Q2 2024 Arq Inc Earnings Call

August 13, 2024

Speaker Change: [inaudible]

Speaker Change: Music

Operator: Greetings, and welcome to the Arq second quarter 2024 earnings call. At this time, all participants are in a listen-only mode.

Operator: Greetings and welcome to the Arq 2nd quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and an intercession will follow the formal presentation.

Speaker Change: Greetings and welcome to the AHRQ Second Quarter 2024 Earnings Call.

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Anthony Nathan, Head of Investor Relations for Arq. Thank you.

Speaker Change: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Anthony Nathan: I would now like to turn the conference over to your host, Mr. Anthony Nathan, Head of Investor Relations for Arq. Thank you. You may begin.

Speaker Change: I would now like to turn the conference over to your host, Mr. Anthony Nathan, Head of Investor Relations for AHRQ. Thank you.

Anthony Nathan: Thank you, operator. Good morning, everyone, and thank you for joining us today for our second quarter 2024 earnings results call. With me on the call today are Bob Rasmus, Arq's Chief Executive Officer and President, as well as Stacia Hansen, Arq's Treasurer and Chief Accounting Officer.

Anthony Nathan: Thank you, Operator. Good morning everyone, and thank you for joining us today for our second quarter 2024 earnings results call. With me on the call today are Bob Rasmus, Arq's Chief Executive Officer and President, as well as Stacia Hansen, Arq's Treasurer and Chief Accounting Officer. This conference call is being webcast 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@tarq.com.

Speaker Change: Thank you, Operator.

Anthony Nathan: Good morning everyone and thank you for joining us today for our second quarter 2024 earnings results call. With me on the call today are Bob Rasmus, ARC's Chief Executive Officer and President, as well as Stacia Hansen, ARC's Treasurer and Chief Accounting Officer.

Anthony Nathan: This conference call is being broadcasted live within the investor section of our website and a downloadable version of today's presentation. It's available there as well. A webcast replay will also be available on our site, and you can contact our investor relations team at investors@arq.com.

Speaker Change: This conference call is being webcast live within the investor section of our website and a downloadable version of today's presentation is available there as well.

Anthony Nathan: A webcast replay will also be available on our site and you can contact our investor relations team at investors at arc.com.

Anthony Nathan: 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 applied by these statements. These risks and uncertainties include, but are not limited to, those factors identified on slide two of today's slide presentation. In our Form 10-Q for the quarter ended June 30th, 2024, and other filings with the Securities and Exchange Commission.

Anthony Nathan: 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 applied by these statements. These risks and uncertainties include, but are not limited to, those factors identified on slide two of today's slide presentation, in our Form 10Q for the quarter-ended June 30th, 2024, and other filings with the S Securities and Exchange Commission.

Speaker Change: Let me remind you that the presentation and remarks were made today include forward-looking statements as defined in section 21e and

Speaker Change: at 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 applied by these statements.

Speaker Change: 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 June 30, 2024, and other filings with the S Securities and Exchange Commission.

Anthony Nathan: 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 changed circumstances or for any other reason. In addition, it is especially important to review the presentation and to phase remarks in conjunction with the gap references in the financial statement. With that, I would like to turn the call over to Bob. Thank you, Anthony, and thanks to everyone for joining us this morning.

Speaker Change: Accept 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 changed circumstances, or for any other reason.

Anthony Nathan: In addition, it is especially important to review the presentation and that there's remarks and conjunction with the gut references in the financial statements.

Speaker Change: In addition, it is especially important to review the presentation and today's remarks in conjunction with the gap references in the financial statements.

Bob Rasmus: With that, I would like to turn the call over to Bob. Thank you, Anthony, and thanks to everyone for joining us this morning. To start today's call, I'd like to share a high-level review of our second quarter divided into four key sections. Our financial results, progress on GAC contracting, progress on our strategic growth projects, and an update on our capital position. First, driven by our ongoing strategic evolution and transformation, we reported another quarter of strong and sustainably enhanced financial performance. Once again, revenue improved over the prior year, reflecting an annual increase of 24% to 25.4 million dollars.

Speaker Change: With that, I would like to turn the call over to Bob.

Robert Rasmus: To start today's call, I'd like to share a high-level review of our second quarter divided into four key sections: our financial results, progress on GAC contracting, progress on our strategic growth projects, and an update on our capital position. First, driven by our ongoing strategic evolution and transformation, we reported another quarter of strong and sustainably enhanced financial performance. Once again, revenue improved over the prior year, reflecting an annual increase of 24% to $25.4 million.

Bob: Thank you, Anthony, and thanks to everyone for joining us this morning.

Bob: To start today's call, I'd like to share a high-level review of our second quarter divided into four key sections. Our financial results, progress on GAC contracting, progress on our strategic growth projects, and an update on our capital position.

Robert Rasmus: This was driven in part by our fifth consecutive quarter of double-digit year-over-year percentage growth and average selling price. We realized attractive gross margins of 32%, reflecting an improvement of more than 700 basis points over the same period last year as we continue to sustainably drive costs down across our business and focus on optimizing our PAC portfolio. We generated positive EBITDA during the quarter of approximately $450,000, marking the fourth consecutive quarter of year-over-year improvement and demonstrating the benefits of our initiatives to drive greater profitability in our foundational PAC business.

Bob: First, driven by our ongoing strategic evolution and transformation, we reported another quarter of strong and sustainably enhanced financial performance.

Bob: Once again, revenue improved over the prior year, reflecting an annual increase of 24% to $25.4 million.

Bob Rasmus: This was driven in part by our fifth consecutive quarter of double-digit year-over-year percentage growth and average selling price. We realized attractive gross margins of 32%, reflecting an improvement of more than 700 basis points over the same period last year, and we continued to sustainably drive costs down across our business and focus on optimizing our path portfolio. We generated positive EBITDA during the quarter of approximately $450,000, marking the fourth consecutive quarter of year-over-year improvement, and evidencing the benefits of our initiatives to drive greater profitability in our foundational path it.

Bob: This was driven in part by our fifth consecutive quarter of double-digit year-over-year percentage growth and average selling price.

Bob: We realized a tract of gross margins of 32 percent.

Bob: reflecting an improvement of more than 700 basis points over the same period last year.

Bob: as we continue to sustainably drive costs down across our business and focus on optimizing our PAC portfolio.

Bob: We generated positive EBITDA during the quarter of approximately $450,000, marking the fourth consecutive quarter of year-over-year improvement and evidencing the benefits of our initiatives to drive greater profitability in our foundational PAC business.

Bob Rasmus: Dennis. This positive adjusted EBITDA performance is very much in line with our expectations and demonstrates the positive directional trend of our legacy business. Importantly, these results were achieved despite a strategic acceleration of certain of our biennial maintenance activities in April, which accounted for approximately 1.4 million dollars of cost during the quarter. Of note, if we were to exclude this cost out of our cost of goods sold, gross margin would have been even better. Our plant shutdown activities and expenses related to physically connecting the GAC facility to our legacy Red River plant will enable us to capture multiple operational synergies.

Robert Rasmus: This positive adjusted EBITDA performance is very much in line with our expectations and demonstrates the positive directional trend of our legacy business. Importantly, these results were achieved despite a strategic acceleration of certain of our biannual maintenance activities in April, which accounted for approximately $1.4 million of cost during the quarter. Of note, if we were to exclude this cost from our cost of goods sold, gross margin would have been even better.

Bob: This positive adjusted EBITDA performance is very much in line with our expectations and demonstrates the positive directional trend of our legacy business.

Bob: Importantly, these results were achieved despite a strategic acceleration of certain of our biannual maintenance activities in April, which accounted for approximately $1.4 million of costs during the quarter.

Bob: Of note, if we were to exclude this cost out of our cost of goods sold, gross margin would have been even better.

Robert Rasmus: Our plant shutdown activities and expenses related to physically connecting the GAC facility to our Legacy Red River Plant will enable us to capture multiple operational synergies. The next scheduled full plant maintenance will now occur in 2026 versus 2025, as would have been the case without our strategic decision to accelerate this year. As a reminder, the first two quarters of the year generally reflect seasonally weak periods, but we were encouraged by the strong and improving activity we saw during the second quarter, which provides strong momentum as we head into our seasonally stronger quarters during the second half.

Bob: Our plant shutdown activities and expenses related to physically connecting the GAC facility to our legacy Red River plant will enable us to capture multiple operational synergies.

Bob Rasmus: The next scheduled full plant maintenance will now occur in 2026 versus 2025, as would have been the case without our strategic decision to accelerate this year. As a reminder, the first two quarters of the year generally reflect seasonally weak periods, but we were encouraged at the strong and improving activity we saw during the second quarter, which provides strong momentum as we head into our seasonally stronger quarters during the second half. We continue to expect our past business to be cash flow generative for the full year, creating a solid foundation in which to lay our creative, higher margin, GAC revenues and cash flows.

Bob: The next scheduled full plant maintenance will now occur in 2026 versus 2025, as would have been the case, without our strategic decision to accelerate this year.

Bob: As a reminder, the first two quarters of the year generally reflect seasonally weak periods.

Bob: But we were encouraged at the strong and improving activity we saw during the second quarter Which provides strong momentum as we head into our seasonally stronger quarters during the second half

Robert Rasmus: We continue to expect our PATH business to be cash flow generative for the full year, creating a solid foundation on which to layer our accretive, higher margin GAC revenues and cash flows. Second, we're following through on our commitment to secure additional contracts at our Red River GAC facility. We are now 52% contracted on our nameplate capacity with roughly 6 months left to initial production, demonstrating the strong demand for our differentiated products and solutions.

Bob: We continue to expect our PATH business to be cash flow generative for the full year, creating a solid foundation on which to layer our accretive, higher margin GAC revenues and cash flows.

Bob Rasmus: Second, we're following through on our commitment to secure additional contracts at our Red River GAC facility. We are now 52% contracted on our name plate capacity, with roughly six months left to initial production, evidencing the strong demand for our differentiated products and solutions. Our agreements continue to reflect attractive pricing for products that are materially accretive to our foundational path portfolio, further supporting the capital we're investing in this exciting growth portion of our business. Third, our key growth projects are on track. At our Corbin facility, we commenced commissioning early during the second quarter and began producing initial purified by Humanist Cole Way Speedstock for quality control and specification testing, which will ramp up ahead of our first production at Red River.

Bob: Second, we're following through on our commitment to secure additional contracts at our Red River GAC facility.

Bob: We are now 52% contracted on our nameplate capacity, with roughly 6 months left to initial production, evidencing the strong demand for our differentiated products and solutions.

