Arq, Inc. Q4 FY2024 earnings call

• The PAC business has been successfully turned around, with reduced costs, improved efficiency, profitability, and cash flow. Every penny saved in operating costs is a significant addition to the bottom line.
• The GAC expansion at Red River is on track, with initial product production imminent. There are strategic contracting decisions to align with production ramp-up and market testing.
• The company refinanced its term loan, reducing the cost of capital and increasing financial flexibility. SG&A expenses were reduced in 2024.
• Challenges included GAC CapEx overrun (driven by factors like piping issues, small expenses, and higher invoices) and unplanned shutdowns at Red River impacting margins.

For the PAC business, in 2024, revenues were approximately $109 million, a 10% year-over-year increase. In the fourth quarter, revenue was $27 million, driven by a 14% quarter-over-quarter increase in average selling price. The gross margin for the fourth quarter was 36.3%. For the GAC segment, full year 2024 CapEx for the Red River project was $80 million, $10 million above the high end of previous forecasts. Production of GAC is imminent, with commissioning completed across 6 functional zones.

• Management plans to provide guidance once there is better visibility on the GAC production ramp-up.
• Confidence remains high in selling all GAC products produced, with disciplined pricing based on product performance and market supply shortage.
• Anticipate continued growth and profitability from the PAC business and GAC expansion, with a focus on maximizing shareholder returns.

• GAC CapEx overrun of $10 million due to factors out of direct control, including issues with piping, small expenses, and higher invoices.
• Unplanned shutdowns at Red River of 1 week each related to boiler repairs, negatively impacting margins in the fourth quarter.
• Regulatory changes or market dynamics could affect GAC demand or pricing, though current trends indicate strong demand.

Q: Review the process and potential key milestones for the Red River ramp up phase and updates.

A: The commissioning process is broken into 6 functional zones. They have successfully completed all zones and produced GAC, now fine-tuning to ensure repeatability and full commercial production.

Q: Impact of natural gas prices on PAC sales in 2025?

A: Nat gas pricing above $350-$400 leads utilities to switch from nat gas to coal-fired generation, impacting volumes in PG&I segment, but adjacent markets for PAC have higher margins.

Q: CapEx for 2025 and build out of line 2?

A: Expected CapEx for 2025 is $8-12 million. Phase 2 visibility depends on contracting and demand; balance sheet and cash flow from PAC and GAC businesses will fund Phase 2.

Q: Pricing differential between water-related markets and other markets for GAC?

A: Pricing in other markets is 20%-40% higher than water-related markets, justifying deferred contracting for those markets.

Q: OpEx modeling for 2025?

A: Still room for OpEx and SG&A improvement; actions taken in Q1 2025 to reduce SG&A, and cold weather increasing volumes helps cost absorption.