Arq, Inc 10-Q for FY2022 Q1
Arq, Inc. (ARQ)
10-Q
2022-05-09
For: 2022-03-31
View Original
Added on
April 10, 2026
About this 10-Q
Arq, Inc filed this 10-Q on May 9, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $26.4M
- up 16.8% from $22.61M a year earlier
- Net loss
- $3.03M
- compared with net income of $13.74M a year earlier
- Diluted EPS
- -$0.17
- compared with $0.75 a year earlier
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2022
or
| TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-37822
______________________________________
(Exact name of registrant as specified in its charter)
______________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(720 598-3500
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
______________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
| ☒ | Smaller reporting company | |||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
Securities registered pursuant to Section 12(b) of the Act:
| Class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
As of May 4, 2022, there were 19,096,217 outstanding shares of Advanced Emissions Solutions, Inc. common stock, par value $0.001 per share.
INDEX
| PAGE | ||||||||
Part I. – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| As of | ||||||||||||||
| (in thousands, except share data) | March 31, 2022 | December 31, 2021 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Receivables, net | ||||||||||||||
| Receivables, related parties | ||||||||||||||
| Inventories, net | ||||||||||||||
| Prepaid expenses and other assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Restricted cash, long-term | ||||||||||||||
Property, plant and equipment, net of accumulated depreciation of $ | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Equity method investments | ||||||||||||||
| Other long-term assets, net | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued payroll and related liabilities | ||||||||||||||
| Current portion of finance lease obligations | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term finance lease obligations, net of current portion | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total Liabilities | ||||||||||||||
| Commitments and contingencies (Note 7) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Preferred stock: par value of $ | ||||||||||||||
Common stock: par value of $ | ||||||||||||||
Treasury stock, at cost: | ( | ( | ||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Total Stockholders’ Equity | ||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
1
Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||||||||
(in thousands, except per share data) | 2022 | 2021 | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Consumables | $ | $ | ||||||||||||||||||||||||
| License royalties, related party | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Consumables cost of revenue, exclusive of depreciation and amortization | ||||||||||||||||||||||||||
| Payroll and benefits | ||||||||||||||||||||||||||
| Legal and professional fees | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Depreciation, amortization, depletion and accretion | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Operating (loss) income | ( | |||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Earnings from equity method investments | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| Other | ( | |||||||||||||||||||||||||
| Total other income | ||||||||||||||||||||||||||
| (Loss) income before income tax expense | ( | |||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||||||||||||||
| (Loss) earnings per common share (Note 1): | ||||||||||||||||||||||||||
| Basic | $ | ( | $ | |||||||||||||||||||||||
| Diluted | $ | ( | $ | |||||||||||||||||||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
2
Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands, except share data) | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balances, January 1, 2022 | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 1 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares to satisfy minimum tax withholdings | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands, except share data) | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Balances, January 1, 2021 | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares to satisfy minimum tax withholdings | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
3
Advanced Emissions Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||
| Cash flows from operating activities | ||||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||||
| Deferred income tax expense | ||||||||||||||
| Depreciation, amortization, depletion and accretion | ||||||||||||||
| Operating lease expense | ||||||||||||||
| Amortization of debt discount and debt issuance costs | ||||||||||||||
| Stock-based compensation expense | ||||||||||||||
| Earnings from equity method investments | ( | ( | ||||||||||||
| Other non-cash items, net | ( | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Receivables and related party receivables | ||||||||||||||
| Prepaid expenses and other assets | ( | |||||||||||||
| Inventories, net | ( | |||||||||||||
| Other long-term assets, net | ( | |||||||||||||
| Accounts payable | ( | ( | ||||||||||||
| Accrued payroll and related liabilities | ( | ( | ||||||||||||
| Other current liabilities | ( | |||||||||||||
| Operating lease liabilities | ||||||||||||||
| Other long-term liabilities | ( | |||||||||||||
| Distributions from equity method investees, return on investment | ||||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Cash flows from investing activities | ||||||||||||||
| Distributions from equity method investees in excess of cumulative earnings | ||||||||||||||
| Acquisition of property, plant, equipment, and intangible assets, net | ( | ( | ||||||||||||
| Mine development costs | ( | ( | ||||||||||||
| Proceeds from sale of property and equipment | ||||||||||||||
| Net cash (used in) provided by investing activities | ( | |||||||||||||
| Cash flows from financing activities | ||||||||||||||
| Principal payments on term loan | ( | |||||||||||||
| Principal payments on finance lease obligations | ( | ( | ||||||||||||
| Dividends paid | ( | |||||||||||||
| Repurchase of common shares to satisfy tax withholdings | ( | ( | ||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Increase in Cash and Cash Equivalents and Restricted Cash | ||||||||||||||
| Cash and Cash Equivalents and Restricted Cash, beginning of period | ||||||||||||||
| Cash and Cash Equivalents and Restricted Cash, end of period | $ | $ | ||||||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||||
| Acquisition of property and equipment through accounts payable | $ | $ | ||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
4
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
Nature of Operations
Advanced Emissions Solutions, Inc. ("ADES" or the "Company") is a Delaware corporation with its principal office located in
Greenwood Village, Colorado and operations located in Louisiana. The Company is principally engaged in the sale of
consumable air and water treatment solutions including activated carbon ("AC") and chemical technologies. The Company's proprietary technologies in the advanced purification technologies ("APT") market enable customers to reduce air and water contaminants, including mercury and other pollutants, to maximize utilization levels and to improve operating efficiencies to meet the challenges of existing and pending air quality and water regulations. The Company manufactures and sells AC used to capture and remove contaminants for coal-fired power plants and industrial and water treatment markets. The Company also owns an associated lignite mine ("Five Forks Mine") which supplies the primary raw material for manufacturing AC.
Through December 31, 2021, the Company generated substantial earnings from its equity ownership in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), both of which are unconsolidated entities. Both Tinuum Group and Tinuum Services ceased material operations effective December 31, 2021 as a result of the expiration of a tax credit program under Internal Revenue Code Section 45 - Production Tax Credit (the "Section 45 Tax Credit Program"). Tinuum Group provided reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that qualified for tax credits under the Section 45 Tax Credit Program ("Section 45 tax credits"). The Company also earned royalties for technologies that were licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduce emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services operated and maintained the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities. Presently, both Tinuum Group and Tinuum Services continue to wind-down their operations, and the Company expects to receive final cash distributions, which are not expected to be significant, from these entities during 2022.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of ADES are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and with Article 10 of Regulation S-X of the Securities and Exchange Commission. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The unaudited Condensed Consolidated Financial Statements of ADES in this quarterly report ("Quarterly Report") are presented on a consolidated basis and include ADES and its wholly-owned subsidiaries (collectively, the "Company"). Also included within the unaudited Condensed Consolidated Financial Statements are the Company's unconsolidated equity investments: Tinuum Group and Tinuum Services, which are accounted for under the equity method of accounting, and Highview Enterprises Limited (the "Highview Investment"), which is accounted for in accordance with U.S. GAAP applicable to equity investments that do not qualify for the equity method of accounting.
Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated in consolidation for all periods presented in this Quarterly Report.
Earnings (Loss) Per Share
5
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table sets forth the calculations of basic and diluted (loss) earnings per share:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands, except per share amounts) | 2022 | 2021 | ||||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||||||||||||||
| Basic weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Add: dilutive effect of equity instruments | ||||||||||||||||||||||||||
| Diluted weighted-average shares outstanding | ||||||||||||||||||||||||||
| (Loss) earnings per share - basic | $ | ( | $ | |||||||||||||||||||||||
| (Loss) earnings per share - diluted | $ | ( | $ | |||||||||||||||||||||||
For the three months ended March 31, 2022 and 2021, potentially dilutive securities convertible to 0.3 million and 0.1 million shares of common stock, respectively, were outstanding but were not included in the calculation of diluted net (loss) income per share because the effect would have been anti-dilutive.
Use of Estimates
Risks and Uncertainties
The loss of earnings and cash distributions of both Tinuum Group and Tinuum Services will continue to have a material adverse impact on the Company’s financial position, results of operations and cash flows. For 2022, the Company is solely dependent on operations of its APT business and its cash and cash equivalents on hand to provide liquidity over the near and long term. The Company's revenues, sales volumes, earnings and cash flows are significantly affected by prices of competing power generation sources such as natural gas and renewable energy. During periods of low natural gas prices, natural gas provides a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which in turn reduces the demand for the Company's products. However, during periods of higher prices for competing power generation sources, there is an increase in coal consumption and thus demand for the Company's products also increases. In addition, coal consumption and demand for the Company's products are affected by the demand for electricity, which is higher in the warmer and colder months of the year. Abnormal temperatures during the summer and winter months may significantly affect coal consumption and impurities within various municipalities' water sources, and thus impact the demand for the Company's products.
Reclassifications
Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by a company's chief operating decision maker ("CODM"), or a decision-making group, in deciding how to allocate resources and in assessing financial performance. As of March 31, 2022, the Company's CODM was the Company's Chief Executive Officer, and the Company concluded that it has one reportable segment, Advanced Purification Technologies ("APT").
