Nov 16, 2018 — Advanced Emissions Solutions, Inc. Nasdaq: ADES. Advancing Cleaner Energy. © 2018 Advanced Emissions Solutions, Inc. All rights reserved.
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22SAFE HARBOR This presentation contains forward -looking statements within the meaning ofSection 21Eofthe Securities Exchange Actof1934,which provides afisafe harborfl for such statements incertain circumstances .The forward -looking statements include estimated future RCcash flows, projections onADA Carbon Solutions, LLC(fiCarbon Solutionsfl) revenues, Carbon Solutions™ EBITDA, amount ofoperating synergies from the potential combination andfuture RCcash flows, expectations about Carbon Solutions’ business opportunities, timing ofthe closing ofthe proposed acquisition, the ability tomonetize deferred tax assets, andpotential transactions with tax -equity investors .These forward -looking statements involve risks anduncertainties .Actual events orresults could differ materially from those discussed inthe forward -looking statements asaresult ofvarious factors including, butnotlimited to, future demand for Carbon Solutions™ products, ourability tocost -effectively integrate Carbon Solutions andrecognize anticipated synergies, the Company™s ability tosecure appropriate financing, timing ofnewandpendingregulations and anylegalchallenges toorextensions ofcompliance dates ofthem ;aswell asother factors relating toourbusiness, asdescribed inourfilings with the SEC, with particular emphasis onthe risk factor disclosures contained inthose filings .You are cautioned nottoplace undue reliance onthe forward -looking statements andtoconsult filings wehave made andwill make with the SECfor additional discussion concerning risks anduncertainties that may applytoourbusiness andthe ownership ofoursecurities .The forward -looking statements speak onlyastothe date ofthis presentation .
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REFINED COAL (fiRCfl) BUSINESS UPDATE 3Strong and growing momentum post tax reform and IRS clarity Expected future cumulative net RC cash flows of $225M to $250M to ADES through 2021 (1) Tinuum is proactively installing four facilities Active discussions with investors for several facilities representing nearly 12 million annual tons Each facility could add $5 -7 million of incremental annual cash flow to ADES RC Facility information as of October 31 , 201 8(1) The expectation is based on the following four key assumptions: 1) Tinuum Group continues to not operate retained facilities; 2)Tinuum Group does not have material CapEx or unusual operating expenses; 3) tax equity lease renewals are not terminated or repriced; and 4) coal -fired generation remains consistent . Net projected RC cash flows include the impact of all expected Tinuum distributions and royalty payments offset by the Company™s federal and state tax payments as well as interest payments (2) Four facilities are in the engineering and construction phase (3) One facility that is not operating was placed in service in 2009 and available Section 45 tax credit generation ability for t hisfacility will expire during the year ended 2019 (4) Certain facilities would require capital investment to transition to operating status (5) One facility that is operating was placed in service in 2009 and available Section 45 tax credit generation ability for this fac ility will expire during the year ended 2019 RC FACILITY ROADMAP POTENTIAL 28 RC facilities (~100 MT/year) 9 RC facilities Œinstalled and waiting for investor or yet to be installed (2)(3)(4) Not Operatin g and Not Invested Operating and Invested 19RC facilities leased/sold (50-60MT/year) (5) 2019 -2021
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CAPITAL ALLOCATION PROGRAM UPDATE (1) 4RC transactions are driving significant return of capital to shareholders Since March 2017, the Company™s Capital Allocation Program has paid or declared $36 million in dividends and repurchased $28 million in stock, returning approximately $2.88 per share (2) in value to our shareholders Carbon Solutions is a unique and opportunistic acquisition opportunity within emissions control: Purchase fits previously disclosed strategic and financial criteria $1.00 per share annual dividend remains firmly in place Company will continue to strategically repurchase stock ADES Capital Allocation Program (Inception -to -Date) (1)The Company started its current Capital Allocation program in the second quarter of 2017. (2) Return was calculated based on shares outstanding as of March 31, 2017.
