Financial Data and Key Metrics Changes - Third quarter revenue totaled $21.8 million, down from $28.4 million in Q3 2022, primarily due to lower sales volumes from power generation customers, partially offset by higher average selling prices for consumable products [22] - Year-to-date revenues were $71.1 million compared to $79.6 million in the prior year, reflecting a decline due to lower sales volumes [22] - Gross margin improved to 30.6% in Q3 2023 from 24.1% in Q3 2022, driven by higher average selling prices and better input cost management [8][23] - Positive EBITDA was achieved for the third quarter after four consecutive quarters of negative EBITDA [9] - Net loss for Q3 was $2.2 million or $0.06 per diluted share, an improvement from a net loss of $2.4 million or $0.13 per diluted share in the prior year [25] Business Line Data and Key Metrics Changes - The consumables product line saw a 5% revenue growth compared to the prior year, despite overall revenue decline [9] - Average selling price (ASP) increased by approximately 16% year-to-date compared to 2022 [8] Market Data and Key Metrics Changes - Demand from power generation customers remains volatile, but recent increases in natural gas prices are expected to support demand levels [10] - Stable demand is observed in industrial and water markets, although these markets are smaller compared to power generation [10] Company Strategy and Development Direction - The company is focused on transitioning to become a producer of granular activated carbon, with ongoing expansion plans at Red River and Corbin [7][11] - The first phase of expansion at Red River is expected to result in a nameplate capacity of about 25 million pounds of annual granular activated carbon production [11] - The company is evaluating the practicality and costs associated with accelerating certain aspects of the business plan, with potential for additional phases of expansion [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding regulatory developments, particularly the anticipated EPA regulations on PFAS, which could expand demand for the company's products [18][19] - The company is confident in its ability to meet or beat the current timeline for expansion projects and is actively engaging with customers to secure contracts before production begins [29] Other Important Information - The company revised its capital expenditure expectations for 2023 to between $35 million and $40 million, down from previous estimates [12][27] - Cash balances as of September 30 totaled $61.3 million, a decrease from $76.4 million at the end of 2022, while total debt increased to $21.2 million [26] Q&A Session Summary Question: Can you break down the improvement in gross margins? - Management indicated that the improvement in gross margin was primarily due to the elimination of negative margin contracts and better cost management [34] Question: When will there be clarity on the potential to accelerate expansion plans at Red River? - Management hopes to have clarity by the next quarterly call, but expects it sooner, emphasizing the importance of customer receptivity in evaluating acceleration [36]

Financial Performance - For the three months ended September 30, 2023, the company recognized a net loss of $2.2 million, compared to a net loss of $2.4 million for the same period in 2022, reflecting a decrease in demand for its products due to lower natural gas prices [108]. - Total revenues for the three months ended September 30, 2023, were $29.8 million, a 5% increase from $28.4 million in the same period of 2022, driven by higher pricing and a favorable product mix [110]. - For the nine months ended September 30, 2023, total revenues decreased by 11% to $71.1 million from $79.6 million in the same period of 2022, primarily due to a decrease in volumes sold [124]. - The company reported a pretax loss of $15.6 million for the nine months ended September 30, 2023, compared to a pretax loss of $5.8 million in the same period of 2022 [137]. Operating Expenses - Operating expenses for the three months ended September 30, 2023, totaled $11.6 million, a 23% increase from $9.5 million in the same period of 2022, primarily due to higher payroll and benefits expenses related to the Arq Acquisition [118]. - Operating expenses increased by 36% to $34.3 million for the nine months ended September 30, 2023, compared to $25.3 million in the same period of 2022 [126]. - Payroll and benefits expenses rose by 67% to $12.5 million, largely due to the addition of Arq employees and severance costs [127]. - Legal and professional fees increased by 9% to $8.1 million, primarily due to costs associated with the Arq Acquisition [128]. - General and administrative expenses increased by 62% to $9.2 million, driven by expenses incurred by Arq and increases in research and development [129]. - Depreciation and amortization expenses increased by 53% to $7.3 million, mainly due to the addition of long-lived and intangible assets from the Arq Acquisition [130]. Cash Flow and Capital Expenditures - As of September 30, 2023, cash and restricted cash decreased from $76.4 million to $61.3 million, a decline of $15.1 million [144]. - Cash flows used in operating activities increased by $21.5 million, primarily due to a net loss of $15.5 million for the nine months ended September 30, 2023, compared to a net loss of $5.8 million in the prior year [145]. - Cash flows used in investing activities increased by $15.3 million, mainly due to a $10.8 million increase in property, plant, and equipment additions from the Arq Acquisition [146]. - Cash flows provided by financing activities increased by $24.7 million, driven by net borrowings of $8.5 million from the Term Loan and net proceeds of $15.2 million from the PIPE Investment [147]. - The company expects to incur between $35.0 million and $40.0 million in capital expenditures for 2023, with $17.0 million already incurred in the first nine months [149]. - The company anticipates significant capital expenditures due to the Arq Acquisition, including quarterly interest payments on the Term Loan and a balloon payment of approximately $12.2 million due on February 1, 2027 [148]. - The company expects to fund all capital expenditures for 2023 from cash on hand [149]. Acquisitions and Debt - The company completed the Arq Acquisition on February 1, 2023, issuing shares valued at $31.2 million as purchase consideration [103]. - The company entered into a Term Loan agreement for $10.0 million on February 1, 2023, with a maturity date of February 1, 2027, and an interest rate margin of 9.00% paid in cash [104]. - Interest expense for the three months ended September 30, 2023, increased primarily due to $0.5 million related to the Term Loan and $0.1 million related to the Arq Loan assumed in the acquisition [121]. - Interest expense surged by 732% to $2.2 million, primarily due to new debt related to the Arq Acquisition [135]. Market Conditions and Future Outlook - The average natural gas spot prices for the three months ended September 30, 2023, were $2.59 per MMBtu, significantly lower than $7.99 per MMBtu in the same quarter of 2022, impacting demand for coal-fired generation [111]. - Consumables revenues decreased by $16.7 million due to lower product volumes among power generation customers, attributed to low natural gas prices [125]. - The company expects that product price increases will help offset decreases in volumes due to competition from alternative energy sources impacting demand for its AC and chemical products [112]. - Forward-looking statements indicate potential risks including competition in the activated carbon market and the ability to successfully integrate Arq's business [154]. - The company is evaluating the impacts of the Arq Acquisition on its internal control over financial reporting [157].

Advanced Emissions Solutions, Inc. (NASDAQ:ADES) Q2 2023 Earnings Conference Call August 10, 2023 9:00 AM ET Company Participants Ryan Coleman - Alpha IR Group Robert Rasmus - President and Chief Executive Officer Morgan Fields - Chief Accounting Officer Conference Call Participants Gerard Sweeney - ROTH Capital Partners Operator Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Advanced Emis ...

Advanced Emissions Solutions, Inc. Q2 2023 Earnings Call August 10, 2023 Nasdaq: ADES Disclaimer This presentation includes 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. When used in this presentation, the words “can,” “will,” “intends,” “expects,” “believes,” similar expressions and any other statements that are not historical facts are intended to identify those assertions as ...

United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________ FORM 10-Q ______________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-37822 ______________________________________ Advanced Emissions Solut ...

Advanced Emissions Solutions, Inc. Q1 2023 Earnings Call May 10, 2023 Nasdaq: ADES Disclaimer Thispresentationincludesforward-lookingstatementswithinthemeaningofSection21EoftheSecuritiesExchangeActof1934,whichprovidesa“safeharbor”forsuchstatementsincertaincircumstances. Whenusedinthispresentation,thewords“can,”“will,”“intends,”“expects,”“believes,”similarexpressionsandanyotherstatementsthatarenothistoricalfactsareintendedtoidentifythoseassertionsas forward-lookingstatements.Allstatementsthataddressactivitie ...