Given the wind-down of Tinuum Group and Tinuum Services and the impact on the Company's financial statements, the Company determined the historical RC segment no longer met the qualitative or quantitative criteria to be considered a reporting segment under U.S. GAAP. As a result, including the method in which the CODM allocates resources, beginning January 1, 2022, the Company determined that it had one reportable segment, and therefore has removed its segment disclosures for this Quarterly Report.
6
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
New Accounting Standards
Note 2 - Customer Supply Agreement
On September 30, 2020, the Company and Norit Activated Carbon - Americas (f/k/a Cabot Norit Americas, Inc.), ("Norit") entered into a supply agreement (the "Supply Agreement") pursuant to which the Company agreed to sell and deliver to Norit, and Norit agreed to purchase and accept from the Company certain lignite-based AC products ("Furnace Products"). The term of the Supply Agreement is for 15 years with 10 -year renewal terms that are automatic unless either party provides three years prior notice of intention not to renew before the end of any term.
Under the Supply Agreement, Norit also reimburses the Company for certain capital expenditures incurred by the Company that are necessary to manufacture the Furnace Products. Reimbursements are comprised of revenues earned from capital expenditures incurred that will benefit both the Company and Norit (referred to as "Shared Capital") and revenues earned from capital expenditures incurred that will benefit Norit exclusively (referred to as "Specific Capital"). In the event that Norit ceases to make purchases under the Supply Agreement, Norit is obligated to pay the balance of any outstanding payments for Specific Capital.
Further, under the terms of the Supply Agreement, Norit was obligated to pay the Reclamation Reimbursement (defined below) to the Company for $10.2 million of the Reclamation Costs, inclusive of interest. The Company recorded the Norit Receivable for the Reclamation Reimbursement at its estimated fair value, which was measured using a discounted cash flows valuation model that considered the estimated credit risk associated with the obligor's (Norit's) future performance, which the Company estimated was approximately 1.5 %.
On February 25, 2022, the Company received $10.6 million in cash from Norit (the "Norit Payment") as a result of a change in control provision in the Supply Agreement (the "Change in Control"), which occurred as a result of the sale of Norit by its parent, Cabot Corporation. Under the Change in Control, the Company received from Norit full payment of all amounts outstanding under the Reclamation Reimbursement, payment of all unbilled amounts related to Specific Capital for expenditures incurred through February 28, 2022 and payment of $0.8 million related to additional costs due to the third party operator of Marshall Mine (the "Norit Reclamation Costs"). Under the Reclamation Contract, the Company is obligated to remit payment for the Norit Reclamation Costs to the third-party operator of Marshall Mine within a specified timeframe, and such payment was remitted in March 2022. The Change in Control did not impact any other provisions of the Supply Agreement.
As of February 25, 2022, the carrying value of the Reclamation Reimbursement was $9.0 million, which was reflective of the principal balance, adjusted for accretion of interest and payments made to date. Under the Change in Control, the Company received $8.5 million in cash for full payment of the outstanding Reclamation Reimbursement. The Company concluded that the cash proceeds received represented an early payment of a receivable based on a change in contractual terms and accounted for the difference between the cash proceeds received and the carrying amount of the Reclamation Reimbursement of $0.5 million as a loss, which is included in the "Other Income (Expense)" line item in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2022.
Also, under the Change in Control, the Company received $1.3 million in advance of revenues to be recognized in future periods related to Specific Capital and recorded this amount as deferred revenue, which will be recognized as revenues ratably over the remaining contractual term as stipulated in the Supply Agreement.
7
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Acquisition of Marshall Mine
Concurrently with the execution of the Supply Agreement, on September 30, 2020, the Company entered into an agreement to purchase from Norit 100 % of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal cash purchase price. Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine"). The Company concluded that the Marshall Mine did not have any remaining economic reserves and independently determined to immediately commence activities to shutter it. Accordingly, on September 30, 2020, the Company and a third party entered into a reclamation contract (the "Reclamation Contract") for full reclamation of the Marshall Mine, which is expected to be completed by 2030. Under the terms of the Supply Agreement, Norit was obligated to reimburse the Company for $10.2 million (the "Reclamation Reimbursement") for a portion of the total costs incurred under the Reclamation Contract (the "Reclamation Costs"), which was payable semi-annually over 13 years and inclusive of interest. As discussed in Note 2, on February 25, 2022 as part of the Change in Control, Norit fully paid the outstanding amount owed under the Reclamation Reimbursement and has no further liability related to the Marshall Mine.
The Company accounted for the Marshall Mine Acquisition as an asset acquisition, and it included the acquisition of certain assets and assumption of certain liabilities as well as the incurrence of an obligation for the Reclamation Costs (the "Marshall Mine ARO"). As of March 31, 2022 and December 31, 2021, the carrying value of the Marshall Mine ARO was $4.7 million and $6.3 million, respectively.
As the Marshall Mine Acquisition represented a transaction with a customer of net assets acquired and liabilities assumed from Norit, the Company accounted for the excess of the fair value of liabilities assumed over assets acquired as upfront consideration transferred to a customer, Norit (the "Upfront Customer Consideration"). The amount of the Upfront Customer Consideration was also recognized net of the Reclamation Reimbursements. The total Upfront Customer Consideration is being amortized as a reduction to revenues on a straight-line basis over the expected 15 -year contractual period of the Supply Agreement. Amortization of the Upfront Customer Consideration is approximately $0.5 million per year.
The Company also evaluated Marshall Mine, LLC as a potential variable interest entity ("VIE") and determined that it was a VIE and the Company was its primary beneficiary. Therefore, the Company consolidates Marshall Mine, LLC's assets and liabilities in its consolidated financial statements.
The following tables summarize the assets and liabilities of Marshall Mine, LLC and their classification in the Company's Condensed Consolidated Balance Sheets:
| As of | ||||||||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | Balance sheet component | |||||||||||||||||
| Cash | $ | $ | Current assets | |||||||||||||||||
| Norit receivable, short-term | Current assets | |||||||||||||||||||
| Property and equipment, net | Non-current assets | |||||||||||||||||||
| Norit receivable, long-term | Non-current assets | |||||||||||||||||||
| Restricted cash | Non-current assets | |||||||||||||||||||
| Upfront customer consideration | Non-current assets | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | Current liabilities | |||||||||||||||||
| Asset retirement obligation, short-term | Current liabilities | |||||||||||||||||||
| Asset retirement obligation, long-term | Non-current liabilities | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
8
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Leases
The Company's operating and finance lease right-of-use ("ROU") assets and liabilities as of March 31, 2022 and December 31, 2021 consisted of the following items (in thousands):
| As of | ||||||||||||||
| Leases | March 31, 2022 | December 31, 2021 | ||||||||||||
| Operating Leases | ||||||||||||||
Operating lease right-of-use assets, net of accumulated amortization (1) | $ | $ | ||||||||||||
| Operating lease obligations, current | $ | $ | ||||||||||||
| Long-term operating lease obligations | ||||||||||||||
| Total operating lease obligation | $ | $ | ||||||||||||
| Finance Leases | ||||||||||||||
Finance lease right-of-use assets, net of accumulated amortization (2) | $ | $ | ||||||||||||
| Finance lease obligations, current | $ | $ | ||||||||||||
| Long-term finance lease obligations | ||||||||||||||
| Total finance lease obligations | $ | $ | ||||||||||||
(1) Operating lease ROU assets are reported net of accumulated amortization of $2.3 million and $1.9 million as of March 31, 2022 and December 31, 2021, respectively.
(2) Finance lease ROU assets are reported net of accumulated amortization of $1.3 million and $1.1 million as of March 31, 2022 and December 31, 2021, respectively.
Finance leases
ROU assets under finance leases are included in the "Property, plant and equipment" line item in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021. Interest expense related to finance lease obligations and amortization of ROU assets under finance leases are included in the "Interest expense" and "Depreciation, amortization, depletion and accretion" line items, respectively, in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021.
Operating leases
ROU assets under operating leases and operating lease liabilities are included in the "" and "" and "" line items, respectively, in the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.
Lease expense for operating leases for the three months ended March 31, 2022 was $1.1 million, of which $1.0 million is included in the "Consumables - cost of revenue, exclusive of depreciation and amortization" line item and $0.1 million is included in the "General and administrative" line item in the Condensed Consolidated Statements of Operations. Lease expense for operating leases for the three months ended March 31, 2021 was $1.0 million, of which $0.9 million is included in the "Consumables - cost of revenue, exclusive of depreciation and amortization" line item and $0.1 million is included in "General and administrative" line item in the Condensed Consolidated Statements of Operations.
9
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Lease financial information as of and for the three months ended March 31, 2022 and 2021 is provided in the following table:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| Finance lease cost: | ||||||||||||||||||||||||||
| Amortization of right-of-use assets | $ | $ | ||||||||||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||||||||||||
| Operating lease cost | ||||||||||||||||||||||||||
| Short-term lease cost | ||||||||||||||||||||||||||
| Variable lease cost (1) | ||||||||||||||||||||||||||
| Total lease cost | $ | $ | ||||||||||||||||||||||||
| Other Information: | ||||||||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||||||||
| Operating cash flows for finance leases | $ | $ | ||||||||||||||||||||||||
| Operating cash flows for operating leases | $ | $ | ||||||||||||||||||||||||
| Financing cash flows for finance leases | $ | $ | ||||||||||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||||||||||||||||||||
| Weighted-average remaining lease term - finance leases | ||||||||||||||||||||||||||
| Weighted-average remaining lease term - operating leases | ||||||||||||||||||||||||||
| Weighted-average discount rate - finance leases | % | % | ||||||||||||||||||||||||
| Weighted-average discount rate - operating leases | % | % | ||||||||||||||||||||||||
(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.
