Edited Transcript of ADES earnings conference call or presentation 7-May-19 1:00pm GMT

In the RC segment, distributions were at string with our expectations. Distributions were higher year-over-year although a arise of extra invested RC installation at both the second half of 2018 also although the previously announced closure at January 2019. Additionally, equity revenue increased significantly year-over-year and was driven by the extra RC facilities, besides it was also impacted by the adoption of new accounting standards by Tinuum Group. Greg will journal this modify at greater detail at a moment, besides the key takeaway is that there will be no shock ought the total amount of cash we accumulate -- we desire ought accumulate from Tinuum.

Our cash site was up slightly from the purpose of 2018 in spite of our dividends, farther section repurchases, repayment of long-term borrowings and integration costs. We ended the first zone with total cash remains of $25.9 million, an amplify of $2.1 million from the purpose of 2018. although it had been a key paper although few lodging now, we remain committed ought returning leading ought our shareholders. during the quarter, we paid our quarterly dividend and repurchased at 63,000 shares although a total of nearly $700,000. Going forward, we remain committed ought the dividend and opportunistic section buybacks below the authorization we announced at November.

As we emerge dispatch ought the remains of the year, our leading priorities remain focused above future RC closures, integrating and scaling the Carbon Solutions acquisition, opportunistic buybacks, dividend payments and paying down the debt.

In the Refined Coal segment, the total amount of invested installation currently stands at 20. The new facility that Tinuum contracted at January has a few at 3.5 million tons per year and although previously announced, the facility is royalty bearing.

As we further into 2019, we remain committed ought adding 12 million incremental annual tons of refined coal at 2019. We delivered 3.5 million at January, desire another 3 million ought 4 million tons next month and design ought send the remaining preceding ought year-end.

Let's now carry ought the strength Generation & Industrials or PGI segment. The first zone marked our first total zone with our newly acquired activated carbon assets. at the first quarter, we recognized section revenue of $14.6 million. We're at 4 months into the acquisition, and we are identical pleased with the integration further ought engagement also although the initial successes we're beginning ought shout on although a total mercury control solutions provider.

Renewals with existing customers scan been identical encouraging and the string of scene ought continued incremental wins is at front of us. Additionally, we thrive ought be encouraged by the overall reception ought the combined corporation within the marketplace and that believe we scan a large long-term opportunities ought significantly become the PGI section and fully use our best-in-class manufacturing factory and feedstock mine at Northern Louisiana.

We remain excited by the activated carbon just within the strength industry and other total adjacent markets. We shout on a pathway although growth that continues ought competition our near-term initial expectations and potentially surpass our longer-term expectations.

We're executing above our integration design that is focused above exact integration, no bolt-on integration. We are focused above eliminating duplication and creating one effective economical and operating platform. although it has been and will thrive ought be a sentence of work, our employees are committed and excited nearly the future.

Additionally, we scan received regulation sure passenger feedback nearly our new total lodging of manufacture capabilities, and we are beginning ought shout on the competitive advantages of being a total mercury solutions provider at this marketplace. This feedback is no simply talk, it has enabled us ought renew at 90% of our contracts and acquire incremental volume. at fact, our customers are flat asking us ought assistance them beyond mercury control.

Before I carry the shout at ought Greg, I'd alike ought receive a minute ought greet Brian Leen and Carol Eicher ought our Board of Directors. Both scan significant specialty chemicals undergo and are highly respected executives. Brian joins us from the Carbon Solutions team and has about 25 years of undergo at specialty chemicals industry at various commercial and affair leadership roles. Today, he's principal and CEO of Gopher Resource, a leading provider of environmental solutions ought the automotive and industrial battery manufacture industry.

Carol brings a assets of global manufacturing, operations, mergers and acquisitions undergo from her CEO and other senior leadership at Innocor, Dow drug DuPont, Rohm and Haas, and Ashland Chemical. Carol also has deep Board of Director experience. She currently serves above a midsized personal equity-backed plastics corporation at Tennant, a large New York Stock Exchange drug company. Both individuals used to be incredibly valuable additions ought our Board although we enter this next aspect of creating long-term shareholder value.

