Nasdaq: ARQ Q3 2025 Earnings Call November 6, 2025 Disclaimer This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, which provides a "safe harbor" for such statements in certain circumstances. When used in this presentation, the words "anticipates," "may," "believes," "expects," "intends," "plans," "estimates," "predicts," the negative expressions of such words, or similar ...

Financial Performance - Generated revenue of $35.1 million in Q3 2025, reflecting a 1% increase compared to $34.8 million in the prior year period[5] - Achieved Adjusted EBITDA of $5.2 million in Q3 2025, marking the sixth consecutive quarter of positive Adjusted EBITDA[13] - Reported net loss of $0.7 million in Q3 2025, compared to net income of $1.6 million in the prior year period[12] - Revenue for Q3 2025 was $35,074,000, a slight increase from $34,774,000 in Q3 2024, representing a growth of 0.86%[27] - Year-to-date revenue for the nine months ended September 30, 2025, was $90,905,000, compared to $81,919,000 for the same period in 2024, indicating a growth of 10.9%[27] - Operating loss for Q3 2025 was $(839,000), compared to an operating income of $2,028,000 in Q3 2024[27] - Net loss for the nine months ended September 30, 2025, was $(2,583,000), compared to a net loss of $(3,770,000) for the same period in 2024[27] - For the three months ended September 30, 2025, the net loss was $653,000 compared to a net income of $1,617,000 for the same period in 2024[35] - EBITDA for the three months ended September 30, 2025, was $3,818,000, down from $5,060,000 in 2024, while Adjusted EBITDA was $5,168,000 compared to $5,884,000 in 2024[35] - The trailing twelve-month net loss as of September 30, 2025, was $3,922,000, significantly higher than the net loss of $480,000 in 2024[37] - Trailing twelve-month EBITDA for 2025 was $9,678,000, compared to $11,585,000 in 2024, indicating a decline in operating performance[37] - Adjusted EBITDA for the trailing twelve months ended September 30, 2025, was $16,730,000, an increase from $14,645,000 in 2024[37] Cost and Expenses - Gross margin was 28.8% in Q3 2025, down from 38.6% in the prior year period, primarily due to lower initial commercial phase GAC production volumes[9] - Cost of revenue for Q3 2025 was $24,965,000, up from $21,339,000 in Q3 2024, reflecting an increase of 16.3%[27] - Research and development costs rose to $2.6 million in Q3 2025, compared to $0.8 million in the prior year period, driven by pre-commencement testing of the GAC Facility[11] - Research and development expenses increased to $2,566,000 in Q3 2025, compared to $787,000 in Q3 2024, a significant increase of 226.5%[27] - GAC Facility pre-production feedstock costs amounted to $2,879,000 for the trailing twelve months, with no costs reported in 2024[37] Cash and Debt - Cash and restricted cash totaled $15.5 million as of September 30, 2025, down from $22.2 million as of December 31, 2024[15] - Total debt, including financing leases, increased to $25.9 million as of September 30, 2025, compared to $24.8 million at the end of 2024[16] - Total current assets decreased to $43,927,000 as of September 30, 2025, from $52,356,000 as of December 31, 2024, a decline of 16.0%[25] - Total liabilities decreased to $60,792,000 as of September 30, 2025, from $67,092,000 as of December 31, 2024, a reduction of 9.7%[25] - Cash and restricted cash at the end of the period was $15,493,000, down from $57,380,000 at the beginning of the period, a decrease of 73.0%[29] - The interest expense for the trailing twelve months was $2,358,000, compared to $1,984,000 in 2024, reflecting increased financing costs[37] Production and Sales - Average sales price (ASP) increased by approximately 7% year-over-year in Q3 2025[5] - Initial commercial GAC production and sales achieved at Red River, generating initial GAC revenues[5] Shareholder Information - The company reported a weighted-average number of common shares outstanding of 41,606,000 for Q3 2025, compared to 36,124,000 for Q3 2024, an increase of 15.0%[27] - Share-based compensation for the trailing twelve months was $3,053,000, slightly up from $3,023,000 in 2024[37] Strategic Focus - The company aims to use EBITDA and Adjusted EBITDA as key performance indicators to assess operational effectiveness and facilitate comparisons across periods[31] - The company reported a gain on insurance proceeds of $685,000 for the trailing twelve months ended September 30, 2025[37]