Note 5 - Revenues
Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company invoices its customers in accordance with the terms of the contract. Credit terms are generally net 30 from the date of invoice. The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant. The Company records allowances for doubtful trade receivables when it is probable that the balances will not be collected.
Receivables, net
The following table shows the components of the Company's Receivables, net:
| As of | ||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Trade receivables, net | $ | $ | ||||||||||||
| Other receivables | ||||||||||||||
| Norit Receivable - current | ||||||||||||||
| Total Receivable, net | $ | $ | ||||||||||||
Disaggregation of Revenue
10
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 - Inventories, net
The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of March 31, 2022 and December 31, 2021:
| As of | ||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Product inventory, net | $ | $ | ||||||||||||
| Raw material inventory | ||||||||||||||
| $ | $ | |||||||||||||
Note 7 - Commitments and Contingencies
Legal Proceedings
The Company is from time to time subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes, the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, settlements, and judgments where management has assessed that a loss is probable and an amount can be reasonably estimated. There were no significant legal proceedings as of March 31, 2022.
Surety Bonds and Restricted Cash
As the owner of the Marshall Mine, the Company is required to post surety bonds to ensure performance of its reclamation activities under the Reclamation Contract. As of March 31, 2022 and December 31, 2021, the Company had posted a $16.6 million surety bond, which will remain in place until the Marshall Mine is fully reclaimed, and may be further reduced in amount from time to time as the Company progresses with its reclamation activities. The Company is also required to post collateral of $10.0 million for the surety bonds insuring the performance requirements for the reclamation of Marshall Mine. As of March 31, 2022 and December 31, 2021, the restricted cash is reported as long-term restricted cash on the Condensed Consolidated Balance Sheets.
As of March 31, 2022 and December 31, 2021, the Company had an outstanding surety bond of $7.5
Other Commitments and Contingencies
11
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Supplemental Financial Information
Supplemental Balance Sheet Information
The following table summarizes the components of Prepaid expenses and other assets and Other long-term assets, net as presented in the Condensed Consolidated Balance Sheets:
| As of | ||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Prepaid expenses and other assets: | ||||||||||||||
| Prepaid expenses | $ | $ | ||||||||||||
| Prepaid income taxes and income tax refunds | ||||||||||||||
| Other | ||||||||||||||
| $ | $ | |||||||||||||
| Other long-term assets, net: | ||||||||||||||
| Right of use assets, operating leases, net | $ | $ | ||||||||||||
| Upfront Customer Consideration | ||||||||||||||
| Mine development costs, net | ||||||||||||||
| Spare parts, net | ||||||||||||||
| Mine reclamation asset, net | ||||||||||||||
| Highview Investment | ||||||||||||||
| Other | ||||||||||||||
| Norit Receivable | ||||||||||||||
| $ | $ | |||||||||||||
Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expenses in the period in which they are consumed or are capitalized if applicable.
Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Five Forks Mine and are depleted over the estimated life of the related mine reserves. The Company performs an evaluation of the recoverability of the carrying value of mine development costs to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted. There were no indicators of impairment as of March 31, 2022. Mine reclamation asset, net represents an asset retirement obligation ("ARO") asset related to the Five Forks Mine and is depreciated over the estimated life of the Five Forks Mine.
12
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table details the components of Other current liabilities and Other long-term liabilities as presented in the Condensed Consolidated Balance Sheets:
| As of | ||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Other current liabilities: | ||||||||||||||
| $ | $ | |||||||||||||
| Current portion of mine reclamation liability | ||||||||||||||
| Income and other taxes payable | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Other | ||||||||||||||
| $ | $ | |||||||||||||
| Other long-term liabilities: | ||||||||||||||
| Mine reclamation liabilities | $ | $ | ||||||||||||
| Operating lease obligations, long-term | ||||||||||||||
| $ | $ | |||||||||||||
The Mine reclamation liability related to the Five Forks Mine is included in Other long-term liabilities. The Mine reclamation liability related to Marshall Mine is included in Other current liabilities and Other long-term liabilities. The Mine reclamation liabilities represent AROs and activity for the three months ended March 31, 2022 and year ended December 31, 2021 was as follows:
| As of | ||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Asset retirement obligations, beginning of period | $ | $ | ||||||||||||
| Accretion | ||||||||||||||
| Liabilities settled | ( | ( | ||||||||||||
| Changes due to scope and timing of reclamation (1) | ( | |||||||||||||
| Asset retirement obligations, end of period | ||||||||||||||
| Less current portion | ||||||||||||||
| Asset retirement obligations, long-term | $ | $ | ||||||||||||
(1) As of June 30, 2021 and December 31, 2021, the Company revised its estimate of future obligations owed for the reclamation of the Marshall Mine primarily based on scope reductions related to future reclamation requirements. As a result, the Company reduced the Marshall Mine ARO by $2.7 million and recorded a corresponding gain on change in estimate of $2.7 million for the year ended December 31, 2021.
Note 9 - Equity Method Investments
Tinuum Group, LLC
As of March 31, 2022 and December 31, 2021, the Company's ownership interest in Tinuum Group was 42.5
13
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the results of operations of Tinuum Group:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| Gross profit | $ | $ | ||||||||||||||||||||||||
| Operating, selling, general and administrative expenses | ||||||||||||||||||||||||||
| Loss from operations | ( | ( | ||||||||||||||||||||||||
| Other income (expenses), net | ||||||||||||||||||||||||||
| (Income) loss attributable to noncontrolling interest | ( | |||||||||||||||||||||||||
| Net (loss) income available to members | $ | ( | $ | |||||||||||||||||||||||
| ADES equity earnings from Tinuum Group | $ | $ | ||||||||||||||||||||||||
For the three months ended March 31, 2022 and 2021, the Company recognized earnings from Tinuum Group's net (loss)/income available to members that were different from its pro-rata share of Tinuum Group's net (loss)/income available to members for those periods, as cash distributions for the three months ended March 31, 2022 and 2021 exceeded the carrying value of the Tinuum Group equity investment.
The following tables present the Company's investment balance, equity earnings and cash distributions in excess of the investment balance, if any, for the three months ended March 31, 2022 and 2021 (in thousands):
| Description | Date(s) | Investment balance | ADES equity earnings | Cash distributions | Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance | |||||||||||||||||||||||||||
| Beginning balance | 12/31/2021 | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||
| ADES proportionate share of loss from Tinuum Group | First Quarter | ( | ( | |||||||||||||||||||||||||||||
| Recovery of prior cash distributions in excess of investment balance (prior to cash distributions) | First Quarter | ( | ( | |||||||||||||||||||||||||||||
| Cash distributions from Tinuum Group | First Quarter | ( | ||||||||||||||||||||||||||||||
| Adjustment for current year cash distributions in excess of investment balance | First Quarter | ( | ||||||||||||||||||||||||||||||
| Total investment balance, equity earnings and cash distributions | 3/31/2022 | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||
| Description | Date(s) | Investment balance | ADES equity earnings | Cash distributions | Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance | |||||||||||||||||||||||||||
| Beginning balance | 12/31/2020 | $ | $ | $ | $ | |||||||||||||||||||||||||||
| ADES proportionate share of income from Tinuum Group | First Quarter | |||||||||||||||||||||||||||||||
| Cash distributions from Tinuum Group | First Quarter | ( | ||||||||||||||||||||||||||||||
| Adjustment for current year cash distributions in excess of investment balance | First Quarter | ( | ||||||||||||||||||||||||||||||
| Total investment balance, equity earnings and cash distributions | 3/31/2021 | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||
14
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Tinuum Services, LLC
The Company has a 50 50 % of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Tinuum Services under the equity method of accounting since inception. As of March 31, 2022 and December 31, 2021, the Company’s investment in Tinuum Services was $0.7 million and $2.4 million, respectively.
The following table summarizes the results of operations of Tinuum Services:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| Gross profit (loss) | $ | $ | ( | |||||||||||||||||||||||
| Operating, selling, general and administrative expenses | ||||||||||||||||||||||||||
| Loss from operations | ( | ( | ||||||||||||||||||||||||
| Other income (expenses), net | ( | |||||||||||||||||||||||||
| Loss attributable to noncontrolling interest | ||||||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | |||||||||||||||||||||||
| ADES equity (loss) earnings from Tinuum Services | $ | ( | $ | |||||||||||||||||||||||
Included in the Consolidated Statements of Operations of Tinuum Services for the three months ended March 31, 2022 and 2021 were losses/earnings attributable to noncontrolling interests of Tinuum Services' VIE entities, which were eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.
