United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2018~~2019



¨	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

______________________________________

Advanced Emissions Solutions, Inc.

(Exact name of registrant as specified in its charter)

______________________________________



Delaware		27-5472457
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



640 Plaza Drive, Suite 270, Highlands Ranch, CO		80129
(Address of principal executive offices)		(Zip Code)

(720) 598-3500
(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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	x

Non-accelerated filer	o	Smaller reporting company	x

		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 ¨ No x

~~Indicate the number of shares outstanding of each~~Securities registered pursuant to Section 12(b) of the ~~issuer’s classes of common stock, as of the latest practicable date.~~ Act:



Class	~~Outstanding at November 1, 2018~~Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.001 per share	~~19,915,631~~ADES	NASDAQ Global Market

As of November 6, 2019, there were 18,588,896 outstanding shares of Advanced Emissions Solutions, Inc. common stock, par value $0.001 per share.

INDEX



		PAGE
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, 2019 and September 30, 2018	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018	35
	Notes to Condensed Consolidated Financial Statements	56
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2930
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4448
Item 4.	Controls and Procedures	4448

PART II. - OTHER INFORMATION

Item 1.	Legal Proceedings	4649
Item 1a.	Risk Factors	4649
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4649
Item 3.	Defaults Upon Senior Securities	4649
Item 4.	Mine Safety Disclosures	4649
Item 5.	Other Information	4649
Item 6.	Exhibits	4750
	Signatures	4851

Part I. – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


	As of						As of
(in thousands, except share data)	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	31,914		$	30,693
Cash, cash equivalents and restricted cash							$	15,155		$	18,577
Receivables, net	817			1,113			6,771			9,554
Receivables, related parties, net	4,104			3,247
Receivables, related parties							4,382			4,284
Inventories, net							16,917			21,791
Prepaid expenses and other assets	2,631			1,835			6,070			5,570
Total current assets	39,466			36,888			49,295			59,776
Property and equipment, net of accumulated depreciation of $1,126 and $1,486, respectively	229			410
Restricted cash, long-term							5,000			5,195
Property, plant and equipment, net of accumulated depreciation of $5,651 and $1,499, respectively							44,168			42,697
Intangible assets, net							4,300			4,830
Equity method investments	5,383			4,351			44,111			6,634
Deferred tax assets	36,008			38,661
Other long-term assets	2,070			2,308
Deferred tax assets, net							13,491			32,539
Other long-term assets, net							18,363			7,993
Total Assets	$	83,156		$	82,618		$	178,728		$	159,664
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	660		$	1,000		$	6,838		$	6,235
Accrued payroll and related liabilities	1,970			1,384			3,893			8,279
Billings in excess of costs on uncompleted contracts	—			1,830
Current portion of long-term debt							24,072			24,067
Other current liabilities	627			2,664			4,287			2,138
Total current liabilities	3,257			6,878			39,090			40,719
Long-term debt							26,276			50,058
Other long-term liabilities	295			2,285			6,062			940
Total Liabilities	3,552			9,163			71,428			91,717
Commitments and contingencies (Note 5)
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock: par value of $.001 per share, 50,000,000 shares authorized, none outstanding	—			—			—			—
Common stock: par value of $.001 per share, 100,000,000 shares authorized, 22,646,524 and 22,465,821 shares issued, and 19,921,128 and 20,752,055 shares outstanding at September 30, 2018 and December 31, 2017, respectively	23			22
Treasury stock, at cost: 2,725,396 and 1,713,766 shares as of September 30, 2018 and December 31, 2017, respectively	(27,566		)	(16,397		)
Common stock: par value of $.001 per share, 100,000,000 shares authorized, 22,915,429 and 22,640,677 shares issued, and 18,594,498 and 18,576,489 shares outstanding at September 30, 2019 and December 31, 2018, respectively							23			23
Treasury stock, at cost: 4,320,931 and 4,064,188 shares as of September 30, 2019 and December 31, 2018, respectively							(44,666		)	(41,740		)
Additional paid-in capital	96,251			105,308			97,706			96,750
Retained earnings (deficit)	10,896			(15,478		)
Retained earnings							54,237			12,914
Total stockholders’ equity	79,604			73,455			107,300			67,947
Total Liabilities and Stockholders’ Equity	$	83,156		$	82,618		$	178,728		$	159,664

See Notes to the Condensed Consolidated Financial Statements.

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
Chemicals	$	1,043		$	717		$	2,390		$	3,844
Consumables													$	14,748		$	1,043		$	41,243		$	2,390
License royalties, related party	4,104			2,804			10,857			6,425			4,385			4,104			12,796			10,857
Equipment sales	—			1,577			72			31,304
Other													—			—			—			72
Total revenues	5,147			5,098			13,319			41,573			19,133			5,147			54,039			13,319
Operating expenses:
Chemicals cost of revenue, exclusive of depreciation and amortization	954			574			2,567			2,977
Equipment sales cost of revenue, exclusive of depreciation and amortization	—			1,467			(346		)	28,260
Consumables cost of revenue, exclusive of depreciation and amortization													11,939			954			38,339			2,567
Other sales cost of revenue, exclusive of depreciation and amortization													—			—			—			(346		)
Payroll and benefits	2,555			1,679			7,528			5,894			2,651			2,555			8,005			7,528
Rent and occupancy	250			255			766			555
Legal and professional fees	698			1,062			3,459			3,316			1,755			698			5,300			3,459
General and administrative	584			1,114			2,332			2,964			3,136			834			7,699			3,098
Depreciation and amortization	74			87			262			687
Depreciation, amortization, depletion and accretion													2,043			74			4,902			262
Total operating expenses	5,115			6,238			16,568			44,653			21,524			5,115			64,245			16,568
Operating income (loss)	32			(1,140		)	(3,249		)	(3,080		)
Operating (loss) income													(2,391		)	32			(10,206		)	(3,249		)
Other income (expense):
Earnings from equity method investments	9,715			12,120			37,857			36,089			14,426			9,715			57,051			37,857
Interest expense	(399		)	(678		)	(1,147		)	(1,999		)	(1,729		)	(399		)	(5,820		)	(1,147		)
Other	86			(924		)	146			2,492			212			86			342			146
Total other income	9,402			10,518			36,856			36,582			12,909			9,402			51,573			36,856
Income before income tax expense	9,434			9,378			33,607			33,502			10,518			9,434			41,367			33,607
Income tax expense	3,931			3,586			5,151			12,614			6,595			3,931			14,928			5,151
Net income	$	5,503		$	5,792		$	28,456		$	20,888		$	3,923		$	5,503		$	26,439		$	28,456
Earnings per common share (Note 1):
Basic	$	0.28		$	0.28		$	1.41		$	0.96		$	0.22		$	0.28		$	1.45		$	1.41
Diluted	$	0.28		$	0.28		$	1.40		$	0.96		$	0.21		$	0.28		$	1.44		$	1.40
Weighted-average number of common shares outstanding:
Basic	19,726			20,808			20,090			21,569			18,112			19,726			18,184			20,090
Diluted	19,876			20,854			20,228			21,598			18,339			19,876			18,394			20,228
Cash dividends declared per common share outstanding:	$	0.25		$	0.25		$	0.75		$	0.50

See Notes to the Condensed Consolidated Financial Statements.

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, 2019	22,640,677		$	23	(4,064,188	)	$	(41,740	)	$	96,750		$	12,914		$	67,947
Cumulative effect of change in accounting principle (Note 1)	—		—		—		—			—			28,817			28,817
Stock-based compensation	218,465		—		—		—			317			—			317
Repurchase of common shares to satisfy minimum tax withholdings	(22,707	)	—		—		—			(245		)	—			(245		)
Cash dividends declared on common stock, $0.25 per share	—		—		—		—			—			(4,629		)	(4,629		)
Repurchase of common shares	—		—		(63,876	)	(693		)	—			—			(693		)
Net income	—		—		—		—			—			14,402			14,402
Balances, March 31, 2019	22,836,435		23		(4,128,064	)	(42,433		)	96,822			51,504			105,916
Stock-based compensation	31,715		—		—		—			541			—			541
Repurchase of common shares to satisfy minimum tax withholdings	(745	)	—		—		—			(9		)	—			(9		)
Cash dividends declared on common stock, $0.25 per share	—		—		—		—			—			(4,663		)	(4,663		)
Repurchase of common shares	—		—		(184,715	)	(2,138		)	—			—			(2,138		)
Net income	—		—		—		—			—			8,114			8,114
Balances, June 30, 2019	22,867,405		23		(4,312,779	)	(44,571		)	97,354			54,955			107,761
Stock-based compensation	22,305		—		—		—			468			—			468
Stock issued from exercise of stock options	25,820		—		—		—			—			—			—
Repurchase of common shares to satisfy minimum tax withholdings	(101	)	—		—		—			(116		)	—			(116		)
Cash dividends declared on common stock, $0.25 per share	—		—		—		—			—			(4,641		)	(4,641		)
Repurchase of common shares	—		—		(8,152	)	(95		)	—			—			(95		)
Net income	—		—		—		—			—			3,923			3,923
Balances, September 30, 2019	22,915,429		$	23	(4,320,931	)	$	(44,666	)	$	97,706		$	54,237		$	107,300

See Notes to the Condensed Consolidated Financial Statements.

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 (Deficit)			Total Stockholders’ Equity
Balances, January 1, 2018	22,465,821		$	22	(1,713,766	)	$	(16,397	)	$	105,308		$	(15,478	)	$	73,455
Cumulative effect from adoption of ASC 606	—		—		—		—			—			2,950			2,950
Stock-based compensation	193,583		1		—		—			335			—			336
Repurchase of common shares to satisfy minimum tax withholdings	(22,375	)	—		—		—			(267		)	—			(267		)
Cash dividends declared on common stock, $0.25 per share	—		—		—		—			(5,189		)	—			(5,189		)
Repurchase of common shares	—		—		(149,217	)	(1,642		)	—			—			(1,642		)
Net income	—		—		—		—			—			7,662			7,662
Balances, March 31, 2018	22,637,029		23		(1,862,983	)	(18,039		)	100,187			(4,866		)	77,305
Stock-based compensation	(1,135	)	—		—		—			675			—			675
Repurchase of common shares to satisfy minimum tax withholdings	(8,259	)	—		—		—			(92		)	—			(92		)
Cash dividends declared on common stock, $0.25 per share	—		—		—		—			(5,090		)	—			(5,090		)
Repurchase of common shares	—		—		(676,201	)	(7,469		)	—			—			(7,469		)
Net income	—		—		—		—			—			15,291			15,291
Balances, June 30, 2018	22,627,635		$	23	(2,539,184	)	$	(25,508	)	$	95,680		$	10,425		$	80,620
Stock-based compensation	24,726		—		—		—			919			—			919
Stock issued from exercise of stock options	18,667		—		—		—			—			—			—
Repurchase of common shares to satisfy minimum tax withholdings	(24,504	)	—		—		—			(348		)	—			(348		)
Cash dividends declared on common stock, $0.25 per share	—		—		—		—			—			(5,032		)	(5,032		)
Repurchase of common shares	—		—		(186,212	)	(2,058		)	—			—			(2,058		)
Net income	—		—		—		—			—			5,503			5,503
Balances, September 30, 2018	22,646,524		$	23	(2,725,396	)	$	(27,566	)	$	96,251		$	10,896		$	79,604

See Notes to the Condensed Consolidated Financial Statements.

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,
(in thousands) 2018 2017
Cash flows from operating activities
Net income
$ 28,456

$ 20,888
Adjustments to reconcile net income to net cash used in operating activities:

Deferred tax expense from change in valuation allowance
2,731

—
Depreciation and amortization
262

687
Debt prepayment penalty and amortization of debt issuance costs
—

109
Impairment of cost method investment
—

464
Provision for bad debt expense
153

—
Stock-based compensation expense
1,929

1,648
Earnings from equity method investments
(37,857 )
(36,089 )
Other non-cash items, net
37
436
Changes in operating assets and liabilities:

Receivables
482

7,027
Related party receivables
(857 )
(869 )
Prepaid expenses and other assets
(797 )
(513 )
Costs incurred on uncompleted contracts
15,945

27,081
Deferred tax assets, net
(966 )
11,086
Other long-term assets
—

(766 )
Accounts payable
(340 )
(603 )
Accrued payroll and related liabilities
587

(825 )
Other current liabilities
(1,974 )
(917 )
Billings on uncompleted contracts
(15,945 )
(30,140 )
Other long-term liabilities
(157 )
147
Legal settlements and accruals
—

(11,606 )
Distributions from equity method investees, return on investment
4,000

3,675
Net cash used in operating activities
(4,311 )
(9,080 )


	Nine Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2019			2018
Cash flows from operating activities
Net income							$	26,439		$	28,456
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in valuation allowance on deferred tax assets							3,822			2,731
Depreciation, amortization, depletion and accretion							4,902			262
Operating lease expense							2,371			—
Amortization of debt discount and debt issuance costs							1,324			—
Stock-based compensation expense							1,326			1,929
Earnings from equity method investments							(57,051		)	(37,857		)
Other non-cash items, net							697			190
Changes in operating assets and liabilities:
Receivables and related party receivables							2,685			(375		)
Prepaid expenses and other assets							(440		)	(797		)
Costs incurred on uncompleted contracts							—			15,945
Inventories							4,566			—
Deferred tax assets, net							6,812			(966		)
Other long-term assets							(43		)	—
Accounts payable							1,010			(340		)
Accrued payroll and related liabilities							(4,386		)	587
Other current liabilities							(278		)	(1,974		)
Billings on uncompleted contracts							—			(15,945		)
Operating lease liabilities							(2,435		)	—
Other long-term liabilities							(529		)	(157		)
Distributions from equity method investees, return on investment							56,806			4,000
Net cash provided by (used in) operating activities							47,598			(4,311		)
Cash flows from investing activities
Distributions from equity method investees in excess of cumulative earnings	33,575			33,363			—			33,575
Acquisition of property, equipment and intangibles, net	(191		)	(343		)
Purchases of and contributions to equity method investees	(750		)	(61		)
Net cash provided by investing activities	32,634			32,959
Acquisition of business							(661		)	—
Acquisition of property, plant, equipment, and intangible assets, net							(6,430		)	(191		)
Mine development costs							(2,083		)	—
Contributions to equity method investees							—			(750		)
Net cash (used in) provided by investing activities							(9,174		)	32,634
Cash flows from financing activities
Principal payments on term loan							(24,000		)	—
Principal payments on finance lease obligations							(1,016		)	—
Dividends paid	(15,226		)	(10,458		)	(13,729		)	(15,226		)
Repurchase of common shares	(11,169		)	(13,024		)	(2,926		)	(11,169		)
Repurchase of common shares to satisfy tax withholdings	(707		)	(518		)	(370		)	(707		)
Borrowings on Line of Credit	—			808
Repayments on Line of Credit	—			(808		)
Net cash used in financing activities	(27,102		)	(24,000		)	(42,041		)	(27,102		)
Increase (decrease) in Cash and Cash Equivalents and Restricted Cash	1,221			(121		)
(Decrease) increase in Cash and Cash Equivalents and Restricted Cash							(3,617		)	1,221
Cash and Cash Equivalents and Restricted Cash, beginning of period	30,693			26,944			23,772			30,693
Cash and Cash Equivalents and Restricted Cash, end of period	$	31,914		$	26,823		$	20,155		$	31,914
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,020		$	2,391
Cash paid for income taxes	$	4,756		$	1,160
Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, not paid	$	85		$	93		$	204		$	85

See Notes to the Condensed Consolidated Financial Statements.

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 Highlands Ranch, ~~Colorado.~~Colorado and operations located in Louisiana. The Company is principally engaged in ~~emissions~~consumable mercury control options including powdered activated carbon ("~~EC"~~PAC") ~~technologies~~ and ~~associated consumables, equipment and services.~~chemical technologies. The Company's proprietary environmental technologies in the power generation and industrial ("PGI") market enable customers to reduce emissions of mercury and other pollutants, maximize utilization levels and improve operating efficiencies to meet the challenges of existing and pending ECemission control regulations. The Company generates substantial earnings and tax credits under Section 45 ("Section 45 tax credits") of the Internal Revenue Code ("IRC") from its equity investments in certain entities and ~~royalty payments related to~~earns royalties for technologies that are licensed to Tinuum Group, LLC, a Colorado limited liability company ("Tinuum Group"). Such technologies allow Tinuum Group to provide ~~its~~their customers with various solutions to enhance combustion and ~~reduce~~reduced emissions of nitrogen oxide ("NO_x"NOx") and mercury from coal burned to generate electrical power. The Company’s sales occur principally throughout the United States. See Note 1013 for additional information regarding the Company's operating segments.

On December 7, 2018 (the "Acquisition Date"), the Company acquired (the "Carbon Solutions Acquisition") 100% of the equity interests of ADA Carbon Solutions, LLC (“Carbon Solutions”). Carbon Solutions is a manufacturer and seller of activated carbon ("AC") used in mercury capture for the coal-fired power plant, industrial and water treatment markets. Carbon Solutions also owns an associated lignite mine that supplies the primary raw material for manufacturing PAC. Carbon Solutions was formed in 2008 as a 50/50 joint venture by the Company and Energy Capital Partners LLC. The Company relinquished its ownership in 2011 as part of a legal settlement agreement as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The Company acquired Carbon Solutions primarily to expand the Company's product offerings within the mercury control industry and other complementary PAC markets.

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,~~investments; Tinuum Group, Tinuum Services, LLC ("Tinuum Services"), and GWN Manager, LLC ("GWN Manager"), 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 for all periods presented in this Quarterly Report.

In the opinion of management, these Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary for a fair presentation of the results of operations, financial position, stockholders' equity and cash flows for the interim periods presented. These Condensed Consolidated Financial Statements of ADES should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~"2017~~"2018 Form 10-K"). ~~Except for accounting for revenue from contracts with customers, which is discussed in Note 2, significant~~Significant accounting policies disclosed therein have not ~~changed.~~changed, except as described later in Note 1.

Earnings Per Share

Basic earnings per share is computed using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividend and participating rights in undistributed earnings. The Company's restricted stock awards ("RSA's") granted prior to December 31, 2016 contain non-forfeitable rights to dividends or dividend equivalents and are deemed to be participating securities. RSA's granted subsequent to December 31, 2016 do not contain non-forfeitable rights to dividends and are not deemed to be participating securities.

Under the two-class method, net income for the period is allocated between common stockholders and the holders of the participating securities based on the weighted-average number of common shares outstanding during the period, excluding participating, unvested RSA's ("common shares"), and the weighted-average number of participating unvested RSA's

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

outstanding during the period, respectively. The allocated, undistributed income for the period is then divided by the weighted-average number of common shares and participating, unvested RSA's outstanding during the period to arrive at basic earnings per common share and participating security for the period, respectively. Pursuant to U.S. GAAP, the Company has elected not to separately present basic or diluted earnings per share attributable to participating securities in the Condensed Consolidated Statements of Operations.

Diluted earnings per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities. Potentially dilutive securities consist of both unvested, participating and non-participating RSA's, as well as outstanding options to purchase common stock ("Stock Options") and contingent performance stock units ("PSU's") (collectively, "Potential dilutive shares"). The dilutive effect, if any, for non-participating RSA's, Stock Options and PSU's is determined using the greater of dilution as calculated under the treasury stock method or the two-class method. Potential dilutive shares are excluded from diluted earnings per share when their effect is anti-dilutive. When there is a net loss for a period, all Potential dilutive shares are anti-dilutive and are excluded from the calculation of diluted loss per share for that period.

Each PSU represents a contingent right to receive shares of the Company’s common stock, and the number of shares may range from zero to two times the number of PSU's granted on the award date depending upon the price performance of the Company's common stock as measured against a general index and a specific peer group index over requisite performance periods. The number of Potential dilutive shares related to PSU's is based on the number of shares of the Company's common stock, if any, that would be issuable at the end of the respective reporting period, assuming that the end of the reporting period is the end of the contingency period applicable to such PSU's. See Note 7 for additional information related to PSU's.

The following table sets forth the calculations of basic and diluted earnings per share:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2018		2017		2018		2017		2019		2018		2019		2018
Net income	$	5,503	$	5,792	$	28,456	$	20,888	$	3,923	$	5,503	$	26,439	$	28,456
Less: Dividends and undistributed income allocated to participating securities	18		32		94		141		5		18		37		94
Income attributable to common stockholders	$	5,485	$	5,760	$	28,362	$	20,747	$	3,918	$	5,485	$	26,402	$	28,362

Basic weighted-average common shares outstanding	19,726		20,808		20,090		21,569		18,112		19,726		18,184		20,090
Add: dilutive effect of equity instruments	150		46		138		29		227		150		210		138
Diluted weighted-average shares outstanding	19,876		20,854		20,228		21,598		18,339		19,876		18,394		20,228
Earnings per share - basic	$	0.28	$	0.28	$	1.41	$	0.96	$	0.22	$	0.28	$	1.45	$	1.41
Earnings per share - diluted	$	0.28	$	0.28	$	1.40	$	0.96	$	0.21	$	0.28	$	1.44	$	1.40

For the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, RSA's and Stock Options convertible to 0.3 million and ~~0.2~~0.3 million shares, respectively, and 0.3 million and ~~0.2~~0.3 million shares, respectively, of common stock for each of the periods presented were outstanding but were not included in the computation of diluted net income per share because the effect would have been anti-dilutive. For the nine months ended September 30, 2018, Stock Options to purchase 0.1 million shares, were outstanding, which vest based on the Company achieving specified performance targets, but were not included in the computation of diluted net income per share for a portion of the period because they were determined not to be contingently issuable. For the three and nine months ended September 30, 2017, Stock Options to purchase 0.4 million and 0.4 million shares, respectively, of common stock, which vest based on the Company achieving specified performance targets, were outstanding, but were not included in the computation of diluted net income per share for a portion of this period because they were determined not to be contingently issuable.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to ~~makes~~make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There have been no changes in the Company’s critical accounting estimates from those that were disclosed in the ~~2017~~2018 Form ~~10-K, except for the adoption of ASC 606 -~~ ~~Revenue from Contracts with Customers~~ ("ASC 606"), effective January 1, 2018, which affected revenue recognition and warranty estimates accruals related to the Company's extended equipment contracts, and an estimated liability related to a royalty settlement agreement, both of which are no longer considered significant estimates.10-K. Actual results could differ from these estimates.

Risks and Uncertainties

The Company’s earnings are significantly affected by equity earnings it receives from Tinuum Group. As of September 30, ~~2018,~~2019, Tinuum Group has 1823 invested RC facilities of which 11 are leased to a single customer. A majority of these leases are periodically renewed and the loss of this single customer or material modification to the lease terms of these facilities by ~~Tinuum Group~~this customer would have a significant adverse impact on ~~its~~Tinuum Group's financial position, results of operations and cash flows, which in turn would have material adverse impact on the Company’s financial position, results of operations and cash flows.

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. Low natural gas prices make it a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which reduces the demand for our products. In addition, coal consumption and demand for our products is also 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 reduce coal consumption and thus the demand for the Company's products.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Reclassifications

Certain balances have been reclassified from the prior year to conform to the current year presentation. No reclassifications have any impact to income before income taxes or net income.

New Accounting ~~Guidance~~Standards

Recently Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("("ASU 2016-02"), which ~~requires~~created ASC Topic 842 - Leases ("ASC 842"), requiring lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date and have lease terms of more than 12 months. ~~This topic~~ASC 842 retains the distinction between finance leases (formerly defined as capital leases) and operating leases. ~~ASU 2016-02~~On January 1, 2019, the Company adopted ASC 842 retrospectively beginning with the date of adoption. Under this adoption method, the application date is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and must be applied under a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the ~~earliest comparative~~reporting period ~~presented~~ in which the ~~financial statements. In July 2018,~~Company first applies the ~~FASB issued ASU 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements~~ ~~("ASU 2018-11"). The amendments in ASU 2018-11 provide entities with an additional (and optional) transition method to adopt~~provisions of ASC 842. Accordingly, the new lease requirements by allowing entities to initially apply the requirements by recognizing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’sCompany’s reporting for the comparative periods presented in the financial statements ~~in which the entity adopts the new lease requirements would continue to be~~and related disclosures continues in accordance with ~~current~~legacy U.S. GAAP ~~(Topic 840). An entity electing this additional (and optional) transition method must provide the required~~under ASC Topic 840 ~~disclosures for all periods that continue to be in accordance with Topic 840.~~- Leases ("ASC 840"). The amendments do not change the existing disclosure requirements in Topic 840. The Company intends to adopt ASC 2016-02 effective January 1, 2019 using the additional (and optional) transition method provided under ASU 2018-11.

