Advanced Emissions Solutions, Inc.
Q1 2013 Earnings Call Transcript

Published: 9 May 2013

[Operator:]

Greetings, and welcome to be ADA-ES First Quarter 2013 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Graham Mattison, Vice President of Investor Relations for ADA-ES. Thank you. Mr. Mattison, you may begin.

[Graham O. Mattison:]

Good afternoon and thank you, everyone, for joining us for the ADA first quarter 2013 conference call today. 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. Negative expressions in 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's filing with the Securities and Exchange Commission, with particular emphasis on the section entitled Risk Factors in ADA's Form 10-K. Listeners are cautioned not to place undue reliance on forward-looking statement 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 disclaims any duty to update them unless otherwise required by law to do so. A recording of today's call can be found in the Investor Resources section of our website at www.adaes.com. After the market closed today, we issued our earnings release and our slides related to our prepared comment. A copy of these can be found in our Investor section on our website. Joining us on the call today are Dr. Michael Durham, President and CEO, who will provide an update on recent corporate developments and our future plans; and Mark McKinnies, Senior Vice President and Chief Financial Officer, who will discuss our Q1 performance and financial results. We will then open up the call to questions, and the operator will explain the process for asking questions at that time. Before I turn the call over, I need to inform our audience that our discussion today will include information involving non-GAAP financial measures, all of which are reconciled with GAAP numbers in the exhibits accompanying our press release on the Investor Relations section of our website and the slides. In addition, some of our comments today will include forward-looking statements. Please keep in mind that actual results could differ materially from those projected in any of our forward-looking statements. With that, I will turn it over to you, Mike.

[Michael D. Durham:]

Thank you, Graham. I will be referring to the slide presentation that's posted on our website this afternoon while discussing our business. I'll start with our commercial Emissions Control business. Mercury and Air Toxics Standards, or MATS, was made final last April, which requires over 1,200 existing and new coal-fired electric generating units to reduce emissions of mercury and other hazardous pollutants by April, 2015. MATS is creating a significant market for the low CapEx technologies that ADA provides. Our dry sorbent injection or DSI systems reduce acid gases and we're offering several different low-cost mercury control technologies capable of achieving the MATS mercury limits. The market for equipment to meet the federal MATS rule is well underway and evolving as expected. ADA has taken a number of steps to prepare for this market, including the August 2012 acquisition of the assets of Bulk Conveyor Specialist, the leading provider of DSI systems. In addition, we've grown our engineering capabilities and put in place arrangements with various suppliers and component manufacturers to meet the growing market demand. The chart in the upper left-hand corner of Slide 4 demonstrates that MATS is creating a significant increase in activated carbon injection, or ACI, and DSI systems procurement activity and point outs that ADA has been very successful in this competitive commercial market. Last week, we announced that we recently received awards and letters of intent to award approximately $30 million in ACI and DSI systems for multiple utilities. Since the MATS market commenced in 2012, ADA has been notified of contract awards currently valued at approximately $75 million for ACI and DSI systems. We're currently working on bids or discussing potential projects for those systems, in excess of $180 million. In addition, we believe there remains another $400 million to $600 million in equipment to be bid in the future. The upper right-hand corner of Slide 4 highlights a significant increase in backlog of contracts from the levels of 2011 and 2012, with the current backlog of $32.7 million. This chart also shows that the revenues from these contracts are just beginning to increase from the new contracts. We expect that these revenues, which are recognized on a percentage of completion basis, to grow significantly over the next several quarters, as these contracts require deliveries of most of the systems in 2013 and 2014. Following this equipment market, we anticipate a $1 billion to $2 billion annual market will develop for chemicals needed to capture mercury on a continuous basis. ADA will compete with this -- in this market with our Enhanced Coal technology, which we market under the name M-Prove. We believe the technology provides a benefit to the customers of $1 to $4 per ton of coal burned when used on western coals, by eliminating or minimizing the amount of activated carbon needed to achieve compliance and reducing its negative impacts on [indiscernible] sales. U.S. power plants consume up to 600 million tons of western coals per year. One of the advantages of our technology is it does not use bromine. The power industry is beginning to experience corrosion issues in their plants that they attribute to the addition of bromine used to enhance the capture of mercury. Thus, we have found an industry open to considering a new technology such as M-Prove, which avoids the use of very expensive plant repairs associated with competing products. We believe, M-Prove -- we provide M-Prove through 2 channels. We license the technology to Arch Coal for use on its PRB coals at the Arch mine. We'll also be applying it at individual power plants that source their coal from multiple providers. We have conducted a number of successful demonstrations of the technology, including the applications at the mine and at specific power plants. As well, we were recently awarded what, we believe, will be the first of a family of patents designed to protect our technology, both in the U.S. and abroad. In addition to ACI systems and M-Prove, ADA also provides options for reducing mercury control with our other coal treatment technologies. Clean Coal Solutions, or CCS, a joint venture with NextGen Resources, an affiliate of Goldman Sachs Group, markets 3 different technologies