The following table details the carrying value of the Company's respective equity method investments included in the Equity method investments line item on the Condensed Consolidated Balance Sheets and indicates the Company's maximum exposure to loss:
| As of | ||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Equity method investment in Tinuum Services | $ | $ | ||||||||||||
| Equity method investment in Tinuum Group | ||||||||||||||
| Total equity method investments | $ | $ | ||||||||||||
15
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table details the components of the Company's respective equity method investments included in the "Earnings from equity method investments" line item on the Condensed Consolidated Statements of Operations:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| Earnings from Tinuum Group | $ | $ | ||||||||||||||||||||||||
| (Loss) earnings from Tinuum Services | ( | |||||||||||||||||||||||||
| Earnings from other | ||||||||||||||||||||||||||
| Earnings from equity method investments | $ | $ | ||||||||||||||||||||||||
The following table details the components of the cash distributions from the Company's respective equity method investments included as a component of cash flows from operating activities and investing activities in the Condensed Consolidated Statements of Cash Flows. Distributions from equity method investees are reported in the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" as a component of cash flows from operations until such time as the carrying value in an equity method investee company is reduced to zero. Thereafter, such distributions are reported as "Distributions from equity method investees in excess of cumulative earnings" as a component of cash flows from investing activities.
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||
| Distributions from equity method investees, return on investment | ||||||||||||||
| Tinuum Services | $ | $ | ||||||||||||
| Tinuum Group | ||||||||||||||
| $ | $ | |||||||||||||
| Distributions from equity method investees in excess of investment basis | ||||||||||||||
| Tinuum Group | $ | $ | ||||||||||||
| Other | ||||||||||||||
| $ | $ | |||||||||||||
Note 10 - Stockholders' Equity
Stock Repurchase Programs
In November 2018, the Company's Board of Directors (the "Board") authorized the Company to purchase up to $20.0 million of its outstanding common stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board. In November 2019, the Board authorized an incremental $7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.
As of March 31, 2022, the Company had $7.0 million remaining under the Stock Repurchase Program.
Tax Asset Protection Plan
U.S. federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and tax credits if the Company experiences an "ownership change" (as defined in the Internal Revenue Code). In general, an ownership change occurs if there is a cumulative change in the ownership of the Company by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.
On May 5, 2017, the Board approved the declaration of a dividend of rights to purchase Series B Junior Participating Preferred Stock for each outstanding share of common stock as part of a tax asset protection plan (the "TAPP") designed to protect the Company’s ability to utilize its net operating losses and tax credits. The TAPP is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99 % or more of the Company’s outstanding common stock.
On March 15, 2022, the Board approved the Fifth Amendment to the TAPP (the "Fifth Amendment") that amends the TAPP, as previously amended by the First, Second, Third and Fourth Amendments that were approved the Board on April 6, 2018, April 5, 2019, April 9, 2020 and April 9, 2021, respectively. The Fifth Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. Pursuant to the
16
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11 - Stock-Based Compensation
The Company grants equity-based awards to employees, non-employee directors and consultants that may include, but are not limited to, RSA's, PSU's, restricted stock units and stock options. Stock-based compensation expense related to manufacturing employees and administrative employees is included within the "Cost of revenue" and "Payroll and benefits" line items, respectively, in the Condensed Consolidated Statements of Operations. Stock-based compensation expense related to non-employee directors and consultants is included within the "General and administrative" line item in the Condensed Consolidated Statements of Operations.
Total stock-based compensation expense for the three months ended March 31, 2022 and 2021 was as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| RSA expense | $ | $ | ||||||||||||||||||||||||
| PSU expense | ||||||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | ||||||||||||||||||||||||
The amount of unrecognized compensation cost as of March 31, 2022, and the expected weighted-average period over which the cost will be recognized is as follows:
| As of March 31, 2022 | ||||||||||||||
| (in thousands, expect years) | Unrecognized Compensation Cost | Expected Weighted- Average Period of Recognition (in years) | ||||||||||||
| RSA expense | $ | |||||||||||||
| PSU expense | ||||||||||||||
| Total unrecognized stock-based compensation expense | $ | |||||||||||||
Restricted Stock
Restricted stock is typically granted with vesting terms of three years . The fair value of RSA's is determined based on the closing price of the Company’s common stock on the authorization date of the grant multiplied by the number of shares subject to the stock award. Compensation expense for RSA's is generally recognized on a straight-line basis over the entire vesting period.
A summary of RSA activity under the Company's various stock compensation plans for the three months ended March 31, 2022 is presented below:
| Restricted Stock | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||||||
| Non-vested at January 1, 2022 | $ | |||||||||||||||||||||||||
| Granted | $ | |||||||||||||||||||||||||
| Vested | ( | $ | ||||||||||||||||||||||||
| Forfeited | ( | $ | ||||||||||||||||||||||||
| Non-vested at March 31, 2022 | $ | |||||||||||||||||||||||||
17
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Performance Share Units
Compensation expense is recognized for PSU's on a straight-line basis over the applicable service period, which is generally three years, based on the estimated fair value at the date of grant using a Monte Carlo simulation model. A summary of PSU activity for the three months ended March 31, 2022 is presented below:
| Units | Weighted-Average Grant Date Fair Value | Aggregate Intrinsic Value (in thousands) | Weighted-Average Remaining Contractual Term (in years) | |||||||||||||||||||||||
| PSU's outstanding, January 1, 2022 | $ | |||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Vested / Settled | ||||||||||||||||||||||||||
| Forfeited / Canceled | ||||||||||||||||||||||||||
| PSU's outstanding, March 31, 2022 | $ | $ | ||||||||||||||||||||||||
Note 12 - Income Taxes
For the three months ended March 31, 2022 and 2021, the Company's income tax expense and effective tax rates were:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands, except for rate) | 2022 | 2021 | ||||||||||||||||||||||||
| Income tax expense | $ | $ | ||||||||||||||||||||||||
| Effective tax rate | % | % | ||||||||||||||||||||||||
The effective rate for the three months ended March 31, 2022 was zero , as the Company incurred pretax loss for this period and the resultant tax benefit was offset by a valuation allowance recorded as of March 31, 2022, as the Company expects to incur pretax loss for the year ended December 31, 2022. The effective rate for the three months ended March 31, 2021 was higher from the federal statutory rate primarily from the impact of estimated state income taxes.
The Company assesses a valuation allowance recorded against deferred tax assets at each reporting date. The determination of whether a valuation allowance for deferred tax assets is appropriate requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize deferred tax assets, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. In estimating income taxes, the Company assesses the relative merits and risks of the appropriate income tax treatment of transactions taking into account statutory, judicial and regulatory guidance.
Note 13 - Fair Value Measurements
Fair value of financial instruments
| As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| Financial Instruments: | ||||||||||||||||||||||||||
| Highview Investment | $ | $ | $ | $ | ||||||||||||||||||||||
| Highview Obligation | $ | $ | $ | $ | ||||||||||||||||||||||
18
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Concentration of credit risk
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2022 and December 31, 2021, the Company had no
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer. Fair value measurements, if any, represent either Level 2 or Level 3 measurements. The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment. There were no changes to the carrying value of the Highview Investment for the three months ended March 31, 2022 as there were no indicators of impairment or observable price changes for identical or similar investments.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of our operations should be read together with the unaudited Condensed Consolidated Financial Statements and notes of Advanced Emissions Solutions, Inc. ("ADES" or the "Company") included elsewhere in Item 1 of Part I ("Item 1") of this Quarterly Report and with the audited consolidated financial statements and the related notes of ADES included in the 2021 Form 10-K.
The results of operations discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are those of ADES and its consolidated subsidiaries, collectively, the "Company," "we," "our" or "us."
Overview
We sell consumable products that utilize AC and chemical-based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants, and other diverse markets through a customer supply agreement described below. Our primary products are comprised of AC, which are produced from a variety of carbonaceous raw materials. Our AC products include both powdered activated carbon ("PAC") and granular activated carbon ("GAC"). Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants to meet the challenges of existing and potential future regulations. Additionally, we own an associated lignite mine that supplies the primary raw material for the manufacturing of our products.
Through December 31, 2021, we generated substantial earnings from our equity investments in Tinuum Group and Tinuum Services. Both entities ceased operations effective December 31, 2021 as a result of the expiration of a tax credit program under the Section 45 Tax Credit Program. Tinuum Group provided reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that qualified for tax credits under the Section 45 Tax Credit Program ("Section 45 tax credits"). We also earned royalties for technologies that were licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services operated and maintained the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities. Presently, both Tinuum Group and Tinuum Services continue to wind-down their operations, and we expect to receive final cash distributions from these entities during 2022.
Given the wind-down of Tinuum Group and Tinuum Services and the impact on our financial statements, we determined the historical RC segment no longer met the qualitative or quantitative criteria to be considered a reporting segment under U.S. GAAP. As a result, as well as the method in which the chief operating decision maker ("CODM") allocates resources, beginning January 1, 2022 we determined that we had one reportable segment, and therefore have removed segment disclosures for this Quarterly Report.
Drivers of Demand and Key Factors Affecting Profitability
Drivers of demand and key factors affecting our profitability are sales of our consumables-based solutions for coal-fired power generation, industrials, municipal water customers and other diverse markets served by Norit, whom we supply through the Supply Agreement discussed below. Our operating results are influenced by: (1) changes in our sales volumes; (2) changes in price and product mix; (3) changes in coal-fired dispatch and electricity power generation sources and (4) changes in demand for contaminant removal within water treatment facilities. During the three months ended March 31, 2022, we have continued to see increases in demand for our AC product. As such, we continue to purchase inventory to supplement customer demands in excess of our production capacity and achieve our target inventory levels.
