Charah Solutions Inc (CHRA) 2019 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Charah Solutions Third Quarter 2019 Earnings Conference Call. (Operator Instructions) I would now like to turn the call over to Mr. Tony Semak, Head of Investor Relations for Charah Solutions. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today. We appreciate your participation in our third quarter 2019 financial results conference call, and we look forward to sharing with you our prepared remarks and answering your questions. We hope you had a chance to review the press release we issued yesterday after the market closed. But if not, you can find the press release as well as a supplemental investor presentation on the investors section of our website at www.charah.com or ir.charah.com. Joining me today on our call are Scott Sewell, President and Chief Executive Officer; and Roger Shannon, Chief Financial Officer and Treasurer. Following their prepared remarks, we will conduct the customary question-and-answer session and continue the dialogue.

Before we begin, I'd like to remind you that our remarks regarding Charah Solutions include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those disclosed in our earnings releases and conference calls.

Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During this conference call, we'll refer to non-GAAP financial measures. We provide reconciliations to these applicable GAAP measures in our earnings release, supplemental presentation and on our website.

Again, we want to thank you for joining us today. And now I'd like to turn the call over to Scott Sewell, our President and CEO. Scott?

Thanks, Tony. Good morning, everyone, and thank you for choosing to participate on -- in our call today. I'm delighted to report on the operational improvements we've made since we last spoke, following the second quarter of this year. I'll also share how we've demonstrated success in executing our growth strategy in reducing our debt, as anticipated. Our entire leadership team has expended considerable time and effort to reach our corporate objectives and the accomplishments I'll describe for you shortly will help illustrate the results of that work, and how we've become better positioned to achieve our performance targets in 2020 and beyond.

This morning, I'll briefly review our financial results and provide an update on current business developments, including a review of our significant accomplishments, an update on our pipeline of opportunities, our technology initiatives and recent regulatory and legislative actions. I'll then transition the call to Roger for a deeper dive into our financial performance during the quarter and a discussion around our financing activities, and our 2019 guidance and 2020 outlook.

Revenue decreased 35% as compared to the third quarter of 2018, primarily driven by project completions within the remediation and compliance services component of our Environmental Solutions segment, including the completion of the Brickhaven project resulting from the deemed termination, coupled with a decrease in revenue value of projects won and awarded in 2018.

This decline was partially offset by an overall net increase in revenue from our byproduct sales offerings. Revenue also declined within our Maintenance & Technical Services segment, though to a lesser extent, due to a reduced scope of nuclear outage services and fewer outages

partially offset by an overall net increase in revenue from our fossil service offerings. Gross profit declined as well, driven by the decrease in revenue in our Environmental Solutions segment due to the early termination of the Brickhaven project and the roll-off of other remediation and compliance services contracts, along with losses related to one project-specific issue continuing from the first quarter of 2019 partially offset by a net overall increase in gross profit from byproduct sales. However gross profit increased, our Maintenance & Technical Services segment due to primarily higher gross profit from our fossil service offerings, partially offset by a reduced scope of nuclear outages and fewer outages in the period.

On August 30, 2019, we announced that we reached an agreement related to the early termination of the contract for Charah's Brickhaven location. In connection with the settlement, our customer agreed to pay Charah $80 million, consistent with our previously communicated expectations. We received the payment and applied $50 million of proceeds to the reduction of our term loan, consistent with our prior guidance, with the balance applied to our revolving credit agreement.

Next I'll review several vital accomplishments during the quarter that demonstrate the success of our growth strategy. Most notably, we are on a strong pace in business development activities having now won approximately $385 million in new awards year-to-date. Additionally, we have more than $300 million in verbal awards currently under negotiation.

Our year-to-date success rate in winning awards under contract based on total project revenue is approximately 4x higher than year-ago period. These awards include multiple new contracts as well contracts extensions that have expanded our customer base. We continue to make progress and receive keen interest on our MP618 ash beneficiation technology from utility customers, both domestically and internationally, and we hope to convert this interest into awards soon. We reduced our total debt significantly, consistent with our prior guidance, and we continue to receive awards and recognitions for excellent safety performance, which further demonstrates our commitment to our employees and our customers. We have faced a few challenging quarters as our business transitions towards competing for contracts with increased complexity and scope. However, we believe that we are positioning ourselves to take advantage of current developments.