Financial Performance - For the three months ended March 31, 2023, the company reported a net loss of $7.5 million, compared to a net loss of $3.0 million for the same period in 2022, primarily due to increased expenses related to the Arq Acquisition and decreased demand for AC and chemical products [110]. - Total revenues for the three months ended March 31, 2023, were $20.8 million, a decrease of 21% from $26.4 million in the same period of 2022, driven by lower sales volumes and unfavorable product mix [111]. - Operating expenses for the three months ended March 31, 2023, increased to $11.5 million, up 39% from $8.2 million in the same period of 2022, largely due to higher payroll, legal, and professional fees related to the Arq Acquisition [115]. - Consolidated Adjusted EBITDA loss for the three months ended March 31, 2023 was $7.7 million, a significant decrease from an Adjusted EBITDA of $0.88 million in the same period of 2022 [129]. - Cash flows used in operating activities decreased by $19.8 million, primarily due to a net loss of $7.5 million and a decrease in accounts payable and accrued expenses of $10.8 million [133]. Acquisition and Capital Expenditures - The company completed the Arq Acquisition on February 1, 2023, for a total purchase consideration of $31.2 million, consisting of common and preferred stock [105]. - The company expects to incur between $40.0 million and $45.0 million in capital expenditures for 2023, including $27.0 million to $30.0 million for growth capital related to the Arq acquisition [137]. - The company anticipates significant capital expenditures associated with the Arq acquisition, including quarterly interest payments beginning in March 2023 [136]. Financing and Cash Flow - The company entered into a term loan agreement for $10.0 million on February 1, 2023, with an interest rate of either Adjusted Term SOFR plus a margin of 9.00% or Base Rate plus a margin of 8.00% [106]. - Cash flows provided by financing activities increased by $23.9 million, primarily due to net borrowings of $8.5 million on the Term Loan and net proceeds from the PIPE Investment of $15.2 million [135]. - Cash and restricted cash increased from $76.4 million as of December 31, 2022 to $79.1 million as of March 31, 2023 [131]. - The company expects that cash on hand as of March 31, 2023 will provide sufficient liquidity to fund required contractual obligations and operating losses for the next 12 months [136]. Market and Economic Factors - The average natural gas spot prices for the three months ended March 31, 2023, were $2.65 per MMBtu, down from $4.66 per MMBtu in the same period of 2022, impacting demand for coal-fired power generation [113]. - The company expects a slight increase in consumables revenue in the second half of 2023 compared to the first half, driven by changes in customer and product mix, despite anticipated decreases in volumes due to alternative energy prices [113]. Other Financial Metrics - Interest expense for the three months ended March 31, 2023, increased significantly to $534,000, compared to $86,000 in the same period of 2022, primarily due to the new term loan [124]. - The company recorded an income tax benefit related to out-of-period state income tax refunds for the three months ended March 31, 2023, despite a pretax loss of $7.5 million [125]. - The company reported a cash distribution from equity method investees of $0.64 million for the three months ended March 31, 2023, down from $2.51 million in the same period of 2022 [129]. - As of March 31, 2023, the company had outstanding surety bonds totaling $7.5 million related to reclamation of the Five Forks Mine [138].

Financial Performance - Total revenues for 2022 were $102.987 million, a 3% increase from $100.294 million in 2021, driven primarily by a 20% increase in consumables revenue to $102.987 million[104]. - Consumables revenue for the year ended December 31, 2022, increased by $11.8 million year over year, primarily due to higher volumes sold and improved pricing, offset by an unfavorable product mix impact of approximately $1.4 million[106]. - Net loss for the year ended December 31, 2022, was $8.9 million compared to a net income of $60.4 million in 2021, representing a year-over-year decrease of $69.3 million[117]. - Adjusted EBITDA for 2022 was $1.3 million, a significant decline from $84.9 million in 2021, indicating a decrease of approximately 98.5%[117]. - Cash distributions from equity method investees decreased by $68.1 million in 2022, totaling $5.9 million compared to $74.0 million in 2021, primarily due to the cessation of material