UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 15, 2019
CHARAH SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 001-38523 | 82-4228671 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
12601 Plantside Drive, Louisville, Kentucky | 40299 | |||
(Address of principal executive offices) | (Zip Code) |
(502) 245-1353
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading |
Name of each exchange on which registered | ||
Common stock, par value $0.01 per share | CHRA | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 2.02. | Results of Operations and Financial Condition. |
On May 15, 2019, Charah Solutions, Inc. (the Company) issued a press release reporting results for the quarter ended March 31, 2019. A copy of the Companys press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and a copy of the earnings call presentation materials is furnished as Exhibit 99.2.
The information furnished pursuant to this Item 2.02, Exhibit 99.1 and Exhibit 99.2 shall not be deemed to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit No. |
Description | |
99.1 | Press Release, dated May 15, 2019. | |
99.2 | Earnings Call Presentation Materials. |
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 hereunto duly authorized.
CHARAH SOLUTIONS, INC. | ||||
Date: May 15, 2019 | By: | /s/ SCOTT A. SEWELL | ||
Scott A. Sewell | ||||
Chief Executive Officer and President |
Exhibit 99.1
FOR IMMEDIATE RELEASE
Charah Solutions, Inc. Reports First Quarter 2019 Financial Results
Bids Outstanding Have Grown to in Excess of $3.5 Billion; Meaningful Award Potential in 2019
Maintaining 2019 Adjusted EBITDA Guidance and Expectation for Significant Free Cash Flow
Lowering 2019 Revenue Guidance on Timing of Awards; Maintaining 2020 Outlook for Strong Growth
Key Financial Highlights
| Revenue of $163.3 million, up 5.0% from first quarter 2018 |
| Environmental Solutions segment revenue grew to $58.4 million, a 22% increase from first quarter 2018 |
| Net loss of $(2.8) million or $(0.10) per diluted share, as compared to net income of $0.8 million or $0.03 per diluted share in first quarter 2018 |
| Adjusted net loss1 of $(2.0) million or $(0.07) per diluted share, as compared to adjusted net income of $3.5 million or $0.14 per diluted share in first quarter 2018 |
| Adjusted EBITDA1 of $8.9 million, as compared to Adjusted EBITDA of $17.4 million in first quarter 2018 |
| Lowering 2019 revenue guidance range to $550 million to $650 million; affirming 2019 Adjusted EBITDA guidance range of $50 million to $65 million |
Business Developments
| Strong flow of project opportunities continues with meaningful award potential in 2019; outstanding bids risen to in excess of $3.5 billion |
| Construction ongoing at two slag grinding facilities, expected operational second half of 2019 |
| Opened additional fly ash storage terminal in Massachusetts, expanding MultiSource® network |
| Final ash received at Brickhaven; expect to receive significant cash payment second half of 2019 |
Louisville, KY May 15, 2019 Charah® Solutions, Inc. (NYSE: CHRA) (Charah Solutions or the Company), a leading provider of environmental and maintenance services to the power generation industry, today announced financial results for the quarter ended March 31, 2019. Revenues for the first quarter of 2019 were $163.3 million, up 5.0% from the first quarter of 2018, with a net loss attributable to Charah Solutions of $(2.8) million, or $(0.10) per diluted share. Adjusted net loss1 and adjusted loss per diluted share1 were $(2.0) million and $(0.07), respectively. Adjusted EBITDA was $8.9 million.
We continue to see growing demand for our environmental and maintenance solutions and remain excited about the size of the opportunity set. Our pending bids have grown to in excess of $3.5 billion and we expect to announce significant new business awards over the remainder of this year. We are committed to our investment in technology initiatives and have received an overwhelmingly positive response domestically and from overseas. As the market leader in ash excavation with a unique ability to bundle our low-cost ash beneficiation technology in a highly scalable design, we believe we are in an ideal position to bring differentiated and customized solutions to our customers accelerating need for remediation and recycling of coal ash, said Scott Sewell, President and Chief Executive Officer of Charah Solutions.
1 | Adjusted net (loss) income, Adjusted (loss) earnings per diluted share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. A reconciliation of Adjusted net (loss) income, Adjusted (loss) earnings per diluted share and Adjusted EBITDA to the most directly comparable GAAP financial measures and a calculation of the Companys Adjusted EBITDA margin are included in the financial tables accompanying this release. |
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Mr. Sewell continued, Our new business prospects are strong, though most of the benefit to revenue now is expected to occur in 2020. While a shift in the timing of awards has impacted our 2019 revenue outlook, we still expect to have significant free cash flow this year as a result of the expected cash payment related to the early completion of the Brickhaven contract, which we will allocate to meaningful debt repayment and the growth of our business. We remain confident in our 2020 outlook and continue to anticipate strong growth in revenue and EBITDA.
