Advanced Emissions Solutions, Inc. has filed its quarterly report on Form 10-Q and reported financial results for the second quarter ended 30 June 2018, including information about its equity investments in Tinuum Group, LLC and Tinuum Services, LLC (collectively Tinuum), of which ADES owns 42.5% and 50%, respectively.
Tinuum and refined coal highlights
As previously announced in June, Tinuum Group obtained a third party tax equity investor for an refined coal facility previously in installation phase, increasing the number of invested facilities to 18; this refined coal facility is royalty bearing and is located at a coal-burning power plant that has historically burned in excess of 3.3 million tpy of coal.
Tinuum distributions to ADES were US$14.7 million during the second quarter of 2018, and US$28.2 million year to date, increases of 40% and 12%, respectively, from the prior year.
Royalty earnings from Tinuum were US$3.5 million for the second quarter of 2018, an 89% increase from the same quarter in 2017.
Tinuum invested tonnage was 13.2 million during the second quarter of 2018 compared to 10.5 million during the same quarter in 2017.
Based on the 18 invested refined coal facilities as of 30 June 2018 and cash distributions occurring in the three months ended 30 June 2018, expected future net refined coal cash flows to ADES are between US$225 million and US$250 million through the end of 2021.
ADES Consolidated highlights
- Recognised consolidated revenue of US$4.3 million for the quarter, a decrease of 84% from the prior year's comparable quarter. The decrease was primarily due to the recognition of all remaining equipment systems effective with the adoption of the new revenue accounting standard (ASC 606) through an opening adjustment to equity on 1 January 2018 as well as lower revenue from chemical sales. Partially offsetting these decreases were higher royalty earnings from Tinuum, which, for both 2018 and 2017, are now reported as revenues under ASC 606.
- Other operating expenses increased US$1.1 million during the second quarter of 2018 compared to the same quarter in 2017, primarily due to restructuring charges of US$0.9 million.
- Achieved consolidated pre-tax and net income of US$13.9 million and US$15.3 million, respectively, for the quarter, resulting in earnings per diluted share of US$0.75, an increase of 159% from the prior year.
- Increased cash and cash equivalents to US$32.2 million as of 30 June 2018; an increase of US$1.5 million since 31 December 2017, which is inclusive of cash usage for dividends and stock repurchase which totalled over US$19.3 million for the six month period.
L. Heath Sampson, President and CEO of ADES commented: “Our ongoing focus on our refined coal business and supporting the Tinuum Group delivered another quarter of strong distributions and higher royalties. These increased earnings will continue to support our broader capital allocation programme, as cash levels continue to rise despite our ongoing commitment to executing on our shareholder return initiatives in the form of dividends and share repurchases.”
Sampson continued: “Also included in our second quarter performance was the previously announced June closure of an additional refined coal facility with a third-party tax equity investor. This facility was one of the two units discussed in the prior quarter that had entered the installation phase. While this process requires the upfront use of cash, we view this most recent closure as evidence that the pipeline and market for these facilities remains strong. As such, there are developing plans to install additional facilities in anticipation of further closures, and our confidence in the market lends us the conviction to take these proactive steps, as securing investors for idle units remains our first priority.”
Second quarter revenues and costs of revenues were US$4.3 million and US$0.7 million, respectively, compared with US$27.3 million and US$23.3 million in the second quarter of 2017. The decrease in revenues was primarily due to the completion of all material equipment contracts impacting revenues as of 31 December 2017 as well as a reduction in chemical sales due to the loss of a customer during the latter portion of 2017 and overall decrease in sales. Partially offsetting the decrease was second quarter royalty earnings from Tinuum of US$3.5 million, an increase of 89% compared to US$1.9 million in the second quarter of 2017, due to increased refined coal facilities and earnings from the respective refined coal facilities.
Second quarter other operating expenses were US$5.1 million, an increase of 28% compared to US$4.0 million in the second quarter of 2017. The increase was primarily due to restructuring charges during the three months ended 30 June 2018 in connection with a reduction in force, including the departure of certain executive officers and management's further alignment of the business with strategic objectives.
Second quarter earnings from equity method investments were US$15.9 million, compared to US$10.2 million for the second quarter of 2017. Tinuum distributions to ADES for the second quarter of 2018 were US$14.7 million, up from US$10.5 million for the comparable quarter in 2017. The increase was driven primarily by an increase in cash distributions related to additional invested refined coal facilities in the second half of 2017 and first half of 2018.
Second quarter operating expenses related to the refined coal business were US$1.1 million, an increase of 31% compared to 2017 primarily due to increased payroll and benefits attributed to the refined coal segment. Refined coal segment operating income was US$18.3 million, compared to US$11.1 million in the second quarter of 2017.
Second quarter consolidated interest expense was US$0.4 million, compared to US$0.6 million in the second quarter of 2017. Second quarter income tax (benefit) expense was US$1.3 million, compared to US$3.6 million in the second quarter of 2017, which was due to a reduction in the valuation allowance against the company's deferred tax assets as well as a reduction in the federal tax rate.
Consolidated net income for the second quarter was US$15.3 million, resulting in US$0.75 per diluted earnings per share, an increase of 159% from the prior year, primarily driven by higher equity earnings and royalties from the refined coal business and the tax benefit recognised.
As of 30 June 2018, the company had cash and cash equivalents of US$32.2 million, an increase of 5% compared to US$30.7 million as of 31 December 2017, due primarily to higher Tinuum royalties, which offset the stock repurchases and dividends totaling over US$19.3 million for the first half of 2018.
On 6 august, the Board of Directors declared a quarterly cash dividend of US$0.25 per share of common stock. The dividend is payable on 6 September 2018 to stockholders of record at the close of business on 20 August 2018.
Read the article online at: https://www.worldcoal.com/coal/07082018/advanced-emissions-solutions-announces-2q18-results/