United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2020~~2021



☐			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~~Address of ~~incorporation or organization)~~ principal executive offices)						(~~I.R.S. Employer~~ ~~Identification No.)~~ Zip Code)

~~8051 E. Maplewood Ave~~, ~~Suite 210~~, ~~Greenwood Village~~, CO~~80111~~

~~(Address of principal executive offices) (Zip Code)~~

(~~720~~) (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 ☒ 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 ☒ 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

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

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 ☒

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 August ~~1, 2020,~~4, 2021, there were ~~18,558,907~~18,853,288 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 June 30, ~~2020~~2021 and December 31, ~~2019~~2020	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2020~~2021 and ~~June 30, 2019~~2020	54
	Notes to Condensed Consolidated Financial Statements	64
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4544
Item 4.	Controls and Procedures	4544

PART II. - OTHER INFORMATION

Item 1.	Legal Proceedings	4645
Item 1a.	Risk Factors	4645
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4745
Item 3.	Defaults Upon Senior Securities	4745
Item 4.	Mine Safety Disclosures	4745
Item 5.	Other Information	4745
Item 6.	Exhibits	4846
	Signatures	4947

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)	June 30, 2020			December 31, 2019			(in thousands, except share data)	June 30, 2021		December 31, 2020
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	16,733		$	12,080
Cash, cash equivalents and restricted cash							Cash, cash equivalents and restricted cash	$	47,335	$	30,932
Receivables, net	5,319			7,430			Receivables, net	11,560		13,125
Receivables, related parties	3,480			4,246			Receivables, related parties	3,656		3,453
Inventories, net	16,084			15,460			Inventories, net	8,161		9,882
Prepaid expenses and other assets	18,959			7,832			Prepaid expenses and other assets	5,320		4,597

Total current assets	60,575			47,048			Total current assets	76,032		61,989
Restricted cash, long-term	5,000			5,000			Restricted cash, long-term	10,000		5,000
Property, plant and equipment, net of accumulated depreciation of $6,597 and $7,444, respectively	26,053			44,001
Property, plant and equipment, net of accumulated depreciation of $5,344 and $3,340, respectively							Property, plant and equipment, net of accumulated depreciation of $5,344 and $3,340, respectively	31,204		29,433
Intangible assets, net	2,293			4,169			Intangible assets, net	1,631		1,964
Equity method investments	23,080			39,155			Equity method investments	3,564		7,692
Deferred tax assets, net	2,448			14,095			Deferred tax assets, net	3,787		10,604
Other long-term assets, net	13,881			20,331			Other long-term assets, net	32,277		29,989

Total Assets	$	133,330		$	173,799		Total Assets	$	158,495	$	146,671
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	7,174		$	8,046		Accounts payable	$	8,162	$	7,849
Accrued payroll and related liabilities	3,158			3,024			Accrued payroll and related liabilities	2,660		3,257
Current portion of long-term debt	25,583			23,932			Current portion of long-term debt	4,373		18,441
Other current liabilities	3,377			4,311			Other current liabilities	11,955		12,996

Total current liabilities	39,292			39,313			Total current liabilities	27,150		42,543
Long-term debt, net of current portion	10,120			20,434			Long-term debt, net of current portion	3,670		5,445

Other long-term liabilities	4,816			5,760			Other long-term liabilities	11,392		13,473
Total Liabilities	54,228			65,507			Total Liabilities	42,212		61,461
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 11)							Commitments and contingencies (Note 11)	0		0
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, 23,110,285 and 22,960,157 shares issued, and 18,492,139 and 18,362,624 shares outstanding at June 30, 2020 and December 31, 2019, respectively	23			23
Treasury stock, at cost: 4,618,146 and 4,597,533 shares as of June 30, 2020 and December 31, 2019, respectively	(47,692		)	(47,533		)
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, 23,452,485 and 23,141,284 shares issued, and 18,834,339 and 18,523,138 shares outstanding at June 30, 2021 and December 31, 2020, respectively							Common stock: par value of $.001 per share, 100,000,000 shares authorized, 23,452,485 and 23,141,284 shares issued, and 18,834,339 and 18,523,138 shares outstanding at June 30, 2021 and December 31, 2020, respectively	23		23
Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of June 30, 2021 and December 31, 2020, respectively							Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of June 30, 2021 and December 31, 2020, respectively	(47,692)		(47,692)
Additional paid-in capital	99,732			98,466			Additional paid-in capital	101,171		100,425
Retained earnings	27,039			57,336			Retained earnings	62,781		32,454

Total stockholders’ equity	79,102			108,292			Total stockholders’ equity	116,283		85,210
Total Liabilities and Stockholders’ Equity	$	133,330		$	173,799		Total Liabilities and Stockholders’ Equity	$	158,495	$	146,671

See Notes to the Condensed Consolidated Financial Statements.

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	2021		2020		2021		2020
Revenues:
Consumables	$	15,976	$	8,170	$	33,007	$	17,387
License royalties, related party	3,657		3,313		7,723		6,359



Total revenues	19,633		11,483		40,730		23,746
Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	13,300		7,416		25,774		18,907


Payroll and benefits	2,908		3,812		5,377		6,554

Legal and professional fees	1,431		1,022		3,234		3,065
General and administrative	1,593		2,462		3,508		4,793
Depreciation, amortization, depletion and accretion	1,904		1,733		4,010		4,030
Impairment of long-lived assets	0		26,103		0		26,103
Gain on change in estimate, asset retirement obligation	(1,942)		0		(1,942)		0
Total operating expenses	19,194		42,548		39,961		63,452
Operating income (loss)	439		(31,065)		769		(39,706)
Other income (expense):
Earnings from equity method investments	21,437		8,168		39,749		16,441

Interest expense	(493)		(962)		(1,330)		(2,172)
Other	150		148		571		191




Total other income	21,094		7,354		38,990		14,460
Income (loss) before income tax expense	21,533		(23,711)		39,759		(25,246)
Income tax expense	4,943		103		9,432		461
Net income (loss)	$	16,590	$	(23,814)	$	30,327	$	(25,707)
Earnings (loss) per common share (Note 1):
Basic	$	0.91	$	(1.32)	$	1.66	$	(1.43)
Diluted	$	0.90	$	(1.32)	$	1.65	$	(1.43)
Weighted-average number of common shares outstanding:
Basic	18,271		18,014		18,219		17,974
Diluted	18,398		18,014		18,356		17,974

Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except per share data) 2020 2019 2020 2019
Revenues:

Consumables $ 8,170
$ 11,386
$ 17,387
$ 26,495
License royalties, related party 3,313
4,191
6,359
8,411
Total revenues 11,483
15,577
23,746
34,906
Operating expenses:

Consumables cost of revenue, exclusive of depreciation and amortization 7,416
12,286
18,907
26,394
Other sales cost of revenue, exclusive of depreciation and amortization —
6
—
6
Payroll and benefits 3,812
2,798
6,554
5,354
Legal and professional fees 1,022
1,995
3,065
4,199
General and administrative 2,462
1,995
4,793
3,909
Depreciation, amortization, depletion and accretion 1,733
757
4,030
2,859
Impairment of long-lived assets 26,103
—
26,103
—
Total operating expenses 42,548
19,837
63,452
42,721
Operating loss (31,065 ) (4,260 ) (39,706 ) (7,815 )
Other income (expense):

Earnings from equity method investments 8,168
20,935
16,441
42,625
Interest expense (962 ) (1,987 ) (2,172 ) (4,091 )
Other 148
60
191
130
Total other income 7,354
19,008
14,460
38,664
(Loss) income before income tax expense (23,711 ) 14,748
(25,246 ) 30,849
Income tax expense 103
6,634
461
8,333
Net (loss) income $ (23,814 ) $ 8,114
$ (25,707 ) $ 22,516
Earnings per common share (Note 1):

Basic $ (1.32 ) $ 0.45
$ (1.43 ) $ 1.23
Diluted $ (1.32 ) $ 0.44
$ (1.43 ) $ 1.22
Weighted-average number of common shares outstanding:

Basic 18,014
18,172
17,974
18,219
Diluted 18,014
18,377
17,974
18,412

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, 2021	23,141,284	$	23	(4,618,146)	$	(47,692)	$	100,425	$	32,454	$	85,210

Stock-based compensation	381,339	—		—	—		421		—		421


Repurchase of common shares to satisfy minimum tax withholdings	(40,975)	—		—	—		(216)		—		(216)






Net income	—	—		—	—		—		13,737		13,737
Balances, March 31, 2021	23,481,648	$	23	(4,618,146)	$	(47,692)	$	100,630	$	46,191	$	99,152
Stock-based compensation	(25,330)	—		—	—		566		—		566


Repurchase of common shares to satisfy minimum tax withholdings	(3,833)	—		—	—		(25)		—		(25)


Net income	—	—		—	—		—		16,590		16,590
Balances, June 30, 2021	23,452,485	$	23	(4,618,146)	$	(47,692)	$	101,171	$	62,781	$	116,283


	Common Stock				Treasury Stock															Common Stock			Treasury Stock
(Amounts in thousands, except share data)	Shares		Amount		Shares		Amount			Additional Paid-in Capital			Retained Earnings			Total Stockholders’ Equity			(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		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			Stock-based compensation	218,259	—		—	—		506		—		506

Repurchase of common shares to satisfy minimum tax withholdings	(64,198	)	—		—		—			(376		)	—			(376		)	Repurchase of common shares to satisfy minimum tax withholdings	(64,198)	—		—	—		(376)		—		(376)
Cash dividends declared on common stock	—		—		—		—			—			(4,590		)	(4,590		)	Cash dividends declared on common stock	—	—		—	—		—		(4,590)		(4,590)
Repurchase of common shares	—		—		(20,613	)	(159		)	—			—			(159		)	Repurchase of common shares	—	—		(20,613)	(159)		—		—		(159)
Net loss	—		—		—		—			—			(1,893		)	(1,893		)	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		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			Stock-based compensation	(3,549)	—		—	—		1,138		—		1,138

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

Net loss	—		—		—		—			—			(23,814		)	(23,814		)	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		Balances, June 30, 2020	23,110,285	$	23	(4,618,146)	$	(47,692)	$	99,732	$	27,039	$	79,102

~~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 (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 —
—
—
—
—
(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

See Notes to the Condensed Consolidated Financial Statements.

Advanced Emissions Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,							Six Months Ended June 30,
(in thousands)	2020			2019			(in thousands)	2021		2020
Cash flows from operating activities							Cash flows from operating activities
Net (loss) income	$	(25,707	)	$	22,516
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income (loss)							Net income (loss)	$	30,327	$	(25,707)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:							Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income tax expense	11,647			4,946			Deferred income tax expense	6,817		11,647
Depreciation, amortization, depletion and accretion	4,030			2,859			Depreciation, amortization, depletion and accretion	4,010		4,030
Impairment of long-lived assets	26,103			—			Impairment of long-lived assets	0		26,103
Operating lease expense	1,353			1,580			Operating lease expense	912		1,353
Amortization of debt discount and debt issuance costs	709			851			Amortization of debt discount and debt issuance costs	945		709
Gain on change in estimate, asset retirement obligation							Gain on change in estimate, asset retirement obligation	(1,942)		0
Stock-based compensation expense	1,644			858			Stock-based compensation expense	987		1,644
Earnings from equity method investments	(16,441		)	(42,625		)	Earnings from equity method investments	(39,749)		(16,441)
Other non-cash items, net	31			474			Other non-cash items, net	(319)		31

Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Receivables and related party receivables	2,854			4,044			Receivables and related party receivables	1,362		2,854

Prepaid expenses and other assets	(11,129		)	47			Prepaid expenses and other assets	(723)		(11,129)

Inventories, net	(590		)	3,794			Inventories, net	1,327		(590)

Other long-term assets, net	(224		)	(110		)	Other long-term assets, net	616		(224)
Accounts payable	(1,095		)	(758		)	Accounts payable	150		(1,095)
Accrued payroll and related liabilities	134			(4,829		)	Accrued payroll and related liabilities	(597)		134
Other current liabilities	(515		)	862			Other current liabilities	(1,468)		(515)

Operating lease liabilities	(1,213		)	(1,563		)	Operating lease liabilities	(1,314)		(1,213)
Other long-term liabilities	(22		)	(462		)	Other long-term liabilities	(2,334)		(22)
Distributions from equity method investees, return on investment	32,516			38,088			Distributions from equity method investees, return on investment	19,144		32,516

Net cash provided by operating activities	24,085			30,572			Net cash provided by operating activities	18,151		24,085
Cash flows from investing activities							Cash flows from investing activities
Acquisition of business	—			(661		)
Distributions from equity method investees in excess of cumulative earnings							Distributions from equity method investees in excess of cumulative earnings	24,732		0

Acquisition of property, plant, equipment, and intangible assets, net	(4,189		)	(3,797		)	Acquisition of property, plant, equipment, and intangible assets, net	(4,573)		(4,189)
Mine development costs	(507		)	(521		)	Mine development costs	(653)		(507)
Net cash used in investing activities	(4,696		)	(4,979		)
Proceeds from sale of property and equipment							Proceeds from sale of property and equipment	895		0

Net cash provided by (used in) investing activities							Net cash provided by (used in) investing activities	20,401		(4,696)
Cash flows from financing activities							Cash flows from financing activities
Principal payments on term loan	(12,000		)	(16,000		)	Principal payments on term loan	(16,000)		(12,000)
Principal payments on finance lease obligations	(676		)	(681		)	Principal payments on finance lease obligations	(818)		(676)
Dividends paid	(4,828		)	(9,179		)	Dividends paid	(90)		(4,828)
Repurchase of common shares	(159		)	(2,831		)	Repurchase of common shares	0		(159)
Repurchase of common shares to satisfy tax withholdings	(378		)	(254		)	Repurchase of common shares to satisfy tax withholdings	(241)		(378)
Borrowings from Paycheck Protection Program Loan	3,305			—			Borrowings from Paycheck Protection Program Loan	0		3,305

Net cash used in financing activities	(14,736		)	(28,945		)	Net cash used in financing activities	(17,149)		(14,736)
Increase (decrease) in Cash and Cash Equivalents and Restricted Cash	4,653			(3,352		)
Increase in Cash and Cash Equivalents and Restricted Cash							Increase in Cash and Cash Equivalents and Restricted Cash	21,403		4,653
Cash and Cash Equivalents and Restricted Cash, beginning of period	17,080			23,772			Cash and Cash Equivalents and Restricted Cash, beginning of period	35,932		17,080
Cash and Cash Equivalents and Restricted Cash, end of period	$	21,733		$	20,420		Cash and Cash Equivalents and Restricted Cash, end of period	$	57,335	$	21,733

Supplemental disclosure of non-cash investing and financing activities:							Supplemental disclosure of non-cash investing and financing activities:

Acquisition of property, plant and equipment through accounts payable	$	223		$	1,561		Acquisition of property, plant and equipment through accounts payable	$	163	$	223

Dividends payable	$	77		$	113		Dividends payable	$	0	$	77

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 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~~advanced purification technologies ("~~PGI"~~APT") market enable customers to reduce ~~emissions of~~air and water contaminants, including mercury and other pollutants, to maximize utilization levels and improve operating efficiencies to meet the challenges of existing and pending emission control regulations. Through its wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), ~~which the Company acquired on December 7, 2018 (the "Acquisition Date"),~~ the Company manufactures and sells ~~activated carbon ("AC")~~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.~~AC.

Through its equity ownership in 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 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 also earns royalties for technologies that are licensed 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. Both Tinuum Group and Tinuum Services expect to commence significantly winding down their operations starting in the third quarter of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021.

The Company’s sales occur principally in the United States. See Note 1517 for additional information regarding the Company's 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: Tinuum Group, 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, ~~2019~~2020 (the ~~"2019~~"2020 Form 10-K"). Significant accounting policies disclosed therein have not ~~changed, except as described later in Note 1.~~changed.

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 (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

~~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.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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~~For the three and six months ended June 30, 2021, potentially dilutive securities consist of unvested non-participating restricted stock awards ("RSA's"), as well as contingent performance stock units ("PSU's"). For the three and six months ended June 30, 2020, 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").~~ PSU's.

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~~Potentially dilutive ~~shares~~securities are excluded from diluted earnings per share when their effect is anti-dilutive. When there is a net loss for a period, all ~~Potential~~potentially dilutive ~~shares~~securities 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) ~~earnings~~ per share:

Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except per share amounts) 2020 2019 2020 2019
Net (loss) income $ (23,814 ) $ 8,114
$ (25,707 ) $ 22,516
Less: Dividends and undistributed (loss) income allocated to participating securities (17 ) 11
(19 ) 31
(Loss) income attributable to common stockholders $ (23,797 ) $ 8,103
$ (25,688 ) $ 22,485

Basic weighted-average common shares outstanding 18,014
18,172
17,974
18,219
Add: dilutive effect of equity instruments —
205
—
193
Diluted weighted-average shares outstanding 18,014
18,377
17,974
18,412
(Loss) earnings per share - basic $ (1.32 ) $ 0.45
$ (1.43 ) $ 1.23
(Loss) earnings per share - diluted $ (1.32 ) $ 0.44
$ (1.43 ) $ 1.22


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2021		2020		2021		2020
Net income (loss)	$	16,590	$	(23,814)	$	30,327	$	(25,707)
Less: Dividends and undistributed income (loss) allocated to participating securities	0		(17)		0		(19)
Income (loss) attributable to common stockholders	$	16,590	$	(23,797)	$	30,327	$	(25,688)

Basic weighted-average common shares outstanding	18,271		18,014		18,219		17,974
Add: dilutive effect of equity instruments	127		0		137		0


Diluted weighted-average shares outstanding	18,398		18,014		18,356		17,974
Earnings (loss) per share - basic	$	0.91	$	(1.32)	$	1.66	$	(1.43)
Earnings (loss) per share - diluted	$	0.90	$	(1.32)	$	1.65	$	(1.43)

For the three and six months ended June 30, 2021 and 2020, ~~and 2019, RSA's and Stock Options~~potentially dilutive securities convertible to ~~0.7~~0.1 million and 0.7 million and ~~0.3 million~~0 and 0.3 million shares of common stock, respectively, were outstanding but were not included in the computation of diluted net income (loss) ~~income~~ per share because the effect would have been anti-dilutive.

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 ~~2019~~2020 Form ~~10-K except for assumptions regarding impairment of long-lived assets.~~10-K. 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,~~decline, 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 ~~estimate~~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 June 30, ~~2020,~~2021, Tinuum Group has 2022 invested RC facilities, of which 8 are leased to a single customer. ~~A majority~~Both Tinuum Group and Tinuum Services expect to commence significantly winding down their operations starting in the third quarter of ~~these leases are periodically renewed. Further,~~2021 due to the ~~ability to generate~~expected expiration of the Section 45 tax ~~credits related to Tinuum's~~credit period as of December 31, 2021. During the second quarter of 2021, Tinuum Group ceased operating 1 RC facility, with the remaining RC facilities ~~expires in~~expected to cease operations during the second half of 2021. The loss of Tinuum Group's customers, reduction in revenue streams as a ~~single customer by Tinuum Group or~~result of lease renewals and the expiration of Section 45 tax credits ~~would~~will have a significant adverse impact on Tinuum Group's financial position, results of operations and cash flows, which in turn ~~would~~will 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~~During periods of low natural gas prices, ~~make it~~natural gas provides a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which reduces the demand for ~~our~~the Company's products. However, during periods of higher prices for competing power generation sources, the demand for the Company's products increases due to the increase in coal consumption. In addition, coal consumption and demand for ~~our~~the Company's products isare 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~~affect coal consumption and thus the demand for the Company's products.

