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Advanced Emissions Solutions Reports Third Quarter 2021 Results

APT segment reports record quarter and year-over-year revenue growth of 56%; Company updates RC cash flow estimate

GREENWOOD VILLAGE, Colo., Nov. 09, 2021 (GLOBE NEWSWIRE) -- Advanced Emissions Solutions, Inc. (NASDAQ: ADES) (the "Company" or "ADES") today filed its Quarterly Report on Form 10-Q and reported financial results for the quarter ended September 30, 2021, including information about its equity investments in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services") (collectively "Tinuum"), of which ADES owns 42.5% and 50%, respectively.

Tinuum & Refined Coal (“RC”) Highlights

  • Tinuum's third quarter distributions to ADES totaled $22.9 million compared to $9.7 million in the prior year.

  • Royalty earnings from Tinuum Group were $4.2 million compared to $3.6 million in the prior year.

  • RC Segment operating income was $26.3 million compared to $12.8 million in the prior year. Operating income includes earnings from the Company's equity investments in Tinuum.

  • RC Segment Adjusted EBITDA in the third quarter was $26.9 million compared to $13.1 million in the prior year.

  • Based on 16 invested RC facilities as of September 30, 2021, and expected project termination dates, remaining after-tax net RC cash flows to ADES are projected to approximate $12.0 million to $14.0 million; roughly $8.5 million of these cash flows are expected to occur in the fourth quarter of 2021 with the remainder expected to be disbursed during the first half of 2022 as Tinuum winds down its operations.

Advanced Purification Technologies ("APT") Highlights

  • Third quarter revenue for the APT Segment totaled $24.7 million compared to $15.8 million in the prior year.

  • APT Segment operating income in the third quarter was $4.6 million compared to a segment operating loss of $3.3 million in the prior year.

  • APT Segment Adjusted EBITDA totaled $4.2 million compared to a loss of $1.6 million in the prior year.

ADES Consolidated Highlights

  • Third quarter consolidated revenue was $28.9 million compared to $19.5 million in the prior year.

  • Third quarter consolidated net income was $24.3 million compared to $5.0 million in the prior year.

  • Third quarter consolidated Adjusted EBITDA was $28.5 million compared to $8.7 million in the prior year.

  • Cash balances, including restricted cash, totaled $82.1 million at September 30, 2021, an increase of $46.2 million compared to December 31, 2020. The Company's only debt outstanding are finance lease obligations.

  • In early May, the Company initiated a strategic review to assess a range of strategic alternatives to maximize shareholder value. There is no assurance that the review process will result in pursuing or completing any action or transaction, and no timetable has been set for completion of this process. The Company has been encouraged by continued progress and will provide an update as appropriate.

“Our APT segment reported a record quarter for both total revenue and volume as high prices for alternative energy sources such as natural gas have supported high demand from our Power Generation customers,” said Greg Marken, CEO of ADES. “As a result of the strong volumes, we were able to achieve a significantly higher gross margin and demonstrate the inherent operating leverage potential within the segment. We expect demand to remain high as we enter the fourth quarter and the colder winter months. However, inventory supply remains tight, and we continue to supplement our own production through the procurement of additional inventory from third parties to meet high levels of customer demand. As a result, margins in our APT segment – although better than the prior quarter – remain pressured by the higher cost per unit we are experiencing. We expect these pressures to persist through the end of the year and well into 2022. Meanwhile, we are simultaneously focused on continuing to improve our customer and product mix, instituting price increases for our products and advancing new activated carbon technologies alongside Cascade Environmental for the soil and groundwater remediation market.”

Marken added, “As we enter the final quarter before the scheduled expiration of the Section 45 production tax credits related to Refined Coal, Tinuum is taking the appropriate steps to wind down its business and prepare for its ultimate liquidation. We expect the net, after-tax cash flows from Tinuum to ADES to be approximately $9 million during the fourth quarter, and the remaining to be deferred until after year end to be disbursed to us upon the final liquidation of the Tinuum business.”

Marken concluded, “Lastly, we remain encouraged by the progress and nature of discussions up to this point as it pertains to our ongoing strategic review. We will provide additional updates as necessary and remain focused on fulfilling our customer commitments and running the business efficiently as this process unfolds.”

