Arq Inc (ARQ) 2011 Q4 法說會逐字稿

Greetings, and welcome to the ADA-ES 2011 fourth quarter and year-end financial results.

At this time all participants are in a listen-only mode. A brief 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 host, Devin Sullivan of the Equity Group. Thank you, Mr. Sullivan. You may begin.

Thank you, Jackie. Good morning, everyone, and welcome to today's call.

Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of Section 21E 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; and 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's filings with the US 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 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'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.

A recording of this call can be found in the Investor Resources section of our website, www.ades.com.

Now I would like to turn the call over to Mark McKinnies, Chief Financial Officer of ADA-ES. Please go ahead, Mark.

Thanks, Devin. And again, good morning, everyone. And thank you for joining us for the ADA-ES fourth quarter and year-end 2011 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.

Revenue amounted to $24.6 million for the fourth quarter, or 174% more than in 2010; and $53.3 million for the year 2011 as compared to $22.3 million in 2010. The increase for the quarter and year are due to increases in our refined coal, or RC, segment. Those revenues are reported from the consolidation of Clean Coal Solutions, Clean Coal, our JV with NexGen Resources, and an affiliate of the Goldman Sachs Group, Inc. RC revenues amounted at $20.3 million for the fourth quarter and $40.3 million for the year, due to the recognition of rental income from our two RC facilities; and approximately $20 million for the year as a result of coal purchases and sales made during the demonstration periods of the new placed-in-service facilities. In those sales Clean Coal will retain the tax credits generated.

We expect our two leased facilities to continue to generate from $15 million to $20 million in revenue per year now through 2021, based on the tax credits produced by their operations. As previously announced, we placed in service a total of 26 additional RC facilities prior to year-end, taking advantage of the extension of the placed-in-service date that was granted in December 2010. Mike will discuss the significant opportunities for revenues and cash flows that these new facilities can provide. Clean Coal is also evaluating plans to keep as much as 20% of the future RC volume to offset federal tax obligations. By operating some of the RC facilities, we not only qualify for the tax credits, we obtain additional tax benefits that are key elements in these transactions.

For the RC production that Clean Coal retains, it will, in addition to operating costs, Clean Coal will record coal sales and cost of coal that may be significant, which will result in increased revenues over and above the -- new revenue increases expected from the new monetized RC facilities; and expenses, which will reduce reported margin percentages. Revenue from our Emission Control, or EC segment, increased 20% during the fourth quarter and 1% for the year, as revenues from Activated Carbon Injection, or ACI systems, were generally slow, matching the power industry's wait-and-see attitude before finalization of the Mercury and Air Toxics Standard, or MATS.

EC revenues contributed $3.1 million in the fourth quarter of 2011 as compared to a contribution of $2.6 million in the fourth quarter of 2010. The revenue increase in this segment was due to increased equipment and consulting revenues. During the fourth quarter, a significant portion of the Company's resources were diverted to our RC priorities that would have otherwise been utilized for current revenue-producing activities.

Revenues from our Carbon Capture, or CC segment, generated from our DOE and industry-supported development and demonstration contracts, increased 158% to $1.2 million for the quarter and 49% to $3.1 million for the year. We commenced work on our $19 million CO2 Capture contract in the fourth quarter of 2010, which we expect will provide significant revenues for the Company through 2014. We are responding to increased procurement activities for both our ACI and Dry Sorbent Injection, or DSI, system, as a result of the recently published MATS. And we expect significant increases in revenues from equipment sales this year and for the next several years, as most utilities will need to be in compliance by 2015.

As of December 31, 2011 we had contracts in progress for work related to our EC segment totaling approximately $736,000, which we expect to recognize as revenue into 2012. We had DOE contracts, including anticipated industry cost share in progress, totaling approximately $15.7 million as of December 31, 2011. We expect to recognize approximately $5.6 million from these contracts in 2012, and the balance through 2014; all dependent on continued DOE funding.

After adjusting out the RC coal sales and purchases, which will not continue with respect to any facilities after they are monetized, our overall gross margin in the fourth quarter was 64%, as compared to 72% for the fourth quarter last year. High margins are realized in our RC segment, where the majority of the RC facilities operating costs are paid by the lessor prior to our recognition of rental income. The percentage for 2011 is somewhat less than what we realized in 2010, due to cost related to our placed-in-service activities, which are not normal ongoing operating costs. As a note, on an unadjusted basis, the fourth quarter 2011 margin percentage of 19% was markedly less than prior quarters, due to the lower margin on the raw coal bought and the refined coal sold during demonstrations, which was essentially done on a zero margin basis.

