Arq Inc (ARQ) 2011 Q2 法說會逐字稿

Greetings and welcome to the ADA-ES reports 2011 second-quarter financial results. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your hosts, Melissa Dixon of The Equity Group, Investor Relations for ADA-ES. Thank you. Please go ahead.

Thank you, Diego. Good morning and thanks for joining us today. Before we get started I would like to remind everybody that this conference call contains forward-looking statements within the meaning of Section 21a of the Securities Exchange Act of 1934 and 27a of the Securities Act of 1933 which provide a Safe Harbor for such statements in certain circumstances.

These statements are identified by words such as believe, will, hope, expect, anticipate, intend and plan, the negative expression 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 section titled Risk Factors in ADA-ES' forms 10-K and 10-Q.

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 by law to do so. A recording of this call can be found in the Investor Resources section of our website, www.ADAES.com. Now I would like to turn the call over to Mark McKinnies, Chief Financial Officer. Mark, please go ahead.

Thank you, Melissa, and good morning, everyone, and thank you for joining us for the ADA-ES second-quarter 2011 conference call. First I'd 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'll open up the call up for your questions.

Revenues amounted to $7 million for the quarter or 263% more than the $1.9 million in revenues we recognized in 2010. The increase for the quarter is due to increases in our Refined Coal or RC segment. RC revenues amounted to $4.7 million for the quarter and are due to the recognition of rental income from our two RC facilities.

They're lower than the second quarter -- than in the first quarter this year due to planned maintenance outages in April and May at the power plants where the facilities operate, which reduced the amount of coal available for our processing. We expect coal processed in the third and fourth quarters of this year to return to the levels we saw in the first quarter.

These facilities were placed into routine operations in the second half of 2010, so there is not comparable revenue for the second quarter of 2010. We expect these two facilities to continue to generate between $15 million to $20 million a year in revenue through 2019 based on tax credits produced by their operations.

We're currently pursuing the placement of several additional RC facilities as a result of the extension of the placed in service date that was granted in December as Mike will discuss further.

Revenues from our Emission Control, or EC, segment increased 7% to $1.7 million in the second quarter of 2011 as compared to revenues of $1.6 million in the second quarter of 2010. The revenue increase was primarily due to increased consulting revenues we've recognized from several customers who've initiative evaluation studies to determine how to best respond to the expected regulations.

Sales of our activated and carbon injection systems continue to be slow, indicative of the power industry's wait and see attitude to addressing developing regulations. As of June 30, 2011 we had contracts in progress for work related to our EC segment totaling approximately $2.1 million and we expect to recognize a significant portion of this in 2011 with the balance to be completed and realized in 2012. We believe finalization of the recently announced Mercury and Air Toxics Standard will accelerate and further expand our markets likely starting late this year.

Revenues from our Carbon Capture, or CC, segment generated from our DOE end industry supported development and demonstration contracts increased 69% to $569,000 for the quarter from $337,000 in 2010. Work on our $19 million CO2 capture contract increased throughout the quarter and is expected to provide significant revenues for the Company through 2014.

We had DOE contracts including anticipated industry cost share in progress totaling approximately $17.9 million as of June 30, 2011. We expect to recognize approximately $1.6 million of revenue from these contracts in 2011 and the balance through 2014.

Our gross margin in the second quarter was 74% as compared to less than 1% for the second quarter last year. Margins realized in our RC segment where the majority of the RC facilities' operating costs are paid by the lessee prior to our recognition of rental income created the increase for the period.

General and administrative expenses amounted to $6.8 million in the quarter as compared to $6.2 million in 2010 and include legal fees associated with litigation which were more than $1.5 million for the period as compared to legal expenses of $4.3 million in the second quarter of 2010. We expect non-routine legal costs to decrease significantly starting in the fourth quarter assuming satisfactory resolution of the Norit arbitration and our related indemnity obligations to Energy Capital Partners by then.

For the second quarter of 2011 we reported an operating loss of $2.3 million as compared to an operating loss of $6.7 million in 2010 with the improvement due primarily to our Refined Coal activities.

