Arq, Inc.

Previous 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.

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"). On August 6, 2025, we announced that we had completed our commissioning activities related to the Red River Plant expansion (the "Red River Project"), and anticipate 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

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.

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 of our new GAC products.

Previous 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.

Current wording

For the three and six months ended June 30, 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, offset by increases in anticipated natural gas inventory levels.

Previous wording

On April 10, 2024, the United States Environmental Protection Agency ("EPA") issued its first nationally enforceable PFAS National Primary Drinking Water Regulation, confirming a material tightening to an existing framework of guidance and regulations relating to the control and limitation of PFAS in municipal water. The regulatory changes are anticipated to phase in over an approximate five-year period. We expect the implementation of the announced regulations will drive a material increase in GAC demand in the water purification market.

Current wording

On April 10, 2024, the United States Environmental Protection Agency ("EPA") issued its first nationally enforceable PFAS National Primary Drinking Water Regulation, confirming a material tightening to an existing framework of guidance and regulations relating to the control and limitation of PFAS in municipal water. The regulatory changes were anticipated to phase in over an approximate five-year period; however, the EPA has indicated that it will pursue a rulemaking in the fall of 2025 to potentially extend the compliance date from 2029 to 2031. We expect the implementation of the announced regulations will drive a material increase in GAC demand in the water purification market.

Previous 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.

Current wording

For the three months ended June 30, 2025, revenue increased from the comparable quarter in 2024 primarily driven by an increase in volumes sold and higher pricing, which contributed revenue increases of approximately $1.4 million and $1.6 million, respectively. The increase in volumes sold was due in part to higher natural gas prices compared to the same quarter in 2024, which contributed to increased utilization of coal-fired generation and increased demand for our products by customers in the power generation market. The average Henry Hub natural gas spot prices ($/MMBtu) for the three months ended June 30, 2025 and 2024 were $3.19 and $2.08, respectively.

Previous 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.

Current wording

Depreciation, amortization depletion and accretion expense increased by approximately $0.8 million for the three months ended June 30, 2025 compared to the corresponding quarter in 2024, primarily due to decreased absorption in inventory of $0.9 million, partially offset by decreased depreciation expense related to a lower finance lease asset base.

Previous wording

Interest expense decreased slightly for the three months ended March 31, 2025 compared to the corresponding quarter in 2024 primarily due to a higher average outstanding balance in the current period offset by a lower average interest rate.

Current wording

Interest expense decreased for the three months ended June 30, 2025 compared to the corresponding quarter in 2024 primarily due to lower average interest rates on the Company's outstanding debt facilities, partially offset by higher average outstanding balances in the current period.

Previous 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.

Current wording

The decrease in Other for the three months ended June 30, 2025 as compared to the corresponding quarter in 2024 was primarily driven by lower interest income of $0.2 million due to lower average balances in our cash sweep accounts during the current quarter compared to the prior year quarter.

Previous 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.

Current wording

For the three months ended June 30, 2025 and 2024, we had pretax loss of $2.1 million and $1.9 million, respectively. For the three months ended June 30, 2025, we had an effective tax rate of zero and recorded no income tax benefit due to the recording of a full valuation allowance on our deferred tax assets. For the three months ended June 30, 2024, we had an effective tax rate of 2% as a result of recording income tax expense for an out of period state income tax assessment, but we recorded no federal income tax benefit for this quarter due to the recording of a full valuation allowance on our deferred tax assets.

Previous 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.

Current wording

Loss on sale of assets for the six months ended June 30, 2025 related to the disposal of construction assets no longer in use.

Previous 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.

Current wording

Earnings from equity method investments for the six months ended June 30, 2025 and 2024 represented cash distributions from Tinuum Group. Tinuum Group continues to wind down their services into 2025.

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 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.

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 GAC Facility pre-production feedstock, 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

The following table reconciles net income (loss), our most directly comparable as-reported financial measure calculated in accordance with U.S. GAAP, to EBITDA (loss) and Adjusted EBITDA (loss).

Current wording

The following table reconciles net loss, our most directly comparable as-reported financial measure calculated in accordance with U.S. GAAP, to EBITDA (loss) and Adjusted EBITDA.