With that, I'll carry the shout at ought Greg ought cover the economical results from the first quarter.

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Greg P. Marken, Advanced Emissions Solutions, Inc. - CFO, Secretary & Treasurer [4]

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Thanks, Heath. Let's begin above glide 5 although our first zone economical review. revenue from equity mode investments were significantly higher although a arise of the 3 extra installation period-over-period, and although Heath mentioned, a modify at Tinuum's accounting practices. Tinuum group adopted the new revenue and let standards although of January 1, 2019. although a result, we recorded a cumulative adjustment of $28.8 million related ought our company's percent of Tinuum Group's cumulative result adjustment that increased the company's retained revenue and investment remains related ought Tinuum group although of the adoption date.

Based above the impacts of this adoption, we no longer scan cumulative cash distributions at excess of our cumulative pro rata section of Tinuum Group's net income, consequently we've recognized equity revenue by recording our pro rata section of Tinuum Group's net revenue fairly than revenue being based above cash distributions although the 3 months ended March 31, 2019.

As Heath mentioned, this does no affect the timing or the total projected cash flows from Tinuum ought the corporation besides affects the accounting treatment of our pro rata section of revenue and the cash distributions. Absent this accounting change, Tinuum Group's equity revenue used to scan equaled $16.8 million fairly than $19.8 million. That amplify is nearly 37% higher than equity revenue at the preceding year, which totaled $11.1 million.

In the PGI segment, consumables revenue was $14.6 million, higher from the preceding period, driven by the contributions from Carbon Solutions. This climax string arise was at string with our expectations. First zone total corporation revenue and revenue of revenue were $19.3 million and $14.1 million, respectively, compared ought $3.9 million and $0.6 million at the first zone of 2018.

Revenue although the first -- revenues although the first zone were higher year-over-year owing ought the impacts of the acquisition also although higher royalty revenue coming from a greater amount of royalty-bearing RC facilities. at fact, royalty revenue from Tinuum of $4.2 million were at 30% higher compared ought the $3.2 million arise at the preceding year's quarter. during the first quarter, we had 13 RC installation generating royalties compared ought 10 during the equal epoch at 2018.

As previously mentioned, the extra RC facility treaty completed at January added ought this total, and although we scan said, total future RC closures are expected ought be royalty-bearing units. Long-term royalty revenue expectations thrive ought be nearly $0.40 per ton.

As of March 31, 2019, expected future cash flows from Tinuum are projected ought be between $200 million and $225 million across the purpose of 2021. We shout on latent ought add ought this cash run with each extra facility and although each incremental facility can grow on, we scan latent ought add between $5 million ought $7 million per year ought the company.

Our operating expenses were $8.8 million compared ought $5 million at the first zone of 2018. The year-over-year amplify is mainly owing ought the acquisition of Carbon Solutions. at the PGI segment, our section operating loss was $3.5 million, a reduce of $2.5 million at the first zone of 2018 and was negatively impacted by an adjustment of $3.4 million ought revenue of sales owing ought an amplify at the base of inventory acquired related ought buy accounting.

Segment EBITDA was $1.4 million -- was a loss of $1.4 million, an amplify of $0.5 million at the first zone of 2018. Excluding the impacts of the buy accounting adjustment, PGI section operating revenue would've been a loss of $0.1 million and PGI section EBITDA used to scan been $2 million.

As a reminder, the PGI affair does contain seasonality driven by overall strength demand. Heath will controversy it a section more later, besides generally, the third and fourth zone will be the periods of the highest ask related ought utility customers.

First zone pretax net revenue was $16.1 million compared ought $10.2 million from the preceding year. Net revenue although the first zone was $14.4 million compared ought net revenue of $7.7 million although the first zone of 2018. The amplify at net revenue was driven by higher royalty earnings, consumables revenue, equity revenue and a lower revenue tax price compared ought 2018.

Looking at our cash position, although of March 31, 2019, the corporation had total available cash of $20.7 million and restricted cash of $5.2 million although a total of $25.9 million, slightly higher than the $23.8 million although of December 31, 2018. This amplify is inclusive of dividends paid and section repurchase activities, which totaled $5.3 million also although chief and advantage payments related ought the language lend and leading leases. although a reminder above the restricted cash portion, the $5.2 million of long-term restricted cash remains greatly owing ought the minimum cash remains restrictions stemming from the language loan.

