Arq, Inc. Q1 FY2025 earnings call

• The PAC business has transformed into a robust, sustainably profitable foundation with four consecutive quarters of positive adjusted EBITDA, focusing on cost optimization and strategic price management. • GAC commissioning has progress but encounters mechanical issues; full commissioning and first commercial production are expected by end of Q2 or early Q3 2025, followed by a ramp phase to nameplate capacity. • SG&A expenses decreased by 21% year-over-year due to reductions in payroll, benefits, and general administrative expenses. • Introduced Jay Voncannon as the new Chief Financial Officer, bringing over 35 years of financial leadership experience. • The PAC business is cash-generative on an annualized basis.

In the first quarter of 2025, Arq's PAC business contributed significantly. Revenue reached $27.2 million, a 25% year-over-year improvement, driven by a 13% growth in average selling price (ASP), favorable product and customer mix, and higher volumes. This marks the eighth consecutive quarter of double-digit year-over-year ASP growth. The GAC business is in the commissioning phase, facing mechanical hurdles in the production line at Red River, with full commissioning and first commercial production estimated for end of Q2 or early Q3 2025.

• GAC production in Q2 is likely to be minimal, with full commissioning and first commercial production estimated by end of Q2 or early Q3 2025. • There will be a three to six-month ramp phase to reach nameplate capacity, extending the timeline to achieve full production capacity slightly beyond 2025. • The PAC business is cash-generative on an annualized basis.

• Commissioning challenges with the GAC production line at Red River, including mechanical issues and delays in achieving full commercial production. • Inherited design errors from the previous contractor contributing to some challenges. • Potential impact of delays on customer testing and contract finalization for GAC.

Q: About the GAC commissioning process, what's the root cause of inconsistency?

A: The main issue is optimizing Zone 3 where GAC additives are combined with bituminous feedstock, focusing on improving throughput and consistency.

Q: How confident are you in meeting the new timeline for GAC production?

A: Confident as we know the system works, have produced small-scale GAC, and are fine-tuning the process.

Q: Any signal from administration on PFAS regulations deadline?

A: No indication of delay, EPA sees no pushback and aims to enhance regulations.

Q: When will asphalt revenues start?

A: Asphalt revenues not expected until 2026 at the earliest.

Q: Thoughts on industry supply for GAC?

A: Broader industry could face similar teething issues, but market supply/demand imbalance remains favorable for Arq.