Advanced Emissions Solutions Reports Second Quarter 2017 Results
Refined Coal Distributions, Equipment Sales, and Stockholder Return Initiatives Highlights Quarter Marked by Net Income of $6.4 Million or $0.29 per diluted share
HIGHLANDS RANCH, Colo., Aug. 07, 2017 (GLOBE NEWSWIRE) -- 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, 2017, 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 $10.5 million during the second quarter of 2017, and $25.2 million year to date, up from $20.8 million in the first half of 2016
- Royalty earnings from Tinuum were $1.9 million for the second quarter of 2017, a 179% increase from the same quarter in 2016
- Tinuum invested tonnage was 10.5 million during the second quarter of 2017 compared to 9.4 million tons during the second quarter of 2016
- Based on invested RC facilities as of June 30, 2017, expected future cash flows at ADES are between $225 million and $250 million through the end of 2021
- During July 2017, completed the sale to a third-party investor of 49.9% of an RC project at a coal burning power plant that has historically burned in excess of 3.5 million tons of coal per year and is royalty bearing, increasing the number of invested facilities to 15.
ADES Consolidated Highlights
- Recognized consolidated revenue of $25.5 million for the quarter, up 184% from the prior year's comparable quarter and primarily related to completion of historical equipment systems during the quarter
- Reduced general and administrative operating costs (i.e., indirect operating costs) for the quarter by 48% to $4.0 million from $7.8 million for the comparable quarter in 2016
- Continued to validate and expand the chemicals business, which had $0.8 million in revenue during the quarter, an increase of 38% from the comparable quarter in 2016
- Achieved consolidated net income of $6.4 million for the quarter
- Increased non-restricted cash balance to $26.4 million as of quarter-end, which is an increase of $13.2 million since December 31, 2016, even after stock repurchase
- Executed steps to return value to stockholders through balanced capital allocation approach, including repurchase of $12.9 million of common shares and declaration of Company’s first quarterly dividend of $0.25 per share, resulting in total return to stockholders of $18.2 million
- Announced third quarter common stock dividend of $0.25 per share of approximately $5.3 million, payable on September 7, 2017
L. Heath Sampson, President and CEO of ADES commented, “Our second quarter was marked by strong equipment sales and another strong quarter of distributions from Tinuum Group, both of which were in line with our expectations. In our Emissions Control segment, we continued to validate and invest in our chemicals business. Although the sales cycle and end-markets have proven to be competitive, we remain confident in our product offering based on a rapidly expanding pipeline, and reaffirm our target of achieving the previously outlined 20-40% share of the $100 million market opportunity within the next few years. Additionally, the quarter was highlighted by our shareholder return initiatives, including the successful tender offer as well as the announcement and initiation of a recurring quarterly dividend program. These two initiatives culminated in returning of over $18 million over the last few months, and returning value to our stockholders will remain a priority moving forward.”
Sampson concluded, “We are also excited Tinuum closed on an additional minority ownership in an RC project last week, which will provide us future tax credits given our shared ownership in the project through Tinuum, expected increase in future Tinuum distributions, and providing evidence of movement within the RC market. Our team and Tinuum remain focused on identifying additional tax-equity investors to monetize the remaining RC facilities. The political and tax environment, though tedious, are more favorable than last year, and the momentum behind our tax-equity investor pipeline has grown substantially more robust in recent months. We continue to negotiate with both current and prospective tax-equity investors capable of investing in either one or multiple facilities and the cadence of these negotiations has become more favorable. As a result, we fully expect for those discussions to progress throughout the back half of the year.”
Second quarter revenues and costs of revenues were $25.5 million and $23.3 million, respectively, compared with $9.0 million and $5.8 million in the second quarter of 2016. The increase in revenues was primarily due to the completion of equipment systems and stronger chemical sales. Second quarter other operating expenses were $4.0 million, a decrease of 48% compared to $7.8 million in the second quarter of 2016. The decrease was largely driven by substantially lower legal and professional fees. Rent and occupancy and depreciation and amortization were also substantially lower from the comparable period in 2016, driven by the Company’s recent headquarters move, which led to reduced rent and fixed assets.
