Charah Solutions Inc (CHRA) 2018 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Charah Solutions Third Quarter 2018 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to Charles W. Price, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us. We hope you have had the chance to review the press release we issued earlier this morning. The press release, as well as a supplemental investor presentation, is available on the Investors section of our website at www.charah.com.

Today on our call, we have Charles Price, Founder, President and Chief Executive Officer; Scott Sewell, Chief Operating Officer; and Bruce Kramer, Chief Financial Officer. In our remarks today, Charles will provide an overview of our results, business developments during the quarter and current market environment. Scott will discuss our business operations, and Bruce will review the financial results for the third quarter of 2018 in more detail and provide an outlook for the rest of the year. Following our prepared remarks, we will be available to answer your questions.

Before we begin, I would like to remind you that our remarks regarding Charah Solutions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings release and conference calls. Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the Securities and Exchange Commission, including our prospectus and our quarterly report on Form 10-Q. We disclaim any obligation to update these forward-looking statements.

During the conference call, we will make reference to non-GAAP financial measures. Reconciliations to the applicable GAAP measures can be found in our earnings release and on our website.

With that, I would like to turn the call over to Charles, our President and CEO.

Thank you, Charles. Good morning, everyone, and thank you for joining us.

We reported a solid third quarter with adjusted EBITDA exceeding expectations. During the quarter, we generated revenues of $186 million, a 56% increase year-over-year. However, we had a GAAP net loss of $17.4 million or $0.60 per share, primarily driven by a nonrecurring $12.5 million loss on the extinguishment of debt associated with our term loan refinancing and $20.8 million of other nonrecurring and nonoperating expenses. Excluding these nonrecurring expenses, adjusted net income was $7.6 million and adjusted earnings per share was $0.25. Adjusted EBITDA was $32.5 million, an increase of $11.9 million or 57%.

Since our last call, we have achieved several significant milestones that are important to the future of our business. We refinanced our debt, which will result in significant annual interest savings and improve financial flexibility. We launched MP618, our fly ash beneficiation technology. And we are commissioning our first slag grinding facility. Both of these technologies are expected to be significant growth drivers, as we roll out additional facilities.

Within Nuclear Services, our team continue to exceed customer expectation, bringing outages in ahead of schedule and under budget. However, because of market pressures, the nuclear industry is implementing cost-saving initiatives, including the deferral of discretionary spend. As a result of these cost-saving initiatives, combined with our ability to bring outages in ahead of schedule, revenue in our Maintenance & Technical Service segment were lower than our expectations. The impact on the EBITDA is minimal due to the relatively low-risk, low-margin nature of this business, and we expect to offset the impact in 2018. We expect the trend towards shorter outages to continue.

Within our Environmental Solutions segment, due to the change in North Carolina law, Duke Energy recently determined that it would discontinue the supply of ash to our Brickhaven and Sanford structural fill sites in North Carolina, which will result in an earlier-than-expected completion of the Brickhaven contract. We would note that the contract includes financial protections that enable us to recoup unrecovered cost incurred to date as well as estimated future cost for closing the 2 sites. Early completion of the Brickhaven contract will accelerate recovery of our cost and estimated earning and eliminate working capital balances related to the contract. It will also result in higher EBITDA for 2018. The acceleration of cash flow will make us significantly cash flow positive in the first half of 2019, allowing us to further reduce debt and strengthen our balance sheet. We see promising growth within our Environmental Solutions segment with our remediation and compliance services remaining in high demand. Recent storms have kept coal ash in the headlines, and the renewed focus on cleaning up legacy coal ash ponds presents a tremendous growth opportunity.

In August, the U.S. Court of Appeals for the Fourth Circuit ruled that all unlined coal ash ponds must be closed, including clay lined and legacy inactive ponds, which were previously excluded from the CCR regulation. This ruling significantly increases our addressable market and further validates the requirement for remediation. Additionally, the requirement to remediate ash ponds is accelerated once the plant is retired and removed from operations. As a result, the retirement of coal plants further increases the amount potential business for us.

As we noted last quarter, a revision to the CCR rule could result in a time line shift for some projects of our customers. That said, we expect only a very small percentage of ponds to be affected by the revisions. In fact, across the market, our opportunities continue to grow, and we are bidding on more projects than ever before. Because of the innovative solution and technologies we offer, our customers are asking us to provide comprehensive solutions, including, in some cases, both closure and beneficiation. These proposals are larger in scale, more complex and take longer to develop and implement. Keep in mind, we are the only company that provides the full suite of services, we believe, our customers are seeking.

