Q1 2024 Arq Inc Earnings Call
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Speaker Change: Good day and.
Speaker Change: Onto the Ark first quarter 2024 earnings call at this time all participants are in a listen only mode. Later, there will be a question and answer session you'll be queue for a question at any time by pressing the star key followed by the number one on your telephone keypad. Please.
Speaker Change: Please be advised that today.
Speaker Change: Is being recorded.
Speaker Change: Should you require operator assistance you May press Star Zero I would now like to turn the call over to Anthony Nathan head of Investor Relations. Please go ahead.
Anthony Nathan: Thank you operator.
Anthony Nathan: Good morning, everyone and thank you for joining us today for our first quarter 'twenty.
Anthony Nathan: For earnings results call.
Anthony Nathan: With me on the call today are Bob Rasmus, Chief Executive Officer, and President as well as Stacey Hudson Ox, Treasurer, and Chief Accounting Officer.
Speaker Change: This conference call is being webcast live with the investors section of our website and a downloadable version of today's presentation is available there as well.
Anthony Nathan: Yeah.
Anthony Nathan: Webcast replay will also be available on our website and you can contact docs investor relations team at investors <unk> com.
Anthony Nathan: Let me remind you that the presentation and remarks made today include forward looking statements as defined in section 21, <unk> of the Securities Exchange Act.
Anthony Nathan: These statements are based on information.
Anthony Nathan: Debatable 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.
Anthony Nathan: These risks and uncertainties include but are not limited to those factors identified on slide two of today's slide presentation, and our Form 10-Q, our quarter ended March.
Anthony Nathan: 2024, and other filings with the Securities and Exchange Commission.
Anthony Nathan: Except as expressly required by the Securities Law. The company undertakes no obligation to update those factors or any forward looking statements to reflect future events developments or changed asking something or for any other reason.
Anthony Nathan: In addition, it is especially important to view the presentation and today's remarks.
Anthony Nathan: Conjunction with the GAAP references in the financial statements.
Anthony Nathan: With that I would like to turn the call a basketball.
Anthony Nathan: Thank you Anthony and thanks to everyone for joining us this morning.
Speaker Change: Proud to report that for the first quarter of 2024, we maintained the strong momentum which began building in the past.
Basketball: Half of last year.
Basketball: Our latest quarterly performance reflects continued topline growth and improved margins driven by higher pricing and cost management.
Basketball: Our performance in the first quarter of 2024 versus 2023 is even more impressive given lower volumes caused by a very mild winter.
Basketball: These efforts resulted in the continued financial improvement to our foundational pack business and ongoing progress related to our granular activated carbon expansion.
Basketball: I am also excited about signing our first granular contract I will provide more details on this milestone event later in my remarks.
Basketball: Our first quarter results, evidenced a clear momentum and improvements we are delivering across the business.
Basketball: They also demonstrate that these changes are taking root.
Basketball: Best evidence of our business optimization and transformation was our strong gross margin performance at 37%.
Basketball: <unk> margin was more than double the prior year period. We are also proud to have delivered a 4% increase in revenues versus last year, despite lower volumes due to the impact of a very mild winter and lower natural gas prices in our power generation business.
Basketball: While adjusted EBITDA was negative.
Basketball: $1 million, we reported our third consecutive quarter of year over year growth in adjusted EBITDA and fourth consecutive quarter of double digit year over year percentage growth in average selling price.
Basketball: Adjusted EBITDA was impacted by spending $1 $6 million in R&D.
Basketball: This represents a $1 million increase over the prior year the increase in R&D spending was directly related to <unk>.
Basketball: Qualification testing with lead adopters as part of our ongoing GAC contracting process.
Basketball: While a negative impact for the.
Basketball: Or it was an investment with tremendous near and long term benefits. It is because of these in depth technical discussions that we were able to sign our first granular contract and are confident in our ability.
Basketball: Pre contract the entire 25 million pounds of granular activated carbon prior to beginning production.