Second quarter earnings from equity method investments were $10.2 million, compared to $13.8 million for the second quarter of 2016. The decrease was driven by the timing of RC distributions received during the first and second quarters. Tinuum distributions to ADES for the first half of 2017 were $25.2 million, up from $20.8 million for the comparable period in 2016.
Second quarter royalty earnings from Tinuum were $1.9 million, an increase of 179% compared to $0.7 million in the second quarter of 2016, due to increased earnings from the respective RC facilities. Second quarter expenses related to the RC business were $0.6 million, a decrease of 60% compared to 2016 primarily due to lower interest expense. RC segment operating income was $11.1 million, compared to $14.2 million in the second quarter of 2016. Revenues from the chemicals business were $0.8 million during the second quarter, a 38% increase compared to $0.6 million for the comparable quarter in 2016.
Second quarter consolidated interest expense was $0.6 million, compared to $1.6 million in the second quarter of 2016. Second quarter income tax expense was $3.6 million, compared to $0.1 million in the second quarter of 2016.
Consolidated net income for the second quarter was $6.4 million, primarily driven by equity earnings from the RC business and significantly reduced operating expenses in the EC business, as well as corporate expenses.
As of June 30, 2017, the Company had cash and cash equivalents of $26.4 million, an increase of 100% compared to $13.2 million as of December 31, 2016, due primarily to Tinuum distributions and royalties and the release of restricted cash. The Company has released $10.7 million in restricted cash since December 31, 2016.
Dividend
Today, the Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock. The dividend is payable on September 7, 2017 to stockholders of record at the close of business on August 21, 2017.
Conference Call and Webcast Information
The Company has scheduled a conference call to begin at 9:00 a.m. Eastern Time on Tuesday, August 8, 2017. 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 57992820. 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, and its products and services, visit www.adaes.com.
Tinuum Group, LLC is a 42.5% owned joint venture by ADA that provides ADA’s patented Refined Coal CyClean™ technology to enhance combustion of and reduce emissions of NOx and mercury from coal in cyclone boilers and ADA’s patented M-45™ and patent pending M-45-PC™ technologies for Circulating Fluidized boilers and Pulverized Coal boilers respectively. www.tinuumgroup.com
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 projection on future RC cash flows, targets for capturing market share and expectations about closing additional facilities. 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 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; 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 and achieve expected market share; loss of key personnel; potential claims from any terminated employees, customers or vendors; failure to satisfy performance guarantees; 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.
| TABLE 1 | ||||||||
| Advanced Emissions Solutions, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) | ||||||||
| As of | ||||||||
| (in thousands, except share data) | June 30, 2017 | December 31, 2016 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 26,373 | $ | 13,208 | ||||
| Restricted cash | 3,000 | 13,736 | ||||||
| Receivables, net | 1,958 | 8,648 | ||||||
| Receivables, related parties, net | 1,866 | 1,934 | ||||||
| Costs in excess of billings on uncompleted contracts | — | 25 | ||||||
| Prepaid expenses and other assets | 1,736 | 1,357 | ||||||
| Total current assets | 34,933 | 38,908 | ||||||
