Charah Solutions, Inc. (NYSE:CHRA) Q4 2019 Earnings Conference Call March 26, 2020 8:30 AM ET
Scott Sewell – President, Chief Executive Officer
Roger Shannon – Chief Financial Officer, Treasurer
Tony Semak – Head of Investor Relations
Conference Call Participants
Toni Kaplan – Morgan Stanley
Michael Hoffman – Stifel
Michael Feniger – Bank of America
Good morning ladies and gentlemen, and welcome to the Charah Solutions Inc., Fourth Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]
I would now like to hand the conference over to Tony Semak, Head of Investor Relations for Charah Solutions. Please go ahead.
Thank you, operator. Good morning everyone and thank you for joining us today. We appreciate your participation in our fourth quarter 2019 financial results conference call and look forward to sharing our prepared remarks and answering your questions.
We hope you have had a chance to review the press release we issued yesterday after the market closed, but if not, you can find the press release as well as the supplemental investor presentation you may follow during our prepared remarks on the Investor section of our website at www.charah.com or ir.charah.com.
Joining me today on our call are Scott Sewell, President and Chief Executive Officer; and Roger Shannon, Chief Financial Officer and Treasurer. Following their prepared remarks we will conduct the customary question-and-answer session and continue the dialogue as needed.
Before we begin I’d like to remind you that our remarks regarding Charah Solutions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those disclosed in our earnings releases and conference calls.
Those risks include among other matters that we have described in our earnings release, as well as in our filings with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q and our annual reports on Form 10-K. We expect to file our Form 10-K for the year ended December 31, 2019 this Friday March 27. We disclaim any obligation to update these forward-looking statements.
During this conference call we will refer to non-GAAP financial measures. We provide reconciliations to the applicable GAAP measures in our earnings release, supplemental presentation and on our website. Again, thank you for joining us today.
Now, I’d like to turn the call over to Scott Sewell, our President and CEO. Scott.
Thank you, Tony, and good morning everyone. It’s great to have you join us for our earnings call today and I’m happy to be speaking with you again and providing an update on our fourth quarter performance and I look back over the full year of 2019. I’ll also provide an overview of key business developments and our outlook for 2020 and beyond.
I’m pleased to report that our fourth quarter results evidenced the positive momentum we’re gaining by winning new business and executing on our strategic plan. We also achieved important milestones in bolstering our liquidity and financial position through the recent announcement we made regarding the successful third amendment to our credit agreement and preferred equity private placement.
With our strengthened financial position, our reliable customer base, of which 80% are high quality investment grade regulated utilities and our growth opportunities developing from variable industry and regulatory dynamics, our leadership team and I are excited about the future of Charah Solutions.
This morning I’ll briefly review our financial results and provide an update on current business developments, including a review of our significant accomplishments, and I will highlight our pipeline with opportunities and recent regulatory and legislative actions. I’ll then transition the call to Roger for a deeper dive into our financial performance during the quarter and a discussion around our financing activities in our 2020 guidance.
But first, I’ll provide an overview of the actions we have taken to protect the safety of our employees and discuss the COVID-19 pandemic. I want to first on behalf of Charah Solutions express my sincere condolences and best wishes to those affected by the virus. I also want to thank all first responders, medical personnel and all others who are working tirelessly to address the consequences of this pandemic.
At Charah Solutions our commitment to safety is a core value and an integral component of our culture. As the coronavirus disease continues to expand within the United States and around the world, our highest priority remains the safety of our employees and customers. Charah’s business was built on an unwavering commitment to safety. That commitment will always compel our leadership team and me to pause and make sure we’re putting safety and best interests of our employees and other stakeholders ahead of everything else.
To that end, we have taken immediate action to protect our people, our customers and our business. The mission critical nature of our customers operations, made it imperative to quickly initiate a series of contingency plans to ensure business continuity for our customers, the vast majority of whom are highly regulated and must continue operating to provide power to the country.
We have implemented measures to manage through possible service interruptions and we are maintaining real time communication across our entire organization and with our customers. To-date we have not had any work stoppages and further as of this time, we have not had any employees who have tested positive for COVID-19.
To better ensure the safety and health of our people, we have implemented policies that restrict non-essential travel and raised the approval standard for mandatory travel. We also cancelled or postpone non-essential in-person team meetings, instituted a Work-at-Home policy and communicated detailed guidance for our healthy behaviors for all of our employees.
Our ability to quickly adapt has always made Charah successful. Our field and office teams have adapted exceptionally well during this challenging period, including working-from-home with the support of increased information technology resources, remote location communications, and backup procedures so that we are well prepared for these changes and future challenges.
