Arq(ARQ) - 2025 Q2 - Quarterly Results

Executive Summary & Q2 2025 Highlights Overview of Arq's strong Q2 2025 financial performance, key business achievements, and CEO commentary on market outlook Financial Highlights Arq reported strong Q2 2025 financial performance with significant revenue growth and improved profitability, marking its fifth consecutive quarter of positive Adjusted EBITDA Key Financial Metrics | Metric | Q2 2025 | Q2 2024 | YoY Change | Notes | | :-------------------- | :------ | :------ | :--------- | :---- | | Revenue | $28.6M | $25.4M | +13% | Driven by higher ASP and volumes | | Average Sales Price (ASP) | ~9% increase | - | +9% | Over prior year period | | Gross Margin | 33.3% | 32.2% | +110 bps | Improved pricing and volume, partially offset by GAC line start-up costs | | Adjusted EBITDA | $3.7M | $1.1M | +236% | Fifth consecutive quarter of positive Adjusted EBITDA | - 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 The company achieved a major milestone with the commissioning of its first Granular Activated Carbon (GAC) line at Red River, advancing its transformation into higher-growth businesses, and initiated testing of Arq Wetcake for asphalt products - 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 Market Outlook CEO Bob Rasmus highlighted the successful GAC line commissioning and solid PAC business performance, emphasizing favorable GAC market conditions driven by steady demand, EPA regulations, and new growth drivers like renewable natural gas, leading to an accelerated Final Investment Decision (FID) for a second GAC line - The GAC market continues to show strength with steady demand and minimal new capacity entering the market, creating favorable conditions for pricing[6] - Expected 3-5% annual growth from existing demand drivers alone, with the potential for a 3-5x increase in demand driven by recent EPA regulatory changes[6] - Capitalizing on additional growth drivers like renewable natural gas (RNG) and already sold initial Phase 1 GAC product to RNG customers in Q3 2025[6] - Given continued 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 Financial Performance Details Arq's Q2 2025 financial results, covering revenue, costs, operating expenses, and profitability metrics Revenue and Cost of Revenue Arq's Q2 2025 revenue increased by 13% year-over-year, primarily due to higher average sales prices and increased volumes, while costs of revenue also rose due to higher volumes and GAC line start-up expenses Revenue and Cost of Revenue (in millions) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :------------- | :------ | :------ | :--------- | | Revenue | $28.6M | $25.4M | +13% | | Cost of Revenue | $19.1M | $17.2M | +11% | - Average Sales Price (ASP) 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] Operating Expenses Selling, general, and administrative (SG&A) expenses decreased significantly, while research and development (R&D) costs saw a substantial increase due to non-recurring pre-production testing expenses for the GAC facility Operating Expenses (in millions) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :-------------------------------- | :------ | :------ | :--------- | | Selling, general and administrative | $5.9M | $7.0M | -16% | | Research and development | $2.7M | $0.9M | +200% | - The reduction in SG&A expenses was primarily driven by lower payroll and benefits and G&A expenses, partly 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 Gross margin improved slightly, but operating loss and net loss widened year-over-year. However, Adjusted EBITDA saw a significant increase, marking the fifth consecutive quarter of positive Adjusted EBITDA Profitability Metrics | Metric | Q2 2025 | Q2 2024 | Change | | :-------------- | :------ | :------ | :----- | | Gross Margin | 33.3% | 32.2% | +110 bps | | Operating Loss | ($1.6M) | ($1.4M) | Widened | | Net Loss | ($2.1M) | ($2.0M) | Widened | | Adjusted EBITDA | $3.7M | $1.1M | +236% | - Gross margin increased as higher pricing and volume were partially offset by start-up costs associated with the GAC line at Red River[9] - Adjusted EBITDA increase was primarily driven by higher revenues[12] Capital Expenditures and Balance Sheet Overview Overview of Arq's capital expenditures, cash position, and debt structure as of Q2 2025 Capital Expenditures Capital expenditures for Q2 2025 were $1.9 million, in line with management expectations, and the full-year 2025 forecast remains consistent with previous guidance of $8 - $12 million Capital Expenditures (in millions) | Metric | Q2 2025 | | :------------- | :------ | | Capex | $1.9M | - Capital expenditures forecast for full year 2025 remain in line with previous guidance of $8 - $12 million[14] Cash and Liquidity Cash and restricted cash decreased to $15.4 million as of June 30, 2025, primarily due to GAC facility capex, trade accounts payable, and inventory build-up Cash and Restricted Cash (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Cash and Restricted Cash | $15.4M | $22.2M | - The decrease in cash was largely caused by capex 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] Debt Total debt, including financing leases, increased to $28.7 million as of June 30, 2025, driven by an increase in the outstanding principal balance of the revolving credit facility Total Debt (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :--------- | :------------ | :---------------- | | Total Debt | $28.7M | $24.8M | - The increase in total debt was driven by an increase in the outstanding principal balance of the Company's revolving credit facility[16] About Arq Overview of Arq as a diversified environmental technology company, focusing on activated carbon products and purification solutions Company Overview Arq is a diversified environmental technology company and the sole vertically integrated producer of activated carbon products in North America, focusing on innovative solutions for purification and sustainable materials - Arq (NASDAQ: ARQ) is a diversified, environmental technology company with products that enable a cleaner and safer planet while actively reducing environmental impact[19] - As the only vertically integrated producer of activated carbon products in North America, Arq delivers a reliable domestic supply of innovative, hard-to-source, high-demand products[19] - The company applies its expertise to develop groundbreaking solutions to remove harmful chemicals and pollutants from water, land, and air[19] Caution on Forward-Looking Statements This section outlines the disclaimer regarding forward-looking statements, emphasizing inherent risks and uncertainties that could impact actual financial results Disclaimer and Risk Factors This section provides a comprehensive disclaimer regarding forward-looking statements, outlining various risks and uncertainties that could cause actual results to differ