operations by Tinuum Group and Tinuum Services[120]. - The company reported an income tax expense of $0.2 million for 2022, with an effective tax rate of (2)%, compared to $15.7 million and 21% in 2021[112]. Costs and Expenses - Consumables cost of revenues increased by 23% to $80.465 million in 2022, up from $65.576 million in 2021, reflecting higher production costs[104]. - Operating expenses for the year ended December 31, 2022, totaled $34.6 million, an increase of 16% from $29.9 million in 2021, driven by a 51% increase in legal and professional fees[107]. - Legal and professional fees rose by $3.2 million year over year, primarily due to costs associated with the Arq Acquisition[108]. - The gross margin for consumables decreased in 2022, negatively impacted by higher raw material and transportation costs, totaling $0.8 million in Tinuum Group royalties[106]. Acquisitions and Investments - The Arq Acquisition completed on February 1, 2023, involved a total purchase consideration of $31.2 million, enhancing the company's product offerings in carbon technology[95]. - A PIPE Investment closed on February 1, 2023, for approximately $15.4 million at a purchase price of $4.00 per common share[96]. - Transaction costs related to the Arq Acquisition amounted to $5.0 million, included in the net loss for the year ended December 31, 2022[115]. Debt and Financing - A Loan Agreement was entered into on February 1, 2023, with a term of 48 months and an interest rate margin of 9.00% paid in cash and 5.00% paid in kind[97]. - The company closed a PIPE Investment for an aggregate purchase price of $15.4 million and entered into a Loan Agreement for $10.0 million, receiving $8.5 million in net proceeds[118]. Future Expectations - The company expects to continue inventory purchases in 2023, albeit at reduced levels compared to 2022, due to high demand for AC products[92]. - The company expects a slight increase in consumables revenue for 2023, driven by changes in customer and product mix, despite anticipated decreases in volumes due to alternative energy prices[106]. - Capital expenditures for 2023 are expected to be between $40.0 million and $45.0 million, a significant increase from $9.5 million incurred in 2022, with 65% allocated to growth projects[126]. Tax and Deferred Assets - As of December 31, 2022, the company had a valuation allowance of $88.3 million on deferred tax assets, indicating a lack of expected taxable income to utilize these assets[112]. - The company recognizes deferred tax assets only if they are more likely than not to be realized, considering future taxable income and tax-planning strategies[135]. - Changes in estimates for deferred tax assets could materially impact the company's effective tax rate[135]. Regulatory and Compliance - The company must maintain a minimum cash balance of $5.0 million starting March 31, 2023[131]. - The company is required to achieve a minimum annual revenue of $70.0 million for the fiscal year ending December 31, 2023, increasing to $85.0 million for 2024, and $100.0 million for any fiscal year thereafter[131]. - The company must achieve a minimum EBITDA of $3.0 million for the fiscal year ending December 31, 2024, and $16.0 million for any fiscal year thereafter[131]. - The loan to value (LTV) ratio must not exceed 0.40:1.00 during an LTV Trigger Period starting after the fiscal quarter ending September 30, 2023[131]. Asset Management - As of December 31, 2022, Marshall Mine, LLC had outstanding liabilities of approximately $4.9 million, expected to be discharged upon the sale of the mine[94]. - As of December 31, 2022, the company had outstanding surety bonds totaling $24.1 million related to reclamation obligations for the Five Forks Mine and Marshall Mine[127]. - The company expects to fund mine reclamation costs from cash on hand and anticipates closing the sale of equity interests in Marshall Mine, LLC in the first half of 2023[128]. - Reclamation costs for the Five Forks Mine ARO are allocated to expense over the life of the related mine assets and adjusted periodically[133]. - The Marshall Mine ARO is based on a capped fee structure, with costs adjusted quarterly based on actual reclamation costs[134]. Accounting Policies - The company applies the acquisition method for business combinations, requiring significant estimates and assumptions regarding fair values of acquired assets and liabilities[132]. - The company evaluates long-lived assets and intangibles for impairment at least annually, measuring impairment losses based on the excess of carrying amounts over estimated fair values[132].