With respect to our business operations, we have not observed any slowdown in activity on existing job sites as a result of the COVID-19 outbreak and are in constant communication with our utility customers. We have a shared commitment to partner with them in keeping all employees safe by abiding with their health and hygiene policies and aligning with their health and risk mitigation procedures.
Amidst the backdrop of any potential severe domestic or global economic slowdown due to the coronavirus pandemic, it is important to highlight that during the global financial crisis in 2008 and a Great Recession that followed, our business activities and pipeline of projects did not slow and our company continued to experience growth over the next 10 years.
Of course, there can be no assurance that our company will experience the same continued pace of growth, but historically a normal pace of business activity at Charah Solutions is more closely linked to environmental regulatory trends and the fact that over 80% of our work is performed for regulated investment-grade utilities, we rely on our mission critical services to operate.
2019 was a transition year for Charah Solutions and our results were disappointing. However we are optimistic about our business going forward based on our record $583 million of new awards in 2019 and opportunities for award growth in 2020.
As we stated in our press release, the value of new awards won in 2019 exceeded 2018 by 450%. We believe this growth reflects an increased response to state and federal regularity environmental requirements by our customers, as well as the compelling value proposition we offer through our ability to deliver the full range of ash services. We believe that this acceleration in new contract awards reflects the expanding opportunities for our ash remediation into 2020 and beyond as more of our utility customers address the 1,000 plus regulatory-mandated surface impoundment closures in the United States.
We continue to develop and expand our byproducts sales capabilities through our multi-source platform, and we expect that future infrastructure spend initiatives will increase demand for fly ash as a substitute for total cement.
Finally, we are optimistic about the continued performance of our nuclear and fossil maintenance business. Through our ally power operation, we are a leading provider of mission critical, non-discretionary nuclear outage maintenance services. This steady predictable business remains a solid source of revenue and EBITDA for us.
We believe that our momentum in winning awards, coupled with the increased liquidity and financial flexibility provided by our recent credit agreement amendment and successful capital raise, and our increased focus on cash flow improvement through expense reductions strengthens our ability to compete and capitalize on our expanding market opportunities.
Though recent uncertainties related to the coronavirus and resulting impact on the U.S. economy may affect the timing of revenues and project awards in the near term, our customer base is growing and our geographic reach is expanding as customer motivation for our environmentally friendly customized solutions to recycling or remediating ash byproducts increases across the United States.
Before turning to our financial results, I want to touch on several significant accomplishments during the quarter that demonstrates the success of our growth strategy. Thus notably as mentioned previously, we achieved a record year of winning new business in 2019 of $583 million awards. This represents an increase of 450% over 2018.
The contracts won in 2019 increased with the diversification of our customer base and broadened our geographic reach. Contract negotiations with utilities for the launch of our MP618 ash beneficiation technology are in advanced stages and we anticipate signed contracts this year. We continue to optimize our business and deliver on our business objectives, and we continue to receive awards and recognitions for our excellent safety performance, which further demonstrates our commitment to our employees and our customers.
Now, turning to our fourth quarter 2019 financial results, revenue for the three months ended December 31, 2019 was $149.6 million, a decrease of $53.6 million or 26.4% from $203.2 million reported in the three months ended December 31, 2018. The decrease in revenue compared to the same quarter last year is due to the completion of projects in 2018 in our environmental solutions segment that was not replaced with new awards in 2018. This decline was partially offset by higher revenues in our maintenance and technical services segment.
Gross profit for the three months ended December 31, 2019 decreased $8.2 million or 38.2% to $13.2 million from $21.4 million in the three months ended December 31, 2018 and gross margin declined to 8.8% from 10.5% a year ago, both due primarily to lower revenues and our environmental solutions segment.
Looking back at our balance sheet and liquidity, earlier this month we reached an agreement with our lender group to amend the company’s senior secured credit agreement that among other things waved a mandatory term loan of repayment, reset financial covenants with the maturity of the facility and increased our borrowing capacity under our delayed draw term loan.
We also closed our transaction to sell 26,000 shares of Series A Preferred Stock for approximately $25.2 million in a private placement. On March 16, 2020 we closed on the preferred stock offering and the credit agreement amendment became effective.
User agreement significantly increased the company’s liquidity profile and financial flexibility and deepened our customers’ confidence in us to deliver our customized, environmental solutions. Roger will provide additional details in his prepared remarks.
Next, I’ll like to provide an update on important regulatory developments at the state and federal levels beginning with this year. On January 3, 2020 Duke Energy announced an agreement with the North Carolina Department of Environmental Quality and Community Groups that outlined a plan to probably close the remaining nine coal ash surface impoundments in the state of North Carolina.