Supply Agreement
On September 30, 2020, we and Norit entered into the Supply Agreement pursuant to which we agreed to sell and deliver to Norit, and Norit agreed to purchase and accept from us, Furnace Products. Under the Supply Agreement, Norit reimburses us for certain capital expenditures incurred by us that are necessary to manufacture the Furnace Products. Reimbursements are comprised of revenues earned from capital expenditures incurred that will benefit both us and Norit (referred to as "Shared Capital") and revenues earned from capital expenditures incurred that will benefit Norit exclusively (referred to as "Specific Capital"). In the event that Norit ceases to make purchases under the Supply Agreement, Norit is obligated to pay the balance of any outstanding payments for Specific Capital.
On February 25, 2022, we received $10.6 million in cash from Norit (the "Norit Payment") as a result of a change in control provision in the Supply Agreement (the "Change in Control"), which occurred as a result of the sale of Norit by its parent, Cabot Corporation. Under the Change in Control, we received from Norit full payment of all amounts outstanding under the Reclamation Reimbursement (defined below), payment of all unbilled amounts related to Specific Capital for expenditures incurred through February 28, 2022 and payment of $0.8 million related to additional Reclamation Costs (the "Norit
20
Reclamation Costs"). Under the Reclamation Contract, we were obligated to remit payment for the Norit Reclamation Costs to the third-party operator of Marshall Mine within a specified timeframe, and such payment was remitted in March 2022. The Change in Control did not impact any other provisions of the Supply Agreement.
As of February 25, 2022, the carrying value of the Reclamation Reimbursement was $9.0 million, which was reflective of the principal balance, adjusted for accretion of interest and payments made to date. Under the Change in Control, we received $8.5 million in cash for full payment of the outstanding Reclamation Reimbursement. We concluded that the cash proceeds received represented an early payment of a receivable based on a change in contractual terms and accounted for the difference between the cash proceeds received and the carrying amount of the Reclamation Reimbursement of $0.5 million as a loss, which is included within the "Other Income (Expense)" line item in the Condensed Consolidated Statement of Operation for three months ended March 31, 2022.
As of March 31, 2022, we have materially completed the dirt work (i.e., contouring, backfilling, etc.) for the reclamation of Marshall Mine.
Acquisition of Marshall Mine
Concurrently with the execution of the Supply Agreement, on September 30, 2020, we completed the Marshall Mine Acquisition for a nominal cash purchase price. Marshall Mine is a lignite mine located outside of Marshall, Texas. We independently determined to immediately shutter the Marshall Mine and commenced full reclamation activities under the Reclamation Contract. Under the terms of the Supply Agreement, Norit was obligated to reimburse us for $10.2 million, inclusive of interest, over a 13-year term (the "Reclamation Reimbursement") for a portion of the Reclamation Costs. As discussed above, on February 25, 2022 as part of the Change in Control, Norit fully paid the outstanding amount owed under the Reclamation Reimbursement and has no further liability related to the Marshall Mine.
As the owner of the Marshall Mine, we were required to post a surety bond with a third party to ensure performance of our reclamation activities in the amount of $30.0 million under the Surety Agreement. On June 7, 2021, the third party agreed to reduce the Surety Bond amount to $16.6 million. As of March 31, 2022, we were required to post collateral of $10.0 million in the form of restricted cash for the obligations due under the Reclamation Contract.
Results of Operations
For the three months ended March 31, 2022, we recognized net loss of $3.0 million compared to net income of $13.7 million for the three months ended March 31, 2021. The most significant factor impacting results period over period was the decrease in equity earnings from Tinuum Group as the ability to generate Section 45 tax credits, the driver for Tinuum Group's operations, ceased as of December 31, 2021.
The following sections provide additional information regarding these comparable periods. For comparability purposes, the following tables set forth our results of operations for the periods presented in the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report. The period-to-period comparison of financial results may not be indicative of financial results to be achieved in future periods.
Comparison of the Three Months Ended March 31, 2022 and 2021
Total Revenue and Cost of Revenue
A summary of the components of our revenues and cost of revenue for the three months ended March 31, 2022 and 2021 is as follows:
| Three Months Ended March 31, | Change | |||||||||||||||||||||||||
(in thousands, except percentages) | 2022 | 2021 | ($) | (%) | ||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Consumables | $ | 26,402 | $ | 18,541 | $ | 7,861 | 42 | % | ||||||||||||||||||
| License royalties, related party | — | 4,066 | (4,066) | (100) | % | |||||||||||||||||||||
| Total revenues | $ | 26,402 | $ | 22,607 | $ | 3,795 | 17 | % | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Consumables cost of revenue, exclusive of depreciation and amortization | $ | 21,507 | $ | 13,984 | $ | 7,523 | 54 | % | ||||||||||||||||||
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Consumables and consumables cost of revenue
For the three months ended March 31, 2022, consumables revenues increased from the comparable quarter in 2021 primarily from higher product volumes, which comprised $4.9 million of the total change in consumables revenues. Product volumes were higher in power generation customers primarily due to higher natural gas prices and higher demand for electricity compared to the same quarter in 2021, which contributed to increased utilization of coal-fired generation and increased demand for our products. Total revenues also increased due to favorable pricing mix of our products by approximately $2.8 million.
Our consumables gross margin, exclusive of depreciation and amortization, increased for the three months ended March 31, 2022 compared to the corresponding quarter in 2021 primarily due to the higher product volumes, which resulted in lower fixed costs per pound. Offsetting these improvements from higher product volumes for the three months ended March 31, 2022, consumables gross margin was negatively impacted by the inflationary rise in cost for key raw materials, transportation including fuel, and operational costs to produce and deliver our products. Further negatively impacting consumables gross margin was the requirement to purchase inventory due to increased demand for our products and high utilization of the Red River Plant. We expect to continue purchasing inventory through the remainder of 2022 as a result of ongoing increased demand for our products and high Red River Plant utilization. We will continue to evaluate the need for additional inventory purchases in subsequent years.
We expect that consumables revenues and gross margin will be positively impacted by our product price increase announced in the second quarter of 2022 and our efforts to move our product mix to higher margin products. We anticipate that the product price increases will also help offset the increase in operating costs from purchasing inventory as a result of changes in product mix due to the loss of certain power generation customers, who are shuttering certain of their utilities as part of scheduled closures.
Consumables revenues continues to be affected by electricity demand driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas and renewables.
License royalties, related party
As discussed above, Tinuum Group ceased operations as of December 31, 2021 and as a result for the three months ended March 31, 2022, we did not recognize any revenues from license royalties from Tinuum Group.
Other Operating Expenses
A summary of the components of our operating expenses for the three months ended March 31, 2022 and 2021, exclusive of cost of revenue items (presented above), is as follows:
| Three Months Ended March 31, | Change | |||||||||||||||||||||||||
(in thousands, except percentages) | 2022 | 2021 | ($) | (%) | ||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Payroll and benefits | $ | 2,626 | $ | 2,469 | $ | 157 | 6 | % | ||||||||||||||||||
| Legal and professional fees | 2,172 | 1,803 | 369 | 20 | % | |||||||||||||||||||||
| General and administrative | 1,926 | 1,915 | 11 | 1 | % | |||||||||||||||||||||
| Depreciation, amortization, depletion and accretion | 1,506 | 2,106 | (600) | (28) | % | |||||||||||||||||||||
| $ | 8,230 | $ | 8,293 | $ | (63) | (1) | % | |||||||||||||||||||
Payroll and benefits
Payroll and benefits expenses, which represent costs related to selling, general and administrative personnel, increased for the three months ended March 31, 2022 compared to the corresponding quarter in 2021 primarily due to an increase in expense related to the agreements with our executive officers and certain other key employees ("Retention Agreements") of $0.4 million. Offsetting this increase was a decrease in our headcount, which decreased payroll and benefits expense by approximately $0.2 million.
Legal and professional fees
Legal and professional fees increased for the three months ended March 31, 2022 compared to the corresponding quarter in 2021 as a result of costs incurred related to our strategic alternatives review process, including consulting, tax services and legal fees of $0.4 million.
General and administrative
General and administrative expenses had no significant changes quarter over quarter.
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Depreciation, amortization, depletion and accretion
Depreciation and amortization expense decreased for the three months ended March 31, 2022 compared to the corresponding quarter in 2021 primarily due to higher production volumes compared to sales volumes for the three months ended March 31, 2022, resulting in $0.4 million less absorption of depreciation in inventory. Further driving the decrease was a decrease in accretion expense of $0.2 million related to the Marshall Mine ARO.
