Arq, Inc.

Previous wording

We are an environmental technology company that is principally engaged in the sale of consumable air and water treatment solutions primarily based on Activated Carbon ("AC"). Our proprietary AC products enable customers to reduce air, water, and soil contaminants, including mercury, per- and polyfluoroalkyl substances ("PFAS") and other pollutants, to help our customers maximize effectiveness and to improve operating efficiencies to meet the challenges of existing and pending air quality, soil, and water regulations. We manufacture and sell AC and other chemicals used to capture and remove contaminants for coal-fired power generation, industrial and water treatment markets, which we collectively refer to as the advanced purification technologies ("APT") market.

Current wording

We are an environmental technology company that is principally engaged in the sale of consumable air, water and soil treatment solutions primarily based on activated carbon ("AC"). Our proprietary AC products enable customers to reduce air, water, and soil contaminants, including mercury, per- and polyfluoroalkyl substances ("PFAS") and other pollutants, to meet the challenges of existing and pending air quality and water regulations. We manufacture and sell AC and other chemicals used to capture and remove impurities, contaminants, and pollutants for the coal-fired power generation, industrial, water treatment, and water and soil remediation markets, which we collectively refer to as the advanced purification technologies ("APT") market.

Previous wording

In February 2023, we acquired 100% of the equity of the subsidiaries of Arq Limited (the "Arq Acquisition," and hereafter the Arq Limited subsidiaries are referred to as "Legacy Arq") to secure access to a feedstock, a manufacturing facility and certain patented processes as a means to manufacture additional GAC products for sale into the APT market and other markets. With the Arq Acquisition, we now control bituminous coal waste reserves and own a manufacturing facility, both located in Corbin, Kentucky (the "Corbin Facility"), and a process to recover and purify the bituminous coal fines for sale or further conversion to GAC products. Using the Corbin Facility's manufacturing process, we convert coal waste into a purified, microfine carbon powder known as Arq powder TM("Arq Powder"). We expect to begin using Arq Powder as a feedstock to manufacture high-quality GAC products for sale in the APT and other markets during the first quarter of 2025.

Current wording

Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials. Our AC products include both powdered activated carbon ("PAC") and granular activated carbon ("GAC"). Additionally, we own the Five Forks Mine, a lignite mine located in Saline, Louisiana, that currently supplies the primary raw material for the manufacturing of our products. Additionally, we control bituminous coal waste reserves and own a manufacturing facility, both located in Corbin, Kentucky (the "Corbin Facility"), and a process to recover and purify the bituminous coal fines for sale or further conversion to GAC products. Using the Corbin Facility's manufacturing process, we convert coal waste into a purified, microfine carbon powder known as Arq powder TM("Arq Powder"). We expect to begin using Arq Powder as a feedstock to manufacture high-quality GAC products for sale in the APT and other markets during the second half of 2025.

Previous wording

We believe Arq Powder has additional potential for us to access new markets and applications. We expect to secure customer interest in Arq Powder as an additive into other markets, such as components for asphalt. These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials. These applications are currently in various stages of proof of concept testing or preliminary customer testing.

Current wording

We believe Arq Powder has additional potential to enable us to access new markets and applications. We intend to secure customer interest in Arq Powder as an additive into other markets, such as components for asphalt. These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials and have demonstrated other beneficial performance attributes during lab-scale customer testing. These applications are currently in various stages of proof of concept testing or preliminary customer testing.

Previous wording

Drivers of demand and current key factors affecting our profitability are sales of our AC products to the APT market. Our operating results are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in price and product mix; (3) changes in coal-fired dispatch and electricity power generation sources and (4) changes in demand for contaminant removal within water treatment facilities.

Current wording

Drivers of demand and current key factors affecting our profitability are sales of our AC products to the APT market. Our operating results are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in price and product mix; (3) changes in coal-fired dispatch and electricity power generation sources; (4) changes in demand for contaminant removal within water treatment facilities; (5) changes in environmental regulations; and (6) state or municipal approval and customer acceptance for our new GAC products.

Previous wording

For the three and nine months ended September 30, 2024, we experienced a decrease in demand for our products from certain coal-fired dispatch and electricity power generation customers compared to the same periods in 2023. This was primarily due to lower natural gas prices, resulting in several large utility customers opting to use natural gas versus coal as a primary source for power generation, and the year to date impact of mild temperatures during the winter and spring seasons, resulting in lower demand for power generation compared to 2023. We expect that natural gas prices will remain relatively consistent through 2024 due to surplus natural gas reserves in storage, which, we expect, will negatively impact sales of our products even with higher than average summer temperatures.

