Advanced Emissions Solutions, Inc.

Good morning. Thank you for attending today's Advanced Emissions Solutions Q1 2023 Earnings Conference Call. My name is Alexis and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to Ryan Coleman with Investor Relations. You may proceed.

Thank you, and good morning, everyone, and thank you for joining us today for our first quarter 2023 earnings results call. With me on the call today are Greg Markin, Chief Executive Officer and President, as well as Morgan Fields, Chief Accounting Officer. This conference 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 10Q for the quarter ended March 31st, 2023, 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 is especially important to review the presentation and today's remarks in conjunction with the GAAP references in the financial statements. Please turn to slide three of today's presentation, which provides our Q1 highlights. With that, I'd like to turn the call over to Greg.

Thank you, Ryan, and thanks to everyone for joining us this morning. I'd like to start by providing a high-level review of our first quarter, then discuss some of the initial steps we have taken to advance our business plan related to the ARC transaction and related integration. Our first quarter consumables revenue was $20.8 million compared to $26.4 million in the prior year, which was below our expectations as significantly lower natural gas prices relative to the last 18 to 24 months impacted demand among our power generation customers. The potential for persistently lower natural gas prices could have an ongoing adverse impact on demand from our power generation customers and operations at Red River. However, more importantly, this economic environment underscores the importance of our acquisition of ARC and our transformation strategy to begin producing new granular activated carbon or GAC products going forward. thus reducing our reliance on certain markets and industries over time and broadening the addressable markets for our activated carbon technologies. Although this transition will take time due to the capital improvements required, we believe that we will be able to operate a highly utilized asset base during this transition period and will be well positioned to diversify the end markets we sell to and capitalize on the broader long-term growth opportunities available within the GAC markets. The near-term impact of lower sales volumes from Red River were partially offset by our ongoing price initiatives and commercial wins in water and industrial markets. As a reminder, we have focused our sales strategy on higher value opportunities with improved economic and commercial terms. We expect that this approach, coupled with continued efforts in our pricing strategy, will help offset portions of the softer volumes in our legacy markets. During 2023, we expect that our margins will continue to be pressured by the higher cost per unit of production, resulting from decreased power generation volumes compared to expectations, external sourcing of supplemental carbon, albeit at reduced volumes, as well as inflationary impacts on a number of operational costs. In April, we completed our regularly scheduled plant turnaround event that occurs on a periodic basis, typically every 18 to 24 months, and last for approximately two weeks. We were pleased with the planning and execution of the plant turnaround by our team, and we have returned to normal operations on our anticipated timeline. During the turnaround, we continued to meet all customer obligations with inventory on hand and did not encounter any commercial disruptions. In March, we completed the sale of Marshall Mine to Caddo Creek Resource Company and recognized the gain of $2.7 million. The removal of the asset retirement obligation associated with the Marshall Mine allows us to continue to de-risk our balance sheet as we focus on our future initiatives related to the ARC assets and integration, as well as free up approximately $2.3 million of restricted cash that was previously held as cash collateral pursuant to our bonding program. Upon the closing of the ARC acquisition, we welcome three new board members from the legacy ARC business, Julian McIntyre, Jeremy Blank, and Richard Campbell Breeden, each brings valuable experience that will be critical to the execution of our business plan. We also announced last month that Lori Bergman will join our board in June as an independent director and will serve as the chair of our audit committee. Lori is a proven financial executive with highly relevant industry experience, and we look forward to her leadership as we execute on the next phase of the business strategy. Turning to our capital plan and cost update. During Q1, we commenced the initial capital projects to upgrade the Corbin and Red River plants, which will facilitate our future ability to produce commercial scale GAC and leverage our new high performance and vertically integrated by two minutes based feedstock. At Corbin, engineers, contractors, and equipment have been selected related to the major components of the capital project and purchasing of long lead items is underway. At Red River, where we anticipate spending the majority of the capital, we made progress related to equipment scoping and have completed engineering steps necessary to keep us on track to move forward with permitting at the applicable regulatory agencies during the second quarter. These collective initial capital projects are on track, and we believe these investments will ultimately lead to a more diversified commercial portfolio with a path towards improved and sustainable economic performance for our business on a long-term basis. Consistent with our plan, we expect that the aggregate growth CapEx related to these projects will be between $45 and $50 million, of which roughly $27 to $30 million will be incurred in the current year. Our total CapEx spend for 2023 is expected to be between $40 and $45 million, with the balance relating to our regularly scheduled plant turnaround and other capital projects. We've also begun to take actions to achieve the planned go-forward operating cost structure for the combined company, such as streamlining personnel and systems, optimizing overall operations, as well as other items. We will continue to evaluate ways to simplify the overall organization and operations, but are on track to achieving a go-forward cost structure consistent with our plans, while maintaining the ability to achieve the growth initiatives inherent in our business plan. In addition to commencing the initial capital improvements to the Red River and Corbin facilities, we are simultaneously focused on expanding the sales channels to identify and secure lead GAC customers once commercial production of GAC products utilizing ARC powder begins. Part of that process involves engaging in a more visible and proactive marketing approach to increase awareness of our company and our overall suite of environmental technologies that we will bring to potential customers. During the first quarter, our Chief Technology Officer, Joe Wong, and our Vice President of Sales, Oscar Velasquez, participated in multiple technical speaking engagements and conferences designed to strengthen our remediation market base, discuss our product applications, and drive awareness around our suite of current and potential products, including GAC, PAC, and colloidal carbons. We expect to participate in future events in order to demonstrate the expanded joint product portfolio and capabilities of the combined company. And lastly, we remain focused on developing opportunities for emerging markets and applications for ARK Powder, which will continue to de-risk the business by diversifying our revenue mix. We are pleased to have completed the acquisition of ARK during the first quarter, which we believe is the right step in driving long-term growth and value creation. Our combined company will enjoy a diverse portfolio of products and customers in a much larger addressable market due to an enhanced feedstock portfolio and production capabilities, which will result in higher margin opportunities within the activated carbon market, as well as providing access to additional potential revenue streams that would have been previously unattainable for our business as previously positioned. I'll talk a little bit more about our milestones for 2023, but first I'd like to turn the call over to Morgan to review our first quarter results in greater detail.