Basketball: As we've outlined.
Basketball: Actually the performance of our Pac business is correlated with natural gas prices. This year's milder than normal winter led to lower natural gas pricing as a consequence demand for electricity generated from coal fired power. The end market for a majority of our pack solutions was reduced to six.
Basketball: Percent declines.
Basketball: Year over year volumes was offset by a 16% increase in our E S P versus the prior year.
Basketball: The increase in average selling price when combined with our manufacturing cost reduction initiatives resulted in our achieving the previously mentioned, 37% gross margin.
Basketball: It's also worth noting that our.
Basketball: Quarter performance and a portion of our second quarter are generally seasonally softer quarters for our business I am very proud of our team delivering revenue growth year on year, while also continuing to fundamentally improve margins and profitability across the business.
Basketball: From an operational perspective, we performed well and I commend the team for their ongoing focus operational cost management and execution efficiency.
Basketball: As an aside one perfect example of outstanding execution is the recently completed plant turnaround at our Red River facility.
Basketball: Yep.
Basketball: Turnaround occurs every two years this year, we shut down the plant for two weeks to conduct regular plant maintenance and tie in certain systems and components for our GIC expansion. The turnaround was completed safely on.
Basketball: Time and on budget.
Basketball: The address is rarely.
Basketball: And the sustainable improvements we are realizing are clearly evident in all aspects of our business and financial performance.
Basketball: While I do not expect our Pac operations to transform to a high growth business for US we have made undeniable progress and that we're in a fundamentally different position to win.
Basketball: They were 12 or even six months ago.
Basketball: As a result, I continue to expect that our pad business will be cash generative for full year 2024 marketing a critical achievement to the go forward the strength of our business and generation of shareholder value.
Basketball: As I mentioned.
Basketball: It's really the combination of a mild winter and low natural gas prices had a negative effect on our power generation volumes. However, low natural gas prices are not the only factor in reduced demand for coal fired electrical power.
Basketball: Alternative energy such as biogas in Biomethane are new and growing.
Basketball: Core sources. This is actually good for arc and for GAC demand leap knowable natural gas must be purified before it can enter the greater pipeline system. The contaminants removed are primarily but not exclusively sulfur.
Basketball: The producers must use GAC to remove contaminants again. Another reason why we are bullish on the demand for our <unk> solutions.
Basketball: This provides an excellent lead into an update on our latest GAC expansion progress.
Basketball: Construction at our Red River facility is proceeding well and we remain on schedule for targeted commissioning in the fourth quarter of this year.
Basketball: So let's say this I'm delighted to confirm that we are now actively commissioning our carbon facility.
Basketball: <unk> is where we will produce our purified bituminous waste feedstock to be used in the production of our unique GAC products at Red River commit.
Basketball: Commissioning is progressing as planned and we expect to conclude the process in may.
Basketball: Today, we are updating our full year 2020 for Capex forecast to a range of $60 million to $70 million, reflecting an increase of $5 million to $10 million versus our previously communicated guidance range of between 55 and $60 million.
Basketball: The update is driven by a higher than expected capex.
Basketball: Strategic Red River at Phase one expansion.
Basketball: Specifically increased steel and concrete cost and requirement.
Basketball: And that's of the $60 million to $70 million in 2020 for Capex, We expect Red River phase one capex to represent.
Basketball: $55 million to $60 million of that amount.
Basketball: Our team is working continuously and intentionally to identify cost savings and execute on ways to reduce some of the overall project increase.
Basketball: We are making every effort to ensure that there are no further changes in our spending plan.
Basketball: At this point it is logical for an investor to ask Capex has risen continuously for the last several quarters what confidence do you have that there won't be further increases.
Basketball: And what contingencies do you now have in place and that eventuality.
Basketball: The majority of the previous increases are related to poor services provided by external parties previously contracted to manage an engineer the project that I mentioned on our last earnings call.
Basketball: This increase is due to these external parties significantly underestimating.