As we look to the future, we believe Charah is well positioned to continue to meet the significant and recurring environmental and maintenance needs of our customers and grow our market-leading position.

I will now turn the call over to Scott Sewell, our Chief Operating Officer, to discuss our third quarter operations in greater detail.

Thanks, Charles, and good morning, everyone. As Charles mentioned, our business is strong, and we have several exciting initiatives under way.

In the third quarter, we took significant steps to broaden our offerings. I'll start with discussing our Environmental Solutions segment. Beginning with our byproduct sales division, we are in the process of opening our first slag grinding facility outside Albany, New York. We have completed the installation of our proprietary MP618 thermal fly ash beneficiation technology at one of our multisource facilities in Louisiana. And we recently announced the installation of fly ash storage silos at the Oklahoma Construction Materials rail terminal near Oklahoma City, further expanding our robust MultiSource materials network.

When fully operational, we believe these facilities will allow us to ensure a steady and reliable supply of fly ash and other supplementary cementitious materials, or SCMs, for ready-mix concrete producers. Our technologies have relatively low-cost profiles, and production can be scaled up or down in response to market demand, providing us flexibility to target both large and small markets where the supply of fly ash is currently constrained.

We have significant growth plans for these high-margin technologies. To date, we have identified 4 locations to install our grinding technology in 2019, and we are aggressively seeking additional locations to expand our network of MultiSource facilities.

The successful rollout of these technologies will further strengthen Charah Solutions as the market leader. We expect these initiatives to be growth drivers for our byproduct sales business as the launch of additional facilities is expected to provide incremental volume and revenue. We anticipate a significant ramp in the deployment of our technologies in 2019, with the full benefit to our financial results in 2020.

Within our remediation and compliance services division, as Charles mentioned, Duke Energy recently decided to discontinue the supply of ash to our Brickhaven and Sanford structural fill sites, following the completion of the Riverbend closure-by-removal project, which is expected to occur in December. The Brickhaven contract is unique in that we own the fill site being utilized. All of our other contracts are not of this type and therefore are not affected by this development. We consider Duke Energy a valued partner. And as always, we strive to strengthen our relationship by delivering excellent performance and exceeding expectations across all projects.

In terms of other significant closure-by-removal projects, by the end this year, we will have safely completed the first such project for another leading Mid-Atlantic utility customer. We believe our strong performance and track record on these projects positions us to be awarded with many more pond closure contracts in the future. Our commitment to quality and safety continues to set us apart from the competition and makes us a partner of choice within the industry. In fact, we are in the early planning stages with other customers for several large environmental remediation projects that are expected to last 10 to 15 years. These are competitive situations, and if our customers proceed as we expect, these projects will commence in mid- to late 2019.

Turning to our Maintenance & Technical Services segment, which posted strong growth in the third quarter, within our fossil services division, our team's hard work continues to pay off with a recent award from a new customer for a long-term ash management agreement. Currently in contract negotiations, we expect this project will commence in the second quarter of 2019, adding to our already strong backlog of fossil service contracts and increasing our market share in this business.

Within our Nuclear Services division, through the third quarter, we have completed 10 of the scheduled 14 nuclear outages for 2018. And we will complete the remaining 4 outages during the fourth quarter of this year. Performance of our teams during outages continues to exceed customer expectations.

As Charles mentioned, looking across all of our businesses, our pipeline is strong, and we are bidding on more new projects than ever before. In fact, we currently have over $3 billion in bids outstanding. Although we do not have complete visibility into the timing of awards, we are confident that we are well positioned to capitalize on much of this pipeline and continue to grow our business. With respect to several of these projects, we could begin recognizing revenues in the second half of 2019.

We maintain our focus on hiring, developing and retaining the right personnel to support these specialized needs of our customers, while meeting the highest safety standards. Safety continues to be a differentiator in our conversations with new and existing customers, as they make their contract decisions.

With that, Bruce Kramer, our CFO, will now provide more detail on our third quarter financial results.

Thanks, Scott, and good morning. As Charles mentioned, we delivered solid performance in the third quarter of 2018.