Current wording

For the three months ended March 31, 2025, we experienced an increase in demand for our products from certain coal-fired dispatch and electricity power generation customers compared to the same period in 2024. This was primarily due to higher natural gas prices in 2025, resulting in several large utility customers opting to use coal versus natural gas as a primary source for power generation, and the year to date impact of moderate to severe temperatures during the winter and spring seasons, resulting in higher demand for power generation compared to 2024. We expect that natural gas prices will remain relatively consistent through 2025 due to increased demand for liquid natural gas exports, which, we expect, will favorably impact sales of our products.

Previous wording

For the three and nine months ended September 30, 2024, we recognized net income of $1.6 million and net loss of $3.8 million, respectively, compared to net loss of $2.2 million and $15.5 million for the three and nine months ended September 30, 2023. The most significant factor impacting results for the three months ended September 30, 2024 was higher revenue as a result of increased average selling price, which was partially offset by a decrease in demand for our AC and chemical products with power generation customers, when compared to the three months ended September 30, 2023. The decrease in demand from our power generation customers was primarily driven by continued low prices of alternative energy sources for power generation. These factors also impacted our results for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Additionally, during the nine months ended September 30, 2023, we recorded expenses related to the Arq Acquisition that did not occur in 2024.

Current wording

For the three months ended March 31, 2025, we recognized net income of $0.2 million, compared to net loss of $3.4 million for the three months ended March 31, 2024. The most significant factor impacting results for the three months ended March 31, 2025 was higher revenue as a result of increased volumes, average selling price, and product mix.

Previous wording

For the three months ended September 30, 2024, revenue increased from the comparable quarter in 2023 primarily driven by overall favorable product mix and higher pricing of approximately $2.7 million and $1.2 million, respectively. The increase from favorable product mix was primarily driven by sales to municipal water customers and a large non-power generation customer. Also contributing to an increase in revenue between periods was $0.2 million attributable to volumes sold, despite lower natural gas prices compared to the same quarter in 2023, which contributed to decreased utilization of coal-fired generation and decreased demand for our products by customers in the power generation market. The average Henry Hub natural gas spot prices ($/MMBtu) for the three months ended September 30, 2024 and 2023 were $2.11 and $2.59, respectively.

Current wording

For the three months ended March 31, 2025, revenue increased from the comparable quarter in 2024 primarily driven by an increase in volumes sold and higher pricing of approximately $2.2 million and $1.6 million, respectively. The increase was due in part to higher natural gas prices compared to the same quarter in 2024, which contributed to increased utilization of coal-fired generation and increased demand for our products by customers in the power generation market. The average Henry Hub natural gas spot prices ($/MMBtu) for the three months ended March 31, 2025 and 2024 were $4.15 and $2.13, respectively. Also contributing to an increase in revenue between periods was $1.2 million attributable to overall favorable product mix driven by sales to power generation customers, as well as a large non-power generation customer.

Previous wording

We expect that revenue and gross margin will continue to be positively impacted by our product price increases and our efforts to move our product mix to higher margin products. We anticipate that the product price increases will help offset decreases in volumes due to prices of alternative energy sources impacting the demand for our AC and chemical products related to power generation.

Current wording

We expect that revenue and gross margin will continue to be positively impacted by our product price increases and our efforts to move our product mix to higher margin products. We anticipate that the product price increases will help offset fluctuations in volumes due to prices of competing alternative power generation sources or retirement of coal-fired power generating units impacting the demand for our AC and chemical products related to power generation. Additionally, our revenues continue to be impacted by electricity demand driven by seasonal weather and related power generation needs.

Previous wording

Payroll and benefits, which represent costs related to selling, general and administrative personnel, decreased for the three months ended September 30, 2024 compared to the corresponding quarter in 2023 primarily due to severance related costs of $1.0 million associated with the termination of an executive officer during the three months ended September 30, 2023, and decreased salaries and wages in the current quarter primarily from lower executive compensation, which was a result of personnel changes implemented in 2023.

