construction materials.
The COVID-19 pandemic presents potential new risks to the Company’s business, including logistical, supply chain and other challenges that may continue to affect demand for services, which are driven by construction activity, and the timing of our remediation and compliance services projects, due to delays in new contract awards and increasing costs and declining availability for certain machinery and equipment.
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;
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•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 and gains associated with ERT services less cost of sales, other operating expenses from ERT services, general and administrative expenses, and impairment expense to measure our financial performance. We believe that operating income is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets. Additionally, due to the nature of the accounting requirements relating to our ERT services, the gains from the sales of fixed assets and the costs associated with ERT fixed asset sales are recorded as a component of operating income. When analyzing operating income, we compare actual operating income to our internal projections for a given period and to prior periods to assess our performance.
Adjusted EBITDA and Adjusted EBITDA Margin
We view Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures, as important indicators of performance because they allow for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure.
We define Adjusted EBITDA as net loss attributable to Charah Solutions, Inc. before income from discontinued operations, net of tax, interest expense, net, loss on extinguishment of debt, income taxes, depreciation and amortization, equity-based compensation, impairment expense (including inventory reserves), gain on change in contingent payment liability 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 also cause changes in energy consumption which may influence the demand and timing of associated services for our byproduct services offerings. Our byproduct services and raw material sales are also negatively affected during winter months when the use of cement and cement products is generally lower. 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.
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,
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creating the need to dispose of coal ash in an environmentally sensitive manner. Pricing of byproduct services and raw material sales are 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 raw material 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, 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, 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 coal-fired plant energy providers’ most complex environmental challenges.
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 services include recycling recurring and contracted volumes of coal-fired power generation waste byproducts, such as fly ash, bottom ash, IGCC slag and gypsum byproducts, each of which can be used for various industrial purposes. Byproduct services also include the management of coal ash which is mission-critical to power plants’ daily operations including silo management, on-site ash transportation and capture, and disposal of combustion byproducts from coal-power operations. 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 raw material sales provide customers with the raw materials essential to their business while also providing the sourcing, logistics, and management needed to facilitate these raw material transactions around the globe.
Revenue from construction contracts is recognized using the cost-to-cost input method. 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. 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.
Business Environment
We believe there are long-term growth opportunities within the industry in which we operate, and we continue to have a positive long-term outlook. We believe that with our full suite of service offerings, broad geographic reach, and technical and safety expertise, we are well positioned to mitigate the risks and challenges in our industry while continuing to capitalize on opportunities and trends. The following represent the recent risks and challenges experienced by the Company.
Inflationary Market Pressures
We are experiencing the general impact of inflationary market pressures in our supply chain, labor and subcontractor markets. As a result of the tightening of the labor market, we continue to operate with disciplined hiring practices, but we believe our labor costs will remain high given our demand for labor in this environment. Further, we could continue to experience difficulties in securing pricing and the availability of certain equipment, materials and subcontractors.
While opportunities to bid on new projects and work continue to be comparable to prior year levels, we believe inflationary market pressures may impact our ability to secure backlog in the near term. Our customer are focused on cost containment to maintain allowable budgets and we continue to see projects on which we have submitted competitive bids being left unawarded from higher-than-expected cost proposals received.

