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CEOCFO CEOCFO Monthly Analyst |
ADA-ES – developing and selling
proprietary chemical products for air pollution and mercury control
Basic Materials Bio of CEO, · B.S. Aerospace Engineering, Pennsylvania State
University, 1971 · M.E. Environmental Engineering, University of Florida,
1975 · Ph.D. Environmental Engineering, University of Florida,
1978 · M.B.A. University of Denver, 1997 Management Experience: CEOCFOinterviews: What would you
say is your most recent and exciting news? Mr. Durham: “We
have two areas that have come up in the last 6-9 months that are very exciting. First, we spun off on a new technology for flew
gas conditioning that has continued to grow, which is our base business. During 2001, we
launched a second product, the ADA-249 for cyclone-fired power plants, which solves a
different problem than our first product but it is related to the same market place.
Furthermore, what’s important is that this new product has large revenue potential
for us. CEOCFOinterviews: Is that for the entire industry? Mr. Durham: “Yes, that will be a per annual use of an expendable material. We have also signed another joint venture agreement with Norit Americas the nations largest supplier of powder activated carbon in North America, which is a key component of controlling mercury.” CEOCFOinterviews: So you are right in line with the times? Mr. Durham: “We
are positioning ourselves very well, because we have an existing product line (flue gas
conditioning) that has allowed us to reach positive cash flow. In addition, we have a new
product line (249) that is going to give us a significant amount of growth in the next 3-5
years and a huge market potential in mercury control.” CEOCFOinterviews: Which area of your business is currently producing the most revenue? Mr. Durham: “We did about 6 million dollars in 2001, and about 4 million of that was with our first product line which was the flue gas conditioning, that improves the way air pollution control equipment works on these low sulfur PRB coals. The rest of the 6 million dollars was related to the demonstrations on mercury control, which is about 2 million dollars a year for the next 3 years just in demonstrating this technology.” CEOCFOinterviews: What is the projected growth rate of the flue gas conditioning market? Mr. Durham: “We project that over the next 3-5 years that the flew gas conditioning market will grow at a rate of about one million dollars a year.” CEOCFOinterviews: How are the mercury control programs funded? Mr. Durham: “The
government programs are two thirds funded by DOE and one third funded by the utilities.
What this means is instead of us investing 2 million dollars a year of our own research
and development expenses into demonstrating the capabilities of this technology, we are
getting government and industrial funding. t. What is especially good for us is that this
is externally funded R&D, but we will have full rights to any proprietary technology
that comes out of the R&D,. Therefore, it is a way of leveraging government funds into
building us into a position, and once the market is there we will have a lot of experience
on design of equipment, on the Sorbents that we will use to collect mercury, and then be
ready to sell those commercially.” CEOCFOinterviews: You are almost in the same position of some Biotech companies! Mr. Durham: “Well it is very similar because I worked for many years in the R&D business. However, for many years all we did was just the R&D, but realized that if if we could come out with a commercial product because of our R&D efforts, it would further enhance our potential working environment. Here at ADA-ES we have a pretty good balance, we don't look at government funding as an end-point but as a way of leveraging a little bit to a lot of R&D money that puts us in an excellent commercial potential.’ CEOCFOinterviews: Do you spend any of your own revenue on R&D? Mr. Durham: “We are spending very little of our own R&D money, yet we are doing 2 million dollars a year of research and development that's funded by the government. It's a good model.” CEOCFOinterviews: What is the competition in your sector, and what gives you an edge? Mr. Durham: “With products that we provide, we are usually competing against other alternatives for fixing these problems. These other alternatives are usually capital equipment. Most of our customers are older coal-fired boilers, units that are 30-40 years old that they hope to get another 10-20 years of operation. With the older units, it's easier for them to solve a problem with a product that has a higher operating cost, like a chemical, than it does buying a 20 or 30 million dollar piece of new capital equipment that has to be amortized over a much shorter life. They would much prefer an increase in operating cost than they would a capital investment. We are competing against these capital expenditures and for the customers we're talking to, if the chemical works, it's a preferred solution.” CEOCFOinterviews: Do all of you products produce continuing revenues? Mr. Durham: “We
