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 third quarter ended September 30,
2016, including information about its joint-venture partnerships,
Tinuum Group, LLC ("Tinuum Group," formerly Clean Coal Solutions,
LLC) and Tinuum Services, LLC ("Tinuum Services," formerly Clean
Coal Solutions Services, LLC) (collectively "Tinuum"), of which
ADES owns 42.5% and 50%, respectively.
Tinuum & Refined Coal (“RC”)
Highlights
- Tinuum distributions to ADES were $10.7 million during the
third quarter of 2016, an increase of $8.2 million from the
comparable period in 2015
- Royalty earnings from Tinuum were $2.1 million
- Tinuum invested tonnage was 13.3 million
- RC Segment operating income was $11.9 million
- Completed the lease of a RC facility in late August to an
existing investor at a coal plant that has historically burned in
excess of 3.0 million tons of coal per year and is royalty bearing,
which replaced a previously announced investor cancellation
- Future expected aggregated rent payments to Tinuum updated to
$648 million through the end of 2021
ADES Consolidated
Highlights
- Recognized consolidated revenue of $15.7 million
- Reduced general and administrative operating costs (i.e.,
non-cost of revenue expenses) by 56% year over year to $5.4
million
- Achieved consolidated net income of $9.6 million
- Increased cash balance by $5.4 million since June 30, 2016
- Continued to validate and expand the M-Prove™ chemicals
business
- Progressed to the next stage of strategic review process for
Emissions Control ("EC") business and remain on track for a final
decision by the fourth quarter 2016 earnings release date
- Continued efforts as previously discussed to market remaining
RC facilities
L. Heath Sampson, President and CEO of ADES
commented, “The third quarter results reflect a much improved cost
structure and our focus on maximizing cash received in the form of
Refined Coal distributions, with the end result being realized as
$9.6 million in consolidated net income. Furthermore, we continue
to execute against our cost reduction initiatives and are tracking
successfully towards our goal of lowering our go forward operating
cost basis to between $12 to $14 million.”
Sampson concluded, “Tinuum remains diligent in
monetizing its remaining RC facilities, and despite closing only
one RC deal in the third quarter, I want to reiterate that there is
positive momentum in our efforts to maximize the present value of
Tinuum cash flows. Further, our strategic review process for our EC
business is still very much underway, and we will continue to
evaluate each and every option from the perspective of the
stockholders.”
Third quarter revenues and costs of revenues
were $15.7 million and $13.3 million, an increase of 22% and 25%,
respectively, compared with $12.9 million and $10.6 million in the
third quarter of 2015. The increases in revenues were primarily due
to equipment sales and were also impacted by chemical sales, which
increased over 400% compared to the third quarter of 2015. Third
quarter other operating expenses were $5.4 million, a decrease of
56% compared to $12.3 million in the third quarter of 2015. The
decreases were primarily the result of cost containment initiatives
and reduced restatement costs. Moving forward, restatement costs
are not expected to be material.
Third quarter earnings from equity method
investments were $10.7 million, compared to $0.0 million for the
third quarter of 2015. Third quarter royalty earnings from Tinuum
were $2.1 million, a decrease of 37% compared to $3.3 million in
the third quarter of 2015, due to reduced RC tonnage and royalty
earnings per ton. Third quarter expenses related to the RC business
were $0.9 million, a decrease of 50% compared to $1.8 million in
the third quarter of 2015 due to no longer incurring interest
expense related to RCM6 as it was sold in the first quarter of
2016, and a decrease in 453A interest expense. RC segment operating
income was $11.9 million, compared to $1.4 million in the third
quarter of 2015.
Third quarter consolidated interest expense was
$1.0 million, compared to $1.8 million in the third quarter of
2015.
Consolidated net income for the third quarter
was $9.6 million, compared to a net loss of $8.7 million in the
third quarter of 2015, primarily driven by equity income from the
RC business and significantly reduced operating expenses in the EC
business as well as corporate expenses.