Third Quarter 2021 Results

Third quarter revenues and costs of revenues were $28.9 million and $18.0 million, respectively, compared with $19.5 million and $15.0 million for the third quarter of 2020. The increase in revenue was primarily the result of higher sales of consumables.

Third quarter royalty earnings from Tinuum Group were $4.2 million, compared to $3.6 million for the third quarter of 2020. The increase was primarily the result of a greater number of invested, royalty-bearing facilities compared to the prior year. Royalty income is based upon a percentage of the per-ton, pre-tax margin, inclusive of impacts related to depreciation expense and other allocable expenses.

Third quarter other operating expenses were $7.6 million compared to $7.3 million for the third quarter of 2020. The increase was primarily driven by an increase in payroll expense as well as higher depreciation and amortization expense.

Third quarter earnings from equity method investments were $22.2 million, compared to $9.5 million in the third quarter of 2020. The increase in earnings is first attributable to distributions recorded into earnings as a result of distributions from Tinuum Group being in excess of the carrying value of the investment, and therefore excess distributions are recognized as equity method earnings in the period in which the distributions occur. Tinuum Group also had an increased number of RC facilities due to the three new RC facilities added during 2020.

Third quarter interest expense was $0.1 million, compared to $0.9 million in the third quarter of 2020. The decrease in interest expense was primarily driven by the full repayment of amounts outstanding on the term loan used to fund the Carbon Solutions acquisition during the second quarter of 2021.

Third quarter income tax expense was $4.6 million, compared to $0.9 million for the third quarter of 2020. The change in income tax expense was driven by an increase in taxable income, mainly the result of higher earnings from equity method investments, as well as higher volumes and improved margins within the APT segment.

Third quarter net income was $24.3 million compared to $5.0 million for the third quarter of 2020. The increase was driven by higher earnings from equity method investments as well as higher volumes and improved margins within the APT segment.

Third quarter consolidated adjusted EBITDA was $28.5 million compared to $8.7 million in 2020. The increase in adjusted EBITDA was driven by the increase in distributions from Tinuum as well as higher consumables revenue compared to the third quarter of 2020. See note below regarding the use of the Non-GAAP financial measure Adjusted EBITDA and a reconciliation to the most comparable GAAP financial measure.

Conference Call and Webcast Information
The Company has scheduled a conference call to begin at 9:00 a.m. Eastern Time on Wednesday, November 10, 2021. The conference call webcast information will be available via the Investor Resources section of ADES's website at www.advancedemissionssolutions.com. Interested parties may also participate in the call by registering at http://www.directeventreg.com/registration/event/3168160. A supplemental investor presentation will be available on the Company's Investor Resources section of the website prior to the start of the conference call.

As part of the conference call, ADES will conduct a question and answer session. Investors are invited to email their questions in advance to ADES@alpha-ir.com.

About Advanced Emissions Solutions, Inc.
Advanced Emissions Solutions, Inc. serves as the holding entity for a family of companies that provide emissions solutions to customers in the power generation and other industries.

ADA

ADA brings together ADA Carbon Solutions, LLC, a leading provider of powder activated carbon ("PAC") and ADA-ES, Inc., the providers of ADA® M-Prove™ Technology. We provide products and services to control mercury and other contaminants at coal-fired power generators and other industrial companies. Our broad suite of complementary products control contaminants and help our customers meet their compliance objectives consistently and reliably.

CarbPure
Technologies

CarbPure Technologies LLC, (“CarbPure”), formed in 2015 provides high-quality PAC and granular activated carbon ideally suited for treatment of potable water and wastewater. Our affiliate company, ADA Carbon Solutions, LLC manufactures the products for CarbPure.

TINUUM

Tinuum Group, LLC (“Tinuum Group”) is a 42.5% owned joint venture by ADA that provides patented Refined Coal (“RC”) technologies to enhance combustion of and reduce emissions of NOx and mercury from coal-fired power plants.