Before I review our financial results, I'd like to highlight our debt refinancing and expand on the expected early completion of the Brickhaven and Sanford structural fill contracts. In September, we successfully refinanced our term loan and revolving credit facility. The improved pricing is expected to reduce interest expense by approximately $8 million in 2019. We also achieved a modest increase in liquidity as a result of upsizing the revolver, and we enhanced our overall financial flexibility. The improved terms reflect our reduced leverage, following our IPO in June, as well as strong financial performance and current market conditions.

Turning to the expected early completion of the Brickhaven contract, I'll provide a bit of background that may be helpful. Duke Energy and Charah signed a contract in 2014, under which Duke would supply 20 million tons of ash. Based on that contract, we purchased and developed the Brickhaven and Sanford sites for the specific purpose of accepting those 20 million tons. To date, we have received approximately 7 million tons of ash. In 2016, North Carolina amended the state law regarding ash disposal and storage, requiring Duke Energy to beneficially recycle ash at 3 different sites, meaning that Duke Energy no longer needed to send ash to our fill sites. Despite the change in law, Charah and Duke continued exploring possible sites from which the remainder of the ash for this contract to be sourced. However, Duke Energy recently indicated that it would no longer supply ash to the Brickhaven site once the Riverbend closure-by-removal project is completed in December. Under this contract, we paid for the land acquisition, permitting and development cost of the project. Contractually, we were to be reimbursed for all of these costs on a per-ton basis over the 20 million tons. With the early completion, Charah will receive a substantial payment to recoup our unrecovered cost and profit. We expect to receive this payment no later than the second quarter of 2019. Under the percentage of completion accounting, the expected early completion of the contract results in an acceleration of revenues and expenses into the third and fourth quarters of 2018. The net impact of this was a benefit to EBITDA in the third quarter because we recorded significantly higher depreciation expense associated with the accelerated writeoff of contract assets.

From an accounting and financial point of view, this early contract completion is a significant positive for Charah for several reasons. We will post very strong adjusted EBITDA this year, the cash payment will result in a reversal of significant working capital balances and render us significantly cash flow positive in the first half of 2019. As a result, our balance sheet and cash flow statement should both look more straightforward. A portion of the proceeds will be used to pay down debt and further improve our leverage ratio, while having excess cash available for capital allocation.

Turning to our third quarter financial results. For the 3 months ended September 30, 2018, we generated revenue of $186 million, a 56% increase year-over-year.

In our Environmental Solutions segment, we generated record revenue of $103.8 million, an increase of more than 57% year-over-year, reflecting the SCB acquisition and increases from other remediation and compliance projects.

Our Maintenance & Technical Services segment, revenue increased 55% to $82.2 million, primarily attributable to a full quarter of operations for our Nuclear Services division. As previously noted, outages are being completed in shorter durations, which has reduced revenue expectations for this business. But due to the low-risk, low-margin nature of this work, impacts to EBITDA are minimal and will be offset in 2018.

Gross profit increased $3.6 million to $26.7 million, up 15% from the third quarter of 2017. Our gross margin declined to 14.4% from 19.5% a year ago, primarily due to reduced margin within the Environmental Solutions segment.

Gross profit for Environmental Solutions increased $1.2 million to $19.9 million, a 6% increase from the third quarter a year ago. The increase was attributable to the net overall increase in gross profit within remediation and compliance services in addition to gross profit related to the acquisition of SCB. Gross margin declined to 19.1% from 28.3% a year ago, primarily due to a change in the mix of projects, weather-related impacts as well as the SCB acquisition.

Gross profit within Maintenance & Technical Services increased $2.4 million to $6.9 million, a 53% increase from the third quarter a year ago. The increase was primarily attributable to a full quarter of operation of our Nuclear Services business. Gross margin of 8.3% was in line with the 8.4% recorded in the year ago period.

General and administrative expense increased $12.7 million in the third quarter to $32.6 million from $19.9 million for the third quarter a year ago. The increase was primarily attributable to a $20 million reserve associated with pending litigation, partially offset by a reduction in nonrecurring startup and other costs recorded in 2017.

Regarding the litigation reserve, we recently received an offer to settle the APTIM matter, which we are reviewing with our insurance carrier, and believe that $20 million is sufficient to address APTIM and all other outstanding legal claims.

Operating income decreased $9.1 million to $5.9 million, mostly because of the increased general and administrative expense.

Interest expense increased $15.5 million to $17 million. Approximately $12.5 million of the increase is attributable to a nonrecurring loss on extinguishment of debt associated with our term loan refinancing, including a prepayment penalty of $2.1 million and $10.4 million of noncash amortization of deferred financing costs.