As of the date of this filing, the Company has materially completed its assessment of ASU 2016-02 and related amendments for the impact to the financial statements as of the adoption date, completed a detailed review of existing lease agreements, continued its review of controls and procedures that may need to be revised or added from the adoption of ASU 2016-02 and completed the documentation of the standard's financial statement impact at adoption and financial statement disclosure changes. Based on the Company's current assessment of ASU 2016-02, it has determined that at adoption it will record approximately $0.2 million of "right of use" assets and incremental lease liabilities, respectively, withASC 842 had no impact to the opening balance of ~~retained~~Retained earnings.

As of the adoption date, the Company recorded $7.0 million and $7.0 million of "right of use" ("ROU") assets and incremental lease liabilities, respectively. The cumulative effect of the change from the adoption of ASC 842 to the Consolidated Balance Sheet as of January 1, 2019 is shown in the table that follows:



	Balance as of		Impact of		Balance as of
(in thousands)	December 31, 2018		Adoption		January 1, 2019
Balance Sheet
Other long-term assets	$	7,993	$	6,956	$	14,949
Other liabilities	$	50,058	$	3,085	$	53,143
Other long-term liabilities	$	940	$	3,871	$	4,811

See Note 6 for additional disclosures required under ASC 842 in the year of adoption.

As of January 1, 2019, Tinuum Group adopted ASU 2016-02 and ASU 2014-09 (Topic 606), Revenue from Contracts with Customers and related pronouncements ("ASC 606"). As a result of Tinuum Group’s adoption of these pronouncements, the Company recorded a cumulative effect increase of $28.8 million to Retained earnings as of January 1, 2019, based on the Company's ownership percentage of Tinuum Group's cumulative effect adjustment, and increased its investment balance in Tinuum Group in the amount of $37.2 million and established a deferred tax liability of $8.4 million. As a result of the increase in the investment balance in Tinuum Group, for the nine months ended September 30, 2019, the Company recognized equity earnings in Tinuum Group based on its pro-rata share of Tinuum Group’s net income rather than based on cash distributions received as had been required in prior periods as a result of the cumulative cash distributions exceeding the cumulative pro-rata share of Tinuum Group's net income.

Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those years, and must be adopted under a modified retrospective method approach. Entities may adopt ASU 2016-13 earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those years. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures. The Company does not believe this standard will have a material impact on the Company's financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). The amendments in ASU 2018-13 improve the effectiveness of fair value measurement disclosures and modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement ("Topic 820"), based on the concepts in FASB Concepts Statement, Conceptual Framework

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

for Financial Reporting - Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and ~~weighted average~~weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ~~Update.~~update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ~~Update~~update and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the provisions of ~~this Update~~ASU 2018-13 and assessing its impact on the Company's financial statement disclosures. The Company does not believe this standard will have a material impact on the Company's financial statement disclosures.

Note 2 - ~~Revenues~~Acquisition

~~Adoption~~As described in Note 1, on the Acquisition Date, the Company completed the Carbon Solutions Acquisition for a total purchase price of ~~ASC 606~~$75.0 million (the "Purchase Price"). The results of Carbon Solutions have been included in the Company’s consolidated financial statements since the Acquisition Date. The fair value of the purchase consideration totaled $66.5 million and consisted of cash of $65.8 million and an additional purchase adjustment amount payable to Carbon Solutions' secured lender of $0.7 million, which was paid in March 2019. The Purchase Price was adjusted by assumed debt and contractual commitments of $11.8 million, less cash acquired of $3.3 million. The Company also paid $4.5 million in acquisition-related costs (or transaction costs) during the year ended December 31, 2018. The Company funded the cash consideration from cash on hand and the proceeds from the Term Loan and Security Agreement (the "Senior Term Loan") in the principal amount of $70.0 million, as more fully described in Note 5.

~~On January 1,~~The following table summarizes the final purchase price allocation. Subsequent to December 31, 2018, the Company ~~adopted ASC 606 using~~completed additional analysis and adjustments were made to the ~~modified retrospective method applied~~preliminary purchase price allocations as noted in the table below:



Fair value of assets acquired:	As Originally Reported		Adjustments			As Adjusted
Cash	$	3,284	$	—		$	3,284
Receivables	6,409		—			6,409
Inventories	22,100		(356		)	21,744
Prepaid expenses and other current assets	2,992		61			3,053
Spare parts	3,359		—			3,359
Property, plant and equipment	43,033		(377		)	42,656
Mine leases and development	2,500		200			2,700
Mine reclamation asset	—		2,402			2,402
Intangible assets	4,000		100			4,100
Other assets	168		—			168
Amount attributable to assets acquired	87,845		2,030			89,875

Fair value of liabilities assumed:
Accounts payable	4,771		—			4,771
Accrued liabilities	7,354		254			7,608
Equipment lease liabilities	8,211		—			8,211
Mine reclamation liability	626		1,776			2,402
Other liabilities	437		—			437
Amount attributable to liabilities assumed	21,399		2,030			23,429

Net assets acquired	$	66,446	$	—		$	66,446

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to ~~those contracts~~Condensed Consolidated Financial Statements

(Unaudited)

Adjustments to the preliminary purchase price allocation primarily relate to changes in fair values assigned to property, plant and equipment, intangible assets, mine reclamation liability and the related mine reclamation asset as a result of the final valuation report from the Company's third-party valuation firm issued in May 2019. During the three months ended June 30, 2019 based on new information of facts and circumstances that ~~were not completed~~existed as of ~~January 1, 2018. The~~the Acquisition Date, the Company ~~recognized~~revised its estimates used as of the ~~cumulative effect of initially applying ASC 606~~Acquisition Date related to the ~~opening balance~~net realizable value of ~~the Accumulated deficit.~~ certain finished goods inventory items as well as values assigned to certain prepaid and accrued expense items.

The ~~comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.~~

~~The financial statement impact from the adoption of ASC 606~~adjustments were recorded as of ~~January 1, 2018 was primarily due to the following:~~

~~The recognition of revenues~~June 30, 2019 and ~~related cost of revenue from Equipment Sales for three uncompleted dry sorbent injection (“DSI”) equipment systems (the “DSI Systems”) as of December 31, 2017, which~~ were ~~accounted for under the guidance~~included in ~~ASC 605-35,~~ ~~Revenue Recognition - Construction-Type and Production-Type Contracts~~ (“ASC 605-35”). Under ASC 605-35, the Company accounted for revenues and associated cost of revenue for equipment systems from inception of the contract under the completed contract method and recognized revenue and cost of revenue when the equipment systems were deemed substantially complete. As of December 31, 2017, none of the DSI Systems had met the revenue recognition criteria under the completed contract method. As of January 1, 2018, the Company has determined that the performance obligation associated with each DSI System has been satisfied under ASC 606 guidance.

The recognition of revenues and related cost of revenue for a licensing arrangement (the “Licensing Arrangement”) in which the Company satisfied its performance obligation under ASC 606 as of January 1, 2018.

As a result, the Company’s deferred revenue and related deferred project costs on the three DSI Systems and the Licensing Arrangement, and the resultant income tax effects, were recognized through a cumulative effect adjustment to the Accumulated deficit as of January 1, 2018. In addition, the Company recorded a contract asset in the amount of $0.3 million related to one DSI System contract for which the Company has completed its performance obligations but is not contractually able to bill the customer until the end of the warranty period.

~~The cumulative effect of the change from the adoption of ASC 606 to~~ the Consolidated Balance Sheet as of ~~January 1, 2018 is shown in~~that date and the resultant impact to the Statement of Operations was reflected for the three months ended June 30, 2019.

The following table ~~that follows:~~

represents the intangible assets, as adjusted for purchase price adjustments noted above, identified as part of the Carbon Solutions Acquisition:

Balance as of Impact of Balance as of
(in thousands) December 31, 2017 Adoption January 1, 2018
Balance Sheet
Receivables, net $ 1,113
$ 339
$ 1,452
Deferred tax assets $ 38,661
$ (889 ) $ 37,772
Other long-term assets $ 2,308
$ (322 ) $ 1,986
Billings in excess of costs on uncompleted contracts $ 1,830
$ (1,830 ) $ —
Other current liabilities $ 2,664
$ 9
$ 2,673
Other long-term liabilities $ 2,285
$ (2,000 ) $ 285
Accumulated deficit $ (15,478 ) $ 2,950
$ (12,528 )



(in thousands)	Amount		Weighted Average Useful Life (years)
Customer relationships	$	2,200	5
Developed technology	1,600		5
Trade name	300		2
Total intangibles acquired	$	4,100

Unaudited Pro Forma Financial Information

The following ~~tables show~~represents the ~~impact~~pro forma effects of the ~~adoption of ASC 606~~Carbon Solutions Acquisition as if it had occurred on January 1, 2017. The pro forma pre-tax income for the ~~Condensed Consolidated Balance Sheet~~period presented has been calculated after applying the Company’s accounting policies in effect for 2017 and ~~Condensed Consolidated Statement of Operations as of and~~2018. In addition, pro forma net income for the three and nine months ended September 30, 2018 ~~respectively:~~

Balance as Reported Impact of Balance as Adjusted
(in thousands) September 30, 2018 Adoption September 30, 2018
Balance Sheet
Receivables, net $ 817
$ —
$ 817
Deferred tax assets $ 36,008
$ 425
$ 36,433
Other long-term assets $ 2,070
$ 322
$ 2,392
Billings in excess of costs on uncompleted contracts $ —
$ —
$ —
Other current liabilities $ 627
$ —
$ 627
Other long-term liabilities $ 295
$ 2,000
$ 2,295
Retained earnings (deficit) $ 10,896
$ (1,253 ) $ 9,643

For the three months ended
As Reported Impact of As Adjusted
(in thousands) September 30, 2018 Adoption September 30, 2018
Statement of Operations
Revenues:
Equipment sales $ —
$ 10,042
$ 10,042
License royalties, related party $ 4,104
$ (4,104 ) $ —
Total revenues $ 5,147
$ 5,938
$ 11,085
Operating expenses:
Equipment sales cost of revenue $ —
$ 7,874
$ 7,874
Total operating expenses $ 5,115
$ 7,874
$ 12,989
Operating loss $ 32
$ (1,936 ) $ (1,904 )
Other income (expense)
Royalties, related party $ —
$ 4,104
$ 4,104
Total other income (expense) $ 9,402
$ 4,104
$ 13,506
Income before income tax expense $ 9,434
$ 2,168
$ 11,602
Income tax expense $ 3,931
$ 464
$ 4,395
Net income $ 5,503
$ 1,704
$ 7,207

For the nine months ended
As Reported Impact of As Adjusted
(in thousands) September 30, 2018 Adoption September 30, 2018
Statement of Operations
Revenues:
Equipment sales $ 72
$ 17,574
$ 17,646
License royalties, related party $ 10,857
$ (10,857 ) $ —
Total revenues $ 13,319
$ 6,717
$ 20,036
Operating expenses:
Equipment sales cost of revenue $ (346 ) $ 15,399
$ 15,053
Total operating expenses $ 16,568
$ 15,399
$ 31,967
Operating loss $ (3,249 ) $ (8,682 ) $ (11,931 )
Other income (expense)
Royalties, related party $ —
$ 10,857
$ 10,857
Total other income (expense) $ 36,856
$ 10,857
$ 47,713
Income before income tax expense $ 33,607
$ 2,175
$ 35,782
Income tax expense $ 5,151
$ 464
$ 5,615
Net income $ 28,456
$ 1,711
$ 30,167

Asincludes: (1) the impact on Carbon Solutions of the adoption of ASC 606 effective January 1, 2018, which resulted in a reclassification of $2.1 million and $5.9 million, respectively, from Revenues to Cost of Revenue for freight costs billed to customers, with no impact to income from operations; (2) the reduction in depletion, depreciation and amortization resulting from the purchase price adjustments to Property, plant and equipment and Mine development costs; (3) the adjustment to interest expense from the combination of the Senior Term Loan that was used to fund the Carbon Solutions Acquisition and the elimination of certain debt of Carbon Solutions as a result of pay-offs by the Company as of the Acquisition Date; and (4) the removal of $1.0 million and $4.2 million in transaction costs incurred for the three and nine months ended September 30, 2018, respectively, together with the ~~significant difference between~~income tax effect on (1) through (4). The pro forma results do not include any anticipated synergies or other expected benefits of the Carbon Solutions Acquisition. The unaudited pro forma financial ~~statement balances reported compared to~~information below is not necessarily indicative of either future results of operations or results that might have been achieved had the ~~financial statement balances without the adoption of ASC 606 were as follows:~~

~~Equipment sales~~-As of adoption, the Company derecognized contract assets of $16.5 million and contract liabilities of $18.3 million and recorded a contract asset of $0.3 million related to the three DSI Systems contracts that met the revenue recognition requirements under ASC 606. After tax, the net adjustment for the three DSI Systems was $1.7 million. Under revenue recognition guidance in effect prior to the adoption of ASC 606, one DSI Systems contract would have met revenue recognition criteriaCarbon Solutions Acquisition been consummated as of ~~June 30, 2018, and a second DSI System contract would have met revenue recognition criteria as~~January 1, 2017.

The following table presents the pro forma effects of ~~September 30, 2018. For~~ the ~~first DSI System contract, the Company would have recorded $7.5 million of Equipment sales and $7.5 million Equipment sales cost of revenue, respectively, for the three~~

months ended June 30, 2018. For the second DSI System contract, the Company would have recognized Equipment sales of $10.0 million and Equipment sales cost of revenue of $7.9 million, respectively, for the three months ended September 30, 2018. For the nine months ended September 30, 2018, the Company would have recognized $17.6 million of Equipment sales and $15.4 million of Equipment sales cost of revenue, respectively, for the two DSI System contracts.

~~Licensing Arrangement~~ - As of adoption, the Company derecognized a contract liability of $2.0 million and a contract asset of $0.3 million related to the Licensing Arrangement, which met the revenue recognition requirements under ASC 606. After tax, the net adjustment for this contract was $1.3 million. Under revenue recognition guidance in effect prior to the adoption of ASC 606, this contract would not have met revenue recognition criteria as of September 30, 2018.

~~Royalties, related party~~ ~~- As of adoption, and based on guidance provided in ASC 606 related to licensing arrangements where royalties are earned on a usage-based royalty arrangement,~~Carbon Solutions Acquisition for the three and nine months ended September 30, 2018:



	Three Months Ended		Nine Months Ended
(in thousands)	September 30, 2018		September 30, 2018
Revenues	$	22,447	$	57,597
Net income	$	8,372	$	24,434

Note 3 - Inventories

The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of September 30, 2019 and December 31, 2018:



	As of
(in thousands)	September 30, 2019		December 31, 2018
Product inventory (1)	$	14,953	$	19,403
Raw material inventory	1,964		2,388
	$	16,917	$	21,791

(1) As of September 30, 2019 and December 31, 2018, ~~as well as~~Product inventory includes zero and $5.0 million, respectively, attributed to the ~~corresponding periods~~increase in fair value of inventory acquired from the prior year, the Company has reported license royalties earned from Tinuum Group as revenues rather than as non-operating income under financial statement presentation guidance in effect prior to the adoption of ASC 606. This reclassification had no impact to the Company’s income before income tax expense or net income for all periods presented.

~~Revenue Recognition~~

The Company recognizes revenue from a contract with a customer when a performance obligation under the terms of a contract with a customer is satisfied, which is when the customer controls the promised goods or services that are transferred in satisfaction of the performance obligation. Revenue is measured as the amount of consideration that is expected to be received in exchange for transferring goods or providing services, and the transaction price is generally fixed and generally does not contain variable or noncash consideration. In addition, the Company’s contracts with customers generally do not contain customer refund or return provisions or other similar obligations. Transfer of control and satisfaction of performance obligations are further discussed in each of the revenue components listed below.

The Company uses estimates and judgments in determining the nature and timing of satisfaction of performance obligations, the standalone selling price (“SSP”) of performance obligations and the allocation of the transaction price to multiple performance obligations.

~~The Company’s principal revenue components are Chemical sales and License royalties.~~

~~Chemicals~~

The Company recognizes revenue for direct sales of proprietary chemicals and other ancillary items when the customer obtains control, which is generally at the point in time that delivery to and acceptance by the customer has occurred. Customer contracts for sales of chemicals are short duration and performance obligations generally do not extend beyond one year.

Certain chemical customer contracts are comprised of evaluation tests of the Company’s chemicals’ effectiveness and efficiency in reducing emissions. These contracts entail the delivery of chemicals to the customer and the Company's evaluation of results of emissions reduction over the term of the contract. Under these types of arrangements, which are generally for durations that are short term, the Company has determined that the customer is simultaneously receiving benefits of emissions reduction from the consumption of the chemicals over the testing period and this represents a single performance obligation that is satisfied over time. This determination may require significant judgment. The Company recognizes revenue over time using an input model that is generally based on the cost of chemicals consumed by the customer during the testing period. The use of an input model and the use of total costs as the measure of progress in the satisfaction of the performance obligations may require significant judgment. In addition, under these types of contracts, the Company has determined that the services performed and related costs incurred by the Company during the testing period represent costs to fulfill a contract.

~~License Royalties~~

~~The Company generates revenues from royalties (“M-45 Royalties”) earned under a licensing arrangement (“M-45 License”) of its M-45~~^TM ~~and M-45-PC~~^TMemissions control technologies (“M-45 Technology”) between the Company and Tinuum Group. The Company recognizes M-45 Royalties at a point in time based on the use of the M-45 Technology at certain RC facilities or through Tinuum Group’s use of licensed technology for rates in excess of amounts allowed for RC application. The amount of M-45 Royalties recognized is generally based on a percentage of pre-tax margins (as defined in the M-45 License) of the RC facilities using the M-45 Technology.

~~Arrangements with Multiple Performance Obligations~~

Contracts with customers may include multiple performance obligations, which are comprised of the sale of chemicals, equipment and services performed as part of an emissions reduction arrangement. For such arrangements, the CompanyCarbon Solutions Acquisition.

Advanced Emissions Solutions, Inc. and Subsidiaries

~~allocates revenue~~Notes to each performance obligation based on its relative SSP. When a directly observable SSP for a performance obligation is not available, the Company primarily estimates SSPs based on the expected cost plus a margin method. These estimates as well as the timing of the satisfaction of performance obligations associated with the services component represent significant judgments made by the Company. These arrangements are generally short duration and performance obligations generally do not extend beyond one year.

~~Contract Assets and Liabilities~~

~~Contract assets are comprised of unbilled receivables and are included in Receivables, net in the~~ Condensed Consolidated ~~Balance Sheet. Unbilled receivables represent a conditional right to consideration in exchange for goods or services transferred to a customer.~~Financial Statements

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.(Unaudited)

Contract liabilities are comprised of deferred revenue, which represents an obligation to transfer goods or services to a customer for which the Company has received consideration from the customer and, if deliverable within one year or less, is included in Other current liabilities in the Condensed Consolidated Balance Sheet and, if deliverable outside of one year, is included in Other long-term liabilities in the Condensed Consolidated Balance Sheet.

~~Disaggregation of Revenue~~

During the three and nine months ended September 30, 2018, all performance obligations related to revenues recognized were satisfied at a point in time. The Company disaggregates its revenues by its major components as well as between its two operating segments, which are further discussed in Note 10 to the condensed consolidated financial statements. The following tables disaggregate revenues by major source for the three and nine months ended September 30, 2018 (in thousands):

Three Months Ended September 30, 2018
Segment
EC RC Total
Revenue component
Chemical sales $ 1,043
$ —
$ 1,043
License royalties, related party —
4,104
4,104
Equipment sales —
—
—
Revenues from customers 1,043
4,104
5,147

Earnings from equity method investments —
9,715
9,715

Segment revenues $ 1,043
$ 13,819
$ 14,862

Nine Months Ended September 30, 2018
Segment
EC RC Total
Revenue component
Chemical sales $ 2,390
$ —
$ 2,390
License royalties, related party —
10,857
10,857
Equipment sales 72
—
72
Revenues from customers 2,462
10,857
13,319

Earnings from equity method investments —
37,857
37,857

Segment revenues $ 2,462
$ 48,714
$ 51,176

~~Practical Expedients and Exemptions~~

~~The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.~~

~~Sales and other taxes that are collected concurrently with revenue-producing activities are excluded from revenue.~~

The Company has also elected to account for freight costs as activities to fulfill the promise to transfer the goods, and therefore these activities are also not assessed as a separate service to customers.

The Company accounts for all shipping and handling activities that occur after control of the related good transfers as fulfillment activities. These activities are included in Cost of Revenue line items of the Condensed Consolidated Statement of Operations.

The Company generally expenses sales commissions when incurred because the amortization period of the asset that the Company would have recognized is one year or less. These costs are recorded within sales and marketing expenses within the General and administrative line item of the Condensed Consolidated Statement of Operations.

Note 34 - Equity Method Investments

Tinuum Group, LLC

The Company's ownership interest in Tinuum Group was 42.5% as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. Tinuum Group supplies technology equipment and technical services at select coal-fired generators, but its primary purpose is to put into operation facilities that produce and sell RCrefined coal ("RC") that lower emissions and ~~therefore~~also qualify for Section 45 tax credits. Tinuum Group has been determined to be a variable interest entity ("VIE"); however, the Company does not have the power to direct the activities that most significantly impact Tinuum Group's economic performance and has therefore accounted for the investment under the equity method of accounting. The Company determined that the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore, concluded that the power to direct the activities that most significantly impact Tinuum Group's economic performance was shared.

The following table summarizes the results of operations of Tinuum Group:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Gross profit	$	26,530		$	23,812		$	81,626		$	70,895		$	16,810		$	26,530		$	96,189		$	81,626
Operating, selling, general and administrative expenses	5,908			5,174			17,406			14,975			11,076			5,908			23,421			17,406
Income from operations	20,622			18,638			64,220			55,920			5,734			20,622			72,768			64,220
Other expenses	(577		)	(3,331		)	(2,801		)	(4,278		)	(450		)	(577		)	(427		)	(2,801		)
Class B preferred return	—			(384		)	(12		)	(1,526		)	—			—			—			(12		)
Loss attributable to noncontrolling interest	17,126			11,953			38,145			29,240			22,355			17,126			51,022			38,145
Net income available to members	$	37,171		$	26,876		$	99,552		$	79,356		$	27,639		$	37,171		$	123,363		$	99,552
ADES equity earnings from Tinuum Group	$	8,075		$	11,050		$	33,575		$	33,363		$	11,746		$	8,075		$	50,757		$	33,575

~~As of~~For the three and nine months ended September 30, 2018 ~~and December 31, 2017,~~periods presented in the ~~amount of Tinuum Group's temporary Class B preferred equity was zero and $0.8 million, respectively.~~

~~The~~table below, the difference between the Company's proportionate share of Tinuum Group's net income available to members (at its equity interest of 42.5%) ~~as presented in the table below~~ and the Company's earnings from its Tinuum Group equity method investment as reported in the Condensed Consolidated Statements of Operations relates to the Company receiving distributions in excess of the carrying value of the equity investment, and therefore recognizing such excess distributions as equity method earnings in the period the distributions occur, as discussed below.

~~As shown in the tables below, the Company’s carrying value in Tinuum Group was reduced to zero for~~For the three and nine months ended September 30, 2018 ~~as cumulative cash distributions received from Tinuum Group exceeded~~periods presented in the Company's pro-rata share of cumulative earnings in Tinuum Group. The carrying value of the Company's investment in Tinuum Group shall remain zero as long as the cumulative amount of distributions received from Tinuum Group continues to exceed the Company's cumulative pro-rata share of Tinuum Group's net income available to its members. For periods during which the ending balance of the Company's investment in Tinuum Group is zero,table below, the Company ~~only recognizes~~recognized equity earnings from Tinuum Group to the extent that cash distributions ~~are~~were received from Tinuum Group during the period. For ~~periods during which~~ the ~~ending~~

~~balance of the Company's investment is greater than zero (e.g., when the cumulative earnings in Tinuum Group exceeds cumulative cash distributions received),~~three months ended September 30, 2019, the Company ~~recognizes~~recognized its pro-rata share of Tinuum Group's net income available to its members for the respective period. For the nine months ended September 30, 2019, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the period, less ~~any~~the amount necessary to recover the cumulative earnings short-fall balance as of the end of the immediately preceding ~~period. During~~period, which was December 31, 2018. For the three and nine months ended September 30, 2019, the Company recognized equity earnings from Tinuum Group of $11.7 million and $50.8 million, respectively. For the three and nine months ended September 30, 2018, the ~~Company's cumulative amount of distributions received from Tinuum Group exceeded the Company's cumulative pro-rata share of Tinuum Group's net income available to its members. As such, the~~ Company recognized equity earnings from Tinuum Group ~~for the three and nine months ended September 30, 2018~~ of $8.1 million and $33.6 million, respectively. ~~During the three and nine months ended September 30, 2017, the Company recognized equity earnings from Tinuum Group in the amount of $11.1 million and $33.4 million, respectively.~~ As of September 30, ~~2018~~2019 and ~~2017,~~December 31, 2018, the Company's carrying value in Tinuum Group was ~~zero~~$37.7 million and zero, respectively.

