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Arq, Inc. (ARQ)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered 25% YoY revenue growth to $27.247m, gross margin of 36.4%, positive net income ($0.203m) and fourth consecutive positive Adjusted EBITDA ($4.063m), underscoring a sustainable PAC turnaround .
  • Significant operational update: first commercial GAC production timing pushed to end of Q2 or early Q3 2025; 3–6 month ramp maintained, citing Zone 3 binding/shaping challenges and a conservative stance on timelines .
  • Commercial momentum: signed the second-largest PAC contract in company history; ASP rose ~13% YoY (eighth consecutive quarter of double-digit ASP growth); all PAC contracts now net cash contributors .
  • Potential catalysts: narrative is driven by durable PAC profitability, commissioning clarity at Red River, PFAS demand tailwinds, tariff positioning as a domestic, vertically integrated producer, and cost discipline under new CFO Jay Voncannon .

What Went Well and What Went Wrong

What Went Well

  • PAC business sustainability: Q1 revenue +25% YoY to $27.247m, Adjusted EBITDA +$4.063m, net income positive; management reiterated PAC can deliver “double-digit millions” annual EBITDA .
  • Pricing power and mix: ASP +13% YoY (8th straight quarter of double-digit growth) with favorable customer/product mix; all PAC contracts now positive contributors as of Dec-2024 .
  • Strategic wins and organizational strength: life-of-asset PAC contract (second-largest ever) and appointment of 35-year finance veteran Jay Voncannon as CFO to drive cost discipline and scale .

What Went Wrong

  • GAC commissioning delay: first commercial production deferred to end-Q2/early-Q3; issues concentrated in Zone 3 binder/shaping and throughput consistency, with intermittent equipment/controls constraints .
  • Gross margin flat YoY at 36.4% despite pricing/mix due to GAC start-up costs and a one-time accounting adjustment in Q1’24; management indicated ~5pp margin uplift excluding these items .
  • Cash balance declined to $14.803m (incl. restricted) from $22.235m at year-end on capex, payables, inventory/spares build; total debt rose to $26.8m on revolver utilization .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$34.8 $27.040 $27.247
Gross Margin (%)39.0% 36.3% 36.4%
Net Income ($USD Millions)$1.617 ($1.339) $0.203
Diluted EPS ($USD)—($0.03) $0.00 (presented as “—”)
Adjusted EBITDA ($USD Millions)$5.134 $3.301 $4.063

Operating and cash metrics:

MetricQ3 2024Q4 2024Q1 2025
Operating Income ($USD Millions)—$0.413 $0.662
SG&A ($USD Millions)$8.1 $5.960 $6.053
R&D ($USD Millions)$—$0.709 $0.874
Cash & Restricted Cash ($USD Millions)$57.4 (total cash) $22.235 $14.803
Capital Expenditure ($USD Millions)~$16.5 spend at Red River in Q3 $85.170 FY24 $3.710 Q1
Total Debt ($USD Millions)—$24.8 $26.8

KPIs and commercial indicators:

KPIQ3 2024Q4 2024Q1 2025
ASP YoY Growth (%)15% 14% ~13%
PAC contract statusMajority profitable, final loss-maker amended All PAC contracts net cash producers 100% of sales contracts net contributors
GAC contracting % of Phase 1~60% (15m lbs) ~60% (16m lbs) ~60%; holding back for RNG pricing
Customer retention (PG&I/industrial)——95% in 2024
April PAC volume trend——>25% YoY increase vs Apr’24

Segment breakdown: Not disclosed; management continues to diversify PAC end-markets and expects GAC to be additive once commissioning completes .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
First commercial GAC production2025By end of Q1 2025; first deliveries in Q1 2025 End of Q2 or early Q3 2025 Lowered/Delayed
Ramp to nameplate (25m lbs)Post first productionH2 2025; 3–6 month ramp 3–6 month ramp maintained; timeline may slightly extend beyond 2025 under conservative stance Maintained ramp; timing more conservative
FY 2025 Capex2025$8–$12m (discussed entering 2025) $8–$12m maintained; Q1 capex $3.710m Maintained
Phase 1 contracting2025~60% contracted; may hold back 3–5m lbs for higher-priced markets ~60% contracted; holding back volumes for RNG in-situ tests Maintained strategy
Tariff impactOngoing—Neutral to positive given domestic, integrated supply chain New qualitative update

