- Advanced Emissions Solutions press release (NASDAQ:ADES): Q4 Net income of $5.8M.
- Revenue of $25.8M (+31.0% Y/Y).
Advanced Emissions Solutions reports Q4 results
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Comments (42)
@Mpsvk I was just going to post that and ask for clarification as to what it means. Was ADES selling refined coal (RC) they produced to clients, for pollution control, and claiming a credit on it, but now without the credit ADES customers are doing... what? Continuing to buy RC but paying more for the technology ADES uses to make it? Or is ADES adding the technology to clients so they make their own RC while ADES gets a royalty/license fee? Not clear to me.But overall it sounds like the RC segment revenues aren't disappearing as long as coal is burned for fuel. Seems ADES is just shifting the revenue to the APT segment (minus the tax credits) as a different type of revenue stream?
I was just alerted to this stock today and after digging into the financials here are the key things that stood out:The Good:
- There are 2 main segments RC + APT each accounting for 83M + 86M in revenue respectively
- The respective Operating Income for RC + APT segments is 82.6M + 5.6M (pg. 38 of 10-Q) The Bad:
- RC segment has ceased operations as of the end of 2021 and we can only expect some drawdown reclamation benefits as it closes out in 1H 2022- This means we should only focus on the remaining segment of ATP for continuity purposes, which still looks great as the segment alone for 2021 shows a 6.5% operating margin profit and the P/S using just APT alone would result in a ratio of 1.23 (106M/86M).However this is where it gets Ugly:- From page 14 of the 10-Q in regards to risks, "From an earnings standpoint, our APT segment must grow substantially, either organically or through acquisition, in order to replace earnings from our RC segment. There can be no assurance that we will be able to increase our APT segment earnings during 2022 or beyond to cover our current operating expenses or to provide a return to shareholders that is comparable to the return that we previously provided while our RC segment was operating. We do not expect our overall selling, general and administrative portions of our operating expenses to materially decrease in 2022 as a result of the wind down of our RC segment. If we are notable to cover operating expenses, we could be forced to raise additional capital, significantly reduce our operating expenses or take other alternative actions."- On pg. 87 there is reconciliation of the corporate operating costs which net to about 12M. Deducting that from the remaining operating income of the APT segment alone we are now in the hole with an expected -6.4M in operating income based on 2021 numbers.Conclusion:
- The company looks setup to run negative from an operating income perspective until they can figure out a turnaround to replace the profit from the RC segment to offset general corporate expenses.
- They have the cash on hand to run at this rate for a few years, but at this time I'd stay away as nothing in the reporting leads to any suggestion of a meaningful turnaround on the horizon.
- There are 2 main segments RC + APT each accounting for 83M + 86M in revenue respectively
- The respective Operating Income for RC + APT segments is 82.6M + 5.6M (pg. 38 of 10-Q) The Bad:
- RC segment has ceased operations as of the end of 2021 and we can only expect some drawdown reclamation benefits as it closes out in 1H 2022- This means we should only focus on the remaining segment of ATP for continuity purposes, which still looks great as the segment alone for 2021 shows a 6.5% operating margin profit and the P/S using just APT alone would result in a ratio of 1.23 (106M/86M).However this is where it gets Ugly:- From page 14 of the 10-Q in regards to risks, "From an earnings standpoint, our APT segment must grow substantially, either organically or through acquisition, in order to replace earnings from our RC segment. There can be no assurance that we will be able to increase our APT segment earnings during 2022 or beyond to cover our current operating expenses or to provide a return to shareholders that is comparable to the return that we previously provided while our RC segment was operating. We do not expect our overall selling, general and administrative portions of our operating expenses to materially decrease in 2022 as a result of the wind down of our RC segment. If we are notable to cover operating expenses, we could be forced to raise additional capital, significantly reduce our operating expenses or take other alternative actions."- On pg. 87 there is reconciliation of the corporate operating costs which net to about 12M. Deducting that from the remaining operating income of the APT segment alone we are now in the hole with an expected -6.4M in operating income based on 2021 numbers.Conclusion:
- The company looks setup to run negative from an operating income perspective until they can figure out a turnaround to replace the profit from the RC segment to offset general corporate expenses.
- They have the cash on hand to run at this rate for a few years, but at this time I'd stay away as nothing in the reporting leads to any suggestion of a meaningful turnaround on the horizon.