~~Thus, the amount of equity earnings or loss reported on the Company's~~

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Statement of Operations may differ from a mathematical calculation of net income or loss attributable to the equity interest based upon the factor of the equity interest and the net income or loss attributable to members as shown on Tinuum Group’s statement of operations. Additionally, for periods during which the carrying value of the Company's investment in Tinuum Group is greater than zero, distributions from Tinuum Group are reported on the Condensed ConsolidatedFinancial Statements of Cash Flows as "Distributions from equity method investees, return on investment" within Operating cash flows. For periods during which the carrying value of the Company's investment in Tinuum Group is zero, such cash distributions are reported on the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees in excess of investment basis" within Investing cash flows.

(Unaudited)

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 and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


Description	Date(s)	Investment balance			ADES equity earnings (loss)			Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance			Date(s)	Investment balance			ADES equity earnings (loss)			Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2017	$	—		$	—		$	—	$	(12,218	)	12/31/2018	$	—		$	—		$	—	$	(1,672	)
ADES proportionate share of income from Tinuum Group ⁽¹⁾	First Quarter	12,458			12,458			—		—
Impact of adoption of accounting standards (1)													First Quarter	37,232			—			—		—
ADES proportionate share of income from Tinuum Group													First Quarter	21,439			21,439			—		—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	First Quarter	(12,218		)	(12,218		)	—		12,218			First Quarter	(1,672		)	(1,672		)	—		1,672
Cash distributions from Tinuum Group	First Quarter	(11,050		)	—			11,050		—			First Quarter	(16,788		)	—			16,788		—
Adjustment for current year cash distributions in excess of investment balance	First Quarter	10,810			10,810			—		(10,810		)
Total investment balance, equity earnings (loss) and cash distributions	3/31/2018	$	—		$	11,050		$	11,050	$	(10,810	)	03/31/2019	$	40,211		$	19,767		$	16,788	$	—
ADES proportionate share of income from Tinuum Group ⁽¹⁾	Second Quarter	$	14,059		$	14,059		$	—	$	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Second Quarter	(10,810		)	(10,810		)	—		10,810
ADES proportionate share of income from Tinuum Group													Second Quarter	$	19,244		$	19,244		$	—	$	—
Cash distributions from Tinuum Group	Second Quarter	(14,450		)	—			14,450		—			Second Quarter	(17,000		)	—			17,000		—
Adjustment for current year cash distributions in excess of investment balance	Second Quarter	11,201			11,201					(11,201		)
Total investment balance, equity earnings (loss) and cash distributions	6/30/2018	$	—		$	14,450		$	14,450	$	(11,201	)	6/30/2019	$	42,455		$	19,244		$	17,000	$	—
ADES proportionate share of income from Tinuum Group ⁽¹⁾	Third Quarter	$	15,798		$	15,798		$	—	$	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Third Quarter	(11,201		)	(11,201		)	—		11,201
ADES proportionate share of income from Tinuum Group													Third Quarter	$	11,746		$	11,746		$	—	$	—
Cash distributions from Tinuum Group	Third Quarter	(8,075		)	—			8,075		—			Third Quarter	(16,468		)	—			16,468		—
Adjustment for current year cash distributions in excess of investment balance	Third Quarter	3,478			3,478			—		(3,478		)
Total investment balance, equity earnings (loss) and cash distributions	9/30/2018	$	—		$	8,075		$	8,075	$	(3,478	)	9/30/2019	$	37,733		$	11,746		$	16,468	$	—

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)


Description	Date(s)	Investment balance			ADES equity earnings (loss)			Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance			Date(s)	Investment balance			ADES equity earnings (loss)			Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2016	$	—		$	—		$	—	$	(9,894	)	12/31/2017	$	—		$	—		$	—	$	(12,218	)
ADES proportionate share of income from Tinuum Group⁽¹⁾	First Quarter	10,457			10,457			—		—
ADES proportionate share of income from Tinuum Group (2)													First Quarter	12,458			12,458			—		—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	First Quarter	(9,894		)	(9,894		)	—		9,894			First Quarter	(12,218		)	(12,218		)	—		12,218
Cash distributions from Tinuum Group	First Quarter	(13,175		)	—			13,175		—			First Quarter	(11,050		)	—			11,050		—
Adjustment for current year cash distributions in excess of investment balance	First Quarter	12,612			12,612			—		(12,612		)	First Quarter	10,810			10,810			—		(10,810		)
Total investment balance, equity earnings (loss) and cash distributions	3/31/2017	$	—		$	13,175		$	13,175	$	(12,612	)	3/31/2018	$	—		$	11,050		$	11,050	$	(10,810	)
ADES proportionate share of income from Tinuum Group ⁽¹⁾⁽²⁾	Second Quarter	$	11,761		$	11,761		$	—	$	—		Second Quarter	$	14,059		$	14,059		$	—	$	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Second Quarter	(11,761		)	(11,761		)	—		11,761			Second Quarter	(10,810		)	(10,810		)	—		10,810
Cash distributions from Tinuum Group	Second Quarter	(9,138		)	—			9,138		—			Second Quarter	(14,450		)	—			14,450		—
Adjustment for current year cash distributions in excess of investment balance	Second Quarter	9,138			9,138			—		(9,138		)	Second Quarter	11,201			11,201			—		(11,201		)
Total investment balance, equity earnings (loss) and cash distributions	6/30/2017	$	—		$	9,138		$	9,138	$	(9,989	)	6/30/2018	$	—		$	14,450		$	14,450	$	(11,201	)
ADES proportionate share of income from Tinuum Group ⁽¹⁾	Third Quarter	$	11,393		$	11,393		$	—	$	—
ADES proportionate share of income from Tinuum Group (2)													Third Quarter	$	15,798		$	15,798		$	—	$	—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Third Quarter	(9,989		)	(9,989		)	—		9,989			Third Quarter	(11,201		)	(11,201		)	—		11,201
Cash distributions from Tinuum Group	Third Quarter	(11,050		)	—			11,050		—			Third Quarter	(8,075		)	—			8,075		—
Adjustment for current year cash distributions in excess of investment balance	Third Quarter	9,646			9,646			—		(9,646		)	Third Quarter	3,478			3,478			—		(3,478		)
Total investment balance, equity earnings (loss) and cash distributions	9/30/2017	$	—		$	11,050		$	11,050	$	(9,646	)	9/30/2018	$	—		$	8,075		$	8,075	$	(3,478	)

(1) As discussed in Note 1, Tinuum Group adopted ASC 606 and ASC 842 as of January 1, 2019. As a result of Tinuum Group’s adoption of these standards, the Company recorded a cumulative adjustment of $28.8 million, net of the impact of income taxes, related to the Company's percentage of Tinuum Group's cumulative effect adjustment that increased the Company's Retained earnings as of January 1, 2019.

(2) For the three and nine months ended September 30, 2018, ~~and 2017,~~ the ~~amounts~~amount of the Company's 42.5% proportionate share of net income available to members as shown in the table above may differ from mathematical calculations of the Company’s 42.5% equity interest in Tinuum Group multiplied by the amounts of net income available to members as shown in the table above of Tinuum ~~Group~~Group's results of operations due to adjustments related to the Class B preferred return.

Tinuum Services, LLC

The Company has a 50% voting and economic interest in Tinuum Services, which is equivalent to the voting and economic interest of NexGen Refined Coal, LLC ("NexGen"). The Company has determined that Tinuum Services is not a VIE and has evaluated its consolidation analysis under the voting interest model. Because the Company does not own greater than 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. The Company’s investment in Tinuum Services as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$5.3~~$6.3 million and ~~$4.3~~$6.6 million, respectively. ~~During the nine months ended September 30, 2018, the Company funded a capital call of $0.8 million, which increased its investment balance in Tinuum Services.~~

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the results of operations of Tinuum Services:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Gross loss	$	(21,362	)	$	(17,344	)	$	(64,069	)	$	(47,472	)	$	(27,834	)	$	(21,362	)	$	(77,761	)	$	(64,069	)
Operating, selling, general and administrative expenses	43,947			34,872			127,783			106,825			51,927			43,947			151,789			127,783
Loss from operations	(65,309		)	(52,216		)	(191,852		)	(154,297		)	(79,761		)	(65,309		)	(229,550		)	(191,852		)
Other income	78			34			443			103
Other (expenses) income													(460		)	78			(1,018		)	443
Loss attributable to noncontrolling interest	68,509			54,305			199,971			159,627			85,586			68,509			243,163			199,971
Net income	$	3,278		$	2,123		$	8,562		$	5,433		$	5,365		$	3,278		$	12,595		$	8,562
ADES equity earnings from Tinuum Services	$	1,639		$	1,061		$	4,281		$	2,717		$	2,682		$	1,639		$	6,297		$	4,281

Included within the Consolidated Statements of Operations of Tinuum Services for the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, were losses related to VIE's of Tinuum Services. These losses do not impact the Company's equity earnings from Tinuum Services as 100% of those losses are attributable to a noncontrolling interest and eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.

The following table details the components of the Company's respective equity method investments included within the Earnings from equity method investments line item on the Condensed Consolidated Statements of ~~Operations~~:Operations:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2018		2017		2018		2017		2019			2018		2019			2018
Earnings from Tinuum Group	$	8,075	$	11,050	$	33,575	$	33,363	$	11,746		$	8,075	$	50,757		$	33,575
Earnings from Tinuum Services	1,639		1,061		4,281		2,717		2,682			1,639		6,297			4,281
Earnings from other	1		9		1		9
(Losses) earnings from other									(2		)	1		(3		)	1
Earnings from equity method investments	$	9,715	$	12,120	$	37,857	$	36,089	$	14,426		$	9,715	$	57,051		$	37,857

The following table details the components of the cash distributions from the Company's respective equity method investments included in the Condensed Consolidated Statements of Cash Flows. Distributions from equity method investees are reported onin the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" within Operating cash flows 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" within Investing cash flows.


	Nine Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017		2019		2018
Distributions from equity method investees, return on investment
Tinuum Group					$	50,256	$	—
Tinuum Services	$	4,000	$	3,675	6,550		4,000
	$	4,000	$	3,675	$	56,806	$	4,000
Distributions from equity method investees in excess of investment basis
Tinuum Group	$	33,575	$	33,363	$	—	$	33,575
	$	33,575	$	33,363	$	—	$	33,575

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 45 - ~~Borrowings~~Debt Obligations



	As of
(in thousands)	September 30, 2019			December 31, 2018
Senior Term Loan due December 2021, related party	$	46,000		$	70,000
Less: net unamortized debt issuance costs	(1,380		)	(1,990		)
Less: net unamortized debt discount	(1,338		)	(2,052		)
Senior Term Loan due December 2021, net	43,282			65,958
Finance lease obligations (1)	7,066			8,167
	50,348			74,125
Less: Current maturities	(24,072		)	(24,067		)
Total long-term debt	$	26,276		$	50,058

(1) As of December 31, 2018, obligations related to capital lease obligations as defined in ASC 840.

Senior Term Loan

On December 7, 2018, the Company, and ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, and certain other subsidiaries of the Company as guarantors, The Bank of New York Mellon as administrative agent, and Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P. (collectively "Apollo"), affiliates of a beneficial owner of greater than five percent of the Company's common stock and a related party, entered into the Senior Term Loan in the amount of $70.0 million less original issue discount of $2.1 million. Proceeds from the Senior Term Loan were used to fund the Carbon Solutions Acquisition as disclosed in Note 2. The Company also paid debt issuance costs of $2.0 million related to the Senior Term Loan. The Senior Term Loan has a term of 36 months and bears interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which is adjusted quarterly to the current 3-month LIBOR rate, and interest is payable quarterly in arrears. Quarterly principal payments of $6.0 million were required beginning in March 2019, and the Company may prepay the Senior Term Loan at any time without penalty. The Senior Term Loan is secured by substantially all of the assets of the Company, including the cash flows from Tinuum Group and Tinuum Services (collectively, the "Tinuum Entities"), but excluding the Company's equity interests in the Tinuum entities.

The Senior Term Loan includes, among others, the following covenants: (1) Beginning December 31, 2018 and as of the end of each fiscal quarter thereafter, the Company must maintain a minimum cash balance of $5.0 million and shall not permit "expected future net cash flows from the refined coal business" (as defined in the Senior Term Loan) to be less than 1.75 times the outstanding principal amount of the Senior Term Loan; (2) Beginning in January 2019, annual collective dividends and buybacks of Company shares in an aggregate amount, not to exceed $30.0 million, is permitted so long as (a) no default or event of default exists under the Senior Term Loan and (b) expected future net cash flows from the refined coal business as of the end of the most recent fiscal quarter exceed $100.0 million.

Line of Credit

On September 30, 2018, ~~ADA-ES., Inc., a wholly-owned subsidiary of the Company ("ADA"),~~ADA, as borrower, the Company, as guarantor, and a bank (the "Lender") entered into an amendment (the "Twelfth Amendment") to the 2013 Loan and Security Agreement (the "Line of Credit"). The Twelfth Amendment decreased the borrowing availability of the Line of Credit to $5.0 million due to decreased collateral requirements, extended the maturity date of the Line of Credit to September 30, 2020 and permitted the Line of Credit to be used as collateral (in place of restricted cash) for letters of credit ("LC's") up to $5.0 million related to equipment projects and certain other agreements. Under the ~~Line of Credit,~~Twelfth Amendment, there iswas no minimum balance requirement based on the Company meeting certain conditions and maintaining minimum trailing twelve-month EBITDA (earnings before interest, taxes, depreciation and amortization), as previously defined in the "Eleventh Amendment" to the Line of Credit, of $24.0 million.

On December 7, 2018, ADA, as borrower, the Company, as guarantor, and the Lender entered into an amendment to the Line of

Credit, which provided, among other things, for ADA to be able to enter into the Senior Term Loan as a guarantor so long as

the principal amount of the Senior Term Loan did not exceed $70.0 million. Additionally, the financial covenants in the Line

of Credit were amended and restated to be consistent with the aforementioned Senior Term Loan covenants, including

maintaining a minimum cash balance of $5.0 million.

As of September 30, ~~2018,~~2019, there were no outstanding borrowings under the Line of Credit.

~~Other~~

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 6 - Leases

The financial statement impact from the adoption of ASC 842 as of January 1, 2019 is due to recording ROU assets and related lease liabilities for operating lease commitments that were outstanding as of December 31, 2018. The Company has elected the transitional practical expedients allowed under ASC 842, which include among other things that the Company need not reassess: (1) whether any existing contracts are or contain leases, inclusive of land easements; (2) the lease classification or lease term for existing leases; and (3) initial direct costs for any existing leases. In addition, the Company has elected for all classes of underlying assets the practical expedient to not separate nonlease components from lease components and to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.

ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of an identified asset means that an entity has both the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that identified asset. The determination of whether a contract contains a lease may require significant assumptions and judgments.

Historically, Carbon Solutions has used leasing to fund the majority of its capital needs for mining and manufacturing equipment. As of September 30, 2019, the Company has obligations under finance and operating leases in the amounts of $7.1 million and $5.9 million, respectively. ROU assets under finance leases are mining equipment used at the Company’s lignite mine, which provides the key raw materials for manufacturing the Company’s products. ROU assets under operating leases are primarily plant equipment used at the Company’s manufacturing facility, but also include other office equipment, vehicles and office facilities. As of September 30, 2019, the Company has ROU assets, net of accumulated amortization, under finance leases and operating leases of $6.4 million and $5.9 million, respectively.

Certain of the finance and operating leases have options permitting renewals for additional periods and buy-out options. Renewal and buy-out options for applicable leases have not been included in the measurement of the respective lease liabilities as the Company is not reasonably certain that it will exercise the respective option or the lessor does not have an exclusive right to exercise the option.

~~In March 2017,~~Variable lease payments represent payments made by a ~~customer drew~~lessee for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date of a lease other than the passage of time. Variable lease payments that are based on an LCindex or rate, calculated by using the index or rate that exists on the lease commencement date, are included in the measurement of a lease liability. Certain of the Company’s operating leases for office facilities contain variable lease components that are not based on an index or rate, and the Company recognizes these payments as lease expense in the period in which the obligation for those payments is incurred.

The Company calculates lease liabilities based on the present value of lease payments discounted by the rate implicit in the lease or, if not readily determinable, the Company’s incremental borrowing rate.

The Company records lease liabilities and related ROU assets for all leases that have a term of greater than one year. For short-term leases (leases with terms of less than one year), the Company expenses lease payments on a straight-line basis over the lease term.

Finance leases

Leases classified as capital leases under ASC 840 and the related assets and liabilities were recorded and classified as finance leases as of January 1, 2019 based on their carrying values of $8.1 million and $8.2 million, respectively, as of December 31, 2018. ROU assets under finance leases and finance lease liabilities are included in Property, plant and equipment and Current portion and Long-term portion of borrowings, respectively, in the Condensed Consolidated Balance Sheet as of September 30, 2019.

Finance lease liabilities are subsequently measured by increasing the carrying amount to reflect interest expense on the finance lease liability and reducing the carrying amount of the lease liability to reflect lease payments made during the period. Interest on finance lease liabilities is determined in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the lease liability. ROU assets under finance leases are amortized over the remaining lease term on a straight-line basis. Interest expense related to finance lease liabilities and amortization of ROU assets under finance leases are included in Interest expense and Depreciation, amortization, depletion and accretion, respectively, in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2019.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Operating leases

Operating lease liabilities as of January 1, 2019 were calculated at the present value, using a discount rate of the lease, of the remaining minimum rental payments (as defined under ASC 840). As the rate implicit in all of the operating leases was not readily determinable, the Company determined its discount rate as of January 1, 2019 based on an estimate of its incremental borrowing rate. This rate was based on the Company’s effective borrowing rate on the Senior Term Loan, considering the collateral requirements contained therein, in effect as of January 1, 2019. ROU assets under operating leases as of January 1, 2019 were determined as the calculated value of the operating lease liabilities less accrued lease payments and accrued lease incentives. As of December 31, 2018, the total amount of accrued lease payments and accrued lease incentives was approximately $0.1 million. ROU assets under operating leases and operating lease liabilities are included in Other long-term assets and Other liabilities and Other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheet as of September 30, 2019.

Operating lease liabilities are subsequently measured at the present value of the lease payments not yet paid discounted using the discount rate for the lease established at the inception date of the lease (or January 1, 2019 for operating leases in effect as of December 31, 2018). ROU assets under operating leases are subsequently measured at the amounts of the related operating lease liability, adjusted for, as applicable, prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs and impairment. Lease expense from operating leases is recognized as a single lease cost over the remaining lease term on a straight-line basis. Variable lease payments not included in operating lease liabilities are recognized as expense in the period in which the obligation for those payments is incurred. Lease expense for operating leases for the three and nine months ended September 30, 2019 was $1.1 million and $3.3 million, respectively, of which $1.0 million and $3.1 million, respectively is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.1 million and $0.3 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2019.

In August 2019, the Company entered into a new lease agreement covering approximately twenty-one thousand square feet of office space for a term of 3.5 years and recorded a ROU asset of $1.2 million and a corresponding operating lease liability of $1.2 million.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Lease financial information as of and for the three and nine months ended September 30, 2019 is provided in the following table:




(in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Finance lease cost:
Amortization of right-of-use assets	$	1,277	$	2,371
Interest on lease liabilities	82		270
Operating lease cost	908		2,764
Short-term lease cost	198		558
Variable lease cost (1)	52		227
Total lease cost	$	2,517	$	6,190

Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases			$	270
Operating cash flows from operating leases			$	2,435
Financing cash flows from finance leases			$	1,016
Right-of-use assets obtained in exchange for new operating lease liabilities			$	1,309
Weighted-average remaining lease term - finance leases			4.4 years
Weighted-average remaining lease term - operating leases			2.5 years
Weighted-average discount rate - finance leases			6.1		%
Weighted-average discount rate - operating leases			8.6		%

(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.

The following table summarizes the Company’s future lease payments under finance and operating leases as of September 30, 2019:



(in thousands)	Operating Lease Commitments			Finance Lease Commitments			Total Lease Commitments
2019 (remaining three months)	$	873		$	433		$	1,306
2020	2,718			1,707			4,425
2021	2,035			1,802			3,837
2022	721			951			1,672
2023	359			951			1,310
Thereafter	—			2,482			2,482
Total lease payments	6,706			8,326			15,032
Less: Imputed interest	(769		)	(1,260		)	(2,029		)
Present value of lease payments	$	5,937		$	7,066		$	13,003

Disclosures under ASC 840

Rent expense for the three and nine months ended September 30, 2018 was $0.1 million and $0.2 million, respectively, and was included in General and administrative expense in the Condensed Consolidated Statement of Operations.

As of December 31, 2018, mining equipment ~~system~~financed under capital leases in the amount of ~~$0.8~~$8.1 million, ~~which~~net of accumulated amortization of $0.1 million, was ~~funded by borrowing availability~~included in Property, plant and equipment in the Condensed Consolidated Balance Sheet.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s future minimum non-cancellable lease payments due under ~~the Line of Credit. The Company subsequently repaid this amount to the Lender~~capital and operating leases as of ~~March~~December 31, ~~2017. The Company is contesting~~2018:



(in thousands)	Operating Lease Commitments		Capital Lease Commitments
2019	$	3,619	$	1,749
2020	2,273		1,707
2021	1,632		1,802
2022	310		951
2023	221		951
Thereafter	—		2,482
Total minimum lease payments	$	8,055	9,642
Less: Imputed interest			(1,475		)
Present value of minimum lease payments			$	8,167

Note 7 - Revenues

Contract Assets and Liabilities

Contract assets are comprised of unbilled receivables and are included in Receivables, net in the ~~LC draw on this LC and is pursuing legal actions~~Condensed Consolidated Balance Sheet. Unbilled receivables represent a conditional right to ~~recover the entire amount from the~~consideration in exchange for goods or services transferred to a customer.

Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company ~~recorded~~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.

Contract liabilities are comprised of deferred revenue, which represents an ~~asset~~obligation to transfer goods or services to a customer for which the ~~LC Draw net~~Company has received consideration from the customer and, if deliverable within one year or less, is included in Other current liabilities in the Condensed Consolidated Balance Sheet and, if deliverable outside of ~~an estimated allowance of $0.4 million. This amount~~one year, is included in Other long-term ~~assets on~~liabilities in the Condensed Consolidated Balance ~~Sheets~~.Sheet.

Trade receivables, net

The following table ~~presents~~shows the ~~LC's outstanding~~components of Trade receivables, net:



	As of
(in thousands)	September 30, 2019			December 31, 2018
Trade receivables	$	7,338		$	10,121
Less: Allowance for doubtful accounts	(567		)	(567		)
Trade receivables, net	$	6,771		$	9,554

For the three and ~~collateral,~~nine months ended September 30, 2019, the Company recognized zero provision for bad debt expense, respectively.

Disaggregation of Revenue

During the three and nine months ended September 30, 2019 and 2018, all performance obligations related to revenues recognized were satisfied at a point in time. The Company disaggregates its revenues by ~~asset type, reported on~~major components as well as between its two reportable segments, which are further discussed in Note 13 to the Condensed Consolidated ~~Balance Sheets. There were no LC's outstanding or collateral as of~~Financial Statements. The following tables disaggregate revenues by major component for the three and nine months ended September 30, ~~2018.~~2019 and 2018

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands):



	Three Months Ended September 30, 2019								Nine Months Ended September 30, 2019
	Segment								Segment
	PGI		RC		Other		Total		PGI		RC		Other		Total
Revenue component
Consumables	$	14,010	$	—	$	738	$	14,748	$	39,612	$	—	$	1,631	$	41,243
License royalties, related party	—		4,385		—		4,385		—		12,796		—		12,796
Revenues from customers	14,010		4,385		738		19,133		39,612		12,796		1,631		54,039

Earnings from equity method investments	—		14,426		—		14,426		—		57,051		—		57,051

Total revenues from customers and earnings from equity method investments	$	14,010	$	18,811	$	738	$	33,559	$	39,612	$	69,847	$	1,631	$	111,090

As of December 31, 2017
(in thousands) LC Outstanding Utilization of LOC Availability
Royalty Award $ 3,500
$ 3,500
Total LC outstanding $ 3,500
$ 3,500



	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	Segment						Segment
	PGI		RC		Total		PGI		RC		Total
Revenue component
Consumables	$	1,043	$	—	$	1,043	$	2,390	$	—	$	2,390
License royalties, related party	—		4,104		4,104		—		10,857		10,857
Other	—		—		—		72		—		72
Revenues from customers	1,043		4,104		5,147		2,462		10,857		13,319

Earnings from equity method investments	—		9,715		9,715		—		37,857		37,857

Total revenues from customers and earnings from equity method investments	$	1,043	$	13,819	$	14,862	$	2,462	$	48,714	$	51,176

Note 58 - Commitments and Contingencies

Legal Proceedings

The Company is from time to time subject to, and is presently involved in, 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 to 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.