As of September 30, 2016, the Company had
cash and cash equivalents of $7.6 million, a decrease of 18%
compared to $9.3 million as of December 31, 2015, due
primarily to the repayment and termination of the Company’s credit
agreement in its entirety, including debt principal payments of
$13.3 million in the second quarter of 2016. The Company also had
$8.8 million in current and long-term restricted cash as of
September 30, 2016, compared to $11.7 million as of
December 31, 2015.
Conference Call and Webcast
Information
The Company has scheduled a conference call to
begin at 9:00 a.m. Eastern Time on Wednesday, November 9,
2016. The conference call will be webcast live via the Investor
section of ADES's website at www.advancedemissionssolutions.com.
Interested parties may also participate in the call by dialing
(877) 201-0168 (Domestic) or (647) 788-4901 (International)
conference ID 86261213. A supplemental investor presentation will
be available on the Company's investor relations website prior to
the start of the conference call.
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-ES, Inc. (“ADA”) is a wholly-owned subsidiary of Advanced
Emissions Solutions, Inc. (“ADES”) that provides emissions control
solutions for coal-fired power generation and industrial boiler
industries. With more than 25 years of experience developing
advanced mercury control solutions, ADA delivers proprietary
environmental technologies, equipment and specialty chemicals that
enable coal-fueled boilers to meet emissions regulations. These
solutions enhance existing air pollution control equipment,
maximizing capacity and improving operating efficiencies. Our track
record includes securing more than 30 US patents for emissions
control technology and systems and selling the most activated
carbon injection systems for power plant mercury control in North
America. For more information on ADA, and its products and
services, visit www.adaes.com or the ADA Blog
(http://blog.adaes.com/).
Tinuum Group, LLC is a 42.5% owned joint venture by ADA that
provides ADA’s patented Refined Coal (“RC”) CyClean™ technology to
enhance combustion of and reduce emissions of NOx and mercury from
coals in cyclone boilers and ADA’s patent pending M-45™ and
M-45-PC™ technologies for Circulating Fluidized boilers and
Pulverized Coal boilers respectively. www.tinuumgroup.com
Caution on Forward-Looking Statements
This 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 statements or
expectations regarding the timing, availability and content of the
presentation; strategic review of alternatives for our EC business
and timing for a final decision; future expected aggregate rent
payments to Tinuum Group and Tinuum’s ability to continue to scale
its business; timing and outcome of our restructuring and cost
containment efforts; materiality of future restatement costs; and
related matters. These statements are based on current
expectations, estimates, projections, beliefs and assumptions of
the Company’s management. Such statements involve significant 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, changes and
timing in laws, regulations, IRS interpretations or guidance,
accounting rules and any pending court decisions, legal challenges
to or repeal of them; changes in prices, economic conditions and
market demand; the ability of the RC facilities to produce coal
that qualifies for tax credits; the timing, terms and changes in
contracts for RC facilities, or failure to lease or sell RC
facilities; impact of competition; availability, cost of and demand
for alternative tax credit vehicles and other technologies;
technical, start-up and operational difficulties; availability of
raw materials; loss of key personnel; reductions in operating costs
may be less than expected; the value of our products, technologies
and intellectual property to customers and strategic investors;
intellectual property infringement claims from third parties; the
outcome of pending litigation; seasonality and other factors
discussed in greater detail in the Company’s filings with the SEC.
You are cautioned not to place undue reliance on such statements
and to consult the Company’s SEC filings for additional risks and
uncertainties that may apply to our business and the ownership of
ADES securities. The Company’s forward-looking statements are
presented as of the date made, and the Company disclaims any duty
to update such statements unless required by law to do so.
