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 second quarter ended June 30, 2016,
including information about its joint-venture partnerships, Clean
Coal Solutions, LLC (“CCS”) and Clean Coal Solutions Services, LLC
(“CCSS”), of which ADES owns 42.5% and 50%, respectively.
CCS & Refined Coal (“RC”)
Highlights
- CCS & CCSS distributions to ADES were $15.9 million during
the second quarter of 2016, an increase of $11.2 million from the
comparable period in 2015
- Royalty earnings from CCS were $0.7 million
- CCS invested tonnage was 9.4 million
- RC Segment operating income was $14.2 million, including a $2.1
million gain on sale of RCM6
- Completed the transition of one investor from a lower tonnage,
non-royalty producing RC facility to a higher tonnage, royalty
producing facility, which resulted in a $7.0 million payment to
ADES during the period
- Future expected aggregated rent payments to CCS updated to $639
million through the end of 2021
ADES Consolidated
Highlights
- Recognized consolidated revenue of $9.0 million
- Reduced general and administrative operating costs to $7.8
million, a decrease of 58% compared to the second quarter of
2015
- Achieved consolidated net income of $7.9 million
- Recently announced continued execution against cost containment
strategy, resulting in expected annualized expense savings of
approximately $2.1 million - $2.4 million
- Reached an agreement in principle with the SEC Staff to settle
the SEC Inquiry, subject to final approval by the SEC, for $0.5
million
- Reached agreements to settle ongoing shareholder and derivative
lawsuits, subject to final approval by applicable courts, for $4.0
million and $0.6 million, respectively, all of which are expected
to be paid by the Company’s insurers
- Listing of common stock on the NASDAQ Global Market
- Completed goal to eliminate debt through the payment and
subsequent termination of the credit agreement
- Continued to validate and expand the pipeline for M-Prove™
chemicals business
L. Heath Sampson, President and CEO of ADES
commented, “We’ve spent the last year transforming our business and
we began to see the impact of our cost containment efforts this
quarter as we delivered consolidated net income of $7.9 million
compared to a loss of $12.4 million in last year’s second
quarter. Our recent announcement of further headcount and
cost reductions was the next planned step in aligning our cost
structure and we remain on track with our goal to lower our go
forward operating cost basis to between $12 to $14 million, once
our cost containment plan is fully executed. While we aren’t
satisfied with our success in converting new refined coal tax
equity investors, we are pleased with our progress internally and
believe that we are positioning the Company for long-term
success.”
Second quarter revenues and costs of revenues
were $9.0 million and $5.8 million, a decrease of 40% and 59%,
respectively, compared with $14.9 million and $14.0 million in the
second quarter of 2015. The decreases were primarily the result of
the completion of several large equipment related contracts. Second
quarter other operating expenses were $7.8 million, a decrease of
58% compared to $18.7 million in the second quarter of 2015. The
decreases were primarily the result of ongoing cost containment
initiatives and reduced restatement costs. Moving forward,
restatement costs are not expected to be material.
Second quarter earnings from equity method
investments were $13.8 million, compared to $4.9 million for the
second quarter of 2015. Second quarter royalty earnings from
CCS were $0.7 million, a decrease of 71% compared to $2.3 million
in the second quarter of 2015, due to reduced refined coal tonnage
and the increase in operating expenses of CCS. The increase
in operating expenses of CCS was the result of a payment made that
was necessary to secure the transition of an existing tax equity
investor to a higher tonnage RC facility. Second quarter
expenses related to the RC business were $0.4 million, a decrease
of 76% compared to $1.7 million in the second quarter of 2015 due
to no longer incurring interest expense related to RCM6 as it was
sold in the first quarter of 2016, and a decrease in 453A interest
expense. RC segment operating income was $14.2 million, which
included a $2.1 million gain on sale of RCM6, compared to segment
operating income of $5.2 million in the second quarter of 2015.
Second quarter consolidated interest expense was
$1.6 million, compared to $1.8 million in the second quarter of
2015.
Consolidated net income for the second quarter
was $7.9 million, compared to a net loss of $12.4 million in the
second quarter of 2015, primarily driven by equity income from the
RC business and significantly reduced operating expenses in the
Emissions Control business as well as corporate expenses.
