Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Advanced Emissions Solutions, Inc. | d658369d8k.htm |
| EX-99.2 - EX-99.2 - Advanced Emissions Solutions, Inc. | d658369dex992.htm |
 Advanced
Emissions Solutions, Inc. NASDAQ: ADES
Investor Presentation
January 2014
www.advancedemissionssolutions.com
Exhibit 99.1 |
 This
presentation includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, which provides a "safe harbor" for such statements in certain
circumstances. The forward-looking statements include statements or
expectations regarding future contracts, projects, demonstrations and technologies; amount and
timing of production of RC, revenues, earnings, cash flows and other financial
measures; future operations; our ability to capitalize on and expand our
business to meet opportunities in our target markets and profit from our proprietary
technologies; scope, timing and impact of current and anticipated regulations and
legislation; future supply and demand; the ability of our technologies to assist
our customers in complying with government regulations and related matters.
These statements are based on current expectations, estimates, projections, beliefs and
assumptions of our management. Such statements involve significant 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, changes in laws,
regulations and IRS interpretations or guidance, government funding, accounting rules,
prices, economic conditions and market demand; timing of laws, regulations and
any legal challenges to or repeal of them; failure of the RC facilities to
produce coal that qualifies for tax credits; termination of or amendments to the
contracts for RC facilities; decreases in the production of RC; failure to lease
or sell the remaining RC facilities on a timely basis; our inability to ramp up
operations to effectively address expected growth in our target markets; inability to
commercialize our technologies on favorable terms; impact of competition;
availability, cost of and demand for alternative tax credit vehicles and other
technologies; technical, start-up and operational difficulties; availability of raw
materials and equipment; loss of key personnel; intellectual property
infringement claims from third parties; seasonality and other factors discussed in greater
detail in our filings with the Securities and Exchange Commission (SEC). You are
cautioned not to place undue reliance on such statements and to consult our SEC
filings for additional risks and uncertainties that may apply to our business and the
ownership of our securities. Our forward-looking statements are presented as of the
date made, and we disclaim any duty to update such statements unless required by
law to do so. We refer to certain non-GAAP financial measures in this
presentation. Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures can be found within this
presentation. ©
2012-2014 Advanced Emissions Solutions, Inc.
-2-
AFE
S
H
ARBOR |
 WHO WE
ARE ADA-ES, Inc.
100% owned ADES
BCSI, LLC
100% owned ADES
Clean Coal Solutions, LLC
42.5% owned ADA-ES, Inc.
Operating Companies
©
2012-2014 Advanced Emissions Solutions, Inc.
-3-
A family of companies that has been providing emission control
solutions to the power industry for more than 30 years
Portfolio of proprietary, low CAPEX technologies to meet pollution control
mandates. 19 patents issued or allowed
Customers include most of the leading electric power companies
Strong and growing cash flows from Refined Coal business through
2021 (CCS)
Emission Control at early stage of compliance ramp. Near-term equipment market,
longer- term consumables supply market (ADA and BCSI)
|
 -4-
Refined Coal-
$0 cost to utility
M-Prove™
Technology ~$100k
capex, $1-$4/ton reduced
compliance cost
ACI/DSI-
$1-$3M in capex
Scrubber, SCR-
$100M+
in capex
Large E&C
firms
Boiler
ACI System
DSI System
Coal Pile
ACI System for
Mercury Control
©
2012-2014 Advanced Emissions Solutions, Inc.
PORTFOLIO OF EMISSIONS
CONTROL SOLUTIONS |
 Near-term growth opportunities
Refined Coal
Creates $1B equipment
market
ADA leading provider of
equipment to meet MATS
Activated Carbon Injection
Systems
Dry Sorbent Injection
Systems
Equipment backlog buildup
$56.6M at 3Q13
$33.2M at 2Q13
$25.3M at 4Q12
MATS to create annual
market of $1-$2B for
consumables to control
mercury (e.g. AC,
chemical enhancements)
ADA offers proprietary
chemical technology
applied to coal prior to
combustion that reduces
AC requirements
Addressable market of
~600M tons of western
coal per year
Equipment
Consumables
Mercury Control (MATS)
Clean Coal Solutions (CCS)
42.5%
ADA
42.5% NexGen
15% Goldman Sachs
28 RC facilities qualify for
Section 45 Tax Credits of
$6.59/ton (escalating)
through 2021
8 RC facilities generating
more than $85M in annual
payments to CCS (ADA
42.5%)
Remaining RC facilities
expected to be in full-time
operation by YE2014
Expect ~$300M in annual
CCS revenues at +90%
margin by 2015
MATS rule took effect in 2012, compliance by 2015-2016
-5-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 -6-
NEXGEN
42.5%
ADES
42.5%
GOLDMAN
SACHS
15%
Clean Coal Solutions Ownership Structure
1.
