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, ~~2019~~2020



¨☐			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.)

~~Delaware~~ 8051 E. Maplewood Ave, Suite 210, Greenwood Village, CO		~~27-5472457~~80111
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~

(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☒

Securities registered pursuant to Section 12(b) of the Act:

Class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.001 per share

ADES

NASDAQ Global Market

As of ~~November 6, 2019,~~October 30, 2020, there were ~~18,588,896~~18,547,887 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, ~~2019~~2020 and December 31, ~~2018~~2019	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019	5
	Notes to Condensed Consolidated Financial Statements	65
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3029
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48

PART II. - OTHER INFORMATION

Item 1.	Legal Proceedings	49
Item 1a.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4950
Item 3.	Defaults Upon Senior Securities	4950
Item 4.	Mine Safety Disclosures	4950
Item 5.	Other Information	4950
Item 6.	Exhibits	5051
	Signatures	5152

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, 2019			December 31, 2018			(in thousands, except share data)	September 30, 2020		December 31, 2019
ASSETS							ASSETS
Current assets:							Current assets:
Cash, cash equivalents and restricted cash	$	15,155		$	18,577
Cash and cash equivalents							Cash and cash equivalents	$	15,029	$	12,080
Receivables, net	6,771			9,554			Receivables, net	10,273		7,430
Receivables, related parties	4,382			4,284			Receivables, related parties	3,626		4,246
Inventories, net	16,917			21,791			Inventories, net	10,419		15,460
Prepaid expenses and other assets	6,070			5,570			Prepaid expenses and other assets	16,888		7,832

Total current assets	49,295			59,776			Total current assets	56,235		47,048
Restricted cash, long-term	5,000			5,195			Restricted cash, long-term	10,000		5,000
Property, plant and equipment, net of accumulated depreciation of $5,651 and $1,499, respectively	44,168			42,697
Property, plant and equipment, net of accumulated depreciation of $2,322 and $7,444, respectively							Property, plant and equipment, net of accumulated depreciation of $2,322 and $7,444, respectively	29,823		44,001
Intangible assets, net	4,300			4,830			Intangible assets, net	2,134		4,169
Equity method investments	44,111			6,634			Equity method investments	22,885		39,155
Deferred tax assets, net	13,491			32,539			Deferred tax assets, net	3,371		14,095
Other long-term assets, net	18,363			7,993			Other long-term assets, net	31,206		20,331

Total Assets	$	178,728		$	159,664		Total Assets	$	155,654	$	173,799
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	6,838		$	6,235		Accounts payable	$	7,530	$	8,046
Accrued payroll and related liabilities	3,893			8,279			Accrued payroll and related liabilities	4,114		3,024
Current portion of long-term debt	24,072			24,067			Current portion of long-term debt	24,360		23,932
Other current liabilities	4,287			2,138			Other current liabilities	4,102		4,311

Total current liabilities	39,090			40,719			Total current liabilities	40,106		39,313
Long-term debt	26,276			50,058
Long-term debt, net of current portion							Long-term debt, net of current portion	5,486		20,434

Other long-term liabilities	6,062			940			Other long-term liabilities	25,712		5,760
Total Liabilities	71,428			91,717			Total Liabilities	71,304		65,507
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 13)							Commitments and contingencies (Note 13)
Stockholders’ equity:							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, 22,915,429 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		)
Preferred stock: par value of $.001 per share, 50,000,000 shares authorized, NaN outstanding							Preferred stock: par value of $.001 per share, 50,000,000 shares authorized, NaN outstanding	0		0
Common stock: par value of $.001 per share, 100,000,000 shares authorized, 23,166,033 and 22,960,157 shares issued, and 18,547,887 and 18,362,624 shares outstanding at September 30, 2020 and December 31, 2019, respectively							Common stock: par value of $.001 per share, 100,000,000 shares authorized, 23,166,033 and 22,960,157 shares issued, and 18,547,887 and 18,362,624 shares outstanding at September 30, 2020 and December 31, 2019, respectively	23		23
Treasury stock, at cost: 4,618,146 and 4,597,533 shares as of September 30, 2020 and December 31, 2019, respectively							Treasury stock, at cost: 4,618,146 and 4,597,533 shares as of September 30, 2020 and December 31, 2019, respectively	(47,692)		(47,533)
Additional paid-in capital	97,706			96,750			Additional paid-in capital	100,005		98,466
Retained earnings	54,237			12,914			Retained earnings	32,014		57,336

Total stockholders’ equity	107,300			67,947			Total stockholders’ equity	84,350		108,292
Total Liabilities and Stockholders’ Equity	$	178,728		$	159,664		Total Liabilities and Stockholders’ Equity	$	155,654	$	173,799

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,
(in thousands, except per share data)	2020		2019		2020		2019
Revenues:
Consumables	$	15,844	$	14,748	$	33,231	$	41,243
License royalties, related party	3,627		4,385		9,986		12,796



Total revenues	19,471		19,133		43,217		54,039
Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	15,013		11,939		33,920		38,339


Payroll and benefits	2,285		2,651		8,839		8,005

Legal and professional fees	1,321		2,907		4,386		7,105
General and administrative	1,900		1,984		6,693		5,894
Depreciation, amortization, depletion and accretion	1,777		2,043		5,807		4,902
Impairment of long-lived assets	0		0		26,103		0

Total operating expenses	22,296		21,524		85,748		64,245
Operating loss	(2,825)		(2,391)		(42,531)		(10,206)
Other income (expense):
Earnings from equity method investments	9,518		14,426		25,959		57,051

Interest expense	(881)		(1,729)		(3,053)		(5,820)
Other	17		212		208		342




Total other income	8,654		12,909		23,114		51,573
Income (loss) before income tax expense	5,829		10,518		(19,417)		41,367
Income tax expense	854		6,595		1,315		14,928
Net income (loss)	$	4,975	$	3,923	$	(20,732)	$	26,439
Earnings (loss) per common share (Note 1):
Basic	$	0.27	$	0.22	$	(1.15)	$	1.45
Diluted	$	0.27	$	0.21	$	(1.15)	$	1.44
Weighted-average number of common shares outstanding:
Basic	18,093		18,112		18,014		18,184
Diluted	18,103		18,339		18,014		18,394

Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except per share data) 2019
2018
2019
2018
Revenues:
Consumables $ 14,748
$ 1,043

$ 41,243

$ 2,390
License royalties, related party 4,385
4,104
12,796
10,857
Other —
—

—

72
Total revenues 19,133

5,147

54,039

13,319
Operating expenses:

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 2,651

2,555

8,005

7,528
Legal and professional fees 1,755

698

5,300

3,459
General and administrative 3,136

834

7,699

3,098
Depreciation, amortization, depletion and accretion 2,043

74

4,902

262
Total operating expenses
21,524

5,115

64,245

16,568
Operating (loss) income
(2,391 )
32

(10,206 )
(3,249 )
Other income (expense):

Earnings from equity method investments
14,426

9,715

57,051

37,857
Interest expense
(1,729 )
(399 )
(5,820 )
(1,147 )
Other
212

86

342

146
Total other income
12,909

9,402

51,573

36,856
Income before income tax expense
10,518

9,434

41,367

33,607
Income tax expense
6,595

3,931

14,928

5,151
Net income
$ 3,923

$ 5,503

$ 26,439

$ 28,456
Earnings per common share (Note 1):

Basic
$ 0.22

$ 0.28

$ 1.45

$ 1.41
Diluted
$ 0.21

$ 0.28

$ 1.44

$ 1.40
Weighted-average number of common shares outstanding:

Basic
18,112

19,726

18,184

20,090
Diluted
18,339

19,876

18,394

20,228

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, 2020	22,960,157	$	23	(4,597,533)	$	(47,533)	$	98,466	$	57,336	$	108,292

Stock-based compensation	218,259	—		—	—		506		—		506


Repurchase of common shares to satisfy minimum tax withholdings	(64,198)	—		—	—		(376)		—		(376)




Cash dividends declared on common stock	—	—		—	—		—		(4,590)		(4,590)
Repurchase of common shares	—	—		(20,613)	(159)		—		—		(159)
Net loss	—	—		—	—		—		(1,893)		(1,893)
Balances, March 31, 2020	23,114,218	$	23	(4,618,146)	$	(47,692)	$	98,596	$	50,853	$	101,780
Stock-based compensation	(3,549)	—		—	—		1,138		—		1,138


Repurchase of common shares to satisfy minimum tax withholdings	(384)	—		—	—		(2)		—		(2)


Net loss	—	—		—	—		—		(23,814)		(23,814)
Balances, June 30, 2020	23,110,285	$	23	(4,618,146)	$	(47,692)	$	99,732	$	27,039	$	79,102
Stock-based compensation	87,701	—		—	—		426		—		426

Repurchase of common shares to satisfy minimum tax withholdings	(31,953)	—		—	—		(153)		—		(153)


Net income	—	—		—	—		—		4,975		4,975
Balances, September 30, 2020	23,166,033	$	23	(4,618,146)	$	(47,692)	$	100,005	$	32,014	$	84,350

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		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	—	—		—	—		—		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	—	—		—	—		—		(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	—	—		—	—		—		(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	—	—		—	—		—		(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

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,							Nine Months Ended September 30,
(in thousands)	2019			2018			(in thousands)	2020		2019
Cash flows from operating activities							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
Net (loss) income							Net (loss) income	$	(20,732)	$	26,439
Adjustments to reconcile net (loss) income to net cash provided by operating activities:							Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Deferred income tax expense							Deferred income tax expense	10,724		10,634
Depreciation, amortization, depletion and accretion	4,902			262			Depreciation, amortization, depletion and accretion	5,807		4,902
Impairment of long-lived assets							Impairment of long-lived assets	26,103		0
Operating lease expense	2,371			—			Operating lease expense	3,130		2,371
Amortization of debt discount and debt issuance costs	1,324			—			Amortization of debt discount and debt issuance costs	1,064		1,324

Stock-based compensation expense	1,326			1,929			Stock-based compensation expense	2,070		1,326
Earnings from equity method investments	(57,051		)	(37,857		)	Earnings from equity method investments	(25,959)		(57,051)
Other non-cash items, net	697			190			Other non-cash items, net	45		697

Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Receivables and related party receivables	2,685			(375		)	Receivables and related party receivables	(1,331)		2,685

Prepaid expenses and other assets	(440		)	(797		)	Prepaid expenses and other assets	(9,056)		(440)
Costs incurred on uncompleted contracts	—			15,945
Inventories	4,566			—
Deferred tax assets, net	6,812			(966		)
Other long-term assets	(43		)	—

Inventories, net							Inventories, net	4,688		4,566

Other long-term assets, net							Other long-term assets, net	(1,908)		(43)
Accounts payable	1,010			(340		)	Accounts payable	(1,123)		1,010
Accrued payroll and related liabilities	(4,386		)	587			Accrued payroll and related liabilities	1,089		(4,386)
Other current liabilities	(278		)	(1,974		)	Other current liabilities	(220)		(278)
Billings on uncompleted contracts	—			(15,945		)

Operating lease liabilities	(2,435		)	—			Operating lease liabilities	(1,678)		(2,435)
Other long-term liabilities	(529		)	(157		)	Other long-term liabilities	(23)		(529)
Distributions from equity method investees, return on investment	56,806			4,000			Distributions from equity method investees, return on investment	42,228		56,806
Net cash provided by (used in) operating activities	47,598			(4,311		)

Net cash provided by operating activities							Net cash provided by operating activities	34,918		47,598
Cash flows from investing activities							Cash flows from investing activities
Distributions from equity method investees in excess of cumulative earnings	—			33,575

Acquisition of business	(661		)	—			Acquisition of business	0		(661)
Acquisition of property, plant, equipment, and intangible assets, net	(6,430		)	(191		)	Acquisition of property, plant, equipment, and intangible assets, net	(4,879)		(6,430)
Mine development costs	(2,083		)	—			Mine development costs	(723)		(2,083)
Contributions to equity method investees	—			(750		)
Net cash (used in) provided by investing activities	(9,174		)	32,634

Net cash used in investing activities							Net cash used in investing activities	(5,602)		(9,174)
Cash flows from financing activities							Cash flows from financing activities
Principal payments on term loan	(24,000		)	—			Principal payments on term loan	(18,000)		(24,000)
Principal payments on finance lease obligations	(1,016		)	—			Principal payments on finance lease obligations	(1,026)		(1,016)
Dividends paid	(13,729		)	(15,226		)	Dividends paid	(4,956)		(13,729)
Repurchase of common shares	(2,926		)	(11,169		)	Repurchase of common shares	(159)		(2,926)
Repurchase of common shares to satisfy tax withholdings	(370		)	(707		)	Repurchase of common shares to satisfy tax withholdings	(531)		(370)
Borrowings from Paycheck Protection Program Loan							Borrowings from Paycheck Protection Program Loan	3,305		0

Net cash used in financing activities	(42,041		)	(27,102		)	Net cash used in financing activities	(21,367)		(42,041)
(Decrease) increase in Cash and Cash Equivalents and Restricted Cash	(3,617		)	1,221
Increase (decrease) in Cash and Cash Equivalents and Restricted Cash							Increase (decrease) in Cash and Cash Equivalents and Restricted Cash	7,949		(3,617)
Cash and Cash Equivalents and Restricted Cash, beginning of period	23,772			30,693			Cash and Cash Equivalents and Restricted Cash, beginning of period	17,080		23,772
Cash and Cash Equivalents and Restricted Cash, end of period	$	20,155		$	31,914		Cash and Cash Equivalents and Restricted Cash, end of period	$	25,029	$	20,155

Supplemental disclosure of non-cash investing and financing activities:							Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, not paid	$	204		$	85

Acquisition of property, plant and equipment through accounts payable							Acquisition of property, plant and equipment through accounts payable	$	446	$	0
Acquisition of property, plant and equipment through finance lease							Acquisition of property, plant and equipment through finance lease	$	158	$	0
Dividends payable							Dividends payable	$	47	$	204

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,~~Greenwood Village, Colorado and operations located in Louisiana. The Company is principally engaged in the sale of consumable ~~mercury control~~air and water treatment options including ~~powdered~~ activated carbon ("~~PAC"~~AC") and 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 emission control regulations. ~~The~~Through its wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), which 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 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 their customers with various solutions to enhance combustion and reduced emissions of nitrogen oxide ("NOx") and mercury from coal burned to generate electrical power. The Company’s sales occur principally throughout the United States. See Note 13 for additional information regarding the Company's operating segments.

Onacquired 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~~manufactures and ~~seller of activated carbon ("AC")~~sells AC used ~~in mercury~~to capture and remove contaminants for ~~the~~ coal-fired power ~~plant,~~plants and 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~~AC.

Through its equity ownership in ~~2008 as a 50/50 joint venture by~~Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), both of which are unconsolidated entities, the Company generates substantial earnings. Tinuum Group provides reduction of mercury and ~~Energy Capital Partners LLC.~~nitrogen oxide ("NOx") 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"). The Company ~~relinquished its ownership in 2011 as part~~also earns royalties for technologies that are licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduced emissions of ~~a legal settlement agreement as described~~NOx and mercury from coal burned to generate electrical power. Tinuum Services operates and maintains the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities.

The Company’s sales occur principally in the ~~Company's Annual Report on Form 10-K~~United States. See Note 18 for ~~the fiscal year ended December 31, 2017. The Company acquired Carbon Solutions primarily to expand~~additional information regarding the Company's ~~product offerings within the mercury control industry and other complementary PAC markets.~~operating segments.

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 in consolidation 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, ~~2018~~2019 (the ~~"2018~~"2019 Form 10-K"). Significant accounting policies disclosed therein have not changed, except as described later in Note 1.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the two-class method, which is an earnings allocation formula that determines earnings (loss) per share for common stock and any participating securities according to dividend and participating rights in undistributed ~~earnings.~~earnings (losses). 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)

participating, unvested RSA's ("common shares"), and the weighted-average number of participating, unvested RSA's 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 (loss) 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.

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

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net income (loss)	$	4,975	$	3,923	$	(20,732)	$	26,439
Less: Dividends and undistributed income (loss) allocated to participating securities	0		5		(10)		37
Income (loss) attributable to common stockholders	$	4,975	$	3,918	$	(20,722)	$	26,402

Basic weighted-average common shares outstanding	18,093		18,112		18,014		18,184
Add: dilutive effect of equity instruments	10		227		0		210


Diluted weighted-average shares outstanding	18,103		18,339		18,014		18,394
Earnings (loss) per share - basic	$	0.27	$	0.22	$	(1.15)	$	1.45
Earnings (loss) per share - diluted	$	0.27	$	0.21	$	(1.15)	$	1.44

For the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, RSA's and Stock Options convertible to ~~0.3~~0.5 million and ~~0.3~~0.9 million, ~~shares, respectively,~~ and 0.3 million and 0.3 million shares ~~respectively,~~ of common stock, ~~for each of the periods presented~~respectively, were outstanding but were not included in the computation of diluted net income (loss) 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, 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 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 ~~2018~~2019 Form ~~10-K.~~10-K except for assumptions regarding impairment of long-lived assets and the valuation of assets acquired and liabilities assumed in an asset acquisition. Actual results could differ from these estimates.

Due to the coronavirus ("COVID-19") pandemic, there has been uncertainty and disruption in the global economy and financial markets. Additionally, due to COVID-19, overall power generation and coal-fired power demand may change, which could also have a material adverse effect on the Company. The Company is not aware of any specific event or circumstance due to COVID-19 that would require an update to its estimates or judgments or a revision of the carrying values of its assets or liabilities through the date of this Quarterly Report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Risks and Uncertainties

The Company’s earnings are significantly affected by equity earnings it receives from Tinuum Group. As of September 30, ~~2019,~~2020, Tinuum Group has 2321 invested RC facilities of which 119 are leased to a single customer. A majority of these leases are periodically ~~renewed and~~renewed. Further, the ability to generate Section 45 tax credits related to Tinuum's RC facilities expires in 2021. The loss of ~~this~~a single customer by Tinuum Group or ~~material modification to~~ the ~~lease terms~~expiration of ~~these facilities by this customer~~Section 45 tax credits would have a significant adverse impact on Tinuum Group's financial position, results of operations and cash flows, which in turn would have a material adverse impact on the Company’s financial position, results of operations and cash flows.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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. NoSuch reclassifications ~~have~~had no effect on the Company’s results of operations or financial position in any ~~impact to income before income taxes or net income.~~of the periods presented.

