Advanced Emissions Solutions, Inc.

Thank you for standing by. Welcome to the Advanced Emissions Solutions Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Mr. Ryan Coleman with Investor Relations. Sir, please go ahead.

Thank you and good morning, everyone. And thank you for joining us today for our third quarter 2021 earnings results call. With me on the call today are Greg Markin, who, per the 8K filed yesterday afternoon, is now Chief Executive Officer, President and Treasurer, as well as Morgan Fields, our Chief Accounting Officer. This conference call is being webcasted live within the investor section of the 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 for investor relations support at 312-445-2870. Let me remind you that the presentation and the remarks made today include forward-looking statements as defined in Section 21E of the Securities and 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 two of today's slide presentation in our Form 10-Q for the quarter ended September 30th, 2021, 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 today's presentation and today's remarks in conjunction with the GAAP references in the financial statements. With that, I'll 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 third quarter results, which are highlighted on slide three. Overall, our results were significantly improved over last year and in line or ahead of our expectations going into the third quarter. Distributions from tenuum remained strong as we approached the end of the tax credit generation period, and our APT segment delivered record quarterly revenue and strong gross margins. Tenuum's distributions to ADES totaled $22.9 million for the quarter compared to $9.7 million in Q3 of 2020. Royalty earnings from Tenuum Group also increased and were $4.2 million compared to $3.6 million in the prior year. In addition, both quarterly RC segment operating income and adjusted EBITDA more than doubled compared to the prior year. Similar to what we saw in the second quarter, the increased number of invested facilities as well as higher prices for alternative fuel sources, such as natural gas, have supported high demand for the RC customers. Of note, we had six RC facilities reach the end of their scheduled expiration of their 10-year tax credit generation period. We now have 16 operational facilities, all of which will reach their expiration date for generating tax credits no later than December 31st. Our APT segment also benefited from higher natural gas prices and the year-over-year impact of the Cabot supply agreement, which contributed to a record quarter as revenue grew 56% compared to last year. The segment's operating income was $4.6 million compared to an operating loss of $3.3 million in 2020. Segment-adjusted EBITDA was $4.2 million compared to a loss of $1.6 million in the prior year. The segment also demonstrated the inherent operating leverage it possesses as strong volumes drove our gross margins to 27% compared to 5% in 2020. It is important to keep in mind that Q3 is seasonally one of our strongest quarters. However, we do expect demand to remain strong due to high natural gas pricing as well as the impact of colder months in the latter portion of Q4. Due to inventory tightness, we continue to supplement our inventory through external sources in order to meet high customer demand. This means that our segment margins, while better than the prior quarter, remain pressured by the higher cost per unit we are currently experiencing. We expect these pressures to persist well into 2022. Despite that, we have proven our ability to navigate these tight supply conditions and expect high demand levels along with ongoing improvements to customer and product mix to help alleviate these cost pressures. Although strong volumes are being driven by power generation customers, we also have experienced strong demand from industrial and water applications. We maintain a solid bid pipeline with potential customers in these markets, as they are important diversifying factors within our APT strategy. Our price increase initiatives for our activated carbon products are progressing well. Of course, it takes time to step up pricing for an entire portfolio of product. but we are encouraged by our ability to negotiate better terms since our announcement earlier this year, and we are seeing our ASP improve accordingly. We also continue to make steady progress in developing new activated carbon products and technologies through our partnership with Cascade Environmental for the soil and groundwater remediation market. We are pleased with testing results achieved to date and are excited about the potential of this emerging product offering. Consolidated net income was $24.3 million for the quarter or $1.31 per diluted share compared to $5 or 27 cents per share in 2020. Our consolidated adjusted EBITDA was significantly higher at $28.5 million compared to 8.7 million for Q3 of 2020. We continue to maintain a very strong balance sheet Our cash balances, including restricted cash, totaled $82.1 million at the end of the quarter, an increase of $46.2 million compared to December 31, 2020. From a capital allocation perspective, our number one priority remains the organic investment in our manufacturing assets to meet customer demand and ensuring that we are able to source sufficient inventory to serve our customers. We are updating our projected after-tax cash flows from the RC segment to be between 12 million and 14 million, with 8.5 million to be received during the fourth quarter. We expect additional cash flows to be dispersed to us during the first half of 2022 when Tenuum ultimately completes its wind down process. That cash flow guidance is inclusive of the associated wind down costs from Tenuum. I'd also like to state that many of these RC facilities will likely remain in place after the year-end expiration date for the tax credit generation period. These facilities or other application facilities can be utilized to apply the front-end chemistry to feedstock coal, as utilities currently leveraging the production tax credits will need to pivot to another method of meeting requisite emissions control standards. Some of these utilities will likely purchase our front-end technology or activated carbon instead, which will help replace a portion of the RC cash flows from continuum distributions that are going away. As I mentioned, we expect our APT segments top line to remain very strong. Our margins are expected to remain under pressure due to tight inventory conditions as well as broader supply chain challenges that are putting upward pressure on the cost related to transportation and freight, as well as other product inputs that may be necessary. We will seek to offset these pressures through continued price increases and product mix optimization. Lastly, as it relates to our strategic review, we are pleased with ongoing progress to evaluate the opportunities available to us to maximize shareholder value. As a reminder, we have no timetable for the conclusion of this process, and we will provide updates when appropriate. In the meantime, we remain focused on continuing to improve the operating profile of our APT assets. With that, I'll turn the call over to Morgan to review our third quarter financial performance in greater detail.