[Mark H. McKinnies:]

Thanks, Mike and good afternoon, everyone. Turning to Slide 9, we highlight our RC segment results, which are primarily comprised of the consolidation of Clean Coal Solutions, or Clean Coal. During the first quarter of 2013, we had the 8 facilities that Mike talked about producing refined coal, RC. 5 of the total were leased or sold to third-party RC investors at the end of the quarter, and 3 were retained and operated by Clean Coal for its own account. The latter 3 operated by Clean Coal generated tax credits, which will be used to offset future tax expense. As stated in prior calls, when Clean Coal operates an RC facility for its own use, it records the purchase and sale of coal at approximately $20 to $40 per ton, incurs operating expenses of approximately $3 per ton of coal treated and generates approximately $7.50 per ton in tax benefits. Because we provide a valuation allowance for our deferred tax assets, our share of those tax benefits are not shown in the financial statements. When RC in the facility is leased or sold to an investor, Clean Coal recognizes revenues and receives ongoing payments for the RC investor, but does not incur the coal purchase costs, coal sales or the related operating costs. During the first quarter of 2013, the 8 operating RC facilities produced a total of 5.1 million tons of RC, up from 1.7 million tons in the first quarter of 2012. Of these tons, 3.2 million were produced at RC facilities leased to third-party investors and 1.9 million tons were produced at RC facilities retained by Clean Coal for its own account, generating tax credits for the Clean Coal's owners. Total RC revenues totaled $58.1 million during the first quarter of 2013, and included $12.2 million in leasing revenues and $45 million in revenues from the resale of coal produced by the RC facilities operated by Clean Coal. During the first quarter of 2013, gross margin for the RC segment was $6.7 million or 11% of RC revenues compared to $3.1 million or 21% during the first quarter of 2012. The dollar increase reflects the higher tonnage of RC produced from leased facilities, while the lower profit margin percentage is a result of increased RC produced by Clean Coal for its own account. As shown on Slide 9, gross margin, adjusted to exclude coal sales, raw coal purchases and retained tonnage operating expense, was $13.1 million or 99% of the related adjusted RC revenues for the first quarter of 2013 versus $5.6 million or 99% of the related adjusted revenues for the first quarter of 2012. Please note the non-GAAP measure reconciliation comments on this slide. Turning to Slide #10, we highlight our Emission Control segment activities, which provide equipment, chemicals and services to help our customers meet existing and upcoming emission regulations. As Mike noted, since the federal MATS rule was finalized in April of 2012, we have been responding to increased procurement activities for both our ACI and DSI systems. PC revenues in the first quarter of 2013 were $8.8 million, up from over -- up over 200% in the same period in 2012, due primarily to increased equipment revenues as we work on the contracts awarded in response to the MATS rule. PC gross margin was 29% during the quarter, which was an improvement from the first quarter of 2012. Our revenues in 2012 were impacted by equipment sales to and consulting work we've performed for Clean Coal, which was eliminated on consolidation. As of March 31, 2013, we had contracts in progress for work related to our EC segment totaling approximately $32.7 million, up from only $25.3 million as of December 31 and significantly up from the quarter end in 2012. ADA is currently working on bids or discussing potential projects totaling more than $180 million for ACI systems and DSI systems. Turning to Slide #11, we highlighted our CO2 Capture segment that represents DOE and industry supported development and demonstration contracts. Revenues during the first quarter of 2013 increased significantly to $1.4 million due to timing of scheduled construction and development activities as we move into the construction phase of the project. We had DOE contracts, including an anticipated industry cost share in progress, totaling approximately $11.3 million as of March 31, 2013. We expect to recognize a total of approximately $18.3 million from these contracts during the remainder of 2013 and the balance through 2014. Turning to Slide #12, we provide a summary of our consolidated financial performance in 2013. Revenues totaled $68.3 million for the first quarter or more than 250% more than the first quarter of 2012. The increases for the quarter were driven by increases in our RC and EC activities, as previously discussed. General and administrative expenses totaled $7.3 million in the first quarter of 2013 as compared to $3.6 million in the same quarter as 2012. The increase from the prior year is due to amounts incurred by BCSI, which acquired the assets of Bulk Conveyor Specialists Inc. in August last year, higher amounts from Clean Coal and overall increases in overhead due to increases in our staff and expansion of corporate facilities. Research and development expenses totaled $703,000 for the first quarter of 2013 as compared to $564,000 for the same period in 2012, with the increase primarily due to focused efforts in developing complementary technologies. During the first quarter of 2013, we realized an operating income of $306,000 as compared to an operating loss of $1.2 million during the same period last year. Both amounts do not include the tax benefits we accumulated during the quarters through the operation of RC facilities for Clean Coal's account. ADA's share of the tax credits earned was more than $5.4 million thus far in 2013. As noted before, the tax benefit from these credits was not recognized in the financials, as we record a valuation allowance for our deferred tax assets such as those credits. Below the operating income line, we report the following for the first quarter

