Arq Inc (ARQ) 2009 Q3 法說會逐字稿

Good day, everyone and welcome to the ADA-ES Q3 2009 financial results conference call. At this time, I would like to inform you that this conference call is being recorded and that all participants are currently in a listen-only mode. This conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a Safe Harbor for such statements and certain circumstances.

These statements are identified by prefatory words such as I believe, will, hope, expect, anticipate, intend and plan, the negative expressions of these words or words of similar meaning. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors, including factors discussed in ADA-ES filings with the US Securities and Exchange Commission with particular emphasis on the risk factor disclosures contained in those filings.

Listeners are cautioned not to place undue reliance on the forward-looking statements and to carefully examine the information ADA-ES discloses publicly in its filings with the Securities and Exchange Commission, or otherwise before deciding to invest in ADA-ES securities. The forward-looking statements made during this conference call are presented as of today's date and ADA-ES disclaims any duty to update them unless otherwise required to do so by law. Now I would like to turn the call over to Mr. Mark McKinnies, Chief Financial Officer.

Thank you, Brandy and good morning, everyone and thank you for joining us for the ADA-ES third-quarter 2009 conference call. First, I'd like to review the Company's financial performance and then our President and CEO, Mike Durham, will update you on the Company's recent corporate developments and our future plans. After that, we will open the call for your questions.

Revenues were $3.7 million for the quarter as compared to $5.0 million in the third quarter of 2008 due to lower sales of our activated carbon injection, or ACI systems and other decreases, which were somewhat offset by an increase in our DOE and industry-supported contracts.

For the quarter, revenues from ACI systems contributed $1.9 million as compared to $3.1 million in 2008. We had contracts in progress at quarter-end for ACI systems totaling approximately $6.6 million of which we expect to complete and realize as much as $2.4 million in 2009 and the balance in 2010.

We have commenced work on nine new systems thus far this year and expect more to be awarded. Various consent decrees, in-place state regulations and new plants are driving the current market in this portion of our business. We believe the eventual outcome of the EPA [MAC] process for mercury control or legislative action will accelerate and further expand that market.

Revenues from DOE and industry-supported contracts increased for the quarter, contributing $1.1 million to revenue as compared to a contribution of $954,000 in the third quarter of 2008. The remaining unearned amount of our DOE contracts was $2.2 million as of quarter-end of which we expect to recognize $600,000 in 2009, which amount includes cash contributions by other industry partners, the majority of which is related to our CO2 capture work. The government has ceased funding new Mercury demonstration projects since that market has moved into a commercial phase. We expect that increased funding for CO2 control technology will continue to replace that source of revenues for us in the future.

Mercury-related consulting work contributed $299,000 of revenue for the quarter compared to $798,000 in 2008. FGC, our flue gas conditioning, and other contributed $400,000 of revenue for the quarter compared to $170,000 in 2008. The increase is primarily due to services we are providing to Carbon Solutions, which amount to $152,000 for the quarter.

Our gross margin in the quarter was 32% as compared to a margin of 33% realized in the third quarter last year. The margins for the year as a whole are expected to be similar to those realized in 2008. General and administrative expenses increased by $6.3 million to $7.9 million in the quarter due to the inclusion of $6.4 million of legal fees related to our existing litigation, which Mike will update you on. We expect legal costs to be lower in the fourth quarter of 2009. Included in our G&A expense for the quarter are non-cash share-based compensation expenses of $373,000.

Our operating loss for the third quarter of 2009 was $7.0 million as compared to a loss of $256,000 in 2008 due to the legal costs I mentioned. The assets and financial results of ADA Carbon Solutions, our joint venture with Energy Capital Partners, have not been consolidated in ADA's financial statements reported for September 30, 2009, but will be summarized in the footnotes to our financial statements filed in our Form 10-Q.

