ADA-ES: Advanced Emissions Solutions Reports Fourth

The following excerpt is from the company's SEC filing.

Quarter and Full Year

Results

Realized full year consolidated net income of

$97.7 million

and pre-tax income of

$36.7 million

; Announces first ever quarterly dividend program in Company's history

HIGHLANDS RANCH, Colorado,

March 13, 2017

GlobeNewswire - 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 ended

December 31, 2016

, including information about its joint-venture partnerships, Tinuum Group, LLC ("Ti nuum Group," formerly Clean Coal Solutions, LLC) and Tinuum Services, LLC ("Tinuum Services," formerly Clean Coal Solutions Services, LLC) (collectively "Tinuum"), of which ADES owns 42.5% and 50%, respectively.

Tinuum & Refined Coal (“RC”) Highlights

Tinuum distributions to ADES were

$14.7 million

during the fourth quarter and

$46.2 million

for full year

Royalty earnings from Tinuum Group were

$2.2 million

$6.1 million

for full year 2016

Tinuum Group invested tonnage was

10.1 million

for the fourth quarter and

41.6 million

RC Segment operating income was

$51.3 million

for full year 2016, an increase of

$39.1 million

from full year 2015

As of

, future expected aggregated rent payments to Tinuum Group were updated to

$590 million

through the end of 2021

Expects to close on new lease with existing investor for an additional RC facility by end of first quarter, which will result in 14 total invested RC facilities

ADES Consolidated Highlights

Recognized consolidated revenue of

$3.6 million

$50.6 million

General and administrative operating costs (i.e., non-cost of revenue expenses) for the fourth quarter were

$5.4 million

$26.9 million

for full year 2016, a reduction of over

, respectively, from the comparable periods in 2015

Consolidated net income was

$75.8 million

for full year 2016; pretax income was

$14.2 million

Deferred tax asset valuation allowance decreased

$72.4 million

due to the 2016 utilization of

$11.0 million

and fourth quarter release of

$61.4 million

of our previously recorded deferred tax asset valuation allowance

Ended 2016 with a cash balance of

$13.2 million

$5.6 million

since September 30, 2016

Concluded strategic review process for Emissions Control (“EC”) business with a decision to retain business segment

Announced an expected quarterly dividend of $0.25 per share, expected to commence during the second quarter of 2017, if and when declared by our board

L. Heath Sampson, President and CEO of ADES commented, “We set bold and aspirational goals at the beginning of 2016 and I’m proud to say that we exceeded almost all of our strategic priorities throughout the course of the year. We put legacy issues behind us, we relisted on the NASDAQ exchange, we eliminated our debt and substantially increased our liquidity position. We also exceeded our initial refined coal distribution expectations with the collection of over $45 million during 2016 from our investment in Tinuum. Lastly, we reduced our operating expenses by over 50% through organizational realignment and enter 2017 with a very lean cost and highly functional organizational structure. I’m very proud of all of our associates at ADES and Tinuum, led by their President and CEO Ron Eller, and I thank them all for their hard work throughout the year in helping us achieve our objectives. Although we closed on a number of new refined coal facilities in 2016, our high expectations were dampened by challenging political headwinds against refined coal production in the U.S. I look forward to capitalizing on the improving 2017 environment; and enabling coal fired utilities and tax equity investors to produce cleaner power for the benefit of the American people.”

Sampson continued

“We also have concluded our strategic alternatives review of our EC business at this time. After a thorough analysis of the assets in the business and the market for our offerings, we have elected to continue to operate EC as a portion of our overall business. While we received a number of inquiries into various components of our portfolio and held many serious conversations with regards to a potential transaction involving the whole business or individual assets held within, we felt that no offer matched the value that we felt was appropriate for this business. We will continue to market and grow our offering within the EC business, while maintaining a lean cost structure that allows the segment to be profitable and stand alone. Additionally, we will continually evaluate other alternatives that support shareholder value."

Fourth Quarter & Full Year Results

Fourth quarter revenues and costs of revenues were

$3.5 million

, compared with

$7.2 million

respectively, in the fourth quarter of 2015. Full year 2016 revenues and costs of revenues were

$39.8 million

$62.7 million

$47.6 million

respectively, for full year 2015. The decrease in revenues during both the fourth quarter and full year 2016 was primarily the result of the completion of fewer equipment contracts as the regulatory deadline for compliance has passed, partially offset by an increase in chemical sales.

Fourth quarter other operating expenses were

, a decrease of

compared to

$13.1 million

in the fourth quarter of 2015. Full year other operating expenses were

$57.0 million

for full year 2015. The decreases during both the fourth quarter and full year 2016 were primarily the result of cost containment initiatives, as well as the conclusion of our restatement efforts in the first half of 2016.