[Operator:]

;Operator Instructions] Our first question comes from the line of Sanjay Shrestha from Lazard Capital Markets.

[Sanjay Shrestha:]

First question on the Refined Coal front, obviously, there's been good progress here. And as we think about all the other additional plans yet to be monetized, right, not so much the next quarter per se, but can you sort of paint a picture for us, right, as to how should we expect, as we go through '13 and '14, in terms of the sequence of monetization for this plant and therefore the cash flow and earnings and all that sort of stuff? How it sort of unfolds for you guys?

[Michael D. Durham:]

Well, Sanjay, if you look at the copy of the presentation, we kind of lay out 1 that was closed in February and the next 2 you're likely to see. And then the rest are in progress, so that I don't know if you can do any better than just the linear relationship from this up to having them all done by the end of 2014. Now they're -- with these 2, we have 20 -- 19 more to go, and they are in various stages of installation, discussions with utilities, monetization, and so there's a lot of parallel activities. And some we know will not happen in 2014 because of restructuring deals, and some we think will phase in, in the third, fourth quarter.

[Sanjay Shrestha:]

Okay, so we have 2 we kind of know then, right, guys? So out of the 19, so look -- am I hearing you correctly, there is some more that's probably going to fall in the second half this year, and more in '14 and there will be probably a few of those flipped to '15 and it is kind of what it is. But they're still going to be highly attractive value propositions for you guys as well as the investors, given the dynamics of the Section 45. So am I reading you correctly in that?

[Michael D. Durham:]

Well, we hope to get some in the second half, including one of the PC units. I guess I'd like to contrast, when there's parts that we're in control of and so, for example, let me tell you what we're in control of. We're in control of -- we got a new technology in November and we've got control over marketing that, and it's installed in 4 different plants and running test programs. So we got that done in about 4 months. So we can move very quickly when it's just us. Once it gets to that final step, which is the biggest step, in which we've got a financial partner, we got the utility we're signing up for an 8-year deal, that's where we don't have any control over that timing and that's what's showing up to be the most unpredictable part.

[Sanjay Shrestha:]

One quick follow-up. Guys, you have had very good success here, strong backlog, bid activity, you're strong on the Emission Control systems business, right? With the robustness in the market, have you even seen maybe pricing dynamics get better for you guys or maybe even potentially higher margin than what you've previously caught? Can you comment on that a bit, and can you kind comment on that a bit?

[Michael D. Durham:]

Actually, it's kind of gone the other way, because all of a sudden, this huge market gets dumped on the industry and so there's a lot of new players. And so new players that don't have the experience that we have, the only way to get in is to buy in. And a lot of times, there's utilities that look only at the dollar value. So at least, initially, we've found the market to be very, very competitive.

[Operator:]

Our next question comes from the line of Kevin McKenna from Stifel.

