Full-Year Refined Coal Distributions in-line with
Expectations and Royalties Higher; Acquisition and Integration of
Carbon Solutions to form Power Generation & Industrials
Segment
Advanced Emissions Solutions, Inc. (NASDAQ: ADES) (the "Company" or
"ADES") today filed its Annual Report on Form 10-K and reported
financial results for the fourth quarter and full year ended
December 31, 2018, including information about its equity
investment 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
- Tinuum distributions to ADES were $15.1 million for the fourth
quarter, and $52.7 million for full year 2018, both of which
declined slightly due to capital expenditures to prepare additional
facilities for future investing partners
- Royalty earnings from Tinuum Group were $4.3 million for the
fourth quarter and $15.1 million for full year 2018, year-over-year
increases of 32% and 57%, respectively
- Tinuum Group invested tonnage was 16.3 million for the fourth
quarter and 59.7 million for full year 2018
- RC Segment operating income was $65.5 million for full year
2018, an increase of $5.5 million, or 9%, over full year 2017
- As previously announced in October 2018 and January 2019,
Tinuum Group completed sales to third-party investors for two RC
projects at coal-burning power plants that have historically burned
in excess of 3.0 million tons and 3.5 million tons of coal per
year, respectively, and both are royalty bearing to ADES, thus
increasing the number of invested facilities to 20
- Based on 19 invested RC facilities as of December 31, 2018, the
Company updated its expected future net RC cash flows to ADES to be
between $200 million and $225 million through year end 2021
ADES Consolidated
Highlights
- Completed the successful acquisition of ADA Carbon Solutions,
LLC ("Carbon Solutions") on December 7, 2018 for the total purchase
price of $75 million, complementing the Company's product suite and
building out its newly named Power Generation & Industrials
("PGI") segment
- Recognized consolidated revenue of $10.6 million during the
fourth quarter and $23.9 million for full year 2018, both of which
included 25 days of contribution from Carbon Solutions
- General and administrative operating costs (i.e., non-cost of
revenue expenses) were $9.7 million for the fourth quarter and
$24.1 million for full year 2018
- Entered into $70.0 million face value term loan, which
contributed $0.5 million of interest expense during the fourth
quarter
- Consolidated net income was $7.0 million for the fourth quarter
and $35.5 million for full year 2018; pretax income was $12.3
million for the fourth quarter and $45.9 million for full year
2018
- Ended 2018 with a cash balance, inclusive of restricted cash,
of $23.8 million, a decrease of $8.1 million since September 30,
2018, driven by cash expenses incurred as a result of the
acquisition of Carbon Solutions
- Announced share repurchase program for up to an additional
$20.0 million of the Company's common stock in the open market
- Returned $45.5 million to shareholders in 2018 through capital
allocation initiatives
L. Heath Sampson, President and CEO of ADES
commented, “2018 was another significant step in our
transformational journey as a Company. Going into the year, our
focus was on optimizing our internal resources to support Tinuum
Group and maximize RC cash flows, continuing to return capital to
our shareholders through a mix of dividends and share repurchases,
and evaluating options for our historical Emissions Control
segment. I am very pleased with our execution on these initiatives.
To date, we have added three invested RC facilities since the start
of 2018 and have strong visibility into the addition of new RC
facilities in 2019 that, if finalized, will continue to grow the
total annual production. We also repurchased 2.4 million shares for
$25.3 million in 2018 and paid approximately $20.2 million in
dividends. And finally, we announced and completed our successful
acquisition of Carbon Solutions during the fourth quarter, which
has significantly expanded our emissions control offering and
framed the foundation for our long-term business.”
Sampson continued, “The acquisition of Carbon
Solutions met each and every one of our explicit acquisition
criteria. This acquisition immediately makes us the lowest-cost
producer of Powder Activated Carbon and market leader within the
North American mercury control space, complementing our existing
technologies and offering attractive operating synergies. It also
opens the door to adjacent, growing markets that are ripe for
evaluation and pursuit such as municipal water, the broader
commercial and consumer water markets.”