| Property and equipment, net of accumulated depreciation of $1,541 and $2,920, respectively | 468 | 735 | ||||||
| Cost method investment | 1,016 | 1,016 | ||||||
| Equity method investments | 2,739 | 3,959 | ||||||
| Deferred tax assets | 53,290 | 61,396 | ||||||
| Other long-term assets | 1,711 | 1,282 | ||||||
| Total Assets | $ | 94,157 | $ | 107,296 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,617 | $ | 1,920 | ||||
| Accrued payroll and related liabilities | 1,135 | 2,121 | ||||||
| Billings in excess of costs on uncompleted contracts | 1,884 | 4,947 | ||||||
| Legal settlements and accruals | 4,327 | 10,706 | ||||||
| Other current liabilities | 8,208 | 4,017 | ||||||
| Total current liabilities | 17,171 | 23,711 | ||||||
| Legal settlements and accruals, long-term | 1,076 | 5,382 | ||||||
| Other long-term liabilities | 2,234 | 2,038 | ||||||
| Total Liabilities | 20,481 | 31,131 | ||||||
| Commitments and contingencies (Note 6) | ||||||||
| 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, 22,438,617 and 22,322,022 shares issued, and 21,076,726 and 22,024,675 shares outstanding at June 30, 2017 and December 31, 2016, respectively | 22 | 22 | ||||||
| Treasury stock, at cost: 1,370,891 and -0- shares as of June 30, 2017 and December 31, 2016, respectively | (12,973 | ) | — | |||||
| Additional paid-in capital | 114,882 | 119,494 | ||||||
| Accumulated deficit | (28,255 | ) | (43,351 | ) | ||||
| Total stockholders’ equity | 73,676 | 76,165 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 94,157 | $ | 107,296 | ||||
| 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) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Revenues: | ||||||||||||||||
| Equipment sales | $ | 24,619 | $ | 8,213 | $ | 29,727 | $ | 29,919 | ||||||||
| Chemicals | 846 | 613 | 3,127 | 1,047 | ||||||||||||
| Consulting services and other | — | 125 | — | 320 | ||||||||||||
| Total revenues | 25,465 | 8,951 | 32,854 | 31,286 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Equipment sales cost of revenue, exclusive of depreciation and amortization | 22,650 | 5,437 | 26,793 | 22,470 | ||||||||||||
| Chemicals cost of revenue, exclusive of depreciation and amortization | 645 | 255 | 2,403 | 396 | ||||||||||||
| Consulting services and other cost of revenue, exclusive of depreciation and amortization | — | 77 | — | 212 | ||||||||||||
| Payroll and benefits | 2,033 | 3,956 | 4,215 | 7,759 | ||||||||||||
| Rent and occupancy | 255 | 632 | 300 | 1,026 | ||||||||||||
| Legal and professional fees | 1,219 | 1,982 | 2,254 | 4,965 | ||||||||||||
| General and administrative | 809 | 1,346 | 2,072 | 2,092 | ||||||||||||
| Research and development, net | (414 | ) | (345 | ) | (222 | ) | (143 | ) | ||||||||
| Depreciation and amortization | 118 | 223 | 600 | 454 | ||||||||||||
| Total operating expenses | 27,315 | 13,563 | 38,415 | 39,231 | ||||||||||||
| Operating loss | (1,850 | ) | (4,612 | ) | (5,561 | ) | (7,945 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Earnings from equity method investments | 10,155 | 13,754 | 23,969 | 19,331 | ||||||||||||
| Royalties, related party | 1,866 | 669 | 3,621 | 1,859 | ||||||||||||
| Interest expense | (628 | ) | (1,573 | ) | (1,321 | ) | (3,537 | ) | ||||||||
| Revision in estimated royalty indemnity liability | 500 | — | 3,400 | — | ||||||||||||
| Other | 7 | (279 | ) | 16 | 2,680 | |||||||||||
| Total other income | 11,900 | 12,571 | 29,685 | 20,333 | ||||||||||||
| Income before income tax expense | 10,050 | 7,959 | 24,124 | 12,388 | ||||||||||||
| Income tax expense | 3,642 | 99 | 9,028 | 152 | ||||||||||||
| Net income | $ | 6,408 | $ | 7,860 | $ | 15,096 | $ | 12,236 | ||||||||
| Earnings per common share (Note 1): | ||||||||||||||||
| Basic | $ | 0.29 | $ | 0.36 | $ | 0.68 | $ | 0.55 | ||||||||