For the year the adjusted gross margin was 73%, unadjusted it was 36%; versus 61% for 2010. The 2010 amount does not include any coal sales that would need to be adjusted out for the comparability. Again, the improvement is a result of the high margins recognized in our RC segment.

General and administrative expenses amounted to $2.9 million in the fourth quarter of 2011, as compared to $11.6 million in the fourth quarter of last year. The high 2010 figure was due primarily to legal fees associated with litigation, which were in excess of $8 million for that period. We expect that G&A levels in 2012 will be somewhat higher, but still will approximate the fourth quarter G&A numbers. For the year, G&A expenses decreased by $15.3 million to $17.5 million, due to reduced legal fees, which totaled more than $24 million in 2010; offset by increases in compensation and employee-related costs due to significant increase in employees, where we added 46% to the level of our staff in preparation for our planned growth.

For the year 2011, our legal fees were $20.4 million less than those incurred in 2010, and we believe we have now returned to more routine levels. Research and development expenses amounted to $839,000 for the fourth quarter of 2011, as compared to $272,000 in 2010, with the increase primarily due to more activity in our CC project, and development of the M45 Refined Coal Technology we are licensing [with] Clean Coal. For the year, our R&D expenses increased to $2.3 million as compared to $911,000 in 2010, for the same reasons.

For 2011 we recorded operating income of $3.0 million, as compared to a loss of $21 million in 2010. The 2010 loss is due largely to the cost of litigation. Below the operating line we are reporting several items, which include loss of $1.2 million for the quarter and $7 million for the year from our net equity; and the net income loss of unconsolidated entities, which amounts are primarily due to our equity in the losses of ADA Carbon Solutions through November, when we relinquished our interest as a result of the indemnity settlement.

Other income of $2.2 million for the year, related primarily to interest on notes receivable and other amounts received from NexGen. Interest expense of $695,000 for the quarter and $1.6 million for 2011 related to Clean Coal's line of credit; and the interest expense on deferred gain for income tax purposes related to Clean Coal's lease transactions. Finally, income of $19.8 million for the quarter and net expense of $21.9 million for the year, related to settlement of litigation in the Norit Arbitration award, which amounts include the $20 million gain we recognized in the fourth quarter from settlement of our Indemnity claims with ADA Carbon Solutions. Also shown below the income tax benefit line is a subtraction of nearly $8 million for the non-controlling interest in the income of Clean Coal for the year that is not attributable to ADA. For the fourth quarter, our net income was $13.8 million, or $1.53 per diluted share, as compared to a net loss of $3.1 million, or $0.42 per share for 2010. For the year our net loss was $19.9 million, or $2.48 per diluted share, as compared to a net loss of $15.5 million, or $2.09 per diluted share for 2010.

Cash flow provided by operations was $13.7 million for the fourth quarter in 2011, compared to $7.3 million for the same period of 2010. For the 2011 fiscal year, cash flow used in operations amounted to $8 million, as compared to cash flow provided of $11.7 million in 2010. In October and November we completed the public sale of 2.3 million shares, including the over-allotment of our common stock. Net proceeds of the offering amounted at $32.7 million, and were used to ensure our ability to place the 26 additional RC facilities in service before the year-end cut-off date; and to improve our working capital to allow us to continue our aggressive response to the increasing procurement activities we are seeing for our ACI and DSI equipment offerings.

Our balance sheet as of December 31, 2011 reports cash and cash equivalents of $40.9 million and working capital of $3.8 million. Long-term liabilities totaled $9.5 million, and stockholders equity totaled approximately $49.2 million at year-end.

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

Thank you, Mark.

Looking back at 2011, we see it as a year in which we were able to overcome extreme challenges by focusing on executing the opportunities in front of us. As a result of the strength and dedication of our people, company-wide, we succeeded at putting the Company in a very strong position for both near-term cash flows and long-term viability. The following highlight our situations today, moving forward.

EPA finalized the Mercury and Air Toxics Standard, or MATS, that they predict will create a $9 billion per year market for Emission Controls for coal-fired power plants. We have 26 new refined coal facilities to put in operation in 2012 and 2013. And we have the potential of creating $50 million to $100 million per year in cash flows for the Company through 2021. We ended the year with no debt, $40 million in cash, and a 50% increase in staff. So we have the strong financial and personnel resources to execute on these opportunities. And we have settled all litigation and arbitration matters, so we can fully focus our energies on growing the business.

