Advanced Emissions Solutions, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Advanced Emission Solutions Q3 2020 earnings call. At this time, all participants are in a listen-only mode. If you require any further assistance, please press star zero. I want to hand the conference over to Ryan Coleman, Investor Relations. Please go ahead.

Thank you, and good morning, everyone, and thank you for joining today for our third quarter 2020 earnings results call. With me on the call today are Greg Markin, Interim President, Chief Executive Officer and Treasurer, and Chris Bellino, Chief Accounting Officer. This conference call is being webcast live within the investor section of our website, and a downloadable version of today's presentation is available there as well. A webcast replay will also be available on the site, and you can contact Alpha IR Group for investor relations support at 312-445-2870. Let me remind you that the presentation and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to, the factors identified on slide 2 of today's slide presentation in our Form 10-Q for the quarter ended September 30, 2020, and other filings with the Securities and Exchange Commission. Except as expressly required by securities law, the company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments, or change circumstances, or for any other reason. In addition, it's very important to review this presentation and today's remarks in conjunction with the GAAP references in the financial statements. So with that, I'd like to turn the call over to Greg Market.

Thanks, Ryan, and thanks to everyone for joining us this morning. Yesterday, after markets closed, we reported third quarter results that were largely in line with our expectations for the quarter. Tenuum was able to lease an additional refined coal facility to a third-party investor, and also sold its remaining interest in another. Tenuum also announced the contractual closure of an additional facility since quarter end in October. These transactions demonstrate the ongoing investor interest in leasing these facilities as we have discussed previously this year. In the PGI segment, we beat our internal forecast while volumes exceeded prior year levels. I continue to be encouraged by our competitive position in the market, as well as our progress towards diversifying our Red River plants production across numerous industries and applications. And most importantly, we made great progress towards laying a foundation for the company's post-refined coal future and announced our 15-year master supply agreement with Cabot Corporation on September 30th. This is an important step towards diversifying the business and capturing the value of the assets we purchased, and we feel fortunate to have an established and committed business partner in Cabot going forward. I'll talk more about the nature of that agreement, as well as our outlook at the segment level later in the call. But first, let's turn to slide three for a high-level review of the quarter. Third quarter distributions from Tenuum totaled $9.7 million during the quarter, and royalty income totaled $3.6 million. The lower distributions were the result of renegotiated contracts in the third quarter of 2019 that resulted in lower net lease payments to the company and timing of cash distributions from 10 years. Also contributing to the decline has been the decreased coal burn driven by cheap alternative energy sources, as well as by lower aggregate energy demand in the U.S. from lower overall economic activity during the past two quarters, largely driven by the pandemic. As we have discussed on past earnings calls, given the impacts of timing of revenue recognition and accelerated non-cash depreciation by tenuums, our equity earnings are significantly reduced compared to the cash distributions we will receive. Because of that, we believe adjusted refined coal segment EBITDA helps to portray an additional year-over-year comparison of the earnings and associated cash flows of the segment. In our PGI segment, our third quarter revenue was down roughly 4% while our segment operating loss was $1.3 million. Adjusted EBITDA in the segment was slightly better than breakeven. Cheap alternative fuel sources contribute to weakness in our PGI segment. However, we have been able to largely offset this pressure as we have greatly diversified our product mix away from coal-fired power generation with the success we have had in industrial markets. We had another strong quarter of execution, and we expect to continue to maintain high renewal rates with our existing customers. Our focus here remains on filling the plant's capacity diversifying our product mix, and capturing the low-cost nature of the asset. Our agreement with Cabot is a significant step towards achieving each of these initiatives. From a consolidated perspective, our net profit in the third quarter was $5 million. Our consolidated adjusted EBITDA was $8.7 million compared to $18.5 million in the prior year, mainly driven by lower cash distributions from Tenuum. Regarding our capital allocation, we are continuing to prioritize debt reduction and cash preservation during the pandemic. We reduced our term loan balance to $22 million and continue to expect to pay off the note in less than its stated three-year term. We remain focused on the cost containment and have maintained our pause on all non-core capital spending. Our focus has been to prioritize liquidity and organic investment to ensure manufacturing capabilities. During the year, we have also restricted corporate travel and limited backfilling open positions prior to the completion of the supply agreement, in addition to other measures. In the third quarter, we reduced our other operating expenses by roughly 24% and have improved our overall liquidity positions from last quarter. Separate from our RC segment, we expect the supply agreement with Cabot to materially improve the economics of our activated carbon assets and our consolidated financial performance. As we ramp up production over the next four to five quarters, we expect that we will reduce our power generation exposure to less than 50% of our portfolio, and we expect the agreement to yield, relative to our current operations, incremental annual revenue growth of 30 to 40%, and incremental annual EBITDA growth of 10 million to 15 million. While this agreement is a critical step, power generation still does comprise a significant portion of our current product portfolio, and the market remains challenged by cheap alternative fuel sources and the impact of the pandemic. We have spent considerable time and effort organically building out our product capabilities and internal sales infrastructure, and our offering is growing increasingly competitive in non-power generation markets like industrial and municipal water. As a result of these efforts, we believe we are on target to more than double our water-related volumes on an annualized basis year over year by the time we reach December of this year. We remain focused on identifying other non-power generation markets and opportunities in addition to the diversification the Cabot Agreement will provide away from power generation. I'll talk more about some of these efforts, but first I'd like to turn the call over to Chris to review our third quarter financial performance.