Arq Inc (ARQ) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to fourth quarter 2009 financial results conference call.

(Operator Instructions).

This conference call contains forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934 and 27 A of the Securities Act of 1933, which provide a Safe Harbor for such statements in certain circumstances. These statements are identified by words such as, believe, will, hope, expect, anticipate, intend, and plan, the negative expressions of these words or words with similar meanings. Actual events or materials could differ materially from those discussed in the forward-looking statements as a result of various factors, including factors discussed in ADA ES's filings with the Securities and Exchange Commission, with particular emphasis on the section entitled, Risk Factors in ADA ES's Form 10-K. Listeners are cautioned not to place undue reliance on the forward-looking statement, and to carefully examine the information ADA ES discloses publicly in it's filings with the Securities and Exchange Commission or otherwise, before deciding to invest in ADA ES's 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 by law to do so.

Now I would like to turn the call over the Mark McKinnies, Chief Financial Officer. Please go ahead, sir.

Thank you, Regina, and good morning, everyone, and thank you for joining us for ADA ES fourth quarter and year-end 2009 conference call. First I would like to discuss 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 amounted to $6.6 million for the fourth quarter, which was double the level in the 2008 quarter, and $20.1 million for the 2009 full-year, as compared to the $16.2 million in 2008. The increase for the quarter and the year are largely due to increases in our Flue Gas Conditioning and other segment, which includes our Refined Coal activities. These revenues increased $2.6 million during the fourth quarter, and $3.5 million for the year, due primarily to sales of Refined Coal in December of $2.4 million as Clean Coal, our joint venture with NexGen tested and placed two facilities in service prior to year-end. We expect those facilities will be sold to third parties and placed in routine operations during the second quarter of 2010. We will not record the continued sales of Refined Coal, but rather expect to recognize revenue both from the sale of the facilities, and the tax credits expected to be generated from routine operations.

Revenues for our Mercury Emission Control segment or MEC segment increased by 23% during the fourth quarter, and 2% for the year due to the increased revenues from the Activated Carbon Injection or ACI systems, which contributed $2.8 million of the MEC revenues in the fourth quarter of 2009, as compared to a contribution of $1.7 million in the fourth quarter of 2008. The revenue increase in this segment was somewhat offset by decreased revenues from our DOE, an industry-supported demonstration contracts. ACI systems sales generated approximately $10.6 million in revenue for the year, as compared to $9.4 million in 2008. We had contracts and progress at year-end for ACI systems totaling approximately $5.7 million, of which we expect to complete and realize as much as $3.7 million in 2010, and the balance in 2011.

We are seeing a slower pace on orders for equipment in response to various consent decrees in place, state regulations in new plants which have been driving the current market in portion of our business. However we believe the eventual outcome of the EPA MACT process for mercury control, or legislative action will accelerate and further expand that market likely starting in 2012. For the year, our DOE and industry demonstration contract revenues totaled $3.9 million, as compared to $4.7 million in 2008, as Government funded work from mercury demonstration programs ceased as the market moved into a commercial phase.

The remaining unearned amount of DOE contracts was $1.6 million as of December 31, 2009, of which we with expect to recognize $730,000 in 2010, which includes cash contributions by other industry partners, the majority of which is related to our CO2 capture work. We expect that increased funding for CO2 control technology will continue to replace our Mercury demonstration programs as a source of revenue. The stimulus package included $3.4 billion for development of Clean Coal technologies to provide funding for the types of projects in which we are involved. We have a proposal in to the DOE for continuation of our CO2 work, valued at approximately $14 million.