Turning ought a journal of our debt. We entered into a $70 million 3-year language lend ought fund the acquisition of Carbon Solutions. This language lend has mandatory amortization requirements, which we will greet mainly across our Tinuum cash flows, and we thrive ought believe we'll revenue down this lend preceding ought the purpose of the 3-year term.

During the quarter, we made our first $6 million quarterly chief payment. at zone end, our remaining chief remains above the language lend was $64 million. although previously mentioned, although of January 1, 2019, we adopted the new let standard that causes total entities ought explain total leases above the remains sheet, no just financing leases. although such, we recorded an extra $7 million of leases although of January 1, 2019.

Lastly, we will thrive ought be opportunistic with our section repurchase activity based upon the currently authorized repurchase program, besides we can also prioritize debt paydown at the shorter term.

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L. Heath Sampson, Advanced Emissions Solutions, Inc. - CEO, principal & Director [5]

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Well, thanks, Greg. I'd alike ought receive a minute ought controversy our future outlook.

Let's carry ought glide 7 and briefly controversy the refined coal backdrop. although we scan previously discussed at the final few quarters, we thrive ought shout on tailwinds surrounding Tinuum's efforts ought total extra facilities. These tailwinds are the arise of IRS tax clarification achieved at early 2018 and increasing clarity above sure food within the tax bill, which has helped tax equity investors better know the exact shock of tax reform above their businesses.

On the other hand, our biggest challenge ought obtaining new tax equity investors remains the public and political stigma of being associated with coal-fired strength generation. Tinuum factory difficult ought teach prospective investors that this tax incentive was instrumental at enabling the development of mercury control technologies and although a whole, refined coal really helps ought lessen harmful emissions.

Turning ought glide 8, you can shout on the amount of invested installation versus the amount of waiting although tax equity investor or waiting ought be installed although of March 31, 2019.

So although of today, we scan 20 invested installation and 8 uninvested. ought maximize this refined coal occur and advantage extra investors although the remaining units, Tinuum has proactively installed installation at preparation although investment, and 2 are currently at the equipment phase. during 2018, Tinuum spent nearly $17 million related ought leading expenditures, about total of which was engineering and equipment costs.

Tinuum and its members, including us, used to certainly no be incurring these costs if we were no confident that we will translate into future invested RC facilities. We scan active ongoing conversations with latent tax equity investors although few facilities. ought we finalize deals above our recent discussions, they scan the latent ought add extra 8 million ought 9 million tons ought Tinuum's total at 2019, bringing the total incremental annual tons ought nearly 12 million. Again, we desire ought total an extra facility at the 3 million ought 4 million ton hill next month.

Let's carry ought glide 10 although an update of our expected future RC cash flows. although of March 31, 2019 and inclusive of 20 refined coal installation invested with third-party investors, we are reaffirming our expected net RC cash flows ought hill between $200 million and $225 million ought ADES across the purpose of 2021. This has been our #1 priority and our commitment ought leasing or selling the idle units is unaffected by our integration and scaling of the PGI segment.

Also remember that the Refined Coal affair is run by an experienced management team with involvement from its owners, including us, although oversight and strategic guidance. This structure will permit us ought thrive ought kill at refined coal nevertheless devoting the assets indispensable ought simultaneously integrate and become our assets.

Let's flip ought glide 11 and quickly journal our strategy. This glide shows our avenue schedule although the new ADES and how we design ought leverage our new asset ought carry the North American leader at activated carbon within multiple diversified industries. We are already attractively positioned although beneficial growth owing ought the completion of our new leading site at this segment. The mercury control just at North America is competitive, has undergone many changes at the past few years although coal burn has shifted ought ordinary gas.

As a result, many coal-fired strength generators scan dramatically reduced leader believe and are continuously looking although revenue savings. They simply conduct no scan the bandwidth or assets anymore ought contend at significant scale. They're now looking although fewer strategic vendors that can supply more although less. We are best positioned ought be the supplier of option although this changing strength market. Gaining incremental section within the North American mercury control just by driving action also by pricing strength or premium service or products is priority #1.