Reclassifications

Certain balances have been reclassified from the prior year to conform to the current year presentation. Such reclassifications had no effect on the Company’s results of operations or financial position in any of the periods presented.

New Accounting Standards

Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The amendments in ASU 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 adopted ASU 2019-12 effective January 1, 2021 and it did not have a material impact on the Company's financial statements and disclosures.

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~~form 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, 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~~the impact on ~~the Company's~~its financial statements and disclosures and does not believe this standard will have a material impact on ~~the Company's~~its financial statements and disclosures.

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes~~ ("ASU 2019-12"). The amendments in ASU 2019-12 simplify various aspects related to accounting for income taxes by removing certain exceptions contained in Topic 740 and also clarifies 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 provisions of this guidance and assessing its impact on the Company's financial statements and disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.

Note 2 - ~~Impairment~~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 agreed to sell and deliver to Cabot, and Cabot agreed to purchase and accept from the Company certain lignite-based AC products ("Furnace Products").

As part of ~~its periodic review~~the Supply Agreement, the Company and Cabot agreed to additional terms whereby Cabot reimburses the Company for certain capital expenditures incurred by the Company that are necessary to manufacture the Furnace Products, and both the Company and Cabot must mutually agree on these capital expenditures in advance of procurement and commissioning. Capital expenditures incurred that benefit both the Company and Cabot ("Shared Capital") are partially reimbursable by Cabot and recognized as revenues based on a formula contained in the Supply Agreement. Revenues from, and reimbursements of Shared Capital are recognized and billable, respectively, beginning on the first day of a half year (January 1 and July 1 of a calendar year) following the placed in service date of a Shared Capital asset(s).

Capital expenditures incurred that benefit Cabot exclusively ("Specific Capital") are fully reimbursable by Cabot and recognized as revenues based on a formula contained in the Supply Agreement. Revenues earned from Specific Capital are recognized beginning on the first day of a half year following the placed in service date of a Specific Capital asset(s). Reimbursements of Specific Capital 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 amounts for Specific Capital.

Revenues earned from both Shared Capital and Specific Capital are reported in the Consumables revenue line item in the Statements of Operations.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 3 - Acquisition of Marshall Mine

Concurrently with the execution of the ~~carrying value of long-lived assets,~~Supply Agreement, on September 30, 2020, the Company ~~assessed its long-lived assets~~entered into an agreement to purchase from Cabot 100% of the membership interests in Marshall Mine, LLC (the "Marshall Mine Purchase Agreement") for ~~potential impairment. In assessing impairment~~a nominal cash purchase price. Marshall Mine, LLC owns a lignite mine located outside of ~~its Power Generation~~Marshall, Texas (the "Marshall Mine"). The Company concluded that the Marshall Mine did not have any remaining economic reserves and ~~Industrials ("PGI") segment's and certain other long-lived asset groups,~~independently determined to immediately commence activities to shutter it. On September 30, 2020 the Company ~~considered factors such as the significant decline in both PGI’s trailing twelve months revenues and current and future years’ forecasted revenues, which are largely due~~entered into a reclamation contract (the "Reclamation Contract") with a third party that provided a capped cost agreement, subject to ~~the significant drop in coal-fired power dispatch that began in 2019 and is anticipated to continue~~certain contingencies, in the ~~near term largely due~~amount of approximately $19.7 million plus an obligation to pay certain direct costs estimated to be $3.6 million (collectively, the ~~current and forecasted historical low prices~~"Reclamation Costs") over the estimated reclamation period of ~~alternative power generation sources such as natural gas and an increase in supply from other competing energy sources.~~

~~The~~10 years (the "Reclamation Period"). Under the terms of the Supply Agreement, Cabot is obligated to reimburse the Company ~~completed an undiscounted cash flow analysis~~for $10.2 million of ~~its PGI segment's and certain other long-lived assets~~Reclamation Costs (the ~~"Asset Group"~~"Reclamation Reimbursements"), which are payable semi-annually over 13 years and 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 Marshall Mine Purchase Agreement included the acquisition of certain assets that will be consumed and the assumption of certain liabilities that are to be paid in reclamation of the Marshall Mine in addition to the incurrence of an obligation for the Reclamation Costs. The Company accounted for the Marshall Mine Purchase Agreement as an asset acquisition.

As the Marshall Mine Purchase Agreement represents a transaction with a customer of net assets acquired and liabilities assumed from Cabot, the Company accounted for the excess of 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 Upfront Customer Consideration was also recognized net of an additional asset recognized in the Marshall Mine Acquisition, which was 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 is being amortized as a reduction to revenues on a straight-line basis over the expected 15-year contractual period of the Supply Agreement.

As part of the Marshall Mine Purchase Agreement, the Company assumed liabilities, whose fair value exceeded the fair value of assets acquired. A summary of the net assets acquired and liabilities assumed and the additional assets recorded in the Marshall Mine Purchase Agreement as of September 30, 2020 are shown in the table below. The Company completed additional analysis of the assets acquired and liabilities assumed and recorded adjustments as of December 31, 2020 as shown in the table below.


(in thousands)	As Originally Reported		Adjustments		As Adjusted
Assets acquired:
Receivables	$	0	$	513	$	513
Property, plant and equipment	3,863		0		3,863
Spare parts	100		0		100

Liabilities assumed:
Accounts payable and accrued expenses	(673)		160		(513)
Asset retirement obligation	(21,328)		0		(21,328)
Net assets acquired and liabilities assumed from Marshall Mine acquisition	(18,038)		673		(17,365)
Cabot Receivable	9,749		0		9,749
Upfront Customer Consideration	$	8,289	$	(673)	$	7,616

The Company also evaluated the Marshall Mine entity as a potential variable interest entity ("VIE"), and determined that Marshall Mine, LLC was a VIE and the Company was its ~~manufacturing plant and related~~primary beneficiary. Therefore, the Company consolidates Marshall Mine, LLC's assets and ~~its lignite mine assets,~~liabilities in the consolidated financial statements.

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

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 4 - Marshall Mine Asset Retirement Obligation and Cabot Receivable

Asset Retirement Obligation

As of September 30, 2020, the ~~undiscounted~~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 ~~from the Asset Group at $54.7~~of $23.7 million, ~~which was less than~~inclusive of contingency costs, discounted to their present value using a discount rate based on a credit-adjusted, risk-free rate of 7.0%. As of June 30, 2021 and December 31, 2020, the carrying value of the ~~Asset Group~~Marshall Mine ARO was $11.7 million and $18.1 million, respectively.

As of ~~$58.3 million. Accordingly,~~June 30, 2021, the Company ~~completed an assessment~~revised its estimate of future obligations owed for the ~~Asset Group’s fair value~~reclamation of Marshall Mine primarily based on scope reductions related to future reclamation requirements. As a result, the Company reduced the Marshall Mine ARO by $1.9 million as of June 30, 2021 and ~~estimated~~recorded a corresponding gain on change in estimate for the ~~fair value of the Asset Group at $32.2 million.~~three and six months ended June 30, 2021. This ~~resulted~~is included as "Gain on change in ~~an impairment and write-down of the Asset Group of $26.1 million, which is reflected as "Impairment"~~estimate, asset retirement obligation" in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, ~~2020. The total impairment charge was allocated to~~2021.

Cabot Receivable

As of September 30, 2020, the ~~PGI segment and Other in~~Company recorded the ~~amounts of $23.2 million and $2.9 million, respectively.~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~The following table summarizes the allocation of the impairment and write-down of $26.1 million to the Asset Group components during the three months ended 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~~Cabot Receivable at its estimated fair value of $9.7 million, reflecting a discount rate of approximately 1.5% or $0.5 million. There were no significant related fees or costs associated with the ~~Asset Group. This valuation was~~Cabot Receivable. The Company did not elect the fair value option in its initial or subsequent accounting for the Cabot Receivable.

The Cabot Receivable requires Cabot to pay the Reclamation Reimbursements to the Company in the amount of $10.2 million inclusive of interest based on a mutually agreed-upon payment schedule through 2033. Interest is accreted on the ~~use~~Cabot Receivable and recognized as interest income. An allowance for the Cabot Receivable asset is assessed periodically, and 0 allowance was deemed necessary as 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~~June 30, 2021 and December 31, 2020.

Surety Bond

As the ~~risk-free rate of interest. Because~~owner of the ~~continued future uncertainty surrounding~~Marshall Mine, the ~~level~~Company is required to post a surety bond to ensure performance of ~~coal-fired dispatch,~~its reclamation activities. On September 30, 2020, the ~~impact of historically low natural gas prices~~Company and ~~other estimates impacting~~a third party entered into a surety bond indemnification agreement (the "Surety Agreement") pursuant to which the ~~expected future cash flow, it~~Company secured and posted a $30.0 million surety bond (the "Bond") with the local regulatory agency. On June 7, 2021, the third party agreed to reduce the Surety Bond amount to $16.6 million. The Bond will remain in place until the Marshall Mine is ~~reasonably possible that the expected future cash flows may change in the near term~~fully reclaimed, and may ~~result~~be further reduced in amount from time to time as the Company ~~recording additional impairment~~progresses with its reclamation activities. As of June 30, 2021, the ~~Asset Group.~~Company was required to post collateral of $10.0 million for the obligations due under the Reclamation Contract, which is recorded as long-term restricted cash on the Condensed Consolidated Balance Sheet.

Note 35 - 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~~, which provided among other things the creation of the Paycheck Protection ~~Program~~Plan ("PPP"), which is sponsored and administered by the U.S. Small Business Administration ("SBA").

On April 20, 2020, the Company ~~entered into~~executed a loan agreement (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. In June 2020, the Paycheck Protection Program Flexibility Act of 2020 (the "PPPFA") was signed into law and established the payment dates in the event that amounts borrowed under the PPP are not forgiven. The PPP Loan matures April 21, 2022, but may be forgiven subject to the terms of the PPP and ~~provides for 18 monthly payments~~approval by the SBA. The Company recorded the PPP Loan as a debt obligation and accrues interest over the term of ~~principal and interest commencing on November 21, 2020.~~ the PPP Loan.

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~~

Under the PPPFA, monthly payments of principal ~~may be forgiven subject to~~and interest commence on the ~~terms~~later of 10 months following the ~~PPP and approval by~~"covered period" (as defined in the ~~SBA.~~

~~The~~PPPFA) or the date that BOK notifies the Company ~~recorded~~that the ~~PPP Loan as~~SBA has notified BOK that all or a ~~debt obligation under the guidance of ASC 470 -~~ ~~Debt~~ ~~and will accrue interest over the 18-month term~~portion of the PPP Loan ~~beginning November 21, 2020.~~has not been forgiven. In January 2021, the Company submitted its application to the SBA for forgiveness of the PPP Loan. As of June 30, 2021, the PPP Loan principal and accrued interest are classified as current in the Condensed Consolidated Balance Sheets.

On July 27, 2021, the Company received formal notification in the form of a letter dated July 19, 2021 from BOK that the SBA approved the Company’s PPP Loan forgiveness application for the Company’s Loan in the amount of $3.3 million (including accrued interest). The Company will account for the debt forgiveness during its fiscal third quarter of 2021 and will recognize a gain on extinguishment of debt in the amount of $3.3 million in the Consolidated Statements of Operations.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The CARES Act also provided for the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020. The Company ~~has~~ 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. ~~For the three months ended~~As of June 30, ~~2020, total~~2021, the Company has deferred $0.4 million of payroll tax payments ~~deferred~~ under the CARES ~~Act were $0.1 million.~~Act.

~~Note 4 - 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 more fully described in Note 7.

~~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
$ —
$ 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

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

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 5 - Inventories, net~~

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

As of
(in thousands) June 30, 2020 December 31, 2019
Product inventory $ 14,081
$ 13,515
Raw material inventory 2,003
1,945
$ 16,084
$ 15,460

Note 6 - Equity Method Investments

Tinuum Group, LLC

~~The~~As of June 30, 2021 and December 31, 2020, the Company's ownership interest in Tinuum Group was 42.5% ~~as of June 30, 2020 and December 31, 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 RC that lower emissions and also qualify for Section 45 tax credits. The Company concluded that Tinuum Group ~~has been determined to be~~was a ~~variable interest entity ("VIE"); however,~~VIE, but 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~~as the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore ~~concluded that~~power is shared. Accordingly, the ~~power to direct~~Company has accounted for its investment in Tinuum Group under the ~~activities that most significantly impact Tinuum Group's economic performance was shared.~~equity method of accounting since inception.

The following table summarizes the results of operations of Tinuum Group:

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Gross profit $ 6,868
$ 38,180
$ 11,878
$ 79,380
Operating, selling, general and administrative expenses 11,919
5,763
24,695
12,345
(Loss) income from operations (5,051 ) 32,417
(12,817 ) 67,035
Other income (expenses) 2,144
(28 ) 5,787
23
Loss attributable to noncontrolling interest 18,823
12,891
38,094
28,667
Net income available to members $ 15,916
$ 45,280
$ 31,064
$ 95,725
ADES equity earnings from Tinuum Group $ 6,764
$ 19,244

$ 13,202

$ 39,011


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Gross profit	$	8,820	$	6,868	$	11,495	$	11,878
Operating, selling, general and administrative expenses	12,429		11,919		26,231		24,695
Loss from operations	(3,609)		(5,051)		(14,736)		(12,817)
Other income (expenses), net	3,150		2,144		4,003		5,787

Loss attributable to noncontrolling interest	29,038		18,823		64,616		38,094
Net income available to members	$	28,579	$	15,916	$	53,883	$	31,064
ADES equity earnings from Tinuum Group	$	19,125	$	6,764	$	35,487	$	13,202

For the three and six months ended June 30, ~~2020~~2021, the Company recognized earnings from Tinuum Group's net income available to members that were different from its pro-rata share of Tinuum Group's net income available to members, as cash distributions for the three and ~~the three~~six months ended June 30, ~~2019,~~2021 exceeded the carrying value of the Tinuum Group equity investment. For 2021, the Company expects to recognize such excess contributions as equity method earnings in the period the distributions occur, limited to the carrying value of the Tinuum Group equity investment. For the three and six months ended June 30, 2020, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the respective period. For the six months ended June 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 six months ended June 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 six months ended June 30, 2020, the Company recognized equity earnings from Tinuum Group of $6.8 million and $13.2 million, respectively. For the three and six months ended June 30, 2019, the Company recognized equity earnings from Tinuum Group of $19.2 million and $39.0 million, 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 six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


Description	Date(s)	Investment balance			ADES equity earnings		Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance		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		$	—	$	—	$	—	Beginning balance	12/31/2020	$	3,387	$	0	$	0	$	0

ADES proportionate share of income from Tinuum Group	First Quarter	6,438			6,438		—		—		ADES proportionate share of income from Tinuum Group	First Quarter	10,755		10,755		0		0

Cash distributions from Tinuum Group	First Quarter	(13,764		)	—		13,764		—		Cash distributions from Tinuum Group	First Quarter	(19,749)		0		19,749		0
Total investment balance, equity earnings (loss) and cash distributions	3/31/2020	$	24,954		$	6,438	$	13,764	$	—
Adjustment for current year cash distributions in excess of investment balance											Adjustment for current year cash distributions in excess of investment balance	First Quarter	5,607		5,607		0		(5,607)
Total investment balance, equity earnings and cash distributions											Total investment balance, equity earnings and cash distributions	3/31/2021	0		$	16,362	$	19,749	(5,607)
ADES proportionate share of income from Tinuum Group	Second Quarter	$	6,764		$	6,764	$	—	$	—	ADES proportionate share of income from Tinuum Group	Second Quarter	12,146		$	12,146	$	0	0
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)											Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	Second Quarter	(5,607)		(5,607)		0		5,607
Cash distributions from Tinuum Group	Second Quarter	(13,600		)	—		13,600		—		Cash distributions from Tinuum Group	Second Quarter	(19,125)		0		19,125		0
Adjustment for current year cash distributions in excess of investment balance											Adjustment for current year cash distributions in excess of investment balance	Second Quarter	12,586		12,586		0		(12,586)
Total investment balance, equity earnings and cash distributions	6/30/2020	$	18,118		$	6,764	$	13,600	$	—	Total investment balance, equity earnings and cash distributions	6/30/2021	$	0	$	19,125	$	19,125	$	(12,586)

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 and cash distributions 3/31/2019 $ 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 and cash distributions 6/30/2019 $ 42,455
$ 19,244
$ 17,000
$ —

~~(1) Tinuum Group adopted 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 $27.4 million, net of the impact of income taxes, related to the Company's percentage of Tinuum Group's cumulative effect adjustment, which increased the Company's Retained earnings as of January 1, 2019.


Description	Date(s)	Investment balance		ADES equity earnings		Cash distributions
Beginning balance	12/31/2019	$	32,280	$	0	$	0

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

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

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

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

Total investment balance, equity earnings and cash distributions	6/30/2020	$	18,118	$	6,764	$	13,600

Tinuum Services, LLC

The Company has a 50% voting and economic interest in Tinuum ~~Services.~~Services as of June 30, 2021 and December 31, 2020. The Company ~~has~~ determined that Tinuum Services iswas 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~~accounting since inception. As of June 30, 2021 and December 31, 2020, the Company’s investment in Tinuum Services ~~as of June 30, 2020 and December 31, 2019~~ was ~~$4.9~~$3.5 million and ~~$6.8~~$4.2 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 June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Gross loss $ (20,418 ) $ (25,192 ) $ (42,677 ) $ (49,927 )
Operating, selling, general and administrative expenses 43,515
50,412
89,268
99,862
Loss from operations (63,933 ) (75,604 ) (131,945 ) (149,789 )
Other income (expenses) (330 ) (316 ) (615 ) (558 )
Loss attributable to noncontrolling interest 67,071
79,307
139,043
157,577
Net income $ 2,808
$ 3,387
$ 6,483
$ 7,230
ADES equity earnings from Tinuum Services $ 1,404
$ 1,693
$ 3,242

$ 3,615


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Gross loss	$	(22,641)	$	(20,418)	$	(41,163)	$	(42,677)
Operating, selling, general and administrative expenses	47,355		43,515		101,722		89,268
Loss from operations	(69,996)		(63,933)		(142,885)		(131,945)
Other income (expenses), net	32		(330)		(394)		(615)
Loss attributable to noncontrolling interest	74,587		67,071		151,802		139,043
Net income	$	4,623	$	2,808	$	8,523	$	6,483
ADES equity earnings from Tinuum Services	$	2,312	$	1,404	$	4,262	$	3,242

Included in the Consolidated Statements of Operations of Tinuum Services for the three and six months ended June 30, ~~2020~~2021 and ~~2019, respectively,~~2020 were losses ~~related~~attributable to ~~VIE's~~noncontrolling interests of Tinuum ~~Services. These losses do not impact the Company's equity earnings from Tinuum Services as 100% of those losses are attributable to a noncontrolling interest and~~Services' VIE entities, which were eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.

