Good morning, my name is Lindsay and I will be your operator today. At this time, I would like to welcome everyone to the Advanced Emissions Solutions’ Q2 2016 Earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Nick Hughes, Investor Relations, you may begin your conference.

Thank you, Lindsay. Good morning everyone and thank you for joining us today for our second quarter 2016 earnings results call. With me on the call today is Heath Sampson, President and Chief Executive Officer, and Greg Marken, Chief Accounting Officer. This conference call is being webcast live within the Investor Relations section of our website. A webcast replay will also be available on our site and you can contact the Alpha IR group for investor relations support at 312-445-2870. Let me remind you that the presentation and remarks made today include forward-looking statements as defined in Section 21(e) of the Securities Exchange Act. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed and/or implied by these statements. These risks and uncertainties include but are not limited to those factors identified on Slide 2 of today’s slide presentation and our annual report on Form 10-K for the year ended December 31, 2015, and other filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, the company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments or changed circumstances, or for any other reason. In addition, it is important to review the presentation and today’s remarks in conjunction with the Form 10-Q and the GAAP references in the financial statements. With that, I’d like to turn the call over to Heath Sampson. Heath?

Thanks Nick, and thanks to all of you for joining us today. Let’s start on Slide 3 and I’ll walk you through the second quarter and recent highlights. The big picture takeaway for you as stockholders, and as we talked about on last quarter’s call, is that we are starting to see more stability in our financial and operating performance in 2016. We are pleased to report today that the second quarter results were in line with our expectations. Further, we’ve made substantial progress against the goals that we laid out for you early this year, and will spend some time talking you through that progress today as well as the areas we need to continue to execute as we enter the second half of 2016. Looking at our distributions from refined coal, or RC business, we witnessed a substantial increase year-over-year. We also completed the transition of an existing tax equity investor of a low non-royalty producing facility to a new royalty-producing RC facility with significantly higher tonnage during the quarter. In addition, in August or early September we expect to add a new tax equity investor to close on a facility that was returned to us, which will leave us at 13 invested facilities. It’s worth noting that this new investor does own other facilities with us but is not our largest investor. On the emissions control side, or EC side of the business, we continue to build momentum with the ongoing commercialization of our chemicals offering, a significant component of which uses our patented M-Prove technology. We also remain on target with our strategic alternatives review of the EC business. As a reminder, we really just went to market with our M-Prove product this year. On the expense front, we started to see the impact of our…

Thanks Heath. I’ll start on Slide 4, which provides a closer look at the major components of our financial results for the period ended June 30, 2016. Revenue was down year-over-year, driven primarily by completed EC equipment contracts. Offsetting some of that decline was the impact of our chemical sales, which increased nearly 80% compared to the second quarter of 2015, although that was off an admittedly low base. Our commercialization of the improved technology and chemicals business is beginning to show results, and despite slower than anticipated market penetration, we are confident that the target market is larger than we had previously thought. Heath will talk about this a little more later in the presentation. Next, you’ll notice that our expenses were significantly down year-over-year. Costs of revenue have decreased consistent with the decrease in revenues, most significantly related to the equipment contracts. Additionally, other operating expenses relate more directly to our other G&A expenses and are more in our control. What you’ll see here is that our strategic cost containment decisions have delivered a three- and six-month reduction of 58% and 49% respectively. Additionally, in July we completed a few more planned steps to adjust our cost structure and remain on target to complete our goal and enter 2017 with an operating cost base of $12 million to $14 million. As Heath noted earlier, our earnings from equity method investments, which represent our RC distributions, were up substantially during the three- and six-month periods ended June 30, 2016 compared to those same periods in 2015. As a reminder, 2015 levels were depressed due to CCS’ operation of several retained RC facilities for tax credit accumulation for its members, as well as the installation costs associated with installing several facilities during 2015. The $13.8 million figure for the second…