This agreement provides clarity on the closure methods and timing. In conjunction with this agreement, Duke Energy announced that an estimated, the total undiscounted cost to primarily close all ash basins in the Carolinas to be approximately $8 billion to $9 billion, with approximately $2.4 billion already spent through 2019. Performance of this work is expected to start in near term and completion of most of these closures is expected to occur over the next 15 years.
In other developments at the state level, the EPA has approved Georgia’s Coal Combustion Residual or CCR regulatory program, making Georgia the second state to receive such approval. To receive this approval the state of Georgia had to prove that its program meets the intent of the EPA’s CCR rules and applied to the federal rules as a minimum criteria. There is a bill addressing these requirements currently circulating in the Georgia state legislature.
At the federal level, the EPA last month announced its final proposal for stabilizing coal ash regulations for electric generation companies. Among the proposed changes were provisions to modify some liner requirements. However, the EPA stated there would likely be few basins able to meet the exemption requirements. This is logical given more than 90% of EPA monitored coal ash ponds in the U.S. were determined to exhibit unsafe levels of groundwater contaminants.
Furthermore, regulations already require utilities to seize waste disposal in an empowerment by August 2020, which will require the coal ash pond owner to make a decision on submitting an approval for an alternative liner well before they can demonstrate an unlined pond can meet their requirements.
In our view, the collective impact of these proposals potentially increases remediation opportunities for Charah Solutions, and exemptions will only be allowed if a utility operator completes the entire application and review process under very stringent requirements in a limited time frame.
In closing, we anticipate the growth in contract awards will contribute positive results in 2020 and even greater in 2021 and beyond. We remain committed to taking actions expected to preserve cash, support our balance sheet and enhance long term value, while positioning ourselves to take advantage of expanding market opportunities. Importantly, we are closely aligned with our utility partners, environmental remediation and sustainability initiatives which should provide Charah Solutions with significant growth potential for many years to come.
With that, I’ll turn it over to Roger, who will discuss our outlook for 2020 in more detail and provide more clarity on our expectations and the current market environment. Roger.
Thanks Scott. I’ll continue with the review of our financial results and provide an update on our balance sheet, liquidity and 2020 outlook. Before I begin the financial review, I’d like to provide an update regarding our recently announced amendment to our credit agreement and our preferred stock private placement. Last week we received a $25.2 million of proceeds from our Series A Preferred stock issuance and the amendment to our senior secured credit agreement became effective.
The combination of these events provides a meaningful enhancement to the company’s liquidity and financial flexibility, primarily by eliminating the $40 million mandatory debt prepayment previously due by March 31 of 2020, by modifying the terms of the existing financial covenants through the maturity of the facility, and by removing the cap on the principal amount for the delay draw term loan, so that the maximum amount available to be borrowed under this facility increases from $15 million to $25 million.
We appreciate the commitment and support we received from our banking partners and majority shareholder. These transactions demonstrate the confidence we share in Charah Solutions ability to execute on our strategic plan and deliver on our promises. The credit agreement amendment and the proceeds from the preferred equity offering are an important step in enhancing our ability to capitalize on new business opportunities and strengthen our balance sheet.
Now, turning to our financial results. Revenue for the fourth quarter decreased $53.6 million or 26.4% from the year ago period to $149.6 million, primarily driven by project completions within our remediation and compliance services business, including the completion of the Brickhaven project during the first quarter of 2019, and a net overall decrease in revenue from our byproduct sales offerings, partially offset by an increase in revenue from our fosse services offerings.
For the full year 2019, revenue decreased by $185.6 million or 25.1% from the year ago period to $554.9 million, primarily driven by project completions within our remediation and compliance services business, a decrease in the dollar value of projects won in 2018, and fewer nuclear outages during the year. These impacts were partially offset by increases in revenue from our byproduct sales and our fossil services offering.
Our full year 2019 revenue exceeded the top end of our guidance provided in November by approximately 5% as a result of additional work during the fall nuclear refueling outages.
Gross profit decreased by $8.2 million or 38.2% to $13.2 million during the fourth quarter, while gross margin declined to 8.8% from 10.5% in the same period last year. These declines were primarily driven by project completions in our environmental solution segment, partially offset by an increase in gross profit and gross margin within our maintenance and technical services segment, resulting from a mix of services associated with our fossil offerings that generate higher gross margin.
We reported a GAAP net loss for the fourth quarter of $17.9 million compared to net income of $4.5 million in the year ago period. The loss was primarily attributable to lower gross profit as previously discussed and an increase in general administrative expenses due to transaction expenses associated with amendments to our credit facilities.
