[PART I](index=3&type=section&id=PART%20I) [Item 1. Business](index=3&type=section&id=Item%201.%20Business) Arq, Inc. is an environmental technology company providing AC and chemical solutions for air, water, and soil treatment, expanding GAC products via the Legacy Arq acquisition - Arq, Inc. is an environmental technology company specializing in consumable air, water, and soil treatment solutions, including activated carbon (AC) and chemical technologies[12](index=12&type=chunk)[13](index=13&type=chunk) - The company acquired Legacy Arq in February 2023 to gain access to bituminous coal waste reserves, a manufacturing facility, and patented processes to produce Arq Powder, a feedstock for new advanced granular activated carbon (GAC) products[13](index=13&type=chunk)[22](index=22&type=chunk) - In February 2024, the company officially changed its name to Arq, Inc. and commenced trading under the ticker symbol **'ARQ'**[13](index=13&type=chunk) [General Company Overview](index=3&type=section&id=General) - Arq, Inc. is an environmental technology company focused on selling consumable air, water, and soil treatment solutions, including activated carbon (AC) and chemical technologies[12](index=12&type=chunk)[13](index=13&type=chunk) - The company's proprietary AC products help customers reduce contaminants like mercury and PFAS to meet environmental regulations[12](index=12&type=chunk) - Key acquisitions include ADA Carbon Solutions, LLC in 2018 and Legacy Arq in February 2023, providing access to new feedstocks and manufacturing capabilities for advanced GAC products[13](index=13&type=chunk) [Products and Markets](index=3&type=section&id=Products%20and%20Markets) - Activated carbon (AC) is a specialized sorbent material used to remove impurities from gas, water, soil, and other streams, manufactured as powdered activated carbon (PAC), granular activated carbon (GAC), and colloidal carbon product (CCP)[15](index=15&type=chunk) - Key markets include coal-fired power generation (mercury control), municipal water and air treatment, industrial applications, and soil/groundwater remediation, with demand driven by increasing environmental regulations[16](index=16&type=chunk)[17](index=17&type=chunk)[20](index=20&type=chunk) - The acquisition of Legacy Arq provides access to bituminous coal waste reserves and a manufacturing facility to produce Arq Powder, expected to be used as a feedstock for high-quality GAC products by the end of **2024**[22](index=22&type=chunk) - Arq Powder also has potential as an additive in new markets like asphalt, offering a lower carbon footprint[22](index=22&type=chunk) [Sales and Customers](index=5&type=section&id=Sales%20and%20Customers) - The company sells consumables primarily through its internal sales group, generally under contracts ranging from one to five years[23](index=23&type=chunk) - Revenue from the top three customers comprised approximately **37% of consumables revenue** for the year ended December 31, 2023, indicating significant customer concentration[23](index=23&type=chunk) [Seasonality](index=5&type=section&id=Seasonality) - Revenue is generally higher in the first and third fiscal quarters due to weather-dependent power generation (heating/cooling demands) and increased impurities in water sources during summer and rainy seasons[24](index=24&type=chunk)[27](index=27&type=chunk) - Sales volumes are highly dependent on coal consumption at coal-fired power plants, affected by prices of competing energy sources like natural gas and renewables[25](index=25&type=chunk)[26](index=26&type=chunk) [Competition](index=6&type=section&id=Competition) - Primary competitors in the AC consumables industry include Cabot Norit Americas, Inc., Calgon Carbon, and Donau Carbon Company[28](index=28&type=chunk) [Sources and Availability of Raw Materials](index=6&type=section&id=Sources%20and%20Availability%20of%20Raw%20Materials) - The principal raw material for AC manufacturing is lignite coal, sourced from the company's **100% owned Five Forks Mine** in Louisiana[29](index=29&type=chunk) - The Arq Acquisition in 2023 secured a second feedstock, Arq Powder, made from bituminous coal waste, which will be used for GAC products[30](index=30&type=chunk) - The company aims for a fully integrated supply chain with both bituminous coal fines (Corbin Facility) and lignite coal (Five Forks Mine) to produce GAC and PAC products[30](index=30&type=chunk) [Facilities](index=6&type=section&id=Facilities) - The company owns and operates the Red River Plant in Louisiana for AC manufacturing and the Corbin Facility in Kentucky for processing bituminous coal waste into Arq Powder[34](index=34&type=chunk) - Construction of a new GAC facility at the Red River Plant commenced in January 2024, with commissioning expected by the end of **2024**, at an estimated cost of **$62 million to $67 million**[34](index=34&type=chunk) - Commissioning activities at the Corbin Facility are expected to begin in the first half of **2024**, with total construction and commissioning costs estimated between **$10 million and $15 million**[35](index=35&type=chunk) [Research and Development Activities](index=7&type=section&id=Research%20and%20Development%20Activities) Research and Development Costs | Year Ended December 31, | R&D Costs (in millions) | | :---------------------- | :---------------------- | | 2023 | $3.3 | | 2022 | $2.1 | [Legislation and Environmental Regulations](index=7&type=section&id=Legislation%20and%20Environmental%20Regulations) - The U.S. EPA's MATS Rule, effective April 2012, requires coal- and oil-fired Electric Utility Steam Generating Units (EGUs) to control hazardous air pollutants, including mercury, driving demand for the company's products[38](index=38&type=chunk) - The EPA reaffirmed the 'appropriate and necessary' finding for MATS in February 2023 and proposed an update in April 2023 to reduce mercury emission limits for lignite coal-fired EGUs[39](index=39&type=chunk)[95](index=95&type=chunk) - New regulations are emerging, including the EPA's PFAS Strategic Roadmap (October 2021) and a proposed National Primary Drinking Water Regulation (NPDWR) for six PFAS substances (March 2023), which could significantly increase demand for AC in water purification[44](index=44&type=chunk) - International regulations, such as the Minimata Convention on Mercury and proposed EU directives for urban wastewater treatment, are expected to expand the global market for activated carbon products[45](index=45&type=chunk)[46](index=46&type=chunk) [Mining Environmental and Reclamation Matters](index=9&type=section&id=Mining%20Environmental%20and%20Reclamation%20Matters) - The company's coal mining operations are subject to federal, state, and local environmental regulations, including SMCRA, requiring permits and reclamation[47](index=47&type=chunk)[48](index=48&type=chunk) - As of December 31, 2023, the company posted surety bonds of approximately **$7.5 million** for the Five Forks Mine and **$3.0 million** for the Corbin Facility for reclamation obligations[49](index=49&type=chunk) [Intellectual Property](index=9&type=section&id=Intellectual%20Property) - As of December 31, 2023, the company held **83 U.S. patents** and **8 international patents**, with **13 U.S.** and **2 international applications pending**[50](index=50&type=chunk) - The Arq Acquisition added **87 patents and patent applications**, including **7 granted U.S. patents**, **10 pending U.S. applications**, **19 granted international patents**, and **51 pending international applications**[50](index=50&type=chunk) - The company also owned over **50 trademark registrations and applications** globally, with an additional **33** obtained from the Arq Acquisition[52](index=52&type=chunk) [Safety, Health and Environment](index=9&type=section&id=Safety,%20Health%20and%20Environment) - Operations are subject to numerous federal, state, and local SH&E Regulations, including permit requirements for facilities and mine health and safety laws for the Five Forks Mine[53](index=53&type=chunk) [Employees](index=9&type=section&id=Employees) - As of December 31, 2023, the company employed **173 personnel**, with **171 full-time**[54](index=54&type=chunk) [Arq Acquisition Details](index=9&type=section&id=Arq%20Acquisition) - On February 1, 2023, Arq, Inc. acquired Legacy Arq's subsidiaries for **$31.2 million**, consisting of **3,814,864 shares of common stock** (**$12.4 million**) and **5,294,462 shares of Series A Convertible Preferred Stock** (**$18.8 million**)[55](index=55&type=chunk)[340](index=340&type=chunk) - Stockholders approved the conversion of all Series A Preferred Stock into **5,362,926 shares of Common Stock** on June 13, 2023[56](index=56&type=chunk) - A PIPE Investment of approximately **$15.4 million** was completed on February 1, 2023, with subscribers purchasing **3,842,315 shares of Common Stock** at **$4.00 per share**[57](index=57&type=chunk) - A **$10.0 million term loan (CFG Loan)** was secured on February 1, 2023, with a **48-month term** and interest rates tied to SOFR or Base Rate plus margins, and included the issuance of a warrant to purchase **325,457 shares of Common Stock**[59](index=59&type=chunk) [Item 1A. Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from Legacy Arq integration, capital needs, regulatory dependence, competition, and potential tax asset limitations - The company's ability to meet projected construction timelines, costs, and production ramp-up for Red River Plant upgrades and to generate demand for new GAC products is uncertain, potentially harming financial results[68](index=68&type=chunk)[69](index=69&type=chunk) - Managing expanded operations post-Arq Acquisition poses substantial challenges, with no assurance of realizing expected operating efficiencies, cost savings, or revenue enhancements[70](index=70&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Manufacturing Legacy Arq's products and GAC products requires significant capital, and failure to obtain additional financing in **2024** could delay business plan execution[71](index=71&type=chunk) - Demand for products is highly dependent on environmental laws and regulations; changes, delays, or repeal of such regulations (e.g., MATS, PFAS) could adversely affect the business[90](index=90&type=chunk)[91](index=91&type=chunk)[95](index=95&type=chunk) - The company operates in a highly competitive market, with larger and more established competitors, which could impede growth and financial results[97](index=97&type=chunk) - Reduction of coal consumption by North American electricity generators due to alternative energy sources (natural gas, renewables) could decrease demand for the company's products[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - The company's ability to utilize its tax assets (NOLs and Tax Credits) could be limited by an 'ownership change' under IRC Sections 382 and 383, despite the Tax Asset Protection Plan (TAPP)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[128](index=128&type=chunk)[130](index=130&type=chunk) [Item 1B. Unresolved Staff Comments](index=27&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report [Item 1C. Cybersecurity](index=27&type=section&id=Item%201C.%20Cybersecurity) The company integrates cybersecurity risk management into overall operations, with audit committee oversight, but operational disruption risk remains - The company has established policies and processes for assessing, identifying, and managing material risks from cybersecurity threats, integrated into its overall risk management[142](index=142&type=chunk) - Third-party service providers assist in monitoring and testing safeguards, including external penetration testing and real-time vulnerability assessments[143](index=143&type=chunk) - A formal information security awareness training program for all employees includes phishing tests and data protection best practices[145](index=145&type=chunk) - The audit committee oversees cybersecurity risk management, receiving quarterly briefings from the VP of IT, who has approximately **five years of cybersecurity experience**[148](index=148&type=chunk)[149](index=149&type=chunk) - To date, no cybersecurity incidents have materially affected the company or its operations, but the risk of operational disruption remains[147](index=147&type=chunk) [Item 2. Properties](index=29&type=section&id=Item%202.%20Properties) The company owns or leases office and manufacturing facilities in Colorado, Louisiana (Red River Plant, Five Forks Mine), and Kentucky (Corbin Facility) - The company leases approximately **24,000 square feet** for its corporate headquarters and primary R&D laboratory in Colorado[150](index=150&type=chunk) - In Louisiana, the company owns the Red River Plant (**61 acres**) and leases approximately **141,000 square feet** for production, distribution, and storage[150](index=150&type=chunk) - In Kentucky, the company leases approximately **470 acres** for the Corbin Facility, where it processes bituminous coal waste[151](index=151&type=chunk) - As of December 31, 2023, the company owned or controlled about **1,975 acres of coal land** for surface mining at the Five Forks Mine in Louisiana and approximately **380 acres of land** containing bituminous coal waste at the Corbin Facility[152](index=152&type=chunk)[153](index=153&type=chunk) [Item 3. Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various ordinary course legal proceedings, with no significant matters reported as of December 31, 2023 - The company is subject to various pending or threatened legal actions and proceedings in the ordinary course of business[155](index=155&type=chunk) - No significant legal proceedings were reported as of December 31, 2023[403](index=403&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures required by the Dodd-Frank Wall Street Reform and Consumer Protection Act are included in Exhibit 95 of this report - Mine safety disclosures are provided in Exhibit 95 to the report, as required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K[156](index=156&type=chunk) [PART II](index=30&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades as 'ARQ' on Nasdaq, with no foreseeable cash dividends, a $7.0 million repurchase program, and recent equity issuances - Effective February 1, 2024, the company's common stock trades on the Nasdaq Global Market under the symbol **'ARQ'**, previously 'ADES'[159](index=159&type=chunk) - The company does not intend to declare or pay cash dividends in the foreseeable future, with the most recent payment in March 2020[160](index=160&type=chunk) - As of March 5, 2024, there were **875 holders of record** of the common stock[161](index=161&type=chunk) - A PIPE Investment on February 1, 2023, involved the purchase of **3,842,315 shares of Common Stock** for **$15.4 million**[162](index=162&type=chunk) - The CEO, Mr. Robert Rasmus, subscribed for and purchased **950,000 shares of common stock** for **$1.8 million** in July 2023[163](index=163&type=chunk) - The company has a stock repurchase program with **$7.0 million remaining** as of December 31, 2023, but no purchases were made in Q4 2023, and future repurchases are unlikely in the near term[165](index=165&type=chunk) [Item 6. Reserved](index=31&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's financial performance, highlighting revenue and cost drivers, the impact of the Arq Acquisition, and liquidity, with a focus on 2023 results [Overview](index=32&type=section&id=Overview) - Arq, Inc. is an environmental technology company primarily engaged in selling consumable air and water treatment solutions based on Activated Carbon (AC)[169](index=169&type=chunk) - The company's products help customers reduce contaminants like mercury and PFAS to meet environmental regulations in coal-fired power generation, industrial, and water treatment markets (APT market)[169](index=169&type=chunk) - The February 2023 acquisition of Legacy Arq provides access to bituminous coal waste reserves and a manufacturing facility (Corbin Facility) to produce Arq Powder, a feedstock for new GAC products, expected to begin manufacturing by end of **2024**[171](index=171&type=chunk) [Drivers of Demand and Key Factors Affecting Profitability](index=32&type=section&id=Drivers%20of%20Demand%20and%20Key%20Factors%20Affecting%20Profitability) - Changes in manufacturing production and sales volumes[173](index=173&type=chunk) - Changes in price and product mix[173](index=173&type=chunk) - Changes in coal-fired dispatch and electricity power generation sources[173](index=173&type=chunk) - Changes in demand for contaminant removal within water treatment facilities[173](index=173&type=chunk) [Components of Revenue, Expenses and Equity Method Investees](index=32&type=section&id=Components%20of%20Revenue,%20Expenses%20and%20Equity%20Method%20Investees) - Revenue primarily comes from the sale of AC products and other chemical-based technologies in the APT market[175](index=175&type=chunk) - Consumables cost of revenue includes all direct production costs, such as labor, materials, additives, and coal costs[176](index=176&type=chunk) - A royalty is paid to Tinuum Group for certain M-Prove product sales after the expiration of the Section 45 Tax Credit Program, included in Consumables cost of revenue[177](index=177&type=chunk) - Operating expenses include payroll and benefits (excluding direct labor), legal and professional fees, general and administrative costs (including R&D), and depreciation, amortization, depletion, and accretion[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) - Other income (expense), net, includes earnings from equity method investments (primarily Tinuum Group), interest income, interest expense, and other miscellaneous items[182](index=182&type=chunk)[183](index=183&type=chunk) [Results of Operations (2023 vs. 2022)](index=33&type=section&id=Results%20of%20Operations) Total Revenue and Cost of Revenue (in thousands) | Category | 2023 | 2022 | Change ($) | Change (%) | | :------------------------ | :------ | :------- | :--------- | :--------- | | Consumables Revenue | $99,183 | $102,987 | $(3,804) | (4)% | | Total Revenue | $99,183 | $102,987 | $(3,804) | (4)% | | Consumables Cost of Revenue | $67,323 | $80,465 | $(13,142) | (16)% | - Consumables revenue decreased by **$3.8 million (4%)** year-over-year, primarily due to lower volumes sold (**$20.0 million decrease**) driven by lower natural gas prices reducing coal-fired generation[186](index=186&type=chunk) - Partially offset by improved pricing (**$10.6 million increase**), **$4.7 million** from minimum quantity contract settlements, and **$0.7 million** from favorable product mix[187](index=187&type=chunk) - Consumables gross margin, exclusive of depreciation and amortization, increased due to MQ contracts and decreased feedstock/additive costs, despite lower volumes[187](index=187&type=chunk) Operating Expenses (in thousands) | Operating Expenses | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------- | :------ | :------ | :--------- | :--------- | | Payroll and benefits | $15,154 | $10,540 | $4,614 | 44% | | Legal and professional fees | $9,588 | $9,455 | $133 | 1% | | General and administrative | $12,641 | $8,145 | $4,496 | 55% | | Depreciation, amortization, depletion and accretion | $10,543 | $6,416 | $4,127 | 64% | | Gain on sale of Marshall Mine, LLC | $(2,695) | $0 | $(2,695) | * | | Other | $(36) | $34 | $(70) | (206)% | | **Total Operating Expenses** | **$45,195** | **$34,590** | **$10,605** | **31%** | - Payroll and benefits increased by **$4.9 million** due to Legacy Arq employees (including **$1.1 million severance** for former executives) and **$1.7 million severance** for three executive employees, partially offset by decreased incentive compensation and retention bonuses[190](index=190&type=chunk) - General and administrative expenses rose by **$2.5 million** due to Legacy Arq (including **$1.2 million rent/occupancy**) and **$2.0 million** from increases in insurance, R&D, travel, recruiting, and director compensation[193](index=193&type=chunk) - Depreciation, amortization, depletion, and accretion increased by **$2.8 million** from Arq Acquisition assets and **$1.0 million** from higher depreciation absorption in inventory due to higher production volumes[194](index=194&type=chunk) Other Income (Expense), Net (in thousands) | Category | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Earnings from equity method investments | $1,623 | $3,541 | $(1,918) | (54)% | | Interest expense | $(3,014) | $(336) | $(2,678) | 797% | | Other | $2,630 | $155 | $2,475 | 1,597% | | **Total Other Income, Net** | **$1,239** | **$3,360** | **$(2,121)** | **(63)%** | - Earnings from equity method investments decreased by **$1.9 million (54%)** due to Tinuum Group and Tinuum Services winding down operations[198](index=198&type=chunk) - Interest expense increased significantly by **$2.7 million (797%)** due to **$2.0 million** from the **$10 million CFG Loan** and **$0.5 million** from the **$10 million CTB Loan** assumed in the Arq Acquisition[199](index=199&type=chunk) - Other income increased by **$2.5 million**, primarily driven by **$1.8 million** in interest income from cash sweep accounts[200](index=200&type=chunk) - The company reported a net loss of **$12.2 million** in 2023, compared to **$8.9 million** in 2022[262](index=262&type=chunk) - Income tax expense was **$0.2 million** in both 2023 and 2022, with an effective rate of **(1)%** and **(2)%** respectively, primarily due to permanent differences, increased valuation allowance on deferred tax assets, and stock-based compensation[201](index=201&type=chunk)[202](index=202&type=chunk) - As of December 31, 2023, the company fully reserved for its net deferred tax assets with a valuation allowance of **$98.8 million**, up from **$88.3 million** in 2022, due to forecasts of future taxable losses[205](index=205&type=chunk) [Non-GAAP Financial Measures](index=38&type=section&id=Non-GAAP%20Financial%20Measures) - The company uses non-GAAP measures like EBITDA (earnings before interest, taxes, depreciation, and amortization) and Adjusted EBITDA to supplement GAAP financial information[211](index=211&type=chunk) - Adjusted EBITDA is defined as EBITDA reduced by non-cash equity earnings and gain on sale of Marshall Mine, and increased by cash distributions from equity method investments, loss on early settlement of long-term receivable, and loss on change in estimate, asset retirement obligations[211](index=211&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Category | 2023 | 2022 | | :---------------------------------------------- | :-------- | :-------- | | Net loss | $(12,249) | $(8,917) | | Depreciation, amortization, depletion and accretion | 10,543 | 6,416 | | Amortization of Upfront Customer Consideration | 508 | 508 | | Interest expense, net | 1,168 | 97 | | Income tax expense | 153 | 209 | | **EBITDA (EBITDA Loss)** | **$123** | **$(1,687)** | | Cash distributions from equity method investees | 1,623 | 5,933 | | Equity earnings | (1,623) | (3,541) | | Gain on sale of Marshall Mine, LLC | (2,695) | — | | Loss (gain) on change in estimate, asset retirement obligation | (37) | 34 | | Loss on early settlement of an account receivable | — | 535 | | **Adjusted (EBITDA Loss) EBITDA** | **$(2,609)** | **$1,274** | - Net loss for 2023 and 2022 included **$4.9 million** and **$5.0 million**, respectively, in transaction and integration costs related to the Arq Acquisition. 2023 also included **$4.9 million** of Legacy Arq payroll and benefit costs and **$1.7 million** of severance expense[215](index=215&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) - As of December 31, 2023, principal liquidity sources included cash on hand (**$45.4 million**, excluding **$8.8 million restricted cash**) and operations[216](index=216&type=chunk)[259](index=259&type=chunk) - Principal uses of liquidity in 2023 included business operating expenses, capital and spare parts expenditures, lease obligations, reclamation payments, and payment for the sale of Marshall Mine, LLC[217](index=217&type=chunk) - The PIPE Investment provided **$15.4 million**, and the CFG Loan provided **$8.5 million net proceeds** in February 2023[216](index=216&type=chunk) Cash Distributions from Equity Method Investments (in thousands) | Investee | 2023 | 2022 | | :-------------- | :------ | :------ | | Tinuum Group | $1,148 | $3,455 | | Tinuum Services | $475 | $2,476 | | Other | $0 | $2 | | **Total** | **$1,623** | **$5,933** | - Cash distributions from equity method investments decreased by **$4.3 million** in 2023 compared to 2022, primarily due to Tinuum Group and Tinuum Services winding down operations[218](index=218&type=chunk) Summary of Cash Flows (in thousands) | Cash Flows From | 2023 | 2022 | Change ($) | | :-------------------- | :--------- | :--------- | :--------- | | Operating activities | $(16,653) | $(6,061) | $(10,592) | | Investing activities | $(28,535) | $(4,608) | $(23,927) | | Financing activities | $22,909 | $(1,679) | $24,588 | | **Net change in Cash and Restricted Cash** | **$(22,279)** | **$(12,348)** | **$(9,931)** | - Cash used in operating activities increased by **$10.6 million**, primarily due to increased net loss, gain on sale of Marshall Mine, decreased distributions from equity method investees, and a net decrease in working capital[220](index=220&type=chunk) - Cash used in investing activities increased by **$23.9 million**, mainly due to increased acquisition of property, equipment, and intangibles related to the Arq Acquisition, payment for Marshall Mine disposal, and increased mine development costs[221](index=221&type=chunk) - Cash provided by financing activities increased by **$24.6 million**, driven by **$16.2 million** from common stock issuance (including related parties) and **$8.5 million net proceeds** from the CFG Loan Agreement[222](index=222&type=chunk) - The company expects cash on hand as of December 31, 2023, to provide sufficient liquidity for the next **12 months**[225](index=225&type=chunk) - Capital expenditures for **2024** are projected to be **$45 million to $50 million** for the Red River Plant expansion and **$5 million to $10 million** for Corbin Facility commissioning, dependent on additional