Below the operating line we're reporting several items which include -- first, payments from NexGen, our joint venture partner in Clean Coal Solutions, Clean Coal, made to retain their interest in Clean Coal of $1.8 million for the quarter; and secondly, deductions totaling $1.8 million for the quarter as compared to $1.5 million in 2010 which represents our now approximate 22.8% equity interest in the loss of ADA Carbon Solutions, offset by a minor amount of income from our 50% interest in Clean Coal Solutions services, the company we formed with NexGen to operate the RC facilities for the lessee.

For the second quarter our net loss was $2.3 million or $0.30 per diluted share as compared to a net loss of $3.7 million or $0.50 per diluted share in the second quarter of 2010. Cash flows provided by operations were $3.8 million for the quarter compared to $10.1 million for the same period in 2010. The 2010 amounts included prepaid rent on the first RC facilities that was recorded as deferred revenue.

During the second quarter we completed the sale of an effective 15% interest in the equity of our consolidated Refined Coal joint-venture, Clean Coal, to an affiliate of The Goldman Sachs Group for $60 million. Those proceeds were immediately distributed 50-50 to ADA and to our joint venture partner NexGen. Due to the accounting requirements in our consolidation procedures the transaction, net of associated taxes, was recorded in stockholder's equity and did not directly impact our statement of operations.

Our balance sheet at June 30, 2011 reports cash on hand of $41 million, working capital deficit of $588,000, long-term liabilities of $38.5 million, and shareholders' equity totaling approximately $2.8 million. Our decrease in working capital from the amount shown at March 31 is a result of reclassifying certain obligations related to the Norit matter from long-term liabilities to current as they are expected to be paid out within the next year, partially offset by proceeds from the sale of the effective 15% interest in the equity of Clean Coal.

Mike will address the Norit matter further and discuss the status and progress on several opportunities we are pursuing. And I'd like to turn the call over to him now.

Thank you, Mark. Let me start with a quick update on the environmental regulations that create markets for our products and services. The EPA continues to move forward on a series of new emission control regulations. On July 6 the EPA finalized the Cross State Air Pollution Rule, or CSAPR, which is a replacement for the Clean Air Interstate Rule which came out last summer in draft form as The Transport Rule. This program will require additional controls of emissions of NOx and SO2 from power plants.

Because the first phase of the rule starts in January, several utilities have already initiated procurement of dry sorbent injection, or DSI, systems for trimming SO2 levels. These systems are expected to cost $2 million to $3 million for an average sized plant. We're involved in test programs of our DSI systems and are bidding on these new requests for proposals, or RFPs.

Last week the public comment period closed for the proposed Mercury and Air Toxics Standard. The EPA now has a little over three months to finalize the rule to meet the court ordered deadline by mid-November. The Air Toxics Rule will require over 1,200 existing and new coal-fired electricity generating units to reduce emissions of mercury and other hazardous air pollutants.

We believe the emissions level proposed for the half will create a significant market for the low CapEx technologies that ADA provides. The mercury limit of 1.2 pounds per "tray of ATUs" will require 80% to 90% reduction of mercury from levels in the coal. We are offering three different low cost control technologies capable of achieving these levels of mercury emissions and we also have products that deal with other -- the other two groups of HAPs for which the rule proposes a numerical limit and those are acid gases and non-mercury metals.

With the final rule rapidly approaching, procurement activity has begun for activated carbon, or ACI, injection systems. ADA has been the market leader in providing nearly one-third of the 150 ACI systems sold to date to the power industry to meet mercury limits on new power plants and existing plants in 19 states where regulations are in effect.

Their toxics rule could create a demand for up to 400 to 700 new ACI systems over the next three years which would be a market of approximately $500 million. We're expanding our sales staff as well as our engineer and design group and fabrication capacity to meet this market.

ADA also provides options for reducing mercury with coal treatment technologies. CyClean is our patented Refined Coal technology provided through Clean Coal Solutions, that qualifies for the IRS Section 45 tax credit of over $6.33 per ton. We currently have two systems up and operating on four boilers that created over $20 million in revenue and about $9 million in operating income for ADA during the first 12 months of operation. Over the next nine years these facilities are expected to generate $7 million to $9 million in annual operating income for ADA.