Current wording

Payroll and benefits, which represent costs related to selling, general and administrative personnel, decreased for the three months ended March 31, 2025 compared to the corresponding quarter in 2024 primarily due to decreased wages in the current quarter, lower stock-based compensation expense due to timing of awards granted in 2024, and lower employer-related payroll tax expense.

Previous wording

Legal and professional fees decreased for the three months ended September 30, 2024 compared to the corresponding quarter in 2023 primarily from legal and accounting costs incurred related to the Arq Acquisition during the period ended September 30, 2023, partially offset by increased consulting fees.

Current wording

Legal and professional fees decreased for the three months ended March 31, 2025 compared to the corresponding quarter in 2024 primarily driven by lower general legal fees between periods, partially offset by increased accounting and audit fees, tax consulting fees, and IT consulting fees.

Previous wording

General and administrative expenses increased for the three months ended September 30, 2024 compared to the corresponding quarter in 2023 by approximately $1.0 million, primarily due to an increase in rent and occupancy expenses, third-party services at the Corbin Facility, and franchise taxes.

Current wording

General and administrative expenses decreased for the three months ended March 31, 2025 compared to the corresponding quarter in 2024 by approximately $0.8 million, primarily due to a decrease in franchise taxes, rent and occupancy expenses, third party services expense, and recruiting expenses.

Previous wording

Research and development expense increased for the three months ended September 30, 2024 compared to the corresponding quarter in 2023, primarily due to conducting product qualification testing with potential lead-adopters as part of our ongoing GAC contracting process, and increased research and development payroll costs.

Current wording

Research and development expense decreased for the three months ended March 31, 2025 compared to the corresponding quarter in 2024, primarily due to lower expenses attributable to qualification testing pertaining to our GAC products conducted with potential lead-adopters during the three months ended March 31, 2024.

Previous wording

Depreciation, amortization, depletion and accretion expense decreased by approximately $1.2 million for the nine months ended September 30, 2024 compared to the corresponding period in 2023, primarily due to increased absorption in inventory of $1.4 million, decreased amortization of leasehold improvements, customer relationships and developed technology of $0.5 million, and decreased depletion of $0.2 million, partially offset by increased depreciation expense, primarily related to Legacy Arq assets purchased in February 2023.

Current wording

Depreciation, amortization depletion and accretion expense increased by approximately $0.5 million for the three months ended March 31, 2025 compared to the corresponding quarter in 2024, primarily due to increased absorption in inventory of $0.7 million, partially offset by decreased depreciation expense, amortization of leasehold improvements, accretion and depletion.

Previous wording

Gain on sale of assets for the three months ended September 30, 2024 primarily relates to a gain on the sale of equipment.

Current wording

Loss on sale of assets for the three months ended March 31, 2025 related to the disposal of construction assets no longer in use.

Previous wording

Earnings from equity method investments for the three months ended September 30, 2024 represented cash distributions from Tinuum Group. Earnings from equity method investments for the three months ended September 30, 2023 represented cash distributions from both Tinuum Group and Tinuum Services. Tinuum Group continues to wind down their services into 2024. We do not expect further distributions from Tinuum Services as Tinuum Services has completed its wind-down.

Current wording

Earnings from equity method investments for the three months ended March 31, 2025 represented cash distributions from Tinuum Group. Tinuum Group has continued its wind down of operations into 2025.

Previous wording

The decrease in Other for the three months ended September 30, 2024 as compared to the corresponding quarter in 2023 was primarily driven by a decrease in interest income of $0.4 million due to lower average balances in the Company's cash sweep accounts during the current quarter compared to the prior year quarter.

Current wording

The decrease in Other for the three months ended March 31, 2025 as compared to the corresponding quarter in 2024 was primarily driven by a decrease in interest income of $0.3 million due to lower average balances in the Company's cash sweep accounts during the current quarter compared to the prior year quarter.

Previous wording

For the three months ended September 30, 2024 and 2023, we had pretax income of $1.6 million and pretax loss of $2.2 million, respectively. For the three months ended September 30, 2024, we recorded no income tax expense as we expect to incur pretax loss for the year ending December 31, 2024. For the three months ended September 30, 2023, we recorded no income tax benefit for the pretax loss due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ended December 31, 2023.