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Additionally, continued inflation may result in tightening of the credit markets, making access to funding, bonding, letters of credit or sureties more challenging, any of which could adversely impact our profitability and cash flow.
Competitive Labor Market.
As our continued success depends on our ability to attract and retain qualified personnel, we continue to compete to identify, hire and retain qualified employees in this labor market. We believe this labor competition trend is likely to continue, possibly to such a degree that demand for labor resources will outpace supply. Furthermore, the nature of our business as well as the markets in which our projects operate could result in shortages of qualified labor in those markets during periods of high demand. Our ability to capitalize on available opportunities is limited by our ability to employ, train and retain the necessary skilled personnel at acceptable labor costs. We continue to monitor our labor markets and do not currently believe the labor market environment will present a material risk to our profitability as we continue to retain and develop our workforce.
Supply Chain Disruption.
We are experiencing supply chain disruptions in our end markets related to the following factors: (i) delays in receiving materials and equipment, and (ii) increased logistics costs resulting from a reduction in available rail cars and truck drivers as well as increases in imported raw materials from tax, tariffs and border controls.
These factors differ in their severity and impact to our financial situation, and we continue to monitor these supply chain disruptions, logistical challenges and general market conditions with respect to availability and costs of certain materials and equipment necessary for the performance of our business and the impact to our profitability and cash flow.
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Results of Operations    
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
 Three Months Ended
 September 30,Change
 20222021$%
(dollars in thousands)
Revenue$81,540 $84,161 $(2,621)(3.1)%
Cost of sales(78,681)(74,712)(3,969)5.3 %
Gross profit2,859 9,449 (6,590)(69.7)%
General and administrative expenses(9,493)(9,396)(97)1.0 %
Gains on sales of real estate, property and equipment, net2,601 2,998 (397)(13.2)%
Gain on ARO settlement978 1,127 (149)(13.2)%
Other operating expenses from ERT services(5,847)(817)(5,030)615.7 %
Impairment expense— (700)700 (100.0)%
Operating income(8,902)2,661 (11,563)434.5 %
Interest expense, net(4,534)(3,541)(993)28.0 %
Loss on extinguishment of debt— (638)638 (100.0)%
Loss before income taxes(13,436)(1,518)(11,918)785.1 %
Income tax (benefit) expense(77)203 (280)(137.9)%
Net loss(13,359)(1,721)(11,638)(676.2)%
Less loss attributable to non-controlling interest— (44)44 100.0 %
Net loss attributable to Charah Solutions, Inc.$(13,359)$(1,677)(11,682)(696.6)%
Revenue. Revenue decreased $2.6 million, or 3.1%, to $81.5 million for the three months ended September 30, 2022 as compared to $84.2 million for the three months ended September 30, 2021, primarily driven by decreases in remediation and compliance services revenue of $7.8 million from the net completions of project work. This decrease was partially offset by increases in byproduct services revenue of $3.5 million resulting from increased ash production and raw material sales of $1.7 million resulting from an increase in shipments.
Gross Profit. Gross profit decreased $6.5 million, or 69.7%, to $2.9 million for the three months ended September 30, 2022 as compared to $9.4 million for the three months ended September 30, 2021. As a percentage of revenue, gross profit was 3.5% and 11.2% for the three months ended September 30, 2022 and 2021, respectively. The decrease in gross profit and gross profit margin continued to be directly affected by several factors, including supply chain and logistics issues that impacted two long-term beneficial use projects and additional costs incurred to complete and demobilize certain construction projects. Delays in receiving material and obtaining necessary rail and trucking resources and securing necessary off-take agreements resulted in delays and margin degradation on the beneficial use projects. The Company is taking steps to address these issues, including working closely with its customers on mutually acceptable contract adjustments although there can be no assurance that such adjustments will be successfully negotiated. During the three months ended September 30, 2022, the gross loss was $1.6 million and $2.2 million on the construction projects and the two beneficial use projects, respectively.
General and Administrative Expenses. General and administrative expenses increased $0.1 million, or 1.0%, to $9.5 million for the three months ended September 30, 2022 as compared to $9.4 million for the three months ended September 30, 2021, primarily attributable to the timing of certain corporate expenses.
Gains on Sales of Real Estate, Property and Equipment, Net. Gains on sales of real estate, property and equipment, net decreased $0.4 million, or 13.2%, to $2.6 million for the three months ended September 30, 2022 as compared to $3.0 million for the three months ended September 30, 2021, primarily due to a decrease in scrap sale volume from the demolition of the Gibbons Creek power plant partially offset by scrap sales resulting from the acquisitions of the Avon Lake and Cheswick ERT projects.
Gain on ARO settlement. Gain on ARO settlement decreased $0.1 million for the three months ended September 30, 2022 due to differences in the timing of remediation activities and the size of the resulting gains recognized between the estimated costs used in the measurement of the fair value of the Company's AROs and the actual costs incurred for specific remediation tasks recognized on a proportionate basis.
Other Operating Expenses from ERT Services. Other operating expenses from ERT services increased $5.0 million, or 615.7%, to $5.8 million for the three months ended September 30, 2022 as compared to $0.8 million for the three months ended September 30, 2021, primarily driven by an increase in operating expenses resulting from the acquisition of the Avon Lake and Cheswick ERT projects, project management-related expenses of $1.1 million for the achievement of certain projects-related milestones and profitability levels on the Gibbons Creek ERT project and accretion expense of $2.4 million.