Let me provide some details on these items. The MATS has been published in the Federal Register and will be considered final on April 16. MATS requires over 1,200 new coal-fired -- existing and new coal-fired electric generating units to reduce emissions of mercury and other hazardous air pollutants, or HAPs. We believe the emission levels required for the HAPs will create a significant market for our low-CapEx technologies. The Mercury limit will require 80% to 90% reduction in mercury from the levels in the coal. We are offering four different low-CapEx control technologies capable of achieving these levels of mercury emissions, and our DSI systems can address acid gases.

We expect that MATS implementation will expand the market opportunity for ACI, or Activated Carbon Injection systems, to approximately 500 million to 600 million, representing 400 to 600 new systems over the next three to four years. ADA has been the market leader in providing nearly one-third of the 150-plus ACI systems sold to date to the power industry. We are currently in negotiations with a few utilities about fleet-wide ACI systems. We expect that some of these contracts could be awarded as early as the second quarter.

We've also been active in responding to procurement of Dry Sorbent Injection systems, or DSI systems, for control of acid gases to meet both MATS requirements and for the Enhanced Mercury Capture. These systems are expected to cost $2 million to $3 million for an average-sized power plant. And EPA predicts the market opportunity to approximate 200 DSI systems. Last week we signed a $2 million DSI contract awarded to us as a result of a competitive procurement. We are expecting MATS to generate up to $300 million in ACI and DSI equipment sales for ADA over the next three to four years.

In addition to ACI, ADA also provides options for reducing mercury for proprietary coal treatment technologies. Clean Coal Solutions, ADA's joint venture with an affiliate of NexGen Resources and an affiliate of the Goldman Sachs Groups, is marketing two different low-CapEx technologies, CyClean and M45, both of which reduce emissions of NOx and Mercury, and qualify for IRS Section 45 credits of over $6.33 per ton for the next 10 years. CyClean is our patented RC technology for cyclone boilers burning Western coals. We currently have two systems up and operating on four boilers that generated over $20 million in revenue and approximately $7 million in operating income for ADA during 2011.

In 2011, we designed, built, and installed and operated 26 new facilities to meet placed-in-service requirements by year end. We are now moving forward on a number of parallel paths to achieve full-time operational status. The complexity of this process is demonstrated by the fact that each facility represents a completely separate set of negotiations and contracts involving a number of different parties and plant-specific details. Each deal involves at least three different companies with their internal and external lawyers negotiating over how to share $100 million to $200 million of economics over the life of the contract.

In addition, each deal may also require input from the local Public Utilities Commission, the State Environmental Permitting Office, and the IRS. As we stated in the past, it takes approximately 6 months to get this done, and for most of these 26 facilities the process could not begin until late last year, as we were focused on getting as many facilities as possible placed in service. In addition, several of these facilities are located in plants that blend coals. Since the IRS did not provide explicit guidance on blending, contracts for these facilities will likely require Private Letter Rulings, or PLRs, from the IRS, which may take two to three months after the formal contracts are completed.

Now let me provide you a summary of the status of these ongoing multifaceted negotiations. Of the 26 new facilities, 15 are currently installed at plants which we anticipate will be their final homes. For three additional units, we have plants where we believe they will eventually be operated but are currently stored at other locations. For the remaining eight units, we are in discussions with 10 to 20 possible locations. Of the 15 new facilities installed at their likely final homes, two began operating last October and November as replacement units at our existing RC sites. Clean Coal intends to use the two older units that we replaced at new lower priority locations.

Contracts for one facility have been completed, and the unit has been in operation by Clean Coal since the end of last year at a plant where we intend to utilize the tax credits ourselves. We have completed contracts on two other facilities, one of which is expected to begin operations in the next couple of weeks; and the second is waiting for the Environmental Permit, PUC approval, and a PLR. There are two other units where the Environmental Permits have been approved before the contracts have been completed. It is our intention to begin operations of these units as soon as the spring outages are over, and keep the tax credits created for ourselves until the contracts with the monetizers are completed. We are finalizing contracts with another unit where we expect to utilize the tax credit, and that unit should start up operation in the next month or so.