Robert Rasmus: Our agreements continue to reflect attractive pricing for products that are materially accretive to our foundational path portfolio, further supporting the capital we're investing in this exciting growth portion of our business. Sird, our key growth projects are on track. At our Corbin facility, we commenced commissioning early during the second quarter and began producing initial purified by two-managed coal waste feedstock for quality control and specification testing, which will ramp up ahead of our first production at Red River. At our Red River GAC facility, we remain on track for Q4 commissioning, as well as first deliveries in Q1 of 2025. Today, we are reiterating our full 2024 capital investment forecast of $60 to We expect our investment in these projects will generate payback in approximately three years.

Bob: Our agreements continue to reflect attractive pricing for products that are materially accretive to our foundational path portfolio, further supporting the capital we're investing in this exciting growth portion of our business.

Bob: Third, our key growth projects are on track.

Bob: At our Corbin facility, we commenced commissioning early during the second quarter, and began producing initial purified bituminous coal waste feedstock for quality control and specification testing, which will ramp up ahead of our first production at Red River.

Bob Rasmus: And at our Red River GAC facility, we remain on track for Q4 commissioning, as well as first deliveries in Q1 of 2025. Today, we are reiterating our full 2024 capital investment forecast of $60 to $70 million. We expect our investment in these projects will generate payback in approximately three years. Fourth, we continue to bolster our capital position while strategically investing in our ongoing transformation. This includes an opportunistic capital raise completed in May with a $15 million PIPE raise completed with an institutional investor. This unsolicited investment further bolstered our liquidity position as we continue to invest in transformational projects with highly attractive expected return.

Bob: and at our Red River GAC facility, we remain on track for Q4 commissioning as well as first deliveries in Q1 of 2025.

Bob: Today, we are reiterating our full 2024 capital investment forecast of $60 to $70 million. We expect our investment in these projects will generate payback in approximately 3 years.

Robert Rasmus: Fourth, we continue to bolster our capital position while strategically investing in our ongoing transformation. This includes an opportunistic capital raise completed in May with a $15 million pipeline raise completed with an institutional investor. This unsolicited investment further bolstered our liquidity position as we continue to invest in transformational projects with highly attractive expected returns. Additionally, related to our previously discussed refinancing, we announced today that we recently signed a non-binding term sheet that would materially expand the size of the facility while further enhancing liquidity. More on that in just a bit.

Bob: Fourth, we continue to bolster our capital position while strategically investing in our ongoing transformation.

Bob: This includes an opportunistic capital raise completed in May with a $15 million pipe raise completed with an institutional investor.

Bob: This unsolicited investment further bolstered our liquidity position as we continue to invest in transformational projects with highly attractive expected returns.

Bob Rasmus: and related to our previously discussed refinancing, we announced today that we recently signed a non-binding term sheet that would materially expand the size of the facility while further enhancing liquidity. More on that in just a bit.

Bob: and related to our previously discussed refinancing, we announced today that we recently signed a non-binding term sheet that would materially expand the size of the facility while further enhancing liquidity. More on that in just a bit.

Bob Rasmus: I'd now like to hit on a few other notable recent events. We were pleased to recently announce that Arq has been added to both the broad market Russell 3000 Index and the Russell 2000 Index. This inclusion is a significant achievement for us and reflects the hard work and dedication of our entire team. Being part of these widely recognized and respected benchmarks for U.S. stock market performance is a testament to our company's growth and evolution. It underscores the success of our strategic initiatives and our ongoing transformation into a leading environmental technology company. As you are rightly aware, Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies.

Robert Rasmus: I'd now like to hit on a few other recent events. We were pleased to recently announce that Arq has been added to both the broad market Russell 3000 index and the Russell 2000 index. This inclusion is a significant achievement for us and reflects the hard work and dedication of our entire team. Being part of these widely recognized and respected benchmarks for U.S. stock market performance is a testament to our company's growth and evolution.

Bob: I'd now like to hit on a few other notable recent events.

Bob: We were pleased to recently announce that AHRQ has been added to both the Broad Market Russell 3000 Index and the Russell 2000 Index. This inclusion is a significant achievement for us and reflects the hard work and dedication of our entire team.

Bob: Being part of these widely recognized and respected benchmarks for U.S. stock market performance is a testament to our company's growth and evolution.

Robert Rasmus: It underscores the success of our strategic initiatives and our ongoing transformation into a leading environmental technology company. As you are likely aware, Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies.

Bob: It underscores the success of our strategic initiatives and our ongoing transformation into a leading environmental technology company.

Bob: As you are likely aware, Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies.

Bob Rasmus: We anticipate that our inclusion in the Russell family of indices will bring several benefits, including broad exposure to the investment community and greater liquidity in our stock. During our first quarter earnings call in May, we were proud to announce our inaugural GAC supply contract, marking a tremendous milestone in our strategic evolution. In the month since our last earnings call, we have continued to make progress in our commitment of entering into additional contracts for our GAC supply at our Red River facility. As I know that earlier, we have recently secured significant additional contracted volumes for GAC supply, bringing up our total contracted demand of 13 million pounds per annum when fully scaled up.

Robert Rasmus: We anticipate that our inclusion in the Russell family of indices will bring several benefits, including broadened exposure to the investment community and greater liquidity in our stock. Additionally, during our first quarter earnings call in May, we were proud to announce our inaugural GAC supply contract, marking a tremendous milestone in our strategic evolution. In the months since our last earnings call, we have continued to make progress in our commitment to entering into additional contracts for GAC supply at our Red River facility. As I know earlier, we've recently secured significant additional contracted volumes for GAC supplies, bringing up our total contracted demand of 13 million pounds per year when fully scaled up.

Bob: We anticipate that our inclusion in the Russell Family of Indices will bring several benefits, including broadened exposure to the investment community and greater liquidity in our stock.

Bob: During our first quarter earnings call in May, we were proud to announce our inaugural GAC supply contract, marking a tremendous milestone in our strategic evolution.

Bob: In the months since our last earnings call, we have continued to make progress in our commitment of entering into additional contracts for a GAC supply at our Red River facility.

Bob: As I noted earlier, we've recently secured significant additional contracted volumes for GAC supply, bringing up our total contracted demand to 13 million pounds per annum when fully scaled up.

Bob Rasmus: This represents 52 percent of our expanded nameplate capacity of 25 million pounds at Red River. It's worth noting that we've achieved this milestone roughly six months ahead of our first deliveries, which remain on target for Q1 2025. These GAC contracts have attractive pricing, especially compared to our legacy path products, and not only a firm strong market demand, but validate our GAC products and strategy. They also reflect the market's recognition of the potential of our superior offerings and environmental technology. These GAC sales are set to significantly grow our total revenue base and expand our margins. Given the limited supply of high quality, fully integrated, domestically produced, granular activated carbon in the market, and our ongoing customer discussions, we're confident in our ability to fully contract our remaining nameplate capacity before production begins, demonstrating how our unique high quality and environmentally friendly feedstock resonates with the market.

Robert Rasmus: This represents 52% of our expanded nameplate capacity of 25 million pounds at Red River. It's worth noting that we've achieved this milestone roughly six months ahead of our first deliveries, which remain on target for Q1 2025. These GAC contracts have attractive pricing, especially compared to our legacy PATH products, and not only affirm strong market demand but validate our GAC products and strategy. They also reflect the market's recognition of the potential of our superior offerings and environmental technology.

Bob: This represents 52% of our expanded nameplate capacity of 25 million pounds at Red River.

Bob: It's worth noting that we've achieved this milestone roughly six months ahead of our first deliveries, which remain on target for Q1 2025.

Bob: These GAC contracts have attractive pricing, especially compared to our legacy PATH products, and not only affirm strong market demand, but validate our GAC products and strategy.

Bob: They also reflect the market's recognition of the potential of our superior offerings and environmental technology.

Robert Rasmus: These GAC sales are set to significantly grow our total revenue base and expand our margin. Given the limited supply of high-quality, fully integrated, domestically produced, granular activated carbon in the market and our ongoing customer discussions, we're confident in our ability to fully contract our remaining nameplate capacity before production begins, demonstrating how our unique, high-quality, environmentally friendly feedstock resonates with the market. As we advance even closer to the financial opportunity represented by our growth in GAC products, it's perhaps worth discussing further how we view the sector.

Bob: These GAC sales are set to significantly grow our total revenue base and expand our margins.

Bob: Given the limited supply of high-quality, fully-integrated, domestically-produced, granular-activated carbon in the market, and our ongoing customer discussions,

Bob: We're confident in our ability to fully contract our remaining nameplate capacity before production begins, demonstrating how our unique high-quality environmentally friendly feedstock resonates with the market.

Bob Rasmus: As we advance even closer to the financial opportunity represented by our growth into GAC products, it's perhaps worth discussing further how we view the sector. As we flag our first quarter results, we believe the regulatory changes put in place by the EPA in April are likely to have a material, long-term effect and demand for GAC products. Given the increasing focus on efforts to remove PFAS or forever chemicals from our nation's water supply.

Bob: As we advance even closer to the financial opportunity represented by our growth into GAC products, it's perhaps worth discussing further how we view the sector.

Robert Rasmus: As we flagged in our first quarter results, we believe the regulatory changes put in place by the EPA in April are likely to have a material, long-term effect on demand for GAC products, given the increasing focus on efforts to remove PFAS or forever chemicals from our nation's water supplies. To reiterate, we believe that if you assume all existing water suppliers must reduce their PFAS contamination from 70 parts per trillion to just four parts per trillion, the limitations outlined in the new regulations, this will require each user to consume between three to five times more granular activated carbon.

Bob: As we flagged in our first quarter results, we believe the regulatory changes put in place by the EPA in April are likely to have a material, long-term effect on demand for GAC products.

Bob: given the increasing focus on efforts to remove PFAS, or forever chemicals, from our nation's water supplies.

Bob Rasmus: Lewis. To reiterate, we believe that if you assume all existing water suppliers must reduce their PFAP contamination from 70 parts per trillion to just 4 parts per trillion, the limitations outlined in the new regulations, this will require each user to consume between 3 to 5 times more granular activated carbon. Taking this further, we believe this leads to a supply gap of approximately 370 million pounds by 2030, or, put another way, a potential supply gap greater than the entire North American GHC market today. And it is not just our forecast that implies this level of supply, shortfall, and market tightness.

Bob: To reiterate, we believe that if you assume all existing water suppliers must reduce their PFAS contamination from 70 parts per trillion to just 4 parts per trillion,

Bob: The limitations outlined in the new regulations, this will require each user to consume between three to five times more granular activated carbon.