We had a net loss of $17.4 million for the third quarter as compared to net income of $1.1 million a year ago. The decrease was primarily attributable to nonrecurring interest expense and nonrecurring and nonoperating expenses. Earnings per share were a loss of $0.60.

Adjusted net income and adjusted earnings per share were $7.6 million and $0.25, respectively. Both metrics exclude the nonrecurring interest expense and nonrecurring and nonoperating add backs previously discussed.

Adjusted EBITDA for the third quarter was $32.5 million, an increase of $11.9 million from the third quarter a year ago. Adjusted EBITDA margin was 17.5%, in line with the 17.4% a year ago.

Next, I review our cash flow. Operating cash flow for the first 9 months of this year was negative $10.5 million. The primary reason that we were cash flow negative during this period was the significant increase in working capital associated with acceleration of revenues and cost related to the Brickhaven contract. This shows up as higher cost and estimated earnings in excessive billings, or CIE, on our balance sheet. That CIE will be converted to a receivable, which, when collected, will flip the working capital drag and operating cash flow to a positive.

With respect to our debt levels and leverage ratio, at September 30, 2018, we had gross consolidated debt of $240.5 million. Our net leverage ratio was 2.5x compared to 2.6x at June 30.

I'd like to close by discussing the full year 2018 guidance we provided in our earnings release this morning. In the fourth quarter of 2018, the company expects to recognize additional accelerated revenues and expenses related to the expected early completion of the Brickhaven contract. The net impact is expected to be positive for EBITDA. The company expects revenues from its Nuclear Services business to continue to be affected by the industry pressures previously described. All of the impact on EBITDA is expected to be minimal and offset in other areas.

In view of these factors affecting the fourth quarter, the company is providing guidance for the full year of 2018 of revenues in the range of $720 million to $730 million and adjusted EBITDA in the range of $98 million to $105 million.

As we noted last quarter, we continue to project not paying any cash taxes the remainder of this year.

The trend towards shorter nuclear outages and the expected early completion of the Brickhaven contract will impact 2019 revenues relative to our expectations at the time of the IPO. However, as Charles and Scott mentioned, we have a strong pipeline for new projects, and we intend to provide full year 2019 guidance when we report year-end 2018 results in March.

With that, I'll turn the call back to Charles for closing remarks.

Thank you, Bruce. As you have heard this morning, we've made excellent progress during the quarter in several key areas. First, we refinanced our term loan, resulting in meaningful interest cost savings and improved financial flexibility. Second, we rolled out new technology to improve our competitive position. Third, we continue to add to our pipeline with a number of exciting opportunities currently in discussions and on our radar for the second half of 2019 and into 2020. Fourth, we anticipate a very strong finish to '18 and fully expect to exceed our full year adjusted EBITDA expectations at the time of the IPO. Fifth, we expect to become significantly cash flow positive in the first half of 2019, which will enable us to reduce debt and further strengthen our balance sheet, while leaving us excess cash available for capital allocation.

In conclusion, we continue to focus on growing our business, exceeding our customers' expectations and delivering value for our shareholders. We see significant growth opportunities across our segments and remain committed to capitalizing on the growing need for environmental remediation, continually working to increase our market share and expand our service offerings as well as executing on our technology deployment.

Before we move to Q&A, I want to thank you all for joining us today.

With that, operator, let's open it up to questions.

(Operator Instructions) Your first question comes from Hamzah Mazari from Macquarie.

My first question is just on the $3 billion of outstanding bids that you referenced, could you maybe walk us through sort of your historical win rate on bids and sort of who you're competing against? Has the competitive environment on these bids gotten more aggressive, less aggressive? Have the players changed over time?

Hamza, this is Scott Sewell. Great question. Again, we're excited about that $3 billion pipeline. As far as a conversion rate, that's something that we typically don't share. However, I can give you a lot of insight into the competitive market and where we see the business right now. We think about that $3 billion pipeline, that crosses all of our business segments. As we've communicated before, we're the only provider of this full suite of services, so we see our competition to be fragmented, specifically per segment -- per subsegment, actually. So when we look at the business, we may be competing against someone specifically in the byproduct sales portion of the business and we may be competing against somebody specifically in the nuclear segment. However, there's nobody is competing with us across all those industries, but we are very excited. We haven't seen a pipeline like this -- or I guess, a pending bid list like this in a really long time, probably never from our records that we showed have this much work pending at one point in time. And as Charles mentioned in his prepared remarks as well, we see some of the movement in the Circuit Court ruling in August. It's even increasing our addressable market Environmental Solutions segment. So we're really excited about that pipeline. And as we've communicated before, we've got that unbridled passion for our business and an unwavering commitment to deliver on the existing contracts, but more importantly, bring new and innovative solutions to our customers. And I think our new technology is going to unlock a lot of it as well.

