Strong Refined Coal Distributions and
Royalty Income Highlight QuarterMarked by Net Income of $5.5
Million or $0.28 per diluted share
Advanced Emissions Solutions, Inc. (NASDAQ: ADES) (the "Company" or
"ADES") today filed its Quarterly Report on Form 10-Q and reported
financial results for the third quarter ended September 30,
2018, including information about its equity investments in Tinuum
Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum
Services") (collectively "Tinuum"), of which ADES owns 42.5% and
50%, respectively.
Tinuum & Refined Coal (“RC”)
Highlights
- As previously announced in October, Tinuum Group obtained a
third party tax equity investor for an RC facility previously in
the installation phase, increasing the number of invested
facilities to 19; this RC facility is royalty bearing and is
located at a coal-burning power plant that has historically burned
in excess of 3.0 million tons of coal per year;
- Tinuum distributions to ADES were $9.4 million during the third
quarter of 2018, and $37.6 million year to date, a decrease of 21%
for the quarter and an increase of 1% year to date, respectively,
from the prior year;
- Royalty earnings from Tinuum were $4.1 million for the third
quarter of 2018, 46% increase from the same quarter in 2017;
- Tinuum invested tonnage was 16.8 million during the third
quarter of 2018 compared to 13.3 million during the same quarter in
2017;
- Based on the 18 invested RC facilities as of September 30,
2018 and cash distributions occurring in the three months ended
September 30, 2018, expected future net RC cash flows to ADES
are projected to be between $225 million and $250 million through
the end of 2021.
ADES Consolidated
Highlights
- Recognized consolidated revenue of $5.1 million for the
quarter, an increase of 1% from the prior year's comparable
quarter. The increase was primarily due to greater chemicals
revenue and higher royalty earnings from Tinuum. Partially
offsetting this increase was the recognition of remaining equipment
system revenues as of December 31, 2017.
- Other operating expenses were $4.2 million during the third
quarter of 2018 which were flat when compared to the same quarter
in 2017, as incremental restructuring charges of $1.1 million were
offset by lower legal and professional fees as well as lower
general and administrative expenses;
- Achieved consolidated pre-tax income and net income of $9.4
million and $5.5 million, respectively, for the quarter, resulting
in earnings per diluted share of $0.28, which is consistent with
that of the prior year;
- Increased cash and cash equivalents to $31.9 million as of
September 30, 2018; an increase of $1.2 million since
December 31, 2017, which is after cash usage for dividends and
stock repurchase that totaled over $26.4 million for the nine month
period ended September 30, 2018;
L. Heath Sampson, President and CEO of ADES
commented, “Distributions and royalties from our Refined Coal
business and valued joint venture with Tinuum Group have remained
robust as we remain focused on securing additional investors for
our remaining idle units. As our first priority, these cash flows
facilitate our capital allocation initiatives and commitment to
distributing value for our shareholders. While it is difficult to
provide a cadence for the timing of these closures, we continue to
be encouraged by both the quantity and quality of potential refined
coal tax equity investors as well their ongoing engagement in
discussions and the related impact to the monetization closing
cadence through at least 2019.”
Sampson continued, “Also as previously
announced, in October Tinuum contracted a closure of an additional
RC facility with a third-party tax equity investor. Similar to the
prior closure, this facility was one of the units discussed that
had entered the engineering and installation phase. While this
process requires the upfront use of cash and subsequently lowers
distributable earnings to Tinuum’s equity members, we view Tinuum’s
ability to secure investors for these units as evidence that the
pipeline and market for these facilities appears to remain
strong.”
Third quarter revenues and costs of revenues
were $5.1 million and $1.0 million, respectively, compared with
$5.1 million and $2.0 million in the third quarter of 2017. Revenue
was positively impacted by higher chemicals revenue as well as
third quarter royalty earnings from Tinuum of $4.1 million, an
increase of 46% compared to $2.8 million in the third quarter of
2017, driven by the increased number of RC facilities and earnings
from the respective RC facilities. Offsetting these higher revenues
was the decrease in equipment revenues due to the completion of all
material equipment contracts impacting revenues as of December 31,
2017.
