Sign in

You're signed outSign in or to get full access.

AI

Arq, Inc. (ARQ)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $27.0M with gross margin 36.3%; net loss was ($1.3)M or ($0.03) diluted EPS, reflecting the absence of one-off take-or-pay benefits seen in Q4 2023 and two brief unplanned Red River plant outages .
  • Sequentially, revenue and margin moderated versus Q3 2024 ($34.8M revenue; ~39% margin), but ASP grew 14% YoY (7th straight quarter of double-digit ASP growth), and adjusted EBITDA remained positive at $3.3M .
  • Guidance/timeline: initial GAC production remains on track for Q1 2025; ramp to full 25M lbs annual run-rate pushed into H2 2025; ~16M lbs contracted and capacity upside of 10–20% over nameplate still targeted .
  • Financing/l/liquidity: closed a $30M ABL facility in Dec-2024, reducing cost of capital (stated rate <9%) and enhancing flexibility; FY 2024 capex totaled $85.2M (Red River Phase I ~$80M), above prior guidance due to contractor issues and acceleration to maintain timelines .

What Went Well and What Went Wrong

  • What Went Well

    • “Third consecutive quarter of positive Adjusted EBITDA” with FY 2024 gross margin +410 bps to 36.2% and all PAC contracts now net cash producers .
    • ASP rose ~14% YoY in Q4, marking the 7th consecutive quarter of double-digit YoY ASP growth; management emphasized ongoing pricing discipline and diversification into higher-margin markets .
    • ABL refinancing reduced cost of capital and expanded capacity; management highlighted stronger balance sheet and institutional investor base .

  • What Went Wrong

    • Gross margin compressed YoY (36.3% vs 49.8%) due to absence of $4.7M Q4 2023 take-or-pay and two unplanned Red River outages; adjusted EBITDA declined to $3.3M from $7.2M YoY .
    • Red River Phase I capex exceeded guidance (actual ~$80M vs $60–$70M guided), primarily from contractor design errors, small-bore piping/electrical needs, timeline acceleration, and higher final invoices—prompting legal proceedings against the design firm .
    • Sequential revenue and margin stepped down versus Q3 2024 as one-offs normalized and outages impacted Q4 margins; net income swung from $1.6M to a ($1.3)M loss .

Financial Results

YoY Q4 comparison

MetricQ4 2023Q4 2024
Revenue ($USD Millions)$28.104 $27.040
Cost of Revenue ($USD Millions)$14.105 $17.236
Gross Margin (%)49.8% 36.3%
SG&A ($USD Millions)$6.495 $5.960
R&D ($USD Millions)$1.169 $0.709
Operating Income ($USD Millions)$3.104 $0.413
Net Income ($USD Millions)$3.290 ($1.339)
Diluted EPS ($USD)$0.10 ($0.03)
Adjusted EBITDA ($USD Millions, non-GAAP)$7.179 $3.301

Sequential trend (prior quarter vs current)

MetricQ3 2024Q4 2024
Revenue ($USD Millions)$34.8 $27.040
Gross Margin (%)~39% 36.3%
Net Income ($USD Millions)$1.6 ($1.339)
Adjusted EBITDA ($USD Millions, non-GAAP)$5.134 $3.301
ASP YoY Growth (%)+15% +14%

KPIs and balance sheet highlights (current period)

KPIQ4 2024
Contracted GAC capacity (lbs)~16M
Cash and restricted cash ($USD Millions)$22.2 ($13.5M unrestricted; $8.7M restricted)
Total Debt incl. leases ($USD Millions)$24.8
ABL Facility (capacity, rate)$30M, stated rate <9%
FY 2024 Capex (Total; Red River Phase I)$85.2M total; ~$80.0M growth capex at Red River Phase I

Notes:

