Title

Presentation

Arq, Inc. beats earnings expectations. Reported EPS is $0.00477, expectations were $-0.03.

Operator: Greetings and welcome to the Arq First Quarter 2025 Earnings Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Nathan. Thank you. You may begin.

Anthony Nathan: Thank you, operator. Good morning, everyone, and thank you for joining us today for our first quarter 2025 earnings results call. With me on the call today are Bob Rasmus, Arq’s Chief Executive Officer and President, Joe Wong, Arq’s Chief Technology Officer; Stacia Hansen, Arq’s Treasurer and Chief Accounting Officer; as well as Jay Voncannon, Arq’s Chief Financial Officer. This conference call is being webcasted live within the investor section of our website, and a downloadable version of today’s presentation is available there as well. A webcast replay will also be available on our site, and you can contact Arq’s investor relations team at investors@arq.com. Let me remind you that the presentation and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange Act.

These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to those factors identified on Slide 2 of today’s slide presentation in our Form 10-Q for the quarter ended March 31, 2025 and other filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, the company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments, or change circumstances, or for any other reason.

In addition, it is especially important to review the presentation and today’s remarks in conjunction with the GAAP references in the financial statements. With that, I’d like to turn the call over to Bob.

Bob Rasmus: Thank you, Anthony, and thanks to everyone for joining us this morning. The first quarter of 2025 was another busy and productive period marked by continued progress in both our legacy PAC business and our GAC growth initiative. As I’ve discussed on previous calls, we set out to transform our PAC business and our Q1 results clearly demonstrate that we’ve achieved this goal. With four consecutive quarters of positive adjusted EBITDA now behind us, our focus has shifted to further cost optimization and strategic price management to enhance profitability. I’m confident that our foundational PAC business can deliver double-digit millions in annual EBITDA, providing a robust foundation for our overall operations. This strong base allows us to pursue highly profitable growth initiatives in GAC, asphalt, rare earth minerals and other initiatives.

Let me summarize our first quarter 2025 results, which we reported earlier today. I’m pleased to share that we delivered another strong quarter, characterized by robust volumes, continued pricing strength and sustained margin improvement. We delivered revenue of $27.2 million in the quarter, an improvement of 25% over the prior year period. This was primarily driven by a 13% growth in our ASP, positive changes in product and customer mix and higher volumes. I’d also highlight that this marks our eighth consecutive quarter of achieving double-digit year-over-year percentage growth in ASP. Taken together, these results showcase the ongoing and sustained turnaround of our PAC business. Demand for our PAC products remains robust. While recent administration policies may extend coal-fired power plant operations, we continue to strategically diversify beyond mercury emission solutions.

This approach not only reduces our potential exposure to coal-fired power plant demand fluctuations but has proven effective in driving higher ASPs through access to premium pricing markets. Beyond pricing improvements, we continue to maintain an unwavering focus on cost management. Building on our 2024 initiatives, we’ve identified additional opportunities to reduce both operating costs and SG&A, as evidenced once again in our first quarter results. As previously noted, we believe our SG&A remains higher than appropriate for our size and are actively pursuing additional reductions. These efforts will not only further enhance near-term profitability, but position us as a more efficient organization ready to capitalize on future growth. As a result of this double benefit relating to improved revenues and SG&A cost management, we were able to deliver gross margins of 36.4%, roughly in line with the previous year.

Gross margin for the first quarter of 2025 was relatively flat from the first quarter of 2024. While the quarter benefited from higher revenue pricing and favorable customer mix, this was offset by start-up costs associated with the GAC line and a onetime accounting adjustment in Q1 2024. We generated adjusted EBITDA of $4.1 million and positive net income, reflecting a phenomenal result and again, clear evidence of the turnaround we’ve executed. I’d note that this strong Q1 momentum has carried on into April, traditionally a slower shoulder month. Volumes have been particularly encouraging, up more than 25% versus last April. Additionally, we recently secured a landmark life of asset contract, the second largest by value in company history with one of our major customers.

This agreement delivers two key benefits: enhanced visibility into our PA business and validation of our position as a trusted industry partner. Our high customer retention rates, 95% in 2024 for our power generation and industrial customers reflects the strength of our collaborative approach and the exceptional work of our sales and technical teams. In summary, our PAC business has evolved into a robust, sustainably profitable foundation that positions us well to pursue higher growth opportunities and granular activated carbon and other initiatives. Turning to our GAC business. Let’s start with the commissioning update. As announced yesterday evening, while we have and continue to make progress, we still have some hurdles relating to completed commissioning of our first GAC production line at Red River.