Overall, AC sales, activated carbon sales, amounted to $2.3 million in the third quarter and property plant and equipment and other long-term assets totaled $176 million at September 30. Our portion of the joint venture's loss for the quarter amounted to $1.5 million. Ongoing construction and operating costs are expected to be funded by ECP until we secure acceptable debt financing.

As a result of the above noted figures, we are reporting a net loss attributable to ADA of $5.3 million, or $0.76 per share, compared with a net loss of $167,000, or $0.03 per share for the same period in 2008. Cash flow used in operations was $523,000 for the quarter compared to a provision of $12,000 for the same period in 2008. Capital expenditures for the quarter totaled $121,000.

Our balance sheet as of September 30, 2009 reports cash, cash equivalents and a certificate of deposit totaling $1.2 million and working capital of $2.3 million. Shareholders' equity exceeded $25 million at quarter-end. I would like to turn over the call to Mike now who will discuss the status and progress of our AC supply JV and our other activities. Mike?

Thank you, Mark. Let me start by providing an update to the regulations that create the markets for our business. EPA is in the process of developing a maximum achievable control technology or MAC standard for coal part boilers. We expect that this will result in a standard requiring 90% to 95% Mercury capture.

In October, EPA announced it had signed a consent decree to settle a lawsuit filed by consumer environmental groups. EPA consented to complete the development of the final MAC regulation for coal part boilers by 2011 with full implementation by the end of 2014. This provides EPA additional time to finalize regulations that not only includes Mercury, but up to 188 other hazardous air pollutants.

Most noteworthy of these other pollutants are organics, volatile metals such as arsenic and selenium and acid gases such as SO3. The first two of these are of interest to the Company because activated carbon is an effective control for both organics and volatile metals. In addition, the Company is also involved in providing solutions for SO3. In the third quarter, we received a contract for a flue gas conditioning system that is an alternative to using conventional SO3 conditioning, which interferes with Mercury capture. In December, the Company will be working with a utility to demonstrate SO3 control technology for higher sulfur coal.

In parallel to the utility MAC, EPA is working on the development of two other MACs that we expect will further expand the demand for ACI systems and activated carbon. One of these is the industrial boiler MAC, which covers coal-fired boilers that provide steam, but do not generate electricity. We believe that this could increase the market for ACI systems by several hundred and annually require over 100 million pounds of activated carbon.

EPA issued a draft MAC regulation for emissions of mercury from cement kilns in April of 2009 and plans to issue a final regulation in the spring of 2010. This regulation could require ACI systems on up to 110 cement kilns in the US. ADA is already under contract to conduct testing programs for cement companies to define their missions and evaluate how our ACI equipment sorbents will work in that industry.

These tests were designed to validate the effectiveness of collecting mercury and organic from cement kiln gas. A cement kiln MAC will also increase the market for both ACI systems and activated carbon. However, even without a federal regulation, the current mercury control market continues to grow as a result of existing regulations in 19 states and Canadian provinces.

To serve this market, ADA Carbon Solutions, our joint venture with Energy Capital Partners, is making great progress on its new activated carbon processing production facilities in Louisiana. Construction on the new AC manufacturing plant in Red River Parish, Louisiana began last September and appears to be on budget and on schedule to begin operation next spring.

We are posting weekly construction pictures on our website so that you can track the progress. However, from reactions of customers and other visitors to the site, it is obvious the pictures can't capture how impressive the facility really is in person.

Funding of construction, which approximates $200 million to date, continues with interim financing by ECP. The company, ADA-CS and ECP, are working on securing permanent debt to replace the interim financing and once in place, the Company expects to own around 25% of the first production line with rights to own up to 50% of additional lines that it believes will be necessary to meet the demand generated by federal mercury control regulations.

The Company did receive very promising news on $245 million of debt financing for the plant last Thursday and expects to be able to provide additional information regarding financing later this week.

The JV has also signed AC contracts for a third of the nameplate capacity of the plant for the first five years of production. Carbon Solutions is having follow-up discussions on a number of bids that it has submitted this year and believes that several of these will result in additional supply contracts before the end of the year.