~~Settlement and royalty indemnity~~

~~In 2011, the Company and Norit International B.V. ("Norit") entered into a settlement agreement (the "Norit Settlement Agreement") whereby the Company paid amounts related to a non-solicitation breach~~ There were no significant legal proceedings as of contract claim ("Norit Litigation"), and was also required to pay additional damages (the "Royalty Award") related to certain future revenues generated from an activated carbon manufacturing plant (the "Red River Plant") that the Company owned through a joint venture with ADA Carbon Solutions, LLC ("Carbon Solutions"). Payments due under the Royalty Award were due quarterly in arrears through June 2018. Additionally, in 2011, the Company entered into the Settlement Agreement Regarding ADA-ES’ Indemnity Obligations (the "Indemnity Settlement Agreement") whereby the Company agreed to settle certain indemnity obligations asserted against the Company related to the Norit Litigation and relinquished all of its equity interest in Carbon Solutions.

Under the Norit Settlement Agreement, the Company was required to pledge LC's as collateral for a portion of Royalty Award future payments due. In March 2017, the Company was required to increase its LC's under the Royalty Award based on a provision that required additional amounts be pledged because the Company had achieved annual earnings in excess of $20.0 million for the fiscal year ended December 31, 2016. Under this provision, the Company was required to provide an additional LC of $5.0 million, which was secured under the Line of Credit in March 2017. Under a separate provision of the Norit Settlement Agreement effective during 2017, the Company was required to increase the LC's, subject to the aggregate amount of estimated future payments due related to the Royalty Award, for any dividends issued by the Company prior to January 1, 2018 in amount equal to 50% of the aggregate fair market value of such dividends (the "Dividends Provision"). Based on the estimated remaining future payments due under the Royalty Award, the Dividends Provision did not impact the amount of LC's pledged during 2017.

~~During the nine months ended~~ September 30, 2017, the Company revised its estimate for future Royalty Award payments based in part on an updated forecast provided to the Company from Carbon Solutions. This forecast included a material reduction in estimated future revenues generated at the Red River Plant. Based primarily on the updated forecast, the Company recorded a $3.4 million reduction to the Royalty Award accrual.2019.

In December 2017, the Company, Carbon Solutions and the parent company of Carbon Solutions agreed to terminate certain provisions of the Indemnity Settlement Agreement (the "Indemnity Termination Agreement"). Pursuant to an agreement executed concurrently with the Indemnity Termination Agreement, the Company, Norit and an affiliate of Norit (collectively referred to as "Norit") agreed to a final payment in the amount of $3.3 million (the "Settlement Payment") to settle all outstanding royalty obligations owed under the terms of the Norit Settlement Agreement. This amount was paid by the Company on December 29, 2017.

Under the Indemnity Termination Agreement, and upon payment of the Settlement Payment, the Company was relieved of certain financial and indemnity obligations required by the terms of the Norit Settlement Agreement, including the obligation to maintain LC's securing future royalty payment obligations. As of December 31, 2017, $3.5 million in LC's related to the Royalty Award were outstanding, but were canceled by all parties in January 2018, pursuant to the Indemnity Termination Agreement.

~~Advanced Emission Solutions, Inc. Profit Sharing Retirement Plan~~

~~The~~ Advanced Emissions Solutions, Inc. ~~Profit Sharing Retirement Plan (the “401(k) Plan”) is subject~~and Subsidiaries

Notes to ~~the jurisdiction of the Internal Revenue Service ("IRS") and the Department of Labor ("DOL").~~Condensed Consolidated Financial Statements

In 2016, the DOL opened an investigation into the 401(k) Plan, and the Company (in its role as Plan Sponsor) cooperated with that investigation. In February 2018, as part of ongoing discussions, the Company and the DOL came to an agreement whereby the Company would make a restorative payment to the 401(k) Plan in the amount of $1.0 million as an estimate of lost earnings for 401(k) Plan participants as of January 1, 2015. Thereafter, the DOL would close the investigation with no further action against the 401(k) Plan or its fiduciaries, including any further investigation. The Company determined this contingency to be both probable and reasonably estimable and accrued $1.0 million as of December 31, 2017. The liability was recorded in the Other current liabilities line item on the Consolidated Balance Sheet. The expense recognized related to this accrual was included in the Other line item in the Consolidated Statements of Operations for the year ended December 31, 2017. The Company made a payment of $1.0 million to the 401(k) Plan on June 1, 2018 and no liability existed as(Unaudited)

Restricted Cash

As of September 30, ~~2018. On September 7,~~2019 and December 31, 2018, the Company ~~received notification that~~had long-term restricted cash of $5.0 million and $5.2 million, respectively, which primarily consisted of minimum cash balance requirements under the ~~DOL~~Senior Term Loan. As of September 30, 2019 and December 31, 2018, the Company had ~~closed its investigation~~short-term restricted cash of zero and ~~no further action is required by the Company.~~

~~Other Commitments and Contingencies~~$0.1 million, respectively, related to other commitments.

Tinuum Group

The Company also has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. The Company, NexGen and two entities affiliated with NexGen have provided an affiliate of the Goldman Sachs Group, Inc. with limited guaranties (the "Tinuum Group Party Guaranties") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants. The Company also is a party to a contribution agreement with NexGen under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contributions from the other party equal to 50% of the amount paid. No liability or expense provision has been recorded by the Company related to this contingent obligation as the Company believes that it is not probable that a loss will occur with respect to Tinuum Group Party Guaranties.

Note 69 - Stockholders' Equity

Stock Repurchase ~~Program~~Programs

~~Under a~~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. This stock repurchase program ~~authorized~~will remain in effect until December 31, 2019 unless otherwise modified by the Board. Previously, the Board ~~in December 2017 (the "Stock Repurchase Program"), during the three and nine months ended September 30, 2018,~~had authorized the Company purchased zero and 825,418 shares, respectively, of its common stock for cash of zero and $9.1 million, respectively, inclusive of commissions and fees. Of these amounts, $2.2 million was purchased in a single block through a privately negotiated transaction. Under the terms of the Stock Repurchase Program, the Company was authorized to purchase up to $20.0 million of its outstanding common stock ~~and it remained~~under a separate repurchase program that was in effect until July 31, 2018.

OnFor the three and nine months ended September ~~12, 2018,~~30, 2019, under the respective stock repurchase program authorized by the Board, the Company ~~repurchased 186,212~~purchased 8,152 and 256,743 shares of its common stock for ~~$2.1~~cash of $0.1 million ~~in a single block through a privately negotiated transaction.~~

~~On May 5, 2017,~~and $2.9 million, respectively, inclusive of commissions and fees. For the ~~Board~~three and nine months ended September 30, 2018, under the respective stock repurchase program authorized by the commencement of a modified Dutch Auction tender offer ("Tender Offer") to purchase for cash up to 925,000 shares of the Company's common stock at a price per share of not less than $9.40 nor greater than $10.80, for a maximum aggregate purchase price of $10.0 million, with an option to purchase an additional 2% of the outstanding shares of common stock if the Tender Offer was oversubscribed. The Tender Offer expired on June 6, 2017 and a total of 2,858,425 shares were validly tendered and not properly withdrawn at or below the final purchase price of $9.40 per share.

~~Because the Tender Offer was oversubscribed,~~Board, the Company purchased a prorated portion of the shares properly tendered by each tendering stockholder (other than "odd lot" holders whose shares were purchased on a priority basis) at the final per share purchase price. Accordingly, the Company acquired 1,370,891186,212 and 1,011,630 shares of its common stock ~~("Tendered Shares") at a price~~for cash of ~~$9.40 per share,~~$2.1 million and $11.2 million, respectively, inclusive of commissions and fees. Of these amounts, $2.1 million and $4.3 million were purchased in single blocks through privately negotiated transactions for ~~a total cost of approximately $12.9 million, excluding fees~~the three and other expenses related to the Tender Offer. The Tendered Shares represented approximately 6.2% of the Company's outstanding shares prior to the Tender Offer. The Tendered Shares include the 925,000 shares the Company initially offered to purchase and 445,891 additional shares that the

Company elected to purchase pursuant to its right to purchase up to an additional 2% of its outstanding shares of common stock. The Company recorded the Tendered Shares at cost, which included fees and expenses related to the Tender Offer, and reported the Tendered Shares as Treasury Stock in the Condensed Consolidated Balance Sheet.

The Company’s Board and executive officers did not participate in the Tender Offer, except for one director of the Board, who is a manager of a financial institution and holds dispositive powers over the shares of the Company's common stock held by the financial institution, which tendered 70,178 of its shares of the Company's common stock.nine months ended September 30, 2018, respectively.

Quarterly Cash Dividend

Dividends per share declared by the Board, and paid quarterly ~~per share~~ on all outstanding shares of ~~comment~~common stock during the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 were as follows:


	2018			2017			2019			2018
	Per share		Date paid	Per share		Date paid	Per share		Date paid	Per share		Date paid
Dividends declared during quarter ended:
March 31	$	0.25	March 8, 2018	$	—	—	$	0.25	March 7, 2019	$	0.25	March 8, 2018
June 30	0.25		June 8, 2018	0.25		July 17, 2017	$	0.25	June 7, 2019	$	0.25	June 8, 2018
September 30	0.25		September 6, 2018	0.25		September 7, 2017	$	0.25	September 6, 2019	$	0.25	September 6, 2018
	$	0.75		$	0.50		$	0.75		$	0.75

A portion of the dividends declared ~~remain~~remains accrued subsequent to the payment dates and ~~represent~~represents dividends accumulated on nonvested shares of common stock held by employees and directors of the Company that contain forfeitable dividend rights that are not payable until the underlying shares of common stock vest. These amounts are included in both Other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheet as of September 30, ~~2018.~~2019.

Tax Asset Protection Plan

~~United States~~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 other tax assets if ~~ADES~~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 ~~ADES~~the Company by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 "Tax Asset Protection Plan") designed to protect the Company’s ability to utilize its net operating losses and tax credits. The Tax Asset Protection Plan 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 April 6, 2018, the Board approved the First Amendment to the Tax Asset Protection Plan (the ~~"Amendment"~~"First Amendment") that amends the Tax Asset Protection Plan dated May 5, 2017. The First Amendment amended the definition of "Final Expiration Date" under the Tax Asset Protection Plan to extend the duration of the TAPP and makes associated changes in connection therewith. At the Company's 2018 annual meeting of stockholders, the Company's stockholders approved the First Amendment, thus the Final Expiration Date will be the close of business on December 31, 2019, which was subsequently extended, as described below.

On April 5, 2019, the Board approved the Second Amendment to the Tax Asset Protection Plan (the "Second Amendment") that amends the Tax Asset Protection Plan dated May 5, 2017, as amended by the First Amendment to Tax Asset Protection Plan, dated April 6, 2018 (the ~~"TAPP"~~“TAPP”). between the Company and the Rights Agent. The Second Amendment amends the definition of ~~"Final~~the “Final Expiration ~~Date"~~Date” under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. At the Company's ~~2018~~2019 annual meeting of stockholders, the Company's stockholders approved the Second Amendment, thus the Final Expiration Date will be the close of business on December 31, ~~2019.~~2020.

Note 710 - Stock-Based Compensation

The Company grants equity-based awards to employees, ~~and~~ non-employee directors, and consultants that may include, but are not limited to, RSA's, restricted stock ~~options, PSU's~~units ("RSU's") and stock ~~appreciation rights ("SAR's").~~options. Stock-based compensation expense related to manufacturing employees and administrative employees is included within the Cost of goods sold and Payroll and benefits line ~~item~~items, respectively, in the Condensed Consolidated Statements of ~~Operations~~.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~~.Operations.

Total stock-based compensation expense for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017		2018		2017		2019		2018		2019		2018
RSA expense	$	919	$	298	$	1,871	$	1,103	$	468	$	919	$	1,326	$	1,871
Stock option expense	—		143		58		443		—		—		—		58
PSU expense	—		34		—		102
Total stock-based compensation expense	$	919	$	475	$	1,929	$	1,648	$	468	$	919	$	1,326	$	1,929

The amount of unrecognized compensation cost as of September 30, ~~2018,~~2019, and the expected weighted-average period over which the cost will be recognized is as follows:


	As of September 30, 2018			As of September 30, 2019
(in thousands)	Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)
(in thousands)				Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)
RSA expense	$	2,118	2.19	$	3,146	1.67
Total unrecognized stock-based compensation expense	$	2,118	2.19	$	3,146	1.67

Restricted Stock ~~Awards~~

Restricted stock is typically granted with vesting terms of three years. The fair value of RSA's and RSU'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. Compensation expense for RSU's is generally recognized on a straight-line basis over the service period of the award.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of RSA and RSU activity under the Company's various stock compensation plans for the nine months ended September 30, ~~2018~~2019 is presented below:


	Shares		Weighted-Average Grant Date Fair Value		Restricted Stock			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2018	276,607		$	9.03
(in thousands, except for share and per share amounts)					Awards		Units	RSA's		RSU's
Non-vested at January 1, 2019					280,852		20,000	$	9.92	$	10.52
Granted	205,998		$	11.00	275,983		—	$	11.07	$	—
Vested	(180,740	)	$	9.85	(84,156	)	—	$	9.74	$	—
Forfeited	(1,135	)	$	10.44	(3,498	)	—	$	10.96	$	—
Non-vested at September 30, 2018	300,730		$	9.88
Non-vested at September 30, 2019					469,181		20,000	$	10.62	$	10.52

Stock Options

Stock options generally vest over three years or upon satisfaction of performance-based conditions and have a contractual limit of five years from the date of grant to exercise. The fair value of stock options granted is determined on the date of grant using the Black-Scholes option pricing model and the related expense is recognized on a straight-line basis over the entire vesting period.

A summary of stock option activity for the nine months ended September 30, ~~2018~~2019 is presented below:


	Number of Options Outstanding and Exercisable		Weighted-Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted-Average Remaining Contractual Term (in years)	Number of Options Outstanding and Exercisable		Weighted-Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted-Average Remaining Contractual Term (in years)
Options outstanding, January 1, 2018	622,446		$	11.64
Options outstanding, January 1, 2019								529,780		$	12.23
Options granted	—		—					—		—
Options exercised	(92,666	)	8.25					(185,332	)	9.50
Options expired / forfeited	—		—					(20,000	)	20.07
Options outstanding, September 30, 2018	529,780		$	12.23	$	592	1.71
Options exercisable, September 30, 2018	529,780		$	12.23	$	592	1.71
Options outstanding, September 30, 2019								324,448		$	13.31	$	497	0.74
Options exercisable, September 30, 2019								324,448		$	13.31	$	497	0.74

The Company did ~~not~~not receive cash from the exercise of stock options during the three months ended September 30, ~~2018~~2019 as ~~67,715~~149,715 shares were withheld as payment of the exercise price. The total intrinsic value of options exercised during the three months ended September 30, ~~2018~~2019 was ~~$0.3~~$0.4 million.

~~Performance Share Units~~

Compensation expense is recognized for PSU awards 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. There were no PSU's granted during the nine months ended September 30, 2018.

~~A summary of PSU activity for the nine months ended September 30, 2018 is presented below:~~

Units Weighted-Average
Grant Date
Fair Value
Non-vested at January 1, 2018 19,406
$ 19.95
Granted —
—
Vested / Settled ⁽¹⁾
(19,406 ) $ 19.95
Forfeited / Canceled —
—
Non-vested at September 30, 2018 —
$ —

⁽¹⁾The number of units shown in the table above were based on target performance. The final number of shares of common stock issued was based on the achievement of market conditions established within the awards.

~~The following table shows the PSU's that were settled by issuing shares of the Company's common stock relative to a broad stock index and a peer group performance index.~~

Year of Grant Net Number of Issued Shares upon Vesting Shares Withheld to Settle Tax Withholding Obligations TSR Multiple Range Russell 3000 Multiple
Low High Low High
Nine Months Ended September 30, 2018
2015 12,311
4,061
112.50
112.50
—
—
Nine Months Ended September 30, 2017
2014 6,476
3,573
0.75
1.00
—
—
2015 3,869
2,310
0.60
0.60
—
—

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 811 - 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				As of
(in thousands)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Prepaid expenses and other assets:
Prepaid expenses	$	435	$	776	$	1,635	$	1,233
Inventory	13		74
Prepaid income taxes	2,153		902		2,753		2,940
Other	30		83		1,682		1,397
	$	2,631	$	1,835	$	6,070	$	5,570
Other long-term assets:
Deposits	$	222	$	223
Intangibles, net	889		805
Other long-term assets, net:
Highview Investment	552		552		$	552	$	552
Other	407		728
Spare parts					3,325		3,278
Mine development costs, net					4,672		2,531
Mine reclamation asset, net					2,291		—
Prepaid royalty expense, long-term					955		955
Right of use assets, operating leases, net					5,894		—
Other long-term assets					674		677
	$	2,070	$	2,308	$	18,363	$	7,993

~~Included within Other long-term assets is~~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.

Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Company's mining operations which are depleted over the estimated life of the related mine reserves, which is 18 years. 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 September 30, 2019. Mine reclamation asset represents an asset retirement obligation asset and is depreciated over the estimated life of the mine, which is 18 years.

The Company holds a long-term investment ~~("Highview~~(the "Highview Investment") in Highview Enterprises ~~Limited's equity securities~~Limited ("Highview"), a London, England based developmental stage company specializing in power storage. In November 2014, the Company acquired an 8% ownership interest in the common stock of Highview for $2.8 million in cash. AsThe 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 ~~September 30, 2018,~~ the ~~Company's ownership interest is approximately 4%.~~ same issuer.

The Highview Investment is evaluated for ~~impairment upon an indicator~~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. During the year ended December 31, 2017, the Company recorded an impairment charge of $0.5 million which is included in the Other line item in the Condensed Consolidated Statement of Operations based on an estimated fair value of £1.00 per share comparedThere were no changes to the carrying value ~~prior~~of the Highview Investment for the three and nine months ended September 30, 2019 as there were no indicators of impairment or observable price changes for equity issued by Highview.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to the impairment charge of £2.00 per share. The estimated fair value as of December 31, 2017 was based on an equity financing that Highview commenced during the third quarter of 2017 at a price of £1.00 per share.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) September 30,
2018 December 31,
2017
Other current liabilities:
Income taxes payable $ 25
$ 207
Estimated restorative payment to the 401(k) Plan ⁽¹⁾
—
1,000
Dividends payable 57
45
Warranty liabilities 26
316
Other 519
1,096
$ 627
$ 2,664
Other long-term liabilities:
Deferred rent $ 128
$ 192
Dividends payable 167
93
Deferred revenue, related party —
2,000
$ 295
$ 2,285

~~(1) See Note 5 for further discussion on the 401(k) Plan.~~

~~The tables below detail additional components of Other current liabilities as presented above:~~

~~The changes in the carrying amount of the Company’s warranty obligations from December 31, 2017 through September 30, 2018 were as follows:~~

As of
(in thousands) September 30,
2018
Balance, beginning of period $ 316
Warranties accrued, net 9
Consumption of warranty obligations accrued (337 )
Change in estimate related to previous warranties accrued 38
Balance, end of period $ 26



	As of
(in thousands)	September 30, 2019		December 31, 2018
Other current liabilities:
Current portion of operating lease obligations	$	2,605	$	—
Accrued interest	339		407
Income and other taxes payable	420		479
Other	923		1,252
	$	4,287	$	2,138
Other long-term liabilities:
Operating lease obligations, long-term	$	3,332	$	—
Mine reclamation liability	2,540		624
Other long-term liabilities	190		316
	$	6,062	$	940

Supplemental Condensed Consolidated Statements of Operations Information

The following table details the components of Interest expense in the Condensed Consolidated Statements of Operations:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2018 2017 2018 2017
453A interest $ 388
$ 614
$ 1,128

$ 1,646
Credit agreement interest —
64
—
137
Other 11
—
19
216
$ 399
$ 678
$ 1,147
$ 1,999

~~The following table details the components of the Other line item of the~~ ~~Condensed Consolidated Statements of Operations~~:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017			2018		2017			2019		2018		2019		2018
Impairment of Highview investment	$	—	$	(464	)	$	—	$	(464	)
Revision in estimated royalty indemnity liability	—		—			—		3,400
Interest on Senior Term Loan											$	940	$	—	$	3,344	$	—
Debt discount and debt issuance costs											473		—		1,324		—
453A interest											234		388		882		1,128
Other	86		(460		)	146		(444		)	82		11		270		19
	$	86	$	(924	)	$	146	$	2,492		$	1,729	$	399	$	5,820	$	1,147

Note 912 - Income Taxes

For the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the Company's income tax expense and effective tax rates based on forecasted ~~pretax~~pre-tax income were:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except for rate)	2018			2017			2018			2017			2019			2018			2019			2018
Income tax expense	$	3,931		$	3,586		$	5,151		$	12,614		$	6,595		$	3,931		$	14,928		$	5,151
Effective tax rate	42		%	38		%	15		%	38		%	63		%	42		%	36		%	15		%

The effective tax ~~rates~~rate for the three and nine months ended September 30, ~~2018 and 2017 were~~2019 was different from the federal statutory ~~rates in effect during the respective periods~~rate due to ~~state income tax expense, net~~increases of ~~federal benefit,~~$4.8 million and ~~from changes~~$3.6 million, respectively, in the valuation allowance ~~against~~on deferred tax assets. ~~During~~These charges were a result of a reduction in forecasts as of September 30, 2019 of future years' taxable income. In addition, the effective rate for both the three and nine months ended September 30, ~~2018, we recorded an increase and decrease, respectively, of the valuation allowance based on changes in forecasts of future taxable income.~~

~~The income tax expense recorded for the three and nine months ended September 30, 2018~~2019 was ~~comprised of estimated federal income tax expense of $2.9 million and $3.4 million, respectively, and estimated~~increased by state income tax expense, net of ~~$1.0 million and $1.8 million, respectively. The income tax expense recorded for the three and nine months ended September 30, 2017 was comprised of estimated~~ federal ~~income tax expense of $3.2 million and $11.9 million, respectively, and estimated state income tax expense of $0.4 million and $0.7 million, respectively.~~

~~key provision applicable to the Company for the three and nine months ended September 30, 2018 was the reduction of the U.S. federal corporate tax rate from 35 percent to 21 percent.~~

Concurrent with the enactment of the Tax Act, in December 2017, the SEC staff issued Staff Accounting Bulletin 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Enactment Date for companies to complete the accounting under Accounting Standards Codification 740 ~~- Income Taxes~~ ("ASC 740"). In March 2018, the FASB codified SAB 118 into ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that an entity's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company's accounting for the income tax effects of the Tax Act affecting its consolidated financial statements was generally complete as of December 31, 2017 and there were no effects from the Tax Act on the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018. The Company does not anticipate any other accounting impacts of the Tax Act during the period within one year from the Enactment Date; however, it will continue to assess any potential impact from the Tax Act through this period.benefit.

The Company assesses the 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 the deferred tax asset, 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. As of September 30, 2018, the Company increased the valuation allowance as a result of updating its forecasts of future taxable income, which was primarily driven by updated forecasts of capital expenditures on RC facilities that are in the engineering

Advanced Emissions Solutions, Inc. and ~~installation phase.~~Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1013 - Business Segment Information

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 September 30, ~~2018,~~2019, the Company's CODM was the Company's CEO. The Company's operating and reportable segments are ~~organized~~identified by products and services provided.

As of September 30, ~~2018,~~2019, the Company has two reportable segments: (1) Refined Coal ("RC"); and (2) ~~Emissions Control~~Power Generation and Industrials ("~~EC"~~PGI").

The business segment measurements provided to and evaluated by the CODM are computed in accordance with the principles listed below:

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the ~~2017~~2018 Form ~~10-K, except as described below.~~10-K.

~~RC segment~~Segment revenues ~~includes the Company's~~include equity method earnings and losses from the Company's equity method ~~investments and royalties earned from Tinuum Group.~~investments.

Segment operating income (loss) includes segment revenues and allocation of certain "Corporate general and administrative expenses," which include Payroll and benefits, ~~Rent and occupancy,~~ Legal and professional fees and General and ~~administrative and Depreciation and amortization.~~administrative.

RC segment operating income includes interest expense directly attributable to the RC segment.