Fourth quarter earnings from equity method investments were

$15.5 million

, compared to

$3.8 million

for the fourth quarter of 2015. Full year earnings from equity method investments were

$45.6 million

$8.9 million

Fourth quarter royalty earnings from Tinuum Group were

$2.9 million

in the fourth quarter of 2015. Full year royalty earnings from Tinuum Group were

$10.6 million

for full year 2015. Both fourth quarter and full year 2016 declines were the result of reduced RC tonnage and earnings per ton.

Fourth quarter interest expense was

$0.6 million

$3.1 million

in the fourth quarter of 2015. Full year interest expense was

$5.1 million

$8.4 million

for full year 2015. Both fourth quarter and full year 2016 declines were the result of the payoff of the credit agreement during June 2016 and reduced 453A interest expense.

The tax benefit during the fourth quarter was

$61.7 million

compared to a benefit of

$0.1 million

in the fourth quarter of 2015. The full year tax benefit was

$60.9 million

compared to expense of $20 thousand for full year 2015. Both fourth quarter and full year 2016 impacts were the result of a

release of our previously recorded deferred tax asset valuation allowance.

Net income for the fourth quarter was

, compared to a net loss of

Net income for the full year was

$30.1 million

for full year 2015. The increase in net income for both the fourth quarter and the full year 2016 was primarily driven by the release of a portion of our previously recorded deferred tax asset valuation allowance, as well as higher equity income from the RC business and significantly reduced operating expenses in both the EC business and other corporate expenses.

As of December 31, 2016, the Company had cash and cash equivalents of

$9.3 million

as of December 31, 2015. The Company also had

$13.7 million

in current and long-term restricted cash as of December 31, 2016, compared to

$11.7 million

as of December 31, 2015

2017 Outlook

Sampson added, “We enter 2017 with growing confidence in both our pipeline for RC tax equity investment and in the projected cash flows that our currently invested RC facilities will provide. We also believe that components of the EC business are poised for solid growth moving forward, such as our M-Prove chemicals portfolio. As a result of the strength of our business fundamentals, we’re happy to announce that our board has approved the first ever quarterly dividend program in our history and plans to soon declare the first dividend to be paid under this program. Starting in the second quarter we expect to begin paying a quarterly distribution of $0.25 per share. This quarterly dividend program provides the initial step in what we believe will be a well-balanced capital allocation program and we look forward to driving future shareholder value and executing against our strategic plan in 2017. Future dividends will be paid if and when declared by our board, subject to future capital availability."

Conference Call and Webcast Information

The Company has scheduled a conference call to begin at 9:00 a.m. Eastern Time on Tuesday, March 14, 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 (877) 201-0168 (Domestic) or (647) 788-4901 (International) conference ID 39354956. 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 or the ADA Blog (http://blog.adaes.com/).

Tinuum Group, LLC 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. www.tinuumgroup.com

Caution on Forward-Looking Statements

This 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 the timing, availability and content of the presentation; future expected aggregate rent payments to Tinuum Group and its ability to continue to scale its business; expectations on closing of new leases of RC facilities; expectations about the amount and timing of future dividend payments; expectations about future cash flows; and related matters. These statements are based on current expectations, estimates, projections, beliefs and assumptions of the Company’s 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 and timing in laws, regulations, IRS interpretations or guidance, accounting rules and any pending court decisions, legal challenges to or repeal of them; changes in prices, economic conditions and market demand; the ability of the RC facilities to produce coal that qualifies for tax credits; the timing, terms and changes in contracts for RC facilities, or failure to lease or sell RC facilities; impact of competition; availability, cost of and demand for alternative tax credit vehicles and other technologies; technical, start-up and operational difficulties; availability of raw materials; loss of key personnel; the value of our products, technologies and intellectual property to customers and strategic investors; intellectual property infringement claims from third parties; seasonality and other factors discussed in greater detail in the Company’s filings with the SEC. You are cautioned not to place undue reliance on such statements and to consult the Company’s SEC filings for additional risks and uncertainties that may apply to our business and the ownership of ADES securities. The Company’s forward-looking statements are presented as of the date made, and the Company disclaims any duty to update such statements unless required by law to do so.

Source: Advanced Emissions Solutions, Inc.