As of June 30, 2016, the Company had cash
and cash equivalents of $2.2 million, a decrease of 76% compared to
$9.3 million as of December 31, 2015, due primarily to the
repayment and termination of the Company’s credit agreement in its
entirety, including debt principal payments of $13.3 million.
The Company also had $11.2 million in current and long-term
restricted cash as of June 30, 2016, compared to $11.7 million
as of December 31, 2015. In July 2016, $2.4 million of
restricted cash was released to the Company as it met all
performance testing requirements on certain equipment projects
during the second quarter of 2016. Upon release, the cash was
included in the cash and cash equivalents line item on the
Condensed Consolidated Balance Sheets.
Sampson concluded, “As we review our progress
over the first six months of the year, exclusive of the performance
of increasing invested RC facilities at CCS, I’m very proud of our
accomplishments. We have made tremendous progress on multiple
fronts, including becoming current on our financials, nearing
settlement of the shareholder and derivative litigation and SEC
inquiry, and relisting on the NASDAQ. We’ve also continued to
validate the market for our Emissions Controls business and now
believe that the opportunities for our chemicals business are even
larger than we initially expected. We’ve done that while
simultaneously reducing our general and administrative operating
costs by 58 percent this quarter and 49 percent over the last six
months. Lastly, we’ve enhanced our financial profile through
the elimination of debt. We remain diligently focused on
obtaining new refined coal tax equity investors and believe that
the recent increase in natural gas prices should help us execute
against our sales pipeline.”
Conference Call and Webcast
Information
The Company has scheduled a conference call to
begin at 9:00 a.m. Eastern Time on Wednesday, August 10,
2016. The conference call will be webcast live via the
Investor Information section of ADES's website at
www.advancedemissionssolutions.com. Interested parties may also
participate in the call by dialing (877) 201-0168 (Domestic) or
(647) 788-4901 (International) conference ID 52464588. 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 30 US 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, its products and services,
visit www.adaes.com or the ADA Blog
(http://blog.adaes.com/).
Clean Coal Solutions, LLC (“CCS”) 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 patent pending
M-45™ and M-45-PC™ technologies for Circulating Fluidized boilers
and Pulverized Coal boilers respectively.
Caution on Forward-Looking Statements
This 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 statements or
expectations regarding future rent payments to CCS, execution
against our pipeline of tax-equity investors, expectations of the
size of the chemicals market, our sales pipeline and ability to
sell products and increase revenue in the Emissions Control
business, the expected results and timing of our cost containment
initiatives and restructuring efforts, and payments of litigation
settlement amounts by our insurers. These statements are based on
current expectations, estimates, projections, beliefs and
assumptions of our management. Such statements involve significant
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
changes in laws, regulations and IRS interpretations or guidance;
economic conditions and market demand; failure of the RC facilities
to produce coal that qualifies for tax credits; decreases in the
production of RC; availability, cost of and demand for alternative
tax credit vehicles and other technologies; seasonality; customer
expectations; the value of our products, technologies and
intellectual property to customers and strategic investors;
non-approval of our litigation settlements by the courts or SEC;
significant opt-outs by class members in our stockholders class
action lawsuit; and other factors discussed in greater detail in
our filings with the SEC. You are cautioned not to place undue
reliance on such statements and to consult our SEC filings for
additional risks and uncertainties that may apply to our business
and the ownership of our securities. Our forward-looking statements
are presented as of the date made, and we disclaim any duty to
update such statements unless required by law to do so.
