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].

[PART I](index=4&type=section&id=PART%20I) [ITEM 1. Business](index=4&type=section&id=ITEM%201.%20Business) ADES transitions to solely focus on Advanced Purification Technologies (APT) after its Refined Coal (RC) segment ceased operations due to tax credit expiration, pursuing growth in diverse purification markets - Advanced Emissions Solutions, Inc. (ADES), incorporated in 2011, succeeded ADA-ES, Inc. in 2013 and acquired ADA Carbon Solutions, LLC in 2018 to expand into the activated carbon (AC) market[13](index=13&type=chunk) - The company sells consumable AC and chemical-based products for purification solutions to coal-fired utilities, industrials, and water treatment plants[13](index=13&type=chunk) - Equity interests of 42.5% and 50.0% were held in Tinuum Group, LLC and Tinuum Services, LLC, respectively, which substantially ceased operations as of December 31, 2021, due to the expiration of the Section 45 refined coal tax credit program[13](index=13&type=chunk) - The Refined Coal (RC) segment, including Tinuum Group and Tinuum Services, substantially ceased operations as of December 31, 2021, due to the expiration of the Section 45 tax credit program, which will have a **material adverse effect on financial results starting in 2022**[13](index=13&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) - The Advanced Purification Technologies (APT) segment focuses on purifying contaminated liquid and gas streams from industrial sources, coal-fired power plants, and wastewater treatment plants, with emerging opportunities in soil and groundwater treatment[17](index=17&type=chunk) - A 15-year supply agreement with Cabot Norit Americas, Inc. for lignite-based AC products is expected to provide **material incremental sales volume**, lower fixed operating costs, and expand distribution to diverse end-markets[20](index=20&type=chunk) - The company owns and operates the Red River plant in Louisiana for AC manufacturing and the Five Forks Mine for lignite coal supply, with **83 U.S. and 12 international patents**[23](index=23&type=chunk)[22](index=22&type=chunk)[42](index=42&type=chunk) [General Company Overview](index=5&type=section&id=General%20Company%20Overview) - Advanced Emissions Solutions, Inc. (ADES), incorporated in 2011, succeeded ADA-ES, Inc. in 2013 and acquired ADA Carbon Solutions, LLC in 2018 to expand into the activated carbon (AC) market[13](index=13&type=chunk) - The company sells consumable AC and chemical-based products for purification solutions to coal-fired utilities, industrials, and water treatment plants[13](index=13&type=chunk) - Equity interests of 42.5% and 50.0% were held in Tinuum Group, LLC and Tinuum Services, LLC, respectively, which substantially ceased operations as of December 31, 2021, due to the expiration of the Section 45 refined coal tax credit program[13](index=13&type=chunk) [Markets and Demand Drivers](index=5&type=section&id=Markets%20and%20Demand%20Drivers) - Activated Carbon (AC) is a specialized sorbent material used in various industrial and consumer applications to remove impurities from gas, water, and waste streams[14](index=14&type=chunk) - Key markets for AC include pollution removal from coal-fired generation, water treatment, industrial acid gas/odor removal, automotive emission control, and soil/groundwater remediation[14](index=14&type=chunk) - Demand for AC products is driven by increasing environmental regulations, particularly in developed and rapidly developing countries, with significant opportunities in soil, sediment, and groundwater treatment[14](index=14&type=chunk)[16](index=16&type=chunk) [Business Segments](index=6&type=section&id=Business%20Segments) - The Advanced Purification Technologies (APT) segment uses AC and chemical products to purify contaminated liquid and gas streams from industrial sources, including coal-fired power plants (mercury control) and wastewater treatment plants[17](index=17&type=chunk) - In late 2021, the APT segment developed a new Colloidal Carbon Product (CCP) platform, FluxSorb IS™, for in-situ treatment of contaminated soil and groundwater[17](index=17&type=chunk) - The Refined Coal (RC) segment, through Tinuum Group, provided mercury and NOx emission reduction using Section 45 tax credits, but substantially ceased operations as of December 31, 2021, due to the program's expiration[24](index=24&type=chunk) - The cessation of the RC segment's operations means the company will no longer earn M-45 Royalties or substantial earnings and distributions from Tinuum Group and Tinuum Services, materially affecting financial results from 2022[24](index=24&type=chunk)[26](index=26&type=chunk) [Sales and Customer Relationships](index=6&type=section&id=Sales%20and%20Customer%20Relationships) - Consumables sales are primarily made by company employees under requirements-based contracts (1-5 years for AC, purchase order for chemical products)[18](index=18&type=chunk) - Top three customers comprised approximately **37% of consolidated consumables revenues for 2021**, indicating significant customer concentration risk[18](index=18&type=chunk) - M-45 Royalties from Tinuum Group, which comprised **14% of total consolidated revenues and 296% of operating income in 2021**, ceased as of December 31, 2021, due to the RC segment wind-down[26](index=26&type=chunk) [Cabot Supply Agreement and Related Agreements](index=7&type=section&id=Cabot%20Supply%20Agreement%20and%20Related%20Agreements) - A 15-year Supply Agreement with Cabot Norit Americas, Inc. for lignite-based activated carbon products (Furnace Products) commenced on September 30, 2020, with automatic 10-year renewal terms[20](index=20&type=chunk) - The Supply Agreement is expected to provide **material incremental sales volume**, lower fixed operating costs per unit, and expand AC product distribution to new markets[20](index=20&type=chunk) - Concurrently, the company acquired Marshall Mine, LLC from Cabot for a nominal price, immediately commencing shuttering activities and incurring approximately **$23.3 million in Reclamation Costs**, with Cabot obligated to reimburse **$10.2 million**[20](index=20&type=chunk) - An EMEA Supply Agreement was also signed with Cabot Corporation on February 1, 2021, for lignite activated carbon products for mercury removal in the EMEA market[20](index=20&type=chunk) [Competitive Landscape](index=7&type=section&id=Competition) - Primary competitors for consumable sorbent products include Cabot (CBT), Calgon Carbon (Kuraray Co., Ltd.), Donau Carbon Company, Midwest Energy Emissions Corp. (MEEC), and Nalco Holding Company (Ecolab Inc. (ECL))[21](index=21&type=chunk) [Raw Materials and Supply Chain](index=7&type=section&id=Raw%20Materials) - Lignite coal, the principal raw material for AC manufacturing, is supplied **100% through the company's Five Forks Mine**[22](index=22&type=chunk) - Manufacturing of AC and chemical products relies on various additives, which are subject to price fluctuations and supply constraints from a limited number of suppliers[22](index=22&type=chunk) - Raw materials for RC products were primarily non-bromine based halogens, but this segment has ceased operations[30](index=30&type=chunk) [Operational Facilities](index=8&type=section&id=Operations) - The company owns and operates the Red River plant in Louisiana for manufacturing, leases another manufacturing and distribution facility in Louisiana, and has sales, product development, and administrative operations in Colorado[23](index=23&type=chunk) - Tinuum RC facilities were located at coal-fired power plants in the U.S. but have ceased operations[30](index=30&type=chunk) [Proprietary Products and Technologies](index=8&type=section&id=Products) - Proprietary technologies include M-45 and M-45-PC for pre-combustion coal treatment to control NOx and mercury emissions, and CyClean