Our gross margin in the fourth quarter was16%, as compared to 26% for the fourth quarter of last year. The fourth quarter of 2009 percentage is markedly less than the prior year quarter and other quarters in 2009, due to the low margin on the Refined Coal sales made during testing, which were essentially performed on the cost basis. For year, gross margin was 31%, or 35% if -- the Refined Coal amounts are excluded, versus 33% for 2008. The improvement on excluding the Refined Coal is primarily to cost reductions we achieved in the ACI system sales and improved efficiencies in our DOE and other consulting work. General and administrative expenses decreased by $1.3 million to $3.3 million in the fourth quarter, primarily due to decreased legal fees associated with litigation and contract negotiations. For the year, G&A expenses increased by $7.6 million to $16.7 million due to legal fees for the period.

Of note, in 2008 we recognized a noncash impairment charge in the fourth quarter of approximately $1.6 million, as we wrote down the goodwill that we were carrying on the balance sheet, related to our flue gas conditioning business. There was no impairment charge, in 2009. For 2009, we recorded an operating loss of $11.8 million as compared to a loss of $6.7 million, due largely to the cost of litigation I previously mentioned, and those related to the Company's growth initiatives for Refined Coal. You may recall at the beginning of 2008, we formed ADA Carbon Solutions, our activated carbon supply business joint venture with Energy Capital Partners and it's affiliates, to continue development and construction activities for the manufacture and supply of activated carbon for mercury control. The assets and financial results of Carbon Solutions were consolidated in our financial statements, that we reported for 2008.

ECP has funded the needs of Carbon Solutions through equity and debt, as we move closer to start up expected this spring. That funding has reduced our ownership in the joint venture to 33%. And that level may be reduced further depending on final placement of long-term debt for the facility, and resolution of our indemnity obligations to Carbon Solutions and the ECP related to the Norit litigation. We recorded our equity share in the loss of Carbon Solutions of $704,000 for the fourth quarter of 2009, and a total of $3.4 million loss for the year, both stated on a before tax basis. As a result of the figures I noted. we reported a net loss of $1.3 million or $0.18 per diluted share in the fourth quarter, compared to a net loss of $3.6 million, or $0.54 per diluted share for the same period in 2008. For the year, our net loss was $8.7 million or $1.26 per diluted share, as compared to a net loss of $4.1 million or $0.67 per diluted share for 2008.

Cash flow used in operations was $44,000 for the fourth quarter of 2009, compared to cash flow used in operations of $4.4 million for the same period in 2008. For the 2009 fiscal year, cash flow used this operations amounted to $1.6 million, as compared to cash flow used in operations of $4.4 million in 2008. Our balance sheet as of December 31st reports working capital of $2.2 million. We have no long-term debt and shareholder's equity totaled approximately $24 million at year-end. Mike will discuss the status and progress in our Refined Coal business and in Carbon Solutions, or activated carbon joint venture further. And now I would like to turn the call over to him.

Thank you, Mark. This past year ended in a flourish of activity that involved a tremendous effort by Company personnel working under difficult conditions, to complete the number of significant milestones, that bode well for the Company as we enter a new year and a new decade. Let me highlight some of these accomplishments from December. Two refined coal facilities were permitted, designed, built installed put in operation at two different power plants by Clean Coal Solutions. In a few minutes, I will provide additional detail on these facilities and our refined coal products, CyClean, which we expect to produce cumulative operating income of over $60 million net to the Company during the next ten years. We also fabricated and installed our first flue gas conditioning, or FGC system designed to enhance mercury control in a power plant. This could open up a whole new market for our FGC product line.

Our field crews installed three ACI systems during the month. We commissioned our CO2 1-kilowatt pilot plant, and prepared to ship to Luminant for initial field tests. We also prepared and submitted a $14 million proposal to DOE for scale up of our CO2 capture technology, which includes co-funding from our customers in the power business. If successful this would represent, for a critical step. We submitted a $1 million proposal to evaluate mercury control in the (inaudible) industry. We are seeing demand for mercury control expertise, developing outside the utility boilers, including metallurgical, cement and industrial boilers. We installed and operated our first SO3 control system, in collaboration with Breen Energy representing a new product line to help meet the demand in the power industry, to control this asset gas, to prevent corrosion, and eliminate flue plumes.