TABLE 1Advanced
Emissions Solutions, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheets(Unaudited)
|
|
As of |
(in
thousands, except share data) |
|
September 30, 2016 |
|
December 31, 2015 |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
7,603 |
|
|
$ |
9,265 |
|
Receivables, net |
|
12,008 |
|
|
8,361 |
|
Receivables, related parties,
net |
|
1,376 |
|
|
1,918 |
|
Restricted cash |
|
4,019 |
|
|
728 |
|
Costs in excess of billings on
uncompleted contracts |
|
1,050 |
|
|
2,137 |
|
Prepaid expenses and other
assets |
|
1,548 |
|
|
2,306 |
|
Total current assets |
|
27,604 |
|
|
24,715 |
|
Restricted cash,
long-term |
|
4,750 |
|
|
10,980 |
|
Property and equipment,
net of accumulated depreciation of $2,577 and $4,557,
respectively |
|
1,062 |
|
|
2,040 |
|
Investment securities,
restricted, long-term |
|
— |
|
|
336 |
|
Cost method
investment |
|
2,776 |
|
|
2,776 |
|
Equity method
investments |
|
3,091 |
|
|
17,232 |
|
Other assets |
|
1,260 |
|
|
2,696 |
|
Total Assets |
|
$ |
40,543 |
|
|
$ |
60,775 |
|
LIABILITIES AND
STOCKHOLDERS’ DEFICIT |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
2,337 |
|
|
$ |
6,174 |
|
Accrued payroll and related
liabilities |
|
2,763 |
|
|
5,800 |
|
Current portion of notes payable,
related parties |
|
— |
|
|
1,837 |
|
Billings in excess of costs on
uncompleted contracts |
|
4,726 |
|
|
9,708 |
|
Short-term borrowings, net of
discount and deferred loan costs, related party |
|
— |
|
|
12,676 |
|
Legal settlements and accruals |
|
12,448 |
|
|
6,502 |
|
Other current liabilities |
|
6,703 |
|
|
7,395 |
|
Total current liabilities |
|
28,977 |
|
|
50,092 |
|
Long-term portion of
notes payable, related party |
|
— |
|
|
13,512 |
|
Legal settlements and
accruals, long-term |
|
9,305 |
|
|
13,797 |
|
Other long-term
liabilities |
|
2,552 |
|
|
8,352 |
|
Total Liabilities |
|
40,834 |
|
|
85,753 |
|
Commitments and
contingencies (Note 8) |
|
|
|
|
Stockholders’ deficit: |
|
|
|
|
Preferred stock: par value of $.001
and no par value per share, respectively, 50,000,000 shares
authorized, none outstanding |
|
— |
|
|
— |
|
Common stock: par value of $.001
per share, 100,000,000 shares authorized, 22,271,525 and 21,943,872
shares issued, and 22,001,585 and 21,809,164 shares outstanding at
September 30, 2016 and December 31, 2015, respectively |
|
22 |
|
|
22 |
|
Additional paid-in capital |
|
118,868 |
|
|
116,029 |
|
Accumulated deficit |
|
(119,181 |
) |
|
(141,029 |
) |
Total stockholders’ deficit |
|
(291 |
) |
|
(24,978 |
) |
Total Liabilities and Stockholders’
Deficit |
|
$ |
40,543 |
|
|
$ |
60,775 |
|
|
|
|
|
|
|
|
|
|
TABLE 2Advanced
Emissions Solutions, Inc. and
SubsidiariesCondensed Consolidated Statements of
Operations(Unaudited)
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in
thousands, except per share data and percentages) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Revenues: |
|
|
|
|
|
|
|
|
Equipment sales |
|
$ |
14,869 |
|
|
$ |
12,088 |
|
|
$ |
44,788 |
|
|
$ |
47,439 |
|
Chemicals |
|
670 |
|
|
132 |
|
|
1,717 |
|
|
749 |
|
Consulting services and other |
|
171 |
|
|
665 |
|
|
492 |
|
|
1,349 |
|
Total revenues |
|
15,710 |
|
|
12,885 |
|