technology to enhance combustion and reduce emissions[25](index=25&type=chunk) - Patents related to the RC segment are not expected to have significant commercial application beyond December 31, 2021, due to the wind-down of Tinuum Group and Tinuum Services[25](index=25&type=chunk) [Research and Development Activities](index=9&type=section&id=Research%20and%20Development%20Activities) Research and Development Expenses | Year Ended December 31 | Expenses (in millions) | | :--------------------- | :--------------------- | | 2021 | $0.4 | | 2020 | $1.0 | [Legislation and Environmental Regulations](index=9&type=section&id=Legislation%20and%20Environmental%20Regulations) - The U.S. EPA's MATS Rule, effective April 2012, requires **80-90% mercury capture** from coal-fired EGUs and remains in effect despite past reconsideration attempts[33](index=33&type=chunk) - State-level mercury rules, U.S. Federal Industrial Boiler MACT, and Effluent Limitation Guidelines (ELGs) for wastewater also impact demand for the company's products[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - International regulations, such as Canada-Wide Standard and the EU's Minimata Convention on Mercury, are expected to expand the market for mercury control products[39](index=39&type=chunk) [Mining Environmental and Reclamation Matters](index=12&type=section&id=Mining%20Environmental%20and%20Reclamation%20Matters) - The U.S. coal mining industry is regulated by federal, state, and local authorities, including SMCRA, for employee health and safety, environmental protection, and reclamation[40](index=40&type=chunk) - Mine operators are required to post surety bonds to ensure payment of long-term obligations like mine closure and reclamation costs[40](index=40&type=chunk) Surety Bonds for Mine Reclamation (as of December 31, 2021) | Mine | Amount (in millions) | | :------------- | :------------------- | | Five Forks Mine | $7.5 | | Marshall Mine | $16.6 | [Patents](index=13&type=section&id=Patents) - As of December 31, 2021, the company held **83 U.S. patents**, **12 international patents**, and **15 pending U.S. provisional patents or applications**[42](index=42&type=chunk) - Existing patents generally have terms of 20 years from the filing date, with the earliest expirations beginning in 2022[42](index=42&type=chunk) [Seasonality of Activities](index=13&type=section&id=Seasonality%20of%20Activities) - Sales of consumable products are seasonal, dependent on power generation unit operations (weather-dependent heating/cooling needs) and scheduled maintenance outages[43](index=43&type=chunk) - Demand for AC products for water purification is highest in summer months due to increased degradation of organic contaminants causing taste and odor issues[43](index=43&type=chunk) [Safety, Health and Environment](index=13&type=section&id=Safety%2C%20Health%20and%20Environment) - Operations are subject to numerous federal, state, and local Safety, Health, and Environmental (SH&E) Regulations, requiring compliance with various environmental permits[44](index=44&type=chunk) [Employees](index=13&type=section&id=Employees) - As of December 31, 2021, the company employed **139 full-time personnel**, with 27 in Colorado and 112 in Louisiana[45](index=45&type=chunk) [Available Information](index=13&type=section&id=Available%20Information) - Periodic and current reports are filed with the SEC and available free of charge on the company's website (www.advancedemissionssolutions.com) and the SEC's website (www.sec.gov)[46](index=46&type=chunk) [Forward-Looking Statements Found in this Report](index=14&type=section&id=Forward-Looking%20Statements%20Found%20in%20this%20Report) - The report contains forward-looking statements regarding expected growth in APT markets, pricing, supply/demand, competition, strategic alternatives, R&D, technology effectiveness, financial measures, capital expenditures, patents, and regulatory impacts[48](index=48&type=chunk) - These statements are based on assumptions including coal's continued significance, the company's role as a key supplier, capital/personnel availability, Cabot's purchases, business relationships, and new consumable development[49](index=49&type=chunk) - Actual results could differ materially due to risks such as regulatory changes, competition, alternative energy sources, technical difficulties, loss of personnel, supply chain issues, IP claims, and litigation[51](index=51&type=chunk) [ITEM 1A. Risk Factors](index=14&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces significant risks from sole dependence on the APT segment, strategic review uncertainties, single plant reliance, regulatory volatility, and potential tax credit limitations - The company is now solely dependent on the APT segment for earnings, requiring substantial growth to offset the loss of the RC segment's **$82.6 million operating income in 2021**[54](index=54&type=chunk) - Uncertainty exists regarding the strategic review process, with no assurance of identifying or completing a transaction that will maximize shareholder value[54](index=54&type=chunk) - Reliance on a single manufacturing plant (Red River) creates risk of supply disruption due to damage or insufficient capacity[54](index=54&type=chunk)[56](index=56&type=chunk) - Demand for products is highly dependent on environmental laws and regulations, with changes or delays in enforcement posing a material adverse effect[58](index=58&type=chunk) - The market for pollutant reduction products is highly competitive, with larger and more established competitors potentially impeding growth and financial results[61](index=61&type=chunk) - The company's ability to utilize **$86.1 million in Section 45 tax credit carryforwards** may be substantially limited by an 'ownership change' as defined by IRC Sections 382 and 383[74](index=74&type=chunk) [ITEM 1B. Unresolved Staff Comments](index=28&type=section&id=ITEM%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are reported - No unresolved staff comments were reported[82](index=82&type=chunk) [ITEM 2. Properties](index=28&type=section&id=ITEM%202.%20Properties) Properties include leased Colorado offices, owned/leased Louisiana manufacturing and distribution facilities, and mining operations in Louisiana and Texas - The company leases approximately **24,000 square feet of office space** in Greenwood Village, Colorado, for its corporate headquarters and primary R&D laboratory[82](index=82&type=chunk) - Manufacturing operations include an owned plant in Coushatta, Louisiana, and a leased manufacturing and distribution facility in Natchitoches Parish, Louisiana[82](index=82&type=chunk) - The APT segment utilizes all office, facilities, and mining properties[82](index=82&type=chunk)[83](index=83&type=chunk) - The company owns or controls approximately **4,425 acres of coal land** for surface mining, including 1,975 acres at the Five Forks Mine in Louisiana and 2,450 acres at the Marshall Mine in Texas, where mining ceased in 2020[84](index=84&type=chunk) [ITEM 3. Legal Proceedings](index=28&type=section&id=ITEM%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, with details in Note 14 of the Consolidated Financial Statements - The company is involved in various litigation matters arising in the ordinary course of business[85](index=85&type=chunk) - Information regarding legal proceedings can be found in Note 14 'Commitments and Contingencies' of the Consolidated Financial Statements[85](index=85&type=chunk) [ITEM 4. Mine Safety Disclosures](index=28&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures, as mandated by the Dodd-Frank Act, are provided in Exhibit 95 of this report - Mine safety disclosures are provided in Exhibit 95 of the report, as required by Section 1503(a) of the Dodd-Frank Act[86](index=86&type=chunk) [PART II](index=29&type=section&id=PART%20II) [ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=ITEM%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ADES common stock trades on Nasdaq with limited volume; dividends are suspended due to RC segment cessation, and a $7.0 million stock repurchase program remains - The company's common stock trades on the Nasdaq Global Market under 'ADES', with relatively limited trading volume[89](index=89&type=chunk) - The quarterly cash dividend program, which last paid in March 2020, is unlikely to resume in the foreseeable future due to the cessation of the cash-generating RC segment[90](index=90&type=chunk)[78](index=78&type=chunk) - As of February 25, 2022, there were approximately **900 holders of record** and an estimated **7,800 beneficial stockholders**[91](index=91&type=chunk) - The company has a Stock Repurchase Program with **$7.0 million remaining** as of December 31, 2021, but no repurchases were made during the three months ended December 31, 2021[91](index=91&type=chunk) [ITEM 6. Reserved](index=29&type=section&id=ITEM%206.