I'll discuss elements of these developments in a bit more detail. We believe Charah Solutions will be a key environmental solutions player over the coming decade. We believe we are very well positioned to benefit from the market and regulatory momentum for responsibly recycling and remediating coal ash. More than 1,000 ash ponds and landfills still require EPA mandated closure or remediation, creating an estimated $75 billion in coal ash remediation opportunities in the U.S., and we believe we are well positioned to be a leading provider for those services. We also continue to see regulatory and public policy trends as increasingly driving customer needs for creative remediation solutions, including where beneficiation or recycling of ash plays a significant role. We continue to believe that our MP618 ash beneficiation technology positions us well to capitalize on this opportunity. Though there have been delays in announcing new business awards over the past couple of years, we expect the size of utility RFPs to increase over the coming periods.

Our total bids submitted year-to- date are well above the year-ago period, and we expect to be around 4x above the year-ago period in dollar value under signed contracts won by the end of the year. Further, increasing complexity and scope of pending project opportunities are also increasing our future growth potential. These upcoming opportunities continue to be weighted more heavily toward our Environmental Solutions segment. We have secured approximately $385 million in new awards year-to-date. Additionally, we have more than $300 million in verbal awards currently under negotiation. We continue to expect the conversion of these verbal awards into contractual awards during the remainder of 2019. We expect the combination of new awards generated year-to-date and verbal awards on our negotiation to result in our most active business development year on record.

With our ability to drive custom solutions that combine our market-leading ash management capabilities and our proprietary beneficiation technologies along with a regulatory environment increasingly conducive to our business, we believe we are ideally positioned to expand our revenue-generating potential. While our highest priority will always be our commitment to safety, we are intensely focused on capturing a significant share of profitable growth opportunities. Next, I'll provide an update on developments in our technology initiatives. Our thermal beneficiation technology, known as MP618 is continuing to gain a strong positive reception from utility customers. But what excites me most about this proprietary technology is that it enables us to transform coal ash waste into beneficial use products in an economical and environmentally friendly manner that is compelling to our utility customers while meeting the high demand from the ready-mixed concrete market for purposes of making stronger more durable concrete for the construction of buildings, roads and bridges.

We are holding discussions with utility customers to begin deploying this technology in their businesses, and we are also in discussions with interested international customers to deploy this technology. While our technology rollouts have been slower than previously anticipated, we continue to expect the MP618 technology initiative to be a key growth driver for our byproduct sales business. We continue to see a trend in coal ash regulation toward more prescriptive approaches at the state level that dictate the means and methods for ash pond closures that are required at the federal level. States like Kentucky, South Carolina, North Carolina, Virginia, Oklahoma, Missouri, Indiana and Illinois have already developed their own rules for coal ash management, and some utility customers in other states are proceeding with coal ash closure plans more proactively, which we expect will contribute to the anticipated growth in new work awards in the coming quarters. As we've discussed in prior quarters, we continue to see much discussion and reporting of potential groundwater contamination at or near coal plants and ash disposal sites. The widespread reporting on this issue is another example of growing environmental concerns about this issue. This could result in remediation plans that create opportunities for Charah to provide environmentally friendly solutions. At the federal level, due to the prompting of the DC Circuit Court of Appeals in 2018, the EPA has released proposed amendments to its 2015 coal combustion residuals or CCR regulations that change the criteria for clean closure from a size-based approach to a location-based approach. This means closure determinations will be based on the risk to waterways and groundwater contamination rather than the tonnage. The comment period is underway, and a final ruling could be established by year-end.