funding and environmental permits[227](index=227&type=chunk) Contractual Obligations as of December 31, 2023 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | | :---------------------- | :------- | :--------------- | :-------- | :-------- | :------------ | | CFG Loan | $12,199 | $0 | $0 | $12,199 | $0 | | CTB Loan | $13,413 | $1,110 | $2,220 | $2,220 | $7,863 | | Finance lease obligations | $3,666 | $2,274 | $1,307 | $85 | $0 | | Operating lease obligations | $18,559 | $3,139 | $5,747 | $2,595 | $7,078 | | **Total** | **$47,837** | **$6,523** | **$9,274** | **$17,099** | **$14,941** | [Critical Accounting Policies and Estimates](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Business Combinations, including asset acquisitions: Requires significant estimates and assumptions for fair value allocation of acquired assets and liabilities[234](index=234&type=chunk) - Carrying value of long-lived assets and intangibles: Reviewed annually for impairment using income or market approaches, involving estimates of future cash flows, useful lives, and discount rates[235](index=235&type=chunk)[236](index=236&type=chunk) - Asset Retirement Obligations (AROs): Estimates future reclamation and remediation costs, timing, and scope, which can materially impact earnings[238](index=238&type=chunk)[239](index=239&type=chunk) - Income Taxes: Involves judgment in determining tax expense, deferred tax assets/liabilities, and valuation allowances based on future operating results and tax planning strategies[240](index=240&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not required for smaller reporting companies - The information under this Item is not required to be provided by smaller reporting companies[242](index=242&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for 2023 and 2022, with an unqualified opinion, highlighting the critical audit matter of acquired asset valuation - The consolidated financial statements for Arq, Inc. and Subsidiaries as of and for the years ended December 31, 2023 and 2022, are presented, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows[246](index=246&type=chunk)[248](index=248&type=chunk) - Moss Adams LLP, the independent registered public accounting firm, issued an unqualified opinion, stating the financial statements present fairly, in all material respects, the company's financial position and results of operations[248](index=248&type=chunk) - A critical audit matter was the valuation of acquired property, plant, and equipment (**$39.2 million**) and developed technology intangible assets (**$7.7 million**) from the Arq Acquisition, due to significant management judgment in projecting future financial performance and complex auditor evaluation of assumptions like revenue growth, production capacity, and discount/royalty rates[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk) [Note 1 - Summary of Operations and Significant Accounting Policies](index=53&type=section&id=Note%201%20-%20Summary%20of%20Operations%20and%20Significant%20Accounting%20Policies) - Arq Inc. is an environmental technology company selling AC and chemical solutions for air, water, and soil treatment, with manufacturing, mining, and logistics operations in Louisiana and Kentucky[273](index=273&type=chunk)[274](index=274&type=chunk) - The February 2023 Arq Acquisition secured access to feedstock, a manufacturing facility, and patented processes to produce GAC products from bituminous coal waste[275](index=275&type=chunk) - The company consolidates wholly-owned subsidiaries and VIEs where it is the primary beneficiary, and uses the equity method for investments where it has significant influence (e.g., **42.5% in Tinuum Group**, **50.0% in Tinuum Services**)[276](index=276&type=chunk)[277](index=277&type=chunk) - Revenue from consumables is recognized at the point of time when control transfers, typically upon shipment or delivery. For Minimum Quantity Contracts (MQ Contracts), revenue is recognized when a shortfall is probable, quantifiable, and the company elects to enforce billing[304](index=304&type=chunk)[306](index=306&type=chunk) - Research and development costs were **$3.3 million** in 2023 and **$2.1 million** in 2022, expensed as incurred[317](index=317&type=chunk) - The company adopted ASU 2016-13 (Credit Losses) effective January 1, 2023, with no material impact, and is evaluating ASU 2023-09 (Income Tax Disclosures) effective for fiscal years beginning after December 15, 2024[336](index=336&type=chunk)[337](index=337&type=chunk) [Note 2 - Arq Acquisition](index=60&type=section&id=Note%202%20-%20Arq%20Acquisition) - On February 1, 2023, Arq, Inc. acquired Legacy Arq's subsidiaries for a total consideration of **$31.2 million**, comprising **$12.4 million** in common stock and **$18.8 million** in Series A Convertible Preferred Stock[338](index=338&type=chunk)[340](index=340&type=chunk) - The acquisition resulted in **$8.7 million** in expensed acquisition-related costs[338](index=338&type=chunk)[340](index=340&type=chunk) Final Purchase Price Allocation (in thousands) | Category | Amount | | :---------------------------- | :---------- | | Fair value of assets acquired | $55,330 | | Fair Value of liabilities assumed | $24,125 | | **Net assets acquired** | **$31,205** | - Identified intangible assets included **$7.7 million** in developed technology with a weighted average useful life of **20 years**[342](index=342&type=chunk) - All Series A Preferred Stock was converted into **5,362,926 shares of Common Stock** on June 13, 2023, following stockholder approval[344](index=344&type=chunk)[350](index=350&type=chunk) - A PIPE Investment on February 1, 2023, generated **$15.4 million** from the sale of **3,842,315 shares of Common Stock**[351](index=351&type=chunk) Unaudited Pro Forma Financial Information (in thousands) | Category | 2023 | 2022 | | :-------- | :--------- | :--------- | | Revenue | $99,183 | $102,987 | | Net loss | $(11,119) | $(75,788) | [Note 3 - Inventories, net](index=63&type=section&id=Note%203%20-%20Inventories,%20net) - Inventories are valued at the lower of average cost or net realizable value, consisting primarily of raw materials and finished goods for AC products[283](index=283&type=chunk) Inventories, Net (in thousands) | Category | 2023 | 2022 | | :------------------ | :-------- | :-------- | | Product inventory | $9,524 | $9,479 | | Raw material inventory | $10,169 | $8,349 | | **Total** | **$19,693** | **$17,828** | [Note 4 - Property, Plant and Equipment](index=64&type=section&id=Note%204%20-%20Property,%20Plant%20and%20Equipment) Property, Plant and Equipment, Net (in thousands) | Category | 2023 | 2022 | | :---------------------------- | :--------- | :--------- | | Land and land improvements | $1,225 | $1,225 | | Plant and operating equipment | $81,266 | $33,180 | | Furniture and fixtures | $1,765 | $1,709 | | Machinery and equipment | $2,478 | $2,116 | | Leasehold improvements | $2,149 | $2,149 | | Construction in progress | $25,059 | $6,373 | | **Total Cost** | **$113,942** | **$46,752** | | Less accumulated depreciation | $(19,293) | $(11,897) | | **Total Net** | **$94,649** | **$34,855** | - Depreciation expense for the years ended December 31, 2023 and 2022 was **$8.5 million** and **$4.9 million**, respectively[361](index=361&type=chunk) - ROU assets related to finance lease obligations were **$1.7 million** in 2023 and **$2.6 million** in 2022, net of accumulated depreciation[360](index=360&type=chunk) [Note 5 - Revenue](index=64&type=section&id=Note%205%20-%20Revenue) - All material performance obligations related to revenue recognized were satisfied at a point in time for 2023 and 2022[362](index=362&type=chunk) - Approximately **8% of Consumables revenue** in both 2023 and 2022 was generated in Canada, with the rest in the U.S.[362](index=362&type=chunk) - In December 2023, the company recognized **$4.7 million** of consumables revenue from the settlement of certain minimum quantity contracts (MQ Contracts)[363](index=363&type=chunk) Receivables, Net (in thousands) | Category | 2023 | 2022 | | :------------------ | :-------- | :-------- | | Trade receivables, net | $11,289 | $13,789 | | Unbilled receivables | $4,862 | $0 | | Other | $41 | $75 | | **Total** | **$16,192** | **$13,864** | [Note 6 - Debt Obligations](index=65&type=section&id=Note%206%20-%20Debt%20Obligations) Debt Obligations (in thousands) | Category | 2023 | 2022 | | :---------------------------- | :--------- | :-------- | | CFG Loan due February 2027 | $10,000 | $0 | | CTB Loan due January 2036 | $9,527 | $0 | | Finance lease obligations | $3,465 | $4,581 | | Unamortized debt discounts | $(815) | $0 | | Unamortized debt issuance costs | $(1,250) | $0 | | Less: Current maturities | $(2,653) | $(1,131) | | **Total long-term debt obligations** | **$18,274** | **$3,450** | - The **$10.0 million CFG Loan**, closed February 1, 2023, provided **$8.5 million net cash proceeds** after OID and issuance costs, matures February 1, 2027, and bears interest at Adjusted Term SOFR or Base Rate plus margins (**9% cash, 5% PIK**)[369](index=369&type=chunk)[372](index=372&type=chunk) - The CFG Loan is secured by substantially all company assets (excluding CTB Loan collateral) and includes covenants for minimum unrestricted cash (**$5.0 million**), annual revenue (**$70.0 million for 2023, $85.0 million for 2024**), and Consolidated EBITDA (**$3.0 million for 2024**)[376](index=376&type=chunk) - The **$10.0 million CTB Loan**, assumed in the Arq Acquisition, matures January 27, 2036, bears **6.0% interest** through January 2026, and requires monthly principal and interest payments of **$0.1 million**[377](index=377&type=chunk)[378](index=378&type=chunk) - The CTB Loan Modification Agreement (June 2, 2023) waived certain financial delivery and covenant requirements for 2021-2023 and required an additional **$0.7 million deposit** into an Interest Reserve Account[379](index=379&type=chunk)[380](index=380&type=chunk) [Note 7 - Leases](index=67&type=section&id=Note%207%20-%20Leases) Lease ROU Assets and Liabilities (in thousands) | Category | 2023 | 2022 | | :-------------------------------------- | :--------- | :--------- | | Operating lease right-of-use assets, net | $10,592 | $7,734 | | Total operating lease obligation | $10,814 | $7,857 | | Finance lease right-of-use assets, net | $1,694 | $2,565 | | Total finance lease obligations | $3,465 | $4,581 | Lease Financial Information (in thousands) | Category | 2023 | 2022 | | :-------------------------------- | :------ | :------ | | Total lease cost | $6,880 | $5,569 | | Operating cash flows from finance leases | $258 | $307 | | Operating cash flows from operating leases | $2,887 | $2,923 | | Financing cash flows from finance leases | $1,130 | $1,246 | | Weighted-average remaining lease term - finance leases | 1.8 years | 2.8 years | | Weighted-average remaining lease term - operating leases | 7.6 years | 4.1 years | | Weighted-average discount rate - finance leases | 5.9% | 5.9% | | Weighted-average discount rate - operating leases | 11.3% | 6.9% | Future Lease Payments as of December 31, 2023 (in thousands) | Year | Operating Lease Commitments | Finance Lease Commitments | Total Lease Commitments | | :-------- | :-------------------------- | :------------------------ | :---------------------- | | 2024 | $3,139 | $2,274 | $5,413 | | 2025 | $2,930 | $935 | $3,865 | | 2026 | $2,817 | $372 | $3,189 | | 2027 | $1,464 | $85 | $1,549 | | 2028 | $1,131 | $0 | $1,131 | | Thereafter | $7,078 | $0 | $7,078 | | **Total Lease Payments** | **$18,559** | **$3,666** | **$22,225** | | Less: Imputed interest | $(7,745) | $(201) | $(7,946) | | **Present value of lease payments** | **$10,814** | **$3,465** | **$14,279** | [Note 8 - Commitments and Contingencies](index=69&type=section&id=Note%208%20-%20Commitments%20and%20Contingencies) - As of December 31, 2023, the company had outstanding surety bonds totaling **$11.2 million** for reclamation of the Five Forks Mine (**$7.5 million**), Corbin Facility (**$3.0 million**), and Mine 4 (**$0.7 million**)[394](index=394&type=chunk)[395](index=395&type=chunk) - Restricted cash of **$8.5 million** was pledged as collateral for surety bonds as of December 31, 2023[396](index=396&type=chunk) - In January 2024, the company executed a contract for the construction of a GAC facility at the Red River Plant, with estimated costs between **$62.0 million and $67.0 million**[398](index=398&type=chunk) - The company has limited obligations related to Tinuum Group, including guarantees and a contractual liability of **$1.7 million** as of December 31, 2023, related to the Tinuum Group Obligation[400](index=400&type=chunk)[401](index=401&type=chunk)[455](index=455&type=chunk) - A separation agreement with former CEO Mr. Marken resulted in severance payments, accelerated vesting of restricted stock, and continued eligibility for PSUs, with a liability of **$0.4 million** as of December 31, 2023[402](index=402&type=chunk) [Note 9 - Marshall Mine, LLC](index=70&type=section&id=Note%209%20-%20Marshall%20Mine,%20LLC) - On March 27, 2023, the company sold all membership interests in Marshall Mine, LLC