Caution on Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a “safe harbor” for such statements in certain circumstances. The forward-looking statements include projection on future after-tax, net RC cash flows, expectations about future demand for our APT products, pressure on APT margins and acceptance of price increases as well as results from the Company's review of strategic alternatives. These forward-looking statements involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, opportunities for additional sales of our lignite activated carbon products and end-market diversification, the outcome of the review of strategic alternatives, our ability to meet customer supply requirements, the rate of coal-fired power generation in the United States, timing of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the US government’s failure to promulgate regulations that benefit our business; changes in laws and regulations, IRS interpretations or guidance, accounting rules, any pending court decisions, prices, economic conditions and market demand; impact of competition; availability, cost of and demand for alternative energy sources and other technologies; technical, start up and operational difficulties; competition within the industries in which we operate; loss of key personnel; ongoing effects of the COVID-19 pandemic and associated economic downturn on our operations and prospects; as well as other factors relating to our business, as described in our filings with the SEC, with particular emphasis on the risk factor disclosures contained in those filings. You are cautioned not to place undue reliance on the forward-looking statements and to consult filings we have made and will make with the SEC for additional discussion concerning risks and uncertainties that may apply to our business and the ownership of our securities. The forward-looking statements speak only as to the date of this press release.

Source: Advanced Emissions Solutions, Inc.

Investor Contact:

Alpha IR Group
Ryan Coleman or Chris Hodges
312-445-2870
ADES@alpha-ir.com


TABLE 1

Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

As of

(in thousands, except share data)

September 30, 2021

December 31, 2020

ASSETS

Current assets:

Cash, cash equivalents and restricted cash

$

72,139

$

30,932

Receivables, net

15,279

13,125

Receivables, related parties

4,165

3,453

Inventories, net

5,569

9,882

Prepaid expenses and other assets

4,614

4,597

Total current assets

101,766

61,989

Restricted cash, long-term

10,000

5,000

Property, plant and equipment, net of accumulated depreciation of $6,600 and $3,340, respectively

30,712

29,433

Intangible assets, net

1,452

1,964

Equity method investments

2,884

7,692

Deferred tax assets, net

1,558

10,604

Other long-term assets, net

33,401

29,989

Total Assets

$

181,773

$

146,671

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

9,125

$

7,849

Accrued payroll and related liabilities

4,498

3,257

Current portion of long-term debt

1,033

18,441

Other current liabilities

9,866

12,996

Total current liabilities

24,522

42,543

Long-term debt, net of current portion

3,408

5,445

Other long-term liabilities

12,818

13,473

Total Liabilities

40,748

61,461

Commitments and contingencies

Stockholders’ equity:

Preferred stock: par value of $.001 per share, 50,000,000 shares authorized, none outstanding

Common stock: par value of $.001 per share, 100,000,000 shares authorized, 23,483,286 and 23,141,284 shares issued, and 18,865,140 and 18,523,138 shares outstanding at September 30, 2021 and December 31, 2020, respectively

23

23

Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of September 30, 2021 and December 31, 2020, respectively

(47,692

)

(47,692

)

Additional paid-in capital

101,660

100,425

Retained earnings

87,034

32,454

Total stockholders’ equity

141,025

85,210

Total Liabilities and Stockholders’ Equity

$

181,773

$

146,671

TABLE 2


Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share data)

2021

2020

2021

2020

Revenues:

Consumables

$

24,689

$

15,844

$

57,696

$

33,231

License royalties, related party

4,165

3,627

11,888

9,986

Total revenues

28,854

19,471

69,584

43,217

Operating expenses:

Consumables cost of revenue, exclusive of depreciation and amortization

17,952

15,013

43,726

33,920

Payroll and benefits

2,637

2,285

8,014

8,839

Legal and professional fees

1,106

1,321

4,340

4,386

General and administrative

1,715

1,900

5,223

6,693

Depreciation, amortization, depletion and accretion

2,145

1,777

6,155

5,807

Impairment of long-lived assets

26,103

Gain on change in estimate, asset retirement obligation

(1,942

)

Total operating expenses

25,555

22,296

65,516

85,748

Operating income (loss)

3,299

(2,825

)

4,068

(42,531

)

Other income (expense):

Earnings from equity method investments

22,195

9,518

61,944

25,959

Gain on extinguishment of debt

3,345

3,345

Interest expense

(86

)

(881

)

(1,416

)

(3,053

)

Other

81

17

652

208

Total other income

25,535

8,654

64,525

23,114

Income (loss) before income tax expense

28,834

5,829

68,593

(19,417

)