Basketball: And requirements of the project is substantially increased the scale and cost at the amount of steel and concrete needed.
Basketball: Based on our previous experiences we have now included a contingency factor into our new guidance range that we hope not to require but should mean that we finally draw a line under possible furthering.
Basketball: We intend to fund our Capex with a mix of cash on hand cash generation ongoing cost reduction initiatives potential prepayments and GIC contracts and a planned refinancing and expansion of our existing term loan.
Basketball: Most importantly, and this is critical even when accounting for this latest capex.
Basketball: Cash we remain extremely confident in this project, having a three year or less payback simply stated this remains a great investment opportunity that way.
Basketball: I have attractive returns and fundamentally alter the growth trajectory and long term prospects for our business and we continue to believe that we will not require the sale of any equity to achieve this.
Basketball: Our confidence in reaching these targeted investment returns are not just hypothetical earlier today, we announced a strategic milestone with the signing of our first ever granular activated carbon contract.
Basketball: The contract accounts for approximately 5 million pounds of annual GAC production or approximately 20% of our targeted initial nameplate capacity.
Basketball: The contract price is attractive and represents a multiple of ours.
Basketball: Bridge.
Basketball: Pricing.
Basketball: This is a tremendous achievement and provides third party validation of our strategy and expanded solutions offering.
Basketball: Signing of our first GAC contract amplifies our confidence in both our broader granular activated carbon strategy and ours.
Basketball: Product potential the contract also further derisk the strategic expansion of our Red River plant.
Basketball: We remain in active discussions with additional customers regarding our remaining GAC capacity.
Basketball: Based on those discussions we are confident in our ability to enter into additional contracts for the full 25 million pound capacity ahead of final commissioning later this year and look forward to providing further updates in the near term.
Basketball: Let's now turn to a discussion of exciting and even transformational regulatory news that has been released since we last spoke with you on our fourth quarter earnings call in March.
Basketball: Maybe you are likely aware on April 10th the EPA issued a landmark decision to implement the first ever national legally enforceable drinking water regulations on P fast or forever chemicals, the regulation significantly lowers permissible levels of these types of chemicals in the U S.
Basketball: Drinking water by over <unk>.
Basketball: The percent from prior EPA guidance.
Basketball: These changes mark a pivotal moment in ongoing and increasing efforts.
Basketball: <unk> got public health and preserve environmental integrity.
Basketball: We recognize this is a monumental opportunity the new standards set by the EPA are expected to drive even stronger near and long term.
Basketball: And for effective remediation products, particularly granular activated carbon.
Basketball: As demand escalates due to these stricter regulation.
Basketball: Eric is strategically well positioned not just to participate but to lead the market with our unique GAC products and innovative solutions.
Basketball: We articulated our enthusiasm following the <unk>.
Basketball: Emphasizing that this regulatory shift paves the way for stronger demand for our products and contributes to a cleaner future with material.
Basketball: They are quality water in our communities.
Basketball: We estimate that the Epa's, new benchmarks will catalyzed a three to five times increase in GAC demand over the coming five years within the wider market alone.
Basketball: We believe the current water sector demand is roughly 170 million pounds at the conservative end of our estimates this equates to total water sector demand of in excess of 500 million pounds of annual demand versus the current 170 million pounds.
Basketball: Clearly the increase in demand as well in excess of current and anticipated supply.
Basketball: As outlined on slide nine of our latest Investor presentation historical market data is circa 2021, 2022 estimates a GAC supply deficit.
Basketball: Of between approximately 50 and 100.
Basketball: Million pounds between 2025 and 2029.
Basketball: Fortunately this data does not factor in the significant increases in demand driven by the EPA has recently announced regulations, we estimate that normal market growth when combined with municipalities seeking to comply with the new EPA regulations in advance of the 'twenty nine.
Basketball: <unk> deadline, we will potentially result in 370 million pounds of excess demand versus current supply.
Basketball: With this supply and demand backdrop, we believe prices could continue to materially improve versus our business plan estimates and even the pricing reflected in our inaugural.
