Arq(ARQ) - 2019 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2019 Condensed Consolidated Balance Sheets Total assets significantly increased, primarily driven by a large increase in equity method investments, while liabilities slightly decreased and total stockholders' equity rose substantially Condensed Consolidated Balance Sheets (as of March 31, 2019 and December 31, 2018) | (in thousands) | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $56,219 | $59,776 | | Total Assets | $193,811 | $159,664 | | Total current liabilities | $39,825 | $40,719 | | Total Liabilities | $87,895 | $91,717 | | Total stockholders' equity | $105,916 | $67,947 | Condensed Consolidated Statements of Operations Total revenues surged, and strong equity investment earnings led to a significant net income and increased diluted EPS Condensed Consolidated Statements of Operations (Three Months Ended March 31) | (in thousands, except per share data) | 2019 | 2018 | | :--- | :--- | :--- | | Total revenues | $19,329 | $3,899 | | Operating loss | $(3,555) | $(1,712) | | Earnings from equity method investments | $21,690 | $12,253 | | Net income | $14,402 | $7,662 | | Diluted EPS | $0.78 | $0.37 | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly improved, with overall cash increasing despite investing and financing outflows Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,018 | $139 | | Net cash (used in) provided by investing activities | $(2,072) | $10,976 | | Net cash used in financing activities | $(11,853) | $(7,051) | | Increase in Cash and Cash Equivalents | $2,093 | $4,064 | Notes to Condensed Consolidated Financial Statements The notes detail the basis of presentation, Carbon Solutions acquisition, ASC 842 adoption, equity method investments, debt obligations, and segment performance - The company's operations are principally engaged in consumable mercury control options, including powdered activated carbon (PAC) It generates substantial earnings from its equity investments in entities like Tinuum Group, which produce refined coal qualifying for Section 45 tax credits[20] - On December 7, 2018, the company acquired 100% of ADA Carbon Solutions, a manufacturer of activated carbon, to expand its product offerings in the mercury control industry[21] - The company adopted the new lease accounting standard (ASC 842) on January 1, 2019, resulting in the recognition of $7.0 million in "right of use" assets and corresponding lease liabilities[34][35] - The company's investment in Tinuum Group is a significant source of earnings For Q1 2019, ADES's equity earnings from Tinuum Group were $19.8 million As of March 31, 2019, the carrying value of the investment was $40.2 million[47][48][49] - The company entered into a $70.0 million Senior Term Loan in December 2018 to fund the Carbon Solutions Acquisition The loan has a 36-month term with quarterly principal payments of $6.0 million, which began in March 2019[59] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2019 results to Refined Coal segment performance and the Carbon Solutions acquisition, detailing revenue growth, expenses, and liquidity Q1 2019 vs Q1 2018 Revenue Comparison | (in thousands) | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Consumables | $15,109 | $621 | $14,488 | 2,333% | | License royalties, related party | $4,220 | $3,230 | $990 | 31% | | Total revenues | $19,329 | $3,899 | $15,430 | 396% | - The significant increase in Consumables revenue and cost of revenue is primarily due to the inclusion of Carbon Solutions' operations following its acquisition Consumables cost of revenue in Q1 2019 was negatively impacted by a $3.6 million step-up in inventory fair value from the acquisition[136][137] - Earnings from equity method investments increased by 77% to $21.7 million, primarily due to Tinuum Group completing a sale of an RC facility in Q1 2019 and adopting new revenue recognition standards[146][147] Consolidated EBITDA Reconciliation (Non-GAAP) | (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net income | $14,402 | $7,662 | | Depreciation, amortization, etc. | $2,102 | $116 | | Interest expense, net | $2,034 | $336 | | Income tax expense | $1,699 | $2,569 | | Consolidated EBITDA | $20,237 | $10,683 | - Future cash flows from Tinuum through 2021 are expected to range from $200 to $225 million, based on 20 invested facilities and other key assumptions[177] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Advanced Emissions Solutions, Inc. is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide disclosures about market risk[205] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with ongoing integration of Carbon Solutions' internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[206] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls, other than those related to the integration of the newly acquired Carbon Solutions[207] PART II - OTHER INFORMATION Legal Proceedings The company states that no legal proceedings, individually or in aggregate, are currently considered material - As of the filing date, the company is not involved in any legal proceedings that are considered material[210] Risk Factors No material updates to the company's risk factors were reported compared to the 2018 Form 10-K - No material changes to the risk factors disclosed in the 2018 Form 10-K were reported[211] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities for Q1 2019, including shares purchased and average price Issuer Purchases of Equity Securities (Q1 2019) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | January 2019 | 54,053 | $10.83 | | February 2019 | 801 | $11.26 | | March 2019 | 9,022 | $10.97 | | Total | 63,876 | $10.86 | Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[214] Mine Safety Disclosures Mine safety disclosures required by the Dodd-Frank Act are included in Exhibit 95 of this report - Mine safety disclosures required by Section 1503(a) of the Dodd-Frank Act are included in Exhibit 95[215] Other Information The company reported no information for this item - None[216] Exhibits This section lists the exhibits filed with the quarterly report, including key amendments, certifications, and disclosures - The report includes several exhibits, such as: - Second Amendment to Tax Asset Protection Plan (Exhibit 4.1) - CEO and CFO Certifications (Exhibits 31.1, 31.2, 32.1) - Mine Safety Disclosure (Exhibit 95) - XBRL data files (Exhibit 101 series)[218]