Summary of Arq's Q1 2026 Earnings Call

1Key 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.

2Strategic 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.

3Forward 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.

4Bad 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.

5Notable 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.