INVESTOR PRESENTATION Sidoti & Company Spring 2018 Conference

Transcription

1 Advanced Emissions Solutions, Inc. Advancing Cleaner Energy INVESTOR PRESENTATION Sidoti & Company Spring 2018 Conference March 29, Advanced Emissions Solutions, Inc. All rights reserved.

2 SAFE HARBOR This presentation includes forward-looking statements within themeaning 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 cash flows from refined coal ( RC ); future amount and timing of production and sale of RC; activities to return capital to stockholders; potential to add more RC facilities; Tinuum Group s ability to lease or sell remaining RC facilities; future annual revenue goals; potential future value of our stock; potential pursuit of alternative strategic options. These statements are based on current expectations, estimat es, projections, beliefs and assumptions of our management. Such stat ements involve significant risks and uncertainties. Actual events or results could differ materially from thosediscussedin the forward-lookingstatements as a result of various factors, including but not limited to, changes and timingin laws, regulations, IRS interpretations or guidance, accounting rules and any pending court decisions, legal challenges to or repeal of them; changes in prices, economic conditions and market demand; the ability of the RC facilities to produce and sell coal that qualifies for tax credits; the timing, terms and changes in contracts for RC facilities, or failure to lease or sell RC facilities; 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; loss of key personnel; the value of our products, technologies and int ellectual property to customers and strategic invest ors; the value placed on our stock price as a result of anticipated future cash flows; intellectual property infringement claims from third parties; seasonality and other factors discussed in greater det ail in our filings with thesec. 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. -2-2

3 CORPORATE SNAPSHOT: INNOVATING A CLEANER TOMORROW REFINED COAL (RC) EMISSIONS CONTROL (EC) Tinuum Group, 42.5% owned Chemicals for Coal Emissions Denver-area Company founded in 1996 (1) TICKER: NASDAQ: ADES MARKET-CAP: ~$220M SHAREHOLDERS: Significant institutional ownership Tinuum Services, 50% owned Royalty: M-45 Licenses 38 U.S. Patents, 12 Pending, 3 Int l Patents, 9 Pending Leader in coal-fired power emissions control for 20+ years CAPITAL ALLOCATION: Active shareholder returns through a combination of dividends, stock buy or accretive alternative options (1) Based upon common shares outstanding and closing stock price as of March 2,

4 SOLID AND STABLE CASH FLOWS INVESTMENT SUMMARY On average, current business expected to deliver at least $65M to $75M annually through 2021 INCREMENTAL CASH FLOWS Potential to significantly increase current cash flows over next few years through 2021 PLATFORM FOR GROWTH No debt, strong balance sheet, streamlined organization, rebuilt governance and infrastructure and proven management team RETURN TO SHAREHOLDERS Initiated $0.25 per share dividend and repurchased nearly 1.7 million shares through a successful tender offer and stock repurchase program, combining for over $32 million returned to shareholders in 2017 STRONG INTELLECTUAL PROPERTY Chemicals technology and knowledge are important to the future of refined coal and for other strategic alternatives EVALUATE ALTERNATIVE OPPORTUNITIES Disciplined evaluation of potential options to monetize current or future tax assets, build upon existing public platform and properly position for market transformation 4

5 HISTORICAL EVENTS & NEW BEGINNING 2011 Launch of Refined Coal 2012 Equipment Systems and Manufacturing Started Speculative R&D Investments Poor Margin Equipment Bubble 2014 Identification of Financial Statement Matters Cash Burn Transformation Restructure Re-position Lean Model; Focused on RC Expansion & Return of Capital TRANSFORMATION Simplified business model and shed poor performing assets Built diverse new team Commercialized patents NEW MANAGEMENT ACCOMPLISHMENTS RESTRUCTURE & RE-POSITION Reduced costs by over 60% Improved balance sheet; no debt Re-listed on NASDAQ with improved investor relations Supported new team & approach at Tinuum resulting in increased invested RC facilities RETURN OF CAPITAL Paid $20.8 million in dividends during the trailing twelve months Executed Dutch tender offer for $13.0 million Executed stock repurchase for $3.4 million 5