Fourth Quarter & Full Year
Results
Fourth quarter revenues and costs of revenues
were $10.6 million and $4.0 million, compared to $3.8 million and
$0.6 million respectively, in the fourth quarter of 2017. Full year
2018 revenues and costs of revenues were $23.9 million and $6.3
million, compared to $45.4 million and $31.9 million, respectively,
for full year 2017. The decrease in revenues during both the fourth
quarter and full year 2018 was primarily the result of the expected
completion of fewer equipment contracts as the regulatory deadline
for compliance has passed, partially offset by an overall increase
in consumable sales.
Fourth quarter other operating expenses were
$9.7 million compared to $4.2 million in the fourth quarter of
2017. Full year other operating expenses were $24.1 million
compared to $17.6 million for full year 2017. The increases during
both the fourth quarter and full year 2018 were driven by
transaction costs incurred related to the Carbon Solutions
acquisition. The increase for the full year 2018 was also in part
due to restructuring expenses related to the reduction in workforce
in the second and third quarters of 2018 as well as the elimination
of duplicative roles as part of the Carbon Solutions
acquisition.
Fourth quarter earnings from equity method
investments were $16.4 million, compared to $17.8 million for the
fourth quarter of 2017. Full year earnings from equity method
investments were $54.2 million, compared to $53.8 million for full
year 2017.
Fourth quarter royalty earnings from Tinuum
Group were $4.3 million, compared to $3.2 million for the fourth
quarter of 2017. Full year royalty earnings from Tinuum Group were
$15.1 million, compared to $9.7 million for full year 2017. Both
fourth quarter and full year 2018 increases were the result of an
increase in the number of invested, royalty-bearing RC facilities,
RC tonnage and royalty earnings per ton.
Fourth quarter interest expense was $1.0
million, compared to $1.0 million for the fourth quarter of 2017.
Full year interest expense was $2.2 million, compared to $3.0
million for full year 2017. Contributing to interest expense in the
fourth quarter of 2018 was $0.5 million of interest on the term
loan used to fund the Carbon Solutions acquisition. The full year
decrease from 2017 was driven by 453A interest expense, which
decreased due to the change in federal tax rate as a result of tax
reform enacted in December 2017. This decrease offset the
additional interest from the term loan during the fourth quarter of
2018.
Income tax expense for the fourth quarter was $5.3 million,
compared to expense of $11.5 million for the fourth quarter of
2017. The full year tax expense was $10.4 million, compared to
$24.2 million for full year 2017. The full year 2018 impacts were
the result of statutory federal and state taxes of $13.3 million as
well as the incremental impacts of the Tax Act of $(0.5)
million.
Net income for the fourth quarter was $7.0
million, compared to net income of $7.0 million for the fourth
quarter of 2017. Net income for the full year was $35.5 million,
compared to net income of $27.9 million for full year 2017.
The increase in net income for the full year 2018 was primarily
driven by higher royalty income from the RC business and
significantly reduced cost of sales and tax expense, which was
partially offset by acquisition-related expenses from the Carbon
Solutions transaction.
As of December 31, 2018, the Company had
cash and cash equivalents of $18.6 million and restricted cash of
$5.2 million, a decrease in total of 23% compared to $30.7 million
as of December 31, 2017, which includes the impact of capital
allocation initiatives of $45.5 million. During the fourth quarter,
the Company incurred a $70 million, three-year term loan upon
acquisition of Carbon Solutions which is payable quarterly in
arrears and is subject to standard and customary covenants.
Quarterly principal payments of $6 million began on March 1,
2019.