Earlier this month, the EPA also proposed additional revisions to the 2015 CCR rule that include a change in the classification of clay-lined of soil line surface impoundments to unlined. This requires closure and brings forward the deadline for unlined or failing CCR units to stop receiving ash and initiate closure to August 31, 2020 from October 31, 2020. These and other recent examples reinforce our expectation for regulatory and public policy trends to increasingly drive customer needs for creative remediation solutions, including where beneficiation plays a significant role. We believe our ability to bundle our proprietary technologies with more traditional remediation approaches puts us in a strong competitive position to develop these creative and cost-effective solutions. Growing concerns about potential groundwater contamination could prompt actions in other states to require clean closure.

Also, approaching regulatory deadlines are likely to increase utilities' focus on developing their compliance plans. These developments have been key drivers in our expanding pipeline of opportunities and further support our confidence in the future of our business. With that, I'll turn it over to Roger to provide a review of our financial results.

Thanks, Scott. Now I'll continue with a review of our financial results and provide an update on our balance sheet and liquidity and review our 2019 guidance and 2020 outlook before turning it back to Scott for closing remarks. Revenue for the third quarter decreased $64.9 million or 35% from the year-ago period to $121.1 million, driven by project completions within our remediation and compliance services component, including the completion of Brickhaven project during the first quarter of 2019 resulting from the previously discussed deemed termination and a decrease in the value of projects won in 2018; and to a lesser extent, by fewer nuclear refueling outages and a reduced scope of nuclear outages. Gross profit decreased $12.8 million to $13.9 million during the quarter, while gross margin declined to 11.4% from 14.4% in the same period last year. These declines were driven primarily by project completions in our Environmental Solutions segment and to a lesser extent, by increased costs associated with a project-specific issue that continued from the second quarter. As we have previously discussed, the circumstances giving rise to these costs are isolated and have no relation with any other current or anticipated projects. We reported a GAAP net loss for the quarter of $2.3 million as compared to a net loss of $16.5 million in the year-ago period.

The decline in the net loss was primarily attributable to an $18.5 million decrease in G&A expenses and a $13.2 million decrease in interest expense, partially offset by lower gross profit. Our G&A expenses were $14.1 million in the last quarter compared to $32.6 million in the year-ago period. The reduction was due primarily to non-recurring charges during the year-ago period associated with legal costs. Interest expense was also lower as compared to the year-ago period, primarily as a result of term loan interest declining following the refinancing of the term loan debt in September 2018. We recognized a $1.1 million income tax benefit in the current quarter as compared to a $5.7 million income tax benefit a year ago.

Q3 adjusted EBITDA of $5.6 million was down $26.9 million from the year-ago period, due primarily to lower gross profit, offset slightly by a decrease in recurring G&A expenses. CapEx in the quarter was approximately $2 million, down from the $6.5 million during the year-ago period primarily as a result of slower-than-anticipated rollouts of our technology initiatives and an increase in lease financing activity.

Now I'll discuss results at our reporting segment level. In our Environmental Solutions segment, revenue decreased $57.8 million or 56% to $46 million. Remediation and compliance services revenue declined $60.6 million due to the net impact of remediation contracts rolling off and a decrease in the value of projects won in 2018, while byproduct sales are accounted for a $2.8 million increase in segment revenues. Gross profit for the segment decreased $13.1 million to $6.8 million, and gross margin declined to 14.8% from 19.1%. Most of the decline in gross profit and gross margin in this segment was attributable to the previously mentioned projects rolling off and the project-specific issue at 1 remediation site.

In our Maintenance & Technical Services segment, revenue decreased $7.1 million or 9% to $75.1 million. In our Nuclear Services business, we had refueling outages underway, but none completed, as compared to 1 refueling outage completion in the third quarter of 2018. Year-to-date, through September 30, we have completed 6 outages compared to 8 outages during the year-ago period. The 2019 outages were also reduced in scope relative to 2018 as we anticipated. As expected, these factors led to lower nuclear services revenue for the quarter as compared to last year. The decrease in nuclear services revenue was partially offset by increased fossil services revenue. Maintenance & Technical Services gross profit increased approximately $200,000 or 3% to $7 million as a result of higher gross profit in the Fossil Services business partially offset by lower gross profit from the Nuclear Services segment. Maintenance & Technical Services gross margin increased to 9.4% from 8.3%.

