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 ...

[PART I. - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents ADES's unaudited condensed consolidated financial statements and related detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20and%20December%2031%2C%202022) Condensed consolidated balance sheets detail assets, liabilities, and equity as of June 30, 2023 and December 31, 2022 | (in thousands, except share data) | As of June 30, 2023 | As of December 31, 2022 | |:----------------------------------|:--------------------|:------------------------| | **ASSETS** | | | | Total current assets | $99,669 | $105,662 | | Property, plant and equipment, net| $81,008 | $34,855 | | Total Assets | $233,714 | $181,164 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $23,934 | $23,884 | | Long-term debt obligations, net | $19,830 | $3,450 | | Total Liabilities | $58,899 | $41,185 | | Total Stockholders' Equity | $174,815 | $139,979 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%20June%2030%2C%202022) Condensed consolidated statements of operations present revenues, operating loss, and net loss for the three and six months ended June 30, 2023 and 2022 | (in thousands, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:--------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Revenues: Consumables | $20,445 | $24,739 | $41,250 | $51,141 | | Total revenues | $20,445 | $24,739 | $41,250 | $51,141 | | Operating loss | $(6,087) | $(2,736) | $(13,914) | $(6,071) | | Net loss | $(5,856) | $(326) | $(13,364) | $(3,359) | | Loss per common share (Basic) | $(0.21) | $(0.02) | $(0.53) | $(0.18) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%20June%2030%2C%202022) Condensed consolidated statements of changes in stockholders' equity detail equity movements for the three and six months ended June 30, 2023 and 2022 | (Amounts in thousands, except share data) | Balances, January 1, 2023 | Balances, June 30, 2023 | |:------------------------------------------|:--------------------------|:------------------------| | Common Shares | 23,788,319 | 37,194,159 | | Common Stock Amount | $24 | $37 | | Additional Paid-in Capital | $103,698 | $152,042 | | Retained Earnings | $83,949 | $70,428 | | Total Stockholders' Equity | $139,979 | $174,815 | - Total Stockholders' Equity increased from **$139,979 thousand** at January 1, 2023, to **$174,815 thousand** at June 30, 2023, primarily due to common stock issuance for the Arq Acquisition and PIPE Investment, and stock-based compensation, partially offset by net loss and preferred stock dividends[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%20June%2030%2C%202022) Condensed consolidated statements of cash flows present operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 | (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:----------------------------------------------|:-------------------------------|:-------------------------------| | Net cash (used in) provided by operating activities | $(21,159) | $1,758 | | Net cash (used in) provided by investing activities | $(10,482) | $1,305 | | Net cash provided by (used) in financing activities | $22,792 | $(1,024) | | (Decrease) increase in Cash and Restricted Cash | $(8,849) | $2,039 | | Cash and Restricted Cash, end of period | $67,583 | $90,819 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1 - Basis of Presentation](index=8&type=section&id=Note%201%20-%20Basis%20of%20Presentation) This note outlines the company's business, significant transactions, and factors affecting revenues and cash flows - Advanced Emissions Solutions, Inc. (ADES) is an environmental technology company specializing in consumable air and water treatment solutions, including activated carbon (AC) and chemical technologies, and owns the Five Forks Mine for raw material supply[17](index=17&type=chunk) - On February 1, 2023, ADES acquired Arq Ltd.'s subsidiaries for **$31.2 million**, consisting of common stock and Series A Convertible Preferred Stock, with Arq expected to begin granular activated carbon (GAC) production in H2 2024[18](index=18&type=chunk) - The Company entered into a **$10.0 million** Term Loan with CF Global (a related party) on February 1, 2023, receiving **$8.5 million** net cash proceeds and issuing a warrant to purchase 325,457 shares of common stock[19](index=19&type=chunk) - On February 1, 2023, ADES completed a PIPE Investment, selling 3,842,315 shares of common stock for **$15.4 million** to certain subscribers, including existing Arq Ltd. shareholders[20](index=20&type=chunk) - The Company's revenues and cash flows are significantly affected by prices of competing power generation sources (natural gas, renewables) and seasonal variations in electricity demand, with higher revenues and costs typically in Q1 and Q3[28](index=28&type=chunk) [Note 2 - Arq Acquisition](index=10&type=section&id=Note%202%20-%20Arq%20Acquisition) This note details the Arq Acquisition, including purchase consideration, asset allocation, and