The following table details the carrying value of the Company's respective equity method investments included in the Equity method investments line item on the Condensed Consolidated Balance Sheets and indicates the Company's maximum exposure to loss:


	As of
(in thousands)	June 30, 2021		December 31, 2020
Equity method investment in Tinuum Group	$	0	$	3,387
Equity method investment in Tinuum Services	3,501		4,242
Equity method investment in other	63		63


Total equity method investments	$	3,564	$	7,692

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table details the components of the Company's respective equity method investments included in the Earnings from equity method investments line item on the Condensed Consolidated Statements of Operations:


	Three Months Ended June 30,					Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019			2020			2019			(in thousands)	2021		2020		2021		2020
Earnings from Tinuum Group	$	6,764	$	19,244		$	13,202		$	39,011		Earnings from Tinuum Group	$	19,125	$	6,764	$	35,487	$	13,202
Earnings from Tinuum Services	1,404		1,693			3,242			3,615			Earnings from Tinuum Services	2,312		1,404		4,262		3,242
Loss from other	—		(2		)	(3		)	(1		)
Earnings (loss) from other												Earnings (loss) from other	0		0		0		(3)

Earnings from equity method investments	$	8,168	$	20,935		$	16,441		$	42,625		Earnings from equity method investments	$	21,437	$	8,168	$	39,749	$	16,441

The following table details the components of the cash distributions from the Company's respective equity method investments included as a component of cash flows from operating activities and investing activities 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.~~flows until such time as the carrying value in an equity method investee company is reduced to zero. Thereafter, such distributions are reported as "distributions in excess of cumulative earnings" as a component of cash flows from investing activities.


	Six Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2020		2019		(in thousands)	2021		2020
Distributions from equity method investees, return on investment					Distributions from equity method investees, return on investment
Tinuum Group	$	27,364	$	33,788	Tinuum Group	$	14,142	$	27,364
Tinuum Services	5,152		4,300		Tinuum Services	5,002		5,152
	$	32,516	$	38,088

						$	19,144	$	32,516
Distributions from equity method investees in excess of investment basis					Distributions from equity method investees in excess of investment basis
Tinuum Group					Tinuum Group	$	24,732	$	0

						$	24,732	$	0

Note 7 - Inventories, net

The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of June 30, 2021 and December 31, 2020:


	As of
(in thousands)	June 30, 2021		December 31, 2020
Product inventory, net	$	6,639	$	8,361
Raw material inventory	1,522		1,521

	$	8,161	$	9,882

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Note 7 - Debt Obligations~~

As of
(in thousands) June 30, 2020 December 31, 2019
Senior Term Loan due December 2021, related party $ 28,000
$ 40,000
Less: net unamortized debt issuance costs (815 ) (1,163 )
Less: net unamortized debt discount (840 ) (1,200 )
Senior Term Loan due December 2021, net 26,345
37,637
Finance lease obligations 6,053
6,729
PPP Loan 3,305
—
35,703
44,366
Less: Current maturities (25,583 ) (23,932 )
Total long-term debt $ 10,120
$ 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 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 4. 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 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 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.~~

~~Line of Credit~~

On December 7, 2018, 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 to the 2013 Loan and Security Agreement (the "Line of Credit"). This amendment provided, among other things, for ADA to be able 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, the financial covenants in the Line of Credit were amended and restated to be consistent with the Senior Term Loan covenants, including maintaining a minimum cash balance of $5.0 million. The maturity date of the Line of Credit is September 30, 2020.

~~As of June 30, 2020, there were 0 outstanding borrowings under the Line of Credit.~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 8 - Leases~~

As of June 30, 2020, the Company has obligations under finance and operating leases in the amounts of $6.1 million and $4.0 million, respectively. As of June 30, 2020, the Company has right of use ("ROU") assets, net of accumulated amortization, under finance leases and operating leases of $2.8 million and $2.5 million, respectively.

~~Finance leases~~

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 as of June 30, 2020. 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 six months ended June 30, 2020.

~~Operating leases~~

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 June 30, 2020.

Lease expense for operating leases for the three and six months ended June 30, 2020 was $1.1 million and $2.4 million, respectively, of which $1.0 million and $2.0 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.2 million and $0.4 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations. Lease expense for operating leases for the three and six months ended June 30, 2019 was $1.2 million and $2.4 million, respectively, of which $1.0 million and $2.1 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.2 million and $0.3 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations.

~~Lease financial information as of and for the three and six months ended June 30, 2020 and 2019 is provided in the following table:~~

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Finance lease cost:
Amortization of right-of-use assets $ 465
$ 558
$ 979
$ 1,094
Interest on lease liabilities 93
57
187
188
Operating lease cost 676
927
1,529
1,856
Short-term lease cost 424
189
706
360
Variable lease cost (1) 44
93
137
175
Total lease cost $ 1,702
$ 1,824
$ 3,538
$ 3,673

Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 187
$ 187
Operating cash flows from operating leases $ 1,213
$ 1,901
Financing cash flows from finance leases $ 676
$ 681
Right-of-use assets obtained in exchange for new operating lease liabilities $ 60
$ 49
Weighted-average remaining lease term - finance leases 3.8 years
4.7 years
Weighted-average remaining lease term - operating leases 2.1 years
2.4 years
Weighted-average discount rate - finance leases 6.1 % 6.1 %
Weighted-average discount rate - operating leases 8.5 % 8.6 %

~~(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 9 - Revenues~~

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.

~~Trade receivables, net~~

~~The following table shows the components of Trade receivables, net:~~

As of
(in thousands) June 30, 2020 December 31, 2019
Trade receivables $ 5,922
$ 8,057
Less: Allowance for doubtful accounts (603 ) (627 )
Trade receivables, net $ 5,319
$ 7,430

~~For the three and six months ended June 30, 2020 and 2019, the Company recognized 0 bad debt expense, respectively.~~

~~Disaggregation of Revenue and Earnings from Equity Method Investments~~

During the three and six months ended June 30, 2020 and 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 2 reportable segments, which are further discussed in Note 15 to the Condensed Consolidated Financial Statements. The following tables disaggregate revenues by major component for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
Segment Segment
PGI RC Other Total PGI RC Other Total
Revenue component
Consumables $ 7,070
$ —
$ 1,100
$ 8,170
$ 15,545
$ —
$ 1,842
$ 17,387
License royalties, related party —
3,313
—
3,313
—
6,359
—
6,359
Revenues from customers 7,070
3,313
1,100
11,483
15,545
6,359
1,842
23,746

Earnings from equity method investments —
8,168
—
8,168
—
16,441
—
16,441

Total revenues from customers and earnings from equity method investments $ 7,070
$ 11,481
$ 1,100
$ 19,651
$ 15,545
$ 22,800
$ 1,842
$ 40,187

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Segment Segment
PGI RC Other Total PGI RC Other Total
Revenue component
Consumables $ 11,049
$ —
$ 337
$ 11,386
$ 25,602
$ —
$ 893
$ 26,495
License royalties, related party —
4,191
—
4,191
—
8,411
—
8,411
Revenues from customers 11,049
4,191
337
15,577
25,602
8,411
893
34,906

Earnings from equity method investments —
20,935
—
20,935
—
42,625
—
42,625

Total revenues from customers and earnings from equity method investments $ 11,049
$ 25,126
$ 337
$ 36,512
$ 25,602
$ 51,036
$ 893
$ 77,531

Note 8 - Debt Obligations


	As of
(in thousands)	June 30, 2021		December 31, 2020
Finance lease obligations	$	4,738	$	5,526
PPP Loan	3,305		3,305
Senior Term Loan due December 2021, related party	0		16,000
Less: net unamortized debt issuance costs	0		(465)
Less: net unamortized debt discount	0		(480)
Senior Term Loan due December 2021, net	0		15,055
	8,043		23,886
Less: Current maturities	(4,373)		(18,441)
Total long-term debt	$	3,670	$	5,445

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 5 percent of the Company's 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. The Company also paid debt issuance costs of $2.0 million related to the Senior Term Loan. The Senior Term Loan bore interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which was adjusted quarterly to the current 3-month LIBOR rate, and interest was payable quarterly in arrears. The Senior Term Loan was secured by substantially all 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.

On June 1, 2021 and prior to the Senior Term Loan's maturity date, the Company paid-off in its entirety the Senior Term Loan and all remaining accrued interest through this date in the amount of $6.1 million. The Company did 0t incur any prepayment fees associated with the early pay-off.

Line of Credit

In September 2013, ADA, as borrower, and the Company, as guarantor, entered into a line credit (the "Line of Credit") with a bank (the "Lender") for an aggregate borrowing amount of $10.0 million, which was secured by certain amounts due to the Company from certain Tinuum Group RC leases. The Line of Credit has been amended 15 times from the period from December 2, 2013 through June 30, 2021 and included a reduction in the borrowing amount to $5.0 million in September 2018.

On March 23, 2021, ADA, the Company and the Lender entered into an amendment to the Line of Credit (the "Fifteenth Amendment"), which extended the maturity date of the Line of Credit to December 31, 2021 and increased the minimum cash requirement from $5.0 million to $6.0 million.

As of June 30, 2021 and December 31, 2020, there were 0 outstanding borrowings under the Line of Credit.

On July 29, 2021, the Company and the Lender entered into the Sixteenth Amendment (the "Sixteenth Amendment") to the Line of Credit. The Sixteenth Amendment amends certain terms and conditions related to collateral securing the Line of Credit.

Note 9 - Leases

As of June 30, 2021 and December 31, 2020, the Company had obligations under finance leases of $4.7 million and $5.5 million, respectively, and obligations under operating leases of $5.0 million and $3.0 million, respectively. As of June 30, 2021 and December 31, 2020, the Company had right of use ("ROU") assets, net of accumulated amortization, under finance leases of $2.0 million and $2.4 million, respectively, and ROU assets, net of accumulated amortization, under operating leases of $4.4 million and $1.9 million, respectively.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Finance leases

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 Sheets as of June 30, 2021 and December 31, 2020. 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 Statements of Operations for the three and six months ended June 30, 2021 and June 30, 2020.

Operating leases

ROU assets under operating leases and operating lease liabilities are included in Other long-term assets and Other current liabilities and Other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020.

Lease expense for operating leases for the three and six months ended June 30, 2021 was $0.9 million and $1.9 million, respectively, of which $0.8 million and $1.7 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.1 million and $0.2 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations. Lease expense for operating leases for the three and six months ended June 30, 2020 was $1.1 million and $2.4 million, respectively, of which $1.0 million and $2.0 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.2 million and $0.4 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations.

Lease financial information as of and for the three and six months ended June 30, 2021 and 2020 is provided in the following table:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021			2020
Finance lease cost:
Amortization of right-of-use assets	$	174	$	465	$	348		$	979
Interest on lease liabilities	70		93		149			187
Operating lease cost	453		676		912			1,529
Short-term lease cost	406		424		973			706
Variable lease cost (1)	12		44		21			137

Total lease cost	$	1,115	$	1,702	$	2,403		$	3,538

Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases					$	149		$	187
Operating cash flows from operating leases					$	1,314		$	1,213
Financing cash flows from finance leases					$	818		$	676

Right-of-use assets obtained in exchange for new operating lease liabilities					$	3,362		$	60
Weighted-average remaining lease term - finance leases					3.3 years			3.8 years
Weighted-average remaining lease term - operating leases					2.9 years			2.1 years
Weighted-average discount rate - finance leases					6.4		%	6.1		%
Weighted-average discount rate - operating leases					7.8		%	8.5		%

(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.

Note 10 - Revenues

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

generally not significant. The Company records allowances for doubtful trade receivables when it is probable that the balances will not be collected.

Trade receivables, net

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


	As of
(in thousands)	June 30, 2021		December 31, 2020
Trade receivables	$	9,983	$	12,241
Less: Allowance for doubtful accounts	(39)		(37)
Trade receivables, net	$	9,944	$	12,204

Cabot Receivable

The following table shows the components of the Cabot Receivable:


	As of
(in thousands)	June 30, 2021		December 31, 2020
Receivables, net	$	1,616	$	921
Other long-term assets, net	7,952		8,852
Total Cabot Receivable	$	9,568	$	9,773

Disaggregation of Revenue and Earnings from Equity Method Investments

For the three and six months ended June 30, 2021 and 2020, 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 2 reportable segments, which are further discussed in Note 17 to the Condensed Consolidated Financial Statements. The following tables disaggregate revenues by major component for the three and six months ended June 30, 2021 and 2020 (in thousands):


	Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
	Segment						Segment
	APT		RC		Total		APT		RC		Total
Revenue component
Consumables	$	15,976	$	0	$	15,976	$	33,007	$	0	$	33,007
License royalties, related party	0		3,657		3,657		0		7,723		7,723


Revenues from customers	15,976		3,657		19,633		33,007		7,723		40,730

Earnings from equity method investments	0		21,437		21,437		0		39,749		39,749

Total revenues from customers and earnings from equity method investments	$	15,976	$	25,094	$	41,070	$	33,007	$	47,472	$	80,479

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
	Segment						Segment
	APT		RC		Total		APT		RC		Total
Revenue component
Consumables	$	8,170	$	0	$	8,170	$	17,387	$	0	$	17,387
License royalties, related party	0		3,313		3,313		0		6,359		6,359


Revenues from customers	8,170		3,313		11,483		17,387		6,359		23,746

Earnings from equity method investments	0		8,168		8,168		0		16,441		16,441

Total revenues from customers and earnings from equity method investments	$	8,170	$	11,481	$	19,651	$	17,387	$	22,800	$	40,187

Note 11 - 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 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 June 30, ~~2020.~~2021.

Restricted Cash

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~long-term~~short-term restricted cash of ~~$5.0~~$6.0 million and $5.0 million, respectively, ~~which primarily consisted of~~as required under a minimum cash balance ~~requirements~~requirement of a Line of Credit covenant, and long-term restricted cash of $10.0 million and $5.0 million, respectively, as required under the ~~Senior Term Loan.~~Surety Agreement.

Other Commitments and Contingencies

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

~~Note 11 - 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 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 the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.

For the three and six months ended June 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 six months ended June 30, 2019, under the Stock Repurchase Program, the Company purchased 184,715 and 248,591 shares, respectively, of its common stock for cash of $2.1 million and $2.8 million, respectively, inclusive of commissions and fees. As of June 30, 2020, the Company had $7.0 million remaining under the Stock Repurchase Program.

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Quarterly Cash Dividend~~

~~Dividends declared and paid quarterly on all outstanding shares of common stock during the three and six months ended June 30, 2020 and 2019 were as follows:~~

2020 2019
Per share Date paid Per share Date paid
Dividends declared during quarter ended:
March 31 $ 0.25
March 10, 2020 $ 0.25
March 7, 2019
June 30 $ —

$ 0.25
June 7, 2019
$ 0.25
$ 0.50

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 as of June 30, 2020.

~~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 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.

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 "TAPP") designed to protect the Company’s ability to utilize its net operating losses and tax credits. The 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 9, 2020, the Board approved the Third Amendment to the TAPP ("Third Amendment") that amends the TAPP, as previously amended by the First and Second Amendments that were approved the Board on April 6, 2018 and April 5, 2019, respectively. The Third Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. At the Company's 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, 2021.

Note 12 - Stockholders' Equity

Stock Repurchase Programs

Under the Stock Repurchase Program, for the three and six months ended June 30, 2021, the Company did 0t repurchase any shares. For the three and six months ended June 30, 2020, 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. As of June 30, 2021, the Company had $7.0 million remaining under the Stock Repurchase Program.

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Quarterly Cash Dividend

Dividends declared and paid quarterly on all outstanding shares of common stock during the three and six months ended June 30, 2021 and 2020 were as follows:


	2021			2020
	Per share		Date paid	Per share		Date paid
Dividends declared during quarter ended:
March 31	$	0	N/A	$	0.25	March 10, 2020
June 30	$	0	N/A	$	0	N/A


	$	0		$	0.25

Tax Asset Protection Plan

On April 9, 2021, the Board approved the Fourth Amendment to the TAPP ("Fourth Amendment") that amends the TAPP, as previously amended by the First, Second and Third Amendments that were approved the Board on April 6, 2018, April 5, 2019 and April 9, 2020, respectively. The Fourth Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. At the Company's 2021 annual meeting of stockholders, the Company's stockholders approved the Fourth Amendment, thus the Final Expiration Date will be the close of business on December 31, 2022.

Note 13 - 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 six months ended June 30, ~~2020~~2021 and ~~2019~~2020 was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020
RSA expense	$	975	$	541	$	1,481	$	858	RSA expense	$	511	$	975	$	918	$	1,481

PSU expense	163		—		163		—		PSU expense	55		163		69		163

Total stock-based compensation expense	$	1,138	$	541	$	1,644	$	858	Total stock-based compensation expense	$	566	$	1,138	$	987	$	1,644

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The amount of unrecognized compensation cost as of June 30, ~~2020,~~2021, and the expected weighted-average period over which the cost will be recognized is as follows:

As of June 30, 2020
(in thousands) Unrecognized Compensation Cost Expected Weighted-
Average Period of
Recognition (in years)
RSA expense $ 2,173
2.18
PSU expense 146
2.69
Total unrecognized stock-based compensation expense $ 2,319
2.21


	As of June 30, 2021
(in thousands)	Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)
RSA expense	$	2,736	2.31

PSU expense	490		2.24

Total unrecognized stock-based compensation expense	$	3,226	2.30

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.~~

A summary of RSA activity under the Company's various stock compensation plans for the six months ended June 30, ~~2020 is presented below:~~

Restricted Stock Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2020 451,344
$ 10.65
Granted 218,524
$ 5.34
Vested (195,884 ) $ 10.48
Forfeited (3,814 ) $ 8.48
Non-vested at June 30, 2020 470,170
$ 8.27

~~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 six months ended June 30, 2020~~2021 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 —
—

Options exercised —
—

Options expired / forfeited (300,000 ) 13.87

Options outstanding, June 30, 2020 —
$ —
$ —
0
Options vested and exercisable, June 30, 2020 —
$ —
$ —
0


	Restricted Stock	Weighted-Average Grant Date Fair Value

Non-vested at January 1, 2021	373,860	$	7.25
Granted	387,632	$	5.28
Vested	(183,700)	$	7.45
Forfeited	(31,623)	$	5.75
Non-vested at June 30, 2021	546,169	$	5.88

Performance Share Units

Compensation expense is recognized for PSU awards on a straight-line basis over the applicable service period, which is generally three years, based on the estimated fair value at the date of grant using a Monte Carlo simulation model. A summary of PSU activity for the six months ended June 30, ~~2020~~2021 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, 2021	50,127	$	6.17
Granted	62,448	7.09
Vested / Settled	0	0
Forfeited / Canceled	0	0
PSU's outstanding, June 30, 2021	112,575	$	6.68	$	834	2.24

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 —
$ —

Granted 50,127
6.17

Vested / Settled —
—

Forfeited / Canceled —
—

PSU's outstanding, June 30, 2020 50,127
$ 6.17
$ 243
2.69

~~Note 13 - 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) June 30,
2020 December 31,
2019
Prepaid expenses and other assets:
Federal and state income tax benefits $ 11,416
$ —
Prepaid federal and state income taxes 4,215
4,228
Prepaid expenses 1,987
1,708
Other 1,341
1,896
$ 18,959
$ 7,832
Other long-term assets, net:
Right of use assets, operating leases, net $ 2,529
$ 5,073
Spare parts, net 3,559
3,453
Mine development costs, net 4,139
7,084
Mine reclamation asset, net 1,323
2,451
Highview Investment 552
552
Other long-term assets 1,779
1,718
$ 13,881
$ 20,331

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 and are depleted over the estimated life of the related mine reserves, which is 21 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. Indicators of impairment were present as of June 30, 2020. See Note 2 for further discussion. Mine reclamation asset, net represents an asset retirement obligation asset and is depreciated over the estimated life of the 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. 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 six months ended June 30, 2020 as there were no indicators of impairment or observable price changes for 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) June 30,
2020 December 31,
2019
Other current liabilities:
Current portion of operating lease obligations $ 2,025
$ 2,382
Accrued interest 116
213
Income and other taxes payable 708
678
Other 528
1,038
$ 3,377
$ 4,311
Other long-term liabilities:
Operating lease obligations, long-term $ 1,954
$ 2,810
Mine reclamation liability 2,804
2,721
Other 58
229
$ 4,816
$ 5,760

~~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 June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Interest on Senior Term Loan $ 484
$ 1,134
$ 1,114

$ 2,404
Debt discount and debt issuance costs 355
470
709
851
453A interest 28
326
160

648
Other 95
57
189
188
$ 962
$ 1,987
$ 2,172
$ 4,091

~~Note 14 - Income Taxes~~

~~For the three and six months ended June 30, 2020 and 2019, the Company's income tax expense and effective tax rates based on forecasted pretax income were:~~

Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except for rate) 2020 2019 2020 2019
Income tax expense $ 103
$ 6,634
$ 461
$ 8,333
Effective tax rate — % 45 % (2 )% 27 %

The effective rate for the three and six months ended June 30, 2020 was different from the federal statutory rate primarily from an increase in the valuation allowance on deferred tax assets of $4.5 million and $5.4 million, respectively. The increase in the valuation allowance was a result of a reduction in forecasts as of June 30, 2020 of current and future years' taxable income.