Impairment Expense. Impairment expense decreased $0.7 million for the three months ended September 30, 2022 due to absence of impairment charges taken on certain long-lived assets.
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In performing the evaluation for potential impairment indicators with respect to the Company's long-lived assets, including the trade name indefinite-lived intangible as of September 30, 2022, we considered the impact of the Company's recent operating results on forecasts of future cash flows attributable to such trade name. While the financial results in our near-term and terminal forecast periods remain relatively consistent with prior forecasts, we continue to analyze the rapidly changing regulatory and political environment and the potential impacts to our trade name from our existing revenue-generating activities and an expansion of our ERT offerings. We continue to assess strategic initiatives to maximize the potential in our existing backlog and pipeline of opportunities.
Changes resulting from the Company's strategic decisions and initiatives, the current economic environment and other external factors, including inflationary market pressures and supply chain disruption, could result in significant adverse changes to the Company’s assumptions related to the estimated fair value of the intangible asset that could lead to a reduction in the fair value of our trade name. Any future impairment charges on our trade name indefinite-lived intangible asset could have a material adverse impact on the Company’s consolidated financial condition and results of operations.
Interest Expense, Net. Interest expense, net increased $1.0 million, or 28.0%, to $4.5 million for the three months ended September 30, 2022 as compared to $3.5 million for the three months ended September 30, 2021, primarily due to 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 decreased $0.6 million, or 100%, for the three months ended September 30, 2022 to $0.0 million as compared to $0.6 million for the three months ended September 30, 2021, due to the write-off on unamortized debt issuance costs related to the Credit Facility in the third quarter of 2021.
Income Tax Expense. Income tax expense decreased $0.3 million, or 137.9%, for the three months ended September 30, 2022 to an income tax benefit of $0.1 million as compared to an income tax expense of $0.2 million for the three months ended September 30, 2021, primarily due to limitations of the utilization of deferred tax assets against the reversal of deferred tax liabilities.
Net Loss. Net loss increased $11.6 million, or 676.2%, to $13.4 million for the three months ended September 30, 2022 as compared to $1.7 million for the three months ended September 30, 2021.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
 Nine Months Ended
 September 30,Change
 20222021$%
(dollars in thousands)
Revenue$224,701 $199,786 $24,915 12.5 %
Cost of sales(222,935)(177,832)(45,103)25.4 %
Gross profit1,766 21,954 (20,188)(92.0)%
General and administrative expenses(27,683)(28,080)397 (1.4)%
Gain on sales-type lease— 5,568 (5,568)(100.0)%
Gains on sales of real estate, property and equipment, net8,942 6,241 2,701 43.3 %
Gain on ARO settlement4,986 1,127 3,859 342.4 %
Other operating expenses from ERT services(9,100)(2,114)(6,986)330.5 %
Impairment expense— (827)827 (100.0)%
Operating (loss) income(21,089)3,869 (24,958)645.1 %
Interest expense, net(13,574)(10,090)(3,484)34.5 %
Loss on extinguishment of debt— (638)638 (100.0)%
Income from equity method investment— 191 (191)(100.0)%
Loss before income taxes(34,663)(6,668)(27,995)419.8 %
Income tax (benefit) expense342 432 (90)(20.8)%
Net loss(35,005)(7,100)(27,905)(393.0)%
Less (loss) income attributable to non-controlling interest(3)30 (33)110.0 %
Net loss attributable to Charah Solutions, Inc.$(35,002)$(7,130)(27,872)(390.9)%
Revenue. Revenue increased $24.9 million, or 12.5%, to $224.7 million for the nine months ended September 30, 2022 as compared to $199.8 million for the nine months ended September 30, 2021, primarily driven by increases in in raw material sales of $12.4 million from an increase in shipments, remediation and compliance services revenue of $7.5 million from the net commencements of new project work and byproduct services revenue of $5.0 million from an increase in production.
Gross Profit. Gross profit decreased $20.2 million, or 92.0%, to $1.8 million for the nine months ended September 30, 2022 as compared to $22.0 million for the nine months ended September 30, 2021. As a percentage of revenue, gross profit was 0.8% and 11.0% for the nine months ended September 30, 2022 and 2021, respectively. The decrease in gross profit and gross profit margin was directly affected by several factors, including supply chain and logistics issues that impacted two long-term beneficial use projects and significant challenges from weather and site conditions that delayed the completion of three projects during the nine months ended September 30, 2022. Delays in
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receiving material and obtaining necessary rail and trucking resources and securing necessary off-take agreements resulted in delays and margin degradation on the beneficial use projects. The Company is taking steps to address these issues, including working closely with its customers on contract adjustments. During the nine months ended September 30, 2022, gross profit loss was $9.0 million and $5.9 million on the two beneficial use projects and three legacy construction projects, respectively.
General and Administrative Expenses. General and administrative expenses decreased $0.4 million, or 1.4%, for the nine months ended September 30, 2022 to $27.7 million as compared to $28.1 million for the nine months ended September 30, 2021, primarily attributable to the timing of certain corporate expenses.
Gain on sales-type lease. Gain on sales-type lease decreased $5.6 million for the nine months ended September 30, 2022 due to the absence of the recognition of a parcel transferred under a sales-type lease at an ERT project as discussed in Note 5, Balance Sheet Items, to the accompanying unaudited condensed consolidated financial statements.
Gains on Sales of Real Estate, Property and Equipment, Net. Gains on sales of real estate, property and equipment, net increased $2.7 million, or 43.3%, to $8.9 million for the nine months ended September 30, 2022 as compared to $6.2 million for the nine months ended September 30, 2021, primarily due to increased scrap sales resulting from the demolition of the Gibbons Creek power plant in the fourth quarter of 2021 and the acquisitions of the Avon Lake and Cheswick ERT projects.