financial impact - The Arq Acquisition was accounted for as a business acquisition on February 1, 2023, with a total purchase consideration of **$31.2 million**, including 3,814,864 shares of Common Stock (**$12.4 million**) and 5,294,462 Preferred Shares (**$18.8 million**), with **$8.7 million** in acquisition-related costs expensed[31](index=31&type=chunk) | (in thousands) | Purchase Price Allocation | |:----------------------------------|:--------------------------| | Fair value of assets acquired: | | | Cash | $1,411 | | Property, plant and equipment, net| $39,159 | | Other long-term assets, net | $11,717 | | Amount attributable to assets acquired | $55,330 | | Fair Value of liabilities assumed: | | | Accounts payable and accrued expenses | $9,806 | | Long-term debt, net of current portion | $9,199 | | Amount attributable to liabilities assumed | $24,125 | | Net assets acquired | $31,205 | - A developed technology intangible asset of **$7.7 million** with a 20-year useful life was identified as part of the Arq Acquisition[35](index=35&type=chunk) - All Series A Preferred Stock, including escrowed shares, were converted into Common Stock on June 13, 2023, following stockholder approval, with escrowed shares held pending IRS tax withholding determination[35](index=35&type=chunk)[36](index=36&type=chunk) | (in thousands) | Six Months Ended June 30, 2023 | |:---------------|:-------------------------------| | Revenues | $— | | Net loss | $(6,756) | [Note 3 - Marshall Mine](index=13&type=section&id=Note%203%20-%20Marshall%20Mine) This note describes the sale of Marshall Mine, LLC, and its financial impact - On March 27, 2023, the Company completed the sale of Marshall Mine, LLC, for a cash payment of **$2.2 million**, discharging approximately **$4.9 million** in liabilities and recognizing a **$2.7 million** gain in the Statement of Operations for the six months ended June 30, 2023[41](index=41&type=chunk) [Note 4 - Revenues](index=13&type=section&id=Note%204%20-%20Revenues) This note provides details on the composition of receivables and geographical revenue distribution | (in thousands) | As of June 30, 2023 | As of December 31, 2022 | |:--------------------|:--------------------|:------------------------| | Trade receivables, net | $10,235 | $13,789 | | Other receivables | $72 | $75 | | Receivables, net | $10,307 | $13,864 | - For the three and six months ended June 30, 2023, approximately **5%** and **9%** of Consumables revenues, respectively, were generated in Canada, with all other revenues from the U.S[43](index=43&type=chunk) [Note 5 - Inventories, net](index=13&type=section&id=Note%205%20-%20Inventories%2C%20net) This note details the composition of the Company's inventories, net, as of the reporting dates | (in thousands) | As of June 30, 2023 | As of December 31, 2022 | |:--------------------|:--------------------|:------------------------| | Product inventory, net | $12,205 | $9,479 | | Raw material inventory | $10,833 | $8,349 | | Total inventories, net | $23,038 | $17,828 | [Note 6 - Debt Obligations](index=14&type=section&id=Note%206%20-%20Debt%20Obligations) This note provides information on the Company's debt obligations, including terms, interest rates, and covenants | (in thousands) | As of June 30, 2023 | As of December 31, 2022 | |:------------------------------------------|:--------------------|:------------------------| | Term Loan due February 2027, related party | $10,000 | $— | | Arq Loan due January 2036 | $9,787 | $— | | Finance lease obligations | $4,004 | $4,581 | | Total long-term debt obligations | $19,830 | $3,450 | - The Term Loan, entered into on February 1, 2023, is for **$10.0 million**, bears interest at Adjusted Term SOFR + 9.00% cash / 5.00% PIK or Base Rate + 8.00% cash / 5.00% PIK, and is secured by substantially all Company assets (excluding Arq Loan collateral), including covenants for minimum unrestricted cash, annual revenue, and Consolidated EBITDA[48](index=48&type=chunk) - The Company assumed the Arq Loan of **$10.0 million** (recorded at fair value of **$9.7 million**) as part of the Arq Acquisition, maturing in January 2036, bearing interest at 6.0% until January 2026, then prime rate + 2.75%, and requiring fixed monthly payments of **$0.1 million**[50](index=50&type=chunk) - An amendment to the Arq Loan Agreement on June 2, 2023, waived certain financial delivery requirements and covenants for 2021-2023, and required an additional **$0.7 million** deposit into an Interest Reserve Account[50](index=50&type=chunk) [Note 7 - Leases](index=16&type=section&id=Note%207%20-%20Leases) This note provides details on the Company's operating and finance lease assets and obligations | (in thousands) | As of June 30, 2023 | As of December 31, 2022 | |:------------------------------------------|:--------------------|:------------------------| | Operating lease right-of-use assets, net | $11,292 | $7,734 | | Total operating lease obligation | $11,381 | $7,857 | | Finance lease right-of-use