| Diluted | $ | 0.29 | $ | 0.35 | $ | 0.68 | $ | 0.55 | ||||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic | 21,866 | 21,875 | 21,961 | 21,895 | ||||||||||||
| Diluted | 21,880 | 22,187 | 21,981 | 22,204 | ||||||||||||
| Cash dividends declared per common share outstanding: | $ | 0.25 | $ | — | $ | 0.25 | $ | — | ||||||||
| TABLE 3 | ||||||||
| Advanced Emissions Solutions, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||
| Six Months Ended June 30, | ||||||||
| (in thousands) | 2017 | 2016 | ||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 15,096 | $ | 12,236 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 600 | 454 | ||||||
| Debt prepayment penalty and amortization of debt issuance costs | 73 | 1,380 | ||||||
| Impairment of property, equipment, and inventory | — | 517 | ||||||
| Stock-based compensation expense | 1,173 | 1,543 | ||||||
| Earnings from equity method investments | (23,969 | ) | (19,331 | ) | ||||
| 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 | 436 | 34 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | 6,690 | (627 | ) | |||||
| Related party receivables | 68 | 1,473 | ||||||
| Prepaid expenses and other assets | (453 | ) | 806 | |||||
| Costs incurred on uncompleted contracts | 25,634 | 17,201 | ||||||
| Deferred tax asset, net | 8,106 | — | ||||||
| Other long-term assets | (767 | ) | (2,630 | ) | ||||
| Accounts payable | (303 | ) | (2,910 | ) | ||||
| Accrued payroll and related liabilities | (987 | ) | (1,596 | ) | ||||
| Other current liabilities | (1,227 | ) | (101 | ) | ||||
| Billings on uncompleted contracts | (28,671 | ) | (20,910 | ) | ||||
| Other long-term liabilities | 164 | (1,954 | ) | |||||
| Legal settlements and accruals | (10,685 | ) | 2,767 | |||||
| Distributions from equity method investees, return on investment | 2,875 | 5,900 | ||||||
| Net cash used in operating activities | (6,147 | ) | (8,845 | ) | ||||
| Cash flows from investing activities | ||||||||
| Distributions from equity method investees in excess of cumulative earnings | 22,313 | 14,875 | ||||||
| Maturity of investment securities, restricted | — | 336 | ||||||
| Acquisition of property and equipment, net | (247 | ) | (111 | ) | ||||
| Contributions to equity method investees | — | (223 | ) | |||||
| Proceeds from sale of equity method investment | — | 1,773 | ||||||
| Net cash provided by investing activities | 22,066 | 16,650 | ||||||
| Cash flows from financing activities | ||||||||
| Borrowings on Line of Credit | 808 | — | ||||||
| Repayments on Line of Credit | (808 | ) | — | |||||
| Repayments on short-term borrowings and notes payable, related party | — | (14,496 | ) | |||||
| Short-term borrowing loan costs and debt prepayment penalty | — | (807 | ) | |||||
| Repurchase of common shares to satisfy tax withholdings | (517 | ) | (85 | ) | ||||
| Repurchase of common shares | (12,973 | ) | — | |||||
| Net cash used in financing activities | (13,490 | ) | (15,388 | ) | ||||
| Increase (decrease) in Cash and Cash Equivalents and Restricted Cash | 2,429 | (7,583 | ) | |||||
| Cash and Cash Equivalents and Restricted Cash, beginning of period | 26,944 | 20,973 | ||||||
| Cash and Cash Equivalents and Restricted Cash, end of period | $ | 29,373 | $ | 13,390 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 1,791 | $ | 1,436 | ||||
| Cash paid (refunded) for income taxes | $ | 839 | $ | (72 | ) | |||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Stock award reclassification (liability to equity) | $ | — | $ | 899 | ||||
| Settlement of RCM6 note payable | $ | — | $ | 13,234 | ||||
| Non-cash reduction of equity method investment | $ | — | $ | 11,156 | ||||
| Dividends payable | $ | 5,268 | $ | — | ||||
Investor Contact: Alpha IR Group Chris Hodges or Ryan Coleman 312-445-2870 ADES@alpha-ir.com