I understand that this is certainly a disappointment to investors as well as to me and the team at ARC. As is normal with any plant commissioning process, we have faced certain mechanical issues. When they have arisen, we have successfully dealt with those mechanical equipment issues. The ongoing delay in commissioning completion primarily relates to the shaping and binding of our product before kiln activation. While the ongoing turnaround of our foundational path business is important and, in my opinion, impressive, granular activated carbon production is key to turbocharging our future growth. In order to provide as much transparency as possible for investors, we want to provide more technical detail on the status of our commissioning process.

I appreciate how important it is for all investors to understand the remaining issue and for us to describe how we’re going about fixing them. To that end, I have asked our Chief Technology Officer, Joe Wong, to briefly outline the situation. Joe?

Joe Wong: Thanks, Bob. I’ll aim to keep this as simple as possible while hopefully elaborating sufficiently for you all to have a firm understanding of where we’re at. While we’ve been successful in commissioning the plant equipment, including the production of small noncommercial scale volumes, we haven’t yet achieved the consistency necessary for commercial scale production. Specifically, while the granules initially form properly, they sometimes do structural integrity during kiln processing. As Bob outlined on our results call in March, we have been commissioning our new GAC line at Red River in a very methodical step-by-step process, dividing the start-up into 6 functional zones. Zone 1 is where we introduced our highly purified bituminous feedstock from Corbin, and I can confirm that all receiving and conveyance equipment is operating as designed.

Zone 2 is the feedstock preparation step where we verify the bituminous feedstock is consistent with respect to size and moisture level to ensure we have a stable raw material properties at the onset of our GAC process. In this zone, we have had to employ an additional chemical ingredient which was not required in our initial testing to control the surface properties of the feedstock to enhance binding efficiency in Zone 3. This zone is also now fully commissioned. Zone 3 is equipment that incorporates our GAC additives with the bituminous feedstock particles and re-agglomerates or glues the particles to form our GAC shape. Zone 3 is very complex and is where the remaining issue requiring resolution is located. So, although further adjustments are required with respect to product binding and shaping to increase yield to allow for commercial-scale production, I can confirm that we have successfully provided hard and well-formed GAC granules to Zone 4.

Zone 4 is the first of two high-temperature heat treatment steps whereby the granules from Zone 3 are heated to remove remaining moisture carbonize granules to concentrate the carbon content and activate the glue to fix the GAC shape. This first heat treatment zone has operated to make on-specification product and while commissioned we need further fine-tuning to increase the throughput rate. Zone 5 is the second of the two heat treatment steps. In Zone 5 we activate the granules from Zone 4 under very specific thermal profiles of steam to create the activated GAC. We have successfully operated this heat treatment equipment but not at consistent higher throughput rates. However we are confident that this existing equipment that is already in use at Red River can be readily adapted for consistent high throughput of commercial-scale GAC processing.

Zone 6 is the final zone where we screen and inventory the final GAC product. Like Zone 5, Zone 6 involves similar equipment to what we have been using at our facility for years and we anticipate that there will be no issues when operated with our new GAC products at commercial-scale production. By stepping through each zone of the process we have been able to isolate and resolve problem areas in a methodical and rigorous fashion. Much progress has been made with remaining details being tackled by a cross-functional team as we ramp up throughput and identify efficiency improvements. While the majority of the process has been successfully commissioned clearly the challenges which we have faced in Zone 3 have not been trivial and have taken us longer than anticipated to resolve.

We have identified and isolated the issues. We remain extremely confident in our ability to fine-tune and fix them and with that achieved deliver commercial-scale production. Back to you Bob.

Bob Rasmus: Thanks Joe. Hopefully that summary has provided you all with a useful understanding of the process and how we have gone about commissioning as well as how we will overcome these challenges. In light of these challenges, I can confirm that Q2 GAC production will likely be minimal with full commissioning and first commercial production now estimated by the end of the second quarter or early in the third quarter of 2025. While this represents a delay from our previous expectations, we’re providing this guidance conservatively aiming to exceed rather than miss these targets. Following commissioning completion and first commercial production, we continue to expect a three to six-month ramp phase to reach nameplate capacity which would extend the timeline to achieve full production capacity slightly beyond 2025, while not our base-case assumption we’re erring on the side of even greater conservatism.

