Arq(ARQ) - 2023 Q1 - Quarterly Report

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 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 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][20][70] Condensed Consolidated Statements of Operations 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] Condensed Consolidated Statements of Changes in Stockholders' Equity 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] - 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] Condensed Consolidated Statements of Cash Flows 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] - 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] Notes to Condensed Consolidated Financial Statements 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][21][43] - 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][24] - 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][149] - 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][154][155] 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][185] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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] PART II - OTHER INFORMATION This section covers legal proceedings, updated risk factors, equity sales, defaults, mine safety, and other disclosures Legal Proceedings 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][193] Risk Factors 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][195] - The company holds the majority of its cash deposits at a single bank, with balances exceeding FDIC insurance limits, creating a concentration risk[195] Unregistered Sales of Equity Securities and Use of Proceeds 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] - The securities were issued in a private placement, exempt from registration under the Securities Act[198] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[199] Mine Safety Disclosures 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] Other Information There is no other information to report for this item - None[201] Exhibits This section lists all exhibits filed with the Form 10-Q, including key agreements and certifications