New Accounting Standards

~~Recently Adopted~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~ ~~(Topic 842) ("ASU 2016-02"), which 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. ASC 842 retains the distinction between finance leases (formerly defined as capital leases) and operating leases. On January 1, 2019, the Company adopted ASC 842 retrospectively beginning with the date of adoption. Under this adoption method, the application date is the beginning of the reporting period in which the Company first applies the provisions of ASC 842. Accordingly, the Company’s reporting for the comparative periods presented in the financial statements and related disclosures continues in accordance with legacy U.S. GAAP under ASC Topic 840 - Leases ("ASC 840"). The adoption of ASC 842 had no impact to the opening balance of 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 "smaller reporting companies" (as defined by the Securities and Exchange Commission) for fiscal years beginning after December 15, ~~2019,~~2022, 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~~disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.

In ~~August 2018,~~December 2019, the FASB issued ASU ~~2018-13,~~ ~~Fair Value Measurement~~2019-12, Income Taxes (Topic ~~820) Disclosure Framework - Changes to~~740) Simplifying the ~~Disclosure Requirements~~Accounting for ~~Fair Value Measurement~~Income Taxes ("ASU ~~2018-13"~~2019-12"). The amendments in ASU ~~2018-13~~2019-12 simplify various aspects related to accounting for income taxes by removing certain exceptions contained in Topic 740 and also clarify and amends existing guidance in Topic 740 to improve consistent application. ASU 2019-12 is effective for public business entities beginning after December 15, 2020, including interim periods within those years, and early adoption is permitted. The Company is currently evaluating the ~~effectiveness~~provisions of ~~fair value measurement~~this guidance and assessing its impact on the Company's financial statements and disclosures and ~~modify~~does not believe this standard will have a material impact on the ~~disclosure requirements~~Company's financial statements and disclosures.

Note 2 - Customer Supply Agreement

On September 30, 2020, the Company and Cabot Norit Americas, Inc., ("Cabot") entered into a supply agreement (the "Supply Agreement") pursuant to which the Company agrees to sell and deliver to Cabot, and Cabot agrees to purchase and accept from the Company certain lignite-based AC products ("Furnace Products"). The term of the Supply Agreement is for 15 years with 10-year renewal terms that are automatic unless either party provides three years prior notice of intention not to renew before the end of any term.

In addition to the sale by the Company and purchase by Cabot of Furnace Products, the Company and Cabot have agreed to additional terms whereby Cabot will reimburse the Company for certain capital expenditures incurred by the Company that are necessary to manufacture the Furnace Products. Reimbursements will be in the form of revenues earned from capital expenditures incurred that will benefit both the Company and Cabot (referred to as "Shared Capital") and capital expenditures incurred that will benefit Cabot exclusively (referred to as "Specific Capital"). Both the Company and Cabot must mutually agree with all Shared Capital and Specific Capital expenditures that are necessary to support operational needs in advance of procurement and commissioning.

Revenues will be earned on ~~fair value measurements in Topic 820, Fair Value Measurement~~Shared Capital ("~~Topic 820"~~Shared Capital revenues"), based on the ~~concepts~~percentage of Furnace Products produced and sold divided by the Company’s total products produced and sold multiplied by a mutually agreed to factor, which is based on the cost of Shared Capital assets placed in ~~FASB Concepts Statement, Conceptual Framework~~service amortized as an annuity over the expected asset life (lives) with interest at a rate that was mutually agreed to by both the Company and Cabot. Shared Capital revenues are recognized and billable beginning on the first day of a half year (either January 1 or July 1 of a calendar year) following the placed in service date of a Shared Capital asset(s).

Revenues will be earned on Specific Capital ("Specific Capital revenues") and are based on a mutually agreed to factor, which is based on the cost of Specific Capital assets placed in service amortized as an annuity over five years with interest at a rate

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

that was mutually agreed to by both the Company and Cabot. Specific Capital revenues are recognized beginning on the first day of a half year (either January 1 or July 1 of a calendar year) following the placed in service date of a Specific Capital asset(s) and are billable in quarterly installments beginning on the first day of a half year following the placed in service date of a Specific Capital asset(s). In the event that Cabot ceases to make purchases under the Supply Agreement, Cabot is obligated to pay the balance of any outstanding payments for Specific Capital.

Note 3 - Acquisition of Marshall Mine

Concurrently with the execution of the Supply Agreement, on September 30, 2020, the Company entered into an agreement to purchase (the "Purchase Agreement") from Cabot 100% of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for ~~Financial Reporting - Chapter 8: Notes~~a nominal purchase price. Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine"). The Company independently determined to ~~Financial Statements, including~~immediately commence activities to shutter the ~~consideration~~Marshall Mine and will incur the associated reclamation costs.

In conjunction with the execution of the Supply Agreement and the Purchase Agreement, on September 30, 2020, the Company entered into a reclamation contract (the "Reclamation Contract") with a third party that provides a capped cost, subject to certain contingencies, in the amount of approximately $19.7 million plus an obligation to pay certain direct costs ~~and benefits. ASU 2018-13~~of approximately $3.6 million (collectively, the "Reclamation Costs") over the estimated reclamation period of 10 years (the "Reclamation Period"). Under the terms of the Supply Agreement, Cabot is ~~effective~~obligated to reimburse the Company for ~~fiscal~~$10.2 million of Reclamation Costs (the "Reclamation Reimbursements"), which are payable semi-annually over 13 years and ~~interim periods within those fiscal years, beginning after December 15, 2019.~~ inclusive of interest. In the event that Cabot has a change in control as described in the Supply Agreement, all outstanding balances of the Reclamation Reimbursements shall be due and payable in full. See further discussion of the Reclamation Costs and Reclamation Reimbursements in Note 4.

The ~~amendments on changes in unrealized gains and losses,~~Marshall Mine Acquisition included the ~~range and weighted-average~~acquisition of ~~significant unobservable inputs used to develop Level 3 fair value measurements,~~certain assets that will be consumed and the ~~narrative description~~assumption of ~~measurement uncertainty~~certain liabilities that will be paid in reclamation of the Marshall Mine in addition to the incurrence of an obligation for the Reclamation Costs. The Company determined that the Marshall Mine Acquisition should be ~~applied prospectively for only~~treated as an asset acquisition as it did not meet the ~~most recent interim or annual period presented in~~definition of a business. That is, 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. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption ofCompany concluded that the additional disclosures until their effective date. The Company is currently evaluating the provisions of ASU 2018-13 and assessing its impact on the Company's financial statement disclosures. The CompanyMarshall Mine does not ~~believe this standard will~~ have ~~a material impact on~~any economic reserves, as the ~~Company's financial statement disclosures.~~

~~Note 2 - Acquisition~~Company has commenced full reclamation as of September 30, 2020, and therefore lacks inputs.

As ~~described in Note 1, on~~ the Marshall Mine Acquisition ~~Date,~~represents a transaction with a customer of net assets acquired and liabilities assumed from Cabot, the Company ~~completed~~has accounted for the ~~Carbon Solutions Acquisition for a total purchase price~~excess of ~~$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 liabilities assumed over assets acquired as upfront consideration transferred to a customer, Cabot (the "Upfront Customer Consideration"). The amount of the ~~purchase consideration totaled $66.5 million and consisted~~Upfront Customer Consideration is also recognized net of an additional asset recognized in the Marshall Mine Acquisition, which is comprised of a receivable from Cabot (the "Cabot Receivable") for the Reclamation Reimbursements. The Cabot Receivable is further discussed in Note 4.

The total Upfront Customer Consideration will be amortized on a straight-line basis over the expected 15-year contractual period of the Supply Agreement as a reduction to revenue.

The Company paid a nominal amount to Cabot in the form of cash for the Marshall Mine; in addition, the Company assumed liabilities whose fair value exceeded the fair value of ~~$65.8 million~~assets acquired. The net assets acquired 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~~liabilities assumed, followed 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~~Cabot Receivable, and the ~~proceeds from~~excess of fair value of liabilities acquired over assets assumed and recognized as the ~~Term Loan and Security Agreement (the "Senior Term Loan") in~~Upfront Customer Consideration is as follows (in thousands), as of the ~~principal amount~~transaction date of ~~$70.0 million, as more fully described in Note 5.~~September 30, 2020:

The following table summarizes the final purchase price allocation. Subsequent to December 31, 2018, the Company completed additional analysis and adjustments were made to the preliminary purchase price allocations as noted in the table below:


(in thousands)	Amount
Assets acquired:
Property, plant and equipment	$	3,863
Spare parts	100

Liabilities assumed:
Accounts payable and accrued expenses	(673)
Asset retirement obligation	(21,328)
Net assets acquired and liabilities assumed from Marshall Mine acquisition	(18,038)
Cabot receivable	9,749
Upfront Customer Consideration	$	8,289

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 Condensed Consolidated Financial Statements

(Unaudited)

The Company also evaluated the Marshall Mine entity as a potential variable interest entity ("VIE"), and determined that because of its structure and closing-stage status, it does not have sufficient equity at-risk and would not likely be able to obtain additional subordinated financial support to complete its closing stage obligations. The Company purchased all of the membership interests in Marshall Mine, LLC and has determined that the Company is the primary beneficiary. Therefore, Marshall Mine, LLC has been determined to be a VIE and Marshall Mine, LLC’s assets and liabilities have been consolidated as of September 30, 2020.

~~Adjustments~~

Note 4 - Marshall Mine Asset Retirement Obligation and related Cabot Receivable

Asset Retirement Obligation

In connection with the Supply Agreement, Purchase Agreement and the Reclamation Contract, the Company assumed the obligation to reclaim and restore the land associated with the Marshall Mine. The Company determined that the Marshall Mine does not have any remaining economic reserves. As of September 30, 2020, the Company recorded an asset retirement obligation (the "Marshall Mine ARO") for the total Reclamation Costs of $21.3 million as measured at the expected future cash flows of $23.7 million, inclusive of contingency costs, discounted to their present value using a discount rate based on a credit-adjusted, risk-free rate of 7.0%.

Cabot Receivable

As previously disclosed, under the terms of the related Supply Agreement, Cabot is obligated to pay Reclamation Reimbursements 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 resultCompany for $10.2 million of the ~~final~~Reclamation Costs, inclusive of interest. As of September 30, 2020, the Company recorded the Cabot Receivable for the Reclamation Reimbursements at its estimated fair value, which is measured using a discounted cash flows valuation ~~report from~~model that considers the ~~Company's third-party valuation firm issued in May 2019. During~~estimated credit risk associated with the ~~three months ended June~~obligor’s (Cabot’s) future performance. Interest will be accreted on a monthly basis and recognized as interest income. There were no significant related fees or costs associated with the Cabot Receivable.

As of September 30, ~~2019 based on new information~~2020, the Company recorded the Cabot Receivable at its estimated fair value of ~~facts~~$9.7 million, reflecting a discount rate of approximately 1.5% or $0.5 million. Allowances for this asset are assessed periodically, and ~~circumstances that existed~~0 allowance was deemed necessary as of September 30, 2020.

Surety Bond

As the ~~Acquisition Date,~~owner of the Marshall Mine, the Company ~~revised~~is required to post a surety bond to ensure performance of its ~~estimates used~~reclamation activities. On September 30, 2020, the Company and a third party entered into a surety bond indemnification agreement (the "Surety Agreement") pursuant to which the Company secured and posted a $30.0 million surety bond (the "Bond") with the local regulatory agency. The Bond will remain in place until the Marshall Mine is fully reclaimed, and it may be reduced in amount from time to time as the Company progresses with its reclamation activities. For the obligations due under the Reclamation Contract, the Company was required to post collateral of $5.0 million dollars as of September 30, 2020 and an additional $5.0 million dollars as of March 31, 2021.

Note 5 - Impairment

As part of its periodic review of the ~~Acquisition Date related~~carrying value of long-lived assets, the Company assessed its long-lived assets for potential impairment. In assessing impairment of its PGI segment's and certain other long-lived asset groups, the Company considered factors such as the significant decline in both the PGI segment's trailing twelve months revenues and current and future years’ forecasted revenues. These factors are largely due to the ~~net realizable value~~significant drop in coal-fired power dispatch that began in 2019 amid historically low prices of ~~certain finished goods inventory items~~alternative power generation sources such as natural gas leading to an increase in natural gas usage as well as ~~values assigned to~~other competing energy sources.

As of June 30, 2020, the Company completed an undiscounted cash flow analysis of its PGI segment's and certain ~~prepaid~~other long-lived assets (the "Asset Group"), which are comprised of its manufacturing plant and ~~accrued expense items.~~

~~The adjustments were recorded~~related assets and its lignite mine assets, and estimated the undiscounted cash flows from the Asset Group at $54.7 million, which was less than the carrying value of the Asset Group of $58.3 million. Accordingly, the Company completed an assessment of the Asset Group’s fair value and estimated the fair value of the Asset Group at $32.2 million. This resulted in an impairment and write-down of the Asset Group (the "Impairment Charge") of $26.1 million as of June 30, ~~2019 and were included~~2020, which is reflected as "Impairment of long-lived assets" in the Condensed Consolidated ~~Balance Sheet as of that date~~ ~~and the resultant impact to the Statement~~Statements of Operations ~~was reflected~~ for the ~~three months ended June 30, 2019.~~

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

(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 represents the pro forma effects of the Carbon Solutions Acquisition as if it had occurred on January 1, 2017. The pro forma pre-tax income for the period presented has been calculated after applying the Company’s accounting policies in effect for 2017 and 2018. In addition, pro forma net income for the three and nine months ended September 30, ~~2018 includes: (1)~~2020. The Impairment Charge was allocated to the ~~impact on Carbon Solutions~~PGI segment and Other in the amounts of ~~the adoption of ASC 606 effective January 1, 2018, which resulted in a reclassification of $2.1~~$23.2 million and ~~$5.9~~$2.9 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 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 information below is not necessarily indicative of either future results of operations or results that might have been achieved had the Carbon Solutions Acquisition been consummated as of January 1, 2017.2020.

~~The following table presents the pro forma effects of the 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, Product inventory includes zero and $5.0 million, respectively, attributed to the increase in fair value of inventory acquired from the Carbon Solutions Acquisition.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the allocation to the Asset Group of the Impairment Charge of $26.1 million recorded as of June 30, 2020:


(in thousands)
Property, plant and equipment, net	$	18,986
Intangible assets, net	1,445
Other long-term assets, net	5,672

Total impairment	$	26,103

The Company engaged an independent third party to perform the valuation of the Asset Group in order to determine the estimated fair value of the Asset Group. This valuation was based on the use of several established valuation models including an expected future discounted cash flow model using Level 3 inputs under ASC 820 - Fair Value Measurement. The cash flows are those expected to be generated by market participants discounted at the risk-free rate of interest. Because of the continued future uncertainty surrounding the level of coal-fired dispatch, the impact of historically low natural gas prices and other estimates impacting the expected future cash flow, it is reasonably possible that the expected future cash flows may change in the near term and may result in the Company recording additional impairment of the Asset Group.

As of September 30, 2020, the Company determined that there was 0 additional impairment of the Asset Group.

Note 6 - COVID-19

In response to the COVID-19 outbreak, in March 2020, the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act provided, among other things, the creation of the Paycheck Protection Program ("PPP"), which is sponsored and administered by the U.S. Small Business Administration ("SBA").

On April 20, 2020, the Company entered into a loan (the "PPP Loan") under the PPP, evidenced by a promissory note, with BOK, NA dba Bank of Oklahoma ("BOK") providing for $3.3 million in proceeds, which was funded to the Company on April 21, 2020. The PPP Loan matures April 21, 2022 and provides for 18 monthly payments of principal and interest commencing on November 21, 2020. The interest rate on the PPP Loan is 1.00%. The PPP Loan is unsecured and contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or BOK, or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. The PPP Loan principal may be forgiven subject to the terms of the PPP and approval by the SBA.

The Company recorded the PPP Loan as a debt obligation under the guidance of ASC 470 - Debt and will accrue interest over the 18-month term of the PPP Loan beginning November 21, 2020.

The CARES Act also provided the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020. The Company elected to defer payments of payroll taxes for the periods allowed under the CARES Act and will repay 50% by December 31, 2021 and 50% by December 31, 2022. As of September 30, 2020, the Company has deferred $0.3 million of payroll tax payments under the CARES Act.

Note 47 - Equity Method Investments

Tinuum Group, LLC

The Company's ownership interest in Tinuum Group was 42.5% as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. 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 ~~refined coal ("RC")~~RC that lower emissions and also qualify for Section 45 tax credits. Tinuum Group has been determined to be a ~~variable interest entity ("VIE");~~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.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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)	2019			2018			2019			2018			(in thousands)	2020		2019		2020		2019
Gross profit	$	16,810		$	26,530		$	96,189		$	81,626		Gross profit	$	101	$	16,810	$	11,979	$	96,189
Operating, selling, general and administrative expenses	11,076			5,908			23,421			17,406			Operating, selling, general and administrative expenses	13,781		11,076		38,476		23,421
Income from operations	5,734			20,622			72,768			64,220
Other expenses	(450		)	(577		)	(427		)	(2,801		)
Class B preferred return	—			—			—			(12		)
(Loss) income from operations													(Loss) income from operations	(13,680)		5,734		(26,497)		72,768
Other income (expenses)													Other income (expenses)	5,739		(450)		11,526		(427)

Loss attributable to noncontrolling interest	22,355			17,126			51,022			38,145			Loss attributable to noncontrolling interest	25,023		22,355		63,117		51,022
Net income available to members	$	27,639		$	37,171		$	123,363		$	99,552		Net income available to members	$	17,082	$	27,639	$	48,146	$	123,363
ADES equity earnings from Tinuum Group	$	11,746		$	8,075		$	50,757		$	33,575		ADES equity earnings from Tinuum Group	$	7,260	$	11,746	$	20,462	$	50,757

For the three and nine months ended September 30, ~~2018 periods presented in 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%)~~2020 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.

For the three and nine months ended September 30, 2018 periods presented in the table below, the Company recognized equity earnings from Tinuum Group to the extent that cash distributions were received from Tinuum Group during the period. For the three months ended September 30, 2019, the Company 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 the amount necessary to recover the cumulative earnings short-fall balance as of the end of the immediately preceding period, which was December 31, 2018. For the nine months ended September 30, 2019, the difference between the Company's proportionate share of Tinuum Group's net income available to members (at its equity interest of 42.5%) 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.

For the three and nine months ended September 30, 2020, the Company recognized equity earnings from Tinuum Group of $7.3 million and $20.5 million, respectively. 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 recognized equity earnings from Tinuum Group of $8.1 million and $33.6 million, respectively. As of September 30, 2019 and December 31, 2018, the Company's carrying value in Tinuum Group was $37.7 million and zero, respectively.