While inherited design errors from our previous contractor continue to contribute to some of our challenges let me clearly state that we accept responsibility in resolving these commissioning and first commercial production issues. In commissioning, you face both anticipated and unexpected challenges and we’ve encountered our share of both. As you know we provided our most recent update in March when we continued to expect production to commence later that month. While we acknowledge the short-term delays, we encourage all of our stakeholders to remind themselves of the project’s long-term potential spanning decades. Despite these setbacks, I’m proud of our Red River team’s dedication and problem-solving approach, which exemplifies the positive cultural transformation at Arq.

Our entire team is working diligently to get this right and achieve successful commercial production and we will. I remain fully confident in our technology and its ability to drive tremendous economic and environmental value for our customers and stakeholders alike. And I would stress that despite the commissioning challenges we have faced there are no fatal flaws as regards to the application of our technology to reach commercial-scale GAC production. On the market side, GAC demand remains robust. Recent EPA Administrator Lee Zeldin’s April 28 comments on PFAS regulation align closely with our mission when he said and I quote “We are tackling PFAS from all of the EPA’s program offices advancing research and testing, stopping PFAS from getting into drinking water systems, holding polluters accountable and providing certainty for passive receivers.” This is just the start of the work we will do on PFAS to ensure Americans have the cleanest air, land and water.

At Arq we are actively engaging with stakeholders to support these initiatives. We’re seeing strong customer momentum in PFAS mitigation adoption where GAC is widely accepted as the industry-leading solution along with growing demand from air filtration and renewable natural gas applications. Additionally, we’re receiving numerous partnership inquiries from alternative technology providers. Regarding Phase 1 contracting customer engagement remains strong. While our Q4 update indicated that a significant portion of our initial Red River Phase 1 production was allocated for customer in situ testing, these tests have necessarily been postponed due to our most recent updated timeline around commercial-scale production. However, we remain confident in our ability to meet specification requirements and expect test completion and subsequent contract finalization to align well with our production ramp-up in the second half of 2025.

The broader market dynamics continue to favor our position. We see no meaningful progress on new supply capacity from competitors. And given typical two year to three year timelines for permitting, funding and construction of new facilities we expect the current supply/demand imbalance to persist through at least 2027 or 2028. This timing is particularly advantageous as it coincides with anticipated demand acceleration ahead of the 2029 regulatory deadline requiring PFAS levels to be reduced to four parts per trillion. Our imminent market entry positions us ideally to capitalize on these favorable conditions. Next I’d like to address the recent tariff developments. While the situation continues to evolve, these changes actually work to our overall advantage.

As the only domestic activated carbon producer with a fully vertically integrated supply chain, we hold a unique competitive position. These tariffs could adversely affect our competitors who utilize imported feedstock. Our integrated supply chain though initially developed with customer service in mind not tariffs positions us favorably to optimize our operational and financial performance. Regarding broader government policy April’s EPA guidance suggests no material relaxation of PFAS-related drinking water regulations. We continue to see customers taking proactive steps driven by sound business logic given potential litigation risks and associated costs. We’re also exploring an interesting opportunity aligned with the administration’s focus on domestic rare earth minerals and graphite.

Using our purification technology and Corbin inventory, we’re investigating the potential to extract rare earth minerals and produce synthetic graphite from our coal waste feedstock. While early stage this initiative along with our asphalt opportunity represents another promising growth avenue. We’re also exploring potential government funding to support this strategic initiative. In conclusion, Q1 delivered exceptional results in our core PAC business exceeding expectations and demonstrating sustainable momentum. While the GAC commissioning and first commercial-scale production delays are disappointing we remain confident in the fundamental opportunity and our ability to realize that opportunity. We look forward to providing further updates on commissioning progress in the coming months.

I’ll now turn it over to Stacia for a detailed financial review.

Stacia Hansen: Thanks Bob and thanks everyone for joining us today. Arq again delivered strong financial results during the first quarter with revenue growing 25% year-over-year to $27.2 million. This was driven largely by enhanced contract terms including 13% growth in average selling price and favorable shifts in product mix as well as an increase in volumes. To note this quarter marks our eighth consecutive quarter of double-digit year-over-year percentage growth in ASP. Our gross margin in the quarter was approximately 36.4% which is relatively consistent from the first quarter of 2024. As Bob mentioned gross margins were flat versus the prior year period as improved pricing and favorable customer mix was offset by start-up costs associated with our GAC line and a onetime accounting adjustment in Q1 of 2024.