We are varied stages of contract negotiations and permitting for the remainder seven of these systems. Based upon the progress with these first 15 units, we expect several to be in full-time operation by the end of the second quarter. We expect and are very comfortable by the fact that, by the end of 2012, the operating RC facilities to be generating pretax income for ADA at a run rate of approximately $50 million per year after payments to minority partners for the remaining life of the tax credits. Beyond 2012, there is potential for additional upside as we get the remaining units up and running in 2013. For these units there is a number of possible locations, all with different sizes and characteristics, so it's difficult to provide explicit guidance at this point.

For example, we are holding five facilities in reserve for placement at five very large potential RC production sites. Each of these sites has its own unique set of circumstances and issues that will likely require some change in operation at the plant, or technology improvement, or switching coal [rank], or PLR, in order for those facilities to begin full-time operation. So the guidance we are providing is that there is potential to double the end of the year 2012 run rate for refined coal revenues and cash flows by the end of 2013.

A third Coal Treatment Technology was licensed by Arch Coal in 2010 to modify Powder River Basin Coals from the Arch Mines, resulting in lower mercury emissions. The Licensing Agreement provides ADA with a royalty of up to $1.00 per ton for the net premium Arch receives from the sales of enhanced coal. So far we have shown that we can treat the coal at the mine and achieve mercury reductions when the coal is burned at the power plant. Now that the push on installing refined coal facilities has leveled out, we have restarted the further marketing and demonstration in this technology. Although the ultimate market for this technology is not anticipated to be fully developed until 2015 and beyond, in compliance with MATS, we are expecting that enhanced coal revenues could begin in 2013 in states with existing mercury regulations.

In addition to providing emission control technologies for these new regulations, we are continuing to develop new technologies for future challenges for the coal-fired power generation industry. A $19 million deal [ED] program is supporting the development of our regenerable solid sorbent technology to capture carbon dioxide from coal-fired power plants in industrial sources. The project provides funding to scale-up the technology to the 1 megawatt level. We have just completed the design of the plant, and expect to hear from DOE shortly whether they intend to continue funding to build the plant.

So in conclusion, with both the 26 new refined coal facilities and the new mercury regulation, we are devoted to executing on these opportunities that we expect will create significant growth for the Company over the next three years, producing significant cash flows. We are positioning ourselves for the continued long-term success, and are developing for future regulations.

Before moving onto Q&A, let me briefly mention one other matter. Beginning in April, we will have a new corporate address, in Highlands Ranch, Colorado, about one mile south of our current offices. The new facilities will include approximately 40,000 square feet of office space and 30,000 square feet of lab and warehouse. This move enhances efficiencies and synergism by bringing together into a common space personnel from various departments that are currently located in different buildings. The new space accommodates our recent growth and provides a location with the potential for expansion that we believe we will need over the next few years. We will be hosting the annual meeting in June in the new building, so that shareholders can tour the new corporate headquarters.

Operator, we can now open up the call for questions.

(Operator Instructions) Thank you. Our first question is coming from Graham Mattison of Lazard Capital Markets.

Good morning. Let me just talk on the refined coal, if you could give a sense of what tonnage you are operating at right now?

Well, we are trying to stay away from tonnage and talk about guidance in terms of the dollar amounts we expect to see flowing. But I could tell you, in general, where we expect to be by June. And we're focusing early on, on the larger of the units. We could be at a point where we have tripled the - - tripled the current run rate that we ended the year with on the first two units. So by June we could be up to a run rate of about $60 million in revenue from the $20 million we saw with the plan of being by year-end of up to the $100 million in revenue and our EBIT on that is the 40%.

Got you. Then as additional refined coal units have their contracts finalized, will you be making press releases on that? Or is it just going to be updates on the quarter? How should we expect to be hearing about milestones?

We are going to, probably especially when we get into summer we'll have a number of investor presentations. So it will probably come a little faster than quarterly. One of the issues that we are having to work around is trying to, not put out too much specifics on each deal, because these deals are competing against each other. And as a public Company, when we have to provide specifics of one deal, then that becomes part of a negotiation on the next one. So we are trying to best interest for the shareholders, is to provide information more or less cumulative so you know where we are with the progress on these units, but without jeopardizing our negotiating position on future deals.

Got you. All right, great. I will jump back into queue. Thank you.

Our next question is coming from [Chris Colfax] with Robert W. Baird & Co.