[Kevin McKenna:]

As far as my numbers go, I just kind of wanted to check that a little bit and move forward. NOLs right now, about $60 million, is that correct?

[Mark H. McKinnies:]

Kevin, when you look at our -- we do and you'll see further information when we file the Q there. But our deferred tax asset total balance that we will be reporting, this is prior to the valuation allowance that brings that to 0, we're up over $40 million in deferred tax assets there. So that's a combination of our NOLs and the tax credits that we've accumulated. So if you look at it -- the effective tax rate that's in the 35% 40% rate, that will shelter income, well over $100 million of income in the future.

[Kevin McKenna:]

Okay and in the last year, we've generated about $2 [ph] in tax credits, is that correct?

[Mark H. McKinnies:]

We've added significantly to that and I think that's about the number that was in the mid-teens last year and, yes, we've added, as we've noted another $5.4 million [ph] in credits accumulated this quarter -- $5.6 [ph] million that we accumulated this first quarter.

[Kevin McKenna:]

And so as we move that 4 million ton facility from operated to lease, it takes about 2/3 of our tax credits away. But according to where the last deal for M-45 came in, that should be somewhere in the neighborhood of, let's open it up and say $10 million to $15 million of cash and probably $0.40 to $0.80 or $0.90 of earnings, are those good numbers to be modeling?

[Michael D. Durham:]

You talked of prepaid rent. Each deal is different on the prepaid rent. So you can't look at the last deal and assume that's going to be a constant on the prepaid rent side. If you look at Slide 6, that kind of gives you an idea of what the JV will be seeing out of those units, like the one you just talked about us as flipping. So we'll go from where it's been costing us about $3.4 million a quarter to run to what's generating $3.5 million a quarter for the joint venture.

[Kevin McKenna:]

All right and then further on Page 6, that's only for the next 2 facilities. You expect to have other facilities this year, correct?

[Michael D. Durham:]

That's right. So facility #7 is the one we closed, we sold in February. Facility #8 is the one we're operating, that's why you're seeing it as a negative now and then a positive. And facility #9 is the one that we closed all the contracts on. We're not operating, so it's no expense now and when that starts up, it will be generating [indiscernible].

[Kevin McKenna:]

All right and the pulverized coal? Was there any difference in the way the contracts go or is it just, like you said, you're quicker in getting your side done and we still have to wait for everything else come into place?

[Michael D. Durham:]

Yes. Once it gets down to a point that it's that deal with the monetizing and the utilities, I don't see that that's going to be any faster or slower, the fact that it's a new technology.

[Kevin McKenna:]

Okay. But the fact that 1 of the 4 that you used it in, at least 1 of the 4, correct me if I'm wrong, already has a facility in place. Should that mix things up at all?

[Michael D. Durham:]

One of the companies that we're dealing with has experience with refined coal and that could make it faster than the other 2.

[Operator:]

Our next question comes from the line of Steve Santos from RBC Capital Markets.

[Steve Santos:]

Just a couple of quick questions. On the Section 45 tax credit, as I recall, way back when, Section 29 tax credits were eliminated because of an inability to track their performance, as I recall. But did they also have a deadline date, the 10-year deadline that is associated with the Section 45 tax credits? And secondly, is there any opportunity to extend that expiration date for the tax credits beyond the 2021 deadline if they're working properly?

[Michael D. Durham:]

There was a sunset provision on the Section 29 and it got extended once, but it definitely was designed to end -- I'm trying to think, that was 2006 I think, something like that. It was hardwired in there and it didn't get extended. It's an act of congress. It could extend it. We are not pursuing that right now. We actually prefer that the market is closed for this. So there's no new entries into the refined coal. But at sometime down in the future, we might look at that and see if there's a reason we can convince Congress to extend this. The time right now is not right, as Congress is struggling over how to increase revenues other than decrease revenues.

[Steve Santos:]

It would seem to me that, at some point in time, your target audience, your utilities are going to be seeing a waning advantage timeframe as 2021 starts to sneak up on us. So at some point, it's got to be -- it's got to create some urgency.

[Michael D. Durham:]

What you say is true. So during these negotiations, everybody knows that the amount of money on the table gets reduced each day.

