ARQ — Arq, Inc.

Summary of ARQ Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Revenue: Approximately $120 million for the full year 2025, a 10% increase year-over-year.
• Adjusted EBITDA: $13.2 million, reflecting a 26% improvement over 2024.
• Q4 Revenue: $29.4 million, up 8% year-over-year.
• Q4 Adjusted EBITDA: Approximately $0.3 million, down from $3.8 million in Q4 2024.
• Net Loss: $50 million in Q4 2025, compared to a net loss of $1.3 million in Q4 2024.
• Gross Margin: 27.9% for the year, but only 13.6% in Q4 due to GAC ramp-up costs.
• Total Cash: $15 million at year-end, with $6.6 million unrestricted.
• Total Debt: $28.5 million, an increase from $24.8 million in 2024.

2. Strategic Updates and Business Highlights

• GAC Production Pause: The company has paused its granular activated carbon (GAC) production project to conduct a comprehensive engineering and production process optimization review. No GAC production is expected in 2026.
• Technical Challenges: Issues identified include design flaws from a former engineering firm, moisture content challenges, and inefficiencies in the off-gas system.
• Transition to Bituminous Coal: The company is shifting to purchase domestic bituminous coal feedstock, which is expected to improve production efficiency and reduce costs.
• PAC Business Performance: The PAC (Processed Activated Carbon) business remains profitable, with revenues of approximately $120 million and a strong customer retention rate of 86%. The PAC business is expected to generate free cash flow in 2026.

3. Forward Guidance and Outlook

• 2026 Revenue Guidance: Expected to be between $120 million and $125 million, solely from the PAC business.
• Adjusted EBITDA Guidance: Projected between $17 million and $20 million for 2026, representing a 30% improvement at the lower end compared to 2025.
• Production Volumes: Anticipated PAC production volumes of 122 million to 125 million pounds, with average selling prices between $0.88 and $0.91 per pound.

4. Bad News, Challenges, or Points of Concern

• GAC Production Challenges: The decision to pause GAC production reflects significant technical and operational challenges, including design flaws and insufficient capacity in the off-gas system.
• Write-Down: A $45 million write-down on Corbin assets was recorded, reflecting the decision to idle operations.
• Increased Costs: GAC start-up costs and operational inefficiencies have negatively impacted financial performance, contributing to a net loss in Q4.
• Leadership Changes: Several changes in the leadership team, including the departure of the CFO and the appointment of new executives, indicate ongoing organizational adjustments amid operational challenges.

5. Notable Q&A Insights

• Market Demand for GAC: Management confirmed strong demand fundamentals for GAC, indicating no loss of confidence in the market opportunity despite the production pause.
• Regulatory Environment: There is no significant regulatory uncertainty affecting the PAC business, and existing regulations remain intact.
• Free Cash Flow Expectations: The PAC business is expected to generate free cash flow in 2026, with maintenance CapEx anticipated to decrease in future years.
• Contract Visibility: The company has high visibility into PAC contracts, with 96% of targeted volumes for 2026 already contracted.
• Litigation Status: Ongoing litigation related to GAC production issues was acknowledged, but management refrained from discussing specifics.

This summary captures the essential financial metrics, strategic initiatives, guidance, challenges, and insights from the Q&A session, providing a comprehensive overview of ARQ's current position and outlook.