In addition, we had lower non-cash G&A expenses during the three months ended December
31, 2018 associated with the amortization of the purchase option liability in connection with the deemed termination of the Brickhaven contract.
Finally, income tax expense increased $11.3 million during the three months ended December 31, 2019, due primarily to reporting of valuation allowance against our deferred tax assets. These increases were partially offset by a decline in net interest expense in the quarter due to a decrease in our debt balances.
Q4 adjusted EBITDA of $6 million was down $16.9 million from the year ago period, due primarily to lower gross profit, but ahead of the $5.5 million of adjusted EBITDA reported last quarter.
Full year 2019 EBITDA missed the low end of our guidance provided in November by $6.9 million, due primarily to a delay in the anticipated sale of a portion of certain owned property and the associated reversal of the related asset retirement obligation. We still expect that we will transfer the ownership of the property to a third party in 2020.
CapEx in the quarter was approximately $4.4 million, down from $7.1 million during the year ago period, primarily as a result of an increase in higher equipment efficiency and lease financing activity. Capital expenditures for the full year of 2019 were $18.1 million. Capital expended in the fourth quarter was primarily related to maintenance requirements and growth in our remediation and compliance services business.
Now, I’ll discuss results at our reporting segment level. In our environmental solutions segment, revenue decreased $62.3 million or 61.5% to $39.1 million from the fourth quarter of 2018, primarily driven by project completions within our remediation and compliance services component, including the previously mentioned the Brookhaven project resulting from the deemed termination.
Gross profit decreased $9.4 million or 62.7% for the three months ended December 31, 2019 to $5.6 million as compared to $15 million for the three months ended December 31, 2018 due to project completions with our remediation and compliance services component. Gross margin declined slightly to 14.4% from 14.8% in the fourth quarter of 2018.
In our maintenance and technical services segment, revenue increased $8.7 million or 8.5% to $110.5 million as compared to $101.8 million for the three months ended December 31, 2018. The increase was primarily attributable to growth in our fossil services offerings, partially offset by fewer nuclear outages. For the full year 2019 we completed 10 nuclear outages compared to 13 outages during the year ago period. As expected, fewer outages led to lower nuclear services revenue as compared to last year.
Maintenance and technical services gross profit increased approximately $1.3 million or 19.9% to $7.6 million, primarily as a result of an increase in gross profit from the mix of services within our fossil and nuclear offers. Maintenance and technical services gross margins increased to 6.9% from 6.2%, again driven by the mix of services associated with fossil services offerings that generate a higher gross margin.
Turning to our balance sheet and liquidity, at December 31, 2019 we had gross consolidated debt of $204.6 million, which is an increase of approximately $5.2 million from the prior quarter and a decrease of approximately $54.8 million from the year-end 2018 levels.
The increase in total debt during the fourth quarter as compared to the previous quarter is primarily due to increases in working capital, associated with the fall nuclear outage and the launch of new business won during the period. The decrease in total debt from the prior year end period was primarily due to a $50 million debt repayment during the third quarter, following the receipt of the $80 million in proceeds from the Brookhaven deemed termination payment.
Our liquidity was approximately $28.9 million as of year-end 2019, down from the $40.4 million at the end of the third quarter, and down from $50 million at the end of fourth quarter of 2018.
Our current liquidity position has improved from $29 million at the end of 2019 to $37 million as of March 20, 2020. This improvement in liquidity was the result of a $25 million capital infusion from the preferred stock offering proceeds received on March 16, and the $10 million additional borrowing capacity under the delayed draw term loan facility, partially offset by increases in allied working capital resulting from their large spring outage work.
Additional liquidity should improve significantly in April; the seasonal working capital needs associated with the ramp-up in schedule nuclear outage maintenance services that began in the first quarter reverse.
Next I’ll address our 2020 guidance. We provide mission critical services to a diversified base of customers, 80% of whom are regulated investment grade utilities. They must continue to produce power through the current coronavirus uncertainties. Though we are not currently seeing any significant disruptions to our business due to the mission critical nature of our customers operations, the uncertainty surrounding the COVID-19 pandemic and related resulting potential for significant future business disruptions beyond our control, have created a higher level of uncertainty. For this reason we are issuing 2020 guidance at this time based solely on our booked backlog of business and executed contracts.
Our current 2020 guidance is as follows: We expect revenue of $560 million; net loss of $50 million; adjusted EBITDA of $37 million and we expect to be free cash flow positive for the year. This guidance is based on existing contracts and our current expectations of no material worsening of the COVID-19 pandemic, and specifically including but not limited to no material customer work stoppages, no significant employee absences and no government mandated quarantines. Any worsening of the COVID-19 pandemic could materially affect our 2020 outlook.