Basketball: Contract.
Basketball: We believe the regulatory landscape for PFS continues to dramatically change not just nationally, but globally the level and intensity of discussions and focus on the topic is palpable and we're proud to be at the center of this critical global initiative.
Basketball: We anticipate similar regulations to those recently announced by the EPA will be adopted in other markets around the world. This will further expand our addressable market and opportunities for growth, we remain dedicated to our mission of enabling customers to meet these evolving regulations through our innovative.
Basketball: Technologies.
Basketball: As I noted earlier the ongoing construction of our new 25 million pound GAC facility.
Basketball: Is progressing on schedule for commissioning in the fourth quarter of this year. This expansion will significantly enhance our production capacity and fortify our supply chain, ensuring we meet both current and future demands.
Basketball: While we remain keenly focused on developing phase one of our strategic growth project at Red River, we are actively assessing.
Basketball: Viability of a second 25 million pound at Red River. This remains in the planning stages, but importantly, we have already secured all necessary permits to quickly execute on a red River phase II project.
Basketball: We believe the combination of market ready product existing site location and necessary.
Basketball: That's in place puts us several years ahead of any potential competition, which will undoubtedly be attracted to the market should demand and pricing improve as we expect with that I will hand, it over to Stacy to discuss the latest financials in greater detail.
Stacy: Thanks, Bob and thanks, everybody for joining us today.
Stacy: We delivered strong financial results during the first quarter with revenue growing 4% year over year, driven largely by enhanced contract terms, including 16% growth in average selling price and positive changes in product mix.
Stacy: Partially offset by a 6% decline in volumes.
Stacy: Our gross margin in the quarter was approximately 37% more than double the 17% Barnett and prior year period.
Stacy: As a result in the first quarter, we achieved our fourth consecutive quarter of double digit year over year.
Stacy: Growth in Asps.
Stacy: And also reduced our net loss over the prior year period.
Stacy: Adjusted EBITDA loss improved year over year to $1 $1 million compared to an adjusted EBITDA loss of $7 $7 million in the prior year period.
Basketball: Net loss was $3 4 million compared to a net loss of $7 $5 million in Q1 of 2023.
Basketball: I would note that these improvements have come in what is a seasonally weak quarter for the company and on the back of what was a very mild winter.
Basketball: To achieve these enhancements against a backdrop of lower volumes as a result of contract enhancements, we flagged in the second half of 2023 is especially encouraging.
Basketball: Again, our average selling price for the quarter.
Basketball: 16% year over year, we continue to eliminate negative margin contracts as they focus on profitability of our volumes and at the end of the first quarter have reduced loss, making contracts to roughly 3% of volumes versus roughly 24% in 2022 and approximately 13% in 2023.
Basketball: Selling general and administered.
Basketball: Expenses totaled $7 $7 million, reflecting a reduction of approximately $3 $6 million versus the prior year period.
Basketball: Driven by a reduction in payroll and benefit expenses as long as legal and professional fees.
Basketball: Offset by a higher foreign compensation and rent and occupancy expenses.
Basketball: Yeah.
Basketball: Research and development costs for the first quarter totaled $1 $6 million compared to approximately $7 million in the prior year period year over year growth in R&D was primarily driven by conducting product qualification testing in the first quarter of 2024 with potentially GAC adopters.
Basketball: Based on today's JC contract announcements lately.
Basketball: This reflects a very smart use of our capital.
Basketball: Overall and on an annualized basis, our performance demonstrates our ability to operate our Pac business in a way that contributes positively to our economic position, while further enabling us to pursue and execute on high growth high margin opportunities with our expanding GAC business.
Basketball: As Bob mentioned.
Basketball: We anticipate that our Pac business will be cash generated in 2024 and with that we'll have a much more secure foundational business on which we can add more rewarding GAC opportunities.
Basketball: Turning to the balance sheet, we ended the first quarter with cash of $44 million with a change versus last year in quarter, driven by ongoing strategic investments and expansion at carbon and Red River.