Robert Rasmus: Taking this further, we believe this leads to a supply gap of approximately 370 million pounds by 2030, or put another way, a potential supply gap greater than the entire North American GHC market today. And it is not just our forecast that implies this level of supply shortfall and market tightness. A recent research report published by Goldman Sachs included several notable figures that I'll highlight today. First, according to the report, of the roughly 153,000 public water systems in the US as of 2023, approximately 35% will require PFAS treatment facilities over the next several five to six years, up from 10% today.

Bob: Taking this further, we believe this leads to a supply gap of approximately 370 million pounds by 2030. Or put another way, a potential supply gap greater than the entire North American GHC market today.

Bob: And it is not just our forecast that implies this level of supply shortfall and market tightness.

Robert Rasmus: Second, they estimate that the U.S. drinking water PFAS treatment market is estimated to reach $2 billion per year by 2030, which is roughly 10 times larger than the market size in 2023. Sir, the report states that given granular activated carbon's advantages versus traditional products and solutions, GAC's market penetration rate for PFAT treatment can reach approximately 80% by 2030, and the replacement cycle for PFAS removal equipment is expected to increase by two folds for ground water and four folds for surface water versus historical usage levels.

Bob Rasmus: A recent research report published by Goldman Sachs included several notable figures that I'll highlight today. First, according to the report of the roughly 153,000 public water systems in the U.S. As of 2023, approximately 35% will require PFAS treatment facilities over the next several five to six years, up from 10% today. Second, they estimate that the U.S. drinking water PFAS treatment market is estimated to reach $2 billion per year by 2030, which is roughly 10 times larger than the market size in 2023. Third, the report states that given granular activated carbon's advantages versus traditional products and solutions, GAC's market penetration rate for PFAS treatment is expected to increase by twofold for groundwater and fourfold for surface water versus historical usage levels.

Speaker Change: A recent research report published by Goldman Sachs included several notable figures that I'll highlight today.

Speaker Change: First, according to the report of the roughly 153,000 public water systems in the U.S.

Speaker Change: As of 2023, approximately 35% will require PFAS treatment facilities.

Speaker Change: over the next several five to six years, up from 10% today.

Speaker Change: Second, they estimate that the U.S. drinking water PFAS treatment market is estimated to reach $2 billion per year by 2030, which is roughly 10 times larger than the market size in 2023.

Speaker Change: Third, the report states that given granular activated carbon's advantages versus traditional products and solutions, GAC's market penetration rate for PFAS treatment could reach approximately 80% by 2030.

Speaker Change: And fourth, the replacement cycle for PFAS removal equipment is expected to increase by two-fold for groundwater and four-fold for surface water versus historical usage levels.

Bob Rasmus: Together, we believe this evidence is further independent support for a market whose fundamentals will continue to support our business and its growth strategy over the near and long term. I remain a firm believer that where economic opportunities of this size arise, capital will flow, and we fully anticipate that incremental supply will fill some of this gap. But crucially, we have a critical and strategic first mover advantage. We believe it will take at least two to three years of a new supply to come online, given permitting, financing, and construction timelines. Further, we believe that the cost to build green field sites today is between five to seven dollars per pound of production, dramatically impacting the economics others can realize through their investment dollars.

Robert Rasmus: Together, we believe this evidence is further independent support for a market whose fundamentals will continue to support our business and its growth strategy over the near and long term. I remain a firm believer that where economic opportunities of this size arise, capital will flow, and we fully anticipate that incremental supply will fill some of this gap. But crucially, we have a critical and strategic first mover advantage. We believe it will take at least two to three years for new supply to come online, given the permitting, financing, and construction timelines.

Speaker Change: Together, we believe this evidence is further independent support for a market whose fundamentals will continue to support our business and its growth strategy over the near and long term.

Speaker Change: I remain a firm believer that where economic opportunities of this size arise, capital will flow, and we fully anticipate that incremental supply will fill some of this gap.

Speaker Change: But crucially, we have a critical and strategic first mover advantage. We believe it will take at least two to three years for new supply to come online, given permitting, financing, and construction timelines.

Robert Rasmus: Further, we believe that the cost to build Greenfield sites today is between $5-7 per pound of production, dramatically impacting the economics others can realize through their investment. Brownfield sites may be less expensive at between $3 to $5 per pound of production.

Speaker Change: Further, we believe that the cost to build greenfield sites today is between $5 to $7 per pound of production, dramatically impacting the economics others can realize through their investment dollars.

Bob Rasmus: Brown field sites may be less expensive at between three to five dollars per pound of production, but this is still indicative of major capital outlay and a market that has been typically slow to react in terms of capacity.

Speaker Change: Brownfield sites may be less expensive at between three to five dollars per pound of production, but this is still indicative of major capital outlay in a market that has been typically slow to react in terms of capacity.

Robert Rasmus: But this is still indicative of major capital outlay in a market that has been typically slow to react in terms of capacity. Based on these round numbers, we believe it is reasonable to conclude that our plant assets are worth multiples of our market cap. Let's turn now to a brief discussion of the regulatory environment, particularly in light of the upcoming election cycle. Irrespective of the outcome in November, the level of demand that we had seen for PFAS-facing GAC solutions prior to the latest EPA regulatory changes makes us very confident that demand is fundamentally customer-led rather than regulatory-driven.

Bob Rasmus: Based on these round numbers, we believe it is reasonable to conclude that our plant assets are worth multiples of our market cap.

Speaker Change: Based on these round numbers, we believe it is reasonable to conclude that our plant assets are worth multiples of our market cap.

Speaker Change: Let's turn now to a brief discussion of the regulatory environment, particularly in light of the upcoming election cycle.

Speaker Change: Irrespective of the outcome in November, the level of demand that we had seen for PFAS-facing GAC solutions

Speaker Change: prior to the latest EPA regulatory changes makes us very confident that demand is fundamentally customer-led rather than regulatory-driven.

Bob Rasmus: Madison. While it is clearly not my place to opine on political outcomes, I would note that there were two areas of environmental regulations that the previous Republican administration did support, and one of them was the PFAS Action Plan, a PFAS strategy. That being said, the municipal water market slash PFAS market is not the sole or primary driver of our expansion into granular activated carbon. Our sales team has made great strides to ensure our GAC contract pipeline represents a true portfolio of opportunities and not just PFAS-related customers. As we previously announced, our second GAC contract was with the company specializing in the manufacturing of personally and industrial air purification devices.

Robert Rasmus: While it is clearly not my place to opine on political outcomes, I would note that there were two areas of environmental regulations that the previous Republican administration did support, and one of them was the PFAS Action Plan, a PFAS strategy.

Speaker Change: While it is clearly not my place to opine on political outcomes, I would note that there were two areas of environmental regulations that the previous Republican administration did support, and one of them was the PFAS Action Plan, a PFAS strategy.

Robert Rasmus: That being said, the municipal water market slash PFAS market is not the sole or primary driver of our expansion into granular activated carbon. Our STALE team has made great strides to ensure our GAC contract pipeline represents a true portfolio of opportunities and not just PFAS-related customers. As we previously announced, our second GAC contract was with a company specializing in the manufacturing of personal and industrial air purification devices. This is an entirely separate subsector reflecting compelling diversification as well as attractive pricing.

Speaker Change: That being said, the municipal water market slash PFAS market is not the sole or primary driver of our expansion into granular activated carbon.

Speaker Change: Our sales team has made great strides to ensure our GAC contract pipeline represents a true portfolio of opportunities and not just PFAS-related customers.

Speaker Change: As we previously announced, our second GAC contract is with a company specializing in the manufacturing of personal and industrial air purification devices.

Bob Rasmus: This is an entirely separate sub-sector reflecting compelling diversification as well as attractive pricing. Another sector that I want to briefly touch on is the GAC demand relating to renewable or biogas production. Renewable natural gas or RNG is essentially biogas derived from the thermal gasification or biodecomposition and digestion of organic matter. The organic matter can come from livestock waste, land fields, water, sludge, food waste, and other organic waste operations. The RNG in turn has to be processed to purity standards before being introduced to the pipeline grid, and this processing includes the removal of sulfur-containing components such as hydrogen sulfide or H2S and silicone-containing impurities.

Speaker Change: This is an entirely separate subsector reflecting compelling diversification as well as attractive pricing.

Robert Rasmus: Another sector that I want to briefly touch on is the GAC demand relating to renewable or biogas production. Renewable natural gas or RNG is essentially biogas, derived from the thermal gasification or biodecaposition and digestion of organic matter. The organic matter can come from livestock waste, landfills, water, sludge, food waste, and other organic waste.

Speaker Change: Another sector that I want to briefly touch on is the GAC demand relating to renewable or biogas production.

Speaker Change: Renewable natural gas or RNG is essentially biogas derived from the thermogasification or biodecomposition and digestion of organic matter.

Speaker Change: The organic matter can come from livestock waste, landfills, water, sludge, food waste, and other organic waste operations.

Robert Rasmus: The RNG, in turn, has to be processed to purity standards before being introduced to the pipeline grid, and this processing includes the removal of sulfur-containing components, such as hydrogen sulfide, or H2S, and silicon-containing impurities. Specific to sulfur and silicon impurities, granular activated carbon is the leading technology used by biogas producers globally for their removal. Lab-scale testing has continually confirmed the efficacy and tunability of our specialty Arq GACs, achieving up to 150% the removal performance of currently applied GACs and alternative metal oxide-based sorbents.

Speaker Change: The RNG in turn has to be processed to purity standards before being introduced to the pipeline grid and this processing includes the removal of sulfur-containing components such as hydrogen sulfide or H2S and silicon-containing impurities.

Bob Rasmus: Specific to sulfur and silicone impurities, granular activated carbon is the leading technology used by biogas producers globally for their removal. Lab scale testing has continually confirmed the efficacy and tutability of our specialty RGACs, achieving up to 150 percent the removal performance of currently applied GACs and alternative metal oxide-based servants. Early testing and collaboration with a large market leading biocas producer has been very positive. In a growing market like renewable biogas purification, being able to reliably grow with the market, provide a consistent supply and ability to support products commercially, supply chain-wise and through technology collaborations, can be a key differentiator.

Speaker Change: Specific to sulfur and silicone impurities, granular activated carbon is the leading technology used by biogas producers globally for their removal.

Speaker Change: Lab-scale testing has continually confirmed the efficacy and tunability of our specialty ARC GACs, achieving up to 150% the removal performance of currently applied GACs and alternative metal oxide-based sorbents.

