Note 1 - Basis of Presentation
Nature of Operations
Advanced Emissions Solutions, Inc. ("ADES" or the "Company") is a Delaware corporation with its principal office located in Greenwood Village, Colorado and operations located in Louisiana. The Company is principally engaged in consumable mercury control options including powdered activated carbon ("PAC") and chemical technologies. The Company's proprietary environmental technologies in the power generation and industrial ("PGI") market enable customers to reduce emissions of mercury and other pollutants, maximize utilization levels and improve operating efficiencies to meet the challenges of existing and pending emission control regulations. Through its wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), which the Company acquired on December 7, 2018 (the "Acquisition Date"), the Company manufactures and sells activated carbon ("AC") used in mercury capture for the coal-fired power plant, industrial and water treatment markets. Carbon Solutions also owns an associated lignite mine that supplies the primary raw material for manufacturing PAC.
Through its equity ownership in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), both of which are unconsolidated entities, the Company generates substantial earnings. Tinuum Group provides reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that qualifies for tax credits under the Internal Revenue Code ("IRC") Section 45 - Production Tax Credit ("Section 45 tax credits"). The Company also earns royalties for technologies that are licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services operates and maintains the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities.
The Company’s sales occur principally in the United States. See Note 15 for additional information regarding the Company's operating segments.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of ADES are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and with Article 10 of Regulation S-X of the Securities and Exchange Commission. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The unaudited Condensed Consolidated Financial Statements of ADES in this quarterly report ("Quarterly Report") are presented on a consolidated basis and include ADES and its wholly-owned subsidiaries (collectively, the "Company"). Also included within the unaudited Condensed Consolidated Financial Statements are the Company's unconsolidated equity investments: Tinuum Group, Tinuum Services and GWN Manager, LLC ("GWN Manager"), which are accounted for under the equity method of accounting, and Highview Enterprises Limited (the "Highview Investment"), which is accounted for in accordance with U.S. GAAP applicable to equity investments that do not qualify for the equity method of accounting.
Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated in consolidation for all periods presented in this Quarterly Report.
In the opinion of management, these Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary for a fair presentation of the results of operations, financial position, stockholders' equity and cash flows for the interim periods presented. These Condensed Consolidated Financial Statements of ADES should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K"). Significant accounting policies disclosed therein have not changed, except as described later in Note 1.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the two-class method, which is an earnings allocation formula that determines earnings (loss) per share for common stock and any participating securities according to dividend and participating rights in undistributed earnings (losses). The Company's restricted stock awards ("RSA's") granted prior to December 31, 2016 contain non-forfeitable rights to dividends or dividend equivalents and are deemed to be participating securities. RSA's granted subsequent to December 31, 2016 do not contain non-forfeitable rights to dividends and are not deemed to be participating securities.
Under the two-class method, net income for the period is allocated between common stockholders and the holders of the participating securities based on the weighted-average number of common shares outstanding during the period, excluding
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
participating, unvested RSA's ("common shares"), and the weighted-average number of participating, unvested RSA's outstanding during the period, respectively. The allocated, undistributed income for the period is then divided by the weighted-average number of common shares and participating, unvested RSA's outstanding during the period to arrive at basic earnings per common share and participating security for the period, respectively. Pursuant to U.S. GAAP, the Company has elected not to separately present basic or diluted earnings per share attributable to participating securities in the Condensed Consolidated Statements of Operations.
Diluted earnings (loss) per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities. Potentially dilutive securities consist of both unvested, participating and non-participating RSA's, as well as outstanding options to purchase common stock ("Stock Options") and contingent performance stock units ("PSU's") (collectively, "Potential dilutive shares"). The dilutive effect, if any, for non-participating RSA's, Stock Options and PSU's is determined using the greater of dilution as calculated under the treasury stock method or the two-class method. Potential dilutive shares are excluded from diluted earnings per share when their effect is anti-dilutive. When there is a net loss for a period, all Potential dilutive shares are anti-dilutive and are excluded from the calculation of diluted loss per share for that period.
The following table sets forth the calculations of basic and diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands, except per share amounts)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net (loss) income
|
|
$
|
(23,814
|
)
|
|
$
|
8,114
|
|
|
$
|
(25,707
|
)
|
|
$
|
22,516
|
|
Less: Dividends and undistributed (loss) income allocated to participating securities
|
|
(17
|
)
|
|
11
|
|
|
(19
|
)
|
|
31
|
|
(Loss) income attributable to common stockholders
|
|
$
|
(23,797
|
)
|
|
$
|
8,103
|
|
|
$
|
(25,688
|
)
|
|
$
|
22,485
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
18,014
|
|
|
18,172
|
|
|
17,974
|
|
|
18,219
|
|
Add: dilutive effect of equity instruments
|
|
—
|
|
|
205
|
|
|
—
|
|
|
193
|
|
Diluted weighted-average shares outstanding
|
|
18,014
|
|
|
18,377
|
|
|
17,974
|
|
|
18,412
|
|
(Loss) earnings per share - basic
|
|
$
|
(1.32
|
)
|
|
$
|
0.45
|
|
|
$
|
(1.43
|
)
|
|
$
|
1.23
|
|
(Loss) earnings per share - diluted
|
|
$
|
(1.32
|
)
|
|
$
|
0.44
|
|
|
$
|
(1.43
|
)
|
|
$
|
1.22
|
|
For the three and six months ended June 30, 2020 and 2019, RSA's and Stock Options convertible to 0.7 million and 0.7 million, and 0.3 million and 0.3 million shares of common stock, respectively, were outstanding but were not included in the computation of diluted net (loss) income per share because the effect would have been anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There have been no changes in the Company’s critical accounting estimates from those that were disclosed in the 2019 Form 10-K except for assumptions regarding impairment of long-lived assets. Actual results could differ from these estimates.
Due to the coronavirus ("COVID-19") pandemic, there has been uncertainty and disruption in the global economy and financial markets. Additionally, due to COVID-19, overall power generation and coal-fired power demand may change, which could also have a material adverse effect on the Company. The Company is not aware of any specific event or circumstance due to COVID-19 that would require an update to its estimate or judgments or a revision of the carrying values of its assets or liabilities through the date of this Quarterly Report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Risks and Uncertainties
The Company’s earnings are significantly affected by equity earnings it receives from Tinuum Group. As of June 30, 2020, Tinuum Group has 20 invested RC facilities of which 8 are leased to a single customer. A majority of these leases are periodically renewed. Further, the ability to generate Section 45 tax credits related to Tinuum's RC facilities expires in 2021. The loss of a single customer by Tinuum Group or the expiration of Section 45 tax credits would have a significant adverse impact on Tinuum Group's financial position, results of operations and cash flows, which in turn would have a material adverse impact on the Company’s financial position, results of operations and cash flows.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company's revenues, sales volumes, earnings and cash flows are significantly affected by prices of competing power generation sources such as natural gas and renewable energy. Low natural gas prices make it a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which reduces the demand for our products. In addition, coal consumption and demand for our products is also affected by the demand for electricity, which is higher in the warmer and colder months of the year. Abnormal temperatures during the summer and winter months may significantly reduce coal consumption and thus the demand for the Company's products.