Current wording

For the three months ended March 31, 2025 and 2024, we had pretax income of $0.2 million and pretax loss of $3.4 million, respectively. For the three months ended March 31, 2025, we had a zero effective tax rate and recorded no income tax expense based our operating forecast for the year ending December 31, 2025. For the three months ended March 31, 2024, we had a zero effective tax rate and recorded no income tax benefit for the pretax loss for that period due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ended December 31, 2024.

Previous wording

To supplement our financial information presented in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), we provide certain supplemental financial measures, including EBITDA and Adjusted EBITDA, which are measurements that are not calculated in accordance with U.S. GAAP. EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA reduced by the non-cash impact of equity earnings from equity method investments and other non-cash gains, increased by cash distributions from equity method investments, other non-cash losses and non-recurring costs and fees. EBITDA and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income (loss) in accordance with U.S. GAAP as a measure of performance. See below for a reconciliation from net income (loss), the nearest U.S. GAAP financial measure, to EBITDA and Adjusted EBITDA.

Current wording

To supplement our financial information presented in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), we provide certain supplemental financial measures, including EBITDA and Adjusted EBITDA, which are measurements that are not calculated in accordance with U.S. GAAP. EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA reduced by non-cash gains, increased by share-based compensation expense, other non-cash losses and non-recurring costs and fees. EBITDA and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income (loss) in accordance with U.S. GAAP as a measure of performance. See below for a reconciliation from net income (loss), the nearest U.S. GAAP financial measure, to EBITDA and Adjusted EBITDA.

Previous wording

Cash and restricted cash increased from $54.2 million as of December 31, 2023 to $57.4 million as of September 30, 2024. The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023, respectively:

Current wording

Cash and restricted cash decreased from $22.2 million as of December 31, 2024 to $14.8 million as of March 31, 2025. The following table summarizes our cash flows for the three months ended March 31, 2025 and 2024, respectively:

Previous wording

Cash flows used in investing activities increased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 increased by $24.8 million primarily as a result of an increase in property, plant and equipment additions of $25.2 million from construction activities related to the expansion of our Red River Plant; $2.2 million of cash acquired in the Arq Acquisition during the prior year; and a decrease in distributions from equity earnings in excess of cumulative earnings of $1.4 million. Partially offsetting the net increase in cash flows used in investing activities were a cash payment of $2.2 million made in the prior year required in the sale of Marshall Mine, LLC, a decrease in expenditures on mine development costs of $1.7 million, and cash received in 2024 of $0.2 million from the sale of equipment.

Current wording

Cash flows used in investing activities decreased for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 by $6.0 million primarily as a result of a decrease in property, plant and equipment additions of $5.9 million from construction activities related to the expansion of our Red River Plant.

Previous wording

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations depends upon several factors. These include executing on our contracts and initiatives and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and increasing our gross margin by improving our customer and product mix.

Current wording

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations depends upon several factors. These include executing on our contracts and initiatives and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and increasing our gross margin from improving our customer and product mix.

Previous wording

We expect that our cash on hand as of September 30, 2024 and proceeds from additional debt financing, if needed, will provide sufficient liquidity to fund operations for the next 12 months while maintaining the cadence of our capital expenditures.

Current wording

Based on current operating levels, we expect that our cash on hand and borrowing availability on the Revolving Credit Facility as of March 31, 2025 will provide sufficient liquidity to fund operations for the next 12 months.

Previous wording

During 2024, we expect to spend between $60 and $70 million on construction and commissioning of our plants, depending on the pace of the project. Capital expenditures planned for 2024 are dependent on many factors, which may impact the timing and amount of capital expenditures, with $20 to $25 million expected to be spent in the fourth quarter of 2024.

Current wording

During 2025, we expect our capital expenditures to relate to commissioning of the Red River Project and plant maintenance. Capital expenditures planned for 2025 are dependent on many factors, including the pace and progression of the Red River Project, which may impact the timing and amount of capital expenditures.