Robert Rasmus: Early testing and collaboration with a large market-leading biogas producer have been very positive. In a growing market like renewable biogas purification, being able to reliably grow with the market, provide a consistent supply, and ability to support products commercially, supply chain-wise, and through technology collaborations can be a key differentiator, all things we are poised and capable of doing. I reference this market for two reasons. One, because it demonstrates that our growth business is not just tied to the fortunes of PFAS-related regulations.

Speaker Change: Early testing in collaboration with a large market-leading biocast producer has been very positive.

Speaker Change: in a growing market like renewable biogas purification.

Speaker Change: Being able to reliably grow with the market, provide a consistent supply, and ability to support products commercially, supply chain-wise and through technology collaborations, can be a key differentiator. All things we are poised and capable of doing.

Bob Rasmus: All things we are poised and capable of doing.

Bob Rasmus: I referenced this market for two reasons. One, because it demonstrates that our growth business is not just tied to the fortunes of PFAS-related regulations. And two, because not only is the RNG market another rapidly growing industry, but it is also one which is dominated by producers who have massive engineering expertise and capital budgets to facilitate this expansion. To give you some idea of the scale, in the EU today there are some 1,300 biogas sites already in production, and this figure is estimated to be growing at roughly 20 percent per year. In terms of energy production and to give you an idea of scale, this equates to more than 120 million barrels of oil equivalent per annum.

Speaker Change: I reference this market for two reasons. One, because it demonstrates that our growth business is not just tied to the fortunes of PFAS-related regulations.

Robert Rasmus: And two, because not only is the RNG market another rapidly growing industry, but it is also one dominated by producers who have massive engineering expertise and capital budgets to facilitate this expansion. To give you some idea of scale, in the EU today, there are some 1300 biogas sites already in production, and this figure is estimated to be growing at roughly 20% per year. In terms of energy production, and to give you an idea of scale, this equates to more than 120 million barrels of oil equivalent per year.

Speaker Change: And two, because not only is the R&G market another rapidly growing industry, but it is also one which is dominated by producers who have massive engineering expertise and capital budgets to facilitate this expansion.

Speaker Change: To give you some idea of the scale, in the EU today there are some 1,300 biogas sites already in production and this figure is estimated to be growing at roughly 20% per year.

Speaker Change: In terms of energy production, and to give you an idea of scale, this equates to more than 120 million barrels of oil equivalent per annum.

Bob Rasmus: In the US, where the industry was slower to start, the figure is closer to 12 million barrels of oil equivalent per annum, but growing quickly and rapidly catching up. We are focused on multiple industries and end users across the wide swath of the market. This diversity of customers can help eliminate reliance on any one segment or sector. In turn, our customers' focus is on being able to secure a product from a fully integrated supplier of granular activated carbon who also offers best-in-class performance. Our ability to provide incremental environmental benefits as well makes us a very compelling offering.

Robert Rasmus: In the U.S., where the industry was slower to start, the figure is closer to 12 million barrels of oil equivalent per annum but growing quickly and rapidly catching up. We are focused on multiple industries and end users across a wide swath of the market. This diversity of customers can help eliminate reliance on any one segment or sector.

Speaker Change: In the U.S., where the industry was slower to start, the figure is closer to 12 million barrels of oil equivalent per annum, but growing quickly and rapidly catching up.

Speaker Change: We are focused on multiple industries and end-users across a wide swath of the market. This diversity of customers can help eliminate reliance on any one segment or sector.

Robert Rasmus: In turn, our customer's focus is on being able to secure product from a fully integrated supplier of granular activated carbon who also offers best-in-class performance. Our ability to provide incremental environmental benefits as well makes this a very compelling offering. We remain extremely excited about this space, continue to see strong demand across the board, and anticipate updating the market as we win more contracts over the coming months. As we mentioned previously, our CapEx Guidance Portfolio 2024 remains in line with our previously committed guidance of between $60 and $70 million.

Speaker Change: In turn, our customers' focus is on being able to secure product from a fully integrated supplier of granular activated carbon, who also offers best-in-class performance.

Speaker Change: Our ability to provide incremental environmental benefits as well makes this a very compelling offering.

Bob Rasmus: We remain extremely excited about this space, continue to see strong demand across the board, and anticipate updating the market as we win more contracts over the coming months. As we mentioned previously, our CAPEX guidance for four-year 2024 remains in line with our previously committed guidance of between $60 and $70 million. We continue to aggressively seek and identify opportunities to reduce our expenditures and have been successful in capturing multiple savings as a result. I would emphasize that our 2024 CAPEX spending forecast remains unchanged despite the negative impacts associated with the unprecedented rain in the region of our Red River facility.

Speaker Change: We remain extremely excited about this space, continue to see strong demand across the board and anticipate updating the market as we win more contracts over the coming months.

Speaker Change: As we mentioned previously, our CapEx guidance for FOIA 2024 remains in line with our previously committed guidance of between $60 and $70 million.

Robert Rasmus: We continue to aggressively seek and identify opportunities to reduce our expenditures and have been successful in capturing multiple savings as a result. I would emphasize that our 2024 capital spending forecast remains unchanged despite the negative impacts associated with the unprecedented rain in the region of our Red River facility. These conditions have contributed to a construction delay of roughly six to seven weeks.

Speaker Change: We continue to aggressively seek and identify opportunities to reduce our expenditures and have been successful in capturing multiple savings as a result.

Speaker Change: I would emphasize that our 2024 capital spending forecast remains unchanged.

Speaker Change: despite the negative impacts associated with the unprecedented rain in the region of our Red River facility. These conditions have contributed to a construction delay of roughly six to seven weeks.

Bob Rasmus: These conditions have contributed to a construction delay of roughly six to seven weeks. Our team is working actively to identify solutions to claw back some of these delays. And as of today, we remain confident in achieving first deliveries in Q1 2020 live as previously forecasted. Related to CAPEX spend, and as we previously mentioned, we took the decision in April to implement our maintenance program, which we typically execute every two years. The logic for this decision was that we wanted to do it ahead of our expansion into GAC production so that we could minimize downtime once we are at main plate capacity in 2025.

Robert Rasmus: Our team is working actively to identify solutions to claw back some of these delays, and as of today, we remain confident in achieving first deliveries in Q1 2025 as previously forecasted. Related to capital spend, and as we previously mentioned, we took the decision in April to implement our maintenance program, which we typically execute every two years. The logic for this decision was that we wanted to do it ahead of our expansion into GAC production so that we could minimize downtime once we are at nameplate capacity in 2025.

Speaker Change: Our team is working actively to identify solutions to claw back some of these delays. And as of today, we remain confident in achieving first deliveries in Q1 2025 as previously forecasted.

Speaker Change: Related to capital spend, and as we previously mentioned, we took the decision in April to implement our maintenance program, which we typically execute every two years.

Speaker Change: The logic for this decision was that we wanted to do it ahead of our expansion into GAC production so that we could minimize downtime once we are at nameplate capacity in 2025.

Bob Rasmus: I believe this will prove to be a prudent decision, and although it drove approximately $1.4 million of costs that we were not able to capitalize during the second quarter, we are highly confident the near- and long-term benefits will far outweigh this. As I noted earlier, we have signed a non-binding term sheet to refinance the company's existing term loan that would materially expand the size of the facility while further enhancing liquidity. We continue to be conservative in our assumptions, and the contemplated facility is sized to fully finance our capital investment and working capital requirements as relates to our ongoing granular activated carbon projects, which we expect to contribute quickly to our cash flow generation.

Robert Rasmus: I believe this will prove to be a prudent decision, and although it drove approximately $1.4 million of costs that we were not able to capitalize during the second quarter, we are highly confident the near and long-term benefits will far outweigh this. As I noted earlier, we have signed a non-binding term sheet to refinance the company's existing term loan that would materially expand the size of the facility while further enhancing liquidity.

Speaker Change: I believe this will prove to be a prudent decision, and although it drove approximately $1.4 million of costs that we were not able to capitalize during the second quarter, we are highly confident the near and long-term benefits will far outweigh this.

Speaker Change: As I noted earlier, we have signed a non-binding term sheet to refinance the company's existing term loan that would materially expand the size of the facility while further enhancing liquidity.

Stacia Hansen: We continue to be conservative in our assumptions, and the contemplated facility is the size to fully finance our capital investment and working capital requirements as relates to our ongoing granular activated carbon projects, which we expect to contribute quickly to our cash flow generation. With that, I will hand over to Stacia to discuss the latest financials in greater detail. Thanks Bob and thanks everybody for joining us today.

Speaker Change: We continue to be conservative in our assumptions, and the contemplated facility is sized to fully finance our capital investment and working capital requirements as relates to our ongoing granular activated carbon projects.

Stacia Hansen: With that, I will hand over to Stacia to discuss the latest financials in greater detail. Thanks, Bob, and thanks everybody for joining us today. We delivered strong financial results during the second quarter with revenue growing 24% year-over-year, driven largely by enhanced contract's terms, which includes 16% growth on average selling price. Our fifth consecutive quarter of double-digit year-over-year percentage growth in ASP, as well as positive changes in product mix and a 3% increase in volume. Our growth margin in the quarter was approximately 32%, up more than 700 basis points versus the 25% margins reported in prior year period.

Speaker Change: which we expect to contribute quickly to our cash flow generation. With that, I will hand over to Stacia to discuss the latest financials in greater detail.

Stacia Hansen: We delivered strong financial results during the second quarter, with revenue growing 24% year over year, driven largely by enhanced contract terms, which include 16% growth in average selling rates, our fifth consecutive quarter of double-digit year-over-year percentage growth in ASP, as well as positive changes in product mix and a 3% increase in volume. Our growth margin in the quarter was approximately 32%, up more than 700 basis points versus the 25% margins reported in prior year periods.

Stacia: Thanks, Bob, and thanks, everybody, for joining us today. We delivered strong financial results during the second quarter, with revenue growing 24 percent year over year, driven largely by enhanced contracts terms, which include 16 percent growth on average selling price.

Stacia: Our fifth consecutive quarter of double-digit year-over-year percentage growth in ASP.

Stacia: as well as positive changes in product mix and a 3% increase in volume.

Stacia: Our gross margin in the quarter was approximately 32%, up more than 700 basis points versus the 25% margins reported in prior year period.

Stacia Hansen: As Bob mentioned, these results were achieved despite the inclusion of approximately $1.4 million of cost associated with our proactive acceleration, a certain maintenance cost, without which our growth margin would have been even better. We generated positive adjusted EBITDA of approximately $450,000 compared to an adjusted EBITDA loss of $3 million in the prior year period. Net loss was $2 million, a significant improvement versus net loss of $5.9 million in Q2 of 2023. As I mentioned earlier, average selling price for the quarter improved 16% year-over-year. We continued to eliminate negative margin contracts as we focused on profitability over volumes, and at the end of the second quarter, coverage is loss-making contracts to roughly 2% of volumes versus roughly 24% in 2022 and approximately 13% in 2023.