In December we received a great opportunity when Congress allowed another year to build and install additional Refined Coal facilities. We're attempting to take advantage of this opportunity by installing as many new facilities as we can this year. The value of this opportunity to expand our Refined Coal was validated in the second quarter when an affiliate of Goldman Sachs Group paid $60 million for a 15% non-voting interest in Clean Coal.

In June Clean Coal installed the first of 16 planned new facilities at a plant that is expected to burn up to 4 million tons of RC per year. This new facility was operated for a period of time deemed necessary to meet the IRS placed in service requirements and, when burned, the RC produced demonstrated the reduction in mercury and NOx necessary to qualify for the tax credits.

The next planned four facilities have been installed at power plants burning in aggregate of approximately 10 million tons of coal per year. However, initial operations and testing were postponed for several weeks because of the severe heat wave in the Midwest. These next units are expected to be placed in service between this week and the end of September.

Following the completion of the facility demonstrations operating permits and contracts between the utilities and the financial institute monetizing these tax credits will need to be finalized prior to commencing full-time operations which are expected to occur late in the fourth quarter.

Clean Coal plans to install and commence operating the remaining 11 planned RC facilities before year end and is establishing schedules with customers in support of that goal. We are financing the construction and operation of the Refined Coal facilities with a $10 million line of credit that Clean Coal -- the JV has established with a commercial bank.

In addition, we are negotiating terms with monetizers to provide advanced payments of rent once the facilities are placed in service and become operational. As a reminder, the JV received $9 million in cash for prepaid rent when the first two systems began operations last year.

A second ADA coal treatment technology was licensed to Arch Coal last June -- June a year ago -- to modify its PRB coals [at a mine] resulting in lower mercury emissions. The licensing arrangement provides ADA with a royalty up to $1 per ton for the premium Arch receives from the sales of enhanced coal. So far we have shown that we can enhance PRB coal at the mine and achieve mercury reductions when the coal is burned at power plants.

Because of the push on Refined Coal systems with the pending year-end deadline additional tests with enhanced coal have been delayed. In addition to providing emission control technologies for these new regulations, we continue to develop new technology for future challenges for the coal fired power generating industry. A $19 million Department of Energy program in supporting the development of our [regenerable] solid sorbent technology to capture carbon dioxide from coal-fired power plants and industrial sources.

The project, which is expected to run through 2014, provides funding to scale up the technology to the 1 megawatt level which is a key step in advancing the technology towards commercial process. This contract not only funds the R&D, we expect it to also provide significant contribution to ADA's revenues and margins over the next four years.

Regarding the Norit matter, proceedings to decide on the timing of payments of obligations and award of any legal fees were originally scheduled for earlier this month. But these proceedings were postponed by the parties until September 1 of this year. We expect a decision from the panel approximately 30 days thereafter. We will not be able to answer any questions about these proceedings at this time.

So in conclusion, we have a near-term focus on the Refined Coal business which we believe can produce significant growth in earnings. At the same time we are demonstrating the capabilities of our new Emission Control technologies and adding resources to exploit the tremendous growth potential of these technologies over the next three years as the industry we serve has to comply with the new EPA regulations. Finally, to position ourselves for continued long-term success we are developing technologies for future regulations.

Before opening up the call to questions, I'd like to point out that we'll be presenting at the Rodman & Renshaw Annual Global Investment Conference in New York on September 12 and at the Wedbush Clean Tech and Industrial Growth Conference on September 15 in San Francisco. We hope to see some of you there. Operator, we'd like to open up the call for questions now.

(Operator Instructions). Graham Mattison, Lazard Capital Markets.

Good morning, everyone.

Good morning, Graham.

(Inaudible) a question on the Refined Coal units. Maybe you could just talk about the first unit that went in and was certified by the IRS and when you think you might get a final contract or a monetization agreement just in terms of what other steps need to happen before that would be accomplished?

Well, there's two kind of key parts of it. One is to operate it for the one to two weeks to get it placed in service just takes a temporary modification to the operating permit of the plant and that's a fairly easy thing to get approval. To go to the next step for permanent operation it's a more formal process to get that operating permit modified. And so that's an arrangement the plant has to go through with the state and that could take several months.