Thanks for taking my question. Can you maybe characterize, now that you've got a little more visibility in getting systems installed, what your thoughts are in terms of the split between M45 systems and the CyClean systems? And then to elaborate on that, I think before you guided to a pretax income of $50 million per year on all of the facilities that you qualified in 2011being up and running. And then it says now you're saying it's going to go higher in 2013. Has there been - - have you had insight into potentially better economics now that have done more of those negotiations?

Let me answer the second question first. What we were saying, is that we would be at a run rate of the $50 million that we would have sufficient units up and operating at that time. So we never said we would have all of them up and operating. So there was always some upside.

And the upside, there's a number of issues as I mentioned that we are looking at resolving, both some technical issues and some plant operating characteristics to try to maximize those opportunities. So, by the end of the year we will have a better idea on what the upside will be in 2013 with the rest of the units. But we are saying that could be doubling what we are projecting for what will happen at the beginning of this year. We have, basically 16, well we have 20. It's easiest to talk in terms of the technology, in terms of what we call a dry unit, which includes a one dry component and a wet unit which has two wet components.

The dry systems can be operated as either M45 or CyClean, where the wet systems can only be operated as M45. So we have flexibility. The rule allows us to, once it's placed-in-service we can move it, we can change the formulas, we can swap between M45 and CyClean. So as we go through, we can think about optimizing, where is the best places to locate these facilities, based on the total tonnage we produced and also recognizing, we get a little better economics on the M45.

Great. Thank you. I will hop back in queue.

Our next question is coming from Kevin McKenna of Stifel Nicolaus.

Hi. Could you explain the tax credits when you keep them and monetize them yourself? Does that change on where you have guided revenues and earnings before?

Yes. Kevin, this is Mark. Certainly when we choose to operate them ourselves, we are forgoing our ability to lease those out and recognize the escalating $6.00 per ton on those. But what we do and for us we realize that through now instead of as an income, a revenue item. It is an item that offsets our tax liabilities. So we've giving up that revenue and replacing it with something that reduces an expense down before the bottom line. In addition, we've got those operating costs that we will incur ourselves, but we will show cost of sales or cost of operations. So it does impact the mix but the guidance that we have given about the revenue and EBIT run rates, those are giving consideration to those facilities that we expect to operate ourselves as well.

More specifically, when you remove the monetizer you get to keep a portion of that yourself then, is that correct?

Yes. When the monetizer is not involved in the facility, every ton of refined coal that is produced, creates a tax credit for the Clean Coal joint venture. We receive our proportionate share of that based upon our equity interest in that venture.

So if it generated $6.33, some would go to the utility, the rest would be split between you and your partners. So that would significantly - - it wouldn't increase the earnings but it would decrease the taxes more than monetizing the unit through someone else would increase earnings.

Yes. It is a better impact on our bottom line than if we were to monetize them.

Okay. Thank you, that was my question.

(Operator Instructions) Our next question is coming from [Joseph Scott], a private investor.

I was watching the popular TV program 60 Minutes recently. They did a segment on coal that was entirely negative. They stated how dirty it is and how much it pollutes. They emphasized how we should lessen our dependence on coal because our environment is at stake. We understand all of that.

They said that it would take 20 years to sequester carbon which needs to be done in order to keep coal clean. Well, according to this segment, coal will destroy the environment. My question is this. How does a nationally televised investigative program like 60 Minutes not know about a company like ADA, or related companies, that has the very process to cure the problem that they are talking about? In other words, how does our process go unnoticed by a company like CBS who broadcast 60 Minutes?

Well. That is all part of the national debate. You not only see it on TV you see the same argument within Washington, covering both sides of yes, coal needs - - coal has a lot of emissions and yet it is one of our biggest national resources. And so we as we look at the future of a power generation and we're fighting wars over foreign fuels. There is a need to rely on coal.

So that is our place is to make coal cleaner. We feel if we can take mercury out of the picture, for example. It is going to make increased public acceptance of coal because we absolutely need it. And so in spite of all of the arguments you hear on both sides, if you look at DOE's and projections by the industry for the Electric Power Research Institute. You will find that coal is going to be a major part of our present and future power generation for the next 50 years.

Thank you.

Our next question is coming from Rick Billy of Chestnut Ridge Capital.

I have two questions on the financial statements. First, on the liability side of the balance sheet there is an item $14.9 million of deposits. What is that?