Without that adjustment in the first quarter of 2024 we believe gross margin would have been up approximately 5% over the prior year period. We generated positive adjusted EBITDA of approximately $4.1 million compared to an adjusted EBITDA loss of $400,000 in the prior year period. I would note that consistent with many market participants we have added back stock-based compensation in Q1 of 2025 as part of our adjusted EBITDA calculation and revised the Q1 2024 adjusted EBITDA calculation for comparability. Net income was $200,000 a significant improvement versus net loss of $3.4 million in Q1 of 2024. 100% of our sales contracts are now net contributors in 2025. Focusing our efforts on profitability over volume led to this milestone a significant achievement in our PAC portfolio given that 24% of our volumes were loss-making as of December 2022.

Selling general and administrative expenses totaled $6.1 million reflecting a reduction of approximately 21% versus the prior year period. This reduction was driven by a reduction in payroll and benefits as well as general and administrative expenses. To note a portion of this decrease is attributable to our Corbin facility becoming operational in January of 2025 and thus payroll and benefit costs associated with this facility are now capitalized as inventory on our balance sheet versus being expensed within SG&A. Research and development costs for the first quarter decreased 46% compared to Q1 of 2024. In the first quarter of 2024 R&D spend was primarily driven by conducting further product qualification testing with potential lead GAC adopters but this has significantly decreased in Q1 of 2025 as many lead adopters completed this testing in the 2024 period.

Overall our performance in Q1 of 2025 demonstrates our ability to operate our PAC business in a way that contributes positively to our economic position in a truly sustainable manner while further enabling us to pursue and execute on high-growth and high-margin opportunities within our expanding GAC business. We remain focused on enhancing the profitability of our PAC business even further and believe that it is now cash-generative on an annualized basis. As Bob noted this PAC legacy business turnaround secures our foundational business onto which we are adding the higher-growth GAC opportunity. Turning to the balance sheet we ended the first quarter with cash of $14.8 million of which approximately $6.3 million is unrestricted. The change versus last quarter was driven by trailing CapEx spend at Red River relating to the GAC line and buildup of Arq wet cake inventory and critical spare parts.

Today we are also reiterating our 2025 CapEx forecast of $8 million to $12 million. We continue to expect to fund our CapEx needs via existing cash, cash generation and ongoing cost reduction initiatives. In addition we have amended our agreement with MidCap to permit if needed additional borrowings under that facility arising from delaying commissioning of the granular line. With that, I will turn things back to Bob.

Bob Rasmus: Thanks Stacia. Before opening things up for questions, I wanted to highlight a really exciting update here at Arq; namely the introduction of Jay Voncannon, Arq’s new Chief Financial Officer. Jay brings over 35 years of financial leadership experience including his recent role as CFO at CoorsTek, a multibillion-dollar advanced engineering manufacturing business, wholly owned by the Coors family where he successfully guided the company through significant expansion and profitability improvements. Prior to that he spent more than two decades as a senior finance executive at Koch Industries, overseeing major investment initiatives and strategic acquisitions including, the deployment of around $7.5 billion in investments.

Jay will be based at our Greenwood Village headquarters and will oversee all aspects of our financial strategy and operations including planning, accounting, tax, treasury and internal audit. His extensive experience and strategic insight will be instrumental as we continue to transform and scale our business. I’m confident that Jay’s leadership will strengthen our finance organization and support our future growth. With that, let me turn it briefly over to Jay for a few comments. Jay?

Jay Voncannon: Thanks, Bob. Although, I’ve only had my feet under the desk for about a month now, I’ve been incredibly impressed by the team that I’ve met. As Bob mentioned, this is a very clear can-do mentality which is a part of the culture of the entire organization and I’m extremely excited to be joining the company, as it embarks on such a compelling growth trajectory. With my experience in financial strategy across similar businesses, I’m confident that I can further enhance the great work which has already been started in the last year or so. In terms of priorities, my initial focus is going to be on leveraging our cost position through the growth period along with potential strategic initiatives. With a great team already in place, I’m very confident that together we can further streamline and enhance both the current business and our future growth potential.

Meanwhile, I look forward to meeting more shareholders and investors in due course and updating the market on our progress at the time of our next quarterly results. With that, I’ll turn it back over to Bob.