Stacia Hansen: As Bob mentioned, these results were achieved despite the inclusion of approximately $1.4 million of costs associated with our proactive acceleration of certain maintenance costs, without which our gross margin would have been even better. We generated positive adjusted EBITDA of approximately $450,000 compared to an adjusted EBITDA loss of $3 million in the prior year period. Net loss was $2 million, a significant improvement versus a net loss of $5.9 million in Q2 of 2023.

Stacia: As Bob mentioned, these results were achieved despite the inclusion of approximately $1.4 million of costs associated with our proactive acceleration of certain maintenance costs, without which our gross margin would have been even better.

Bob: We generated positive adjusted EBITDA of approximately $450,000 compared to an adjusted EBITDA loss of $3 million in the prior year period.

Bob: Net loss was $2 million, a significant improvement versus net loss of $5.9 million in Q2 of 2023.

Stacia Hansen: As I mentioned earlier, the average selling price for the quarter improved 16% year-over-year. We continue to eliminate negative margin contracts as we focus on profitability over volume. And at the end of the second quarter, we have reduced lawmaking contracts to roughly 2% of volumes versus roughly 24% in 2022 and approximately 13% in 2023. Subsequent to quarter end, we have amended the sole remaining loss-making contract, which we expect to be a net contributor in 2025. Selling general and administrative expenses totaled $7 million, reflecting a reduction of approximately $1 million versus the prior year period, driven by a reduction in payroll and benefits expenses, as well as legal and professional costs.

Speaker Change: As I mentioned earlier, average selling price for the quarter improved 16% year-over-year. We continue to eliminate negative margin contracts as we focus on profitability over volume.

Speaker Change: And at the end of the second quarter, have reduced loss-making contracts to roughly 2% of volumes versus roughly 24% in 2022 and approximately 13% in 2023.

Stacia Hansen: Subsequent to quarter end, we have amended the sole remaining loss-making contract, which we expect to be a net contributor in 2025. Selling, general and administrative expenses totaled $7 million, reflecting a reduction of approximately $1 million versus the prior year period, driven by a reduction in payroll and benefits expenses as well as legal and professional fees. Our research and development cost for the second quarter totaled approximately $900,000. This is compared to approximately $800,000 in the prior year period. Year-over-year growth in R&D was primarily driven by conducting further product qualification testing with potential lead GAC adopters. 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, but further enabling us to pursue and execute on growth and high margin opportunities within our expanded GAC business.

Speaker Change: Subsequent to quarter end, we have amended the sole remaining loss-making contract, which we expect to be a net contributor in 2025.

Speaker Change: Selling general and administrative expenses totaled $7 million, reflecting a reduction of approximately $1 million versus the prior year period, driven by a reduction in payroll and benefits expenses, as well as legal and professional fees.

Stacia Hansen: Our research and development costs for the second quarter totaled approximately $900,000. This is compared to approximately $800,000 in the prior year period. Year-over-year growth in R&D was primarily driven by conducting further product qualification testing with potential lead GAC adopters. Overall, and on an annualized basis, our performance demonstrates our ability to operate our pack business in a way that contributes positively to our economic position while further enabling us to pursue and execute on growth and high-margin opportunities within our expanded GAC business.

Speaker Change: Our research and development costs for the second quarter totaled approximately $900,000. This is compared to approximately $800,000 in the prior year period.

Speaker Change: Year-over-year growth in R&D was primarily driven by conducting further product qualification testing with potential lead GAC adopters.

Operator: Greetings and welcome to the Arq 2nd quarter, 2024 earnings call. At this time all participants are in a listen only mode. A question and an intercession will follow the formal presentation.

Speaker Change: 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 growth and high margin opportunities within our expanded GAC business.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Stacia Hansen: As Bob mentioned, we fully anticipate that our PAC business will be cash generative in 2024, and with it, we will have a much more secure foundational business on which we can add more rewarding GAC opportunities. Turning to the balance sheet, we ended the second quarter with cash of $28.5 million. The change versus last year and quarter driven by our ongoing strategic investment and expansion at Corbin and Red River. This is partially offset by the $15 million PIPE investment we made by an institutional investor in May.

Stacia Hansen: As Bob mentioned, we fully anticipate that our PAC business will be cash-generative in 2024, and with it, we will have a much more secure foundational business on which we can add more rewarding GAC opportunities. Turning to the balance sheet, we ended the second quarter with cash of $28.5 million.

Anthony Nathan: I would now like to turn the conference over to your host, Mr. Anthony Nathan, head of investor relations for Arq. Thank you. You may begin. Thank you, operator.

Speaker Change: As Bob mentioned, we fully anticipate that our PAC business will be cash-generative in 2024, and with it, we will have a much more secure foundational business on which we can add more rewarding GAC opportunities.

Anthony Nathan: Good morning, everyone, and thank you for joining us today for our second quarter, 2024 earnings results call. With me on the call today are Bob Rasmus, Arq's Chief Executive Officer and President, as well as Stacia Hansen, Arq's Treasurer and Chief Accounting Officer. This conference call is being broadcasted live within the investor section of our website and a downloadable version of today's presentation. It's available there as well. A webcast replay will also be available on our site, and you can contact our investor relations team at investors at arq.com.

Speaker Change: Turning to the balance sheet, we ended the second quarter with cash of $28.5 million, the change versus last year and quarter driven by our ongoing strategic investment and expansion at Corbin and Red River.

Stacia Hansen: The change versus last year and quarter was driven by our ongoing strategic investment and expansion at Corbin and Red River. It was partially offset by the $15 million pipeline investment we made by an institutional investor in May. Today we are reiterating our 2024 CapEx forecast of $60 to $70 million, of which we continue to expect Red River Phase 1 will account for $55 to $60 million. We continue to expect to fund our CapEx needs via our existing cash, cash generation, and ongoing cost reduction initiatives. Potential prepayments on GAC contracts, and importantly, an anticipated credit refinance.

Speaker Change: This is partially offset by the $15 million pipe investment we made by an institutional investor in May.

Stacia Hansen: Today, we are reiterating our 2024 CAPEX forecast of $60 to $70 million, of which we continue to expect Red River Phase 1 will account for $55 to $60 million. We continue to expect to fund our CapEx needs via our existing cash, cash generation, ongoing cost reduction initiative, potential prepayments on GAC contracts, and importantly, an anticipated credit refinancing. As Bob noted, we continue to have positive discussions with potential lenders on refinancing of the company's existing term loans. That when finalize, we provide an increased facility that we believe would be sufficient to cover the expected capital requirements through this year and beyond.

Speaker Change: Today, we are reiterating our 2024 CapEx forecast of $60 to $70 million, of which we continue to expect Red River Phase 1 will account for $55 to $60 million.

Anthony Nathan: Let me remind you that the presentation and remarks were made today include forward-looking statements as defined in section 21e at 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 applied by these statements. These risks and uncertainties include but are not limited to those factors identified on slide two of today's slide presentation.

Speaker Change: We continue to expect to fund our CapEx needs via our existing cash, cash generation, ongoing cost reduction initiatives, potential prepayments on GAC contracts, and importantly, an anticipated credit refinancing.

Stacia Hansen: As Bob noted, we continue to have positive discussions with potential lenders on refinancing of the company's existing term loans that, when finalized, would provide an increased facility that we believe would be sufficient to cover the expected capital requirements through this year and beyond. We expect to complete this refinancing later in the third quarter. With that, I'll turn things back to Bob. Thanks, Stacia.

Speaker Change: As Bob noted, we continue to have positive discussions with potential lenders on refinancing of the company's existing term loans.

Bob: that, when finalized, would provide an increased facility that we believe would be sufficient to cover the expected capital requirements through this year and beyond. We expect to complete this refinancing later in the third quarter.

Anthony Nathan: In our form 10Q for the quarter ended June 30th, 2024 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.

Stacia Hansen: We expect to complete this refinancing later in the third quarter.

Bob Rasmus: With that, I'll turn things back to Bob. Thanks, Stacia. Overall, this has been another steady quarter of progress.

Robert Rasmus: Overall, this has been another steady quarter of progress. I'd like to leave you all with what I believe are the four key takeaways today. First, I am confident that we have secured the long-term stability of our foundational PAC business such that it will now be self-sustaining and continue to grow. We continue to believe that this business will be cash flow positive for the full year 2024 and beyond. We continued to build momentum throughout the second quarter, providing strong tailwinds as we head into the second half of the year, which represents our seasonally strong period.

Bob: With that, I'll turn things back to Bob.

Bob: Thanks, Stacia. Overall, this has been another steady quarter of progress. I'd like to leave you all with what I believe are the four key takeaways today.

Bob Rasmus: I'd like to leave you all with what I believe are the four key takeaways today. First, I am confident that we have secured the long-term stability of our foundational PAC business, such that it will now be self-sustaining and continue to grow. We continue to believe that this business will be cash flow positive for the full year 2024 and beyond. We continue to build momentum throughout the second quarter, providing strong tailwinds as we head into the second half of the year, which represents our seasonally strong period. Second, we continue to make outstanding progress on contracting granular activated carbon volumes at attractive pricing well ahead of our first production.

Anthony Nathan: In addition, it is especially important to review the presentation and that there's remarks and conjunction with the gut references in the financial statements.

Bob: First, I am confident that we have secured the long-term stability of our foundational PAC business, such that it will now be self-sustaining and continue to grow. We continue to believe that this business will be cash flow positive for the full year 2024 and beyond.

Anthony Nathan: With that, I would like to turn the call over to Bob. Thank you Anthony and thanks to everyone for joining us this morning.

Bob Rasmus: To start today's call, I'd like to share a high-level review of our second quarter divided into four key sections. Our financial results, progress on GAC contracting, progress on our strategic growth projects and an update on our capital position. First, driven by our ongoing strategic evolution and transformation, we reported another quarter of strong and sustainably-enhanced financial performance. Once again, revenue improved over the prior year, reflecting an annual increase of 24% to 25.4 million dollars.

Bob: We continued to build momentum throughout the second quarter Providing strong tailwinds as we head into the second half of the year which represents our seasonally strong period

Robert Rasmus: Second, we continue to make outstanding progress on contracting granular activated carbon volumes at attractive prices, well ahead of our first production. This provides third-party validation of our shift towards granular activated carbon, while also demonstrating the quality of our offerings. We continue to believe our GAC capacity will be fully contracted prior to initial production and are confident that there is more encouraging news to come in the weeks and months ahead. Sir, Corbin commissioning has been successful, and we are now in a position to stop file feed stacks for use at Red River as required.