The next topic relates to our business to provide our power generation customers with technologies to capture carbon dioxide from coal-based plants. We are currently working on a contract to advance the development of our solid sorbent-based technology. The $3.2 million program is co-funded by DOE, as well as several elite power generators, including AEP, Southern Company, Lumina, Ameron and Xcel Energy. We are making progress on this technology and if you're interested in more details, we provide copies of technical papers and presentations downloadable from our website.

In the second quarter, we bid on a DOE funding opportunity to scale this up to a 50 megawatt level. However, because the funding for this program came from the stimulus funding bill, it required that the technology had the potential of creating jobs in 2011. Since our technology was in the early R&D phase, it could not meet this criteria and our proposal would not fund it.

A few weeks ago, DOE released another RFP for funding more appropriate for the status of our technology development. This funding opportunity specifically addresses solid sorbents and provides up to $15 million to scale up the technology to the one megawatt scale. We are responding to this opportunity with proposals due in December and expected awards next April.

Finally, let me update you on our refined coal product, CyClean, sold through Clean Coal Solutions, our joint venture with NexGen. We are in a stretch run with this product, which must be meet a place and service requirement before the end of the year. The IRS has yet to issue the anticipated guidance as to the specifics concerning how emissions reductions are to be measured and certified to demonstrate the continuous compliance necessary to qualify for the tax credit.

We believe the delays are due to concerns over how the tax credit would apply to a different technology approach than ours and we do not expect the final guidance to impact our ability to qualify our product. However, the uncertainty created by these delays has reduced the number of systems that could be placed in service before year-end.

As a result, our current goal is to get two placed in service before the end of the year. We began construction of the equipment in July, so it could be -- so that we could get the equipment installed and operating by year-end. It is expected that these two could produce $3 million to $6 million in operating income for ADA for a 10-year period. In addition, this will also trigger a $4 million payment from NexGen in order to maintain its 50% ownership in the JV.

We are working forward -- we are moving forward with these projects because of the huge financial upside for us, but recognize there are a number of uncertainties and risk factors, including obtaining explicit guidance from the IRS, successfully demonstrating qualified emissions reductions, finalizing necessary contractual agreements and completing construction and installation and starting the facilities prior to January 1, 2010.

We are also hearing that, because of the late guidance from the IRS, there is a possibility that we could get extensions to qualify for the coal-based Section 45 tax credits. We are working with our consultants in Washington to pursue this. We feel that there are five or six other potential customers that are very viable candidates for the technology if there were additional time following an IRS guidance for them to put the necessary contracts in place.

Let me now provide a brief update on the lawsuits that the Company is involved. In the suit with Calgon, we believe we are entitled to commissions that will total in excess of $8 million on sales of activated carbon that were the result of our MOU that was signed in 2007. Discovery is near complete and we are even more confident of our position. The trial is scheduled for July of 2010.

We also had a very favorable ruling on the Norit suit. In October, at our request, the judge ruled the issue should not be addressed by state court and jury in Marshall, Texas, but by binding arbitration in Georgia. As I've said before, we felt that, from the beginning, that this lawsuit had no merit and now that the issues will be resolved by a legally sophisticated panel of three arbitrators, we remain confident about a positive and expeditious resolution.

Let me summarize by stating we are excited about the growing market for clean coal technology. We are making great progress with the construction of a very important asset for the Company with the AC plant. Our partnership with a well-capitalized company like Energy Capital Partners has allowed the project to stay on schedule in difficult economic conditions while we make significant progress on debt financing.

We will continue to execute our aggressive business strategy and as you can see, there are a number of uncertainties we expect to be resolved by year-end. We believe that successfully completing these near-term milestones, the equity markets will eventually reward the ADA shareholders with an evaluation that reflects the Company's prospects for substantial earnings growth.