In many of these cases we're doing this in a new state so we don't -- we haven't -- we don't have the experience on that, but that could be a three or four month process. In parallel, once it's placed in service they want to move forward on this, there is probably about six different contracts that have to be put in place between the utility and the monetizer and those have to be negotiated and agreed to by that group.

So don't know which of those two processes will be the rate limiting step on this, but -- so the guidance we're giving -- we hope to have several of those in place by the end of the year and the rest get in sometime next year. And remember, the IRS deadline is to meet the placed in service and we'd have time after that to get them up in operation. And on our first two units we met a placed in service in January then took until June to get it fully up and operational.

Would it be fair to assume that now that you have a template it might go a little bit faster? Or is it just every time it's different and every state is a little bit different with its environmental permitting?

The templates help because that's something we could share with the utility ahead of time. But this is obviously a pretty significant contract -- set of contracts that every customer is different. So it's not starting from scratch completely, but there's still some aspects of introducing the monetizer to the utility and having them negotiate these contracts.

And no one has ever accused a utility of moving quickly. One just other question, you talked about doing a lot of work in the past for fleet ACI systems talking with some of the utilities. Once the rule is finalized in November is that the type of thing that we might be seeing making announcements for multiple ACI systems across fleet in the coming months after that?

We think so, Graham. Again, we have a huge variety in customers, some act quickly and some act slower. So I think you will see that some of them, when they look at the spike in the market that's occurring, want to be in on the front side of that spike. And so we're having some discussions already about that for the more -- the faster acting utilities so they will potentially be able to get their contracts ahead of time.

So that's our focus is on these fleet wide sales. It allows us to do planning for fabrication and offer you know -- offer a more efficient process for getting these to the customers.

All right, great. Thank you very much. I'll jump back in queue.

Kevin McKenna, Stifel Nicolaus.

Thanks. Good morning. My question is ADA's contract with Goldman changed from 16 million tons to 12 million tons. And specifically with that and the rules that the 19 states that have stricter clean air rules have, is there a potential ability to go to smaller machines? Does your breakeven tonnage go down? And does it affect profitability in the process?

That's a -- I might have to get reminded on the three parts of that. The original deal was with Goldman, they had a right of first refusal on the next 12 million tons. In the new deal that was changed to 12 million. So that's the first part of your question.

16 to 12 you mean?

15 to 12.

Oh, 15.

And the next part is I think -- you know the state regulations on mercury because the -- with the federal regulation coming forward we're finding no difference in the interest between states that already have regulations and states that will be regulated because of the federal rule, so that driver doesn't change.

So as we go down the list of potential sites for CyClean, they're rated by the size of the plan, bigger plants have bigger coals, will need more coal. And your question about the economics, the economics of the CyClean operation has some variable components.

Obviously all the economics, the tax credit is variable with the amount of coal that's burned and the amount of chemical that's used is variable, but then there's some fixed cost and that's the equipment, the equipment is almost identical whether it's a large plant or a little plant. And in most cases the operating staff needed to run it is more or less a fixed cost.

So it can go down to a fairly small size plant, say, I think breakeven may be somewhere around 100 megawatts or 200 megawatts. But we probably don't have time to build enough equipment to extend that far down the list. So that lower end is really not coming much into our decision-making.

And, Kevin, just to add again and make you aware that this is a niche market that we bring our technology to, these are cyclone boilers. So it's not that -- you mentioned the 19 states. These are primarily concentrated in the Midwest and that's the -- Mike talks about the list were marketing to, it's these cyclone boilers. So we have a very discrete market that we're addressing.

Okay, I guess just one follow-up. At 100 megawatts to 200 megawatts and the systems that you have announced, how many more can you commit to by the end of the year?

Well, we've committed to the 16, that is not necessarily the limit. But obviously as the year end pushes the decision on the next four would have to be made in the next two to three weeks. And if we decide for four more we'll announce that at that time.

Thank you.

Al Kaschalk, Wedbush Securities.

Good morning, Mark and Mike. Just a follow-up on the 16 units here, it sounds like you've quantified that a little bit more and are pushing hard to get the 16 versus maybe something in the mid-single-digits from earlier this year. Is that fair?