|
46,997 |
|
|
49,537 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Equipment sales cost of revenue,
exclusive of depreciation and amortization |
|
12,704 |
|
|
9,914 |
|
|
35,175 |
|
|
38,662 |
|
Chemicals cost of revenue,
exclusive of depreciation and amortization |
|
469 |
|
|
105 |
|
|
865 |
|
|
383 |
|
Consulting services cost of
revenue, exclusive of depreciation and amortization |
|
86 |
|
|
591 |
|
|
299 |
|
|
1,282 |
|
Payroll and benefits |
|
2,809 |
|
|
4,445 |
|
|
10,567 |
|
|
19,102 |
|
Rent and occupancy |
|
508 |
|
|
596 |
|
|
1,534 |
|
|
1,828 |
|
Legal and professional fees |
|
1,615 |
|
|
3,424 |
|
|
6,581 |
|
|
11,545 |
|
General and administrative |
|
818 |
|
|
1,249 |
|
|
2,920 |
|
|
4,635 |
|
Research and development, net |
|
(524 |
) |
|
2,022 |
|
|
(667 |
) |
|
5,133 |
|
Depreciation and amortization |
|
138 |
|
|
528 |
|
|
593 |
|
|
1,632 |
|
Total operating
expenses |
|
18,623 |
|
|
22,874 |
|
|
57,867 |
|
|
84,202 |
|
Operating loss |
|
(2,913 |
) |
|
(9,989 |
) |
|
(10,870 |
) |
|
(34,665 |
) |
Other income
(expense): |
|
|
|
|
|
|
|
|
Earnings (loss) from equity method
investments |
|
10,735 |
|
|
(41 |
) |
|
30,066 |
|
|
5,133 |
|
Royalties, related party |
|
2,064 |
|
|
3,273 |
|
|
3,922 |
|
|
7,767 |
|
Interest income |
|
149 |
|
|
2 |
|
|
267 |
|
|
20 |
|
Interest expense |
|
(969 |
) |
|
(1,778 |
) |
|
(4,496 |
) |
|
(5,347 |
) |
Gain on sale of equity method
investment |
|
— |
|
|
— |
|
|
2,078 |
|
|
— |
|
Gain on settlement of note payable
and licensed technology |
|
— |
|
|
— |
|
|
869 |
|
|
— |
|
Other |
|
1,129 |
|
|
(77 |
) |
|
746 |
|
|
10 |
|
Total other income |
|
13,108 |
|
|
1,379 |
|
|
33,452 |
|
|
7,583 |
|
Income (loss) before
income tax expense |
|
10,195 |
|
|
(8,610 |
) |
|
22,582 |
|
|
(27,082 |
) |
Income tax expense |
|
583 |
|
|
44 |
|
|
734 |
|
|
151 |
|
Net income (loss) |
|
$ |
9,612 |
|
|
$ |
(8,654 |
) |
|
$ |
21,848 |
|
|
$ |
(27,233 |
) |
Earnings (loss) per
common share (Note 1): |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.44 |
|
|
$ |
(0.40 |
) |
|
$ |
0.99 |
|
|
$ |
(1.24 |
) |
Diluted |
|
$ |
0.43 |
|
|
$ |
(0.40 |
) |
|
$ |
0.97 |
|
|
$ |
(1.24 |
) |
Weighted-average number
of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
21,740 |
|
|
21,687 |
|
|
21,926 |
|
|
21,757 |
|
Diluted |
|
22,098 |
|
|
21,687 |
|
|
22,209 |
|
|
21,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TABLE 3Advanced
Emissions Solutions, Inc. and
SubsidiariesCondensed Consolidated Statements of
Cash Flows(Unaudited)
|
|
Nine Months Ended September 30, |
(in
thousands) |
|
2016 |
|
2015 |
Cash flows from
operating activities |
|
|
|
|
Net income (loss) |
|
$ |
21,848 |
|
|
$ |
(27,233 |
) |
Adjustments to reconcile
net income (loss) to net cash used in operating activities: |
|
|
|
|
Depreciation and amortization |
|
593 |
|
|
1,632 |
|
Amortization of debt issuance
costs |
|
1,152 |
|
|
75 |
|
Impairment of property, equipment,
inventory and intangibles |
|
517 |
|
|
2,515 |
|
Interest costs added to principal
balance of notes payable |
|
— |
|
|
946 |
|
Share-based compensation
expense |
|
2,238 |
|
|
6,096 |
|
Earnings from equity method
investments |
