Arq, Inc. (ARQ) Q3 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Advanced Emissions Solution Third Quarter 2013 Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Graham Mattison, Vice President of Investor Relations for Advanced Emissions Solutions. Thank you. Mr. Mattison, you may begin.

Good afternoon, and thank you, everyone, for joining us. After the market close today, we issued our earnings release and slides related to our prepared comments. A copy of the press release and the slides that we will be referring to during the call are available on the Investor Relations section of our website at advancedemissionssolutions.com. Joining us from the company today are Dr. Michael Durham, President and CEO, who will provide an update on recent corporate developments and our future outlook; and Mark McKinnies, Senior VP and CFO, who will discuss the quarter results. And we'll then open the call for your full-out questions. Before we begin, I need to remind you this call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and 27A of the Securities Act of 1933, which provide a safe harbor for such statements in certain circumstances. These statements are identified by words such as believe, will, hope, expect, anticipate, intend and plan. Negative expressions of these words or words with similar meaning to actual events could differ materially from those discussed in the forward-looking statements as a result of various factors, including factors discussed in our filings with the Securities and Exchange Commission and in particular emphasis on the section entitled Risk Factors in our Form 10-K. Listeners are cautioned not to place undue reliance on forward-looking statements and to carefully examine the information the company publicly discloses in its filings with the SEC or otherwise before deciding to invest in Advanced Emissions Solutions securities. The forward-looking statements made during this conference are presented as of today's date, and the company disclaims any duty to update them unless otherwise required by law to do so. A recording of this call can be found in the Investor Relations section of our website. And I would now like to turn the call over to Mike Durham.