Summary of Financial Results
Three Months Ended March 31, | ||||||||
(Unaudited, in thousands, except per share and margin data) | 2019 | 2018 | ||||||
Total revenue |
$ | 163,258 | $ | 155,529 | ||||
Gross profit |
$ | 15,379 | $ | 19,099 | ||||
Gross profit margin |
9.4 | % | 12.3 | % | ||||
Net (loss) income attributable to Charah Solutions, Inc. |
$ | (2,819 | ) | $ | 806 | |||
(Loss) earnings per common share (diluted) |
$ | (0.10 | ) | $ | 0.03 | |||
Cash flow provided by operating activities |
$ | 6,175 | $ | 4,225 | ||||
Non-GAAP Financial Measures Adjusted net (loss) income1 |
$ | (1,962 | ) | $ | 3,524 | |||
Adjusted EBITDA1 |
$ | 8,906 | $ | 17,364 | ||||
Adjusted EBITDA margin |
5.5 | % | 11.2 | % |
First Quarter 2019 Results
Revenue for the first quarter of 2019 was $163.3 million, an increase of $7.7 million, or 5.0%, from $155.5 million in the first quarter of 2018. Gross profit decreased $3.7 million, or 19.5%, to $15.4 million from $19.1 million in the first quarter of 2018. Gross profit as a percentage of revenue, or gross margin, declined to 9.4% from 12.3% in the first quarter of 2018, primarily due to lower gross margin in the Companys Environmental Solutions segment.
Environmental Solutions Segment: Environmental Solutions generated revenue of $58.4 million, an increase of $10.6 million, or 22.2%, from the first quarter of 2018, primarily due to the acquisition of SCB Materials International, Inc. and affiliated entities (SCB) in March 2018, which contributed $13.3 million in revenue, partially offset by lower revenues from the Companys remediation and compliance services. Gross profit declined to $8.3 million from $12.5 million in the first quarter of 2018, primarily due to a combination of adverse weather impacts across the segment and project-specific issues at three sites, which resulted in project delays and unanticipated cost increases. Gross margin declined to 14.2% from 26.1% in the first quarter of 2018.
Maintenance and Technical Services Segment: Maintenance and Technical Services generated revenue of $104.9 million, a decrease of $2.9 million, or 2.7%, from the first quarter of 2018. The decrease was primarily attributable to lower revenues in the Companys nuclear services business, which resulted from reduced scope leading to fewer outage days during the period, partially offset by the commencement of the APS fossil maintenance contract. Gross profit increased $0.5 million, or 7.3%, to $7.1 million from $6.6 million in the first quarter of 2018. Gross margin rose to 6.8% from 6.2% in the first quarter of 2018.
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Net loss attributable to Charah Solutions was $(2.8) million, while Adjusted EBITDA for the first quarter of 2019 was $8.9 million, a decrease of $8.5 million, or 48.7%, from $17.4 million in the first quarter of 2018. Interest expense rose during the first quarter of 2019 by $0.9 million from $4.1 million in the first quarter of 2018, as a result of a non-cash $1.4 million mark-to-market expense associated with the change in value of the Companys interest rate swap during the period. Cash flow from operating activities was $6.2 million, an increase of nearly $2.0 million or 46.2% above the first quarter of 2018 results.
2019 Guidance
| Revenues of $550 million to $650 million |
| Net income of $5 million to $15 million |
| Adjusted EBITDA of $50 million to $65 million |
| Significantly cash flow positive |
As a result of delays in the timing of new business awards, the Company has lowered its 2019 revenue guidance to a range of $550 million to $650 million from the previous range of $650 million to $800 million. However, a substantial majority of the lower end of the revenue guidance can be achieved through existing business and awards received to date. As compared to 2018, revenues are expected to be lower in the Environmental Solutions segment (with growth in byproduct sales offset by lower revenues in remediation and compliance services) and modestly lower in the Maintenance and Technical Services segment (with growth in fossil services offset by the impact of fewer scheduled nuclear outages on the nuclear services business).
The Company has affirmed its 2019 Adjusted EBITDA guidance of $50 million to $65 million and revised its 2019 net income guidance to a range of $5 million to $15 million.
The Company continues to expect to have significant positive cash flow in 2019 as a result of the expected cash payment later this year in connection with the early completion of the Brickhaven contract.
2020 Outlook
The Company continues to anticipate revenue growth of at least 20% from its previous 2019 revenue guidance of $650 million to $800 million, based on the likelihood of meaningful new business awards during the remainder of 2019 that should boost revenue in 2020. Managements confidence in winning future awards is driven by its compelling value proposition to customers, favorable market dynamics, and regulatory trends that continue to expand its potential to win project mandates, further diversify its customer composition, and broaden the opportunity set. Revenue and margin enhancement potential is further supported by the planned rollout of the Companys technology initiatives. In addition, the Company also expects Adjusted EBITDA margins in 2020 comparable to or higher than the revised 2019 guidance level, due to the higher-margin profile of the expected sources of growth in revenue and the ability to grow revenues without materially scaling up general and administrative expenses.
Business Update
Currently, the Company has more than $3.5 billion in bids outstanding, which has increased from more than $3.0 billion at the end of March. As bids outstanding have grown, the Companys success rate in winning bids has remained in line with historical levels. About 15% of the current bid pipeline has been verbally awarded to the Company and exclusive negotiations are underway, with execution of contracts expected by the end of the third quarter. Management has also received an enthusiastic response from customers evaluating its MP618TM fly ash beneficiation technology and expects to execute agreements
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later this year. Two grinding facilities are currently in construction and expected to become operational in the second half of 2019, and two additional facilities are expected to begin construction before year-end. Further, the Company continued to execute on its technology deployment initiatives and expand its MultiSource network with an additional fly ash storage terminal opened in Massachusetts during the first quarter.
