Advanced Emissions Solutions(ADES) - 2022 Q2 - Quarterly Report

Revenue and Earnings - For the three months ended June 30, 2022, total revenues increased to $24.7 million, a 17$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$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$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$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].