Arq, Inc. Earnings Call: Mixed Sentiments and Future Prospects

Arq, Inc. ((ARQ)) has held its Q3 earnings call. Read on for the main highlights of the call.

The latest earnings call from Arq, Inc. presented a mixed sentiment, reflecting both promising advancements and significant challenges. The call highlighted the strong performance of the PAC business and the exploration of alternative revenue streams, while also addressing setbacks in GAC production and associated costs. This balance of positive and negative aspects contributed to an overall neutral sentiment.

Strong PAC Business Performance

The PAC business emerged as a strong performer, delivering impressive financial results. The company reported a 7% increase in average selling prices over the previous year and a substantial 43% reduction in SG&A expenses. This translated into $16.7 million of adjusted EBITDA on a trailing 12-month basis, marking a remarkable $25 million improvement from a negative $8.7 million two years ago.

First Commercial Production and Sales of GAC

Arq achieved its first commercial production and sales of granular activated carbon (GAC), albeit at levels well below capacity. Despite this, there is strong market demand, with numerous spot purchase requests at prices exceeding existing contracts, indicating potential for future growth.

Potential Alternative Revenue Streams

The company is exploring alternative uses for Corbin feedstock, such as asphalt, purified coal, rare earth materials, and synthetic graphite. These explorations could provide diversification and open up additional revenue opportunities, bolstering Arq’s financial prospects.

GAC Production Delays and Challenges

The ramp-up of GAC production has faced significant delays due to design issues and feedstock variability. These challenges have postponed reaching full capacity until mid-2026 and resulted in several million dollars in inefficiencies and costs, posing a notable setback for the company.

Lower Overall Gross Margins

The quarter saw a gross margin of 28.8%, significantly impacted by high fixed production costs and low early ramp volumes of GAC. This represents a decline compared to steadier margins in previous quarters, highlighting the financial strain from initial GAC production challenges.

Net Loss for the Quarter

Arq reported a net loss of approximately $700,000 for the quarter, primarily attributed to the high fixed production costs associated with initial GAC volumes. This underscores the financial impact of the production delays and challenges faced by the company.

Forward-Looking Guidance

In its forward-looking guidance, Arq reported a third quarter adjusted EBITDA of $5.2 million, despite ongoing challenges in its GAC operations. The company anticipates reaching full GAC capacity by mid-2026, supported by strategic investments in a new thermal oxidizer to enhance production capacity. Arq concluded the quarter with $15.5 million in total cash and reaffirmed its full-year 2025 CapEx forecast of $8 million to $12 million.

In summary, Arq, Inc.’s earnings call presented a balanced view of the company’s current standing, with strong performance in the PAC business and promising alternative revenue streams juxtaposed against significant challenges in GAC production. The company’s forward-looking guidance reflects optimism for overcoming these hurdles and achieving growth in the coming years.