Consistent with the Companys exceptional track record of safe operations and commitment to safety excellence, several new safety awards have been received year-to-date in recognition of low incidence rates, including those from the North Carolina Department of Labor, the Willis Towers Watson Construction Safety Excellence Committee and the Coalition of Construction Safety.
CONFERENCE CALL
Charah Solutions will host a conference call at 8:30 a.m. ET today to discuss the first quarter results. Information contained within this press release will be referenced and should be considered in conjunction with the call.
Participants may access the conference call live via webcast on the Investors section of the Charah Solutions website at ir.charah.com. To participate via telephone, please dial (877) 273-7219 within the United States or (647) 689-5395 outside the United States, approximately 15 minutes prior to the scheduled start time. The conference ID for the call is 4093428.
A webcast replay will be available on the Investors section of the Charah Solutions website at ir.charah.com after 11:30 a.m. ET on Wednesday, May 15, 2019. In addition, an audio replay will be available for one week following the call and will be accessible by dialing (800) 585-8367 within the United States or (416) 621-4642 outside the United States. The replay ID is 4093428.
A supplementary presentation will also be available on the Investors section of the Charah Solutions website at ir.charah.com.
ABOUT CHARAH SOLUTIONS
With 30 years of experience, Charah Solutions, Inc. is a leading provider of environmental and maintenance services to the power generation industry, with operations in fossil fuel and nuclear power generation sites accross the country. Based in Louisville, Kentucky, Charah Solutions assists utilities with all aspects of managing and recycling ash byproducts generated from the combustion of coal in the production of electricity as well as routine power plant maintenance and outage services for the fossil fuel and nuclear power generation industry. The company also designs and implements solutions for ash pond management and closure, landfill construction, fly ash and slag sales, and structural fill projects. Charah Solutions is the partner of choice for solving customers most complex environmental challenges, and as an industry leader in quality, safety and compliance, the company is committed to reducing greenhouse gas emissions for a cleaner energy future. For more information, please visit www.charah.com.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are
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forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as may, expect, estimate, project, plan, believe, intend, achievable, anticipate, will, continue, potential, should, could, and similar terms and phrases. These statements are based on certain assumptions made by the Company based on managements experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements.
Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
NON-GAAP FINANCIAL MEASURES
Adjusted net (loss) income and Adjusted (loss) earnings per diluted share are not financial measures determined in accordance with GAAP. Charah Solutions defines Adjusted net (loss) income as Net (loss) income attributable to Charah Solutions plus, on a post-tax basis, non-recurring legal and start-up costs and expenses, and transaction-related expenses and other items. Adjusted (loss) earnings per diluted share is based on Adjusted Net (loss) income.
Adjusted EBITDA and Adjusted EBITDA margin are not financial measures determined in accordance with GAAP. Charah Solutions defines Adjusted EBITDA as net (loss) income before interest expense, income taxes, depreciation and amortization, equity-based compensation, non-recurring legal and start-up costs and expenses, and transaction-related expenses and other items. Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total revenues.
Management believes Adjusted EBITDA and Adjusted EBITDA margin are useful performance measures 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. Management excludes the items listed above from net (loss) income in arriving at Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within Charah Solutions 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) income determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a companys financial performance, such as a companys cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Charah Solutions presentation of Adjusted EBITDA should not be construed as an indication that the Companys results will be unaffected by the items excluded from Adjusted EBITDA. Charah Solutions computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies. Charah Solutions uses Adjusted EBITDA margin to measure the success for the Companys business in managing its cost base and improving profitability. A reconciliation between Adjusted EBITDA to net (loss) income, Charah Solutions most directly comparable financial measure calculated and presented in accordance with GAAP, along with a calculation of the Companys Adjusted EBITDA margin is included in the supplemental financial data attached to this press release.
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Investor Contact
Tony Semak, Head of Investor Relations
Charah Solutions, Inc.