Bob Rasmus: Thanks Jay. In closing, the first quarter represented another quarter of strong progress. Our PAC business continues to excel and I’m confident in our ability to further expand its profitability. The turnaround strategy we initiated in 2023 has largely been achieved, though we’ll continue optimizing performance. Most importantly, I believe we’ve established a foundation for sustainable quarterly profitability. Looking ahead, we’re positioned to complement this core business with our granular activated carbon opportunity. While the commissioning and commercial-scale production delays are extremely frustrating, I remain convinced of GAC’s potential and our ability to deliver higher-growth profitability the very opportunity our shareholders invested in.

We believe we’re close to resolving our commissioning and first scale production challenges, after which we can begin production ramp-up towards nameplate capacity. Our focus over the coming months will be on the efficient and timely completion of commissioning and first consistent commercial scale production, conducting customer testing and securing additional contracts. And of course, we’ll continue to keep the market informed of material developments. Let me now turn the call over to our operator for Q&A.

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question we have is from Gerry Sweeney of ROTH Capital Partners. Please go ahead.

Q – Gerry Sweeney: Good morning, Ras, Stacia Joe and Jay.

Bob Rasmus: Good morning, Gerrry

Q – Gerry Sweeney: I think I got everyone there correct. Thanks for taking my call this morning. Obviously, I just — I mean, I’m going to start with the commissioning process here and just wanted to understand the root cause of the inconsistency, a little bit better. So this I guess may be directed towards Joe a little bit. But from the sounds of it, you’ve broken the plan up into six zones. Zone 6 is screening and inventory. So it’s probably not necessarily critical. But it sounds as though you identified the issue and it — my words, not yours maybe becomes unstable in Zone 4 where this is the first of the two heat activation processes. And you have added a chemical in Zone 2 to stabilize the process. Now you have to — that chemical additive may have changed how the product flows through or how it’s activated in Zone 4.

So you had to tweak some of the machinery, so its utilization increases. So I mean that’s probably a very layman-esque description of what’s going on but I’m just curious if I’m on the right track here?

Bob Rasmus: I’d say Gerry, it’s more than a layman-esque explanation of what’s going on. It sounds like you participate essentially in our daily or twice-daily meetings as it relates to commissioning. In essence that’s correct. We have produced commercial scale production or I say small volumes. What we’re looking to do is improve the efficiency of that operations. And really what we’re doing is fine-tuning the process and the fine-tuning mainly relates to Zone 3, which is the addition of that chemical additive, which essentially binds and helps reagglomerate the process together in that respect. And I think that what do I mean by fine-tuning? I mean, we’re always looking and fine-tuning or optimizing all areas of the production process.

And as Joe mentioned in his remarks and you obviously captured on that the primary area of emphasis is related to optimizing Zone 3. And Zone 3 is as you discussed where the equipment that incorporates the GAC additives with the bituminous feedstock and then glues them back together or reagglomerates that. The adjustments that we’re making are focused really on improving the consistency, the efficiency, the volume throughput and the speed of production. We did reformulate slightly that binder to improve the consistency on that improve the efficiency and we’re seeing results from that

Gerry Sweeney: On that front, obviously, there’s a degree of certainty or confidence on your part that you’re going to fix this sooner rather than later. Can you give us some example step-functions that have give you this confidence? I mean, meaning I think you reformulated the new products. And does this mean you’re seeing higher utilizations and then something is getting gummed up? Again layman-esque terms. But I wanted to get a little bit more understanding of where some of this confidence is coming. Are you starting to see increased utilization, higher consistency and higher utilization things along those lines?

Bob Rasmus: Sure. So the main thing we’re trying to do as I mentioned is increase the throughput and the consistency of that throughput. Again we’re able and have produced small non-commercial scale volumes or commercial scale volumes, excuse me. But what we’re looking to do is produce that on a consistent uninterrupted basis. And what we’re seeing on and what were the challenge we’ve been faced is we haven’t been able to produce on an uninterrupted basis. There have been some either feed issues or we’ve had a controller breakdown, we had a belt issue. So again some of it is just regular stuff happens as it relates to commissioning and the other is just working to ensure a continuous uninterrupted quality process, so that we can say that we are in full commercial production. We have produced commercially, but we just don’t feel comfortable saying we’re in full commercial production because we don’t have that uninterrupted manufacturing process occurring for us.