And I would just add, that new technology is driving a lot of growth, a lot of excitement, a lot of enthusiasm with our customers. The cost competitive scalability of our technology is equal to none in the industry, so that is just continuing to open up opportunities for us to continue to grow the business in a less-competitive landscape.

Great. Very helpful. And just a follow-up question. Anything we should be aware of in terms of regulations coming out of the EPA, either in North Carolina or stuff that's maybe in the pipeline around regulations that could impact your business or stuff that you're looking at from a reg perspective that the market should be sort of aware of, positive or negative?

Sure. I think -- again, this is Scott Sewell. I think, one thing we'd really point to is kind of a trend we're seeing. I think you can look at some of the headlines in Virginia right now. There looks to be some legislation -- some state legislation. That's going to be kind of prescriptive for dominion on how they should view their coal ash moving forward. I think it's going to have an element embedded in it of some of the stuff we're talking about around beneficiation and ash excavation. And as we see across the country, there's a movement to continue kind of this regulation and the trend that's going to be positive for our business.

Great. And then last question, I'll turn it over. I think you reference that you are sort of close to settling the lawsuit in the Nuclear business. Just any updated color there that you sort of mention in the release.

This is Bruce. I'll address that. We received a settlement -- a proposal offer from APTIM. We're reviewing that along with our counsel and our insurance carrier. And we will -- we're hopeful that we will resolve that here in the fourth quarter. The general reserve that we talked about is for all outstanding litigation, inclusive of all matters, including the APTIM matter. And we believe that the ultimate resolution of all of these claims will certainly be covered with the $20 million reserve that we booked in the third quarter. Sorry, I'm just going to continue. It's also important to note that we expect some insurance recovery from that. And none of those costs, we will continue to discuss with the insurance company. None of those costs have been offset. And those costs will be recorded in the period that we receive them.

Your next question comes from Michael Hoffman from Stifel.

If I could hitchhike back off of Hamzah's question about the $3 billion, could you at least split it for us on what's Environmental Services versus M&TS mix?

Michael. I -- again, this is Scott Sewell. I don't have that information in front of me right now. However, it's something that Charles William can probably follow up with you with.

Okay. I think we're talking at 10:45, so maybe we can do it then. And then when we look at the grinding projects, how do you think about what the sales per site would be? And what's the sort of capital needed to build one? And so you're building one in Albany. And I tend to not always hear all the details when you're writing fast on a transcript, but I think you said you're going to build 4 more in 2019.

Yes, Michael, you're exactly right. That was -- you had a good job at keeping up with us on the call there. Yes, our unit in Albany is up and running. And we did say that we're looking -- aggressively looking at 4 sites here to deploy that technology in 2019. And again, we're only building those units to the extent we see the demand, so it's a little too early to comment exactly on the sales for each of those facilities. And I think if you kind of take your second piece of that question, what's the CapEx look, so we're talking about 4 sites, but we're in the valuation stages on the sales demand for those facilities. Each of those facilities could have multiple grinding units deployed on them. So right now, we're just looking at the opportunity and getting the profitable returns, the business for each one of those. I think if you were to frame it, right now, we're looking at possibly $3 million to $5 million per unit. But again, that's going to be scalable depending upon the demand. And we'll definitely be able to give better guidance around the CapEx when we give 2019 guidance as well.

And Michael, this is Charles. The slag market is a 4 million to 5 million ton per year market. And our capability to get into these markets in different areas versus traditional grinding facilities, we're significantly less in capital and operations. And we can address markets in specific areas, which -- and the other type grinding facilities are constrained by transportation. And so this is just an excitement and enthusiasm around this technology and being able to supplement the fly ash in areas where it's not available is just a significant growth opportunity for us here. And you'll see that as we go through these quarters.

Okay. Let me try this a little bit differently. Take the midpoint at $4 million. You, I'm assuming, would want a mid-teens unlabored IRR and kind of a 3-year payback, so I can sort of work backwards and get an approximate way to think about this.