for a **$2.2 million cash payment** and the buyer's assumption of **$4.9 million in liabilities**[404](index=404&type=chunk) - The sale resulted in a gain of approximately **$2.7 million** recognized in the Statement of Operations for 2023[404](index=404&type=chunk) [Note 10 - Supplemental Financial Information](index=71&type=section&id=Note%2010%20-%20Supplemental%20Financial%20Information) Prepaid Expenses and Other Current Assets (in thousands) | Category | 2023 | 2022 | | :-------------------------------- | :------ | :------ | | Prepaid expenses | $2,430 | $2,570 | | Prepaid income taxes and income tax refunds | $349 | $2,573 | | Other | $2,436 | $2,395 | | **Total** | **$5,215** | **$7,538** | Other Long-Term Assets, Net (in thousands) | Category | 2023 | 2022 | | :-------------------------------- | :--------- | :--------- | | Right of use assets, operating leases, net | $10,592 | $7,734 | | Spare parts, net | $9,147 | $6,789 | | Upfront customer consideration | $5,967 | $6,475 | | Mine reclamation asset, net | $1,955 | $1,641 | | Intangible assets, net | $7,899 | $847 | | Mine development costs, net | $7,377 | $5,478 | | Other long-term assets | $2,663 | $1,683 | | **Total** | **$45,600** | **$30,647** | - Mine development costs for the Five Forks Mine are depleted over an estimated **14-year life**[407](index=407&type=chunk) - The Highview Investment, an investment in a power storage company, is recorded at cost less impairment, with no changes to carrying value in 2023 or 2022[408](index=408&type=chunk)[409](index=409&type=chunk) Other Current Liabilities (in thousands) | Category | 2023 | 2022 | | :-------------------------------- | :------ | :------ | | Current portion of operating lease obligations | $1,944 | $2,724 | | Sales, use and other taxes payable | $948 | $1,039 | | Current portion of mine reclamation liability | $182 | $548 | | Other current liabilities | $2,718 | $2,334 | | **Total** | **$5,792** | **$6,645** | Other Long-Term Liabilities (in thousands) | Category | 2023 | 2022 | | :-------------------------------- | :--------- | :--------- | | Mine reclamation liabilities | $5,981 | $7,985 | | Operating lease obligations, long-term | $8,870 | $5,133 | | Other | $929 | $733 | | **Total** | **$15,780** | **$13,851** | Mine Reclamation Liabilities (AROs) (in thousands) | Category | 2023 | 2022 | | :-------------------------------------- | :------ | :------ | | Asset retirement obligations, beginning of year | $8,533 | $9,959 | | Asset retirement obligations assumed | $1,500 | $0 | | Accretion | $582 | $611 | | Liabilities settled | $(4,866) | $(2,071) | | Changes due to scope and timing of reclamation | $414 | $34 | | **Asset retirement obligations, end of year** | **$6,163** | **$8,533** | Interest Expense (in thousands) | Category | 2023 | 2022 | | :-------------- | :------ | :------ | | Interest on CFG Loan | $2,029 | $0 | | Interest on CTB Loan | $545 | $0 | | Other | $440 | $336 | | **Total** | **$3,014** | **$336** | Other Income (in thousands) | Category | 2023 | 2022 | | :------------ | :------ | :------ | | Interest income | $1,846 | $239 | | Other | $784 | $(84) | | **Total** | **$2,630** | **$155** | [Note 11 - Stockholders' Equity](index=73&type=section&id=Note%2011%20-%20Stockholders'%20Equity) - The Board is authorized to issue preferred stock, but none were outstanding as of December 31, 2023 and 2022[414](index=414&type=chunk) - Common stockholders have one vote per share, are entitled to dividends when declared, and receive remaining assets upon liquidation after creditors and preferred stockholders[415](index=415&type=chunk)[416](index=416&type=chunk) - Equity transactions in 2023 included the issuance of **3,814,864 common shares** and **5,294,462 Series A Preferred Stock** for the Arq Acquisition, a **$15.4 million PIPE Investment** for **3,842,315 common shares**, and the conversion of all Series A Preferred Stock into **5,362,926 common shares**[417](index=417&type=chunk)[419](index=419&type=chunk) - The company has a Stock Repurchase Program with **$7.0 million remaining** as of December 31, 2023, but no repurchases were made in Q4 2023[421](index=421&type=chunk) [Note 12 - Stock-Based Compensation](index=74&type=section&id=Note%2012%20-%20Stock-Based%20Compensation) - The company's 2022 Omnibus Incentive Plan permits grants of various equity awards to employees, directors, and consultants, with **190,281 shares authorized** for issuance as of December 31, 2023[422](index=422&type=chunk) - Stock-based compensation expense is measured at grant date fair value and expensed over the vesting/performance period, with forfeitures recognized when incurred[424](index=424&type=chunk)[425](index=425&type=chunk)[426](index=426&type=chunk) Stock-Based Compensation Expense (in thousands) | Category | 2023 | 2022 | | :------------------------ | :------ | :------ | | RSA expense | $1,887 | $1,679 | | PSU expense | $650 | $302 | | Stock option expense | $111 | $0 | | **Total** | **$2,648** | **$1,981** | Unrecognized Compensation Cost as of December 31, 2023 (in thousands) | Category | Unrecognized Compensation Cost | Expected Weighted-Average Period of Recognition (in years) | | :------------------------ | :----------------------------- | :------------------------------------------------------- | | RSA expense | $1,412 | 1.67 | | Stock option expense | $618 | 2.54 | | PSU expense | $994 | 1.36 | | **Total** | **$3,024** | **1.30** | - As of December 31, 2023, **790,005 non-vested RSAs** were outstanding, with a weighted-average grant date fair value of **$3.10**[433](index=433&type=chunk) - As of December 31, 2023, **968,918 PSUs** were outstanding, with a weighted-average grant date fair value of **$2.06** and an aggregate intrinsic value of **$2.9 million**[434](index=434&type=chunk) - As of December 31, 2023, **1,000,000 stock options** were outstanding with a weighted-average exercise price of **$3.00** and a remaining contractual term of **9.54 years**[436](index=436&type=chunk) [Note 13 - Income Taxes](index=77&type=section&id=Note%2013%20-%20Income%20Taxes) Sources of Pretax Loss (in thousands) | Category | 2023 | 2022 | | :------- | :-------- | :-------- | | Domestic | $(9,123) | $(8,708) | | Foreign | $(2,973) | $0 | | **Total** | **$(12,096)** | **$(8,708)** | Provision for Income Taxes (in thousands) | Category | 2023 | 2022 | | :------------------------ | :------ | :------ | | Current portion of income tax expense | $153 | $209 | | Deferred portion of income tax expense (benefit) | $0 | $0 | | **Total income tax expense** | **$153** | **$209** | | Effective tax rate | (1)% | (2)% | Deferred Tax Assets and Liabilities (in thousands) | Category | 2023 | 2022 | | :---------------------------- | :--------- | :--------- | | Total deferred tax assets | $112,307 | $99,302 | | Less valuation allowance | $(98,836) | $(88,293) | | Deferred tax assets | $13,471 | $11,009 | | Less: Deferred tax liabilities | $(13,471) | $(11,009) | | **Net deferred tax assets** | **$0** | **$0** | - As of December 31, 2023, the company concluded it is more likely than not that it will not generate sufficient taxable income to realize its net deferred tax assets, resulting in a **100% valuation allowance of $98.8 million**[443](index=443&type=chunk) Net Operating Loss and Tax Credit Carryforwards (in thousands) | Category | 2023 | Beginning Expiration Year | Ending Expiration Year | | :-------------------------------------- | :-------- | :------------------------ | :--------------------- | | Federal net operating loss carryforwards | $10,177 | 2035 | Indefinite | | Foreign net operation loss carryforwards | $3,629 | Indefinite | Indefinite | | State and other net operating loss carryforwards | $3,211 | 2025 | Indefinite | | Federal tax credit carryforwards | $86,125 | 2032 | 2041 | - The company performed an IRC Section 382 analysis as of the Arq Acquisition Date and determined no ownership change occurred for Arq, Inc., but believes Legacy Arq experienced ownership changes prior to acquisition, potentially limiting its tax assets[450](index=450&type=chunk)[451](index=451&type=chunk) - The Tax Asset Protection Plan (TAPP) was extended to December 31, 2024, to deter acquisitions of **4.99% or more** of outstanding common stock without Board approval, aiming to protect the ability to utilize tax assets[452](index=452&type=chunk) [Note 14 - Major Customers](index=80&type=section&id=Note%2014%20-%20Major%20Customers) Revenue from Major Customers | Customer | Revenue Type | 2023 | 2022 | | :------- | :----------- | :--- | :--- | | A | Consumables | 19% | 18% | | B | Consumables | 9% | 11% | [Note 15 - Related Party Transactions](index=80&type=section&id=Note%2015%20-%20Related%20Party%20Transactions) - For 2023, the company recognized **$0.7 million** in Tinuum Group Royalty expense, included in consumables cost of revenue[454](index=454&type=chunk) - As of December 31, 2023 and 2022, the company had an outstanding liability of **$1.7 million** related to its contractual amount due under the Tinuum Group Obligation[455](index=455&type=chunk) [Note 16 - Defined Contribution Savings Plans](index=80&type=section&id=Note%2016%20-%20Defined%20Contribution%20Savings%20Plans) - The company sponsors a 401(k) Plan for eligible employees, making cash contributions based on percentages of eligible compensation[456](index=456&type=chunk) 401(k) Plans Employer Contributions (in thousands) | Year Ended December 31, | Contributions | | :---------------------- | :------------ | | 2023 | $613 | | 2022 | $552 | [PART III](index=84&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=84&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement - Information required by this Item is incorporated by reference from the Registrant's definitive proxy statement to be filed no later than **120 days** after the end of the fiscal year[470](index=470&type=chunk) [Item 11. Executive Compensation](index=84&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement - Information required by this Item is incorporated by reference from the Registrant's definitive proxy statement to be filed no later than **120 days** after the end of the fiscal year[471](index=471&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=84&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information for beneficial owners and management is incorporated by reference, with details on equity compensation plan issuances - Information on security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement[472](index=472&type=chunk) - As of December 31, 2023, **190,281 securities** remained available for future issuance under equity compensation plans approved by security holders[473](index=473&type=chunk) - Outstanding options, warrants, and rights included **1,000,000 non-qualified stock options** (weighted-average exercise price **$3.00**), **790,005 unvested restricted stock awards**, and **968,918 unvested performance share units**[473](index=473&type=chunk) [Item 13. Certain Relationships and Related Transaction and Director Independence](index=84&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transaction%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement - Information required by this Item is incorporated by reference from the Registrant's definitive proxy statement to be filed no later than **120 days** after the end of the fiscal year[474](index=474&type=chunk) [Item 14. Principal Accountant Fees and Services](index=84&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement - Information required by this Item is incorporated by reference from the Registrant's definitive proxy statement to be filed no later than **120 days** after the end of the fiscal year[475](index=475&type=chunk) [PART IV](index=85&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=85&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules, including corporate documents, incentive plans, agreements, and certifications, with financial statements filed as part of Item 8 - The report includes consolidated financial statements of Arq, Inc. as part of Item 8[478](index=478&type=chunk) - All financial statement schedules are omitted because the required information is either not applicable, not present in sufficient amounts, or already included in the consolidated financial statements and notes[478](index=478&type=chunk) - A comprehensive list of exhibits is filed, including corporate governance documents (e.g., Certificate of Incorporation, Bylaws), incentive plans (2017 and 2022 Omnibus Incentive Plans), various agreements (e.g., Securities Purchase Agreement, Term Loan and Security Agreement), and certifications (e.g., Principal Executive Officer and Principal Financial Officer certifications)[478](index=478&type=chunk)[479](index=479&type=chunk)[480](index=480&type=chunk) [Item 16. Form 10-K Summary](index=89&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided in this report[486](index=486&type=chunk)

United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________ FORM 10-Q ______________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-37822 ______________________________________ Advanced Emissions ...