Gerry Sweeney: That uninterrupted process, are you reducing some of the issues around it and the checklist is getting smaller? Again just trying to get a little bit more understanding on the confidence here.

Bob Rasmus: I mean, so the real question is and I’m going to paraphrase, or I don’t mean to be a politician and answer a different question, but I think I’m trying to answer the question that I think you’re asking is that given the delays and challenges to date, why am I confident that we’re going to meet the new timelines and ramp-up schedule? Is that a fair synopsis?

Gerry Sweeney: Sure. Yes.

Bob Rasmus: And so along those lines, I think it’s important to talk about or to discuss what we know. We know the mechanical process works. We know we can and have produced small-scale granular activated carbon. We know we have to optimize the speed and consistency of our process to meet our production profile targets. And as said previously, that’s part of what we’re doing in relation to the fine-tuning. And so again, you’re probably thinking, how does all this relate to timing? We are close. However, I know you’ve heard me say that before on that. And as Joe mentioned in his remarks, commissioning of this kind really isn’t linear, and we have learned from it in the past. So it’s really hard to make tight predictions in terms of how long it might take to get there.

But I know based on having missed our previous announced guidelines, we want to be conservative, going forward. And the result of that is that we’ve given a wide range of updated guidance that we provided today in our remarks and yesterday in the 8-K, which I want to stress that we hope we can hit sooner. Hence, if you look at it, our statement of achieving full commercial-scale production late in the second quarter or early in the third quarter, I think is prudent. But considering the challenges we’ve faced to date and we’ve missed the deadline I think it’s sensible that we provide a range which we’re extremely confident of meeting or beating. Sorry to be so long-winded.

Gerry Sweeney: No, no. Absolutely. I’m going to ask one more question, and this one I will certainly be more articulate on because it’s much easier to ask. PAC business, great margins. I apologize, I didn’t get a chance to go through the 10-Q. Two things. One, curious if there was any take-or-pay benefit in the quarter. And then secondarily, if Stacia could, I’m not sure if I caught it, but was there a 5% drag on margins because of some of the start-up activity on the GAC side?

Stacia Hansen: Hi, Gerry. Yes, you are correct. There are no take-or-pay impacts to the Q1 results. And then to your second question, yes, we estimated about a 5% gross margin pickup, taking away the start-up costs for the GAC line in Q1 as well as that onetime accounting adjustment in 2024.

Gerry Sweeney: So we would have been over 40% gross margins in 1Q.

Stacia Hansen: Correct.

Gerry Sweeney: Got it. I will jump back in the line. I’m sure there is other people waiting. So, thank you.

Operator: The next question we have is from George Gianarikas of Canaccord Genuity. Please go ahead.

George Gianarikas: Hi. Good morning.

Bob Rasmus: Hi, George.

George Gianarikas: I’d like to ask questions along a similar line. Obviously, this is the second delay over the last several months. And I’m curious, just to compartmentalize it, is this a question — how confident are you that iteration, just continued iteration, through the process will get you to the new timeline, as opposed to having to throw additional dollars at the problem? I’m just trying to make sure that I understand exactly what’s happening here and it’s sort of an engineering process that has to continue to be iterated as opposed to something that has to — that could impact the CapEx profile of the firm. Thank you.

Bob Rasmus: Yes. So I think, again, just to rephrase or paraphrase, is kind of like, is there a fatal flaw? And no, there isn’t, absolutely not. And then the question is, again, why are we confident? What are we doing? What’s going on that we don’t have to spend a lot of other money, increase CapEx, et cetera? Is that a fair summary?

George Gianarikas: Yes.

Bob Rasmus: And so one, as I say, again don’t mean to be redundant. But we know we can, we have and we are producing small-scale granular activated carbon. So the ability to do that is not an issue. I mentioned in my prepared remarks, we did have some challenges we had to overcome relate to equipment design relating to the original design by Harris Group. We’ve overcome all of those. We know from a mechanical standpoint all of that the equipment all works, and it all works. And so that’s validated. And then you look at process integration which is obviously another form of commissioning which essentially means that ensuring the various zones and mechanical components operate as one continuous integrated process. And I can confirm that’s the case.