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(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, 2020 and 2019 ~~and 2018~~ (in thousands):


Description	Date(s)	Investment balance		ADES equity earnings		Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2019	$	32,280	$	0	$	0	$	0

ADES proportionate share of income from Tinuum Group	First Quarter	6,438		6,438		0		0

Cash distributions from Tinuum Group	First Quarter	(13,764)		0		13,764		0

Total investment balance, equity earnings and cash distributions	3/31/2020	$	24,954	$	6,438	$	13,764	$	0
ADES proportionate share of income from Tinuum Group	Second Quarter	$	6,764	$	6,764	$	0	$	0

Cash distributions from Tinuum Group	Second Quarter	(13,600)		0		13,600		0

Total investment balance, equity earnings and cash distributions	6/30/2020	$	18,118	$	6,764	$	13,600	$	0
ADES proportionate share of income from Tinuum Group	Third Quarter	$	7,260	$	7,260	$	0	$	0

Cash distributions from Tinuum Group	Third Quarter	(7,862)		0		7,862		0

Total investment balance, equity earnings and cash distributions	9/30/2020	$	17,516	$	7,260	$	7,862	$	0

Description Date(s) Investment balance ADES equity earnings (loss) Cash distributions Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance 12/31/2018 $ —
$ —
$ —
$ (1,672 )
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 (1,672 ) (1,672 ) —
1,672
Cash distributions from Tinuum Group First Quarter (16,788 ) —
16,788
—
Total investment balance, equity earnings (loss) and cash distributions 03/31/2019 $ 40,211
$ 19,767
$ 16,788
$ —
ADES proportionate share of income from Tinuum Group Second Quarter $ 19,244
$ 19,244
$ —
$ —
Cash distributions from Tinuum Group Second Quarter (17,000 ) —
17,000
—
Total investment balance, equity earnings (loss) and cash distributions 6/30/2019 $ 42,455
$ 19,244
$ 17,000
$ —
ADES proportionate share of income from Tinuum Group Third Quarter $ 11,746
$ 11,746
$ —
$ —
Cash distributions from Tinuum Group Third Quarter (16,468 ) —
16,468
—
Total investment balance, equity earnings (loss) and cash distributions 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
Beginning balance	12/31/2018	$	0	$	0	$	0	$	(1,672)
Impact of adoption of accounting standards (1)	First Quarter	37,232		0		0		0
ADES proportionate share of income from Tinuum Group	First Quarter	21,439		21,439		0		0
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	First Quarter	(1,672)		(1,672)		0		1,672
Cash distributions from Tinuum Group	First Quarter	(16,788)		0		16,788		0

Total investment balance, equity earnings and cash distributions	3/31/2019	$	40,211	$	19,767	$	16,788	$	0
ADES proportionate share of income from Tinuum Group	Second Quarter	$	19,244	$	19,244	$	0	$	0

Cash distributions from Tinuum Group	Second Quarter	(17,000)		0		17,000		0

Total investment balance, equity earnings and cash distributions	6/30/2019	$	42,455	$	19,244	$	17,000	$	0
ADES proportionate share of income from Tinuum Group	Third Quarter	$	11,746	$	11,746	$	0	$	0

Cash distributions from Tinuum Group	Third Quarter	(16,468)		0		16,468		0

Total investment balance, equity earnings and cash distributions	9/30/2019	$	37,733	$	11,746	$	16,468	$	0

Description 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 )
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 (12,218 ) (12,218 ) —
12,218
Cash distributions from Tinuum Group First Quarter (11,050 ) —
11,050
—
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 )
ADES proportionate share of income from Tinuum Group (2) 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
Cash distributions from Tinuum Group Second Quarter (14,450 ) —
14,450
—
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 )
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 (11,201 ) (11,201 ) —
11,201
Cash distributions from Tinuum Group Third Quarter (8,075 ) —
8,075
—
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 )

(1) ~~As discussed in Note 1,~~ Tinuum Group adopted ~~ASC~~Accounting Standards Codification Topic ("ASC") 606 - Revenue from Contracts with Customers and ASC 842 - Leases 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~~$27.4 million, net of the impact of income taxes, related to the Company's percentage of Tinuum Group's cumulative effect adjustment, ~~that~~which increased the Company's Retained earnings as of January 1, 2019.

(2) For the three and nine months ended September 30, 2018, the 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'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").~~Services. The Company has determined that Tinuum Services is not a VIE and has further evaluated ~~its~~it for 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, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$6.3~~$5.3 million and ~~$6.6~~$6.8 million, respectively.

~~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)	2019			2018			2019			2018			(in thousands)	2020		2019		2020		2019
Gross loss	$	(27,834	)	$	(21,362	)	$	(77,761	)	$	(64,069	)	Gross loss	$	(22,764)	$	(27,834)	$	(65,441)	$	(77,761)
Operating, selling, general and administrative expenses	51,927			43,947			151,789			127,783			Operating, selling, general and administrative expenses	42,435		51,927		131,703		151,789
Loss from operations	(79,761		)	(65,309		)	(229,550		)	(191,852		)	Loss from operations	(65,199)		(79,761)		(197,144)		(229,550)
Other (expenses) income	(460		)	78			(1,018		)	443
Other income (expenses)													Other income (expenses)	(363)		(460)		(978)		(1,018)
Loss attributable to noncontrolling interest	85,586			68,509			243,163			199,971			Loss attributable to noncontrolling interest	70,075		85,586		209,118		243,163
Net income	$	5,365		$	3,278		$	12,595		$	8,562		Net income	$	4,513	$	5,365	$	10,996	$	12,595
ADES equity earnings from Tinuum Services	$	2,682		$	1,639		$	6,297		$	4,281		ADES equity earnings from Tinuum Services	$	2,257	$	2,682	$	5,498	$	6,297

Included ~~within~~in the Consolidated Statements of Operations of Tinuum Services for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, were losses related to VIE's of Tinuum Services. These losses do not impact the Company's equity

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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~~in the Earnings from equity method investments line item on 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)	2019			2018		2019			2018		(in thousands)	2020		2019		2020		2019
Earnings from Tinuum Group	$	11,746		$	8,075	$	50,757		$	33,575	Earnings from Tinuum Group	$	7,260	$	11,746	$	20,462	$	50,757
Earnings from Tinuum Services	2,682			1,639		6,297			4,281		Earnings from Tinuum Services	2,257		2,682		5,498		6,297
(Losses) earnings from other	(2		)	1		(3		)	1
Earnings (loss) from other											Earnings (loss) from other	1		(2)		(1)		(3)

Earnings from equity method investments	$	14,426		$	9,715	$	57,051		$	37,857	Earnings from equity method investments	$	9,518	$	14,426	$	25,959	$	57,051

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~~.Flows. Distributions from equity method investees are reported in the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" within Operating cash ~~flows until such time~~flows.


	Nine Months Ended September 30,
(in thousands)	2020		2019
Distributions from equity method investees, return on investment
Tinuum Group	$	35,226	$	50,256
Tinuum Services	7,002		6,550



	$	42,228	$	56,806

Note 8 - Acquisition

As described in Note 1, on the Acquisition Date, the Company completed the acquisition of Carbon Solutions (the "Carbon Solutions Acquisition") for a total purchase price of $75.0 million (the "Purchase Price"). The fair value of the purchase consideration totaled $66.5 million, less cash acquired of $3.3 million, and the assumption of debt and contractual commitments of $11.8 million. The Company also paid $4.5 million in acquisition-related costs (or transaction costs). 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 ~~the carrying value~~more fully described 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.Note 10.

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

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the final purchase price allocation. Subsequent to the Acquisition Date, the Company completed additional analysis and adjustments were made to the preliminary purchase price allocations as noted in the table below:


Fair value of assets acquired:	As Originally Reported		Adjustments		As Adjusted
Cash	$	3,284	$	0	$	3,284
Receivables	6,409		0		6,409
Inventories	22,100		(356)		21,744
Prepaid expenses and other current assets	2,992		61		3,053
Spare parts	3,359		0		3,359
Property, plant and equipment	43,033		(377)		42,656
Mine leases and development	2,500		200		2,700
Mine reclamation asset	0		2,402		2,402
Intangible assets	4,000		100		4,100
Other assets	168		0		168
Amount attributable to assets acquired	87,845		2,030		89,875

Fair value of liabilities assumed:
Accounts payable	4,771		0		4,771
Accrued liabilities	7,354		254		7,608
Equipment lease liabilities	8,211		0		8,211
Mine reclamation liability	626		1,776		2,402
Other liabilities	437		0		437
Amount attributable to liabilities assumed	21,399		2,030		23,429

Net assets acquired	$	66,446	$	0	$	66,446

Adjustments to the preliminary purchase price allocation primarily related 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 existed as of the Acquisition Date, the Company revised its estimates used as of the Acquisition Date related to the net realizable value of certain finished goods inventory items as well as values assigned to certain prepaid and accrued expense items.

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


(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

Refer to Note 5 regarding subsequent impairment taken on the long-lived assets acquired above.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 9 - Inventories, net

The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of September 30, 2020 and December 31, 2019:


	As of
(in thousands)	September 30, 2020		December 31, 2019
Product inventory	$	9,535	$	13,515
Raw material inventory	884		1,945

	$	10,419	$	15,460

Note 510 - 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.~~


	As of
(in thousands)	September 30, 2020		December 31, 2019
Senior Term Loan due December 2021, related party	$	22,000	$	40,000
Less: net unamortized debt issuance costs	(640)		(1,163)
Less: net unamortized debt discount	(660)		(1,200)
Senior Term Loan due December 2021, net	20,700		37,637
Finance lease obligations	5,841		6,729
PPP Loan	3,305		0
	29,846		44,366
Less: Current maturities	(24,360)		(23,932)
Total long-term debt	$	5,486	$	20,434

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~~5 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 2.8. 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.

Waiver and Limited Consent on Senior Term Loan

Pursuant to entering into the PPP Loan, on April 20, 2020, the Company and Apollo executed the First Amendment to the Senior Term Loan, which permitted the Company to enter into the PPP Loan.

On September 30, 2020, the Company and Apollo entered into a limited consent, which permitted the Company to (i) enter into the Surety Agreement, open the collateral bank accounts and post collateral required under the Surety Agreement, and (ii) acquire the membership interests in Marshall Mine, LLC., as described in Note 3.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Line of Credit

On September ~~30, 2018, ADA,~~29, 2020, ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary of the Company, 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,~~This amendment extended the maturity date of the Line of Credit to ~~September 30, 2020~~March 31, 2021 and ~~permitted~~retained covenants from 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 Twelfth Amendment, there was 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"prior amendments 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~~included ADA's ability 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,~~million and the ~~financial~~revision of covenants ~~in the Line~~

~~of Credit~~that 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, ~~2019,~~2020, there were no0 outstanding borrowings under the Line of Credit.

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 611 - 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,~~2020, the Company has obligations under finance and operating leases in the amounts of ~~$7.1~~$5.8 million and ~~$5.9~~$3.5 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,~~2020, the Company has ~~ROU~~right of use ("ROU") assets, net of accumulated amortization, under finance leases and operating leases of ~~$6.4~~$2.6 million and ~~$5.9~~$2.3 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.

Variable lease payments represent payments made by a 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 index 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~~Sheets 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~~2020. 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.December 31, 2019. 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.~~2020 and ~~Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

September 30, 2019.

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, 2020 and December 31, 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, 2019Lease expense for operating leases ~~in effect as~~for the three and nine months ended September 30, 2020 was $1.1 million and $3.5 million, respectively, 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 costswhich $1.0 million and ~~impairment. Lease expense from operating leases~~$2.9 million, respectively, 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~~Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.1 million and $0.6 million, respectively, is included in General and administrative in the ~~period in which the obligation for those payments is incurred.~~Condensed Consolidated Statement of Operations. 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.~~Operations.

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, 2020 and 2019 is provided in the following table:


							Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019			(in thousands)	2020		2019		2020			2019
Finance lease cost:						Finance lease cost:
Amortization of right-of-use assets	$	1,277	$	2,371		Amortization of right-of-use assets	$	258	$	1,277	$	1,237		$	2,371
Interest on lease liabilities	82		270			Interest on lease liabilities	88		82		275			270
Operating lease cost	908		2,764			Operating lease cost	412		908		1,941			2,764
Short-term lease cost	198		558			Short-term lease cost	671		198		1,377			558
Variable lease cost (1)	52		227			Variable lease cost (1)	10		52		147			227

Total lease cost	$	2,517	$	6,190		Total lease cost	$	1,439	$	2,517	$	4,977		$	6,190

Other Information:						Other Information:
Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases			$	270		Operating cash flows from finance leases					$	275		$	270
Operating cash flows from operating leases			$	2,435		Operating cash flows from operating leases					$	1,678		$	2,435
Financing cash flows from finance leases			$	1,016		Financing cash flows from finance leases					$	1,026		$	1,016
Right-of-use assets obtained in exchange for new finance lease liabilities						Right-of-use assets obtained in exchange for new finance lease liabilities					$	158		$	0
Right-of-use assets obtained in exchange for new operating lease liabilities			$	1,309		Right-of-use assets obtained in exchange for new operating lease liabilities					$	59		$	1,309
Weighted-average remaining lease term - finance leases			4.4 years			Weighted-average remaining lease term - finance leases					3.7 years			4.4 years
Weighted-average remaining lease term - operating leases			2.5 years			Weighted-average remaining lease term - operating leases					2.0 years			2.5 years
Weighted-average discount rate - finance leases			6.1		%	Weighted-average discount rate - finance leases					6.1		%	6.1		%
Weighted-average discount rate - operating leases			8.6		%	Weighted-average discount rate - operating leases					8.5		%	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 financed under capital leases in the amount of $8.1 million, net of accumulated amortization of $0.1 million, was 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 capital and operating leases as of December 31, 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 712 - Revenues

~~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.

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.

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.

Trade receivables, net

The following table shows the components of the Company's Trade receivables, net:


	As of							As of
(in thousands)	September 30, 2019			December 31, 2018			(in thousands)	September 30, 2020		December 31, 2019
Trade receivables	$	7,338		$	10,121		Trade receivables	$	9,950	$	8,057
Less: Allowance for doubtful accounts	(567		)	(567		)	Less: Allowance for doubtful accounts	(598)		(627)
Trade receivables, net	$	6,771		$	9,554		Trade receivables, net	$	9,352	$	7,430

For the three and nine months ended September 30, 2020 and 2019, the Company recognized ~~zero provision for~~0 bad debt expense, respectively.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Upfront Customer Consideration

As described in Note 3, as of September 30, 2020, the Company recorded an asset of $8.3 million representing upfront consideration transferred to a customer in connection with the Supply Agreement. The amount is included in Other long-term assets, net on the Company's Consolidated Balance Sheet as of September 30, 2020.

Disaggregation of Revenue and Earnings from Equity Method Investments

During the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, all performance obligations related to revenues recognized were satisfied at a point in time. The Company disaggregates its revenues by major components as well as between its ~~two~~2 reportable segments, which are further discussed in Note 1318 to the Condensed Consolidated Financial Statements. The following tables disaggregate revenues by major component for the three and nine months ended September 30, 2020 and 2019 ~~and 2018~~(in thousands):

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


	Three Months Ended September 30, 2020								Nine Months Ended September 30, 2020
	Segment								Segment
	PGI		RC		Other		Total		PGI		RC		Other		Total
Revenue component
Consumables	$	13,442	$	0	$	2,402	$	15,844	$	28,987	$	0	$	4,244	$	33,231
License royalties, related party	0		3,627		0		3,627		0		9,986		0		9,986


Revenues from customers	13,442		3,627		2,402		19,471		28,987		9,986		4,244		43,217

Earnings from equity method investments	0		9,518		0		9,518		0		25,959		0		25,959

Total revenues from customers and earnings from equity method investments	$	13,442	$	13,145	$	2,402	$	28,989	$	28,987	$	35,945	$	4,244	$	69,176

~~Notes to Condensed Consolidated Financial Statements~~


	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	$	0	$	738	$	14,748	$	39,612	$	0	$	1,631	$	41,243
License royalties, related party	0		4,385		0		4,385		0		12,796		0		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	0		14,426		0		14,426		0		57,051		0		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

~~(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

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 813 - 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. There were no significant legal proceedings as of September 30, ~~2019.~~2020.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Restricted Cash

As of September 30, ~~2019~~2020, the Company had long-term restricted cash of $10.0 million, which consisted of minimum cash balance requirements of $5.0 million and $5.0 million under the Senior Term Loan and the Surety Agreement related to the Marshall Mine, respectively. As of December 31, ~~2018,~~2019, the Company had long-term restricted cash of $5.0 million ~~and $5.2 million, respectively, which primarily consisted of~~related to minimum cash ~~balance~~ requirements under the Senior Term Loan. ~~As of September 30, 2019~~

Other Commitments and ~~December 31, 2018, the Company had short-term restricted cash of zero and $0.1 million, respectively, related to other commitments.~~

~~Tinuum Group~~Contingencies

The Company ~~also~~ has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. The Company, NexGen Refined Coal, LLC ("NexGen") and ~~two~~2 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. NoThe Company has 0t recorded a liability or expense provision ~~has been recorded by the Company~~ related to this contingent obligation as ~~the Company~~it believes that it is not probable that a loss will occur with respect to the Tinuum Group Party Guaranties.

Note 914 - Stockholders' Equity

Stock Repurchase Programs

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 under a stock repurchase program ~~will~~(the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board. ~~Previously,~~As of November 2019, $2.9 million remained outstanding related to the Stock Repurchase Program. In November 2019, the Board ~~had~~ authorized an incremental $7.1 million to the ~~Company to purchase up to $20.0 million of its outstanding common stock under a separate repurchase program~~Stock Repurchase Program and provided that ~~was~~it will remain in effect until ~~July 31, 2018.~~all amounts are utilized or it is otherwise modified by the Board.

For the three and nine months ended September 30, 2020, under the Stock Repurchase Program, the Company purchased 0 and 20,613 shares, respectively, of its common stock for cash of 0 and $0.2 million, respectively, inclusive of commissions and fees. For the three and nine months ended September 30, 2019, under the ~~respective stock repurchase program authorized by the Board,~~Stock Repurchase Program, the Company purchased 8,152 and 256,743 shares, respectively, of its common stock for cash of $0.1 million and $2.9 million, respectively, inclusive of commissions and fees. ~~For the three and nine months ended~~As of September 30, ~~2018,~~2020, the Company had $7.0 million remaining under the respective stock repurchase program authorized by the Board, the Company purchased 186,212 and 1,011,630 shares of its common stock for cash of $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 the three and nine months ended September 30, 2018, respectively.Stock Repurchase Program.