Thanks Greg. I’ll spend a few minutes talking through a little more detail on our RC efforts now. On Slide 7, you’ll see that we had 13 facilities with tax equity investors and 15 non-operating facilities during the second quarter. Nine of those non-operating facilities are already installed and ready for a new tax equity investor, while the remainder have yet to be installed. Over the trailing 12 months, our operating facilities have processed 39.9 million tons of refined coal. As you can see by the bar on the right, we have potential for significantly more. Although we have a big opportunity in front of us, our pipeline of potential RC tax equity investors has significantly improved with our approach and expanded broker network. We were unable to close on a few prospects that were far along in our pipeline. I’d like to spend a few minutes talking about the refined coal tax equity market and some developments that have occurred during the first half of 2016. Please turn to Slide 8. The refined coal market has seen solid for us and our competitors for the last five-plus years. That being said, it’s a narrower market than we expected, for a number of macro reasons. This means it’s taken us longer than we hoped to secure tax equity investors for all the remaining facilities. Although we’re encouraged about our sales process and confident in the CCS management team, as evidenced by a growing pipeline, we have only been able to close on a few new facilities over the last number of months. This slide articulates the benefits that a tax equity investor receives from investing in refined coal, which remain substantial. From a business point of view, it would appear that many companies should be investing in refined coal; however…

[Operator instructions] Our first question comes from the line of Kevin McKenna with Stifel. Your line is now open.

Thank you. Can you tell me the changes that have been made to drive execution going forward, and also on Slide 15, you talk about plant corrosion and wastewater challenges. How does that play into things?

So your first question around execution, what have we done, execution going forward, that’s a—there’s been a lot within the corporate business for the last 12 to 18 months that has changed really—here in Denver, kind of been changed all around in all components of the business, from what we’re doing in financial reporting and SEC all the way through every department, to how we are selling our products on the M-Prove side and the business side. Additionally as you know, we really completed a lot of our contract commitments to do with our equipment business over these last number of months, so really a lot has happened, and really how you do that is with having the right people in the right place with the focus and commitment that we have each day. So it really is strong focus, strong strategy, and clear execution. On the CCS side with new changes that we’ve made in leadership and really the focus on the sales process, coupled with hiring new brokers to help us get in at the right levels, that has been really what has helped us increase our pipeline on the CCS side. They’ve always executed very well on the CCS side in producing refined coal, so that still remains strong. So a lot there. Hopefully that was a summary of how we’ve changed and are better executing. The second half of your question, repeat that again?

On Slide 15, you talk about plant corrosion and wastewater challenges.

Yes, so with our M-Prove technology, and really it’s the same technology that’s used in refined coal, that’s unique to us, and the benefits that we have in that relative to our competitors is that it does not corrode a lot of the equipment that is in these power plants, so that’s a big benefit of our technology. Coupled with that, because of our technology, it also—we don’t have some of the wastewater challenges that many of our competing technologies do as well, and as you know, if you really understand the power industry, that’s a really important issue that many power plants are facing to make sure that their wastewater is not contaminated. So those two benefits are competitive advantages we have over our competitors, so that’s why we’re excited about the market, and also in the refined coal, that’s why our refined coal product is also viewed very strongly in the market.

All right, thanks. I’ll jump back in the queue then.

All right, thanks Kevin.

Our next question comes from the line of Steve Santos with RBC. Your line is now open.

Hi Steve.

Good morning, Heath. Can you hear me okay?

Yes, I can hear you well, thank you.

Okay, good. Just two questions. Number one, on Slide 8 you address the hurdles that refined coal, closing on refined coal contracts has to overcome. The coal reputation, as you said, we can’t do anything about that until something else happens out there, but the rumored IRS ruling on the structure, I don’t quite understand what those rumors might be.

So I’ll answer that and maybe you can ask your next question after that, Steve. So all those hurdles have been out there for some time, and even the IRS challenges have been out there. As we’ve said before, the IRS have audited many of the investors that are in this, and that’s just a general fear. Couple that with in March-April time frame there was an advice that came out from the IRS that talked about a partnership, so with that, there is just this uncertainty that remains in the market because of that filing and just overall where the IRS has been. So nothing specific, it’s just part of the general IRS fears that are out there. But again like I said, you can overcome these because really what has been coming out of that, the structures that we have in place and other competitors have in place are strong structures, so they get past audit. So once you educate the potential buyer and they structure the proper way, there is not a risk. But it’s a headwind we have to get through, a hurdle that we have to overcome, and it really is just an education process that we have to go through.

Sure, and that’s what your new sales structure is trying to address at the target level, I would guess.