Financial Performance - For the three months ended September 30, 2025, revenue increased to $35.1 million, a 1% increase from $34.8 million in the same period of 2024[124] - The net loss for the three months ended September 30, 2025, was $0.7 million, compared to a net income of $1.6 million for the same period in 2024[122] - Total revenue for the nine months ended September 30, 2025, was $90,905,000, an increase of $8,986,000 or 11% compared to $81,919,000 in 2024[141] - EBITDA for the nine months ended September 30, 2025, was $8,064,000, compared to $4,369,000 in 2024, reflecting improved operational performance[160] Cost and Expenses - The cost of revenue for the same period rose to $25.0 million, reflecting a 17% increase from $21.3 million in 2024, primarily due to fixed production costs associated with initial production at the GAC Facility[124] - Cost of revenue decreased to $52,279,000 in 2025 from $61,363,000 in 2024, a reduction of $9,084,000 or 17%[141] - Operating expenses decreased by $738,000 or 2% to $31,274,000 in 2025 from $32,012,000 in 2024, primarily due to a 27% reduction in selling, general and administrative expenses[144] - Selling, general and administrative expenses decreased by 43% to $4.6 million in Q3 2025 from $8.1 million in Q3 2024, primarily due to reduced payroll and benefits expenses[128] - Research and development expenses surged to $2.6 million in Q3 2025, up from $0.8 million in Q3 2024, due to pre-production testing of the GAC Facility[128] - Research and development expenses increased by $2,796,000 or 84% to $6,137,000 in 2025, driven by costs related to the GAC Facility[144] Cash Flow and Liquidity - Cash and restricted cash decreased from $22.2 million at the end of 2024 to $15.5 million by September 30, 2025[161] - Cash flows from operating activities were $28,000 in 2025, a decrease of $5,240,000 from $5,268,000 in 2024[162] - Cash flows used in investing activities decreased by $34.3 million for the nine months ended September 30, 2025, primarily due to a $34.4 million decrease in property, plant, and equipment additions related to the Red River Plant commissioning[163] - Cash flows provided by financing activities decreased by $39.0 million for the nine months ended September 30, 2025, mainly due to net proceeds of $42.4 million from common stock placements completed in 2024[164] - The company expects cash on hand of $7.0 million and availability under the Revolving Credit Facility to provide sufficient liquidity for operations over the next 12 months[166] Market and Regulatory Environment - The average Henry Hub natural gas spot prices increased to $3.03 per MMBtu in Q3 2025 from $2.11 per MMBtu in Q3 2024, influencing demand for coal[125] - The average Henry Hub natural gas spot prices increased to $3.45 per MMBtu in 2025 from $2.11 per MMBtu in 2024, contributing to higher product sales volumes[142] - The EPA's new PFAS regulations are expected to drive a material increase in GAC demand in the water purification market, with compliance potentially extending to 2031[121] - Future cash flows and profitability are expected to be influenced by the demand for AC products and the impact of regulations on the industry[177] Operational Developments - The company expects to reach GAC nameplate capacity around mid-year 2026, which will coincide with a final investment decision regarding a potential second GAC line[118] - The company anticipates ramping up to full nameplate capacity at the Red River Plant and is evaluating a potential second GAC line[175] - The company resumed operations at the Corbin Facility in August 2025 after a temporary reduction in operations earlier in the year[170] - The company plans to focus capital expenditures for the remainder of 2025 on plant maintenance and improvements to increase production at the Red River Plant[169] Other Income and Losses - Other income for Q3 2025 was $0.7 million, primarily from an insurance claim related to mining equipment, compared to $0.3 million in Q3 2024[139] - Interest expense decreased by $521,000 or 21% to $1,905,000 in 2025, primarily due to lower average interest rates[154] - The company recorded pretax losses of $2.6 million in 2025, compared to $3.7 million in 2024, with an effective tax rate of zero in 2025[156] Strategic Focus - The company is focused on expanding its market share for APT consumables and improving gross margins through better customer and product mix[165] - The company anticipates that revenue will continue to be positively impacted by product price increases as GAC production ramps up[127]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $29 million, representing a 13% year-over-year increase, driven by enhanced contract terms and a 9% growth in average selling price (ASP) [22][6][5] - Adjusted EBITDA was approximately $3.7 million, compared to $1.1 million in the prior year, marking a more than 3x increase [23][6] - Gross margin for the quarter was approximately 33%, slightly higher than in 2024 [22] Business Line Data and Key Metrics Changes - The PAC (Powdered Activated Carbon) business