Quarterly Cash Dividend

Dividends ~~per share~~ declared ~~by the Board,~~ and paid quarterly on all outstanding shares of common stock during the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


	2019			2018				2020			2019
	Per share		Date paid	Per share		Date paid		Per share		Date paid	Per share		Date paid
Dividends declared during quarter ended:							Dividends declared during quarter ended:
March 31	$	0.25	March 7, 2019	$	0.25	March 8, 2018	March 31	$	0.25	March 10, 2020	$	0.25	March 7, 2019
June 30	$	0.25	June 7, 2019	$	0.25	June 8, 2018	June 30	$	0		$	0.25	June 7, 2019
September 30	$	0.25	September 6, 2019	$	0.25	September 6, 2018	September 30	$	0		$	0.25	September 6, 2019
	$	0.75		$	0.75
								$	0.25		$	0.75

A portion of the dividends declared remains accrued subsequent to the payment dates and 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~~Sheets as of September 30, 2020 and December 31, 2019.

Tax Asset Protection Plan

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 the Company experiences an "ownership change" (as defined in the Internal Revenue

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Code). In general, an ownership change occurs if there is a cumulative change in the ownership of 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"~~"TAPP") designed to protect the Company’s ability to utilize its net operating losses and tax credits. The ~~Tax Asset Protection Plan~~TAPP 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,~~9, 2020, the Board approved the ~~First~~Third Amendment to the ~~Tax Asset Protection Plan (the "First~~TAPP ("Third Amendment") that amends the ~~Tax Asset Protection Plan dated May~~TAPP, as previously amended by the First and Second Amendments that were approved the Board on April 6, 2018 and April 5, ~~2017.~~2019, respectively. The ~~First~~Third Amendment ~~amended~~amends 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”) between the Company and the Rights Agent. The Second Amendment amends the definition of the “Final Expiration Date” under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. At the Company's ~~2019~~2020 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, ~~2020.~~2021.

Note 1015 - Stock-Based Compensation

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

Total stock-based compensation expense for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 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)	2019		2018		2019		2018		(in thousands)	2020		2019		2020		2019
RSA expense	$	468	$	919	$	1,326	$	1,871	RSA expense	$	411	$	468	$	1,892	$	1,326
Stock option expense	—		—		—		58

PSU expense									PSU expense	15		0		178		0

Total stock-based compensation expense	$	468	$	919	$	1,326	$	1,929	Total stock-based compensation expense	$	426	$	468	$	2,070	$	1,326

The amount of unrecognized compensation cost as of September 30, ~~2019,~~2020, and the expected weighted-average period over which the cost will be recognized is as follows:


	As of September 30, 2019				As of September 30, 2020
(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	$	3,146	1.67	RSA expense	$	2,181	1.71

PSU expense				PSU expense	131		2.44

Total unrecognized stock-based compensation expense	$	3,146	1.67	Total unrecognized stock-based compensation expense	$	2,312	1.75

Restricted Stock

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, ~~2019~~2020 is presented below:


									Restricted Stock	Weighted-Average Grant Date Fair Value
	Restricted Stock			Weighted-Average Grant Date Fair Value
(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
Non-vested at January 1, 2020								Non-vested at January 1, 2020	451,344	$	10.65
Granted	275,983		—	$	11.07	$	—	Granted	309,976	$	5.20
Vested	(84,156	)	—	$	9.74	$	—	Vested	(306,137)	$	10.08
Forfeited	(3,498	)	—	$	10.96	$	—	Forfeited	(7,565)	$	7.87
Non-vested at September 30, 2019	469,181		20,000	$	10.62	$	10.52
Non-vested at September 30, 2020								Non-vested at September 30, 2020	447,618	$	7.31

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, ~~2019~~2020 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)
Options outstanding, January 1, 2020	300,000	$	13.87
Options granted	0	0
Options exercised	0	0
Options expired / forfeited	(300,000)	13.87
Options outstanding, September 30, 2020	0	$	0	$	0	—
Options vested and exercisable, September 30, 2020	0	$	0	$	0	—

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, 2019 529,780
$ 12.23

Options granted —
—

Options exercised (185,332 ) 9.50

Options expired / forfeited (20,000 ) 20.07

Options outstanding, September 30, 2019 324,448
$ 13.31
$ 497
0.74
Options exercisable, September 30, 2019 324,448
$ 13.31
$ 497
0.74
Performance Share Units

~~The Company did~~ no~~t receive cash from~~Compensation expense is recognized for PSU awards on a straight-line basis over the ~~exercise~~applicable service period, which is generally three years, based on the estimated fair value at the date of ~~stock options during~~grant using a Monte Carlo simulation model. A summary of PSU activity for the ~~three~~nine months ended September 30, ~~2019 as~~ ~~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, 2019 was $0.4 million.~~2020 is presented below:


	Units	Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)		Weighted-Average Remaining Contractual Term (in years)
PSU's outstanding, January 1, 2020	0	$	0
Granted	50,127	6.17
Vested / Settled	0	0
Forfeited / Canceled	0	0
PSU's outstanding, September 30, 2020	50,127	$	6.17	$	204	2.44

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1116 - 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
(in thousands)	September 30, 2020		December 31, 2019
Prepaid expenses and other assets:
Federal and state income tax benefits	$	9,373	$	0
Prepaid federal and state income taxes	4,715		4,228
Prepaid expenses	1,633		1,708
Other	1,167		1,896


	$	16,888	$	7,832
Other long-term assets, net:
Upfront Customer Consideration (1)	$	8,290	$	0
Cabot receivable	8,828		0
Right of use assets, operating leases, net	2,256		5,073
Spare parts, net	3,846		3,453
Mine development costs, net	4,356		7,084
Mine reclamation asset, net	1,307		2,451
Highview Investment	552		552
Other long-term assets	1,771		1,718
	$	31,206	$	20,331

As of
(in thousands) September 30,
2019 December 31,
2018
Prepaid expenses and other assets:
   Prepaid expenses $ 1,635
$ 1,233
Prepaid income taxes 2,753
2,940
Other 1,682
1,397
$ 6,070
$ 5,570
Other long-term assets, net:
Highview Investment $ 552
$ 552
   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
$ 18,363
$ 7,993
(1) See further discussion of Upfront Customer Consideration in Note 3.

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~~and are depleted over the estimated life of the related mine reserves, which is 1821 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~~Indicators of impairment aswere present during the second quarter of ~~September 30, 2019.~~2020. See Note 5 for further discussion. Mine reclamation asset, net represents an asset retirement obligation asset and is depreciated over the estimated life of the ~~mine, which is 18 years.~~mine.

The Company holds a long-term investment (the "Highview Investment") in Highview Enterprises 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.~~ The 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 the same issuer.

The Highview Investment is evaluated for 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. There were no changes to the carrying value of the Highview Investment for the three and nine months ended September 30, ~~2019~~2020 as there were no indicators of impairment or observable price changes for ~~equity issued by Highview.~~identical or similar investments.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to 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, 2020		December 31, 2019
Other current liabilities:
Current portion of operating lease obligations	$	2,043	$	2,382
Accrued interest	91		213
Income and other taxes payable	1,603		678





Other	365		1,038

	$	4,102	$	4,311
Other long-term liabilities:

Operating lease obligations, long-term	$	1,471	$	2,810

Mine reclamation liability (1)	24,183		2,721
Other	58		229

	$	25,712	$	5,760

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
(1) As discussed in Note 3, $21.3 million relates to Marshall Mine ARO.

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)	2020		2019		2020		2019
Interest on Senior Term Loan	$	339	$	940	$	1,453	$	3,344
Debt discount and debt issuance costs	355		473		1,064		1,324
453A interest	94		234		254		882
Other	93		82		282		270

	$	881	$	1,729	$	3,053	$	5,820

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2019 2018 2019 2018
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 82
11
270
19
$ 1,729
$ 399
$ 5,820
$ 1,147

Note 1217 - Income Taxes

For the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company's income tax expense and effective tax rates based on forecasted ~~pre-tax~~pretax 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)	2019			2018			2019			2018			(in thousands, except for rate)	2020			2019			2020			2019
Income tax expense	$	6,595		$	3,931		$	14,928		$	5,151		Income tax expense	$	854		$	6,595		$	1,315		$	14,928
Effective tax rate	63		%	42		%	36		%	15		%	Effective tax rate	15		%	63		%	(7)		%	36		%

The effective ~~tax~~ rate for the three and nine months ended September 30, ~~2019~~2020 was different from the federal statutory rate ~~due to increases of $4.8 million and $3.6 million, respectively,~~primarily from changes in the valuation allowance on deferred tax ~~assets. These charges were~~assets, most notably an increase of $5.1 million for the nine months ended September 30, 2020. The increase in the valuation allowance was a result of a reduction in forecasts as of September 30, 2020 from forecasts as of December 31, 2019 of current and future years' taxable income. ~~In addition, the effective rate for both the three and nine months ended September 30, 2019 was increased by state income tax expense, net of federal 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,~~assets, 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.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1318 - 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, ~~2019,~~2020, the Company's CODM was the Company's CEO. The Company's operating and reportable segments are identified by products and services provided.

As of September 30, ~~2019,~~2020, the Company has ~~two~~2 reportable segments: (1) Refined Coal ("RC"); and (2) Power Generation and Industrials ("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 ~~2018~~2019 Form 10-K.

•Segment revenues include equity method earnings and losses from the Company's equity method investments.

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

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

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, substantially all of the Company's material assets are located in the U.S. and substantially all of 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, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018			(in thousands)	2020		2019		2020		2019
Revenues:													Revenues:
Refined Coal:													Refined Coal:
Earnings in equity method investments	$	14,426		$	9,715		$	57,051		$	37,857		Earnings in equity method investments	$	9,518	$	14,426	$	25,959	$	57,051
License royalties, related party	4,385			4,104			12,796			10,857			License royalties, related party	3,627		4,385		9,986		12,796
	18,811			13,819			69,847			48,714

														13,145		18,811		35,945		69,847
Power Generation and Industrials:													Power Generation and Industrials:
Consumables	14,010			1,043			39,612			2,390			Consumables	13,442		14,010		28,987		39,612
Other	—			—			—			72

														13,442		14,010		28,987		39,612

	14,010			1,043			39,612			2,462
Total segment reporting revenues	32,821			14,862			109,459			51,176			Total segment reporting revenues	26,587		32,821		64,932		109,459

Adjustments to reconcile to reported revenues:													Adjustments to reconcile to reported revenues:

Earnings in equity method investments	(14,426		)	(9,715		)	(57,051		)	(37,857		)	Earnings in equity method investments	(9,518)		(14,426)		(25,959)		(57,051)

Corporate and other	738			—			1,631			—			Corporate and other	2,402		738		4,244		1,631
Total reported revenues	$	19,133		$	5,147		$	54,039		$	13,319		Total reported revenues	$	19,471	$	19,133	$	43,217	$	54,039

Segment operating income (loss):													Segment operating income (loss):

Refined Coal (1)	$	18,158		$	12,798		$	68,137		$	45,775		Refined Coal (1)	$	12,817	$	18,158	$	34,454	$	68,137
Power Generation and Industrials (2)	(977		)	(1,168		)	(8,301		)	(3,493		)	Power Generation and Industrials (2)	(1,270)		(977)		(33,584)		(8,301)

Total segment operating income	$	17,181		$	11,630		$	59,836		$	42,282		Total segment operating income	$	11,547	$	17,181	$	870	$	59,836

(1) Included in RC segment operating income for the three and nine months ended September 30, ~~2019~~2020 is 453A interest expense of $0.1 million and ~~2018~~$0.3 million, respectively. Included in RC segment operating income for the three and nine months ended September 30, 2019 is 453A interest expense of $0.2 million and $0.9 million, respectively.

(2) Included in PGI segment operating loss for the three and nine months ended September 30, 2020 is 0 and $23.2 million, respectively, of impairment expense on the Asset Group, and 0 and $0.4 million, respectively, of expenses related to sequestration of certain of our employees at our manufacturing plant in Louisiana. Included in PGI segment operating loss for the three and ~~$1.1~~nine months ended September 30, 2020 and 2019 is $1.4 million ~~respectively.~~and $4.9 million, and $1.9 million and $4.5 million, respectively, of depreciation, amortization,

~~(2)~~

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

and depletion expense on mine and plant long-lived assets. 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 nine months ended September 30, 2019 was $1.9 million and $4.5 million, 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 income (loss) 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)	2019			2018			2019			2018			(in thousands)	2020		2019		2020		2019
Total reported segment operating income	$	17,181		$	11,630		$	59,836		$	42,282		Total reported segment operating income	$	11,547	$	17,181	$	870	$	59,836
Other operating loss	(658		)	—			(1,409		)	—
Other operating loss (1)													Other operating loss (1)	(2,010)		(658)		(7,065)		(1,409)
	16,523			11,630			58,427			42,282				9,537		16,523		(6,195)		58,427
Adjustments to reconcile to income before income tax expense attributable to the Company:

Adjustments to reconcile to income (loss) before income tax expense attributable to the Company:													Adjustments to reconcile to income (loss) before income tax expense attributable to the Company:
Corporate payroll and benefits	(768		)	(957		)	(2,004		)	(3,054		)	Corporate payroll and benefits	(587)		(768)		(2,444)		(2,004)

Corporate legal and professional fees	(1,737		)	(634		)	(5,254		)	(3,222		)	Corporate legal and professional fees	(1,176)		(1,737)		(3,850)		(5,254)
Corporate general and administrative	(2,278		)	(658		)	(5,427		)	(2,483		)	Corporate general and administrative	(1,116)		(2,278)		(4,273)		(5,427)
Corporate depreciation and amortization	(21		)	(23		)	(41		)	(97		)	Corporate depreciation and amortization	(148)		(21)		(337)		(41)
Corporate interest (expense) income, net	(1,413		)	(10		)	(4,668		)	(18		)

Corporate interest expense, net													Corporate interest expense, net	(680)		(1,413)		(2,446)		(4,668)

Other income (expense), net	212			86			334			199			Other income (expense), net	(1)		212		128		334
Income before income tax expense	$	10,518		$	9,434		$	41,367		$	33,607

Income (loss) before income tax expense													Income (loss) before income tax expense	$	5,829	$	10,518	$	(19,417)	$	41,367

(1) Included in Other operating loss for the three and nine months ended September 30, 2020 was 0 and $2.9 million, respectively, of impairment expense on the Asset Group.

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					As of
(in thousands)	September 30, 2019		December 31, 2018		(in thousands)	September 30, 2020		December 31, 2019
Assets:					Assets:
Refined Coal (1)	$	49,055	$	11,468	Refined Coal (1)	$	26,985	$	43,953
Power Generation and Industrials	82,121		85,786		Power Generation and Industrials	70,772		80,912
Total segment assets	131,176		97,254		Total segment assets	97,757		124,865

All Other and Corporate (2)	47,552		62,410		All Other and Corporate (2)	57,897		48,934
Consolidated	$	178,728	$	159,664	Consolidated	$	155,654	$	173,799

(1) Includes ~~$44.1~~$22.9 million and ~~$6.6~~$39.2 million of investments in equity method investees, respectively.

(2) Includes the Company's deferred tax assets.

Note 1419 - Fair Value Measurements

Fair value of financial instruments

The carrying amounts of financial instruments, including cash, 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, 2020				As of December 31, 2019
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Instruments:



Highview Investment	$	552	$	552	$	552	$	552








Highview Obligation	$	216	$	216	$	220	$	220

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

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 ~~three~~four financial institutions as of September 30, ~~2019.~~2020. If 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, ~~2019~~2020 and December 31, ~~2018,~~2019, 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~~As disclosed in Note 3, the Company completed the ~~Carbon Solutions Acquisition, in which the fair value~~asset acquisition of ~~the purchase consideration totaled $66.5 million.~~Marshall Mine, LLC. The ~~Company's allocation of purchase consideration to the~~ estimated fair values of the assets acquired and liabilities assumed iswere determined based on Level 3 inputs.

As disclosed in Note 2.5, the Company recorded an impairment charge related to the Asset Group based on a valuation models that included an expected future discounted cash flow model using Level 3 inputs.

As disclosed in Note 8, the Company completed the Carbon Solutions Acquisition for purchase consideration of $66.5 million. The estimated fair values of the assets acquired and liabilities assumed were determined based on Level 3 inputs.

The Company has applied the measurement alternative for investments without readily determinable fair values under ASC Topic 321 - Investments in Equity Securities ("ASC 321") for the Highview Investment. Fair value measurements, if any, resulting from the Company's application of the guidance in ASC 321 represent either Level 2 or Level 3 ~~measurements~~measurements. There were no changes to the carrying value of the Highview Investment for the three months ended September 30, 2020 and 2019 as ~~they are based on significant inputs not~~there were no indicators of impairment or observable ~~in the market.~~price changes for identical or similar investments.

Note 1520 - Restructuring and Other Compensation

Restructuring

In December 2018, the Company recorded restructuring charges in connection with the 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 Company's further alignment of the business with strategic objectives, which included the departure of certain executive officers. These charges related to cash severance arrangements with departing employees and executives, as well as stock-based compensation charges related to the acceleration of vesting of certain stock awards. There were no0 material restructuring activities during the three and nine months ended September 30, ~~2019.~~2020.

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

Pretax Charge
(in thousands, except employee data) 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
Changes in estimates —
—
—
—
Total pretax charge, net of reversals $ 168
$ 500
$ 434
$ 1,102

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

~~(1) Restructuring charges were allocated consistent with the allocations made in Note 13 - Business Segment Information~~

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

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

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Restructuring accruals are included within the Accrued payroll and related liabilities line item in the Condensed Consolidated Balance ~~Sheets~~.Sheets. Restructuring expenses are included within the Payroll and benefits line item in the Condensed Consolidated Statements of Operations.

Other Compensation

On March 27, 2020, the Company's CEO resigned from the Company effective June 30, 2020. Pursuant to a settlement agreement executed between the Company and the CEO, the Company was obligated to pay severance compensation to the CEO in the form of salary continuance, cash bonus, contingent upon the Company achieving a performance metric, healthcare benefits, RSAs and PSUs, which in the aggregate was $1.4 million. As of June 30, 2020, the Company recorded a liability for the total severance compensation and corresponding expense under the caption "Payroll and benefits" in the Condensed Consolidated Statements of Operations.

The following table summarizes the Company's change in restructuring and other compensation accruals for the nine months ended September 30, 2020:


(in thousands)	Severance
Remaining accrual as of December 31, 2019	$	254
Expense provision	1,403
Cash payments and other	(956)
Change in estimates	0
Remaining accrual as of September 30, 2020	$	701

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1621 - 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, ~~2019.~~2020.