Bob: Second, we continue to make outstanding progress on contracting granular activated carbon volumes at attractive pricing well ahead of our first production.

Bob Rasmus: This provides third-party validation of our shift towards granular activated carbon, while also demonstrating the quality of our offering. We continue to believe our GAC capacity will be fully contracted prior to initial production, and our confidence that there is more encouraging news to come in the weeks and months ahead.

Bob: This provides third-party validation of our shift towards granular activated carbon, while also demonstrating the quality of our offering.

Bob: We continue to believe our GAC capacity will be fully contracted prior to initial production and are confident that there is more encouraging news to come in the weeks and months ahead.

Bob Rasmus: Third, carbon commissioning has been successful, and we are now in a position to stockpile feedstack for use at Red River as required. I am very pleased with the way our new team has been able to focus on cost-saving initiatives to keep this project on track for first deliveries in Q1 2025.

Bob: Third, Corbin commissioning has been successful and we are now in a position to stockpile feedstock for use at Red River as required.

Robert Rasmus: I am very pleased with the way our new team has been able to focus on cost-saving initiatives to keep this project on track for first deliveries in Q1 2025. Our capital position remains strong, and upon completion of our refinancing, we will have further enhanced our capital structure. Over the coming months, we will continue to update the market as appropriate. And as a team, we remain very excited by the busy but transformational period that lies ahead.

Bob: I am very pleased with the way our new team has been able to focus on cost-saving initiatives to keep this project on track for first deliveries in Q1 2025.

Bob Rasmus: And for our capital position remains strong, and upon completion of our refinancing, we will have further enhanced our capital structure. Over the coming months, we will continue to update the market as appropriate, and as a team, we remain very excited by the busy but transformational period that lies ahead.

Bob: And fourth, our capital position remains strong, and upon completion of our refinancing, we will have further enhanced our capital structure.

Bob: Over the coming months we will continue to update the market as appropriate and as a team we remain very excited by the busy but transformational period that lies ahead. With that, I will turn the call back over to our operator to move us to Q&A.

Operator: With that, I will turn the call back over to our operator to move us to Q&A. Thank you.

Robert Rasmus: With that, I will turn the call back over to our operator to move us to Q&A. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your television. The information tone will indicate your line is in the question; you may press start, too, if you'd like to remove your question.

Operator: At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star 2 if you'd like to remove your question from the Q. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you.

Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star. Our first question comes from the line of Gerard Sweeney with Roth and Rasmus. Happy to do it, Jerry. I've got a few different questions all over the place. Start with Red River, the delay.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Jerry Sweeney: Our first question comes from the line of Jerry Sweeney with Roth MKM. Please proceed with your question.

Speaker Change: Our first question comes from the line of Jerry Sweeney with Roth MKM. Please proceed with your question.

Bob Rasmus: Hey, Rath, thanks for taking my call this morning. Happy to do it, Jerry. I've got a few different questions all over the place, but I'm just going to start with Red River the delay. May, you're targeting 60 to 70 million, I think, in catbacks. Have you looked at maybe spending a little bit more to get the project back on track? There's obviously put and take to that, just curious to your view. Or is it short enough of a delay that, you know, puking catback, that just doesn't make sense?

Bob Rasmus: Our plant shutdown activities and expenses related to physically connecting the GAC facility to our legacy red river plant will enable us to capture multiple operational synergies. The next scheduled full plant maintenance will now occur in 2026 versus 2025, as would have been the case, without our strategic decision to accelerate this year. As a reminder, the first two quarters of the year generally reflect seasonally weak periods, but we were encouraged at the strong and improving activity we saw during the second quarter, which provides strong momentum as we head into our seasonally stronger quarters during the second half. We continue to expect our past business to be cash flow generative for the full year, creating a solid foundation in which to lay our creative, higher margin, GAC revenues and cash flows.

Jerry Sweeney: Hey Raz, thanks for taking my call this morning.

Raz: I'm happy to do it, Jerry. I've got a few different questions all over the place, but...

Raz: with Red River, the delay.

Gerard Sweeney: Spending a little bit more to get the project back on track, a couple comments on your question, Jerry. One, the CAPX project actually is on target. We had hoped. I'm a conservative guy and always prefer to under-promise and over-deliver.

Jerry Sweeney: Have you looked at maybe spending a little bit more to get the project back on track? There's obviously puts and takes of that. Just curious to your view. Or is it short enough of a delay that...

Bob Rasmus: A couple comments on your question, Jerry. One, the catbacks project actually is on target. We had hoped. I'm a conservative guy and always prefer to under-promise and over-deliver. We had hoped that it built in some delays such that we would be able to actually begin first deliveries in the fourth quarter. Given the seven weeks delay due to the biblical reins, that is unfortunately not going to happen.

Speaker Change: Thank you for watching. Bye for now. Bye. Bye. Bye.

Speaker Change: upping catbacks just doesn't make sense.

Speaker Change: A couple comments on your question, Jerry. One, the CapEx project actually is on target. We had hoped, I'm a conservative guy and always prefer to under-promise and over-deliver, we had hoped and had built in some delays such that we would be able to actually begin first deliveries in the fourth quarter. Given the seven weeks delay due to the biblical reigns, that is unfortunately not going to happen. However, we still are on target for commissioning the facility, beginning that in the fourth quarter, and still on target for first deliveries in the first quarter of 25. And based on our model and our numbers and based on

Robert Rasmus: We had hoped and had built in some delays such that we would be able to actually begin first deliveries in the fourth quarter, given the seven weeks delay due to the biblical rains. However, we still are on target for commissioning the facility, beginning that in the fourth quarter, and still on target for first deliveries in the first quarter of 2017. Based on our model and our numbers and based on how we originally made the financial investment decision, we don't think it's a prudent use of capital to increase that expenditure to bring it back to our hoped-for timeline as opposed to our planned timeline. Now, just for the sake of clarity, I.

Bob Rasmus: Second, we're following through on our commitment to secure additional contracts at our red river GAC facility. We are now 52% contracted on our name plate capacity with roughly six months left to initial production, evidencing the strong demand for our differentiated products and solutions. Our agreements continue to reflect attractive pricing for products that are materially accretive to our foundational path portfolio, further supporting the capital we're investing in this exciting growth portion of our business.

Bob Rasmus: However, we still are on target for commissioning the facility, beginning that in the fourth quarter, and still on target for first deliveries in the first quarter of 25.

Bob Rasmus: And based on our model and our numbers and based on how we, you know, originally made the financial investment decision, we don't think it's a prudent use of capital to increase that expenditure and to bring it back to our hoped-for timeline as opposed to our planned timeline. Got it. Now, just for the sake of clarity, I sort of anticipated sales; we'll say early Q1. There was a delay. I was thinking later on Q1, but it sounds as though you were being conservative. So, it's fair to say that maybe some product sales, at least in the first half of Q1, not late in Q1.

Speaker Change: on how we originally made the financial investment decision. We don't think it's a prudent use of capital to increase that expenditure to bring it back to our hoped for timeline as opposed to our planned timeline.

Jerry Sweeney: Got it. Now, just for the sake of clarity, I sort of anticipated sales, we'll say early Q1.

Bob Rasmus: Third, our key growth projects are on track. At our Corbin facility, we commenced commissioning early during the second quarter and began producing initial purified by Humanist Cole Way Speedstock for quality control and specification testing, which will ramp up ahead of our first production at Red River. And at our Red River GAC facility, we remain on track for Q4 commissioning as well as first deliveries in Q1 of 2025. Today, we are reiterating our full 2024 capital investment forecast of $60 to $70 million. We expect our investment in these projects will generate payback in approximately three years.

Speaker Change: There was a delay.

Robert Rasmus: It's fair to say that maybe some products... You know, I think again, it's what the first half is that February 14th or below, you know, or as the latter, but I think rather than splitting hairs as it relates to days, you know, as I say, we're entirely confident that we will have completed the commissioning in the first quarter and begun first deliveries in the first quarter. And certainly by the end of the first quarter, we'll be able to realize the full impact of the expanded GAC capacity in production.

Speaker Change: I was thinking later in Q1, but it sounds as though you were being conservative. So it's fair to say that maybe some product sales, at least in the first half of Q1, not late in Q1.

Bob Rasmus: You know, I think, again, it's what's first half is that February 14th or below, you know, or as the later, but I think rather than splitting hairs as it relates to days, you know, as I say, we're entirely confident that we will have completed the commissioning in the first quarter and begun first deliveries in the first quarter. And that will, you buy, certainly by the end of the first quarter, we'll be able to realize the full impact of the expanded GAC capacity and production. Okay, that's fair. I got you. And then, Corbin, I think he touched on it a little bit at the end.

Speaker Change: You know, I think, again, it's what's first half, is that February 14th or below, or is the later, but I think rather than splitting hairs as it relates to days, as I say, we're entirely confident that we will have completed the commissioning in the first quarter and begun first deliveries in the first quarter, and that certainly by the end of the first quarter we'll be able to realize the full impact of the expanded GAC capacity and production.

Robert Rasmus: We'll be able to do that in the first quarter, but we'll be able to do that in the first quarter. And then, Corbin, I think you touched on that a little bit at the end.

Bob Rasmus: Fourth, we continue to bolster our capital position while strategically investing in our ongoing transformation. This includes an opportunistic capital raise completed in May with a $15 million pipe raise completed with an institutional investor. This unsolicited investment further bolstered our liquidity position as we continue to invest in transformational projects with highly attractive expected return, and related to our previously discussed refinancing, we announced today that we recently signed a non-binding term sheet that would material expand the size of the facility while further enhancing liquidity, more on that in just a bit.

Speaker Change: Okay, that's fair. I got you.

Bob Rasmus: You know, it sounds like it's fully commissioned; you're stockpiling, but I just want to get a little bit more depth and clarity on that.

Corbyn: And then, Corbyn, I think you touched on it a little bit at the end. You know, it sounds like it's fully commissioned, you're stockpiling, but I just want to get a little bit more depth and clarity on that. Is that facility ... You're comfortable with the commercialization process and anything ...

Bob Rasmus: Is that facility you're comfortable with the commercialization process and any items that we should be paying attention to there?

Robert Rasmus: Is that facility, you're comfortable with the commercialization process and any items? Sure, no, we're very pleased with the way Corbin has worked out one. Just to reiterate something we always mentioned that the unique quality of our feedstock using bi-tuminous coal waste and using that waste as the ability to remediate other waste gives us two bites at the environmental apple. So then you add that to the operational capability. It's fully commissioned.