has shown a successful turnaround, with all sales contracts now being net contributors in 2025, a significant improvement from 24% of volumes being loss-making as of December 2022 [24][6] - The GAC (Granular Activated Carbon) line has been successfully commissioned, with a nameplate capacity of 25 million pounds expected to be reached within six months [5][12] Market Data and Key Metrics Changes - The company has reduced its exposure to the mercury emissions market to under 40% of volumes, diversifying into new markets for both PAC and GAC, which improves margins and overall financial performance [8][9] - The granular activated carbon market is experiencing persistent supply shortages, with demand expected to grow significantly due to regulatory changes related to PFAS [10][11] Company Strategy and Development Direction - The company aims to enhance profitability through operational optimization and cost reduction initiatives while expanding into higher growth, higher margin GAC business [7][29] - Plans for a second GAC line are underway, with a final investment decision expected by the end of 2025 [14][29] Management's Comments on Operating Environment and Future Outlook - Management views the current regulatory environment as favorable, with the EPA's pragmatic approach to PFAS regulation seen as beneficial for the business [18][19] - The company is confident in its ability to finance future growth through cash flow generation and existing debt facilities, without the need for further equity issuance [66][68] Other Important Information - The company is engaged in testing programs for asphalt emulsion, which could represent a significant future revenue source [20][78] - The company has reiterated its 2025 capital expenditure forecast of between $8 million and $12 million [26] Q&A Session Summary Question: Can you elaborate on the key milestones in the commissioning process at Red River? - Management confirmed that the operations team is focused on reaching full nameplate capacity of 25 million pounds as quickly as possible, with ongoing tweaks to improve production rates [35][36] Question: What is the expected cost for the second GAC line? - Management indicated that costs are being evaluated and enhancements from the first line will likely reduce expenses for the second line [39][40] Question: What is the timeline for moving from initial sales to contracts in the RNG market? - The timeline varies from one to eight months depending on customer testing requirements, with a focus on maintaining a balanced customer mix across different industries [41][43] Question: What impact did commissioning have on gross margins? - Approximately $1.9 million in costs associated with preproduction inventory were reclassified to R&D expenses, with gross margins expected to remain above 33% going forward [46][47] Question: How confident is the company in financing the second line without issuing equity? - Management expressed confidence in financing through cash flow generation and debt availability, emphasizing a gradual investment approach [66][68]

Financial Performance - Total revenue reached $28.6 million, a 13% year-over-year increase driven by improved Average Selling Price (ASP) and end-market diversification[6] - Gross margin was 33.3%, reflecting sustainable improvement in PAC performance[6] - Adjusted EBITDA was $3.7 million, compared to $1.1 million in the prior year period, marking 5 consecutive quarters of positive Adjusted EBITDA[7, 11] - PAC pricing grew by 9% year-over-year in Q2 2025, with an average quarterly growth of approximately 16% in PAC ASP since Q2 2023[6, 16] GAC Commissioning and Expansion - The company completed the commissioning of its transformational GAC facility at Red River, with ramp-up to nameplate capacity underway[6, 24] - The company is targeting a Final Investment Decision (FID) for a 2nd GAC line prior to year-end 2025[8, 27] - The Red River plant is expected to add production of GAC and expand the plant to deliver an incremental 25 million pounds of GAC product[32] Market and Regulatory Landscape - EPA regulations could boost municipal water market demand by 3 to 5 times from approximately 170 million pounds per year[37] - The company is benefiting from U S tariffs due to its fully integrated domestic supply chain[38] Strategic Initiatives - The company is developing new markets, including the Arq-Enabled Great Lakes Restoration Project, which is the largest PAC sediment remediation in U S history[41, 42] - The company is exploring growth beyond activated carbon, with multiple initiatives focused on developing additional product opportunities and revenue streams from Corbin feedstock[43]