assets, net | $2,120 | $2,565 | | Total finance lease obligations | $4,004 | $4,581 | - Operating lease expense for the three and six months ended June 30, 2023, was **$1.3 million** and **$2.7 million**, respectively, primarily included in 'Consumables - cost of revenue'[55](index=55&type=chunk) | (in thousands) | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:---------------------------|:---------------------------------|:-------------------------------| | Amortization of right-of-use assets | $223 | $446 | | Interest on lease liabilities | $63 | $131 | | Operating lease cost | $1,035 | $2,017 | | Total lease cost | $1,619 | $3,309 | - The weighted-average remaining lease term for finance leases is **2.3 years** (discount rate **5.9%**), and for operating leases is **7.7 years** (discount rate **11.0%**) as of June 30, 2023[60](index=60&type=chunk) [Note 8 - Commitments and Contingencies](index=18&type=section&id=Note%208%20-%20Commitments%20and%20Contingencies) This note outlines the Company's commitments, including retention liabilities, surety bonds, guaranties, and legal proceedings - The **$1.4 million** Retention Liability from retention agreements with executive officers and key employees was paid in full in January 2023[63](index=63&type=chunk) - As of June 30, 2023, the Company had outstanding surety bonds totaling **$7.5 million** for the Five Forks Mine, **$3.0 million** for land adjacent to the Corbin Facility, and **$0.7 million** for Mine 4, with **$8.6 million** in restricted cash posted as collateral[64](index=64&type=chunk) - The Company has limited guaranties related to Tinuum Group's contingent liabilities but has not recorded a liability as a loss is not considered probable[65](index=65&type=chunk) - There were no significant legal proceedings as of June 30, 2023[66](index=66&type=chunk) [Note 9 - Supplemental Financial Information](index=19&type=section&id=Note%209%20-%20Supplemental%20Financial%20Information) This note provides additional details on other long-term assets and liabilities | (in thousands) | As of June 30, 2023 | As of December 31, 2022 | |:-------------------------------|:--------------------|:------------------------| | Other long-term assets, net: | | | | Right of use assets, operating leases, net | $11,292 | $7,734 | | Intangible assets, net | $8,222 | $847 | | Mine development costs, net | $6,629 | $5,478 | | Total other long-term assets, net | $44,224 | $30,647 | | (in thousands) | As of June 30, 2023 | As of December 31, 2022 | |:------------------------------------------|:--------------------|:------------------------| | Other current liabilities: | | | | Current portion of operating lease obligations | $2,375 | $2,724 | | Total other current liabilities | $6,375 | $6,645 | | Other long-term liabilities: | | | | Operating lease obligations, long-term | $9,006 | $5,133 | | Mine reclamation liabilities | $5,323 | $7,985 | | Total other long-term liabilities | $15,135 | $13,851 | - Mine reclamation liabilities decreased from **$8,533 thousand** at the beginning of the period to **$5,492 thousand** at June 30, 2023, primarily due to the removal of the Marshall Mine ARO (**$4,844 thousand**) following its sale, partially offset by assumed AROs from the Arq Acquisition (**$1,500 thousand**)[75](index=75&type=chunk)[76](index=76&type=chunk) [Note 10 - Equity Method Investments](index=21&type=section&id=Note%2010%20-%20Equity%20Method%20Investments) This note provides information on the Company's equity method investments and their financial contributions - The Company's ownership in Tinuum Group is **42.5%**, with earnings decreasing significantly from **$2.1 million** (3 months ended June 30, 2022) to **$0.2 million** (3 months ended June 30, 2023), and from **$3.1 million** (6 months ended June 30, 2022) to **$0.9 million** (6 months ended June 30, 2023), as Tinuum Group winds down services[79](index=79&type=chunk) - The Company has a **50%** interest in Tinuum Services, recognizing **$0.3 million** in income for both the three and six months ended June 30, 2023[80](index=80&type=chunk) | (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:----------------------------------------------------------|:-------------------------------|:-------------------------------| | Distributions from equity method investees, return on investment | $— | $2,297 | | Distributions from equity method investees in excess of investment basis | $1,100 | $3,316 | [Note 11 - Stockholders' Equity](index=22&type=section&id=Note%2011%20-%20Stockholders'%20Equity) This note details changes in stockholders' equity, including stock issuances, repurchases, and the Tax Asset Protection Plan - On February 1, 2023, the Company issued 3,814,864 shares of Common Stock for the Arq Acquisition and 3,842,315 shares for the PIPE Investment, with 5,294,462 Preferred Shares issued for Arq later converted to Common Stock on June 13, 2023[85](index=85&type=chunk) - As consideration for the Term Loan, 325,857 Warrant Shares were