ARQ — Arq, Inc.

Summary of Arq's Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Revenue: $29.1 million, up 7% year-over-year.
• Gross Margin: 34%, down from 36% in Q1 2025, impacted by inventory revaluation and carryover costs from GAC (Granular Activated Carbon).
• Net Loss: $800,000 compared to net income of $200,000 in Q1 2025.
• Adjusted EBITDA: Approximately $2.7 million, down from $4.1 million in the prior year.
• Cash Position: Total cash of $15.9 million, with $4.7 million unrestricted. Total debt increased to $30.2 million from $28.5 million.
• SG&A Expenses: Increased to $7.4 million from $6.1 million, driven by higher insurance, recruiting, and legal fees.

2. Strategic Updates and Business Highlights

• The PAC (Powdered Activated Carbon) business is performing well, with strong margins in January and February (38% and 47%, respectively).
• A strategic optimization review of GAC operations is ongoing, with plans to refine design and capital requirements.
• The company is exploring alternative uses for its carbon facility, including asphalt emulsion blending and synthetic graphite feedstock.
• Management and Board ownership has increased to over 20%, aligning their interests with shareholders.

3. Forward Guidance and Outlook

• Reiterated full-year 2026 guidance: Revenue between $120 million and $125 million, adjusted EBITDA between $17 million and $20 million.
• Expect PAC business to generate free cash flow in 2026 and beyond.
• Anticipated transitional performance in Q2, consistent with historical trends.

4. Bad News, Challenges, or Points of Concern

• The first quarter was negatively impacted by a noncash inventory revaluation of approximately $800,000 and $600,000 in carryover GAC-related expenses.
• The company faced headwinds from warmer-than-normal winter conditions affecting demand for mercury emissions-focused products.
• Increased SG&A expenses may signal rising operational costs, which could impact profitability.
• The GAC business continues to face challenges, including a pause in production and the need for optimization, which may delay revenue generation.

5. Notable Q&A Insights

• Management expects to provide an update on the GAC strategic review by Q3 2026.
• Discussions are ongoing regarding reactivation and asset washing, which may be pursued alongside GAC optimization.
• There is a clear path to increasing pricing and margins for PAC through expansion into specialty end uses without requiring additional investment.
• The competitive landscape for GAC is characterized by a supply-demand imbalance, with increasing demand driven by upcoming regulatory requirements related to PFAS monitoring.
• The company is focused on maintaining strong relationships with existing customers despite production delays, emphasizing reliability as a key differentiator.

Overall, Arq's Q1 2026 results reflect a solid foundation for growth in its PAC business, while ongoing challenges in the GAC segment necessitate careful strategic management. The company remains optimistic about its full-year outlook and potential for future profitability.