Revenue and Earnings - For the three months ended June 30, 2022, total revenues increased to $24.7 million, a 17% increase from $21.1 million in the same period of 2021, primarily driven by a 42% increase in consumables revenue[103]. - Total revenues for the six months ended June 30, 2022, increased to $51.1 million, up 17% from $43.7 million in the same period of 2021[122]. - Consumables revenues for the three months ended June 30, 2022, reached $24.7 million, up $7.3 million from $17.4 million in the prior year, with higher product volumes contributing $4.6 million and favorable pricing mix adding approximately $2.0 million[105]. - Consumables revenues for the six months ended June 30, 2022, rose by $15.2 million, or 42%, primarily driven by higher product volumes and favorable selling prices[122]. - For the three months ended June 30, 2022, earnings from equity method investments decreased to $2.4 million from $21.1 million in the same period of 2021, a decline of 89%[116]. - The company recognized $3.1 million in equity earnings from Tinuum Group for the six months ended June 30, 2022, compared to $35.5 million in the same period of 2021, a decrease of 92%[135]. - For the six months ended June 30, 2022, the company recorded a pretax loss of $3.4 million compared to a pretax income of $39.8 million for the same period in 2021, leading to no income tax expense for 2022[139]. Operating Expenses - Operating expenses for the three months ended June 30, 2022, totaled $7.6 million, an increase of 28% from $5.9 million in the prior year, driven by higher legal and professional fees and general administrative expenses[109]. - Operating expenses for the six months ended June 30, 2022, totaled $15.8 million, an increase of 11% from $14.2 million in the same period of 2021[126]. - Legal and professional fees increased by 15% to $3.7 million for the six months ended June 30, 2022, primarily due to costs related to the strategic alternatives review process[128]. Cash Flow and Liquidity - Cash flows from operating activities decreased by $16.4 million to $1.8 million for the six months ended June 30, 2022, compared to $18.2 million for the same period in 2021[148]. - Cash and restricted cash increased from $88.8 million as of December 31, 2021 to $90.8 million as of June 30, 2022[147]. - The company anticipates that cash on hand as of June 30, 2022 will provide sufficient liquidity to fund operations for the next 12 months[151]. - As of June 30, 2022, the total cash payable under the Amended Retention Agreements is $2.5 million, expected to be funded from cash on hand[153]. Strategic Outlook and Market Conditions - The company expects to continue purchasing inventory through the remainder of 2022 to meet increased customer demand, which is anticipated to negatively impact gross margins due to higher operational costs[105]. - The company anticipates that product price increases announced in Q2 2022 will help offset inflation in operating costs and improve gross margins despite the loss of certain power generation customers[105]. - The company is evaluating strategic alternatives that may impact future revenues, margins, and cash flows[157]. - The impact of adverse global macroeconomic conditions, including rising interest rates and inflationary pressures, is being closely monitored[157]. - Future levels of research and development activities are projected to increase, focusing on enhancing technology effectiveness[157]. - The company is focused on opportunities to provide solutions to U.S. coal-related businesses to comply with regulations and improve efficiency[157]. Internal Controls and Compliance - The company has identified a material weakness in its internal controls over financial reporting as of June 30, 2022, but believes the financial statements present fairly in all material aspects[161]. - Remediation procedures have been implemented to address internal control weaknesses, with enhanced monitoring and periodic reviews established[162]. Acquisitions and Reimbursements - The Marshall Mine acquisition was completed for a nominal cash price, and reclamation activities are materially completed as of June 30, 2022, with Norit reimbursing $10.2 million over a 13-year term for reclamation costs[100]. - The carrying value of the Reclamation Reimbursement was $9.0 million as of February 25, 2022, and the company received $8.5 million in cash for full payment under the Change in Control provision of the Supply Agreement[99]. - As of February 25, 2022, the Reclamation Reimbursement was $9.0 million, with $8.5 million received in cash, resulting in a loss of $0.5 million recognized in "Other income (expense)"[138]. Future Expectations - The company expects to incur $11.0 million in capital expenditures for 2022, an increase from $7.6 million in 2021, primarily for improvements to the Red River Plant[152]. - Outstanding surety bonds related to the Marshall Mine and Five Forks Mine amounted to $24.1 million as of June 30, 2022[154]. - The company anticipates effects from increased pricing of AC products due to rising supply and logistics costs[157]. - Expected supply and demand dynamics for AC products and services are under review, with increasing competition noted in the market[157]. - Future capital expenditures required for business operations are being assessed[157]. - The effectiveness of technologies and the benefits they provide are being evaluated as part of ongoing strategic planning[157].