TABLE 1 |
Advanced Emissions Solutions, Inc. and
Subsidiaries |
Condensed Consolidated Balance
Sheets |
(Unaudited) |
|
|
|
As of |
(in
thousands, except share data) |
|
June 30, 2016 |
|
December 31, 2015 |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
2,221 |
|
|
$ |
9,265 |
|
Receivables, net |
|
8,950 |
|
|
8,361 |
|
Receivables, related parties,
net |
|
444 |
|
|
1,918 |
|
Restricted cash |
|
4,469 |
|
|
728 |
|
Costs in excess of billings on
uncompleted contracts |
|
1,254 |
|
|
2,137 |
|
Prepaid expenses and other
assets |
|
1,781 |
|
|
2,306 |
|
Total current assets |
|
19,119 |
|
|
24,715 |
|
Restricted cash,
long-term |
|
6,700 |
|
|
10,980 |
|
Property and equipment,
net of accumulated depreciation of $2,528 and $4,557,
respectively |
|
1,218 |
|
|
2,040 |
|
Investment securities,
restricted, long-term |
|
— |
|
|
336 |
|
Cost method
investment |
|
2,776 |
|
|
2,776 |
|
Equity method
investments |
|
3,081 |
|
|
17,232 |
|
Other assets |
|
3,714 |
|
|
2,696 |
|
Total Assets |
|
$ |
36,608 |
|
|
$ |
60,775 |
|
LIABILITIES AND
STOCKHOLDERS’ DEFICIT |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
3,263 |
|
|
$ |
6,174 |
|
Accrued payroll and related
liabilities |
|
3,413 |
|
|
5,800 |
|
Current portion of notes payable,
related parties |
|
— |
|
|
1,837 |
|
Billings in excess of costs on
uncompleted contracts |
|
5,112 |
|
|
9,708 |
|
Short-term borrowings, net of
discount and deferred loan costs, related party |
|
— |
|
|
12,676 |
|
Legal settlements and accruals |
|
11,470 |
|
|
6,502 |
|
Other current liabilities |
|
7,012 |
|
|
7,395 |
|
Total current liabilities |
|
30,270 |
|
|
50,092 |
|
Long-term portion of
notes payable, related party |
|
— |
|
|
13,512 |
|
Legal settlements and
accruals, long-term |
|
11,596 |
|
|
13,797 |
|
Advance deposit,
related party |
|
2,362 |
|
|
2,980 |
|
Other long-term
liabilities |
|
2,871 |
|
|
5,372 |
|
Total Liabilities |
|
47,099 |
|
|
85,753 |
|
Commitments and
contingencies (Note 8) |
|
|
|
|
Stockholders’ deficit: |
|
|
|
|
Preferred stock: par value of $.001
and no par value per share, respectively, 50,000,000 shares
authorized, none outstanding |
|
— |
|
|
— |
|
Common stock: par value of $.001
per share, 100,000,000 shares authorized, 22,241,474 and 21,943,872
shares issued, and21,967,969 and 21,809,164 shares outstanding at
June 30, 2016 and December 31, 2015, respectively |
|
22 |
|
|
22 |
|
Additional paid-in capital |
|
118,280 |
|
|
116,029 |
|
Accumulated deficit |
|
(128,793 |
) |
|
(141,029 |
) |
Total stockholders’ deficit |
|
(10,491 |
) |
|
(24,978 |
) |
Total Liabilities and Stockholders’
Deficit |
|
$ |
36,608 |
|
|
$ |
60,775 |
|
TABLE 2 |
Advanced Emissions Solutions, Inc. and
Subsidiaries |
Condensed Consolidated Statements of
Operations |
(Unaudited) |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(in
thousands, except per share data and percentages) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Revenues: |
|
|
|
|
|
|
|
|
Equipment sales |
|
$ |
8,213 |
|
|
$ |
14,236 |
|
|
$ |
29,919 |
|
|
$ |
35,351 |
|
Chemicals |
|
613 |
|
|
343 |
|
|
1,047 |
|
|
617 |
|
Consulting services and other |
|
125 |
|
|
316 |
|
|
320 |
|
|
684 |
|
Total revenues |
|