Gain on ARO settlement. Gain on ARO settlement increased $3.9 million, or 342.4%, to $5.0 million for the nine months ended September 30, 2022 as compared to $1.1 million for the nine months ended September 30, 2021 due to differences in the timing of remediation activities and the size of the resulting gains recognized between the estimated costs used in the measurement of the fair value of the Company's AROs and the actual costs incurred for specific remediation tasks recognized on a proportionate basis.
Other Operating Expenses from ERT Services. Other operating expenses from ERT services increased $7.0 million, or 330.5%, to $9.1 million for the nine months ended September 30, 2022 as compared to $2.1 million for the nine months ended September 30, 2021, primarily driven by an increase in operating expenses resulting from the acquisition of the Avon Lake and Cheswick ERT projects, project management-related expenses of $2.8 million for the achievement of certain projects-related milestones and profitability levels on the Gibbons Creek ERT project and accretion expense of $3.1 million.
Impairment Expense. Impairment expense decreased $0.8 million for the nine months ended September 30, 2022 due to absence of impairment charges taken on certain long-lived assets.
Interest Expense, Net. Interest expense, net increased $3.5 million, or 34.5%, to $13.6 million for the nine months ended September 30, 2022 as compared to $10.1 million for the nine months ended September 30, 2021, primarily due to 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 decreased $0.6 million, or 100%, for the nine months ended September 30, 2022 to $0.0 million as compared to $0.6 million for the nine months ended September 30, 2021, due to the write-off on unamortized debt issuance costs related to the Credit Facility in the third quarter of 2021.
Income from Equity Method Investment. Income from equity method investment decreased $0.2 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, due to the dissolution of our joint venture in CV Ash in the first quarter of 2021.
Income Tax Expense. Income tax expense decreased $0.1 million, or 20.8%, for the nine months ended September 30, 2022 to $0.3 million as compared to $0.4 million for the nine months ended September 30, 2021, primarily due to limitations of the utilization of deferred tax assets against the reversal of deferred tax liabilities.
Net Loss. Net loss increased $27.9 million, or (393.0)%, to $35.0 million for the nine months ended September 30, 2022 as compared to $7.1 million for the nine months ended September 30, 2021.
Condensed Consolidated Balance Sheets
The following table is a summary of our overall financial position:
September 30, 2022December 31, 2021Change
(in thousands)
Total assets$371,885 $344,107 $27,778 
Total liabilities347,852 287,778 60,074 
Mezzanine equity41,636 35,532 6,104 
Total equity(17,603)20,797 (38,400)
Assets
Total assets increased $27.8 million, driven primarily by:
▪$32.7 million in real estate, property and equipment additions, net acquired in the Avon Lake and Cheswick asset purchase agreements during the nine months ended September 30, 2022; and
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▪$16.6 million in real estate, property and equipment additions, net of disposals, primarily driven by new capital leases of yellow-iron equipment entered into during the nine months ended September 30, 2022
These increases were partially offset by:
▪$7.1 million in decreases of cash and restricted cash due to $65.7 million of cash used in operating activities, $46.5 million of cash provided by investing activities and $12.1 million of cash used in financing activities;
▪$14.5 million in property and equipment depreciation expense during the nine months ended September 30, 2022; and
▪$5.9 million in intangible asset amortization expense during the nine months ended September 30, 2022.
Liabilities
Total liabilities increased $60.1 million, primarily driven by:
▪$34.4 million in increases of current and non-current asset retirement obligations (“AROs”) resulting from the AROs acquired of $64.5 million as part of the Avon Lake and Cheswick Transactions discussed in Note 3, Asset Acquisitions, partially offset by settlements of AROs of $28.3 million and gains on AROs settlements of $5.0 million recognized during the nine months ended September 30, 2022;
▪$15.1 million in new capital lease obligations entered into during the nine months ended September 30, 2022; and
▪$16.0 million in proceeds from the Term Loan Agreement and $8.8 million in proceeds from the Credit Agreement discussed in Note 9. Long-term Debt
These increases were partially offset by:
▪$6.4 million in principal payments on capital lease obligations; and
▪$11.5 million decrease in accrued liabilities during the nine months ended September 30, 2022
Mezzanine Equity
Total mezzanine equity increased $6.1 million related to the paid in-kind dividends and accretion associated with the Preferred Stock.
Equity
Total equity decreased $38.4 million, primarily driven by the $35.0 million net loss and $5.1 million in paid in-kind and deemed dividends associated with our Preferred Stock, partially offset by $2.4 million of share-based compensation.
Liquidity and Capital Resources
Our primary ongoing sources of liquidity and capital resources are cash on the balance sheet, cash flows generated by operating activities, borrowings under the Notes, proceeds from the issuance of common and preferred stock and availability under our asset-based lending credit agreement. 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.
Several factors impacted the Company's financial results and cash flows during the three and nine months ended September 30, 2022, which included (i) supply chain and logistics issues that impacted two long-term beneficial use projects, (ii) significant challenges from weather and site conditions that delayed the completion of three projects and (iii) accelerated cash outflows for remediation activities on an ERT project. Delays in receiving material and obtaining necessary rail and trucking resources and securing necessary off-take agreements resulted in delays and margin degradation on the beneficial use projects. The Company is taking steps to address these issues, including working closely with its customers on contract adjustments, increasing commercial rigor and risk assessment for new work, and improving our project management oversight, tools, and processes.