Basketball: As Bob noted earlier, we updated our 2020 for Capex forecast to a range of $60 million to $70 million of with Red River Phase one is expected to account for $55 million to $60 million.
Basketball: To Echo Bob's comments, we remain extremely confident in our ability to fund our cash needs.
Basketball: Needs via our existing cash cash generation ongoing cost reduction initiatives potential prepayments on GIC contracts and perhaps most pertinent Lee our planned refinancing and expansion of our term loan.
Basketball: All without the requirement of further equity.
Basketball: With regards to the previously discussed refinancing I am happy to confirm that we have appointed advisors to execute this transaction and our initial conversations with potential lenders support our confidence into entering into a new agreement with enhanced economics within the next few months.
Basketball: Further we expect to gain even greater flexibility with an expansion of the facility is supported by our current low debt position and improve.
Basketball: Really attractive future cash flow profile.
Basketball: With that I will turn things back to Bob.
Robert E. Rasmus: Thanks station the first quarter marked a period of steady progress on all fronts. The sustainable improvements in our financial profile and overall profitability are evident and I remain confident in our Pac business being cash flow positive in 2000.
Basketball: Driven by our portfolio improvements and our ongoing cost reduction initiatives.
Basketball: Our focus is increasingly shifting towards executing on our GAC expansion at Red River and our ongoing transformation to an environmental technology company.
Basketball: We are extremely proud of our ability to enter into our first GAC contract.
Basketball: And look forward to providing further updates on additional contract progress as it occurs.
Basketball: I'd like to conclude by emphasizing our four key focus areas for the year ahead first we remain focused on maximizing the value of our foundational Pat business. We've made incredible progress on this front and have trained formed the business to a cash flow contributor.
Basketball: As we exit the last of the remaining loss, making contracts, we will focus on entering into additional higher value markets like soil and groundwater remediation and municipal water by enhancing our product mix, we aim to achieve higher prices and in doing so further than that.
Basketball: Quality and financial contribution of our Pac business second we remain focused on winning further GAC customers and contracts. We are very proud of reaching our strategic milestone with our first contract we.
Basketball: We look forward to delivering continued execution on this front the market is strong and getting stronger bias.
Basketball: And we remain in a prime position to help companies meet the tighter regulatory regime here in the U S and globally.
Basketball: Third we look forward to concluding the commissioning at carbon this quarter by utilizing our <unk> technology for recycling bituminous coal waste, we are able to offer customers a highly differentiated solution and a fully vertically integrated supply chain that leads to differentiated cost and environmental advair.
Basketball: Integer is versus conventional products and methods.
Basketball: Fourth we remain keenly focused on successfully commissioning our Red River GIC facility later this year.
Basketball: With our first contract.
Basketball: Place and numerous active discussions for the remaining capacity, we remain well positioned to complete the transformation of our business.
Basketball: <unk> technology company.
Basketball: As I have said on previous quarterly calls it is all about execution.
Basketball: It would be remiss of me to conclude without acknowledging the ongoing hard work of all of our employees.
Basketball: Committed to making our safest lowest cost and most profitable company in our industry. Our operational team continues to deliver.
Basketball: Sort of ways to make our Pac business more profitable, while maintaining the rigorous high quality standards that have made us a trusted partner for all our customers.
Basketball: In closing I am proud of all that our team.
Basketball: As and continues to accomplish while pleased I am fire fire from satisfied I remain confident that the best remains ahead of US we look forward to providing you with further updates as we have them with that I will turn the call back to our operator to move us to Q&A.
Basketball: Right.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad should you find that your question has been answered you may remove yourself by pressing star to once they get another one to.
Basketball: Ask a question and star two to remove yourself, we will pause for just a moment to assemble the question queue.
Basketball: We'll go first to Gerry Sweeney with Roth capital. Please go ahead.
Gerard J. Sweeney: Morning Ross.