Now turning to our balance sheet and liquidity. At September 30, 2019 we had gross consolidated debt of $199.3 million, which is a decrease of approximately $72 million from the prior quarter and a decrease of $54.8 million from year-end 2018 levels. Proceeds from the Brickhaven deemed termination payment were used to reduce our term loan balance by $50 million, with the remainder applied toward our line of credit. Our liquidity was approximately $40.4 million as of September 30, 2019, down from $50 million at the end of the fourth quarter of 2018.

Next I'll address our 2019 guidance. As detailed on Slide 15 of our presentation, we are tightening our 2019 guidance ranges for revenue, net income attributable to Charah Solutions and adjusted EBITDA to reflect better visibility in the full year outcome. The 2019 revenue guidance range has narrowed from the previous range of $510 million to $560 million to a new range of $520 million to $540 million.

The net income attributable to Charah Solutions' guidance range has narrowed from a loss of $27 million to a loss of $20 million, now to be a loss of $26 million to a loss of $24 million. The adjusted EBITDA guidance range has narrowed from $25 million to $30 million, now to be $25 million to $27 million. Regarding our 2020 outlook, we are affirming our previous outlook of our revenue range of $560 million to $610 million, our adjusted EBITDA range of $45 million to $50 million, and our net income range of $9 million to $14 million, as described on Slide 16 of our earnings presentation. With respect to technology CapEx, the rollout of slag grinding technologies is at our discretion and driven by our assessment of market conditions while the MP618 technology rollout is customer-driven. As Scott noted, we're seeing strong interest by potential utility customers and are optimistic that we will soon be able to announce contracts.

With that, I'll now turn the call back over to Scott.

Thanks, Roger. As I conclude, I want to emphasize again that we believe Charah Solutions is strongly positioned in its ability to deliver a full suite of coal ash management and recycling, byproduct sales, environmental remediation and outage maintenance services to the power generation industry. So we believe we're in an ideal position to capitalize on a growing list of opportunities as we partner with customers to bring customized solutions to their complex environmental challenges. The current market opportunity is the largest in our company's history. Market and regulatory dynamics remain favorable. We are currently winning new awards at a record pace and our significant interest in our MP618 fly ash beneficiation technology, which should facilitate larger bundled projects.

And as we pursue our expanding pipeline of opportunities, we are committed to making further adjustments to improve our operating efficiency, reduce our debt levels and increase our operating margin potential. We remain convinced of the opportunities for our business and our ability to grow our company and capture additional market share. Our industry-leading track record for quality, safety and compliance continues, and there is an extraordinary amount of available work to be done. So I'm very enthusiastic about our future. I'm also optimistic about Charah Solutions' ability to deliver attractive value to our shareholders, particularly given our compelling peer group valuation comparisons and significant investor awareness growth potential.

I believe the strategic and corporate action plans we already have underway to strengthen our business should put us in a strong position to capitalize on the substantial opportunities we have before us, and confirm the confidence our shareholders have placed in us.

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

(Operator Instructions)

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

You mentioned that your win rate is higher than last year. Could you just talk about what the reasons might be that are driving that? Are there any

changes in strategy that you'd call out that's

driving this success?

Sure. Toni, this is Scott. Good question. And I think we are really kind of rounding the turn that we've talked about, delay in timing of awards and everything else here for the last several quarters, and we're very excited to be really communicating some big awards, and really what we see as potentially the largest year on record for Charah Solutions and backlog generation. And that win rate's really driven by a more disciplined bid approach from our perspective, kind of coupled with just the release of awards and award from our customers right now. So really all good things happening on our side here right now, so we're really excited to be talking about that.

Okay, great. And then you mentioned some cost savings initiatives that you're implementing next year to get you to the 320 basis points of margin expansion at the midpoint of the guidance. How much of the expansion is from the cost savings initiatives versus how much from the 3 projects that you identified and versus how much from other factors? Just trying to get a breakdown.