Q2 2025 Earnings Release Overview [Financial Highlights](index=1&type=section&id=Financial_Highlights) Arq achieved strong Q2 2025 financial performance with **13% YoY revenue growth**, improved gross margin, and significantly increased Adjusted EBITDA Q2 2025 Key Financial Highlights | Metric | Q2 2025 | Q2 2024 | Change YoY | | :-------------- | :------ | :------ | :--------- | | Revenue | $28.6M | $25.4M | +13% | | Gross Margin | 33.3% | 32.2% | +110 bps | | Adjusted EBITDA | $3.7M | $1.1M | >200% | - Average Sales Price (ASP) increased by approximately **9%** over the prior year period[5](index=5&type=chunk)[7](index=7&type=chunk) - Exited Q2 2025 with cash and restricted cash of **$15.4 million**[5](index=5&type=chunk) - Capital expenditures forecast for full year 2025 remain in line with previous guidance of **$8 - $12 million**[5](index=5&type=chunk) [Recent Business Highlights](index=1&type=section&id=Recent_Business_Highlights) Arq commissioned its first Granular Activated Carbon (GAC) line at Red River, initiating commercial production and accelerating plans for a second GAC line - Completed Red River plant commissioning with first commercial GAC production and sales, continuing transformation into new higher growth, higher margin businesses[5](index=5&type=chunk) - Expect to accelerate development planning for a second line of **25 million pounds of GAC production** at Red River and make a financial investment decision prior to year-end 2025[5](index=5&type=chunk) - Testing of Arq Wetcake as a feedstock for various asphalt related products with a leading US asphalt company has begun[5](index=5&type=chunk) [CEO Commentary and Strategic Outlook](index=1&type=section&id=CEO_Commentary_and_Strategic_Outlook) CEO Bob Rasmus highlighted successful GAC line commissioning and strong Q2 results, noting solid PAC business performance and favorable GAC market dynamics - Successful commissioning of the first GAC line at Red River represents a significant milestone for Arq, its customers, and shareholders[4](index=4&type=chunk) - The foundational PAC business delivered another solid quarter with further sustained price improvements and its fifth consecutive quarter of positive adjusted EBITDA[4](index=4&type=chunk) - The GAC market continues to show strength with steady demand (**3-5% annual growth**) and minimal new capacity, with potential for a **3-5x increase in demand** driven by recent EPA regulatory changes[6](index=6&type=chunk) - Arq is capitalizing on additional growth drivers like renewable natural gas, having already sold initial Phase 1 GAC product to RNG customers in Q3 2025[6](index=6&type=chunk) - Given favorable market dynamics, Arq now expects to make a Final Investment Decision on a second GAC line prior to the end of 2025[6](index=6&type=chunk) Second Quarter 2025 Detailed Financial Results [Revenue and Cost of Revenue](index=2&type=section&id=Revenue_and_Cost_of_Revenue) Revenue for Q2 2025 increased by **13% year-over-year** to **$28.6 million**, driven by higher average sales prices and increased volumes, while costs of revenue rose by **11%** Q2 2025 Revenue and Cost of Revenue | Metric | Q2 2025 | Q2 2024 | Change YoY | | :-------------- | :-------- | :-------- | :--------- | | Revenue | $28.6M | $25.4M | +13% | | Cost of Revenue | $19.1M | $17.2M | +11% | - Average sales price for Q2 2025 was up approximately **9%** compared to the prior year period[7](index=7&type=chunk) - Increase in costs of revenue was principally driven by an increase in volumes and associated revenue, as well as start-up costs associated with the GAC line at Red River[8](index=8&type=chunk) [Gross Margin](index=2&type=section&id=Gross_Margin) Gross margin improved to **33.3%** in Q2 2025, an increase of **110 basis points** from the prior year, primarily due to higher pricing and volume, partially offset by GAC line start-up costs Q2 2025 Gross Margin | Metric | Q2 2025 | Q2 2024 | Change (bps) | | :---------- | :------ | :------ | :----------- | | Gross Margin| 33.3% | 32.2% | +110 bps | - Gross margin increased as higher pricing and volume were partially offset by start-up costs associated with the GAC line at Red River[9](index=9&type=chunk) [Operating Expenses](index=2&type=section&id=Operating_Expenses) Selling, general and administrative (SG&A) expenses decreased by **16%** to **$5.9 million**, while research and development (R&D) costs significantly increased to **$2.7 million** due to GAC facility pre-production testing Q2 2025 Operating Expenses | Metric | Q2 2025 | Q2 2024 | Change YoY | | :------------------------------------ | :------ | :------ | :--------- | | Selling, general and administrative | $5.9M | $7.0M | -16% | | Research and development | $2.7M | $0.9M | +$1.8M | - The reduction in SG&A was primarily driven by lower payroll and benefits and G&A expenses, with a portion