2019 Outlook
Sampson added, “As we look forward to 2019, we
remain excited about the platform we’ve enhanced and built to
deliver a full suite of emission control solutions to our power
generation and industrial customers and partners. Whether it’s our
refined coal or consumable product solutions that enable our
customers to meet emissions regulations, we have a diverse set of
offerings to help them solve mission-critical issues and better
navigate the future. Further, as we continue to integrate the
Carbon Solutions team into our PGI segment, we have been incredibly
pleased with the initial employee and customer feedback we have
received. We are encouraged by the opportunity we have to grow this
presently underutilized asset as we look to leverage our new
position as an industry leader in North American Powdered
Activated Carbon and complement our existing technologies and
capture operating synergies.”
Conference Call and Webcast Information
The Company has scheduled a conference call to begin at 9:00
a.m. Eastern Time on Tuesday, March 19, 2019. 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 5169672.
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.
Carbon Solutions is a wholly owned subsidiary of ADES and a
leading producer of Powdered Activated Carbon ("PAC") solutions for
the coal-fired power plant, industrial and potable water
markets.
CarbPure Technologies LLC, (“CarbPure”), formed in 2015 provides
high-quality PAC and granular activated carbon
(“GAC”) ideally suited for treatment of potable water and
wastewater. Our affiliate company, ADA Carbon Solutions, LLC
manufactures the products for CarbPure.
Tinuum Group, LLC (“Tinuum Group”) is a 42.5% owned joint
venture by ADA that provides patented Refined Coal (“RC”)
technologies to enhance combustion of and reduce emissions of NOx
and mercury from coal-fired power plants.
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, opportunities to leverage the Company new industry
leadership position and future growth and acquisition activity.
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 U.S. government’s failure to promulgate
regulations or appropriate funds that benefit our business; changes
in laws and regulations, accounting rules, 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; termination of or
amendments to the contracts for sale or lease of RC facilities;
decreases in the production of RC; our inability to commercialize
our technologies on favorable terms; our inability to ramp up our
operations to effectively address recent and expected growth in our
business; loss of key personnel; potential claims from any
terminated employees, customers or vendors; availability of
materials and equipment for our businesses; intellectual property
infringement claims from third parties; 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
SubsidiariesConsolidated Balance
Sheets
|
|
As of December 31, |
(in
thousands, except share data) |
|
2018 |
|
2017 |
ASSETS |
|
|
|
|
Current
assets: |
|
|
|
|
Cash,
cash equivalents and restricted cash |
|
$ |
18,577 |
|
|
$ |
30,693 |
|
Receivables, net |
|
9,554 |
|
|
1,113 |
|
Receivables, related party |
|
4,284 |
|
|
3,247 |
|
Inventories |
|
21,791 |
|
|
74 |
|
Prepaid
expenses and other assets |
|
5,570 |
|
|
1,761 |
|
Total
current assets |
|
59,776 |
|
|
36,888 |
|
Restricted cash,
long-term |
|
5,195 |
|
|
— |
|
Property and equipment,