Yes, that’s correct. That new sales structure just requires to make sure that we’re talking to all levels of that company, from C-level down, so it’s a good, broad approach that the CCS team is executing on.

Okay, great. Just second question, it’s more of a long-term issue. Beyond the 2021 expiration of the Section 45 tax credits, the future of the company appears to be, assuming there is no extension of that 2021 tax credit, would be in the M45 sector. Is that going to be enough to really sustain what we’ve got, number one; and number two, do you have any way to read what any likelihood of an extension of the Section 45 tax credits might be? Secondly, as we go into 2021, what are the overall strategic plans to provide results to the shareholders? Will it be in the form of cash distributions, or what are your thoughts on this? I know you’ve touched on this in the past.

Okay, yes. Well, first around the refined coal business as it relates to 2021, the absolute priority of us and the management team and the other partners is to secure tax equity investors, so that is top, top priority. As we move through that, potentially there is something else we should do beyond that, but we’re going to hold on that until we really have executed on Plan A, which is get more tax equity investors, so that’s the refined coal side and just to continue on that. The likelihood of an extension in this current form beyond 2021 for RC, and this is my opinion, is probably pretty low, so again not a priority for us to think about that but—and as the months and years go by, we’ll update you if there’s any changes beyond our number one priority in finding tax equity investors. Again, the likelihood of an extension of that is probably low. On the non-refined coal side, the strategy is just what we said. We have a—the EC business that is really in the beginning stages of trying to monetize the value we have in our current products and IP portfolio, and in parallel path we are—is there a better owner for this business that could get us cash now? So those parallel paths, we’re evaluating, and TBD what that means. Obviously if we sell, then we’d have cash and that business would be sold. If not, we’re going to operate and we’re going to make sure that that’s getting shareholder value. That, relative to refined coal, is low from a side perspective, but we’ll update you as the time goes by. So that’s the strategic priorities and kind of update where we are through 2021. Our number one goal is to deliver shareholder value. The good thing is, we’re out of a lot of the challenges we had and we’ve really restructured a lot, and we do expect cash to be coming in. So what do we do with that cash? We’re going to be evaluating what we do, what’s the best thing you do for shareholder value, and that’s many things from getting money back to you in some form of a dividend, stock buyback, other investments. Whatever it’s going to be, it’s going to be a very thoughtful process that us and the board look at to ensure that we return value back to the shareholders.

Our next question comes from the line of Sean Hannan with Needham & Company. Your line is now open.

Hi Sean.

Good morning, thank you. Just want to see if I can clarify a few things, because I may have them wrong on my end. Of the 15 facilities that are not in operation today, they are currently placed physically at utilities as we speak and ready to go until we secure that tax equity investor?

Yes, so let me break it down a little bit more, and that’s on Slide 7 here. But out of those 15, nine of those 15, those facilities are installed and ready to go, so when we get a tax equity investor, it’s weeks or so to get that up and running when they come in. Then the remaining six, three of those we have identified, locations for those to go, and then three of those we’re still—are unidentified. But we do have a lot of good relationships, so in the event that we need to get these installed, I don’t see that as being an issue. So nine ready to go, the other six we still have to install.

Okay, I’m sorry. I worded that poorly. Nine—okay, fine, ready to go, we know what that means. Three, we know where they’re going to go. So the equipment is where? Is it at the utility and it’s a matter of just getting it set up, but the utility hands down has explicitly agreed, okay, when CCS gets the tax equity investor, we can go and put that up. We’ll go through the process to make sure that we don’t have any issues and incremental disruptions to our belt and our process as well, and then we get going. What is truly that identification and the security of remaining utilities?

Yes, maybe implied in that, what’s the risk on these remaining six facilities getting installed?

Yes. Where I’m getting to is my next question, really, is—so you’ve got Chem-Mod out there, and then you have alternative approaches around the use of bromine. My understanding is that there has certainly been some alternative approaches that are supplementing the use of bromine which makes that less caustic and consequently a more viable alternative to your solution. So I just want to make sure that I understand exactly how solved the utility side of the equation is at this point.