~~Dividends~~Invested RC Facility

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

~~Share repurchase program~~

~~As disclosed in Note 9, in November 2018, the Company's Board authorized~~October 20, 2020, the Company ~~to purchase up to $20.0~~announced that Tinuum Group completed a lease for an additional RC facility. The RC facility is located at a coal plant that has historically burned in excess of 4.0 million tons of ~~its outstanding common stock. This stock repurchase program was to remain~~coal per year. With this addition, Tinuum Group has 22 invested facilities in effect until December 31, 2019 unless otherwise modified by the Board. As of September 30, 2019, the Company had $2.9 million remaining under this program. 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.

full-time operation.

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

The following discussion and analysis of 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 the ~~2018~~2019 Form 10-K.

Overview

We ~~provide~~are a leader in consumable air and water treatment options that utilize activated carbon ("AC") and chemical based technologies. Our proprietary environmental ~~solutions to customers~~technologies sold in the power generation and industrial ("PGI") market, which includes coal-fired power ~~generation, municipal water~~plants and ~~other industries primarily through emissions~~industrial, and water ~~purification control technologies of~~treatment market, enable our subsidiaries and joint ventures. Our proprietary technologies and associated product offerings provide pollutant control solutions to enable coal-fired power generators, industrials and municipal watercustomers to reduce emissions of mercury and other ~~air~~ pollutants, maximize utilization levels and improve operating efficiencies to ~~assist~~meet the challenges of existing and potential emissions control regulations.

Through our wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), which we acquired on December 7, 2018 (the "Acquisition Date"), we manufacture and sell activated carbon ("AC") used in contaminant capture and removal for coal-fired power plants and industrial and water treatment markets. Carbon Solutions also owns an associated lignite mine that supplies the ~~purification of water.~~primary raw material for manufacturing our products.

We operate two segments: Refined Coal ("RC") and Power Generation and Industrials ("PGI"~~) (f/k/a "Emissions Control" or "EC"~~). Our RC segment is comprised of our equity ownership in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), anboth of which are unconsolidated ~~entity that~~entities in which we generate substantial earnings. Tinuum Group provides reduction of mercury and nitrogen oxide ("NO_X")emissions at select coal-fired power generators through the production and sale of RC that qualifies for tax credits ("Section 45 tax credits") under the Internal Revenue Code Section 45 - Production Tax Credit ("IRC Section ~~45 tax credits"~~45"). We benefit from Tinuum Group's production and sale of RC, which generates tax credits, as well as its revenue from selling or leasing RC facilities to tax equity investors. We also earn royalties for technologies that we license to Tinuum Group and used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services operates and maintains the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities.

Our PGI segment includes the sale of products that ~~provide~~remove mercury ~~control~~ and other air and water contaminants ~~control to~~from coal-fired power generators and other industrial companies. Our primary products are comprised of AC which is produced from lignite ~~coal, which creates activated carbon ("AC"). From~~coal. Our AC ~~we manufacture various forms of AC that~~products include powdered activated carbon ("PAC") and granular activated carbon ("GAC"). There are three primary consumable products that work in conjunction with the 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~~PAC is typically the most efficient and effective way to capture mercury and currently accounts for over 50% of the mercury control consumables North American market.

Drivers of Demand and Key Factors Affecting Profitability

Drivers of demand and key factors affecting our profitability differ by segment. In the RC segment, demand is driven primarily by IRC Section 45, which is expected to expire no later than December 31, 2021. Operating results in RC have been influenced by: (1) the ability to sell, lease or operate RC facilities; (2) lease renegotiation or termination; and (3) changes in tonnage of RC due to changing coal-fired dispatch and electricity power generation sources. In the PGI segment, demand is driven primarily by consumables-based solutions for coal-fired power generation and other industrials. Operating results in PGI have been influenced by: (1) changes in our sales volumes; (2) changes in price and product mix; and (3) changes in coal-fired dispatch and electricity power generation sources.

Customer Supply Agreement

On ~~December 7, 2018~~September 30, 2020, we and Cabot Norit Americas, Inc., ("Cabot") entered into a supply agreement (the ~~"Acquisition Date"~~"Supply Agreement"), pursuant to which we ~~acquired~~agree to sell and deliver to Cabot, and Cabot agrees to purchase and accept from us, certain lignite-based activated carbon products ("Furnace Products"). The term of the Supply Agreement is for 15 years with 10-year renewal terms that are automatic unless either party provides three years prior notice of intention not to renew before the end of any term.

In addition to the sale by us and purchase by Cabot of Furnace Products, we and Cabot have agreed to additional terms whereby Cabot will reimburse us for certain capital expenditures incurred by us that are necessary to manufacture the Furnace Products. Reimbursements will be in the form of revenues earned from capital expenditures incurred that will benefit both us and Cabot (referred to as "Shared Capital") and capital expenditures incurred that will benefit Cabot exclusively (referred to as "Specific

Capital"). Both we and Cabot must mutually agree with all Shared Capital and Specific Capital that are necessary to support operational needs in advance of procurement and commissioning.

We believe the Supply Agreement will provide material incremental volume and capture lower operating cost efficiencies of our manufacturing plant. As these incremental volumes come on-line and after our existing inventory balances are sold, we anticipate an increase in gross margins. Further, the Supply Agreement will expand our activated carbon products to diverse end markets that are outside of coal-fired power generation.

Acquisition of Marshall Mine

Concurrently with the execution of the Supply Agreement, on September 30, 2020, we entered into an agreement to purchase (the ~~"Carbon Solutions Acquisition"~~"Purchase Agreement") from Cabot 100% of the ~~equity~~membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal purchase price. Marshall Mine, LLC owns a lignite mine located outside of ~~ADA Carbon Solutions, LLC (“Carbon Solutions”~~Marshall, Texas (the "Marshall Mine"). ~~Carbon Solutions~~We independently determined to immediately commence activities to shutter the Marshall Mine and will incur the associated reclamation costs.

In conjunction with the execution of the Supply Agreement and the Purchase Agreement, on September 30, 2020, we entered into a reclamation contract (the "Reclamation Contract") with a third party that provides a capped cost, subject to certain contingencies, in the amount of approximately $19.7 million plus an obligation to pay certain direct costs of approximately $3.6 million (collectively, the "Reclamation Costs") over the estimated reclamation period of 10 years. Under the terms of the Supply Agreement, Cabot is ~~a manufacturer~~obligated to reimburse us for $10.2 million of Reclamation Costs (the "Reclamation Reimbursements"), which are payable semi-annually over 13 years and ~~seller~~inclusive of ACinterest.

As of September 30, 2020, we recorded an asset retirement obligation related to the Reclamation Contract in the amount of $21.3 million and a ~~leader~~receivable related to the Reclamation Reimbursements in ~~mercury capture using PAC~~the amount of $9.7 million, net.

Impairment

As part of our periodic review of the carrying value of long-lived assets, we assessed our long-lived assets for potential impairment. In assessing impairment of our PGI segment's and certain other long-lived asset groups, we considered factors such as the significant decline in both the PGI segment's trailing twelve months revenues and current and future years’ forecasted revenues. These factors are largely due to the significant drop in coal-fired power dispatch that began in 2019 amid historically low prices of alternative power generation sources, such as natural gas, leading to an increase in natural gas usage as well as other competing energy sources. Natural gas prices continue to be highly volatile, which may impact our volumes and corresponding revenues that could result in future impairment.

As of September 30, 2020, we concluded that there was no impairment of our long-lived assets. However, as of June 30, 2020, we completed an undiscounted cash flow analysis of our PGI segment's and certain other long-lived asset group (the "Asset Group"), which is comprised of our manufacturing plant and related assets and our lignite mine assets, and estimated the undiscounted cash flows from the Asset Group, which were less than the carrying value of the Asset Group. The decrease in undiscounted cash flows was due to lower volumes impacted by overall lower power generation and an increase in power generation from sources other than coal as a percentage of total generation. Accordingly, we completed an assessment of the Asset Group’s fair value and estimated the fair value of the Asset Group at $32.2 million. This resulted in an impairment and write-down of the Asset Group of $26.1 million as of June 30, 2020, and which is reflected as "Impairment of long-lived assets" in the Condensed Consolidated Statements of Operations for the ~~coal-fired power plant, industrial~~nine months ended September 30, 2020. The total impairment charge was allocated to the PGI segment and ~~water treatment markets. Carbon Solutions also owns an associated lignite mine that supplies~~Other in the ~~primary raw material~~amounts of $23.2 million and $2.9 million, respectively, for ~~manufacturing powdered activated carbon. Carbon Solutions was formed in 2008~~the nine months ended September 30, 2020.

Impact of COVID-19

In March 2020, the World Health Organization ("WHO") declared the novel strain of coronavirus ("COVID-19") a global pandemic. We are designated by the Cybersecurity and Infrastructure Security Agency ("CISA") of the Department of Homeland Security as a ~~50/50 joint venture by~~critical infrastructure supplier to the ~~Company~~energy sector. Our operations have been deemed essential and, ~~Energy Capital Partners LLC.~~therefore, our facilities remain open and our employees employed. We follow the COVID-19 guidelines from the Centers for Disease Control concerning the health and safety of our personnel, including remote working for those that have the ability to do so, sequestered employees at our plant and other heath safety measures. These measures have resulted in an increase in our personnel costs, operational inefficiencies and the incurrence of incremental costs to allow manufacturing operations to continue; while at the same time we have faced a general downturn in our sales and marketing efforts. The duration of these measures is unknown, may be extended and additional measures may be imposed.

Both of our business segments have continued to operate during the pandemic, and we have taken certain proactive and precautionary steps to ensure the safety of our employees, customers and suppliers, including frequent cleaning and disinfection of workspaces, property, plant and equipment, instituting social distancing measures and mandating remote working

environments, where possible, for all employees. We cannot, however, predict the long-term effects on our business, including our financial position or results of operations, if governmental restrictions or other such directives continue for a prolonged period of time and cause a material negative change in power generation demand, materially disrupt our supply chain, substantially increase our operating costs or limit our ability to serve existing customers and seek new customers.

In response to the COVID-19 outbreak, in March 2020, the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act provided, among other things, the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020. The Company ~~relinquished its ownership in 2011 as part~~has elected to defer payments of ~~a legal settlement agreement as described in the Company's Annual Report on Form 10-K~~payroll taxes for the ~~fiscal year ended~~periods allowed under the CARES Act and will repay 50% by December 31, ~~2017. The Company acquired Carbon Solutions primarily~~2021 and 50% by December 31, 2022. As of September 30, 2020, total payroll tax payments deferred under the CARES Act were $0.3 million.

During the nine months ended September 30, 2020, we incurred costs of $0.4 million related to ~~expand~~sequestration of certain of our employees at our manufacturing plant in Louisiana. These costs included hazard pay, lodging and meal expenses for 30 days.

Our customers may also be impacted by COVID-19 pandemic as the ~~Company's product offerings within~~utilization of energy has changed. We cannot predict the ~~mercury control industry~~long-term impact on our customers and ~~other complimentary PAC markets.~~the subsequent impact on our business.

Results of Operations

For the three and nine months ended September 30, ~~2019,~~2020, we recognized net income of $5.0 million and net loss of $20.7 million, respectively, compared to net income of $3.9 million and $26.4 ~~million compared to net income of $5.5 million and $28.5~~ million, for the three and nine months ended September 30, ~~2018.~~

2019, respectively.

The operating results for the three and nine months ended September 30, ~~2019~~2020 are primarily attributable to a combination of factors, including:

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

•Performance in our PGI business segment, principally related to ~~the~~ Carbon ~~Solutions Acquisition;~~Solutions;

•Impairment recorded related to our PGI segment's and certain other long-lived asset groups; and

•Impacts related to changes in income tax 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, ~~2019~~2020 and ~~2018~~2019

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, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Three Months Ended September 30,				Change					Three Months Ended September 30,				Change
(in thousands, except percentages)	2019		2018		($)		(%)		(in thousands, except percentages)	2020		2019		($)		(%)
Revenues:									Revenues:
Consumables	$	14,748	$	1,043	$	13,705	1,314	%	Consumables	$	15,844	$	14,748	$	1,096	7	%
License royalties, related party	4,385		4,104		281		7	%	License royalties, related party	3,627		4,385		(758)		(17)	%

Total revenues	$	19,133	$	5,147	$	13,986	272	%	Total revenues	$	19,471	$	19,133	$	338	2	%
Operating expenses:									Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	$	11,939	$	954	$	10,985	1,151	%	Consumables cost of revenue, exclusive of depreciation and amortization	$	15,013	$	11,939	$	3,074	26	%

Consumables and consumables cost of revenue

For the three months ended September 30, ~~2019,~~2020, consumables revenues increased from the comparable ~~period~~quarter in ~~2018~~2019 primarily driven by higher volumes impacting revenue by $2.1 million. Negatively impacting revenue quarter over quarter was less favorable price and product mix of approximately $1.0 million combined. Our gross margin, exclusive of depreciation and amortization, decreased for the three months ended September 30, 2020 compared to the corresponding quarter in 2019 primarily due to ~~Carbon Solutions' operations. These operations also~~the lower volumes during the first half of the current year causing higher fixed cost per pound compared to the prior year.

Consumables revenue continues to be affected by electricity demand driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas. According to data provided by the U.S. Energy Information Administration ("EIA"), for the three months ended September 30, 2020, power generation from coal-fired power dispatch was down approximately 10% compared to the corresponding quarter in 2019.

License royalties, related party

For the three months ended September 30, 2020 and 2019, there were 14.6 million tons and 14.5 million tons, respectively, of RC produced using M-45TM and M-45-PCTM technologies ("M-45 Technology"), which Tinuum Group licenses from us ("M-45 License"). While tonnage increased slightly period over period, there was a reduction in the ~~total pounds~~royalty rate per ton primarily attributable to higher depreciation recognized of approximately $0.2 million 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. Further reducing the rate per ton was a decrease in net lease payments of approximately $0.4 million as a result of Tinuum Group restructuring RC facility contracted leases with its largest customer in the second half of 2019. As a result of higher depreciation and lower lease payments, we expect that the lower royalty rate per ton will continue for the remainder of 2020 and in 2021.

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the Business Segments discussion and in Note 18 to the Condensed Consolidated Financial Statements.

Other Operating Expenses

A summary of the components of our ~~consumables sold~~operating expenses, exclusive of cost of revenue items (presented above), for the three months ended September 30, 2020 and 2019 is as follows:


	Three Months Ended September 30,				Change
(in thousands, except percentages)	2020		2019		($)		(%)
Operating expenses:
Payroll and benefits	$	2,285	$	2,651	$	(366)	(14)	%

Legal and professional fees	1,321		2,907		(1,586)		(55)	%
General and administrative	1,900		1,984		(84)		(4)	%
Depreciation, amortization, depletion and accretion	1,777		2,043		(266)		(13)	%


	$	7,283	$	9,585	$	(2,302)	(24)	%

Payroll and benefits

Payroll and benefits expenses, which represent costs related to selling, general and administrative personnel, decreased for the three months ended September 30, 2020 compared to the corresponding quarter in 2019 primarily due to a decrease in headcount and payroll-related expenses.

Legal and professional fees

Legal and professional fees decreased for the three months ended September 30, 2020 compared to the corresponding quarter in 2019 as a result of cost reductions related to professional fees, primarily in consulting and outsourced IT cost specific to the completion of the integration of Carbon Solutions of $1.5 million. The remaining decrease was a result of decreased outsourced shared service costs, including legal fees.

General and administrative

General and administrative expenses decreased for the three months ended September 30, 2020 compared to the corresponding quarter in 2019 primarily due to a reduction in general and administrative expenses including the reduction of travel, as a preventative measure related to the COVID-19 pandemic, and recruiting fees. Offsetting this decrease was an increase in product development expenses of approximately $0.1 million and rent and occupancy expenses of $0.1 million related to property taxes.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense decreased for the three months ended September 30, 2020 compared to the corresponding quarter in 2019 due to the impairment charge taken in the second quarter of 2020 reducing the value of our fixed assets and intangibles and thus, reducing the corresponding depreciation and amortization expense by approximately $0.6 million. Offsetting this decrease was higher production volumes during the three months ended September 30, 2020, resulting in $0.3 million more absorption of depreciation in inventory. Further, the addition of leasehold improvements at our corporate

headquarters in 2020 contributed to approximately $0.1 million of amortization expense for the three months ended September 30, 2020.

Other Income (Expense), net

A summary of the components of other income (expense), net for the three months ended September 30, 2020 and 2019 is as follows:


	Three Months Ended September 30,				Change
(in thousands, except percentages)	2020		2019		($)		(%)
Other income (expense):
Earnings from equity method investments	$	9,518	$	14,426	$	(4,908)	(34)	%

Interest expense	(881)		(1,729)		848		(49)	%
Other	17		212		(195)		(92)	%




Total other income	$	8,654	$	12,909	$	(4,255)	(33)	%

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)	2020		2019
Earnings from Tinuum Group	$	7,260	$	11,746
Earnings from Tinuum Services	2,257		2,682
Earnings (loss) from other	1		(2)


Earnings from equity method investments	$	9,518	$	14,426

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

For the three months ended September 30, 2020 and 2019, we recognized $7.3 million and $11.7 million, respectively, in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income for the respective quarter.

For the three months ended September 30, 2020, equity earnings from our interest in Tinuum Group were positively impacted by the addition of two new RC facilities during the second half of 2019, a new RC facility added during the three months ended September 30, 2020 and the sale by Tinuum Group of its 49.9% remaining interest in an RC facility during thethree months ended September 30, 2020. However, equity earnings from Tinuum Group for the three months ended September 30, 2020 decreased from the comparable quarter in 2019 primarily from higher depreciation recognized of approximately $0.4 million for the three months ended September 30, 2020 on all Tinuum Group RC facilities as a result of a reduction in RC facilities' estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019. Further contributing to the decrease in equity earnings quarter over ~~quarter.~~quarter was the restructuring of RC facility leases with Tinuum Group's largest customer, which decreased lease payments and equity earnings beginning in the second half of 2019. We believe the increase in depreciation and the decrease in lease payments will negatively impact equity earnings for the remainder of 2020 as well as 2021.

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 terminated during that 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.

Equity earnings from our interest in Tinuum Services decreased by $0.4 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, and for those quarters, Tinuum Services provided operating and maintenance services to 20 and 22 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.

