Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Arq Inc (NASDAQ:ARQ) achieved a 10% year-over-year increase in revenues for 2024, reaching approximately $109 million.
• The company successfully transformed its foundational pack business into a profitable entity, with every contract being profitable as of 2025.
• Arq Inc (NASDAQ:ARQ) reduced SGNA expenses by approximately 15% year-over-year, primarily through reductions in payroll and legal costs.
• The company attracted approximately $42 million in new net equity investment during 2024, and its market capitalization more than doubled.
• Arq Inc (NASDAQ:ARQ) successfully refinanced its debt, replacing a costly $10 million term loan with a more cost-effective $30 million revolving asset-backed facility, reducing its cost of capital.

Negative Points

• The Red River project CapEx for 2024 exceeded expectations, totaling $80 million, which was $10 million above the high end of forecasts.
• Arq Inc (NASDAQ:ARQ) experienced two unplanned shutdowns at Red River in Q4, negatively impacting margins.
• The company reported a net loss of $1.3 million in Q4 2024, compared to net income of $3.3 million in Q4 2023.
• Gross margin for Q4 2024 was 36.3%, down from 49.8% in the prior year period, partly due to lower take-or-pay agreements.
• The company faced challenges with the GAC expansion, including weather-related issues and disputes with a former engineering contractor.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with ARQ.

Q: Could you review the Red River ramp-up phase and potential key milestones? Will you provide updates as you go through that process? A: (Bob Rasmus, CEO) The commissioning process is broken down into six functional zones, each representing a step in the production of granular activated carbon (GAC). We have successfully completed all zones and produced GAC. We are currently fine-tuning the process to ensure repeatability before declaring full commercial production. Updates will be provided as we progress.

Q: With natural gas prices rising, is this positively changing the landscape for pack sales as we look into 2025? A: (Bob Rasmus, CEO) When natural gas prices exceed $3.54, utilities tend to switch from natural gas to coal-fired generation, impacting volumes. While we have a leading market share in scrubbing mercury emissions from power generation, we are expanding into adjacent markets with higher margins, making the power generation sector less critical to us.

Q: Can you discuss CapEx for 2025 and the build-out of line two? A: (Bob Rasmus, CEO) We expect CapEx for 2025 to be $8 to $12 million, including maintenance CapEx. This does not include potential phase two. We believe we can fund phase two using our balance sheet, leveraging cash flow from the pack and GAC businesses.

Q: What is the pricing differential between granular in water-related markets and other markets? A: (Bob Rasmus, CEO) The pricing differential outside of water markets is 20% to 40% higher. We could contract all remaining capacity in the water market now, but it makes business sense to diversify into other markets for risk mitigation and better pricing.

Q: Are there any tariff implications for the US activated carbon market, and how would that impact Arq? A: (Bob Rasmus, CEO) Tariffs are beneficial to us as we are the only fully vertically integrated domestic supply chain. Our competitors who import products or raw materials will face increased costs due to tariffs, providing us with an opportunity for margin enhancement.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.