With that, I’ll turn the call back over to Scott.
Thanks Roger. 2019 was a transition year and our results in the fourth quarter demonstrate the positive momentum we’re gaining from our success in winning new business at a record pace. We anticipate meaningful positive contributions to revenue, EBITDA and free cash flow in 2020 from this success, and our liquidity and our financial flexibility have been significantly enhanced since year end.
Our customers’ confidence in our ability to bring our full suite of mission critical services to meet their specialized needs has grown as a result of our enhanced financial position. We believe we remain the partner of choice for the power generation industry with an exceptional quality, safety and compliance record and extremely strong domain experience, but we have not observed any significant disruptions to our business due to the mission critical nature of our customers operations. We are aware of the potential macroeconomic disruptions beyond our control and we will continue to monitor the situation very closely.
We believe we are well prepared to protect our staff and ensure continuity of service to our clients during this uncertain period. We remain committed to keeping our people safe, addressing our customers’ needs and growing the business. This is predicated upon several factors that contribute to our ability to execute during the current pandemic and position ourselves for future success.
These factors include, enhanced liquidity and financial position, an existing customer base consisting of 80% investment grade regulated utilities that relied on mission critical services, routine nuclear reactor maintenance that is non-discretionary, specialized and predictable, a very large installed base of legacy coal ash disposal ponds that require remediation, power plant operators that are increasingly focused on an environmental stewardship and regulatory compliance, and recycling waste byproducts continues to be a critical component to the current and future infrastructure needs.
As we pursue our expanding pipeline of opportunities, we are committed to making further adjustments to improve our operating efficiency, reduce our debt levels and increase our market potential.
Thank you again for your interest and participation. And with that operator, let’s begin the Q&A session.
Certainly. [Operator Instructions] Our first question comes from Toni Kaplan from Morgan Stanley. Your line is open. Please go ahead.
Thank you. It sounds like you’re not really seeing any significant disruptions from COVID-19 yet, but maybe you could help us with scenarios of how it could play out? Are there areas of the business that could be more exposed to disruption than others? Could basically this impact the start date of any new recent, like new wins – the start date of new recently wins? Thank.
Sure. Good morning Tony. And you’re right. You know Charah has been built on our services to these mission critical utilities and we have not seen any work stoppages to-date. Our teams are going to work every day, our office teams have been very resilient in adapting to working from home. So everything to-date has gone as planned for our team. So again, very strong demand for our services at this time and that’s really why we also chose to give guidance based on us performing our existing work today and that we are not – there weren’t any additional work in hand, right. We didn’t want to speculate on upside or downside, so we just – very transparent there with you.
So to that regard, if you think about our business you know and all of our maintenance and technical services, you know our outage teams are performing outages today. We don’t see any stopping of that critical nature of work at this juncture. Same with our legacy asset management work. You know our guys are going to the power plants every single day and doing their critical tasks, so we haven’t seen anything in that regard.
I would say that the one area that we do have our eye on those is the byproduct sales component of our business. If construction slows down, there may be a slowdown in some of the ash sales potentially; however, we haven’t seen that yet, but it is something that we’re keeping our eye on.
Thank you. And the new awards for ‘19 went from 385 as of the last quarter to 583 for this quarter and you mentioned the $175 million of new awards in 2020. Is this a higher level of new wins than you were previously anticipating and I guess would you have raised your 2020 guidance if not for COVID-19 and what’s driving the new wins? Thank.
A – Scott Sewell
Sure. You know this is – we were expecting that pace in 2019. 2020 is tracking exactly how we want it to track. We actually signed an extremely large contract this week. In the middle of everything else going on right now, we are still able to secure work. So we’re excited about that, excited about the fact that our teams are still working hard and in the field out there, but again not sure if we would’ve adjusted guidance one way or the other, specifically with what we’ve got going on right now.
I mean you’re reading the headlines. A lot of companies are pulling guidance and there’s a lot of different factors out in the industry right now. But we are committed to continue to gain new work throughout the course of this year and we haven’t seen any trends yet that will say that’s going to stop at this point in time.
Tony, this is Roger. I would just add that we typically – we historically have had new awards that occur within the year that would contribute to earnings within that year. So as we pointed out in our guidance, we have chosen to not include that at this time in our 2020 outlook. You know we are trying to work with as much certainty as we have with what we know right now. So you know it is certainly very possible that the disruption could affect the timing of new awards.
