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Advanced Emissions Solutions Reports First Quarter 2017 Results

May 08, 2017 8:20 AM

HIGHLANDS RANCH, Colo., May 08, 2017 (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 first quarter ended March 31, 2017, including information about its joint-venture partnerships, 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 distributions to ADES were $14.7 million during the first quarter of 2017, an increase of $9.8 million from the comparable quarter in 2016
  • Royalty earnings from Tinuum were $1.8 million, a 48% increase from the same quarter in 2016
  • Tinuum invested tonnage was 9.8 million during the first quarter of 2017 compared to 8.9 million tons during the first quarter of 2016
  • Completed the lease of an RC facility in late March to an existing investor at a coal plant that has historically burned in excess of 5.5 million tons of coal per year and is royalty bearing, increasing the number of invested facilities to 14 as of the end of the first quarter of 2017
  • Based on closure of this new facility, future projected RC cash flows to ADES are between $275 million to $300 million through the end of 2021

ADES Consolidated Highlights

  • Recognized consolidated revenue of $7.4 million
  • Reduced general and administrative operating costs (i.e., indirect operating costs) for the quarter by 38% to $5.2 million from $8.4 million for the comparable quarter in 2016
  • Continued to validate and expand the chemicals business, which had $2.3 million in revenue during the quarter, an increase of 426% from the comparable quarter in 2016
  • Achieved consolidated net income of $8.7 million, up 99% quarter-over-quarter
  • Increased non-restricted cash balance by $15.2 million since December 31, 2016
  • Took initial steps in returning value to stockholders through balanced capital allocation approach, including recently announced tender offer for up to $10 million and expected June declaration of Company’s first ever recurring quarterly dividend of $0.25 per share

L. Heath Sampson, President and CEO of ADES commented, “The results of our first quarter of the new year reflect significant progress in executing our reinvigorated business model, exemplified by our strong financial performance with $8.7 million in consolidated net income. In addition to strong growth in our chemicals business, the first quarter was also highlighted by a large increase in our cash position, which now is at $28.4 million compared to $13.2 million at the end of 2016."

Sampson continued, “Our team and Tinuum remain focused on identifying additional tax equity investors to invest in the remaining RC facilities. We believe the political environment is becoming more favorable and expect to leverage that environment to accelerate investment in Tinuum's remaining projects. We are engaged in discussions with multiple investor prospects and hope to gain additional momentum as the year progresses.  Our confidence in both the foundation and additional potential of the RC business, as well as the exciting growth of our chemicals business, has allowed us to start the process of returning capital to stockholders through what we expect will be a balanced approach to capital allocation moving forward.  Today, we commenced a tender offer to repurchase a significant number of shares and we expect to solidify our quarterly dividend program within the next several months.”

ADES Consolidated Highlights

First quarter revenues and costs of revenues were $7.4 million and $5.9 million, respectively, compared with $22.4 million and $17.3 million in the first quarter of 2016. The decrease in revenues was primarily due to the decrease in equipment sales, partially offset by stronger chemical sales. First quarter other operating expenses were $5.2 million, a decrease of 38% compared to $8.4 million in the first quarter of 2016. The decreases were largely driven by significantly lower equipment sales cost of revenue as well as substantially lower legal and professional fees. Depreciation and amortization more than doubled from the comparable period in 2016, driven by the Company’s recent headquarters move, which led to accelerated depreciation. Moving forward, the Company expects depreciation and amortization to return to previously observed lower levels. Additionally, the Company expects to save approximately $0.4 million in rent payments over the life of the lease.

First quarter earnings from equity method investments were $13.8 million, compared to $5.6 million for the first quarter of 2016.  First quarter royalty earnings from Tinuum were $1.8 million, an increase of 48% compared to $1.2 million in the first quarter of 2016, due to increased earnings from the respective RC facilities.  First quarter expenses related to the RC business were $0.5 million, a decrease of 44% compared quarter over quarter primarily due to lower interest expense. RC segment operating income was $15.0 million, compared to $7.9 million in the first quarter of 2016. Revenues from the chemicals business were $2.3 million during the first quarter, a 426% increase compared to $0.4 million for the comparable quarter in the prior year.

First quarter consolidated interest expense was $0.7 million, compared to $2.0 million in the first quarter of 2016.  First quarter income tax expense was $5.4 million, compared to $0.1 million in the first quarter of 2016.

Consolidated net income for the first quarter was $8.7 million, compared to $4.4 million in the first quarter of 2016, primarily driven by equity earnings from the RC business and significantly reduced operating expenses in the EC business, as well as corporate expenses.