Other Income (Expense), net
A summary of the components of other income (expense), net for the three months ended March 31, 2022 and 2021 is as follows:
| Three Months Ended March 31, | Change | |||||||||||||||||||||||||
(in thousands, except percentages) | 2022 | 2021 | ($) | (%) | ||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Earnings from equity method investments | $ | 833 | $ | 18,312 | $ | (17,479) | (95) | % | ||||||||||||||||||
| Interest expense | (86) | (837) | 751 | (90) | % | |||||||||||||||||||||
| Other | (445) | 421 | (866) | (206) | % | |||||||||||||||||||||
| Total other income | $ | 302 | $ | 17,896 | $ | (17,594) | (98) | % | ||||||||||||||||||
Earnings from equity method investments
As discussed above, both Tinuum Group and Tinuum Services ceased operations as of December 31, 2021 and as a result for the three months ended March 31, 2022, we recognized significantly lower earnings from Tinuum Group and a loss from Tinuum Services. The following table details the components of our respective equity method investments included in the Earnings from equity method investments line item in the Condensed Consolidated Statements of Operations:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| Earnings from Tinuum Group | $ | 1,012 | $ | 16,362 | ||||||||||||||||||||||
| (Loss) earnings from Tinuum Services | (180) | 1,950 | ||||||||||||||||||||||||
| Earnings from other | 1 | — | ||||||||||||||||||||||||
| Earnings from equity method investments | $ | 833 | $ | 18,312 | ||||||||||||||||||||||
For the three months ended March 31, 2022, we recognized $1.0 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net loss of $0.9 million for the quarter. The difference between our pro-rata share of Tinuum Group's net loss and our earnings from the Tinuum Group equity method investment as reported on the Condensed Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur. For the remainder of 2022, we expect to recognize such excess contributions as equity method earnings in the period the distributions occur, limited to the carrying value of the Tinuum Group equity investment.
For the three months ended March 31, 2021, we recognized $16.4 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $10.8 million for the quarter.
For the three months ended March 31, 2022, earnings from Tinuum Services decreased compared to the corresponding quarter in 2021 due to a decrease in the number of operating RC facilities in which Tinuum Services provided operating and maintenance services due to the expiration of the Section 45 tax credit period on December 31, 2021.
Additional information related to equity method investments is included in Note 9 to the Condensed Consolidated Financial Statements included in Item 1 of this Report.
Interest expense
For the three months ended March 31, 2022, interest expense decreased $0.8 million compared to the three months ended March 31, 2021 primarily due to the Company's pay-off of a senior term loan as of June 1, 2021.
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Other
On February 25, 2022, we received $10.6 million in cash from Norit (the "Norit Payment") as a result of a change in control provision in the Supply Agreement (the "Change in Control"), which occurred as a result of the sale of Norit by its parent, Cabot Corporation. Under the Change in Control, we received from Norit full payment of all amounts outstanding under the Reclamation Reimbursement, payment of all unbilled amounts related to Specific Capital for expenditures incurred through February 28, 2022 and payment of $0.8 million related to additional costs due to the third party mine operator (the "Norit Reclamation Costs"). Under the Reclamation Contract, we are obligated to remit payment for the Norit Reclamation Costs to the third-party operator of Marshall Mine within a specified timeframe, and such payment was remitted in March 2022.
As of February 25, 2022, the Reclamation Reimbursement was $9.0 million, which is reflective of the principal balance adjusted for accretion of interest and collection of payments. Under the Change in Control, we received $8.5 million in cash in relation to the outstanding Reclamation Reimbursement. We applied the cash proceeds to the Reclamation Reimbursement and recognized a loss of $0.5 million, which is included in the "Other income (expense)" line item in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2022 .
Income tax expense
For the three months ended March 31, 2022, we recorded no income tax expense or benefit compared to income tax expense of $4.5 million for the three months ended March 31, 2021 primarily due to pretax loss for the three months ended March 31, 2022 of $3.0 million compared to pretax income for the three months ended March 31, 2021 of $18.2 million. We did not recognize a tax benefit for the three months ended March 31, 2022 related to the pretax loss for this period, as we recorded a valuation allowance as of March 31, 2022 based on our forecast of pretax loss for the year ended December 31, 2022.
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Non-GAAP Financial Measures
To supplement our financial information presented in accordance with U.S. GAAP (or "GAAP"), we provide non-GAAP measures of certain financial performance. These non-GAAP measures include Consolidated EBITDA and Consolidated Adjusted EBITDA. We have included these non-GAAP measures because management believes that they help to facilitate period to period comparisons of our operating results and provide useful information to both management and users of the financial statements by excluding certain expenses, gains and losses that may not be indicative of core operating results and business outlook. Management uses these non-GAAP measures in evaluating the performance of our business.
These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.
We define Consolidated EBITDA as net income adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: depreciation, amortization, depletion, accretion, amortization of upfront customer consideration that was recorded as a component of the Marshall Mine Acquisition ("Upfront Customer Consideration"), interest expense, net and income tax (benefit) expense. We define Consolidated Adjusted EBITDA as Consolidated EBITDA reduced by the non-cash impact of equity earnings from equity method investments and increased by cash distributions from equity method investments and loss on early settlement of the Norit Receivable. Because Consolidated Adjusted EBITDA omits certain non-cash items, we believe that the measure is less susceptible to variances that affect our operating performance.
When used in conjunction with GAAP financial measures, we believe these non-GAAP measures are supplemental measures of operating performance that explain our operating performance for our period-to-period comparisons and against our competitors' performance. Generally, we believe these non-GAAP measures are less susceptible to variances that affect our operating performance results.
We expect the adjustments to Consolidated EBITDA and Consolidated Adjusted EBITDA in future periods will be generally similar. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP.
Consolidated EBITDA and Adjusted EBITDA
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| Net (loss) income | $ | (3,033) | $ | 13,737 | ||||||||||||||||||||||
| Depreciation, amortization, depletion and accretion | 1,506 | 2,106 | ||||||||||||||||||||||||
| Amortization of Upfront Customer Consideration | 127 | 127 | ||||||||||||||||||||||||
| Interest expense, net | 64 | 729 | ||||||||||||||||||||||||
| Income tax (benefit) expense | — | 4,489 | ||||||||||||||||||||||||
| Consolidated (EBITDA loss) EBITDA | (1,336) | 21,188 | ||||||||||||||||||||||||
| Cash distributions from equity method investees | 2,514 | 23,251 | ||||||||||||||||||||||||
| Equity earnings | (833) | (18,312) | ||||||||||||||||||||||||
| Loss on early settlement of Norit Receivable | 535 | — | ||||||||||||||||||||||||
| Consolidated Adjusted EBITDA | $ | 880 | $ | 26,127 | ||||||||||||||||||||||
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Liquidity and Capital Resources
Current Resources and Factors Affecting Our Liquidity
As of March 31, 2022, our principal sources of liquidity include:
•cash and cash equivalents on hand, excluding restricted cash of $10.0 million pledged under the Surety Agreement; and
•our operations.
As of March 31, 2022, our principal uses of liquidity included:
•our business operating expenses;
•capital and spare parts expenditures;
•payments on our lease obligations; and
•payments of ARO liabilities associated with the Five Forks Mine and Marshall Mine.
Due to the expiration of the Section 45 tax credit period as of December 31, 2021 and the resultant wind down of Tinuum Group's and Tinuum Services' operations in 2022, distributions from Tinuum Group and Tinuum Services will no longer be a significant source of liquidity.
Tinuum Group and Tinuum Services Distributions
The following table summarizes the cash distributions from our equity method investments for the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||
| Tinuum Services | $ | 1,501 | $ | 3,502 | ||||||||||
| Tinuum Group | 1,012 | 19,749 | ||||||||||||
| Other | 1 | — | ||||||||||||
| Distributions from equity method investees | $ | 2,514 | $ | 23,251 | ||||||||||
Cash distributions from Tinuum for the three months ended March 31, 2022 decreased by $20.7 million compared to the three months ended March 31, 2021 primarily due to Tinuum Group and Tinuum Services ceasing material operations as of December 31, 2021.
Stock Repurchases and Dividends
In November 2018, the Board authorized us to purchase up to $20.0 million of our outstanding common stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board. As of November 2019, $2.9 million remained outstanding related to the Stock Repurchase Program. In November 2019, the Board authorized an incremental $7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.
For the three months ended March 31, 2022 and 2021, we did not repurchase any shares under the Stock Repurchase Program or declare or pay any cash dividends to stockholders.
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Cash Flows
Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021
Cash, cash equivalents and restricted cash increased from $88.8 million as of December 31, 2021 to $89.8 million as of March 31, 2022. The following table summarizes our cash flows for the three months ended March 31, 2022 and 2021, respectively:
| Three Months Ended March 31, | ||||||||||||||||||||
| (in thousands) | 2022 | 2021 | Change | |||||||||||||||||
| Cash and cash equivalents and restricted cash provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 2,094 | $ | 21,947 | $ | (19,853) | ||||||||||||||
| Investing activities | (439) | 4,886 | (5,325) | |||||||||||||||||
| Financing activities | (628) | (10,531) | 9,903 | |||||||||||||||||
| Net change in cash and cash equivalents and restricted cash | $ | 1,027 | $ | 16,302 | $ | (15,275) | ||||||||||||||
Cash flow from operating activities
Cash flows provided by operating activities for the three months ended March 31, 2022 decreased by $19.9 million compared to the three months ended March 31, 2021. The net decrease was primarily attributable to decreases in Earnings from equity method investees of $17.5 million, Deferred income tax expense of $3.1 million, and Depreciation, amortization, depletion and accretion of $0.6 million. Also contributing to the net decrease in cash flows provided by operating activities period over period was a decrease in Distributions from equity method investees, return on investment of $16.1 million. Offsetting the net decrease in cash flows provided by operating activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was a net decrease in net income of $16.8 million for the three months ended March 31, 2022 as a result of net loss recognized for the three months ended March 31, 2021. Further offsetting the net decrease in cash flows provided by operating activities was an increase related to a recognized loss of $0.5 million on the settlement of the Reclamation Reimbursement.