Interest expense

For the three months ended September 30, 2020, interest expense decreased $0.8 million compared to the three months ended September 30, 2019 primarily due to a reduction in interest expense related to a senior term loan (the "Senior Term Loan"), as the principal balance was reduced from payments of $24.0 million made during the period from September 30, 2019 to September 30, 2020. The remaining decrease in interest expense related to a reduction in the deferred balance during the period from September 30, 2019 to September 30, 2020 related to Internal Revenue Code section 453A ("453A"), which requires taxpayers to pay an interest charge ("453A interest") on the portion of the tax liability that is deferred under the installment method for tax purposes.

Income tax expense

For the three months ended September 30, 2020, we recorded income tax expense of $0.9 million compared to income tax expense of $6.6 million for the three months ended September 30, 2019. The income tax expense recorded for the three months ended September 30, 2020 was comprised primarily of estimated federal income tax expense of $0.9 million. 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 decrease in income tax expense quarter over quarter was primarily due to an increase in the valuation allowance on deferred tax assets for the three months ended September 30, 2019 of $4.8 million. This increase was based on changes in forecasts as of September 30, 2019 compared to forecasts as of June 30, 2019 of future years' taxable income. The decrease in income tax expense quarter over quarter was also attributable to a decrease of $4.7 million in pretax income for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Comparison of the Nine Months Ended September 30, 2020 and 2019

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, 2020 and 2019 is as follows:


	Nine Months Ended September 30,				Change
(in thousands, except percentages)	2020		2019		($)		(%)
Revenues:
Consumables	$	33,231	$	41,243	$	(8,012)	(19)	%
License royalties, related party	9,986		12,796		(2,810)		(22)	%



Total revenues	$	43,217	$	54,039	$	(10,822)	(20)	%
Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	$	33,920	$	38,339	$	(4,419)	(12)	%

Consumables and consumables cost of revenue

For the nine months ended September 30, 2020, consumables revenues decreased from the comparable period in 2019 primarily driven by lower volume of approximately $2.7 million and less favorable price and product mix of approximately $5.0 million combined. Volumes were negatively impacted by lower coal-fired power dispatch driven by a decrease of 4.0% in overall power generation as well as an increase in power generation from sources other than coal as a percentage of total power generation.

Consumables revenue is affected by electricity demand driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas. ~~During~~According to data provided by the ~~three~~EIA, for the nine months ended September 30, ~~2019, Consumables revenue and margins were negatively impacted by low~~2020, power generation from coal-fired power dispatch ~~most significantly driven by power generation from sources other than coal. In a recently updated forecast,~~was down approximately 23% compared to the ~~U.S. Energy Information Administration ("EIA") revised downward by 7% its December 2018 forecast~~corresponding period in 2019. However, we anticipate improvements related increased volumes and revenue in the last quarter of 2020 compared to the same period in 2019 due to the Supply Agreement.

Consumables costs of revenue was negatively impacted for ~~2019 coal-fired electricity-generating units.~~

~~License royalties, related party~~

~~For~~ the ~~three~~nine months ended September 30, ~~2019 and 2018, there were 14.5 million tons and 10.5 million tons, respectively, of RC produced using M-45~~^TM ~~and M-45-PC~~^TM~~technologies ("M-45 Technology"), which Tinuum Group licenses from us ("M-45 License"). The increase in license royalties was primarily~~2020 due to ~~Tinuum Group obtaining additional third-party investors~~safety actions taken by the Company to provide for ~~new RC~~continued operation of our manufacturing facilities ~~one each during the second and fourth quarters~~in response to COVID-19.

Consumables cost of ~~2018, as well as four additional RC facilities added~~revenue was negatively impacted during the nine months ended September 30, 2019 ~~all~~due to $5.0 million of ~~which use our M-45 License. The addition~~costs recognized as a result of ~~new invested RC facilities resulted~~the step-up in ~~an increase~~inventory fair value recorded from the acquisition of Carbon Solutions. As of June 30, 2019, the step-up in ~~both payments to Tinuum Group~~inventory was fully recognized in cost of revenue.

Our gross margin, exclusive of depreciation and ~~the related tons subject to the M-45 License. Offsetting the net increase in license royalties~~amortization, was negative for the ~~three~~nine months ended September 30, 2020 compared to the corresponding period in 2019 ~~from~~primarily due to the ~~additional~~impact of lower production and sales volumes resulting in higher fixed cost per pound. We anticipate positive impacts to our gross margin starting in 2021 due to the Supply Agreement.

License royalties, related party

For the nine months ended September 30, 2020 and 2019, there were 35.7 million tons and 35.0 million tons, respectively, of RC ~~facilities~~produced using the M-45 Technology under the M-45 License. While tonnage increased period over period, there was a ~~lower~~reduction in the royalty rate per ton ~~rate, which was~~ primarily ~~due~~attributable to higher depreciation recognized ~~during the three months ended September 30, 2019~~of approximately $1.8 million 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. 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~~second half of 2019. Further reducing the rate per ton was a decrease in net lease payments of approximately $1.0 million as a result of Tinuum Group restructuring RC facility contracted leases with its largest customer in the second half of 2019. As a result of higher ~~depreciation. Based on the change in estimated useful lives,~~depreciation and lower lease payments, we expect that the lower royalty ~~earned~~rate per ton ~~of RC through 2021 to be lower than historical rates.~~will continue in 2020 and 2021.

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the ~~Business Segments~~segment discussion below and in Note 1318 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, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Nine Months Ended September 30,				Change
(in thousands, except percentages)	2020		2019		($)		(%)
Operating expenses:
Payroll and benefits	$	8,839	$	8,005	$	834	10	%

Legal and professional fees	4,386		7,105		(2,719)		(38)	%
General and administrative	6,693		5,894		799		14	%
Depreciation, amortization, depletion and accretion	5,807		4,902		905		18	%
Impairment of long-lived assets	26,103		—		26,103		*

	$	51,828	$	25,906	$	25,922	100	%

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 %
* Calculation not meaningful

Payroll and benefits

Payroll and benefits expenses ~~which represent costs related to selling, general and administrative personnel,~~ increased ~~during~~for the ~~three~~nine months ended September 30, ~~2019~~2020 compared to the same ~~quarter~~period in ~~2018~~2019 primarily due to severance related costs $1.4 million associated with the resignation of an executive officer, offset by a decrease in headcount.

Legal and professional fees

Legal and professional fees decreased for the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to decreased outsourced shared service costs, including legal, general consulting and audit and accounting fees of approximately $2.0 million, and a reduction in outsourced IT costs specific to the completion of the integration of Carbon Solutions of $0.7 million.

General and administrative

General and administrative expenses increased for the nine months ended September 30, 2020 compared to the same period in 2019 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~~product development expenses of ~~$1.1 million.~~

~~Legal and professional fees~~

~~Legal and professional fees increased during the three months ended September 30, 2019 compared~~approximately $0.8 million related 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~~Supply Agreement, an increase in ~~general operating expenses, including~~rent and occupancy of approximately $0.5 million relating to property taxes and office rent and an increase in ~~outsourced IT~~ costs incurred due to the sequestration of certain of our employees at our manufacturing plant in Louisiana of approximately $0.4 million. Offsetting these increases were reductions in travel, as a preventative measure related to the ~~integration of Carbon Solutions of approximately $1.0 million. Additional increases were related to rent~~COVID-19 pandemic, and ~~occupancy expense due to additional leased office~~recruiting fees.

Depreciation 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 for the nine months ended September 30, 2020 compared to the same period in 2019 due to higher volumes during the ~~three~~nine months ended September 30, 2019 ~~compared to~~resulting in $0.9 million more absorption of depreciation in inventory. Further, the ~~same quarter~~addition of leasehold improvements at our corporate headquarters in ~~2018 due to~~2020 and the addition of long-lived assets ~~and intangible assets acquired as part of the Carbon Solutions Acquisition, which~~at our manufacturing plant in Louisiana contributed to approximately ~~$1.7 million and $0.2~~$0.5 million of depreciation and amortization expense ~~respectively,~~ for the ~~three~~nine months ended September 30, ~~2019.~~2020. Offsetting these increases was a decrease in depreciation and amortization expense of approximately $0.6 million related to the lower net book values of the related property, plant, equipment and intangible assets as of June 30, 2020 due to the impairment charge recorded as of this date.

Impairment of long-lived assets

As previously discussed, as of June 30, 2020, we recorded an impairment charge of $26.1 million, which is included in the Statement of Operations for the nine months ended September 30, 2020.

Other Income (Expense), net

A summary of the components of our other income (expense), net for the ~~three~~nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Three Months Ended September 30,						Change						Nine Months Ended September 30,				Change
(in thousands, except percentages)	2019			2018			($)			(%)		(in thousands, except percentages)	2020		2019		($)		(%)
Other income (expense):												Other income (expense):
Earnings from equity method investments	$	14,426		$	9,715		$	4,711		48	%	Earnings from equity method investments	$	25,959	$	57,051	$	(31,092)	(54)	%

Interest expense	(1,729		)	(399		)	(1,330		)	333	%	Interest expense	(3,053)		(5,820)		2,767		(48)	%
Other	212			86			126			147	%	Other	208		342		(134)		(39)	%

Total other income	$	12,909		$	9,402		$	3,507		37	%	Total other income	$	23,114	$	51,573	$	(28,459)	(55)	%

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 inon 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.~~


	Nine Months Ended September 30,
(in thousands)		2020		2019
Earnings from Tinuum Group		$	20,462	$	50,757
Earnings from Tinuum Services		5,498		6,297
Loss from other		(1)		(3)


Earnings from equity method investments		$	25,959	$	57,051

For the ~~three~~nine months ended September 30, 2020, we recognized $20.5 million in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income for the period. For the nine months ended September 30, 2019, we recognized ~~$11.7~~$50.8 million in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income of ~~$11.7~~$52.4 million for the ~~quarter. During~~period less the ~~three months ended September 30, 2018, we recognized $8.1 million~~recovery of the cash distributions in ~~equity~~excess of the cumulative earnings ~~from Tinuum Group compared to our proportionate share~~as of ~~Tinuum Group's net income of $15.8 million for the quarter.~~December 31, 2018. 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~~nine months ended September 30, ~~2018~~2019 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~~nine months ended September 30, ~~2019,~~2020, equity earnings from our interest in Tinuum Group were positively impacted by the addition of two new RC facilities during the second half of 2019 a new RC facility added during the three months ended September 30, ~~2019.~~2020 and the sale by Tinuum Group of its 49.9% remaining interest in an RC facility during thethree months ended September 30, 2020. However, ~~our~~equity earnings from Tinuum Group for the nine months ended September 30, 2020 decreased from the comparable period in 2019 primarily from two new RC facilities during the nine months ended September 30, 2019 that were ~~negatively impacted from~~recognized as point-in-time sales. Further, the decrease in equity earnings was due to higher depreciation recognized of approximately $5.2 million for the nine months ended September 30, 2020 on all Tinuum Group RC facilities as a result of a reduction in ~~their~~RC facilities estimated useful lives as determined by Tinuum Group during the ~~three~~second half of 2019. Further contributing to the decrease in equity earnings for the nine months ended September 30, ~~2019. Additionally, during~~2020 compared to 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 nine

months ended September 30, 2019 ~~Tinuum Group restructured~~was the restructuring of RC facility ~~contracted~~ leases with ~~its~~Tinuum Group's largest customer, which decreased lease payments and equity earnings beginning in the ~~three months ended September 30, 2019 and will also negatively impact our pro-rata share~~second half of ~~Tinuum Group's earnings in the future.~~

~~Further,~~2019. Furthermore, 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~~terminated during ~~this~~that 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~~will be lower ~~in future periods. However, future incremental~~for the remainder of 2020 as well as 2021.

As of September 30, 2020 and 2019, Tinuum Group had 21 and 23 invested RC facilities, ~~would positively impact our expectation of future earnings and distributions.~~respectively, that were generating revenues.

Equity earnings from our interest in Tinuum Services ~~increased by $1.0 million~~decreased during the ~~three~~nine months ended September 30, ~~2019~~2020 compared to the ~~three~~nine months ended September 30, ~~2018,~~2019.During the nine months ended September 30, 2020 and ~~for those quarters,~~2019, Tinuum Services provided operating and maintenance services to 2220 and 1722 operating RC facilities, ~~respectively.~~respectively, which was the primary driver in the decrease in equity earnings period over period. 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 nine months ended September 30, 2019 and 2018 is as follows:~~

Nine Months Ended September 30, Change
(in thousands, except percentages) 2019 2018 ($) (%)
Operating expenses:
Payroll and benefits $ 8,005
$ 7,528
$ 477
6 %
Legal and professional fees 5,300
3,459
1,841
53 %
General and administrative 7,699
3,098
4,601
149 %
Depreciation, amortization, depletion and accretion 4,902
262
4,640
1,771 %
$ 25,906
$ 14,347
$ 11,559
81 %

~~Payroll and benefits~~

Payroll and benefits expenses increased during the 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 also included restructuring expenses of $2.0 million.

~~Legal and professional fees~~

Legal and professional fees expenses increased during the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to legal and professional fees 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 nine months ended September 30, 2019 compared to the same period 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 $1.6 million. Further increases period over period of approximately $1.0 million related to rent and 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 nine months ended September 30, 2019 and 2018 is as follows:~~

Nine Months Ended September 30, Change
(in thousands, except percentages) 2019 2018 ($) (%)
Other income (expense):
Earnings from equity method investments $ 57,051
$ 37,857
$ 19,194
51 %
Interest expense (5,820 ) (1,147 ) (4,673 ) 407 %
Other 342
146
196
134 %
Total other income $ 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:

Nine Months Ended September 30,
(in thousands) 2019 2018
Earnings from Tinuum Group $ 50,757
$ 33,575
Earnings from Tinuum Services 6,297
4,281
(Losses) earnings from other (3 ) 1
Earnings from equity method investments $ 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.~~

For the nine months ended September 30, 2019, we recognized $50.8 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $52.4 million for the period. The difference represents the cumulative earnings short-fall balance as of the end of the immediately preceding period, which was December 31, 2018. 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. This difference 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 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, 2019 compared to the nine months ended September 30, 2018.~~During the nine months ended September 30, 2019 and 2018, Tinuum Services provided operating and maintenance services to 22 and 17 operating RC facilities, respectively, which was the driver in the increase in equity earnings. 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.

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,~~2020, interest expense ~~increased $4.7~~decreased $2.8 million compared to the nine months ended September 30, ~~2018~~2019 primarily due to interest expense incurred in the nine months ended September 30, ~~2019~~2020 related to the Senior Term ~~Loan.~~Loan, as the principal balance was reduced from payments of $24.0 million made during the period from September 30, 2019 to September 30, 2020. The ~~increase was mostly comprised of stated interest on the Senior Term Loan principal of $3.3 million and~~remaining decrease in interest expense related to ~~debt discount and debt issuance costs associated with~~lower 453A interest from a reduction in the ~~Senior Term Loan of $1.3 million.~~

deferred balance related to 453A during the period from September 30, 2019 to September 30, 2020.

Income tax expense

For the nine months ended September 30, ~~2019,~~2020, we recorded income tax expense of ~~$14.9~~$1.3 million compared to income tax expense of ~~$5.2~~$14.9 million for the nine months ended September 30, ~~2018.~~2019. The income tax expense recorded for the nine months ended September 30, 2020 was comprised of estimated federal income tax expense of $1.4 million. 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 of estimated federal income tax expense of $3.4 million and estimated state income tax expense of $1.8 million.

The ~~increase~~decrease in income tax expense period over period was primarily due ~~to: (1) an increase in forecasted pre-tax~~to a pretax loss for the nine months ended September 30, 2020 of $19.4 million compared to pretax income ~~period over period from the Carbon Solutions Acquisition and the addition of new invested RC facilities during~~for the nine months ended September 30, 2019 ~~which resulted in an increase~~of $41.4 million. Offsetting the decrease in income tax expense period over period was an increase in the valuation allowance on deferred tax assets of ~~$3.2~~$5.1 million ~~from~~for the nine months ended September 30, ~~2018; and (2)~~2020 compared to an increase in the valuation allowance ~~of on deferred tax assets~~ of $3.8 million for the nine months ended September 30, 2019 ~~compared to a decrease in the valuation allowance of $2.7 million for the nine months ended September 30, 2018~~ based on changes in forecasts of future years' taxable income as of September 30, ~~2019~~2020 and September 30, ~~2018,~~2019, respectively.

Non-GAAP Financial Measures

To supplement ~~the Company's~~our financial information presented in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles, or GAAP,~~in the U.S. ("GAAP"), we are providing non-GAAP measures of certain financial performance. These non-GAAP measures include Consolidated Adjusted EBITDA, PGI Segment Adjusted EBITDA and RC Segment Adjusted EBITDA. ~~The Company~~We have included non-GAAP measures because management believes that they help to facilitate comparison of operating results between periods. ~~The Company believes~~We believe the non-GAAP measures provide useful information to both management and users of the financial statements by excluding certain expenses and 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~~our results of operations in conjunction with the corresponding GAAP measures.

~~The Company has defined~~We define Consolidated Adjusted EBITDA as net income (loss), adjusted for the impact of the following items that are either non-cash or that ~~the Company does~~we do not consider representative of ~~its~~our ongoing operating performance: depreciation, amortization, depletion and accretion, interest expense, net and income tax ~~expense.~~expense; then reduced by the non-cash impact of equity earnings from equity method investments and increased by cash distributions from equity method investments and impairment of long-lived assets. Because Consolidated Adjusted EBITDA omits certain non-cash items, ~~the Company believes~~we believe that the measure is less susceptible to variances that affect ~~the Company's~~our operating performance.

We define PGI Segment Adjusted 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~~we do not consider representative of its ongoing operating performance: depreciation, amortization, depletion and accretion, ~~and~~ interest expense, ~~net.~~net and impairment of long-lived assets. When used in conjunction with

GAAP financial measures, PGI Segment Adjusted EBITDA is a supplemental measure of operating performance that management believes is a useful measure for ~~the Company's~~each of our PGI ~~segment~~and RC segment's performance relative to the performance of ~~its~~ competitors as well as performance period over period. Additionally, ~~the Company believes~~we believe the measure is less susceptible to variances that affect ~~its~~our operating performance results.

~~The Company presents Consolidated~~We define RC Segment Adjusted EBITDA ~~and~~as RC Segment EBITDA reduced by the non-cash impact of equity earnings from equity method investments and increased by cash distributions from equity method investments.

We present these non-GAAP measures because ~~the Company believes~~we believe they are useful as supplemental measures in evaluating the performance of ~~the Company's~~our operating performance and provide greater transparency into the results of operations. ~~The Company's management~~Management uses ~~Consolidated EBITDA and Segment EBITDA as factors~~these non-GAAP measures in evaluating the performance of ~~its~~our business.