[PART I. - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity changes, cash flows, and detailed notes for specified periods [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes the company's financial position through its condensed consolidated balance sheets as of June 30, 2023, and December 31, 2022 Balance Sheet Summary (June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $233,714 | $181,164 | | Total Liabilities | $58,899 | $41,185 | | Total Stockholders' Equity | $174,815 | $139,979 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's financial performance through condensed consolidated statements of operations for the three and six months ended June 30, 2023, and 2022 Statements of Operations (Three Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------------------------- | :------------------ | :------------------ | | Total Revenues | $20,445 | $24,739 | | Total Operating Expenses | $26,532 | $27,475 | | Operating Loss | $(6,087) | $(2,736) | | Net Loss | $(5,856) | $(326) | | Basic Loss per Common Share | $(0.21) | $(0.02) | Statements of Operations (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------------------------- | :------------------ | :------------------ | | Total Revenues | $41,250 | $51,141 | | Total Operating Expenses | $55,164 | $57,212 | | Operating Loss | $(13,914) | $(6,071) | | Net Loss | $(13,364) | $(3,359) | | Basic Loss per Common Share | $(0.53) | $(0.18) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Outlines the changes in stockholders' equity for the six months ended June 30, 2023, reflecting capital transactions and net loss Stockholders' Equity Changes (January 1, 2023 to June 30, 2023) | Item | Amount (in thousands) | | :-------------------------------------------------- | :-------------------- | | Balances, January 1, 2023 | $139,979 | | Stock-based compensation | $1,108 | | Issuance of common stock pursuant to Arq Acquisition, net of offering costs | $12,437 | | Issuance of common stock related to PIPE Investment, net of offering costs | $15,220 | | Issuance of warrant | $826 | | Repurchase of common shares to satisfy minimum tax withholdings | $(160) | | Preferred stock dividends declared on redeemable preferred stock | $(157) | | Net loss | $(13,364) | | Balances, June 30, 2023 | $174,815 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023, and 2022 Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net cash (used in) provided by operating activities | $(21,159) | $1,758 | | Net cash (used in) provided by investing activities | $(10,482) | $1,305 | | Net cash provided by (used) in financing activities | $22,792 | $(1,024) | | (Decrease) increase in Cash and Restricted Cash | $(8,849) | $2,039 | | Cash and Restricted Cash, end of period | $67,583 | $90,819 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering various accounting policies and transactions [Note 1 - Basis of Presentation](index=8&type=section&id=Note%201%20-%20Basis%20of%20Presentation) Describes the company's business, recent significant acquisitions, financing activities, and the basis for financial statement preparation - Advanced Emissions Solutions, Inc. (ADES) is an environmental technology company manufacturing and selling activated carbon (AC) and chemical technologies for air and water treatment, primarily for coal-fired power generation, industrial, and water treatment markets, also owning the Five Forks Mine for raw material supply[20](index=20&type=chunk) - On February 1, 2023, ADES acquired Arq Ltd.'s subsidiaries for **$31.2 million**, consisting of common stock and Series A Convertible Preferred Stock, with Arq focused on transforming coal waste into microfine carbon powder (Arq Powder) for granular activated carbon (GAC) production, expected to begin in H2 2024[21](index=21&type=chunk)[22](index=22&type=chunk) - On February 1, 2023, the Company entered into a **$10.0 million** Term Loan with CF Global (a related party), receiving net cash proceeds of **$8.5 million** after discounts and issuance costs, and issued a warrant to purchase 325,457 shares of Common Stock to CFG[23](index=23&type=chunk)[24](index=24&type=chunk) - On February 1, 2023, the Company completed a PIPE Investment, selling **3,842,315 shares** of Common Stock for **$15.4 million** at **$4.00 per share** to certain subscribers, including existing Arq Ltd. shareholders[25](index=25&type=chunk) Loss per Common Share (Three and Six Months Ended June 30) | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :----------------------------- | | Basic Loss per Share | $(0.21) | $(0.53) | | Diluted Loss per Share | $(0.21) | $(0.53) | [Note 2 - Arq Acquisition](index=10&type=section&id=Note%202%20-%20Arq%20Acquisition) Details the acquisition of Arq Ltd.'s subsidiaries, including purchase consideration, asset allocation, and pro forma financial effects - The total purchase consideration for the Arq Acquisition was **$31.2 million**, allocated to acquired assets and assumed liabilities, including **$12.4 million** for common stock and **$18.8 million** for preferred shares, with acquisition-related costs of **$8.7 million** expensed[42](index=42&type=chunk) Acquired Assets and Assumed Liabilities (as of Acquisition Date, in thousands) | Category | Amount | | :-------------------------------- | :------- | | Fair value of assets acquired | $55,330 | | Fair Value of liabilities assumed | $24,125 | | Net assets acquired | $31,205 | - Developed technology was identified as an intangible asset with a fair value of **$7.7 million** and a weighted-average useful life of **20 years**[45](index=45&type=chunk) - On June 13, 2023, stockholders approved the conversion of all outstanding Series A Preferred Stock into Common Stock[47](index=47&type=chunk) Arq Financial Performance (Acquisition Date to June 30, 2023, in thousands) | Metric | Amount | | :------- | :------- | | Revenues | $0 | | Net loss | $(6,756) | Pro Forma Effects of Arq Acquisition (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :------- | :--- | :--- | | Revenues | $41,250 | $51,141 | | Net loss | $(9,925) | $(38,965) | [Note 3 - Marshall Mine](index=13&type=section&id=Note%203%20-%20Marshall%20Mine) Discusses the sale of Marshall Mine, LLC, including the cash payment received and liabilities assumed - On March 27, 2023, the Company completed the sale of Marshall Mine, LLC, receiving a **$2.2 million** cash payment from the buyer, who assumed approximately **$4.9 million** in liabilities, resulting in a recognized gain of **$2.7 million** for the six months ended June 30, 2023[57](index=57&type=chunk) [Note 4 - Revenues](index=13&type=section&id=Note%204%20-%20Revenues) Provides a breakdown of receivables and geographical revenue concentration for consumables Receivables, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------- | :-------------- | :---------------- | | Trade receivables, net | $10,235 | $13,789 | | Other receivables | $72 | $75 | | Total Receivables, net | $10,307 | $13,864 | - For the three and six months ended June 30, 2023, approximately **5%** and **9%** of Consumables revenues, respectively, were generated in Canada, with all other revenues from the U.S[60](index=60&type=chunk) [Note 5 - Inventories, net](index=13&type=section&id=Note%205%20-%20Inventories,%20net) Presents a detailed breakdown of product and raw material inventories, net, for specified periods Inventories, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------- | :-------------- | :---------------- | | Product inventory, net | $12,205 | $9,479 | | Raw material inventory | $10,833 | $8,349 | | Total inventories, net | $23,038 | $17,828 | [Note 6 - Debt Obligations](index=14&type=section&id=Note%206%20-%20Debt%20Obligations) Outlines the company's debt obligations, including term loans, finance leases, and associated covenants Total Debt Obligations (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Term Loan due February 2027, related party | $10,000 | $0 | | Arq Loan due January 2036 | $9,787 | $0 | | Finance lease obligations | $4,004 | $4,581 | | Unamortized debt discounts | $(943) | $0 | | Unamortized debt issuance costs | $(1,424) | $0 | | Total long-term debt obligations | $19,830 | $3,450 | - The Term Loan includes covenants requiring a minimum unrestricted cash balance of **$5.0 million**, minimum annual revenue (**$70.0 million** for FY2023, **$85.0 million** for FY2024, **$100.0 million** thereafter), and minimum Consolidated EBITDA (**$3.0 million** for FY2024, **$16.0 million** thereafter)[66](index=66&type=chunk) - On June 2, 2023, the Arq Loan was modified, clarifying terms, waiving certain financial delivery requirements and covenants for 2021-2023, and requiring Borrowers to establish operating bank accounts with the Bank by September 30, 2023[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) [Note 7 - Leases](index=16&type=section&id=Note%207%20-%20Leases) Details the company's lease right-of-use assets, lease liabilities, and total lease costs for operating and finance leases Lease ROU Assets and Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :-------------- | :---------------- | | Operating lease right-of-use assets, net | $11,292 | $7,734 | | Total operating lease obligation | $11,381 | $7,857 | | Finance lease right-of-use assets, net | $2,120 | $2,565 | | Total finance lease obligations | $4,004 | $4,581 | Total Lease Cost (in thousands) | Category | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :----------------------------- | | Finance lease cost | $286 | $577 | | Operating lease cost | $1,035 | $2,017 | | Short-term lease cost | $242 | $651 | | Variable lease cost | $56 | $64 | | Total lease cost | $1,619 | $3,309 | [Note 8 - Commitments and Contingencies](index=18&type=section&id=Note%208%20-%20Commitments%20and%20Contingencies) Discusses outstanding retention liabilities, surety bonds, cash collateral, and the absence of significant legal proceedings - The outstanding Retention Liability of **$1.4 million** as of December 31, 2022, was paid in full in January 2023[85](index=85&type=chunk) - As of June 30, 2023, the Company had **$7.5 million** in surety bonds for Five Forks Mine, **$3.0 million** for Corbin Facility land, and **$0.7 million** for Mine 4, with cash collateral of **$8.6 million** posted as long-term restricted cash[86](index=86&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk) - The **$16.6 million** surety bond related to Marshall Mine was released upon its sale on March 27, 2023[88](index=88&type=chunk) - No significant legal proceedings were outstanding as of June 30, 2023[91](index=91&type=chunk) [Note 9 - Supplemental Financial Information](index=19&type=section&id=Note%209%20-%20Supplemental%20Financial%20Information) Provides additional details on other long-term assets, current and long-term liabilities, and mine reclamation liabilities Other Long-Term Assets, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Right of use assets, operating leases, net | $11,292 | $7,734 | | Intangible assets, net | $8,222 | $847 | | Spare parts, net | $7,647 | $6,789 | | Upfront Customer Consideration | $6,221 | $6,475 | | Mine development costs, net | $6,629 | $5,478 | | Mine reclamation asset, net | $1,591 | $1,641 | | Other | $2,622 | $1,683 | | Total other long-term assets, net | $44,224 | $30,647 | Other Current and Long-Term Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Other current liabilities | $6,375 | $6,645 | | Other long-term liabilities | $15,135 | $13,851 | Mine Reclamation Liabilities (ARO) (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Asset retirement obligations, beginning of period | $8,533 | $9,959 | | Asset retirement obligations assumed (Corbin ARO, Mine 4 ARO) | $1,500 | $0 | | Liabilities settled (Marshall Mine ARO removal) | $(4,844) | $(2,071) | | Asset retirement obligations, end of period | $5,492 | $8,533 | [Note 10 - Equity Method Investments](index=21&type=section&id=Note%2010%20-%20Equity%20Method%20Investments) Reports earnings, obligations, royalties, and cash distributions from equity method investees, primarily Tinuum Group - For the three and six months ended June 30, 2023, earnings from Tinuum Group were **$0.2 million** and **$0.9 million**, respectively, a