And lastly, ADA Carbon Solutions joint venture, two additional activated carbon contracts were signed, including the joint venture's first in Canada. Let me give you a quick update on regulations that would enhance the markets for our business. EPA has continues to move forward on three different maximum achievable control technology, or MAC standards that would increase the markets for mercury control and other hazardous air pollutants. The industrial boiler MAC, which sets an OMB two weeks ago, and the draft is set for public release in April, and is expected to be finalized by the end of this year. The cement MAC is on a similar schedule to be final before the end of the year, and EPA has announced the draft of the utility MAC for coal fired boilers will be released in March 2001, and will be final in November 2011. The Clean Air Act requires that all MAC regulations must be met within 36 months.

In our latest investor presentation posted on our website this morning, we provide a break down of the opportunities that these regulations are likely to create over the next four years. On the equipment side of the business, we see a need for 600 to 800 ACI systems to be supplied between 2011 and 2014. This will require rapid scale up of our production capability in order to maintain our 30% market share. On the carbon side, we predicted significant gap between AC production and demand starting in 2012, and the gap growing close to a 1 billion pounds per year by 2015. This will require a significant expansion of AC production in the US, for which ADA Carbon Solutions, our joint venture partner -- partnership with Energy Capital Partners, is well poised. Carbon Solutions is approaching completion of the construction of the new AC manufacturing plant in Red River Parish Louisiana. The JV will be going through complicated start up procedures in April and aims to be in commercial operations in May.

Carbon Solutions has announced three activated carbon contracts over the past three months, as competing on a number of additional RFPs. For competitive reasons Carbon Solutions is not making information public on volume, pricing, or schedules for these contracts. Although Carbon Solutions has been successful competing for AC contracts, having the plant up and running should be beneficial to our sales effort. We have had to overcome a number of challenges to date, related to misinformation about the plant, put out by competitors, concerns from a very conservative customer base on the timing of the completion, and the inability to provide test samples of the AC produced by the new plant. We are look forward to the new era of AC production, and believe the plant with it's modern equipment, extensive emission controls, and energy efficiency will be able to make a significant impact in the AC market.

Funding of construction of the Red River facility which exceeds $250 million to date, continues with interim financing by ECP. In December, Carbon Solutions announced the Red River facility had received a conditional commitment for a $245 million loan from the DOE Loan Guarantee Program. Upon final approval, this would result in a long-term loan at below market interest rates, through the Federal Financing Bank. The timing of closing on the debt is dependent upon DOE completing their due diligence process, and customary closing conditions. The proceeds from the loan will be used to take out the bridge financing from ECP. On the equity side of the financing, we terminated the securities purchase agreement, our SPA with ECP, pursuant to which they have the right to purchase 3.6 million convertible preferred shares of ADA-ES at $6.30. We would of been obligated to contribute the net proceeds from the sale of our stock to ECP, to the joint venture.

With the very positive recent events, such as the refined coal opportunities that are capable of producing significant near term increases in revenues and earnings for the ADA, we believe that the $6.30 price was not representative of the value of the Company. Terminating the SPA also eliminated a number of restrictions on the Company, limiting our ability to fund growth opportunities, establish business partnerships, and license technology. The timing of the termination allowed us to take advantage of the investment by Arch announced earlier this week, which not only provides us working capital support and near term growth projects, but also creates potential significant financial upside for both companies. With the termination of the SPA with ECP, we will likely need to obtain additional capital to participate in future of the AC market. We believe that the growth we anticipate in the AC market will require as many as five additional AC production lines of the same size and capacity as Red River. The joint venture is well along in the permitting of these facilities in anticipation of federal regulations, and we retain our right to participate up to 50% in capacity additions. We expect to place a proposal and a proxy for this year's annual meeting for shareholder approval of the issuance of additional shares to give the Company flexibility in raising capital to take advantage of several growth opportunities, including this market.