Thank you, Graham. We're very pleased with the performance of all our businesses this quarter, and I'd like to thank our dedicated coworkers in all of our subsidiary companies for their efforts and success. It's an exciting time for the company as the market regulatory drivers are firmly in place now, and we appear to be in a great position with the right products at the right time. Mercury and Air Toxic Standards, or MATS, with set limits for mercury and acid gases that must be met by power plants beginning in 2015 and 2016, is currently driving the strong market for equipment ahead of the compliance space. This will be followed with a $1 billion to $2 billion annual market for consumables to be used with that equipment to meet the MATS emission limits. MATS market is also driving increased interest in our refined coal offerings, as utilities are considering it one of the viable options to minimize cost to meet this new law. We expect Refined Coal will provide significant cash flows in the coming years. It's also the proving ground for our improved mercury control additive, as each of the 28 RC facilities produces operating data that supports the marketing of that improvement to potentially hundreds of plants outside of our RC business for compliance with MATS. In addition, we're developing new innovations and products for our customers that will have to make regulations being developed for other pollutants, such as liquid effluents and CO2. These proposed rules are driving early-stage technology development project, which could follow the MATS market with new opportunities in markets both in the power space and adjacent industries. I will now discuss our business segments beginning on Slide 4 with our Emissions Control business. As you can see, we're realizing tremendous success with the MATS market, with significant increases in both revenues shown in the blue bar and backlog highlighted by the red bar. The record backlog in revenues in the EC segment reflects the strength of the MATS market -- equipment market for the company's industry-leading position in the market. We believe our ability to offer both activated carbon injection, or ACI, and dry sorbent injection, DSI systems, along with our years of experience and chemical expertise allow us to provide our customers with more than just hardware purchase. In August of 2012, we acquired the assets of BCSI, a DSI system provider, for a total of $5 million. By bringing together BCSI's strong DSI systems offering with ADA's technical capabilities and reputation, we've now won more than $65 million in awards over the last 12 months and we continue to bid on new work. During the quarter, we were awarded multiple projects, including a fleet order from a major utility, well in excess of $20 million to provide them ACI and DSI systems. As MATS markets commenced in late 2012, our companies have won or received letters of intent to award contracts currently valued at approximately $105 million for ACI and DSI systems, and we're in discussions with potential projects for ACI and DSI systems in excess of another $121 -- $120 million. I will now discuss our Refined Coal segment beginning with Slide 5, which shows that we currently have 11 RC facilities operating full time and a roadmap to getting the remaining RC facilities operating by the end of 2014. While we did see a 6- to 9-month setback in the second half of 2012 and the first quarter of 2013 in moving forward with our RC business due to delays from the IRS, we believe we're well past these issues and the pace of RC implementation will pick up for a number of reason. For example, in 2013, we began marketing a newly invented RC technology M-45-PC, which greatly expands the target market to include pulverized coal or PC boilers. Last week, we announced that we were scheduled to begin full-time operations of an additional 6 facilities at power plants that historically burn more than 25 million tons. Two of these facilities will use the M-45-PC technology, and we're expecting to be operating before year end at power plants that we only began marketing with new technology earlier this year. Also, the Clean Coal joint venture has recently achieved Section 45 qualifying emissions reductions on both cyclone and PC boilers burned by bituminous coals, further expanding the potential market for Clean Coal and its RC technologies. Clean Coal is in parallel discussions with multiple utilities and investors for the remaining RC facilities, including power plants that express a high level of interest in RC and that collectively burn more than 50 million tons per year. Many of the targeted plants are owned by power companies with multiple target plants. And in some cases, these power companies have already completed RC -- Section 45 RC transactions, which we expect will make the process move faster. Turning to Slide 6. As we stated in the past, we plan to begin operating these facilities as soon as the utility contracts and various permitting steps have been completed, which may occur before the finalization of the contracts with the RC investor. We have found that getting the RC facilities operating as soon as we complete the contracts with the power company is a necessary step towards finalizing agreements with third-party investors. During those initial operations, clean coal uses cash flows and leased RC facilities to fund the operation, and the company reports the near-term impact on GAAP results in the form of increased expenses while accruing tax credits. Right-hand column of the slide highlights the fact that this is the correct financial decision, especially given that the cash flows from the 8 RC facilities that are now leased or sold to investors are generating annual cash flows of more than $85 million, which is sufficient to fund initial operations of the facilities as we begin full-time operations. Looking now to our development activities for future products. You can see in Slide 7 that we are assembling the equipment on site as part of the $20.5 million program supporting the development of our regenerable solid-sorbent technology to capture carbon dioxide in coal-fired power plants and adjustable sources. Testing will begin in the third quarter of 2004 (sic). This program will be complemented by the previously announced award of 2 new R&D contracts from the Department of Energy related to carbon capture technology. We are also involved in the development of other products that help our customers meet proposed future environmental regulations. In the past 4 months, the EPA has announced draft regulations for effluence generated by coal-fired power plants. We were recently awarded a contract by a major utility to demonstrate an innovative technology to stabilize liquid effluence to power plants. While these R&D contracts are not material in dollar value at this stage, they recognize the company's research capabilities that highlight the company's ongoing commitment, the development of new products, which have been the core of this company since its founding. These R&D awards are a key part of this approach, as they mitigate some of the financial risk and technology development that allow us to work closely with our customers to field test and then refine the technology to be ready when the regulations are implemented. It is from projects like these that our existing businesses were created and provide an excellent opportunity be at the early stage of new and exciting developments that can help our customers in the power industry and also adjacent market. Let me now pass this to Mr. Mark McKinnies, our CFO, to provide financial details for the quarter.