~~The~~With the exception of impairment, the adjustments to Consolidated Adjusted EBITDA, PGI Segment Adjusted EBITDA and RC Segment Adjusted EBITDA in future periods are generally expected to be similar. ~~Consolidated EBITDA and Segment EBITDA~~These non-GAAP measures have limitations as analytical tools and ~~these measures~~ should not be considered in isolation or as a substitute for analyzing ~~the Company's~~our results as reported under GAAP.

Consolidated Adjusted EBITDA


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2019		2018		2019		2018		(in thousands)	2020		2019		2020		2019
Net income (1)	$	3,923	$	5,503	$	26,439	$	28,456
Net income (loss) (1) (2)									Net income (loss) (1) (2)	$	4,975	$	3,923	$	(20,732)	$	26,439
Depreciation, amortization, depletion and accretion	2,043		74		4,902		262		Depreciation, amortization, depletion and accretion	1,777		2,043		5,807		4,902
Interest expense, net	1,663		317		5,619		1,003		Interest expense, net	862		1,663		2,974		5,619
Income tax expense	6,595		3,931		14,928		5,151		Income tax expense	854		6,595		1,315		14,928
Consolidated EBITDA	$	14,224	$	9,825	$	51,888	$	34,872
Consolidated EBITDA (loss)									Consolidated EBITDA (loss)	8,468		14,224		(10,636)		51,888
Impairment									Impairment	—		—		26,103		—

Equity earnings									Equity earnings	(9,518)		(14,426)		(25,959)		(57,051)
Cash distributions from equity method investees									Cash distributions from equity method investees	9,712		18,718		42,228		56,806
Consolidated Adjusted EBITDA									Consolidated Adjusted EBITDA	$	8,662	$	18,516	$	31,736	51,643

(1) Net income (loss) for the three and nine months ended September 30, 2020 included zero and $0.4 million related to sequestration of certain of our employees at our manufacturing plant in Louisiana. These costs included hazardous pay, lodging expense and other related costs for 30 days.

(2) Net income for the nine months ended September 30, 2019 ~~was inclusive~~included an adjustment of a $5.0 million, ~~adjustment,~~ which increased cost of revenue due to a step-up in basis of inventory acquired related to the acquisition of Carbon ~~Solutions Acquisition.~~Solutions.

Business Segments

As of September 30, ~~2019,~~2020, we have two reportable segments: (1) RC and (2) 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 in the ~~2018~~2019 Form 10-K.

•Segment revenues include equity method earnings and losses from our equity method 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.

•RC segment operating income includes interest expense directly attributable to the RC 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. Key drivers to the RC segment performance are 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.

1.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 NOX 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. Key drivers to the RC segment performance are 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.

2.PGI - Our PGI segment includes revenues and related expenses from the sale of consumable products that utilize AC and chemical technologies. These options provide coal-powered utilities and industrial boilers with mercury control solutions working in conjunction with pollution control equipment systems, generally without the requirement for significant ongoing capital outlays. These amounts are included within the respective revenues and cost of revenue line items in the Condensed Consolidated Statements of Operations.

PGI - Our PGI segment primarily includes revenues and related expenses from the sale of consumable products that utilize PAC chemical 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 requirement for significant ongoing capital outlays. These amounts are included within the respective revenues and cost of revenue line items in the Condensed Consolidated Statements of 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.

The following table presents our operating segment results for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018			(in thousands)	2020		2019		2020		2019
Revenues:													Revenues:
Refined Coal:													Refined Coal:
Earnings in equity method investments	$	14,426		$	9,715		$	57,051		$	37,857		Earnings in equity method investments	$	9,518	$	14,426	$	25,959	$	57,051

License royalties, related party	4,385			4,104			12,796			10,857			License royalties, related party	3,627		4,385		9,986		12,796

	18,811			13,819			69,847			48,714				13,145		18,811		35,945		69,847
Power Generation and Industrials:													Power Generation and Industrials:
Consumables	14,010			1,043			39,612			2,390			Consumables	13,442		14,010		28,987		39,612
Other	—			—			—			72

														13,442		14,010		28,987		39,612

	14,010			1,043			39,612			2,462
Total segment reporting revenues	32,821			14,862			109,459			51,176			Total segment reporting revenues	26,587		32,821		64,932		109,459

Adjustments to reconcile to reported revenues:													Adjustments to reconcile to reported revenues:

Earnings in equity method investments	(14,426		)	(9,715		)	(57,051		)	(37,857		)	Earnings in equity method investments	(9,518)		(14,426)		(25,959)		(57,051)

Corporate and other	738			—			1,631			—			Corporate and other	2,402		738		4,244		1,631
Total reported revenues	$	19,133		$	5,147		$	54,039		$	13,319		Total reported revenues	$	19,471	$	19,133	$	43,217	$	54,039

Segment operating income (loss):													Segment operating income (loss):

Refined Coal (1)	$	18,158		$	12,798		$	68,137		$	45,775		Refined Coal (1)	$	12,817	$	18,158	$	34,454	$	68,137
Power Generation and Industrials (2)	(977		)	(1,168		)	(8,301		)	(3,493		)	Power Generation and Industrials (2)	(1,270)		(977)		(33,584)		(8,301)

Total segment operating income	$	17,181		$	11,630		$	59,836		$	42,282		Total segment operating income	$	11,547	$	17,181	$	870	$	59,836

(2) Included in PGI segment operating loss for the nine months ended September 30, 2020 was $23.2 million of impairment expense on PGI segment and certain other long-lived assets, and $0.4 million of expenses related to sequestration of certain of our employees at our manufacturing plant in Louisiana. Included in PGI segment operating loss for the three and nine months ended September 30, 2020 and 2019 ~~was~~is $1.4 million and $4.9 million, and $1.9 million and $4.5 million, respectively, of depreciation, amortization, and depletion expense on mine and plant long-lived assets. Included in PGI segment operating loss for the nine months ended September 30, 2019 is approximately $4.7 million of costs recognized as a result of the step-up in inventory fair value recorded from the acquisition of 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 $4.5 million, respectively, of depreciation, amortization, and depletion expense on mine- and plant-related long-lived assets.

Solutions.

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


	Three Months Ended September 30,
(in thousands)	2020		2019
Earnings from Tinuum Group	$	7,260	$	11,746
Earnings from Tinuum Services	2,257		2,682
Earnings (loss) from other	1		(2)


Earnings from equity method investments	$	9,518	$	14,426

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

For the three months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019

RC earnings ~~increased~~decreased primarily due to ~~an increase~~a decrease in equity earnings in Tinuum Group ~~during~~for the three months ended September 30, ~~2019~~2020 compared to the ~~same~~corresponding quarter in ~~2018, as presented above.~~2019.

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,~~2020, equity earnings from our interest in Tinuum Group were positively impacted by the addition of two new RC facilities during the second half of 2019, a new RC facility added during the three months ended September 30, ~~2019.~~2020 and the sale by Tinuum Group of its 49.9% remaining interest in an RC facility during thethree months ended September 30, 2020. However, ~~our~~equity earnings ~~were negatively impacted~~ from ~~higher depreciation recognized~~Tinuum Group for the three months ended September 30, 2020

decreased from the comparable quarter in 2019 primarily from higher depreciation recognized of approximately $0.4 million for the three months ended September 30, 2020 on all Tinuum Group RC facilities as a result of a reduction in ~~their~~RC facilities estimated useful lives as determined by Tinuum Group during the three months ended September 30, 2019. ~~As a result~~Further contributing to the decrease in equity earnings quarter over quarter was the restructuring of RC facility leases with Tinuum Group's largest customer, which decreased lease payments and equity earnings beginning in the ~~reduction~~second half of 2019. We believe the increase in ~~coal consumption described above, during~~depreciation and the decrease in lease payments will negatively impact equity earnings for the remainder of 2020 as well as 2021.

For the three months ended September 30, 2020 and 2019, we recognized $7.3 million and $11.7 million, respectively, in equity earnings from Tinuum Group, ~~restructured RC facility contracted leases with its largest customer,~~ which ~~decreased lease payments beginning in~~was equal to our proportionate share of Tinuum Group's net income for those quarters.

For the three months ended September 30, ~~2018 and will also negatively impact our pro-rata share of Tinuum Group's~~2020, earnings ~~in the future.~~

~~Earnings~~ from Tinuum Services ~~for the three months ended September 30, 2019 increased~~decreased compared to the ~~same~~corresponding quarter in ~~2018~~2019 primarily due to ~~an increase~~a decrease in the number of operating RC facilities ~~from 17 to 22~~ in which Tinuum Services provides operating and maintenance ~~services.~~services from 22 to 20.

~~RC earnings were positively impacted during~~As noted above, for the three months ended September 30, ~~2019~~2020, RC earnings were impacted by ~~an increase~~a decrease in license royalties ~~related to~~earned from Tinuum ~~Group's use of our~~Group under the M-45 License. ~~During~~For the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, there were ~~14.5~~14.6 million tons and ~~10.5~~14.5 million tons, respectively, of RC produced using the M-45 Technology. 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. Offsetting the net increase in Royalty revenue for the three months ended September 30, 2019 from additional facilitiesWhile tonnage increased slightly period over period, there was a ~~lower~~reduction in the royalty rate per ton ~~rate from~~primarily attributable to higher depreciation recognized ~~for the three months ended September 30, 2019~~of approximately $0.2 million 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~~Further reducing the rate per ton was a decrease in ~~Royalty revenue was driven by both an increase in~~net lease payments toas a result of Tinuum Group ~~and~~restructuring RC facility contracted leases with its largest customer in the ~~related tons subject to the M-45 License.~~second half of 2019.

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 47 of the Condensed Consolidated Financial Statements.

RC Segment Adjusted EBITDA


	Three Months Ended September 30,
(in thousands)	2020		2019
RC Segment operating income	$	12,817	$	18,158
Depreciation, amortization, depletion and accretion	26		25
Interest expense	94		234
RC Segment EBITDA	12,937		18,417
Equity earnings	(9,518)		(14,426)
Cash distributions from equity method investees	9,712		18,718
RC Segment Adjusted EBITDA	$	13,131	$	22,709

PGI

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

For the three months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019

PGI segment operating loss ~~remained consistent~~increased for the three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018~~2019 primarily due to ~~operating income related~~a reduction in consumable revenue and associated margins. According to data provided by the ~~Carbon Solutions Acquisition, which was offset by an increase in operating loss from our legacy PGI business. During~~U.S. Energy Information Administration ("EIA"), for the three months ended September 30, ~~2019, consumables revenue and margins also continued to be negatively impacted by low~~2020, power generation from coal-fired power dispatch ~~driven by power generation from sources other than coal. In a recently updated forecast,~~was down approximately 10% compared to the ~~EIA revised downward by 7% its December 2018 forecast for 2019 coal-fired electricity-generating units.~~corresponding quarter in 2019.

PGI Segment Adjusted EBITDA


	Three Months Ended September 30,
(in thousands)	2020		2019
Segment operating loss	$	(1,270)	$	(977)
Depreciation, amortization, depletion and accretion	1,427		1,853
Interest expense, net	78		75
PGI Segment EBITDA	235		951
Impairment	—		—

PGI Segment Adjusted EBITDA	$	235	$	951

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 )


	Nine Months Ended September 30,
(in thousands)		2020		2019
Earnings from Tinuum Group		$	20,462	$	50,757
Earnings from Tinuum Services		5,498		6,297
Loss from other		(1)		(3)


Earnings from equity method investments		$	25,959	$	57,051

For the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019

For the nine months ended September 30, 2020, we recognized $20.5 million in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income for the period. For the nine months ended September 30, 2019, we recognized $50.8 million in equity earnings from Tinuum Group, ~~compared~~which was equal to our proportionate share of Tinuum Group's net income of $52.4 million for the ~~period. The difference represents~~period less the recovery of the cash distributions in excess of the cumulative earnings ~~short-fall balance~~ as of ~~the end of the immediately preceding period, which was~~ December 31, 2018. ~~For~~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 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. This difference~~2019 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 nine months ended September 30, ~~2019,~~2020, equity earnings from our interest in Tinuum Group were positively impacted by the addition of ~~four~~two new RC facilities during the second half of 2019, a new RC facility added during the three months ended September 30, 2020 and the sale by Tinuum Group of its 49.9% remaining interest in an RC facility during thethree months ended September 30, 2020. However, equity earnings from Tinuum Group for the nine months ended September 30, 2020 decreased from the comparable period in 2019 primarily from two new RC facilities during the nine months ended September 30, ~~2019. Further, revenues from two of these facilities~~2019 that were recognized ~~immediately~~as point-in-time sales. Further, the decrease 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~~equity earnings ~~were negatively impacted from~~was due to higher depreciation recognized of approximately $5.2 million for the nine months ended September 30, ~~2019~~2020 on all Tinuum Group RC facilities as a result of a reduction in ~~their~~RC facilities' estimated useful lives as determined by Tinuum Group during the ~~three months ended September 30, 2019, as described above. As a result~~second half of ~~a reduction~~2019. Further contributing to the decrease 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'sequity earnings ~~in the future.~~

~~Earnings from Tinuum Services~~ for the nine months ended September 30, ~~2019 increased~~2020 compared to the ~~same period in 2018 primarily due to an increase~~nine months ended September 30, 2019 was the restructuring of RC facility leases with Tinuum Group's largest customer, which decreased lease payments and equity earnings beginning in the ~~number~~second half of 2019. Furthermore, 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 terminated during that 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 will be lower for the remainder of 2020 as well as 2021.

As of September 30, 2020 and 2019, Tinuum Group had 21 and 23 invested RC facilities, respectively, that were generating revenues.

Equity earnings from our interest in Tinuum Services decreased during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.During the nine months ended September 30, 2020 and 2019, Tinuum Services provided operating and maintenance services to 20 and 22 operating RC facilities, ~~from 17 to 22~~respectively, which was the primary driver in ~~which~~the decrease in equity earnings. Tinuum Services ~~provides~~derives earnings under fixed-fee arrangements as well as fee arrangements that are based on actual RC production, depending on the specific RC facility operating and maintenance ~~services.~~agreement.

RC earnings were ~~positively~~negatively impacted during the nine months ended September 30, ~~2019~~2020 by ~~an increase~~a decrease in royalties ~~related to~~earned from Tinuum ~~Group's use of our~~Group under the M-45 License. During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, there were ~~35.0~~35.7 million tons and ~~26.4~~35.0 million tons, respectively, of RC produced using the M-45 Technology. The increase in Royalty revenue was primarily driven by an increase in 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 facilitiesWhile tonnage increased period over period, there was a ~~lower~~reduction in the royalty rate per ton ~~rate from~~primarily attributable to higher depreciation recognized ~~for the nine months ended September 30, 2019~~of approximately $1.8 million on all royalty bearing RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group ~~during~~in the ~~three months ended September 30,~~second half of 2019. Further reducing the rate per ton was a decrease in net lease payments of approximately $1.0 million as a result of Tinuum Group restructuring RC facility contracted leases with its largest customer in the second half of 2019. As a result of higher depreciation and lower lease payments, we expect that the lower royalty rate per ton will continue in 2020 and 2021.

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 47 of the Condensed Consolidated Financial Statements.


	Nine Months Ended September 30,
(in thousands)		2020		2019
RC Segment operating income		$	34,454	$	68,137
Depreciation, amortization, depletion and accretion		84		55
Interest expense		254		882
RC Segment EBITDA		34,792		69,074
Equity earnings		(25,959)		(57,051)
Cash distributions from equity method investees		42,228		56,806
RC Segment Adjusted EBITDA		$	51,061	$	68,829

PGI

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

For the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019

PGI segment operating ~~income~~loss increased during the nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018~~2019 primarily due to the ~~increase~~impairment charge of $23.2 million and a reduction in ~~operating income due to the operations of Carbon Solutions. This increase was offset with an additional $4.7 million of cost of~~consumable revenue ~~expense~~and associated margins and costs incurred related to ~~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~~COVID-19. For the nine months ended September 30, ~~2019, Consumables~~2020, consumables revenue and margins ~~were~~also continued to be 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,~~coal.

During the ~~EIA revised downward by 7% its December 2018 forecast~~nine months ended September 30, 2020, we incurred costs of ~~2019 coal-fired electricity-generating units.~~

$0.4 million related to sequestration of certain of our employees at our manufacturing plant in Louisiana. These costs included hazardous pay, lodging expense and other related costs for 60 days.

PGI Segment Adjusted EBITDA


	Nine Months Ended September 30,							Nine Months Ended September 30,
(in thousands)	2019			2018			(in thousands)		2020		2019
Segment operating loss (1)	$	(8,301	)	$	(3,493	)
PGI Segment operating loss (1) (2)							PGI Segment operating loss (1) (2)		$	(33,584)	$	(8,301)
Depreciation, amortization, depletion and accretion	4,498			113			Depreciation, amortization, depletion and accretion		4,851		4,498
Interest expense, net	263			—			Interest expense, net		265		263
Segment EBITDA loss	$	(3,540	)	$	(3,380	)
PGI Segment EBITDA loss							PGI Segment EBITDA loss		(28,468)		(3,540)
Impairment							Impairment		23,232		—

PGI Segment Adjusted EBITDA (loss)							PGI Segment Adjusted EBITDA (loss)		$	(5,236)	$	(3,540)

(1) Included in PGI segment operating loss for the nine months ended September 30, 2020 is $0.4 million related to sequestration of certain of our employees at our manufacturing plant in Louisiana.

(2) PGI Segment operating loss for the nine months ended September 30, 2019 ~~was~~is 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 acquisition of Carbon ~~Solutions Acquisition.~~Solutions.

Liquidity and Capital Resources

Overview of Factors Affecting Our Liquidity

During the nine months ended September 30, ~~2019,~~2020, 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:~~included:

•cash on hand;

•distributions from Tinuum Group and Tinuum Services;

•royalty payments from Tinuum Group; and

~~operations of~~•cash proceeds received under the ~~PGI segment.~~Paycheck Protection Program ("PPP") administered by the U.S. Small Business Administration ("SBA").

Our principal uses of cash ~~during~~for the nine months ended September 30, ~~2019~~2020 included:

•payment of dividends;

•payment of debt principal and interest;

•repurchases of shares of common stock; and

~~payment of dividends;~~

~~payment of debt principal and interest; and~~

•our business operating expenses, including federal and state tax payments, ~~and~~ cash severance ~~payments.~~payments and costs associated with COVID-19.