Yes, it’s a good question because I think even two years ago, that was probably one of the larger issues that was talked about – we need to get these installed at the plants. That has changed over these last couple years, one, because refined coal has been around for a while, both us and our competitors that have used the Chem-Mod technology, so that issue is not as much of an issue as it used to be. But specifically around those six, three we have identified and they want to use our technology and look forward to us getting a tax equity investor in place. The other three, why are they unidentified? We’re going to wait to see how that plays out and make sure it’s going to the right utility that has the largest tonnage. So the risk is not like it used to be because of our good relationships and because of our proven technology. I don’t see that as an issue. Our top priority is just getting monetizers. We have a high-class problem to get these remaining six installed, but again I don’t think that is a significant issue that we need to worry about. And Chem-Mod technology works and they’ve done a good job, but again for the amount of remaining refined coal that’s out there, I don’t think there is an issue for finding utilities to use it, and specifically use our technology.

Okay, but then of the very last remaining three that are quote-unquote unidentified, my prior impression was that it may not be an explicit contract, but you have—I thought there was an identifiable pool of X-number of utilities, and it’s a matter of really just finalizing that once final details are really a little bit more clear. But it’s not that you’d have to go out and necessarily search for a utility, go through the education process. Is that correct, or—

No, you are absolutely correct again. Even though they’re unidentified, those last three, there are numerous utilities that would like to have these installed, so I look forward to the day when we can get through these other utilities that we have installed and get those ones installed at whatever utility it is. So again, just to reiterate, that’s not the challenge for us, finding utilities to use our products.

Okay, that’s helpful. I just wanted to make sure. So we solved the utility side of the equation, the other side of the equation obviously being the tax equity investor [indiscernible] topic really come up a lot around, hey look, there is some fear around the IRS, which can be—there’s a lot of factors behind that, of course. You brought up that those folks who have taken this on, there has been an audit, and of course nobody wants to take on an audit, so it’s very clear, at least in my mind, why a tax equity investor would be hesitant – nobody wants to be audited.

Right.

So when I think about that in context, and I also think about—you know, just being able to get through the convincing with that tax equity investor, saying hey look, taking on the incremental work for this type of an investment for them and the structure, because [indiscernible] has to be sectionally different versus the accounting skills and know-how that they may have in-house at times, how within your sale or the CCS sales execution and approach, how are those really addressed, because that’s—and how does that feed into what you’ve got in your pipeline today? I don’t know what is vetted or the criteria that puts these guys—you know, could either one of these issues really ultimately be the reason why they move back out of the pipeline, or would they never get in the pipeline to begin with if they’re fearful of the IRS and if they don’t have the capabilities in-house to deal with this type of accounting?

Yes, you’re articulating the sales process that we have to go through, and any one of these hurdles is different and more important for different companies. Some companies aren’t concerned about the IRS risk at all, and why is that the case? Because this has been around for a while, we have the right facilities, we have the right structure, these are good tax credits. So if you’re a sophisticated tax group, you understand that, especially if you’ve been doing wind or solar, so it’s not an issue and they get past that hurdle really quickly. Some that aren’t as sophisticated or this isn’t really their core in tax equity, that’s where it requires us to have a more deliberate education sales process, and we have a very deliberate process on how we go through that. A lot of it is just proving what has been out there for a while and then really here’s the structure that works. So it really is just an education process that we need to hand-hold these prospects through, and in some it’s a big deal and some it’s not. Some it’s the coal reputation, some it’s the accounting nuisances. The whole point of this slide that I put out here is, one, to show the challenges and why where we are, but really it was to highlight that these are just hurdles. The benefits far outweigh these hurdles, and with a strong process of educating and managing and hand-holding and really building trust and credibility, we’re going to overcome these, and have overcome these, and we’re going to continue to overcome these in this next number of months through 2016. So hopefully that answers your question, because it really is just an education process because we’re confident in our business model and these facilities we have on the RC side.

There are no further questions at this time. I’ll turn the call back over to the presenters for closing comments.

All right, thank you again for your time today and your continued support. Given the progress that we’ve made so far this year in putting many of the potential negative impacts to our stock behind us, it’s worth noting that we plan to get on the road in the second half of the year to increase our investor visibility and meet with current and prospective investors. We hope to see some of you in person at some of those events. We also look forward to executing further against our strategic objectives and updating you again after the third quarter. Have a great day.

This concludes today’s conference call. You may now disconnect.