Advanced Emissions Solutions, Inc.

Hello, everyone, and welcome to the Advanced Emissions Solutions second quarter 2022 earnings call. Thank you for your patience. My name is Daisy, and I'll be coordinating today's call. I would now like to hand the call over to your host, Ryan Coleman, with Investor Relations to begin. So, Ryan, please go ahead.

Thank you, Daisy. Good morning, everyone, and thank you for joining us today for our second 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 call is being webcasted 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 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 10-Q for the quarter ended June 30, 2022, and other filings with the Securities and Exchange Commission. Except if 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 reason. In addition, it is especially important to review the 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.

Thank you, Ryan, and thanks to everyone for joining us this morning. We delivered yet another strong quarter of consumables revenue growth as our Red River plant continues to operate at high utilization rates. Favorable macroeconomic dynamics continue to support strong demand for our activated carbon products. Our production volume once again exceeded planned, resulting in a stronger and more agile inventory position, thus allowing us to continue to proactively address tight supply conditions and global supply chain challenges. While we continue to face margin headwinds, we are becoming more comfortable with our production volume growth and our ability to service record high customer demand. Turning to our second quarter highlights on slide three, elevated energy commodity prices for alternative fuels such as natural gas continue to drive demand for our consumable products. Our consumables revenue for the quarter was $24.7 million, which reflects year-over-year growth in excess of 41% for the second consecutive quarter. Our gross margin also improved to 19.5% compared to 15.4% in the prior year. Our second quarter production volume exceeded expectations, which is important to note since our second quarter is traditionally seasonally slower and thus is an important inventory building period. This has allowed us to increase our inventory position in advance of moving into the warmer summer months of our seasonally strong third quarter. Our bottom line performance was slightly below break even as we reported a net loss of $0.3 million compared to net income of $16.6 million in 2021. Our consolidated adjusted EBITDA totaled $2.2 million compared to $21.2 million in the prior year. Keep in mind that the year-over-year variance is primarily a function of equity earnings from our investments in Tenuum Group and Tenuum Services in the prior year. However, both metrics saw solid sequential improvement when compared to the first quarter results of a net loss of $3 million and adjusted EBITDA of $0.9 million. Tenuum's second quarter distributions to ADES totaled $3.1 million, which was in line with expectations as Tenuum continues to wind down its operations. Regarding our capital allocation, our priority remains to organically invest in our manufacturing capabilities to maximize production, improve the operating profile of our manufacturing assets, and fulfill customer obligations. We ended the quarter with an aggregate cash balance, including restricted cash of $90.8 million, and our only remaining debt outstanding are finance leases, totaling $5.2 million. I know that many of you are anxiously awaiting news regarding the results of our strategic review. We are pleased with the progress of our strategic review process and will hopefully be in a position to provide additional updates in the very near term. We are encouraged with both the current status of negotiations as well as the option available to us. However, we will not be providing further comments on this topic until we have something definitive to share. Turning to our outlook for the remainder of the year, 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 we have discussed before, our margins are expected to remain under pressure due to tight inventory conditions and the expected full year impact of incremental carbon purchases to supplement inventory, as well as broader supply chain and inflationary challenges that are applying upward pressure on costs related to transportation, freight, and other necessary product inputs. We continue to strive to mitigate these cost pressures through price increases and overall improvement in commercial contracts related to our consumable products as those contracts allow. We have successfully renewed existing contracts and one new business with more favorable overall commercial terms compared to historical contracts. As a result, our average selling price has tended higher over the past few quarters, which helps to offset pressures related to inventory, logistics, and overall cost increases. We are optimistic that we can continue to make further improvements to successfully navigate the inflationary cost environment we are in. We continue to see utilities that had previously leveraged production tax credits to meet emission standards switch to other methods of meeting requisite emissions limits. While the refined coal facilities have reached the end of their tax credit generation period, many will remain in place and may utilize our front-end chemistry for their feedstock coal. This helps drive incremental revenue and margin on a go-forward basis, providing an additional offset to the aforementioned margin headwinds and cost pressures. We have successfully transitioned many of these customers to our front-end technology and have also seen an increase in usage of our activated carbon products at certain customers. Our solutions remain competitive, so much so that no previous tenuum customers that continued to utilize a front-end solution were lost during the transition from refined coal. With that, I will turn the call over to Morgan to review our second quarter and first half financial performance in greater detail.