6 COAL USE: A REALITY MOVING FORWARD U.S. NET ELECTRICITY GENERATION (BILLION KILOWATTHOURS) WORLD NET ELECTRICITY GENERATION (BILLION KILOWATTHOURS) history projection renewables renewables Source: U.S. Energy Information Administration, Annual Energy Outlook(AEO), 2018, Source: U.S. Energy Information Administration, International Energy Outlook, 2017,

7 2018 PRIORITIES INCREASE AND OPTIMIZE REFINED COAL NET CASH FLOWS: Add Investors: Nurture current & add additional sales channels Leverage improving refined coal tax equity market and investor clarity as a result of tax reform Optimization: Maximize operational performance to produce RC and further develop customer relationships to ensure retention of RC customers Optimize resources at ADES to support Tinuum and public platform while also reducing expenses RETURN CAPITAL TO SHAREHOLDERS: Evaluate options and execute on continued progress for additional return of capital to shareholders, including: Stock repurchase (open market and/or one-time tender offers) Dividends (one-time and/or incremental recurring) EVALUATE ALTERNATIVE OPTIONS: Evaluate options, including: Monetization of current or future tax assets Look to build upon current public platform Properly position for market transformation -7-7

8 REFINED COAL

9 RC MODEL: TAX-EQUITY INVESTMENT ECONOMICS INVESTOR OUT-FLOWS INVESTOR IN-FLOWS TINUUM GROUP 3rd party investor leases or Leading developer and operator of Refined Coal production facilities that qualify for incentives under 45 of the tax code ~$3.00/ton Rental Payments 42.5% 42.5% 15.0% purchases RC facility and is responsible for the production and sale of Refined Coal ~$6.90/ton Production tax credits Economic benefits of the Refined Coal business include the operating results and the related tax incentives ADES 42.5 % ~$3.50/ton Operating Expenses Various operating, chemical vendor, engineering and utility payments and Tinuum Services ~$1.37/ton Tax benefit of investor outflows (assuming a 21% tax rate) Opportunity to use NOx and mercury emissions reductions as part of the investor s clean energy program ~$6.50/ton Total Investor Out-flows ~$8.27/ton Total Investor In-flows Investor may achieve positive after-tax cash flow within the first few quarters Tax equity investors receive triple digit IRR, capital return in ~6 months and cash on cash returns in excess of ~1.3x 9

10 REFINED COAL FACILITIES TODAY AND TOMORROW FULL-TIME OPERATIONS ROADMAP Not Operating and Not Invested Operating and Invested 17 RC facilities leased/sold (40-50 MT/year) 11 RC facilities installed and waiting for investor or yet to be installed (1) POTENTIAL 28 RC facilities (~100 MT/year) RC Facility information as of December 31, 2017 (1) Certain facilities would require capital investment to transition to operating status

11 EXPECTED FUTURE CASH FLOWS Based on 17 invested facilities as of December 31, 2017 and includes all net RC cash flows of ADES (1) Results in expected net RC cash flows of $275M to $300M to ADES in total through 2021 (2) Each additional refined coal facility could add between $5-7 million annually Obtained third party tax equity investors for RC facilities in March, July and November 2017 Additionally, net cash flow usage from Corporate, offset by EC segment contributions, are estimated to range from $8-10 million annually on a future run rate basis (3) $80 $70 $60 $50 $40 $30 $20 $10 $0 EXPECTED CASH FLOWS FROM RC BUSINESS (1) (in millions) ß Total: $275 $300 million à (1) Net RC cash flows includes the impact of all Tinuum distributions and royalty payments offset by the Company s federal and state tax payments as well as interest payments (2) The projection is based on the following four key assumptions: 1) Tinuum Group continues to not operate retained facilities; 2) Tinuum Group does not have material CapEx or unusual operating expenses; 3) tax equity lease renewals are not terminated or repriced; and 4) coal-fired generation remains consistent (3) Net cash flow usage does not include payment of potential quarterly dividends or share repurchases and is after additional cost adjustments

