Arq, Inc. (ARQ)·Q2 2025 Earnings Summary

Executive Summary

• Revenue grew 13% YoY to $28.6M with sustained pricing gains (ASP +9% YoY); gross margin was 33.3%, and Adjusted EBITDA rose to $3.7M (fifth consecutive positive quarter) .
• Achieved a major milestone: commissioning of the first GAC line at Red River, with initial commercial production and sales; management targets a Final Investment Decision (FID) on a second 25M lb GAC line before year-end 2025 .
• Operating loss of $1.6M and net loss of $2.1M reflected start-up costs tied to GAC ramp; SG&A fell 16% YoY driven by lower payroll/benefits and capitalization at Corbin; R&D rose due to pre-production feedstock costs included in Adjusted EBITDA reconciliation .
• Wall Street consensus (S&P Global) for Q2 2025 was unavailable; third-party sources indicated a revenue and EPS beat versus their estimates, a potential stock-reaction catalyst, but not our primary benchmark .

What Went Well and What Went Wrong

What Went Well

• Commissioned first GAC line with initial commercial sales, marking a strategic transformation into higher growth/margin products. “Successful commissioning of our first GAC line at Red River represents a significant milestone...” — CEO Bob Rasmus .
• Sustained PAC price improvement drove 13% revenue growth and 110 bps gross margin expansion YoY; Adjusted EBITDA reached $3.7M, the fifth consecutive positive quarter .
• SG&A reduced ~16% YoY, aided by capitalization of Corbin payroll and benefits as the facility became operational in January 2025 .

What Went Wrong

• Gross margin contracted sequentially vs Q1 2025 (36.4% → 33.3%), as GAC start-up costs offset pricing and volume gains .
• Net loss widened sequentially to $(2.1)M vs Q1’s positive net income, reflecting higher R&D from GAC pre-production feedstock and start-up costs .
• Debt increased to $28.7M (incl. financing leases) with revolver balance up to $18.5M, highlighting working capital and ramp financing needs amid the GAC build-out .

Financial Results

Note: S&P Global consensus estimates for Q2 2025 were unavailable (see Estimates Context).

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Successful commissioning of our first GAC line at Red River represents a significant milestone... our foundational PAC business delivered another solid quarter... providing the foundation needed to capitalize on the exceptional GAC market opportunity we see ahead.” — CEO Bob Rasmus .
• “The GAC market continues to show strength with steady demand and minimal new capacity entering the market... potential for a 3–5x increase in demand driven by the recent EPA regulatory changes... we now expect to make a Final Investment Decision on a second line prior to the end of 2025.” — CEO Bob Rasmus .
• Capex remains $8–$12M for 2025; exited Q2 with $15.4M cash+restricted cash .

Q&A Highlights

• Management indicated initial Phase 1 GAC product sales to RNG customers in Q3 2025 as part of trials, signaling traction beyond water treatment .
• Discussion of asphalt feedstock differentiation (unique, patent-protected process) and potential market size; testing underway with a leading US asphalt company .
• Third-party reported headline beats: EPS of -$0.01 beat by $0.02; revenue of $28.58M (+12.5% YoY) beat by $3.04M; these are non-S&P Global benchmarks and for directional context only .

Estimates Context

• S&P Global consensus (EPS, revenue, EBITDA) for Q2 2025 was unavailable for ARQ via our data pull; therefore, official “vs. estimates” comparisons anchored to S&P Global cannot be made.
• For directional context only, third-party sources indicated revenue and EPS beats versus their own consensus, but we do not anchor on these sources for formal estimate comparisons .

Key Takeaways for Investors

• GAC commissioning achieved; focus shifts to throughput consistency and ramp to nameplate, a key catalyst for margin expansion and mix shift to higher-value products .
• PAC pricing strength and contract discipline continue to underpin revenue and profitability; SG&A reductions and Corbin capitalization support operating leverage .
• Near-term margin volatility driven by GAC start-up costs should moderate as ramp progresses; watch sequential gross margin trajectory vs Q1 baseline .
• Line 2 FID before year-end could materially expand capacity and strategic positioning amid tight GAC supply; monitor contracting mix across PFAS water and RNG .
• Liquidity remains adequate for ramp with revolver access; debt increased as working capital needs rose—track cash generation as GAC sales scale .
• Regulatory tailwinds (PFAS) and minimal new capacity support multi-year demand and pricing; management frames a decades-long opportunity .
• With S&P Global consensus unavailable, use company actuals and operational milestones as near-term trading cues; third-party reported beats may add positive sentiment but are secondary to GAC ramp execution .

Appendix: Additional Detail from Q2 2025 8-K 2.02

• Income statement and cash flow details, including revenue ($28.584M), cost of revenue ($19.066M), operating loss ($(1.555)M), net loss ($(2.133)M)), diluted EPS ($(0.05)), cash flow bridges, and Adjusted EBITDA reconciliation .
• Balance sheet snapshots, including cash ($6.96M), restricted cash long-term ($8.47M), PP&E net ($180.62M), stockholders’ equity ($216.77M), revolver ($18.53M), long-term debt ($8.74M) .
• Non-GAAP: Adjusted EBITDA adds back GAC pre-production feedstock and stock-based compensation; 2024 figures revised for consistency .