%20Reserved) This item is reserved and contains no information - No unresolved staff comments were reported[82](index=82&type=chunk) [ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=ITEM%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A details the transition to a sole APT focus, 2021 revenue growth, strategic review, liquidity management, and a restatement due to a material weakness in internal controls - The RC segment, which generated substantial earnings and cash distributions, substantially ceased operations as of December 31, 2021, due to the expiration of the Section 45 tax credit period[94](index=94&type=chunk) - The APT segment, focused on AC and chemical-based purification solutions, is now the primary driver, with opportunities in industrial applications and water treatment[94](index=94&type=chunk) Total Revenues and Cost of Revenues (in thousands) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Consumables Revenues | $85,882 | $53,908 | $31,974 | 59% | | License royalties, related party | $14,368 | $13,440 | $928 | 7% | | Other Revenues | $44 | $15 | $29 | 193% | | **Total Revenues** | **$100,294**| **$67,363**| **$32,931**| **49%** | | Consumables cost of revenues, exclusive of depreciation and amortization | $65,576 | $50,962 | $14,614 | 29% | - Consumables revenue increased **59% year-over-year in 2021**, primarily due to higher product volumes (**$25.0 million**), increased coal-fired generation utilization, and expanded sales under the Cabot Supply Agreement[115](index=115&type=chunk) - The company recorded a **$3.3 million gain on extinguishment of debt in 2021** due to the forgiveness of its PPP Loan[130](index=130&type=chunk) - A material weakness in internal control over financial reporting was identified regarding the selection and application of accounting principles, leading to a restatement of previously reported revenues for shipping and handling costs[371](index=371&type=chunk)[238](index=238&type=chunk) [Overview of Operations](index=30&type=section&id=Overview) - The company operated two segments through December 31, 2021: Refined Coal (RC) and Advanced Purification Technologies (APT)[94](index=94&type=chunk) - The RC segment, comprising equity ownership in Tinuum Group and Tinuum Services, generated substantial earnings from Section 45 tax credits and technology royalties, but ceased operations as of December 31, 2021[94](index=94&type=chunk) - The APT segment, acquired in 2018, sells consumable AC and chemical-based products for purification solutions to coal-fired utilities, industrials, and water treatment plants, utilizing an associated lignite mine[94](index=94&type=chunk) [Review of Strategic Alternatives](index=30&type=section&id=Review%20of%20Strategic%20Alternatives) - In May 2021, the company initiated a strategic review process with Ducera Partners, LLC to assess alternatives for maximizing stockholder value[95](index=95&type=chunk) - There is no assurance that the review will result in any transaction or provide anticipated benefits, and the process is ongoing without a set timetable[95](index=95&type=chunk) [Drivers of Demand and Key Factors Affecting Profitability](index=30&type=section&id=Drivers%20of%20Demand%20and%20Key%20Factors%20Affecting%20Profitability) - Historically, RC segment earnings and cash distributions from Tinuum Group and M-45 Royalties were substantial, but these ceased with the Section 45 tax credit expiration[96](index=96&type=chunk) - APT segment demand is driven by consumables for coal-fired power generation, municipal water treatment, industrial customers, and sales through the Cabot Supply Agreement[96](index=96&type=chunk) - APT operating results are influenced by sales volumes, price/product mix, non-integrated supply chain inputs, and coal-fired dispatch/electricity generation sources[96](index=96&type=chunk) - In 2021, APT experienced significant demand increases, leading to purchases of AC product from third-party suppliers at higher costs to supplement Red River production[97](index=97&type=chunk) [Customer Supply Agreement](index=31&type=section&id=Customer%20Supply%20Agreement) - The 15-year Supply Agreement with Cabot Norit Americas, Inc., initiated in September 2020, provides **material incremental volume** and operating cost efficiencies at the Red River manufacturing plant[98](index=98&type=chunk) - This agreement has improved fixed cost absorption, increased gross margins, and expanded AC product distribution to diverse end markets[98](index=98&type=chunk) [Acquisition of Marshall Mine](index=31&type=section&id=Acquisition%20of%20Marshall%20Mine) - The company acquired Marshall Mine, LLC from Cabot in September 2020 for a nominal price, immediately commencing shuttering and incurring approximately **$23.3 million in Reclamation Costs** over 10 years[99](index=99&type=chunk) - Cabot is obligated to reimburse the company for approximately **$10.2 million of these Reclamation Costs**, payable semi-annually over 13 years[99](index=99&type=chunk) - A surety bond of **$16.6 million** was posted as of December 31, 2021, to ensure reclamation activities[100](index=100&type=chunk) - A gain on change in estimate of **$2.7 million** was recorded in 2021 due to scope reductions in estimated future reclamation requirements for the Marshall Mine[100](index=100&type=chunk) [Settlement with Former Customer](index=31&type=section&id=Settlement%20with%20Former%20Customer) - On December 29, 2020, the company reached a settlement with a former customer, receiving **$2.5 million in cash** on January 27, 2021[101](index=101&type=chunk) - This settlement resulted in a gain of **$1.1 million**, recognized as a reduction of operating expenses for the year ended December 31, 2020[102](index=102&type=chunk) [Impact of COVID-19](index=32&type=section&id=Impact%20of%20COVID-19) - The company followed COVID-19 guidelines, implementing remote work, employee sequestration, and health safety measures[103](index=103&type=chunk) - Payroll tax payments of **$0.4 million** were deferred under the CARES Act, with **$0.2 million repaid** by December 31, 2021, and the balance due by December 31, 2022[103](index=103&type=chunk) - Costs of **$0.4 million** were incurred in 2020 for employee sequestration at the Red River plant, but no similar costs in 2021[103](index=103&type=chunk) [Components of Revenue, Expenses and Equity Method Investees](index=32&type=section&id=Components%20of%20Revenue%2C%20Expenses%20and%20Equity%20Method%20Investees) - Revenues include Consumables (AC and chemical products) and License royalties (M-45 Technology from Tinuum Group, expected to cease after 2021)[105](index=105&type=chunk)[106](index=106&type=chunk) - Operating expenses include Payroll and benefits, Legal and professional fees, General and administrative (including R&D), and Depreciation, amortization, depletion and