issued, recorded at an estimated fair value of **$0.8 million** to Additional paid-in capital[86](index=86&type=chunk) - The Company has **$7.0 million** remaining under its stock repurchase program as of June 30, 2023[87](index=87&type=chunk) - The Tax Asset Protection Plan (TAPP) was amended on April 11, 2023, extending its final expiration date to December 31, 2024, to protect the Company's ability to utilize net operating losses and tax credits[89](index=89&type=chunk) [Note 12 - Stock-Based Compensation](index=23&type=section&id=Note%2012%20-%20Stock-Based%20Compensation) This note provides information on stock-based compensation expense, unrecognized costs, and restricted stock activity | (in thousands) | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:-------------------------------|:---------------------------------|:-------------------------------| | RSA expense | $416 | $904 | | PSU expense | $129 | $204 | | Total stock-based compensation expense | $545 | $1,108 | | (in thousands, expect years) | Unrecognized Compensation Cost | Expected Weighted-Average Period of Recognition (in years) | |:-----------------------------|:-------------------------------|:-----------------------------------------------------------| | RSA expense | $2,418 | 2.24 | | PSU expense | $930 | 2.24 | | Total unrecognized stock-based compensation expense | $3,348 | 2.24 | | Restricted Stock | Non-vested at January 1, 2023 | Granted | Vested | Forfeited | |:------------------------------|:------------------------------|:----------|:----------|:----------| | Number of Shares | 652,962 | 498,541 | (276,767) | (31,729) | | Weighted-Average Grant Date Fair Value | $5.58 | $1.97 | $5.62 | $4.63 | | PSUs | Units | Weighted-Average Grant Date Fair Value | |:------------------------------|:----------|:---------------------------------------| | PSUs outstanding, January 1, 2023 | 148,591 | $7.85 | | Granted | 231,242 | $2.48 | | Vested / Settled | (41,855) | $6.17 | | PSUs outstanding, June 30, 2023 | 337,978 | $4.38 | [Note 13 - Income Taxes](index=24&type=section&id=Note%2013%20-%20Income%20Taxes) This note provides information on income tax benefits and the effective tax rate for the reporting periods | (in thousands, except for rate) | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:--------------------------------|:---------------------------------|:-------------------------------| | Income tax benefit | $— | $(33) | | Effective tax rate | —% | —% | - The Company recorded no income tax benefit for the three and six months ended June 30, 2023, due to a full valuation allowance against deferred tax assets, based on a forecast of pretax loss for the year[100](index=100&type=chunk) [Note 14 - Subsequent Events](index=24&type=section&id=Note%2014%20-%20Subsequent%20Events) This note discloses significant events occurring after the balance sheet date, including executive appointments and related transactions - Effective July 17, 2023, Mr. Robert Rasmus was appointed President and CEO, succeeding Mr. Greg Marken, and also joined the Board of Directors[102](index=102&type=chunk) - Mr. Rasmus agreed to purchase 950,000 shares of common stock for **$1.8 million** (approximately **$1.90 per share**)[102](index=102&type=chunk) - In connection with his separation, Mr. Marken will receive severance payments and benefits, including accelerated vesting of 49,715 restricted stock shares and continued eligibility for pro rata vesting of PSUs, with the Company expecting to record an **$0.8 million** liability[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, and liquidity, highlighting key drivers and non-GAAP measures [Overview](index=26&type=section&id=Overview) This section provides a general overview of Advanced Emissions Solutions, Inc.'s business and operations - Advanced Emissions Solutions, Inc. (ADES) is an environmental technology company specializing in activated carbon (AC) and chemical-based solutions for air and water treatment, serving coal-fired utilities, industrials, and municipal water customers, and owns a lignite mine for raw material supply[105](index=105&type=chunk) [Acquisition](index=26&type=section&id=Acquisition) This section summarizes the Arq Acquisition, including the purchase price and stock conversion details - On February 1, 2023, ADES completed the Arq Acquisition for **$31.2 million**, issuing common stock and Series A Convertible Preferred Stock, with all Series A Preferred Stock converted to 5,362,926 shares of Common Stock on June 13, 2023, following stockholder approval[106](index=106&type=chunk) [Loan Agreement](index=26&type=section&id=Loan%20Agreement) This section describes the Term Loan agreement, including its amount, costs, collateral, and associated warrant - On February 1, 2023, ADES entered into a **$10.0 million** Term Loan with CFG, incurring **$1.3 million** in issuance costs, secured by most of ADES's assets, and including a warrant for CFG to purchase 325,457 shares of Common Stock[107](index=107&type=chunk) [Equity