tsemak@charah.com
(502) 815-5013
Media Contact
Ed Trissel / Kate Clark / Tim Ragones
Joele Frank, Wilkinson Brimmer Katcher
(212) 355-4449
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CHARAH SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands except per share data)
(Unaudited)
March 31, 2019 |
December 31, 2018 |
|||||||
Assets | ||||||||
Current assets: |
||||||||
Cash |
$ | 6,459 | $ | 6,900 | ||||
Trade accounts receivable |
63,828 | 60,742 | ||||||
Receivable from affiliates |
893 | 894 | ||||||
Costs and estimated earnings in excess of billings |
95,326 | 86,710 | ||||||
Inventory |
24,466 | 25,797 | ||||||
Prepaid expenses and other current assets |
4,584 | 5,133 | ||||||
|
|
|
|
|||||
Total current assets |
195,556 | 186,176 | ||||||
Property and equipment: |
||||||||
Plant, machinery and equipment |
74,085 | 74,896 | ||||||
Structural fill site improvements |
55,760 | 55,760 | ||||||
Vehicles |
20,523 | 17,407 | ||||||
Office equipment |
1,882 | 1,623 | ||||||
Buildings and leasehold improvements |
262 | 262 | ||||||
Structural fill sites |
7,110 | 7,110 | ||||||
Construction in progress |
6,790 | 3,488 | ||||||
|
|
|
|
|||||
Total property and equipment |
166,412 | 160,546 | ||||||
Less accumulated depreciation |
(78,375 | ) | (71,605 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
88,037 | 88,941 | ||||||
Other assets: |
||||||||
Trade names, net |
34,885 | 34,920 | ||||||
Customer relationships, net |
61,925 | 63,898 | ||||||
Technology, net |
1,803 | 1,853 | ||||||
Non-compete and other agreements, net |
144 | 180 | ||||||
Other intangible assets, net |
| 22 | ||||||
Goodwill |
74,213 | 74,213 | ||||||
Other assets |
| 891 | ||||||
Deferred tax asset |
3,508 | 2,747 | ||||||
Equity method investments |
5,102 | 5,060 | ||||||
|
|
|
|
|||||
Total assets |
$ | 465,173 | $ | 458,901 | ||||
|
|
|
|
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CHARAH SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands except per share data)
(Unaudited)
March 31, 2019 |
December 31, 2018 |
|||||||
Liabilities and stockholders equity | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 20,064 | $ | 24,821 | ||||
Billings in excess of costs and estimated earnings |
1,052 | 1,352 | ||||||
Notes payable, current maturities |
17,095 | 23,268 | ||||||
Accrued payroll and bonuses |
33,843 | 15,480 | ||||||
Asset retirement obligation, current portion |
15,196 | 14,704 | ||||||
Purchase option liability, current portion |
7,110 | 10,017 | ||||||
Accrued expenses |
21,564 | 22,473 | ||||||
Other liabilities |
471 | | ||||||
|
|
|
|
|||||
Total current liabilities |
116,395 | 112,115 | ||||||
Long-term liabilities: |
||||||||
Contingent payments for acquisitions |
11,281 | 11,214 | ||||||
Asset retirement obligation, less current portion |
9,022 | 11,361 | ||||||
Line of credit |
20,500 | 19,799 | ||||||
Notes payable, less current maturities |
217,302 | 211,022 | ||||||
|
|
|
|
|||||
Total liabilities |
374,500 | 365,511 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Retained earnings |
6,595 | 9,414 | ||||||
Common Stock, $0.01 par value; 200,000,000 shares authorized; 29,554,588 and 29,082,988 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively |
296 | 291 | ||||||
Additional paid-in capital |
83,083 | 82,880 | ||||||
|
|
|
|
|||||
Total stockholders equity |
89,974 | 92,585 | ||||||
Non-controlling interest |
699 | 805 | ||||||
|
|
|
|
|||||
Total equity |
90,673 | 93,390 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 465,173 | $ | 458,901 | ||||
|
|
|
|
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CHARAH SOLUTIONS, INC.
Condensed Consolidated & Combined Statements of Operations
(dollars in thousands except per share data)
(Unaudited)
Three Months Ended | ||||||||
March 31, 2019 | March 31, 2018 | |||||||
Revenue |
$ | 163,258 | $ | 155,529 | ||||
Cost of sales |
147,879 | 136,430 | ||||||
|
|
|
|
|||||
Gross profit |
15,379 | 19,099 | ||||||
General and administrative expenses |
13,985 | 14,382 | ||||||
|
|
|
|
|||||
Operating income |
1,394 | 4,717 | ||||||
Interest expense, net |
(5,052 | ) | (4,131 | ) | ||||
Income from equity method investment |
554 | 587 | ||||||
|
|
|
|
|||||
(Loss) income before income taxes |
(3,104 | ) | 1,173 | |||||
Income tax provision |
(761 | ) | | |||||
|
|
|
|
|||||
Net (loss) income |
(2,343 | ) | 1,173 | |||||
Less income attributable to non-controlling interest |
476 | 367 | ||||||
|
|
|
|
|||||
Net (loss) income attributable to Charah Solutions, Inc. |
$ | (2,819 | ) | $ | 806 | |||
|
|
|
|
|||||
(Loss) earnings per common share: |
||||||||
Basic |
$ | (0.10 | ) | $ | 0.03 | |||
Diluted |
$ | (0.10 | ) | $ | 0.03 | |||
Weighted-average shares outstanding used in (loss) earnings per common share: |
||||||||
Basic |
29,187,788 | 23,710,303 | ||||||
Diluted |
29,187,788 | 24,532,003 | ||||||
Pro forma net (loss) income information: |
| |||||||
Net (loss) income attributable to Charah Solutions, Inc. before provision for income taxes |
$ | (3,580 | ) | $ | 806 | |||
Pro forma provision for income taxes |
(761 | ) | 202 | |||||
|
|
|
|
|||||
Pro forma net (loss) income attributable to Charah Solutions, Inc. |
$ | (2,819 | ) | $ | 604 | |||
|
|
|
|
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CHARAH SOLUTIONS, INC.