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
GAC commissioningModular commissioning; nameplate targeted Q1 2025; potential +10–20% over nameplate with no capex Delay to end-Q2/early-Q3 for first commercial production; Zone 3 binder/shaping, throughput consistency issues Negative near term; execution focus
PAC turnaroundRecord PAC revenue; gross margin ~39%; ASP +15% Gross margin 36.4%; ASP +13%; all PAC contracts profitable; April volumes +25% YoY Sustained strength
Pricing/mixDisciplined pricing; detuning GAC can lift capacity Favorable mix and pricing; margin flat due to start-up costs/one-time item Mixed (offset by start-up)
PFAS/regulatoryUtilities locking supply; long-term contracts tightening market EPA stance intact; water utility demand robust; RNG in-situ testing deferred until production Positive demand setup
Tariffs/macro—Tariffs likely favorable vs import-reliant peers Positive
SG&A/Cost disciplineSG&A down to $29m FY24; more reductions expected CFO sees further SG&A/overhead leverage; more trimming possible Positive leverage
Adjacent initiativesAsphalt commercialization unlikely before 2026 Asphalt potential partner; revenue earliest 2026; exploring rare earths/synthetic graphite with potential DOE support Optionality growing

Management Commentary

  • “We have established a robust foundation capable of delivering double-digit millions in annual Adjusted EBITDA… providing the stable platform needed to pursue growth opportunities in GAC and beyond.” — CEO Bob Rasmus .
  • “We haven’t yet achieved the consistency necessary for commercial-scale production… granules sometimes lose structural integrity during kiln processing… remaining issue located in Zone 3.” — CTO Joe Wong .
  • “Q2 GAC production will likely be minimal, with full commissioning and first commercial production estimated by end-Q2 or early-Q3… we continue to expect a 3–6 month ramp to nameplate capacity.” — CEO Bob Rasmus .
  • “My initial focus is going to be on leveraging our cost position through the growth period, along with potential strategic initiatives… opportunities to trim cost.” — CFO Jay Voncannon .

Q&A Highlights

  • Commissioning root cause and confidence: Optimization centered in Zone 3 binder/shaping; reformulated binder; issues include feed, controller, belt; target is uninterrupted, consistent throughput; timeline updated conservatively .
  • Margins: No take-or-pay impacts in Q1; excluding GAC start-up and prior-year adjustment, gross margins would have been ~5pp higher (i.e., >40%) .
  • Regulatory clarity: EPA officials indicated no delay/rollback to PFAS deadlines; wastewater focus may intensify — supportive for GAC demand .
  • Contracting strategy: ~60% of Phase 1 contracted; holding back volumes for higher-priced RNG market after in-situ testing; municipal water approvals already in place .
  • Cost discipline: CFO expects additional SG&A and plant overhead opportunities; aims to avoid cost growth with revenue scale .

Estimates Context

  • S&P Global consensus estimates for Q1 2025 and the next quarter were unavailable via our data connection; as a result, beat/miss vs Street cannot be assessed this period. Coverage appears limited and management did not provide explicit quantitative guidance beyond timing/capex [GetEstimates attempts returned empty].

Key Takeaways for Investors

  • Durable PAC profitability: Four consecutive positive Adjusted EBITDA quarters and positive net income in Q1 confirm the turnaround; ASP growth and contract portfolio quality continue to underpin cash generation .
  • GAC commissioning is the near-term swing factor: Clarity on Zone 3 fix and achieving uninterrupted throughput will likely drive narrative and valuation; management now guides first commercial output by end-Q2/early-Q3 .
  • Demand tailwinds and pricing optionality: PFAS regulation intact; RNG and industrial applications offer higher pricing vs municipal water, justifying held-back capacity to optimize margin .
  • Cost discipline and new CFO: Additional SG&A/overhead leverage expected; supports margin resilience during GAC ramp and potential Phase 2 decisions later in 2025 .
  • Balance sheet/liquidity: Revolver flexibility offsets capex and working capital needs; watch cash/debt trend as ramp proceeds (Q1 cash+restricted $14.803m; total debt $26.8m) .
  • Tariffs favor the integrated domestic model: Potential margin tailwind vs competitors reliant on imports .
  • Trading lens: Near-term stock reaction likely tied to commissioning updates (Zone 3 resolution, first commercial production), incremental contracting at premium markets, and margin prints excluding start-up effects .
Notes:
- Adjusted EBITDA now adds back stock-based compensation beginning Q1 2025; prior-period figures restated accordingly **[1515156_0001515156-25-000060_a991pressreleaseq12025_5725.htm:0]** **[1515156_0001515156-25-000060_a991pressreleaseq12025_5725.htm:9]**.
- Segment revenue breakdown is not disclosed; KPIs emphasize ASP, margin, contracting, and cash/debt.