[Steve Santos:]

Related to that, am I correct in thinking that the negotiations between these monetizers, namely Goldman Sachs and the utilities, is where a lot of the delays are stemming from in many of these monetization contracts? And didn't you mention a couple of months ago or at a previous conference call, that you had alternative monetizers that were available that might also create some more efficient closing process on these contracts?

[Michael D. Durham:]

Well, I think you're partially right, Steve. I said there were other alternatives. In fact, we had closed 2 deals with 2 other monetizers, and there are other monetizers out there that we will close future deals with. I did -- probably did not say that there's some out there that will be faster. And the reason for it, again, each one of these deals ends up being an 8-year, about a $200 million transaction, in which one of the parties is taking on all the risk. And so I don't know of anybody who takes on a risky $200 million transaction and does it fast.

[Operator:]

Our next question comes from the line of Jim Gentrup from Discovery Investment research.

[Jim Gentrup:]

I was wondering in regards to the future plans for the RC facilities waiting to be leased, given the fact of your tax credit situation already, would you wait and not -- I mean, what are your plans, I guess, going forward? Are you going to continue to operate these while you're waiting for the lease or sale or ...

[Michael D. Durham:]

I think that's a good question, Jim, because I think at this point, we have all the tax credits we need for the next couple of years. At some point, we want to get to this happy medium of we're keeping 1 out of 5 tons. So that kind of offsets the taxes for all of them. But right now, we're way ahead of the game. So we're trying to figure out what's the optimal way of getting there. So one of the things we do know, that if you get the chance at a utility, and you get your permit and equipment is ready to go, you are better off getting that started as soon as possible, whether it's monetized or not, just because you've got all the -- you're then operating within the plant. So once it's operating, it's easier to keep it going. We're looking at ways to accelerate the process and yet, not necessarily take on all those tax credits. So one of the things we're doing, we're seeing if we can't change the model a little bit by us negotiating the long-term contract with the utility. And then, so when the monetizer, the financial partner comes in, he's actually stepping into prenegotiated contracts. The second part of that is we are just starting a process to try to put together a group, a financial group that's willing to take on these short-term tax credits. So as we get a new system up and running, it may take us to 2 to 3 months to get the financial partner, the 8-year financial partner on board. But if we've got a group willing to take a series of these 3-month transactions, that would allow us to accomplish the goal of getting started as quick as possible and getting it monetized as quick as possible.

[Jim Gentrup:]

Good answer. I would imagine and that the utility, once they get their -- once you start operating, that there's not that much of a motivation or incentive for them to switch over because they're getting their $1 per ton, is that -- have you seen that to be true?

[Michael D. Durham:]

Well, you're right. So they are getting a benefit as soon as we're monetizing. But I do think they want to get their long-term deal inked. So I don't feel like they're intentionally slowing it up because they've got what they want, because we've got short-term termination. We let them know we don't have long-term appetites to operate these. In some cases, we probably would not have started them if we knew they were going to be operating and [ph] monetized. So on I'm not so sure that that's part of the decision-making.

[Jim Gentrup:]

And just a real quick question on seasonality. Typically, wouldn't we expect Q2 to be a little lower as far as on the coal usage side?

[Michael D. Durham:]

Yes. The 2 shoulder seasons, the spring, so that shows up primarily second quarter, and then beginning of fourth quarter, when you got the second shoulder season, the fall. Those are usually the lowest seasons and the highest being in the summer, with the hot summer months and air conditioning.

[Jim Gentrup:]

Okay and then on the EC segment, did you say, Mark, that the equipment revenue -- the total for the EC segment was $8.8 million, correct?

[Mark H. McKinnies:]

That's right, Jim.

[Jim Gentrup:]

And did you say how much of that was equipment only?

[Mark H. McKinnies:]

You can look at Slide 10 that we provided. It gives you a breakdown between the systems and equipment, the consulting and a small amount of chemicals there.

[Jim Gentrup:]

And the last question I had is that the gross margin was a bit higher than what you guys have been kind of guiding us to. I'm wondering if that was sustainable?

[Mark H. McKinnies:]

What we've been guiding is this 20%, 25%, and so that's what we think on the longer-term. As Mike mentioned, it's pretty competitive out there. I think we've been successful at executing on our contracts thus far, but we're still, as we look forward to this market, we see that 20% to 25% is probably where we're going to end up.

[Operator:]

Our next question comes from the line of Andy Taylor from BlackRock.