Yes. The payback is going to be 3 years or less. And the margins are significant.

And then comparable to the byproduct margins that we've been thinking about?

Yes, Michael. Again, Scott Sewell here. I think it would be comparable or accretive would be the idea from our end. Again, we're very, very excited about this technology. We think it's -- what we hope that it's going to bring higher margins than we've seen historically, especially as we move into these markets where there's a high demand and low supply, and we can adapt that pretty quickly and increase our margin profile.

Okay. That helps. And then just so I can follow the path of where you think about sales since we -- I get you will give guidance in February, but we all have to build models. So 3Q '18, we're kind of $104 million in Environmental Solutions. My assumption is byproduct still trending somewhere in the low $20 million, so all the upsides in remediation. I should repeat that in 4Q. And then when I go into '19, I got to take out the upside that was in remediation in 3 and 4Q for Brickhaven and normalize to -- back to a $60 million or $70 million a quarter kind of pace. Is that the right way to think about it?

I think it is directionally, yes. And I think -- but I do think, again, as we get into 2019 and we start developing the technologies, there certainly will be a shift towards the higher-margin product sales business with the technology rollout.

Well, on the grinding side and the MP...

That's correct.

And the MP6, yes.

Yes. Okay. And then the same thing in M&TS, so we're -- you get $106 million in 2Q. You're down at $82 million. My gut says that the fossil business is very stable, so that's still running at a $14 million or $15 million a quarter. And all of the downside is Nuclear. And I should back into that somewhere between $65 million or $70 million. And I can -- should look at that being sort of the pace in 4Q. And is that the kind of run rate to think about that given the change in the model of quarterly -- or 240...

Yes, yes. I think we start to continue the pressures on the nuclear side to continue well into 2019. But again, we're certainly exploring a pipeline on the nuclear side of the business as well. So again, as you know, our contract right now is with Exelon but we're certainly exploring opportunities well beyond that contract with other utilities, so looking to build that side of the business through growth and other utility customers as well.

But all likelihood, we're -- those revs are down year-over-year, and it's not a bad thing. We just need to understand directionally in '19, those revs will be less than they were in '18 because of the change in the -- the secular change in the market.

I think, yes. Without the incremental build from this, that would be correct.

Okay. All right. That helps. And then just so I'm clear. We should see a benefit in 4Q from refi? So the $8 million is 3 quarters of benefit. And then -- so there's a 4Q benefit. So it's an annualized total savings. It's closer to something that looks like $11 million.

No. The $8 million would be on an annualized basis. It's effectively looking at the spreaded margin from 6.25% to 250 basis points on the $205 million in term debt. So it's about just shy of $8 million on an annualized basis. I think it's also important to note that with the potential deleveraging, with the cash payment that we're going to receive that we very well could be below the 2.5 and expect to be on the leverage and that will drive that rate down about another 20 basis points, but -- so it's around -- and we -- also we have a 5% amortization of the debt in 2019. So with lower debt and the pay downs in the lower rate, I think the interest savings for 2019 should exceed that sort of that $8 million above range.

Your next question comes from the line of Toni Kaplan from Morgan Stanley.

I was hoping you could expand a little bit more on shift to the shorter nuclear outages. Does this shortened time frame inherently impact future margins on these contracts? Basically, how should we be thinking about sort of the long-term impact from this industry change on the business?

Sure, Toni. Thanks. I think while I look at your question in 2, kind of bifurcate it out there, look at it 2 ways. First, on the margins, as we've discussed previously, those margins are stable, so there no be -- there will not be any impact to margins. That percentage is stable based on the way our contract is written in a cost-plus scenario. But you think about the revs going down in the future, it's kind of twofold. Those refueling outages are every 18 to 24 months. Those are required. But within those refueling outages, you've got both required spend and discretionary spend. And what we're seeing is a little bit of pull back on the discretionary spend. But what's really having a greater impact is just our team's performance. We're continuing to bring these outages in well ahead of schedule. I mean, we couldn't be prouder of our team in the field for what they're doing out there. And we brought some in this last quarter for a -- in 15-day time periods. It's just tremendous performance. So as both those things impact the overall revenues associated with the outages, you'll see that shrink some, but you're not going to see our margins move at all. And I would -- and what -- what's impressive for us is it -- Exelon, it is one of the leaders in the industry. And our performance has been great to date. And we're really seeing that pull us into potential new work with other customers as well.