Financing](index=26&type=section&id=Equity%20Financing) This section details the PIPE Investment, including the amount raised and shares sold - A PIPE Investment was completed on February 1, 2023, raising **$15.4 million** through the sale of 3,842,315 shares of Common Stock at **$4.00 per share** to subscribers, including existing Arq Ltd. shareholders[108](index=108&type=chunk) [Drivers of Demand and Key Factors Affecting Profitability](index=26&type=section&id=Drivers%20of%20Demand%20and%20Key%20Factors%20Affecting%20Profitability) This section identifies the primary factors influencing product demand and the Company's overall profitability - Demand for ADES's consumable products is driven by sales to coal-fired power generation, industrials, municipal water, and other markets, with profitability influenced by manufacturing volumes, average selling price/product mix, coal-fired dispatch, and water contaminant removal demand[109](index=109&type=chunk) - For the three and six months ended June 30, 2023, product demand decreased due to lower natural gas prices (average **$2.16/MMBtu** in Q2 2023 vs. **$7.47/MMBtu** in Q2 2022) and mild temperatures, expected to negatively impact sales through 2023[110](index=110&type=chunk)[115](index=115&type=chunk) [Marshall Mine](index=27&type=section&id=Marshall%20Mine) This section provides an update on the sale of Marshall Mine, LLC, and its financial outcome - The sale of Marshall Mine, LLC, closed on March 27, 2023, involved a **$2.2 million** cash payment to the buyer, discharging **$4.9 million** in liabilities and resulting in a **$2.7 million** gain for the six months ended June 30, 2023[111](index=111&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance for the reported periods, detailing revenue, expenses, and profitability - Net loss for the three months ended June 30, 2023, was **$5.9 million**, compared to **$0.3 million** in the prior year, and for the six months, net loss was **$13.4 million**, up from **$3.4 million**, primarily due to increased expenses from the Arq Acquisition and decreased demand for AC and chemical products[112](index=112&type=chunk) [Comparison of the Three Months Ended June 30, 2023 and 2022](index=27&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section compares the Company's financial performance for the three months ended June 30, 2023, against the same period in 2022 [Total Revenue and Cost of Revenue](index=27&type=section&id=Total%20Revenue%20and%20Cost%20of%20Revenue) This section analyzes changes in total revenue and consumables cost of revenue for the three-month period | (in thousands, except percentages) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | |:-----------------------------------|:---------------------------------|:---------------------------------|:-----------|:-----------| | Revenues: Consumables | $20,445 | $24,739 | $(4,294) | (17)% | | Total revenues | $20,445 | $24,739 | $(4,294) | (17)% | | Consumables cost of revenue | $15,336 | $19,910 | $(4,574) | (23)% | - Consumables revenues decreased by **$4.3 million** (**17%**) for the three months ended June 30, 2023, primarily due to a **$6.4 million** decrease in volumes sold (driven by low natural gas prices) and a **$0.1 million** unfavorable product mix, partially offset by a **$2.2 million** increase from higher product pricing[115](index=115&type=chunk) - Consumables gross margin, exclusive of depreciation and amortization, increased due to decreased feedstock and additive prices, despite higher fixed costs as a percentage of total costs due to lower production volumes[115](index=115&type=chunk) [Other Operating Expenses](index=28&type=section&id=Other%20Operating%20Expenses) This section details changes in various operating expenses, including payroll, legal, general, and depreciation | (in thousands, except percentages) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | |:-----------------------------------|:---------------------------------|:---------------------------------|:-----------|:-----------| | Payroll and benefits | $3,555 | $2,519 | $1,036 | 41% | | Legal and professional fees | $1,868 | $1,555 | $313 | 20% | | General and administrative | $3,345 | $1,869 | $1,476 | 79% | | Depreciation, amortization, depletion and accretion | $2,428 | $1,588 | $840 | 53% | - Payroll and benefits increased by **$1.0 million** (**41%**) due to the addition of Arq employees[118](index=118&type=chunk) - Legal and professional fees rose by **$0.3 million** (**20%**) due to Arq Acquisition and intellectual property costs[119](index=119&type=chunk) - General and administrative expenses increased by **$1.5 million** (**79%**) due to Arq-related expenses (**$0.9 million**, including **$0.4 million** for rent) and higher travel, insurance, and Board compensation (**$0.6 million**)[120](index=120&type=chunk) - Depreciation and amortization increased by **$0.8 million** (**53%**) from Arq Acquisition assets[121](index=121&type=chunk) [Other Income (Expense), net](index=29&type=section&id=Other%20Income%20(Expense)%2C%20net) This section analyzes changes in other income and expenses, including equity method earnings and interest | (in thousands, except percentages) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | |:-----------------------------------|:---------------------------------|:---------------------------------|:-----------|:-----------| | Earnings from equity method investments | $462 | $2,389 | $(1,927) | (81)% | | Interest expense | $(834) | $(90) | $(744) | 827% | | Other | $603 | $111 | $492 | 443% | | Total other income | $231 | $2,410 | $(2,179) | (90)% | - Earnings from equity method investments decreased by **$1.9 million** (**81%**) as Tinuum Group and Tinuum Services wind down[125](index=125&type=chunk) - Interest expense increased by **$0.7 million** (**827%**) due to the Term Loan (**$0.5 million**) and assumed Arq Loan (**$0.2 million**)[126](index=126&type=chunk) - Other income increased by **$0.5 million**, primarily from **$0.5 million** in interest income from cash on hand[127](index=127&type=chunk) - No income tax expense or benefit was recorded for both periods due to a full valuation allowance based on pretax loss forecasts[128](index=128&type=chunk) [Comparison of the Six Months Ended June 30, 2023 and 2022](index=29&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section compares the Company's financial performance for the six months ended June 30, 2023, against the same period in 2022 [Consumables and consumables cost of revenue](index=29&type=section&id=Consumables%20and%20consumables%20cost%20of%20revenue) This section analyzes changes in consumables revenue and cost of revenue for the six-month period | (in thousands, except percentages) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | Change (%) | |:-----------------------------------|:-------------------------------|:-------------------------------|:-----------|:-----------| | Revenues: Consumables | $41,250 | $51,141 | $(9,891) | (19)% | | Total revenues | $41,250 | $51,141 | $(9,891) | (19)% | | Consumables cost of revenue | $32,511 | $41,417 | $(8,906) | (22)% | - Consumables revenues decreased by **$9.9 million** (**19%**) for the six months ended June 30, 2023, primarily due to a **$12.9 million** decrease in volumes sold (driven by low natural gas prices) and a **$1.0 million** unfavorable product mix, partially offset by a **$4.0 million** increase from higher product pricing[130](index=130&type=chunk) - Consumables gross margin decreased due to lower volumes, but was partially offset by lower feedstock prices and increased product prices[130](index=130&type=chunk) [Other Operating Expenses](index=30&type=section&id=Other%20Operating%20Expenses) This section details changes in various operating expenses, including payroll, legal, general, depreciation, and gain on asset sale | (in thousands, except percentages) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | Change (%) | |:-----------------------------------|:-------------------------------|:-------------------------------|:-----------|:-----------| | Payroll and benefits | $8,254 | $5,145 | $3,109 | 60% | | Legal and professional fees | $6,406 | $3,727 | $2,679 | 72% | | General and administrative | $6,123 | $3,795 | $2,328 | 61% | | Depreciation, amortization, depletion and accretion | $4,565 | $3,094 | $1,471 | 48% | | Gain on sale of Marshall Mine, LLC | $(2,695) | $— | $(2,695) | * | - Payroll and benefits increased by **$3.1 million** (**60%**), driven by **$3.2 million** from Arq employees (including **$1.1 million** severance) and **$0.7 million** from non-Arq employees, partially offset by a **$0.7 million** decrease in retention bonuses[132](index=132&type=chunk) - Legal and professional fees increased by **$2.7 million** (**72%**), mainly due to **$2.4 million** in non-recurring transaction costs for the Arq Acquisition[133](index=133&type=chunk) - General and administrative expenses rose by **$2.3 million** (**61%**), with **$1.5 million** from Arq (including **$0.7 million** rent) and **$0.8 million** from increased insurance, travel, and Board compensation[134](index=134&type=chunk) - Depreciation and amortization increased by **$1.5 million** (**48%**) due to assets acquired in the Arq Acquisition[135](index=135&type=chunk) - A **$2.7 million** gain was recognized on the sale of Marshall Mine, LLC, for the six months ended June 30, 2023[136](index=136&type=chunk) [Other Income (Expense), net](index=31&type=section&id=Other%20Income%20(Expense)%2C%20net) This section analyzes changes in other income and expenses, including equity method earnings and interest, for the six-month period | (in thousands, except percentages) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | Change (%) | |:-----------------------------------|:-------------------------------|:-------------------------------|:-----------|:-----------| | Earnings from equity method investments | $1,100 | $3,222 | $(2,122) | (66)% | | Interest expense | $(1,368) | $(176) | $(1,192) | 677% | | Other | $785 | $(334) | $1,119 | (335)% | | Total other income | $517 | $2,712 | $(2,195) | (81)% | - Earnings from equity method investments decreased by **$2.1 million** (**66%**) as Tinuum Group and Tinuum Services wind down[139](index=139&type=chunk) - Interest expense increased by **$1.2 million** (**677%**) due to the Term Loan (**$0.9 million**) and assumed Arq Loan (**$0.3 million**)[140](index=140&type=chunk) - Other income increased by **$1.1 million**, primarily from **$0.8 million** in interest income from cash on hand, contrasting with a **$0.5 million** loss in the prior year from an early settlement[141](index=141&type=chunk) - For the six months ended June 30, 2023, a **$33 thousand** income tax benefit was recorded related to out-of-period state income tax refunds, but no additional benefit due to a full valuation allowance[142](index=142&type=chunk) [Non-GAAP Financial Measures](index=32&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures, EBITDA and Adjusted EBITDA, used to supplement GAAP information - The Company uses non-GAAP measures, EBITDA and Adjusted EBITDA, to supplement GAAP financial information, believing they aid in period-to-period comparisons and provide useful insights by excluding non-cash or non-representative items[144](index=144&type=chunk) | (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:----------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net loss | $(5,856) | $(326) | $(13,364) | $(3,359) | | Depreciation, amortization, depletion and accretion | $2,428 | $1,588 | $4,565 | $3,094 | | EBITDA (loss) | $(2,993) | $1,443 | $(7,980) | $107 | | Adjusted EBITDA (loss) | $(2,993) | $2,188 | $(10,675) | $3,067 | - Adjusted EBITDA for the six months ended June 30, 2023, was a loss of **$10,675 thousand**, a significant decrease from a gain of **$3,067 thousand** in the prior year, reflecting increased transaction and integration costs related to the Arq Acquisition and Arq payroll and benefit costs[145](index=145&type=chunk)[146](index=146&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's sources and uses of liquidity, cash flow activities, and future capital expenditure plans - As of June 30, 2023, principal liquidity sources included **$58.8 million** cash on hand (excluding **$8.8 million** restricted cash) and operations, with principal uses including business operating expenses, capital/spare parts expenditures, lease/debt obligations, and Five Forks Mine reclamation payments[147](index=147&type=chunk) | (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | |:----------------------------------------------|:-------------------------------|:-------------------------------|:-----------| | Cash and restricted cash (used in) provided by: | | | | | Operating activities | $(21,159) | $1,758 | $(22,917) | | Investing activities | $(10,482) | $1,305 | $(11,787) | | Financing activities | $22,792 | $(1,024) | $23,816 | | Net change in cash and restricted cash | $(8,849) | $2,039 | $(10,888) | - Cash flows used in operating activities increased by **$22.9 million**, primarily due to a higher net loss, the non-cash gain on Marshall Mine sale, a **$7.6 million** decrease in accounts payable and accrued expenses (Arq liabilities, retention bonuses), and a **$2.3 million** decrease in distributions from equity method investees[149](index=149&type=chunk) - Cash flows used in investing activities increased by **$11.8 million**, mainly due to a **$7.5 million** increase in property, plant, and equipment additions, a **$0.9 million** increase in mine development costs, a **$2.2 million** decrease in equity distributions, a **$2.2 million** cash payment for Marshall Mine sale, and a **$1.2 million** decrease in proceeds from asset sales, partially offset by **$2.2 million** cash acquired in Arq Acquisition[150](index=150&type=chunk) - Cash flows provided by financing activities increased by **$23.8 million**, driven by **$8.5 million** net borrowings from the Term Loan and **$15.2 million** net proceeds from the PIPE Investment[151](index=151&type=chunk) - The Company expects to incur **$40.0 million** to **$45.0 million** in capital expenditures for 2023, including **$13.0-$15.0 million** for Red River Plant improvements and **$27.0-$30.0 million** for growth capital to incorporate Arq Powder as feedstock, funded from cash on hand[153](index=153&type=chunk) - As of June 30, 2023, outstanding surety bonds totaled **$7.5 million** for Five Forks Mine and **$3.0 million** for Corbin Facility land reclamation, with **$7.7 million** in restricted cash pledged as collateral[154](index=154&type=chunk) [Critical Accounting Policies and Estimates](index=34&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms that the Company's critical accounting policies and estimates remain consistent with prior reports - The Company's critical accounting policies and estimates remain unchanged from those reported in the 2022 Form 10-K[155](index=155&type=chunk) [Recently