Advanced Emissions Solutions(US:ADES)2023-11-07 16:00Financial Performance - For the three months ended September 30, 2023, the company recognized a net loss of $2.2 million, compared to a net loss of $2.4 million for the same period in 2022, reflecting a decrease in demand for its products due to lower natural gas prices [108]. - Total revenues for the three months ended September 30, 2023, were $29.8 million, a 5% increase from $28.4 million in the same period of 2022, driven by higher pricing and a favorable product mix [110]. - For the nine months ended September 30, 2023, total revenues decreased by 11% to $71.1 million from $79.6 million in the same period of 2022, primarily due to a decrease in volumes sold [124]. - The company reported a pretax loss of $15.6 million for the nine months ended September 30, 2023, compared to a pretax loss of $5.8 million in the same period of 2022 [137]. Operating Expenses - Operating expenses for the three months ended September 30, 2023, totaled $11.6 million, a 23% increase from $9.5 million in the same period of 2022, primarily due to higher payroll and benefits expenses related to the Arq Acquisition [118]. - Operating expenses increased by 36% to $34.3 million for the nine months ended September 30, 2023, compared to $25.3 million in the same period of 2022 [126]. - Payroll and benefits expenses rose by 67% to $12.5 million, largely due to the addition of Arq employees and severance costs [127]. - Legal and professional fees increased by 9% to $8.1 million, primarily due to costs associated with the Arq Acquisition [128]. - General and administrative expenses increased by 62% to $9.2 million, driven by expenses incurred by Arq and increases in research and development [129]. - Depreciation and amortization expenses increased by 53% to $7.3 million, mainly due to the addition of long-lived and intangible assets from the Arq Acquisition [130]. Cash Flow and Capital Expenditures - As of September 30, 2023, cash and restricted cash decreased from $76.4 million to $61.3 million, a decline of $15.1 million [144]. - Cash flows used in operating activities increased by $21.5 million, primarily due to a net loss of $15.5 million for the nine months ended September 30, 2023, compared to a net loss of $5.8 million in the prior year [145]. - Cash flows used in investing activities increased by $15.3 million, mainly due to a $10.8 million increase in property, plant, and equipment additions from the Arq Acquisition [146]. - Cash flows provided by financing activities increased by $24.7 million, driven by net borrowings of $8.5 million from the Term Loan and net proceeds of $15.2 million from the PIPE Investment [147]. - The company expects to incur between $35.0 million and $40.0 million in capital expenditures for 2023, with $17.0 million already incurred in the first nine months [149]. - The company anticipates significant capital expenditures due to the Arq Acquisition, including quarterly interest payments on the Term Loan and a balloon payment of approximately $12.2 million due on February 1, 2027 [148]. - The company expects to fund all capital expenditures for 2023 from cash on hand [149]. Acquisitions and Debt - The company completed the Arq Acquisition on February 1, 2023, issuing shares valued at $31.2 million as purchase consideration [103]. - The company entered into a Term Loan agreement for $10.0 million on February 1, 2023, with a maturity date of February 1, 2027, and an interest rate margin of 9.00% paid in cash [104]. - Interest expense for the three months ended September 30, 2023, increased primarily due to $0.5 million related to the Term Loan and $0.1 million related to the Arq Loan assumed in the acquisition [121]. - Interest expense surged by 732% to $2.2 million, primarily due to new debt related to the Arq Acquisition [135]. Market Conditions and Future Outlook - The average natural gas spot prices for the three months ended September 30, 2023, were $2.59 per MMBtu, significantly lower than $7.99 per MMBtu in the same quarter of 2022, impacting demand for coal-fired generation [111]. - Consumables revenues decreased by $16.7 million due to lower product volumes among power generation customers, attributed to low natural gas prices [125]. - The company expects that product price increases will help offset decreases in volumes due to competition from alternative energy sources impacting demand for its AC and chemical products [112]. - Forward-looking statements indicate potential risks including competition in the activated carbon market and the ability to successfully integrate Arq's business [154]. - The company is evaluating the impacts of the Arq Acquisition on its internal control over financial reporting [157].