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, 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 14 - 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)	June 30, 2021		December 31, 2020
Prepaid expenses and other assets:

Prepaid expenses	$	2,278	$	1,690
Prepaid income taxes and income tax refunds	1,723		1,605
Other	1,319		1,302


	$	5,320	$	4,597
Other long-term assets, net:
Cabot Receivable (1)	$	7,952	$	8,852
Upfront Customer Consideration (1)	7,236		7,490
Mine development costs, net	4,837		4,338
Right of use assets, operating leases, net	4,380		1,930
Spare parts, net	4,173		3,727
Mine reclamation asset, net	1,666		1,712
Highview Investment	552		552
Other	1,481		1,388
	$	32,277	$	29,989

(1) See further discussion of Upfront Customer Consideration in Note 3 and Cabot Receivable in Note 4 and Note 10.

Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Five Forks Mine and are depleted over the estimated life of the related mine reserves. 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 of impairment as of June 30, 2021. Mine reclamation asset, net represents an asset retirement obligation ("ARO") asset related to the Five Forks Mine and is depreciated over the estimated life of the Five Forks Mine.

The Company holds a long-term investment (the "Highview Investment") in Highview Enterprises Limited ("Highview"), a UK-based developmental stage company specializing in power storage. 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 six months ended June 30, 2021 as there were no indicators of impairment or observable price changes for 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)	June 30, 2021		December 31, 2020
Other current liabilities:
Current portion of operating lease obligations	$	2,342	$	1,883

Current portion of mine reclamation liability	6,986		9,370
Income and other taxes payable	2,159		1,305




Other current liabilities	468		438

	$	11,955	$	12,996
Other long-term liabilities:

Mine reclamation liabilities	$	8,137	$	12,077

Operating lease obligations, long-term	2,698		1,109
Other long-term liabilities (1)	557		287

	$	11,392	$	13,473

(1) Included within Other long-term liabilities is $0.3 million related to agreements the Company entered into with all of its executive officers and certain other key employees of the organization ("Retention Agreements"). The Retention Agreements are for the benefit of retaining those officers and key employees in order to maintain the Company’s current business operations while it pursues and executes on its strategic initiatives. The Retention Agreements with the executive officers were approved by the Compensation Committee of the Board of Directors and the Board of Directors on May 5, 2021. The Company is recognizing expense over the expected service period, which is based on certain conditions outlined in the Retention Agreements.

The Mine reclamation liability related to the Five Forks Mine is included in Other long-term liabilities. The Mine reclamation liability related to Marshall Mine, which was assumed in the Marshall Mine Acquisition, is included in Other current liabilities and Other long-term liabilities. The Mine reclamation liabilities represent AROs. Changes in the AROs were as follows:


	As of
(in thousands)	June 30, 2021		December 31, 2020
Asset retirement obligation, beginning of period	$	21,447	$	2,721
Asset retirement obligation assumed	0		21,328
Accretion	661		543
Liabilities settled	(5,043)		(3,565)
Changes due to scope and timing of reclamation	(1,942)		420

Asset retirement obligations, end of period	15,123		21,447
Less current portion	6,986		9,370
Asset retirement obligation, long-term	$	8,137	$	12,077

As discussed in Note 4, as of June 30, 2021, the Company reduced the Marshall Mine by $1.9 million based on scope reductions for future reclamation requirements and recorded a corresponding gain on change in estimate for the three and six months ended June 30, 2021.

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 June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Interest on Senior Term Loan	$	52	$	484	$	207	$	1,114
Debt discount and debt issuance costs	355		355		946		709
453A interest	7		28		7		160
Other	79		95		170		189

	$	493	$	962	$	1,330	$	2,172

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 15 - Impairment

As of June 30, 2020 and as part of its periodic review of the carrying value of long-lived assets, the Company assessed its long-lived assets for potential impairment. In assessing impairment of its APT segment's and certain other long-lived asset groups, the Company considered factors such as the significant decline in both the APT segment's trailing twelve months revenues and current and future years’ forecasted revenues. These factors were 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.

As of June 30, 2020, the Company completed an undiscounted cash flow analysis of its APT segment's long-lived assets (the "Asset Group"), which are comprised of its manufacturing plant and 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, 2020, which is reflected as "Impairment of long-lived assets" in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020.

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 based on cash flows 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 June 30, 2021, the Company determined that there was 0 additional impairment of the Asset Group.

Note 16 - Income Taxes

For the three and six months ended June 30, 2021 and 2020, the Company's income tax expense and effective tax rates based on forecasted pretax income were:


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except for rate)	2021			2020			2021			2020
Income tax expense	$	4,943		$	103		$	9,432		$	461
Effective tax rate	23		%	0		%	24		%	(2)		%

The effective rate for the three and six months ended June 30, 2021 was higher than the federal statutory rate primarily from the impact of estimated state income taxes.

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 deferred tax 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 17 - 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~~assess financial performance. As of June 30, ~~2020,~~2021, 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 June 30, ~~2020,~~2021, the Company has 2 reportable segments: (1) Refined Coal ("RC"); and (2) ~~Power Generation~~Advanced Purification Technologies ("APT"). Effective December 31, 2020, and ~~Industrials ("PGI").~~as reported in the 2020 Form 10-K, the Company revised its segments to RC and APT, and amounts for the three and six months ended June 30, 2020 have been recast to conform with the current year presentation.

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 ~~2019~~2020 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.~~administrative and Depreciation, amortization, depletion and accretion.

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

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Revenues:
Refined Coal:
Earnings in equity method investments $ 8,168
$ 20,935
$ 16,441
$ 42,625
License royalties, related party 3,313
4,191
6,359
8,411
11,481
25,126
22,800
51,036
Power Generation and Industrials:
Consumables 7,070

11,049

15,545

25,602
7,070
11,049
15,545
25,602
Total segment reporting revenues 18,551
36,175
38,345
76,638

Adjustments to reconcile to reported revenues:
Earnings in equity method investments (8,168 ) (20,935 ) (16,441 ) (42,625 )
Corporate and other 1,100
337
1,842
893
Total reported revenues $ 11,483
$ 15,577
$ 23,746
$ 34,906

Segment operating income (loss):
Refined Coal (1) $ 10,777
$ 24,596

$ 21,637

$ 49,979
Power Generation and Industrials (2) (25,737 ) (3,862 ) (32,314 ) (7,324 )
Total segment operating income $ (14,960 ) $ 20,734
$ (10,677 ) $ 42,655


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Revenues:
Refined Coal:
Earnings in equity method investments	$	21,437	$	8,168	$	39,749	$	16,441
License royalties, related party	3,657		3,313		7,723		6,359




	25,094		11,481		47,472		22,800
Advanced Purification Technologies:
Consumables	15,976		8,170		33,007		17,387




	15,976		8,170		33,007		17,387












Total segment reporting revenues	41,070		19,651		80,479		40,187

Adjustments to reconcile to reported revenues:

Earnings in equity method investments	(21,437)		(8,168)		(39,749)		(16,441)























Total reported revenues	$	19,633	$	11,483	$	40,730	$	23,746

Segment operating income (loss):




Refined Coal	$	24,905	$	10,777	$	47,176	$	21,637
Advanced Purification Technologies (1) (2)	258		(29,999)		273		(37,369)






Total segment operating income (loss)	$	25,163	$	(19,222)	$	47,449	$	(15,732)

(1) Included in RCAPT segment operating income (loss) for the three and six months ended June 30, 2021 and 2020 is $1.8 million and $3.7 million, $1.5 million and $3.8 million, respectively, of depreciation, amortization, depletion and accretion expense on mine and plant long-lived assets and liabilities and $0.1 million, $0.3 million, 0 and 0, respectively, of amortization of Upfront Customer Consideration.

(2) Included in APT segment operating income for the three and six months ended June 30, ~~2020~~2021 is ~~453A interest expense~~$1.9 million gain related to the change in the Marshall Mine ARO as of ~~0 and $0.2 million, respectively. Included in RC segment operating income for the three and six months ended~~ June 30, ~~2019 is 453A interest expense of $0.3 million and $0.6 million, respectively.~~2021.

(2) Included in PGI segment operating loss for the three and six months ended June 30, 2020 is $23.2 million and $23.2 million, respectively, of impairment expense on the Asset Group, and $0.4 million 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 six months ended June 30, 2020 and 2019 is $1.4 million and $3.4 million, and $0.7 million and $2.6 million, respectively, of depreciation, amortization, and depletion

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

expense on mine and plant long-lived assets. Included in PGI segment operating loss for the three and six months ended June 30, 2019 was $1.3 million and $4.7 million, respectively, of costs recognized as a result of the step-up in inventory fair value recorded from the Carbon Solutions Acquisition.

A reconciliation of reportable segment operating income to ~~the Company's~~ consolidated income (loss) ~~income~~ before income tax expense is as follows:

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Total reported segment operating income $ (14,960 ) $ 20,734
$ (10,677 ) $ 42,655
Other operating loss (1) (4,262 ) (353 ) (5,055 ) (751 )
(19,222 ) 20,381
(15,732 ) 41,904
Adjustments to reconcile to (loss) income before income tax expense attributable to the Company:
Corporate payroll and benefits (1,148 ) (804 ) (1,857 ) (1,236 )
Corporate legal and professional fees (925 ) (1,556 ) (2,674 ) (3,517 )
Corporate general and administrative (1,558 ) (1,715 ) (3,157 ) (3,149 )
Corporate depreciation and amortization (163 ) (7 ) (189 ) (20 )
Corporate interest (expense) income, net (824 ) (1,604 ) (1,766 ) (3,255 )
Other income (expense), net 129
53
129
122
(Loss) income before income tax expense $ (23,711 ) $ 14,748
$ (25,246 ) $ 30,849

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Total reported segment operating income (loss)	$	25,163	$	(19,222)	$	47,449	$	(15,732)



Adjustments to reconcile to income (loss) before income (loss) tax expense attributable to the Company:
Corporate payroll and benefits	(826)		(1,148)		(1,465)		(1,857)

Corporate legal and professional fees	(1,376)		(925)		(3,130)		(2,674)
Corporate general and administrative	(1,049)		(1,558)		(2,225)		(3,157)
Corporate depreciation and amortization	(122)		(163)		(276)		(189)

Corporate interest expense, net	(348)		(824)		(998)		(1,766)


Other income, net	91		129		404		129

Income (loss) before income tax expense	$	21,533	$	(23,711)	$	39,759	$	(25,246)

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
(in thousands) June 30,
2020 December 31,
2019
Assets:
Refined Coal (1) $ 27,070
$ 43,953
Power Generation and Industrials 54,022
80,912
Total segment assets 81,092
124,865
All Other and Corporate (2) 52,238
48,934
Consolidated $ 133,330
$ 173,799


	As of
(in thousands)	June 30, 2021		December 31, 2020
Assets:
Refined Coal (1)	$	7,427	$	11,516
Advanced Purification Technologies (2)	81,775		80,877
Total segment assets	89,202		92,393

All Other and Corporate (3)	69,293		54,278
Consolidated	$	158,495	$	146,671

(1) Includes ~~$23.1~~$3.6 million and ~~$39.2~~$7.7 million of investments in equity method investees as of June 30, 2021 and December 31, 2020,respectively.

(2) Includes $37.0 million and $34.6 million of long-lived assets, net.

(3) Includes the Company's deferred tax ~~assets.~~

~~Note 16~~-~~Fair Value Measurements~~

~~Fair value~~assets of ~~financial instruments~~

~~The carrying amounts of financial instruments, including cash, cash equivalents~~$3.8 million 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:

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

As of June 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 $ 210
$ 210
$ 220
$ 220

~~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 financial institutions$10.6 million as of June 30, 2020. If an 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 June 30, 2020~~2021 and December 31, ~~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~~

As disclosed in Note 4, 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.

As disclosed in Note 2, 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 inputs2020,.respectively.

~~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. There were no changes to the carrying value of the Highview Investment for the three months ended June 30, 2020 and 2019 as there were no indicators of impairment or observable price changes for identical or similar investments.

~~Note 17 - 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. There were 0 material restructuring activities during the three and six months ended June 30, 2020.

~~Restructuring accruals are included within the Accrued payroll and related liabilities line item in the~~ ~~Condensed Consolidated Balance 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 for the three and six months ended June 30, 2020 under the caption "Payroll and benefits" in the Condensed Consolidated Statements of Operations.

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

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

(in thousands) Severance
Remaining accrual as of December 31, 2019 $ 254
Expense provision 1,403
Cash payments and other (817 )
Change in estimates —
Remaining accrual as of June 30, 2020 $ 840

Note 18 - ~~Subsequent Events~~Fair Value Measurements

~~Unless disclosed elsewhere within the notes~~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. The carrying amounts of the Cabot Receivable and debt obligations approximate fair value based on credit terms and market interest rates currently available for similar 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 June 30, 2021				As of December 31, 2020
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Instruments:



Highview Investment	$	552	$	552	$	552	$	552








Highview Obligation	$	233	$	233	$	228	$	228

Concentration of credit risk

Advanced Emissions Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

was unable to perform its obligations, the ~~following are~~Company would be at risk regarding the ~~significant matters~~amount of cash and investments in excess of the Federal Deposit Insurance Corporation limits (currently $250 thousand) that ~~occurred subsequent~~would be returned to the Company.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of June 30, ~~2020.~~

~~Invested RC Facilities~~

~~On July 2,~~2021 and December 31, 2020, the Company ~~announced that Tinuum Group sold its 49.9% ownership~~had 0 financial instruments carried and measured at fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

As disclosed in a RC project to a new third party investor. The RC facility is located at a coal plant that has historically burned in excess of 2.5 million tons of coal per year. This facility is a royalty bearing facility to the Company.

~~Additionally, on July 15, 2020,~~Note 14, the Company ~~announced that Tinuum Group completed a lease~~accounts for the Highview Investment as an ~~additional RC facility. The RC facility is located~~investment recorded at ~~a coal plant that has historically burned~~cost, less impairment, plus or minus observable changes in ~~excess~~price for identical or similar investments of ~~2.0 million tons of coal per year. With this addition, Tinuum Group has 21 invested facilities in full-time operation.~~the same issuer. Fair value measurements, if any, represent either Level 2 or Level 3 measurements.

Note 19 - Subsequent Events

All significant matters that occurred subsequent to June 30, 2021 are disclosed elsewhere within the notes to the Condensed Consolidated Financial Statements.

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 ~~2019~~2020 Form 10-K.

~~Overview~~

WeThe results of operations discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are ~~a leader in emissions reductions technologies through consumables that utilize powdered activated carbon~~those of Advanced Emissions Solutions, Inc. ("~~PAC"~~ADES") and ~~chemical based technologies, primarily serving~~its consolidated subsidiaries, collectively, the coal-fired power generation and industrial boiler industries. Our proprietary environmental technologies and specialty chemicals enable our customers to reduce emissions of mercury and other pollutants, maximize utilization levels and improve operating efficiencies to meet the challenges of existing and potential emissions control regulations. Our products are also used for the purification of water."Company", "we", "our" or "us".

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 mercury capture for the coal-fired power plant, industrial and water treatment markets. Carbon Solutions also owns an associated lignite mine that supplies the primary raw material for manufacturing our products.Overview

We operate two segments: ~~Refined Coal ("RC")~~RC and ~~Power Generation and Industrials ("PGI").~~APT. Our RC segment is comprised of our equity ownership in Tinuum Group ~~LLC ("Tinuum Group")~~ and Tinuum Services, ~~LLC ("Tinuum Services"),~~ both of which are unconsolidated entities in which we generate substantial earnings. Tinuum Group provides reduction of mercury and ~~nitrogen oxide ("NO~~_X")NOx emissions at select coal-fired power generators through the production and sale of RC that qualifies for ~~tax credits ("~~Section 45 tax ~~credits")~~credits under ~~the Internal Revenue Code~~ ~~Section 45 - Production Tax Credit~~ ("IRC Section ~~45").~~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 are 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. Both Tinuum Group and Tinuum Services expect to commence significantly winding down their operations starting in the third quarter of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. During the second quarter of 2021, Tinuum Group ceased operating an RC facility, with the remaining RC facilities expected to cease operations during the second half of 2021. As such, our earnings and distributions from our RC segment will substantially cease as of December 31, 2021.

Our ~~PGI~~APT segment ~~includes the sale of~~is primarily operated through a wholly-owned subsidiary, Carbon Solutions. We sell consumable products that ~~provide mercury control~~utilize AC and chemical based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants, and other ~~air and water contaminants control to coal-fired power generators and other industrial companies.~~diverse markets through the customer supply agreement defined below. Our primary products are comprised of AC, which is produced from lignite ~~coal, which creates AC. From~~coal. Our AC ~~we manufacture various forms of AC that~~products include ~~PAC~~both powdered activated carbon ("PAC") and granular activated carbon ("GAC"). ~~There are three~~Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants to meet the challenges of existing and potential regulations. Additionally, we own an associated lignite mine that supplies the 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 substitutedraw material for ~~each other. However, AC 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.~~manufacturing our products.

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 ishas been driven primarily ~~by IRC~~from investors who purchase or lease RC facilities that qualify under the Section 45 tax credit period, which is expected to expire no later than December 31, 2021. Operating results in RC ~~have been influenced~~are affected 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. As discussed above, earnings and distributions from our RC segment will substantially cease as of December 31, 2021 as Tinuum ceases operations at its RC facilities.

In the ~~PGI~~APT segment, demand is driven primarily by consumables-based solutions for coal-fired power generation and other ~~industrials.~~industrials, municipal water customers, and since September 30, 2020, demand from Cabot's customers through the Supply Agreement discussed below. Operating results in ~~PGI have~~the APT segment has 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.