Condensed Consolidated & Combined Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, 2019 | March 31, 2018 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (2,343 | ) | $ | 1,173 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
6,257 | 8,431 | ||||||
Amortization of debt issuance costs |
171 | 555 | ||||||
Deferred income tax provision |
(761 | ) | | |||||
Loss on sale of assets |
527 | 131 | ||||||
Income from equity method investment |
(554 | ) | (587 | ) | ||||
Distributions received from equity investment |
512 | 252 | ||||||
Non-cash share-based compensation |
208 | 110 | ||||||
Loss (gain) on interest rate swap |
1,362 | (1,623 | ) | |||||
Interest accreted on contingent earnout liability |
67 | | ||||||
Changes in cash due to changes in: |
||||||||
Trade accounts receivable |
(3,086 | ) | (8,116 | ) | ||||
Receivable from affiliates |
1 | (51 | ) | |||||
Costs and estimated earnings in excess of billings |
(8,616 | ) | (9,222 | ) | ||||
Inventory |
1,331 | (828 | ) | |||||
Prepaid expenses and other current assets |
549 | (87 | ) | |||||
Accounts payable |
(4,757 | ) | 485 | |||||
Billings in excess of costs and estimated earnings |
(300 | ) | (2,807 | ) | ||||
Accrued payroll and bonuses |
18,363 | 15,749 | ||||||
Asset retirement obligation |
(1,847 | ) | 14 | |||||
Accrued expenses |
(909 | ) | 646 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
6,175 | 4,225 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from the sale of equipment |
470 | 480 | ||||||
Purchases of property and equipment |
(7,140 | ) | (3,373 | ) | ||||
Payments for business acquisitions, net of cash received |
| (19,983 | ) | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(6,670 | ) | (22,876 | ) | ||||
Cash flows from financing activities: |
||||||||
Net proceeds on line of credit |
701 | | ||||||
Proceeds from long-term debt |
3,656 | 4,976 | ||||||
Principal payments on long-term debt |
(3,721 | ) | (4,968 | ) | ||||
Payments of offering costs |
| (3,955 | ) |
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Three Months Ended | ||||||||
March 31, 2019 | March 31, 2018 | |||||||
Distributions to non-controlling interest |
(582 | ) | (383 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
54 | (4,330 | ) | |||||
|
|
|
|
|||||
Net decrease in cash |
(441 | ) | (22,981 | ) | ||||
Cash, beginning of period |
6,900 | 32,264 | ||||||
|
|
|
|
|||||
Cash, end of period |
$ | 6,459 | $ | 9,283 | ||||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the year for interest |
$ | 3,358 | $ | 5,297 | ||||
Cash paid during the year for taxes |
$ | | $ | |
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CHARAH SOLUTIONS, INC.
Segment Results and Adjusted EBITDA
(dollars in thousands unless otherwise indicated)
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
2019 | 2018 | $ | % | |||||||||||||
Revenues: |
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Environmental Solutions |
$ | 58,383 | $ | 47,785 | $ | 10,598 | 22.2 | % | ||||||||
Maintenance and Technical Services |
104,875 | 107,744 | (2,869 | ) | (2.7 | )% | ||||||||||
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Total revenue |
163,258 | 155,529 | 7,729 | 5.0 | % | |||||||||||
Cost of sales |
147,879 | 136,430 | 11,449 | 8.4 | % | |||||||||||
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Gross Profit: |
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Environmental Solutions |
8,267 | 12,469 | (4,202 | ) | (33.7 | )% | ||||||||||
Maintenance and Technical Services |
7,112 | 6,630 | 482 | 7.3 | % | |||||||||||
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Total gross profit |
15,379 | 19,099 | (3,720 | ) | (19.5 | )% | ||||||||||
General and administrative expenses |
13,985 | 14,382 | (397 | ) | (2.8 | )% | ||||||||||
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Operating income |
1,394 | 4,717 | (3,323 | ) | (70.4 | )% | ||||||||||
Interest expense, net |
(5,052 | ) | (4,131 | ) | (921 | ) | (22.3 | )% | ||||||||
Income from equity method investment |
554 | 587 | (33 | ) | (5.6 | )% | ||||||||||
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(Loss) income before taxes |
(3,104 | ) | 1,173 | (4,277 | ) | (364.6 | )% | |||||||||
Income tax provision |
(761 | ) | | (761 | ) | (100.0 | )% | |||||||||
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Net (loss) income |
(2,343 | ) | 1,173 | (3,516 | ) | (299.7 | )% | |||||||||
Less income attributable to non-controlling interest |
476 | 367 | 109 | 29.7 | % | |||||||||||
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Net (loss) income attributable to Charah Solutions, Inc. |
(2,819 | ) | 806 | (3,625 | ) | (449.8 | )% | |||||||||
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Adjusted EBITDA(1) |
$ | 8,906 | $ | 17,364 | $ | (8,458 | ) | (48.7 | )% | |||||||
Adjusted EBITDA margin(1) |
5.5 | % | 11.2 | % | (5.7 | )% | N/A |
(1) | Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. |
12
CHARAH SOLUTIONS, INC.