As you know that we have secured the $175 million to-date. As with a number of these large projects that, you know the timing of those tend to you know start a little later and run over an extended period of time, but again as Scott said, we’re basing our guidance on what we have booked in signed contracts at this point and we’ll just have to see how the year progresses as it relates to any impact on new awards or the effect that might have.
Our next question comes from Michael Hoffman from Stifel. Your line is open.
Thank you very much for taking the questions today and I’m glad to hear that all your employees and families are in good order. Could you help us with the 560? Just split it between ES and EMT&S [ph], just so we understand what that mix looks like?
Hey, good morning Michael. Hopefully you’re doing well as well, but yeah that split is…
Yeah, thank you.
A – Scott Sewell
That splits roughly 60-40 on the M&TS side at this point.
40 MCS and 60 or which way – I’m just not following that currently.
A – Scott Sewell
Sorry Michael. 60% M&TS, 40% ES.
Okay, and the way to think about this would be the day-to-day work you do at utilities is relatively stable with some modest level of underlying organic, maybe for price a little bit of volume and the byproducts is probably stable borrowing. Construction and their variability then is on – that would be – where are we in clear maintenance and where are we on remediation contract backlog conversion, that’s the way to think about it inside those two pieces.
A – Scott Sewell
I believe so Michael. I was having a little bit of trouble following your thought process on the tail end there, unless Roger, did you… [Cross Talk]
A – Roger Shannon
Yeah, I would agree that where it would be more along the environmental solutions remediation and compliance services projects. I think we’re – you know we have a pretty good handle on the number of nuclear outages that are set to occur in 2020 and our guidance reflects you know what we see happening with those outages over the course of the year.
The outages, there are going to be 12 outages this year. The spring outage season is heavier than the fall outage season, so we’re in the – kind of getting into that or approaching the middle stages of that right now and that work continues.
But you know where there is – I think where there is more uncertainty is around the remediation and compliance services projects. You know we’ve talked about in our release, in our expectations, you know setting aside the impact of coronavirus, our expectations is that we expect to see growth in that area as more the regulations that Scott talked about in his comments or you know driving actions by utility customers within that space. At the same time you know that is the area of greatest uncertainty as it pertains to the potential impacts of the virus, so we’ve – you know we’ve taken a more conservative approach to how we’re going to address that, factor that in and guide on that at this point.
Okay, and I apologize, I probably asked it clumsy. If I took the two segments, the byproducts business will have – I can look at it year-over-year and say there’s some modest level of growth and fossil would have some modest level of growth and then nuclear is all tied to the sheer number of outages and the variability that is left is remediation.
A – Scott Sewell
Yes, that’s exactly right Michael.
Okay, got it, alright. And then just – I’m sorry.
A – Scott Sewell
No, no, I was saying sorry for not following you earlier in your question.
No, no, no, I asked it clumsy. The 583, does that include this $170 some million that was closed in the first quarter already or is that incremental? I just want to make sure I was following all that right.
Yeah, good question. The 583, so I mean that’s 100% of our book-to-work right now and it – you know as you know that work does ramp up over the course of the year, so it’s not – Oh sorry, I thought you’re asking on our guidance, no.
No, no, the backlog, the backlog.
Yeah, so if you – if we think about our guidance, our revenue for 560, it does include a portion of that 175 that we’ve already picked up here in Q1. The 583 of new awards that we got in 2019, it does not include the 175.
Right. So if you were to say your current backlog is today, what would that number be?
A – Roger Shannon
You know that’s something that we haven’t shared publicly, something we can consider, but I will say that you know you obviously see our 2020 backlog here or our 2020 contracts in hand and also know that majority of our work is on long term contracts, so that tail out into 2021 and in 2022 is very strong for us.
Okay, am I incorrect that if you did give a number it’s bigger than the 583, because you’ve added – you won some more stock?
A – Scott Sewell
Absolutely! Without that its much lower than the combination of those two numbers combined.
And Michael sorry, if you can just you know keep in mind, as we’ve talked about in the past, you know the decrease and the challenges we saw in 2019 were results, primarily results of large project rolling off that was not replaced in 2017 and particularly 2018. We provided a graph in our presentation that shows you the new awards and you know how that dipped in 2017 to 2018 as is expectations of these remediation projects developed that were – you know became more complex, got pushed out; that the requirements for rate relief and all that, so.
You know so in 2019 we started to see more of those coming. As Scott talked about, we see the opportunity for that growing across 2020 and forward. So you know we’ve talked about the way we’ve expected growth in our backlog and our new awards to be in environmental solutions.