RC facilities owned by CCS; ADES owns 42.5% of CCS through ADA-ES, Inc.
2.
Results in ~$120 million in annual revenue to ADES through ADA-ES, Inc.’s 42.5%
ownership in CCS. 3.
Results in ~$40 million in annual tax benefits to ADES through ADA-ES, Inc.’s 42.5%
ownership in CCS. ©
2012-2014 Advanced Emissions Solutions, Inc.
Section 45 of the Internal Revenue Code offers $6.59/ton in tax credits for the production
of pollution mitigating RC through 2021
Qualifying RC facilities must reduce mercury by 40+% and NO
x
by 20+% and have
been “placed in service”
on or prior to December 31, 2011
ADES affiliates
1
own 28 qualifying RC facilities expected to be located at plants that burn
100+ million tons of coal annually
Expect ~$300 million in annual revenue to CCS at ~95% margin beginning 2015
2
Expect ~$100 million in annual tax benefits to CCS beginning 2015
3 |
 -7-
3
rd
party
investor
3
rd
party investor leases RC facility
and receives ~$8.00/ton in tax
credits (assuming a 35% tax rate)
Pays ~$2.00/ton for
operating expenses
CCS receives $3.00 to
$4.00/ton in rental income
Utility gets
emission
reductions
Pays ~$1.00
/ton to utility
CCS Leasing Model
ADES owns 42.5% of
CCS (~$1.40/ton)
©
2012-2014 Advanced Emissions Solutions, Inc.
REFINED COAL: BENEFITS
FOR ALL PARTIES |
 100+
MT/yr
O
~25
MT/yr
8 RC
facilities
leased
~8
MT/yr
Dec 2013
Jan 2014
3/31/14
12/31/14
4 RC
facilities
CCS-
operated
Additional
RC facility
using M-45-
PC in full-time
operation
All 28 RC facilities are expected to be in full-time operation by year end 2014
Expect approximately 15% of capacity to be CCS-operated to generate tax
benefits sufficient to offset expected tax liability
Full-Time Operations Road Map
2015
2021
Additional 4
RC facilities
in full-time
operation
Additional 11
RC facilities in
full-time
operation
28 RC
facilities in
full-time
operation
©
2012-2014 Advanced Emissions Solutions, Inc.
-8-
UTLOOK FOR
28 RC F
ACILITIES |
 ©
2012-2014 Advanced Emissions Solutions, Inc.
CCS incurs no operating
costs for the RC facility
CCS receives ~$3-$4/ton in
rental income from RC
investor
CCS spends ~$3/ton to
operate RC facility
CCS generates ~$7.50/ton in
tax credits for its members
CCS incurs no operating
costs for the RC facility
CCS generates no value
RC facility
leased/sold
to RC
investor
RC facility
operated by
CCS
RC facility
not in full-
time
operation
* ADA’s 42.5% share of tax credits included in net deferred tax assets. NDTA are offset by a
valuation allowance as discussed in the footnotes to the financial statements Typical RC
facility producing 4MT/Y
Quarterly
($M)
Annually
($M)
Cash Spent
$ --
$ --
Cash Received
$ --
$ --
Tax Benefits Generated
$ --
$ --
Status
Financial Impact
Typical RC facility
producing 4MT/Y
Quarterly
($M)
Annually
($M)
Cash Spent
$3.0
$12.0
Cash Received
$ --
$ --
Tax Benefits Generated*
~$7.50
~$30.0
Typical RC facility
producing 4MT/Y
Quarterly
($M)
Annually
($M)
Cash Spent
$ --
$ --
Cash Received
$3.5
$14.0
Tax Benefits Generated
$ --
$ --
-9- |
 -10-
ACI Systems
DSI Systems
M-Prove™
Technology
Powdered Activated Carbon
reduces mercury emissions in
the flue gas
Dry alkaline sorbents
injected in flue gas for
SO
2
and acid gas
control
M-Prove™
technology
applied to coal to
control mercury
emissions
Equipment
Consumables
©
2012-2014 Advanced Emissions Solutions, Inc. |
 E
April 2015/2016 MATS compliance requirement driving rapid backlog growth
$4 million at Q3 ‘12, $33 million at Q2 ‘13, $57 million at Q3
‘13 ADES is prepared for the equipment market
Supply agreements already in place, engineering capabilities expanded
EC Revenue and Backlog ($million)
©
2012-2014 Advanced Emissions Solutions, Inc.
