Arq(US:ARQ)2024-05-08 20:51PART I - FINANCIAL INFORMATION Item 1. Financial Statements Arq, Inc improved its Q1 2024 net loss to $3.4 million and generated positive operating cash flow, though total assets slightly decreased due to capital expenditures Condensed Consolidated Balance Sheets As of March 31, 2024, total assets decreased slightly to $229.8 million from year-end 2023, driven by a reduction in cash, while total liabilities also saw a minor decrease | (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $72,038 | $86,461 | | Cash | $35,227 | $45,361 | | Property, plant and equipment, net | $103,645 | $94,649 | | Total Assets | $229,798 | $235,502 | | Total current liabilities | $21,967 | $23,048 | | Total Liabilities | $54,634 | $57,102 | | Total Stockholders' Equity | $175,164 | $178,400 | Condensed Consolidated Statements of Operations Revenue grew 4.5% to $21.7 million in Q1 2024, leading to a significantly reduced operating loss of $3.0 million and a net loss that was halved compared to the prior-year period | (in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Revenue | $21,740 | $20,805 | | Cost of revenue | $13,713 | $17,175 | | Operating loss | $(2,980) | $(7,827) | | Net loss | $(3,419) | $(7,508) | | Loss per common share (Basic & Diluted) | $(0.09) | $(0.32) | Condensed Consolidated Statements of Cash Flows The company achieved positive operating cash flow of $0.5 million in Q1 2024, a stark contrast to the prior year's cash use, while investing activities increased due to plant expansion | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $526 | $(17,705) | | Net cash used in investing activities | $(9,647) | $(2,897) | | Net cash (used in) provided by financing activities | $(1,013) | $23,260 | | (Decrease) increase in Cash and Restricted Cash | $(10,134) | $2,658 | Notes to Condensed Consolidated Financial Statements Notes detail the company's business, the 2023 Arq Acquisition, significant debt obligations, major capital commitments for its Red River Plant, and the extension of its Tax Asset Protection Plan - In February 2023, the company acquired Legacy Arq to secure feedstock and a manufacturing facility in Corbin, Kentucky, to produce Arq Powder, which will be used to create GAC products starting by the end of 20242645 - The company executed a contract in January 2024 for the construction of a GAC facility at its Red River Plant, with expected completion by the end of 2024 and estimated total costs of $75.0 - $80.0 million9193 - The company's Tax Asset Protection Plan (TAPP), designed to protect its net operating losses, was amended in April 2024 to extend its duration to December 31, 2025 (or December 31, 2024, if stockholder approval is not obtained)107108 | (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | CFG Loan due February 2027 | $10,000 | $10,000 | | CTB Loan due January 2036 | $9,394 | $9,527 | | Finance lease obligations | $3,183 | $3,465 | | Total Debt Obligations (net) | $20,662 | $20,927 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses improved Q1 2024 results driven by pricing, the impact of the Red River Plant expansion, and future capital expenditure plans funded by cash and potential financing Results of Operations Q1 2024 revenue rose 4% due to higher pricing and product mix, while operating expenses declined significantly due to the absence of prior-year acquisition-related costs - Revenue increase in Q1 2024 was driven by higher pricing and a better product mix, which offset lower sales volumes to power generation customers who switched to cheaper natural gas139 - SG&A expenses decreased by $3.6 million, largely because Q1 2023 included significant legal, consulting, and severance costs associated with the Arq Acquisition145146147 - The EPA's new PFAS drinking water regulation, issued in April 2024, is expected to drive a material increase in demand for GAC in the water purification market135 Non-GAAP Financial Measures The company's Adjusted EBITDA loss improved substantially to $1.1 million in Q1 2024 from $7.7 million in the prior-year period, which included significant one-time transaction costs | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net loss | $(3,419) | $(7,508) | | EBITDA loss | $(1,144) | $(4,988) | | Adjusted EBITDA loss | $(1,144) | $(7,683) | Liquidity and Capital Resources With $35.2 million in cash, management believes liquidity is sufficient for the next year's operations and major capital projects, supported by planned debt refinancing - Principal sources of liquidity as of March 31, 2024, were $35.2 million in cash on hand and cash from operations162165 - The company expects to spend between $55 and $60 million on the Red River Plant expansion and between $5 and $10 million to complete the commissioning of the Corbin Facility during 2024169 - To fund the completion of the Red River Plant, the company anticipates using cash on hand, cash generation, customer prepayments, and a planned refinancing and expansion of the CFG Loan168 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Arq, Inc is not required to provide this information - The information under this item is not required to be provided by smaller reporting companies177 Item 4. Controls and Procedures Management concluded that disclosure controls were effective as of the quarter-end and is currently integrating the internal controls of the recently acquired Legacy Arq business - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2024178 - The company is integrating Legacy Arq's internal controls and will incorporate them into the annual report on internal control for the year ending December 31, 2024179 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports no material pending legal proceedings as of March 31, 2024 - As of March 31, 2024, there were no material pending legal proceedings to which the Company is a party96183 Item 1A. Risk Factors The company's previously disclosed risk factors from its 2023 annual report remain materially unchanged - There have been no material updates to risk factors from those disclosed in the fiscal year 2023 annual report on Form 10-K184 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued shares to its CEO to complete a prior subscription agreement and made no share repurchases during the quarter - On April 24, 2024, the company received $0.8 million and issued 422,221 shares of common stock to CEO Robert Rasmus, fulfilling a subscription agreement185 - No shares were repurchased during the three months ended March 31, 2024, and the company has $7.0 million remaining under its stock repurchase program187 Item 4. Mine Safety Disclosures Mine safety violation information and related regulatory matters are provided in an exhibit to this report - Mine safety disclosures required by Regulation S-K are included in Exhibit 95.1 to this Quarterly Report190 Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including corporate governance documents and material contracts