net of accumulated depreciation of $1,499 and $1,486,
respectively |
|
42,697 |
|
|
410 |
|
Intangible assets,
net |
|
4,830 |
|
|
805 |
|
Equity method
investments |
|
6,634 |
|
|
4,351 |
|
Deferred tax
assets |
|
32,539 |
|
|
38,661 |
|
Other long-term
assets |
|
7,993 |
|
|
1,503 |
|
Total
Assets |
|
$ |
159,664 |
|
|
$ |
82,618 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
6,235 |
|
|
$ |
1,000 |
|
Accrued
payroll and related liabilities |
|
8,279 |
|
|
1,384 |
|
Current
portion of borrowings |
|
24,067 |
|
|
— |
|
Other
current liabilities |
|
2,138 |
|
|
4,494 |
|
Total
current liabilities |
|
40,719 |
|
|
6,878 |
|
Long-term portion of
borrowings |
|
50,058 |
|
|
— |
|
Other long-term
liabilities |
|
940 |
|
|
2,285 |
|
Total
Liabilities |
|
91,717 |
|
|
9,163 |
|
Commitments and contingencies (Notes 7 and 8) |
|
|
|
|
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,
22,640,677 and 22,465,821 shares issued and 18,576,489 and
20,752,055 shares outstanding at December 31, 2018 and 2017,
respectively |
|
23 |
|
|
22 |
|
Treasury
stock, at cost: 4,064,188 and 1,713,766 shares as of December 31,
2018 and 2017, respectively |
|
(41,740 |
) |
|
(16,397 |
) |
Additional paid-in capital |
|
96,750 |
|
|
105,308 |
|
Retained
earnings (accumulated deficit) |
|
12,914 |
|
|
(15,478 |
) |
Total
stockholders’ equity |
|
67,947 |
|
|
73,455 |
|
Total
Liabilities and Stockholders’ equity |
|
$ |
159,664 |
|
|
$ |
82,618 |
|
TABLE 2
Advanced Emissions Solutions, Inc. and
SubsidiariesConsolidated Statements of
Operations
|
|
Years Ended December 31, |
(in
thousands, except per share data) |
|
2018 |
|
2017 |
Revenues: |
|
|
|
|
|
|
|
|
Consumables |
|
$ |
8,733 |
|
|
$ |
4,246 |
|
License
royalties, related party |
|
15,140 |
|
|
9,672 |
|
Equipment
sales |
|
72 |
|
|
31,446 |
|
Total revenues |
|
23,945 |
|
|
45,364 |
|
Operating
expenses: |
|
|
|
|
Consumables cost of revenue, exclusive of depreciation and
amortization |
|
6,606 |
|
|
3,434 |
|
Equipment
cost of revenue, exclusive of depreciation and amortization |
|
(353 |
) |
|
28,451 |
|
Payroll
and benefits |
|
10,639 |
|
|
7,669 |
|
Rent and
occupancy |
|
1,141 |
|
|
795 |
|
Legal and
professional fees |
|
8,230 |
|
|
4,354 |
|
General
and administrative |
|
3,359 |
|
|
4,014 |
|
Depreciation, amortization, depletion, and accretion |
|
723 |
|
|
789 |
|
Total operating
expenses |
|
30,345 |
|
|
49,506 |
|
Operating loss |
|
(6,400 |
) |
|
(4,142 |
) |
Other income
(expense): |
|
|
|
|
Earnings
from equity method investments |
|
54,208 |
|
|
53,843 |
|
Interest
income |
|
239 |
|
|
54 |
|
Interest
expense |
|
(2,151 |
) |
|
(3,024 |
) |
Litigation settlement and royalty indemnity expense, net |
|
— |
|
|
3,269 |
|
Other |
|
(19 |
) |
|
2,025 |
|
Total other income |
|
52,277 |
|
|
56,167 |
|
Income before income
tax expense |
|
45,877 |
|
|
52,025 |
|
Income tax expense |
|
10,423 |
|
|
24,152 |
|
Net income |
|
$ |
35,454 |
|
|
$ |
27,873 |
|
Earnings per common
share (Note 1): |
|
|
|
|
Basic |
|
$ |
1.78 |
|
|
$ |
1.30 |
|
Diluted |
|
$ |
1.76 |
|
|
$ |
1.29 |
|
Weighted-average number
of common shares outstanding: |
|
|
|
|
Basic |
|
19,901 |
|
|
21,367 |
|
Diluted |
|
20,033 |
|
|
21,413 |
|
Cash dividends declared
per common share outstanding: |
|
$ |
1.00 |
|
|
$ |
0.75 |
|
TABLE 3
Advanced Emissions Solutions, Inc. and
SubsidiariesConsolidated Statements of Cash
Flows
|
|
Years Ended December 31, |
(in
thousands) |
|
2018 |