Let me now update you on refined coal product, CyClean, sold through Clean Coal Solutions, our joint venture with NexGen. As I mentioned earlier, Clean Coal successfully put in to service two systems, meeting the year-end deadline set by the IRS in or for the facilities to qualify for Section 45 tax credits. This could only be accomplished by Clean Coal, taking the risk to begin the design and fabrication of two systems well in advance, of when the IRS finally released guidance in December. There were no surprises in the guidance related to whether our technology could qualify, and how the reductions in emissions had to be documented. Clean Coal is getting the CyClean equipment ready for efficient routine operations, finalizing contracts with the host utilities, and negotiating long-term agreements with monetizers. We expect completion on these fronts in June, at which time Clean Coal solution expects to sell the facility, and start recognizing revenues as we begin making Refined Coal on a continuous basis for the next ten years. These first two facilities which are designed to produce a combined total of 6.5 million tons of Refined Coal each year, should have significant positive impact on ADA's financial performance.

The accounting is somewhat complicated. So I would suggest you refer to Slide 9 in our latest investor presentation. But let me provide a few highlights. Due to our significant involvement, ADA will continue to consolidate the financials of the Clean Coal JV. On the revenue line, ADA will record a one-time sale of each facility to the monetizer for approximately $5 million per facility. If however, the agreement with the monetizer includes a variable and fixed note, GAAP accounting likely requires that we record as revenue the principle amount of the fixed notes, estimated to be $30 to $50 million per quarter at the time of the sale, which is expected in the second quarter. Also on revenue line, ADA will likely record the monetized tax credits of $6.20 per ton times expected 6.5 million tons per year, minus any discount for monetizing, and minus revenues recorded for any fixed notes.

After the expenses for operating facility, we expect to show $2.00 per ton of operating income, which includes the share for both ADA and NexGen. Allocations to NexGen of their share of the operating income will be shown as a minority interest charge. However, ADA's entitled to keep 60% of NexGen's share of distributed cash until $4 million is paid to -- for NexGen to retain it's 50% ownership of the JV. We also expect to record these payments as income. Although the prospects of these two Refined Coal units are very exciting, we believe there may be -- well be an opportunity to grow this business further. The Senate recently passed the second jobs bill that contained a number of tax extenders that included a one year extension for Section 45 for Refined Coal. We are working with Congress to keep this provision in the final bill, which would allow us to create jobs and reduce emissions.

As we have reported last fall, we believe there are five or six other potential customers that were viable candidates for our CyClean technology, if there were additional time following IRS guidance for these candidates to put the necessary contracts in place. We have already begun discussions with these potential customers. Their interest has increased now that a number of technical, contractual and cash risks have been reduced as a result of the IRS guidance and Clean Coal's first two systems having been successfully placed in service. We believe that we will -- with another eight months to pursue these opportunities, we could install up to four more systems, and increase Clean Coal's Refined Coal capacity to a total as much as 20 to 30 million tons per year.

Switching topics, let me provide a little more information on the investment by Arch, and first point out that the licensing agreement is unrelated to Refined Coal technology. We have been working with Arch for a number of years toward developing a coal with enhanced environmental performance that could be premium priced. We recently had a technical breakthrough that showed great promise, such that Arch was interested in securing an exclusive license for mine application of this technology. We are in the early stages with the, this technology, and we will be working together with Arch, to advance it towards commercial product. The license agreement is being negotiated to provide a mechanism for ADA to profit, along with Arch from the potential success of the technology.

Let me now provide a brief update on the lawsuits in which the Company is involved. In a suit with Calgon, we believe we are entitled to commission 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 complete, and we are even more confident of our position, and are looking forward to the trial which is scheduled for July. Switching to the Norit suit, in October we had a very favorable turn when, at our request the judge ruled the issue should not be addressed by state and court jury in Marshall, Texas but by binding arbitration in Georgia. The -- as I said before, we felt 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 resolution. The three arbitrators have been selected, and a tentative date for their arbitration has been set for October.