Okay. I know we've alluded to this or mentioned this before, Rick. These are amounts that the monetizer has placed with Clean Coal to reserve the right to monetize certain facilities. So we expect those, we're not going to be repaying those, they will turn into these prepaid rent amounts from the facilities that they relate to, our - - the agreements and permits are all in place and they start in their routine operations.

Okay, Thank you. Second, if I have done the math right, and if I back out the $17.4 million that you recorded this quarter in coal sales, all of that coming out of the refined coal segment. That would leave $2.86 million in revenue, $1.27 million in gross profit. Are those numbers right?

Well it doesn't change the gross profit because the coal sales are really a push, they're at zero margin but we record those. No impact to gross margin. But, I didn't quite get the numbers right but, yes. It's - - I know it's in the 10K that you will see here filed we break that out a little bit better so you can see the results with excluding the coal sales. But you should be able to do that with a simple some subtraction.

Right. So it's a little under $3 million in refined coal which is far lower than you have been running in the last four quarters. Why is that revenue number - -?

In the fourth quarter the two operating units, as Mike noted, we've changed those pieces of equipment out and put the newer placed-in-service units at those two facilities, extending the life then of tax credits at those facilities through 2021. So there were periods in November and some in December when, because we were making the change there, that we were not producing any refined coal.

Okay. Will they be up and running if there are $5 million kind of per quarter?

(Multiple speakers) As with all of our facilities, our job is to shadow the coal that is used by the utility there. So, I know these units are operating in the high 90% level of producing coal that the utility is using. So we are somewhat at the mercy of the facility if they go down for maintenance changes or any changes in their production schedule. We have to - - we cannot - - produce coal if they are not burning. Both I know that at both of those units we are in a very - - we are above 95% in the coal that we are processing at those units. So we are expecting those levels, those levels of production that we saw were based upon kind of their last 10 year averages. So that is certainly our expectation, now.

Okay. Thank you.

Our next question is coming from Steve Santos of RBC Capital Markets.

Good morning, fellows. Just a couple of questions. Number one, on the ACI systems, after the MACT was established. Mike, are you seeing what we had hoped for in a surge for RFPs coming in on these proposals for the new ACI systems as a result of the MACT?

Well, actually, Steve, they started about nine months ago. When the faster acting utilities saw that the role was coming, pretty sure it was going to come. So a lot of procurement actually started late summer. So, when I mentioned we were expecting some contract awards potentially in the second quarter. That is part of that process, bids that went out at that time. We are seeing a steady increase for our bid proposal activities are increasing. We are - - a lot of the utilities that didn't get involved early are just starting the process. And it's about - - it takes them maybe 6 months to 9 months to get to a point that they can put an RFQ out. So, if you look in our presentation we kind of show how we see projected ACI sales over time with a more or less starting this year but really peaking 2013, 2014.

You have previously commented or at least alluded to the idea that you're seeing some requests for noncompetitive bids. Are you continuing to see that kind of activity?

Well, we have gotten there on some of them. But, bottom line is our focus is on these fleet-wide sales. So that we can negotiate with the utility to provide the equipment we provide, possibly as joint ACI and DSI systems. Because the DSI does impact mercury control. And so by having the two pieces of equipment, it kind of puts us in a nice position for that. So, the market is just evolving. It's still fresh. We will see how it moves forward. But we are aggressively pursuing working with the utility on a fleet-wide basis so that when we win a contract like that, it will probably be for multiple units.

And you can feel confident in maintaining that 20% margin that you have anticipated in the past?

Financially, the 20% margin is on and also the 35% market share.

Sure. Second, quick second point. It's good to see you're negotiating with these first two units. Is it correct that, currently we just have two units on the refined coal operating? And you are attempting to manipulate those contracts to a certain degree to, of course, go into the higher volume units, ultimately. Do you have additional - - I know you mentioned the negotiating process is very complex. Does that make it even more complex when as you're negotiating with these utilities?

Well, there are several parts to your question? But first of all we have the two existing units that we replaced with new units. We have also started up a third unit that we are operating and keeping that ourselves. So we have three units that are operating right now. We have another two that we've completed the contracts. So now it's a matter of getting them up and running. One of those we expect to be up and running here in the next couple of weeks.

On two other systems, in those cases usually it's the permit that is the slowest part. In these cases the permits went faster than the contracting. So since we have the permits - - we are going to keep those tax credits. We are going to start operating the facilities ourselves, this is the time of the year when utilities shut down plants. The weather is mild, they do maintenance on them, so these outages will last into the early April. And after that we will start those up. And as soon as we get them monetized, we will switch them over from us keeping the tax credits, to them. The ones that we are negotiating now are ones that we know where they are likely to stay.