Thanks, Mike, and good afternoon, everyone. Thanks for joining us. Turning now to Slide #9 in the package. We highlight our RC segment results, which are consistent of the consolidation of the financial results of Clean Coal Solutions LLC or Clean Coal. During the third quarter of 2013, we had 10 facilities producing RC, 7 of the total were leased or sold to third-party RC investors and 3 were operated by Clean Coal and retained for its own account, with one of those being leased just this last October, last month. The 3 operated by Clean Coal generated tax credits for ADA of approximately $2.9 million during the quarter, which we expect to offset future tax expense. As we have mentioned before, when clean coal operates an RC facility for its own use, it records the purchase and sale of coal at approximately $20 to $40 per ton, incurs operating expenses of approximately $3 per ton of coal treated and generates approximately $7.50 per ton in total tax benefits. Because we provide an allowance -- a valuation allowance for all of our deferred tax assets, our share of those tax benefits are not shown in the financial statements. When an RC facility is leased or sold to an investor, Clean Coal recognizes revenues and receives ongoing payments from the RC investors. But from that point forward, it does not incur the coal purchase cost or the related operating cost. Total RC revenues were $55.8 million during the third quarter of 2013 and included rental and other income of $20.3 million from facilities leased or sold and $35.5 million in revenue from the resale of coal produced by those RC facilities operated by Clean Coal. During the quarter, gross profit from the RC segment was $16.2 million or 29% of the RC revenues compared to just $2.9 million or 4% during the third quarter of 2012. Gross margin adjusted to exclude the coal sales, raw coal purchases and retained tonnage operating expense was $19.3 million for the third quarter of 2013 versus $11 million for the third quarter of 2012, representing 95% and 99%, respectively, of the adjusted RC revenues for the applicable period. Please note the non-GAAP measure reconciliation comments on this slide and in the appendix. Looking at the operating statistics shown on the lower section of Slide 9 for the third quarter of 2013. 10 operating RC facilities produced a total of 6.3 million tons. 5.3 million of these tons were produced at RC facilities leased or sold to third-party investors, and 1 million tons were produced at RC facilities retained by Clean Coal for its own account, generating tax credits for its owners. This compares to a total of 5.3 million tons treated in the third quarter of 2012 and 3.8 million tons in the second quarter of 2013. We expect to see higher RC production in the fourth quarter, given the expectation of starting several RC facilities during the final quarter of this year. Turning to Slide #10. We highlight our Emission Control or EC segment activities, which provide the equipment, chemicals and services to help our customers meet existing and upcoming emission regulations. EC revenues in the third quarter were $14.5 million, which were up over 300% from the same period in 2012 due primarily to increased equipment revenues as we progress on the contracts awarded in response to the MATS rule. EC segment gross margin of 18% was lower than the 23% in the year ago period, primarily reflecting a different product mix in the quarter, giving our percentage of completion of revenue recognition accounting and an evolving mix of jobs won and products produced results in the segment maybe somewhat lumpy when comparing quarterly periods. However, we expect to report continued growth, with the medium-term gross margins in this segment to be about 20%. As of September 30, 2013, we had contracts in progress for work related to our EC segment totaling approximately $56.6 million, up from $33.2 million as of the end of June 30, 2013. Turning to Slide #11. We highlight our CO2 capture segment that represents DOE and industry-supported development and demonstration contracts. Revenues during the third quarter of 2013 increased significantly to $4.3 million due to moving in to the construction phase of the project. We had DOE contracts, including anticipated industry cost share and the progress totaling approximately $4.3 million as of the end of September 2013. We expect to recognize a total of about $1.2 million from these contracts in the remainder of this year and the balance next year. Turning to Slide #12. We provide a summary of our consolidated financial performance in 2013. I'd like to provide some additional color in some areas. Consolidated revenues and cost of goods sold in all the periods seen on this slide include the purchase and sale of coal for the retained RC facilities, which is a 0 margin pass-through. Excluding the coal sales revenues, our consolidated revenues were up 155% from the same quarter last year and up 44% from the second quarter of this year. SG&A expenses, which totaled $9 million in the quarter compared to $5.2 million in the same quarter in 2012 and $8.1 million in the second quarter of 2013. The increase from last quarter of 2013 reflects inclusion of the noncash cost for the executive long-term incentive plan awards that were put in place in May of this year and increases in other compensation and professional service amounts recognized during the quarter. The increase from the prior year includes amounts incurred by BCSI, which acquired the assets of Bulk Conveyor Specialist Inc. in August last year, higher amounts from Clean Coal and overall increases in overhead due to increases in our staff and expansion of our corporate facilities. Also, I'd like to point out that our income statement reflects the cost of operating those RC facilities that are incurred by Clean Coal for its own use of $3.1 million for the quarter. Year-to-date, ADA's share of tax credits earned from those operations was more than $11.5 million. As noted before, the tax benefits from these credits is not recognized in our present financials as we record a valuation allowance for all our deferred tax assets. Below the operating line -- income line, we report the following for the third quarter: income of $547,000 from our equity interest and the net income of Clean Coal Solutions Services, LLC, which is our 50% owned joint venture that provides personnel and administration for the routine operations at the RC facilities; and other expense of $430,000 that includes ongoing royalties paid as part of the settlement of the Norit arbitration that was reached back in 2011. Also shown along the blank income tax line is a subtraction of $6.3 million for the income attributable to the noncontrolling interest of Clean Coal for the quarter. For the third quarter of 2013, our net income was $1.6 million or $0.16 per basic and diluted share compared to a net loss of $3.9 million or $0.39 per share for 2012. Cash flow provided by operations for the quarter was $14.2 million compared to cash provided by operations of $7.7 million for the same period last year. Our consolidated cash position as of September 30 was $14.7 million, which does not include the $1.6 million we hold in certificates of deposit to support letters of credit and the more than $6 million in cash received by Clean Coal in late October in upfront payments from the new RC leased. During the quarter, Clean Coal made cash distributions of approximately $12.4 million to our JV partners. Our financial position remains solid and has been bolstered by the upfront lease payments received as part of the recent RC leases. In addition, ADA secured a $10 million line of credit that we are using for letters of credit needs for our rapidly growing Emission Control equipment business. As Mike noted, we are taking steps in Clean Coal to accelerate the pace of closing leases. This means commencing operations with those RC facilities as soon as practical and often likely in advance of a leasing transaction. For many -- the many M-45-PC units we expect, this also means -- may mean installing chemical storage to reduce ongoing cost that could amount to $1 million per facility. With the present level of rental income, Clean Coal has the necessary resources to fund the chemical and startup activities. However, devoting funds to these activities may mean lesser amounts available for distribution of the JV partners. Of course, these types of expenditures are more than offset by the upfront payments Clean Coal typically receives when a leased transaction closes. We expect to see lower distributions from the JV through the early part of 2014 as a result of these acceleration efforts. Although our working capital deficit was $15.3 million at September 30, such amount includes as liabilities current deferred revenues totaling $50.2 million and has been steadily improving. The current deferred revenues generally represent cash received or milestone billings outstanding that we expect to recognize as revenue in the next 12 months. However, such amounts negatively impact our overall working capital as they are recorded as current liabilities. Long-term liabilities totaled $20.8 million, which amount also includes $17.2 million of deferred revenues, and stockholders’ deficit totaled approximately $46.1 million at quarter end. With that, operator, would you please open the call for questions?