So what, again just to recap and just to reiterate what we’ve done for our 2020 guidance is previous backlog that you know coming into 2019 that carries on, there are – there was 583 of new awards in 2019. The portion of that that we believe will be performed in 2020 is in our guidance and then you know to the extent of the 175 that we have won so far this year, to the extent that any of that will be performed you know under that forecast in this year, that is in our guidance, but you know certainly our – the backlog of those is well beyond that, so.
Got it, okay.
In that backlog – you know again we expect that backlog to grow as we have years – assuming provided that the trend we saw in 2019 continues, that backlog will be even further reestablished and bolstered to cutting – move past the decrease we saw in ’17 and ‘18.
Fair enough. So to that end, now that there’s been a wave of positive news, Georgia getting its approval and things start reaching agreement with the state, even though the state PSC is coming back and saying you can get rate relief for this work. How do you – what are you seeing as far as the activity level around restarting or in the case of Georgia, starting a bidding process that you know creates that opportunity to win some piece of that and what’s the backlog of that? What’s your visibility on that activity being reignited?
A – Scott Sewell
Yeah Michael, you’re exactly right. Our activity is stronger than we’ve ever seen it. So I think we talked about you know our largest new awards to-date in 2019, you know our largest – even though we haven’t given the exact number, our largest backlog ever in hand right now and our DD teams are in the account of – in process work that’s out there for bid and award in 2020 right now, that activity is through the roof and there our teams are working on multiple opportunities that are you know very significant in size and you know we’re really hoping to see those things awarded here in the near term and start executing on them in 2021 and beyond, and it’s really — you know as we’ve seen that shift, we really see it as the tipping point right now in our NCS side for that growth trajectory that we’ve been planning on. So now’s the time we’re seeing that activity.
Okay, so fair enough that you need to talk about should you share a total backlog that you have today, but could you share – and this isn’t that you’re going to win this, this is you win some piece. What’s the total amount of dollar value of bids being reviewed or at least give us a scope. Is it a couple of billion dollars, is it four or five and just so we understand what then should start at activity wise, and I get you can’t win all of it, you’re going to win some piece of it, so…
A – Roger Shannon
You know I think the best way to say that Michael is – and we’ve given I think last year and we’ve started giving you know some guidance and some insight into our business development activity. We’re sharing with everybody that kind of – it’s in process number previously and we’re much in line with that right now, roughly $3 billion in process and talk to our BD teams and the
– what they see in the coming out for a bit or available for us to provide a proposal on in the next call it 18 months to 24 months is another roughly $12 billion.
So I mean there is lot out there happening right now, and we are just hoping that you know we work through the coronavirus piece. Here everybody continues to stay healthy. We focus on keeping our teams working and then kind of bolstering on the new work as we get out of this situation we are in right now.
Okay, and then last question for me. The recapitalization, does that remove any or all challenges with getting performance bonds in place, so that you can go on and do this work. I mean prior to that I get that maybe the bonding industry, also conservative had some concerns. But now you fixed all this from a liquidity standpoint and so that shouldn’t be an issue, right?
Yeah, I mean it’s definitely helpful and that’s why we’ve done what we’ve done, that’s why the banks of support us through this, that’s why our – that’s why our capital supported us through this and I think it’s a huge sign for both the bonding agencies out there, as well as our customers to show the strength and the belief in our business and that’s our objective.
Terrific! Thanks for taking the questions, and again, I hope everybody stays safe and healthy.
Yeah, you too.
Your next question comes from Michael Feniger from Bank of America. Your line is open.
Hey guys, thanks for taking my questions. Good morning everyone. I was just curious if you could help us, you know obviously you have EBITDA for the guidance you know doubling. Also revenues just up, I think it’s just up $10 million or 1% or 2%. You guys kind of provide three buckets really driving that margin improvement, the cost savings, the mix and finishing up some poor remediation contacts. Any way you can just start – can you just flush some of that out for us, just some of those buckets for us as it gets more comfortable with that.
Sure. I think you did a very good job of reciting the three buckets there, and those really are the key movers. So as we’ve talked about before, ‘19 was a transition year for us, absolutely in many fronts. So, you know a lot of optimization of our teams, the way we deliver and driving SG&A down, so that was a key component.
We’ve talked a lot about the discrete one-time events that fell in ’19, specific to the large structural fill project that we had in North Carolina, that coming to an end, the issues with another remediation and compliance services project and then a couple of opportunities that we invested in from a business development standpoint that didn’t come to fruition. But you know with that all in the rear view mirror for us, that’s really how you’re able to see the increased performance in 2020.
Got it! And then just, I mean you mentioned you’re going to be free cash flow positive for 2020. Is there any way you could kind of help us quantify that, and I guess what I’m wondering is, as you start up some of these projects, I mean you guys had this really strong year last year in new awards. As you started these projects, that or working capital or Ag in a sense as we go through 2020 assuming these projects ramp.