[Andy Taylor:]

Two real quick things. One, on the PC boilers, you mentioned in the slide that there's 12 facilities that are sort of being allocated for that. You said you've done testing with 4 different utility groups. How many utility groups would you expect to encompass those, to use up those 12 facilities, if you will?

[Michael D. Durham:]

We may be able to place them in as few as 4, so 3 apiece.

[Andy Taylor:]

Okay. If that's indeed the case, is it likely that getting one of these things kind of up and running is likely to, I guess, speed up the -- like getting it -- one wind up and fired up with one utility group is likely to increase like the second and third? So like if each utility group on average is going to use 3 of these facilities, is it likely to get 1 up or 3 up almost at the same time?

[Michael D. Durham:]

I don't think it's 3 in parallel. But if you get 1 up at a utility, the second and third might go faster than starting fresh from a new group.

[Andy Taylor:]

Okay. Fair enough. I recognized that each of these monetizations, they have different upfronts and different structures they can change around slightly. That most recent one in February, it seems a bit -- ADA's share, not the JV, but ADA's share was about $3.50 per annual expected ton at upfront, $3.50 per ton if you will, thereabouts. Even if you use a slight discount to that at $3 a ton, if you look at -- because each of these are going to be different. If you look at the next couple of facilities and you think you get a couple of PCs, it's pretty quick to think that 4 plus 3 plus maybe a CyClean and maybe a couple of PCs, it seems like it's quite likely that you might be talking as much as $50 million, $60 million in upfront cash payments, and this is just ADA's share, for the end of this calendar year. Is that math way off or does that seem reasonable?

[Michael D. Durham:]

The assumption that they're all going to look-alike is quite a bit off. And so as you look at the 2 components, the 2 key components on how we get reimbursed, one part is the upfront payment and the second part is the monetization rate. And so if you think about it, everybody has got an Excel spreadsheet, of which the answer probably has to come out to about the same answer as far as ROI. And so, what you find is that we're -- the contracts we have, have quite a bit of variation in the monetization rate and quite a bit of variation in the upfront payment, of which you get more upfront or more over the long term. So it's hard to say exactly what that's going to be, because the range that you've seen has been anywhere from, say, $1 to $6 per ton of prepaid rent. So there's quite a bit of variation and that all depends upon the specific monetization [ph] and what he's looking for to get comfort in the structure of the deal.

[Andy Taylor:]

Is it right to say that the sort of the upfronts have been sort of trending higher because that's better from like a risk sharing perspective or a -- is that generally a safer structure from an IRS perspective?

[Michael D. Durham:]

I think you got too many -- too few data points to say a trend. But if you look at the general nature of the structure that people are going with to make sure that this issue of taking on enough risk to be the producer, that's one way of showing risk, is by putting my more up front.

[Operator:]

Our next question comes from the line of Nick Tour [ph] Looser [ph] Partners.

[Unknown Analyst:]

Just a bit of clarification on Slide 6, on Page 6. Is that slide an illustrative slide in terms of what happens when you monetize units 8 and 9, or is this your expectation that you will be monetizing 1 facility in the second quarter and 1 facility in the third quarter?

[Michael D. Durham:]

If you look at under status, it kind of lays out that yes, that is our expectation that we hope that this is both accurate in timing and the quantitative value too.

[Unknown Analyst:]

Okay, so I mean, should we be looking at 1 monetization a quarter as what your expectation is going forward or do you expect some sort of an acceleration happening in these rates of monetizations post the third quarter?

[Michael D. Durham:]

I'm not so sure we're going to see any acceleration.

[Unknown Analyst:]

So how do we mathematically get all our monetizations done by the end of 2014?

[Michael D. Durham:]

Like I said, I don't know if they'll be more accurate or less accurate if you just use a linear model of how many we've have left, and we think we can get them all done by the end of 2014.

[Unknown Analyst:]

I guess that's what I'm trying to reconcile. If I'd use a linear model, which is basically 1 monetization a quarter, then you still have 20 facilities left and you have 15, 16 months left. So you're probably going to do more the first or second quarter of 2015.

[Michael D. Durham:]

Well, not necessarily. We don't know that it's going to go into 2015. We don't see anything on the table that says these will not get done by the end of next year.