reflecting the capitalization of payroll and benefits associated with the Corbin Facility[10](index=10&type=chunk) - The increase in R&D costs was primarily due to non-recurring expenses relating to feedstock utilized in pre-production testing of the GAC Facility[11](index=11&type=chunk) [Profitability Metrics](index=2&type=section&id=Profitability_Metrics) Arq reported an operating loss of **$1.6 million** and a net loss of **$2.1 million** in Q2 2025, while Adjusted EBITDA significantly improved to **$3.7 million**, marking the fifth consecutive quarter of positive Adjusted EBITDA Q2 2025 Profitability Metrics | Metric | Q2 2025 | Q2 2024 | Change YoY | | :------------- | :-------- | :-------- | :--------- | | Operating Loss | $(1.6)M | $(1.4)M | $(0.2)M | | Net Loss | $(2.1)M | $(2.0)M | $(0.1)M | | Adjusted EBITDA| $3.7M | $1.1M | >200% | - The increase in Adjusted EBITDA over the prior year period was primarily driven by higher revenues[12](index=12&type=chunk) Capital Expenditures and Balance Sheet Summary [Capital Expenditures](index=2&type=section&id=Capital_Expenditures) Capital expenditures for Q2 2025 totaled **$1.9 million**, consistent with expectations, with the full-year 2025 forecast remaining at **$8-$12 million** Capital Expenditures | Metric | Q2 2025 | FY 2025 Forecast | | :------------------------- | :------ | :--------------- | | Capital Expenditures | $1.9M | $8M - $12M | [Cash and Debt Position](index=2&type=section&id=Cash_and_Debt_Position) Cash and restricted cash decreased to **$15.4 million** as of June 30, 2025, primarily due to GAC facility capital expenditures and inventory build-up, while total debt increased to **$28.7 million** Cash and Debt Position | Metric | June 30, 2025 | Dec 31, 2024 | Change | | :------------------------- | :------------ | :----------- | :----- | | Cash and Restricted Cash | $15.4M | $22.2M | $(6.8)M| | Total Debt | $28.7M | $24.8M | +$3.9M | - The decrease in cash was largely caused by capital expenditures relating to the GAC Facility at Red River, trade accounts payable, as well as build-up of inventory and spare parts at the Corbin Facility[15](index=15&type=chunk) - The increase in total debt was driven by an increase in the outstanding principal balance of the Company's revolving credit facility[16](index=16&type=chunk) Corporate Information and Disclosures [About Arq](index=3&type=section&id=About_Arq) Arq is a diversified environmental technology company, the only vertically integrated producer of activated carbon products in North America, providing innovative solutions for removing pollutants - Arq is a diversified, environmental technology company with products that enable a cleaner and safer planet while actively reducing environmental impact[19](index=19&type=chunk) - The company is the only vertically integrated producer of activated carbon products in North America, delivering a reliable domestic supply of innovative, hard-to-source, high-demand products[19](index=19&type=chunk) - Arq applies its expertise to develop groundbreaking solutions to remove harmful chemicals and pollutants from water, land, and air[19](index=19&type=chunk) [Conference Call and Webcast Information](index=2&type=section&id=Conference_Call_and_Webcast_Information) Arq will host its Q2 2025 earnings conference call on August 12, 2025, at 8:30 a.m. ET, with webcast and replay details provided - Arq will host its Q2 2025 earnings conference call on August 12, 2025, at 8:30 a.m. ET[17](index=17&type=chunk) - The live webcast can be accessed through the Investor Resources section of Arq's website at www.arq.com, with registration available at https://www.webcast-eqs.com/Arq_Q2_2025[17](index=17&type=chunk) - A replay of the event will be made available shortly after and accessible via the same webcast link or by dial-in until August 19, 2025[18](index=18&type=chunk) [Caution on Forward-Looking Statements](index=3&type=section&id=Caution_on_Forward-Looking_Statements) This section warns that the press release contains forward-looking statements subject to various risks and uncertainties, advising readers to consult SEC filings for details - This press release contains forward-looking statements within the meaning of Section