Income tax expense

4,581

854

14,013

1,315

Net income (loss)

$

24,253

$

4,975

$

54,580

$

(20,732

)

Earnings (loss) per common share:

Basic

$

1.33

$

0.27

$

2.99

$

(1.15

)

Diluted

$

1.31

$

0.27

$

2.96

$

(1.15

)

Weighted-average number of common shares outstanding:

Basic

18,292

18,093

18,243

18,014

Diluted

18,489

18,103

18,416

18,014

TABLE 3

Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Nine Months Ended September 30,

(in thousands)

2021

2020

Cash flows from operating activities

Net income (loss)

$

54,580

$

(20,732

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Deferred income tax expense

9,046

10,724

Depreciation, amortization, depletion and accretion

6,155

5,807

Gain on extinguishment of debt

(3,345

)

Impairment of long-lived assets

26,103

Operating lease expense

1,481

3,130

Amortization of debt discount and debt issuance costs

945

1,064

Gain on change in estimate, asset retirement obligation

(1,942

)

Stock-based compensation expense

1,476

2,070

Earnings from equity method investments

(61,944

)

(25,959

)

Other non-cash items, net

(352

)

45

Changes in operating assets and liabilities:

Receivables and related party receivables

(2,835

)

(1,331

)

Prepaid expenses and other assets

(16

)

(9,056

)

Inventories, net

3,658

4,688

Other long-term assets, net

2,383

(1,908

)

Accounts payable

1,147

(1,123

)

Accrued payroll and related liabilities

1,241

1,089

Other current liabilities

(3,489

)

(220

)

Operating lease liabilities

(2,514

)

(1,678

)

Other long-term liabilities

(3,031

)

(23

)

Distributions from equity method investees, return on investment

22,044

42,228

Net cash provided by operating activities

24,688

34,918

Cash flows from investing activities

Distributions from equity method investees in excess of cumulative earnings

44,707

Acquisition of property, plant, equipment, and intangible assets, net

(5,403

)

(4,879

)

Mine development costs

(1,262

)

(723

)

Proceeds from sale of property and equipment

895

Net cash provided by (used in) investing activities

38,937

(5,602

)

Cash flows from financing activities

Principal payments on term loan

(16,000

)

(18,000

)

Principal payments on finance lease obligations

(1,085

)

(1,026

)

Dividends paid

(92

)

(4,956

)

Repurchase of common shares

(159

)

Repurchase of common shares to satisfy tax withholdings

(241

)

(531

)

Borrowings from Paycheck Protection Program Loan

3,305

Net cash used in financing activities

(17,418

)

(21,367

)

Increase in Cash and Cash Equivalents and Restricted Cash

46,207

7,949

Cash and Cash Equivalents and Restricted Cash, beginning of period

35,932

17,080

Cash and Cash Equivalents and Restricted Cash, end of period

$

82,139

$

25,029

Supplemental disclosure of non-cash investing and financing activities:

Acquisition of property, plant and equipment through accounts payable

$

128

$

446

Dividends payable

$

$

47

Note on Non-GAAP Financial Measures

To supplement the Company's financial information presented in accordance with U.S. generally accepted accounting principles, or GAAP, the Press Release includes non-GAAP measures of certain financial performance. These non-GAAP measures include Consolidated Adjusted EBITDA, RC Segment Adjusted EBITDA and APT Segment Adjusted EBITDA. The Company included non-GAAP measures because management believes that they help to facilitate comparison of operating results between periods. The Company believes the non-GAAP measures provide useful information to both management and users of the financial statements by excluding certain expenses that may not be indicative of core operating results and business outlook. These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. These measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

The Company has defined Consolidated Adjusted EBITDA as net income, adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: depreciation, amortization, depletion and accretion, amortization of upfront customer consideration that was recorded as a component of the Marshall Mine Acquisition ("Upfront Customer Consideration"), interest expense, net, income tax expense; then reduced by the non-cash impact of equity earnings from equity method investments, gain on extinguishment of debt and gain on change of an estimate for asset retirement obligations, increased by cash distributions from equity method investments and the impairment loss. The Company believes that the Consolidated Adjusted EBITDA measure is less susceptible to variances that affect the Company's operating performance.