[Operator Instructions] Our first question comes from the line of Rob Brown from Lake Street Capital Markets.

You talked about commencing operations early and doing more self-operated units. Can you give us some sense of sort of how the cadence of coal burn happens over the next few quarters, how much is going to be self-operated coal burn versus the turning out of rental income?

Well, the -- Rob, the guidance we've given is that we expect that we'll have 6 new units that total -- that produce a total of 25 million tons starting up between now and that first quarter, with 2 of those units starting up before year end. We don't know any more granularity than that other than the timing of the contract, the timing of the permits, as we expect that these will start up in that period. So that's obviously going to produce a pretty lumpy situation, so it's our intention that as these start up, we will announce there in operations so that you can assess the cash flows and cash expenses of operating those units as they start up.

Okay. Okay, good, that's helpful. And then just want to get a little more color on the market dynamics as you head into the deadline in 2015. Sort of obviously, you're working on the RC units right now. But how is the market looking at the -- your improved product and kind of what happens after you get these 28 units up and running?

Well, the improved products, what we're saying is that most of the utilities involved in procurement are focused totally on the equipment sales. It's a relatively slow process, and so I think you'll see this. And listening to the activated carbon companies, that the utilities really haven't started the procurement around the consumables that will be needed in 2015 and 2016 and beyond. So the sales have improved. We don't expect to start till late 2014. On the RC side of things, that as these utilities, if you're -- that are just starting today on finalizing their plans around the MATS rule, this is getting pretty late. So we're seeing that to be one of the factors that's increasing our confidence with how quickly these RC units will be placed because they're very concerned about having this up and running by the end of next year to give them the comfort that they can be in compliance by an April 2015 date. So the market dynamics around the reality of the MATS limits is one of the accelerating factors on our Refined Coal business.

Our next question comes from the line of Colin Rusch from Northland Capital Markets.

Can you -- this may be in the previous question, but can you walk us through the specifics here around the deferred revenue and the growth there, and how we should see that begin to flow through?

Sure, let me do that. So what you'll see on the balance sheet or you have seen on the balance sheet, there's both the current portion to that and a long-term portion of it. In the current portion, about $35 million of that relates to the prepayments on these rental -- RC rental leases, where they -- investor has made upfront payments there. And those, by virtue of just being in the current -- up and current liabilities, those are mean -- those are ones that we would expect to bring into revenues over the next 12 months. The other portion of that $50 million, the roughly $15 million there, relates to our equipment contracts. And those typically, we're building the customer based on milestone, payments of delivery of drawings, equipment deliveries, things like these that are spelled out in each individual contract. We record that revenue when we've either built or received the cash in advance of the revenue recognition on the percent completion in those contracts. The other portion of the long-term revenues, that roughly $17 million that you see, that all relates to Refined Coal facilities and those will be amounts that will be amortized to revenue after the 12-month period over the next 2 to 3 years.