~~Impairment~~On April 22, 2021, there was an incident at our Red River Plant in Louisiana ("Plant Incident"), which involved an isolated fire in one of the Red River Plant's coal handling systems. As a result, the Red River Plant was shut down for nine days for repair. As of June 30, 2021, the cash flow impact associated with the Plant Incident was $0.2 million for repairs and $0.7 million in purchased inventory to supplement lost production.

Customer Supply Agreement

On September 30, 2020, we and Cabot entered into the Supply Agreement pursuant to which we agreed to sell and deliver to Cabot, and Cabot agreed to purchase and accept from us, Furnace Products. 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").

For 2021, we have generated material incremental volume and lowered unit operating costs at the Red River Plant due to the Supply Agreement, which in turn has increased our gross margins. Further, the Supply Agreement has further expanded our AC 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 the Mine Purchase Agreement with Cabot to purchase 100% of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal cash purchase price. Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine"). We independently determined to immediately commence activities to shutter the Marshall Mine and have and will continue to incur the associated reclamation costs.

In conjunction with the execution of the Supply Agreement and the Mine Purchase Agreement, on September 30, 2020, we entered into 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 estimated to be $3.6 million (collectively, the "Reclamation Costs") over the estimated reclamation period of 10 years. We are accounting for this obligation as an asset retirement obligation under U.S. GAAP ("ARO"). Under the terms of the Supply Agreement, Cabot is obligated to reimburse us for $10.2 million of Reclamation Costs (the "Reclamation Reimbursements"), which are payable semi-annually over 13 years and inclusive of interest. For the three and six months ended June 30, 2021, we settled $2.7 million and $5.0 million in of Reclamation Costs, respectively.

As ~~part~~the owner of the Marshall Mine, we were required to post a surety bond with a third party to ensure performance of our ~~periodic review~~reclamation activities in the amount of $30.0 million under the Surety Agreement. On June 7, 2021, the third party agreed to reduce the Surety Bond amount to $16.6 million. As of June 30, 2021, we were required to post collateral of $10.0 million in the form of restricted cash for the obligations due under the Reclamation Contract.

As of June 30, 2021, we revised our estimate of future obligations owed for reclamation of the ~~carrying value of long-lived assets,~~Marshall Mine primarily based on scope reductions related to future reclamation requirements. As a result, we ~~assessed our long-lived assets for potential impairment~~reduced the Marshall Mine ARO by $1.9 million as of June 30, ~~2020. We completed an undiscounted cash flow analysis of our PGI segment's~~2021 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.~~

~~We 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~~recorded a corresponding gain on ~~the use of several established valuation models including an expected~~

future discounted cash flow model. 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 estimate in the ~~near term~~Condensed Consolidated Statements of Operations for the three and ~~may require the recording of additional impairment of the Asset Group.~~six months ended June 30, 2021.

Impact of COVID-19

In March 2020, the World Health Organization ~~("WHO")~~ declared ~~the novel strain of coronavirus ("COVID-19")~~COVID-19 a global pandemic. We are designated by ~~the Cybersecurity and Infrastructure Security Agency ("CISA")~~CISA of the Department of Homeland Security as a critical infrastructure supplier to the energy sector. Our operations have been deemed essential and, therefore, our facilities ~~remain~~remained 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~~personnel. The measures we have ~~the ability to do so, sequestered employees at our plant and other heath safety measures. These measures~~taken 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.~~ continue.

The duration and scope of ~~these measures is unknown, may~~the COVID-19 pandemic continues to be ~~extended~~uncertain. Many parts of the world are still experiencing high infection rates and ~~additional measures may be imposed.~~

~~Both~~the level and timing of ~~our business segments have continued to operate during~~COVID-19 vaccine distribution will impact the ~~pandemic,~~economic recovery 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.growth. 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").~~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 has~~2020 and created the Paycheck Protection Program ("PPP"), which is sponsored and administered by the SBA. In June 2020, the Paycheck Protection Program Flexibility Act of 2020 (the "PPPFA") was signed into law and established the payment dates in the event that amounts borrowed under the PPP are not forgiven. See further discussion below of the loan made to us under the PPP under the section "PPP Loan" under this Item.

We 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. ~~For the three months ended~~As of June 30, ~~2020,~~2021, total payroll tax payments deferred under the CARES Act were ~~$0.1~~$0.4 million.

During the three months ended June 30, 2020, we incurred costs of $0.4 million related to 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 utilization of energy has changed. We cannot predict the long-term impact on our customers and the subsequent impact on our business.

Results of Operations

For the three and six months ended June 30, ~~2020,~~2021, we recognized anet income of $16.6 million and $30.3 million, respectively, compared to net loss of $23.8 million and $25.7 ~~million, respectively, compared to net income of $8.1 million and $22.5~~ million for the three and six months ended June 30, ~~2019, respectively.~~

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

~~Continued performance in our RC business segment, principally related to equity earnings and license royalties;~~

~~Performance in our PGI business segment, principally related to Carbon 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.~~2020.

The following sections provide additional information regarding these ~~comparative~~comparable 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 June 30, ~~2020~~2021 and ~~2019~~2020

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the three months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:


	Three Months Ended June 30,				Change						Three Months Ended June 30,				Change
(in thousands, except percentages)	2020		2019		($)			(%)		(in thousands, except percentages)	2021		2020		($)		(%)
Revenues:										Revenues:
Consumables	$	8,170	$	11,386	$	(3,216	)	(28	)%	Consumables	$	15,976	$	8,170	$	7,806	96	%
License royalties, related party	3,313		4,191		(878		)	(21	)%	License royalties, related party	3,657		3,313		344		10	%

Total revenues	$	11,483	$	15,577	$	(4,094	)	(26	)%	Total revenues	$	19,633	$	11,483	$	8,150	71	%
Operating expenses:										Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	$	7,416	$	12,286	$	(4,870	)	(40	)%	Consumables cost of revenue, exclusive of depreciation and amortization	$	13,300	$	7,416	$	5,884	79	%
Other sales cost of revenue, exclusive of depreciation and amortization	$	—	$	6	$	(6	)	(100	)%

Consumables and consumables cost of revenue

For the three months ended June 30, ~~2020,~~2021, consumables revenues ~~decreased~~increased from the comparable quarter in ~~2019~~2020 primarily ~~due to lower volumes, which were negatively impacted by lower coal-fired power dispatch~~ driven by ~~a decrease~~higher product volumes, most significantly from products sold under the Supply Agreement, which comprised of ~~5.4% in overall power generation,~~$7.4 million of total revenues, and provided favorable pricing mix of approximately $0.6 million. Negatively impacting revenues quarter over quarter was less favorable product mix of approximately $0.2 million. For the three months ended June 30, 2021, there were higher than average temperatures as well as an increase in ~~power generation from sources other than coal as a percentage~~natural gas prices compared to the prior quarter, both of ~~total generation.~~ which caused an increase in demand for our products.

Our gross margin, exclusive of depreciation and amortization, increased for the three months ended June 30, ~~2020~~2021 compared to the corresponding quarter in ~~2019~~2020 primarily due to the higher product volumes, which resulted in lower fixed cost per pound compared to the corresponding quarter. Offsetting higher gross margin from ~~lower operating costs~~higher product volumes for the three months ended June 30, 2021, was gross margin negatively impacted by routine scheduled maintenance outages planned during the ~~2020~~second quarter ~~driven~~of 2021 as well as additional costs associated with the Plant Incident. The impact of the Plant Incident is expected to continue for the remainder of 2021 as we continue to purchase inventory due to lost production and increased demand for our products.

We expect Consumable revenues and gross margin to be positively impacted by ~~increased production volume to ensure inventory levels were adequate to meet customer needs~~our price increase announced in the ~~event operations were impacted by COVID-19.~~ second quarter of 2021 along with our efforts to improve customer and product mix. The price increase will also help offset the increase in operating costs.

Consumables ~~revenue is~~revenues 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 June 30, ~~2020,~~2021, power generation from coal-fired power dispatch ~~was down~~increased approximately ~~26%~~34% compared to the corresponding quarter in ~~2019.~~2020.

Consumables cost of revenue was negatively impacted for the three months ended June 30, 2019 due to $1.4 million of costs recognized as a result of a step-up in inventory fair value recorded from the acquisition of Carbon Solutions. As of June 30, 2019, the step-up in inventory was fully recognized in cost of revenue.

License royalties, related party

For the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, there were ~~9.2~~12.8 million tons and ~~9.6~~9.2 million tons, respectively, of RC produced using M-45^TM and M-45-PC^TMtechnologies ("M-45 Technology"), which Tinuum Group licenses from us ("M-45 License"). M-45 License royalties increased for the three months ended June 30, 2021 primarily from higher tonnage compared to the three months ended June 30, 2020. This ~~decrease combined with~~was primarily a ~~lower royalty rate per ton resulted in a decrease in license royalties~~result of an increase quarter over ~~quarter. The~~quarter in RC facilities that use the M-45 Technology. While tonnage increased quarter over quarter, there was a reduction in the royalty rate per ton ~~was~~ primarily attributable to ~~higher depreciation recognized~~a majority of ~~approximately $0.7 million on all royalty bearing~~the RC ~~facilities as a~~contracts having fixed lease payments such that increased tonnages did not result ~~of a reduction~~ in ~~their estimated useful lives as determined by~~increased earnings. Both Tinuum Group and Tinuum Services expect to commence significantly winding down their operations starting in the ~~second half~~third quarter of ~~2019. Further reducing~~2021 due to the ~~rate per ton was a decrease in net lease payments~~expected expiration of ~~approximately $0.3 million~~the Section 45 tax credit period as ~~a result~~ of ~~Tinuum Group restructuring RC facility contracted leases with its largest customer in the second half of 2019.~~December 31, 2021. As ~~a result of higher depreciation and lower lease payments,~~such, we do not expect ~~that the lower royalty rate per ton will~~to continue ~~for the remainder of 2020 and in~~earning M-45 License royalties after December 31, 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 1517 to the Condensed Consolidated Financial Statements.

Other Operating Expenses

A summary of the components of our operating expenses for the three months ended June 30, 2021 and 2020, exclusive of cost of revenue items (presented above), ~~for the three months ended June 30, 2020 and 2019~~ is as follows:


	Three Months Ended June 30,				Change						Three Months Ended June 30,				Change
(in thousands, except percentages)	2020		2019		($)			(%)		(in thousands, except percentages)	2021		2020		($)		(%)
Operating expenses:										Operating expenses:
Payroll and benefits	$	3,812	$	2,798	$	1,014		36	%	Payroll and benefits	$	2,908	$	3,812	$	(904)	(24)	%

Legal and professional fees	1,022		1,995		(973		)	(49	)%	Legal and professional fees	1,431		1,022		409		40	%
General and administrative	2,462		1,995		467			23	%	General and administrative	1,593		2,462		(869)		(35)	%
Depreciation, amortization, depletion and accretion	1,733		757		976			129	%	Depreciation, amortization, depletion and accretion	1,904		1,733		171		10	%
Impairment of long-lived assets	26,103		—		26,103			*		Impairment of long-lived assets	—		26,103		(26,103)		(100)	%
Gain on change in estimate, asset retirement obligation										Gain on change in estimate, asset retirement obligation	(1,942)		—		(1,942)		*
	$	35,132	$	7,545	$	27,587		366	%		$	5,894	$	35,132	$	(29,238)	(83)	%

* Calculation not meaningful

Payroll and benefits

Payroll and benefits expenses, which represent costs related to selling, general and administrative personnel, ~~increased~~decreased for the three months ended June 30, ~~2020~~2021 compared to the corresponding quarter in ~~2019~~2020 primarily due ~~to severance related costs of $1.4 million associated with the resignation of an executive officer. Offsetting this increase was a decrease of approximately $0.3 million related~~ to a decrease in payroll-related expenses of executives and changes in personnel mix. Offsetting these decreases was an increase in our headcount and ~~payroll-related expenses.~~expense related to the agreements with our executive officers and certain other key employees ("Retention Agreements"). See below for additional information on the Retention Agreements.

Legal and professional fees

Legal and professional fees ~~decreased~~increased for the three months ended June 30, ~~2020~~2021 compared to the corresponding quarter in ~~2019~~2020 as a result of ~~cost reductions~~costs incurred related to ~~professional fees; primarily~~our strategic alternatives, including consulting and ~~outsourced IT cost specific to the completion~~legal fees of ~~the integration of Carbon Solutions of $0.3~~$0.4 million. ~~The remaining decrease was a result of decreased outsourced shared service costs, including legal and accounting fees.~~

General and administrative

General and administrative expenses ~~increased~~decreased for the three months ended June 30, ~~2020~~2021 compared to the corresponding quarter in ~~2019~~2020 primarily due to ~~an increase in~~a reduction of product development ~~expenses~~costs of ~~approximately~~ $0.4 million and a reduction in costs incurred due to the sequestration of certain of our employees at our manufacturing plant in Louisiana of approximately $0.3 ~~million.~~million during the three months ended June 30, 2020. Offsetting ~~this increase was a reduction~~these decreases were increases in ~~general~~rent and ~~administrative~~occupancy expenses ~~including travel and Board compensation.~~of approximately $0.1 million related to property taxes.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense increased for the three months ended June 30, ~~2020~~2021 compared to the corresponding quarter in ~~2019~~2020 due to higher production volumes during the three months ended June 30, ~~2019,~~2021, resulting in ~~$0.7~~$0.4 million more absorption of depreciation in inventory. Further driving the ~~addition~~increase was accretion expense of ~~long-lived assets at~~$0.3 million related to the Marshall Mine ARO. Offsetting this increase was a reduction in depreciation and amortization expense of $0.6 million related to the Impairment Charge recorded in the second quarter of 2020 that reduced the carrying value of our ~~manufacturing~~property, plant, ~~in Louisiana in 2020 contributed approximately $0.2 million of depreciation expense for the three months ended June 30, 2020.~~equipment and intangibles.

Impairment of long-lived assets

As previously discussed, as of June 30, 2020, we recorded ~~an impairment charge~~the Impairment Charge of $26.1 million, which is included in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2020.

Gain on change in estimate, asset retirement obligation

As previously discussed, we recorded a gain on change in estimate of $1.9 million related to a reduction in scope of our future reclamation efforts of the Marshall Mine, which is included in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2021.

Other Income (Expense), net

A summary of the components of other income (expense), net for the three months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

Three Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 ($) (%)
Other income (expense):
Earnings from equity method investments $ 8,168
$ 20,935
$ (12,767 ) (61 )%
Interest expense (962 ) (1,987 ) 1,025
(52 )%
Other 148
60
88
147 %
Total other income $ 7,354
$ 19,008
$ (11,654 ) (61 )%


	Three Months Ended June 30,				Change
(in thousands, except percentages)	2021		2020		($)		(%)
Other income (expense):
Earnings from equity method investments	$	21,437	$	8,168	$	13,269	162	%

Interest expense	(493)		(962)		469		(49)	%
Other	150		148		2		1	%




Total other income	$	21,094	$	7,354	$	13,740	187	%

Earnings from equity method investments

The following table details the components of our respective equity method investments included ~~within~~in the Earnings from equity method investments line item in the Condensed Consolidated Statements of Operations:


	Three Months Ended June 30,						Three Months Ended June 30,
(in thousands)	2020		2019			(in thousands)	2021		2020
Earnings from Tinuum Group	$	6,764	$	19,244		Earnings from Tinuum Group	$	19,125	$	6,764
Earnings from Tinuum Services	1,404		1,693			Earnings from Tinuum Services	2,312		1,404
Loss from other	—		(2		)
Earnings from other						Earnings from other	—		—

Earnings from equity method investments	$	8,168	$	20,935		Earnings from equity method investments	$	21,437	$	8,168

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 June 30, 2021, we recognized $19.1 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $12.1 million for the quarter. The difference between our pro-rata share of Tinuum Group's net income and our earnings from Tinuum Group equity method investment as reported on the Condensed Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur.

For the three months ended June 30, 2020, we recognized $6.8 million 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 June 30, 2019, we recognized $19.2 million in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income for the quarter.~~

~~For the three months ended June 30, 2020, equity earnings from our interest in Tinuum Group were positively impacted by the addition~~See further discussion of two new RC facilities during the second half of 2019. However, equity earnings from Tinuum Group for the three months ended June 30, 2020 decreased from the comparable period in 2019 primarily from one new RC facility during the three months ended June 30, 2019 that was recognized as a point-in-time sale. Further, equity earnings from Tinuum Group for the three months ended June 30, 2020 decreased from the comparable quarter in 2019 primarily from higher depreciation recognized of approximately $2.5 million for the three months ended June 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 second half of 2019. Further contributing to the decrease in equity earnings quarter over quarter ~~was~~changes in Earnings from Equity Investments in "Business Segments" under this Item. Additional information related to equity method investments is included in Note 6 to the ~~restructuring~~Condensed Consolidated Financial Statements included in Part I - Item 1 of ~~RC facility leases with Tinuum Group's largest customer, which decreased lease payments and~~this Report.

For 2021, we expect to recognize such excess contributions as equity method earnings ~~beginning~~ in the ~~second half~~period the distributions occur, limited to the carrying value 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 investment.

~~Equity earnings from our interest in Tinuum Services decreased by $0.3 million for the three months ended June~~

30 2020 compared to the three months ended June 30, 2019, and for those quarters, Tinuum Services provided operating and maintenance services to 19 and 20 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 June 30, ~~2020,~~2021, interest expense decreased ~~$1.0~~$0.5 million compared to the three months ended June 30, ~~2019~~2020 primarily due to a reduction in interest expense related to ~~a senior term loan (the "Senior~~the Senior Term ~~Loan"),~~Loan, as the principal balance was reduced from payments of ~~$26.0~~$28.0 million ~~quarter over quarter.~~made during the period from June 30, 2020 to June 30, 2021. Further, the Senior Term Loan was paid-off in its entirety as of June 1, 2021. The remaining decrease in interest expense related to ~~a reduction~~reductions in finance lease liabilities and the deferred ~~balance related to~~tax liability associated with Internal Revenue Code section 453A ("Section 453A")~~, which~~ during the period from June 30, 2020 to June 30, 2021. Section 453A 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 June 30, ~~2020,~~2021, we recorded income tax expense of ~~$0.1~~$4.9 million compared to income tax expense of ~~$6.6~~$0.1 million for the three months ended June 30, ~~2019.~~2020. The income tax expense recorded for the three months ended June 30, 2021 was comprised of estimated federal income tax expense of $5.0 million and estimated state income tax benefit of $0.1 million. The income tax expense recorded for the three months ended June 30, 2020 was comprised of estimated federal income tax expense of $0.3 million and estimated state income tax benefit of $0.2 million. ~~The income tax expense recorded for the three months ended June 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~~increase in income tax expense quarter over quarter was primarily due to pretax income for the three months ended June 30, 2021 of $21.5 million compared to a pretax loss for the three months ended June 30, 2020 of $23.7 million compared to pretax income of $14.7 million for the three months ended June 30, 2019 as well as an increase in the valuation allowance on deferred tax assets of $4.5 million for the three months ended June 30, 2020 compared to an increase in the valuation allowance on deferred tax assets of $4.8 million for the three months ended June 30, 2019. For both quarters, the adjustments to the valuation allowance were based on changes in forecasts as of June 30, 2020 and June 30, 2019, respectively, of future years' taxable income.million.

