Arq(ARQ) - 2020 Q3 - Quarterly Report

PART I. - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | September 30, 2020 | December 31, 2019 | | :--------------- | :----------------- | :---------------- | | Total Assets | $155,654 | $173,799 | | Total Liabilities| $71,304 | $65,507 | | Total Stockholders' Equity | $84,350 | $108,292 | Condensed Consolidated Statements of Operations Net Income (Loss) (in thousands) | Period | 2020 | 2019 | Change ($) | Change (%) | | :----------------------- | :--------- | :--------- | :--------- | :--------- | | Three Months Ended Sep 30| $4,975 | $3,923 | $1,052 | 26.8% | | Nine Months Ended Sep 30 | $(20,732) | $26,439 | $(47,171) | -178.4% | Total Revenues (in thousands) | Period | 2020 | 2019 | Change ($) | Change (%) | | :----------------------- | :--------- | :--------- | :--------- | :--------- | | Three Months Ended Sep 30| $19,471 | $19,133 | $338 | 1.8% | | Nine Months Ended Sep 30 | $43,217 | $54,039 | $(10,822) | -20.0% | - The Company recorded an impairment of long-lived assets of $26,103 thousand for the nine months ended September 30, 2020, compared to $0 in the prior year[12] Condensed Consolidated Statements of Changes in Stockholders' Equity Total Stockholders' Equity (in thousands) | Date | Amount | | :----------------- | :--------- | | January 1, 2020 | $108,292 | | September 30, 2020 | $84,350 | - Cash dividends paid for the nine months ended September 30, 2020, totaled $(4,956) thousand[19] Condensed Consolidated Statements of Cash Flows Cash Flows Summary (in thousands) | (in thousands) | 2020 | 2019 | Change ($) | | :------------------------------------------------ | :-------- | :-------- | :--------- | | Cash flows from operating activities | $34,918 | $47,598 | $(12,680) | | Cash flows from investing activities | $(5,602) | $(9,174) | $3,572 | | Cash flows from financing activities | $(21,367) | $(42,041) | $20,674 | | Increase (decrease) in Cash and Cash Equivalents and Restricted Cash | $7,949 | $(3,617) | $11,566 | Notes to Condensed Consolidated Financial Statements Note 1 - Basis of Presentation - Advanced Emissions Solutions, Inc. (ADES) is engaged in the sale of consumable air and water treatment options, including activated carbon (AC) and chemical technologies, and generates substantial earnings through equity ownership in Tinuum Group and Tinuum Services, which produce refined coal (RC) qualifying for Section 45 tax credits[21][22] - The ability to generate Section 45 tax credits related to Tinuum's RC facilities expires in 2021, posing a significant adverse impact risk on Tinuum Group's and the Company's financial position, results of operations, and cash flows[36] - Low natural gas prices and demand for electricity affect coal consumption, thereby reducing demand for the Company's products and impacting revenues, sales volumes, earnings, and cash flows[38] Note 2 - Customer Supply Agreement - The Company signed a 15-year supply agreement with Cabot Norit Americas, Inc. on September 30, 2020, for lignite-based activated carbon products, with automatic 10-year renewal terms[42] - Cabot will reimburse the Company for capital expenditures, categorized as 'Shared Capital' (benefiting both parties) and 'Specific Capital' (benefiting Cabot exclusively), with revenues recognized based on agreed-upon factors and amortization schedules[43][44][45][47] Note 3 - Acquisition of Marshall Mine - On September 30, 2020, the Company acquired Marshall Mine, LLC from Cabot for a nominal price, immediately commencing activities to shutter the mine and incur associated reclamation costs[48] - Total Reclamation Costs are estimated at $23.3 million, with Cabot obligated to reimburse $10.2 million over 13 years[49] Marshall Mine Acquisition - Net Assets Acquired and Liabilities Assumed (September 30, 2020) | (in thousands) | Amount | | :------------------------------------------------ | :--------- | | Assets acquired: | | | Property, plant and equipment | $3,863 | | Spare parts | $100 | | Liabilities assumed: | | | Accounts payable and accrued expenses | $(673) | | Asset retirement obligation | $(21,328) | | Net assets acquired and liabilities assumed | $(18,038) | | Cabot receivable | $9,749 | | Upfront Customer Consideration | $8,289 | Note 4 - Marshall Mine Asset Retirement Obligation and related Cabot Receivable - The Company recorded a Marshall Mine Asset Retirement Obligation (ARO) of $21.3 million for reclamation and restoration, based on expected future cash flows of $23.7 million discounted at 7.0%[56] - A Cabot Receivable of $9.7 million was recorded at fair value for Reclamation Reimbursements, reflecting a 1.5% discount rate[58] - A $30.0 million surety bond was posted for reclamation activities, requiring $5.0 million collateral as of September 30, 2020, and an additional $5.0 million by March 31, 2021[59] Note 5 - Impairment - A $26.1 million impairment charge was recorded as of June 30, 2020, on the PGI segment's long-lived assets (manufacturing plant and lignite mine assets)[61] - The impairment was triggered by a significant decline in PGI segment's revenues and forecasted revenues, primarily due to reduced coal-fired power dispatch and historically low natural gas prices[60][61] Impairment Charge Allocation (June 30, 2020) | (in thousands) | Amount | | :----------------------------- | :--------- | | Property, plant and equipment, net | $18,986 | | Intangible assets, net | $1,445 | | Other long-term assets, net | $5,672 | | Total impairment | $26,103 | Note 6 - COVID-19 - The Company obtained a $3.3 million Paycheck Protection Program (PPP) Loan on April 20, 2020, with a 1.00% interest rate, maturing April 21, 2022, and potentially forgivable[66] - The Company deferred $0.3 million in payroll tax payments under the CARES Act as of September 30, 2020, with repayment scheduled for December 31,