Sure, Toni. And I'll let Roger expand on anything here that I miss. But really if you think about it kind of in kind of those big buckets, not sure if we can go into exact percentages of where we see that margin increase coming from on the call. But really the major movements are our shift in business, we see a predominantly large shift to the Environmental Solutions side of our business, which again is that higher-margin business, especially as we talk about a lot of the regulatory tailwinds as well as the -- just the bid pipeline that we're seeing, everything else really exciting us about the E&S side of the house. So seeing growth in that area is going to help increase margins into next year as well as a lot of the initiatives that we've taken -- that have taken place starting in 2019 from a cost savings perspective, whether it be at the SG&A level or at the project level and seeing those results really come through in 2020.

Roger, not sure if there's anything you want to expand on that?

Sure. Just to add to that a little, the -- as we've discussed last quarter, we had some gross margin impact from an adjustment to the amount we received from Brickhaven termination. So we see margin expansion going into 2020, as Scott said, from an increasing shift to our Environmental Solutions business.

We did start taking very concrete and rapid steps to rightsize our G&A. Middle of the year going into the end of this year, those initiatives continue. We still have a number of initiatives on the forefront that will continue through the end of this year, beginning of next year, getting to the run rate that we're targeting going toward the end of next year of, call it a 7% to 8% G&A as a percentage of revenue on a cash basis

Great. Perfect. One last one for me. Just we've read a number of articles around the EPA relaxing regulations around coal ash and even exempting some utility operators from the Obama era regulations. I guess how should we be thinking about the risk to the business from that or risk to the addressable market from those relaxing the regulations?

Sure, Toni, good question and one that we've gotten here over the last couple weeks from several folks. And really if you -- the way we think about it is we don't necessarily think about it as a rollback of the existing rules, but rather, further clarification of the existing rules that also kind of pulls in the addition of the more CCR impoundments that are intended for closure. So really, we see it kind of the opposite of the way that you presented it. We see it as an opportunity to pull in more of those impoundments into our addressable market that were not there previously. So if you think about it, the rules now require clay-lined impoundments to be considered unlined impoundments, just kind of further clarification of some of the rule changes we saw back in 2018.

So really, it's just clarifying a lot of things that the EPA had signaled previously, which we see as a good balance, kind of with equal weighting for environmental and economic objectives out there.

So we really see it as a positive for us. And then also as we talk to our customers and they're well educated, and they understand where they believe the federal regulations are going. A lot of the stuff they've already kind of baking into their plans, especially when we talk about these large projects out there that are coming down the pipeline that we're starting to convert right now. A lot of those already took into consideration some of these, we'll call it clarifications that are in the current rules. So we don't see it as a risk to the business, but more of a positive.

Your next question comes from the line of Michael

Feniger with Bank of America.

Just piggybacking off that -- the update from the EPA on November, I guess it was 5th. I'm just a little confused. Like I get that it's more stringent, but does it also allow utilities more time to make a decision? Is that also part of the update from the EPA? I'm just curious if you could help me -- help us understand that.

Yes, there is a little bit of an extension allowed in there for the utilities and decision-making process. However, we don't we don't see that impacting the award rates as we move forward, just based on the projects that we currently have in the pipeline or anything else like that. So and again, that -- the kind of the time differences are very, very minor. So nothing that we see moving the needle in that perspective.

More -- I think kind of moreover, more importantly from our point of view was the time difference is outweighed significantly in our -- from our perspective by the inclusion of all the online ponds out there and really increasing that addressable market.

Understood. And I think you mentioned that there were -- these 3 remediation projects that had some issues and I believe it'll be completed by 2020. What were the exact issues again? And if you could remind us on your contract structure there, how much of it is like cost reimbursable versus fixed?