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

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

our contracts and initiatives, receiving license 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~~including expanding our overall ~~PAC~~AC 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~~We incur significant recurring capital expenditures for ~~its~~our AC manufacturing facility and for mine development at ~~its~~our lignite mine. ~~Going forward,~~For 2020, we anticipate ~~additional material~~that our capital ~~resources~~expenditures will be ~~needed~~lower than 2019 as we will not have significant planned maintenance expenditures for the balance of 2020 at our lignite mine as we did in 2019. For 2021, we expect to ~~maintain or improve~~incur capital ~~assets. We incurred~~ expenditures ~~related~~above the level of 2020 primarily due to planned maintenance at our lignite mine.

Our liquidity was negatively impacted from COVID-19 due to increased operating losses in our PGI segment from higher operating costs as a result of measures taken to support our ability to deliver as a critical infrastructure business, primarily from sequestration efforts and "hazard pay," which is a premium on wages, for a substantial number of our ~~AC manufacturing facility during~~employees, and overall plant operating inefficiencies. However, in April 2020, we took steps to enhance our short-term liquidity through the ~~nine months ended September 30, 2019.~~

PPP as discussed below.

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, 2020 and 2019:


	Nine Months Ended September 30,
(in thousands)	2020		2019
Tinuum Group	$	35,226	$	50,256
Tinuum Services	7,002		6,550
Distributions from equity method investees	$	42,228	$	56,806

Cash distributions from Tinuum Group for the nine months ended September 30, 2020 decreased by $15.0 million compared to the nine months ended September 30, 2019 primarily due to reductions in lease payments received by Tinuum Group from its largest customer as a result of renegotiations of certain leases, which occurred in the second half of 2019 between Tinuum Group and ~~2018:~~

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
this customer, and the shuttering of two coal-fired utilities in the fourth quarter of 2019 where two invested RC facilities were operating.

Future cash flows from Tinuum through 2021 are expected to range from ~~$150~~$90 million to ~~$175 million, a decrease from the previously reported range of $175 to $200~~$110 million. The key drivers in achieving these future cash flows are based on the following:

23•21 invested facilities as of September 30, ~~2019~~2020 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~~PPP Loan

On April 21, 2020, we entered into a loan (the "PPP Loan") under the PPP through BOK, NA dba Bank of Oklahoma (the "Lender") providing for ~~closure,~~$3.3 million in proceeds, which amount was funded on April 21, 2020. The PPP Loan matures April 21, 2022 and provides for 18 monthly payments of principal and interest commencing on November 21, 2020. The interest rate on the PPP Loan is ~~expected~~1.00%. The PPP Loan is unsecured and contains customary events of default relating to, ~~occur~~among other things, payment defaults, making materially false and misleading representations to the SBA or the Lender, or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the ~~fourth quarter~~repayment of ~~2019.~~all amounts outstanding, collection of all amounts owing from us, or filing suit and obtaining judgment against us. The ~~shuttering~~PPP Loan may be forgiven subject to the terms of ~~these facilities~~the PPP and approval by the SBA.

Our business has ~~negatively impacted~~been classified as an essential business and therefore we continue to operate on a modified basis to comply with governmental restrictions and public health authority guidelines. In April 2020, we sequestered approximately 60 employees to continue to run our ~~expectations related~~manufacturing plant and build-up inventory in order to ~~future cash flows if we are unable~~supply our customers. This resulted in additional costs as the sequestered employees received hazard pay. We used proceeds from the PPP Loan 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 net reduction in~~fund our pro-rata share of 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.payroll costs.

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 Term Loan and Security Agreement (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 acquisition of Carbon Solutions ~~Acquisition~~ as disclosed in Note 2.8. 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,~~2020, we made principal payments of ~~$24.0~~$18.0 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 and buybacks of shares of our common stock 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.

Pursuant to entering into the PPP Loan, on April 20, 2020, we and Apollo executed the First Amendment to the Senior Term Loan, which permitted us to enter into the PPP Loan.

Stock Repurchases and Dividends

In November 2018, ~~the~~our Board of Directors (the "Board") authorized us to purchase up to $20.0 million of our outstanding common ~~stock.~~stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board. As of November 2019, $2.9 million remained outstanding related to the Stock Repurchase Program. In November 2019, the Board authorized an incremental $7.1 million to ~~this stock repurchase program~~the Stock Repurchase Program and provided that ~~the program~~it will remain in effect until all amounts are utilized or ~~the program~~it is otherwise modified by the Board. ~~Previously, in December 2017,~~

For the ~~Board had authorized us to purchase up to $20.0 million of our outstanding common stock~~nine months ended September 30, 2020, 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,~~Stock Repurchase Program, we purchased ~~2,350,422~~20,613 shares of our common stock for cash of ~~$25.3~~$0.2 million, inclusive of commissions and fees. ~~During~~For the nine months ended September 30, 2019, under the ~~applicable stock repurchase program,~~Stock Repurchase Program, we purchased 256,743 shares of our common stock for cash of $2.9 million, inclusive of commissions and fees. As of September 30, 2020, we had $7.0 million remaining under the Stock Repurchase Program.

~~During~~For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we declared and paid quarterly cash dividends to stockholders of $5.0 million and $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

respectively.

Line of Credit

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

On September ~~30, 2018, ADA,~~29, 2020, ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary of ours, as borrower, we, as guarantor, and ~~the Lender~~a bank (the "Lender") entered into an amendment ~~(the "Twelfth Amendment")~~ to the ~~Line~~2013 Loan and Security Agreement (the "Line of ~~Credit. The Twelfth Amendment decreased the borrowing availability of the Line~~Credit"). This amendment (the "Line of Credit ~~to $5.0 million due to decreased collateral requirements,~~Amendment") extended the maturity date of the Line of Credit to ~~September 30, 2020 and permitted the~~March 31, 2021. 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 Twelfth~~ Amendment ~~there was 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~~retained covenants contained in ~~the "Eleventh Amendment"~~prior amendments to the Line of Credit, ~~of $24.0 million.~~

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

~~Credit,~~ which ~~provided, among other things, for ADA to be able~~included ADA's ability 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,~~million and the ~~financial~~revision of covenants ~~in the Line~~

~~of Credit~~that 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, 2020, we have $5.0 million of borrowing availability and no outstanding borrowings under the Line of Credit.

Customer Supply Agreement and Acquisition of Marshall Mine

We believe the Supply Agreement will provide material incremental volume and capture lower operating cost efficiencies of our manufacturing plant providing additional sources of operating cash flows in the future. Full and partial reimbursements on capital expenditures will help limit our uses of investing cash flows. Further, we intend to fund the remaining portion of the Reclamation Costs from cash on hand as well as cash generated from the Supply Agreement.

Sources and Uses of Cash

Nine Months Ended September 30, ~~2019~~2020 vs. Nine Months Ended September 30, ~~2018~~2019

Cash, cash equivalents and restricted cash ~~decreased~~increased from ~~$23.8~~$17.1 million as of December 31, ~~2018~~2019 to ~~$20.2~~$25.0 million as of September 30, ~~2019.~~2020. The following table summarizes our cash flows for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively:

Nine Months Ended September 30,
(in thousands) 2019 2018 Change
Cash and cash equivalents and restricted cash provided by (used in):
Operating activities $ 47,598
$ (4,311 ) $ 51,909
Investing activities (9,174 ) 32,634
(41,808 )
Financing activities (42,041 ) (27,102 ) (14,939 )
Net change in cash and cash equivalents and restricted cash $ (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, 2019 and 2018, respectively:

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

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


	Nine Months Ended September 30,
(in thousands)	2020		2019		Change
Cash and cash equivalents and restricted cash provided by (used in):





































Operating activities	$	34,918	$	47,598	$	(12,680)




















Investing activities	(5,602)		(9,174)		3,572














Financing activities	(21,367)		(42,041)		20,674
Net change in cash and cash equivalents and restricted cash	$	7,949	$	(3,617)	$	11,566

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~~2020 decreased by ~~$51.9~~$12.7 million compared to the nine months ended September 30, ~~2018. Cash~~2019. The net decrease was primarily attributable to a decrease in net income for the nine months ended September 30, 2020 compared to net income for the nine months ended September 30, 2019 of $47.2 million, a decrease period over period in distributions from equity method investments, return on investment of $14.6 million, and an increase in the net increase in prepaid expenses and other assets of $8.6 million primarily due to increases in prepaid income taxes and federal and state income tax benefits. Offsetting this net decrease in cash flows ~~from~~provided by operating activities ~~were positively impacted primarily by the following: (1) net income of $26.4 million, which~~ was ~~primarily due to~~a decrease period over period in earnings from equity method investees of ~~$57.1~~$31.1 million and ~~license royalties earned from Tinuum Group~~an increase of ~~$12.8 million; (2) distributions from equity method investees, return on investment of $56.8 million; (3) a decrease~~$5.5 million in ~~deferred tax assets, exclusive of valuation allowance changes, of $6.8 million; (4) depreciation, amortization, depletion,~~the net change in accrued payroll 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. Duringrelated liabilities for the nine months ended September 30, ~~2018,~~2020 compared to 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~~nine months ended September 30, 2019.

Cash flow from investing ~~activities. Due~~activities

Cash flows used in investing activities for the nine months ended September 30, 2020 decreased by $3.6 million compared to the ~~increase~~nine months ended September 30, 2019 primarily from a decrease in cash paid for acquisition of property, plant, equipment, and intangible assets and mine development costs of $1.6 million and $1.4 million, respectively. Also included in the ~~balance of our investment in Tinuum Group from Tinuum Group's adoption of new accounting standards as of January 1, 2019,~~decrease was $0.7 million related to cash consideration paid during the nine months ended September 30, 2019 ~~all distributions during~~for the ~~period were reported as return on investment within cash flows~~acquisition of Carbon Solutions.

Cash flow from ~~operating activities. Offsetting these increases to operating cash flows were earnings from equity method investees of $57.1 million.~~

financing activities

Cash flows used in ~~operating~~financing activities for the nine months ended September 30, 2018 were $4.3 million and 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 and a net increase in working capital of $2.9 million.

~~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~~2020 decreased by ~~$33.6~~$20.7 million ~~for the nine months ended September 30, 2019~~ compared to the nine months ended September 30, ~~2018. The decrease was driven~~2019 primarily byfrom proceeds received from the ~~effect~~PPP Loan of ~~an increase~~$3.3 million 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 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 increasedApril 2020 and decreases period over period ~~due to additional invested RC facilities,~~in dividends paid of ~~which two and four were added during 2018 and 2019, respectively.~~

~~Acquisition of business~~

~~During~~$8.8 million, principal loan repayments on 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 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 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~~Senior Term Loan of $6.0 million ~~related to the Senior Term Loan.~~

~~Cash dividends paid~~

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

~~Repurchase~~repurchases of common ~~stock~~

As described in Note 9 of the Condensed Consolidated Financial Statements, during the nine months ended September 30, 2019 and under a stock repurchase program authorized by the Board, we purchased 256,743 shares of ~~our common stock for cash of $2.9 million, inclusive of commissions and fees. During the nine months ended September 30, 2018, we repurchased 1,011,630 shares of our common stock for cash of $11.2~~$2.8 million.

~~Equity award activity~~

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

Contractual Obligations

During the nine months ended September 30, ~~2019,~~2020, there were no material changes to our contractual obligations outside of the ordinary course of business from those reported as of December 31, ~~2018.~~

2019 except for the incurrence of an asset retirement obligation of $21.3 million recorded as September 30, 2020 related to the Reclamation Contract, Purchase Agreement and Supply Agreement.

Off-Balance Sheet Arrangements

During the nine months ended September 30, ~~2019,~~2020, 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 ~~2018~~2019 10-K.

Critical Accounting Policies and Estimates

~~Except for the adoption of ASC 842 related to leases on January 1, 2019, our~~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 ~~2018~~2019 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 standards applicable to us that were issued during the nine months ended September 30, ~~2019~~2020 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 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 PGI market;~~


~~(f)~~	~~future level of research and 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 rates, cash 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.~~

(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 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)expected operating cost efficiencies and positive impact to our gross margin from operations tied to our Supply Agreement;

(f)increasing competition in the PGI market;

(g)future level of research and development activities;

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

(i)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 and the effect of these factors on Tinuum Group's future earnings and distributions;

(j)probability of any loss occurring with respect to certain guarantees made by Tinuum Group;

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

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

(m)the outcome of current legal proceedings;

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

(o)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;

(p)expected reclamation costs subject to certain contingencies and timeline for the closing and associated reclamation of the Marshall Mine;

(q)the evolving impact and duration of the COVID-19 pandemic to our business;

(r)whether any amounts under the PPP loan will be forgiven;

(s)the tax impact of the use of or forgiveness of funds received or forgiven under the PPP loan; and

(t)the future output of coal-fired power dispatch which affects that demand and future cash flow for our PGI products and may result in future additional impairment of the Asset Group.

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; availability, cost of and demand for alternative energy sources and other technologies; 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; termination of or amendments to the contracts for sale or lease of RC 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; our ability to mitigate or manage disruptions posed by COVID-19; the impact of COVID-19 and changes in U.S. economic conditions that materially impact the demand for our products and services, loss of key personnel; potential claims from any terminated employees, customers or vendors; availability of materials and equipment for our businesses; intellectual property infringement claims from third parties; pending litigation; 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

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

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"), 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, ~~2019.~~2020.

Changes in Internal Control Over Financial Reporting

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, thereThere 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, ~~2019~~2020 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~~Information with respect to this item may be found in Note 13 "Commitments and ~~other disputes are inherently unpredictable and subject~~Contingencies" to ~~substantial uncertainties and unfavorable resolutions could occur. None~~the consolidated financial statements included in Item 1 of ~~these matters, either individually or in the aggregate, currently is material to us.~~Part I of this Quarterly Report.

Item 1A. Risk Factors

There are no material updates to our risk factors as disclosed in the ~~2018~~2019 Form 10-K except as set forth below. This risk factor should be read together with the risk factors in the 2019 Form 10-K.

The COVID-19 pandemic and ensuing economic downturn has affected, and is expected to continue to affect and pose risks to our business, results of operations, financial condition and cash flows; and other epidemics or outbreaks of infectious diseases may have a similar impact.

In March 2020, the WHO declared the outbreak of COVID-19 a global pandemic, which continues to spread throughout the United States ("U.S.") and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. We have been designated by CISA as a critical infrastructure supplier to the energy sector. This designation provides some latitude in continuing to conduct our business operations compared to companies in other industries and markets. While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our key customers, suppliers and other counterparties, for an indefinite period of time. To support the health and well-being of our employees, customers, partners and communities, a vast majority of our employees not directly involved in operating our plant, have been working remotely since March 2020. In addition, many of our customers are working remotely, which may delay the timing of some orders and deliveries expected in the second quarter of 2020 and beyond. The disruptions to our operations caused by COVID-19 may result in inefficiencies, delays and additional costs in our manufacturing, sales, marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. Although such disruptions did not have a material adverse impact on our financial results for the first quarter of fiscal 2020, we incurred additional operating costs for the second quarter of fiscal year 2020, which included hazard pay, cleaning costs and sequestration costs related to our operating plant personnel. For the balance of 2020, we may see reduced demand for our products due to reduced interaction with our customers and our inability to target new customers and markets.

More generally, the pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which could affect demand for our products and services and impact our results and financial condition even after the pandemic is contained and the shelter-in-place orders are lifted. For example, a decrease in orders in a given period could negatively affect our revenues in future periods, particularly if experienced on a sustained basis. We will continue to evaluate the nature and extent of the impact of COVID-19 to our business.

As previously disclosed, in April 2020, we entered into a loan (the "PPP Loan") in the amount of $3.3 million through a bank under the Paycheck Protection Program sponsored by the U.S. Small Business Administration ("SBA"). The PPP loan became available to us pursuant to the Coronavirus Aid, Relief, and Economic Security Act and is administered by the SBA. We entered into the PPP Loan to provide additional liquidity in light of our COVID-19-related higher employee costs. Proceeds from the PPP Loan were used to cover a portion of our existing payroll and related expenses, including sequestration pay for certain employees, as well as certain other operating costs as permitted under the Paycheck Protection Program. We expect that current cash and cash equivalent balances, inclusive of the PPP Loan, and cash flows that are generated from operations will be sufficient to meet our working capital needs and other capital and liquidity requirements for at least the next 12 months. However, if our business is more adversely impacted by COVID-19 than we expect, and our personnel costs remain higher than budgeted, our cash needs could increase.

Further, we assessed the impact on our existing internal control over financial reporting as of March 31, 2020 and going forward under the current state of COVID-19. We performed procedures to ensure that existing internal control over financial reporting was operating effectively as March 31, 2020 and will continue to operate effectively for the foreseeable future. Such procedures included, but were not limited to, developing a COVID- 19 risk assessment identifying the risks of fraud, changes required in our internal control framework as well as other business information technology and cybersecurity risks. As a result of these procedures and conclusions reached, we did not implement any changes to our internal control over financial reporting as of September 30, 2020.

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

None.

~~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, 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

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~~	Third Amendment to the Second Amended and Restated Operating Agreement of Tinuum Group, LLC. dated September 4, 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~~

Exhibit No.

Description

Form

File No.

Incorporated by Reference
Exhibit

Filing Date

10.1

Fourteenth Amendment of 2013 Loan and Security Agreement by and among ADA-ES,Inc., Advanced Emissions Solutions, Inc., and BOK, NA d/b/a Bank of Oklahoma dated as of September 29, 2020

8-K

001-37822

10.1

September 29, 2020

10.2

Master Agreement for Supply of Furnace Products between ADA Carbon Solutions, LLC and Cabot Norit Americas, Inc.**

8-K

001-37822

10.1

September 30, 2020

10.3

Amended and Restated Lignite Mining Agreement among Caddo Creek Resources Company, L.L.C., ADA Carbon Solutions (Operations), LLC, Marshall Mine, LLC and The North American Coal Corporation dated as of September 30, 2020**

8-K

001-37822

10.2

September 30, 2020

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.~~

* – 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 9, 2020			~~Advanced Emissions Solutions, Inc.~~
By:	~~(Registrant)~~


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


~~November 12, 2019~~	~~By:~~	/s/ Greg P. Marken
				Greg P. Marken
				Interim Chief ~~Financial~~Executive Officer
				(Principal Executive Officer)


November 9, 2020			By:	/s/ Christine A. Bellino
				Christine A. Bellino
				Chief Accounting Officer
				(Principal Financial and Accounting Officer)



	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



	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



(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



(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



	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



	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



		Pretax Charge
(in thousands, except employee data)	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
Changes in estimates		—		—		—		—
Total pretax charge, net of reversals		$	168	$	500	$	434	$	1,102

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



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



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

~~640 Plaza Drive, Suite 270, Highlands Ranch, CO~~

(Address of principal executive offices)

(Zip Code)