Gerard J. Sweeney: For taking my call.
Gerard J. Sweeney: Happy to do it Gerry.
Gerard J. Sweeney: Right. So I'm just wondering obviously you have the contract that you announced but I want to see if you could maybe discuss the market what's going on out there sales initiatives obviously.
Gerard J. Sweeney: With the peak pass regulations coming down the Pike.
Gerard J. Sweeney: Other people must be seeing this.
Gerard J. Sweeney: Okay.
Gerard J. Sweeney: C deficit coming just curious as to how many people are talking to the funnel.
Gerard J. Sweeney: Just maybe even the tone and tenor of.
Gerard J. Sweeney: People looking for new contracts.
Gerard J. Sweeney: Sure.
Gerard J. Sweeney: We've spoken in the past that the market for <unk>.
Gerard J. Sweeney: Activated carbon.
Gerard J. Sweeney: In general not just granular is very opaque.
Gerard J. Sweeney: So one of the things we set out to do early on was we identified over 100 potential lead adapters for our granular product.
Gerard J. Sweeney: And we and they were across a wide variety of industries and so what we did is.
Gerard J. Sweeney: Went out and marketed to them brought up our technical specifications brought them samples and that's in essence, what we did in terms of our increased R&D expense and that helped us form an even better view of market and market demand. The market is as we've mentioned before is under supply demand can continue.
Gerard J. Sweeney: Going to grow.
Gerard J. Sweeney: And before the P. Fast regulations were promulgated I think the best indication of demand is that we were able to contract approximately 20% of our future granular production six to eight months in advance of beginning that production.
Gerard J. Sweeney: And that we are in very good.
Gerard J. Sweeney: They are in final stages of negotiations on several other contracts. So hopefully that provides the color you were looking for.
Gerard J. Sweeney: And also just speaking of the contract at 5 million pounds of reading the.
Gerard J. Sweeney: Your press release on that it sounds as though that's actually with a maybe an environmental services provider not necessarily a water utility.
Gerard J. Sweeney: You discussed looking for different end markets.
Gerard J. Sweeney: Not necessarily selling entirely to the water utilities.
Gerard J. Sweeney: Assuming I read that correctly on the environmental service provider.
Gerard J. Sweeney: Is that actually a better pricing opportunity than than the water utility side.
Gerard J. Sweeney: So I think that.
Gerard J. Sweeney: One we don't comment on the specifics of individual contracts, but you are correct that it is not a municipal water utility we view municipal water utilities.
Gerard J. Sweeney: As a stable everyone knows that's where the market is and that theyre going to be substantially increased needs in terms of demand to meet the upcoming.
Gerard J. Sweeney: As regulations, but there are a wide variety of other users of granular activated carbon at what we consider even higher pricing and higher margin than what the water utility market is going to be.
Gerard J. Sweeney: I would suspect that environmental side that is probably front and center and people want to.
Gerard J. Sweeney: Deal with that.
Gerard J. Sweeney: Whether it's coming from landfills or industrial sites I would imagine that would as you were saying that probably have significantly better pricing opportunities in there.
Gerard J. Sweeney: Dare I say boring water utility market.
Gerard J. Sweeney: I wouldn't say the water utility market is boring because it's certainly a core component of the both the powder business.
Gerard J. Sweeney: And the granular activated carbon business, but as you correctly point out there are a wide variety of users its not just eliminating P. Fast for municipal water treatment facilities. It also relates to groundwater soil contamination preventing.
Gerard J. Sweeney: Groundwater from that is contaminated trapping that Tam.
Gerard J. Sweeney: Tami tenants before they leach out of the soil and into the drinking water oriented of the creeks and streams and rivers are the various communities. There's also biogas biomethane or a wide wide variety of applications.
Gerard J. Sweeney: And again, that's what makes the granular business so attractive it's been turbocharged by the in will be terrific.
Gerard J. Sweeney: By the EPA P fast regulations, but that's far from the only component of the increasing demand for granular activated carbon.