Let me summarize by stating we are optimistic about the growing markets for our Clean Coal technology. In the second quarter, we anticipate accomplishing a number of key milestone. We expect the Red River AC plan to begin commercial operation, culminating a long process in which ADA led an effort to successfully design, build and finance the plants despite extremely challenging economic conditions. This plant, the first of which we believe will be several AC plants, that we -- that are expected to be built in the next few years by Carbon Solutions puts us in a position to be a significant AC manufacturer. With two Clean Coal CyClean systems coming online, and the potential for a number of additional lines before year-end, we have a second key business area, that represents significant revenue and earnings potential. These are complicated -- complimented by several other emission control technologies that are beginning to gain traction, as we see progress on new regulations, and an overall improved environment for our business. Thank you, and let me open this up for questions.

(Operator Instructions).

Our first question comes from Al Kaschalk with Wedbush Securities. Please state your question.

Morning, guys.

Morning, Al.

Thanks for the color, and congratulations on the CyClean qualifications sales. What I am having trouble mapping out is the revenue in the period, based on the tonnage of sales, and the price I think was sold. Maybe that's more the tax credit number, that I did the math. But if I take the $2.5 million or so and the tons produced, I think the math is al little bit higher than the $30 a ton. Is that how we should think about production revenue on CyClean sales going forward?

No, Al, it is not. As I mentioned in my narrative, this morning, in December, for the test purposes, we purchased the coal from the utility, refined it and sold it back to them. So the revenues you are seeing in December represent the quantities of Refined Coal that we have produced during the month, during the testing and placing, qualifying the systems in service of, between 75,000 to 80,000 tons that we processed at the two facilities times -- I think it works out about roughly $30 a ton, which is about the delivered cost per coal is there. We would not expect to see that in the future, but as Mike pointed out, the revenues in the future will be more based upon initially the revenues from the sale of the facilities, which is a one time item. And then on a continuing basis, amounts related to the tax credits that are expected to be generated from the production of Refined Coal by those facilities. So the amount we saw in December were somewhat anomolous, and not expected to be continued in that for these operations.

Okay. So does that mean, that we could actually not see revenues from CyClean sales until the facilities are sold, maybe in the second or third quarter? And then, the following revenue economics, which you just discussed, we are not going to see the question or the concern of having coming down at the bottom at the JV, or minority interest line below the line, it is going be consolidated at the revenue and operating line?

Yes, I think you asked two, kind of questions there. First of all timing, yes, we expect these two units will be placed in to routine operations near the end of this second quarter, as we are finalizing with monetizers and others. And yes, that we will be consolidating the results of the Clean Coals joint venture with our amounts, so you will see those in the operating income line. And then, NexGen's 50% interest in those amounts will will be deducted as a minority interest charge, below the operating income line.

And so in the second quarter, if this comes through, you will see the two components. One is the sale of the systems, and that's a one-time recording of revenue there. And that will either be the $5 million per system, or up to $50 million per system, depending upon the nature of the contract with the monetizer. And then you will see from then on, after that one-time sale, a pretty continuous and consistent basis of reporting the revenues of them, the monetized tax credits.

Okay. And then, just one final question, if I may. On the activated carbon side, you provided I think, agreements that would take a third of your capacity over five years. How is the front 12 months look, assuming you hit your milestone of the end of the quarter for, -- or -- May I guess, in the second quarter in terms of having it constructed and built out? How do we think about the next 12 months from completion date to looking out?

The completion date, it is complicated because the nature of the contracts coming in at different times. The different volumes to meet the, their regulations. And so, it is hard for us to answer that. I guess, our goal is to look at what's going to happen over, say through 2012 on that, and ramping that up to, to full capacity. So, as I mentioned in my call, we are not going to be providing much information for competitive reasons on the nature and the volume of these contracts, other than possibly some total volumes as we move forward.