Thank you. Let me open up this call for your questions, but I must let you know ahead of time, we cannot answer any questions on the debt financing until release of that information has been approved.

(Operator Instructions). Ben Kallo, Baird.

Hi, gentlemen. With several new markets opening up for activated carbon, is there enough capacity of ACI units and engineering teams and how do you guys plan on meeting that increased demand there?

Well, we are expanding that. We are seeing that as going to be one of the challenges for the entire industry as we go from a situation where there are, from 2004 to 2010, about 150 units sold. And we expect that these new regulations could create markets for 800 to 1000. So that is going to be one of the challenges. We have been working on expanding our capacity and ability. One of the things that will work in our favor is -- one of the limiting factors in supplying ACI systems has been competition for the large steel-rolled silos in that market where we are competing with ethanol, which was very hot during the mid to late part of this decade and we don't think that will be part of the next market. But that is a concern on how to expand to be ready for that much, much larger market.

Okay, thanks. And then could you give us some more details on how your business is going to be affected by the recent review of the Chinese antidumping tariff?

We just don't see any impact of that at all. We just feel the biggest news in the activated carbon industry is that we are bringing on 150 million pounds of low-cost domestic production in the US and tariffs impacting a few small Chinese importers that our customers on the mercury control market do not care about. We just don't see that having any impact.

Okay, thanks.

Graham Mattison, Lazard Capital Markets.

Hi, good morning, guys. I won't ask anything on the financing, but in terms of the amount of AC contracts you guys are bidding right now, and you mentioned during your comments that you expect to hear on these by the end of the year. Is there sort of a dropdead date that you absolutely need to make a decision on by the end of the year to get to lock in the capacity or could that potentially move out a few quarters just given the usual speed of utilities?

Well, we do have to deal with the issue of speed of utilities, but just the specific markets are -- because of the nature of the regulations -- are meeting a number of different deadlines. And so there are -- we saw some deadlines pass in Illinois. The systems had to be running up in July of this year and most of those we couldn't bid because we weren't far enough along. But what we are seeing on the current markets for consent decrees, different states, different regulations in Canada, there is no one date that that happens.

So what we hope to announce contracts by the end of the year are the ones that are coming to the fruition of what has been up to a year long purchasing process and yet we know there are others that are just starting the process that have just announced RFPs just coming out. So it is a continuum rather than a step function because regulations have so many different deadlines.

But your confidence on the year-end, announcing it by year-end is just based on where you are in the negotiations?

Exactly.

And then with the recent federal ruling, how does this impact your outlook for the size of the carbon market, the activated carbon market in terms of when you originally undertook the project?

Well, we think it is bigger now for the federal rule because of these other two markets, the cement market, as well as the industrial boilers. Industrial boilers, again, are either boilers of all sizes that burn coal to make steam, but don't make power or they are power-generating boilers smaller than 25 megawatts. And so when we look at the overall market, we have added two new markets that could add a couple hundred million pounds a year of additional capacity and that alone would require additional production lines similar to the one we are building in Louisiana.

Got you. Great. Thank you. I will jump back in queue.

Michael Horwitz, Robert Baird.

Can you refresh my memory on how the plant will ramp production in 2010 and what output might look like? And then help me with output in 2011. And as a follow-up, at what point would you and ECP have to make a decision about any future plans? Or how should we think about that in terms of bringing on supply going forward? And how do your customers expect that to occur so that they can meet their own supply requirements? Thanks.

Let me see if I can remember those. I only deal with one question at a time. The plan is our production line consists of a single production line with four separate furnaces. So this is the first time that has ever been done. It can operate as a facility once the first two furnaces come online. The fabrication of the furnaces, you can see from the pictures, are pretty much done and so the plan is to start the facility up in late April with the first two furnaces. So that would be producing about 75 million pounds a year and that would mean bringing up all the other components of the system there, pollution control equipment, the coal handling and everything else. And then the second two furnaces would come up later, mid-summer or so. So it would be capable of producing 150 million pounds by the end of the summer of next year.

