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.
  
TINUUMTinuum 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)