Okay, great. That's incredibly helpful. And then the CO2 revenue that you're seeing there. How big can that business get? I mean is that a $10 million a quarter business at some point?

At this point, with the existing contract, there -- as we've announced before, that -- the facilities being installed at Southern Company's Plant Miller. Originally, the testing for that -- with that equipment was scheduled early in 2014, because of some plant operational matters that testing has now been pushed out to the end of 2014. I think it's going to be really up to a number of things in the marketplace to see where continued investment in CO2 capture goes. This -- we've got a renewal on the -- or some expansions and some existing projects that we're doing at this $1.6 million we talked about. Currently, there's not other ones that we're applying for. But oftentimes, we see at the end of a -- when we're able to do a little testing and the company sees the results of those and the DOE sees the results of that, that they're willing to fund some additional work there to expand the technology and what the -- what these demonstrations for show. But that was -- is one. I think from a commercial basis, that is several years off as we’ll have to see legislation that is pushing CO2 and -- onto the existing fleet of coal-burning utilities for that to become a commercial market for us.

Our next question comes from the line of Greg Eisen from Singular Research.

Regarding the M-45-PC product, I think you -- let me see if I got you -- heard you correctly. Did you say that those plants may require chemical storage, capital cost for -- to create a facility to store the chemicals? Is that what you said?

Well, yes.

Go ahead, Mike.

I was just going to say, so the expanded technology involves a blended chemical. So as we're getting close to operating these full time, we're looking -- taking a harder look at what it’s going to take to operate these continuously for years, look at the cost of bringing in a blended chemical, and we're seeing that we can save significant monies if we bring the chemicals in separately and blend on site. So the $1 million per site is CapEx required to do that onsite blending. Payback period will be about 3 or 4 months. It's an easy decision.

That's pretty quick.

It's an easy decision.

Yes, sure. Turning to the Emissions Control business. Would you be able to describe where you think your market share is sitting in that business for the ACI and DSI product equipment? And is it pretty much consistent with what you've talked about in the past?

Well, we had a historical, about 35% market share. And so we set that, and that was when the market was just in a few states. And so when it became a national rule under MATS, we kind of used that 35% as our goal. And although there's no firm numbers on that, we're finding ourselves well above the 35%.

That's very good. Also, you mentioned in the press release that you received some significant orders after the quarter end in the EC business. Can you disclose the size of those orders?

We're not making a disclosure of those yet. We'll give you some update with those as we accumulate more. As you saw near the end of -- right after the end of this quarter, we put out an update on that business. We plan to probably do the same thing early in January, give you kind of quarterly look there. But they're not as -- certainly, they're not as large as the $120 million -- plus $20 million that Mike mentioned, but they're accumulating to some significant addition to the backlog as well.

I see. Good. Just going to the carbon capture business for a moment. You gave the timing for when the remaining revenue on the existing contracts should be experienced, should be coming into revenue. But you also mentioned another contract that you had taken on, I think it was $1.6 million in size. Was that $1.6 million included in the $4.3 million number that you quoted or is that in addition to it?

Those are -- it's included in those amounts now. So that's another contract we expect to be completing over -- through the balance of this year and into next year as well.

Okay, okay. So that's the sum total of where the backlog is there for that right now. Once you get the testing completed in 2014, on this stage of the project, assuming it's successful and you're ready to move on to the next phase, which is a commercialization size project, should we accept -- should we expect the size of that contract to be similar to the contracts you've already had in the carbon capture size -- carbon capture segment, or should it be some order bigger due to it being a bigger plant?

It will be significantly bigger. It will also involve probably a significant increase in investment from our side. So if you look at the way the government builds their participation in future technology development, in very early stages, they fund maybe 100% of a small lab scale test. When it gets to the pilot scale, like the program that we're conducting right now, they fund 75% of that and we have to find 25% through either self-funding or through partners with the utility sector. When it gets to that next stage, which is a stage of about commercial size, then they look at it as -- that they will only fund 50% of that. So that could be a $100 million plus program, but it will also require 50% co-funding.

I see, I see. Of course, the potential size of that marketplace is pretty huge, I would think, given...