Speaker Change: Got it and then switching gears to the pack side, obviously multiple quarters of price expansion I think you even alluded to in your.
Speaker Change: Remarks that there are a couple of lower price lower end contracts sort of roll off curious as to how much more opportunity on pricing there is for on.
Speaker Change: On the pack side.
Speaker Change: Yes.
Speaker Change: At summit.
Speaker Change: Some clients the pace of price increases has to abate you cant maintain double digit price increases.
Speaker Change: Forever I wish we could.
Speaker Change: But it's certainly not realistic, but it's really a testament to the quality of our business development team, how they've been able to.
Speaker Change: Repackaged those former loss, making contracts and get the average selling price increase but one component of the pricing.
Speaker Change: This is not just better relationship management, but it's also penetrating new markets such as there is still as a usage for Pac and groundwater remediation soil remediation and we've been able to tap these attractive new markets, which have higher average selling price than the traditional.
Speaker Change: Coal fired power plant scrubbing those emissions. So it's a combination of factors, it's improving the price points in our existing power generation business as well as the expansion into new markets, which carry higher prices.
Speaker Change: Just curious on the pack groundwater remediation opportunity is that <unk> related or is that just other opportunities.
Speaker Change: Yes.
Speaker Change: Opportunities, just removing die actions and fill runs and things like that.
Speaker Change: Other than P fast around the existing groundwater or excuse me in soil.
Speaker Change: Got it thanks.
Speaker Change: And then final question for me Phase two.
Speaker Change: Obviously.
Speaker Change: The contracts that you just announced.
Speaker Change: Certainly.
Speaker Change: Nowadays, what's going on with phase one at Red River, what would be sort of the calculus in terms of when you pull the trigger.
Speaker Change: I'm assuming.
Speaker Change: Maybe I should say if you pull the trigger.
Speaker Change: What was the calculus to sort of gauge speed it to make that final decision.
Speaker Change: Sure, it's really a combination of factors and this is a demand pull business.
Speaker Change: Opportunity.
Speaker Change: It's not something we would or will not we're not going to build it aspect I think we need to be fully contracted or hedged.
Speaker Change: Close to selling out all of our existing 25 million pounds of expansion production.
Speaker Change: We'd need to have clear line of sight to being able to pre contract and our confidence in being able to contract the second line.
Speaker Change: We would also need to ensure we have adequate liquidity and capital.
Speaker Change: I certainly wouldn't want to jeopardize our success in transforming the foundational pack business and the growth trajectory in the cash flows of the developing granular activated line.
Speaker Change: If you think about it one of my main goes in my roughly nine months at arc has been the de risk shareholder's investment while offering.
Speaker Change: Growth opportunities through the expansion into granular, hence our laser focus on pre contracting our granular production and transforming the Pac business. What all that translates into is we're not going to go out and do some daredevil stunts to expand we're going to continue to be prudent.
Speaker Change: In terms of how we allocate capital and we grow the business.
Speaker Change: Understood I appreciate it.
Speaker Change: Is it for me thank you.
Speaker Change: Great. Thanks Gerry.
Speaker Change: Yeah.
Speaker Change: We'll turn now to Marc Silverberg with ICR for additional questions and comments.
Marc Silverberg: Thank you.
Marc Silverberg: Bob I think we are going to turn to a few questions that we received from them.
Marc Silverberg: Investors.
Marc Silverberg: Overnight.
Marc Silverberg: This morning, and so first.
Robert E. Rasmus: Can you please add a bit more detail on it.
Robert E. Rasmus: Don't have any additional upward changes in our spending plans.
Robert E. Rasmus: Those factors plus the new.
Robert E. Rasmus: The new contingency that we factored into our guidance range should mean that it.
Robert E. Rasmus: Beyond this call next quarter announcing another increase in Capex.
Speaker Change: Have to say I dislike having to relay this type of information as much as you like hearing it.