don't have any product that does not provide a continuous revenue stream. Since our first customer, we have been injecting
chemicals for over three and one half years, so each new customer adds to our continuous
growth. The capital equipment that we need for our process is fairly inexpensive and the
majority of our revenues are from this continuous supply of proprietary chemical we supply
to our customers.” CEOCFOinterviews: “What is your marketing strategy? Mr. Durham: “We market in a
variety of ways, which includes a small sales force. We can get by with a smaller sales
force because it is just a targeted audience. The coal-fired plants that fit into our
niche are easily identified, but we also are adding to our market sales staff through
joint ventures, which are more or less looked at as co-marketing agreements. When
marketing our new product with Arch Coal, we immediately tie in with their entire
co-marketing staff.” Mr. Durham: “Right now we
are sticking to just the U.S. market because our technology requires fitting into certain
characteristics of the needs of the power company, the types of coal that are available in
the U.S., the deregulation that is going on, and the environmental regulations that are
hear. It doesn't necessarily fit into the scenario that you would find in other parts of
the world, although the technology would work. Obviously, the equipment requires some form
of environmental legislation to create a need for it, if that isn't there then it won't be
a good market for us at this point. Mr. Durham: “ For the mercury control, it is going to be a regulation that is going to hit 1,100 units. On our first couple of technologies, the ones we are going after now, the niches that we are going after are more like 50-100 plants. Each customer represents anywhere from a half million dollars to a million dollars in revenue from the sales of our proprietary products.” CEOCFOinterviews: Where do you see your company two years from now, and what do you think you need to do to reach those goals? Mr. Durham: “We
expect in 5 years to be a 30-50 million dollar company and significant growth after that
once the mercury regulations are in place. With our Market Development Agreement with
NORIT Americas, which we announced July 2001, to jointly pursue the market for equipment
and sorbents to remove mercury from coal-fired boilers, we are looking at a potential of
several hundred million dollars worth of revenue coming from the sales of mercury control
for coal fired boilers.” CEOCFOinterviews: “Do you participate in acquisitions? Mr. Durham: “We might in the future, but right now we look at the market we want to go after and if it is something in the utility industry, you are talking about some very big players. Therefore, we would just like to partner with a lot of these, to provide something that they can't provide. Right now rather than acquisition, we are looking at strategic partnerships.” CEOCFOinterviews: Do you have the cash and credit to go forward? Mr. Durham: “We do, and part of this comes from some of these partnerships. We are a specialty chemical company, but we don't have any specialty chemical production and related costs . Therefore, once we get a sale, we will strike a secrecy agreement with a local toll blender to supply our products so that a new sale doesn't require a huge capital expenditure on our part to increase production.” CEOCFOinterviews: Are you currently cash positive? Mr. Durham: “We have been cash positive for about eighteen months now.” CEOCFOinterviews: Do you have any assets that you are not using? Mr. Durham: “If you look up under Earth Sciences you will see some assets that we are no longer using, including a chemical production plant, which we plan to or sell some time this year. This will allow us to clean up our books and get us in a better position for positive earnings. Right now we have a significant amount of cash charges like depreciation of this large facility, and once we get rid of those we will not only be cash positive but we will be producing positive earnings.” CEOCFOinterviews: In closing, what would you like to say to your current shareholders as well as potential investors? Mr. Durham: “It is a positive story. We have come through some hard times with problems from our initial technology, at the same time we had a chemical production facility that was going through another start-up and we didn't have enough cash to go on, so we had to close it. However, we went from not having a product that worked to solving the problems and coming up with a product with great performance. We are very pleased that we are cash positive and that we put together the strategic alliances which are very key partners. Things just feel very positive around here.”disclaimer |