Reclassifications
Certain balances have been reclassified from the prior year to conform to the current year presentation. Such reclassifications had no effect on the Company’s results of operations or financial position in any of the periods presented.
New Accounting Standards
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for "smaller reporting companies" (as defined by the Securities and Exchange Commission) for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach. Entities may adopt ASU 2016-13 earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those years. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The amendments in ASU 2019-12 simplify various aspects related to accounting for income taxes by removing certain exceptions contained in Topic 740 and also clarifies and amends existing guidance in Topic 740 to improve consistent application. ASU 2019-12 is effective for public business entities beginning after December 15, 2020, including interim periods within those years, and early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.
Note 2 - Impairment
As part of its periodic review of the carrying value of long-lived assets, the Company assessed its long-lived assets for potential impairment. In assessing impairment of its Power Generation and Industrials ("PGI") segment's and certain other long-lived asset groups, the Company considered factors such as the significant decline in both PGI’s trailing twelve months revenues and current and future years’ forecasted revenues, which are largely due to the significant drop in coal-fired power dispatch that began in 2019 and is anticipated to continue in the near term largely due to the current and forecasted historical low prices of alternative power generation sources such as natural gas and an increase in supply from other competing energy sources.
The Company completed an undiscounted cash flow analysis of its PGI segment's and certain other long-lived assets (the "Asset Group"), which are comprised of its manufacturing plant and related assets and its lignite mine assets, and estimated the undiscounted cash flows from the Asset Group at $54.7 million, which was less than the carrying value of the Asset Group of $58.3 million. Accordingly, the Company completed an assessment of the Asset Group’s fair value and estimated the fair value of the Asset Group at $32.2 million. This resulted in an impairment and write-down of the Asset Group of $26.1 million, which is reflected as "Impairment" in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020. The total impairment charge was allocated to the PGI segment and Other in the amounts of $23.2 million and $2.9 million, respectively.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the allocation of the impairment and write-down of $26.1 million to the Asset Group components during the three months ended June 30, 2020:
|
|
|
|
|
|
(in thousands)
|
|
|
Property, plant and equipment, net
|
|
$
|
18,986
|
|
Intangible assets, net
|
|
1,445
|
|
Other long-term assets, net
|
|
5,672
|
|
Total impairment
|
|
$
|
26,103
|
|
The Company engaged an independent third party to perform the valuation of the Asset Group in order to determine the estimated fair value of the Asset Group. This valuation was based on the use of several established valuation models including an expected future discounted cash flow model using Level 3 inputs under ASC 820 - Fair Value Measurement. The cash flows are those expected to be generated by market participants discounted at the risk-free rate of interest. Because of the continued future uncertainty surrounding the level of coal-fired dispatch, the impact of historically low natural gas prices and other estimates impacting the expected future cash flow, it is reasonably possible that the expected future cash flows may change in the near term and may result in the Company recording additional impairment of the Asset Group.
Note 3 - COVID-19
In response to the COVID-19 outbreak, in March 2020, the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act provided, among other things, the creation of the Paycheck Protection Program ("PPP"), which is sponsored and administered by the U.S. Small Business Administration ("SBA").
On April 20, 2020, the Company entered into a loan (the "PPP Loan") under the PPP, evidenced by a promissory note, with BOK, NA dba Bank of Oklahoma ("BOK") providing for $3.3 million in proceeds, which was funded to the Company on April 21, 2020. The PPP Loan matures April 21, 2022 and provides for 18 monthly payments of principal and interest commencing on November 21, 2020. The interest rate on the PPP Loan is 1.00%. The PPP Loan is unsecured and contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or BOK, or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. The PPP Loan principal may be forgiven subject to the terms of the PPP and approval by the SBA.
The Company recorded the PPP Loan as a debt obligation under the guidance of ASC 470 - Debt and will accrue interest over the 18-month term of the PPP Loan beginning November 21, 2020.
The CARES Act also provided the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020. The Company has elected to defer payments of payroll taxes for the periods allowed under the CARES Act and will repay 50% by December 31, 2021 and 50% by December 31, 2022. For the three months ended June 30, 2020, total payroll tax payments deferred under the CARES Act were $0.1 million.
Note 4 - Acquisition
As described in Note 1, on the Acquisition Date, the Company completed the acquisition of Carbon Solutions (the "Carbon Solutions Acquisition") for a total purchase price of $75.0 million (the "Purchase Price"). The fair value of the purchase consideration totaled $66.5 million, less cash acquired of $3.3 million, and the assumption of debt and contractual commitments of $11.8 million. The Company also paid $4.5 million in acquisition-related costs (or transaction costs). The Company funded the cash consideration from cash on hand and the proceeds from the Term Loan and Security Agreement (the "Senior Term Loan") in the principal amount of $70.0 million, as more fully described in Note 7.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the final purchase price allocation. Subsequent to the Acquisition Date, the Company completed additional analysis and adjustments were made to the preliminary purchase price allocations as noted in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired:
|
|
As Originally Reported
|
|
Adjustments
|
|
As Adjusted
|
Cash
|
|
$
|
3,284
|
|
|
$
|
—
|
|
|
$
|
3,284
|
|
Receivables
|
|
6,409
|
|
|
—
|
|
|
6,409
|
|
Inventories
|
|
22,100
|
|
|
(356
|
)
|
|
21,744
|
|
Prepaid expenses and other current assets
|
|
2,992
|
|
|
61
|
|
|
3,053
|
|
Spare parts
|
|
3,359
|
|
|
—
|
|
|
3,359
|
|
Property, plant and equipment
|
|
43,033
|
|
|
(377
|
)
|
|
42,656
|
|
Mine leases and development
|
|
2,500
|
|
|
200
|
|
|
2,700
|
|
Mine reclamation asset
|
|
—
|
|
|
2,402
|
|
|
2,402
|
|
Intangible assets
|
|
4,000
|
|
|
100
|
|
|
4,100
|
|
Other assets
|
|
168
|
|
|
—
|
|
|
168
|
|
Amount attributable to assets acquired
|
|
87,845
|
|
|
2,030
|
|
|
89,875
|
|
|
|
|
|
|
|
|
Fair value of liabilities assumed:
|
|
|
|
|
|
|
Accounts payable
|
|
4,771
|
|
|
—
|
|
|
4,771
|
|
Accrued liabilities
|
|
7,354
|
|
|
254
|
|
|
7,608
|
|
Equipment lease liabilities
|
|
8,211
|
|
|
—
|
|
|
8,211
|
|
Mine reclamation liability
|
|
626
|
|
|
1,776
|
|
|
2,402
|
|
Other liabilities
|
|
437
|
|
|
—
|
|
|
437
|
|
Amount attributable to liabilities assumed
|
|
21,399
|
|
|
2,030
|
|
|
23,429
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
66,446
|
|
|
$
|
—
|
|
|
$
|
66,446
|
|
Adjustments to the preliminary purchase price allocation primarily related to changes in fair values assigned to property, plant and equipment, intangible assets, mine reclamation liability and the related mine reclamation asset as a result of the final valuation report from the Company's third-party valuation firm issued in May 2019. During the three months ended June 30, 2019 based on new information of facts and circumstances that existed as of the Acquisition Date, the Company revised its estimates used as of the Acquisition Date related to the net realizable value of certain finished goods inventory items as well as values assigned to certain prepaid and accrued expense items.