Previous wording

(1)Represents non-cash stock-based compensation expenses that are included within "Cost of revenue, exclusive of depreciation and amortization" and "Selling, general and administrative" expenses in the Condensed Consolidated Statements of Operations. Adjusted EBITDA loss for the three months ended March 31, 2024 has been revised to include non-cash stock-based compensation expense as an adjustment to Adjusted EBITDA (loss).

Current wording

(2)Represents non-cash stock-based compensation expenses that are included within "Cost of revenue, exclusive of depreciation and amortization" and "Selling, general and administrative" expenses in the Condensed Consolidated Statements of Operations. Previously reported Adjusted EBITDA (loss) for the three and six months ended June 30, 2024 has been revised to include non-cash stock-based compensation expense as an adjustment to Adjusted EBITDA (loss).

Previous wording

•cash on hand of $6.3 million, excluding $8.5 million of restricted cash primarily pledged as collateral under a surety bond agreement;

Current wording

•cash on hand of $7.0 million, excluding $8.5 million of restricted cash primarily pledged as collateral under a surety bond agreement;

Previous wording

•capital expenditures, including those related to the Red River Plant expansion and commissioning of the Corbin Facility;

Current wording

•capital expenditures, including those related to the Red River Plant expansion;

Previous 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:

Current wording

Cash and restricted cash decreased from $22.2 million as of December 31, 2024 to $15.4 million as of June 30, 2025. The following table summarizes our cash flows for the six months ended June 30, 2025 and 2024, respectively:

Previous wording

Cash flow used in operating activities for the three months ended March 31, 2025 was $5.8 million, which represented a net decrease of $6.3 million from cash provided by operating activities for the three months ended March 31, 2024 of $0.5 million. The net decrease was primarily attributable to net changes in working capital resulting in an increase of $9.7 million in cash outflows between periods, primarily due to increases in inventory and receivables balances. This decrease was partially offset by an increase in net income of $3.6 million.

Current wording

Cash flows used in operating activities for the six months ended June 30, 2025 was $5.3 million, which represented a net increase of $2.9 million from cash used in operating activities for the six months ended June 30, 2024 of $2.4 million. The net increase was primarily attributable to net changes in working capital resulting in an increase of $7.8 million in cash outflows between periods, primarily due to increases in inventory and receivables balances. This increase was partially offset by a decrease in net loss of $3.5 million.

Previous 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.

Current wording

Cash flows used in investing activities decreased for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 by $23.3 million primarily as a result of a decrease in property, plant and equipment additions of $23.2 million from construction activities related to the expansion of our Red River Plant.

Previous wording

Cash flows provided by financing activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 increased by $3.0 million primarily due to net borrowings on the Revolving Credit Facility of $2.4 million and a decrease in the repurchase of common stock to satisfy tax withholdings of $0.6 million in connection with the vesting of certain equity awards.

Current wording

Cash flows provided by financing activities for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 decreased by $10.3 million primarily due to net proceeds of $15.8 million from common stock placements completed in 2024, offset by an increase in net borrowings on debt facilities of $4.7 million and a decrease in repurchase of common stock to satisfy tax withholdings of $0.6 million.

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 from 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 increasing production to reach nameplate capacity of the Red River Plant, expanding our overall AC business into additional adjacent markets and increasing our gross margin from improving our customer and product mix.

Previous 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.

Current wording

Based on current operating levels, we expect that our cash on hand and borrowing availability under the Revolving Credit Facility as of June 30, 2025 will provide sufficient liquidity to fund operations for the next 12 months.

Previous wording

During the three months ended March 31, 2025, we continued to incur capital spend for additional equipment, labor, and project costs towards the completion of our Red River Plant expansion (the "Red River Project") which is necessary to commence production of our new GAC products. We expect to complete commissioning of the Red River Project by the end of the second quarter or early in the third quarter of 2025. To meet this target, we may continue to incur additional expense in excess of our originally forecasted amounts for additional equipment testing and project costs as we complete the expansion. The Company anticipates financing the completion of the project funded with cash on hand, borrowing availability on the Revolving Credit Facility, and ongoing cost reduction initiatives.

Current wording

During the six months ended June 30, 2025, we continued to incur capital spend for additional equipment, labor, and project costs towards the completion of the Red River Project. On August 6, 2025, we announced completion of the commissioning phase of the Red River Project and achieved the first commercial production of our new GAC products. To meet this target, we incurred additional cost in excess of our originally forecasted amounts for additional equipment testing and project costs, which were funded with cash on hand, borrowing availability under the Revolving Credit Facility, and ongoing cost reduction initiatives.