Investor Contact:

Alpha IR Group

Chris Hodges or Ryan Coleman

312-445-2870

ADES@alpha-ir.com

TABLE 1

Advanced Emissions Solutions, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

ASSETS

Current assets:

Cash and cash equivalents

13,208

Restricted cash

13,736

Receivables, net

Receivables, related parties, net

Costs in excess of billings on uncompleted contracts

Prepaid expenses and other assets

Total current assets

38,908

24,715

Restricted cash, long-term

10,980

Property and equipment, net of accumulated depreciation of $2,920 and $4,557

Investment securities, restricted, long-term

Cost method investment

Equity method investments

17,232

Deferred tax assets

61,396

Other assets

Total Assets

107,296

60,775

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

Accounts payable

Accrued payroll and related liabilities

Current portion of notes payable, related parties

Short-term borrowings, net of discount and deferred loan costs, related party

12,676

Billings in excess of costs on uncompleted contracts

Legal settlements and accruals

10,706

Other current liabilities

Total current liabilities

23,711

50,092

Long-term portion of notes payable, related parties

13,512

Legal settlements and accruals, long-term

13,797

Other long-term liabilities

Total Liabilities

31,131

85,753

Commitments and contingencies (Note 14)

Stockholders’ equity (deficit):

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, 22,322,022 and 21,943,872 shares issued and 22,024,675 and 21,809,164 shares outstanding at December 31, 2016 and 2015, respectively

Additional paid-in capital

119,494

116,029

Accumulated deficit

(43,351

(141,029

Total stockholders’ equity (deficit)

76,165

(24,978

Total Liabilities and Stockholders’ Equity (Deficit)

TABLE 2

Consolidated Statements of Operations

in thousands, except per share data

Revenues:

Equipment sales

46,949

60,099

12,044

Chemicals

Consulting services and other

Total revenues

50,622

62,739

16,923

Operating expenses:

Equipment sales cost of revenue, exclusive of depreciation and amortization

37,741

45,433

Chemicals cost of revenue, exclusive of depreciation and amortization

Consulting services and other cost of revenue, exclusive of depreciation and amortization

Payroll and benefits

12,390

23,589

20,767

Rent and occupancy

Legal and professional fees

16,604

14,430

Research and development, net

Depreciation and amortization

Total operating expenses

66,720

104,539

58,737

Operating loss

(16,098

(41,800

(41,814

Other income (expense):

Earnings from equity method investments

45,584

42,712

Royalties, related party

10,642

Interest income

Interest expense

(5,066

(8,402

(5,725

Litigation settlement and royalty indemnity expense, net

Total other income

52,838

11,679

43,497

Income (loss) before income tax expense

36,740

(30,121

Income tax (benefit) expense

(60,938

Net income (loss)

97,678

(30,141

Earnings (loss) per common share (Note 1):

Diluted

Weighted-average number of common shares outstanding:

21,931

21,773

21,554

22,234

22,079

TABLE 3

Consolidated Statements of Cash Flows

Years Ended December 31,

in thousands)

Cash flows from operating activities

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Deferred tax benefit

(61,396

Amortization of debt issuance costs

Debt prepayment penalty

Impairment of property, equipment, inventory and intangibles

Provision for bad debt expense and note receivable

Interest costs added to principal balance of notes payable

Consulting expense financed through note payable

Share-based compensation expense

Clawback of equity awards

(45,584

(8,921

(42,712

Gain on sale of equity method investment

(2,078

Impairment of cost method investment

Gain on settlement of note payable, licensed technology, and sales-type lease

(1,910

Other non-cash items, net

Changes in operating assets and liabilities, net of effects of acquired businesses:

(3,651

Related party receivables

(1,877

Costs incurred on uncompleted contracts

29,623

(56,606

Other long-term assets

(4,254

(1,340

(2,887

(3,105

Billings on uncompleted contracts

(32,272

(15,186

55,621

Advance deposit, related party

(2,980

(3,544

(2,135

(2,175

(4,211

(3,722

(4,622

Distributions from equity method investees, return on investment

Net cash used in operating activities

(18,257

(29,869

(40,161

Cash flows from investing activities

Distributions from equity method investees in excess of cumulative earnings

38,250

43,584

Purchase of investment securities

Maturity of investment securities

Maturity of investment securities, restricted

Acquisition of property and equipment

(1,563

Proceeds from sale of property and equipment

Advance on note receivable

Acquisition of business

(2,124

Purchase of cost method investment

(2,776

Purchase of and contributions to equity method investee

(2,128

(6,631

Proceeds from sale of equity method investment

Net cash provided by investing activities

39,899

32,648

Cash flows from financing activities

13,539

Repayments on short-term borrowings

(13,250

(1,750

Repayments on notes payable, related party

(1,246

(1,484

Loan costs and amendment fees

Proceeds received upon exercise of stock options

Repurchase of shares to satisfy tax withholdings

(1,500

Net cash (used in) provided by financing activities

(15,671

10,029

(1,565

Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash

(15,506

(9,078

Cash and Cash Equivalents and Restricted Cash, beginning of year

20,973

36,479

45,557

Cash and Cash Equivalents and Restricted Cash, end of year

26,944

Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for income taxes

Supplemental disclosure of non-cash investing and financing activities:

Acquisition of technology license through long-term payable

Acquisition of equity method investment through note payable

13,301

Settlement of RCM6 note payable

13,234

Non-cash reduction of equity method investment

11,156

Stock award reclassification (liability to equity)

Issuance of common stock to settle liabilities

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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