Advanced Emissions Solutions, Inc.

Hello and welcome to the Advanced Emissions Solutions Q4 2022 earnings call. My name is Lauren and I'll be coordinating your call today. There'll be an opportunity for questions at the end of the presentation. If you would like to ask a question, then please press star followed by one on your telephone keypad. I will now hand you over to your host, Ryan Coleman with Investor Relations to begin. Ryan, please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today for the fourth quarter and full year 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 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 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 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-K for the year ended December 31, 2022, and other filings of the Securities and Exchange Commission. Except if expressly required by securities laws, the company undertakes no obligation to update those factors or any other forward-looking statements to reflect future events, developments, or changed 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'll turn the call over to Greg.

Thank you, Ryan, and thanks to everyone for joining us this morning. This is our first earnings call since the closing of the ARC acquisition, and as such, I'd like to extend a special welcome to our new team members from ARC, as well as any new shareholders who are joining on today's call. We are truly excited as we begin executing our new plan to transform and capitalize on the complimentary nature of our combined assets and teams to become a diversified leading environmental technology company. I'll cover more on this transformative plan, which will begin in 2023. But first, I'd like to review our fourth quarter and full year 2022 results. We delivered a solid fourth quarter of consumable sales and production at Red River, which culminated in a record full year revenue performance, exceeding our original expectations for 2022. Consumables revenue for the quarter was $23.4 million, compared to $23.2 million in the prior year. Our fourth quarter production and sales revenue remained strong, However, the volumes were not as strong as what we had seen in prior quarters with the elevated average natural gas pricing experienced early in the year. The declining natural gas prices during much of the fourth quarter lowered demand from our power generation customers, which we have continued to see during the first quarter of 2023. Our full year total revenue of $103 million represents a year-over-year increase compared to the prior year, despite 14 million of royalties from our ten-year investments in 2021 that did not occur in 2022 due to the conclusion of the section 45 tax credit generation period at the end of 2021. Looking solely at our consumables revenues, they increased 20% year over year due to a combination of strong demand from power generation customers, pricing initiatives, and product mix improvements. For the quarter, we reported a net loss of $3.2 million compared to net income of $5.8 million in 2021. We recorded an adjusted EBITDA loss of $1.2 million compared to adjusted EBITDA of $9.1 million in 2021. The variance in year-over-year results is primarily the effect of the wind down of our ten-year investments in 2021 and additional costs in the current year related to our strategic process. Our Red River production volume during the quarter was lower than anticipated due to incremental unplanned downtime for maintenance. However, our full year 2022 production volume, including the impact of blended carbons, exceeded our overall expectations. While our operations may continue to remain constrained at various points by tight manufacturing capacity, sourcing of product from third parties, and the overall inflationary environment, we continue to improve our inventory position both from an overall volume and product mix perspective. We ended the year with a strong cash position of $76.4 million, which will facilitate our capital expenditure plans for 2023. Those efforts will be focused on growth projects related to the ARC acquisition, as well as ongoing organic investment in our manufacturing assets to continue to enable high production and operational rates from those assets. As a reminder, in September, we announced that we had reached an agreement to sell Marshall Mine to Caddo Creek Resource Company, subject to certain closing conditions. This transaction will allow us to continue to de-risk our balance sheet as we focus on our future initiatives related to the ARC assets and integration. Upon closing, the asset retirement obligation and other liabilities, which total approximately $4.9 million as of year-end, will be removed from our balance sheet. In addition, we expect a portion of our restricted cash to be released as that asset retirement obligation goes away. We continue to expect that the Marshall Mine transaction will close during the first half of this year. Turning to our outlook for 2023, we expect a strong top line as we balance internal actions around pricing initiatives and a diverse sales and commercial pipeline, though we acknowledge that persistently lower natural gas prices could hinder demand and revenue performance from our power generation customers and therefore could also impact other markets. Also of note, our regularly scheduled plant maintenance activity that occurs every two years is scheduled to take place in April. The associated downtime is expected to last approximately two weeks, which is normal for a maintenance exercise of this nature. As we have planned for this downtime, we will ensure that we have sufficient inventory on hand to continue to meet customer demand and minimize any disruption during this period. During 2023, we expect that our margins will continue to be pressured by the higher cost per unit of production as a result of the routine plant turnaround, external sourcing of supplemental carbon, albeit at reduced volumes, as well as inflationary aspects on a number of operational costs. We are attempting to alleviate these manufacturing cost pressures through increased average selling price and positive changes in our product mix, as well as targeting markets and end-use customers with improved economics. We continue to be encouraged by our ability to realign contracts with current market conditions when possible, and as a result, our ASP continues to trend higher. As mentioned, we are also commencing capital projects to modify the Red River and Corbin sites in order to enable commercial-scale GAC and ARC powder production. In addition, we are taking other technical and commercial steps to position the combined business for success when production and sales of GAC products derived from ARC powder ultimately begin. We believe these ongoing investments and efforts will lead to a more diversified commercial portfolio with a path towards improved and sustainable economic performance for our business on a long-term basis. I'll discuss these initiatives in more detail later on the call. And finally, for the full year, we are forecasting approximately $106 million in revenue and an EBITDA loss of roughly $6 million, excluding one-time acquisition costs. With that, I will turn the call over to Morgan to review our financial performance in greater detail.