They do. We have successfully inputted the Corbin wet cake feedstock into the system and we’ve successfully moved that product through all the steps and have production results. So the takeaway is we know the system works. We can and we have produced product, but not just with again being redundant the consistency efficiency the uninterrupted nature. And so what we’re really doing in my mind, in the team’s mind, in Joe’s mind, in Deke Williamson who is Chief Operating Officer is optimizing the production at the rates and consistency, so we have continuous operations. So again, I hate to be so long-winded on answering that, but we’re very confident that it’s not a design issue. It’s just a fine-tuning or tweaking of the process.

George Gianarikas: Thank you. And maybe I can switch gears a little bit. You mentioned Lee Zeldin’s comments in your opening remarks. I’m curious as to any signal you’ve received maybe from the administration that the 2029 deadline is still intact or maybe despite the commentary around clean water there might be some changes to the deadlines that they’ve put in place. Thank you.

Bob Rasmus: I was actually in D.C. last week meeting with senior officials from the EPA. In fact it was the morning after Zeldin’s announcement had been made. And they see no delays going forward as it relates to pushing back the PFAS regulations. And in fact they were looking to further enhance those regulations and add more teeth and also to focus on the wastewater element, not just the drinking water element of that. So I didn’t get any indication either from Zeldin’s remarks or my meetings at the EPA that there was any expectation of a delay or softening the regulations.

George Gianarikas: Thank you.

Operator: The next question we have is from Tim Moore of Clear Street. Please go ahead.

Tim Moore: Thanks. Just one quick follow-up on the GAC volumes commercialization delay. Thanks for providing that update. I think that helps investors. And you mentioned Bob, the postponed testing. But how long is kind of the lead time maybe for some of your largest contracted customers for the PFAS removal? Do they want 30 to 40 days to test it out the new output before they kind of come back and you switch on production? Just kind of curious how those conversations are going and do you have an idea of their review lead time?

Bob Rasmus: So, we really — on the PFAS removal municipal water side, we really don’t have any testing issues or remaining testing issues as it relates to that aspect of the marketplace that our product has been certified by customers and states and municipalities. And so it’s really just getting access to the production to be able to implement as they begin their PFAS remediation. The lead time really more relates to the RNG segment who prefer in-situ testing as we’ve mentioned previously.

Tim Moore: That’s great. That’s really great clarification. That’s very helpful because I know you were holding back some of the volume for the RNG side, but it’s nice to hear the water removal is on track. This next one is for Jay. Jay, I know you’ve only been in the CFO role for five weeks and you just mentioned leveraging the cost basis, but can you maybe share some color on things that you might want to add or enhance from maybe your past best practices? And it might be too early to answer this next part, but are you seeing more SG&A cost savings leverage potential? Because it’s been quite good since last summer. I’m just wondering if there’s more to come on the SG&A cost leverage side.

Jay Voncannon: Thanks. Yes, I would say that my first month in meeting people understanding the business and the process, getting up to speed on the delay that we’ve had. But I would say, I do think there are more opportunity around the cost. I’m just beginning to dig into that area of it and I do think that there is an opportunity if you just look at the size of the company and where we are. Definitely don’t think that we’ll see any increase in costs associated with the growth in revenue. And I do think there are opportunities to actually trim some cost out. And so that’s something we’ll be working on over the next quarter. And I would say elsewhere, just based on my own experience that, I think there’s probably even more opportunities around some of even probably the overhead that exists at the plants and looking at that regard.

And so I think I mean everything is fair game. There’s nothing that’s taboo or off-limits. And so we’ll be making prudent decisions and trying to understand what’s in the best interest of the company and the shareholders.

Tim Moore: That’s great, because the operating leverage has been quite good in the last three quarters and it’s nice to see there’s some runway left for that. My last question is back to Bob. Just regarding your compelling asphalt production product potential I know the R&D phase is underway. Do you think it would be too presumptuous to assume maybe this year you could sign up with a strategic partner to start some commercial revenues by the end of next year on that front?

Bob Rasmus: I don’t think it’s presumptuous to have a partner. In fact, in a way we have partners in the testing that we’re currently conducting and we have scheduled to start later in the year. So I don’t view it as presumptuous at all. I would say, though that the revenue, the first revenue wouldn’t be realized until 2026 at the earliest as it relates to that. Essentially, what we’re looking at asphalt emulsion is another way of monetizing or creating value for shareholders as it relates to our unique Corbin feedstock. And that’s why I also mentioned in my remarks, the synthetic graphite and rare earth minerals. We know we produce rare earth minerals from the washing process of the coal as we begin that for the manufacturing of the Arq wet cake.