12 REFINED COAL ENVIRONMENT The refined coal business is proven and yields many benefits to utilities, investors and the environment, and while the outlook is improving, there remains hurdles to overcome A significant number of major public and private companies have invested in RC Tax Equity since its inception There are benefits if hurdles can be overcome BENEFITS Support Reliable Cleaner Energy HURDLES Coal Reputation and Political Stigma Federal Tax Reform Clarity IRS Clarity Net Income and EPS Improvement Uniquely Strong Cash Returns & Rapid Return Of Capital IRS Ambiguity Accounting Treatment Investor Business Priorities 12

13 EMISSIONS CONTROL

14 EMISSIONS CONTROL: MARKET UPDATE Decreases in mercury control market demand were of a greater magnitude and speed than what we and other market participants anticipated Expect that there will be significant consolidation amongst market participants in upcoming 24 months NORTH AMERICAN MERCURY CONTROL ANNUAL MARKET SIZE TIMELINE Pre-MATS ( ) forward ~ $ 1.0 B (1) ~ $ 600M (1) ~ $ 300M (1) ~ $ 200M (2) Overestimation of Coal to Natural Gas Optimization of Coal to Natural Gas Pricing competition due to over supplied market (1) Market size based on hindsight estimates and current information on historical industry pricing, including products such as Powder Activated Carbon (PAC), Halogen and Re-emissions. (2) Based on management s estimate that industry pricing will normalize according to current pricing trends Pricing remains low due to supply and demand balance

15 2017 FINANCIAL HIGHLIGHTS REVENUES EQUITY METHOD EARNINGS ROYALTIES $51 $54 $10 $36 $6 $46 12/31/17 12/31/16 Twelve Months Ended 12/31/17 12/31/16 Twelve Months Ended 12/31/17 12/31/16 Twelve Months Ended OTHER OPERATING EXPENSES $27 $52 INCOME BEFORE TAXES CASH & CASH EQUIVALENTS $31 $18 $37 $13 12/31/17 12/31/16 Twelve Months Ended 12/31/17 12/31/16 Twelve Months Ended December 31, 2017 December 31, 2016 As of 15

16 Return of Capital During trailing twelve months (TTM), Company has paid $20.8 million in dividends and utilized capital of $16.4 million to repurchase shares As of March 15, 2018, dividend yield was ~9% on an annualized basis $14 $13 ADES Share Price Performance since March 2016 Initial release of Tax Cuts & Jobs Act $14.0 $12.0 $40.0 $35.0 $37.2 $3.4 $12 $11 Tender Offer Announcement $10.0 $8.0 $30.0 $25.0 $13.0 $10 $9 $8 $7 $6 ADES begins implementation of plan to reduce costs by 70% ADES relisted on Nasdaq Exchange Recurring quarterly dividend program instituted ADES comments publicly related to Tax Cuts & Jobs Act and updates cash flow guidance $5 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 $6.0 $4.0 $2.0 $- $13.0 $3.4 $10.5 $5.2 $5.1 Q Q Q Q DIVIDENDS TENDER OFFER STOCK REPURCHASE $20.0 $15.0 $10.0 $5.0 $- $20.8 CUMULATIVE - TTM * Re-Listing on Nasdaq effective July 7, 2016 * Stock Chart represents closing prices through March 22,

17 SOLID AND STABLE CASH FLOWS INVESTMENT SUMMARY On average, current business expected to deliver at least $65M to $75M annually through 2021 INCREMENTAL CASH FLOWS Potential to significantly increase current cash flows over next few years through 2021 PLATFORM FOR GROWTH No debt, strong balance sheet, streamlined organization, rebuilt governance and infrastructure and proven management team RETURN TO SHAREHOLDERS Initiated $0.25 per share dividend and repurchased nearly 1.7 million shares through a successful tender offer and stock repurchase program, combining for over $32 million returned to shareholders in 2017 STRONG INTELLECTUAL PROPERTY Chemicals technology and knowledge are important to the future of refined coal and for other strategic alternatives EVALUATE ALTERNATIVE OPPORTUNITIES Disciplined evaluation of potential options to monetize current or future tax assets, build upon existing public platform and properly position for market transformation 17

18 THANK YOU