accretion[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - Other Income (Expense), net primarily includes Earnings from equity method investments (Tinuum Group and Tinuum Services) and other miscellaneous items[110](index=110&type=chunk)[111](index=111&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) - The company restated 'Revenues - Consumables' and 'Cost of revenues, excluding depreciation and amortization' for 2020 by **$5.8 million** to correctly classify shipping and handling costs as revenue[112](index=112&type=chunk) Total Revenues and Cost of Revenues (in thousands) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Consumables Revenues | $85,882 | $53,908 | $31,974 | 59% | | License royalties, related party | $14,368 | $13,440 | $928 | 7% | | Other Revenues | $44 | $15 | $29 | 193% | | **Total Revenues** | **$100,294**| **$67,363**| **$32,931**| **49%** | | Consumables cost of revenues, exclusive of depreciation and amortization | $65,576 | $50,962 | $14,614 | 29% | - Consumables revenue increased **59% in 2021**, driven by higher product volumes (**$25.0 million**), increased coal-fired generation due to higher natural gas prices, and sales under the Cabot Supply Agreement[115](index=115&type=chunk) - Gross margin increased in 2021 due to higher product volumes and price increases, but was negatively impacted by higher-cost third-party AC purchases to meet demand[115](index=115&type=chunk) Other Operating Expenses (in thousands) | Operating Expenses | 2021 | 2020 | Change ($) | Change (%) | | :---------------------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Payroll and benefits | $11,315 | $10,621 | $694 | 7% | | Legal and professional fees | $6,260 | $5,585 | $675 | 12% | | General and administrative | $7,060 | $8,228 | $(1,168) | (14)% | | Depreciation, amortization, depletion and accretion | $7,933 | $8,537 | $(604) | (7)% | | Gain on change in estimate, asset retirement obligation | $(2,702) | $0 | $(2,702) | * | | Impairment of long-lived assets | $0 | $26,103 | $(26,103) | (100)% | | Gain on settlement | $0 | $(1,129) | $1,129 | (100)% | | **Total Operating Expenses** | **$29,866**| **$57,945**| **$(28,079)**| **(48)%** | Other Income (Expense), net (in thousands) | Other Income (Expense) | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------------ | :-------- | :-------- | :--------- | :--------- | | Earnings from equity method investments | $68,726 | $30,978 | $37,748 | 122% | | Gain on extinguishment of debt | $3,345 | $0 | $3,345 | * | | Interest expense | $(1,490) | $(3,920) | $2,430 | (62)% | | Other | $640 | $132 | $508 | 385% | | **Total Other Income** | **$71,221**| **$27,190**| **$44,031**| **162%** | - Equity earnings from Tinuum Group increased by **$37.4 million (153%) in 2021**, primarily due to higher coal-fired power generation demand and higher production volume[128](index=128&type=chunk) - The company had **$86.1 million in Section 45 tax carryforwards** as of December 31, 2021, but their utilization could be limited by an 'ownership change' under IRC Section 382[131](index=131&type=chunk) - Income tax expense for 2021 was **$15.7 million (21% effective rate)**, while 2020 had **$6.5 million (47% inverse effective rate)** due to an increase in valuation allowance on deferred tax assets[133](index=133&type=chunk) [Non-GAAP Financial Measures](index=40&type=section&id=Non-GAAP%20Financial%20Measures) - The company provides non-GAAP measures like Consolidated EBITDA, Consolidated Adjusted EBITDA, and segment-specific EBITDAs to facilitate period-to-period comparisons and evaluate core operating results[137](index=137&type=chunk) - Consolidated Adjusted EBITDA increased from **$55.1 million in 2020 to $84.9 million in 2021**[140](index=140&type=chunk) Consolidated EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | 2021 | 2020 | | :---------------------------------------------------- | :-------- | :-------- | | Net income (loss) | $60,401 | $(20,302) | | Depreciation, amortization, depletion and accretion | $7,933 | $8,537 | | Amortization of Upfront Customer Consideration | $508 | $158 | | Interest expense, net | $1,164 | $3,793 | | Income tax expense | $15,672 | $6,511 | | **Consolidated EBITDA (loss)** | **$85,678**| **$(1,303)**| | Cash distributions from equity method investees | $74,026 | $62,441 | | Equity earnings | $(68,726) | $(30,978) | | Gain on extinguishment of debt | $(3,345) | $0 | | Gain on change in estimate, asset retirement obligation | $(2,702) | $0 | | Impairment | $0 | $26,103 | | Gain on settlement | $0 | $(1,129) | | **Consolidated Adjusted EBITDA** | **$84,931**| **$55,134**| [Business Segments](index=41&type=section&id=Business%20Segments) Segment Operating Income (Loss) (in thousands) | Segment | 2021 | 2020 | | :--------------------------------------- | :-------- | :--------- | | Refined Coal (RC) | $82,634 | $42,689 | | Advanced Purification Technologies (APT) | $5,649 | $(39,958) | | **Total Segment Operating Income** | **$88,283**| **$2,731** | - RC segment equity earnings from Tinuum Group increased in 2021 due to higher coal-fired power generation demand and production volume, and a higher average RC facility count[144](index=144&type=chunk) - APT segment operating income increased significantly in 2021 compared to 2020, primarily due to the **$26.1 million impairment charge recorded in 2020** and increased consumable revenues/gross margin from higher volumes and new customers[147](index=147&type=chunk) - The RC segment's equity earnings, distributions, and M-45 Royalties will substantially cease beginning in 2022, materially affecting consolidated operating results[145](index=145&type=chunk) - APT segment outlook for 2022 expects consistent demand from current customers and continued pursuit of diverse markets outside coal-fired power generation[148](index=148&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) - As of December 31, 2021, principal liquidity sources included **$88.8 million in cash, cash equivalents, and restricted cash**, and APT segment operations[152](index=152&type=chunk) - Liquidity in 2021 was positively affected by cash distributions from Tinuum Group and Tinuum Services, royalty payments, and line of credit availability, but RC distributions will no longer be a material source after 2021[153](index=153&type=chunk) Cash Distributions from Equity Method Investments (in thousands) | Investee | 2021 | 2020 | | :---------------- | :-------- | :-------- | | Tinuum Group | $65,224 | $53,289 | | Tinuum Services | $8,802 | $9,152 | | **Total** | **$74,026**| **$62,441**| - The company received **$3.3 million in PPP Loan forgiveness** on July 27, 2021, recorded as a gain on extinguishment of debt[157](index=157&type=chunk) - The Senior Term Loan of **$70.0 million** was fully repaid on June 1, 2021, prior to its maturity date, without prepayment fees[159](index=159&type=chunk) - The Line of Credit, with an aggregate principal amount of **$10.0 million** (reduced to $5.0 million in 2018), expired on December 31, 2021[162](index=162&type=chunk) Cash Flows Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | Change ($) | | :---------------------------------------------------- | :-------- | :-------- | :--------- | | Operating activities | $25,999 | $54,048 | $(28,049) | | Investing activities | $44,378 | $(7,466) | $51,844 | | Financing activities | $(17,529) | $(27,730) | $10,201 | | **Net change in Cash and Cash Equivalents and Restricted Cash** | **$52,848**| **$18,852**| **$33,996**| - Expected capital expenditures for 2022 are **$13.0 million**, up from $7.6 million in 2021, primarily for plant improvements and product-specific capital related to the Supply Agreement[169](index=169&type=chunk) Contractual Obligations (as of December 31, 2021, in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | | :------------------------------ | :------- | :--------------- | :-------- | :-------- | :------------ | | Finance lease obligations | $4,486 | $1,008 | $2,909 | $569 | $0 | | Operating lease obligations | $7,249 | $2,502 | $2,744 | $1,132 | $871 | | Reclamation liability, Marshall Mine | $7,631 | $2,104 | $2,885 | $1,231 | $1,411 | | **Total** | **$19,366**| **$5,614** | **$8,538**| **$2,932**| **$2,282** | [Critical Accounting Policies and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Critical accounting policies involve significant estimates and assumptions for business combinations (asset acquisitions), carrying value of long-lived assets and intangibles, asset retirement obligations (AROs), and income taxes[172](index=172&type=chunk) - Valuation of long-lived assets and intangibles for impairment uses an income approach (discounted future cash flows) or market approach[174](index=174&type=chunk) - AROs for Five Forks and Marshall Mines require estimates of future costs, timing of activities, and scope, which are periodically adjusted[175](index=175&type=chunk) - Income tax accounting involves judgment in determining deferred tax assets and liabilities, and assessing the need for valuation allowances based on future taxable income forecasts[176](index=176&type=chunk) [Recently Issued Accounting Standards](index=52&type=section&id=Recently%20Issued%20Accounting%20Standards) - The company intends to adopt ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), effective January 1, 2023, but does not believe it will have a material impact on financial statements[237](index=237&type=chunk) [ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=ITEM%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not required for smaller reporting companies, so no information is provided - Information under this Item is not required to be provided by smaller reporting companies[180](index=180&type=chunk) [ITEM 8. Financial Statements and Supplementary Data](index=54&type=section&id=ITEM%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, including balance sheets, statements of operations, equity changes, cash flows, and detailed notes - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Changes in Stockholders' Equity, and Cash Flows for 2021 and 2020[182](index=182&type=chunk) - The financial statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP)[185](index=185&type=chunk) - Notes to Consolidated Financial Statements provide detailed information on significant accounting policies, restatement, customer supply agreements, Marshall Mine acquisition, equity method investments, debt obligations, leases, revenues, commitments, stockholders' equity, stock-based compensation, income taxes, and business segments[206](index=206&type=chunk)[238](index=238&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[254](index=254&type=chunk)[271](index=271&type=chunk)[275](index=275&type=chunk)[277](index=277&type=chunk)[281](index=281&type=chunk)[290](index=290&type=chunk)[300](index=300&type=chunk)[306](index=306&type=chunk)[312](index=312&type=chunk)[322](index=322&type=chunk)[331](index=331&type=chunk)[341](index=341&type=chunk) [Report of Independent Registered Public Accounting Firm](index=55&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - Moss Adams LLP issued an unqualified opinion on the consolidated financial statements for 2021 and 2020, stating they present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with GAAP[185](index=185&type=chunk) - A critical audit matter identified was the realizability of deferred tax assets, due to significant management judgments and estimates regarding sufficient taxable income generation prior to expiration[189](index=189&type=chunk)[190](index=190&type=chunk)[192](index=192&type=chunk) [Consolidated Balance Sheets](index=58&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :--------------------------- | :---------------- | :---------------- | | Total Assets | $185,436 | $146,671 | | Total Liabilities | $38,135 | $61,461 | | Total Stockholders' Equity | $147,301 | $85,210 | | Cash, cash equivalents and restricted cash | $78,753 | $30,932 | | Current Liabilities | $22,621 | $42,543 | - Total assets increased by **$38.7 million**, and total stockholders' equity increased by **$62.1 million** from 2020 to 2021[195](index=195&type=chunk) [Consolidated Statements of Operations](index=59&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 2021 | 2020 | | :------------------------------------------------------------------- | :-------- | :-------- | | Total revenues | $100,294 | $67,363 | | Total operating expenses | $95,442 | $108,344 | | Operating income (loss) | $4,852 | $(40,981) | | Total other income | $71,221 | $27,190 | | Income (loss) before income tax expense | $76,073 | $(13,791) | | Income tax expense | $15,672 | $6,511 | | Net income (loss) | $60,401 | $(20,302) | | Basic Earnings (loss) per common share | $3.31 | $(1.12) | | Diluted Earnings (loss) per common share | $3.27 | $(1.12) | - The company reported a net income of **$60.4 million in 2021**, a significant improvement from a net loss of **$20.3 million in 2020**[197](index=197&type=chunk) - Total revenues increased by **49% in 2021**, while total operating expenses decreased by **12%** due to the absence of a $26.1 million impairment charge in 2021[197](index=197&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=60&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Consolidated Statements of Changes in Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :----------------------------------- | :---------------- | :---------------- | | Total Stockholders' Equity | $147,301 | $85,210 | | Additional Paid-in Capital | $102,106 | $100,425 | | Retained Earnings | $92,864 | $32,454 | | Stock-based compensation | $1,927 | $2,496 | | Net income (loss) | $60,401 | $(20,302) | - Total stockholders' equity increased by **$62.1 million in 2021**, primarily driven by net income of **$60.4 million**[199](index=199&type=chunk) [Consolidated Statements of Cash Flows](index=61&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 2021 | 2020 | | :---------------------------------------------------- | :-------- | :-------- | | Net cash provided by operating activities | $25,999 | $54,048 | | Net cash provided by (used in) investing activities | $44,378 | $(7,466) | | Net cash used in financing activities | $(17,529) | $(27,730) | | **Net change in Cash, Cash Equivalents and Restricted Cash** | **$52,848**| **$18,852**| - Cash, cash equivalents, and restricted cash increased by **$52.8 million in 2021**, reaching **$88.8 million** at year-end[163](index=163&type=chunk)[203](index=203&type=chunk) - Cash provided by investing activities significantly increased in 2021 due to **$51.1 million in distributions** from equity earnings in excess of cumulative earnings[165](index=165&type=chunk)[203](index=203&type=chunk) - Cash used in financing activities decreased in 2021 due to lower principal payments on the Senior Term Loan and reduced dividends/share repurchases, partially offset by the absence of PPP Loan proceeds[166](index=166&type=chunk)[203](index=203&type=chunk) [Notes to Consolidated Financial Statements](index=63&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1 - Summary of Operations and Significant Accounting Policies](index=63&type=section&id=Note%201%20-%20Summary%20of%20Operations%20and%20Significant%20Accounting%20Policies) - The company's primary business is selling consumable air and water treatment options, including activated carbon (AC) and chemical technologies, through its APT segment[206](index=206&type=chunk) - The RC segment, which generated earnings from Section 45 tax credits through Tinuum Group and Tinuum Services, ceased operations as of December 31, 2021, due to the program's expiration[206](index=206&type=chunk) - The company consolidates wholly-owned subsidiaries and Variable Interest Entities (VIEs) where it is the primary