Bob Rasmus: Sure. No, we're very pleased with the way Corbin has worked out.

Speaker Change: any items that we should be paying attention to there.

Bob Rasmus: One, just to reiterate something we always mentioned, that the unique quality of our feedstock using bi-tuminous coal waste and using that waste as the ability to remediate other waste gives us two bites at the environmental apple. So, then you add that to the operational capability. It's fully commissioned. We are very pleased with that. We're ahead of time. We're under budget in terms of Corbin. So, we're very pleased with that aspect of it. And so we have done, if you will, the full commissioning process.

Speaker Change: We're very pleased with the way Corbyn has worked out. One, just to reiterate something we always mention, that the unique quality of our feedstock using bituminous coal waste and using that waste as the ability to remediate other waste gives us two bites at the environmental apple. Then you add that to the operational capability. It's fully commissioned. We are very pleased with that. We're ahead of time. We're under budget in terms of Corbyn. We're very pleased with that aspect of it. We have done, if you will, the full commissioning process. We are just waiting to turn that back on to begin stockpiling feedstock in anticipation of being able to supply commercial feedstock.

Robert Rasmus: We are very pleased with that. We're ahead of time. We're under budget in terms of Corbin.

Bob Rasmus: I'd now like to hit on a few other notable recent events. We were pleased to recently announce that Arq has been added to both the broad market Russell 3000 index and the Russell 2000 index. This inclusion is a significant achievement for us and reflects the hard work and dedication of our entire team. Being part of these widely recognized and respected benchmarks for US stock market performance is a testament to our company's growth and evolution.

Robert Rasmus: So we're very pleased with that aspect of it. And so we have done, if you will, the full commissioning process. We are just waiting to turn that back on to begin stockpiling feedstock and anticipation of being able to supply commercial quantities to Red River once we begin production of our GAC there. And then speaking, you did, Spoken in the past, Arq's GAC is, for lack of a better term, different in size and conformity of size and shape. Is that difference a driver?

Bob Rasmus: It underscores the success of our strategic initiatives and our ongoing transformation into a leading environmental technology company. As you are rightly aware, Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. We anticipate that our inclusion in the Russell family of indices will bring several benefits including broad exposure to the investment community and greater liquidity in our stock.

Bob Rasmus: We are just waiting to turn that back on to begin stockpiling feedstock in anticipation of being able to supply commercial quantities to Red River once we begin production of our GAC there. mentioned the uniqueness of the two-minute product out of Corbin. And you're seeing, I think, some very good interest, not just in municipal water, but air filtration and biogas. We've spoken in the past; Arq's GAC is, for lack of a term, different size and conformity of size and shape.

Speaker Change: Thank you very much.

Speaker Change: Got it. And then, speaking, you did mention the uniqueness of the Bituminous product out of Corbin. And you're seeing, I think, some very good interest, not just in municipal water, but air filtration and biogas.

Speaker Change: We've spoken in the past, AHRQ's GAC is

Speaker Change: for lack of a better term, different in size and conformity of size and shape.

Bob Rasmus: Is that different driving and advantage in the air filtration and biogas markets, or even the municipal water market by chance? I think a couple things there. One, just the overall market fundamentals are very compelling in all aspects of the market, whether it's renewable natural gas, whether it's water filtration, whether it's PFAS remediation, whether it is air purification, soil or water remediation. It's very compelling market dynamics, but then you layer on top of that our very unique product offering. And, as you have heard me say previously, that activated carbon is a technical sale. It's not something where our salesman just shows up and says to a customer or a potential customer, "We can have a truckload of granular activated carbon here next week, next month, when do you want it?"

Speaker Change: difference driving an advantage in the air filtration and biogas markets or even the municipal water market by chance.

Robert Rasmus: I think a couple things there. One, just the overall market fundamentals are very compelling in all aspects of the market, whether it's renewable natural gas, whether it's water filtration, whether it's PFAS remediation, whether it's air purification, soil, or water remediation. It's very compelling market dynamics, but then you layer on top of that our very unique product offering. And as you have heard me say previously, that activated carbon is a technical sale.

Speaker Change: I think a couple things there. One, just the overall market fundamentals are very compelling in all aspects of the market, whether it's renewable natural gas, whether it's water filtration, whether it's PFAS remediation, whether it is air purification, soil or water remediation. It's very compelling market dynamics.

Bob Rasmus: During our first quarter earnings call in May, we were proud to announce our inaugural GAC supply contract, marking a tremendous milestone in our strategic evolution. In the month since our last earnings call, we have continued to make progress in our commitment of entering into additional contracts for our GAC supply at our Red River facility. As I know that earlier, we have recently secured significant additional contracted volumes for GAC supply bringing up our total contracted demand of 13 million pounds per annum when fully scaled up.

Speaker Change: but then you layer on top of that our very unique product offering.

Speaker Change: And as you have heard me say previously, that activated carbon is a technical sale. It's not something where our salesman just shows up and says to a customer or a potential customer, we can have a truckload of granular activated carbon here next week, next month, when do you want it? You have to undergo and meet and pass very stringent product qualification and testing.

Robert Rasmus: It's not something where our salesman just shows up and says to a customer or a potential customer, we can have a truckload of granular activated carbon here next week, next month. When do you want it? You have to undergo and meet and pass very stringent product qualification and testing.

Bob Rasmus: You have to undergo and meet and pass very stringent product qualification and testing. And so, as a result, we began this in the second half of last year, as we talked about previously. We identified over 100 potential lead adopters across a wide variety of industries: biogas, municipal water, you know, remediating runway foam, remediating deicing liquids, you know, air filtration, etc. And in every instance where we engage with those 100 lead adopters, 100 plus actually, we either move from product testing to actually committed contract, product testing to contract negotiations, which we're engaged in now, or product testing to the next level of testing.

Robert Rasmus: And so as a result, we began this in the second half of last year, and as we talked about previously, we identified over 100 potential lead adopters across a wide variety of industries, biogas, municipal water, remediating runway foam, remediating de-icing liquids, air filtration, et cetera. And in every instance where we engage with those 100 lead adopters, actually, we either move from product testing to actually committed contract, product testing to contract negotiations, which we're engaged in now, or we move to the next level of testing.

Speaker Change: And so as a result, we began this in the second half of last year, as we talked about previously, we identified over 100 potential lead adopters across a wide variety of industries, biogas, municipal water, remediating runway foam, remediating de-icing liquids.

Speaker Change: you know, air filtration, etc. And in every instance where we engage with those 100 lead adopters, 100 plus actually, we either move from product testing to actually committed contract.

Bob Rasmus: These GAC sales are set to significantly grow our total revenue base and expand our margins. Given the limited supply of high quality, fully integrated, domestically produced, granular activated carbon in the market, and our ongoing customer discussions, were confident in our ability to fully contract our remaining nameplate capacity before production begins, demonstrating how our unique high quality and environmentally friendly feedstock resonates with the market.

Speaker Change: product testing to contract negotiations, which we're engaged in now, or product testing to the next level of testing.

Robert Rasmus: And I think that's a testament to a couple factors besides the efficacy and hard work of our R&D team and our sales force. But it also relates to the quality of our product. Because of the unique quality of our feedstock being very high-quality bituminous metallurgical coal, we believe the testing is showing that we have a performance advantage relative to the competition and what other people have been using in the past.

Bob Rasmus: And I think that's a testament to a couple factors besides the efficacy and hard work of our R&D team and our sales force, but it also relates to the quality of our product because of the unique quality of our feedstock being very high quality by truminous metallurgical coal. We believe in the testing is shown that we have a performance advantage relative to the competition and what other people have been using in the past. You combine that with the lower CO2 footprint from our process versus mining virgin coal, as much as a 40% reduction in reduced CO2 exposure, as well as adding into that that being the only domestic fully vertically integrated supply chain, we qualify for the Build America Buy America, which is important at many federal, state, and local contract levels.

Speaker Change: And I think that's a testament to a couple factors besides the efficacy and hard work of our R&D team and our sales force.

Speaker Change: But it also relates to the quality of our product. Because of the unique quality of our feedstock, being very high quality bituminous metallurgical coal, we believe, and the testing has shown, that we have a performance advantage relative to the competition and what other people have been using in the past.

Bob Rasmus: As we advance even closer to the financial opportunity represented by our growth into GAC products, it's perhaps worth discussing further how we view the sector. As we flag our first quarter results, we believe the regulatory changes put in place by the EPA in April are likely to have a material, long-term effect, and demand for GAC products. Given the increasing focus on efforts to remove PFAS or forever chemicals from our nation's water supply.

Robert Rasmus: You combine that with the lower CO2 footprint from our process versus mining virgin coal, as much as a 40% reduction in reduced CO2 exposure, as well as add into that the fact that, as the only domestic fully vertically integrated supply chain, we qualify for the Build America by America program, which is important at many federal, state, and local contract levels. All of those factors combine to make our product a very attractive offering. [inaudible] I know you're not- You're right. You could, maybe... We have municipal water.

Speaker Change: You combine that with the lower CO2 footprint from our process versus mining virgin coal, as much as a 40% reduction.

Speaker Change: and reduce CO2 exposure, as well as adding into that that being the only domestic fully vertically integrated supply chain, we qualify for the Build America, Buy America, which is important at many federal, state and local contract levels.

Bob Rasmus: Lewis. To reiterate, we believe that if you assume all existing water suppliers must reduce their PFAP contamination from 70 parts per trillion to just 4 parts per trillion, the limitations outlined in the new regulations, this will require each user to consume between 3 to 5 times more granular activated carbon. Taking this further, we believe this leads to a supply gap of approximately 370 million pounds by 2030, or put another way, a potential supply gap greater than the entire North American GHC market today. And it is not just our forecast that implies this level of supply, shortfall and market tightness.

Bob Rasmus: All of those factors combine to make our product a very attractive offering.

Speaker Change: All of those factors combine to make our product a very attractive offering.

Jerry Sweeney: Sure, questions. I know you're not going to tell me pricing per pound, but I was wondering. You're right.

Speaker Change: Got it. One or two short questions. I know you're not going to tell me pricing per pound, but I was wondering. You're right. Yep You could maybe We have municipal water, you have air, you have RNG, you know

Bob Rasmus: You could maybe we have municipal water, you have air, you have RNG, you know, what's the more the higher ASP in those markets, the sort of rank of person. So pricing varies across the various market segments. You know, I'll reiterate what I've said in the past: the market pricing for a granular activated carbon as a whole is a multiple of our path pricing. Does it cost more to produce granular activated carbon versus powder activated carbon? Yes. Does it cost a multiple to produce granular activated carbon versus powder activated carbon? Absolutely not.