Next, we are also positioned today ought arrive farther penetration into the municipal water treatment market. This is 100 million pound ask surroundings at the U.S. and is growing, providing the immediate -- shortly addressable adjacent markets ought become within. It is also a highly fragmented space, comprised of many producers and resellers. This initial occur at this just will no request any question incremental factory investment or exaggerate our presence -- ought exaggerate our presence. ought better site ourselves at this space, we scan focused above a -- focused a limited amount of existing personnel here and believe this will guide ought sure result.

Longer term, we total ought become our section at industries that bid premium products and consequently premium revenue points. We shout on a bigger occur at the broader consumer and commercial water market, estimated ought be 310 million pounds per year. although everyone has seen at the years, transparent water is increasingly at ask both here and across the globe. This just commands higher margins by nearly 20% ought 25% compared ought mercury control and has higher growth rates. However, entering this just used to request upgrades at leading ought the existing facility or more dear feedstocks.

In appendix ought positioning ourselves although the leader although mercury -- North American mercury capture and activated carbon and pursuing adjacent just opportunities such although water, we will also impose international markets although mercury control regulations exterior the U.S. grown-up also although adjacent segments alike grease and gas, food and beverage or other consumer products.

The broader water just and other more specialized adjacent just opportunities scan higher growth rates and higher margins. Nothing less, these initiatives -- are initiatives of tomorrow although we are focused shortly above organic growth within mercury control and municipal water.

One mind regarding our activated carbon wealth that most significantly impacted PGI section is that we will be entering a epoch of scheduled downtime although planned maintenance during the second quarter. These scheduled downtimes are expected although they happen each 18 ought 24 months although a epoch of 2 ought 3 weeks and are required ought ensure our factory continues ought be the best-in-class facility. at preparation although this scheduled downtime, we built sufficient inventory ought service our customers appropriately.

As we mentioned final quarter, we will supply extra guidance although our consolidated corporation and PGI section during our second zone 2019 revenue call. However, it can be helpful ought point out seasonality at this affair although context ought this quarter's results and expectations although the remains of the year.

Coal-fired strength haste is primarily affected by weather. Our largest passenger footprint is at the lower midwest and south. although such, the ask is high at the third zone when air-conditioning is needed. Additionally, the fourth zone has high passenger ask although the summer ends and the customers total their year-end orders. The second zone followed by the first zone are mainly the slowest lodging although our business. Additionally, we desire ought scan new customers starting up at the second half of the year.

In summary, we desire the second half of the year ought scan higher revenue and brim than the first half. Again, we emerge dispatch ought providing more guidance although the remains of 2019 next quarter.

Moving ought glide 12, let's recap our retort of leading plan. although the begin of the leading allocation program at the second zone of 2017, the corporation has paid at $40 million at dividends and utilized leading of at $42 million ought repurchase shares. We paid our first zone dividend above March 6 and our second zone dividend, declared yesterday, will be paid above June 7.

These initiatives remain a key concentrate of ours, and we believe we generate sufficient cash flows ought both honor our leading retort commitments and invest at the new business. Finally, let's journal our 2019 priorities above glide 13. Unchanged from preceding years is our ongoing commitment ought leasing RC installation and supporting Tinuum at their efforts ought advantage tax equity investors. Maximizing RC cash flows will thrive ought be our first focus.

Our second strategic purpose will be the integration of our newly acquired assets, nation and operations ought shortly capture section at the North American mercury control PAC market. We will simultaneously impose and track adjacent attractive opportunities at higher growth verticals alike water. We shout on compelling opportunities ought amplify utilization rates within our recently acquired wealth and generate high-margin revenue.

And finally, we will thrive ought retort leading ought our shareholders across our continued commitment ought our quarterly dividend program also although the opportunistic repurchasing of noted shares.

So with that, I will receive a few questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the string of Amit Dayal.

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Amit Dayal, H.C. Wainwright & Co, LLC, inquiry section - MD of Equity inquiry & Senior technique Analyst [2]

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