Non-GAAP Reconciliation: Net (Loss) Income to Adjusted EBITDA
(dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Net (loss) income attributable to Charah Solutions, Inc. |
$ | (2,819 | ) | $ | 806 | |||
Interest expense, net |
5,052 | 4,131 | ||||||
Income tax provision |
(761 | ) | | |||||
Depreciation and amortization |
6,257 | 8,431 | ||||||
Elimination of certain non-recurring legal costs and expenses(1) |
(746 | ) | 2,680 | |||||
Elimination of certain non-recurring start-up costs(2) |
| 793 | ||||||
Equity-based compensation |
208 | 110 | ||||||
Transaction-related expenses and other items(3) |
1,715 | 413 | ||||||
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Adjusted EBITDA |
$ | 8,906 | $ | 17,364 | ||||
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Adjusted EBITDA margin(4) |
5.5 | % | 11.2 | % |
(1) | Represents non-recurring legal costs and expenses, which amounts are not representative of those that we historically incur in the ordinary course of our business. Negative amounts represent insurance recoveries related to these matters. |
(2) | Represents non-recurring start-up costs associated with the startup of Allied Power Management, LLC (Allied) and our nuclear services offerings, including the setup of financial operations systems and modules, pre-contract expenses to obtain initial contracts and the hiring of operational staff. Because these costs are associated with the initial setup of the Allied business to initiate the operations involved in our nuclear services offerings, these costs are non-recurring in the normal course of our business. |
(3) | Represents SCB transaction expenses, executive severance costs, IPO-related costs and other miscellaneous items. |
(4) | Adjusted EBITDA margin is a non-GAAP financial measure that represents the ratio of Adjusted EBITDA to total revenues. We use Adjusted EBITDA margin to measure the success of our businesses in managing our cost base and improving profitability. |
13
CHARAH SOLUTIONS, INC.
Non-GAAP Reconciliation: Net (Loss) Income to Adjusted Net (Loss) Income and
Adjusted (Loss) Earnings per Diluted Share
(dollars in thousands except per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Net (loss) income attributable to Charah Solutions, Inc. |
$ | (2,819 | ) | $ | 806 | |||
Income tax provision |
(761 | ) | | |||||
Elimination of certain non-recurring legal costs and expenses(1) |
(746 | ) | 2,680 | |||||
Elimination of certain non-recurring start-up costs(2) |
| 793 | ||||||
Transaction-related expenses and other items(3) |
1,715 | 413 | ||||||
Adjusted (loss) income before income taxes attributable to Charah Solutions, Inc. |
(2,612 | ) | 4,692 | |||||
Adjusted income tax provision(4) |
650 | (1,168 | ) | |||||
Adjusted net (loss) income attributable to Charah Solutions, Inc. |
(1,962 | ) | 3,524 | |||||
Weighted average basic / diluted share count(5) |
29,187,788 | 24,532,003 | ||||||
Adjusted (loss) earnings per diluted share |
$ | (0.07 | ) | $ | 0.14 |
(1) | Represents non-recurring legal costs and expenses, which amounts are not representative of those that we historically incur in the ordinary course of our business. Negative amounts represent insurance recoveries related to these matters. |
(2) | Represents non-recurring start-up costs associated with the startup of Allied and our nuclear services offerings, including the setup of financial operations systems and modules, pre-contract expenses to obtain initial contracts and the hiring of operational staff. Because these costs are associated with the initial setup of the Allied business to initiate the operations involved in our nuclear services offerings, these costs are non-recurring in the normal course of our business. |
(3) | Represents SCB transaction expenses, executive severance costs, IPO-related costs and other miscellaneous items. |
(4) | Represents the statutory income tax rate of 24.89%, multiplied by adjusted (loss) income before income taxes attributable to Charah Solutions, Inc. |
(5) | As a result of the net loss per share for the three months ended March 31, 2019, the inclusion of all potentially dilutive shares would be anti-dilutive. Therefore, dilutive shares (in thousands) of 991 were excluded from the computation of the weighted-average shares for diluted net loss per share for the three months ended March 31, 2019. |
14
Q1 2019 Financial Results Supplement May 15, 2019 Exhibit 99.2
Forward-Looking Statements Forward-Looking Statements This presentation and our accompanying comments include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue,” “seek,” “target,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “forecast” and other similar words. Such statements include, but are not limited to, statements about future financial and operating results, the Company’s plans, objectives, estimates, expectations, and intentions, estimates and strategies for the future, and other statements that are not historical facts. These forward-looking statements are based on our current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 28, 2019 with the Securities and Exchange Commission (“SEC”) and in our other reports filed from time to time with the SEC. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements other than as required by law. Any forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements. Non-GAAP Financial Measures Included in this presentation are certain non-GAAP financial measures designed to complement the financial information presented in accordance with GAAP because management believes such measures are useful to investors. The non-GAAP financial measures are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. Reconciliation of non-GAAP financial measures are included in the supplemental slides in the Appendix of this presentation. Market & Industry Data This presentation includes industry and trade data, forecasts and information that was prepared based, in part, upon data, forecasts and information obtained from independent trade associations, industry publications and surveys and other independent sources available to the Company. Some data also are based on the Company’s good faith estimates, which are derived from management’s knowledge of the industry and from independent sources. These third-party publications and surveys generally state that the information included therein has been obtained from sources believed to be reliable, but that the publications and surveys can give no assurance as to the accuracy or completeness of such information. The Company has not independently verified any of the data from third-party sources nor has it ascertained the underlying economic assumptions on which such data are based.