|
(30,066 |
) |
|
(5,133 |
) |
Gain on sale of equity method
investment |
|
(2,078 |
) |
|
— |
|
Gain on settlement of note payable,
licensed technology, and sales-type lease |
|
(1,910 |
) |
|
— |
|
Other non-cash items, net |
|
61 |
|
|
770 |
|
Changes in operating assets and
liabilities, net of effects of acquired businesses: |
|
|
|
|
Receivables |
|
(3,677 |
) |
|
7,579 |
|
Related party receivables |
|
541 |
|
|
(752 |
) |
Prepaid expenses and other
assets |
|
831 |
|
|
(1,134 |
) |
Costs incurred on uncompleted
contracts |
|
28,575 |
|
|
4,719 |
|
Restricted cash |
|
3,488 |
|
|
1,690 |
|
Other long-term assets |
|
961 |
|
|
144 |
|
Accounts payable |
|
(3,837 |
) |
|
1,414 |
|
Accrued payroll and related
liabilities |
|
(2,245 |
) |
|
1,161 |
|
Other current liabilities |
|
(2,094 |
) |
|
1,624 |
|
Billings on uncompleted
contracts |
|
(32,469 |
) |
|
(7,256 |
) |
Advance deposit, related party |
|
(1,306 |
) |
|
(2,586 |
) |
Other long-term liabilities |
|
(1,661 |
) |
|
98 |
|
Legal settlements and accruals |
|
1,454 |
|
|
(2,528 |
) |
Distributions from equity method
investees, return on investment |
|
6,850 |
|
|
2,519 |
|
Net cash used in operating
activities |
|
(12,234 |
) |
|
(13,640 |
) |
Cash flows from
investing activities |
|
|
|
|
Maturity of investment securities,
restricted |
|
336 |
|
|
— |
|
Increase in restricted cash |
|
(550 |
) |
|
(2,100 |
) |
Acquisition of property and
equipment, net |
|
(147 |
) |
|
(437 |
) |
Advance on note receivable |
|
— |
|
|
(500 |
) |
Acquisition of business |
|
— |
|
|
(2,124 |
) |
Purchase of and contributions to
equity method investees |
|
(223 |
) |
|
(1,083 |
) |
Proceeds from sale of equity method
investment |
|
1,773 |
|
|
— |
|
Distributions from equity method
investees in excess of cumulative earnings |
|
24,650 |
|
|
4,730 |
|
Net cash provided by (used in)
investing activities |
|
25,839 |
|
|
(1,514 |
) |
Cash flows from
financing activities |
|
|
|
|
Repayments on short-term
borrowings, related party |
|
(13,250 |
) |
|
— |
|
Repayments on notes payable,
related party |
|
(1,246 |
) |
|
(1,166 |
) |
Short-term borrowing loan
costs |
|
(579 |
) |
|
— |
|
Repurchase of shares to satisfy tax
withholdings |
|
(192 |
) |
|
(276 |
) |
Net cash used in financing
activities |
|
(15,267 |
) |
|
(1,442 |
) |
Decrease in Cash and Cash
Equivalents |
|
(1,662 |
) |
|
(16,596 |
) |
Cash and Cash
Equivalents, beginning of period |
|
9,265 |
|
|
25,181 |
|
Cash and Cash
Equivalents, end of period |
|
$ |
7,603 |
|
|
$ |
8,585 |
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
Cash paid for interest |
|
$ |
2,899 |
|
|
$ |
5,335 |
|
Cash paid for income taxes |
|
$ |
46 |
|
|
$ |
186 |
|
Supplemental disclosure
of non-cash investing and financing activities: |
|
|
|
|
Stock award reclassification
(liability to equity) |
|
$ |
899 |
|
|
$ |
— |
|
Settlement of RCM6 note
payable |
|
$ |
13,234 |
|
|
$ |
— |
|
Non-cash reduction of equity method
investment |
|
$ |
11,156 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Investor Contact:
Alpha IR Group
Nick Hughes or Chris Hodges
312-445-2870
ADES@alpha-ir.com
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