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…

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…

[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.