[Unknown Analyst:]

Okay. And then I see on Page 7, now with PC coming online, the cumulative amount of tonnage that this business can do has virtually doubled, from your previous guidance of 60 million tons to almost 110 million tons, which effectively doubles the value of the business from, at least, from my perspective, the way we look at your business. Am I looking at it the right way? The PC business seems to have the same or better economics as the rest of your business, so this is a pretty big development for the company.

[Michael D. Durham:]

It's a big development for the company relative to tons. So before we had this technology, those last 12 would have been on the smaller cyclones and they probably would have averaged about 1 million tons apiece. So without this, we're looking at those last 12 with about 12 million tons, and so with this technology, it could be 60 million tons. So it's a gain of about 50 million tons. We are looking at the chemical costs. We don't know what the margins will be. They could be a little bit higher than the other technologies, but when you multiply on the much bigger facilities, we're pretty excited about this discovery.

[Unknown Analyst:]

And also my understanding is that your -- the number of utilities that can use your technology -- or the number of boilers that can use the technology expands now that -- with this PC technology. And having a wider universe of utilities to go to, do you expect that would help you in terms of the pace of your monetizations?

[Michael D. Durham:]

It helps us in the pace of getting utilities interested in doing this, because, yes, we can -- where we had a limited market of just cyclones, we didn't have the option of -- if we ran into somebody that was moving really slow, of walking away from them. On this case, we can walk away and go to the next one that's just as big. So it gives us a much bigger market. We still only have 28 to do. But now, instead of having maybe a total of 40 different possible plants, we could have 100 different possible plans to put it at.

[Unknown Analyst:]

And just a question for Mark. I see your SG&A this quarter is a little bit of a jump from last -- the same quarter last year. If you can just give us a little bit of flavor on what's driving that increase? And also is this sort of a sustainable run rate, quarterly run rate for operating expenses going forward?

[Mark H. McKinnies:]

So yes, significant increase from the first quarter 2012, and we highlight the reasons for that as being addition of BCSI, that we did not acquire until August of last year. So there's no numbers for BCSI, in the first quarter of 2012. And additional costs both from our overhead [indiscernible] staff and other space here at ADA, as well as what we've seen are additional transaction costs that have come to Clean Coal as they're pursuing the completion on these contracts. As you will note on that slide where we present those, which is I think is Slide #12 here, is that the amount is very similar, if not almost exact as what we recognized in the fourth quarter of 2012. But I think this rate is sustainable. We're hoping as our work continues, that those amounts that are in overhead will continue to be moved into some operating costs there as we recognize some efficiencies there. But during this term, when we're putting facilities into operation in Clean Coal, were going to see additional transactional costs that we would not expect to continue on the long-term basis, but we will expect to see those through 2014.

[Michael D. Durham:]

Let's take one more question.

[Operator:]

Our next question comes from the line of Robert Benedict, a private investor.

[Unknown Shareholder:]

You've mentioned that you expect the chemical market of $1 billion to $2 billion to develop after 2015 under MATS. I was hoping you could explain how you plan on addressing this market. Are these proprietary chemicals that you have? Are they like commodity type margins? Do you manufacture them yourselves? Just in general, how do you plan on addressing the market?

[Michael D. Durham:]

If you look at our investor information, we have a technology that we called Enhanced Coal. We're changing the name of that to M-Prove and basically, this technology reduces the amount of activated carbon required to capture mercury. And so we think it provides a savings at each plant of potentially $1 to $4 per ton of coal burn. So you take a 500 megawatt plant burning 2 million tons a year of coal, we can save them $2 million to $8 million a year. So that gives us a range of pricing that we can price our technology based on the benefit it produces. So we expect -- it's a proprietary chemical. It would be the first of what we think will be a family of patents protecting this technology, and we expect to sell it as a high-margin technology rather than as a commodity chemical.

[Unknown Shareholder:]

And you expect it to start in 2016 or midway through 2015?

[Michael D. Durham:]

Well, in April 2015, most of the plants will have to meet the mercury standard, and we sell equipment, but even the equipment requires the chemical at that time. So the chemical market, we will provide the continuous control of mercury, will start in April of 2015. That concludes our first quarter earnings call. We thank everybody for their interest in the company.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for participation. You may disconnect your lines at this time and have a wonderful day.