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, substantially all of the Company's material assets are located in the U.S. and all significant customers are U.S. companies. The following table presents the Company's operating segment results for the three and nine months ended September 30, ~~2018~~2019 and ~~2017:~~2018:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
Refined Coal:
Earnings in equity method investments	$	9,715		$	12,120		$	37,857		$	36,089		$	14,426		$	9,715		$	57,051		$	37,857
Royalties, related party	4,104			2,804			10,857			6,425
License royalties, related party													4,385			4,104			12,796			10,857
	13,819			14,924			48,714			42,514			18,811			13,819			69,847			48,714
Emissions Control:
Chemicals	1,043			717			2,390			3,844
Equipment Sales	—			1,577			72			31,304
Power Generation and Industrials:
Consumables													14,010			1,043			39,612			2,390
Other													—			—			—			72
	1,043			2,294			2,462			35,148			14,010			1,043			39,612			2,462
Total segment reporting revenues	14,862			17,218			51,176			77,662			32,821			14,862			109,459			51,176

Adjustments to reconcile to reported revenues:
Refined Coal:
Earnings in equity method investments	(9,715		)	(12,120		)	(37,857		)	(36,089		)	(14,426		)	(9,715		)	(57,051		)	(37,857		)
Corporate and other													738			—			1,631			—
Total reported revenues	$	5,147		$	5,098		$	13,319		$	41,573		$	19,133		$	5,147		$	54,039		$	13,319

Segment operating income (loss):
Refined Coal ⁽¹⁾	$	12,798		$	13,991		$	45,775		$	40,149		$	18,158		$	12,798		$	68,137		$	45,775
Emissions Control	(1,168		)	(895		)	(3,493		)	1,265
Power Generation and Industrials (2)													(977		)	(1,168		)	(8,301		)	(3,493		)
Total segment operating income	$	11,630		$	13,096		$	42,282		$	41,414		$	17,181		$	11,630		$	59,836		$	42,282

(1) Included ~~within the~~in RC segment operating income for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 is 453A interest expense of $0.2 million and $0.9 million and $0.4 million and $1.1 million, respectively.

(2) Included in PGI segment operating loss for the nine months ended September 30, 2019 was $4.7 million of costs recognized as a result of the step-up in inventory fair value recorded from the Carbon Solutions Acquisition. Also included in PGI segment operating loss for the three and ~~$0.6~~nine months ended September 30, 2019 was $1.9 million and ~~$1.6~~$4.5 million, ~~respectively.~~respectively, of depreciation, amortization, and depletion expense on mine and plant long-lived assets.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A reconciliation of reportable segment operating income to the Company's consolidated ~~net~~ income before income tax expense is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Total reported segment operating income													$	17,181		$	11,630		$	59,836		$	42,282
Other operating loss													(658		)	—			(1,409		)	—
													16,523			11,630			58,427			42,282
Segment operating income	$	11,630		$	13,096		$	42,282		$	41,414
Adjustments to reconcile to net income attributable to the Company
Adjustments to reconcile to income before income tax expense attributable to the Company:
Corporate payroll and benefits	(957		)	(1,222		)	(3,054		)	(4,375		)	(768		)	(957		)	(2,004		)	(3,054		)
Corporate rent and occupancy	(135		)	(91		)	(414		)	(208		)
Corporate legal and professional fees	(634		)	(964		)	(3,222		)	(3,091		)	(1,737		)	(634		)	(5,254		)	(3,222		)
Corporate general and administrative	(523		)	(857		)	(2,069		)	(2,513		)	(2,278		)	(658		)	(5,427		)	(2,483		)
Corporate depreciation and amortization	(23		)	(38		)	(97		)	(296		)	(21		)	(23		)	(41		)	(97		)
Corporate interest (expense) income, net	(10		)	(46		)	(18		)	(329		)	(1,413		)	(10		)	(4,668		)	(18		)
Other income (expense), net	86			(500		)	199			2,900			212			86			334			199
Income tax expense	(3,931		)	(3,586		)	(5,151		)	(12,614		)
Net income	$	5,503		$	5,792		$	28,456		$	20,888
Income before income tax expense													$	10,518		$	9,434		$	41,367		$	33,607

Corporate general and administrative expenses include certain costs that benefit the business as a whole but are not directly related to one of the Company's segments. Such costs include, but are not limited to, accounting and human resources staff, information systems costs, legal fees, facility costs, audit fees and corporate governance expenses.

A reconciliation of reportable segment assets to the Company's consolidated assets is as follows:

As of
(in thousands) September 30,
2018 December 31,
2017
Assets:
Refined Coal⁽¹⁾
$ 10,033
$ 8,092
Emissions Control 2,593
3,755
Total segment assets 12,626
11,847
All Other and Corporate⁽²⁾
70,530
70,771
Consolidated $ 83,156
$ 82,618



	As of
(in thousands)	September 30, 2019		December 31, 2018
Assets:
Refined Coal (1)	$	49,055	$	11,468
Power Generation and Industrials	82,121		85,786
Total segment assets	131,176		97,254
All Other and Corporate (2)	47,552		62,410
Consolidated	$	178,728	$	159,664

(1) Includes ~~$5.4~~$44.1 million and ~~$4.4~~$6.6 million of investments in equity method investees, respectively.

(2) ~~Included within All Other and Corporate are~~Includes the Company's deferred tax assets.

Note 1114 - Fair Value Measurements

Fair value of financial instruments

The carrying amounts of financial instruments, including cash, ~~and~~ cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short maturity of these instruments. Accordingly, these instruments are not presented in the table below. The following table provides the estimated fair values of the remaining financial instruments:

As of September 30, 2018 As of December 31, 2017
(in thousands) Carrying Value Fair Value Carrying Value Fair Value
Financial Instruments:
Highview Investment ⁽¹⁾
$ 552
$ 552
$ 552
$ 552
Highview technology license payable $ 219
$ 219
$ 210
$ 210

(1) Fair value is based on the investee's equity financing at £1.00 per share that commenced during the three months ended September 30, 2017. The fair value measurement represents a Level 3 measurement as it is based on significant inputs not observable in the market.



	As of September 30, 2019				As of December 31, 2018
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Instruments:
Highview Investment	$	552	$	552	$	552	$	552
Highview Obligation	$	207	$	207	$	213	$	213

Concentration of credit risk

The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company holds cash and cash equivalents at ~~one~~three financial ~~institution~~institutions as of September 30, ~~2018.~~2019. If ~~that~~ an

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash and investments in excess of the Federal Deposit Insurance Corporation limits (currently $250 thousand) that would be returned to the Company.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had no financial instruments carried and measured at fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company completed the Carbon Solutions Acquisition, in which the fair value of the purchase consideration totaled $66.5 million. The Company's allocation of purchase consideration to the estimated fair values of the assets acquired and liabilities assumed is disclosed in Note 2.

The fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.

Note 1215 - Restructuring

~~The~~In December 2018, the Company recorded restructuring charges ~~during~~in connection with the ~~three and nine months ended September 30,~~departures of certain executives of Carbon Solutions in conjunction with the Carbon Solutions Acquisition. As part of the Carbon Solutions Acquisition, the Company also assumed a salary severance liability for an additional executive of Carbon Solutions in the amount of $0.6 million. Additionally, the Company recorded restructuring charges in 2018 in connection with a reduction in force that commenced in May 2018 as part of the ~~departure of certain executive officers and management's~~Company's further alignment of the business with strategic ~~objectives.~~objectives, which included the departure of certain executive officers. These charges related to cash severance arrangements with departing employees and executives, as well as ~~non-cash~~stock-based compensation charges related to the acceleration of vesting of certain stock awards. ~~The Company recorded restructuring charges during the second and third quarters of 2018, dependent upon termination dates of individuals impacted.~~ There were no material restructuring ~~charges~~activities during the three and nine months ended September 30, ~~2017.~~2019.

A summary of the net pretax ~~restructuring~~ charges, incurred by segment, ~~excluding facility charges shown below,~~for the three and nine months ended September 30, 2018 is as follows:


		Pretax Charge									Pretax Charge
(in thousands, except employee data)	Approximate Number of Employees	Refined Coal ⁽¹⁾		Emissions Control ⁽¹⁾		All Other and Corporate ⁽¹⁾		Total		Approximate Number of Employees	Refined Coal (1)		Power Generation and Industrials (1)		All Other and Corporate (1)		Total
Three Months Ended September 30, 2018
Restructuring charges	7	$	168	$	500	$	434	$	1,102	7	$	168	$	500	$	434	$	1,102
Changes in estimates		—		—		—		—			—		—		—		—
Total pretax charge, net of reversals		$	168	$	500	$	434	$	1,102		$	168	$	500	$	434	$	1,102

Nine Months Ended September 30, 2018
Restructuring charges	13	$	448	$	996	$	557	$	2,001	13	$	448	$	996	$	557	$	2,001
Changes in estimates		—		—		—		—			—		—		—		—
Total pretax charge, net of reversals		$	448	$	996	$	557	$	2,001		$	448	$	996	$	557	$	2,001

(1) Restructuring charges were allocated consistent with the allocations made in Note 1013 - Business Segment ~~Information.~~

Information

The following table summarizes the Company's change in restructuring accruals for the nine months ended September 30, ~~2018:~~2019:


(in thousands)	Employee Severance			Employee Severance
Remaining accrual as of December 31, 2017	$	—
Remaining accrual as of December 31, 2018				$	2,208
Expense provision⁽¹⁾	2,001			233
Cash payments and other⁽¹⁾	(1,192		)	(1,758		)
Change in estimates	—			(104		)
Remaining accrual as of September 30, 2018	$	809
Remaining accrual as of September 30, 2019				$	579

~~(1) Included within the Expense provision~~

Advanced Emissions Solutions, Inc. and Cash payments and other line items in the above table is equity based compensation of $0.8 million for the nine months ended September 30, 2018, resulting from the accelerated vesting of modified equity-based compensation awards for certain terminated employees.Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~As of September 30, 2018, all restructuring charges have been accrued.~~ Restructuring accruals are included within the Accrued payroll and related liabilities line item in the Condensed Consolidated Balance Sheets. Restructuring expenses are included within the Payroll and benefits line item in the Condensed Consolidated Statements of ~~Operations~~.Operations.

Note 1316 - Subsequent Events

Unless disclosed elsewhere within the notes to the Condensed Consolidated Financial Statements, the following are the significant matters that occurred subsequent to September 30, ~~2018.~~

~~Invested RC Facility~~

On October 24, 2018, the Company announced that Tinuum Group completed a transaction for an additional RC facility. The RC facility is located at a coal plant that has historically burned in excess of 3.0 million tons of coal per year and is royalty bearing to ADES. With this addition, Tinuum Group has 19 invested facilities in full-time operation.2019.

Dividends

On November ~~6, 2018,~~12, 2019, the Company's Board declared a quarterly dividend of $0.25 per share of common stock, which is payable on December ~~6, 2018~~13, 2019 to stockholders of record atas of the close of business on November ~~20, 2018.~~26, 2019.

~~Related Party Transaction~~Share repurchase program

~~Gilbert Li, a director of~~As disclosed in Note 9, in November 2018, the Company's Board authorized the Company is the Co-Founder and Managing Partner of Alta Fundamental Advisers, a private investment company (“Alta”). Alta currently beneficially owns approximately 6.7% of the Company’s outstanding common stock, as it was granted an exemption in December 2017 under the TAPP to purchase up to 7%$20.0 million of ~~the~~its outstanding common stock. ~~Alta has requested an additional exemption under~~This stock repurchase program was to remain in effect until December 31, 2019 unless otherwise modified by the ~~TAPP for the acquisition or ownership~~Board. As of ~~up to 10% of the~~

~~outstanding common stock of~~September 30, 2019, the Company ~~(the “Alta Exemption Request”) in order that it may purchase additional shares of common stock without triggering the shareholder rights described in the TAPP.~~

Onhad $2.9 million remaining under this program. In November ~~6, 2018,~~2019, the Board ~~with Mr. Li abstaining,~~authorized an incremental $7.1 million to this stock repurchase program and provided that the ~~Audit Committee of~~program will remain in effect until all amounts are utilized or the ~~Board, approved~~program is otherwise modified by the ~~Alta Exemption Request and the related party transaction.~~Board.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of ~~the~~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 of this Quarterly Report and with the audited consolidated financial statements and the related notes of ADES included in ~~our 2017~~the 2018 Form 10-K.

Overview

~~ADES serves as the holding entity for a family of companies that~~We provide ~~emissions~~environmental solutions to customers in ~~the~~ coal-fired power generation, municipal water and ~~industrial boiler industries. Through~~other industries primarily through emissions and water purification control technologies of our subsidiaries and ~~equity investments, we are a leader in emissions control ("EC")~~joint ventures. Our proprietary technologies and associated ~~equipment, chemicals~~product offerings provide pollutant control solutions to enable coal-fired power generators, industrials and ~~services. Our proprietary environmental technologies enable our customers~~municipal water to reduce emissions of mercury and other air pollutants ~~maximize utilization levels~~ and ~~improve operating efficiencies~~ to ~~meet~~assist in the ~~challenges~~purification of ~~existing~~water.

We operate two segments: Refined Coal ("RC") and ~~pending EC regulations.~~

Power Generation and Industrials ("PGI") (f/k/a "Emissions Control" or "EC"). Our ~~major activities include:~~

•

~~Through~~RC segment is comprised of our equity ownership in Tinuum Group, LLC ("Tinuum Group"), an unconsolidated entity that provides reduction of mercury and nitrogen oxide ("NO_X") _X")emissions at select coal-fired power generators through the production ~~and sale of Refined Coal ("RC") that qualifies for tax credits under the Internal Revenue Code ("IRC")~~ ~~Section 45 - Production Tax Credit~~ ("Section 45 tax credits"). We benefit from Tinuum Group's production and sale of RC, which generates tax credits, as well as the revenue from selling or leasing RC facilities to tax equity investors; and

~~Development~~ and sale of ~~specialty chemicals~~RC that qualifies for tax credits under the Internal Revenue Code Section 45 - Production Tax Credit ("Section 45 tax credits"). We benefit from Tinuum Group's production and ~~equipment designed~~sale of RC, which generates tax credits, as well as its revenue from selling or leasing RC facilities to ~~reduce emissions~~tax equity investors.

Our PGI segment includes the sale of products that provide mercury ~~acid gases, metals~~control and other ~~pollutants,~~air and water contaminants control to coal-fired power generators and other industrial companies. Our primary products are produced from lignite coal, which creates activated carbon ("AC"). From AC, we manufacture various forms of AC that include powdered activated carbon ("PAC") and granular activated carbon ("GAC"). There are three primary consumable products that work in conjunction with the ~~providing~~installed equipment at coal-fired utilities to control mercury: PAC, coal additives and scrubber additives. In many cases these three consumable products can be used together or in many circumstances substituted for each other. However, activated carbon is typically the most efficient and effective way to capture mercury and currently accounts for over 50% of ~~technology services~~the mercury control consumables North American market.

On December 7, 2018 (the "Acquisition Date"), we acquired (the "Carbon Solutions Acquisition") 100% of the equity interests of ADA Carbon Solutions, LLC (“Carbon Solutions”). Carbon Solutions is a manufacturer and seller of AC and a leader in ~~support of our customers' emissions compliance strategies.~~

~~Adoption of New Revenue Standard~~

~~On January 1, 2018, we adopted ASC 606 -~~ ~~Revenue from Contracts with Customers~~ ~~("ASC 606") under the modified retrospective method. Under this method, we recorded an adjustment to the Accumulated deficit as of January 1, 2018~~mercury capture using PAC for the ~~cumulative effect~~coal-fired power plant, industrial and water treatment markets. Carbon Solutions also owns an associated lignite mine that supplies the primary raw material for manufacturing powdered activated carbon. Carbon Solutions was formed in 2008 as a 50/50 joint venture by the Company and Energy Capital Partners LLC. The Company relinquished its ownership in 2011 as part of ~~the adoption of ASC 606~~a legal settlement agreement as of that date. The adoption of ASC 606 resulted in an adjustment as of January 1, 2018 that reduced our Accumulated deficit by $3.0 million from the recognition of revenues, costs of revenues and related income taxes. In addition, under ASC 606, license royalties earned from Tinuum Group are now presented under Revenuesdescribed in the ~~Condensed Consolidated Statements of Operations~~Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The Company acquired Carbon Solutions primarily to expand the Company's product offerings within the mercury control industry and ~~the 2017 operating results have been recast to reflect this presentation change. See further discussion in Note 2 of the Condensed Consolidated Financial Statements.~~other complimentary PAC markets.

Results of Operations

For the three and nine months ended September 30, ~~2018,~~2019, we recognized net income of $3.9 million and $26.4 million compared to net income of $5.5 million and $28.5 ~~million compared to net income of $5.8 million and $20.9~~ million for the three and nine months ended September 30, ~~2017.~~2018.

The operating results for the three and nine months ended September 30, ~~2018~~2019 are primarily attributable to a combination of factors, including:

Continued performance in our RC business segment, principally related to ~~distributions,~~ equity earnings and royalties from our Tinuum Group and Tinuum Services, LLC ("Tinuum Services") equity investments;

~~Restructuring charges~~Performance in ~~connection with a reduction in force, the departure of certain executive officers and management's further alignment of the~~our PGI business ~~with strategic objectives;~~

~~Costs~~segment, principally related to ~~due diligence for potential mergers and acquisitions as well as consulting fees~~the Carbon Solutions Acquisition;

Impacts related to ~~ongoing clarification of federal income tax reform; and~~

~~A change~~changes in income tax ~~(benefit) expense due to a reduction in the federal tax rate as well as changes in the valuation allowance against our deferred tax assets.~~expense.

The following sections provide additional information regarding these comparative 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 September 30, ~~2018~~2019 and ~~2017~~2018

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the three months ended September 30, ~~2018~~2019 and ~~2017~~2018 is as follows:


	Three Months Ended September 30,				Change					Three Months Ended September 30,				Change
(in thousands, except percentages)	2018		2017		($)			(%)		2019		2018		($)		(%)
Revenues:
Chemicals	$	1,043	$	717	$	326		45	%
Consumables										$	14,748	$	1,043	$	13,705	1,314	%
License royalties, related party	4,104		2,804		1,300			46	%	4,385		4,104		281		7	%
Equipment sales	—		1,577		(1,577		)	(100	)%
Total revenues	$	5,147	$	5,098	$	49		1	%	$	19,133	$	5,147	$	13,986	272	%
Operating expenses:
Chemicals cost of revenue, exclusive of depreciation and amortization	$	954	$	574	$	380		66	%
Equipment sales cost of revenue, exclusive of depreciation and amortization	$	—	$	1,467	$	(1,467	)	(100	)%
Consumables cost of revenue, exclusive of depreciation and amortization										$	11,939	$	954	$	10,985	1,151	%

~~Chemicals~~Consumables and ~~Chemicals~~consumables cost of revenue

~~Chemical~~For the three months ended September 30, 2019, consumables revenues ~~are comprised of direct sales~~increased from the comparable period in 2018 primarily due to Carbon Solutions' operations. These operations also increased the total pounds of our ~~proprietary products~~consumables sold quarter over quarter.

Consumables revenue is affected by electricity demand driven by seasonal weather and related power generation needs as well as ~~evaluation tests of our proprietary chemicals' effectiveness and efficiency in reducing emissions ("Evaluation Tests"). Evaluation Tests entail the delivery of chemicals~~competitor prices related to ~~a customer and our evaluation of the results of emissions reduction over the term of the evaluation period, which is generally a period of up to four weeks.~~alternative power generation sources such as natural gas. During the three months ended September 30, 2019, Consumables revenue and margins were negatively impacted by low coal-fired power dispatch, most significantly driven by power generation from sources other than coal. In a recently updated forecast, the U.S. Energy Information Administration ("EIA") revised downward by 7% its December 2018 and 2017, revenues from direct sales of chemicals increased quarter over quarter primarily due to increased sales to new customers, offset by a significant decrease in sales to one customer. The total pounds of our chemicals sold decreased quarter over quarter and gross margins decreased quarter over quarter primarily due to ongoing price compression. During the three months ended September 30, 2018 and 2017, revenues from Evaluation Tests increased primarily from a significant customer contract that was completed during the three months ended September 30, 2018. However, we recognized negative gross margin on this contract, as well as other Evaluation Test contracts, which in the aggregate was approximately $0.1 millionforecast for the three months ended September 30, 2018. Our chemical technologies and knowledge continue to be important to the future of refined coal; as such we will be strategic in our pursuit of the deployment of chemical revenues to cover a portion of our expenses and maintain the assets for other strategic alternatives.

2019 coal-fired electricity-generating units.

License royalties, related party

~~During~~For the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, there were ~~10.5~~14.5 million tons and ~~6.9~~10.5 million tons, respectively, of RC produced using M-45^TM and M-45-PC^TMtechnologies ("M-45 Technology"), which Tinuum Group licenses from us ("M-45 License"). The increase in license royalties was primarily due to Tinuum Group obtaining additional third-party investors for ~~three~~ new RC facilities, one each during the second ~~half~~and fourth quarters of ~~2017 and one new~~2018, as well as four additional RC ~~facility~~facilities added during the ~~first half of 2018,~~nine months ended September 30, 2019, all of which use our M-45 License. The addition of ~~these~~ new invested RC facilities resulted in an increase in ~~rent~~both payments to Tinuum Group and the related tons subject to the M-45 License.

~~Equipment sales and Equipment sales cost of revenue, exclusive of items shown separately below~~

~~During~~ Offsetting the net increase in license royalties for the three months ended September 30, ~~2018 and 2017, we did not enter into any long-term (six months or longer) fixed price contracts~~2019 from the additional RC facilities was a lower royalty per ton rate, which was primarily due to ~~supply Activated Carbon Injection ("ACI") systems. All contracted ACI systems were completed~~higher depreciation recognized during ~~2017.~~

~~During~~ the three months ended September 30, ~~2018 and 2017, we did not enter into any long-term (six months or longer) fixed price contracts to supply Dry Sorbent Injection ("DSI") systems. As~~2019 on all royalty bearing RC facilities as a result of ~~January 1, 2018, all revenues and costs of revenues were recognized on the three DSI system uncompleted contracts~~a reduction in their estimated useful lives, as ~~of December 31, 2017 upon the adoption of ASC 606. During~~determined by Tinuum Group during the three months ended September 30, ~~2017,~~2019. License royalties are recognized based upon a percentage of the per-ton, pre-tax margin as defined in the M-45 License, which is negatively impacted by higher depreciation. Based on the change in estimated useful lives, we ~~completed one DSI system, recognizing revenues~~expect the royalty earned per ton of ~~$1.6 million and cost of revenue of $1.5 million.~~

~~Demand for ACI and DSI system contracts historically was driven by coal-fired power plant utilities that need~~RC through 2021 to comply with Federal Mercury and Air Toxics Standards ("MATS") and Maximum Achievable Control Technology Standards ("MACT"). As the deadline for these standards has passed, we do not expect to enter into any future long-term fixed price contracts for ACI and DSI systems.

be lower than historical rates.

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the Business Segments discussion and in Note 1013 to the Condensed Consolidated Financial Statements.

Other Operating Expenses

A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the three months ended September 30, 2019 and 2018 is as follows:



	Three Months Ended September 30,				Change
(in thousands, except percentages)	2019		2018		($)		(%)
Operating expenses:
Payroll and benefits	$	2,651	$	2,555	$	96	4	%
Legal and professional fees	1,755		698		1,057		151	%
General and administrative	3,136		834		2,302		276	%
Depreciation, amortization, depletion and accretion	2,043		74		1,969		2,661	%
	$	9,585	$	4,161	$	5,424	130	%

Payroll and benefits

Payroll and benefits expenses, which represent costs related to selling, general and administrative personnel, increased during the three months ended September 30, 2019 compared to the same quarter in 2018 primarily due to an increase in headcount of personnel resulting from the Carbon Solutions Acquisition. Payroll and benefits expenses for the three months ended September 30, 2018 also included restructuring expenses of $1.1 million.

Legal and professional fees

Legal and professional fees increased during the three months ended September 30, 2019 compared to the same quarter in 2018 due to legal and professional services costs associated with the integration of Carbon Solutions as well as expenses incurred related to on-going matters in the normal course of business.

General and administrative

General and administrative expenses increased during the three months ended September 30, 2019 compared to the same quarter in 2018 due to an increase in general operating expenses, including an increase in outsourced IT costs related to the integration of Carbon Solutions of approximately $1.0 million. Additional increases were related to rent and occupancy expense due to additional leased office and warehouse space resulting from the Carbon Solutions Acquisition of approximately $0.4 million quarter over quarter. Further increases related to travel and insurance expenses.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense increased during the three months ended September 30, 2019 compared to the same quarter in 2018 due to the addition of long-lived assets and intangible assets acquired as part of the Carbon Solutions Acquisition, which contributed approximately $1.7 million and $0.2 million of depreciation and amortization expense, respectively, for the three months ended September 30, 2019.

