Advanced Emissions Solutions, Inc.

hello and welcome to the advanced emissions solutions first quarter 2022 earnings call my name is lauren and i will be coordinating your call today i will now hand you over to host ryan coleman with investor relations to begin ryan please go ahead thank you lauren and good morning everyone thank you for joining us today for our first quarter 2022 earnings results call with me on the call today are greg markin chief executive officer president and treasurer

as well as Morgan Fields, Chief Accounting Officer. This conference call is being webcasted live within the investor section of our website. 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 Those factors identified on slide two of today's slide presentation in our form 10Q for the quarter ended March 31st, 2022, and other filings with the Securities and Exchange Commission. Except as expressly required by securities laws, 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 reasons. In addition, it is especially important to review the presentation and today's remarks in conjunction with the GAAP references in the financial statements. With that, I would like to turn the call over to Greg.

Thank you, Ryan, and thanks to everyone for joining us this morning. Before we discuss our results, I would like to take a moment to remind everyone listening that as of December 31, 2021, all of the remaining refined coal facilities reach the end of their respective tax credit generation periods. As a result, we will no longer have separate reportable segments for our investments with Tenuum Group and Tenuum Services and will only report our results on a consolidated basis going forward. Turning to our first quarter highlights on slide three. Demand for our activated carbon technologies remained strong throughout the first quarter supported by both macroeconomic and industry factors. Sales of consumable products were $26.4 million, which reflects year-over-year growth of 42%. Our gross margin was 18.5% compared to 24.6% in the prior year as the need to supplement production with third-party sources of activated carbon to meet customer demand increases our average product cost as the average cost of third-party activated carbon purchases is higher than the cost of producing comparable products in-house. We recorded a net loss for the period of $3 million compared to net income of $13.7 million in the prior year. Adjusted EBITDA was $0.9 million compared to $26.1 million on a year-over-year basis. The declines in both earnings and adjusted EBITDA are most materially the direct result of our reduced distributions and earnings from Tenuum Group and Tenuum Services compared to the prior year due to the wind down of our former refined coal segment. Tenuum's first quarter 2022 distributions to ADES totaled $2.5 million, which was in line with our expectations. With strong capacity utilization at our operating facilities, we continue to source supplemental inventory from third parties to meet sustained customer demand. Importantly, production volume at our Red River plant exceeded our internal expectations for the quarter, allowing us to increase inventory levels within the quarter as we prepare for the seasonally strong upcoming summer months. As a result, we are feeling incrementally more comfortable with our inventory position and our ability to more efficiently meet customer obligations. However, we do anticipate general inventory tightness and supply chain challenges to remain in effect throughout 2022, and we expect these cost pressures to continue to impact margins for the remainder of the year. We are working to offset these cost pressures through price increases related to our consumable products previously announced over the past 12 months. We have maintained high renewal rates on current contracts and we have been pleased with our ability to negotiate more favorable contractual terms as those contracts have come up for renewal or as new business opportunities are pursued. As a result, we have seen our average selling price trend higher over the past few quarters, which is partially offsetting cost pressures related to areas such as inventory and logistics. The more holistic structural changes that we are making to our commercial contracts including improved pricing, take or pay obligations, increased lead times, and volume protections, will better position the company for long-term success. However, as we discussed in March, the turnover of our contractual portfolio would generally occur over the course of three to four years based on general contract durations within our customer base. Regarding our capital allocation, our priority remains the organic investment in our manufacturing capabilities to ensure production, improving the operating profile of our manufacturing assets, and fulfilling customer obligations. We ended the first quarter with a cash balance, including restricted cash, of $89.8 million, and our only remaining debt outstanding are finance lease liabilities, totaling $3.9 million. As it relates to our strategic review, We remain pleased with the ongoing progress to evaluate opportunities available to us to maximize shareholder value. We have stated since day one that there is no timetable for the conclusion of this process and that its continuation has in no way impeded our day-to-day operations or detracted from our focus on enhancing the long-term profitability of our Red River plant. We are encouraged with where the process currently stands and will provide updates as appropriate going forward. Turning to our outlook for the remainder of 2022, we expect our top line to remain strong as demand for our activated carbon technologies has been robust and we continue to improve our overall contractual terms on contracts. As stated previously, our margins are expected to remain under pressure due to tight inventory conditions and the anticipated full year impact of incremental carbon purchases to supplement inventory. as well as broader supply chain challenges that are applying upward pressure on costs related to transportation and freight, as well as other necessary product inputs. As I mentioned, we continue to seek to offset these pressures through overall improvements in commercial terms, product mix optimization, and top grading our overall customer mix. Our inventory position has improved incrementally, and we are cautiously optimistic in our ability to realize further improvements in the coming quarters. Lastly, we expect to collect net after-tax cash flows from Tenuum of between $0.5 to $1 million in the second quarter of 2022. Tenuum is currently in the process of winding down its business as the end of the Section 45 tax credit generation period occurred at the end of 2021. Utilities that had previously leveraged the production tax credits to meet emission standards are transitioning to other methods of meeting requisite emissions limits. While these refined coal facilities have reached the end of their tax credit generation period, many will remain in place and some may be utilized for the application of our front end chemistry to feedstock coal. A number of these utility customers have already begun to purchase our front end technology or activated carbon products, which will help to drive incremental revenue and margin on a go forward basis. We continue to transition these customers to our front end technology and activated carbon products in our solutions are competitive. No previous 10UM customers that continue to utilize a front end solution were lost during the transition from refined coal. As such, we are pleased with our progress to date in the adoption of our products. With that, I will turn the call over to Morgan to review our first quarter financial performance in greater detail.