Previous wording

For a discussion of our long-term cash requirements, which relate primarily to our obligations under the CFG Loan and CTB Loan, see Note 5 of the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Current wording

For a discussion of our long-term cash requirements, see Note 4 of the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Previous wording

(a)the anticipated effects from an increase in pricing of our AC products;

Current wording

(b)the anticipated effects from fluctuations in the pricing of our AC products;

Previous wording

(c)expected supply and demand for our AC products and services;

Current wording

(c)expected supply and demand for our AC products and services, including our GAC products;

Previous wording

(j)the effectiveness of our technologies and the benefits they provide;

Current wording

(i)the effectiveness of our technologies and products and the benefits they provide;

Previous wording

(k)the timing of awards of, and work and related testing under, our contracts and agreements and their value;

Current wording

(j)the timing of awards of, and work and related testing under, our contracts and agreements and their value;

Previous wording

(l)the timing and amounts of, or changes in, future revenues, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, working capital, liquidity and other financial and accounting measures;

Current wording

(n)the timing and amounts of or changes in future revenue, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, working capital, liquidity and other financial and accounting measures;

Previous wording

(m)the performance of obligations secured by our surety bonds;

Current wording

(o)the performance of obligations secured by our surety bonds;

Previous wording

(n)the amount and timing of future capital expenditures needed for our business plan;

Current wording

(p)the amount and timing of future capital expenditures needed to fund our business plan;

Previous wording

(p)the adoption and scope of regulations to control certain chemicals in drinking water and other environmental concerns;

Current wording

(s)the adoption and scope of regulations to control certain chemicals in drinking water and other environmental concerns and the impact of such regulations on our customers' and our businesses, including any increase or decrease in demand and sales of our AC products resulting from such regulations;

Previous wording

(r)the impact of prices of competing power generation sources such as natural gas and renewable energy on demand for our products.

Current wording

(u)the impact of prices of competing power generation sources such as natural gas and renewable energy on demand for our products.

Previous wording

The forward-looking statements included in this Quarterly Report involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, timing and scope of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; impact of competition; availability, cost of and demand for alternative energy sources and other technologies; technical, start up and operational difficulties; competition within the industries in which we operate; our inability to commercialize our products on favorable terms; our inability to effectively and efficiently commercialize new products; changes in construction costs or availability of construction materials; our inability to effectively manage construction and startup of the GAC facility at our Red River Plant or Corbin Facility; our inability to obtain required financing or financing on terms that are favorable to us; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; ongoing effects of inflation and macroeconomic uncertainty, including from the ongoing armed conflicts around the world, and such uncertainty's effect on market demand and input costs; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; other factors relating to our business strategy, goals and expectations concerning the Arq Acquisition (including future operations, future performance or results); our ability to maintain relationships with customers, suppliers and others with whom we do business and meet supply requirements, or our results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; costs related to the Arq Acquisition; opportunities for additional sales of our AC products and end-market diversification; our ability to meet customer supply requirements; the rate of coal-fired power generation in the U.S.; the timing and cost of capital expenditures and the resultant impact to our liquidity and cash flows; and the other risk factors described in our other filings with the SEC, including the 2023 Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements made in this Quarterly Report and to consult filings we have made and will make with the SEC for additional discussion concerning risks and uncertainties that may apply to our business and the ownership of our securities. The forward-looking statements contained in this Quarterly Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required b…

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Current wording

The forward-looking statements included in this Quarterly Report involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, the timing and scope of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate new regulations or enforce existing regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; availability, cost of and demand for alternative energy sources and other technologies and their impact on coal-fired power generation in the U.S.; technical, start up and operational difficulties; competition within the industries in which the Company operates; risks associated with our debt financing; our inability to effectively and efficiently commercialize new products, including our GAC products; our inability to effectively manage commissioning and startup of the GAC Facility at our Red River Plant; disruptions at any of our facilities, including by natural disasters or extreme weather; risks related to our information technology systems, including the risk of cyberattacks on our networks; failure to protect our intellectual property from infringement or claims that we have infringed on the intellectual property of others; our inability to obtain future financing or financing on terms that are favorable to us; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; ongoing effects of the inflation and macroeconomic uncertainty, including from the new U.S. presidential administration, increased domestic and international tariffs, lingering effects of the pandemic and armed conflicts around the world, and such uncertainty's effect on market demand and input costs; availability of materials and equipment for our business; pending litigation; factors relating to our business strategy, goals and expectations concerning the acquisition of Arq Limited; our ability to maintain relationships with customers, suppliers and others with whom the Company does business and meet supply requirements; our results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; costs related to the ongoing manufacturing of our products, including our GAC products; opportunities for additional sales of our AC products and end-market diversification; the rate of coal-fired power generation in the U.S.; the timing and cost of any future capital expenditures and the resultant impact to our liquidity and cash flows; and the other risk factors described in our filings with the…

Excerpt shortened here; the source contains the full paragraph.