The following table represents the intangible assets, as adjusted for purchase price adjustments noted above, identified as part of the Carbon Solutions Acquisition:
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amount
|
|
Weighted Average Useful Life (years)
|
Customer relationships
|
|
$
|
2,200
|
|
|
5
|
Developed technology
|
|
1,600
|
|
|
5
|
Trade name
|
|
300
|
|
|
2
|
Total intangibles acquired
|
|
$
|
4,100
|
|
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Inventories, net
The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
|
June 30, 2020
|
|
December 31, 2019
|
Product inventory
|
|
$
|
14,081
|
|
|
$
|
13,515
|
|
Raw material inventory
|
|
2,003
|
|
|
1,945
|
|
|
|
$
|
16,084
|
|
|
$
|
15,460
|
|
Note 6 - Equity Method Investments
Tinuum Group, LLC
The Company's ownership interest in Tinuum Group was 42.5% as of June 30, 2020 and December 31, 2019. Tinuum Group supplies technology equipment and technical services at select coal-fired generators, but its primary purpose is to put into operation facilities that produce and sell RC that lower emissions and also qualify for Section 45 tax credits. Tinuum Group has been determined to be a variable interest entity ("VIE"); however, the Company does not have the power to direct the activities that most significantly impact Tinuum Group's economic performance and has therefore accounted for the investment under the equity method of accounting. The Company determined that the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore, concluded that the power to direct the activities that most significantly impact Tinuum Group's economic performance was shared.
The following table summarizes the results of operations of Tinuum Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Gross profit
|
|
$
|
6,868
|
|
|
$
|
38,180
|
|
|
$
|
11,878
|
|
|
$
|
79,380
|
|
Operating, selling, general and administrative expenses
|
|
11,919
|
|
|
5,763
|
|
|
24,695
|
|
|
12,345
|
|
(Loss) income from operations
|
|
(5,051
|
)
|
|
32,417
|
|
|
(12,817
|
)
|
|
67,035
|
|
Other income (expenses)
|
|
2,144
|
|
|
(28
|
)
|
|
5,787
|
|
|
23
|
|
Loss attributable to noncontrolling interest
|
|
18,823
|
|
|
12,891
|
|
|
38,094
|
|
|
28,667
|
|
Net income available to members
|
|
$
|
15,916
|
|
|
$
|
45,280
|
|
|
$
|
31,064
|
|
|
$
|
95,725
|
|
ADES equity earnings from Tinuum Group
|
|
$
|
6,764
|
|
|
$
|
19,244
|
|
|
$
|
13,202
|
|
|
$
|
39,011
|
|
For the three and six months ended June 30, 2020 and the three months ended June 30, 2019, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the respective period. For the six months ended June 30, 2019, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the period, less the amount necessary to recover the cumulative earnings short-fall balance as of the end of the immediately preceding period, which was December 31, 2018. For the six months ended June 30, 2019, the difference between the Company's proportionate share of Tinuum Group's net income available to members (at its equity interest of 42.5%) and the Company's earnings from its Tinuum Group equity method investment as reported in the Condensed Consolidated Statements of Operations relates to the Company receiving distributions in excess of the carrying value of the equity investment, and therefore recognizing such excess distributions as equity method earnings in the period the distributions occur.
For the three and six months ended June 30, 2020, the Company recognized equity earnings from Tinuum Group of $6.8 million and $13.2 million, respectively. For the three and six months ended June 30, 2019, the Company recognized equity earnings from Tinuum Group of $19.2 million and $39.0 million, respectively.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables present the Company's investment balance, equity earnings and cash distributions in excess of the investment balance, if any, for the three and six months ended June 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Date(s)
|
|
Investment balance
|
|
ADES equity earnings
|
|
Cash distributions
|
|
Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
|
Beginning balance
|
|
12/31/2019
|
|
$
|
32,280
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
ADES proportionate share of income from Tinuum Group
|
|
First Quarter
|
|
6,438
|
|
|
6,438
|
|
|
—
|
|
|
—
|
|
Cash distributions from Tinuum Group
|
|
First Quarter
|
|
(13,764
|
)
|
|
—
|
|
|
13,764
|
|
|
—
|
|
Total investment balance, equity earnings (loss) and cash distributions
|
|
3/31/2020
|
|
$
|
24,954
|
|
|
$
|
6,438
|
|
|
$
|
13,764
|
|
|
$
|
—
|
|
ADES proportionate share of income from Tinuum Group
|
|
Second Quarter
|
|
$
|
6,764
|
|
|
$
|
6,764
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash distributions from Tinuum Group
|
|
Second Quarter
|
|
(13,600
|
)
|
|
—
|
|
|
13,600
|
|
|
—
|
|
Total investment balance, equity earnings and cash distributions
|
|
6/30/2020
|
|
$
|
18,118
|
|
|
$
|
6,764
|
|
|
$
|
13,600
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Date(s)
|
|
Investment balance
|
|
ADES equity earnings (loss)
|
|
Cash distributions
|
|
Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
|
Beginning balance
|
|
12/31/2018
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,672
|
)
|
Impact of adoption of accounting standards (1)
|
|
First Quarter
|
|
37,232
|
|
|
—
|
|
|
—
|
|
|
—
|
|
ADES proportionate share of income from Tinuum Group
|
|
First Quarter
|
|
21,439
|
|
|
21,439
|
|
|
—
|
|
|
—
|
|
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)
|
|
First Quarter
|
|
(1,672
|
)
|
|
(1,672
|
)
|
|
—
|
|
|
1,672
|
|
Cash distributions from Tinuum Group
|
|
First Quarter
|
|
(16,788
|
)
|
|
—
|
|
|
16,788
|
|
|
—
|
|
Total investment balance, equity earnings and cash distributions
|
|
3/31/2019
|
|
$
|
40,211
|
|
|
$
|
19,767
|
|
|
$
|
16,788
|
|
|
$
|
—
|
|
ADES proportionate share of income from Tinuum Group
|
|
Second Quarter
|
|
$
|
19,244
|
|
|
$
|
19,244
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash distributions from Tinuum Group
|
|
Second Quarter
|
|
(17,000
|
)
|
|
—
|
|
|
17,000
|
|
|
—
|
|
Total investment balance, equity earnings and cash distributions
|
|
6/30/2019
|
|
$
|
42,455
|
|
|
$
|
19,244
|
|
|
$
|
17,000
|
|
|
$
|
—
|
|
(1) Tinuum Group adopted Accounting Standards Codification Topic ("ASC") 606 - Revenue from Contracts with Customers and ASC 842 - Leases as of January 1, 2019. As a result of Tinuum Group’s adoption of these standards, the Company recorded a cumulative adjustment of $27.4 million, net of the impact of income taxes, related to the Company's percentage of Tinuum Group's cumulative effect adjustment, which increased the Company's Retained earnings as of January 1, 2019.