beneficiary, and uses the equity method for partially owned entities with significant influence[207](index=207&type=chunk) - Key accounting estimates include business combinations, carrying value of long-lived assets, asset retirement obligations (AROs), and income taxes[234](index=234&type=chunk) - Revenue from consumable products is recognized at the point of transfer of control (shipment or delivery), while license royalties are recognized based on the use of M-45 Technology[219](index=219&type=chunk)[221](index=221&type=chunk) [Note 2 - Restatement](index=70&type=section&id=Note%202%20-%20Restatement) - The company restated its 2020 financial statements to reclassify shipping and handling costs billed to customers from a reduction of consumables cost of revenues to a component of consumables revenue[238](index=238&type=chunk) - This restatement increased both 'Revenues - Consumables' and 'Consumables cost of revenues, exclusive of depreciation and amortization' by **$5.8 million for 2020**, with no impact on net income or loss per share[238](index=238&type=chunk)[241](index=241&type=chunk) [Note 3 - Customer Supply Agreement](index=71&type=section&id=Note%203%20-%20Customer%20Supply%20Agreement) - The company entered a 15-year Supply Agreement with Cabot Norit Americas, Inc. on September 30, 2020, to sell lignite-based AC products (Furnace Products)[242](index=242&type=chunk) - Cabot reimburses the company for certain capital expenditures incurred to manufacture Furnace Products, categorized as 'Shared Capital' (benefiting both parties) and 'Specific Capital' (benefiting Cabot exclusively)[242](index=242&type=chunk) [Note 4 - Acquisition of Marshall Mine](index=71&type=section&id=Note%204%20-%20Acquisition%20of%20Marshall%20Mine) - The company acquired Marshall Mine, LLC from Cabot on September 30, 2020, for a nominal price, immediately commencing reclamation activities[243](index=243&type=chunk) - A Reclamation Contract with a third party established capped costs of approximately **$23.3 million** for reclamation over 10 years, with Cabot obligated to reimburse **$10.2 million**[243](index=243&type=chunk) - A **$16.6 million surety bond** was posted for reclamation, and **$10.0 million in cash collateral** was posted for Reclamation Contract obligations as of December 31, 2021[243](index=243&type=chunk)[244](index=244&type=chunk) - The acquisition was accounted for as an asset acquisition, with the excess of assumed liabilities over acquired assets recognized as Upfront Customer Consideration, amortized as a reduction to revenue over the 15-year Supply Agreement term[244](index=244&type=chunk) [Note 5 - Marshall Mine Asset Retirement Obligation and related Cabot Receivable](index=73&type=section&id=Note%205%20-%20Marshall%20Mine%20Asset%20Retirement%20Obligation%20and%20related%20Cabot%20Receivable) - The Marshall Mine Asset Retirement Obligation (ARO) was initially recorded at **$21.3 million**, based on estimated future cash flows of **$23.7 million** discounted at 7.0%[249](index=249&type=chunk) - A gain on change in estimate of **$2.7 million** was recorded in 2021 due to revisions in estimated future reclamation obligations[249](index=249&type=chunk) - The Cabot Receivable for Reclamation Reimbursement was recorded at its estimated fair value of **$9.7 million**, reflecting a 1.5% discount rate, with no allowance for doubtful accounts deemed necessary[250](index=250&type=chunk) [Note 6 - Impairment](index=74&type=section&id=Note%206%20-%20Impairment) - As of June 30, 2020, the company recorded an impairment charge of **$26.1 million**, solely attributable to its APT segment's long-lived assets (manufacturing plant and lignite mine assets)[252](index=252&type=chunk) - The impairment was triggered by a significant decline in APT segment revenues and forecasted revenues, driven by low alternative power generation prices[252](index=252&type=chunk) - The fair value of the Asset Group was estimated at **$32.2 million**, resulting in the **$26.1 million write-down**[252](index=252&type=chunk) [Note 7 - COVID-19](index=74&type=section&id=Note%207%20-%20COVID-19) - The company received formal notification on July 27, 2021, that the SBA approved forgiveness of its **$3.3 million PPP Loan** (including accrued interest)[254](index=254&type=chunk) - A gain on extinguishment of the PPP Loan in the amount of **$3.3 million** was recorded in the Consolidated Statement of Operations for 2021[254](index=254&type=chunk) - The company deferred **$0.4 million in payroll tax payments** under the CARES Act, with **$0.2 million repaid in 2021** and the balance due by December 31, 2022[254](index=254&type=chunk) [Note 8 - Equity Method Investments](index=74&type=section&id=Note%208%20-%20Equity%20Method%20Investments) - The company held **42.5% ownership in Tinuum Group** and **50% in Tinuum Services** as of December 31, 2021, accounted for under the equity method[255](index=255&type=chunk)[262](index=262&type=chunk) - Tinuum Group's primary purpose was to operate facilities producing refined coal (RC) qualifying for Section 45 tax credits, which expired December 31, 2021[255](index=255&type=chunk) Equity Earnings from Tinuum Group and Tinuum Services (in thousands) | Investee | 2021 | 2020 | | :---------------- | :-------- | :-------- | | Tinuum Group | $61,837 | $24,396 | | Tinuum Services | $6,952 | $6,582 | | Loss from other | $(63) | $0 | | **Total Earnings**| **$68,726**| **$30,978**| - The company recognized **$61.8 million in equity earnings from Tinuum Group in 2021**, exceeding its pro-rata share due to cash distributions exceeding the investment's carrying value[258](index=258&type=chunk) - The carrying amount of the investment in Tinuum Services was written down by **$0.7 million in 2021** due to expected minimal future cash distributions as operations shutter[266](index=266&type=chunk) [Note 9 - Inventories, net](index=78&type=section&id=Note%209%20-%20Inventories%2C%20net) Inventories, net (in thousands) | Inventory Type | December 31, 2021 | December 31, 2020 | | :--------------------- | :---------------- | :---------------- | | Product inventory | $4,901 | $8,361 | | Raw material inventory | $2,949 | $1,521 | | **Total Inventories, net** | **$7,850** | **$9,882** | - Inventories are stated at the lower of average cost or net realizable value and consist principally of raw materials and finished goods for AC and chemical products[210](index=210&type=chunk) [Note 10 - Property, Plant and Equipment](index=79&type=section&id=Note%2010%20-%20Property%2C%20Plant%20and%20Equipment) Property, Plant and Equipment, net (in thousands) | Asset Category | December 31, 2021 | December 31, 2020 | | :--------------------------------- | :---------------- | :---------------- | | Land and land improvements | $1,225 | $891 | | Plant and operating equipment | $31,266 | $25,703 | | Furniture and fixtures | $1,388 | $1,259 | | Machinery and equipment | $697 | $688 | | Leasehold improvements | $2,089 | $2,089 | | Construction in progress | $1,190 | $2,143 | | Less accumulated depreciation | $(7,684) | $(3,340) | | **Total property, plant and equipment, net** | **$30,171** | **$29,433** | - Depreciation expense for 2021 was **$5.5 million**, down from $6.8 million in 2020[276](index=276&type=chunk) - ROU assets related to finance lease obligations were **$1.7 million** (net of $1.1 million accumulated depreciation) as of December 31, 2021[276](index=276&type=chunk) [Note 11 - Debt Obligations](index=79&type=section&id=Note%2011%20-%20Debt%20Obligations) Debt Obligations (in thousands) | Debt Type | December 31, 2021 | December 31, 2020 | | :-------------------------------------- | :---------------- | :---------------- | | Finance lease obligations | $4,163 | $5,526 | | Senior Term Loan principal, related party | $0 | $16,000 | | PPP Loan | $0 | $3,305 | | **Total borrowings** | **$4,163** | **$23,886** | | Less: Current maturities | $(1,011) | $(18,441) | | **Total long-term borrowings** | **$3,152** | **$5,445** | - The Senior Term Loan of **$16.0 million** outstanding in 2020 was fully repaid on June 1, 2021[278](index=278&type=chunk) - The Line of Credit, with a principal amount of **$5.0 million**, expired on December 31, 2021, with no outstanding borrowings[280](index=280&type=chunk) [Note 12 - Leases](index=80&type=section&id=Note%2012%20-%20Leases) Lease Liabilities and ROU Assets (in thousands) | Lease Type / Metric | December 31, 2021 | December 31, 2020 | | :------------------------------------------------ | :---------------- | :---------------- | | Operating lease right-of-use assets, net | $6,000 | $1,930 | | Total operating lease obligation | $6,335 | $2,992 | | Finance lease right-of-use assets, net | $1,743 | $2,385 | | Total finance lease obligations | $4,163 | $5,526 | - Total lease cost for 2021 was **$5.05 million**, down from $6.44 million in 2020[286](index=286&type=chunk) - Weighted-average remaining lease terms are **2.9 years for finance leases** and **4.3 years for operating leases** as of December 31, 2021[286](index=286&type=chunk) [Note 13 - Revenues](index=82&type=section&id=Note%2013%20-%20Revenues) Trade Receivables, net (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :---------------------- | :---------------- | :---------------- | | Trade receivables | $10,476 | $12,241 | | Less: Allowance for doubtful accounts | $0 | $(37) | | **Trade receivables, net**| **$10,476** | **$12,204** | Cabot Receivable (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :---------------------- | :---------------- | :---------------- | | Receivables, net | $2,146 | $921 | | Other long-term assets, net | $6,846 | $8,852 | | **Total Cabot Receivable**| **$8,992** | **$9,773** | - Upfront Customer Consideration of **$7.6 million**, related to the Marshall Mine acquisition, is amortized as a reduction to revenue over the 15-year Supply Agreement term[294](index=294&type=chunk) Disaggregation of Revenue and Equity Earnings by Segment (2021, in thousands) | Revenue Component / Segment | APT | RC | Total | | :-------------------------- | :-------- | :-------- | :-------- | | Consumables | $85,882 | $0 | $85,882 | | License royalties, related party | $0 | $14,368 | $14,368 | | Other | $44 | $0 | $44 | | Revenues from customers | $85,926 | $14,368 | $100,294 | | Earnings from equity method investments | $0 | $68,726 | $68,726 | | **Total** | **$85,926**| **$83,094**| **$169,020**| [Note 14 - Commitments and Contingencies](index=83&type=section&id=Note%2014%20-%20Commitments%20and%20Contingencies) - The company is involved in various legal actions, recording liabilities when a loss is probable and estimable[300](index=300&type=chunk) - Long-term restricted cash of **$10.0 million** was held as of December 31, 2021, related to the Marshall Mine Reclamation Contract surety agreement[303](index=303&type=chunk) - Outstanding surety bonds totaled **$24.1 million** as of December 31, 2021, for reclamation contracts at Five Forks Mine and Marshall Mine[304](index=304&type=chunk) - The company has limited guarantee obligations related to Tinuum Group, but no liability has been recorded as a loss is not deemed probable[305](index=305&type=chunk) [Note 15 - Stockholders' Equity](index=84&type=section&id=Note%2015%20-%20Stockholders%27%20Equity) - The company has authorized common stock and preferred stock, with no preferred stock outstanding as of December 31, 2021[307](index=307&type=chunk) - Holders of common stock are entitled to one vote per share and receive dividends when declared by the Board[308](index=308&type=chunk) - The Stock Repurchase Program had **$7.0 million remaining** as of December 31, 2021, with no repurchases made in 2021[309](index=309&type=chunk) - The Tax Asset Protection Plan (TAPP), extended to December 31, 2022, deters beneficial ownership of **4.99% or more of common stock** to protect the company's ability to utilize net operating losses and tax credits[311](index=311&type=chunk) [Note 16 - Stock-Based Compensation](index=85&type=section&id=Note%2016%20-%20Stock-Based%20Compensation) - The 2017 Omnibus Incentive Plan authorizes grants of awards to employees, directors, and non-employees, with **644,540 shares authorized** for issuance as of December 31, 2021[312](index=312&type=chunk) Stock-Based Compensation Expense (in thousands) | Expense Type | 2021 | 2020 | | :--------------------------- | :-------- | :-------- | | RSA expense | $1,816 | $2,304 | | PSU expense | $111 | $192 | | **Total stock-based compensation expense** | **$1,927**| **$2,496**| - Unrecognized compensation cost as of December 31, 2021, totaled **$2.24 million**, with a weighted-average recognition period of **1.62 years**[315](index=315&type=chunk) - Restricted Stock Awards (RSAs) granted in 2021 had a weighted-average fair value of **$5.54**, and Performance Share Units (PSUs) outstanding at year-end 2021 totaled **88,026 units**[317](index=317&type=chunk)[321](index=321&type=chunk) [Note 17 - Supplemental Financial Information](index=87&type=section&id=Note%2017%20-%20Supplemental%20Financial%20Information) Other Long-Term Assets (in thousands) | Asset Category | December 31, 2021 | December 31, 2020 | | :----------------------------------- | :---------------- | :---------------- | | Upfront customer consideration | $6,982 | $7,490 | | Cabot receivable | $6,846 | $8,852 | | Right of use assets, operating leases, net | $6,000 | $1,930 | | Spare parts, net | $4,598 | $3,727 | | Mine development costs, net | $5,330 | $4,338 | | Mine reclamation asset, net | $1,742 | $1,712 | | Highview investment | $552 | $552 | | Other long-term assets | $1,193 | $1,388 | | **Total Other long-term assets** | **$33,243** | **$29,989** | Other Current and Long-Term Liabilities (in thousands) | Liability Category | December 31, 2021 | December 31, 2020 | | :----------------------------------- | :---------------- | :---------------- | | Current portion of operating lease obligations | $2,157 | $1,883 | | Current portion of mine reclamation liability | $1,775 | $9,370 | | Operating lease obligations, long-term | $4,178 | $1,109 | | Mine reclamation liabilities | $8,184 | $12,077 | - The company recognized a **$1.1 million gain on settlement** with a former customer in 2020 and a **$2.7 million gain on change in estimate** for the Marshall Mine ARO in 2021[327](index=327&type=chunk)[328](index=328&type=chunk) Interest Expense Components (in thousands) | Component | 2021 | 2020 | | :------------------------------ | :-------- | :-------- | | Interest on Senior Term Loan | $206 | $1,708 | | Debt discount and debt issuance costs | $945 | $1,418 | | 453A interest | $13 | $331 | | Other | $326 | $463 | | **Total Interest expense** | **$1,490**| **$3,920**| [Note 18 - Income Taxes](index=89&type=section&id=Note%2018%20-%20Income%20Taxes) Income Tax Expense (in thousands) | Component | 2021 | 2020 | | :-------------------------------------- | :-------- | :-------- | | Current portion of income tax expense | $5,067 | $3,020 | | Deferred portion of income tax expense (benefit) | $10,605 | $3,491 | | **Total income tax expense** | **$15,672**| **$6,511**| | Effective tax rate | 21% | (47)% | - The effective tax rate for 2021 was **21%**, aligning with the U.S. federal statutory rate, while 2020 had an inverse rate of **(47%)** due to an increase in the valuation allowance[333](index=333&type=chunk) Deferred Tax Assets and Liabilities (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :----------------------------------- | :---------------- | :---------------- | | Total deferred tax assets | $99,445 | $108,813 | | Less valuation allowance | $(87,468) | $(88,758) | | Deferred tax assets | $11,977 | $20,055 | | Total deferred tax liabilities | $(11,977) | $(9,451) | | **Net deferred tax