I mentioned previously, I was in D.C. last week. I also met with officials from the Department of Energy, who were the ones who brought up the rare earth minerals and also potentially using our product for synthetic graphite. And they were the ones who brought up, potentially providing funding for us to realize that. Because obviously, with the current administration that’s a critical focus on an ongoing basis the rare earth minerals and synthetic graphite.

Tim Moore: Great. That’s nice. And thanks for being consistent on the revenues for asphalt not until next year. I know you mentioned that last time. So that it for my questions. Thanks.

Bob Rasmus: Thank you.

Operator: The next question we have is from Peter Gastreich with Water Tower Research. Please go ahead.

Peter Gastreich: Thank you very much. Hi, Bob and team. Congratulations on your results and thanks for the presentation this morning. Also appreciate the detailed technical presentation from Joe. Just a couple of questions here. The first one is more of a macro question, an industry question. So what does your experience with this first GAC expansion tell you about the prospects for industry supply? So you’ve got a talented experienced technical team. So it’s probably not a stretch that the broader industry could run into similar teething issues in terms of the ramp-up of GAC and maybe we could have an even tighter than expected market as a result. Do you have any thoughts about this?

Bob Rasmus: Yes absolutely. So a couple of things. One, as I mentioned it’s at least a two or three year process for someone to bring on new GAC capability and probably being longer. But again, I’d rather look at it on the riskiest standpoint from the risk to our business. That’s one. Two, I appreciate the comments about the technical capabilities in our operating team. I as well think that they are first-class. And in some respects misery loves company I know one of our competitors had brought some GAC capacity online, a while back and they had significant delays versus when they originally were going to bring on that online. Now I don’t want to be in that company and I’m not happy about it and it is extremely frustrating but again, I think – we and they are kind of best-in-class and we’ve had issues and continue to work through those issues as it relates to that.

So I think one that gives me additional confidence in the long-term visibility and runway as it relates to the economics of the investment. And the other is the supply/demand imbalance that was the original investment thesis and rationale for getting into the GAC business not only is still in place but continues to work in our favor, i.e. demand continues to increase, demand for our product, customer inquiries for our product with as we all know that supply has not expanded. So long-term, again both near-term and long-term, the initial investment thesis and rationale for getting into the GAC business not only remains intact but is still very, very strong.

Peter Gastreich: Okay, great. Thank you. My second question, I understand that first things first, you’re going to want to get to commercial production. But for GAC Phase 1, are you still viewing that possibility of the 10% to 33% enhanced production?

Bob Rasmus: Absolutely. But as you say, we’ve got to get to full commercial production in full run rate. As we’ve said, once we’re at full run rate, we’ll be able to tell what the land gap will be in terms of additional production capability.

Peter Gastreich: Okay. Thanks. And just a final question here, I’ll get back in the queue, but for Phase 1, what percentage of production is currently contracted?

Bob Rasmus: Phase 1, currently assuming the 25 million pounds, we’re about 60% contracted. Again, we could fully contract that right now and be fully contracted. But again, we’re holding it back for the RNG market because the RNG market is a higher price point, higher margin for us. And again, the production ramp-up profile matches the testing requirements of the RNG segment.

Peter Gastreich: Okay. Great. Thanks, Bob. I’ll get back in the queue.

Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the floor back over to Bob Rasmus, for any closing remarks.

Bob Rasmus: Thanks, Irene. From a financial standpoint, we delivered an attractive first quarter results, building on the strong performance we achieved in 2024. As mentioned earlier, April was also a good month for PAC volumes. The overall economic fundamentals supporting Arq’s business remain strong. While the PAC turnaround has been a major achievement, there’s still meaningful room for further improvement, further enhancing the value of this foundational asset as we grow into the granular activated carbon market. As mentioned, our original investment thesis for expanding — excuse me– into GAC is not only intact it’s more compelling than ever. And let me be very clear, the delay in reaching commercial-scale production at Red River is frustrating.

However, it doesn’t change the facts. The market remains significantly undersupplied, the long-term demand drivers are firmly in place. And we continue to believe deeply in GAC’s role as a long-term growth engine for Arq. And given the strength of the market and our expected near-term production, I can say both as CEO and a major shareholder, that I am as confident and as excited about the Arq opportunity today as I’ve been since joining. Thank you all for your time today.

Operator: Ladies and gentlemen, that concludes today’s conference. Thank you for joining us. You may now disconnect your lines.