Well, as we -- the process of building these facilities takes about six or eight weeks to complete. And it was a matter that each month we would have to decide on the next four. So what we were announcing through that period is we had committed to the first four and then a month later another four.

So at that time we were still planning and hoping that it would be a larger number, but we only had to commit at that time for the next four. So that's where we are now. We have started -- construction is underway on 16 systems. And if we were to make decisions on additional an four, we're going to have to do that in the next two to three weeks.

And then you'd have the same commitment process over the last couple of months of 2011 as well or (multiple speakers)?

Same commitment process. I think that we could continue to make additional -- we push up against this deadline so that we can make -- in two or three weeks could make a decision on another four in a month or six weeks -- would have an opportunity to make a decision on another four.

But now we're pushing up against the time frame where you can not only get them constructed but get them installed and operated to meet the place in service. So the 16 is where we're at now, we continue to evaluate that regularly because we don't want to miss any opportunities here.

But clearly it's -- and I appreciate the time frame, Mike, you laid out there. But clearly the 16 is a higher number that you're working on and moving forward on.

So, on the cash flow perspective, I mean obviously you drew it down a little bit on the facility, you've got the cash, the recent investment, but that's sort of allocated. Do you have any thoughts that you could share with us on the cash flow for the balance of this year in terms of -- do you need to get some of these monetizers accelerated in payment or do you have enough there to work through the balance of this year?

Al, the operating line or the working capital line that we have at Clean Coal is providing the funding necessary for us to be moving these ahead. Obviously, the transactions with the monetizers where we expect these upfront payments at similar to what we had last year will be -- are important components of that.

So we are working on our side to get that part of the schedule accomplished as quickly as possible. As Mike noted, there are several factors, some of which are outside of our control there, with the permitting process as well as the negotiation process between the monetizer and the utility or the facilities would be placed.

But we moved those ahead, and expected cash flows from those figure into that. So we watch that carefully and we will be making plans as we see that going ahead. But at present, the line that we have available is meeting our cash needs.

And then in terms of Washington and everything going on with the budget and interest rates, etc., and the economy, is there a low probability or some probability that tax subsidies or tax credits such as what you are getting with the Refined Coal business could be altered or retroactively eliminated in this process? Or is that really not even a consideration? Can you just comment on that?

Well, it is obviously a guess, but you look at the trends, this is a rule that Congress has passed and affirmed three other times with amendments. If you look at the recent agreement on the tax ceiling, there were no tax increases. So from the conversations I've had in Washington, stopping a tax, not extending a tax credit, is equivalent to increasing taxes.

So there is a push against that. And I guess my final point is if it would take an affirmative action to do that, then it doesn't take any action to extend this over the next 10 years. So it would be unprecedented for that to happen where they establish an incentive tax credit to create investments into new technology and say, the reward for that will be a 10-year tax credit and then after you've made your investment to pull the rug out from under that. So we don't expect that to happen.

Right. Okay and then finally, I appreciate and respect that you don't want to talk about the proceedings on the litigation. But are you able to share a little more on the postponement and was there -- was it your side, their side, was there something we should be taking away from this postponement that maybe there's even some potential on negotiations?

Well, the language we used is that the parties postponed it. And you should take away from it that the decision has been pushed until September 1, so you what no anything more until after that.

Okay. Finally just a clarification, Mark. On the deferred tax asset or other assets on the balance sheet, I didn't pick up the Q1 number, but definitely from year end it's substantially higher. What is that related to that I may have missed?

Yes, that asset -- well, that amount will change as a result of our losses to the extent that we believe that in the future we can make use of those losses to offset future income. So you're doing an accounting analysis there to see if there is some offset account that's required. But in our case, given our expectation for the Refined Coal incomes into the future, as we look at those we feel there's the high likelihood that we'll make -- that those tax losses will benefit us in the future.

So when we recorded the loss from the interim arbitration award that also caused that tax asset to increase. You also see, as I noted in my script here, that accounting -- the accounting requirement for a sale of the equity in Clean Coal was recorded by us in stockholders' equity, it did not run through the income statement.