Cash flow from investing activities
Cash flows from investing activities decreased for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 by $5.3 million primarily as a result of a reduction of distributions from equity earnings in excess of cumulative earnings.
Cash flow from financing activities
Cash flows used in financing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 decreased by $9.9 million primarily from decreases in principal loan repayments on a senior term loan.
Material Cash Requirements
For 2022, we expect to incur $13.0 million in capital expenditures compared to $7.6 million incurred in 2021. This increase is primarily the result of forecasted capital improvements to the Red River Plant of approximately $7.0 million, product specific capital expenditures related to the Supply Agreement of approximately $1.0 million and scheduled maintenance improvements.
In May 2021, we entered into the Retention Agreements for the purpose of retaining officers and key employees in order to maintain our current business operations, while we pursue and execute on our strategic initiatives. The total amount owed pursuant to the Retention Agreements is $2.0 million, which we expect to pay in 2022.
We intend to fund the remaining portion of the Reclamation Costs from cash on hand as well as cash flows generated from the Supply Agreement. We believe that as reclamation activities proceed and the related bonded amounts required under the Surety Agreement are able to be reduced, there may be an opportunity to further reduce the collateral requirement. On a normalized basis, our annual capital expenditures, exclusive of any capital specifically procured for Norit under the Supply Agreement or capital for major improvements to the Red River Plant, are expected to average approximately $5.0 million.
We expect that our cash on hand as of March 31, 2022 will provide sufficient liquidity to fund operations for the next 12 months.
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For the three months ended March 31, 2022, there were no material changes to our contractual obligations outside of the ordinary course of business from those reported as of December 31, 2021.
As of March 31, 2022, we had outstanding surety bonds of $24.1 million related to performance requirements under reclamation contracts associated with both the Five Forks Mine and the Marshall Mine. As of March 31, 2022, we had restricted cash of $10.0 million for the surety bonds insuring the performance requirements for the reclamation of Marshall Mine. We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds should be released, and we should not have any continuing obligations. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the issuer of the surety bond.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates have not changed from those reported in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2021 Form 10-K.
Recently Issued Accounting Standards
Refer to Note 1 of the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for information regarding recently issued accounting standards applicable to us.
Forward-Looking Statements Found in this Report
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve risks and uncertainties. In particular, such forward-looking statements are found in this Part I, Item 2 above. Words or phrases such as "anticipates," "believes," "expects," "intends," "plans," "estimates," "predicts," the negative expressions of such words, or similar expressions are used in this Quarterly Report to identify forward-looking statements, and such forward-looking statements include, but are not limited to, statements or expectations regarding:
(a)the anticipated effects from the increase in pricing of our AC products;
(b)the anticipated effects from the increase in costs of our AC products related cost increases in supply and logistics;
(c)expected supply and demand for our AC products and services;
(d)increasing competition in the AC market;
(e)the timing and effects of our review of strategic alternatives;
(f)future level of research and development activities;
(g)the effectiveness of our technologies and the benefits they provide;
(h)probability of any loss occurring with respect to certain guarantees made by Tinuum Group;
(i)the timing of awards of, and work and related testing under, our contracts and agreements and their value;
(j)the timing and amounts of or changes in future revenues, backlog, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, royalty payment obligations, working capital, liquidity and other financial and accounting measures;
(k) the amount of future capital expenditures needed for our business;
(l) awards of patents designed to protect our proprietary technologies both in the U.S. and other countries;
(m)the adoption and scope of regulations to control certain chemicals in drinking water; and
(n)opportunities to effectively provide solutions to U.S. coal-related businesses to comply with regulations, improve efficiency, lower costs and maintain reliability.
The forward-looking statements included in this Quarterly Report involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, timing of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; impact of competition; availability, cost of and demand for alternative energy sources and other technologies; technical, start up and operational difficulties; our inability to commercialize our APT technologies on favorable terms; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; as well as other factors relating to our business, as described in our filings with the SEC, with particular emphasis on the risk factor disclosures contained in those filings. You are cautioned not to place undue reliance on the forward-looking statements made in this Quarterly Report and to consult filings we have made and will make
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with the SEC for additional discussion concerning risks and uncertainties that may apply to our business and the ownership of our securities. The forward-looking statements contained in this Quarterly Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required by law to do so.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information under this Item is not required to be provided by smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a‑15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we have evaluated, under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2022 due to the material weakness described in Item 9A. "Controls and Procedures" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 related to the initial application of the adoption of ASC 606 related to the accounting for freight, which was previously immaterial; an inadequate monitoring of interpretative guidance of previously adopted accounting standards; and a lack of a control related to an annual review of policies and procedures related to material accounts.
Notwithstanding the material weaknesses, management has concluded that the Condensed Consolidated Financial Statements included in this Quarterly Report present fairly, in all material aspects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control Over Financial Reporting
Under the applicable SEC rules (Exchange Act Rules 13a-15(f) and 15d-15(f) management is required to evaluate any changes in internal control over financial reporting that occurred during each fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As discussed in Item 9A. "Controls and Procedures" of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, we identified a material weakness in our internal control over financial reporting detailed above. During the fiscal quarter ended March 31, 2022, we commenced remediation efforts on our internal control over financial reporting related to the material weakness, which includes enhancements in the monitoring of interpretative guidance of previously adopted accounting standards and a periodic review of policies and procedures associated to material accounts. As of March 31, 2022, the remediation efforts continue and as a result, the material weakness has not yet been remediated. We expect to complete remediation procedures and enhance existing controls by the end of our fiscal quarter ended June 30, 2022, at such time we expect that these controls will be operating and in place for a sufficient period of time to conclude on their effectiveness as of December 31, 2022.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in litigation, claims and other proceedings related to the conduct of our business. Information with respect to this item may be found in Note 7 "Commitments and Contingencies" to the consolidated financial statements included in Item 1 of Part I of this Quarterly Report.
Item 1A. Risk Factors
There are no material updates to our risk factors as disclosed in the 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
The statement concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Quarterly Report.
Item 5. Other Information
In May of 2021, the Company entered into agreements ("Retention Agreements") with all of its executive officers and certain other key employees of the organization for the benefit of retaining those officers and key employees in order to maintain the Company’s current business operations while it pursues and executes on its strategic initiatives.
On May 4, 2022, the Compensation Committee of the Board of Directors and the Board of Directors approved an amendment to the Retention Agreements ("Amended Retention Agreements") for its executive officers and certain other key employees of the organization. Under the Amended Retention Agreements, if accepted, the employees will receive (i) 40% of the original amount agreed to in the Retention Agreements ("Retention Pay") in August 2022; (ii) 60% of the Retention Pay on the earliest of (1) the date the employee’s employment is terminated without Cause or for Good Reason (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), (2) 90 days after a Transaction Date or a Change in Control (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), or (3) in January 2023; and (iii) an additional lump sum payment, ranging from 10% to 40% of the Retention Pay, will also be paid at the earliest of (1) the date the employee’s employment is terminated without Cause or for Good Reason (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), (2) 90 days after a Transaction Date or a Change in Control (as those terms are defined in the Retention Agreement or the employee’s employment agreement, as applicable), or (3) in January 2023.
In order to receive the Amended Retention Agreements payments, the employees must remain employed at the Company through the dates above.
The total incremental amount payable pursuant to the Amended Retention Agreements is $0.5 million. Under the Amended Retention Agreements, the following executive officers will be paid the following amounts if they satisfy the conditions for payment: Greg Marken, Chief Executive Officer, $59,800; Morgan Fields, Chief Accounting Officer, $50,800; and Joe Wong, Chief Technology Officer, $52,020. The other key employees would be paid an aggregate amount of $0.3 million.
The foregoing description of the Amended Retention Agreements is qualified in its entirety by reference to the forms of Retention Agreement, copies of which are filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.