8,951 |
|
|
14,895 |
|
|
31,286 |
|
|
36,652 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Equipment sales cost of revenue,
exclusive of depreciation and amortization |
|
5,437 |
|
|
13,698 |
|
|
22,470 |
|
|
28,749 |
|
Chemicals cost of revenue,
exclusive of depreciation and amortization |
|
255 |
|
|
41 |
|
|
396 |
|
|
278 |
|
Consulting services cost of
revenue, exclusive of depreciation and amortization |
|
77 |
|
|
264 |
|
|
212 |
|
|
690 |
|
Payroll and benefits |
|
3,956 |
|
|
9,746 |
|
|
7,759 |
|
|
14,657 |
|
Rent and occupancy |
|
632 |
|
|
601 |
|
|
1,026 |
|
|
1,232 |
|
Legal and professional fees |
|
1,982 |
|
|
4,387 |
|
|
4,965 |
|
|
8,122 |
|
General and administrative |
|
1,346 |
|
|
1,503 |
|
|
2,092 |
|
|
3,385 |
|
Research and development, net |
|
(345 |
) |
|
1,860 |
|
|
(143 |
) |
|
3,110 |
|
Depreciation and amortization |
|
223 |
|
|
573 |
|
|
454 |
|
|
1,104 |
|
Total operating
expenses |
|
13,563 |
|
|
32,673 |
|
|
39,231 |
|
|
61,327 |
|
Operating loss |
|
(4,612 |
) |
|
(17,778 |
) |
|
(7,945 |
) |
|
(24,675 |
) |
Other income
(expense): |
|
|
|
|
|
|
|
|
Earnings from equity method
investments |
|
13,754 |
|
|
4,860 |
|
|
19,331 |
|
|
5,174 |
|
Royalties, related party |
|
669 |
|
|
2,299 |
|
|
1,859 |
|
|
4,493 |
|
Interest income |
|
95 |
|
|
6 |
|
|
118 |
|
|
18 |
|
Interest expense |
|
(1,573 |
) |
|
(1,794 |
) |
|
(3,537 |
) |
|
(3,569 |
) |
Gain on sale of equity method
investment |
|
— |
|
|
— |
|
|
2,078 |
|
|
— |
|
Gain on settlement of note payable
and licensed technology |
|
151 |
|
|
— |
|
|
1,019 |
|
|
— |
|
Other |
|
(525 |
) |
|
23 |
|
|
(535 |
) |
|
87 |
|
Total other income |
|
12,571 |
|
|
5,394 |
|
|
20,333 |
|
|
6,203 |
|
Income (loss) before
income tax expense |
|
7,959 |
|
|
(12,384 |
) |
|
12,388 |
|
|
(18,472 |
) |
Income tax expense |
|
99 |
|
|
63 |
|
|
152 |
|
|
107 |
|
Net income (loss) |
|
$ |
7,860 |
|
|
$ |
(12,447 |
) |
|
$ |
12,236 |
|
|
$ |
(18,579 |
) |
Earnings (loss) per
common share (Note 1): |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.36 |
|
|
$ |
(0.57 |
) |
|
$ |
0.55 |
|
|
$ |
(0.85 |
) |
Diluted |
|
$ |
0.35 |
|
|
$ |
(0.57 |
) |
|
$ |
0.55 |
|
|
$ |
(0.85 |
) |
Weighted-average number
of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
21,875 |
|
|
21,715 |
|
|
21,895 |
|
|
21,728 |
|
Diluted |
|
22,187 |
|
|
21,715 |
|
|
22,204 |
|
|
21,728 |
|
TABLE 3 |
Advanced Emissions Solutions, Inc. and
Subsidiaries |
Condensed Consolidated Statements of Cash
Flows |
(Unaudited) |
|
|
|
Six Months Ended June 30, |
(in
thousands) |
|
2016 |
|
2015 |
Cash flows from
operating activities |
|
|
|
|
Net income (loss) |
|
$ |
12,236 |
|
|
$ |
(18,579 |
) |
Adjustments to reconcile
net income (loss) to net cash used in operating activities: |
|
|
|
|
Depreciation and amortization |
|
454 |
|
|
1,104 |
|
Amortization of debt issuance
costs |
|
1,152 |
|
|
50 |
|
Impairment of property and
equipment and inventory |
|
517 |
|
|
46 |
|
Interest costs added to principal
balance of notes payable |
|
— |
|
|
432 |
|
Share-based compensation
expense |
|
1,543 |
|
|
5,459 |
|
Earnings from equity method
investments |
|
(19,331 |
) |
|
(5,174 |
) |
Gain on sale of equity method