But that recording is also -- because it is a taxable event there's also taxes related to that. So that is something that then reduces that tax asset, so you'll see both those kind of changes. It went up because of the loss in the first quarter; it is coming down somewhat because of the tax related to the sale of equity in Clean Coal.

Thank you.

Chris Kovacs, Robert W. Baird.

Hi, thank you for taking my question. With the passage -- or with the release of the Cross State Air Pollution Rule having stricter reduction targets, are you guys seeing any change in the negotiations you're having with regard to your products to address that? And what is your opinion on the stricter rule possibly taking some plants that may have been thought to be viable until the MACT takes effect putting them in jeopardy of having to maybe shut down early?

Well, on the Cross State Rule, what we're seeing on that is there's a component of that that all allows utilities to bank, start banking SO2 credits at the beginning of next year and then apply those in the next phase in 2014. So the effect we're seeing is a utility that might be marginal, like you suggest, that might be on the bubble and whether you can stay operating.

If it can achieve emissions reduction levels with low CapEx technology like DSI, this gives them a chance to get in DSI early, bank some credits, continue to use DSI past the 2014 with the credits, potentially stay up and operating.

So the initial part that we're seeing right now is RFPs on the street for DSI systems, for SO2 control, and just in general it's going to be scrubbers that push a plant over a limit on whether they're going to have to shut down or not. It's those kind of expenditures. So all of our technologies are built around the low CapEx and we're trying to minimize the number of plants that have to shut down.

I would say the other part of it is it appeared that there were really no surprises in the CSAPR rule compared to the draft other than bringing in additional states, most significant being Texas. And with that probably create some opportunities for some coal switching to the western coals in Texas over the lignites to reduce sulfur and that creates bigger markets for our products, especially ACI.

Thank you. Can you give us maybe a little bit of an update on anything going on in Red River and possibly any new bid activity you're seeing?

At this point we're not in a position to comment on the activated carbon sales.

Okay, all right, I understand. All right, thank you. Appreciate it.

Dan Mannes, Avondale.

Hey, good morning, Mike and Mark.

Good morning.

A couple just questions and clarifications. First, on the Goldman Sachs transaction, can you just walk us through the accounting going forward on that? Where is the repayment of Goldman going to run through on your income statement?

It will show up as -- well, first of all, we consolidate Clean Coal Solutions so that we pick up 100% of the revenues. And as I mentioned in my script as well, those are primarily after all the significant operating costs have been deducted from them. And so they're at a fairly high margin.

And then below our operating income line, and you'll see in the financial statements that we present now, there is a line just before our bottom line the net of -- the non-controlling interest amount that shows up there. So their portion of the earnings as well as NexGen's portion of earnings in Clean Coal will be deducted from our income just before the bottom line.

Okay, so you'll have -- it will be part of the minority interest line basically, similar to NexGen?

That's correct.

Got it, that's helpful. On a similar note, I think there was about a $1.4 million benefit in the quarter. That was the repayment from NexGen. Are they completely repaid or should there be more payments from them looking forward?

They were completely repaid, so this goes back to our original arrangement with them where, in order to maintain their 50% interest in the joint venture, they had an obligation to pay us an additional $4 million. That's all been paid at this time now.

And you booked -- part of that came in as -- part of that $1.5 million of other, what was that? And that was a gain in the quarter or --?

Yes, there were two parts of that that -- based upon the agreement, part of it was recorded based upon the facilities that were put into operation last year and that became a note receivable on our balance sheet. And so the income or the income statement impacted that was recorded last year. The part that had not turned into notes receivable yet was income that we picked up this year when they made the payment.

Okay. Last question on Refined Coal. You've talked a lot about the number of units which is interesting, but obviously the usage is pretty variable. So outside of the four units you've talked about that are going to add I think -- what are we looking at, about 14 million incremental tons?

For the back [11 million tons] can you give us a range of potential of how many tons that could encompass, assuming all of those are built, you meet the deadline and you're able to secure contracts either this year or next year for those?

So, with the first five that's about 14 million tons?

The first five of this set, not counting the legacy two.

That's right.

Okay, got it.