Comparison of the Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

Six Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 ($) (%)
Revenues:
Consumables $ 17,387
$ 26,495
$ (9,108 ) (34 )%
License royalties, related party 6,359
8,411
(2,052 ) (24 )%
Total revenues $ 23,746
$ 34,906
$ (11,160 ) (32 )%
Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization $ 18,907
$ 26,394
$ (7,487 ) (28 )%
Other sales cost of revenue, exclusive of depreciation and amortization $ —
$ 6
$ (6 ) (100 )%


	Six Months Ended June 30,				Change
(in thousands, except percentages)	2021		2020		($)		(%)
Revenues:
Consumables	$	33,007	$	17,387	$	15,620	90	%
License royalties, related party	7,723		6,359		1,364		21	%



Total revenues	$	40,730	$	23,746	$	16,984	72	%
Operating expenses:
Consumables cost of revenue, exclusive of depreciation and amortization	$	25,774	$	18,907	$	6,867	36	%

Consumables and consumables cost of revenue

For the six months ended June 30, ~~2020,~~2021, consumables revenues ~~decreased~~increased from the comparable period in ~~2019~~2020 primarily ~~due to lower~~driven by higher product volumes, most significantly from products sold under the Supply Agreement, which comprised of approximately $14.5 million of total revenue and favorable price impact of approximately $2.8 million. Negatively impacting consumables revenues period over period was less favorable product mix, which impacted consumables revenue by approximately $1.7 million.

Volumes were ~~negatively~~positively impacted by ~~lower coal-fired power dispatch driven by a decrease~~seasonal weather and an increase of ~~5.0%~~4.4% in overall power generation, ~~as well as~~including an increase in power generation from ~~sources other than coal as a percentage of total generation.~~ coal-fired power dispatch, which according to data provided by the EIA, increased approximately 36% for the six months ended June 30, 2021 compared to the corresponding period in 2020.

Our gross margin, exclusive of depreciation and amortization, increased for the six months ended June 30, 2021 compared to the corresponding period in 2020 primarily due to the higher product volumes, which resulted in lower fixed cost per pound compared to the prior year. Offsetting higher gross margin from higher product volumes for the six months ended June 30, 2021, was ~~negative~~gross margin negatively impacted by additional costs associated with the Plant Incident.

Consumables cost of revenue was negatively impacted for the six months ended June 30, 2020 ~~compared to the corresponding period in 2019 primarily~~ due to the impact of lower sales volumes and the high fixed cost operating structure. 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. According to data provided by the EIA, for the six months ended June 30, 2020, power generation from coal-fired power dispatch was down approximately 30% compared to the corresponding period in 2019. Due to safety actions taken by ~~the Company~~us to provide for continued operation of our manufacturing facilities in response to ~~COVID-19, cost of revenue increased for the six months ended June 30, 2020.~~COVID-19.

Consumables cost of revenue was negatively impacted during the six months ended June 30, 2019 due to $5.0 million of costs recognized as a result of the step-up in inventory fair value recorded from the acquisition of Carbon Solutions. As of June 30, 2019, the step-up in inventory was fully recognized in cost of revenue.

License royalties, related party

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, there were ~~21.1~~27.5 million tons and ~~20.5~~21.1 million tons, respectively, of RC produced using the M-45 Technology under the M-45 License. While tonnage increased period over period, there was a reduction in the royalty rate per ton primarily attributable to ~~higher depreciation recognized~~a majority of ~~approximately $1.5 million on all royalty bearing~~the RC ~~facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group in the second half of 2019. Further reducing the rate per ton was a decrease in net~~contracts having fixed lease payments ~~of approximately $0.7 million as a~~such that increased tonnages did not 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.~~increased earnings.

Additional information related to revenue concentrations and contributions by class and reportable segment can be found within the segment discussion below and in Note 1517 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 six months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:


	Six Months Ended June 30,				Change						Six Months Ended June 30,				Change
(in thousands, except percentages)	2020		2019		($)			(%)		(in thousands, except percentages)	2021		2020		($)		(%)
Operating expenses:										Operating expenses:
Payroll and benefits	$	6,554	$	5,354	$	1,200		22	%	Payroll and benefits	$	5,377	$	6,554	$	(1,177)	(18)	%

Legal and professional fees	3,065		4,199		(1,134		)	(27	)%	Legal and professional fees	3,234		3,065		169		6	%
General and administrative	4,793		3,909		884			23	%	General and administrative	3,508		4,793		(1,285)		(27)	%
Depreciation, amortization, depletion and accretion	4,030		2,859		1,171			41	%	Depreciation, amortization, depletion and accretion	4,010		4,030		(20)		—	%
Impairment of long-lived assets	26,103		—		26,103			*		Impairment of long-lived assets	—		26,103		(26,103)		(100)	%
Gain on change in estimate, asset retirement obligation										Gain on change in estimate, asset retirement obligation	(1,942)		—		(1,942)		*
	$	44,545	$	16,321	$	28,224		173	%		$	14,187	$	44,545	$	(30,358)	(68)	%

* Calculation not meaningful

Payroll and benefits

Payroll and benefits expenses ~~increased~~decreased for the six months ended June 30, ~~2020~~2021 compared to the same period in ~~2019~~2020 primarily due to ~~severance related costs $1.4 million associated with the resignation of an executive officer, offset by~~ a decrease in ~~headcount.~~payroll-related expenses of executive and changes in personnel mix. Offsetting these increases were an increase in our headcount and expense related to the Retention Agreements.

Legal and professional fees

Legal and professional fees ~~expenses decreased~~increased for the six months ended June 30, ~~2020~~2021 compared to the same period in ~~2019~~2020 primarily due to ~~decreased outsourced shared service~~ costs incurred related to our corporate incentives and strategic alternatives, including ~~legal, general~~ consulting and ~~audit~~legal fees of ~~approximately $1.3~~$0.5 million. Offsetting ~~these decreases~~this increase was ~~an increase~~a reduction in outsourced IT costs specific to the completion of the integration of Carbon Solutions of ~~$0.2~~$0.4 million.

General and administrative

General and administrative expenses ~~increased~~decreased for the six months ended June 30, ~~2020~~2021 compared to the same period in ~~2019~~2020 primarily due to ~~an increase~~a decrease in product development expenses of approximately ~~$0.7~~$0.8 million ~~and~~related to the Supply Agreement, a decrease in costs incurred due to the sequestration of certain of our employees at ~~our manufacturing plant in Louisiana~~the Red River Plant of approximately $0.3 ~~million. Offsetting this increase was a reduction~~million and reductions in general and administrative expenses, including ~~travel~~recruiting and ~~Board compensation.~~licenses and fees. Offsetting these decreases was an increase in rent and occupancy expenses of approximately $0.2 million related to property taxes.

Depreciation and amortization

Depreciation and amortization expense ~~increased~~remained relatively flat for the six months ended June 30, ~~2020~~2021 compared to the same period in ~~2019~~2020 due to higher production volumes during the six months ended June 30, ~~2019 causing $0.6~~2021, resulting in $0.4 million more absorption of depreciation in inventory. Further driving the ~~addition~~increase was accretion expense of ~~long-lived assets at~~$0.6 million related to the Marshall Mine ARO. Offsetting these increases was a reduction in depreciation and amortization expense of $1.0 million related to the Impairment Charge recorded in the second quarter of 2020 that reduced the carrying value of our ~~manufacturing~~property, plant, ~~in Louisiana in 2020 contributed approximately $0.3 million of depreciation expense for the three months ended June 30, 2020.~~equipment and intangibles.

Impairment of long-lived assets

As previously discussed, ~~above,~~ as of June 30, 2020, ~~and~~ we recorded ~~an impairment charge~~the Impairment Charge of $26.1 million, which is included in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2020.

Gain on change in estimate, asset retirement obligation

Other Income (Expense), net

A summary of the components of our other income (expense), net for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:


	Six Months Ended June 30,						Change						Six Months Ended June 30,				Change
(in thousands, except percentages)	2020			2019			($)			(%)		(in thousands, except percentages)	2021		2020		($)		(%)
Other income (expense):												Other income (expense):
Earnings from equity method investments	$	16,441		$	42,625		$	(26,184	)	(61	)%	Earnings from equity method investments	$	39,749	$	16,441	$	23,308	142	%

Interest expense	(2,172		)	(4,091		)	1,919			(47	)%	Interest expense	(1,330)		(2,172)		842		(39)	%
Other	191			130			61			47	%	Other	571		191		380		199	%

Total other income	$	14,460		$	38,664		$	(24,204	)	(63	)%	Total other income	$	38,990	$	14,460	$	24,530	170	%

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:


	Six Months Ended June 30,							Six Months Ended June 30,
(in thousands)	2020			2019			(in thousands)		2021		2020
Earnings from Tinuum Group	$	13,202		$	39,011		Earnings from Tinuum Group		$	35,487	$	13,202
Earnings from Tinuum Services	3,242			3,615			Earnings from Tinuum Services		4,262		3,242
Loss from other	(3		)	(1		)
Earnings (loss) from other							Earnings (loss) from other		—		(3)

Earnings from equity method investments	$	16,441		$	42,625		Earnings from equity method investments		$	39,749	$	16,441

As of June 30, 2021 and 2020, Tinuum Group had 22 and 20 invested RC facilities, respectively, that were generating revenues.

For the six months ended June 30, 2021, we recognized $35.5 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $22.9 million for the period. The difference between our pro-rata share of Tinuum Group's net income and our earnings from Tinuum Group equity method investment as reported on the Condensed Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur. For the six months ended June 30, 2020, we recognized $13.2 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 six months ended June 30, 2019, we recognized $39.0 million~~respective quarter.

See further discussion of period over period changes in ~~equity earnings~~Earnings from ~~Tinuum Group, which was equal~~Equity Investments in "Business Segments" under this Item. Additional information related to our proportionate share of Tinuum Group's net income of $40.7 million for the period less the recovery of the cash distributions in excess of the cumulative earnings as of 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~~investments is included in Note 6 to the Condensed Consolidated Financial Statements included in Part I - Item 1 of Operations for the six months ended June 30, 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 six months ended June 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. However, equity earnings from Tinuum Group for the six months ended June 30, 2020 decreased from the comparable period in 2019 primarily from two new RC facilities during the six months ended June 30, 2019 that were recognized as point-in-time sales. Further, the decrease in equity earnings was due to higher depreciation recognized of approximately $4.9 million for the six months ended June 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 second half of 2019. Further contributing to the decrease in equity earnings for the six months ended June 30, 2020 compared to the six months ended June 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 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 June 30, 2020 and 2019, Tinuum Group had 20 and 21 invested RC facilities, respectively, that were generating revenues.~~

~~Equity earnings from our interest in Tinuum Services decreased during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.~~During the six months ended June 30, 2020 and 2019, Tinuum Services provided operating and maintenance services to 19 and 20 operating RC facilities, 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.this Report.

Interest expense

For the six months ended June 30, ~~2020,~~2021, interest expense decreased ~~$1.9~~$0.8 million compared to the six months ended June 30, ~~2019~~2020 primarily due to interest expense incurred in the six months ended June 30, ~~2020~~2021 related to the Senior Term Loan, as the principal balance was reduced from payments of ~~$26.0~~$28.0 million made during the period ~~over period.~~from June 30, 2020 to June 30, 2021. The remaining decrease in interest expense related to lower 453A interest from a reduction in the deferred balance related to ~~453A.~~Section 453A during the period from June 30, 2020 to June 30, 2021.

Income tax expense

For the six months ended June 30, ~~2020,~~2021, we recorded income tax expense of ~~$0.5~~$9.4 million compared to income tax expense of ~~$8.3~~$0.5 million for the six months ended June 30, ~~2019.~~2020. The income tax expense recorded for the six months ended June 30, 2021 was comprised of estimated federal income tax expense of $9.1 million and state income tax expense of $0.3 million. The income tax expense recorded for the six months ended June 30, 2020 was comprised of estimated federal income tax expense of $0.5 million. ~~The income tax expense recorded for the six months ended June 30, 2019 was comprised of estimated federal income tax expense of $7.0 million and estimated state income tax expense of $1.3 million.~~

The ~~decrease~~increase in income tax expense period over period was primarily due to pretax income for the six months ended June 30, 2021 of $39.8 million compared to a pretax loss for the six months ended June 30, 2020 of $25.2 ~~million compared to pretax income for the six months ended June 30, 2019 of $30.8~~ million. Offsetting the decrease in income tax expense period over period was an increase in the valuation allowance on deferred tax assets of $5.4 million for the six months ended June 30, 2020 compared to an increase in the valuation allowance of $0.8 million for the six months ended June 30, 2019 based on changes in forecasts of future years' taxable income as of June 30, 2020 and June 30, 2019, respectively.

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with ~~accounting principles generally accepted in the~~ U.S. ~~("GAAP"~~GAAP (or "GAAP"), we are providing non-GAAP measures of certain financial performance. These non-GAAP measures include Consolidated EBITDA, Consolidated Adjusted EBITDA, ~~PGI~~RC Segment EBITDA, RC Segment Adjusted EBITDA, APT Segment EBITDA and RCAPT Segment Adjusted EBITDA. We have included these non-GAAP measures because management believes that they help to facilitate ~~comparison~~period to period comparisons of our operating ~~results between periods.~~results. 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. Management uses these non-GAAP measures in evaluating the performance of our business.

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 our results of operations in conjunction with the corresponding GAAP measures.

We define Consolidated ~~Adjusted~~ EBITDA as net income ~~(loss),~~ adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: depreciation, amortization, depletion, ~~and~~ accretion, amortization of upfront customer consideration that was recorded as a component of the Marshall Mine Acquisition ("Upfront Customer Consideration"), interest expense, net and income tax ~~expense; then~~expense. We define Consolidated Adjusted EBITDA as Consolidated EBITDA reduced by the non-cash impact of equity earnings from equity method investments and gain on change in estimate, asset retirement obligation and increased by cash distributions from equity method investments and impairment of long-lived assets. Because Consolidated Adjusted EBITDA omits certain non-cash items, we believe that the measure is less susceptible to variances that affect our operating performance.

We define ~~PGI~~APT Segment ~~Adjusted~~ EBITDA (loss) as APT Segment ~~operating income~~Operating Income (loss) adjusted for the impact of the following items that are either non-cash or that we do not consider representative of ~~its~~our ongoing operating performance: depreciation, amortization, depletion, accretion and ~~accretion,~~ interest expense, net and amortization of Upfront Customer Consideration. We define APT Segment Adjusted EBITDA (loss) as APT Segment EBITDA (loss) reduced by gain on settlement and gain on change in estimate, asset retirement obligation and increased by impairment of long-lived assets. ~~When used in conjunction with GAAP financial measures, PGI~~There were no additional adjustments made to APT Segment Adjusted EBITDA ~~is a supplemental measure~~(loss) for the three and six months ended June 30, 2021.

We define RC Segment EBITDA as RC Segment operating income adjusted for the impact of ~~operating performance~~the following items that ~~management believes is a useful measure for each~~are either non-cash or that we do not consider representative of our ~~PGI~~ongoing operating performance: depreciation, amortization, depletion, accretion and RC segment's performance relative to the performance of competitors as well as performance period over period. Additionally, we believe the measure is less susceptible to variances that affect our operating performance results.

interest expense. We define RC Segment Adjusted EBITDA 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~~When used in conjunction with GAAP financial measures, we believe these non-GAAP measures ~~because we believe they~~ are ~~useful as~~ supplemental measures ~~in evaluating the~~of operating performance ofthat explain our operating performance for our period to period comparisons and ~~provide greater transparency into the results of operations. Management uses~~against our competitors' performance. Generally, we believe these non-GAAP measures ~~in evaluating the~~are less susceptible to variances that affect our operating performance ~~of our business.~~results.

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

Consolidated EBITDA and Adjusted EBITDA


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Net income (loss)	$	16,590	$	(23,814)	$	30,327	$	(25,707)
Depreciation, amortization, depletion and accretion	1,904		1,733		4,010		4,030
Amortization of Upfront Customer Consideration	127		—		254		—
Interest expense, net	434		945		1,163		2,113
Income tax expense	4,943		103		9,432		461
Consolidated EBITDA (loss)	23,998		(21,033)		45,186		(19,103)
Cash distributions from equity method investees	20,625		15,400		43,876		32,516
Equity earnings	(21,437)		(8,168)		(39,749)		(16,441)
Gain on change in estimate, asset retirement obligation	(1,942)		—		(1,942)		—
Impairment	—		26,103		—		26,103
Consolidated Adjusted EBITDA	$	21,244	$	12,302	$	47,371	23,075

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Net (loss) income (1) (2) $ (23,814 ) $ 8,114
$ (25,707 ) $ 22,516
Depreciation, amortization, depletion and accretion 1,733
757
4,030
2,859
Interest expense, net 945
1,921
2,113
3,956
Income tax expense 103
6,634
461
8,333
Consolidated EBITDA (21,033 ) 17,426
(19,103 ) 37,664
Impairment 26,103
—
26,103
—
Equity earnings (8,168 ) (20,935 ) (16,441 ) (42,625 )
Cash distributions from equity method investees 15,400
18,600
32,516
38,088
Consolidated Adjusted EBITDA $ 12,302
$ 15,091
$ 23,075
33,127

(1) Net loss for the three and six months ended June 30, 2020 included $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 three and six months ended June 30, 2019 included adjustments of $1.4 million and $5.0 million, which increased cost of revenue due to a step-up in basis of inventory acquired related to the acquisition of Carbon Solutions.

Business Segments

As of June 30, ~~2020,~~2021, we have two reportable segments: (1) RC and (2) ~~PGI.~~APT. 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 ~~2019~~2020 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

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 primarily include Tinuum Group and Tinuum Services. Segment revenues include our equity method earnings (losses) from our equity method investments and M-45 License royalties earned from Tinuum Group. These earnings are included in 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. Both Tinuum Group and Tinuum Services expect to commence significantly winding down their operations starting in the third quarter of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, our earnings and distributions from our RC segment will substantially cease as of December 31, 2021.

2.APT - Our APT segment includes revenues and related expenses from the sale of our AC and chemical products, which are used to purify coal-fired utilities, industrials, water treatment plants, and other markets. For the purification of air and gases, one of the uses of AC is to reduce mercury emissions and other air contaminants, specifically at coal-fired power generators and other industrial companies. These amounts are included within the Consumables and respective cost of revenue line items in the Condensed Consolidated Statements of Operations.

PGI - Our PGI segment includes revenues and related expenses from the sale of consumable products that utilize PAC 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.

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 six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Revenues:
Refined Coal:
Earnings in equity method investments $ 8,168
$ 20,935
$ 16,441
$ 42,625
License royalties, related party 3,313
4,191
6,359
8,411
11,481
25,126
22,800
51,036
Power Generation and Industrials:
Consumables 7,070
11,049
15,545
25,602
7,070
11,049
15,545
25,602
Total segment reporting revenues 18,551
36,175
38,345
76,638

Adjustments to reconcile to reported revenues:
Earnings in equity method investments (8,168 ) (20,935 ) (16,441 ) (42,625 )
Corporate and other 1,100
337
1,842
893
Total reported revenues $ 11,483
$ 15,577
$ 23,746
$ 34,906

Segment operating income (loss):
Refined Coal (1) $ 10,777
$ 24,596
$ 21,637
$ 49,979
Power Generation and Industrials (2) (25,737 ) (3,862 ) (32,314 ) (7,324 )
Total segment operating income $ (14,960 ) $ 20,734
$ (10,677 ) $ 42,655

(1) Included in RC segment operating income for the three and six months ended June 30, 2020 is 453A interest expense of zero and $0.2 million, respectively. Included in RC segment operating income for the three and six months ended June 30, 2019 is 453A interest expense of $0.3 million and $0.6 million, respectively.