Third quarter other operating expenses were $4.2
million, which remained flat compared to $4.2 million in the third
quarter of 2017. Increasing other operating expenses were
restructuring charges during the three months ended
September 30, 2018 in connection with a reduction in force,
including the departure of certain executive officers and
management's further alignment of the business with strategic
objectives. This was offset by lower legal and professional fees as
well as lower general and administrative expenses.
Tinuum distributions to ADES for the third
quarter of 2018 were $9.4 million, down from $11.9 million for the
comparable quarter in 2017. Third quarter earnings from equity
method investments were $9.7 million, compared to $12.1 million for
the third quarter of 2017. The decrease in distributions and
earnings was driven primarily by an up-front cash distribution
related to an additional invested RC facility in the third quarter
of 2017 as well as higher engineering and installation costs, which
have totaled $12.2 million year to date.
Third quarter operating expenses related to the
RC business were $1.0 million, an increase of 9% compared to 2017
primarily due to increased payroll and benefits attributed to the
RC segment. RC segment operating income was $12.8 million, compared
to $14.0 million in the third quarter of 2017.
Third quarter consolidated interest expense was
$0.4 million, compared to $0.7 million in the third quarter of
2017. Third quarter income tax expense was $3.9 million, compared
to $3.6 million in the third quarter of 2017, which was driven by
an increase in the valuation allowance against the Company's
deferred tax assets and partially offset by a reduction in the
federal tax rate.
Consolidated net income for the third quarter
was $5.5 million, resulting in $0.28 per diluted earnings per
share.
As of September 30, 2018, the Company had
cash and cash equivalents of $31.9 million, an increase of 4%
compared to $30.7 million as of December 31, 2017, due
primarily to higher Tinuum royalties, which offset the stock
repurchases and dividends totaling over $26.4 million for the first
nine months of 2018.
Dividend
Today, the Board of Directors declared a
quarterly cash dividend of $0.25 per share of common stock. The
dividend is payable on December 6, 2018 to stockholders of
record at the close of business on November 20, 2018.
Conference Call and Webcast
Information
The Company has scheduled a conference call to
begin at 9:00 a.m. Eastern Time on Wednesday, November 7,
2018. The conference call will be webcast live via the Investor
section of ADES's website at www.advancedemissionssolutions.com.
Interested parties may also participate in the call by dialing
(833) 227-5845 (Domestic) or (647) 689-4072 (International)
conference ID 7979832. A supplemental investor presentation will be
available on the Company's investor relations website prior to the
start of the conference call.
About Advanced Emissions Solutions,
Inc.Advanced Emissions Solutions, Inc. serves as the
holding entity for a family of companies that provide emissions
solutions to customers in the power generation and other
industries.
ADA-ES, Inc. (“ADA”) is a wholly-owned
subsidiary of Advanced Emissions Solutions, Inc. (“ADES”) that
provides emissions control solutions for coal-fired power
generation and industrial boiler industries. With more than 25
years of experience developing advanced mercury control solutions,
ADA delivers proprietary environmental technologies, equipment and
specialty chemicals that enable coal-fueled boilers to meet
emissions regulations. These solutions enhance existing air
pollution control equipment, maximizing capacity and improving
operating efficiencies. Our track record includes securing more
than 40 US and international patents for emissions control
technology and systems and selling the most activated carbon
injection systems for power plant mercury control in North America.
For more information on ADA, and its products and services, visit
www.adaes.com.
Tinuum Group, LLC (“Tinuum Group”) is a 42.5%
owned joint venture by ADA that provides ADA’s patented Refined
Coal (“RC”) CyClean™ technology to enhance combustion of and reduce
emissions of NOx and mercury from coals in cyclone boilers and
ADA’s patented M-45™ and M-45-PC™ technologies for Circulating
Fluidized Bed boilers and Pulverized Coal boilers respectively.