Other Income (Expense), net

A summary of the components of other income (expense), net for the three months ended September 30, 2019 and 2018 is as follows:



	Three Months Ended September 30,						Change
(in thousands, except percentages)	2019			2018			($)			(%)
Other income (expense):
Earnings from equity method investments	$	14,426		$	9,715		$	4,711		48	%
Interest expense	(1,729		)	(399		)	(1,330		)	333	%
Other	212			86			126			147	%
Total other income	$	12,909		$	9,402		$	3,507		37	%

Earnings from equity method investments

The following table details the components of our respective equity method investments included within the Earnings from equity method investments line item in the Condensed Consolidated Statements of Operations:



	Three Months Ended September 30,
(in thousands)	2019			2018
Earnings from Tinuum Group	$	11,746		$	8,075
Earnings from Tinuum Services	2,682			1,639
(Losses) earnings from other	(2		)	1
Earnings from equity method investments	$	14,426		$	9,715

Earnings from equity method investments, and changes related thereto, are impacted by our most significant equity method investees: Tinuum Group and Tinuum Services.

For the three months ended September 30, 2019, we recognized $11.7 million in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income of $11.7 million for the quarter. During the three months ended September 30, 2018, we recognized $8.1 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $15.8 million for the quarter. The difference between our pro-rata share of Tinuum Group's net income and our earnings from our Tinuum Group equity method investment as reported on the Condensed Consolidated Statements of Operations for the three months ended September 30, 2018 was the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognized such excess distributions as equity method earnings in the period the distributions occurred.

For the three months ended September 30, 2019, equity earnings from our interest in Tinuum Group were positively impacted by the addition of two new RC facilities during the three months ended September 30, 2019. However, our earnings were negatively impacted from higher depreciation on all Tinuum Group RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019. Additionally, during the current year, there has been a reduction in coal consumption, largely due to lower natural gas prices, as well as unusually lower temperatures during the first half of 2019. As a result of the reduction in coal consumption, during the three months ended September 30, 2019, Tinuum Group restructured RC facility contracted leases with its largest customer, which decreased lease payments beginning in the three months ended September 30, 2019 and will also negatively impact our pro-rata share of Tinuum Group's earnings in the future.

Further, two coal-fired utilities in which Tinuum Group has invested RC facilities announced expected closures in the fourth quarter of 2019 and the associated leases of those facilities will terminate during this period. As a result of higher depreciation, reduced lease payments and closures of two utilities, we expect our pro-rata share of Tinuum Group’s earnings and distributions to be lower in future periods. However, future incremental invested RC facilities would positively impact our expectation of future earnings and distributions.

Equity earnings from our interest in Tinuum Services increased by $1.0 million during the three months ended September 30, 2019 compared to the three months ended September 30, 2018, and for those quarters, Tinuum Services provided operating and maintenance services to 22 and 17 operating RC facilities, respectively. Tinuum Services derives earnings under fixed-fee arrangements as well as fee arrangements that are based on actual RC production, depending upon the specific RC facility operating and maintenance agreement.

Historically, we have earned Section 45 tax credits related to the production of RC, most significantly due to our direct and indirect ownership, through Tinuum Group, in the GWN REF RC facility ("GWN REF"). However, based on an agreement effective January 1, 2019 with its largest customer, which also has an ownership interest in Tinuum Group, substantially all of the tax credits earned from GWN REF will be allocated to this customer. As a result, our earned Section 45 tax credits for 2019 through 2021 will be substantially lower. For the three months ended September 30, 2019 and 2018, our Section 45 tax credits earned were $0.1 million and $1.6 million, respectively.

Interest expense

For the three months ended September 30, 2019, interest expense increased $1.3 million compared to the three months ended September 30, 2018 primarily due to interest expense incurred in the three months ended September 30, 2019 of $1.4 million related to a senior term loan (the "Senior Term Loan") entered into on December 7, 2018 to fund the Carbon Solutions Acquisition. This increase was comprised of stated interest on the Senior Term Loan principal of $0.9 million and interest expense related to debt discount and debt issuance costs associated with the Senior Term Loan of $0.5 million.

Income tax expense

For the three months ended September 30, 2019, we recorded income tax expense of $6.6 million compared to income tax expense of $3.9 million for the three months ended September 30, 2018. The income tax expense recorded for the three months ended September 30, 2019 was comprised of estimated federal income tax expense of $6.2 million and estimated state income tax expense of $0.4 million. The income tax expense recorded for the three months ended September 30, 2018 was comprised of estimated federal income tax expense of $2.9 million and estimated state income tax expense of $1.0 million.

The increase in income tax expense quarter over quarter was primarily due to an increase in the valuation allowance on deferred tax assets of $4.8 million for the three months ended September 30, 2019 compared to an increase of $1.4 million for the three months ended September 30, 2018 based on changes in forecasts as of September 30, 2019 and September 30, 2018, respectively, of future years' taxable income. Offsetting the net increase in income tax expense quarter over quarter was a decrease in state income tax expense of $0.6 million.

Comparison of the Nine Months Ended September 30, 2019 and 2018

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the nine months ended September 30, 2019 and 2018 is as follows:



	Nine Months Ended September 30,					Change
(in thousands, except percentages)	2019		2018			($)			(%)
Revenues:
Consumables	$	41,243	$	2,390		$	38,853		1,626	%
License royalties, related party	12,796		10,857			1,939			18	%
Other	—		72			(72		)	*
Total revenues	$	54,039	$	13,319		$	40,720		306	%
Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	$	38,339	$	2,567		$	35,772		1,394	%
Other sales cost of revenue, exclusive of depreciation and amortization	$	—	$	(346	)	$	346		(100	)%

* Calculation not meaningful

Consumables and consumables cost of revenue

During the nine months ended September 30, 2019, consumables revenues increased from the comparable period in 2018 primarily due to Carbon Solutions' operations. These operations also increased the total pounds of our consumables sold period over period.

Consumables cost of revenue was negatively impacted during the nine months ended September 30, 2019 due to $5.0 million of costs recognized as a result of the step-up in inventory fair value recorded from the Carbon Solutions Acquisition. As of June 30, 2019, the step-up in inventory was fully recognized in cost of revenue and consumables gross margin will not be impacted for the remainder of 2019.

During the nine months ended September 30, 2019, Consumables revenue and margins were negatively impacted by low coal-fired power dispatch driven by mild weather conditions as well as power generation from sources other than coal. In a recently updated forecast, the EIA revised downward by 7% its December 2018 forecast for 2019 coal-fired electricity-generating units.

License royalties, related party

For the nine months ended September 30, 2019 and 2018, there were 35.0 million tons and 26.4 million tons, respectively, of RC produced using the M-45 Technology under the M-45 License. The increase in license royalties was primarily due to obtaining additional third-party investors for two new RC facilities during 2018 and four new RC facilities during 2019, all of which use our M-45 License. The addition of new invested RC facilities in 2018 and 2019 resulted in an increase in both cash payments to Tinuum Group and the related tons subject to the M-45 License. Offsetting the net increase in license royalties for the nine months ended September 30, 2019 from additional facilities was a lower royalty per ton rate. This lower rate is attributable to higher depreciation recognized on all royalty bearing RC facilities during the three months ended September 30, 2019 as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019.

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the segment discussion below and in Note 13 to the Condensed Consolidated Financial Statements.

Other Operating Expenses

A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the ~~three~~nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 is as follows:


	Three Months Ended September 30,				Change					Nine Months Ended September 30,				Change
(in thousands, except percentages)	2018		2017		($)			(%)		2019		2018		($)		(%)
Operating expenses:
Payroll and benefits	$	2,555	$	1,679	$	876		52	%	$	8,005	$	7,528	$	477	6	%
Rent and occupancy	250		255		(5		)	(2	)%
Legal and professional fees	698		1,062		(364		)	(34	)%	5,300		3,459		1,841		53	%
General and administrative	584		1,114		(530		)	(48	)%	7,699		3,098		4,601		149	%
Depreciation and amortization	74		87		(13		)	(15	)%
Depreciation, amortization, depletion and accretion										4,902		262		4,640		1,771	%
	$	4,161	$	4,197	$	(36	)	(1	)%	$	25,906	$	14,347	$	11,559	81	%

Payroll and benefits

Payroll and benefits expenses increased during the ~~three~~nine months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in headcount of personnel resulting from the Carbon Solutions Acquisition. Payroll and benefits expenses for the nine months ended September 30, 2018 ~~compared to the same quarter in 2017 primarily due to~~also included restructuring expenses ~~in connection with the termination~~ of certain executive officers and employees as part of management's alignment of the business with strategic objectives. During the three months ended September 30, 2018, we recorded net restructuring charges of $1.1$2.0 million. ~~This cost increase was partially offset by a decrease in stock compensation expense of approximately $0.3 million related to fewer equity awards outstanding.~~

Legal and professional fees

Legal and professional fees ~~decreased~~expenses increased during the ~~three~~nine months ended September 30, ~~2018~~2019 compared to the same ~~quarter~~period in ~~2017~~2018 primarily due to ~~decreased~~ legal and professional fees associated with the integration of ~~approximately $0.5 million, primarily in connection with legal proceedings that have been resolved. This decrease was partially offset by an increase in consulting fees~~Carbon Solutions as well as expenses incurred related to ~~ongoing clarification~~on-going matters in the normal course of ~~federal income tax reform of approximately $0.1 million.~~business.

General and administrative

General and administrative expenses ~~decreased~~increased during the ~~three~~nine months ended September 30, ~~2018~~2019 compared to the same ~~quarter~~period in ~~2017~~2018 due to ~~a decrease~~an increase in general operating expenses, including ~~a decrease~~an increase in outsourced IT costs related to the integration of Carbon Solutions of approximately $1.6 million. Further increases period over period of approximately $1.0 million related to rent and ~~outside director~~occupancy expense from additional leased office and warehouse space resulting from the Carbon Solutions Acquisition. Remaining increases period over period related to travel, insurance and recruiting expenses.

Depreciation and amortization

Depreciation and amortization expense increased during the nine months ended September 30, 2019 compared to the same period in 2018 due to the addition of long-lived assets and intangible assets acquired as part of the Carbon Solutions Acquisition, which contributed approximately $3.8 million and $0.7 million of depreciation and amortization, respectively, for the nine months ended September 30, 2019.

Other Income (Expense), net

A summary of the components of our other income (expense), net for the ~~three~~nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 is as follows:


	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
(in thousands, except percentages)	2018			2017			($)			(%)		2019			2018			($)			(%)
Other income (expense):
Earnings from equity method investments	$	9,715		$	12,120		$	(2,405	)	(20	)%	$	57,051		$	37,857		$	19,194		51	%
Interest expense	(399		)	(678		)	279			(41	)%	(5,820		)	(1,147		)	(4,673		)	407	%
Other	86			(924		)	1,010			(109	)%	342			146			196			134	%
Total other income	$	9,402		$	10,518		$	(1,116	)	(11	)%	$	51,573		$	36,856		$	14,717		40	%

Earnings from equity method investments

The following table details the components of our respective equity method investments included within the Earnings from equity method investments line item on the Condensed Consolidated Statements of ~~Operations~~:Operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017		2019			2018
Earnings from Tinuum Group	$	8,075	$	11,050	$	50,757		$	33,575
Earnings from Tinuum Services	1,639		1,061		6,297			4,281
Earnings from other	1		9
(Losses) earnings from other					(3		)	1
Earnings from equity method investments	$	9,715	$	12,120	$	57,051		$	37,857

Earnings from equity method investments, and changes related thereto, are impacted by our most significant equity method investees: Tinuum Group and Tinuum Services. ~~Earnings from equity method investments decreased during~~

For the ~~three~~nine months ended September 30, 2018 compared to the same quarter in 2017 primarily due to completing a sale of an RC facility to a third-party investor during the three months ended September 30, 2017, which included a prepayment amount to Tinuum Group, which was subsequently distributed to Tinuum Group's equity members. Additionally, Tinuum Group also had cash expenditures of $7.2 million related to the engineering and installation phases of RC facilities, which have reduced distributions to Tinuum Group's equity members, therefore negatively impacting our equity earnings for the three months ended September 30, 2018.

~~During the three months ended September 30, 2018,~~2019, we recognized ~~$8.1~~$50.8 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of ~~$15.8~~$52.4 million for the quarter. During the three months ended September 30, 2017, we recognized $11.1 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $11.4 million for the quarter.period. The difference between our pro-rata share of Tinuum Group's net income and our earnings from our 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, as discussed in more detail below.

The carrying value of our investment in Tinuum Group was zero as of September 30, 2018, as cumulative cash distributions received from Tinuum Group exceeded our pro-rata share of cumulative earnings in Tinuum Group. The carrying value of our investment in Tinuum Group will remain zero as long as the cumulative amount of distributions received from Tinuum Group continues to exceed our cumulative pro-rata share of Tinuum Group's net income. For quarterly periods during which the ending balance of our investment in Tinuum Group is zero, we only recognize equity earnings from Tinuum Group to the extent that cash distributions are received from Tinuum Group during the period. For quarterly periods during which the ending balance of our investment is greater than zero (e.g., when the cumulative earnings in Tinuum Group exceeds cumulative cash distributions received), we recognize our pro-rata share of Tinuum Group's net income for the period, less any amount necessary to recoverrepresents the cumulative earnings short-fall balance as of the end of the immediately preceding ~~quarter. See additional information related to our investment balance, equity earnings (losses) and cash distributions in Note 3 of the Condensed Consolidated Financial Statements.~~

As of September 30, 2018 and 2017, Tinuum Group had 18 and 15 invested RC facilities, respectively, that were generating revenues. There were no 100% retained RC facilities as of September 30, 2018 orperiod, which was December 31, ~~2017, except for temporary operations of a retained RC facility prior to its lease or sale or as discussed below related to GWN Manager, LLC ("GWN Manager").~~

On October 24, 2018, we announced that Tinuum Group completed a transaction for an additional RC facility. The RC facility is located at a coal plant that has historically burned in excess of 3.0 million tons of coal per year and is royalty bearing to us. With this addition, Tinuum Group has 19 invested facilities in full-time operation.

Equity earnings from our interest in Tinuum Services increased by $0.6 million during the three months ended September 30, 2018 compared to the three months ended September 30, 2017, and for those quarters, Tinuum Services provided operating and maintenance services to 17 and 14 operating RC facilities, respectively. Tinuum Services derives earnings both from fixed-fee arrangements as well as fees that are based on actual RC production, depending upon the specific RC facility operating and maintenance agreement.

~~We earned the following Section 45 tax credits related to the production of RC that may be available for future benefit:~~

Three Months Ended September 30,
(in thousands) 2018 2017
Section 45 tax credits earned $ 1,649
$ 1,044

The increase in Section 45 tax credits earned during the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was due to our membership interest in GWN Manager, LLC ("GWN Manager") and Tinuum Group's ownership in a single RC facility that is generating tax credits.

~~Interest expense~~

During the three months ended September 30, 2018, interest expense decreased $0.3 million compared to the three months ended September 30, 2017 primarily due to a reduction in the deferred balance related to Internal Revenue Code section 453A ("453A"), which requires taxpayers to pay an interest charge on the portion of the tax liability that is deferred under the installment method for tax purposes. This decrease was partially offset by an increase in the interest rate from 4% to 5% for 2018.

~~Other~~

In 2016, the DOL opened an investigation into the Advanced Emissions Solutions, Inc. Profit Sharing Retirement Plan (the "401(k) Plan"). Based on the investigation, during the three months ended September 30, 2017, we believed a liability for a restorative payment to the 401(k) Plan was probable and reasonably estimable and, as such, we accrued $0.5 million as of September 30, 2017. As of December 31, 2017 and based on further discussions with the DOL as part of its investigation, we increased our accrual for a restorative payment to $1.0 million.

During the three months ended September 30, 2017, we recorded an impairment charge of $0.5 million for our equity investment in Highview Enterprises Limited ("Highview") based on an estimated fair value of £1.00 per share compared to its estimated carrying value prior to the impairment charge of £2.00 per share.

~~Income tax expense~~

On December 22, 2017 (the "Enactment Date"), the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, and the key provision applicable to us for the three and nine months ended September 30, 2018 was the reduction of the U.S. federal corporate tax rate from 35 percent to 21 percent.

For the three months ended September 30, 2018, we recorded income tax expense of $3.9 million compared to income tax expense of $3.6 million for three months ended September 30, 2017. The income tax expense recorded for the three months ended September 30, 2018 was comprised primarily of estimated federal income tax expense of $2.9 million and estimated state income tax expense of $1.0 million. The change in income tax expense for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was due to the decrease in the federal statutory tax rate from 35 percent to 21 percent due to the Tax Act. In addition, the change in income tax expense quarter over quarter was also attributable to an increase in the valuation allowance against our deferred tax assets during the three months ended September 30, 2018. The increase in the valuation allowance was a result of updating our forecasts of continued future taxable income, which was primarily driven by updated forecasts of capital expenditures on RC facilities that are in the engineering and installation phase.

~~Comparison of the Nine Months Ended September 30, 2018 and 2017~~

~~Total Revenue and Cost of Revenue~~

~~A summary of the components of our revenues and cost of revenue for the nine months ended September 30, 2018 and 2017 is as follows:~~

Nine Months Ended September 30, Change
(in thousands, except percentages) 2018 2017 ($) (%)
Revenues:
Chemicals $ 2,390
$ 3,844
$ (1,454 ) (38 )%
License royalties, related party 10,857
6,425
4,432
69 %
Equipment sales 72
31,304
(31,232 ) (100 )%
Total revenues $ 13,319
$ 41,573
$ (28,254 ) (68 )%
Operating expenses:
Chemicals cost of revenue, exclusive of depreciation and amortization $ 2,567
$ 2,977
$ (410 ) (14 )%
Equipment sales cost of revenue, exclusive of depreciation and amortization $ (346 ) $ 28,260
$ (28,606 ) (101 )%

~~Chemicals and Chemicals cost of revenue~~

During the nine months ended September 30, 2018 and 2017, revenues from direct sales of chemicals decreased period over period primarily due to a significant decrease in sales to two customers, partially offset by increased sales to new customers in 2018. The total pounds of our chemicals sold decreased period over period and gross margins decreased period over period primarily due to ongoing price compression. During the nine months ended September 30, 2018 and 2017, revenues from Evaluation Tests increased primarily from two significant customer contracts that were completed in June and August 2018, respectively. However, we recognized negative gross margin on one of these Evaluation Test contracts of $0.5 million, which was the primary impact on our overall negative gross margin in total chemical revenues for the nine months ended September 30, 2018.

~~License royalties, related party~~

During the nine months ended September 30, 2018 and 2017, there were 26.4 million tons and 14.5 million tons, respectively, of RC produced using the M-45 Technology under the M-45 License. The increase in license royalties was primarily due to obtaining additional third-party investors for three new RC facilities during the second half of 2017 and one new RC facility during the first half of 2018, all of which use our M-45 License. The addition of these new invested RC facilities resulted in an increase in rent payments to Tinuum Group and the related tons subject to the M-45 License.

~~Equipment sales and Equipment sales cost of revenue, exclusive of items shown separately below~~

During the nine months ended September 30, 2018 and 2017, we did not enter into any long-term (six months or longer) fixed price contracts to supply ACI systems. During the nine months ended September 30, 2017, change orders on ACI systems negatively impacted contract revenue by $0.1 million. During the nine months ended September 30, 2017, we completed four ACI systems, recognizing revenues of $3.4 million and cost of revenue of $2.3 million. All contracted ACI systems were completed during 2017.

During the nine months ended September 30, 2018 and 2017, we did not enter into any long-term (six months or longer) fixed price contracts to supply DSI systems. As of January 1, 2018, all revenues and costs of revenues were recognized on the three DSI system uncompleted contracts as of December 31, 2017 upon the adoption of ASC 606. During the nine months ended September 30, 2017, we completed five DSI systems recognizing revenues of $27.8 million and cost of revenue of $25.9 million.

During the nine months ended September 30, 2018, we settled a previously recorded commitment for additional work related to a contract with a customer. The result of such settlement was a reduction to Equipment sales cost of revenue, exclusive of depreciation and amortization of $0.3 million and additional General and administrative expense of $0.2 million, for a net increase to operating income of $0.1 million. We collected cash in the amount of $0.5 million related to this commitment during the nine months ended September 30, 2018. Additionally, during the nine months ended September 30, 2018, Equipment sales cost of revenue, exclusive of depreciation and amortization, was impacted by a net decrease of $0.2 million in the estimate of a liability related to a DSI equipment system.

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the segment discussion below and in Note 10 to the Condensed Consolidated Financial Statements.

~~Other Operating Expenses~~

~~A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the nine months ended September 30, 2018 and 2017 is as follows:~~

Nine Months Ended September 30, Change
(in thousands, except percentages) 2018 2017 ($) (%)
Operating expenses:
Payroll and benefits $ 7,528
$ 5,894
$ 1,634
28 %
Rent and occupancy 766
555
211
38 %
Legal and professional fees 3,459
3,316
143
4 %
General and administrative 2,332
2,964
(632 ) (21 )%
Depreciation and amortization 262
687
(425 ) (62 )%
$ 14,347
$ 13,416
$ 931
7 %

~~Payroll and benefits~~

Payroll and benefits expenses increased during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to restructuring expenses in connection with the termination of certain executive officers and employees as part of management's alignment of the business with strategic objectives. During the nine months ended September 30, 2018, we recorded net restructuring charges of $2.0 million. This cost increase was partially offset by a decrease in stock compensation expense of approximately $0.4 million related to fewer equity awards outstanding.

~~Rent and occupancy~~

Rent and occupancy expense increased during the nine months ended September 30, 2018 compared to the same period in 2017 primarily as a result of the relocation of our corporate headquarters in the first quarter of 2017 and the reversal of deferred rent and tenant improvement allowances recorded in the March 2017 quarter associated with the termination of the lease agreement of our former corporate headquarters.

~~Legal and professional fees~~

Legal and professional fees expenses increased during the nine months ended September 30, 2018 compared to the same period in 2017 as a result of approximately $1.0 million incurred related to due diligence for potential mergers and acquisitions as well as $0.5 million in consulting fees related to ongoing clarification of federal income tax reform. Offsetting these costs was a reduction in costs related to outsourced shared service costs, including accounting consultants, legal fees and audit fees.

~~General and administrative~~

General and administrative expenses decreased during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to a $0.4 million reserve on an asset related to a letter of credit draw made by a former customer and a reduction in an asset retirement obligation estimate of $0.8 million, both of which were recorded during the nine months ended September 30, 2017. Additional decreases during the nine months ended September 30, 2018 compared to the same period in 2017 included a reduction in general operating expenses of approximately $0.2 million, which included decreases in outsourced IT costs and outside director expenses.

~~Depreciation and amortization~~

Depreciation and amortization expense decreased during the nine months ended September 30, 2018 compared to the same period in 2017 due to a reduction in certain assets, including software, which was subject to acceleration of depreciation and disposed of in connection with implementing a new enterprise resource planning system. Additionally, we recorded lower depreciation during the nine months ended September 30, 2018 as a result of accelerating depreciation and disposing of certain assets in connection with our office relocation in the first quarter of 2017.

~~Other Income (Expense), net~~

~~A summary of the components of our other income (expense), net for the nine months ended September 30, 2018 and 2017 is as follows:~~

Nine Months Ended September 30, Change
(in thousands, except percentages) 2018 2017 ($) (%)
Other income (expense):
Earnings from equity method investments $ 37,857
$ 36,089
$ 1,768
5 %
Interest expense (1,147 ) (1,999 ) 852
(43 )%
Other 146
2,492
(2,346 ) (94 )%
Total other income $ 36,856
$ 36,582
$ 274
1 %

~~Earnings from equity method investments~~

~~The following table details the components of our respective equity method investments included within the Earnings from equity method investments line item on the~~ ~~Condensed Consolidated Statements of Operations~~:

Nine Months Ended September 30,
(in thousands) 2018 2017
Earnings from Tinuum Group $ 33,575
$ 33,363
Earnings from Tinuum Services 4,281
2,717
Earnings from other 1
9
Earnings from equity method investments $ 37,857
$ 36,089

Earnings from equity method investments, and changes related thereto, are impacted by our most significant equity method investees: Tinuum Group and Tinuum Services. Earnings from equity method investments increased during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to an increase in cash distributions from Tinuum Group in excess of our investment balance. Our distributions for the nine months ended September 30, 2018 were negatively impacted by cash expenditures related to the engineering and installation phases of RC facilities of approximately $12.2 million.