In response to recurring operating losses and liquidity needs, the Company has frequently secured additional financing or equity contributions from its majority shareholder, BCP, to fund the Company’s operations and meet capital requirements. BCP is not obligated to provide future funding or equity contributions to the Company were they to be needed.
As of September 30, 2022, we had $7.7 million of cash on hand, $2.7 million of borrowing capacity under our Credit Agreement (as defined elsewhere herein) and $4.0 million of borrowing capacity under our Term Loan Agreement for total liquidity of $14.4 million. Charah Solutions had borrowings of $8.8 million under the Credit Agreement as of September 30, 2022, and the springing financial covenant was not in effect.
On November 8, 2022, the Company elected to draw down the remaining $4.0 million available under the Term Loan Agreement to fund operating activities. Immediately following this drawdown, $20.0 million of aggregate loans were outstanding and there was no remaining borrowing capacity available under the Term Loan Agreement.
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On November 14, 2022, the Company entered into an agreement with an investment fund affiliated with BCP to sell thirty- thousand shares of Series B Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), with an initial aggregate liquidation preference of $30.0 million, net of a 4% Original Issue Discount (“OID”) of $1.2 million for net proceeds of $28.8 million in a private placement (the “Preferred Stock Investment”). Proceeds from the Preferred Stock Investment will be used for liquidity and general corporate purposes.
After giving consideration to the Preferred Stock Investment, we believe our cash on hand, including the net proceeds from the Preferred Stock Investment, availability under the Credit Agreement and cash generated from operations will be sufficient to cover our working capital requirements and debt obligations for the next 12 months from the issuance of this Quarterly Report.
Cash Flows
The following table sets forth our cash flow data:
 Nine Months Ended 
 September 30,Change
 20222021$
(dollars in thousands)
Net cash and restricted cash (used in) provided by operating activities(65,737)2,028 $(67,765)
Net cash and restricted cash provided by investing activities46,535 31,638 14,897 
Net cash and restricted cash provided by financing activities12,132 8,176 3,956 
Net change in cash and restricted cash$(7,070)$41,842 $(48,912)
Operating Activities
Net cash and restricted cash (used in) provided by operating activities decreased $67.8 million to net cash and restricted cash used in operating activities of $65.7 million for the nine months ended September 30, 2022 as compared to net cash and restricted cash provided by operating activities of $2.0 million for the nine months ended September 30, 2021. The change in cash flows from operating activities was primarily attributable to:
•an increase in net loss of $27.9 million.
•a decrease in non-working capital adjustments to net loss of $0.8 million, primarily due to increases in gains on ARO settlements and gains on sales of real estate, property and equipment of $5.0 million and $1.0 million, respectively, during the nine months ended September 30, 2022 as well as the absence of paid-in-kind interest on long-term debt of $2.8 million during the nine months ended September 30, 2022. These changes were partially offset by the absence of the gain on sales-type lease of $5.6 million and increases of depreciation and amortization and amortization of debt issuance costs of $1.8 million and $1.1 million, respectively, during the nine months ended September 30, 2022.
•an increase in cash used from all other operating activities of $40.6 million, which was primarily driven cash settlements of the existing liabilities related to AROs.
Investing Activities
Net cash provided by investing activities increased $14.9 million to $46.5 million for the nine months ended September 30, 2022 as compared to $31.6 million for the nine months ended September 30, 2021. The changes in cash flows from investing activities was primarily driven by the absence of payments of $7.4 million of the working capital adjustment and other items resulting from the sale of the Allied subsidiary, increases of $1.8 million in net proceeds from the sales of real estate, property and equipment from increased scrap sales ERT projects and increases of $3.3 million in cash and restricted cash received from ERT transactions resulting from the Avon Lake and Cheswick Transactions.
Financing Activities
Net cash provided by financing activities increased $4.0 million to $12.1 million for the nine months ended September 30, 2022 as compared to net cash provided by financing activities of $8.2 million for the nine months ended September 30, 2021. The change in cash flows from financing activities was primarily driven by $16.0 million in proceeds from the Term Loan Agreement and $8.8 million in proceeds from the Credit Agreement discussed in Note 9 Long-term Debt.
Working Capital
Our working capital, which we define as total current assets less total current liabilities, totaled $18.0 million at September 30, 2022 as compared to $31.5 million at December 31, 2021. This decrease in net working capital for the nine months ended September 30, 2022 was primarily due to:
•decreases in cash and cash equivalents from net cash used in operating activities, partially offset by cash provided by investing and financing activities;
•increases in AROs primarily driven by the AROs acquired in the Avon Lake and Cheswick Transactions, partially offset by settlements and gains on settlement of the Gibbons Creek AROs during the nine months ended September 30, 2022; and
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•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, 2022.
Our Debt Agreements
Senior Notes