(2) Included in PGI segment operating loss for the three and six months ended June 30, 2020 is $23.2 million and $23.2 million, respectively, of impairment expense on PGI segment and certain other long-lived assets, and $0.4 million 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 six months ended June 30, 2020 and 2019 is $1.4 million and $3.4 million, respectively, of depreciation, amortization, and depletion expense on mine and plant long-lived assets. Included in PGI segment operating loss for the three and six months ended June 30, 2019 is approximately $1.3 million and $4.7 million of costs recognized as a result of the step-up in inventory fair value recorded from the acquisition of Carbon Solutions.


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Revenues:
Refined Coal:
Earnings in equity method investments	$	21,437	$	8,168	$	39,749	$	16,441

License royalties, related party	3,657		3,313		7,723		6,359



	25,094		11,481		47,472		22,800
Advanced Purification Technologies:
Consumables	15,976		8,170		33,007		17,387




	15,976		8,170		33,007		17,387












Total segment reporting revenues	41,070		19,651		80,479		40,187

Adjustments to reconcile to reported revenues:

Earnings in equity method investments	(21,437)		(8,168)		(39,749)		(16,441)






















Total reported revenues	$	19,633	$	11,483	$	40,730	$	23,746

Segment operating income (loss):




Refined Coal	$	24,905	$	10,777	$	47,176	$	21,637
Advanced Purification Technologies	258		(29,999)		273		(37,369)



Total segment operating income (loss)	$	25,163	$	(19,222)	$	47,449	$	(15,732)

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Earnings from Tinuum Group	$	19,125	$	6,764	$	35,487	$	13,202
Earnings from Tinuum Services	2,312		1,404		4,262		3,242
Earnings (loss) from other	—		—		—		(3)


Earnings from equity method investments	$	21,437	$	8,168	$	39,749	$	16,441

Three Months Ended June 30,
(in thousands) 2020 2019
Earnings from Tinuum Group $ 6,764
$ 19,244
Earnings from Tinuum Services 1,404
1,693
Loss from other —
(2 )
Earnings from equity method investments $ 8,168
$ 20,935

For the three months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020

RC earnings ~~decreased~~increased primarily due to ~~a decrease~~an increase in equity earnings in Tinuum Group for the three months ended June 30, ~~2020~~2021 compared to the corresponding quarter in ~~2019.~~2020, primarily from the addition of three new RC facilities in 2020.

For the three months ended June 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. However, equity earnings from Tinuum Group for the three months ended June 30, 2020 decreased from the comparable quarter in 2019 primarily from higher depreciation recognized of

approximately $2.5 million for the three months ended June 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 second half of 2019. 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 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.

For the three months ended June 30, 2020 and 2019, we recognized $6.8 million and $19.2 million, respectively, in equity earnings from Tinuum Group, which was equal to our proportionate share of Tinuum Group's net income for those quarters.

~~For the three months ended June 30, 2020,~~2021, earnings from Tinuum Services ~~decreased~~increased compared to the corresponding quarter in ~~2019~~2020 primarily due to ~~a decrease~~an increase in tonnage quarter over quarter and an increase in the number of operating RC facilities in which Tinuum Services provides operating and maintenance services from 2019 to ~~19.~~21.

~~As noted above, for the three months ended June 30, 2020,~~ RC earnings ~~were impacted by a decrease in license~~related to M-45 License royalties earned from Tinuum Group under the M-45 License. For the three months ended June 30, 2020 and 2019, there were 9.2 million tons and 9.6 million tons, respectively, of RC produced using the M-45 Technology. This decrease combined with a lower royalty rate per ton resulted in a decrease in license royalties quarter over quarter. The reduction in the royalty rate per ton was primarily attributable to higher depreciation recognized on all royalty bearing RC facilities as a result of a reduction in their estimated useful lives as determined by Tinuum Group in the second half of 2019. Further reducing the rate per ton was a decrease in net lease payments as a result of Tinuum Group restructuring RC facility contracted leases with its largest customer in the 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 6 of the Condensed Consolidated Financial Statements.~~

~~RC Segment Adjusted EBITDA~~

Three Months Ended June 30,
(in thousands) 2020 2019
RC Segment operating income $ 10,777
$ 24,596
Depreciation, amortization, depletion and accretion 32
7
Interest expense 28
326
RC Segment EBITDA 10,837
24,929
Equity earnings (8,168 ) (20,935 )
Cash distributions from equity method investees 15,400
18,600
RC Segment Adjusted EBITDA $ 18,069
$ 22,594

~~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 June 30, 2020 and June 30, 2019~~

~~PGI segment operating loss~~ increased for the three months ended June 30, ~~2020~~2021 compared to the ~~three months ended June 30, 2019 primarily~~corresponding quarter in 2020 due to higher tonnage quarter over quarter, which was primarily a result of an increase in RC facilities that use the ~~impairment charge of $23.2 million and~~M-45 Technology. While tonnage increased quarter over quarter, there was a reduction in ~~consumable revenue and associated margins and costs incurred related~~the royalty rate per ton primarily attributable to COVID-19. For the three months ended June 30, 2020, consumables revenue and margins also continued to be negatively impacted by low coal-fired power dispatch driven by power generation from sources other than coal.

During the three months ended June 30, 2020 , we incurred costs of $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~~

Three Months Ended June 30,
(in thousands) 2020 2019
Segment operating loss (1) (2) $ (25,737 ) $ (3,862 )
Depreciation, amortization, depletion and accretion 1,389
685
Interest expense, net 93
57
PGI Segment EBITDA loss (24,255 ) (3,120 )
Impairment 23,232
—
PGI Segment Adjusted EBITDA loss $ (1,023 ) $ (3,120 )

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

~~(2) Included in segment operating loss for the three months ended June 30, 2019 is approximately $1.3 million of costs recognized as~~ a ~~result~~majority of the ~~step-up~~RC contracts having fixed lease payments such that increased tonnages did not result in ~~inventory fair value recorded from the acquisition of Carbon Solutions.~~

RCincreased earnings.

For the six months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020

~~For~~RC earnings increased primarily due to an increase in equity earnings in Tinuum Group for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily from the addition of three new RC facilities in 2020. Further, for the six months ended June 30, 2020, we recognized ~~$13.2 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 six months ended June 30, 2019, we recognized $39.0 million in equity earnings from Tinuum Group,~~period, which was ~~equal to our proportionate share of Tinuum Group's net income of $40.7 million~~less than cash distributions received for the period less the recovery of the cash distributions in excess of the cumulative earnings as of 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 six months ended June 30, 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.same period.

For the six months ended June 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. However, equity~~2021, earnings from Tinuum Group for the six months ended June 30, 2020 decreased from the comparable period in 2019 primarily from two new RC facilities during the six months ended June 30, 2019 that were recognized as point-in-time sales. Further, the decrease in equity earnings was due to higher depreciation recognized of approximately $4.9 million for the six months ended June 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 second half of 2019. Further contributing to the decrease in equity earnings for the six months ended June 30, 2020Services increased compared to the six months ended June 30, ~~2019 was the restructuring of RC facility leases with Tinuum Group's largest customer, which decreased lease payments~~2020 primarily due to an increase in tonnage quarter over quarter and ~~equity earnings beginning~~an increase in the ~~second half~~number of ~~2019. Furthermore, two coal-fired utilities~~operating RC facilities in which Tinuum ~~Group has invested~~ Services provides operating and maintenance services from 19 to 21.

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~~related to M-45 License royalties increased for ~~the remainder of 2020 as well as 2021.~~

~~As of June 30, 2020 and 2019, Tinuum Group had 20 and 21 invested RC facilities, respectively, that were generating revenues.~~

~~Equity earnings from our interest in Tinuum Services decreased during~~ the six months ended June 30, ~~2020~~2021 compared to the six months ended June 30, ~~2019.During the six months ended June 30,~~ 2020 ~~and 2019, Tinuum Services provided operating and maintenance services~~due to ~~19 and 20 operating~~higher tonnage period over period, which was primarily a result of an increase in RC facilities ~~respectively, which was the primary driver in the decrease in equity earnings. Tinuum Services 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 agreement.~~

RC earnings were negatively impacted during the six months ended June 30, 2020 by a decrease in royalties earned from Tinuum Group under the M-45 License. During the six months ended June 30, 2020 and 2019, there were 21.1 million tons and 20.5 million tons, respectively, of RC produced usinguse the M-45 Technology. While tonnage increased period over period, there was a reduction in the royalty rate per ton primarily attributable to lower royalty amounts paid related to a facility that was partially retained during 2020 and was producing a higher ~~depreciation recognized of approximately $1.5 million on all~~per-ton royalty ~~bearing RC facilities as a result of a reduction in their estimated useful lives as determined~~amount prior to closure by Tinuum ~~Group~~ in the second half of ~~2019. Further reducing the rate per ton was a decrease in net lease payments of approximately $0.7 million as a result of~~2020.

Outlook

Both Tinuum Group ~~restructuring~~and Tinuum Services expect to commence significantly winding down their operations starting in the third quarter of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. During the second quarter of 2021, Tinuum Group ceased operating an RC facility, ~~contracted leases~~ with ~~its largest customer in~~the remaining RC facilities expected to cease operations during the second half of ~~2019.~~

~~Future~~2021. The loss of equity earnings, distributions and ~~growth within~~M-45 License royalties beginning in 2022 will have a material adverse effect on our financial condition and consolidated operating results compared to historical periods. Earnings in the RC segment for 2021 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 6~~ As a result of the ~~Condensed Consolidated Financial Statements.~~wind-down in both Tinuum Group's and Tinuum Services' operations occurring through the remainder of 2021, we expect our earnings in both entities to decrease in 2021 compared to 2020. However, in 2021, cash distributions should substantially exceed earnings.

RC Segment EBITDA and Adjusted EBITDA


	Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020			2019			(in thousands)	2021		2020		2021		2020
RC Segment operating income	$	21,637		$	49,979		RC Segment operating income	$	24,905	$	10,777	$	47,176	$	21,637
Depreciation, amortization, depletion and accretion	59			30			Depreciation, amortization, depletion and accretion	12		32		32		59
Interest expense	160			648			Interest expense	7		28		7		160
RC Segment EBITDA	21,856			50,657			RC Segment EBITDA	24,924		10,837		47,215		21,856
Cash distributions from equity method investees							Cash distributions from equity method investees	20,625		15,400		43,876		32,516
Equity earnings	$	(16,441	)	$	(42,625	)	Equity earnings	(21,437)		(8,168)		(39,749)		(16,441)
Cash distributions from equity method investees	$	32,516		$	38,088
RC Segment Adjusted EBITDA	$	37,931		$	46,120		RC Segment Adjusted EBITDA	$	24,112	$	18,069	$	51,342	$	37,931

~~PGI~~APT

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

For the three months ended June 30, 2021 and June 30, 2020

APT segment operating income increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to the Impairment Charge of $26.1 million recorded for the three months ended June 30, 2020. In addition consumables revenues and associated margins increased for the three months ended June 30, 2021, driven by an increase in volume quarter over quarter, specifically product sold under the Supply Agreement. Our gross margin, exclusive of depreciation and amortization, increased primarily due to the higher volumes that resulted in a lower fixed cost per pound compared to the three months ended June 30, 2020.

For the six months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020

~~PGI~~APT segment operating ~~loss~~income increased ~~during~~for the six months ended June 30, ~~2020~~2021 compared to the six months ended June 30, ~~2019~~2020 primarily due to the ~~impairment charge~~Impairment Charge of ~~$23.2~~$26.1 million ~~a reduction in consumable revenue and associated margins and costs incurred related to COVID-19. For~~recorded for the six months ended June 30, ~~2020, consumables revenue and margins also continued to be negatively impacted by low coal-fired power dispatch driven by power generation from sources other than coal.~~

~~During~~2020. Further, during the six months ended June 30, 2021 consumable revenues and associated margins increased, driven by an increase in volume period over period, specifically products sold under the Supply Agreement.

During the three and six months ended June 30, 2020, , we incurred costs of ~~$0.4~~$0.3 million related to sequestration of certain of our employees at ~~our manufacturing plant in Louisiana.~~the Red River Plant. These costs included hazardous pay, lodging expense and other related costs for 60 days.

~~PGI~~Outlook

Based on current market estimates, we believe that the APT segment will continue to be affected by power generation and the pricing of other sources, including natural gas and renewable energy, as well as weather throughout the U.S. For the remainder of 2021, we expect other power generation sources to have higher prices than in previous quarters, increasing demand for our products. Further, in 2021 and beyond, we expect the Supply Agreement to continue to play a significant role in diversifying our product mix into markets outside of power generation.

APT Segment Adjusted EBITDA (Loss)


	Six Months Ended June 30,							Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2020			2019			(in thousands)	2021		2020		2021		2020
PGI Segment operating loss (1) (2)	$	(32,314	)	$	(7,324	)
APT Segment operating income (loss)							APT Segment operating income (loss)	$	258	$	(29,999)	$	273	$	(37,369)
Depreciation, amortization, depletion and accretion	3,424			2,645			Depreciation, amortization, depletion and accretion	1,770		1,538		3,702		3,782
Amortization of Upfront Customer Consideration							Amortization of Upfront Customer Consideration	127		—		254		—
Interest expense, net	187			188			Interest expense, net	79		93		158		187
PGI Segment EBITDA loss	(28,703		)	(4,491		)
APT Segment EBITDA (loss)							APT Segment EBITDA (loss)	$	2,234	$	(28,368)	$	4,387	$	(33,400)
Gain on change in estimate, asset retirement obligation (1)							Gain on change in estimate, asset retirement obligation (1)	(1,942)		—		(1,942)		—
Impairment	23,232			—			Impairment	—		26,103		—		26,103
PGI Segment Adjusted EBITDA loss	$	(5,471	)	$	(4,491	)
APT Segment Adjusted EBITDA (loss)							APT Segment Adjusted EBITDA (loss)	$	292	$	(2,265)	$	2,445	$	(7,297)

(1) Included in APT segment operating ~~loss~~income for the three and six months ended June 30, ~~2020~~2021 is ~~$0.4~~a $1.9 million ~~related to sequestration of certain of our employees at our manufacturing plant in Louisiana.~~

~~(2) Segment operating loss for the six months ended June 30, 2019 is inclusive of a $4.7 million adjustment, which increased cost of revenue due to a step-up in basis of inventory acquired~~gain related to the ~~acquisition~~change in the Marshall Mine ARO as of ~~Carbon Solutions.~~

June 30, 2021.

Liquidity and Capital Resources

Overview of Factors Affecting Our Liquidity

~~During~~For the six months ended June 30, ~~2020,~~2021, our liquidity position was positively affected primarily ~~due to~~from distributions from Tinuum Group and Tinuum Services, M-45 License royalty payments from Tinuum ~~Group and borrowing availability under~~Group.

As of June 30, 2021, our ~~bank ("Lender") line of credit ("Line of Credit").~~

~~Our~~ principal sources of ~~cash included:~~liquidity include:

•cash on ~~hand;~~hand, excluding restricted cash of $16.0 million under the Line of Credit and Surety Agreement requirements;

•distributions from Tinuum Group and Tinuum Services;

•M-45 License royalty payments from Tinuum Group;

•operations of the APT segment; and

~~cash proceeds received from under~~ •the ~~Paycheck Protection Program ("PPP") administered by th U.S. Small Business Administration ("SBA").~~Line of Credit.

~~Our~~As of June 30, 2021, our principal uses of ~~cash for the six months ended June 30, 2020 included:~~liquidity include:

~~payment of dividends;~~

~~payment of debt principal and interest;~~

~~repurchases of shares of common stock; and~~

•our business operating expenses, including federal and state tax payments;

•payments ~~cash severance~~ on our lease obligations; and

•payments ~~and costs~~of ARO liabilities associated with ~~COVID-19.~~

~~Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs~~the Five Forks Mine and obligations, capital expenditures, future potential dividend payments and potential future share repurchases depends 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, including expanding our overall PAC 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.

We incur significant recurring capital expenditures for our AC manufacturing facility and for mine development at our lignite mine. For 2020, we anticipate that our capital expenditures will be lower than 2019 as we do not anticipate having significant planned maintenance as we incurred in 2019.

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 employees, and overall plant operating inefficiencies. However, in April 2020, we took steps to enhance our short-term liquidity through the PPP as discussed below.Marshall Mine.

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 six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


	Six Months Ended June 30,
(in thousands)	2021		2020
Tinuum Group	$	38,874	$	27,364
Tinuum Services	5,002		5,152
Distributions from equity method investees	$	43,876	$	32,516

Six Months Ended June 30,
(in thousands) 2020
2019
Tinuum Group $ 27,364
$ 33,788
Tinuum Services 5,152
4,300
Distributions from equity method investees $ 32,516
$ 38,088

Cash distributions from Tinuum Group for the six months ended June 30, ~~2020 decreased~~2021 increased by ~~$6.4~~$11.5 million compared to the six months ended June 30, ~~2019~~2020 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 this customer, and the shuttering of two coal-fired utilities in the fourth quarter of 2019 where two investedthree RC facilities ~~were operating.~~added in 2020.

Future cash flows from Tinuum ~~through 2021~~ are expected to range from ~~$100~~$30 million to ~~$125 million, a decrease from the previously reported range of $125 to $150~~$40 million. The key drivers in achieving these future cash flows are based on the following:

20•22 invested facilities as of June 30, ~~2020~~2021 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;~~related to remediation costs;

•Tax equity lease renewals on invested facilities are not terminated or repriced; and

•Coal-fired power generation remains consistent with contractual expectations.

Both Tinuum Group and Tinuum Services expect to commence significantly winding down their operations starting in the third quarter of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, our distributions from our RC segment are expected to decline during the second half of 2021 and will substantially cease as of December 31, 2021, pending final remediation of Tinuum Group’s RC facilities that is expected to occur in 2022.

PPP Loan

On April ~~21,~~20, 2020, we entered into ~~a loan (the "PPP Loan")~~the PPP Loan under the PPP, ~~through~~evidenced by a promissory note with BOK, ~~NA dba Bank of Oklahoma (the "Lender")~~ providing for $3.3 million in proceeds, which ~~amount~~ was funded on April 21, 2020. The PPP Loan matures April 21, ~~2022~~2022. The PPP Loan principal may be forgiven subject to the terms of the PPP and ~~provides for 18 monthly payments of principal and interest commencing on November 21, 2020.~~approval by the SBA. 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 ~~the Lender,~~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 us, or filing suit and obtaining judgment against us. ~~The PPP Loan may be forgiven subject to~~

Under the ~~terms~~PPPFA, monthly payments of principal and interest commence on the later of 10 months following the "covered period" (as defined in the PPPFA) or the date that BOK notifies us that the SBA has notified BOK that all or a portion of the PPP Loan has not been forgiven.