So plans for additional units would come from timing on these other markets and again, they have to go kind of hand in hand with the market so that we could build out the units in time to meet those markets. So we would be selling into those once the certainty of the final announcements on those that created demand. Because we are permitted already for a second line there, that means we are about 18 to 20 months away from producing to meet those markets. So the timing would be timed as when the customers are willing to sign up for the offtake contracts for those. So we are thinking that we will start construction negotiations in 2011.

So as it relates to your P&L in 2011, you would have 150 million pounds of production going through your facility. I can make some assumptions about price. If you will get 25% of that, that reflects your economic benefits on the plant?

That is how it currently plays out.

Great. Thank you.

John Quealy, Canaccord Adams.

Hi, good morning, guys. It is Mark Segal for John. Just a question on the cash balance. Are you looking for a step-up in collection receivables by year-end or boosting that cash balance by working capital management or what should we look for near-term?

I think exactly right, Mark. We are doing those things to manage working capital and have the ability to do that. So we feel like we are in good shape through year-end with what our needs are.

Okay, great. And then just on the incremental 15 or 20 ACI systems based upon current state regs, have all those systems been sent out for bid and for those that have been sent out, have there been AC supply contracts issued in conjunction with those RFPs?

Well, none of the ACI systems are ever bid with AC contracts. So all of the contracting for activated carbon is for systems that are already in construction or having been awarded or possibly even up and running. So the RFPs that we see that are still left out there, some are RFPs, some are units that we know will need RFPs, will need ACI systems, but have yet to issue them. So what we're looking at is what, with our knowledge of the market, that there is another 15 to 20 ACI systems that should be awarded sometime in 2010.

Okay. And then just lastly, on the industrial boiler market, how far along are you on the development of a modified ACI system? Still very early stages or how do we think about that?

We are pretty far along on that. That is going to be -- it is really simplifying the system and bringing on a low-cost unit that will scale down better to these smaller systems.

Okay, so should we be looking for some sort of announcement in the coming quarter or two?

Relative to? That market is going to be driven by the industrial boiler MAC, which won't be announced, I don't think, until some time in 2010.

Okay, thanks.

Bill Burns, Johnson Rice.

Hey, Mark, I just wanted to clear something up on G&A. G&A was $7.9 million and you said the legal expenses were $6.4 million. So had you not had the legal expenses, we would've been looking at G&A of about $1.5 million, is that correct?

Yes, Bill, that is how my subtraction works.

Okay. Just double-checking. And then, Mike, in your press release, you talk about you expect your revenues to remain at approximately the same levels for the next few quarters until mercury control legislation comes into place? Is that forecast on your part in terms of regulation coming into place?

You mean will it come in place in the next two quarters?

Next few quarters you said.

Yes, it is hard to say when the certainty is going to result in contracts. We are already seeing some increased interest in doing some programs for example with recently announced state programs for 2015. So just the certainty of those regulation creates some interest, but it is hard to predict, on this MAC regulation, what we will see.

I think what is going to happen over the next three to six months, EPA has announced its ICR program, information collection request. They are going out to do a number of tests on maybe 500 different boilers to look at these other things other than Mercury. And we are involved in some programs to look at how activated carbon will work and how that generates business on, for example, these peripheral kinds of pollutants like SO3. So we expect that we are going to have a great deal of clarity over the next two to three quarters on these other businesses that are generated from the MAC process.

Thanks a bunch.

Al Kaschalk, Wedbush Securities.

It's actually Kevin in for Al. One of the questions I had was what type of pricing terms or changes in pricing terms are you guys experiencing on the utilities front?

We assigned our first contract in May of 2008 and they are pretty consistent to what we signed at that point.

Are you guys still seeing any caution on the front of -- I guess on the customer front with regards to signing additional agreements?