On August 25, 2021, the Company completed a public 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 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 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, $12.1 million 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 $30.0 million, which includes $5.0 million available for swingline loans, plus an additional $5.0 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 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 contains a provision for sustainability adjustments annually that will impact the applicable margin by between positive 0.05% and negative 0.05% based on the achievement, or lack thereof, of certain metrics agreed upon between JPMorgan and the Company and publicly reported through the Company’s annual non-financial sustainability report.
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
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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.
As of September 30, 2022, the Company has $8.8 million draw on the Credit Agreement. Outstanding letters of credit were $10.7 million and $19.0 million as of September 30, 2022 and December 31, 2021. As of September 30, 2022, all outstanding letters of credit were issued with JPMorgan.
On August 15, 2022, the Company entered into Amendment No. 1 to the Credit Agreement (the “Credit Agreement Amendment”) with JPMorgan Chase Bank, N.A., as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein. The Credit Agreement Amendment, among other things, permitted the Company (and certain of its subsidiaries) to execute the Term Loan Agreement and guarantee the Term Loan Agreement borrower’s obligations under the Term Loan Agreement. Additionally, the Credit Agreement Amendment permits the Company to include certain gains on ARO settlements and cash received for deferred gains from ERT projects in the calculation of the Company’s fixed charge coverage ratio under the Credit Agreement's financial covenant. As of September 30, 2022, after taking into account the terms of the Credit Agreement Amendment, the Company would have met the financial covenant had it been in effect.
On November 14, 2022, the Company entered into Amendment No. 2 to the Credit Agreement (the “ Second Credit Agreement Amendment”) with JPMorgan Chase Bank, N.A., as administrative agent, the lenders party thereto and certain subsidiary guarantors named therein. The Second Credit Agreement Amendment, among other things, changed the benchmark rate floor on such loans from the LIBO Rate to the Adjusted Term SOFR Rate, increased the revolver Term Benchmark spread from 2.25% to 2.75%, and modified the test for the Covenant Testing Period such that any excess borrowing base over the revolving commitment amount could reduce the threshold that triggers the covenant test up to $2.0 million. Additionally, the Second Credit Agreement Amendment permits the Company to include $15.0 million of equity contributions in "EBITDA", as defined in the Second Credit Agreement Amendment, for the fourth quarter of 2022.
As of November 14, 2022, based on the undrawn letters of credit utilization of $10.7 million, borrowings of $8.8 million under the Credit Agreement and applicable financial covenant requirements, springing covenants would become applicable if the Company were to borrow an additional $3.9 million under the Credit Agreement. As of September 30, 2022, after taking into account the terms of the Credit Agreement Amendment, the Company would not have met the financial covenant had there been a Covenant Testing Period and the financial covenant had been in effect.
As a result of entering into the Credit Agreement, $1.4 million of third-party fees were capitalized as debt issuance costs that will be amortized through interest expense, net in the unaudited condensed consolidated statements of operations using the effective interest method through the maturity date of the Credit Agreement.
Term Loan Agreement
On August 15, 2022, the Company, through its GCERG subsidiary (the “Term Loan Borrower”), entered into a term loan agreement (the “Term Loan Agreement”) with Charah Preferred Stock Aggregator, LP, an affiliate of Bernhard Capital Partners Management, LP (“BCP”). The Term Loan Agreement provides for a delayed-draw term loan in an aggregate principal amount of $20.0 million. Borrowings can be requested at any date before October 24, 2022. The Term Loan Agreement is scheduled to mature on the earlier of the sale of the remaining GCERG real estate parcels or April 15, 2024. Borrowings under the Term Loan Agreement accrue interest at a percentage per annum equal to 12.0%, with interest payments due on the first business day of each calendar quarter following the effective date of the Term Loan Agreement and on the maturity date. The Term Loan Borrower agreed to pay a commitment fee equal to $1.0 million that is payable on the earliest of (i) April 15, 2024, (ii) the date on which the loans are redeemed in full and all commitments are terminated and (iii) the date on which all commitments are terminated in full. The Term Loan Agreement is secured by a lien on, and security interest in, substantially all of the Term Loan Borrower’s assets, including real property, and is guaranteed on an unsecured basis by the Company and Charah, LLC. Voluntary prepayments are permitted at any time, without premium or penalty.
The Term Loan Agreement contains certain customary representations and warranties and affirmative and negative covenants. The negative covenants include, subject to customary exceptions, limitations on indebtedness, investments and acquisitions, mergers and consolidations, restricted payments, transactions with affiliates, liens and dispositions. The Term Loan Agreement allows the Term Loan Borrower to make distributions to its equity holders with the proceeds of the loans made thereunder. The Term Loan Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may declare all loans to be immediately due and payable.
As of September 30, 2022, the Term Loan Borrower had borrowings of $16.0 million under the Term Loan Agreement. On November 8, 2022, the Company elected to draw down the remaining $4.0 million available under the Term Loan Agreement to fund operating activities.
As a result of entering into the Term Loan Agreement, $0.5 million of third-party fees were capitalized as debt issuance costs that will be amortized through interest expense, net in the unaudited condensed consolidated Statements of Operations using the effective interest method through the maturity date of the Term Loan Agreement.
Equipment Financing Facilities
We have entered into various equipment financing arrangements to finance the acquisition of certain equipment (the “Equipment