-11-
MISSION
CONTROL
|
 M-Prove™ technology for mercury emissions control is in the initial stages of
being marketed for applications for western coals
$1.00 to $4.00/ton in benefits to customer
M-Prove™
technology being demonstrated at the RC facilities
Expect the MATS to drive a $1 to $2 billion annual market for consumables by 2016
U.S. burns up to 600 million tons of western coal per year
In addition, ADES offers a flue gas conditioning technology that
aids in both SO
3
and
mercury control
Source: Department of Energy, Energy Information Administration and Electric Power Research
Institute. -12-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 Developing
proprietary solid sorbent capture technology to capture CO
2
from flue gas in
conventional coal-fired boilers
DOE and industry funding:
Phase I —
$3.8 million, R&D at 1 KWe scale,
completed in 2011
Phase II —
$22.6 million contract to validate
technology at 1 MWe scale
Pilot Design: 2012, Construction: 2013, Testing:
Fall 2014
Located at Southern Company’s Plant Miller
Advantages over competing technologies:
For customer: lower cost and less parasitic
energy
Pilot plant being assembled
at Plant Miller
©
2012-2014 Advanced Emissions Solutions, Inc.
-13- |
 RC
opportunities expected to provide substantial growth in revenues, profits and
cash flows in 2013, and consistent revenue streams through 2021
MATS compliance requirements are driving
significant near-term market for equipment
M-Prove
TM
technology and royalty opportunity
expected to produce additional growth beyond MATS
equipment market
Developing solid sorbent capture technology to
capture CO2 from flue gas in conventional coal-fired
boilers
KEY TAKEAWAYS
©
2012-2014 Advanced Emissions Solutions, Inc.
-14- |
 ADES is a
Leader in the Pollution Control Industry More than 30 years of providing solutions to the power
industry, 19 patents issued
Focus on low capex solutions with recurring demand for chemicals
Customers include most of the leading utilities
Strong Momentum
12 RC facilities in full time operations, increasing to 17 by end of Q1 ‘14 and 28 by year end
2014 $57M equipment backlog up from $33M prior quarter and $4M year ago
I
High Margin Businesses
~95% RC gross margins
3
~45% gross margins expected in the consumables market
Recurring Revenue Streams & Visibility to Meaningful Cash Flows
RC business expected to produce ~95% margin revenues through 2021
3
Annual revenue run rate of $85+M to Clean Coal Solutions (“CCS”), expected to grow to
~$300M+ by 2015 2
Mercury control consumables (M-Prove
TM
technology) to compete in $1B to $2B annual addressable market
Large Market Opportunity
Mercury Air Toxic Standards affect ~1,200 coal-fired units
DOE expects coal to provide ~40% of America’s electricity in 2035
ADES affiliates
1
own 28 Refined Coal (“RC”) facilities eligible for Section 45 tax credits
$1B equipment market and $1B to $2B annual consumables market
1.
RC facilities owned by CCS; ADES owns 42.5% of CCS through ADA-ES, Inc.
2.
Results in $35+ million annual revenue expected to grow to ~$120+ million annual revenue to
ADES through ADA-ES, Inc.’s 42.5% ownership in CCS. 3.
Currently non-GAAP, see notes on slide 29 and reconciliation on slide 30
4.
NDTA are offset by a valuation allowance as discussed in the footnotes to the financial
statements Strong Financial Position
Visibility toward significant near-term annual cash flow from RC business segment
~$50M deferred tax asset
4
-15-
©
2012-2014 Advanced Emissions Solutions, Inc.
NVESTMENT
UMMARY
S |
 APPENDIX
©
2012-2014 Advanced Emissions Solutions, Inc. |
 ADA-ES, Inc.
100% owned ADES
BCSI, LLC
100% owned ADES
Clean Coal Solutions, LLC
42.5% owned ADA-ES, Inc.
Operating Companies
C
-17-
©
2012-2014 Advanced Emissions Solutions, Inc.