Previous 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.

Current wording

During the remainder of 2025, we expect our capital expenditures to primarily relate to plant maintenance and improvements, including with respect to increasing production to reach nameplate capacity of the Red River Plant. Capital expenditures planned for the remainder of 2025 are dependent on many factors, which may impact the timing and amount of capital expenditures.

Previous wording

In January 2025, we commissioned the Corbin Facility. In April 2025, after a review of required commissioning material and inventory requirements for the remainder of 2025, we elected to reduce operations at our Corbin Facility. We plan to resume normal operations at Corbin after the completion of commissioning of the Red River Project.

Current wording

In January 2025, we commissioned the Corbin Facility. In April 2025, after a review of required commissioning material and inventory requirements for the remainder of 2025, we elected to reduce operations at our Corbin Facility. We plan to resume normal Corbin operations in the second half of the third quarter.

Previous wording

As of March 31, 2025, we had outstanding surety bonds with regulatory commissions totaling $11.2 million primarily related to the Five Forks Mine and the Corbin Facility. As of March 31, 2025, and as required by our surety bond provider, we held restricted cash of $8.5 million pledged as collateral related to performance requirements required under a reclamation contract for the Five Forks Mine and the Corbin Facility. We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds may be released and collateral requirements may be reduced. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider.

Current wording

As of June 30, 2025, we had outstanding surety bonds with regulatory commissions totaling $11.2 million primarily related to the Five Forks Mine and the Corbin Facility. As of June 30, 2025, and as required by our surety bond provider, we held restricted cash of $8.5 million pledged as collateral related to performance requirements required under indemnity agreements for the Five Forks Mine and the Corbin Facility. We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds may be released and collateral requirements may be reduced. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider.

Previous wording

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that involve risks and uncertainties. Words or phrases such as "anticipates," "believes," "expects," "intends," "plans," "estimates," "predicts," the negative expressions of such words, or similar expressions are used in this Quarterly Report to identify forward-looking statements, and such forward-looking statements include, but are not limited to, statements or expectations regarding:

Current wording

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that involve risks and uncertainties. Words or phrases such as "anticipates," "may," "believes," "expects," "intends," "plans," "estimates," "predicts," the negative expressions of such words, or similar expressions are used in this Quarterly Report to identify forward-looking statements. All statements that address activities, events or developments that the Company intends, expects or believes may occur in the future are forward-looking statements. These forward-looking statements include, but are not limited to, statements or expectations regarding:

Previous wording

(a)our ability to complete, and the anticipating timing of the completion of, commissioning of the GAC Facility, ramp-up to full nameplate capacity at our Red River Plant, and commercial production of our GAC products;

Current wording

(a)our ability to complete and the anticipated timing of the ramp-up to full nameplate capacity at our Red River Plant;

Previous wording

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

Current wording

(d)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, including our GAC products;

Current wording

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

Previous wording

(d)the seasonal impact on our customers and their demand for our products;

Current wording

(f)the seasonal impact on our customers and their demand for our products;

Previous wording

(e)our ability to fund our business over the next twelve months;

Current wording

(g)our ability to fund our business over the next twelve months;

Previous wording

(f)the anticipated timing for resuming operations at our Corbin Facility;

Current wording

(h)the anticipated timing for resuming operations at our Corbin Facility;

Previous wording

(g)our ability to access new markets for our GAC and other products;

Current wording

(i)our ability to access new markets for our GAC and other products;

Previous wording

(h)any future plant capacity expansions or site development projects and our ability to finance any such projects;

Current wording

(k)any future plant capacity expansions or site development projects and our ability to finance any such projects;

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

(k)our ability to contract remaining GAC product volumes once commercial production is achieved;

Current wording

(n)our ability to contract remaining GAC product volumes;

Previous wording

(l)future cash flows, profitability and other potential benefits expected from our GAC business;

Current wording

(o)future cash flows, profitability and other potential benefits expected from our GAC business;

Previous wording

(m)the future profitability and sustainability of our PAC business;

Current wording

(p)the future profitability and sustainability of our PAC business;