Arq, Inc. Q4 FY2025 earnings call

• Paused GAC production project to conduct comprehensive engineering and production process optimization review. Discussed technical challenges like original design flaws, moisture content, design inefficiency, and off - gas system design. Solved issues like transitioning to purchased domestic bituminous coal feedstocks and installing a thermal oxidizer but faced new off - gas system constraint. Appointed Eric Robinson as Senior Vice President of Operations, hired an onsite process engineer, changed CFO leadership, and hired Jeanette McQueenie as senior vice president and head of sales. PAC business is profitable, growing, and provides a stable foundation. PAC business delivered exceptional performance in 2025 with strong revenues, improved adjusted EBITDA, and has visibility into volumes, pricing, and costs.

PAC business delivered strong performance in 2025. Full year revenues reached ~$120 million, up 10% YOY. Reported adjusted EBITDA was $13 million, a 26% improvement over 2024. Fourth quarter revenue was $29.4 million, up ~8% YOY. Gross margin for 2025 was 27.9% due to GAC ramp - up costs. Fourth quarter gross margin was 13.6% due to GAC ramp - up costs. PAC business has 96% contract visibility on 2026 targeted volumes, 75% through 2027, and 43% through 2028. Three - year customer retention rate is 86%. GAC production is paused; no GAC production in 2026. A $45 million write - down on carbon assets due to switching GAC feedstock.

For full year 2026, anticipate revenue in the range of $120 to $125 million and adjusted EBITDA of $17 to $20 million. These projections assume no GAC contribution and are based on PAC business performance. PAC average selling price of 88 cents to 91 cents per pound. Production volumes of 122 to 125 million pounds. Other chemicals and products will contribute approximately 13 to 15% of total revenues. Pending completion of optimization review, currently anticipate CapEx for 2026 to be in the range of $8 to $10 million, inclusive of ~$3 million for routine biannual two - week maintenance at Red River plant.

• Original design flaws by former engineering firm led to cost overruns and timing delays. Moisture content of Corbin Wet - Take feedstock caused handling difficulties. Off - gas system design issues led to frequent shutdowns for cleaning and maintenance. Uncertainty regarding costs and modifications needed to scale GAC production. Potential impact of unforeseen operational challenges during GAC production optimization.

Q: Anything that would prevent you from not pursuing GAC?

A: The answer is an emphatic no. Market fundamentals are extremely strong with undersupply vs excess demand imbalance, pricing continues to rise, and barriers to entry exist.

Q: Commentary on regulatory undercurrents for PAC?

A: No regulatory uncertainty as EPA new regulations pushed back not affecting existing PAC business.

Q: Guidance and free cash flow?

A: PAC business expected to be free cash flow generator. Biennial plant turnaround in April included in CapEx guidance.

Q: Excess capacity at Red River?

A: Absolutely correct, no cannibalization of pack production when GAC is brought on.

Q: Thermal oxidizer and off - gas issues?

A: Need to install new off - gas train system including new thermal oxidizer, water quencher, heat exchanger, wet scrubber, ID fan, new stack.

Q: Feedstock switch and product?

A: Comfortable with switch as extensive testing done, proven process in industry.

Q: PAC ASP growth and alternative applications?

A: ASP growth to moderate from double - digit pace, alternative applications like asphalt emulsion progressing but no significant revenues in 2026.

Q: Tariff benefits and contract volume visibility?

A: Guidance doesn't reflect tariff benefits, contract volume visibility usual with high renewal rate.

Q: Litigation recovery?

A: Lawsuit ongoing, policy not to comment on particulars but confident in position.