Tinuum Services, LLC
The Company has a 50% voting and economic interest in Tinuum Services. The Company has determined that Tinuum Services is not a VIE and has evaluated its consolidation analysis under the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Tinuum Services under the equity method of accounting. The Company’s investment in Tinuum Services as of June 30, 2020 and December 31, 2019 was $4.9 million and $6.8 million, respectively.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the results of operations of Tinuum Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Gross loss
|
|
$
|
(20,418
|
)
|
|
$
|
(25,192
|
)
|
|
$
|
(42,677
|
)
|
|
$
|
(49,927
|
)
|
Operating, selling, general and administrative expenses
|
|
43,515
|
|
|
50,412
|
|
|
89,268
|
|
|
99,862
|
|
Loss from operations
|
|
(63,933
|
)
|
|
(75,604
|
)
|
|
(131,945
|
)
|
|
(149,789
|
)
|
Other income (expenses)
|
|
(330
|
)
|
|
(316
|
)
|
|
(615
|
)
|
|
(558
|
)
|
Loss attributable to noncontrolling interest
|
|
67,071
|
|
|
79,307
|
|
|
139,043
|
|
|
157,577
|
|
Net income
|
|
$
|
2,808
|
|
|
$
|
3,387
|
|
|
$
|
6,483
|
|
|
$
|
7,230
|
|
ADES equity earnings from Tinuum Services
|
|
$
|
1,404
|
|
|
$
|
1,693
|
|
|
$
|
3,242
|
|
|
$
|
3,615
|
|
Included in the Consolidated Statements of Operations of Tinuum Services for the three and six months ended June 30, 2020 and 2019, respectively, were losses related to VIE's of Tinuum Services. These losses do not impact the Company's equity earnings from Tinuum Services as 100% of those losses are attributable to a noncontrolling interest and eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.
The following table details the components of the Company's respective equity method investments included in the Earnings from equity method investments line item on the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Earnings from Tinuum Group
|
|
$
|
6,764
|
|
|
$
|
19,244
|
|
|
$
|
13,202
|
|
|
$
|
39,011
|
|
Earnings from Tinuum Services
|
|
1,404
|
|
|
1,693
|
|
|
3,242
|
|
|
3,615
|
|
Loss from other
|
|
—
|
|
|
(2
|
)
|
|
(3
|
)
|
|
(1
|
)
|
Earnings from equity method investments
|
|
$
|
8,168
|
|
|
$
|
20,935
|
|
|
$
|
16,441
|
|
|
$
|
42,625
|
|
The following table details the components of the cash distributions from the Company's respective equity method investments included in the Condensed Consolidated Statements of Cash Flows. Distributions from equity method investees are reported in the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" within Operating cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
Distributions from equity method investees, return on investment
|
|
|
|
|
Tinuum Group
|
|
$
|
27,364
|
|
|
$
|
33,788
|
|
Tinuum Services
|
|
5,152
|
|
|
4,300
|
|
|
|
$
|
32,516
|
|
|
$
|
38,088
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 - Debt Obligations
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
|
June 30, 2020
|
|
December 31, 2019
|
Senior Term Loan due December 2021, related party
|
|
$
|
28,000
|
|
|
$
|
40,000
|
|
Less: net unamortized debt issuance costs
|
|
(815
|
)
|
|
(1,163
|
)
|
Less: net unamortized debt discount
|
|
(840
|
)
|
|
(1,200
|
)
|
Senior Term Loan due December 2021, net
|
|
26,345
|
|
|
37,637
|
|
Finance lease obligations
|
|
6,053
|
|
|
6,729
|
|
PPP Loan
|
|
3,305
|
|
|
—
|
|
|
|
35,703
|
|
|
44,366
|
|
Less: Current maturities
|
|
(25,583
|
)
|
|
(23,932
|
)
|
Total long-term debt
|
|
$
|
10,120
|
|
|
$
|
20,434
|
|
Senior Term Loan
On December 7, 2018, the Company, and ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, and certain other subsidiaries of the Company as guarantors, The Bank of New York Mellon as administrative agent, and Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P. (collectively "Apollo"), affiliates of a beneficial owner of greater than five percent of the Company's common stock and a related party, entered into the Senior Term Loan in the amount of $70.0 million less original issue discount of $2.1 million. Proceeds from the Senior Term Loan were used to fund the Carbon Solutions Acquisition as disclosed in Note 4. The Company also paid debt issuance costs of $2.0 million related to the Senior Term Loan. The Senior Term Loan has a term of 36 months and bears interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which is adjusted quarterly to the current 3-month LIBOR rate, and interest is payable quarterly in arrears. Quarterly principal payments of $6.0 million were required beginning in March 2019, and the Company may prepay the Senior Term Loan at any time without penalty. The Senior Term Loan is secured by substantially all the assets of the Company, including the cash flows from Tinuum Group and Tinuum Services (collectively, the "Tinuum Entities"), but excluding the Company's equity interests in the Tinuum entities.
The Senior Term Loan includes, among others, the following covenants: (1) Beginning December 31, 2018 and as of the end of each fiscal quarter thereafter, the Company must maintain a minimum cash balance of $5.0 million and shall not permit "expected future net cash flows from the refined coal business" (as defined in the Senior Term Loan) to be less than 1.75 times the outstanding principal amount of the Senior Term Loan; (2) Beginning in January 2019, annual collective dividends and buybacks of Company shares in an aggregate amount, not to exceed $30.0 million, is permitted so long as (a) no default or event of default exists under the Senior Term Loan and (b) expected future net cash flows from the refined coal business as of the end of the most recent fiscal quarter exceed $100.0 million.
Waiver on Senior Term Loan
Pursuant to entering into the PPP Loan, on April 20, 2020, the Company and Apollo executed the First Amendment to the Senior Term Loan, which permitted the Company to enter into the PPP Loan.
Line of Credit
On December 7, 2018, ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary of the Company, as borrower, the Company, as guarantor, and a bank (the "Lender") entered into an amendment to the 2013 Loan and Security Agreement (the "Line of Credit"). This amendment provided, among other things, for ADA to be able to enter into the Senior Term Loan as a guarantor so long as the principal amount of the Senior Term Loan did not exceed $70.0 million. Additionally, the financial covenants in the Line of Credit were amended and restated to be consistent with the Senior Term Loan covenants, including maintaining a minimum cash balance of $5.0 million. The maturity date of the Line of Credit is September 30, 2020.
As of June 30, 2020, there were no outstanding borrowings under the Line of Credit.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Leases
As of June 30, 2020, the Company has obligations under finance and operating leases in the amounts of $6.1 million and $4.0 million, respectively. As of June 30, 2020, the Company has right of use ("ROU") assets, net of accumulated amortization, under finance leases and operating leases of $2.8 million and $2.5 million, respectively.
Finance leases
ROU assets under finance leases and finance lease liabilities are included in Property, plant and equipment and Current portion and Long-term portion of borrowings, respectively, in the Condensed Consolidated Balance Sheet as of June 30, 2020. Interest expense related to finance lease liabilities and amortization of ROU assets under finance leases are included in Interest expense and Depreciation, amortization, depletion and accretion, respectively, in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2020.
Operating leases
ROU assets under operating leases and operating lease liabilities are included in Other long-term assets and Other liabilities and Other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheet as of June 30, 2020.
Lease expense for operating leases for the three and six months ended June 30, 2020 was $1.1 million and $2.4 million, respectively, of which $1.0 million and $2.0 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.2 million and $0.4 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations. Lease expense for operating leases for the three and six months ended June 30, 2019 was $1.2 million and $2.4 million, respectively, of which $1.0 million and $2.1 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.2 million and $0.3 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations.