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Financing Facilities”). As of September 30, 2022, we had $15.6 million of equipment notes outstanding. Each of the Equipment Financing Facilities includes non-financial covenants, and, as of September 30, 2022, 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 twenty-six thousand 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 were used for liquidity and general corporate purposes.
For more information related to the Series A Preferred Stock, see Note 11, Mezzanine Equity, to the accompanying unaudited condensed consolidated financial statements.
Series B Preferred Stock
On November 14, 2022, the Company entered into an agreement with an investment fund affiliated with BCP to sell thirty- thousand shares of Series B Preferred Stock, par value $0.01 per share, with an initial aggregate liquidation preference of $30.0 million, net of a 4% OID of $1.2 million for net proceeds of $28.8 million in a private placement. Proceeds from the Preferred Stock Investment will be used for liquidity and general corporate purposes.
For more information related to the Series B Preferred Stock, see Note 17, Subsequent Events, to the accompanying unaudited condensed consolidated financial statements.
Reverse Stock Split
The Company's Board of Directors approved a one-for-ten reverse stock split on November 14, 2022, subject to shareholder approval, amongst other required notifications and approvals. Correspondingly, the initial trading price of CHRA common stock is expected to proportionately increase immediately following the reverse stock split. However, other factors may adversely affect the price of the common stock and there can be no assurance that the reverse stock split will increase the trading price of the Company’s common stock.
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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 (including inventory reserves), gain on change in contingent payment liability 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 EndedNine Months Ended
September 30,September 30,
2022202120222021
(in thousands)
Net loss attributable to Charah Solutions, Inc.$(13,359)$(1,677)$(35,002)$(7,130)
Interest expense, net4,534 3,541 13,574 10,090 
Loss on extinguishment of debt— 638 — 638 
Income tax (benefit) expense(77)203 342 432 
Depreciation and amortization7,008 6,263 20,398 18,578 
Equity-based compensation834 769 2,371 1,767 
Impairment expense— 700 380 827 
Transaction-related expenses and other items(1)
450 (73)458 1,174 
Adjusted EBITDA$(610)$10,364 $2,521 $26,376 
Adjusted EBITDA margin(2)
(0.7)%12.3 %1.1 %13.2 %
(1)Represents expenses associated with the Amendment to the Credit Facility, non-recurring legal costs and expenses and other miscellaneous items.
(2)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, 2021.
Contractual Obligations
As of September 30, 2022, 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, 2021 except as disclosed in the Liquidity and Capital Resources section of this Quarterly Report.
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, 2021.
Recent Accounting Pronouncements
Please see Note 2, 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 financial
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statements in our Annual Report on Form 10-K for the year ended December 31, 2021 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 not effective as of September 30, 2022 because of the material weakness in our internal control over financial reporting, both as described below and as previously identified in our Annual Report on Form 10-K for the year ended December 31, 2021.
As previously disclosed on our Annual Report on Form 10-K, we identified the following control deficiencies which aggregate to a material weakness: (i) lack of a sufficient number of trained resources with assigned responsibilities and accountability for the design and operation of internal controls over financial reporting; (ii) lack of formal and effective controls over certain financial statement account balances; (iii) lack of user profiles to ensure adequate restriction of users to perform only transactions that are consistent with their function; and (iv) lack of appropriate segregation of duties within the accounting and finance functions, including order to cash, process to pay and payroll business processes.
Management's Remediation Plan
We have identified and implemented, and continue to implement, certain remediation efforts to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures. These remediation efforts are ongoing. As previously disclosed in our Annual Report on Form 10-K, the following remedial actions have been identified and initiated:
▪We have hired an external consultant to assist us in an evaluation of design and implementation of certain internal controls to address the identified deficiencies.
▪We are in the process of hiring additional accounting resources with appropriate levels of experience and reallocating responsibilities across the finance organization. This measure will provide for appropriate segregation of duties and ensure that the appropriate level of knowledge and experience will be applied based on the risk and complexity of transactions and tasks under review.
▪We are revising user profiles within our accounting systems to ensure appropriate segregation of duties is in place.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. As we continue to evaluate and take actions to improve our internal control over financial reporting, we will further refine our remediation plan and take additional actions to address control deficiencies or modify certain of the remediation measures described above.
While progress has been made to enhance our internal control over financial reporting, we are still in the process of designing, implementing, documenting, and testing the effectiveness of these processes, procedures and controls. Additional time is required to complete the implementation and to assess and ensure the sustainability of these procedures. We will continue to devote time and attention to these remedial efforts. However, the material weakness cannot be considered remediated until the applicable remedial controls are fully implemented, have operated for a sufficient period of time and management has concluded that these controls are operating effectively through testing.
Changes in Internal Control Over Financial Reporting
Aside from the actions taken as described in Management's Remediation Plan above to improve the Company’s 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, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
39

PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities
During the three months ended September 30, 2022, there were no repurchases of our common stock.

40

Item 6. Exhibits
Exhibit
Number		 Description
 
 
 
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.
***Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request.

41

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 14, 2022By:/s/ Scott A. Sewell
 Name:Scott A. Sewell
 Title:President and Chief Executive Officer
  (Principal Executive Officer)
   
   
November 14, 2022By:/s/ Jonathan T. Batarseh
 Name:Jonathan T. Batarseh
 Title:Chief Financial Officer and Treasurer
  (Principal Financial Officer and Principal Accounting Officer)
   
42

Exhibit 31.1
CERTIFICATIONS
I, /s/ Scott A. Sewell, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Charah Solutions, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2022

/s/ Scott A. Sewell
 Scott A. Sewell
  President and Chief Executive Officer
  (Principal Executive Officer)

Exhibit 31.2
CERTIFICATIONS
I, Jonathan T. Batarseh, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Charah Solutions, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2022

/s/ Jonathan T. Batarseh
Jonathan T. Batarseh
  Chief Financial Officer and Treasurer
  (Principal Financial Officer)

Exhibit 32.1

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Charah Solutions, Inc. (the “Company”) for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott A. Sewell, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2022

/s/ Scott A. Sewell
Scott A. Sewell
  President and Chief Executive Officer
  (Principal Executive Officer)

Exhibit 32.2

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Charah Solutions, Inc. (the “Company”) for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan T. Batarseh, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2022

/s/ Jonathan T. Batarseh
Jonathan T. Batarseh
  Chief Financial Officer and Treasurer
  (Principal Financial Officer)