Caution on Forward-Looking
StatementsThis press release contains forward-looking
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, which provides a “safe harbor” for such
statements in certain circumstances. The forward-looking statements
include projection on future RC cash flows and expectations about
potential transactions with tax-equity investors. These
forward-looking statements involve risks and uncertainties. Actual
events or results could differ materially from those discussed in
the forward-looking statements as a result of various factors
including, but not limited to, timing of new and pending
regulations and any legal challenges to or extensions of compliance
dates of them; the US government’s failure to promulgate
regulations that benefit our business; changes in laws and
regulations, IRS interpretations or guidance, accounting rules, any
pending court decisions, prices, economic conditions and market
demand; impact of competition; availability, cost of and demand for
alternative energy sources and other technologies; technical, start
up and operational difficulties; failure of the RC facilities to
produce RC; inability to sell or lease additional RC facilities;
termination of or amendments to the contracts for sale or lease of
RC facilities; decreases in the production of RC; loss of key
personnel; as well as other factors relating to our business, as
described in our filings with the SEC, with particular emphasis on
the risk factor disclosures contained in those filings. You are
cautioned not to place undue reliance on the forward-looking
statements and to consult filings we have made and will make with
the SEC for additional discussion concerning risks and
uncertainties that may apply to our business and the ownership of
our securities. The forward-looking statements speak only as to the
date of this press release.
Source: Advanced Emissions Solutions, Inc.
Investor Contact:
Alpha IR GroupChris Hodges or Ryan
Coleman312-445-2870ADES@alpha-ir.com
|
TABLE 1 |
|
Advanced Emissions Solutions, Inc. and
Subsidiaries |
Condensed Consolidated Balance
Sheets |
(Unaudited) |
|
|
|
As of |
(in
thousands, except share data) |
|
September 30, 2018 |
|
December 31, 2017 |
ASSETS |
|
|
|
|
Current
assets: |
|
|
|
|
Cash and cash
equivalents |
|
$ |
31,914 |
|
|
$ |
30,693 |
|
Receivables, net |
|
817 |
|
|
1,113 |
|
Receivables, related parties, net |
|
4,104 |
|
|
3,247 |
|
Prepaid
expenses and other assets |
|
2,631 |
|
|
1,835 |
|
Total
current assets |
|
39,466 |
|
|
36,888 |
|
Property and equipment,
net of accumulated depreciation of $1,126 and $1,486,
respectively |
|
229 |
|
|
410 |
|
Equity method
investments |
|
5,383 |
|
|
4,351 |
|
Deferred tax
assets |
|
36,008 |
|
|
38,661 |
|
Other long-term
assets |
|
2,070 |
|
|
2,308 |
|
Total
Assets |
|
$ |
83,156 |
|
|
$ |
82,618 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
660 |
|
|
$ |
1,000 |
|
Accrued
payroll and related liabilities |
|
1,970 |
|
|
1,384 |
|
Billings
in excess of costs on uncompleted contracts |
|
— |
|
|
1,830 |
|
Other
current liabilities |
|
627 |
|
|
2,664 |
|
Total
current liabilities |
|
3,257 |
|
|
6,878 |
|
Other
long-term liabilities |
|
295 |
|
|
2,285 |
|
Total
Liabilities |
|
3,552 |
|
|
9,163 |
|
Commitments and