Issued Accounting Standards](index=34&type=section&id=Recently%20Issued%20Accounting%20Standards) This section directs readers to Note 1 for information on recently issued accounting standards - Information regarding recently issued accounting standards is provided in Note 1 of the Condensed Consolidated Financial Statements[155](index=155&type=chunk) [Forward-Looking Statements Found in this Report](index=34&type=section&id=Forward-Looking%20Statements%20Found%20in%20this%20Report) This section identifies forward-looking statements and outlines factors that could cause actual results to differ materially - This section identifies forward-looking statements related to anticipated effects of pricing and costs, supply/demand, competition, Arq Acquisition integration and commercialization, R&D, plant expansions, technology effectiveness, Tinuum Group guarantees, contract timing/value, financial measures, capital expenditures, patent awards, regulations, macroeconomic conditions, and alternative energy sources[156](index=156&type=chunk)[157](index=157&type=chunk) - Actual results may differ materially due to various factors, including regulatory changes, economic conditions, competition, technical difficulties, inability to commercialize technologies, loss of key personnel, material availability, intellectual property claims, litigation, and risks related to the Arq Acquisition[157](index=157&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not required for smaller reporting companies [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) This section evaluates disclosure controls and procedures and reports on internal control changes [Evaluation of Disclosure Controls and Procedures](index=36&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the Company's disclosure controls and procedures - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[159](index=159&type=chunk) [Changes in Internal Control Over Financial Reporting](index=36&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any material changes in internal control over financial reporting during the fiscal quarter - There were no material changes in internal control over financial reporting during the fiscal quarter ended June 30, 2023, and the acquired Arq business was excluded from the assessment as of June 30, 2023[160](index=160&type=chunk) [PART II. - OTHER INFORMATION](index=37&type=section&id=PART%20II.%20-%20OTHER%20INFORMATION) This section contains other required information, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 8 for legal proceedings, noting no significant outstanding cases as of June 30, 2023 - Information on legal proceedings is found in Note 8 'Commitments and Contingencies' to the consolidated financial statements[162](index=162&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, highlighting potential adverse effects from bank failures on the Company's financial condition - No material updates to risk factors from the 2022 Form 10-K, except for a new risk concerning bank failures or other events affecting financial institutions[163](index=163&type=chunk) - The Company primarily uses one U.S. bank, with most cash deposits exceeding FDIC insurance limits, and failure of this bank or adverse financial market conditions could disrupt access to cash, impact liquidity, or limit transaction processing, potentially having a material adverse effect[163](index=163&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report - None to report[164](index=164&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities - None to report[164](index=164&type=chunk) [Item 4. Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section refers to Exhibit 95.1 for the required statement on mine safety violations and regulatory matters - The statement concerning mine safety violations or other regulatory matters is included in Exhibit 95.1[165](index=165&type=chunk) [Item 5. Other Information](index=37&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - None to report[165](index=165&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report, including amendments, agreements, certifications, and XBRL data files - Key exhibits include the Sixth Amendment to Tax Asset Protection Plan (Exhibit 10.1), Loan Modification Agreement (Exhibit 10.2), Certifications of Principal Executive and Financial Officers (Exhibits 31.1, 31.2, 32.1), Mine Safety Disclosure (Exhibit 95.1), and XBRL interactive data files (Exhibits 101.SCH, CAL, LAB, PRE, DEF, 104)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) [SIGNATURES](index=39&type=section&id=SIGNATURES) This section contains the required signatures for the Quarterly Report, confirming its submission by the CEO and Chief Accounting Officer - The report was signed on August 9, 2023, by Robert Rasmus, Chief Executive Officer (Principal Executive Officer), and Morgan Fields, Chief Accounting Officer (Principal Financial Officer)[176](index=176&type=chunk)

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].