|
2017 |
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,454 |
|
|
$ |
27,873 |
|
Adjustments to
reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Increase
(decrease) in valuation allowance on deferred tax assets |
|
4,462 |
|
|
(474 |
) |
Depreciation, amortization, depletion, and accretion |
|
723 |
|
|
789 |
|
Amortization of debt issuance costs |
|
94 |
|
|
109 |
|
Provision
for accounts receivable and other receivables |
|
153 |
|
|
385 |
|
Share-based compensation expense, net |
|
2,490 |
|
|
2,209 |
|
Earnings
from equity method investments |
|
(54,208 |
) |
|
(53,843 |
) |
Other
non-cash items, net |
|
136 |
|
|
508 |
|
Changes
in operating assets and liabilities, net of effects of acquired
businesses: |
|
|
|
|
Receivables |
|
(1,847 |
) |
|
6,743 |
|
Related
party receivables |
|
(1,037 |
) |
|
(1,313 |
) |
Prepaid
expenses and other assets |
|
(757 |
) |
|
(351 |
) |
Costs
incurred on uncompleted contracts |
|
15,945 |
|
|
27,048 |
|
Inventories |
|
237 |
|
|
— |
|
Deferred
tax asset, net |
|
771 |
|
|
23,208 |
|
Other
long-term assets |
|
(753 |
) |
|
41 |
|
Accounts
payable |
|
(197 |
) |
|
(920 |
) |
Accrued
payroll and related liabilities |
|
(59 |
) |
|
(738 |
) |
Other
current liabilities |
|
(869 |
) |
|
(1,586 |
) |
Billings
on uncompleted contracts |
|
(15,945 |
) |
|
(30,140 |
) |
Other
long-term liabilities |
|
(182 |
) |
|
154 |
|
Legal
settlements and accruals |
|
— |
|
|
(16,088 |
) |
Distributions from equity method investees, return on
investment |
|
5,500 |
|
|
4,638 |
|
Net cash
used in operating activities |
|
$ |
(9,889 |
) |
|
$ |
(11,748 |
) |
Cash flows from investing activities |
|
|
|
|
Distributions from equity method investees in excess of cumulative
earnings |
|
47,175 |
|
|
48,875 |
|
Acquisition of business, net of cash acquired |
|
(62,501 |
) |
|
— |
|
Acquisition of property, equipment, and intangible assets, net |
|
(467 |
) |
|
(428 |
) |
Purchase
of and contributions to equity method investee |
|
(750 |
) |
|
(61 |
) |
Net cash
(used in) provided by investing activities |
|
(16,543 |
) |
|
48,386 |
|
Cash flows from
financing activities |
|
|
|
|
Borrowings, net of debt discount - related party |
|
67,900 |
|
|
— |
|
Debt
issuance costs paid |
|
(2,036 |
) |
|
— |
|
Dividends
paid |
|
(20,165 |
) |
|
(15,690 |
) |
Repurchase of common shares |
|
(25,343 |
) |
|
(16,397 |
) |
Repurchase of shares to satisfy tax withholdings |
|
(769 |
) |
|
(566 |
) |
Borrowings on Line of Credit |
|
— |
|
|
808 |
|
Repayments on Line of Credit |
|
— |
|
|
(808 |
) |
Short-term borrowing loan costs |
|
— |
|
|
(236 |
) |
Other |
|
(76 |
) |
|
— |
|
Net cash
provided by (used in) financing activities |
|
19,511 |
|
|
(32,889 |
) |
Increase
(Decrease) in Cash, Cash Equivalents and Restricted Cash |
|
(6,921 |
) |
|
3,749 |
|
Cash, Cash Equivalents
and Restricted Cash, beginning of year |
|
30,693 |
|
|
26,944 |
|
Cash, Cash Equivalents
and Restricted Cash, end of year |
|
$ |
23,772 |
|
|
$ |
30,693 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
Cash paid
for interest |
|
$ |
1,400 |
|
|
$ |
3,644 |
|
Cash paid
for income taxes, net of refunds received |
|
$ |
7,460 |
|
|
$ |
1,672 |
|
Supplemental disclosure
of non-cash investing and financing activities: |
|
|
|
|
Acquisition consideration payable |
|
$ |
661 |
|
|
$ |
— |
|
Dividends
payable |
|
$ |
125 |
|
|
$ |
139 |
|
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