There’s probably a little bit of a short term drag, but again as we did our work and as we moved forward in getting new awards, our objective is always to make them cash flow positive as we structure our contracts with our customers. Roger, if there’s anything you want to add to that.
Yeah, I mean I think there – I mean if you look at contract assets on our balance sheet, at year-end, that was about $20 million. That will turn to cash. Over the course of the year we had a project that started up in the fourth quarter that did have some working capital build to it.
And then you know over the course of the end of the year, you know thinking about the beat on revenue and the increase in revenue from our maintenance and technical services side, that had some working capital build associated, whether to kind of push that cycle out in to the end of the year with the unwind or the collection to that, you know happening past year end, now that was kind of immediately offset at the begin the year by this very large spring outage season. But like we mention in our comments that you know that will kind of quickly unwind over the April, May timeframe.
So we really see that in Q2 as we work out of the large spring outage season, but we haven’t given a number in terms of free cash flow, but it’s – thinking you’ll see it significantly better than what you saw in 2019.
And just on the awards, I mean again, 2019 was a big year. If we look back on another big year, let’s say 2016, how is the profitability of these awards and the margins on these awards, you know if we look back even just a few years ago. Is the environment more competitive? I know that before you guys spoke up about how this project is getting more complex, larger in scope, I’m wondering you know if we compare like a $583 million to when we look at 2016, you had over 400 awards, that was a good years well. Like is the mix of the awards, is the profitability of these awards better or is it a more competitive environment that you are trying get after this market.
Hey Michael, good question. Before I answer that I’m going to let Roger talk about cash flow for a second.
I just wanted to say one thing. Just in my last comment you know about free cash flow this year versus last year, I need to kind of profess – you’re going to frame that setting aside the deemed termination payment. Obviously that payment created a tremendous amount of cash flow in 2019, but I was thinking about you know specifically referring to just kind of normal operations and setting that aside. So I want to make sure that was clear.
But back to the question on margins and new work, you know one of the things that I’m really excited about those, inside of that $583 million we were really able to diversify our customer base and our contract mix and it wouldn’t center around one customer or two customers or one or two large projects, so that’s a huge positive for us as we move forward.
And the margins that we see today, you know in a competitive environment, are similar to where they were in ‘16, ‘17 and ‘18 and we track that very closely. We have a very good, you know intelligence on where projects are being won and what the margins are. I will say that in ‘16 we did have a few projects in there that were kind of one-off in nature that had some pretty good margins in them, but they were outside of the normal course of business. So if we think about the normal course of business, margins have been you know exactly where we’ve seen it for the last couple of years.
And your next question comes from Michael Hoffman of Stifel. Your line is open.
Thanks. Just for one quick follow-up. Two questions, one with an A and B. What is your definition of calculation for free cash flow and two, what is capital spending for 2020?
Yes, so on capital spending, I want to just kind of caveat that a big. You know based on the current environment, we’re certainly working to shepherd and reduce our cash flow out. We do have different ways of financing, so you know it will depend over the course of the year just on you know how we decide the financings and how the start-up of these projects are affected. So we are still available or eligible to do operating lease type financing, which can give us some advantages rates and obviously that doesn’t fall into the capital number.
So we would expect 2020 to kind of be on par with 2019, maybe a bit lower from a maintenance perspective and the wildcard still is around technology projects, and we are making progress on those. The way those would be financed certainly would be a wildcard in that and the timing of that. But from a maintenance perspective we expect it to be a little bit less. To our definition of free cash flow, it is just operating cash flow less CapEx.
So from operation in the cash flow statement, that’s all capital spending.
Yeah, okay. And then could just remind me, you know this whole working remote thing, you know missing lots of pieces of your data. What was maintenance spending in 2019?
Roughly $10 million.
Okay, and what I heard is you’re going to be about that plus or minus a tad and then anything up to that is if you do any of the byproducts planned set, then that changes the number.
Yeah so, you know I’ll give you a precise number. The maintenance for 2019 was $8.5 million maintenance and growth.
Okay, cool. Thank you.
There are no further questions at this time. I’d turn the call back over to Scott Sewell for closing remarks.
Thank you and thanks everyone for taking the time out today to have interest in our business and everything that we’re doing right now. I know there’s a lot happened in the world, where everybody’s attention is elsewhere, so we really do value your interest in the business and hope that you guys are all somewhere safe right now and your families and yourselves are all in our thoughts right now as we work through this, but again, very excited about this business and where we go from here. I look forward to communicating future successes to everyone on the call. So, thank you very much.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.