In January 2021, we submitted an application to the SBA for forgiveness of the PPP Loan and ~~approval by~~on July 27, 2021, we received formal notification in the ~~SBA.~~form of a letter dated July 19, 2021 from the Lender that the SBA approved our PPP Loan forgiveness application for our Loan in the amount of $3.3 million (including accrued interest). We will account for the debt forgiveness during its fiscal third quarter of 2021 and will recognize a gain on extinguishment of debt in the amount of $3.3 million in the Consolidated Statements of Operations.

Our business has 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 manufacturing plant~~the Red River Plant and build-up inventory in order to supply our customers. This resulted in additional costs as the sequestered employees received hazard pay. We used proceeds from the PPP Loan to fund ~~these additional employment expenses and other~~our 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 Senior 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 as disclosed in Note 4.~~Solutions. 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~~bore interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which iswas adjusted quarterly to the current 3-month LIBOR rate, and interest iswas 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 iswas secured by substantially all the assets of ~~our assets,~~the Company, including the cash flows from the Tinuum ~~Group and Tinuum Services (collectively, the "Tinuum Entities"),~~Entities, but excluding our equity interests in ~~those~~the Tinuum entities. ~~During the six months ended~~

On June ~~30, 2020, we made principal payments of $12.0 million.~~

~~The Senior Term Loan includes, among others, the following covenants: (1) Beginning December 31, 2018~~1, 2021 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 inprior to the Senior Term ~~Loan) to be less than 1.75 times the outstanding principal amount of the Senior Term Loan; (2) Beginning~~Loan's maturity date, we paid-off 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 underits entirety the Senior Term Loan and ~~(b) expected future net cash flows~~all remaining accrued interest through this date in the amount of $6.1 million. The Company did not incur any prepayment fees associated with the early pay-off.

Line of Credit

In September 2013, ADA, as borrower, and us, as guarantor, entered into the Line of Credit with the Lender for an aggregate borrowing amount of $10.0 million, which was secured by certain amounts due to us from certain Tinuum Group RC leases. The Line of Credit has been amended 15 times from the ~~refined coal business as~~period from December 2, 2013 through June 30, 2021 and included a reduction in the borrowing amount to $5.0 million in September 2018.

On March 23, 2021, we and the Lender entered into an amendment to the Line of Credit (the "Fifteenth Amendment"), which extended the maturity date of the ~~end~~Line of Credit to December 31, 2021 and increased the ~~most recent fiscal quarter exceed $100.0~~minimum cash requirement from $5.0 million to $6.0 million.

~~Pursuant to entering~~ On July 29, 2021, the Company and the Lender entered into the ~~PPP Loan, on April 20, 2020, we and Apollo executed the First~~Sixteenth Amendment (the "Sixteenth Amendment") to the ~~Senior Term Loan, which permitted us~~Line of Credit. The Sixteenth Amendment amends certain terms and conditions related to ~~enter into~~collateral securing the ~~PPP Loan.~~Line of Credit.

As of June 30, 2021, we have $3.7 million of borrowing availability and no outstanding borrowings under the Line of Credit.

Stock Repurchases and Dividends

In November 2018, ~~our~~the Board ~~of Directors (the "Board")~~ authorized us to purchase up to $20.0 million of our outstanding common 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 the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.

Under the Stock Repurchase Program, for the three and six months ended June 30, 2021, we did not repurchase any shares. For the three and six months ended June 30, 2020, ~~under the Stock Repurchase Program,~~ we purchased zero and 20,613 shares, respectively, of our common stock for cash of zero and $0.2 million, ~~inclusive of commissions and fees. For the six months ended June 30, 2019, under the Stock~~

~~Repurchase Program, we purchased 248,591 shares of our common stock for cash of $2.8 million,~~respectively, inclusive of commissions and fees. As of June 30, ~~2020,~~2021, we had $7.0 million remaining under the Stock Repurchase Program.

For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, we declared and paid quarterly cash dividends to stockholders of ~~$4.8 million~~zero and ~~$9.2~~$4.8 million, respectively.

~~Line~~

Liquidity Outlook

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations, and make potential future dividend payments and share repurchases depends upon several factors, including executing on our contracts and initiatives, receiving M-45 License royalty payments from Tinuum Group and distributions from Tinuum Group and Tinuum Services, increasing our share of ~~Credit~~the market for APT consumables, including expanding our overall AC business into additional adjacent markets and improving our customer and product mix.

OnFor the remainder of 2021, our primary source of liquidity is expected to be distributions from Tinuum Group and Tinuum Services. These distributions in 2021 will provide sufficient cash on hand to fund operations in 2021 and 2022. For 2021, we expect to spend $11.8 million in capital expenditures compared to $7.1 million incurred in 2020. This increase is primarily the result of product specific capital related to the Supply Agreement, which is estimated to be $3.7 million for the second half of 2021, and routine scheduled maintenance outages, which occurred in the second quarter of 2021. As a result of the Plant Incident, the Red River Plant was shut down for nine days for repair. The cash flow impact associated with the incident was $0.2 million for repairs and $0.7 million in purchased inventory.

During the three months ending June 30, 2021, we entered into the Retention Agreements, which are for the purpose of retaining officers and key employees in order to maintain our current business operations while we pursue and execute on our strategic initiatives. The total amount due at time of payment pursuant to the Retention Agreements is $2.4 million, which will be a future use of cash.

Due to the expiration of the Section 45 tax period as of December ~~7, 2018, ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, as borrower, we, as guarantor,~~31, 2021 and the ~~Lender entered into an amendment~~resultant wind down of Tinuum Group's and Tinuum Services' operations by the end of 2021, distributions from Tinuum Group will no longer be a material source of liquidity after 2021.

As we look to ~~the Line~~2022 and beyond, our primary sources of ~~Credit. This amendment provided, among other things, for ADA~~liquidity are expected to be from cash on hand and through our ongoing operations of our APT segment. We believe the Supply Agreement will provide material incremental volume and lower operating cost efficiencies of our Red River plant, providing additional sources of operating cash flows in the future. Full and partial reimbursements on capital expenditures from Cabot will offset 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. We believe that as reclamation activities occur and the related bonded amounts required under the Surety Agreement are able to ~~enter into~~be reduced, there may be an opportunity to further reduce 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, the financial covenants in the Line of Credit were amended~~collateral requirement. In 2022 and ~~restated~~beyond, our annual capital expenditures are expected to ~~be consistent with the Senior Term Loan covenants, including maintaining a minimum cash balance of~~average approximately $5.0 million. ~~The maturity date of the Line of Credit is September 30, 2020.~~

~~As of June 30, 2020, we have $5.0 million of borrowing availability and no outstanding borrowings under the Line of Credit.~~

Sources and Uses of Cash

Six Months Ended June 30, ~~2020~~2021 vs. Six Months Ended June 30, ~~2019~~2020

Cash, cash equivalents and restricted cash increased from ~~$17.1~~$35.9 million as of December 31, ~~2019~~2020 to ~~$21.7~~$57.3 million as of June 30, ~~2020.~~2021. The following table summarizes our cash flows for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively:


	Six Months Ended June 30,										Six Months Ended June 30,
(in thousands)	2020			2019			Change			(in thousands)	2021		2020		Change
Cash and cash equivalents and restricted cash provided by (used in):										Cash and cash equivalents and restricted cash provided by (used in):

Operating activities	$	24,085		$	30,572		$	(6,487	)	Operating activities	$	18,151	$	24,085	$	(5,934)

Investing activities	(4,696		)	(4,979		)	283			Investing activities	20,401		(4,696)		25,097

Financing activities	(14,736		)	(28,945		)	14,209			Financing activities	(17,149)		(14,736)		(2,413)
Net change in cash and cash equivalents and restricted cash	$	4,653		$	(3,352	)	$	8,005		Net change in cash and cash equivalents and restricted cash	$	21,403	$	4,653	$	16,750

Cash flow from operating activities

Cash flows provided by operating activities for the six months ended June 30, ~~2020~~2021 decreased by ~~$6.5~~$5.9 million compared to the six months ended June 30, ~~2019.~~2020. The net decrease was primarily attributable to a decrease in ~~net income~~earnings from equity method investees of $23.3 million, impairment of long-lived assets of $26.1 million, and a decrease in Distributions from equity method investees, return on investment of $13.4 million for the six months ended June 30, ~~2020~~2021 compared to ~~net income for~~ the six months ended June 30, 2019 of $48.2 million, a decrease period over period in distributions from equity method investments, return on investment of $5.6 million, and a decrease in the net change in inventories, net of $4.4 million.2020. Offsetting this net decrease in cash flows provided by operating activities was ~~a decrease period over period in earnings from equity method investees of $26.2 million and~~ an increase ~~of $5.0 million~~ in net income for the six months ended June 30, 2021 compared to net ~~change in accrued payroll and related liabilities~~loss for the six months ended June 30, 2020 ~~compared to the six months ended June 30, 2019.~~of $56.0 million.

Cash flow from investing activities

Cash flows ~~used in~~provided by investing activities for the six months ended June 30, ~~2020 decreased~~2021 increased by ~~$0.3~~$25.1 million compared to the six months ended June 30, ~~2019~~2020 primarily from ~~a decrease~~distributions from equity earnings in ~~cash consideration paid for the six months ended June 30, 2019~~excess of $0.7 million related to the acquisition of Carbon Solutions. Offsetting this decrease in cash flows used in investing activities was an increase period over period in capital expenditures related to property, plant equipment and intangibles of $0.4 million.cumulative earnings.

Cash flow from financing activities

Cash flows used in financing activities for the six months ended June 30, ~~2020 decreased~~2021 increased by ~~$14.2~~$2.4 million compared to the six months ended June 30, ~~2019~~2020 primarily from ~~proceeds received from the PPP Loan of $3.3 million~~an increase in ~~April 2020 and decreases period over period in dividends of $4.4 million,~~ principal loan repayments on the Senior Term Loan of $4.0 million and proceeds received from the PPP Loan during the six months ended June 30, 2020 of $3.3 million. Offsetting these increases was a decrease period over period in dividends paid of $4.7 million and repurchases of common shares of ~~$2.7~~$0.2 million.

Contractual Obligations

During the six months ended June 30, ~~2020,~~2021, there were no material changes to our contractual obligations outside of the ordinary course of business from those reported as of December 31, ~~2019.~~

2020, except for a reduction in the Marshall Mine ARO of $1.9 million based on revised estimates from a reduction in scope of the reclamation work.

Off-Balance Sheet Arrangements

~~During the six months ended~~As of June 30, ~~2020,~~2021, we ~~did not engage in any off-balance sheet arrangements except those discussed in Item 7 - "Management's Discussion~~had outstanding surety bonds of $24.1 million related to performance requirements under reclamation contracts associated with both the Five Forks Mine and ~~Analysis~~the Marshall Mine. As of ~~Financial Condition and Results~~June 30, 2021, we had restricted cash of ~~Operations"~~$10.0 million securing the Surety Agreement. We expect that the obligations secured by these surety bonds will be performed in the ~~2019 10-K.~~ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds should be released, and we should not have any continuing obligations. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the issuer of the surety bond.

Critical Accounting Policies and Estimates

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 ~~2019~~2020 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~~information regarding recently issued accounting standards applicable to ~~us that were issued during the six months ended June 30, 2020 and subsequent thereto through the date of this Quarterly Report.~~us.

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


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


~~(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 legal proceedings;~~


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


~~(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;~~


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


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


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


~~(r)~~	~~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.~~

(a)the scheduled expiration of the IRC Section 45 tax credit period in 2021 and the resulting wind down of the business of, and loss of revenue from, Tinuum Group and Tinuum Services;

(b)the production and sale of RC by RC facilities through the remainder of 2021 that will qualify for Section 45 tax credits and associated cash flows from Tinuum Group expected through 2021;

(c)expected growth or contraction in and potential size of our target APT markets, including the water purification, food and beverage and pharmaceuticals markets;

(d)expected supply and demand for our APT products and services;

(e)increasing competition in the APT market;

(f)future level of research and development activities;

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

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

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

(j)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;

(k)the amount of future capital expenditures needed for our business;

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

(m)the adoption and scope of regulations to control certain chemicals in drinking water; and

(n)opportunities to effectively provide solutions to U.S. coal-related businesses to comply with regulations, improve efficiency, lower costs and maintain reliability.

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 APT technologies on favorable terms; our inability to ramp up our operations to effectively address recent and expected growth in our APT 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 June 30, ~~2020.~~2021.

Changes in Internal Control Over Financial Reporting

There 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 June 30, ~~2020~~2021 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. Information with respect to this item may be found in Note 1011 "Commitments and Contingencies" to the consolidated financial statements included in Item 1 of Part I of this Quarterly Report.

Item 1A. Risk Factors

There are no material updates to our risk factors as disclosed in the ~~2019~~2020 Form 10-K except as set forth below. This risk factor should be read together with the risk factors in the ~~2019~~2020 Form 10-K.

~~The COVID-19 pandemic and ensuing economic downturn has affected, and is expected~~Our inability to ~~continue~~meet customer supply requirements due to ~~affect and pose risks~~damage to or insufficient production capacity of our manufacturing facility may have a material adverse effect on our business, results of operations and financial ~~condition~~condition.

We own and ~~cash flows;~~operate a single activation-based manufacturing plant (the Red River Plant), which is our sole manufacturing plant for producing and ~~other epidemics or outbreaks~~selling products to our customers. Our ability to meet customer expectations, manage inventory, complete sales and achieve our objectives for operating efficiencies depends on the full-time operation of ~~infectious diseases may have a~~the Red River Plant. We cannot replicate our manufacturing methods at another plant due to the limited availability of similar ~~impact.~~

~~In March 2020,~~manufacturing plants, the ~~WHO declared the outbreak of COVID-19 a global pandemic, which continues~~additional costs incurred in supplying raw materials such as lignite to ~~spread throughout the United States ("U.S.")~~another plant, and the ~~world~~risk of revealing our confidential and ~~has resulted~~proprietary technologies and manufacturing processes.

If the Red River Plant was destroyed or damaged in ~~authorities implementing numerous measures~~a significant manner, we would suffer a loss of inventory to ~~contain~~supply customers, likely incur additional costs to deliver products to our customers, and disrupt 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 thatordinary course 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.business. In addition, ~~many of~~if contractual demand exceeds manufacturing capacity, we would jeopardize our ~~customers are working remotely,~~ability to fulfill obligations under our contracts, which ~~may delay the timing of some orders and deliveries expected~~could, in ~~the second quarter of 2020 and beyond. The disruptions~~turn, result in reduced sales, contract penalties or terminations, damage to our ~~operations caused by COVID-19 may result in inefficiencies, delays~~customer relationships 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 notcould have a material adverse ~~impact~~effect on our ~~financial results~~business. While we have insured the Red River Plan 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,damage or destruction as well as ~~certain other operating costs as permitted under the Paycheck Protection Program. We expect~~for losses from business interruptions, there can be no assurance that ~~current cash and cash equivalent balances, inclusive of the PPP Loan, and cash flows that are generated from operations~~any insurance coverage will be sufficient to cover any such losses.

Further, a prolonged disruption in our operations due to Red River Plant downtime or having to meet customer requirements that exceed its maximum manufacturing capacity would require us to seek alternative customer supply arrangements, which may not be on attractive terms to us or could lead to delays in distribution of products to our ~~working capital needs and other capital and liquidity requirements for at least the next 12 months. However, if~~customers, either of which could have a material adverse effect on our business, ~~is more adversely impacted by COVID-19 than expected,~~results of operations and ~~our personnel costs remain higher than budgeted, our cash needs could increase.~~financial condition.

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 June 30, 2020.

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

None.

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
4.1
Third Amendment to Tax Asset Protection Plan dated as of April 8, 2020, by and between the Company and Computershare Trust Company, N.A., as rights agent
8-K 001-37822 4.3 April 9, 2020
10.1
Promissory Note of the Company dated April 21, 2020, made under the Paycheck Protection Program sponsored by the U.S. Small Business Administration through BOK, NA dba Bank of Oklahoma
8-K 001-37822 10.1 April 22, 2020
10.2
First Amendment to Term Loan and Security Agreement dated April 20, 2020, among the Company, the Company's Subsidiaries named therein, the Lenders named therein and The Bank of New York Mellon as administrative agent to the Lenders
8-K 001-37822 10.2 April 22, 2020
10.3
Release of Claims and Separation Agreement dated as of June 30, 2020, between the Company and Heath Sampson*

10.4
Advisor Services Agreement dated as of July 1, 2020, between the Company and Heath Sampson*

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

Sixteenth 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 July 29, 2021

8-K

001-37822

10.1

July 29, 2021

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.~~

** – ~~Portions of this exhibit have been omitted pursuant to a request for confidential treatment.~~Filed herewith.

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)


August 9, 2021			~~Advanced Emissions Solutions, Inc.~~
By:	~~(Registrant)~~


~~August 10, 2020~~	~~By:~~	/s/ Greg P. Marken
				Greg P. Marken
				Interim Chief Executive Officer
				(Principal Executive Officer)


August ~~10, 2020~~9, 2021			By:	/s/ ~~Christine A. Bellino~~Morgan Fields
				~~Christine A. Bellino~~Morgan Fields
				~~Chief~~Vice President of Accounting ~~Officer~~
				(Principal Financial ~~and Accounting~~ Officer)



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



(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



	Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
	Segment								Segment
	PGI		RC		Other		Total		PGI		RC		Other		Total
Revenue component
Consumables	$	11,049	$	—	$	337	$	11,386	$	25,602	$	—	$	893	$	26,495
License royalties, related party	—		4,191		—		4,191		—		8,411		—		8,411
Revenues from customers	11,049		4,191		337		15,577		25,602		8,411		893		34,906

Earnings from equity method investments	—		20,935		—		20,935		—		42,625		—		42,625

Total revenues from customers and earnings from equity method investments	$	11,049	$	25,126	$	337	$	36,512	$	25,602	$	51,036	$	893	$	77,531



	As of June 30, 2020
(in thousands)	Unrecognized Compensation Cost		Expected Weighted- Average Period of Recognition (in years)
RSA expense	$	2,173	2.18
PSU expense	146		2.69
Total unrecognized stock-based compensation expense	$	2,319	2.21



	Restricted Stock		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2020	451,344		$	10.65
Granted	218,524		$	5.34
Vested	(195,884	)	$	10.48
Forfeited	(3,814	)	$	8.48
Non-vested at June 30, 2020	470,170		$	8.27



	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	—		—
Options exercised	—		—
Options expired / forfeited	(300,000	)	13.87
Options outstanding, June 30, 2020	—		$	—	$	—	0
Options vested and exercisable, June 30, 2020	—		$	—	$	—	0



	As of
(in thousands)	June 30, 2020		December 31, 2019
Prepaid expenses and other assets:
Federal and state income tax benefits	$	11,416	$	—
Prepaid federal and state income taxes	4,215		4,228
Prepaid expenses	1,987		1,708
Other	1,341		1,896
	$	18,959	$	7,832
Other long-term assets, net:
Right of use assets, operating leases, net	$	2,529	$	5,073
Spare parts, net	3,559		3,453
Mine development costs, net	4,139		7,084
Mine reclamation asset, net	1,323		2,451
Highview Investment	552		552
Other long-term assets	1,779		1,718
	$	13,881	$	20,331



	As of June 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	$	210	$	210	$	220	$	220



(in thousands)	Severance
Remaining accrual as of December 31, 2019	$	254
Expense provision	1,403
Cash payments and other	(817		)
Change in estimates	—
Remaining accrual as of June 30, 2020	$	840