Okay. But I mean if I took a third of the capacity, how do I think of the maybe the first 12 months on the volume perspective? Like is there anyway you can give some thoughts on that? Obviously we will ramp very slow or presumed to be slow but just wonder not guilty there's any color on say the back half of 2010, or the12 months of 2011, what you are thinking from a volume perspective?

Well, the first thing that's going to happen is once we start up, we have got to determine what your capacity is. On that capacity goes from, every where from 125 million that a lot of the engineering studies are based on the conservative engineering studies, are up to the 175 million, and that, the equipment is actually designed for, and permitted for. So, it is, I don't like to talk about percentage of capacity, because that capacity is going to be defined over the next two to three months. We have well over 200 million pounds sold, over that period of time, and that is probably the number we will be, we will be updating.

Okay. Thank you, congratulations on a very fast and furious finish for 2009.

Thank you.

Our next question comes from the line of John Quealy with Canaccord Adams.

Hi, good morning, guys. It is Mark Segal for John, just a couple of quick questions for you. Are you still sort of targeting a, call it a 20%, 25% ownership stake in the first activated carbon line?

Well, it is hard to define what that number is going be, having just cancelled the stock purchase agreement. We do have plans for putting in a request for approval for sale of additional shares this summer to support those. But we don't know what the number will be. So, as this comes on line, it will be pretty simple calculation at the end of the first line, of how much equity we end up putting in. And so there's so much uncertainty in that for a number of reasons. We can't say in what that number is going to be, other than we'll have a minority interest in the first line, with rights to a 50% ownership in the subsequent line.

My other question, in your conversations with the DOE in conjunction with their diligence process, have they indicated any minimum threshold on the off take agreement side, perhaps as a percentage of anticipated name plate capacity for them to get comfortable to sign off on the loan?

The sales volume is not a condition of the loan, of the closing loan.

Okay. That's helpful. Thanks a lot.

Our next question comes from the line of Dan Mannes with Avondale, please state your question.

Good morning, guys.

Morning.

A cup of questions on the plant. First was in a bilateral or unilateral decision because theoretically, since you had agreed to the price previously, and your current share price is higher, I would think they would have been incentived to have maintained it. So were you able to maintain that unilaterally?

Yes, we made that decision, and it really related to the JV agreement, listed a number of timing issues on raising the financing. And once we got into what is the fourth tranche -- it made that a decision that either party could terminate.

Got it. So you didn't need their approval?

No.

Okay. As it relates to ramp, and maybe following up on Al's question, you sort of highlighted 2012 as maybe being a key year. Is it fair to assume, given the 30% you stated, regardless of what the ultimate capacity is, is it fair say that you will probably be ramping for 2010 and 2011, and don't expect to be at full output till 2012? Or do you expect to be at full output before then?

I think 2012 is probably a good time frame for looking at full output.

Okay. That's based on your current view of the Mercury market, and is there any potential to sell this into other markets, this product?

Well, that's one of the issues, I kind of referred to to about the difficulty of the selling a product from a plant that doesn't exist. You -- on many of these markets, like the water market, you can't, you have to have first qualify your product to be able to bid. And so, we won't be able to bid on those until we are up and running. So once we are up and running, it is going to open new markets for us. It's going to open up a different view from the customer, on the reality of it. And so I think we are going to see increased sales, once we are actually up and operating.

But, based on that, again as we look at 2012, are you going to require participation in the water market to be able to get to full output of the plant? Or is that's, again, uncertain depending on what the final output is?

That's uncertain, we are not likely to want to tie up capacity, for short-term contracts, unless it does, does tail into what we see the timing of long-term contracts coming from the mercury market.

And then a quick question on the loan guarantee. Following up on Mark's question, you mentioned it is not tied necessarily to the contracted volume. Is it tied at all to either contracted or visible covered ratios, EBITDA that kind of thing?

It is, obviously, any, any loan is going to be a complicated set of requirements, and we are not going to provide any detail on that.

All right. I have a bunch of questions on Refined Coal, but I will let others ask questions first.

