Advanced Emissions Solutions(ADES) - 2025 Q2 - Quarterly Results

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