It's very large. As Mark said, it's going to be timed with future regulations. But again, we look at this and say, an investment of our resources and our expertise towards meeting the future needs of the industry and this is likely not to be a commercial product until 2020 and beyond.

Our next question comes from the line of Kevin McKenna from Stifel.

A couple of my questions have been answered. But, first, how does bituminous coal help in securing orders for the systems?

Well, Kevin, it's -- all of our work up until the last 3 months has been on Western coals. And so that defined as certain amount of market. But once we're able to prove it out on bituminous coals, it essentially offers -- it makes it applicable to just about every plant out there. So we have a number of plants that we have talked to in the past that have asked us whether we had a Refined Coal technology for them, and we've had to say no to them. Now we can go back to companies that had approached us in the past, companies we think, for one reason or another, they have large plants and, because of past experience with Refined Coal, may move faster in the contracting stage. So right now, we're talking to several utilities in parallel to be able to place these last units.

Okay. Can you tell us what the range and size of large pulverized coal units might be?

I think you'll see on that one slide that we're expecting the last 11 to be treating over 50 million tons. So we're hoping to average over 5 million tons per unit for the last...

Okay. And what are M-Prove's advantages over some of the other competitors on the market, specifically in the area of corrosion?

Well, we believe it's noncorrosive and we're competing against some coal additives of bromine, for instance, and chlorine in other cases that have been reported in the industry to create corrosion problems. So as we are discussing our Refined Coal with these customers and basically our [indiscernible] Refined Coal, we're finding they're open to a product that is not corrosive.

And finally, regarding the regulatory environment. We all hear about coal units that are closing. Obviously, everyone I've seen has been smaller than the larger systems that you're installing on. How does the closing of the smaller systems impact the remaining facilities, the remaining market?

Well, what -- you're right about what is closing and the announced closing. It's usually the smaller plants. They're older. They have lower capacity factors, which means they haven't -- they don't run as often or as hard as the others. And so I think if you look at the projections, for example, from the Energy Information Agency, their expectations are that there will be an unfair amount of coal burned, only a 10% drop on the amount of coal burned and over the next 20, 30 years, coal being fairly constant. And with these retirements, it just means that the existing ones that remain will be operating at a higher level. So for our Refined Coal business, that's one of the things we look at is the -- what the expected coal burn in life over the next 10 years. For our other businesses, we think that the existing plants will become more and more important to keep these assets running. And so we're expecting that our approach with low CapEx technologies to help them meet regulations is going to have a pretty good market for us.

Back to the corrosion question. Some of these compounds are figured into the utilities cost of product, is that correct? So it just gets passed through the consumer?

It depends on whether they're in a regulated or unregulated. But in states where the utilities are regulated, their operating costs, their development costs, their O&M costs are passed through to the rates there.

So the ability to remove corrosion would be the biggest issue there? Cost would not be a factor in those areas, correct?

Well, it -- that's known in cost that would be passed through the rate there.

[Operator Instructions] Our next question comes from the line of Joe Scott [ph], a private investor.

The previous call or one of the previous calls answered my questions on the deferred income, but I have one further question. Once this deferred income of $67 million is realized, where will it be going on the balance sheet, in the current assets or somewhere else, or how would you be handling that?

Well, from an accounting standpoint, that -- those numbers get amortized to earnings or revenues, so if you think of debits and credits, we would -- you debit the liability, reducing it, and the credit goes to revenues. Those revenues in the year then close out to your -- to the income, so it ends up showing up in shareholders' equity. So it doesn't go -- ever get on to the other side, but it moves -- essentially, it moves from a liability down to the equity section through the income statement.

The shareholders' equity would increase?

Yes.

Or you would reduce shareholders' deficit?

That's correct. But it flows through the income statement to do that. So instead of being deferred revenue on the balance sheet, it will show up as one of the components of revenue, that is -- that's on the income statement. And I think if you look at our footnotes even now, Joe, you'll see some -- dig a little bit into that, but you'll see, of the revenue that we say, show there how much of that had come from what was in deferred revenue before. So there's some of that deferred revenue that is even in our revenue components now. But it then -- it flows as with the net of expenses and things that ends up flowing into the shareholders' equity deficit category.

The deficit will go away when that happens?

When we have earnings, yes.

There are no further questions. I'd like to hand the call back over to management for closing comments.

Well, thank you for joining us today and for your continued interest and investment in ADA.