Agenda Financial Highlights and Business Update Scott Sewell, President and CEO Financial Results for Q1 2019 Review of 2019 Guidance and 2020 Outlook Nick Jacoby, Interim CFO and Treasurer
Q1 2019 Business Updates Bids outstanding now in excess of $3.5 billion Opened additional fly ash storage terminal in MA Continued to receive strong customer interest in MP618TM fly ash beneficiation technology; expect to convert this interest to awards in the second half of 2019 Two slag grinding facilities currently under construction expected to be completed in Q3 2019 Received Gold Level safety awards at two remediation sites from the North Carolina Department of Labor
Revenue growth of 5%, in line with the Company’s expectations, driven by the acquisition of SCB Materials International in March 2018 Gross profit decrease of 19%, primarily driven by adverse weather-related impacts and specific issues at three sites leading to unanticipated cost increases Year-over-year Adjusted EBITDA and Adjusted EBITDA margin down primarily due to impacts mentioned above Positive operating cash flow, up $2M versus prior period primarily driven by positive changes in working capital Expect to receive significant cash payment in 2H 2019 from Brickhaven customer; process still on track Please refer to the supplemental slides in the Appendix for a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure Revenue First Quarter 2019 Highlights Adjusted EBITDA1 Q1 2019 vs. Q1 2018 5.5% 11.2% Gross Profit 9.4% 12.3% Margin Comparison Cash Flow From Operations Q1 2018 Q1 2019 ($ in millions)
Growth Potential and Drivers Expanding Pipeline of Opportunities Compelling Value Proposition to Customers ~15% of current bid pipeline has been verbally awarded to Charah, exclusive negotiations underway Expected to announce new awards over remainder of 2019 Overwhelmingly Positive Response to Technology Initiatives Regulatory and Public Policy Trends Driving Customer Needs Industry leader in ash excavation History of solving customers’ most complex environmental challenges Exceptional quality, safety and compliance record Favorable market dynamics and regulatory trends Commitment to reducing greenhouse gas emissions for a cleaner energy future
Byproduct Sales Opened first slag grinding facility – Albany, NY Launched first MP618TM Thermal Fly Ash Beneficiation Facility – Sulphur, LA Constructing slag grinding facility – Houston, TX; expected to be online in Q3; sales in Q4 New MA fly ash storage terminal Most cost-effective technologies available Progress on Technology Rollout Charah Solutions’ MultiSource Materials Network West Coast grinding facility now under construction In planning stage on two other grinding facilities Seeing strong customer interest in both technologies Expect to have new contracts in place for MP618TM technology in next few months
Regulatory and Public Policy Trends Driving Customer Need Coal ash cleanup bill wins bipartisan backing in Virginia North Carolina Requires Duke Energy to Remove Coal Ash From All Storage Basins Virginia Governor approves law requiring Dominion to excavate all coal ash Coal ash contaminating groundwater nationwide, groups say Coal ash contaminates groundwater near most U.S. coal plants: study
Recent Regulatory Developments Virginia Clean Closure Legislation Signed into law in March 2019 Affects more than 27M tons of ash stored in CCR lagoons for four Dominion Energy power plants; requires beneficiation of at least 25% and clean closure of remainder Represents significant opportunities for our beneficiation and remediation businesses over 15+ years North Carolina Clean Closure Decision NC Department of Environmental Quality (DEQ) ordered Duke Energy to remove coal ash from all storage basins and move to lined landfills Duke had planned to move 22 of 31, and use “cap in place” for other nine (~56M tons of ash) DEQ: “Excavation is the only way to protect public health and the environment” Final excavation closure plans due to DEQ by August 1, 2019; beneficiation may have a role in plans Duke has appealed ruling VA and NC developments represent significant opportunities for our beneficiation and remediation businesses over 15+ years
Q1 2019 Financial Review
Business Segment Performance First Quarter 2019 vs. First Quarter 2018 Revenue 14.2% 26.1% Gross Profit Revenue 6.8% 6.2% Gross Profit Maintenance & Technical Services 3% Revenue Decrease Environmental Solutions 22% Revenue Growth Revenue decrease driven by reduced scope of nuclear outages Strong revenue growth driven by acquisition of SCB Gross profit and gross margin % decline driven by adverse weather impacts and issues at three sites ($ in millions)
Q1 2019 Cash Flow Cash flow from operations (pre-changes in W/C) $5.4 Change in W/C 0.7 Operating cash flow 6.2 Capex Maintenance and growth (3.3) Technology (3.4) Free cash flow (0.5) Positive operating cash flow; improvement from prior quarters Capex spend expected to increase over remainder of 2019 as new project awards are received and technology is rolled out ($ in millions) Includes CIE buildup of $8.6M; drag to cash flows; expected to be substantially recovered with Brickhaven payment Expect to be significantly free cash flow positive in 2019
$ Millions (Pre-IPO) As of 3/31/2018 As of 12/31/2018 As of 3/31/2019 Cash and Cash Equivalents $9 $7 $6 $50 Revolver ($45 prior to refinance) -- $20 $21 Equipment Financing $21 $35 $38 Senior Secured Term Loan $245 $202 $200 Total Debt3 $266 $257 $258 Net Debt $257 $250 $252 LTM Adj. EBITDA $78 $99 $90 Gross Leverage 3.41x 2.61x 2.86x Net Leverage 3.29x 2.54x 2.78x Debt & Leverage $50M capacity less $20M drawn less $12M used for letters of credit. “DDTL” refers to our Delayed Draw Term Loan availability. Total debt is shown before debt issuance costs. Liquidity of $49M: Cash: $6M Revolver1: $18M DDTL2: $25M Expect to receive substantial cash payment from Brickhaven customer in 2H 2019; significant portion to repay debt Expect leverage ratio to trend higher over course of 2019 (due to lower Adjusted EBITDA) before improving in 2020