Speaker Change: That being said this is still an outstanding investment even with the increased cost we foresee a three year or less payback. We have signed our first contract for approximately 20% of our GIC capabilities six to eight months in advance of initial production, we have clear line of sight and visibility.
Robert E. Rasmus: <unk> to signing additional contracts so I still feel very very good about this investment.
Robert E. Rasmus: Great.
Robert E. Rasmus: Bob.
Robert E. Rasmus: Second question, we got was.
Marc Silverberg: Related to the refinancing.
Marc Silverberg: You indicated that the refinancing process is underway.
Marc Silverberg: Given the scale of forecasted Capex for 2024 and.
Marc Silverberg: And taking into account cash generation expected in your legacy business.
Marc Silverberg: How much debt do you think the balance sheet can handle and one is the maximum that you will be prepared to add in terms of potential capacity.
Marc Silverberg: Based on our current business and factoring in projected future cash flow and the value of our assets because I think we have an under levered balance sheet and.
Marc Silverberg: Replacement cost of our plants as well over $500 million.
Marc Silverberg: What that translated into as we wanted to take sufficient incremental debt to really ensure the completion of the project on time and to help us maintain and ensure we have adequate overall liquidity.
Marc Silverberg: Okay.
Marc Silverberg: Incremental debt that we take on we would still have a very low.
Marc Silverberg: EBITDA at a debt multiple based on our 2025 EBITDA.
Speaker Change: I appreciate that Bob.
Speaker Change: Another question, we received was regarding.
Speaker Change: The GAC contract that was.
Marc Silverberg: Announced yesterday and I know Jerry had asked.
Jerry: Ask the questions regarding counterparty there is there any additional information you can provide in terms of.
Marc Silverberg: The terms on the contract and and second and related to that maybe.
Marc Silverberg: Maybe your confidence in contracting out the remaining capacity for phase one by.
Marc Silverberg: As you previously targeted.
Speaker Change: Sure as I mentioned, Jerry we don't and never will comment on the specifics of individual contracts as.
Speaker Change: As it relates to pricing I will say the pricing is.
Speaker Change: Is attractive and it's a multiple of our average pack pricing.
Marc Silverberg: Consistent with our business plan, and our communications and I will say that the pricing on the contract offers excellent value and returns to arc as well as our customer in terms of.
Marc Silverberg: Confidence based on our current contract negotiations and the fact that we already have a signed contract for 20%.
Marc Silverberg: Granular activated carbon capacity six to eight months in advance.
Marc Silverberg: I was and I continue to remain very very confident in our ability to contract the remaining capacity prior to production.
Speaker Change: Thanks, Bob.
Speaker Change: We had one more here.
Speaker Change: We received.
Marc Silverberg: Overnight.
Marc Silverberg: <unk> volume so volumes were down year over year for the first quarter of the year.
Robert E. Rasmus: Can you provide any color on how volumes are or perhaps shaping up thus far for the second quarter.
Speaker Change: Sure. The first quarter was certainly tough from a volume standpoint, you've.
Speaker Change: We've seen a nice rebound in April.
Speaker Change: May where what 90 days into it has started out on a nice trajectory as well and what we're really seeing as it relates to volume as the fruits of our efforts to further diversify our Pac business.
Speaker Change: The markets other than coal fired power plants.
Speaker Change: Thank you, we'll now I'll turn it back to Bob Rasmus for any additional or closing comments.
Robert E. Rasmus: Thank you Jamie.
Robert E. Rasmus: In summary, we're pleased with where we are but we're certainly not pausing as theirs.
Robert E. Rasmus: The opportunity ahead for iron.
Robert E. Rasmus: I look forward to providing further updates on our second quarter call or as events dictate.
Robert E. Rasmus: Thank you for your interest in arc and we look forward to speaking again soon.
Speaker Change: Thank you once again, ladies and gentlemen that will conclude today's call. Thank you for your participation you may just go.
Speaker Change: At this time.
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Speaker Change: Okay.
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Speaker Change: Sure.
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