~~During~~For the nine months ended September 30, 2018, we recognized $33.6 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $42.3 million for the period. During the nine months ended September 30, 2017, we recognized $33.4 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $33.6 million for the period. TheThis difference ~~between our pro-rata share of Tinuum Group's net income and our earnings from our Tinuum Group equity method investment as reported on the Condensed Consolidated Statements of Operations is~~was the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we ~~recognize~~recognized such excess distributions as equity method earnings in the period the distributions ~~occur.~~occurred. For the nine months ended September 30, 2019, equity earnings from Tinuum Group were negatively impacted from higher depreciation on all Tinuum Group RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019, as described above.

For the nine months ended September 30, 2019, equity earnings from our interest in Tinuum Group were positively impacted by the addition of four new RC facilities during the nine months ended September 30, 2019. Further, revenues from two of these facilities were recognized immediately in 2019 as a result of Tinuum Group’s adoption of ASC Topic 606 - Revenue from Contracts with Customers ("ASC 606") and ASC Topic 842 - Leases ("ASC 842") as of January 1, 2019. However, our earnings were negatively impacted from higher depreciation on all Tinuum Group RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019, as described above. As a result of a reduction in coal consumption, as noted above, during the three months ended September 30, 2019, Tinuum Group restructured RC facility contracted leases with its largest customer, which decreased lease payments beginning in the three months ended September 30, 2019 and will also negatively impact our pro-rata share of Tinuum Group's earnings in the future.

As of September 30, 2019 and 2018, Tinuum Group had 23 and 18 invested RC facilities, respectively, that were generating revenues. There were no 100% retained RC facilities as of September 30, 2019 or September 30, 2018, except for temporary operations of a retained RC facility prior to its lease or sale.

Equity earnings from our interest in Tinuum Services increased during the nine months ended September 30, ~~2018~~2019 compared to the nine months ended September 30, ~~2017.~~ 2018.During the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, Tinuum Services provided operating and maintenance services to 1722 and 1417 operating RC facilities, ~~respectively.~~respectively, which was the driver in the increase in equity earnings. Tinuum Services derives earnings ~~both from~~under fixed-fee arrangements as well as ~~fees~~fee arrangements that are based on actual RC production, depending upon the specific RC facility operating and maintenance agreement.

~~We earned the following Section 45 tax credits related to the production of RC that may be available for future benefit:~~

Nine Months Ended September 30,
(in thousands) 2018 2017
Section 45 tax credits earned $ 5,267
$ 1,141

The increase in Section 45 tax credits earned during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was due to our membership interest in GWN Manager and Tinuum Group's ownership in a single RC facility that is generating tax credits.

~~Interest expense~~

During the nine months ended September 30, 2019 and 2018, our Section 45 tax credits earned were $0.2 million and $5.3 million, respectively. As discussed above, the substantial decrease period over period was primarily due to an agreement between Tinuum Group and its largest customer effective January 1, 2019 that allocated substantially all of the tax credits earned from GWN REF to this customer, who also has an ownership interest in Tinuum Group.

Interest expense

For the nine months ended September 30, 2019, interest expense ~~decreased $0.9~~increased $4.7 million compared to the nine months ended September 30, ~~2017~~2018 primarily due to ~~a reduction~~interest expense incurred in ~~the deferred balance related to Section 453A. This decrease was partially offset by an increase in the interest rate from 4% to 5% for 2018.~~

~~Other~~

~~During~~ the nine months ended September 30, 2017, management revised its estimate for future royalty payments required under a legal settlement and recorded a reduction in its accrual of $3.4 million based in part on an updated forecast provided to us by a former equity method investment. This forecast included a material reduction in estimated future revenues generated at the specific activated carbon plant from which the royalties were generated. See further discussion in Note 52019 related to the ~~Condensed Consolidated Financial Statements.~~

~~In 2016, the DOL opened an investigation into the 401(k) Plan. Based~~Senior Term Loan. The increase was mostly comprised of stated interest on the ~~investigation, during the three months ended September 30, 2017, we believed a liability for a restorative payment~~Senior Term Loan principal of $3.3 million and interest expense related to ~~the 401(k) Plan was probable~~debt discount and ~~reasonably estimable and, as such, we accrued $0.5 million as of September 30, 2017. As of December 31, 2017 and based on further discussions~~debt issuance costs associated with the ~~DOL as part~~Senior Term Loan of ~~its investigation, we increased our accrual for a restorative payment to $1.0~~$1.3 million.

During the nine months ended September 30, 2017, we recorded an impairment charge of $0.5 million for the Highview Investment based on an estimated fair value of £1.00 per share compared to its estimated carrying value prior to the impairment charge of £2.00 per share.

Income tax expense

For the nine months ended September 30, ~~2018,~~2019, we recorded income tax expense of ~~$5.2~~$14.9 million compared to income tax expense of ~~$12.6~~$5.2 million for the nine months ended September 30, ~~2017.~~2018. The income tax expense recorded for the nine months ended September 30, 2019 was comprised of estimated federal income tax expense of $13.2 million and estimated state income tax expense of $1.7 million. The income tax expense recorded for the nine months ended September 30, 2018 was comprised ~~primarily~~ of estimated federal income tax expense of $3.4 million and estimated state income tax expense of $1.8 million.

The increase in income tax expense ~~recorded~~period over period was primarily due to: (1) an increase in forecasted pre-tax income period over period from the Carbon Solutions Acquisition and the addition of new invested RC facilities during the nine months ended September 30, 2019, which resulted in an increase in income tax expense of $3.2 million from the nine months ended September 30, 2018; and (2) an increase in the valuation allowance of on deferred tax assets of $3.8 million for the nine months ended September 30, ~~2017 was comprised of estimated federal income tax expense of $11.9 million and estimated state income tax expense of $0.7 million. The~~2019 compared to a decrease in ~~income tax expense~~the valuation allowance of $2.7 million for the nine months ended September 30, 2018 ~~compared~~based on changes in forecasts of future years' taxable income as of September 30, 2019 and September 30, 2018, respectively.

Non-GAAP Financial Measures

To supplement the Company's financial information presented in accordance with U.S. generally accepted accounting principles, or GAAP, we are providing non-GAAP measures of certain financial performance. These non-GAAP measures include Consolidated EBITDA and Segment EBITDA. The Company included non-GAAP measures because management believes that they help to facilitate comparison of operating results between periods. The Company believes the non-GAAP measures 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. 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 the Company's results of operations in conjunction with the corresponding GAAP measures.

The Company has defined Consolidated EBITDA as net income, adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: depreciation, amortization, depletion and accretion, interest expense, net and income tax expense. Because Consolidated EBITDA omits certain non-cash items, the Company believes that the measure is less susceptible to variances that affect the Company's operating performance.

Segment EBITDA is calculated as Segment operating income (loss) adjusted for the impact of the following items that are either non-cash or that the Company does not consider representative of its ongoing operating performance: depreciation, amortization, depletion and accretion and interest expense, net. When used in conjunction with GAAP financial measures, Segment EBITDA is a supplemental measure of operating performance that management believes is a useful measure for the Company's PGI segment performance relative to the performance of its competitors as well as performance period over period. Additionally, the Company believes the measure is less susceptible to variances that affect its operating performance results.

The Company presents Consolidated EBITDA and Segment EBITDA because the Company believes they are useful as supplemental measures in evaluating the performance of the Company's operating performance and provide greater transparency into the results of operations. The Company's management uses Consolidated EBITDA and Segment EBITDA as factors in evaluating the performance of its business.

The adjustments to Consolidated EBITDA and Segment EBITDA in future periods are generally expected to be similar. Consolidated EBITDA and Segment EBITDA have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analyzing the Company's results as reported under GAAP.

Consolidated EBITDA



	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018
Net income (1)	$	3,923	$	5,503	$	26,439	$	28,456
Depreciation, amortization, depletion and accretion	2,043		74		4,902		262
Interest expense, net	1,663		317		5,619		1,003
Income tax expense	6,595		3,931		14,928		5,151
Consolidated EBITDA	$	14,224	$	9,825	$	51,888	$	34,872

(1) Net income for the nine months ended September 30, ~~2017~~2019 was ~~primarily~~inclusive of a $5.0 million adjustment, which increased cost of revenue due to ~~the decrease~~a step-up in ~~the federal statutory tax rate from 35 percent to 21 percent due~~basis of inventory acquired related to the Tax Act. In addition, the decrease in income tax expense period over period was attributable to a decrease in the valuation allowance against our deferred tax assets. The decrease in the valuation allowance was a result of updating our forecasts of continued future taxable income, which was primarily driven by increases in RC invested facilities.Carbon Solutions Acquisition.

Business Segments

As of September 30, ~~2018,~~2019, we have two reportable segments: (1) RC and (2) ~~EC.~~PGI. The business segment measurements provided to and evaluated by our chief operating decision maker are computed in accordance with the principles listed below:

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies ~~except as described below.~~in the 2018 Form 10-K.

~~RC segment~~Segment revenues ~~includes our~~include equity method earnings and losses from our equity method ~~investments and royalty earnings from Tinuum Group.~~investments.

Segment operating income (loss) includes segment revenues and allocation of certain "Corporate general and administrative expenses," which include Payroll and benefits, Rent and occupancy, Legal and professional fees, and General and ~~administrative, and Depreciation and amortization.~~administrative.

~~All items not included in~~RC segment operating income ~~are excluded from~~includes interest expense directly attributable to the RC ~~and EC segments.~~segment.

The principal products and services of our segments are:

RC - Our RC segment derives its earnings from equity method investments as well as royalty payment streams and other revenues related to enhanced combustion of and reduced emissions of both NO_X and mercury from the burning of coal. Our equity method investments related to the RC segment include Tinuum Group, Tinuum Services and other immaterial equity method investments. Segment revenues include our equity method earnings (losses) from our equity method investments and royalty earnings from Tinuum Group. These earnings are included within the Earnings from equity method investments and License royalties, related party line items in the Condensed Consolidated Statements of ~~Operations~~.Operations. Key drivers to the RC segment performance are ~~operating and retained,~~the produced and sold RC from both operating and retained RC facilities, royalty-bearing tonnage and the number of operating (leased or sold) and retained RC facilities. These key drivers impact our earnings and cash distributions from equity method investments.

ECPGI - Our ECPGI segment ~~currently~~primarily includes revenues and related expenses from the sale of consumable products that utilize PAC chemical ~~sales related to~~technologies. These options provide coal-powered utilities and industrial boilers with mercury control solutions working in conjunction with activated carbon injection ("ACI") and dry sorbent injection ("DSI") systems and other pollution control equipment, generally without the ~~reduction of emissions in the coal-fired electric generation process and the electric utility industry. For 2017, our sales of equipment systems were also a~~requirement for significant ~~component of our EC segment.~~ongoing capital outlays. These amounts are included within the respective revenues and cost of revenue line items in the Condensed Consolidated Statements of ~~Operations~~.

Operations.

Management uses segment operating income (loss) to measure profitability and performance at the segment level. Management believes segment operating income (loss) provides investors with a useful measure of our operating performance and underlying trends of the businesses. Segment operating income (loss) may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our Condensed Consolidated Statements of ~~Operations~~.Operations.

The following table presents our operating segment results for the three and nine months ended September 30, ~~2018~~2019 and ~~2017:~~2018:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
Refined Coal:
Earnings in equity method investments	$	9,715		$	12,120		$	37,857		$	36,089		$	14,426		$	9,715		$	57,051		$	37,857
Royalties, related party	4,104			2,804			10,857			6,425
License royalties, related party													4,385			4,104			12,796			10,857
	13,819			14,924			48,714			42,514			18,811			13,819			69,847			48,714
Emissions Control:
Chemicals	1,043			717			2,390			3,844
Equipment Sales	—			1,577			72			31,304
Power Generation and Industrials:
Consumables													14,010			1,043			39,612			2,390
Other													—			—			—			72
	1,043			2,294			2,462			35,148			14,010			1,043			39,612			2,462
Total segment reporting revenues	14,862			17,218			51,176			77,662			32,821			14,862			109,459			51,176

Adjustments to reconcile to reported revenues:
Refined Coal:
Earnings in equity method investments	(9,715		)	(12,120		)	(37,857		)	(36,089		)	(14,426		)	(9,715		)	(57,051		)	(37,857		)
Corporate and other													738			—			1,631			—
Total reported revenues	$	5,147		$	5,098		$	13,319		$	41,573		$	19,133		$	5,147		$	54,039		$	13,319

Segment operating income (loss):
Refined Coal ⁽¹⁾	$	12,798		$	13,991		$	45,775		$	40,149		$	18,158		$	12,798		$	68,137		$	45,775
Emissions Control	(1,168		)	(895		)	(3,493		)	1,265
Power Generation and Industrials (2)													(977		)	(1,168		)	(8,301		)	(3,493		)
Total segment operating income	$	11,630		$	13,096		$	42,282		$	41,414		$	17,181		$	11,630		$	59,836		$	42,282

(2) Included in PGI segment operating loss for the nine months ended September 30, 2019 was approximately $4.7 million of costs recognized as a result of the step-up in inventory fair value recorded from the Carbon Solutions Acquisition. Also included within the PGI segment operating loss for the three and nine months ended September 30, 2019 was $1.9 million and ~~$1.6~~$4.5 million, ~~respectively.~~respectively, of depreciation, amortization, and depletion expense on mine- and plant-related long-lived assets.

The following table details the segment revenues of our respective equity method investments:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2018		2017		2018		2017		2019			2018		2019			2018
Earnings from Tinuum Group	$	8,075	$	11,050	$	33,575	$	33,363	$	11,746		$	8,075	$	50,757		$	33,575
Earnings from Tinuum Services	1,639		1,061		4,281		2,717		2,682			1,639		6,297			4,281
Earnings from other	1		9		1		9
(Losses) earnings from other									(2		)	1		(3		)	1
Earnings from equity method investments	$	9,715	$	12,120	$	37,857	$	36,089	$	14,426		$	9,715	$	57,051		$	37,857

For the three months ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

RC earnings ~~decreased~~increased primarily due to ~~a decrease~~an increase in equity earnings in Tinuum Group during the three months ended September 30, ~~2018~~2019 compared to the same quarter in ~~2017,~~2018, as presented above. ~~Our equity earnings decreased primarily due to completing a sale of an RC facility to a third-party investor during~~

For the three months ended September 30, ~~2017, which included a prepayment amount to~~2019, we recognized $11.7 million in equity earnings from Tinuum Group, which was ~~subsequently distributed~~equal to our proportionate share of Tinuum Group's ~~equity members. Additionally, Tinuum Group also incurred costs related to~~net income of $11.7 million for the ~~engineering and installation phases of RC facilities, which have reduced distributions to Tinuum Group's equity members for~~quarter. During the three months ended September 30, 2018, ~~quarter. Distributions received~~we recognized $8.1 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $15.8 million for the quarter. The difference between our pro-rata share of Tinuum Group's net income and our earnings from our Tinuum Group equity method investment as reported on the Condensed

Consolidated Statements of Operations for the three months ended September 30, 2018 was the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and ~~2017~~therefore we recognized such excess distributions as equity method earnings in the period the distributions occurred.

For the three months ended September 30, 2019, equity earnings from our interest in Tinuum Group were ~~recorded directly to~~positively impacted by the addition of two new RC facilities during the three months ended September 30, 2019. However, our earnings were negatively impacted from higher depreciation recognized for the three months ended September 30, 2019 on all Tinuum Group RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019. As a result of the reduction in coal consumption described above, during the three months ended September 30, 2019, Tinuum Group restructured RC facility contracted leases with its largest customer, which decreased lease payments beginning in the three months ended September 30, 2018 and will also negatively impact our ~~investment was~~pro-rata share of Tinuum Group's earnings in ~~a memorandum account as discussed in Note 3.~~

the future.

Earnings from Tinuum Services for the three months ended September 30, ~~2018~~2019 increased compared to the same quarter in ~~2017~~2018 primarily due to an increase in the number of operating RC facilities from 1417 to 1722 in which Tinuum Services provides operating and maintenance services.

RC earnings were positively impacted during the three months ended September 30, ~~2018~~2019 by an increase in royalties related to Tinuum Group's use of our M-45 License. During the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, there were ~~10.5~~

14.5 million tons and ~~6.9~~10.5 million tons, respectively, of RC produced using the M-45 Technology. The increase in Royalty revenue was driven by both an increase in ~~rent~~ payments to Tinuum Group and the related tons subject to the M-45 License. Offsetting the net increase in Royalty revenue for the three months ended September 30, 2019 from additional facilities was a lower royalty per ton rate from higher depreciation recognized for the three months ended September 30, 2019 on all royalty bearing RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019. The increase in Royalty revenue was driven by both an increase in payments to Tinuum Group and the related tons subject to the M-45 License.

Future earnings and growth in the RC segment will continue to be impacted by coal-fired electricity generation dispatch and invested facilities with leases subject to periodic renewals being terminated, repriced, or otherwise subject to renegotiated terms.

Additional discussion of our equity method investments is included above within our consolidated results and in Note 34 of the Condensed Consolidated Financial Statements.

ECPGI

Discussion of revenues derived from our ECPGI segment and costs related thereto are included above within our consolidated results.

For the three months ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

ECPGI segment operating ~~income decreased during~~loss remained consistent for the three months ended September 30, ~~2018~~2019 compared to the three months ended September 30, ~~2017~~2018 primarily due to ~~the decrease in revenues of Equipment sales and lower gross margins for chemical revenues, as discussed above within the consolidated results, as well as $0.5 million of severance expense~~operating income related to the ~~EC segment during~~Carbon Solutions Acquisition, which was offset by an increase in operating loss from our legacy PGI business. During the three months ended September 30, ~~2018. The increase in severance expense is offset~~2019, consumables revenue and margins also continued to be negatively impacted by ~~decreases in general and administrative and~~low coal-fired power dispatch driven by power generation from sources other ~~expenses allocated to~~than coal. In a recently updated forecast, the ~~EC segment.~~EIA revised downward by 7% its December 2018 forecast for 2019 coal-fired electricity-generating units.

PGI Segment EBITDA



	Three Months Ended September 30,
(in thousands)	2019			2018
Segment operating loss	$	(977	)	$	(1,168	)
Depreciation, amortization, depletion and accretion	1,853			42
Interest expense, net	75			—
Segment EBITDA income (loss)	$	951		$	(1,126	)

For the nine months ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

~~RC earnings increased primarily due to an increase in equity earnings in Tinuum Group during~~For the nine months ended September 30, ~~2018 compared to the same quarter~~2019, we recognized $50.8 million in ~~2017, as presented above. Our~~ equity earnings ~~increased primarily due to an increase in cash distributions~~ from Tinuum Group ~~due~~compared to our proportionate share of Tinuum Group's net income of $52.4 million for the ~~addition~~period. The difference represents the cumulative earnings short-fall balance as of ~~four invested facilities, three~~the end of the immediately preceding period, which ~~were materially invested by third parties, as discussed in the consolidated results above.~~was December 31, 2018. For the nine months ended September 30, 2018, ~~our share of~~we recognized $33.6 million in equity earnings from Tinuum Group ~~increased $0.2~~compared to our proportionate share of Tinuum Group's net income of $42.3 million ~~from~~for the ~~comparable period in 2017 due to an increase in lease revenues driven by significant sales~~period. This difference was the result of ~~facilities to third-party investors. Distributions~~cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognized such excess distributions as equity method earnings in the period the distributions occurred.

For the nine months ended September 30, 2019, equity earnings from our interest in Tinuum Group were positively impacted by the addition of four new RC facilities during the nine months ended September 30, 2019. Further, revenues from two of these facilities were recognized immediately in 2019 as a result of Tinuum Group’s adoption of ASC Topic 606 - Revenue from Contracts with Customers and ASC Topic 842 - Leases as of January 1, 2019. However, our earnings were negatively impacted from higher depreciation recognized for the nine months ended September 30, ~~2017 were recorded directly to~~2019 on all Tinuum Group RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019, as described above. As a result of a reduction in coal consumption, as noted above, during the three months ended September 30, 2019, Tinuum Group restructured RC facility contracted leases with its largest customer, which decreased lease payments beginning in the three months ended September 30, 2019 and will also negatively impact our pro-rata share of Tinuum Group's earnings ~~as our investment was~~ in ~~a memorandum account as discussed in Note 3.~~

the future.

Earnings from Tinuum Services for the nine months ended September 30, ~~2018~~2019 increased compared to the same period in ~~2017~~2018 primarily due to an increase in the number of operating RC facilities from 1417 to 1722 in which Tinuum Services provides operating and maintenance services.

RC earnings were positively impacted during the nine months ended September 30, ~~2018~~2019 by an increase in royalties related to Tinuum Group's use of our M-45 License. During the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, there were ~~26.4~~35.0 million tons and ~~14.5~~26.4 million tons, respectively, of RC produced using the M-45 Technology. The increase in Royalty revenue was primarily driven by an increase in ~~rent~~both payments to Tinuum Group and the related tons subject to the M-45 License. Offsetting the net increase in Royalty revenue for the nine months ended September 30, 2019 from additional facilities was a lower royalty per ton rate from higher depreciation recognized for the nine months ended September 30, 2019 on all royalty bearing RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019.

Future earnings and growth within the RC segment will continue to be impacted by coal-fired dispatch, and invested facilities with leases subject to periodic renewals being terminated, repriced, or otherwise subject to renegotiated terms.

Additional discussion of our equity method investments is included above within our consolidated results and in Note 34 of the Condensed Consolidated Financial Statements.

ECPGI

Discussion of revenues derived from our ECPGI segment and costs related thereto are included above within our consolidated results.

For the nine months ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

ECPGI segment operating income ~~decreased~~increased during the nine months ended September 30, ~~2018~~2019 compared to the nine months ended September 30, ~~2017~~2018 primarily due to the ~~decrease~~increase in ~~revenues, as discussed above within~~operating income due to the ~~consolidated results, and $1.0~~operations of Carbon Solutions. This increase was offset with an additional $4.7 million ~~in severance~~of cost of revenue expense related to ~~the EC segment during~~a step-up in basis of acquired finished goods inventory and $4.4 million of depreciation, amortization, and depletion expense related to Carbon Solutions Acquisition. During the nine months ended September 30, ~~2018.~~2019, Consumables revenue and margins were negatively impacted by low coal-fired power dispatch driven by power generation from sources other than coal as well as mild weather. In a recently updated forecast, the EIA revised downward by 7% its December 2018 forecast of 2019 coal-fired electricity-generating units.

PGI Segment EBITDA



	Nine Months Ended September 30,
(in thousands)	2019			2018
Segment operating loss (1)	$	(8,301	)	$	(3,493	)
Depreciation, amortization, depletion and accretion	4,498			113
Interest expense, net	263			—
Segment EBITDA loss	$	(3,540	)	$	(3,380	)

(1) Segment operating loss for the nine months ended September 30, 2019 was inclusive of a $4.7 million adjustment, which increased cost of revenue due to a step-up in basis of inventory acquired related to the Carbon Solutions Acquisition.

Liquidity and Capital Resources

Overview of Factors Affecting Our Liquidity

During the nine months ended September 30, ~~2018,~~2019, our liquidity position was positively affected primarily due to distributions from Tinuum Group and Tinuum Services, royalty payments from Tinuum Group and borrowing availability under our bank ("Lender") line of credit ("Line of Credit").

Our principal sources of cash include:

cash on hand;

distributions from Tinuum Group and Tinuum Services;

royalty payments from Tinuum Group; and

~~our Line~~operations of ~~Credit~~the PGI segment.

Our principal uses of cash during the nine months ended September 30, ~~2018~~2019 included:

repurchases of shares of common stock;

payment of dividends;

payment of debt principal and interest; and

our business operating expenses, including federal and state tax ~~payments;~~payments and cash severance payments.

~~delivering~~Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations, as well as

future expected dividend payments and potential future share repurchases, depends upon several factors, including executing on

our contracts and initiatives, receiving royalty payments from Tinuum Group and distributions from Tinuum Group and Tinuum

Services, and increasing our share of the market for PGI consumables, as well as expanding our overall PAC business into

additional adjacent markets. Increased distributions from Tinuum Group will likely be dependent upon both preserving existing

contractual relationships and securing additional tax equity investors for those Tinuum Group facilities that are currently not operating.

Due to the Carbon Solutions Acquisition, we expect our use of liquidity for capital expenditures will increase in future periods. Carbon Solutions has historically incurred costs both for recurring capital expenditures for its AC manufacturing facility and for mine development at its lignite mine. Going forward, we anticipate additional material capital resources will be needed to maintain or improve capital assets. We incurred expenditures related to planned maintenance on our ~~existing contracts and customer commitments~~

~~Dividends declared by the Board, and paid quarterly per share on all outstanding shares of comment stock~~AC manufacturing facility during the ~~three and~~ nine months ended September 30, ~~2018 were as follows:~~2019.