That's right. And the second five is really about in that same ball park -- say a range of 10 million tons to 15 million tons. And then the third five may be more in the 7 million tons to 10 million tons total, maybe -- they may be getting down to on the order of 250 megawatt sized plants which is about 1 million tons. So you see the first five almost average 3 million tons, by time you get down to the number 15 you're probably down to about 1 million tons.

And can you remind us what the aggregate amount is given it is kind of a niche market and what kind of market shares you're potentially talking about?

I think the entire market is about 60 million tons on PRB, although we are finding that there's some additional market of maybe 8 million to 10 million tons on lignite. And some possibility that we might be able to expand the technology to bituminous coal. But in general you're looking at 60 million tons and a good goal would be to get half of that.

Okay. So I mean but realistically, given the number of units you're talking about, you could be well above that. It's really -- it sounds like the biggest issue for you isn't getting these things qualified, it's locking down all the contracts into next year? Or actually it's getting it all done to qualify this year and then working through the contracts as you've gotten past that kind of deadline?

Well, we just look at it as two different steps. We've got a ticking clock that we're building these, trying to get as many as we can, but they turn into pumpkins on December 31. And so getting them up in operation in some form is our most critical element.

Once they're up and operational that 10-year time clock starts and so then we're motivated to get those up and producing Refined Coal to get those tax credits. But the good news is that all parties involved in those negotiations -- us, the monetizer and the utility -- are all in the same ball park where we're all motivated to get that done as quickly as possible because we're all losing money on those tax credits until it's up and operating.

Got it. I mean, you view the risk is not getting enough of these things qualified. I mean, if you get a couple more qualify than you're eventually able to get contracts for, that's not the worst outcome in the world is what it sounds like?

No, we didn't participate in the Section 29, but we heard everybody who went through that sold afterwards everything they had and wished they had more.

Got it. Two quick other clarifications. On SG&A, I think it was about -- a little -- around $1.5 million at one time. But that still leaves sort of a net item in the $5 million range which is a bit up over prior. I mean is that you ramping up to meet some of the demand for DSI and things like that or is there anything else going on?

Dan, that's part of what's in there. You'll see in the Q some further details of what's in there and we expect to be filing that tomorrow. So look in that MD&A and you'll see some further disclosures there.

Okay. But can you help us then with sort of a run rate on SG&A once we get through the legal?

I think once you look at -- see the numbers there you'll be able to calculate that.

Okay. And then just, sorry, one last one. Obviously you talked a lot about the Norit litigation. Any update on the ECP indemnification or is that part and parcel to the Norit litigation from your perspective?

Yes, they're all connected.

Okay, great. Thanks.

Okay.

(Operator Instructions). Steve Kruger, Foresight Investing.

Good morning. I wonder if you could comment on the nature and volume of comments that the EPA has received on the Air Toxics Rule and whether or not it's likely they'll postpone implementation or proceed with full implementation in November as scheduled?

Well, there were lots of comments, but I think what you have to do is go through those. A lot of them are where just large groups, either utility groups or environmental groups, will just mail in where they'll cut and paste the same comments in. Probably some significant. We expect some tweaking EPA in this process of bringing out the other MACTs and this CSAPR rule has met court ordered dates for this and we expect them to do that on this rule.

So you're saying that the likelihood is that the EPA will finalize the rule in November as scheduled?

That's what we expect.

Okay, thanks.

Kevin McKenna, Stifel Nicolaus.

Hi, back to what you were stating before. You have 6 million tons installed -- correct me if I'm wrong on any of this -- 10 million for the next four machines would be an additional 14 million, next five would be 10 million to 15 million, the next five after that would be 7 million to 10 million. So over 15 additional machines we'd be looking at (technical difficulty)?

You kind of broke up there, but you're right, Kevin.

I apologize. I'm calling from Ireland.

Yes, I know. So, yes, these kinds of numbers add up to on the order of an additional 30 million tons over the 6 million tons we're already producing.

Thank you. That is all.

(Operator Instructions).

Well, operator, if there's no more questions let me just thank everyone for joining us today and for your continued interest and investment in ADA.

Thank you. Ladies and gentlemen, this concludes today's conference. All parties may now disconnect. Have a great day.