Our next question is from Veny Aleksandrov with Pritchard Capital Partners. Please state your question.

Good morning, Mike, Mark.

Morning, Veny.

I have a couple of questions. The first one is on the solid (inaudible) side. If my memory serves me correctly, you applied for a DOE grant in December, and you were expecting to hear on that in April, is this (inaudible)?

That's true. What DOE has said is they had hoped to have those contracts in place by mid April.

What is the size of this?

That's the $14 million program for, for CO2 capture.

All right. And then, the other question on the SG&A side, it was in the $3 million range this quarter, can it go further down as a forward rate next year?

Yes, it can, Veny. This is Mark. It is still well, our legal fees in there, are still well above where we expect those to be on a routine basis, as we're continuing with the arbitration matters. Or in the fourth quarter, you saw the arbitration matters on the Norit case, and other discovery for the Calgon matter that we are continuing there. So there's still a lot of significant in the fourth quarter. And it -- they can go down, although one way to look at those is that as a percentage of, of sales -- with the increased activities in Refined Coal, we were taking on some operational matters there, there will be increase related to that though. So there's some ups and downs there. But the 3.3 was not -- is not a routine level. It is above routine level.

It is still had some volatility then.

Yes.

Well, thank you so much. Those were my questions. Thanks.

Our next question comes from the line of Graham Mattison with Lazard Capital Markets. Please state your question.

Good morning, guys. Can you hear me?

Yes.

Thanks. A lot of great things going on. Two quick questions, one, what is just sort of the timing you expect when you hear back on the DOE submissions on the CO2 consulting?

Like I said, they want those in place, the contracts in place, the announcement in December was they wanted in place by the middle of April. So we are hoping to hear in the next week or so, of whether we can, whether we want or not, and start negotiating it. In the past, some times we are allowed to announce that we have heard, and that depends on whether DOE is about to put out an announcement on awarding a number of contracts. Or it may be that we have to wait until the contract has been negotiated before we can announce that. But that is going to be something happening over next, two to three weeks.

Okay. Well with, and then, turning to tax extenders and the CyClean credit, what's the -- because that bill has passed both houses now, and is now just sort of waiting for a few final pieces, but what is the latest, that bill could be signed, and you would still be able to get the 4 to 5 -- or the other opportunities installed?

Well, that's -- We go back to last year, we started building equipment in late June, early July, and got them in by the end of the year. We have a better idea on what the contracts and equipment looks like. So what we are doing, is working under the assumption they're going to come in. We start the sales process, meeting with the utilities in anticipation that it is coming in, so that once it happens, we will be following closely. And we see a number of things happening, Congress they don't operate very efficiently and timely, and so we are hoping this is going to happen in April. But it could slide, so we're going to -- we might be faced with the kind of decisions we did last year. It is not a done deal, but there's a huge, huge opportunity to reach one of these tremendous pay backs, so do we not take a chance and start building the equipment.

Got you. As long as you -- as long as you, probably so long as you get that answer by mid year, you wouldn't have to be in a position to take the chance.

Exactly.

Okay. And then, so the 20 to 30 more additional tons, and those would be at a similar sort of pricing, in the things that we have seen there, so that's another $20 million to $30 potential bottom line contributions yet?

That's what we are looking at.

Alright, great. I'll jump back in queue. Thanks very much.

(Operator Instructions).

Your next question comes from the line of [Louis Brauer], a private investor. Please state your question.

Good evening, Mark and Mike.

Hi, Louis.

Knowing the Company as well as I do, it's just so wonderful to see the progress that you are making. And again, I appreciate your honesty, and that is all that I have to say. Thank you.

Thank you, Lou.

Okay.

Our next question comes from the line of Steve Santos with RBC. Please state your question.

Morning, fellows, very nice reaction in the market so far this morning. We really appreciate that. Just a real quick question, regarding this FFB DOE loan, or loan guarantee, can you leverage at all on any strings that may be attached to this loan in terms of your performance, and how significant might that be going forward?