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Item 6. Exhibits
| Exhibit No. | Description | Form | File No. | Incorporated by Reference Exhibit | Filing Date | |||||||||||||||||||||||||||
| 4.6 | 8-K | 001-37822 | 4.6 | March 16, 2022 | ||||||||||||||||||||||||||||
| 10.1 | ||||||||||||||||||||||||||||||||
| 31.1 | ||||||||||||||||||||||||||||||||
| 31.2 | ||||||||||||||||||||||||||||||||
| 32.1 | ||||||||||||||||||||||||||||||||
| 95.1 | ||||||||||||||||||||||||||||||||
| 101. INS | XBRL Instance Document* | |||||||||||||||||||||||||||||||
| 101.SCH | XBRL Schema Document* | |||||||||||||||||||||||||||||||
| 101.CAL | XBRL Calculation Linkbase Document* | |||||||||||||||||||||||||||||||
| 101.LAB | XBRL Label Linkbase Document* | |||||||||||||||||||||||||||||||
| 101.PRE | XBRL Presentation Linkbase Document* | |||||||||||||||||||||||||||||||
| 101.DEF | Taxonomy Extension Definition Linkbase Document* | |||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* | |||||||||||||||||||||||||||||||
Notes:
* – Filed herewith.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Advanced Emissions Solutions, Inc. | ||||||||
| (Registrant) | ||||||||
| May 9, 2022 | By: | /s/ Greg Marken | ||||||
| Greg Marken | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| May 9, 2022 | By: | /s/ Morgan Fields | ||||||
| Morgan Fields | ||||||||
| Chief Accounting Officer | ||||||||
| (Principal Financial Officer) | ||||||||
32
AMENDMENT TO THE 2021 RETENTION AGREEMENT
The following is an Amendment to the 2021 Retention Agreement (the “Amendment”), by and between [NAME] (referred to as “you,” or “your”) and ADES, Inc. (the “COMPANY”).
This Amendment will become effective on the date you return an electronically signed copy of the Amendment to the COMPANY provided it is returned no later than 12:00 p.m. Mountain Time on May 8, 2022 (the “Return Date”). If you do not return the signed Amendment to the COMPANY by the Return Date, this offer will expire.
RECITALS
WHEREAS, In May 2021, you and the COMPANY entered into a Retention Agreement providing you with certain benefits for remaining employed with the COMPANY through a certain date (the “Retention Agreement”).
WHEREAS, there continue to be important customer and corporate initiatives the COMPANY wants to complete and you have been identified as an important contributor to assist the COMPANY to complete its business objectives and delivery obligations, and
WHEREAS, in order to meet the COMPANY’s objectives and delivery obligations and to recognize your contribution to COMPANY, you and the COMPANY are willing to enter into this Amendment.
WHEREFORE, for good and valuable consideration, you and the COMPANY hereby agree as follows:
1.Section 4 of the Definitions shall be deleted and replaced with the following:
4. “Retention Date” means January 18, 2023.
2.Provision 9.a. of the Retention Agreement shall be deleted and replaced in its entirety with the following:
9.a. If you are employed in accordance with the terms of the Retention Agreement: (i) on August 31, 2022, the COMPANY will pay you 40% off the Retention Pay described in the Retention Agreement as a lump sum in the amount of $[XXX]; (ii) upon completion of the Retention Period, the COMPANY will pay you 60% of the Retention Pay described in the Retention Agreement as a lump sum in the amount of $[XXX]; and (iii) and upon completion of the Retention Period, the COMPANY will pay you an amount equal to % of the two amounts immediately above, a lump sum in the amount of $[XXX]. All compensation paid to you, whether pursuant to this paragraph or otherwise, shall be subject to applicable tax withholdings and payroll deductions.
3.This Amendment constitutes a written amendment to the Retention Agreement pursuant to Section 12 of the Retention Agreement.
4.You and the COMPANY agree that this Amendment is strictly limited to the terms herein, that all provisions in the Retention Agreement not modified by this Amendment remain in full force and effect, and that this Amendment will be interpreted and enforced in accordance with the terms of the Retention Agreement.
In order to accept this Amendment, you electronically sign the Amendment by 12:00 p.m. Mountain Time on May 8, 2022. You understand that if you do not return this Amendment signed by you to the COMPANY by this date, this offer will expire.
I have carefully read all aspects of this Amendment and the Retention Agreement. I execute the Amendment voluntarily, fully understanding and accepting all provisions of the Amendment and the Retention Agreement in their entirety and without reservation after having had sufficient time and opportunity to consult with my legal advisors prior to executing this Amendment.
| EMPLOYEE | ADA-ES, Inc. | |||||||
| By: | ||||||||
| NAME | [Authorized Signatory] | |||||||
| Date: | Date: | |||||||
Exhibit 31.1
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as Amended
I, Greg Marken, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Advanced Emissions Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2022
| /s/ Greg Marken | |||||
| Greg Marken | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Exhibit 31.2
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as Amended
I, Morgan Fields, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Advanced Emissions Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2022
| /s/ Morgan Fields | |||||
| Morgan Fields | |||||
| Chief Accounting Officer | |||||
| (Principal Financial Officer) | |||||
Exhibit 32.1
Certification
Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Advanced Emissions Solutions, Inc. (the "Company") for the quarterly period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Greg Marken, as the Principal Executive Officer of the Company, and Morgan Fields, as the Principal Financial Officer of the Company, each hereby certifies, pursuant to and solely for the purpose of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge and belief, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Greg Marken | |||||
| Greg Marken | |||||
| Chief Executive Officer | |||||
| May 9, 2022 | |||||
| /s/ Morgan Fields | |||||
| Morgan Fields | |||||
| Chief Accounting Officer | |||||
| May 9, 2022 | |||||
EXHIBIT 95.1
Mine Safety and Health Administration Safety Data
We are committed to maintaining a safe work environment and working to ensure environmental compliance across all of our operations. The health and safety of our employees and limiting the impact to communities in which we operate are critical to our long-term success. We employ practices and conduct training to help ensure that our employees work safely. Furthermore, we utilize processes for managing, monitoring and improving safety and environmental performance.
The following disclosures are provided pursuant to Securities and Exchange Commission (SEC) regulations, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate coal mines regulated under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). The disclosures reflect United States (U.S.) mining operations only.
Mine Safety Information. Whenever the Mine Safety and Health Administration (MSHA) believes that a violation of the Mine Act, any health or safety standard, or any regulation has occurred, it may issue a violation which describes the associated condition or practice and designates a time frame within which the operator must abate the violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until hazards are corrected. Whenever MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the violation that the operator is ordered to pay. Citations and orders can be contested and appealed and, as part of that process, are often reduced in severity and amount, and are sometimes vacated. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the company and mine.
We are required to report citations and orders issued to us by MSHA during the three months ended March 31, 2022, as reflected in our systems. Our required disclosure covers only those mines that were issued orders or citations during the period presented and, commensurate with SEC regulations, does not reflect orders or citations issued to independent contractors working at our mines. Due to timing and other factors, our data may not agree with the mine data retrieval system maintained by MSHA. The proposed assessments for the three months ended March 31, 2022 were taken from the MSHA system as of May 5, 2022.
Additional information about MSHA references we are required to report is as follows:
•Section 104 S&S Violations: The total number of violations received from MSHA under section 104(a) of the Mine Act that could significantly and substantially contribute to a serious injury if left unabated.
•Section 104(b)Orders: The total number of orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.
•Section 104(d) Citations and Orders: The total number of citations and orders issued by MSHA under section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards.
•Section 104(e) Notices: The total number of notices issued by MSHA under section 104(e) of the Mine Act for a pattern of violations that could contribute to mine health or safety hazards.
•Section 110(b)(2)Violations: The total number of flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act.
•Section 107(a) Orders: The total number of orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed.
•Proposed MSHA Assessments: The total dollar value of proposed assessments from MSHA.
•Fatalities: The total number of mining-related fatalities.
Our first mine is located in the Gulf Coast Lignite Region, in Natchitoches Parish, Louisiana (the "Five Forks Mine"). For the three months ended March 31, 2022, there were no citations or orders issued to the Five Forks Mine. Our second mine is located in the Gulf Coast Lignite Region, in Harrison and Panola Counties, Texas (the "Marshall Mine"). For the three months ended March 31, 2022, there were no citations or orders issued to the Marshall Mine.
Pending Legal Actions. The Federal Mine Safety and Health Review Commission (the Commission) is an independent adjudicative agency that provides administrative trial and appellate review of legal disputes arising under the Mine Act. These cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under section 105 of the Mine Act. The following is a brief description of the types of legal actions that may be brought before the Commission.
•Contests of Citations and Orders: A contest proceeding may be filed with the Commission by operators, miners or miners’ representatives to challenge the issuance of a citation or order issued by MSHA, including citations related to disputed provisions of operators' emergency response plans.
•Contests of Proposed Penalties (Petitions for Assessment of Penalties): A contest of a proposed penalty is an administrative proceeding before the Commission challenging a civil penalty that MSHA has proposed for the violation. Such proceedings may also involve appeals of judges' decisions or orders to the Commission on proposed penalties, including petitions for discretionary review and review by the Commission on its own motion.
•Complaints for Compensation: A complaint for compensation may be filed with the Commission by miners entitled to compensation when a mine is closed by certain withdrawal orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation, if any, due miners idled by the orders.
•Complaints of Discharge, Discrimination or Interference: A discrimination proceeding is a case that involves a miner’s allegation that he or she has suffered a wrong by the operator because he or she engaged in some type of activity protected under the Mine Act, such as making a safety complaint. This category includes temporary reinstatement proceedings, which involve cases in which a miner has filed a complaint with MSHA stating he or she has suffered discrimination and the miner has lost his or her position.
•Applications for Temporary Relief: An application for temporary relief from any modification or termination of any order or from any order issued under certain subparts of section 104 of the Mine Act may be filed with the Commission at any time before such order becomes final.
•Appeals of Judges' Decisions or Orders.
For the three months ended March 31, 2022, there were no pending or legal actions before the Commission at either the Five Forks Mine or the Marshall Mine.