2019 Guidance & 2020 Outlook
Revised 2019 Guidance Original 2019 Guidance Range Revised 2019 Guidance Range Revenue $650 - $800 $550 - $650 Net Income attributable to Charah Solutions $5 - $20 $5 - $15 Adjusted EBITDA $50 - $65 No change ($ in millions) Lower revenue guidance driven by delays in timing of new business awards Lower end of revenue range substantially underpinned by existing business and new work awarded to date Remain confident in bid conversion prospects; expect will have a meaningful impact in 2020 Expect to be significantly FCF positive in 2019 with receipt of Brickhaven related payment
2020 Outlook: Our Expectations Well positioned for at least 20% revenue growth in 2020 from previous 2019 guidance range of $650M to $800M Size and quality of outstanding bids Verbal awards received to date Prospects for additional conversion in 2H 2019 and 2020 Favorable market and regulatory dynamics accelerating need for remediation Increased market penetration of our technologies Potential to bundle with remediation capabilities to our competitive advantage 2020 Adjusted EBITDA margin comparable to or improved from 2019 Higher-margin profile of expected revenue growth No need to scale up G&A expenses with growth in revenues
APPENDIX
Additional Detail Key Expense Items in 2018 and Outlook for 2019 General & administrative expense Reported G&A expense $76.8 Add back: Amortization of purchase option liability 15.2 Less: Non-recurring and non-operating legal costs and expenses 25.4 Non-recurring startup costs 1.5 Transaction related expenses and other items 4.5 2018 Adjusted G&A expense $60.5 Interest expense Reported Interest expense $32.2 Less: Refinancing costs 12.5 Interest expense excluding refinancing costs 19.8 2018 Cash interest $22.8 Depreciation & amortization expense Depreciation $49.2 Amortization of intangible assets 8.3 Amortization of purchase option liability (15.2) Total 2018 D&A (per Statement of Cash Flows) $42.3 Reported and Adjusted G&A expense both include: $4.1M of non-cash stock compensation expense; will vary from year to year $8.3M of non-cash amortization of intangible assets Total ~$12.4M non-cash G&A expense 2019 G&A expense expected to be in the ballpark of 2018 Adjusted G&A expense Refinancing costs consists of a $10.4M non-cash write-off of debt issuance costs and a $2.1M prepayment penalty 2019 cash interest payments expected to be lower due to term loan refinancing in Q3 2018 ($13M - $15M in 2019) 2019 GAAP interest expense will vary with non-cash mark-to-market adjustments on rate swap Depreciation includes $38M related to Brickhaven, including accelerated amount (booked to COGS); most will not continue in 2019 Amortization of intangible assets is expected to continue in 2019 at similar levels (booked G&A expense) Amortization of purchase option liability is expected to decrease in 2019 to ~$3.0M (booked G&A credit) 2019 D&A expense expected lower than 2018 levels by ~$20M ($ in millions)
Non-GAAP Reconciliation Adjusted EBITDA Represents non-recurring legal costs and expenses, which amounts are not representative of those that we historically incur in the ordinary course of our business. Negative amounts represent insurance recoveries related to these matters. Represents non-recurring start-up costs associated with the startup of Allied Power Management, LLC (“Allied”) and our nuclear services offerings, including the setup of financial operations systems and modules, pre-contract expenses to obtain initial contracts and the hiring of operational staff. Because these costs are associated with the initial setup of the Allied business to initiate the operations involved in our nuclear services offerings, these costs are non-recurring in the normal course of our business. Represents SCB transaction expenses, executive severance costs, IPO-related costs and other miscellaneous items. Adjusted EBITDA margin is a non-GAAP financial measure that represents the ratio of Adjusted EBITDA to total revenues. We use Adjusted EBITDA margin to measure the success of our businesses in managing our cost base and improving profitability.
Non-GAAP Reconciliation Adjusted EPS Represents non-recurring legal costs and expenses, which amounts are not representative of those that we historically incur in the ordinary course of our business. Negative amounts represent insurance recoveries related to these matters. Represents non-recurring start-up costs associated with the startup of Allied Power Management, LLC (“Allied”) and our nuclear services offerings, including the setup of financial operations systems and modules, pre-contract expenses to obtain initial contracts and the hiring of operational staff. Because these costs are associated with the initial setup of the Allied business to initiate the operations involved in our nuclear services offerings, these costs are non-recurring in the normal course of our business. Represents SCB transaction expenses, executive severance costs, IPO-related costs and other miscellaneous items. Represents the statutory income tax rate of 24.89%, multiplied by adjusted (loss) income before income taxes attributable to Charah Solutions, Inc. As a result of the net loss per share for the three months ended March 31, 2019, the inclusion of all potentially dilutive shares would be anti-dilutive. Therefore, dilutive shares (in thousands) of 991 were excluded from the computation of the weighted-average shares for diluted net loss per share for the three months ended March 31, 2019.
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