But at the same time, they are these others, let's call them spec units, that we have choices to make. For example, we can say, let's put them in a place that might be available today that might be treating 1 million tons of coal and so that produces for us about $1 million a year in earnings. Or there might be a large unit out there, say 5 million tons, but it's going to take us to do some work. That work may be getting a certain IRS ruling or may be improving the technology.

So our thought on those units is let's work over the six months to nine months to see if we can resolve whatever issue it is that would limit our ability to move it and are essentially making a choice between getting $1 million a year for 9.5 years, or $5 million a year for 8.5 years. As we go through the years,- - those will be the units that we are looking to install next year and we're trying to find the biggest places to put them.

Good. Okay. Thanks, Mike.

Our next question is coming from Graham Mattison of Lazard Capital Markets.

Just a quick follow-up. What do you see as the biggest challenge for you out there with refined coal in terms of meeting - - getting all of these systems placed in service? Turned on or finalized by the end of the year? And then also are you working with additional monetizers or are you still only working with Goldman Sachs?

Let me answer the second one first and you might have to remind me what the first part was. If you notice the guidance, and Mark answered the question earlier, that we have $15 million in deposits on units. So that gives a monetizer the right to negotiate exclusively on specific units. Well that fulfills the obligations we have with Goldman Sachs. Now it's opens it up to negotiate with other monetizers and we have mentioned in the past that we have - - we are negotiating with a number of different companies on best terms. So beyond that 15 million tons, you'll see that the next units will be with new monetizers.

All right. And then the other question was what is your biggest challenge to getting your guidance of $50 million by the end of the year?

The biggest challenge it that most of these are outside of our control. For example, the - - most of the contracts that have to be negotiated are between the utility and the monetizer. So we are part of that. We are part of the discussion. But it is really, them negotiating. We don't have a say in speeding it up. We are not in control of that negotiation. We are part of it. The same way with the permitting part.

We mentioned that each one of these is $100 million to $200 million deal. So there is a lot of money to be made. But the guy working for the state agency, this permitting, is not getting any kind of deal so he is in no hurry. The problem on all of these is not if it is just a matter of when. In some cases, as I mentioned, the permit actually moves pretty smoothly and the contracts take a little time. And other cases we were just completing the two contract negotiations. We'll get one up and running because we do have the permit. But the second one we're going to have to wait for it. So it's just all timing and a lot of external parties to these discussions that we can't move at the pace we would like to.

All right. Great, that's helpful. Thank you.

Our next question is coming from [Chris Kovac] of Robert W. Baird & Co.

My questions have been answered. Thank you.

We will take our next question from Rick Billy with Chestnut Ridge Capital.

Mark, what is your best guess on the share count in the first quarter?

It's going to be, we are expecting it to remain about the $10 million level. So there is a few little issuances as we match our 401K with shares that help to align the employees with investors and things. But beyond that we are not expecting any other issuances. So that $10 million is the right level.

Okay. Thanks.

Our next question is coming from Joe Shepard, private investor.

One of the things that I have never seen written about or discussed is after you capture the mercury, I assume it is with activated carbon? But where does it go? And is there any exposure there? How do you dispose of the mercury?

The mercury is captured either in activated carbon or one of the other particulate substances, such as fly ash and unburned carbon. There has been literally millions of dollars of tests performed that once the mercury is captured, it does not leach out of that material. So that you could, if you are capturing it in the ash or activated carbon and it ends up in the ash, you can landfill that ash and then the mercury will stay in the ash even if it rains, or it washes away. The mercury is effectively removed from the environment because it is sequestered in that particulate matter and therefore cannot end up in the waterways. It is when it ends up in the waterways that it creates the environmental problems. So that has been - - a lot of studies have been done over the last decade on that and everyone's comfortable that by taking the mercury out of the air, we are effectively removing it from the environment.

Okay. Thanks. So it would be a non-hazardous landfill or place like that?

Yes. Absolutely, it is not hazardous.

Great. Thank you.

Thank you. At this time there are no further questions. I would like to hand the floor back over to management for any closing remarks.

Well, I would like to thank everyone for joining us today and for your continued interest and investment in ADA.

Thank you. This concludes today's teleconference. You make disconnect your lines at this time. Thank you all for your participation.