PART I. - FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of financial condition and operations [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201%2E%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited condensed consolidated financial statements, covering balance sheets, operations, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $284,541 | $284,368 | | Cash | $6,957 | $13,516 | | Total Current Assets | $50,664 | $52,356 | | Total Liabilities | $67,773 | $67,092 | | Total Stockholders' Equity | $216,768 | $217,276 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over specific periods, detailing revenue, expenses, and net loss Three Months Ended June 30 | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Revenue | $28,584 | $25,405 | $3,179 | 13% | | Net loss | $(2,133) | $(1,968) | $(165) | 8% | | Basic Loss per common share | $(0.05) | $(0.06) | $0.01 | -17% | Six Months Ended June 30 | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Revenue | $55,831 | $47,145 | $8,686 | 18% | | Net loss | $(1,930) | $(5,387) | $3,457 | -64% | | Basic Loss per common share | $(0.05) | $(0.16) | $0.11 | -69% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section details changes in stockholders' equity over specific periods, reflecting net loss and stock-based compensation Total Stockholders' Equity | Date | Amount (in thousands) | | :------------------- | :-------------------- | | Balances, January 1, 2025 | $217,276 | | Balances, June 30, 2025 | $216,768 | | Balances, January 1, 2024 | $178,400 | | Balances, June 30, 2024 | $189,600 | - Net loss for the three months ended June 30, 2025, was **$(2,133) thousand**, impacting stockholders' equity[17](index=17&type=chunk) - Stock-based compensation for the three months ended June 30, 2025, was **$734 thousand**, increasing stockholders' equity[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities Six Months Ended June 30 | Cash Flow Activity | 2025 (in thousands) | 2024 (in thousands) | Change ($) | | :----------------------------------- | :------------------ | :------------------ | :--------- | | Operating activities | $(5,276) | $(2,424) | $(2,852) | | Investing activities | $(5,530) | $(28,851) | $23,321 | | Financing activities | $3,995 | $14,319 | $(10,324) | | Net change in cash and restricted cash | $(6,811) | $(16,956) | $10,145 | - Cash and Restricted Cash at the end of the period decreased to **$15,424 thousand** as of June 30, 2025, from **$37,197 thousand** as of June 30, 2024[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, financial components, debt, leases, commitments, equity, stock-based compensation, income taxes, and segment reporting [Note 1 - Organization and Basis of Presentation](index=7&type=section&id=Note%201%20-%20Organization%20and%20Basis%20of%20Presentation) This note describes the company's business, products, revenue seasonality, and the impact of new accounting standards - Arq, Inc. is an environmental technology company focused on selling consumable air, water, and soil treatment solutions primarily based on activated carbon (AC)[22](index=22&type=chunk)[116](index=116&type=chunk) - The company's primary products include powdered activated carbon (PAC) and granular activated carbon (GAC)[23](index=23&type=chunk)[117](index=117&type=chunk) - Revenue is generally higher in the first and third fiscal quarters due to weather-dependent power generation and increased demand for water treatment products during warmer/rainy months[35](index=35&type=chunk)[37](index=37&type=chunk) - The company is currently evaluating the impact of new accounting standards: ASU 2023-09 (Income Taxes), ASU 2024-03 (Income Statement Expenses), and ASU 2025-05 (Credit Losses for Accounts Receivable and Contract Assets)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) [Note 2 - Inventories, net](index=9&type=section&id=Note%202%20-%20Inventories%2C%20net) This note provides a breakdown of the company's inventory balances, distinguishing between product and raw material inventories Inventories, net | Inventory Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------- | :----------------------------- | :------------------------------- | | Product inventory, net | $11,813 | $11,166 | | Raw material inventory | $8,965 | $8,148 | | **Total inventories, net** | **$20,778** | **$19,314** | [Note 3 - Revenue](index=9&type=section&id=Note%203%20-%20Revenue) This note details the company's revenue recognition policies and provides a breakdown of receivables Receivables, net | Receivable Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | | Trade receivables, net | $15,547 | $13,265 | | Other | — | $1,611 | | **Receivables, net** | **$15,547** | **$14,876** | - All material performance obligations related to revenue recognized were satisfied at a point in time[43](index=43&type=chunk) - The Company did not have material unbilled receivables (contract assets) or contract liabilities outstanding as of June 30, 2025, and December 31, 2024[45](index=45&type=chunk)[48](index=48&type=chunk) [Note 4 - Debt Obligations](index=10&type=section&id=Note%204%20-%20Debt%20Obligations) This note outlines the company's various debt instruments, including revolving credit facilities and long-term loans Debt Obligations | Debt Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Revolving