ORPORATE
S
TRUCTURE |
 COAL
AND US ELECTRICITY GENERATION Source: EIA
2012: lowest power demand since 1987, natural gas prices reach a
low of $1.91/MM/btu-
2012 average of $2.77/MMbtu
-18-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 -19-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 MERCURY
CONTROL- 15 YEARS IN THE MAKING
EPA
determines it
necessary to
regulate
mercury
2000
2009
2005
2008
EPA issues
Clean Air
Mercury Rule
D.C. Circuit Court
vacates the Clean Air
Mercury Rule
EPA proposes
new rule to
replace the
vacated CAMR
EPA issues draft
of Mercury Air
Toxic Standards
(MATS)
EPA issues final
Mercury Air
Toxic Standards
(MATS)
Compliance
deadline for
MATS. Plants can
apply for an
extension
2011
2012
2015/16
Technology
commercially
proven
-20-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 Boilers
Treated by ACI Systems Source: Institute of Clean Air Companies, May 2013.
©
2012-2014 Advanced Emissions Solutions, Inc.
-21- |
 ADA
STANDARD ACI SYSTEM -22-
©
2012-2014 Advanced Emissions Solutions, Inc.
Bin Vent Filter
Man-door with PRV
Level Transmitters
PAC Storage
Module
Process Equipment
Module |
 The
American Jobs Creation Act of 2004, Section 45 of the IRC: contains provisions
to incentivize the production of pollution mitigating
Refined
Coal
(RC)
via
annually
escalating
tax
credits
per
ton of coal burned. RC reduces mercury by 40%+ and NOx emissions
by 20%+ when that coal is burned.
Clean Coal Solutions (“CCS”) JV offers three technologies that
produce Section 45 Refined Coal
The
CyClean
TM
,
M-45
TM
and
M-45-PC
TM
technologies
provide
on-site,
proprietary
pre-treatment
to
Powder
River
Basin
(PRB)
and
Lignite
coals
for
use
in
cyclone
boilers,
circulating
fluid
bed
boilers
and
pulverized
coal
boilers
.
Key Dates
June
2010:
Clean
Coal
Solutions
commences
operations
at
first
two
RC
facilities
December
2010:
Congress
extends
“placed-in-service”
deadline
for
new
RC
facilities
to
12/31/11
January
-
December
2011:
CCS
fabricates,
installs
and
“places-in-service”
26
additional
RC
units
able
to
qualify
for
Section
45
tax
credits
June
2011:
an
affiliate
of
Goldman
Sachs
purchases
a
15%
stake
in
CCS
for
$60M
2012
-
2014:
CCS
focused
on
capturing
the
value
of
Section
45
tax
credits
REFINED COAL: INTRODUCTION & OVERVIEW
©
2012-2014 Advanced Emissions Solutions, Inc.
-23- |
 REFINED
COAL PHOTOGRAPHS -24-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 -25-
Pays ~$2.00/ton for
operating expenses
CCS receives $7.50/ton
in tax benefits
Utility gets
emission
reductions
May pay up
to ~$1.00/ton
to utility
CCS-Operated Model
ADES receives
42.5% of tax benefits,
or ~$3.20/ton
ADES
1
ADES shares 42.5%
of expenses, or
~$1.30/ton
1. 42.5% ownership in CCS through ADA-ES, Inc.
©
2012-2014 Advanced Emissions Solutions, Inc. |
 -26-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 -27-
©
2012-2014 Advanced Emissions Solutions, Inc.