Lease financial information as of and for the three and six months ended June 30, 2020 and 2019 is provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
465
|
|
|
$
|
558
|
|
|
$
|
979
|
|
|
$
|
1,094
|
|
Interest on lease liabilities
|
|
93
|
|
|
57
|
|
|
187
|
|
|
188
|
|
Operating lease cost
|
|
676
|
|
|
927
|
|
|
1,529
|
|
|
1,856
|
|
Short-term lease cost
|
|
424
|
|
|
189
|
|
|
706
|
|
|
360
|
|
Variable lease cost (1)
|
|
44
|
|
|
93
|
|
|
137
|
|
|
175
|
|
Total lease cost
|
|
$
|
1,702
|
|
|
$
|
1,824
|
|
|
$
|
3,538
|
|
|
$
|
3,673
|
|
|
|
|
|
|
|
|
|
|
Other Information:
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from finance leases
|
|
|
|
|
|
$
|
187
|
|
|
$
|
187
|
|
Operating cash flows from operating leases
|
|
|
|
|
|
$
|
1,213
|
|
|
$
|
1,901
|
|
Financing cash flows from finance leases
|
|
|
|
|
|
$
|
676
|
|
|
$
|
681
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
|
|
|
|
$
|
60
|
|
|
$
|
49
|
|
Weighted-average remaining lease term - finance leases
|
|
|
|
|
|
3.8 years
|
|
|
4.7 years
|
|
Weighted-average remaining lease term - operating leases
|
|
|
|
|
|
2.1 years
|
|
|
2.4 years
|
|
Weighted-average discount rate - finance leases
|
|
|
|
|
|
6.1
|
%
|
|
6.1
|
%
|
Weighted-average discount rate - operating leases
|
|
|
|
|
|
8.5
|
%
|
|
8.6
|
%
|
(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9 - Revenues
Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company invoices its customers in accordance with the terms of the contract. Credit terms are generally net 30 from the date of invoice. The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant. The Company records allowances for doubtful trade receivables when it is probable that the balances will not be collected.
Trade receivables, net
The following table shows the components of Trade receivables, net:
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
|
June 30, 2020
|
|
December 31, 2019
|
Trade receivables
|
|
$
|
5,922
|
|
|
$
|
8,057
|
|
Less: Allowance for doubtful accounts
|
|
(603
|
)
|
|
(627
|
)
|
Trade receivables, net
|
|
$
|
5,319
|
|
|
$
|
7,430
|
|
For the three and six months ended June 30, 2020 and 2019, the Company recognized zero bad debt expense, respectively.
Disaggregation of Revenue and Earnings from Equity Method Investments
During the three and six months ended June 30, 2020 and 2019, all performance obligations related to revenues recognized were satisfied at a point in time. The Company disaggregates its revenues by major components as well as between its two reportable segments, which are further discussed in Note 15 to the Condensed Consolidated Financial Statements. The following tables disaggregate revenues by major component for the three and six months ended June 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
PGI
|
|
RC
|
|
Other
|
|
Total
|
|
PGI
|
|
RC
|
|
Other
|
|
Total
|
Revenue component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumables
|
|
$
|
7,070
|
|
|
$
|
—
|
|
|
$
|
1,100
|
|
|
$
|
8,170
|
|
|
$
|
15,545
|
|
|
$
|
—
|
|
|
$
|
1,842
|
|
|
$
|
17,387
|
|
License royalties, related party
|
|
—
|
|
|
3,313
|
|
|
—
|
|
|
3,313
|
|
|
—
|
|
|
6,359
|
|
|
—
|
|
|
6,359
|
|
Revenues from customers
|
|
7,070
|
|
|
3,313
|
|
|
1,100
|
|
|
11,483
|
|
|
15,545
|
|
|
6,359
|
|
|
1,842
|
|
|
23,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from equity method investments
|
|
—
|
|
|
8,168
|
|
|
—
|
|
|
8,168
|
|
|
—
|
|
|
16,441
|
|
|
—
|
|
|
16,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from customers and earnings from equity method investments
|
|
$
|
7,070
|
|
|
$
|
11,481
|
|
|
$
|
1,100
|
|
|
$
|
19,651
|
|
|
$
|
15,545
|
|
|
$
|
22,800
|
|
|
$
|
1,842
|
|
|
$
|
40,187
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
PGI
|
|
RC
|
|
Other
|
|
Total
|
|
PGI
|
|
RC
|
|
Other
|
|
Total
|
Revenue component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumables
|
|
$
|
11,049
|
|
|
$
|
—
|
|
|
$
|
337
|
|
|
$
|
11,386
|
|
|
$
|
25,602
|
|
|
$
|
—
|
|
|
$
|
893
|
|
|
$
|
26,495
|
|
License royalties, related party
|
|
—
|
|
|
4,191
|
|
|
—
|
|
|
4,191
|
|
|
—
|
|
|
8,411
|
|
|
—
|
|
|
8,411
|
|
Revenues from customers
|
|
11,049
|
|
|
4,191
|
|
|
337
|
|
|
15,577
|
|
|
25,602
|
|
|
8,411
|
|
|
893
|
|
|
34,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from equity method investments
|
|
—
|
|
|
20,935
|
|
|
—
|
|
|
20,935
|
|
|
—
|
|
|
42,625
|
|
|
—
|
|
|
42,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from customers and earnings from equity method investments
|
|
$
|
11,049
|
|
|
$
|
25,126
|
|
|
$
|
337
|
|
|
$
|
36,512
|
|
|
$
|
25,602
|
|
|
$
|
51,036
|
|
|
$
|
893
|
|
|
$
|
77,531
|
|
Note 10 - Commitments and Contingencies
Legal Proceedings
The Company is from time to time subject to, and is presently involved in, various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes, the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, settlements, and judgments where management has assessed that a loss is probable and an amount can be reasonably estimated. There were no significant legal proceedings as of June 30, 2020.
Restricted Cash
As of June 30, 2020 and December 31, 2019, the Company had long-term restricted cash of $5.0 million and $5.0 million, respectively, which primarily consisted of minimum cash balance requirements under the Senior Term Loan.
Other Commitments and Contingencies
The Company has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. The Company, NexGen Refined Coal, LLC ("NexGen") and two entities affiliated with NexGen have provided an affiliate of the Goldman Sachs Group, Inc. with limited guaranties (the "Tinuum Group Party Guaranties") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants. The Company also is a party to a contribution agreement with NexGen under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contributions from the other party equal to 50% of the amount paid. The Company has not recorded a liability or expense provision related to this contingent obligation as it believes that it is not probable that a loss will occur with respect to the Tinuum Group Party Guaranties.
Note 11 - Stockholders' Equity
Stock Repurchase Programs
In November 2018, the Company's Board of Directors (the "Board") authorized the Company to purchase up to $20.0 million of its outstanding common stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board. As of November 2019, $2.9 million remained outstanding related to the Stock Repurchase Program. In November 2019, the Board authorized an incremental $7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.