credit agreement | $18,528 | $13,828 | | CTB Loan due January 2036 | $8,697 | $8,983 | | Finance lease obligations | $826 | $1,269 | | Other | $897 | $1,004 | | **Total long-term debt obligations** | **$8,741** | **$9,370** | - The Company entered into a five-year **$30.0 million** secured revolving credit facility on December 27, 2024, with **$18.5 million** net borrowings as of June 30, 2025[50](index=50&type=chunk)[54](index=54&type=chunk) - The CTB Loan, assumed on February 1, 2023, has a principal amount of **$10.0 million**, matures on January 27, 2036, and bears interest at **6.0%** per annum through January 2026[55](index=55&type=chunk)[56](index=56&type=chunk) [Note 5 - Leases](index=12&type=section&id=Note%205%20-%20Leases)

Financial Performance - Total revenue reached $27.2 million, a 25% year-over-year increase, driven by improved Average Selling Price (ASP) and end-market diversification[6, 10] - Adjusted EBITDA was $4.1 million, compared to a loss of $0.4 million in the prior year period, marking four consecutive quarters of positive Adjusted EBITDA[7, 10] - The company achieved net profitability during Q1 2025, with a net income of $0.2 million compared to a net loss of $3.4 million in Q1 2024[10] - Gross margin remained strong at 36.4% in Q1 2025[6, 20] PAC Business - The company achieved its 8th consecutive quarter of double-digit year-over-year growth in PAC ASP, with an approximately 13% ASP increase year-over-year[6, 11, 18] - 100% of PAC contracts are now net cash producers, as loss-making contracts have been eliminated[6, 7, 18] GAC Business & Red River Project - The Red River project is expected to add 25 million pounds of incremental GAC product capacity[27, 31] - The company has entered into supply contracts for approximately 16 million pounds of the Red River plant's nameplate capacity[31] - First commercial-scale production of on-specification GAC product is anticipated by the end of Q2 or early Q3 2025[31, 35] PFAS Regulations & Market Impact - EPA regulations potentially increase municipal water market demand by 3-5x vs the existing approximately 170 million pounds per year[39] - The company estimates that the annual GAC market could grow approximately 75% to over 700 million pounds[108]

Financial Data and Key Metrics Changes - The company reported revenue of $27.2 million for Q1 2025, a 25% increase compared to the prior year period, driven by a 13% growth in average selling price (ASP) and higher volumes [8][30] - Adjusted EBITDA for the quarter was approximately $4.1 million, a significant improvement from an adjusted EBITDA loss of $0.4 million in the prior year [31][32] - Net income was $200,000, compared to a net loss of $3.4 million in Q1 2024, indicating a turnaround in financial performance [32] Business Line Data and Key Metrics Changes - The PAC business has shown a sustained turnaround with four consecutive quarters of positive adjusted EBITDA, indicating a robust foundation for overall operations [6][11] - The gross margin for Q1 2025 was approximately 36.4%, consistent with the previous year, despite startup costs associated with the GAC line [10][30] - The company achieved its eighth consecutive quarter of double-digit year-over-year percentage growth in ASP, reflecting strong demand for PAC products [9][30] Market Data and Key Metrics Changes - Demand for PAC products remains robust, with a strategic diversification beyond mercury emission solutions to reduce exposure to coal-fired power plant demand fluctuations [9][24] - The company anticipates a supply-demand imbalance to persist through at least 2027 or 2028, which is favorable for its market position [26][100] - The recent EPA comments on PFAS regulation align with the company's mission, indicating strong customer momentum in PFAS mitigation adoption [24][78] Company Strategy and Development Direction - The company is focused on further cost optimization and strategic price management to enhance profitability in its PAC business while pursuing growth initiatives in GAC, asphalt, and rare earth minerals [6][28] - The introduction of a new Chief Financial Officer is expected to strengthen the finance organization and support future growth [36][39] - The company is exploring opportunities in domestic rare earth minerals and synthetic graphite, which aligns with government initiatives [28][91] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in overcoming commissioning challenges for the GAC production line, with full commissioning and first commercial production now estimated by the end of Q2 or early Q3 2025 [21][22] - Despite setbacks, management remains optimistic about the long-term potential of GAC and its role as a growth engine for the company [29][107] - The company is committed