Advanced Emissions Solutions, Inc.

Good morning, ladies and gentlemen. Welcome to the Advanced Admissions Solution Q3 2022 Earnings Results Call. My name is Jaquita. I will be your moderator for today's call. Our lines will be muted during the presentation portion of the call. I would now like to pass the conference over to your host, Ryan Coleman, with Investor Relations. Ryan, please go ahead.

Thank you, and good morning, everyone. Thank you for joining us today for our third quarter 2022 earnings results call. With me on the call this morning 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 the website. A 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. Let me remind you that the presentation and remarks made today include full-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on information currently available to us. It 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 slides two and three of today's slide presentation in our Form 10-Q for the quarter-ended September 30, 2022, and other filings with the Securities and Exchange Commissions. 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 reason. It is especially important to review the presentation and today's remarks in conjunction with the GAAP references and 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. Our third quarter showed another period of solid consumables revenue growth as macroeconomic conditions continue to support demand and revenue improvements from our power generation, industrial, and municipal water customers. Consumables revenue for the quarter grew to $28.4 million compared to $26.7 million in the prior year. a 7% increase. The growth was driven by increased volumes and improved pricing, partially offset by product mix. Our consumables gross margin was 24.1% in the quarter compared to 25.2% in 2021. On a year-to-date basis, total sales volumes are significantly higher than the prior year, along with a much improved average selling price, which has driven consumables revenue growth of 27% compared to the first nine months of 2021. For the quarter, we reported a net loss of $2.4 million in 2022 compared to net income of $24.3 million in 2021. The difference being due to the effect of tenuous investments in the prior year. Our adjusted EBITDA loss was $0.5 million compared to adjusted EBITDA of $28.5 million in 2021. which again was the result of tenuous investment contributions in 2021. As we have discussed on previous calls, tenuums ceased operations as of December 31st, 2021 as a result of the end of the section 45 tax credit generation period. Our production volume at Red River was strong during the quarter and our inventory position modestly improved during the period. However, inventory tightness and supply constraints continue to be a concern. Additionally, our capital allocation priority remains the organic investment in our manufacturing assets to ensure we are able to meet customer demand and to continue to win attractive commercial opportunities within the market. In September, we announced that we reached an agreement to sell our Marshall Mine to Caddo Creek Resource Company. Upon closing of the transaction, which we expect to occur in the first half of 2023, The asset retirement obligation and other liabilities, which are approximately $5.1 million as of quarter end, will be removed from our balance sheet. This is another positive step as we de-risk our balance sheet and focus on our Red River operations in the proposed merger with ARC. We also expect the sale to result in the release of a portion of our restricted cash once the asset retirement obligation goes away. Turning to our outlook, we continue to expect top line growth supported by macroeconomic factors and pricing initiatives, as well as strong sales and a robust commercial pipeline. Our total sales volumes year to date are higher than the prior year. However, in the third quarter, our sales volumes were down slightly when compared to the second quarter, partially due to the scheduled plant retirements related to the power generation market, as well as selective bidding on certain contracts. We continue to manage volumes closely given continued strong demand for our products, as well as ongoing challenges of sourcing certain third-party carbons to support target inventory levels. As a result, we are being selective regarding the volume commitments we make, carefully targeting our bidding activity, focusing on pricing initiatives, and stepping up the overall earnings profile of our products. Shortly after the end of the third quarter, we encountered a mechanical issue in one of our furnaces at our Red River facility, which led to a week and a half of downtime for that unit. The mechanical issue has been addressed and resolved. However, the associated downtime resulted in lost production and will affect our inventory position as we move into the end of the year. Combining all of these factors, we will continue to supplement our inventory through external sources in order to meet high customer demand, yet We do expect levels of purchase inventory in 2023 to be reduced compared to the current year, which we expect to have a positive impact on the margin profile of our consumable carbon products going forward. Our margins continue to be pressured by the higher cost per unit we are currently experiencing as a result of this sourcing of supplemental carbon, as well as inflationary impacts on a number of operational costs. We expect these pressures to persist into 2023. In addition, general supply chain bottlenecks seen across the economy remain a headwind, causing an increase in certain product input costs and related transport costs, as well as negatively impacting the timing receipt of various product inputs. We are attempting to alleviate these manufacturing cost pressures through increased average selling price and positive changes in our product mix, and targeting markets and contracts with better economics. We remain pleased and encouraged by our ability to realign contracts to current market conditions when possible, and as a result, our average selling price is trending higher. In addition, our contract renewal rates with existing customers remains above 90%, which is a testament to both our sales and support teams, as well as the efficacy of our activated carbon technologies. With that, I'll turn the call back over to Morgan to review our financial performance in greater detail.