Advanced Emissions Solutions, Inc. (ADES) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Advanced Emissions Solutions Quarter One 2021 Earnings Call. At this time, all participants are in listen-only mode. I will now like to hand the conference over to Ryan Coleman, Investor Relations. Please go ahead.
Ryan Coleman: Thank you and good morning everyone. And thanks for joining us today for our first quarter 2021 earnings results call. With me on the call today are Greg Marken, Interim President, Chief Executive Officer and Treasurer; and Morgan Fields, Vice President of Accounting. This conference call is being webcast 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 may contact Health IR Group for Investor Relations support at 312-445-2870.
Greg Marken: Thanks, Ryan. And thanks to everyone for joining us this morning. Before we begin, I'd like to address a few items. First, I'd like to introduce and welcome Morgan Fields, our new Vice President of Accounting. As I mentioned on our fourth quarter call, Chris Bellino retired at the end of March, at which time Morgan joined us and will be leading our accounting team. Morgan brings nearly 20 years of corporate accounting and public company experience, most recently in a consultant capacity at Eliassen Group, where we work frequently with her on strategic projects over the past few years. Thus, she joins us with an in-depth knowledge of the Company, we are very excited to have her as an official member of the team. Second, a quick update on the previously announced incident at a Red River plant. On April 22, there was an unfortunate incident at our Red River manufacturing site in Louisiana that resulted in an isolated fire in one of the plants coal-handling systems. The fire resulted in non-life threatening injuries to two of our team members. Thankfully, the decisive action taken by both on-site personnel, as well as local first responders, contained and limited the impacts that could have occurred that day. Also, after approximately one week of downtime, plant is now fully operational. We are also able to continue to meet our production requirements and client obligations through existing inventory and other sources without further interruption. Based on the downtime, we estimate the cash flow impact, including maintenance and repairs, capital expenditures, inventory replacement due to lost production and upper items is not expected to exceed $3 million. We continue to conduct our own internal investigation into the incident and we are working alongside regulators as needed. I'd like to again thank our team members for their swift action that day, and their commitment to the safety of all plant personnel.
Morgan Fields : Thank you, Greg. And I'm excited to be part of this team. Let's turn to slide four for our financial reveal. First quarter earnings from equity method investments was $18.3 million compared to $8.3 million in the first quarter of 2020. The increase in earnings is first attributable to distributions recorded earnings as a result of distributions continuing growth being in excess of carrying value of the investment and therefore, excess distributions are recognized as equity method earnings in the period that distributions occur. Tinuum group also had increased RC facilities due to three new RC facilities added in 2020. First quarter revenues totaled $21.1 million compared to $12.3 million in the prior year. The increase in revenue was primarily the result of higher sales of consumables, which increased 85% compared to last year, as well as higher royalty income, which grew 33%. First quarter royalty earnings for Tinuum group were $4.1 million compared to $3 million for the first quarter of 2020.
Greg Marken : Thank you, Morgan. Turning to slide five, you can see our expected future RC cash flows. Based on the 23 investment facilities as a quarter-end, and cash distributions received during the first quarter, we are updating our expectation of future after-tax cash flows to the company to be between $50 million and $60 million. Absent an unexpected change to the duration of the section 45 tax credit generation period, Tinuum does not expect to obtain additional tax equity investors for any incremental facilities.
Ryan Coleman : Thanks, Greg. As many of you may have seen, we included at the bottom of the conference call announcement press release, as well as yesterday's earnings press release, an invitation to submit your questions ahead of time to be asked on today's call. Thank you to those of you who sent your questions. For future reference, we will likely continue this practice on upcoming earnings calls and invite you to submit your questions next time. With that, our first question that we received reads as follows. None of the $6 million remaining on the term loan, can you give us a sense of where the roughly $50 million of RC cash flows will be deployed this year? Why not reinstitute a smaller dividend at $2 million to $3 million per quarter?
Greg Marken : Our total plays are $14 million. So, net figure we're focused on continuing to improve our manufacturing operations and related financial performance, so that we continue to be able to meet our customer commitments such as the Cabot supply agreement. Additionally, as with any manufacturing operation, there is also maintenance CapEx for the operating facility, which we estimate to be about $5 million on a normalized basis. Additionally, as we mentioned, we've announced a strategic alternatives review. So it is unlikely that we would reinstate the dividend or shareholder return component of our capital allocation until that process has concluded. And they have a potential continuous shareholder return. Once we have greater clarity on that front, we can evaluate the next step forward and the best way to maximize shareholder value.
Ryan Coleman : The next question is what is the current product mix between power generation, industrial and water applications? And how does that compare to when you bought ADA Carbon Solutions in 2018?
Greg Marken: Thanks, Ryan. We generally think about our product mix in four broad buckets, power generation, industrial, water, and then lastly, the volumes related to our supply agreements. Although we don't disclose the breakdown between our product mix, we can say that as of today, we have diversified away from the structurally more challenged power generation market. And we're selling into a much more balanced mix of commercial markets. With our continued growth, our forecasted volumes for 2021 are the highest and most diversified we have on the plan.
Ryan Coleman : And then final question, it's been two and a half years since the Carbon Solutions acquisition, we now just have three quarters left of collecting the refined coal cash flows. Now that you're at a capacity utilization rate more in line with longer term expectations, can you provide a rough estimate of the EBITDA margin profile of the APT segment? Or what is your target margin for that business?
Greg Marken: In the two years preceding our acquisition of Carbon Solutions, the business operated at an adjusted EBITDA margin of just less than about 20%. We have discussed the decline in coal-fired power duration, pressure on selling prices, and our need to immediately pivot to adjacent markets hampered the productivity of the Red River plan. After several quarters of operating losses, and having improved our target utilization rate, we reported an adjusted EBITDA margin for the APT segment of 13% in Q1 here, and it continues to trend in the right direction. Additionally, as we cycled through inventory that was produced at higher cost per unit in the past periods, we expect the margin to continue to grow from the increased utilization of the plant. And then, over the longer term, we can continue to operate the business and improve margins as we more fully capture the sophisticated nature of the plant, improved customer and product mix, and continue to evaluate ways to improve our operations.
Ryan Coleman: Thanks Greg, and thanks again to those of you that submitted your questions. I'll turn the call back to Greg for his closing remarks.
Greg Marken: Thanks, Ryan, and thanks to everyone for joining the call this morning and for your continued support. I look forward to updating everyone throughout 2021.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