to keeping stakeholders informed of material developments as it progresses towards commercial production [42][108] Other Important Information - The company ended Q1 2025 with cash of $14.8 million, of which approximately $6.3 million is unrestricted, and reiterated its CapEx forecast of $8 million to $12 million for 2025 [35] - The company has identified additional opportunities to reduce operating costs and SG&A, which will further enhance profitability [10][33] Q&A Session Summary Question: Can you elaborate on the commissioning process and the root cause of the inconsistencies? - Management confirmed that the primary area of emphasis is related to optimizing the binding and shaping process in Zone 3, which has required adjustments to improve consistency and efficiency [45][48] Question: What gives you confidence that the new timelines will be met? - Management stated that the mechanical process works, and they have produced small-scale GAC, but they are focused on optimizing the speed and consistency of production to achieve full commercial production [51][72] Question: Are there any take or pay benefits in the quarter? - Management confirmed that there were no take or pay impacts to the Q1 results [62] Question: What percentage of Phase One production is currently contracted? - Management indicated that approximately 60% of Phase One production is contracted, with a focus on the RNG market due to higher margins [102]

Financial Data and Key Metrics Changes - The company reported revenue of $27.2 million for Q1 2025, a 25% increase compared to the prior year period, driven by a 13% growth in average selling price (ASP) and higher volumes [6][31] - Adjusted EBITDA for the quarter was approximately $4.1 million, a significant improvement from an adjusted EBITDA loss of $0.4 million in the prior year [32] - Net income was $200,000, compared to a net loss of $3.4 million in Q1 2024, indicating a turnaround in financial performance [32] Business Line Data and Key Metrics Changes - The PAC business has shown a sustained turnaround with four consecutive quarters of positive adjusted EBITDA, and the company aims for double-digit millions in annual EBITDA from this segment [5][10] - The GAC business is facing delays in commissioning, with minimal production expected in Q2 2025, but the company remains confident in its long-term potential [21][30] Market Data and Key Metrics Changes - Demand for GAC products remains robust, particularly in PFAS mitigation, air filtration, and renewable natural gas applications, with strong customer momentum noted [24][26] - The company anticipates a supply-demand imbalance to persist through at least 2027 or 2028, which is favorable for its market position [27] Company Strategy and Development Direction - The company is focused on cost optimization and strategic price management to enhance profitability while pursuing growth initiatives in GAC, asphalt, and rare earth minerals [5][29] - The introduction of new technologies and partnerships is being explored to capitalize on government initiatives related to domestic rare earth minerals and graphite [29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced during the commissioning of the GAC production line but expressed confidence in overcoming these hurdles and achieving commercial production by late Q2 or early Q3 2025 [21][30] - The company remains optimistic about the long-term demand for GAC products and the overall economic fundamentals supporting its business [106] Other Important Information - The company has appointed a new Chief Financial Officer, Jay Von Cannon, who brings extensive experience in financial leadership and is expected to enhance the company's financial strategy [38][40] - The company ended Q1 2025 with cash of $14.8 million, with approximately $6.3 million being unrestricted [36] Q&A Session Summary Question: What are the root causes of the commissioning inconsistencies? - Management confirmed that the primary issues relate to optimizing the production process, particularly in Zone 3, where adjustments are being made to improve consistency and throughput [46][49] Question: How confident is the company in meeting the new timelines for GAC production? - Management expressed confidence based on the successful production of small-scale volumes and ongoing fine-tuning of the process to achieve uninterrupted commercial production [52][60] Question: Was there any impact from take-or-pay contracts in Q1? - Management confirmed that there were no take-or-pay impacts in the Q1 results [62] Question: What percentage of Phase One production is currently contracted? - Approximately 60% of Phase One production is contracted, with the company holding back some production for the higher-margin RNG market [101]