assets** | **$0** | **$10,604** | - As of December 31, 2021, the company concluded it is more likely than not that it will not generate sufficient taxable income to realize any of its net deferred tax assets, resulting in a **100% valuation allowance**[337](index=337&type=chunk) - The company has **$86.1 million in federal tax credit carryforwards** expiring between 2032 and 2040[338](index=338&type=chunk) [Note 19 - Business Segment Information](index=91&type=section&id=Note%2019%20-%20Business%20Segment%20Information) - The company has two reportable segments: Refined Coal (RC) and Advanced Purification Technologies (APT)[341](index=341&type=chunk) Segment Reporting Revenues (in thousands) | Segment | 2021 | 2020 | | :--------------------------------------- | :-------- | :-------- | | Refined Coal | $83,094 | $44,418 | | Advanced Purification Technologies | $85,926 | $53,923 | | **Total segment reporting revenues** | **$169,020**| **$98,341**| Segment Operating Income (Loss) (in thousands) | Segment | 2021 | 2020 | | :--------------------------------------- | :-------- | :--------- | | Refined Coal | $82,634 | $42,689 | | Advanced Purification Technologies | $5,649 | $(39,958) | | **Total segment operating income** | **$88,283**| **$2,731** | - The APT segment's operating income in 2020 included a **$26.1 million impairment charge** and a **$1.1 million gain on settlement**[343](index=343&type=chunk) Segment Assets (in thousands) | Segment | December 31, 2021 | December 31, 2020 | | :--------------------------------------- | :---------------- | :---------------- | | Refined Coal | $4,884 | $11,516 | | Advanced Purification Technologies | $83,516 | $80,877 | | Corporate | $97,036 | $54,278 | | **Consolidated** | **$185,436** | **$146,671** | [Note 20 - Fair Value Measurements](index=93&type=section&id=Note%2020%20-%20Fair%20Value%20Measurements) - The carrying amounts of most financial instruments (cash, receivables, payables) approximate their fair values due to short matu

Financial Performance - For the three months ended September 30, 2021, the company recognized net income of $24.3 million, compared to net income of $5.0 million for the same period in 2020, representing a significant increase [129]. - Total revenues for the three months ended September 30, 2021, were $28.854 million, an increase of 48% from $19.471 million in the same period of 2020 [130]. - Total revenues for the nine months ended September 30, 2021 were $69,584,000, a 61% increase from $43,217,000 in the same period in 2020 [150]. - Total other income increased by $16,881,000, totaling $25,535,000 for the three months ended September 30, 2021, a 195% increase compared to the same period in 2020 [142]. - Consolidated EBITDA for the nine months ended September 30, 2021, was $76.3 million, compared to a loss of $10.6 million in the same period of 2020 [170]. - Consolidated Adjusted EBITDA for the nine months ended September 30, 2021, was $75.8 million, compared to $31.7 million in the same period of 2020 [170]. Revenue Sources - Consumables revenues increased by 56% to $24.689 million for the three months ended September 30, 2021, driven by higher product volumes and favorable pricing mix [132]. - Consumables revenues increased by $24,465,000, totaling $57,696,000 for the nine months ended September 30, 2021, a 74% increase compared to the prior year [150]. - The APT segment includes revenues from the sale of AC and chemical products, which are used to purify coal-fired utilities and other markets [172]. - The APT segment operating income for the three months ended September 30, 2021, was $4,591,000, compared to a loss of $3,280,000 in the same period of 2020 [185]. Expenses and Costs - Payroll and benefits expenses increased by $0.4 million due to Retention Agreements, despite a headcount reduction of approximately $0.1 million, resulting in a total of $2,637,000 for the three months ended September 30, 2021, a 15% increase from the prior year [135]. - Legal and professional fees decreased by $0.2 million, totaling $1,106,000 for the three months ended September 30, 2021, a 16% decrease compared to the same period in 2020 [137]. - General and administrative expenses decreased by $0.1 million, totaling $1,715,000 for the three months ended September 30, 2021, a 10% decrease from the prior year [138]. - Depreciation, amortization, depletion, and accretion expenses increased by $0.4 million, totaling $2,145,000 for the three months ended September 30, 2021, a 21% increase compared to the same period in 2020 [139]. - Interest expense decreased by $1.6 million to $1.4 million for the nine months ended September 30, 2021, primarily due to a reduction in the principal balance of the Senior Term Loan [166]. Investments and Equity - Earnings from equity method investments increased by $12,677,000, totaling $22,195,000 for the three months ended September 30, 2021, a 133% increase from the prior year [142]. - Earnings from equity method investments for the three months ended September 30, 2021, were $22,195,000, a significant increase of 132.6% compared to $9,518,000 in the same quarter of 2020 [177]. - The company recognized $55.5 million in equity earnings from Tinuum Group for the nine months ended September 30, 2021, compared to $20.5 million in the same period of 2020 [164]. - Cash distributions from equity method investees for the nine months ended September 30, 2021, totaled $66,751,000, an increase from $42,228,000 in the same period of 2020 [181]. Future Outlook - The company expects earnings and distributions from its RC segment to substantially cease as of December 31, 2021, due to the winding down of Tinuum Group's operations [122]. - The company expects a material adverse effect on financial condition and consolidated operating results beginning in 2022 due to the wind-down of Tinuum Group and Tinuum Services operations [180]. - Future cash flows from Tinuum are expected to range from $12 million to $14 million, driven by 16 invested facilities as of September 30, 2021 [188]. - The company is focusing on growth in target APT markets, including water purification, food and beverage, and pharmaceuticals, with potential size and demand being evaluated [206]. Cash Flow and Capital Expenditures - Cash and cash equivalents increased from $35.9 million as of December 31, 2020 to $82.1 million as of September 30, 2021, with a net change of $46.2 million [197]. - Cash flows provided by operating activities decreased by $10.2 million to $24.7 million for the nine months ended September 30, 2021 compared to $34.9 million for the same period in 2020 [199]. - Cash flows from investing activities increased by $44.5 million primarily from distributions from equity earnings in excess of cumulative earnings [200]. - For 2021, capital expenditures are expected to be $9.8 million, up from $7.1 million in 2020, primarily due to product-specific capital related to the Supply Agreement [196]. Regulatory and Market Conditions - The company anticipates the expiration of the IRC Section 45 tax credit period in 2021, which may lead to a wind down of the business and loss of revenue from Tinuum Group and Tinuum Services [206]. - The company is facing increasing competition in the APT market, which could affect market share and pricing strategies [206]. - There is an expectation of increased pricing for APT products, which may impact revenue and market positioning [206]. Legal and Compliance - The company is involved in ongoing litigation and claims related to its business operations, as detailed in the financial statements [213]. - The company has not reported any changes in internal control over financial reporting that materially affect its operations during the fiscal quarter ended September 30, 2021 [211]. - The effectiveness of the company's disclosure controls and procedures was confirmed as effective as of September 30, 2021 [210].