As of March 31, 2017, the Company had cash and cash equivalents of $28.4 million, an increase of 115% compared to $13.2 million as of December 31, 2016, due primarily to positive operating and investing cash flows. The Company also had $5.2 million in restricted cash released during the quarter.

Tender Offer

The Company today commenced a tender offer to acquire up to 925,000 shares of its common stock for up to $10.0 million.  The tender offer is described in the Company's Offer to Purchase, dated May 8, 2017, and the associated Letter of Transmittal and other materials relating to the tender offer that are being filed today with the Securities and Exchange Commission are being distributed to stockholders. A separate press release was issued by the Company today.

Tax Asset Protection Plan

On May 5, 2017, Board of Directors unanimously adopted a Tax Asset Protection Plan designed to protect the Company’s ability to utilize its net operating losses and tax credits, which totaled approximately $113 million as of December 31, 2016.

United States federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and other tax assets if ADES experiences an “ownership change” (as defined in the Internal Revenue Code). In general, an ownership change occurs if there is a cumulative change in the ownership of ADES by “5 percent stockholders” that exceeds 50 percentage points over a rolling three-year period.

The Company noted the Tax Asset Protection Plan serves the interests of all stockholders by protecting the Company’s ability to use its deferred tax assets to offset tax liabilities in the future.

Under the terms of the Tax Asset Protection Plan, the Company will distribute to its stockholders a non-taxable dividend distribution of one preferred stock purchase right for each share of common stock of the Company outstanding as of the close of business on May 22, 2017.  The Tax Asset Protection Plan is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99% or more of the Company’s outstanding common stock (an “Acquiring Person”).  Stockholders who beneficially owned 4.99% or more of the Company’s outstanding common stock as of the close of business on May 5, 2017 will not become an Acquiring Person so long as they do not acquire additional shares of common stock while they still beneficially own 4.99% or more of the Company’s outstanding common stock.

A person who becomes an Acquiring Person may be subject to significant dilution in its holdings. The Board of Directors may, in its sole discretion, exempt any person from being deemed an Acquiring Person for purposes of the Tax Asset Protection Plan.

A copy of the Tax Asset Protection Plan will be contained in a Form 8-K to be filed with the Securities and Exchange Commission.

Conference Call and Webcast Information

The Company has scheduled a conference call to begin at 9:00 a.m. Eastern Time on Tuesday, May 9, 2017.  The conference call will be webcast live via the Investor section of ADES's website at Interested parties may also participate in the call by dialing (877) 201-0168 (Domestic) or (647) 788-4901 (International) conference ID 7055719. 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 or the ADA Blog (

Tinuum Group, LLC is a 42.5% owned joint venture by ADA that provides ADA’s patented Refined Coal CyClean™ technology to enhance combustion of and reduce emissions of NOx and mercury from coal in cyclone boilers and ADA’s patented M-45™ and patent pending M-45-PC™ technologies for Circulating Fluidized boilers and Pulverized Coal boilers respectively.

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 included in this press release 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, 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 or appropriate funds that benefit our business; changes in laws and regulations, accounting rules, 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; failure of the RC facilities to produce RC; termination of or amendments to the contracts for sale or lease of RC facilities; decreases in the production of RC; inability to commercialize our technologies on favorable terms; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; potential claims from any terminated employees, customers or vendors; failure to satisfy performance guarantees; availability of materials and equipment for our businesses; intellectual property infringement claims from third parties; pending litigation; identification of additional material weaknesses or significant deficiencies; whether the Tax Asset Protection Plan will have its intended effects and the estimate of Tax Benefits for federal income tax purposes; 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.

Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
  As of
(in thousands, except share data) March 31, 2017 December 31, 2016
Current assets:    
Cash and cash equivalents $28,442  $13,208 
Restricted cash 8,536  13,736 
Receivables, net 1,954  8,648 
Receivables, related parties, net 1,755  1,934 
Costs in excess of billings on uncompleted contracts   25 
Prepaid expenses and other assets 1,736  1,357 
Total current assets 42,423  38,908 
Property and equipment, net of accumulated depreciation of $1,476 and $2,920, respectively 504  735 
Cost method investment 1,016  1,016 
Equity method investments 3,097  3,959 
Deferred tax assets 56,010  61,396 
Other long-term assets 1,725  1,282 
Total Assets $104,775  $107,296 
Current liabilities:    
Accounts payable $1,202  $1,920 
Accrued payroll and related liabilities 984  2,121 
Billings in excess of costs on uncompleted contracts 4,200  4,947 
Legal settlements and accruals 4,591  10,706 
Other current liabilities 3,965  4,017 
Total current liabilities 14,942  23,711 
Legal settlements and accruals, long-term 2,371  5,382 
Other long-term liabilities 2,181  2,038 
Total Liabilities 19,494  31,131 
Commitments and contingencies (Note 6)    
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, 22,478,711 and 22,322,022 shares issued, and 22,072,056 and 22,024,675 shares outstanding at March 31, 2017 and December 31, 2016, respectively 22  22 
Additional paid-in capital 119,922  119,494 
Accumulated deficit (34,663) (43,351)
Total stockholders’ equity 85,281  76,165 
Total Liabilities and Stockholders’ Equity $104,775  $107,296 

Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
  Three Months Ended March 31,
(in thousands, except per share data) 2017 2016
Equipment sales $5,108  $21,727 
Chemicals 2,281  434 
Consulting services and other   196 
Total revenues 7,389  22,357 
Operating expenses:    
Equipment sales cost of revenue, exclusive of depreciation and amortization 4,143  17,034 
Chemicals cost of revenue, exclusive of depreciation and amortization 1,758  142 
Consulting services cost of revenue, exclusive of depreciation and amortization   135 
Payroll and benefits 2,182  3,802 
Rent and occupancy 45  394 
Legal and professional fees 1,035  2,983 
General and administrative 1,263  745 
Research and development, net 192  202 
Depreciation and amortization 482  231 
Total operating expenses 11,100  25,668 
Operating loss (3,711) (3,311)
Other income (expense):    
Earnings from equity method investments 13,814  5,577 
Royalties, related party 1,755  1,189 
Interest expense (693) (1,964)
Revision in estimated royalty indemnity liability 2,900   
Other income 9  2,938 
Total other income 17,785  7,740 
Income before income tax expense 14,074  4,429 
Income tax expense 5,386  53 
Net income $8,688  $4,376 
Earnings per common share (Note 1):    
Basic $0.39  $0.20 
Diluted $0.39  $0.20 
Weighted-average number of common shares outstanding:    
Basic 22,056  21,849 
Diluted 22,243  22,176 

Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
  Three Months Ended March 31,
(in thousands) 2017 2016
Cash flows from operating activities    
Net income $8,688  $4,376 
Adjustments to reconcile net income to net cash used in operating activities:    
Depreciation and amortization 482  231 
Stock-based compensation expense 607  636 
Earnings from equity method investments (13,814) (5,577)
Gain on sale of equity method investment   (2,078)
Gain on settlement of note payable   (869)
Other non-cash items, net 455  550 
Changes in operating assets and liabilities:    
Receivables 6,695  1,012 
Related party receivables 179  1,124 
Prepaid expenses and other assets (415) 496 
Costs incurred on uncompleted contracts 3,883  14,613 
Deferred tax asset, net 5,386   
Other long-term assets (805) (1,104)
Accounts payable (717) (250)
Accrued payroll and related liabilities (1,137) (444)
Other current liabilities (219) (1,071)
Billings on uncompleted contracts (4,605) (17,021)
Advance deposit, related party   (396)
Other long-term liabilities 143  242 
Legal settlements and accruals (9,126) (1,228)
Distributions from equity method investees, return on investment 1,500  4,900 
Net cash used in operating activities (2,820) (1,858)
Cash flows from investing activities    
Distributions from equity method investees in excess of cumulative earnings 13,175   
Maturity of investment securities, restricted   336 
Acquisition of property and equipment, net (142) (100)
Contributions to equity method investees   (223)
Proceeds from sale of equity method investment   1,773 
Net cash provided by investing activities 13,033  1,786 
Cash flows from financing activities    
Borrowings on Line of Credit 808   
Repayments on Line of Credit (808)  
Repayments on short-term borrowings and notes payable, related party   (2,996)
Short-term borrowing loan costs   (579)
Repurchase of shares to satisfy tax withholdings (179) (84)
Net cash used in financing activities (179) (3,659)
Increase (decrease) in Cash and Cash Equivalents and Restricted Cash 10,034  (3,731)
Cash and Cash Equivalents and Restricted Cash, beginning of period 26,944  20,973 
Cash and Cash Equivalents and Restricted Cash, end of period $36,978  $17,242 
Supplemental disclosure of cash flow information:    
Cash paid for interest $191  $1,029 
Cash paid (refunded) for income taxes 100  (89)
Supplemental disclosure of non-cash investing and financing activities:    
Settlement of RCM6 note payable   13,234 
Non-cash reduction of equity method investment   11,156 
Investor Contact:

Alpha IR Group
Chris Hodges or Ryan Coleman

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Source: Advanced Emissions Solutions, Inc.