Tinuum Group and Tinuum Services Distributions

The following table summarizes the cash distributions from our equity method investments that most significantly affected

our consolidated cash flow results for the nine months ended September 30, 2019 and 2018:

2018 2017
Per share Date paid Per share Date paid
Dividends declared during quarter ended:
March 31 $ 0.25
March 8, 2018 $ —
—
June 30 0.25
June 8, 2018 0.25
July 17, 2017
September 30 0.25
September 6, 2018 0.25
September 7, 2017
$ 0.75
$ 0.50



	Nine Months Ended September 30, 2019
(in thousands)	2019		2018
Tinuum Group	$	50,256	$	33,575
Tinuum Services	6,550		4,000
Distributions from equity method investees	$	56,806	$	37,575

~~A portion~~Future cash flows from Tinuum through 2021 are expected to range from $150 to $175 million, a decrease from the previously reported range of ~~this dividend~~$175 to $200 million. The key drivers in achieving these future cash flows are based on the following:

23 invested facilities as ~~well~~of September 30, 2019 and inclusive of all net Tinuum cash flows (distributions and license

royalties), offset by estimated federal and state income tax payments and 453A interest payments.

Expected future cash flows from Tinuum Group are based on the following key assumptions:

Tinuum Group continues to not operate retained facilities;

Tinuum Group does not have material unexpected capital expenditures or unusual operating expenses;

Tax equity lease renewals on invested facilities are not terminated or repriced; and

Coal-fired power generation remains consistent with contractual expectations.

As noted above, recently, two coal-fired utilities where Tinuum has invested RC facilities operating were announced for closure, which is expected to occur in the fourth quarter of 2019. The shuttering of these facilities has negatively impacted our expectations related to future cash flows if we are unable to move the existing RC facilities to new utilities. Also as noted above, Tinuum Group and its largest customer agreed to certain reductions in overall lease payments for the period from

October 2019 to December 2021, which will negatively impact future cash flows. These factors will result in a ~~portion~~net reduction in our pro-rata share of ~~prior declared~~expected future RC cash flows. However, with the addition of two RC facilities during the three months ended September 30, 2019, future cash flows are expected to decrease by approximately $10.0 million from September 2019 to December 2021.

Senior Term Loan

On December 7, 2018, we and ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, and certain other subsidiaries of the Company as guarantors, The Bank of New York Mellon as administrative agent, and Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P. (collectively "Apollo”), affiliates of a beneficial owner of greater than five percent of our common stock and a related party, entered into the "Senior Term Loan" in the amount of $70.0 million, less original issue discount of $2.1 million. Proceeds from the Senior Term Loan were used to fund the Carbon Solutions Acquisition as disclosed in Note 2. We also paid debt issuance costs of $2.0 million related to the Senior Term Loan. The Senior Term Loan has a term of 36 months and bears interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which is adjusted quarterly to the current 3-month LIBOR rate, and interest is payable quarterly in arrears. Quarterly principal payments of $6.0 million are required and commenced in March 2019, and we may prepay the Senior Term Loan at any time without penalty. The Senior Term Loan is secured by substantially all of our assets, including the cash flows from Tinuum Group and Tinuum Services (collectively, the "Tinuum Entities"), but excluding our equity interests in those Tinuum entities. During the nine months ended September 30, 2019, we made principal payments of $24.0 million.

The Senior Term Loan includes, among others, the following covenants: (1) Beginning December 31, 2018 and as of the end of each fiscal quarter thereafter, we must maintain a minimum cash balance of $5.0 million and shall not permit "expected future net cash flows from the refined coal business" (as defined in the Senior Term Loan) to be less than 1.75 times the outstanding principal amount of the Senior Term Loan; (2) Beginning in January 2019, annual collective dividends ~~remains accrued~~ and ~~represents dividends accumulated on nonvested~~buybacks of shares of our common stock ~~held~~in an aggregate amount, not to exceed $30.0 million, is permitted so long as (a) no default or event of default exists under the Senior Term Loan and (b) expected future net cash flows from the refined coal business as of the end of the most recent fiscal quarter exceed $100.0 million.

Stock Repurchases and Dividends

In November 2018, the Board of Directors (the "Board") authorized us to purchase up to $20.0 million of our outstanding common stock. In November 2019, the Board authorized an incremental $7.1 million to this stock repurchase program and provided that the program will remain in effect until all amounts are utilized or the program is otherwise modified by the Board. Previously, in December 2017, the Board had authorized us to purchase up to $20.0 million of our ~~employees~~outstanding common stock under a separate repurchase program that was in effect until July 31, 2018. During the year ended December 31, 2018, under these two stock repurchase programs, we purchased 2,350,422 shares of our common stock for cash of $25.3 million, inclusive of commissions and ~~directors that contain dividend rights that are forfeitable~~fees. During the nine months ended September 30, 2019, under the applicable stock repurchase program, we purchased 256,743 shares of our common stock for cash of $2.9 million, inclusive of commissions and ~~not payable until~~fees.

During the ~~underlying shares vest.~~nine months ended September 30, 2019 and 2018, we declared and paid quarterly cash dividends to stockholders of $13.7 million and $15.2 million, respectively, as follows:



	2019			2018
	Per share		Date paid	Per share		Date paid
Dividends declared during quarter ended:
March 31	$	0.25	March 7, 2019	$	0.25	March 8, 2018
June 30	0.25		June 7, 2019	0.25		June 8, 2018
September 30	0.25		September 6, 2019	0.25		September 6, 2018
	$	0.75		$	0.75

Line of Credit

As of September 30, 2019, there were no outstanding borrowings under the Line of Credit.

On September 30, 2018, ADA, as borrower, we, as guarantor, and ~~a bank (the "Lender")~~the Lender entered into an amendment (the "Twelfth Amendment") to the Line of Credit. The Twelfth Amendment decreased the borrowing availability of the Line of Credit to $5.0 million due to decreased collateral requirements, extended the maturity date of the Line of Credit to September ~~15,~~30, 2020 and permitted the Line of Credit to be used as collateral (in place of restricted cash) for letters of credit ("LC's") up to $5.0 million related to equipment projects and certain other agreements. Under the ~~Line of Credit,~~Twelfth Amendment, there iswas no minimum balance requirement based on us meeting certain conditions and maintaining minimum trailing twelve-month EBITDA (earnings before

interest, taxes, depreciation and amortization), as previously defined in the "Eleventh Amendment" to the Line of Credit, of $24.0 million.

~~As of September 30,~~On December 7, 2018, ~~there were no outstanding borrowings under~~ADA, as borrower, we, as guarantor, and the Lender entered into an amendment to the Line of

Credit, ~~and an outstanding LC~~which provided, among other things, for ADA to be able to enter into the Senior Term Loan as ~~of December 31, 2017 was terminated by us and~~ a guarantor so long as

the ~~other parties in January 2018.~~

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations, as well as future expected dividend payments and potential future share repurchases, depends upon several factors, including executing on our contracts and initiatives, receiving royalty payments from Tinuum Group and distributions from Tinuum Group and Tinuum Services, and increasing our shareprincipal amount of the ~~market for EC products,~~Senior Term Loan did not exceed $70.0 million. Additionally, the financial covenants in the Line

of Credit were amended and ~~in particular EC chemicals sales. Increased distributions from Tinuum Group will likely~~restated to be ~~dependent upon both preserving existing contractual relationships and~~consistent with the ~~securing~~aforementioned Senior Term Loan covenants, including

maintaining a minimum cash balance of ~~additional tax equity investors for those Tinuum Group facilities that are currently not operating.~~

$5.0 million.

Sources and Uses of Cash

Nine Months Ended September 30, ~~2018~~2019 vs. Nine Months Ended September 30, ~~2017~~2018

Cash, ~~and~~ cash equivalents ~~increased~~and restricted cash decreased from ~~$30.7~~$23.8 million as of December 31, ~~2017~~2018 to ~~$31.9~~$20.2 million as of September 30, ~~2018.~~2019. The following table summarizes our cash flows for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively:


	Nine Months Ended September 30,									Nine Months Ended September 30,
(in thousands)	2018			2017			Change			2019			2018			Change
Cash and cash equivalents and restricted cash provided by (used in):
Operating activities	$	(4,311	)	$	(9,080	)	$	4,769		$	47,598		$	(4,311	)	$	51,909
Investing activities	32,634			32,959			(325		)	(9,174		)	32,634			(41,808		)
Financing activities	(27,102		)	(24,000		)	(3,102		)	(42,041		)	(27,102		)	(14,939		)
Net change in cash and cash equivalents and restricted cash	$	1,221		$	(121	)	$	1,342		$	(3,617	)	$	1,221		$	(4,838	)

Additionally, the following table summarizes the cash flows of Tinuum Group, whose cash distributions most significantly impact our consolidated cash flow results, for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively:


	Nine Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2019			2018
Tinuum Group cash, beginning of year	$	13,309		$	10,897		$	26,211		$	13,309
Cash provided by (used in):
Operating activities	49,021			45,868			77,040			49,021
Investing activities⁽¹⁾	(12,246		)	(4,456		)	(13,458		)	(12,246		)
Financing activities	(23,146		)	(40,024		)	(40,863		)	(23,146		)
Net change in cash	13,629			1,388			22,719			13,629
Tinuum Group cash, end of period	$	26,938		$	12,285		$	48,930		$	26,938

(1) During the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, Tinuum Group's use of cash from investing activities related to RC facilities in the engineering and installation phase.

Cash flow from operating activities

Cash flows provided by operating activities for the nine months ended September 30, 2019 were $47.6 million and changed by $51.9 million compared to the nine months ended September 30, 2018. Cash flows from operating activities were positively impacted primarily by the following: (1) net income of $26.4 million, which was primarily due to earnings from equity method investees of $57.1 million and license royalties earned from Tinuum Group of $12.8 million; (2) distributions from equity method investees, return on investment of $56.8 million; (3) a decrease in deferred tax assets, exclusive of valuation allowance changes, of $6.8 million; (4) depreciation, amortization, depletion, and accretion of $4.9 million; and a net decrease in working capital of $3.2 million. Included in distributions from equity method investees, return on investments is $50.3 million of distributions received from Tinuum Group. During the nine months ended September 30, 2018, the carrying value of our investment in Tinuum Group was zero and all cash distributions were reported as distributions in excess of cumulative earnings as a component of cash flows from investing activities. Due to the increase in the balance of our investment in Tinuum Group from Tinuum Group's adoption of new accounting standards as of January 1, 2019, during the nine months ended September 30, 2019, all distributions during the period were reported as return on investment within cash flows from operating activities. Offsetting these increases to operating cash flows were earnings from equity method investees of $57.1 million.

Cash flows used in operating activities for the nine months ended September 30, 2018 were $4.3 million and ~~changed by $4.8 million compared to the nine months ended September 30, 2017. Cash flows from operating activities~~ were positively impacted primarily by the following: (1) net income of $28.5 million, which was primarily due to earnings from equity method investees of $37.9 million and license royalties earned from Tinuum Group of $10.9 million; (2) distributions from equity method investees, return on investment of $4.0 million; and (3) stock-based compensation of $1.9 million. Offsetting these increases to operating cash flows were primarily earnings from equity method investees of $37.9 ~~million, an increase in deferred tax assets of $1.0~~ million and a net increase in working capital of $2.9 million.

Cash flows used in operating activities for the nine months ended September 30, 2017 were $9.1 million and were positively impacted primarily by the following: (1) net income of $20.9 million, which was primarily due to earnings from equity method investees of $36.1 million and license royalties earned from Tinuum Group of $6.4 million; (2) distributions from equity method investees, return on investment of $3.7 million; (3) a decrease in deferred tax assets of $11.1 million, primarily from the recognition of deferred income tax expense during the nine months ended September 30, 2017; and (4) a net increase in working capital of $0.2 million, primarily from insurance recoveries received on various legal matters. Offsetting these increases to operating cash flows were primarily earnings from equity method investees of $36.1 million and a decrease in the Legal settlements and accrual of $11.6 million, primarily from the settlement of various legal matters and payments made under the "Norit Settlement" (as defined in Note 5).

Cash flow from investing activities

Distributions from equity method investees

Distributions received from our equity method investees reported as return in excess of investment basis within investing cash flows ~~increased~~decreased by ~~$0.2~~$33.6 million for the nine months ended September 30, ~~2018~~2019 compared to the nine months ended September 30, ~~2017.~~2018. The ~~increase~~decrease was driven primarily by the effect of an increase in our equity investment in Tinuum Group from Tinuum Group's adoption of new accounting standards as of January 1, 2019, which resulted in all cash distributions ~~related~~reported as return on investment within cash flows from operations during the nine months ended September 30, 2019. In total, cash distributions from Tinuum Group increased period over period due to additional invested RC facilities, of which two and four were added during 2018 and 2019, respectively.

Acquisition of business

During the nine months ended September 30, 2019, we paid the remaining consideration payable of $0.7 million for the Carbon Solutions Acquisition.

Acquisition of property, equipment, and intangible assets

For the nine months ended September 30, 2019, expenditures for property, equipment, and intangible assets primarily related to capital expenditures at our AC manufacturing facility in anticipation of the ~~second half of 2017~~planned outages that had been delayed prior to the Carbon Solutions Acquisition. These expenditures approximated $6.4 million during the nine months ended September 30, 2019.

Mine development costs

During the nine months ended September 30, 2019, we incurred costs related to development work and ~~first half of 2018. All of these cash distributions were received from Tinuum Group.~~

mitigation costs for our mining operations.

Contributions to equity method investees

During the nine months ended September 30, 2018, we made a contribution to Tinuum Services of $0.8 million due to a capital call.

Cash flow from financing activities

Principal payments on term loan

During the nine months ended September 30, 2019, we made required principal payments of $18.0 million and additional principal payments of $6.0 million related to the Senior Term Loan.

Cash dividends paid

During the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we made payments of ~~$15.2~~$13.7 million and ~~$10.5~~$15.2 million, respectively, related to dividends declared on our common stock.

Repurchase of common stock

As described in Note 69 of the Condensed Consolidated Financial Statements, during the nine months ended September 30, ~~2018~~2019 and under a stock repurchase program ~~(the "Stock Repurchase Program")~~ authorized by ~~our~~the Board, ~~of Directors,~~ we purchased ~~825,418~~256,743 shares of our common stock for cash of ~~$9.1~~$2.9 million, inclusive of commissions and fees. Of these amounts, $2.2 million was purchased in a single block through a privately negotiated transaction. Under the Stock Repurchase Program, we were authorized to purchase up to $20.0 million of our outstanding common stock. Pursuant to its terms, the Stock Repurchase Program terminated on July 31, 2018.

~~On September 12, 2018, we repurchased 186,212 shares of its common stock for $2.1 million in a single block through a privately negotiated transaction.~~

During the nine months ended September 30, ~~2017, and as described in Note 6 of the Condensed Consolidated Financial Statements,~~2018, we ~~purchased 1,370,891~~repurchased 1,011,630 shares of our common stock ~~in the amount~~for cash of ~~$13.0 million, including fees and other expenses, related to a Dutch Tender offer conducted in May of 2017.~~$11.2 million.

Equity award activity

During the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we used ~~$0.7~~$0.4 million and ~~$0.5~~$0.7 million, respectively, for the repurchase of shares to satisfy tax withholdings upon the vesting of equity-based awards.

~~Borrowings and repayments on Line of Credit~~

During March 2017, a customer drew on an LC related to an equipment system in the amount of $0.8 million, which was funded by borrowing availability under the Line of Credit. We subsequently repaid this amount to the Lender as of March 31, 2017.

Contractual Obligations

During the nine months ended September 30, ~~2018,~~2019, there were no material changes to our contractual obligations outside of the ordinary course of business from those reported as of December 31, ~~2017.~~2018.

Off-Balance Sheet Arrangements

During the nine months ended September 30, ~~2018,~~2019, we did not engage in any off-balance sheet arrangements except those discussed in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the ~~2017 10-K, which included operating leases and future 453A interest obligations.~~2018 10-K.

Critical Accounting Policies and Estimates

Except for the adoption of ASC ~~606~~842 related to ~~revenue recognition,~~leases on January 1, 2019, our significant 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 ~~2017~~2018 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 new accounting ~~guidance~~standards applicable to us that were issued during the nine months ended September 30, ~~2018~~2019 and subsequent thereto through the date of this Quarterly Report.

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 scope and impact of mercury and other regulations or pollution control requirements, including the impact of the final MATS;


(b)	the production and sale of RC by ~~the~~ RC facilities that will qualify for Section 45 tax credits;


(c)	expected growth or contraction in and potential size of our target markets;


(d)	expected supply and demand for our products and services;


(e)	increasing competition in the ECPGI market;


(f)	~~our ability to satisfy warranty~~future level of research and ~~performance guarantee provisions;~~development activities;


(g)	the effectiveness of our technologies and the benefits they provide;


(h)	Tinuum Group’s ability to profitably sell and/or lease additional RC facilities and/or RC facilities that may be returned to Tinuum Group, or to recognize the tax benefits from production and sale of RC on retained RC facilities;


(i)	probability of any loss occurring with respect to certain guarantees made by Tinuum Group ("Party Guarantees");


(j)	the timing of awards of, and work and related testing under, our contracts and agreements and their value;


(k)	the timing and amounts of or changes in future revenues, royalties earned, backlog, funding for our business and projects, margins, expenses, earnings, tax ~~rate,~~rates, cash ~~flow,~~flows, royalty payment obligations, working capital, liquidity and other financial and accounting measures;


(l)	the outcome of current and pending legal proceedings;


(m)	awards of patents designed to protect our proprietary technologies both in the U.S. and other countries; and


(n)	whether any legal challenges or EPA actions will have a material impact on the implementation of the MATS or other regulations and on our ongoing business.

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 or appropriate funds 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; failure of the RC facilities to produce ~~RC or such RC to qualify for Section 45 tax credits;~~RC; termination of or amendments to the contracts for sale or lease of RC ~~facilities;~~facilities or such facilities to qualify for Section 45 tax credits; decreases in the production of RC; our inability to commercialize our 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; potential claims from any terminated employees, customers or vendors; ~~failure to satisfy performance guarantees;~~ availability of materials and equipment for our businesses; intellectual property infringement claims from third parties; pending litigation; ~~identification of additional material weaknesses or significant deficiencies;~~ 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 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

~~Interest Rate Risk~~The information under this Item is not required to be provided by smaller reporting companies.

We are most significantly exposed to interest rate risk related to our obligations to pay 453A interest to the IRS. Additionally, we are currently exposed to interest rate risk related to cash equivalents that are subject to variable interest rates. There have been no material changes from those reported in our 2017 Form 10-K.

~~Foreign Currency Risk~~

~~There have been no material changes from those reported in our 2017 Form 10-K.~~

~~Commodity Price Risk~~

~~There have been no material changes from those reported in our 2017 Form 10-K.~~

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”~~"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 effective as of September 30, ~~2018.~~2019.

Changes in Internal Control Over Financial Reporting

~~There~~

On December 7, 2018, we acquired Carbon Solutions and excluded their business from our assessment of internal control over financial reporting as of December 31, 2018, as allowed under general guidance issued by the Staff of the Securities and Exchange Commission. Except for the acquisition of Carbon Solutions, there have been no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the fiscal quarter ended September 30, ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur. None of these matters, either individually or in the aggregate, currently is material to us.

Item 1A. Risk Factors

There are no material updates to our risk factors as disclosed in ~~our 2017~~the 2018 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced programs (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (in thousands)
July 1 to July 31, 2018 —
$ —
—
$ —
August 1 to August 31, 2018 —
—
—
—
September 1 to September 30, 2018 (1) 186,212
11.05
—
—

Total 186,212
$ 11.05
—
$ —

~~(1) Included within this month, these shares, at a total price of~~ ~~$2.1 million, were purchased in a single block through a privately negotiated transaction.~~



Period	(a) Total number of shares purchased	(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced programs	(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (in thousands)
July 1 to July 31, 2019	—	$	—	—	$	—
August 1 to August 31, 2019	8,152	11.75		8,152	—
September 1 to September 30, 2019	—	—		—	2,899
Total	8,152	$	—	8,152	$	2,899

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

~~Not applicable.~~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

None.

Item 6. Exhibits



Exhibit No.	Description	Form	File No.	Incorporated by Reference Exhibit	Filing Date
10.1	~~Twelfth~~Third Amendment to ~~2013 Loan~~the Second Amended and ~~Security~~Restated Operating Agreement ~~by and among ADA-ES, Inc., Advanced Emissions Solutions, Inc., and CoBiz Bank d/b/a Colorado Business Bank in the State~~ of ~~Colorado~~Tinuum Group, LLC. dated ~~as of~~ September 30, 20184, 2019,**
31.1	Certification of Principal Executive Officer of Advanced Emissions Solutions, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*
31.2	Certification of Principal Financial Officer of Advanced Emissions Solutions, Inc. Pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*
32.1	Certification of Principal Executive Officer and Principal Financial Officer of Advanced Emissions Solutions, Inc. Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
95.1	Mine Safety Disclosure Exhibit*
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

Notes:


*	– Filed herewith.

** – Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

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)


November ~~6, 2018~~12, 2019	By:	/s/ L. Heath Sampson
		L. Heath Sampson
		Chief Executive Officer
		(Principal Executive Officer)


November ~~6, 2018~~12, 2019	By:	/s/ Greg P. Marken
		Greg P. Marken
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

4851



	Balance as Reported		Impact of			Balance as Adjusted
(in thousands)	September 30, 2018		Adoption			September 30, 2018
Balance Sheet
Receivables, net	$	817	$	—		$	817
Deferred tax assets	$	36,008	$	425		$	36,433
Other long-term assets	$	2,070	$	322		$	2,392
Billings in excess of costs on uncompleted contracts	$	—	$	—		$	—
Other current liabilities	$	627	$	—		$	627
Other long-term liabilities	$	295	$	2,000		$	2,295
Retained earnings (deficit)	$	10,896	$	(1,253	)	$	9,643



	For the three months ended
	As Reported		Impact of			As Adjusted
(in thousands)	September 30, 2018		Adoption			September 30, 2018
Statement of Operations
Revenues:
Equipment sales	$	—	$	10,042		$	10,042
License royalties, related party	$	4,104	$	(4,104	)	$	—
Total revenues	$	5,147	$	5,938		$	11,085
Operating expenses:
Equipment sales cost of revenue	$	—	$	7,874		$	7,874
Total operating expenses	$	5,115	$	7,874		$	12,989
Operating loss	$	32	$	(1,936	)	$	(1,904	)
Other income (expense)
Royalties, related party	$	—	$	4,104		$	4,104
Total other income (expense)	$	9,402	$	4,104		$	13,506
Income before income tax expense	$	9,434	$	2,168		$	11,602
Income tax expense	$	3,931	$	464		$	4,395
Net income	$	5,503	$	1,704		$	7,207



	For the nine months ended
	As Reported			Impact of			As Adjusted
(in thousands)	September 30, 2018			Adoption			September 30, 2018
Statement of Operations
Revenues:
Equipment sales	$	72		$	17,574		$	17,646
License royalties, related party	$	10,857		$	(10,857	)	$	—
Total revenues	$	13,319		$	6,717		$	20,036
Operating expenses:
Equipment sales cost of revenue	$	(346	)	$	15,399		$	15,053
Total operating expenses	$	16,568		$	15,399		$	31,967
Operating loss	$	(3,249	)	$	(8,682	)	$	(11,931	)
Other income (expense)
Royalties, related party	$	—		$	10,857		$	10,857
Total other income (expense)	$	36,856		$	10,857		$	47,713
Income before income tax expense	$	33,607		$	2,175		$	35,782
Income tax expense	$	5,151		$	464		$	5,615
Net income	$	28,456		$	1,711		$	30,167



	As of December 31, 2017
(in thousands)	LC Outstanding		Utilization of LOC Availability
Royalty Award	$	3,500	$	3,500
Total LC outstanding	$	3,500	$	3,500



	Year of Grant	Net Number of Issued Shares upon Vesting	Shares Withheld to Settle Tax Withholding Obligations	TSR Multiple Range		Russell 3000 Multiple
	Year of Grant	Net Number of Issued Shares upon Vesting	Shares Withheld to Settle Tax Withholding Obligations	Low	High	Low	High
Nine Months Ended September 30, 2018
	2015	12,311	4,061	112.50	112.50	—	—
Nine Months Ended September 30, 2017
	2014	6,476	3,573	0.75	1.00	—	—
	2015	3,869	2,310	0.60	0.60	—	—