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TRANSACTION OVERVIEW 6ADA-CS (fiCarbon Solutionsfl) Overview North American mercury control powdered activated carbon (fiPACfl) leader with 45% market share Nearly $400 million of initial capital investment Industry -leading products supported by world -class research & development (fiR&Dfl) Vertically -integrated, automated supply chain drives industry™s lowest cost of production Deal Terms $75 million purchase price represents a 4.2x multiple of adjusted pro forma EBITDA Œ$65 million cash payment ŒAssumption of $10 million in capital equipment leases Financed through a new $70 million secured term loan ŒSecured by ADES assets (including cash flows from Tinuum) ŒAttractive coupon and favorable call protection ŒThree year tenor; e xpected weighted life of ~two years Standard and customary closing conditions and expected to close by end of 2018 Summary Financials (1) (Pro -forma, projected 2018) $73 million of adjusted pro forma revenue Tangible SG&A -driven operating synergies of $2 to $3 million $18 million adjusted pro forma EBITDA including recently signed long -term customer contracts and operating synergies $8 million normalized CapEx Growth Opportunity (1) Under utilized strategic asset with 65%+ contribution margins Continued organic growth in mercury control Opportunity for growth in adjacent activated carbon products (1) See Appendix for definitions and reconciliations of non -GAAP measures
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SUSTAINABLE COMPETITIVE ADVANTAGE IN MERCURY CONTROL 8Nearly ~$400 million of initial capital investment creates cost and quality leadership: Vertically integrated coal source Self -sustaining power turbine Highly automated plant operations Non -unionized workforce Unique configuration drives cost leadership despite lower utilization rate Low-cost operator status enables continued market leadership in commodity and specialty products Competitors operating at >85% capacity and focused on other activated carbon markets 45% 55% 65% 75% 85% 95% PRODUCTION COST PER POUND PLANT UTILIZATION RATE Cost Advantage Grows with Higher Utilization Carbon Solutions Competitor B Competitor A 15 TO 20% UNIT COST ADVANTAGE EVEN WITH LOWER UTILIZATION RATE Source: Internal estimates based upon publicly available information
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Mercury Control PAC Share by Supplier ORGANIC GROWTH OPPORTUNITIES IN MERCURY CONTROL Concentrated market where competitors have switched market focus or shuttered capacity PAC market supply and demand re -balancing Carbon Solutions well -positioned to gain market share Continued operating momentum as evidenced by new blue-chip customer wins 9Source: Internal estimate based upon public information, current industry pricing and understanding of market share Mercury control consumables market, exclusive of refined coal, is $200 -$250 million annually PAC is the dominant product used by coal -fired utilities to control toxic mercury emissions Carbon Solutions is the market leader in PAC Pro forma ADES platform with three leading mercury control products for coal -fired utilities Mercury Control Consumable Products Halogen 16%Scrubber Additive 9%Other 4%PAC 71%Carbon Solutions 45%Competitor A 22%Competitor B 28%Other Competitors 5%SERVICE AND COMBINATIONS PAC CAPACITY & PRICING
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ORGANIC GROWTH OPPORTUNITIES IN MERCURY CONTROL The market will expand as Section 45 tax credits expire at the end of 2019 and 2021 Nearly 75 plants generating approximately 175 million tons of RC in operation today As RC units expire, these large coal -fired utilities will seek competitive solutions to help comply with mercury control regulations Based on today™s plant configurations, this shift will drive material incremental consumables volumes ADES uniquely positioned given ownership in Tinuum and 30+ years of industry experience Opportunity to capture share of $35 -$45 million annual market as refined coal units retire 10 Source: Internal estimate based upon public information, current industry pricing and understanding of market share Carbon Solutions has market leading R&D expertise to drive growth through premium solutions Recent wins involving premium products allow customers to overcome challenging operating conditions and meet state and federal mercury regulations Engineered, collaborative solutions drive customer loyalty Premium products command higher price and margin REFINED COAL EXPIRATION PREMIUM PRODUCTS
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GROWTH OPPORTUNITIES 11 Mercury Removal Positioned for continued profitable growth due to maintained market leadership and stable demand as prices stabilize Gain additional share through premium products, cost advantage and RC transition Broader Water Market Opportunity to leverage Carbon Solutions™ best -in-class production facility and make investments to capture broader commercial and consumer market Adjacent Segments & International Expansion Regenerated Carbon Chemicals and Food International Mercury Control Municipal Water Carbon Solutions can and does compete, albeit minimally, without any incremental plant investment However, additional feedstock sourcing is necessary TOMORROW TODAY INVESTMENT NEEDED CURRENT PLANT CONFIGURATION Continue to gain market share and margin Pursue higher margin and higher growth
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