($US in thousands)
Three Months Ended
Nine Months Ended
30-Sep-13
30-Sep-13
Revenues
74,593
$
201,837
$
Revenues Excluding Coal Sales
39,025
89,539
Cost of Revenues
55,460
162,722
Gross Profit Before Depreciation & Amortization
19,133
$
39,115
$
Gross Margin
26%
19%
General & Administrative
8,955
$
24,377
$
Research & Development
976
1,900
Depreciation & Amortization
1,433
4,202
Operating Income (Loss)
7,769
$
8,636
$
Income from Unconsolidated
Entities 547
$
1,144
$
Other Income Including Interest
169
404
Interest Expense
(194)
(825)
Other Expense
(438)
(1,846)
Total Other Income (Expense)
84
$
(1,123)
$
Income (Loss) Before Income Tax Benefit and
Non- Controlling Interest
7,853
$
7,513
$
Income Taxes
-
-
Net Income (Loss) Before Non-Controlling Interest
7,853
$
7,513
$
Non-Controlling Interest
(6,262)
(11,269)
Net Income (Loss) Attributable to ADA
1,591
$
(3,756)
$
|
 EC
gross margins of 18%, 19% and 22% for the three months ended September 30
th
, the
three months ended June 30
th
and the LTM period respectively
MATS rule finalized in March 2012 —
compliance by April 2015/2016
Q3 ‘13 revenue up 300% year-over-year, driven by MATS demand for ACI
and DSI systems
Q3 ‘13 backlog stands at $57 million up from $33 million in Q2 ‘13 and
$4 million in Q3 ‘12
Currently working on bids or discussing potential projects for ACI and DSI systems
in excess of $120 million
Emission Control Segment Results
($US in thousands)
Three Months Ended
Three Months Ended
30-Sep-13
30-Jun-13
LTM
Systems and Equipment
12,094
$
9,915
$
32,656
$
Consulting and Development
2,150
2,020
6,240
Chemicals
254
79
779
Total EC Revenues
14,498
$
12,014
$
39,675
$
Cost of Revenues
11,836
$
9,711
$
31,097
$
EC Gross Profit
2,662
$
2,303
$
8,578
$
EC Segment Backlog
56,600
$
33,200
$
56,600
$
-28-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 R
Refined Coal Segment Results
Note: Adjusted gross profit and adjusted gross margin are non-GAAP financial measures which
are used to provide investors with greater transparency with respect to the effect on
gross margin from
Clean Coal’s operation of certain RC facilities for its own account. We believe
these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of
our business and the effect on gross profit and gross margin of the operation of these RC
facilities by Clean Coal for its own account. 1.
Adjusted to exclude coal costs of $35.6 million and CCS-operated coal operating costs of
$3.1 million for the three months ended September 30, 2013, coal costs of $31.8 million and CCS-operated
coal operating costs of $4.4 million for the three months ended June 30, 2013 and coal costs of
$163.7 million and CCS-operated coal operating costs of $19.1 million in the LTM period.
2.
Represents ADES’
share of Adjusted RC Gross Profit from ADA-ES, Inc.’s 42.5% ownership in CCS.
3.
Represents ADES’
share of Tax Credits from ADA-ES, Inc.’s 42.5% ownership in CCS.
Adjusted RC gross margins to ADES of 95%, 99% and 95% for the three months
ended September 30
th
, the three months ended June 30
th
and the LTM period
respectively
($US in thousands)
Three Months Ended
Three Months Ended
30-Sep-13
30-Jun-13
LTM
Rental and Other Income
20,270
$
12,419
$
55,664
$
Coal Sales
35,568
31,769
163,663
Total RC Revenues
55,838
$
44,188
$
219,327
$
Cost of Revenues
39,626
$
36,167
$
185,246
$
RC Gross Profit
16,212
$
8,021
$
34,081
$
Adjusted RC Gross Profit
1
19,338
$
12,393
$
53,141
$
Adjusted RC Gross Profit to
ADES
2
8,219
$
5,267
$
22,585
$
Tax Credits to ADES
2,882
$
3,261
$
17,167
$
3
©
2012-2014 Advanced Emissions Solutions, Inc.
-29-
EFINED
C
OAL
R
ESULTS |
  $(000)
September 30, 2013
September 30, 2012
June 30, 2013
Coal sales and cost of raw coal
35,568
$
59,021
$
31,769
$
Operating costs of retained
tonnage 3,126
$
8,349
$
4,372
$
Adjusted gross
profit and adjusted gross margin percentage excludes coal sales and raw coal purchases and retained tonnage
operating expenses. Adjusted gross profit and adjusted gross profit percentage are
non-GAAP financial measures which are used to provide investors with greater
transparency with respect to the effect on gross margin from Clean Coal’s operation of certain RC
facilities for its own account. We believe these non-GAAP financial measures provide
meaningful supplemental information for investors regarding the performance of our
business and the effect on gross margin and gross margin percentage of the operation of
these RC facilities by Clean Coal for its own account. For the Three Months Ended
-30-
©
2012-2014 Advanced Emissions Solutions, Inc. |
 C
Graham Mattison
Vice President, Investor Relations
(646)-319-1417
graham.mattison@adaes.com
Michael D. Durham, Ph.D., MBA
President & CEO
Mark H. McKinnies
SVP & CFO
-31-
©
2012-2014 Advanced Emissions Solutions, Inc.
ONTACTS |