Well, the caution has come from some uncertainties related to -- this has been a very tough year for the coal-fired power industry. We have had pretty mild winters and pretty mild summer and extremely low gas prices. So the capacity factor for the coal-fired power plants is lower than anything they have experienced in the past. So as they look out into the future over what capacity to plan for for activated carbon over the next three to five years, there is some uncertainty there. And so that just results in needing some greater optionality as they face the uncertainty of what gas prices are going to be in the future, what the weather is going to be in the future and around those issues.

And just a couple of last quick housekeeping items. I take it I can probably get this information when you guys put out the Q, but cash flow from ops from investing and financing for the quarter, any additional details on that?

No, and I can talk to you off-line about that after the Q is out.

Sure. I appreciate it. Thanks again, guys.

Dan Mannes, Avondale Partners.

Good morning, guys. A couple of follow-up questions. First, just on the cash, how are you accounting for the legal expense? Because with $6 million of incremental costs in the quarter, your cash position only went down a couple hundred thousand. I am looking at the liabilities line, it looks like a lot of it is in sort of long-term liabilities. So can you just explain real quick what your accounting is for these costs?

Yes. Those costs, as you note, there is a significant amount that is down in the accrued liabilities. You'll see in our other disclosures that, as the Norit lawsuit relates to our activated carbon manufacturing activities, a portion of that is -- we have an indemnification obligation to the joint venture, but the joint venture is currently paying those legal fees. So that is something that we will reconcile with them in the future.

So I calculated in the long term. You don't expect to reconcile that within the next 12 months?

We don't expect to use current assets to resolve those matters.

Got it. Okay, and then on refined coal, what is your expected spend, I guess, from October 1 through year-end and how do you expect to finance that?

Yes, those are primarily capital costs that are related to building the two facilities that Mike has mentioned about. As you will note in the Q as well, we have secured a loan from NexGen, our partner in the joint venture there, to provide the bulk of that financing for those systems. Much of that is also coming from some internal work that we are doing in design and managing the build of those internally so we are able to help with some of the contributions that way. So it will come from a combination of the work that we are doing and our partners on that.

Right. And then just two questions on activated carbon. The first one is on the $2.3 million in sales, can you give us any color on the margins that you actually produced because I assume this is all imported carbon here you are grinding and reselling or you are processing and reselling?

We are not reporting information for ADA Carbon Solutions. You will see that summarized in the footnotes to our 10-Q. As we have mentioned in the past that margins are not very significant because this, as you note this is all imported material that we bring in and then treat ourselves. So they are certainly not indicative of what we expect in the future.

Okay. And then last question on a similar topic, you noted you are bidding on a number of contracts with expected awards by year-end. And we saw the Illinois utility sort of wait till the last minute, so I expect these guys will as well. But you should get these by year-end realistically and with 30% of the plant sold out and all the contracts you are currently looking at, if you win everything you are currently bidding on, at what level do you think you will be contracted at once this is said and done given the contracts you are bidding on now?

Well, that is a good question. And as Mike noted before, there is no step function here. These contracts ramp up over a period of time based upon the customers' needs and the regulations of the state, the new plants that are coming online. Our expectation is, when it is all said and done, that we will be operating at capacity at the plant (multiple speakers) over a period of time and so we expect to be ramping through that in 2010 and up to 2011, early 2011.

Right, I mean eventually -- I get that. You wouldn't be building a plant this size unless you thought there was adequate demand. But given what you are currently bidding on now, how does that stack up with the expected capacity of the plant?

Well, again, Dan, it is an issue that we are starting up full capacity by the end of the year and so we are pushing out plans for additional awards all the way through 2011. So it is a number that changes with time.

Okay. Thank you.

Michael Goldenberg, Luminus Management.

Good morning. I wanted to ask -- you might have discussed this more on the call, but I missed a part of it. Could you provide some more color on your view on the federal Mercury legislation and where you think it is heading and if barring any legislative action if you think we could get some other means of regulating mercury sometime sooner?