For the three and six months ended June 30, 2020, under the Stock Repurchase Program, the Company purchased zero and 20,613 shares, respectively, of its common stock for cash of zero and $0.2 million, respectively, inclusive of commissions and fees. For the three and six months ended June 30, 2019, under the Stock Repurchase Program, the Company purchased 184,715 and 248,591 shares, respectively, of its common stock for cash of $2.1 million and $2.8 million, respectively, inclusive of commissions and fees. As of June 30, 2020, the Company had $7.0 million remaining under the Stock Repurchase Program.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Quarterly Cash Dividend
Dividends declared and paid quarterly on all outstanding shares of common stock during the three and six months ended June 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Per share
|
|
Date paid
|
|
Per share
|
|
Date paid
|
Dividends declared during quarter ended:
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
0.25
|
|
|
March 10, 2020
|
|
$
|
0.25
|
|
|
March 7, 2019
|
June 30
|
|
$
|
—
|
|
|
|
|
$
|
0.25
|
|
|
June 7, 2019
|
|
|
$
|
0.25
|
|
|
|
|
$
|
0.50
|
|
|
|
A portion of the dividends declared remains accrued subsequent to the payment dates and represents dividends accumulated on nonvested shares of common stock held by employees and directors of the Company that contain forfeitable dividend rights that are not payable until the underlying shares of common stock vest. These amounts are included in both Other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheet as of June 30, 2020.
Tax Asset Protection Plan
U.S. federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and other tax assets if the Company experiences an "ownership change" (as defined in the Internal Revenue Code). In general, an ownership change occurs if there is a cumulative change in the ownership of the Company by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.
On May 5, 2017, the Board approved the declaration of a dividend of rights to purchase Series B Junior Participating Preferred Stock for each outstanding share of common stock as part of a tax asset protection plan (the "TAPP") designed to protect the Company’s ability to utilize its net operating losses and tax credits. The TAPP is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99% or more of the Company’s outstanding common stock.
On April 9, 2020, the Board approved the Third Amendment to the TAPP ("Third Amendment") that amends the TAPP, as previously amended by the First and Second Amendments that were approved the Board on April 6, 2018 and April 5, 2019, respectively. The Third Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. At the Company's 2020 annual meeting of stockholders, the Company's stockholders approved the Second Amendment, thus the Final Expiration Date will be the close of business on December 31, 2021.
Note 12 - Stock-Based Compensation
The Company grants equity-based awards to employees, non-employee directors, and consultants that may include, but are not limited to, RSA's, restricted stock units ("RSU's"), performance stock units ("PSU's") and stock options. Stock-based compensation expense related to manufacturing employees and administrative employees is included within the Cost of goods sold and Payroll and benefits line items, respectively, in the Condensed Consolidated Statements of Operations. Stock-based compensation expense related to non-employee directors and consultants is included within the General and administrative line item in the Condensed Consolidated Statements of Operations.
Total stock-based compensation expense for the three and six months ended June 30, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
RSA expense
|
|
$
|
975
|
|
|
$
|
541
|
|
|
$
|
1,481
|
|
|
$
|
858
|
|
PSU expense
|
|
163
|
|
|
—
|
|
|
163
|
|
|
—
|
|
Total stock-based compensation expense
|
|
$
|
1,138
|
|
|
$
|
541
|
|
|
$
|
1,644
|
|
|
$
|
858
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The amount of unrecognized compensation cost as of June 30, 2020, and the expected weighted-average period over which the cost will be recognized is as follows:
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
(in thousands)
|
|
Unrecognized Compensation Cost
|
|
Expected Weighted-
Average Period of
Recognition (in years)
|
RSA expense
|
|
$
|
2,173
|
|
|
2.18
|
PSU expense
|
|
146
|
|
|
2.69
|
Total unrecognized stock-based compensation expense
|
|
$
|
2,319
|
|
|
2.21
|
Restricted Stock
Restricted stock is typically granted with vesting terms of three years. The fair value of RSA's and RSU's is determined based on the closing price of the Company’s common stock on the authorization date of the grant multiplied by the number of shares subject to the stock award. Compensation expense for RSA's is generally recognized on a straight-line basis over the entire vesting period. Compensation expense for RSU's is generally recognized on a straight-line basis over the service period of the award.
A summary of RSA activity under the Company's various stock compensation plans for the six months ended June 30, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested at January 1, 2020
|
|
451,344
|
|
|
$
|
10.65
|
|
Granted
|
|
218,524
|
|
|
$
|
5.34
|
|
Vested
|
|
(195,884
|
)
|
|
$
|
10.48
|
|
Forfeited
|
|
(3,814
|
)
|
|
$
|
8.48
|
|
Non-vested at June 30, 2020
|
|
470,170
|
|
|
$
|
8.27
|
|
Stock Options
Stock options generally vest over three years or upon satisfaction of performance-based conditions and have a contractual limit of five years from the date of grant to exercise. The fair value of stock options granted is determined on the date of grant using the Black-Scholes option pricing model and the related expense is recognized on a straight-line basis over the entire vesting period.
A summary of stock option activity for the six months ended June 30, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
Outstanding and
Exercisable
|
|
Weighted-Average
Exercise Price
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Weighted-Average
Remaining Contractual
Term (in years)
|
Options outstanding, January 1, 2020
|
|
300,000
|
|
|
$
|
13.87
|
|
|
|
|
|
Options granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Options exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Options expired / forfeited
|
|
(300,000
|
)
|
|
13.87
|
|
|
|
|
|
Options outstanding, June 30, 2020
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
0
|
Options vested and exercisable, June 30, 2020
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
0
|
Performance Share Units
Compensation expense is recognized for PSU awards on a straight-line basis over the applicable service period, which is generally three years, based on the estimated fair value at the date of grant using a Monte Carlo simulation model. A summary of PSU activity for the six months ended June 30, 2020 is presented below:
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Weighted-Average
Remaining
Contractual
Term (in years)
|
PSU's outstanding, January 1, 2020
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Granted
|
|
50,127
|
|
|
6.17
|
|
|
|
|
|
Vested / Settled
|
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited / Canceled
|
|
—
|
|
|
—
|
|
|
|
|
|
PSU's outstanding, June 30, 2020
|
|
50,127
|
|
|
$
|
6.17
|
|
|
$
|
243
|
|
|
2.69
|
Note 13 - Supplemental Financial Information
Supplemental Balance Sheet Information
The following table summarizes the components of Prepaid expenses and other assets and Other long-term assets, net as presented in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
June 30,
2020
|
|
December 31,
2019
|
Prepaid expenses and other assets:
|
|
|
|
|
Federal and state income tax benefits
|
|
$
|
11,416
|
|
|
$
|
—
|
|
Prepaid federal and state income taxes
|
|
4,215
|
|
|
4,228
|
|
Prepaid expenses
|
|
1,987
|
|
|
1,708
|
|
Other
|
|
1,341
|
|
|
1,896
|
|
|
|
$
|
18,959
|
|
|
$
|
7,832
|
|
Other long-term assets, net:
|
|
|
|
|
Right of use assets, operating leases, net
|
|
$
|
2,529
|
|
|
$
|
5,073
|
|
Spare parts, net
|
|
3,559
|
|
|
3,453
|
|
Mine development costs, net
|
|
4,139
|
|
|
7,084
|
|
Mine reclamation asset, net
|
|
1,323
|
|
|
2,451
|
|
Highview Investment
|
|
552
|
|
|
552
|
|
Other long-term assets
|
|
1,779
|
|
|
1,718
|
|
|
|
$
|
13,881
|
|
|
$
|
20,331
|
|
Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expenses in the period in which they are consumed.
Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Company's mining operations and are depleted over the estimated life of the related mine reserves, which is 21 years. The Company performs an evaluation of the recoverability of the carrying value of mine development costs to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted. Indicators of impairment were present as of June 30, 2020. See Note 2 for further discussion. Mine reclamation asset, net represents an asset retirement obligation asset and is depreciated over the estimated life of the mine.
The Company holds a long-term investment (the "Highview Investment") in Highview Enterprises Limited ("Highview"), a London, England based developmental stage company specializing in power storage. The Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer.
The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment. There were no changes to the carrying value of the Highview Investment for the three and six months ended June 30, 2020 as there were no indicators of impairment or observable price changes for identical or similar investments.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table details the components of Other current liabilities and Other long-term liabilities as presented in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
Other current liabilities:
|
|
|
|
|
Current portion of operating lease obligations
|
|
$
|
2,025
|
|
|
$
|
2,382
|
|
Accrued interest
|
|
116
|
|
|
213
|
|
Income and other taxes payable
|
|
708
|
|
|
678
|
|
Other
|
|
528
|
|
|
1,038
|
|
|
|
$
|
3,377
|
|
|
$
|
4,311
|
|
Other long-term liabilities:
|
|
|
|
|
Operating lease obligations, long-term
|
|
$
|
1,954
|
|
|
$
|
2,810
|
|
Mine reclamation liability
|
|
2,804
|
|
|
2,721
|
|
Other
|
|
58
|
|
|
229
|
|
|
|
$
|
4,816
|
|
|
$
|
5,760
|
|
Supplemental Condensed Consolidated Statements of Operations Information
The following table details the components of Interest expense in the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest on Senior Term Loan
|
|
$
|
484
|
|
|
$
|
1,134
|
|
|
$
|
1,114
|
|
|
$
|
2,404
|
|
Debt discount and debt issuance costs
|
|
355
|
|
|
470
|
|
|
709
|
|
|
851
|
|
453A interest
|
|
28
|
|
|
326
|
|
|
160
|
|
|
648
|
|
Other
|
|
95
|
|
|
57
|
|
|
189
|
|
|
188
|
|
|
|
$
|
962
|
|
|
$
|
1,987
|
|
|
$
|
2,172
|
|
|
$
|
4,091
|
|
Note 14 - Income Taxes
For the three and six months ended June 30, 2020 and 2019, the Company's income tax expense and effective tax rates based on forecasted pretax income were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands, except for rate)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Income tax expense
|
|
$
|
103
|
|
|
$
|
6,634
|
|
|
$
|
461
|
|
|
$
|
8,333
|
|
Effective tax rate
|
|
—
|
%
|
|
45
|
%
|
|
(2
|
)%
|
|
27
|
%
|
The effective rate for the three and six months ended June 30, 2020 was different from the federal statutory rate primarily from an increase in the valuation allowance on deferred tax assets of $4.5 million and $5.4 million, respectively. The increase in the valuation allowance was a result of a reduction in forecasts as of June 30, 2020 of current and future years' taxable income.
The Company assesses the valuation allowance recorded against deferred tax assets at each reporting date. The determination of whether a valuation allowance for deferred tax assets is appropriate requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize the deferred tax asset, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. In estimating income taxes, the Company assesses the relative merits and risks of the appropriate income tax treatment of transactions taking into account statutory, judicial, and regulatory guidance.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 15 - Business Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by a company's chief operating decision maker ("CODM"), or a decision-making group, in deciding how to allocate resources and in assessing financial performance. As of June 30, 2020, the Company's CODM was the Company's CEO. The Company's operating and reportable segments are identified by products and services provided.
As of June 30, 2020, the Company has two reportable segments: (1) Refined Coal ("RC"); and (2) Power Generation and Industrials ("PGI").
The business segment measurements provided to and evaluated by the CODM are computed in accordance with the principles listed below:
|
|
•
|
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2019 Form 10-K.
|
|
|
•
|
Segment revenues include equity method earnings and losses from the Company's equity method investments.
|
|
|
•
|
Segment operating income (loss) includes segment revenues and allocation of certain "Corporate general and administrative expenses," which include Payroll and benefits, Legal and professional fees and General and administrative.
|
|
|
•
|
RC segment operating income includes interest expense directly attributable to the RC segment.
|
As of June 30, 2020 and December 31, 2019, substantially all of the Company's material assets are located in the U.S. and substantially all of significant customers are U.S. companies. The following table presents the Company's operating segment results for the three and six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
|
|
|
|
Refined Coal:
|
|
|
|
|
|
|
|
|
Earnings in equity method investments
|
|
$
|
8,168
|
|
|
$
|
20,935
|
|
|
$
|
16,441
|
|
|
$
|
42,625
|
|
License royalties, related party
|
|
3,313
|
|
|
4,191
|
|
|
6,359
|
|
|
8,411
|
|
|
|
11,481
|
|
|
25,126
|
|
|
22,800
|
|
|
51,036
|
|
Power Generation and Industrials:
|
|
|
|
|
|
|
|
|
Consumables
|
|
7,070
|
|
|
11,049
|
|
|
15,545
|
|
|
25,602
|
|
|
|
7,070
|
|
|
11,049
|
|
|
15,545
|
|
|
25,602
|
|
Total segment reporting revenues
|
|
18,551
|
|
|
36,175
|
|
|
38,345
|
|
|
76,638
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile to reported revenues:
|
|
|
|
|
|
|
|
|
Earnings in equity method investments
|
|
(8,168
|
)
|
|
(20,935
|
)
|
|
(16,441
|
)
|
|
(42,625
|
)
|
Corporate and other
|
|
1,100
|
|
|
337
|
|
|
1,842
|
|
|
893
|
|
Total reported revenues
|
|
$
|
11,483
|
|
|
$
|
15,577
|
|
|
$
|
23,746
|
|
|
$
|
34,906
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
Refined Coal (1)
|
|
$
|
10,777
|
|
|
$
|
24,596
|
|
|
$
|
21,637
|
|
|
$
|
49,979
|
|
Power Generation and Industrials (2)
|
|
(25,737
|
)
|
|
(3,862
|
)
|
|
(32,314
|
)
|
|
(7,324
|
)
|
Total segment operating income
|
|
$
|
(14,960
|
)
|
|
$
|
20,734
|
|
|
$
|
(10,677
|
)
|
|
$
|
42,655
|
|
(1) Included in RC segment operating income for the three and six months ended June 30, 2020 is 453A interest expense of zero and $0.2 million, respectively. Included in RC segment operating income for the three and six months ended June 30, 2019 is 453A interest expense of $0.3 million and $0.6 million, respectively.
(2) Included in PGI segment operating loss for the three and six months ended June 30, 2020 is $23.2 million and $23.2 million, respectively, of impairment expense on the Asset Group, and $0.4 million and $0.4 million, respectively, of expenses related to sequestration of certain of our employees at our manufacturing plant in Louisiana. Included in PGI segment operating loss for the three and six months ended June 30, 2020 and 2019 is $1.4 million and $3.4 million, and $0.7 million and $2.6 million, respectively, of depreciation, amortization, and depletion
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
expense on mine and plant long-lived assets. Included in PGI segment operating loss for the three and six months ended June 30, 2019 was $1.3 million and $4.7 million, respectively, of costs recognized as a result of the step-up in inventory fair value recorded from the Carbon Solutions Acquisition.