That's great. And so the new work with other customers, the future contracts, should we expect this similar dynamic of sort of shorter-term contracts? And I guess, I'd think of new contracts as being higher margin. Is that still the case, the right way to think about it?

Yes. I mean, I think the contact duration, we're always going to continue to have these utility customers for the maintenance work long-term contracts. We'll continue to have long-term contracts. The outage durations within those contracts may be a little shorter based on our performance, but the contract term will be lengthy for planning purposes. And then the whole strategy around cost reimbursable for that work will stay the same.

Okay. Great. And then for my follow-up. Would you be able to help put some numbers, revenue and EBITDA figures around just the early completion of Brickhaven? How much of an impact did you get in third quarter? How much in fourth quarter '19? And then how much of an impact was the Nuclear business in those periods that you'd be expecting as well?

Yes. When you talk about the Brickhaven project, first, Toni, this is Bruce, the -- we really can't discuss specifics. But certainly, the largest portion of the EBITDA pickup in Q3 was associated with the early completion of that project. And we'll see similar impact -- probably slightly larger impacts in Q4. And again, the really good news about this contract -- and again, we would have preferred for it not to have been completed earlier than when it would have gone to fruition. But the benefit that we will see is because of the nature this contract, the percentage of completion, we will pull forward the remainder of the cost and revenues associated with that project. And more importantly, we will recover all of our cost that we've been putting on the balance sheet. Again, this is a project that we purchased the land, incurred all of the development costs. We have significant cost tied up in this project on our balance sheet. And when we complete the project and convert that CIE into cash, it will have a meaningful impact on our 2019 first half of the year cash flow impacts. Relative to the Nuclear, certainly, the revenue had an impact. But as Scott and Charles, I think both have mentioned, again, it's lower-margin business. Through efficiencies and offsets, we're able to reduce the impacts within that -- within the Nuclear Services and then certainly able to offset the remainder of that impact through the other 2 remaining portions of the business.

Your next question comes from Steve Schwartz from First Analysis.

With respect to Environmental Solutions and the gross margin decline year-on-year, can you just bridge for us the relative impact of mix versus the weather and versus SCB?

Yes. It's probably -- in the quarter, at least, it's probably relatively equal, not certainly dollar-for-dollar. On a go-forward basis, the SCB, we'll continue to have that impact because, again, it's noncapital business. It's material sales. And it will continue at lower margins on an impact. The flip side of that, as we've talked about, is that we do have the technology rollout, which is a technology we acquired along with that acquisition, and that's where we will certainly see some offsets to that where we expect to see higher-margin business coming out of that. The weather impacts are -- they happen in various quarters. That's not lost revenue. That's revenue that will push. So we fully expect to recover that over the next couple of quarters.

Okay. That sounds good. And then as my follow-up, if I could, just to follow on to Toni's question regarding Brickhaven. I think in your response to her question, you noted that there is revenue associated with the ending of the contracts. So you are going to be recovering, in addition to your cost, some minimum quantity or volume revenue, so to speak, on that. Is that true?

That's correct. Again, as a percentage of completion contract and the way that works is as you pull forward, the cost -- the remaining cost associated with that project, we will pull forward the revenue as well. And again, that is contemplated in the balance of the year guidance that we provided.

There are no further questions at this time. I will turn the call back to the presenters.

Before we close the call, I wanted to follow up on one item that Michael Hoffman had asked earlier with respect to the pipe breakdown. It's certainly heavier weighted towards Environmental Solutions. I'm willing to provide more clarity on the pipeline breakdown on the future earnings calls and presentations going forward, but I don't think we'll be presenting anything specifically on follow-up calls.

And with that, Bruce, I'll just go back and reiterate a strong finish to 2018. The technology rollout is going to be significant. The enthusiasm and the opportunities that's opening up for us are huge, which is attributed to the $3 billion bids and much larger, more complex projects, which eliminates a competition. And with the cost competitiveness and the scalability of our technology, really, it just sets us apart from anyone else. The cash flow positive significantly -- significant cash flow positive for '19, continue to reduce debt and capital allocation for growing the business. And we'll continue to focus on organic growth, which is a trait of Charah that is very strong. Our team does an extremely good job of capitalizing on our safety and reputation in the industry, and we'll continue to build on existing contracts. And we'll continue to pick up market share in new contracts as well. So we're very excited about the remainder of the year and going into '19. So we appreciate the questions and the participation on the call.

This concludes today's conference call. You may now disconnect.