decrease from **$2.1 million** and **$3.1 million** in the comparable 2022 periods, primarily due to Tinuum Group winding down services[104](index=104&type=chunk)[175](index=175&type=chunk) - The Company's portion of the Tinuum Group Obligation was **$1.7 million** as of June 30, 2023, and December 31, 2022[105](index=105&type=chunk) - The Company recognized **$0.3 million** and **$0.5 million** in Tinuum Group Royalties for the three and six months ended June 30, 2023, respectively, on sales of M-Prove products[106](index=106&type=chunk) Cash Distributions from Equity Method Investees (Six Months Ended June 30, in thousands) | Category | 2023 | 2022 | | :-------------------------------------------------- | :--- | :--- | | Distributions from equity method investees, return on investment | $0 | $2,297 | | Distributions from equity method investees in excess of investment basis | $1,100 | $3,316 | | Total Distributions | $1,100 | $5,613 | [Note 11 - Stockholders' Equity](index=22&type=section&id=Note%2011%20-%20Stockholders'%20Equity) Details changes in stockholders' equity, including stock issuances, warrant grants, share repurchases, and the Tax Asset Protection Plan - On February 1, 2023, **3,814,864 shares** were issued for the Arq Acquisition and **3,842,315 shares** for the PIPE Investment[112](index=112&type=chunk) - All Series A Preferred Stock was converted into Common Stock on the Conversion Date (June 13, 2023) following stockholder approval[114](index=114&type=chunk) - **325,857 Warrant Shares** were issued as consideration for the Term Loan, recorded at an estimated fair value of **$0.8 million** to Additional Paid-in Capital[115](index=115&type=chunk) - **$7.0 million** remained under the stock repurchase program as of June 30, 2023[116](index=116&type=chunk) - The Board approved the Sixth Amendment to the Tax Asset Protection Plan (TAPP), extending its duration to December 31, 2024, to protect the Company's ability to utilize net operating losses and tax credits[121](index=121&type=chunk) [Note 12 - Stock-Based Compensation](index=23&type=section&id=Note%2012%20-%20Stock-Based%20Compensation) Presents the total stock-based compensation expense and unrecognized compensation costs for various equity awards Total Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :----------------------------- | | RSA expense | $416 | $904 | | PSU expense | $129 | $204 | | Total stock-based compensation expense | $545 | $1,108 | Unrecognized Compensation Cost (as of June 30, 2023, in thousands) | Category | Unrecognized Compensation Cost | Expected Weighted Average Period of Recognition (in years) | | :-------------------------------- | :----------------------------- | :------------------------------------------------------- | | RSA expense | $2,418 | 2.24 | | PSU expense | $930 | 2.24 | | Total unrecognized stock-based compensation expense | $3,348 | 2.24 | [Note 13 - Income Taxes](index=24&type=section&id=Note%2013%20-%20Income%20Taxes) Explains the company's income tax benefit and effective tax rate, noting the impact of a full valuation allowance - For the three and six months ended June 30, 2023 and 2022, the Company recorded no income tax benefit (or a minimal benefit of **$33 thousand** for H1 2023) and an effective tax rate of **0%** due to a full valuation allowance against deferred tax assets, based on a forecast of pretax loss[129](index=129&type=chunk) [Note 14 - Subsequent Events](index=24&type=section&id=Note%2014%20-%20Subsequent%20Events) Reports on significant events occurring after the reporting period, including CEO appointment and related compensation agreements - On July 14, 2023, Robert Rasmus was appointed President and CEO, effective July 17, 2023, succeeding Greg Marken, and was also appointed to the Board[133](index=133&type=chunk) - Mr. Rasmus agreed to purchase **950,000 shares** of common stock for **$1.8 million** (approximately **$1.90 per share**)[134](index=134&type=chunk) - Greg Marken's separation agreement includes severance payments, accelerated vesting of **49,715 restricted stock shares**, and continued eligibility for pro rata PSU vesting (totaling **61,763 target PSUs**), with the Company expecting to record an **$0.8 million** liability for severance[135](index=135&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and operational results, highlighting the Arq Acquisition's impact, demand drivers, and liquidity for the periods ended June 30, 2023 [Overview](index=26&type=section&id=Overview) Provides a high-level introduction to the company's business, recent strategic transactions, and key profitability drivers - Advanced Emissions Solutions, Inc. (ADES) is an environmental technology company specializing in activated carbon (AC) and chemical-based solutions for air and water treatment, serving coal-fired utilities, industrials, and municipal water customers, with raw materials sourced from its lignite mine[139](index=139&type=chunk) - The Company completed the Arq Acquisition, entered into a Term Loan, and executed a PIPE Investment, all on February 1, 2023, significantly impacting its financial structure and future operations[140](index=140&type=chunk)[142](index=142&type=chunk)[144](index=144&type=chunk) - Profitability is influenced by sales of consumables for various markets, manufacturing and sales volumes, average selling price and product mix, coal-fired dispatch and electricity generation sources, and demand for water contaminant removal[145](index=145&type=chunk) [Drivers of Demand and Key Factors Affecting Profitability](index=26&type=section&id=Drivers%20of%20Demand%20and%20Key%20Factors%20Affecting%20Profitability) Analyzes factors influencing product demand and profitability, including natural gas prices and weather conditions - For Q2 and H1 2023, demand for products from coal-fired power generation customers decreased due to lower natural gas prices (Q2 2023 average **$2.16/MMBtu** vs. Q2 2022 average **$7.47/MMBtu**) and mild temperatures, leading to reduced coal-fired generation[146](index=146&type=chunk)[151](index=151&type=chunk) - Natural gas prices are expected to remain low through 2023, which is anticipated to negatively impact sales volumes, even with potentially higher summer temperatures[146](index=146&type=chunk) [Marshall Mine](index=27&type=section&id=Marshall%20Mine) Details the sale of Marshall Mine, LLC, including the financial impact and liabilities assumed - The sale of Marshall Mine, LLC closed on March 27, 2023, involving a **$2.2 million** cash payment to the buyer and the assumption of **$4.9 million** in liabilities, resulting in a **$2.7 million** gain for the six months ended June 30, 2023[147](index=147&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Compares the company's financial performance for the three and six months ended June 30, 2023, against the prior year - Net loss significantly increased to **$5.9 million** for Q2 2023 (from **$0.3 million** in Q2 2022) and **$13.4 million** for H1 2023 (from **$3.4 million** in H1 2022), primarily due to increased expenses from the Arq Acquisition and decreased demand for AC and chemical products[148](index=148&type=chunk) [Comparison of the Three Months Ended June 30, 2023 and 2022](index=27&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030,%202023%20and%202022) Compares the company's revenues, costs, and operating expenses for the three months ended June 30, 2023, and 2022 Revenue & Cost of Revenue (Q2 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Consumables Revenues | $20,445 | $24,739 | $(4,294) | (17)% | | Consumables cost of revenue | $15,336 | $19,910 | $(4,574) | (23)% | - Consumables revenue decreased primarily due to **$6.4 million** lower volumes sold (driven by low natural gas prices and mild weather) and **$0.1 million** unfavorable product mix, partially offset by **$2.2 million** higher pricing[151](index=151&type=chunk) - Consumables gross margin increased due to decreased feedstock and additive prices, despite higher fixed costs as a percentage of total costs due to lower production volumes[152](index=152&type=chunk) Other Operating Expenses (Q2 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------------ | :--- | :--- | :--------- | :--------- | | Payroll and benefits | $3,555 | $2,519 | $1,036 | 41% | | Legal and professional fees | $1,868 | $1,555 | $313 | 20% | | General and administrative | $3,345 | $1,869 | $1,476 | 79% | | Depreciation, amortization, depletion and accretion | $2,428 | $1,588 | $840 | 53% | - Operating expenses increased due to the addition of Arq employees, higher legal and professional fees related to the Arq Acquisition and intellectual property, increased general and administrative expenses from Arq operations (**$0.9 million**) and other corporate costs (**$0.6 million**), and higher depreciation/amortization from Arq assets (**$0.9 million**)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) Other Income (Expense) (Q2 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Earnings from equity method investments | $462 | $2,389 | $(1,927) | (81)% | | Interest expense | $(834) | $(90) | $(744) | 827% | | Other | $603 | $111 | $492 | 443% | - Other income decreased primarily due to lower equity method earnings as Tinuum Group and Services wound down, and increased interest expense from the Term Loan (**$0.5 million**) and Arq Loan (**$0.2 million**), partially offset by **$0.5 million** in interest income from cash on hand[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) [Comparison of the Six Months Ended June 30, 2023 and 2022](index=29&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030,%202023%20and%202022) Compares the company's revenues, costs, and operating expenses for the six months ended June 30, 2023, and 2022 Revenue & Cost of Revenue (H1 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Consumables Revenues | $41,250 | $51,141 | $(9,891) | (19)% | | Consumables cost of revenue | $32,511 | $41,417 | $(8,906) | (22)% | - Consumables revenue decreased primarily due to **$12.9 million** lower volumes sold and **$1.0 million** unfavorable product mix, partially offset by **$4.0 million** higher pricing[166](index=166&type=chunk) - Consumables gross margin was negatively impacted by decreased volumes, but offset by lower feedstock prices and increased product prices[167](index=167&type=chunk) Other Operating Expenses (H1 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------------- | :--- | :--- | :--------- | :--------- | | Payroll and benefits | $8,254 | $5,145 | $3,109 | 60% | | Legal and professional fees | $6,406 | $3,727 | $2,679 | 72% | | General and administrative | $6,123 | $3,795 | $2,328 | 61% | | Depreciation, amortization, depletion and accretion | $4,565 | $3,094 | $1,471 | 48% | | Gain on sale of Marshall Mine, LLC | $(2,695) | $0 | $(2,695) | * | - Payroll and benefits increased by **$3.2 million** due to Arq employees (including **$1.1 million** severance), offset by a **$0.7 million** decrease in retention bonuses[169](index=169&type=chunk) - Legal and professional fees increased by **$2.4 million** due to non-recurring Arq Acquisition costs[170](index=170&type=chunk) - General and administrative expenses increased by **$1.5 million** from Arq operations (**$0.7 million** rent) and **$0.8 million** from other corporate costs[171](index=171&type=chunk) - Depreciation and amortization increased by **$1.5 million** from Arq assets[172](index=172&type=chunk) Other Income (Expense) (H1 YoY, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Earnings from equity method investments | $1,100 | $3,222 | $(2,122) | (66)% | | Interest expense | $(1,368) | $(176) | $(1,192) | 677% | | Other | $785 | $(334) | $1,119 | (335)% | - Other income decreased primarily due to lower equity method earnings as Tinuum Group and Services wound down, and increased interest expense from the Term Loan (**$0.9 million**) and Arq Loan (**$0.3 million**), partially offset by **$0.8 million** in interest income on cash, contrasting with a **$0.5 million** loss in 2022 from early settlement of a receivable[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) [Non-GAAP Financial Measures](index=32&type=section&id=Non-GAAP%20Financial%20Measures) Presents