Arq, Inc. Q1 FY2026 earnings call

• PAC Business: Effectively operates by selling furnace hours, with strong contract visibility (96% in 2026) and high customer retention. Technical capabilities and customer service drive loyalty. Customer mix has evolved from predominantly power generation to include other segments like municipal water and micropollutants. • GAC Business: Original design flaws led to pause in production. Testing showed modifications to thermal oxidizer wouldn't reach original production goals, so a pause was made to refine ROI. Also, Corbin facility has optionality for other products like asphalt emulsion, synthetic graphite and graphene, and rare earth minerals and critical elements. • Team Restructuring: Leadership changes made to upgrade talent, such as bringing in a new sales head with strategic selling experience and consulting an experienced operative to improve operations. • Financial Focus: Issued EBITDA guidance (17 - 20 million) due to increased transparency, redirecting furnace hours to profitable PAC business to improve near-term financial performance.

Powdered Activated Carbon (PAC) Business: Transformed from a money-losing operation to a free cash flow generating business over the last three years. Leading market share in powdered activated carbon, serving diverse markets including power generation (scrubbing mercury emissions from coal-fired power plants, improving taste and odor in municipal drinking water, removing micropollutants). Granular Activated Carbon (GAC) Business: Principal focus on removing PFAS from municipal drinking water, scrubbing biogas pollutants, and other applications. There's a persistent demand-supply imbalance in GAC with barriers to entry. Currently, GAC production is paused for refinement, and the company is reevaluating the plan with potential for significant scaling in future phases.

• Issued EBITDA guidance range of 17 to 20 million for transparency and to reflect confidence in PAC turnaround. • Expect to generate at least 8 - 10 million of free cash flow. • Goal is to fund GAC ramp-up without diluting shareholders, leveraging existing debt capacity and free cash flow depending on results of GAC pause refinement. • Goal to provide update on GAC plan by next earnings call in first week of May.

• GAC production pause due to original design deficiencies in thermal oxidizer and off-gas system, which could impact timeline and cost of ramping up production. • Uncertainty regarding the refinement of GAC plan, including potential variations in cost, timing, and design within a significant bracket. • Potential challenges in scaling GAC production and ensuring product quality and efficiency after modifications.

Q: Could you walk us through the challenges that led to the pause in GAC production and why it was necessary?

A: Based on original design flaws from the engineering firm, there were production challenges on front, middle, and back ends. Testing showed modifications to thermal oxidizer wouldn't reach production goals, so a pause was made to refine ROI.

Q: How should investors think about the potential shift in GAC profile with possible scaling to 50 million pounds?

A: The underlying demand for GAC exists, and pausing allows refining cost, ensuring economic return and no inhibition to future expansion.

Q: What gives confidence in product quality with switch from Corbin feedstock facility's wet cake to bituminous coal?

A: Unique spherical shaping process of GAC provides larger surface area and pore structure for better performance. A best-in-class technical team identified suitable coal streams.

Q: How does pausing GAC improve near-term outlook for PAC?

A: Redirects furnace hours back to proven and profitable PAC business, actively improving near-term financial performance by optimizing furnace hours.

Q: What's behind the confidence to issue EBITDA guidance?

A: Increased investor transparency, no distraction from ramping up GAC production, strong contract visibility in PAC, and understanding of costs related to GAC.

Q: What's the thinking behind team restructuring?

A: To upgrade talent, with new sales head bringing strategic selling experience, consulting an experienced operative for operations, and seeking an upgraded CFO to better handle company challenges.