Equity Method Investments

Tinuum Group, LLC

The Company's ownership interest in Tinuum Group was 42.5% as of March 31, 2020 and December 31, 2019. Tinuum Group supplies technology equipment and technical services at select coal-fired generators, but its primary purpose is to put into operation facilities that produce and sell RC that lower emissions and also qualify for Section 45 tax credits. Tinuum Group has been determined to be a variable interest entity ("VIE"); however, the Company does not have the power to direct the activities that most significantly impact Tinuum Group's economic performance and has therefore accounted for the investment under the equity method of accounting. The Company determined that the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore, concluded that the power to direct the activities that most significantly impact Tinuum Group's economic performance was shared.

The following table summarizes the results of operations of Tinuum Group:



	Three Months Ended March 31,
(in thousands)	2020			2019
Gross profit	$	5,010		$	41,200
Operating, selling, general and administrative expenses	12,776			6,582
Loss (income) from operations	(7,766		)	34,618
Other income	3,643			51
Loss attributable to noncontrolling interest	19,271			15,776
Net income available to members	$	15,148		$	50,445
ADES equity earnings from Tinuum Group	$	6,438		$	19,767

For the three months ended March 31, 2020, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the respective period. For the three months ended March 31, 2019, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the period, less the amount necessary to recover the cumulative earnings short-fall balance as of the end of the immediately preceding period, which was December 31, 2018. For the three months ended March 31, 2019, the difference between the Company's proportionate share of Tinuum Group's net income available to members (at its equity interest of 42.5%) and the Company's earnings from its Tinuum Group equity method investment as reported in the Condensed Consolidated Statements of Operations relates to the Company receiving distributions in excess of the carrying value of the equity investment, and therefore recognizing such excess distributions as equity method earnings in the period the distributions occur.

For the three months ended March 31, 2020, the Company recognized equity earnings from Tinuum Group of $6.4 million. For the three months ended March 31, 2019, the Company recognized equity earnings from Tinuum Group of $19.8 million.

The following tables present the Company's investment balance, equity earnings and cash distributions in excess of the investment balance, if any, for the three months ended March 31, 2020 and 2019 (in thousands):



Description	Date(s)	Investment balance			ADES equity earnings (loss)		Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2019	$	32,280		$	—	$	—	$	—
ADES proportionate share of income from Tinuum Group	First Quarter	6,438			6,438		—		—
Cash distributions from Tinuum Group	First Quarter	(13,764		)	—		13,764		—
Total investment balance, equity earnings (loss) and cash distributions	3/31/2020	$	24,954		$	6,438	$	13,764	$	—



Description	Date(s)	Investment balance			ADES equity earnings (loss)			Cash distributions		Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
Beginning balance	12/31/2018	$	—		$	—		$	—	$	(1,672	)
Impact of adoption of accounting standards (1)	First Quarter	37,232			—			—		—
ADES proportionate share of income from Tinuum Group	First Quarter	21,439			21,439			—		—
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)	First Quarter	(1,672		)	(1,672		)	—		1,672
Cash distributions from Tinuum Group	First Quarter	(16,788		)	—			16,788		—
Total investment balance, equity earnings (loss) and cash distributions	3/31/2019	$	40,211		$	19,767		$	16,788	$	—

(1) Tinuum Group adopted Accounting Standards Codification Topic ("ASC") 606 - Revenue from Contracts with Customers and ASC 842 - Leases as of January 1, 2019. As a result of Tinuum Group’s adoption of these standards, the Company recorded a cumulative adjustment of $27.4 million, net of the impact of income taxes, related to the Company's percentage of Tinuum Group's cumulative effect adjustment that increased the Company's Retained earnings as of January 1, 2019.

Tinuum Services, LLC

The Company has a 50% voting and economic interest in Tinuum Services. The Company has determined that Tinuum Services is not a VIE and has evaluated its consolidation analysis under the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Tinuum Services under the equity method of accounting. The Company’s investment in Tinuum Services as of March 31, 2020 and December 31, 2019 was $5.3 million and $6.8 million, respectively.

The following table summarizes the results of operations of Tinuum Services:



	Three Months Ended March 31,
(in thousands)	2020			2019
Gross loss	$	(22,259	)	$	(24,735	)
Operating, selling, general and administrative expenses	45,753			49,450
Loss from operations	(68,012		)	(74,185		)
Other expenses	(285		)	(242		)
Loss attributable to noncontrolling interest	71,972			78,270
Net income	$	3,675		$	3,843
ADES equity earnings from Tinuum Services	$	1,838		$	1,922

Included within the Consolidated Statements of Operations of Tinuum Services for the three months ended March 31, 2020 and 2019, respectively, were losses related to VIE's of Tinuum Services. These losses do not impact the Company's equity earnings from Tinuum Services as 100% of those losses are attributable to a noncontrolling interest and eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.

The following table details the components of the Company's respective equity method investments included within the Earnings from equity method investments line item on the Condensed Consolidated Statements of Operations:



	Three Months Ended March 31,
(in thousands)	2020			2019
Earnings from Tinuum Group	$	6,438		$	19,767
Earnings from Tinuum Services	1,838			1,922
(Loss) earnings from other	(3		)	1
Earnings from equity method investments	$	8,273		$	21,690

The following table details the components of the cash distributions from the Company's respective equity method investments included in the Condensed Consolidated Statements of Cash Flows. Distributions from equity method investees are reported in the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" within Operating cash flows.



	Three Months Ended March 31,
(in thousands)	2020		2019
Distributions from equity method investees, return on investment
Tinuum Group	$	13,764	$	16,788
Tinuum Services	3,352		2,700
	$	17,116	$	19,488