and reconciles non-GAAP financial measures, including Consolidated EBITDA and Adjusted EBITDA Consolidated EBITDA and Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(5,856) | $(326) | $(13,364) | $(3,359) | | EBITDA (loss) | $(2,993) | $1,443 | $(7,980) | $107 | | Adjusted EBITDA (loss) | $(2,993) | $2,188 | $(10,675) | $3,067 | - EBITDA is net income (loss) adjusted for depreciation, amortization, depletion, accretion, upfront customer consideration amortization, net interest expense, and income taxes[182](index=182&type=chunk) - Adjusted EBITDA further adjusts EBITDA for non-cash equity earnings, gain on sale of Marshall Mine, cash distributions from equity method investments, loss on early settlement of long-term receivable, and loss on change in estimate for asset retirement obligation[182](index=182&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash position, cash flow activities, future capital requirements, and funding strategies - Cash and restricted cash decreased from **$76.4 million** as of December 31, 2022, to **$67.6 million** as of June 30, 2023[186](index=186&type=chunk) Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Operating activities | $(21,159) | $1,758 | | Investing activities | $(10,482) | $1,305 | | Financing activities | $22,792 | $(1,024) | - Cash flows used in operating activities increased by **$22.9 million**, primarily due to higher net loss, non-cash gain on Marshall Mine sale, decrease in accounts payable, increase in other long-term assets, and decreased distributions from equity method investees[187](index=187&type=chunk) - Cash flows used in investing activities increased by **$11.8 million**, mainly due to higher property, plant, and equipment additions, increased mine development costs, decreased distributions from equity earnings, and a cash payment for Marshall Mine sale, partially offset by cash acquired in Arq Acquisition[188](index=188&type=chunk) - Cash flows provided by financing activities increased by **$23.8 million**, driven by **$8.5 million** net borrowings from the Term Loan and **$15.2 million** net proceeds from the PIPE Investment[189](index=189&type=chunk) - Material cash requirements are expected to be funded by cash on hand for the next 12 months, despite increased liabilities from the Arq Acquisition and significant capital expenditures[190](index=190&type=chunk) - For 2023, capital expenditures are forecast between **$40.0 million** and **$45.0 million**, including **$13.0 million-$15.0 million** for Red River Plant improvements and **$27.0 million-$30.0 million** for growth capital to modify Red River and Corbin Plants for Arq Powder feedstock[191](index=191&type=chunk) - As of June 30, 2023, the Company had outstanding surety bonds totaling **$7.5 million** for Five Forks Mine and **$3.0 million** for Corbin Facility reclamation, backed by **$7.7 million** in restricted cash collateral[192](index=192&type=chunk)[193](index=193&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that the information regarding quantitative and qualitative disclosures about market risk is not required for smaller reporting companies, which the registrant is - The Company is a smaller reporting company and is not required to provide information under this Item[201](index=201&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023. The business acquired from Arq was excluded from the assessment of internal control over financial reporting for this period, as permitted by SEC guidance - Principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2023[202](index=202&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, and the acquired Arq business was excluded from the assessment of internal control over financial reporting for this period[203](index=203&type=chunk) [PART II. - OTHER INFORMATION](index=37&type=section&id=PART%20II.%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 8 'Commitments and Contingencies' for information regarding legal actions and proceedings, stating that no significant legal proceedings were outstanding as of June 30, 2023 - Information on legal proceedings is referenced in Note 8 'Commitments and Contingencies' of the financial statements[206](index=206&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section updates the Company's risk factors from the 2022 Form 10-K, specifically highlighting a new material risk related to potential bank failures or other events affecting financial institutions, which could adversely impact the Company's liquidity and operations due to its concentration of cash deposits in one bank - No material updates to risk factors from the 2022 Form 10-K, except for a new risk related to bank failures or other events affecting financial institutions[207](index=207&type=chunk) - The Company primarily uses one U.S. bank, with most cash deposits exceeding FDIC limits, and failure of this bank or adverse conditions in financial markets could disrupt access to cash, impact liquidity, or limit transaction processing[208](index=208&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - No information to report under this item[210](index=210&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities to report for the period - No information to report under this item[211](index=211&type=chunk) [Item 4. Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section notes that the required mine safety disclosures are provided in Exhibit 95.1 of this Quarterly Report - Mine safety disclosures are included in Exhibit 95.1[212](index=212&type=chunk) [Item 5. Other Information](index=37&type=section&id=Item%205.%20Other%20Information) This section indicates that there was no other information to report for the period - No information to report under this item[213](index=213&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report, including amendments to the Tax Asset Protection Plan, loan modification agreements, officer certifications, mine safety disclosures, and XBRL interactive data files - Lists various exhibits filed with the report, including the Sixth Amendment to the Tax Asset Protection Plan, Loan Modification Agreement, Certifications of Principal Executive and Financial Officers, Mine Safety Disclosure Exhibit, and XBRL documents[215](index=215&type=chunk) [Signatures](index=39&type=section&id=Signatures) This section contains the official signatures of the Company's Chief Executive Officer and Chief Accounting Officer, certifying the report's submission on August 9, 2023 - The report was signed by Robert Rasmus (Chief Executive Officer) and Morgan Fields (Chief Accounting Officer) on August 9, 2023[218](index=218&type=chunk)

PART I - FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls for Q1 2023 [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) For Q1 2023, the company reported a net loss of $7.5 million, a 21% revenue decrease, and significant asset growth due to the Arq acquisition [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $234.0 million by March 31, 2023, driven by the Arq acquisition, while liabilities and equity also increased Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$233,951** | **$181,164** | | Total Current Assets | $104,724 | $105,662 | | Property, plant and equipment, net | $76,378 | $34,855 | | **Total Liabilities** | **$53,810** | **$41,185** | | Total Current Liabilities | $20,044 | $23,884 | | Long-term debt obligations | $20,119 | $3,450 | | **Total Stockholders' Equity** | **$161,214** | **$139,979** | - The significant increase in Property, Plant, and Equipment (from **$34.9 million to $76.4 million**) and Long-term debt (from **$3.5 million to $20.1 million**) is primarily attributable to the Arq Acquisition completed in February 2023[9](index=9&type=chunk)[20](index=20&type=chunk)[70](index=70&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2023 revenues fell 21% to $20.8 million, leading to a wider operating loss of $7.8 million and a net loss of $7.5 million Q1 Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenues | $20,805 | $26,402 | | Total Operating Expenses | $28,632 | $29,737 | | Operating Loss | $(7,827) | $(3,335) | | Net Loss | $(7,508) | $(3,033) | | Diluted Loss Per Share | $(0.32) | $(0.17) | - Operating expenses in Q1 2023 included a **$2.7 million gain** on the sale of Marshall Mine, LLC, which partially offset increased costs in other areas. Legal and professional fees more than doubled to **$4.5 million** from **$2.2 million** year-over-year[12](index=12&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased to $161.2 million, primarily from stock issuances for the Arq acquisition and PIPE investment, offset by net loss - The company issued **3.81 million shares** for the Arq Acquisition and **3.84 million shares** for a PIPE Investment, adding a combined **$27.6 million** to equity, net of offering costs[15](index=15&type=chunk) - The net loss of **$7.5 million** and preferred stock dividends of **$0.2 million** reduced retained earnings during the first quarter of 2023[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 saw $17.7 million cash used in operations, offset by $23.3 million from financing activities, resulting in a $2.7 million cash increase Q1 Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(17,705) | $2,094 | | Net cash used in investing activities | $(2,897) | $(439) | | Net cash provided by (used in) financing activities | $23,260 | $(628) | | **Increase in Cash and Restricted Cash** | **$2,658** | **$1,027** | - Financing activities were the primary source of cash, with **$15.2 million** from a common stock issuance and **$8.5 million** from a new term loan[18](index=18&type=chunk) - The significant cash used in operations was driven by the net loss and a **$14.0 million negative change** in accounts payable and accrued expenses[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the Arq acquisition, new term loan, PIPE financing, Marshall Mine sale, and increased debt obligations in Q1 2023 - On February 1, 2023, the company acquired Arq for **$31.2 million** in stock consideration, accounted for as a business acquisition. Arq is a pre-revenue environmental technology company[20](index=20&type=chunk)[21](index=21&type=chunk)[43](index=43&type=chunk) - To finance operations and the acquisition, the company entered into a **$10.0 million term loan** and raised **$15.4 million** through a PIPE Investment on February 1, 2023[22](index=22&type=chunk)[24](index=24&type=chunk) - The company disposed of Marshall Mine, LLC on March 27, 2023, making a cash payment of **$2.2 million** to discharge **$4.9 million** in liabilities, resulting in a recognized gain of **$2.7 million**[63](index=63&type=chunk) - Total debt obligations increased significantly to **$21.7 million** as of March 31, 2023, consisting of a new **$10.0 million term loan**, an assumed **$10.0 million Arq loan**, and finance lease obligations[70](index=70&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q1 2023 revenue declined 21% due to lower sales volumes, while operating expenses rose, with future capital expenditures projected at $40-45 million - Revenue for Q1 2023 decreased by **$5.6 million (21%)** compared to Q1 2022, primarily due to a **$5.9 million drop** from lower sales volumes to power generation customers. This was driven by low natural gas prices, which averaged **$2.65/MMBtu** in Q1 2023 versus **$4.66/MMBtu** in Q1 2022[148](index=148&type=chunk)[149](index=149&type=chunk) - Operating expenses increased, with legal and professional fees rising by **$2.4 million** and payroll by **$2.1 million**, largely due to costs associated with the Arq acquisition[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) Non-GAAP Adjusted EBITDA (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net loss | $(7,508) | $(3,033) | | (EBITDA loss) | $(4,988) | $(1,336) | | (Adjusted EBITDA loss) Adjusted EBITDA | $(7,683) | $880 | - The company projects capital expenditures for 2023 to be between **$40.0 million and $45.0 million**, with **$27.0 million to $30.0 million** allocated for growth capital to integrate Arq Powder as a feedstock[178](index=178&type=chunk)[185](index=185&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is exempt from providing market risk disclosures - As a smaller reporting company, ADES is exempt from the requirement to provide quantitative and qualitative disclosures about market risk[188](index=188&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of March 31, 2023, excluding the recently acquired Arq business from internal control assessment - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[189](index=189&type=chunk) - The company acquired Arq on February 1, 2023, and has excluded its business from the assessment of internal control over financial reporting for the period, as permitted by SEC staff guidance[190](index=190&type=chunk) PART II - OTHER INFORMATION This section covers legal proceedings, updated risk factors, equity sales, defaults, mine safety, and other disclosures [Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) As of March 31, 2023, there were no significant legal proceedings to report - There were no significant legal proceedings as of March 31, 2023[96](index=96&type=chunk)[193](index=193&type=chunk) [Risk Factors](index=34&type=section&id=Item%201a.