@Taylor Moore Based upon your work what is the stock worth and how did you come up with your valuation ?
@Taylor Moore Not sure if it's possible to model, but the RC segment isn't closing/ceasing operations as you say. Customers are rolling over to ADES tech to meet pollution control standards, not sure if that means licensing ADES tech or continuing to buy RC from ADES, but as the Tinuun entity for rebates closes, revenues from customers still using RC will roll into APT. ADES had this to say on their call relating to that:"While these refined coal facilities have reached the end of their tax credit generation period, many will remain in place to be utilized for the application of our front-end chemistry to feedstock coal. Many of these utilities have already begun to purchase our front-end technology or activated carbon products, which will help drive incremental revenue and margin within our APT segment on a go-forward basis.We are early in the process of transitioning these customers to our front-end technology and activated carbon products. However, our solutions remain competitive and no previous Tinuum customers that continue to utilize a front-end solution were lost during the transition from refined coal. As such, we are pleased with our progress to date and the adoption of our products."The degree to which this happens is what will drive whether the 'ugly' as you say actually occurs, though it does sound like even if customers roll over they don't expect a lot of earnings out of it. Makes me wonder if there is any margin at all in RC beyond the tax credits. If coal plants want to burn cleaner, they'll need the RC and ADES should raise prices if they can to turn a profit there. Why would ADES keep these clients if there's no return on the investment? Since their note is in the 'risks' section, those are typically extreme scenarios. Could they just be noting if nobody continues to use their solution (which they say nobody has not done so yet) and those customers just walk away, the ugly is what happens?
@tufttugger I will admit I have only become aware of this stock yesterday as a friend asked me to look into it as a stock that made no sense for dropping on what he thought was decent revenue and a low P/E ratio. I spent about 1-2 hours yesterday perusing the results via the slides, 10-K, and conference call.The slides and call noted that RC would still generate revenue in 1H, but this line on pg. 39 of the 10-K stood out to me as showing no future for the RC segment beyond the 1H: "Outlook
As a result of the expiration of the ability to generate Section 45 tax credits after December 31, 2021, both Tinuum Group and Tinuum Services ceased operations and are in reclamation of their respective businesses. The loss of equity earnings, distributions and M-45 Royalties beginning in 2022 will have a material adverse effect on our financial condition and consolidated operating results compared to historical periods."If there is any indication that the RC segment will continue to generate meaningful revenue beyond 1H I would love to see it as the low P/S ratio makes this a very compelling stock pick to me if the margins can continue to maintain just few percentages of positive return.
As a result of the expiration of the ability to generate Section 45 tax credits after December 31, 2021, both Tinuum Group and Tinuum Services ceased operations and are in reclamation of their respective businesses. The loss of equity earnings, distributions and M-45 Royalties beginning in 2022 will have a material adverse effect on our financial condition and consolidated operating results compared to historical periods."If there is any indication that the RC segment will continue to generate meaningful revenue beyond 1H I would love to see it as the low P/S ratio makes this a very compelling stock pick to me if the margins can continue to maintain just few percentages of positive return.
I did not expect a -11% reaction on the report, wow. What is wrong with this thing?
@dpen1000 Poor results of the remaining business segment with margin pressures likely to persist. Still no results from the ongoing strategic review. I would expect them to start burning cash in the second half of the year.
@Henrik Alex thank you, refreshing to hear some lucid negative takes. Are you involved with this stock on the long or short side?
@dpen1000 According to Alex.... no news is bad news..... I personally expect some news.... than I would decide if it is good or bad.
@BornLearning Their 'outlook' is APT top-line strength; margin pressures well into 2022 partially offset with price initiatives and product mix; $4-$5m for RC cash flows in 1H22; still doing strategic review, though noted they are 'encouraged'.
www.advancedemissionssolutions.com/...
www.advancedemissionssolutions.com/...
@Matteo980 How can the dividend be off the table if they didn't say a thing about the dividend ?
@Analyze This the only recurring earnings now come from the ATP business unit, which in Q4 2021 generated an EBITDA of 1.9 million.
The strategic review is still ongoing, distributing a mini-dividend on this basis doesn't make much sense
The strategic review is still ongoing, distributing a mini-dividend on this basis doesn't make much sense