The DOE is trying to operate like a -- like a real bank is, and so it is -- the kinds of terms in it are very similar to what you would find in any closing on a project financing deal.

So there won't be any significant restrictions as to how you can operate the plant or things that you are concerned about?

They're lending on the asset of the plant, and they want the plant to make as much money. And they know that they don't know anything about making activated carbon, so they are not going to want to step into that. So it is --

So this is the federal Government, they don't use -- (Laughter).

And they are here to help us, right?

Yes, of course. Well, I just wanted to throw that out there, just to get some clarification. Nice performance, and we appreciate what you do.

Thanks, Steve.

(Operator Instructions).

Our next question comes from line of Dan Mannes with Avondale. Please state your question.

Hey, guys. I just wanted to jump back in with a couple questions on Refined Coal. First, the investment from Arch, if I understood the filings correctly, does that money have to repay the loan from NexGen, or are you able to use that for sort of general working capital?

It is general working capital, but we do have an agreement with NexGen that requires a repayment. So they are independent. But we -- out of some monies, we have to repay NexGen

If I read -- the loan from NexGen, it is about $1 million, and part of that may end up being offset by the $4 million they are going to end up owing you I guess?

The amount of the loan from NexGen was a $1 million dollars, that was to the joint venture, so our proportional share of that is $0.5 million, Dan. And there is none, and I guess there could be a mechanism to offset it, but there isn't a mechanism to offset the 4 million they owe us, as that comes out of future distributable cash flow from the joint venture.

Got it. And just briefly, walking back through the economics on Refined Coal. I just want to make sure, so on the initial two units from the point where they are running full out, and after you sold the equipment, you are basically on a consolidated basis going to book around $12 million of revenue, you are going to book around, -- yes that would be -- no, I'm sorry -- it would be, yes, that would be around the right number, correct?

No, no, we are booking --

You will book the full $36 million of revenue?

Minus the discount?

Right, okay, and then your operating income pretax and pre the share is going to run -- would be around $2.00 a ton. So that would be around 12. You are talking about $6.00 a ton after minority interest, and before the NexGen repayment. And then you will have to pay taxes on this, correct? So it is really, not counting the NexGen repayment, this should be $4.5 million annually, for about 9 and a half years?

After tax from these units, that's about right.

So $4.5 million after tax for nine and a half years.

Yes.

And then can you talk a little bit about the economic proposition on this product for the buyers, I mean what are they actually going be paying for the coal, relative to what you were paying before and what benefit. We know there are some emission benefits, but I guess, if it will help, because we sort of view this from a financial standpoint, it would really help to sort of understand the economic proposition of the Cyclean real quick.

Well, we are not going into a lot of detail on that while we are still negotiating that contract. But they benefit from a number of reasons. I guess one of the, there is some other Refined Coal facilities out there, but this is one that is truly designed around a useful production which they benefit. And some of the early interest we have in it, is that it helps them burn PRB coal better. And so, that's the benefit we see. It could be a $1.00 or so a ton. We are seeing that in this case, these plants may not have to use any activated carbon. That could be worth $2.00 a ton to them. So there's a number of other provisions. So this is something that could sell itself, but it is just difficult to bring any new technology to a power company. And so if you can bring along a tax credit, in which they get the benefits, at a much lower costs, it helps move that forward.

Got it. And as it relates to the two that you have installed, and the potential future installations, if we get an extension of the end service date, what's the outlook for the output of these plants, is there going to be any volatility in usage over time, just given that we have seen decreased coal burn across country?

It's going to be the same issue. This is not going to dictate what the whether they burn gas or coal and how much they run. The 6.5 million tons a year, is what these four plants have historically used, and at running at average capacity. So if we have a recession, and if gas stays very low, they may be subject to reduced rates.

So there could be some volatility in the numbers?

Yes.

Got it. Thanks a lot for the color.

There are no further questions. I will now turn the conference over to Mike Durham.

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

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