Advanced Emissions Solutions, Inc.

Good day and thank you for standing by. Welcome to the Advanced Emission Solutions Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ryan Coleman, Linda Vester Relations. Thank you. Please go ahead.

Thank you, and good morning, everyone, and thanks for joining us today for our second quarter 2021 earnings results call. With me on the call today are Greg Markin, Interim President, Chief Executive Officer and Treasurer, and Morgan Fields, the President of Accountant. 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 our site, and you can contact Alpha IR Group for investor relations support at 312-445-2870. I'm going to remind you that the presentations 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 involved 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, those factors identified on slide two of today's slide presentation in our form 10-Q for the quarter ended June 30, 2021, and other filings with the Securities and Exchange Commission. Accepted expressly required by securities laws, 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 is very important to review the presentation and today's remarks in conjunction with the GAAP references in the financial statements. With that, I'd like to turn the call over to Greg.

Thank you, Ryan, and thanks to everyone for joining us this morning. Yesterday, after the close of markets, we reported our second quarter results, which are highlighted on slide three. Our refined coal segment delivered another strong quarter of distributions, which were 34% higher than the prior year. Royalty earnings were also higher, and the segment's operating income was more than double the prior year period. The segment's adjusted EBITDA improved over the second quarter of 2020 by 33%. The refined coal segment's strong results are largely being driven by the increase in invested RC facilities year over year, as well as the warmer than normal summer season across much of the U.S., coupled with the continued higher natural gas prices. In our APT segment, our sales volumes have continued to rise and have exceeded our internal forecast for several months in a row. Revenue for this segment was roughly twice that of the prior year, driven by the realization of the Cabot Supply Agreement we announced in September of last year, as well as growth in non-power generation markets such as water and certain industrial applications. However, most of the outperformance compared to our expectations during the second quarter was driven by our power generation customers who have been and continue to be affected by high natural gas prices and warmer weather, both of which positively impact our product demand and results in the APT segment. In addition, I would like to take a moment to acknowledge and reaffirm our commitment to continuing to diversify and grow the business to reduce our exposure to the longer-term uncertainty related to coal-fired power generation in North America. Through the first half of the year, our team has worked closely with an industry-leading channel partner within the growing soil and groundwater remediation market. I am pleased to share that our team has developed new activated carbon technologies which we believe will allow us to differentiate our participation. We look forward to sharing more details regarding this growth initiative as we work closely with our channel partner to accelerate field demonstration of advanced product prototypes later this year. Our gross profit for the APT segment in the quarter was $2.7 million, despite the plant turnaround and the impacts of the plant incident, compared to just $0.8 million last year, which was not impacted by a plant turnaround. These results in a strong gross margin improvement relative to revenue growth, demonstrate the inherent operating leverage of our business, and our highly sophisticated plant and vertically integrated operations. The incremental volumes we have achieved to date have driven our capacity utilization to a level much more in line with our long-term expectations, and the result is improved profitability. We anticipate plant utilization to remain strong as we continue to support increased demand through the balance of the year. The segments adjusted EBITDA totaled $0.3 million compared to a loss of $2.3 million in the prior year. Now, let me provide a quick update on the previously announced incident at our Red River plant. As we stated last quarter, the plant realized approximately one week of downtime, but was quickly backed up and fully operational. We were able to continue to meet our customer demand through existing inventory and other sources without further interruption. Ultimately, the direct cash flow impact of the incident, including maintenance and repairs, capital expenditures, inventory replacement, and other items, was consistent with our expectation that it would not exceed $3 million. Those extra costs did create some margin compression in the second quarter relative to the prior period, despite very strong volumes. In addition, because we were forced to procure inventory through alternative sources during that downtime, our cost per pound to produce was higher than the prior quarter. At this time, we expect these impacts to create some margin pressure through the remainder of the year as we cycle through the higher cost per pound inventory and continue to purchase inventory to supplement production due to the significant increases in demand we have seen from the power generation segment. That said, customer orders and total volumes have been incredibly strong over the past several months, and we are very pleased with both the segment's improved performance as well as its future prospects. We continue to expect improvement relative to last year. We achieved consolidated net income of $16.6 million in the quarter, or 90 cents per fully diluted share, and adjusted EBITDA of $21.2 million. Both were significantly better than last year. And as we announced in June, we paid off the remaining balance of our three-year term loan used to fund the acquisition of Carbon Solutions prior to its stated maturity. Also, as we disclosed in late July, we received notice that the $3.3 million PPP loan we received in 2020 has been forgiven. As a result, aside from equipment and facility leases, we are debt-free and continue to build a strong cash position. We will continue to prioritize organic investment in our manufacturing capabilities to ensure that we meet customer demand. We will also continue to prioritize our near-term liquidity position as we work through both the scheduled end of our RC segment and our strategic alternatives review. Tenuum continues to align their cost structure to prepare for the planned expiration of the production tax credit generation period at the end of the year. Turning to our outlook, after cash distributions received in the second quarter, We are updating our forecast for after-tax cash flows from Tenuum to be between 30 million and 40 million. We remain focused on improving the profitability of our APT segment and expect our efforts over the last several quarters to yield improvements on that front. We are optimizing our current product mix to enhance the earnings profile of the segment, as well as instituting price increases for all of our activated carbon products to help drive better earnings performance, as well as to offset inflationary pressures. And lastly, we are progressing in our strategic alternatives review to evaluate the opportunities available to us to maximize shareholder value. As we have discussed during our past several calls, we have made great progress in growing our Red River plants capacity utilization diversifying our product mix into water and industrial applications, bolstering our financial position through our focus on repaying our term loans, and growing our cash balances. We believe this provides us with a unique opportunity to evaluate the options available to us from a position of strength. Overall, we have been pleased with the nature of the discussions up to this point, and we will provide updates as appropriate as the process unfolds. At present, there is no timetable for the completion of that process. Overall, we are happy with our financial performance for the first half of the year. Our RC segment is delivering strong equity earnings and distributions. Our APT segment is operating the best it has since we purchased the assets. Customer demand remains high. We continue to build cash, and we are in a strong financial position going forward. With that, I'll turn the call over to Morgan to review our second quarter financial performance in greater detail.