contingencies (Note 5) |
|
|
|
|
Stockholders’ equity: |
|
|
|
|
Preferred
stock: par value of $.001 per share, 50,000,000 shares authorized,
none outstanding |
|
— |
|
|
— |
|
Common
stock: par value of $.001 per share, 100,000,000 shares authorized,
22,646,524 and 22,465,821 shares issued, and 19,921,128 and
20,752,055 shares outstanding at September 30, 2018 and December
31, 2017, respectively |
|
23 |
|
|
22 |
|
Treasury
stock, at cost: 2,725,396 and 1,713,766 shares as of September 30,
2018 and December 31, 2017, respectively |
|
(27,566 |
) |
|
(16,397 |
) |
Additional paid-in capital |
|
96,251 |
|
|
105,308 |
|
Retained
earnings (deficit) |
|
10,896 |
|
|
(15,478 |
) |
Total
stockholders’ equity |
|
79,604 |
|
|
73,455 |
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
83,156 |
|
|
$ |
82,618 |
|
TABLE 2 |
|
Advanced Emissions Solutions, Inc. and
Subsidiaries |
Condensed Consolidated Statements of
Operations |
(Unaudited) |
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in
thousands, except per share data) |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Revenues: |
|
|
|
|
|
|
|
|
Chemicals |
|
$ |
1,043 |
|
|
$ |
717 |
|
|
$ |
2,390 |
|
|
$ |
3,844 |
|
License
royalties, related party |
|
4,104 |
|
|
2,804 |
|
|
10,857 |
|
|
6,425 |
|
Equipment
sales |
|
— |
|
|
1,577 |
|
|
72 |
|
|
31,304 |
|
Total revenues |
|
5,147 |
|
|
5,098 |
|
|
13,319 |
|
|
41,573 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Chemicals
cost of revenue, exclusive of depreciation and amortization |
|
954 |
|
|
574 |
|
|
2,567 |
|
|
2,977 |
|
Equipment
sales cost of revenue, exclusive of depreciation and
amortization |
|
— |
|
|
1,467 |
|
|
(346 |
) |
|
28,260 |
|
Payroll
and benefits |
|
2,555 |
|
|
1,679 |
|
|
7,528 |
|
|
5,894 |
|
Rent and
occupancy |
|
250 |
|
|
255 |
|
|
766 |
|
|
555 |
|
Legal and
professional fees |
|
698 |
|
|
1,062 |
|
|
3,459 |
|
|
3,316 |
|
General
and administrative |
|
584 |
|
|
1,114 |
|
|
2,332 |
|
|
2,964 |
|
Depreciation and amortization |
|
74 |
|
|
87 |
|
|
262 |
|
|
687 |
|
Total operating
expenses |
|
5,115 |
|
|
6,238 |
|
|
16,568 |
|
|
44,653 |
|
Operating income
(loss) |
|
32 |
|
|
(1,140 |
) |
|
(3,249 |
) |
|
(3,080 |
) |
Other income
(expense): |
|
|
|
|
|
|
|
|
Earnings
from equity method investments |
|
9,715 |
|
|
12,120 |
|
|
37,857 |
|
|
36,089 |
|
Interest
expense |
|
(399 |
) |
|
(678 |
) |
|
(1,147 |
) |
|
(1,999 |
) |
Other |
|
86 |
|
|
(924 |
) |
|
146 |
|
|
2,492 |
|
Total other income |
|
9,402 |
|
|
10,518 |
|
|
36,856 |
|
|
36,582 |
|
Income before income
tax expense |
|
9,434 |
|
|
9,378 |
|
|
33,607 |
|
|
33,502 |
|
Income tax expense |
|
3,931 |
|
|
3,586 |
|
|
5,151 |
|
|
12,614 |
|
Net income |
|
$ |
5,503 |
|
|
$ |
5,792 |
|
|
$ |
28,456 |
|
|
$ |
20,888 |
|
Earnings per common
share (Note 1): |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.28 |
|
|
$ |
0.28 |
|
|
$ |
1.41 |
|
|
$ |
0.96 |
|
Diluted |
|
$ |
0.28 |
|
|
$ |
0.28 |
|
|
$ |
1.40 |
|
|
$ |
0.96 |
|
Weighted-average number
of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
19,726 |
|
|
20,808 |
|
|
20,090 |
|
|
21,569 |
|
Diluted |
|
19,876 |
|
|
20,854 |
|
|
20,228 |
|
|
21,598 |
|
Cash
dividends declared per common share outstanding: |
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