It is going to come from one of two ways. One is the federal EPA administrative approach and basically what this lawsuit was that was settled is that, once the courts affirm that the utilities were subject to Section 112, that they had to go through the MAC process. Well, the MAC process is not just for mercury, it is for all 189 hazardous air pollutants.

The MAC process requires looking at data from the industry, determining what the best 12% are doing and then establishing, A, regulation for each of these pollutants at that top 12%. So there is plenty of data on mercury these days, but there is -- what is new are these other metals like arsenic and selenium, acid gases and a lot of the organics. So as part of this, it allowed EPA a little more time to capture data, go out and get data from power plants on these other pollutants and yet end up with a regulation that has to be finalized in 2011. So that is one track that is a fair amount of certainty now around the timing on that.

The other possibility is legislatively and again, the one that gets the most attention is Senator Carper's three pollutant bill, which is affixed to care for SOx and NOx and has a mercury component on it. And right now, it is submitted as an amendment to the climate bill that is being discussed within the -- and I think it just passed at the Senate Environment and Public Works committee. Whether that moves through the rest of the Senate, we don't know.

There is also talk that if the climate bill stalls that the three pollutant bill, which has a fair amount of support from all parties, the utilities want the certainty of affixed to care and to [Kammer] too. So that is the other possibility and they are kind of independent, so we watch both.

Got it. Thank you.

(Operator Instructions). Veny Aleksandrov, Pritchard Capital.

-- , gentlemen. Hello?

Hello.

I have one question left. On the nitrogen sulfites, you mentioned the possible extension of the deadline. Do you have any indication it is going to be and how big this extension is going to be and how much of extension do the five to six potential customers really need?

Well, what they are looking at is there is some must-do legislation on tax-related issues that they think, in all likelihood, will happen before the year-end. And the thought is pushing for a one-year extension instead of the end of 2009 to the end of 2010. So that would give us another year to look at additional units beyond these first two that we are trying to put in place.

We think that year would give us sufficient time to approach those. When we -- when the IRS originally announced that they were going to release guidance on this program, it was in June. We had a number of utilities that were willing to move forward once they could see that guidance. And so as that pushed towards the end of the year, we could no longer be sure that they would get the guidance and get the equipment installed in time. So we are hopeful that we can get that extension because, if things go as planned, we get these first two units up and operational, which having units up and operational qualifying for the tax credit is a great sales assistance program. So if we get those, we think that it will -- just these two alone are going to be a pretty significant revenue source for us as we will sell the equipment potentially in January and then by the first quarter, be recognizing up to $6 million annualized in operating income from that and another $4 million from NexGen. And so having the opportunity to grow that even beyond by another four to six customers would be very exciting for us.

Thank you, I appreciate it. That was my question.

[Edward Walbridge], [Orgone Institute].

Gentlemen, good morning. The Louisiana facility is taking a lot of money. It is being put in, as I understand it, by Energy Capital Partners. Now what would happen if Energy Capital Partners decided to take the completed facility and just walk off with that? What legal protection do you have? Since they are putting in all the (inaudible) and a great deal of money, they might end up owning almost all of it. And so I am worried about that.

Well, the end ownership of this will be dependent upon the relative amounts of equity put in by both companies once the interim bridge financing that is being placed by Energy Capital is replaced by the permanent debt. So it is a matter of we have got equity in it. ECP has equity in it. We have interim financing to assure that the plant gets completed on time and on schedule. We have got very positive news on debt financing that we will release here shortly. And then once that debt financing takes out the bridge financing, then the final ownership is defined by the equity contributions.

What are the maximum and minimum percentages on those contributions?

Well, all we can give you is our guidance on what we think is the most likely and that is the 75/25 split.

I see. Okay, thank you.

(Operator Instructions). There are no further questions. I will now turn the conference back to management.

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

Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating and have a nice day. All parties may now disconnect.