%20Risk%20Factors) A new risk factor addresses potential adverse effects of bank failures, noting concentration of cash deposits exceeding FDIC limits - A new risk factor was added regarding the potential impact of bank failures on the company's business and liquidity[194](index=194&type=chunk)[195](index=195&type=chunk) - The company holds the majority of its cash deposits at a single bank, with balances exceeding FDIC insurance limits, creating a concentration risk[195](index=195&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company raised $15.4 million through a PIPE investment on February 1, 2023, by selling common stock at $4.00 per share - The company raised **$15.4 million** through a PIPE investment on February 1, 2023, by selling common stock at **$4.00 per share**[197](index=197&type=chunk) - The securities were issued in a private placement, exempt from registration under the Securities Act[198](index=198&type=chunk) [Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - None[199](index=199&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures, as required by the Dodd-Frank Act, are included in Exhibit 95.1 of this report - Mine safety disclosures required by Section 1503(a) of the Dodd-Frank Act are included in Exhibit 95.1 to this report[200](index=200&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) There is no other information to report for this item - None[201](index=201&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including key agreements and certifications

Financial Data and Key Metrics Changes - The company reported fourth quarter consumables revenue of $23.4 million, slightly up from $23.2 million in the prior year, while full year total revenue reached $103 million, representing a year-over-year increase despite a $14 million decline in royalties from Tinuum investments in 2022 [8][9][17] - The net loss for the fourth quarter was $3.2 million, compared to a net income of $5.8 million in 2021, and for the full year, the net loss was $8.9 million versus a net income of $60.4 million in 2021 [10][21] - Adjusted EBITDA for the fourth quarter was a loss of $1.2 million, down from a positive $9.1 million in the prior year, while full year adjusted EBITDA was $1.3 million compared to $84.9 million in 2021 [21][22] Business Line Data and Key Metrics Changes - Consumables revenues increased by 20% year-over-year due to strong demand from power generation customers, pricing initiatives, and product mix improvements [9] - The production volume at Red River was lower than anticipated due to unplanned maintenance downtime, but overall production volume for the year exceeded expectations [11] Market Data and Key Metrics Changes - The decline in natural gas prices during the fourth quarter lowered demand from power generation customers, a trend that continued into the first quarter of 2023 [8][12] - The company expects that persistently low natural gas prices could hinder demand and revenue performance from power generation customers [12] Company Strategy and Development Direction - The company aims to transform into a diversified environmental technology company following the Arq acquisition, which is expected to enhance its product offerings and market reach [7][26] - Capital projects are planned to modify the Red River and Corbin sites for commercial-scale GAC and Arq powder production, with an estimated capital expenditure of $25 million to $30 million for 2023 [14][35] - The company anticipates generating approximately $106 million in revenue for 2023, with an EBITDA loss of roughly $6 million, excluding one-time acquisition costs [15][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that lower natural gas prices could impact demand from power generation customers, which has been a significant factor in the company's revenue performance [12][45] - The integration of the Arq team and assets is a priority, with expectations for revenue generation from Arq-related products to begin in early 2024 [43][36] Other Important Information - The company ended the year with a strong cash position of $76.4 million, which will support capital expenditure plans for 2023 [11][23] - The sale of Marshall Mine is expected to close in the first half of 2023, which will remove approximately $4.9 million in liabilities from the balance sheet [11][24] Q&A Session Summary Question: Details on pricing and contracts - Contracts typically last 3 to 4 years, with about 25% turning over annually; approximately 15% of contracts may be below current market pricing, with some renewing this year [39][40] Question: Restricted cash related to Marshall Mine - It is estimated that 50% to 70% of the restricted cash will be released upon closing the transaction, pending regulatory approvals [41] Question: Revenue expectations from Arq products - Revenue from Arq-related products is expected to begin in early 2024, with initial capital expenditures focused on product testing and market entry [43][36] Question: Impact of low natural gas pricing on power generation customers - Low natural gas prices could negatively impact demand from power generation customers, which had previously benefited from higher prices [45] Question: Combined R&D efforts and Colloidal Carbon product development - The integration of technology teams is underway, with the first generation of Colloidal Carbon products developed and a manufacturing partner secured for commercial production [46]

Advanced Emissions Solutions, Inc. Fourth Quarter & Full Year 2022 Results Call March 9, 2023 Nasdaq: ADES Disclaimer 2 This presentation includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a "safe harbor" for such statements in certain circumstances. When used in this presentation, the words "can," "will," "intends," "expects," "believes," similar expressions and any other statements that are not historical facts are intended to ident ...

Revenue and Sales Performance - Total revenues for 2022 were $102.987 million, a 3% increase from $100.294 million in 2021, driven primarily by a 20% increase in consumables sales to $102.987 million from $85.882 million[213]. - Consumables revenue increased by $11.8 million year over year, driven by higher volumes sold and improved pricing, offset by an unfavorable product mix impact of approximately $1.4 million[214]. - For 2023, a slight increase in Consumables revenue is expected, but a decrease in volumes is anticipated due to alternative energy prices affecting demand[217]. Cost and Expenses - Consumables cost of revenues increased by 23% to $80.465 million in 2022, up from $65.576 million in 2021[213]. - Total operating expenses increased by 16% to $34.6 million in 2022, with significant increases in legal and professional fees (51%) and general and administrative expenses (15%)[219]. - Payroll and benefits expenses decreased by 7% to $10.5 million, primarily due to a reduction in headcount[220]. - Consumables gross margin decreased due to higher raw material and transportation costs, with a negative impact of $0.8 million from Tinuum Group Royalties[215]. Financial Position and Performance - The company reported a net loss of $8.9 million compared to a net income of $60.4 million in 2021, reflecting a year-over-year change of $69.3 million[248]. - Adjusted EBITDA for 2022 was $1.3 million, a significant decrease from $84.9 million in 2021, indicating a decline in operational performance[248]. - Cash and restricted cash decreased from $88.8 million in 2021 to $76.4 million in 2022, a decline of $12.3 million[252]. - The company reported cash flows used in operating activities of $6.1 million in 2022, a decrease of $32.1 million compared to cash provided by operating activities of $26.0 million in 2021[253]. Investments and Acquisitions - The company completed the Arq Acquisition on February 1, 2023, for a total purchase consideration of $31.2 million, enhancing its product offerings in carbon technology[193]. - A PIPE Investment closed on February 1, 2023, for approximately $15.4 million at a purchase price of $4.00 per common share[196]. - The company closed a PIPE Investment for an aggregate purchase price of $15.4 million and entered into a Loan Agreement for $10.0 million, receiving $8.5 million in net proceeds[249]. Liabilities and Obligations - As of December 31, 2022, Marshall Mine, LLC had outstanding liabilities of approximately $4.9 million, expected to be discharged upon the sale of the mine[192]. - The company had outstanding surety bonds totaling $24.1 million related to reclamation obligations for the Five Forks Mine and Marshall Mine as of December 31, 2022[260]. - The company expects to close the sale of its equity interests in Marshall Mine, LLC in the first half of 2023, which will discharge all liabilities associated with reclamation for that mine[261]. Taxation and Valuation - The reported income tax expense for 2022 was $0.2 million, with an effective rate of (2)%, reflecting pretax losses and valuation allowance adjustments[232]. - As of December 31, 2022, the valuation allowance on deferred tax assets was $88.3 million, indicating a lack of expected taxable income to utilize these assets[236]. - The company had approximately $86.1 million in Section 45 tax credit carryforwards as of December 31, 2022, following the expiration of the tax credit program[239]. Accounting and Compliance - The company applies the acquisition method for both business and asset acquisitions, requiring significant estimates and assumptions regarding fair values at the acquisition date[269]. - The company reviews long-lived assets and intangibles for impairment at least annually, measuring impairment losses based on the excess of carrying amounts over estimated fair values[271]. - Recent accounting standards are referenced in the Consolidated Financial Statements, indicating ongoing compliance and updates[278].

Advanced Emissions Solutions, Inc. (ADES) Q3 2022 Earnings Conference Call November 9, 2022 9:00 AM ET Company Participants Ryan Coleman - Alpha IR Group Greg Marken - Chief Executive Officer, President and Treasurer Morgan Fields - Chief Accounting Officer Conference Call Participants Operator Good morning, ladies and gentlemen. Welcome to the Advanced Emissions Solutions Q3, Earnings Results Call. My name is Digrita, I'll be your moderator for today's call. [Operator Instructions] I would now like to pass ...

1 Advanced Emissions Solutions, Inc. Advancing Cleaner Energy Third Quarter 2022 Earnings Results Call November 9, 2022 Safe Harbor 2 This presentation includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a "safe harbor" for such statements in certain circumstances. When used in this presentation, the words "can," "will," "intends," "expects," "believes," similar expressions and any other statements that are not historical facts are int ...

______________________________________ FORM 10-Q ______________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☐ TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-37822 ______________________________________ Advanced Emissions Solutions, Inc. (Exact name of registrant as specifie ...