Yes. So for -- overall for the business, and I think we've been pretty clear on this, roughly 90% of our business, including Maintenance & Technical Services as well as Environmental Solutions is either rate or reimbursable in some fashion. So if you think about our whole suite of services, that's the way we view the business. On these 3 discrete projects in -- which were actually in the E&S side of the house, I think when you think back to Q1 and Q2 this year, predominantly Q1 when we were talking about these events, they had to do a lot with project management and some mistakes that we made on our side.

However, they were discrete in that period of time. And 2 of those 3 projects have completed and they completed in that quarter. The third, we will end in 2020. However, there's -- any of the impacts from 2020 or from the Q -- the earlier -- the previous quarter are not going to roll through into the future from a work in the field perspective.

Okay. And then just, I guess I'm just trying to understand, with projects becoming larger and more complex, how do we view some of these issues that you faced this year with these projects in the context that these projects are now becoming larger and more complex?

Yes. I think the way we view it, especially when we think about the complexity of the projects, the -- it's really, I guess when we're using the term complex, it's bundling services that we provide that we're already the leader in the industry on.

So I think it -- they're complex in nature because we are coupling or bundling multiple services together. However, I think the benefit that we have in these situations that our project management teams are already very well versed in how to handle these types of projects, and we'll continue to see that as we move forward. I think also from a contracting structure standpoint, we'd be very diligent to derisk the contracts as much as possible as we move forward.

Makes sense. And then can you help me with the -- I mean we can see the implied fourth quarter on the EBITDA side. How should we think about on the cash flow side, cash from ops and free cash flow in the fourth quarter?

And any update on the time line of debt repayment or schedule? I think there's something in March 2020. Can you just help give us a reminder there?

Sure, Michael, it's Roger. So we are scheduled to make an additional debt repayment of $40 million by the end of Q1 by 3/31/2020, and we remain on track to do that. From a cash flow perspective, obviously, you can see the cash flow for the quarter. So what we're projecting over Q4 is to essentially be flat on a cash flow basis. We're in -- right now, we're in -- at the beginning of the quarter -- this quarter, we had gone into outage with -- from the nuclear outage maintenance side that requires some cash flow in the first part of the quarter. As working capital builds, those cycles unwind very quickly and will unwind really by end of November.

So taking all those into consideration, we expect cash flow to be flat for the quarter.

Okay, that's helpful. And then just like on -- I think you said $385 million in new awards year-to-date. You say that's a record. Just help us, how much does that convert actually to 2020?

And the other question is, as you start doing these new projects in 2020, does that -- and then just help us understand because I think they're multiyear, is it a cash use in the beginning of the project, and then it flips positive towards the end? I guess just help us understand the time line of that.

Sure. And I think Roger and I'll tag team this one, again, like the previous couple here. But if you think about the new awards, yes, the $385 million and really helped to convert a considerable amount more of the other $300 million between now and the end of the year is going to be significant in 2020 and beyond. And if the way we look at those projects and the way we framed it, I believe, on previous calls as well, is that all those projects are, we'll say 2 to 8 years in nature, probably more of a -- if you want to split it in the middle, more of a 5-year average, but a subsegment of those projects are going to contribute heavily to 2020, and the others are going to help build the foundation for predictable revenue streams in the future years as well.

So it's a really good mix. I'm not sure how to exactly frame the exact contribution of 2020 on this call right now, but I will say when you think about it, there are some significant projects in there that have a 2-year horizon that will contribute significantly in 2020 and then others that will lay that foundation for long, predictable revenue streams for us.

Yes. So as just to add to that, as we think about 2020, it's really a combination of 3 things. It's the ongoing projects that have remaining lives of several years that, well, are contributing this year. And then we've spoken at length that the issues that we're facing this year are directly a result of projects in 2017 and 2018 getting pushed out, so lower in terms of project awards in those years. We're seeing a very significant pickup this year. I guess a couple of which will even begin to add to revenue at the end of this year, not in a material way, but will be starting in the fourth quarter or have started in the fourth quarter, contribute over the course of 2020. Then there's some projects that have been won this year, they start contributing in 2020. And then on top of that, there is the pickup in new business that invariably happens each year as we go throughout the year. Just to address your questions on cash flow, when you look at our projects, I mean certainly, there is a little bit of timing mismatch between paying for different types of cost on the project versus when cash starts to come in from a billing perspective. We're certainly cognizant of that, and we've got some initiatives underway to -- from a financing perspective to work to bring that back in line to be more neutral from a cash flow perspective.