Segment EBITDA is calculated as Segment operating income (loss) adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: depreciation, amortization, depletion and accretion, amortization of upfront customer consideration and interest expense, net. When used in conjunction with GAAP financial measures, Segment EBITDA is a supplemental measure of operating performance that management believes is a useful measure related the Company's APT segment performance and the APT segment performance relative to the performance of their respective competitors as well as performance period over period. Additionally, the Company believes these measures are less susceptible to variances that affect their respective operating performance results.

The Company defined RC Segment Adjusted EBITDA as RC Segment EBITDA reduced by the non-cash impact of equity earnings from equity method investment and the gain on debt forgiveness and increased by cash distributions from equity method investments.

The Company defined APT Segment Adjusted EBITDA as APT Segment EBITDA decreased for the gain on change of an estimate for asset retirement obligations and the gain on debt forgiveness and increased for the impairment loss.

The Company presents the non-GAAP measures because the Company believes they are useful as supplemental measures in evaluating the performance of the Company's operating performance and provide greater transparency into the results of operations. The Company's management uses Consolidated Adjusted EBITDA, RC Segment Adjusted EBITDA and APT Segment Adjusted EBITDA as factors in evaluating the performance of its business.

The adjustments to Consolidated Adjusted EBITDA, RC Segment Adjusted EBITDA and APT Segment Adjusted EBITDA in future periods are generally expected to be similar. Consolidated Adjusted EBITDA, RC Segment Adjusted EBITDA and APT Segment Adjusted EBITDA have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analyzing the Company's results as reported under GAAP.

TABLE 4

Advanced Emissions Solutions, Inc. and Subsidiaries
Consolidated Adjusted EBITDA Reconciliation to Net Income (Loss)
(Amounts in thousands)
(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2021

2020

2021

2020

Net income (loss)

$

24,253

$

4,975

$

54,580

$

(20,732

)

Depreciation, amortization, depletion and accretion

2,145

1,777

6,155

5,807

Amortization of Upfront Customer Consideration

127

381

Interest expense, net

25

862

1,188

2,974

Income tax expense

4,581

854

14,013

1,315

Consolidated EBITDA (loss)

31,131

8,468

76,317

(10,636

)

Cash distributions from equity method investees

22,875

9,712

66,751

42,228

Equity earnings

(22,195

)

(9,518

)

(61,944

)

(25,959

)

Gain on extinguishment of debt

(3,345

)

(3,345

)

Gain on change in estimate, asset retirement obligation

(1,942

)

Impairment

26,103

Consolidated Adjusted EBITDA

$

28,466

$

8,662

$

75,837

$

31,736

TABLE 5

Advanced Emissions Solutions, Inc. and Subsidiaries
RC Segment Adjusted EBITDA Reconciliation to Segment Operating Income
(Amounts in thousands)
(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2021

2020

2021

2020

RC Segment operating income

$

26,341

$

12,817

$

73,517

$

34,454

Depreciation, amortization, depletion and accretion

9

26

41

84

Interest expense

4

94

11

254

RC Segment EBITDA

26,354

12,937

73,569

34,792

Cash distributions from equity method investees

22,875

9,712

66,751

42,228

Equity earnings

(22,195

)

(9,518

)

(61,944

)

(25,959

)

Gain on extinguishment of debt

(97

)

(97

)

RC Segment Adjusted EBITDA

$

26,937

$

13,131

$

78,279

$

51,061

TABLE 6

Advanced Emissions Solutions, Inc. and Subsidiaries
APT Segment Adjusted EBITDA Reconciliation to Segment Operating Income (Loss)
(Amounts in thousands)
(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2021

2020

2021

2020

APT Segment operating income (loss)

$

4,591

$

(3,280

)

$

4,864

$

(40,649

)

Depreciation, amortization, depletion and accretion

2,004

1,603

5,706

5,386

Amortization of Upfront Customer Consideration

127

381

Interest expense, net

75

88

233

275

APT Segment EBITDA (loss)

6,797

(1,589

)

11,184

(34,988

)

Gain on extinguishment of debt

(2,562

)

(2,562

)

Gain on change in estimate, asset retirement obligation

(1,942

)

Impairment

26,103

APT Segment Adjusted EBITDA (loss)

$

4,235

$

(1,589

)

$

6,680

$

(8,885

)