A reconciliation of reportable segment operating income to the Company's consolidated (loss) income before income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Total reported segment operating income
|
|
$
|
(14,960
|
)
|
|
$
|
20,734
|
|
|
$
|
(10,677
|
)
|
|
$
|
42,655
|
|
Other operating loss (1)
|
|
(4,262
|
)
|
|
(353
|
)
|
|
(5,055
|
)
|
|
(751
|
)
|
|
|
(19,222
|
)
|
|
20,381
|
|
|
(15,732
|
)
|
|
41,904
|
|
Adjustments to reconcile to (loss) income before income tax expense attributable to the Company:
|
|
|
|
|
|
|
|
|
Corporate payroll and benefits
|
|
(1,148
|
)
|
|
(804
|
)
|
|
(1,857
|
)
|
|
(1,236
|
)
|
Corporate legal and professional fees
|
|
(925
|
)
|
|
(1,556
|
)
|
|
(2,674
|
)
|
|
(3,517
|
)
|
Corporate general and administrative
|
|
(1,558
|
)
|
|
(1,715
|
)
|
|
(3,157
|
)
|
|
(3,149
|
)
|
Corporate depreciation and amortization
|
|
(163
|
)
|
|
(7
|
)
|
|
(189
|
)
|
|
(20
|
)
|
Corporate interest (expense) income, net
|
|
(824
|
)
|
|
(1,604
|
)
|
|
(1,766
|
)
|
|
(3,255
|
)
|
Other income (expense), net
|
|
129
|
|
|
53
|
|
|
129
|
|
|
122
|
|
(Loss) income before income tax expense
|
|
$
|
(23,711
|
)
|
|
$
|
14,748
|
|
|
$
|
(25,246
|
)
|
|
$
|
30,849
|
|
(1) Included in Other operating loss for the three and six months ended June 30, 2020 was $2.9 million and $2.9 million, respectively, of impairment expense on the Asset Group.
Corporate general and administrative expenses include certain costs that benefit the business as a whole but are not directly related to one of the Company's segments. Such costs include, but are not limited to, accounting and human resources staff, information systems costs, legal fees, facility costs, audit fees and corporate governance expenses.
A reconciliation of reportable segment assets to the Company's consolidated assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
|
June 30,
2020
|
|
December 31,
2019
|
Assets:
|
|
|
|
|
Refined Coal (1)
|
|
$
|
27,070
|
|
|
$
|
43,953
|
|
Power Generation and Industrials
|
|
54,022
|
|
|
80,912
|
|
Total segment assets
|
|
81,092
|
|
|
124,865
|
|
All Other and Corporate (2)
|
|
52,238
|
|
|
48,934
|
|
Consolidated
|
|
$
|
133,330
|
|
|
$
|
173,799
|
|
(1) Includes $23.1 million and $39.2 million of investments in equity method investees, respectively.
(2) Includes the Company's deferred tax assets.
Note 16 - Fair Value Measurements
Fair value of financial instruments
The carrying amounts of financial instruments, including cash, cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short maturity of these instruments. Accordingly, these instruments are not presented in the table below. The following table provides the estimated fair values of the remaining financial instruments:
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
(in thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Financial Instruments:
|
|
|
|
|
|
|
|
|
Highview Investment
|
|
$
|
552
|
|
|
$
|
552
|
|
|
$
|
552
|
|
|
$
|
552
|
|
Highview Obligation
|
|
$
|
210
|
|
|
$
|
210
|
|
|
$
|
220
|
|
|
$
|
220
|
|
Concentration of credit risk
The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company holds cash and cash equivalents at three financial institutions as of June 30, 2020. If an institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash and investments in excess of the Federal Deposit Insurance Corporation limits (currently $250 thousand) that would be returned to the Company.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of June 30, 2020 and December 31, 2019, the Company had no financial instruments carried and measured at fair value on a recurring basis.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
As disclosed in Note 4, the Company completed the Carbon Solutions Acquisition for purchase consideration of $66.5 million. The estimated fair values of the assets acquired and liabilities assumed were determined based on Level 3 inputs.
As disclosed in Note 2, the Company recorded an impairment charge related to the Asset Group based on a valuation models that included an expected future discounted cash flow model using Level 3 inputs.
The Company has applied the measurement alternative for investments without readily determinable fair values under ASC Topic 321 - Investments in Equity Securities ("ASC 321") for the Highview Investment. Fair value measurements, if any, resulting from the Company's application of the guidance in ASC 321 represent either Level 2 or Level 3 measurements. There were no changes to the carrying value of the Highview Investment for the three months ended June 30, 2020 and 2019 as there were no indicators of impairment or observable price changes for identical or similar investments.
Note 17 - Restructuring and Other Compensation
Restructuring
In December 2018, the Company recorded restructuring charges in connection with the departures of certain executives of Carbon Solutions in conjunction with the Carbon Solutions Acquisition. As part of the Carbon Solutions Acquisition, the Company also assumed a salary severance liability for an additional executive of Carbon Solutions in the amount of $0.6 million. There were no material restructuring activities during the three and six months ended June 30, 2020.
Restructuring accruals are included within the Accrued payroll and related liabilities line item in the Condensed Consolidated Balance Sheets. Restructuring expenses are included within the Payroll and benefits line item in the Condensed Consolidated Statements of Operations.
Other Compensation
On March 27, 2020, the Company's CEO resigned from the Company effective June 30, 2020. Pursuant to a settlement agreement executed between the Company and the CEO, the Company was obligated to pay severance compensation to the CEO in the form of salary continuance, cash bonus, contingent upon the Company achieving a performance metric, healthcare benefits, RSAs and PSUs, which in the aggregate was $1.4 million. As of June 30, 2020, the Company recorded a liability for the total severance compensation and corresponding expense for the three and six months ended June 30, 2020 under the caption "Payroll and benefits" in the Condensed Consolidated Statements of Operations.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the Company's change in restructuring and other compensation accruals for the six months ended June 30, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Severance
|
Remaining accrual as of December 31, 2019
|
|
$
|
254
|
|
Expense provision
|
|
1,403
|
|
Cash payments and other
|
|
(817
|
)
|
Change in estimates
|
|
—
|
|
Remaining accrual as of June 30, 2020
|
|
$
|
840
|
|
Note 18 - Subsequent Events
Unless disclosed elsewhere within the notes to the Condensed Consolidated Financial Statements, the following are the significant matters that occurred subsequent to June 30, 2020.
Invested RC Facilities
On July 2, 2020, the Company announced that Tinuum Group sold its 49.9% ownership in a RC project to a new third party investor. The RC facility is located at a coal plant that has historically burned in excess of 2.5 million tons of coal per year. This facility is a royalty bearing facility to the Company.
Additionally, on July 15, 2020, the Company announced that Tinuum Group completed a lease for an additional RC facility. The RC facility is located at a coal plant that has historically burned in excess of 2.0 million tons of coal per year. With this addition, Tinuum Group has 21 invested facilities in full-time operation.