On different projects, there are often mobilization type economics that help with the deployment. And then there's a part that's incumbent on us to obviously, to manage our CapEx and our own deployment to kind of minimize the disruption to cash flow. So all those things go into the equation for us as we look to build out these projects. But it's a priority for us as these new projects come online to make sure that we manage the working capital in a way, to balance the inflows and outflows, balance the risk with those and to manage our working -- or sorry, excuse me, our capital expenditures efficiently using existing equipment and then how we finance new equipment.

And I'd just piggyback on that with one brief comment that I think you'll see us -- we've made a strategic shift that you will not see -- we've spoken a lot in the last 18 months about projects that had built -- big upfront capital spends. I think we've taken a strategic shift away from that as we move forward. So you will not see some of these large costs and excess builds like we had on our balance sheet previously, definitely a shift we're making here.

(Operator Instructions)

Your next question comes from the line of Brian Butler with Stifel.

Just to put a finer point, I think on the 2020 guidance and understanding kind of where the growth is coming from. So midpoint to midpoint is about $55 million. Can you just -- I guess you talked about it, but just put a -- make it a little clearer on how much of that is from contracts already awarded? How much is from the verbal contracts? And how much is from, I guess contracts to be won?

I'm just trying to understand what kind of risk to those expectations are out there?

Yes. So we've -- the way I'd answer -- the best answer to that is say, just to repeat what we've said, I think the last quarter, as we've talked about this, and as these projects continue to get booked. The -- we said the wording, the substantial piece of our 2020 guidance is underpinned by existing business awards under contract and in business that we have a very high degree of confidence in. So we've -- we talked last quarter, started about how we think about this guidance methodology.

So really nothing out there from a blue sky perspective and minimizing the -- what we'd call the go get. But substantially underpinned to a very high percentage by existing business and very high confidence business.

Okay. I mean substantial, that like 80%? I mean is that ballpark?

We don't -- I guess I can't really go there in terms of giving that number out, it is a high percentage. And I understand you're looking for that number, but it's not something we've historically given out.

Okay. I mean you guys are putting an outlook there, and people are just trying to understand how much is that confidence level, and I get it, substantial is a metric, but that's what I was struggling with.

I guess on the outlook for EBITDA for 2020, that's another $20 million, $21 million. And you talked about the margin on the cost savings and G&A. So that sounds like that's about $9 million to $10 million. So the other, call it $10 million to $11 million is coming from the shift in growth in the ES business, is that correct?

That's correct.

Okay. And did you give out when -- did -- go ahead.

Margin expansion and growth in the ES business, like you said.

Right. And that split, though, is about right, it's about 50-50.

I mean because you said it was 7% to 8% on G&A is where you're going to be. So that's about a $10 million savings from where it looks like you're going to be in 2019. And again, I'm just trying to understand what buckets to put that $21 million improvement into.

It's slightly more weighted to the gross margin side. Because we've got -- like we talked about earlier in the call, and last quarter, we've got these weaker projects that are rolling off. We had new projects rolling on. These projects we've talked about that have been a drag on margins. So I'd -- in our model, I'd weight it more slightly heavily toward gross margin improvement, but also with -- obviously, with that contribution you mentioned from G&A savings.

Okay. And then just lastly, I apologize if I missed this. Did you give a win rate on the $385 million of new awards?

We did not give a win rate. I think all we've said specific to that is that it's both the win rates as well as the value exceed previous levels.

We have no further questions. I now turn the call back to Scott for closing remarks.

Great. Again, thank you. I just want to thank everybody for joining us today. I hope you found the call very helpful, and we look forward to updating you on our progress in the future, and seeing many of you on the road again. So have a great day. Thank you very much.

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