$ |
0.75 |
|
|
$ |
0.50 |
|
TABLE 3 |
|
Advanced Emissions Solutions, Inc. and
Subsidiaries |
Condensed Consolidated Statements of Cash
Flows |
(Unaudited) |
|
|
Nine Months Ended September 30, |
(in
thousands) |
|
2018 |
|
2017 |
Cash flows from
operating activities |
|
|
|
|
Net income |
|
$ |
28,456 |
|
|
$ |
20,888 |
|
Adjustments to
reconcile net income to net cash used in operating activities: |
|
|
|
|
Deferred
tax expense from change in valuation allowance |
|
2,731 |
|
|
— |
|
Depreciation and amortization |
|
262 |
|
|
687 |
|
Debt
prepayment penalty and amortization of debt issuance costs |
|
— |
|
|
109 |
|
Impairment of cost method investment |
|
— |
|
|
464 |
|
Provision
for bad debt expense |
|
153 |
|
|
— |
|
Stock-based compensation expense |
|
1,929 |
|
|
1,648 |
|
Earnings
from equity method investments |
|
(37,857 |
) |
|
(36,089 |
) |
Other
non-cash items, net |
|
37 |
|
|
436 |
|
Changes
in operating assets and liabilities: |
|
|
|
|
Receivables |
|
482 |
|
|
7,027 |
|
Related
party receivables |
|
(857 |
) |
|
(869 |
) |
Prepaid
expenses and other assets |
|
(797 |
) |
|
(513 |
) |
Costs
incurred on uncompleted contracts |
|
15,945 |
|
|
27,081 |
|
Deferred
tax assets, net |
|
(966 |
) |
|
11,086 |
|
Other
long-term assets |
|
— |
|
|
(766 |
) |
Accounts
payable |
|
(340 |
) |
|
(603 |
) |
Accrued
payroll and related liabilities |
|
587 |
|
|
(825 |
) |
Other
current liabilities |
|
(1,974 |
) |
|
(917 |
) |
Billings
on uncompleted contracts |
|
(15,945 |
) |
|
(30,140 |
) |
Other
long-term liabilities |
|
(157 |
) |
|
147 |
|
Legal
settlements and accruals |
|
— |
|
|
(11,606 |
) |
Distributions from equity method investees, return on
investment |
|
4,000 |
|
|
3,675 |
|
Net cash
used in operating activities |
|
(4,311 |
) |
|
(9,080 |
) |
Cash flows from
investing activities |
|
|
|
|
Distributions from equity method investees in excess of cumulative
earnings |
|
33,575 |
|
|
33,363 |
|
Acquisition of property, equipment and intangibles, net |
|
(191 |
) |
|
(343 |
) |
Purchases
of and contributions to equity method investees |
|
(750 |
) |
|
(61 |
) |
Net cash
provided by investing activities |
|
32,634 |
|
|
32,959 |
|
Cash flows from
financing activities |
|
|
|
|
Dividends
paid |
|
(15,226 |
) |
|
(10,458 |
) |
Repurchase of common shares |
|
(11,169 |
) |
|
(13,024 |
) |
Repurchase of common shares to satisfy tax withholdings |
|
(707 |
) |
|
(518 |
) |
Borrowings on Line of Credit |
|
— |
|
|
808 |
|
Repayments on Line of Credit |
|
— |
|
|
(808 |
) |
Net cash
used in financing activities |
|
(27,102 |
) |
|
(24,000 |
) |
Increase
(decrease) in Cash and Cash Equivalents and Restricted Cash |
|
1,221 |
|
|
(121 |
) |
Cash and Cash
Equivalents and Restricted Cash, beginning of period |
|
30,693 |
|
|
26,944 |
|
Cash and Cash
Equivalents and Restricted Cash, end of period |
|
$ |
31,914 |
|
|
$ |
26,823 |
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
Cash paid
for interest |
|
$ |
1,020 |
|
|
$ |
2,391 |
|
Cash paid
for income taxes |
|
$ |
4,756 |
|
|
$ |
1,160 |
|
Supplemental disclosure
of non-cash investing and financing activities: |
|
|
|
|
Dividends
declared, not paid |
|
$ |
85 |
|
|
$ |
93 |
|
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