  • Adjusted EBITDA is non-GAAP; reconciliation provided in the press release .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Initial GAC production at Red RiverQ1 2025First deliveries Q1 2025 Initial production Q1 2025; first deliveries Q1 2025 Maintained
Ramp to full 25M lbs run-rateH2 2025Full run-rate targeted end of Q1 2025 (run-rate) Full run-rate in H2 2025 Lowered (timeline delayed)
Capacity upside over nameplateH2 2025+Identified potential +10–20% with no capex +10–20% still targeted; timing to be defined post nameplate Maintained
FY 2024 Red River Phase I capexFY 2024$60–$70M ~$80M; drivers: piping/electrical, timeline acceleration, higher invoices Raised
FY 2024 total capexFY 2024$60–$70M (company reiterated Q3) $85.2M total company capex Raised
Financing cost of capitalAs of Dec-2024Legacy CFG loan costly $30M ABL at <9% stated rate; $13.8M drawn at 12/31 Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
GAC commissioning & rampQ3: goal to reach run-rate by end Q1 2025; modular commissioning underway; potential +10–20% capacity w/o capex Commissioning nearly complete; first product imminent; ramp to nameplate H2 2025; ~16M lbs contracted; reserving capacity for higher-priced industrial/RNG markets More conservative timeline; stronger pricing discipline
PAC turnaround (ASP/margins)Q3: ASP +15% YoY; gross margin ~39%; record PAC revenue; elimination of negative margin contracts Q4: ASP +14% YoY; gross margin 36.3% (impacted by lack of Q4’23 one-offs and outages); all PAC contracts net cash producers Sustained improvement; near-term normalization
Capex & litigationQ3: reiterated $60–$70M FY capex; brought construction in-house to reduce costs Q4: ~$80M Phase I capex due to contractor errors; legal action commenced against design firm Cost overrun realized; remediation underway
Macro/tariffs & supply chainQ3: PFAS regs bipartisan; diversification across markets Tariffs seen as margin-positive due to domestic supply chain advantage; customers securing long-term supply (e.g., 9-year competitor deal) Constructive industry backdrop
Power generation volumesQ3: nat gas headwinds mitigated by diversification Early 2025 higher nat gas prices adding PG&I volumes; still de-emphasizing reliance Additive but less central
Pricing differentialsQ3: higher pricing across applications; may hold back 3–5M lbs for better markets Industrial/RNG pricing ~20–40% above water; GAC pricing a “multiple” of PAC Reinforced premium strategy

Management Commentary

  • “Our 2024 results show a business which has been successfully turned around into a cash flow contributor… third consecutive quarter of positive Adjusted EBITDA.”
  • “The capex overrun we experienced in Q4 was extremely frustrating… we remain confident that its impact on our long-term profitability and returns profile should be negligible.”
  • “We expect production levels to ramp up… realistically, we expect to achieve nameplate capacity around the middle of the second half of 2025.”
  • “Pricing in granular is a multiple… in some cases, a significant multiple of the average PAC pricing.”

Q&A Highlights

  • GAC commissioning fine-tuned across 6 zones; first product produced, focusing on repeatability before declaring full commercial production .
  • 2025 capex expected $8–$12M (ex-Phase 2); Phase 2 investment likely to be funded on balance sheet via PAC/GAC cash flows after visibility on Line 1 ramp and contracting .
  • Contracting strategy: ~16M lbs contracted; deliberately reserving capacity for higher-priced industrial/RNG markets; industrial/RNG pricing ~20–40% above water .
  • Tariffs likely margin-accretive given fully domestic supply chain; competitors’ imports face tariff cost pressure .
  • No cannibalization of PAC as GAC ramps; GAC adds pricing-led margin and cost absorption benefits .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was not retrievable due to access limit errors at time of analysis; as a result, explicit beat/miss versus consensus cannot be stated. Attempted retrieval via S&P Global GetEstimates for “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q4 2024 returned a daily limit exceeded error [SPGI error via GetEstimates].
  • Given the unavailability of consensus data, investors should re-check S&P Global or company-provided consensus slides to assess revisions post-print; narrative suggests consensus may need to reflect delayed ramp to H2 2025 and higher FY 2024 capex, offset by sustained PAC profitability and pricing power .

Key Takeaways for Investors

  • PAC turnaround is durable: FY 2024 gross margin 36.2% (+410 bps YoY), ASP strength persisted, and all PAC contracts are net cash producers—supporting ongoing cash generation into 2025 .
  • Sequential moderation reflects exit from one-offs and outages—not core demand weakness; adjusted EBITDA stayed positive, supported by pricing and mix .
  • GAC commercialization is near but timeline has become more conservative: expect initial production Q1 2025, full run-rate in H2 2025; management prioritizes higher-priced industrial/RNG mix over fully contracting water at lower pricing .
  • Pricing power: industrial/RNG applications carry ~20–40% premiums over water; GAC pricing is a multiple of PAC—mix optimization is a central margin lever .
  • Financing tailwind: $30M ABL at <9% replaces expensive CFG loan, increasing flexibility for working capital and near-term capex as GAC ramps .
  • Capex overrun now acknowledged and partly pursued via litigation; learnings support tighter control and a lower-risk cost profile for future phases .
  • Near-term trading lens: watch commissioning milestones and early GAC shipments; stock likely reacts to proof-points on ramp pace, mix/pricing wins, and incremental contracts; medium-term thesis hinges on GAC scale/mix, PAC resilience, and potential Phase 2 decision in H2 2025 .