investment |
|
(2,078 |
) |
|
— |
|
Gain on settlement of note payable
and licensed technology |
|
(1,019 |
) |
|
— |
|
Other non-cash items, net |
|
34 |
|
|
688 |
|
Changes in operating assets and
liabilities, net of effects of acquired businesses: |
|
|
|
|
Receivables |
|
(627 |
) |
|
7,625 |
|
Related party receivables |
|
1,473 |
|
|
(226 |
) |
Prepaid expenses and other
assets |
|
806 |
|
|
(460 |
) |
Costs incurred on uncompleted
contracts |
|
17,201 |
|
|
2,363 |
|
Restricted cash |
|
1,089 |
|
|
(709 |
) |
Other long-term assets |
|
(2,630 |
) |
|
231 |
|
Accounts payable |
|
(2,910 |
) |
|
2,713 |
|
Accrued payroll and related
liabilities |
|
(1,596 |
) |
|
1,651 |
|
Other current liabilities |
|
(101 |
) |
|
1,348 |
|
Billings on uncompleted
contracts |
|
(20,910 |
) |
|
(9,420 |
) |
Advance deposit, related party |
|
(618 |
) |
|
(1,496 |
) |
Other long-term liabilities |
|
(1,336 |
) |
|
19 |
|
Legal settlements and accruals |
|
2,767 |
|
|
(1,472 |
) |
Distributions from equity method
investees, return on investment |
|
5,900 |
|
|
19 |
|
Net cash used in operating
activities |
|
(7,984 |
) |
|
(13,788 |
) |
Cash flows from
investing activities |
|
|
|
|
Maturity of investment securities,
restricted |
|
336 |
|
|
— |
|
Increase in restricted cash |
|
(550 |
) |
|
(1,200 |
) |
Acquisition of property and
equipment, net |
|
(111 |
) |
|
(380 |
) |
Advance on note receivable |
|
— |
|
|
(500 |
) |
Acquisition of business |
|
— |
|
|
(2,124 |
) |
Purchase of and contributions to
equity method investees |
|
(223 |
) |
|
(230 |
) |
Proceeds from sale of equity method
investment |
|
1,773 |
|
|
— |
|
Distributions from equity method
investees in excess of cumulative earnings |
|
14,875 |
|
|
4,730 |
|
Net cash provided by investing
activities |
|
16,100 |
|
|
296 |
|
Cash flows from
financing activities |
|
|
|
|
Repayments on short-term
borrowings, related party |
|
(13,250 |
) |
|
— |
|
Repayments on notes payable,
related party |
|
(1,246 |
) |
|
(1,014 |
) |
Short-term borrowing loan
costs |
|
(579 |
) |
|
— |
|
Repurchase of shares to satisfy tax
withholdings |
|
(85 |
) |
|
(262 |
) |
Net cash used in financing
activities |
|
(15,160 |
) |
|
(1,276 |
) |
Decrease in Cash and Cash
Equivalents |
|
(7,044 |
) |
|
(14,768 |
) |
Cash and Cash
Equivalents, beginning of period |
|
9,265 |
|
|
25,181 |
|
Cash and Cash
Equivalents, end of period |
|
$ |
2,221 |
|
|
$ |
10,413 |
|
Supplemental
disclosures of cash information: |
|
|
|
|
Cash paid for interest |
|
$ |
1,436 |
|
|
$ |
2,993 |
|
Cash paid (refunded) for income
taxes |
|
$ |
(72 |
) |
|
$ |
146 |
|
Supplemental disclosure
of non-cash investing and financing activities: |
|
|
|
|
Restricted stock award
reclassification (liability to equity) |
|
$ |
899 |
|
|
$ |
— |
|
Settlement of RCM6 note
payable |
|
$ |
13,234 |
|
|
$ |
— |
|
Non-cash reduction of equity method
investment |
|
$ |
11,156 |
|
|
$ |
— |
|
Investor Contact:
Alpha IR Group
Nick Hughes or Chris Hodges
312-445-2870
ADES@alpha-ir.com
Advanced Emissions Solut... (NASDAQ:ADES)
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Advanced Emissions Solut... (NASDAQ:ADES)
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