Robert Rasmus: What's more, so pricing, you know, varies across the various market segments. You know, I'll reiterate what I've said in the past, the market pricing for granular activated carbon as a whole is a multiple of our pack pricing. Does it cost more to produce granular activated carbon versus powdered activated carbon?

Speaker Change: What's the more, the higher ASPs in those markets?

Robert Rasmus: Yes. But does it cost a multiple to produce granular activated carbon versus powdered activated carbon? Absolutely not.

Speaker Change: Thank you very much. Thank you.

Speaker Change: sort of rank of the person.

Speaker Change: You know, so pricing, you know, varies across the various market segments. You know, I'll reiterate what I've said in the past, the market pricing for granular activated carbon as a whole is a multiple of our pack pricing.

Speaker Change: Does it cost more to produce granular activated carbon versus powdered activated carbon? Yes.

Speaker Change: Does it cost a multiple to produce granular activated carbon versus powdered activated carbon? Absolutely not. And the important thing in terms of the pricing and the actual contracts we've signed across three different industries

Robert Rasmus: And the important thing in terms of the pricing and the actual contracts we've signed across three different industries, as well as the pricing discussions we are having in our current contract negotiations, they provide further evidence and further validity that this is a very compelling economic investment with a three-year or less investment payback for us. Last final, Congratulations on knocking out the negative contracts. I'm sure, no, we're absolutely not done.

Jerry Sweeney: In the important thing in terms of the pricing in the actual contracts we've signed across three different industries, as well as the pricing discussions we are having in our current contract negotiations, they provide further evidence and further validity that this is a very compelling economic investment with a three-year or less investment payback for us. Got it.

Speaker Change: as well as the pricing discussions we are having in our current contract negotiations. They provide further evidence and further validity that this is a very compelling economic investment with a three-year or less investment payback for us.

Bob Rasmus: Third, the report states that given granular activated carbon's advantages versus traditional products and solutions, GAC's market penetration rate for PFAS treatment is expected to increase by twofold for groundwater and fourfold for surface water versus historical usage levels. Together, we believe this evidence is further independent support for a market whose fundamentals will continue to support our business and its growth strategy over the near and long term. I remain a firm believer that where economic opportunities of this size arise, capital will flow, and we fully anticipate that incremental supply will fill some of this gap.

Jerry Sweeney: Okay, last final question.

Jerry Sweeney: Congrats, you know, knocking out the negative contracts.

Speaker Change: Got it. Okay, last final question. Congrats, you know, knocking out the the negative contracts. Just curious if as you look at the pack market and

Bob Rasmus: Just curious if, as you look at the pack market and just moving forward, curious if there's actually some opportunity to continue to drive some pricing and some better contracts, especially maybe contracts that you reworked a couple of years ago. Any thoughts on that front? I'm sure now we're absolutely not done. You know, as we mentioned, this is the fifth consecutive quarter of double-digit average selling price increase. You know, some of that is the low hanging fruit that we've been able to harvest, but there's been no magical elixir in terms of doing what we've been doing and being able to continue to do that.

Speaker Change: Thank you very much.

Speaker Change: Just

Speaker Change: moving forward. Curious if there's actually some opportunity to continue to drive some pricing and some better contracts, especially maybe contracts that you reworked a couple years ago.

Robert Rasmus: You know, as we mentioned, this is the fifth consecutive quarter of double-digit average selling prices. Some of that is the low-hanging fruit that we've been able to harvest, but there's been no magical elixir in terms of doing what we've been doing and being able to continue to do that. It's basic blocking and tackling.

Speaker Change: Any thoughts on that front?

Speaker Change: I'm sure no we're absolutely not done. You know as we mentioned this is the fifth consecutive quarter of double-digit average selling price increase.

Speaker Change: You know, some of that is the low-hanging fruit that we've been able to harvest, but there's been no magical elixir in terms of doing what we've been doing and being able to continue to do that. It's basic blocking and tackling. It's concentrating on profitability over volume. It's having customers and selling the value of our vertically integrated domestic supply chain and the certainty and availability of supply and the advantages that entails for our customers.

Bob Rasmus: But crucially, we have a critical and strategic first mover advantage. We believe it will take at least two to three years of a new supply to come online, given permitting, financing, and construction timelines. Further, we believe that the cost to build green field sites today is between five to seven dollars per pound of production, dramatically impacting the economics others can realize through their investment dollars. Brown field sites may be less expensive at between three to five dollars per pound of production, but this is still indicative of major capital outlay and a market that has been typically slow to react in terms of capacity.

Bob Rasmus: It's basic blocking and tackling. It's concentrating on profitability over volume. It's having customers and selling the value of our vertically integrated, you know, domestic supply chain and the certainty and availability of supply in the advantages that entails for our customers.

Robert Rasmus: It's concentrating on profitability over volume. It's having customers and selling the value of our vertically integrated, you know, domestic supply chain and the certainty and availability of supply, and the advantages that that entails for our customers. And it's also not just transforming our existing power generation business, but it's also transitioning into adjacent markets like waste to energy, and municipal water, both of which carry a higher average selling price, as well as a higher average margin as a result.

Bob Rasmus: And it's also not just transforming our existing power generation business, but it's also transitioning into adjacent markets like ways to energy, like the municipal water, both of which carry a higher average selling price as well as an average higher average margin as a result. As an aside, there also is a small component of our extremely high quality path product being able to use for PFAS remediation. Now, when we've talked about that, the EPA regulations reducing the amount of permissible PFAS in water going from 70 parts per trillion to four parts per trillion. You need regular activated carbon to be able to do that, but in instances where municipal water authorities is currently at 10 parts per trillion or less, they can use a really high quality or highest quality pack product to get them in compliance with the new EPA regulations.

Speaker Change: And it's also not just transforming our existing power generation business, but it's also transitioning into adjacent markets.

Speaker Change: like Waste-to-Energy, like...

Speaker Change: the municipal water, both of which carry a higher average selling price as well as a higher average margin as a result.

Bob Rasmus: Based on these round numbers, we believe it is reasonable to conclude that our plant assets are worth multiples of our market cap.

Robert Rasmus: As an aside, there also is a small component of our extremely high-quality pack product being able to be used for PFAS remediation. Now, we've talked about that, the EPA regulations reducing the amount of permissible PFAS and water going from 70 parts per trillion to four parts per trillion. You need granular activated carbon to be able to do that.

Speaker Change: As an aside, there also is a small component of our extremely high-quality PAF product being able to use for PFAS remediation.

Bob Rasmus: Let's turn now to a brief discussion of the regulatory environment, particularly in light of the upcoming election cycle. Irrespective of the outcome in November, the level of demand that we had seen for PFAS facing GAC solutions prior to the latest EPA regulatory changes makes us very confident that demand is fundamentally customer-led rather than regulatory driven. Madison. While it is clearly not my place to opine on political outcomes, I would note that there were two areas of environmental regulations that the previous Republican administration did support, and one of them was the PFAS Action Plan, a PFAS Strategy.

Speaker Change: Now, we've talked about that the EPA regulations reducing the amount of permissible PFAS in water going from 70 parts per trillion to 4 parts per trillion. You need granular activated carbon to be able to do that. But in instances where municipal water authorities

Robert Rasmus: But in instances where municipal water authorities... Currently at 10 parts per trillion or less, they can use a really high quality, highest quality pack product to get them in compliance with the new EPA regulations. Now that is capable only of going from 10 parts per trillion down to four; it doesn't get you from 30 to four, doesn't get you from 70 to four, doesn't get you from 100 parts per trillion to four, but that's another avenue where we can think we can continue to expand margins and average selling price on our foundational path. I've asked a lot of questions.

Speaker Change: are currently at 10 parts per trillion or less, they can use a really high quality or highest quality pack product to get them in compliance with the new EPA regulations.

Jerry Sweeney: Now, that is capable only from 10 parts per trillion down to four; it doesn't get you from 30 to four, doesn't get you from 70 to four, doesn't get you from 100 parts per trillion to four. But that's another avenue where we can think we can continue to expand margins and average selling price on our foundational pack business. Got it. I've asked a lot of questions. I'll jump back in line. I appreciate it. Thanks. Okay. Thank you, Gerard.

Speaker Change: Now, that is capable only from 10 parts per trillion down to 4. It doesn't get you from 30 to 4, it doesn't get you from 70 to 4, it doesn't get you from 100 parts per trillion to 4, but that's another avenue where we think we can continue to expand margins and average selling price on our foundational path business.

Bob Rasmus: That being said, the municipal water market slash PFAS market is not the sole or primary driver of our expansion into granular activated carbon. Our sales team has made great strides to ensure our GAC contract pipeline represents a true portfolio of opportunities and not just PFAS-related customers. As we previously announced, our second GAC contract was with the company specializing in the manufacturing of personally and industrial air purification devices. This is an entirely separate sub-sector reflecting compelling diversification as well as attractive pricing.

Gerard Sweeney: Okay, thank you, Jerry. Our next question comes from the line, Graham Madison with Watertower. Hi, good morning guys.

Speaker Change: Got it. I've asked a lot of questions. I'll jump back in line. I appreciate it. Thanks. Okay. Thank you, Jerry

Operator: Thank you.

Graham Madison: Our next question comes from the line of Graham Madison with Water Tower Research.

Speaker Change: Thank you. Our next question comes from the line of Graham Madison with Water Tower Research. Please proceed with your question.

Graham Madison: Please proceed with your question. Hi. Good morning, guys. Just to follow up on Gerard's last question, you know, obviously huge improvements on the pack side with the pricing, and it sounds like there's definitely more room to run on that side for improving margins there. How much opportunities there's still left with in terms of operational improvements to help the margin there? No, there's definitely improvement there. As we mentioned, we had a 700 basis point improvement in our gross margin this quarter. If we had not had the extraneous $1.4 million that bring forward our biennial plant maintenance, that increase would have been more than double to give you an indication, and we think we still have more that we can ring out there.

Graham Madison: Just to follow up on Jerry's last question, you know, obviously huge improvements on the pack side with the pricing. And it sounds like there's definitely more room to run on that side for improving margins there. How much opportunity is there still left in terms of operational improvements to help the margin there? No, there's definitely improvement there.

Graham Madison: Hi, good morning guys. Just to follow up on Jerry's last question, obviously huge improvements on the PAC side with the pricing.

Graham Madison: and it sounds like there's definitely more room to run on that side for improving margins there. How much opportunity is there still left in terms of operational improvements to help the margin there?

Robert Rasmus: As we mentioned, we had a 700 basis point improvement in our gross margin this quarter. If we had not had the extraneous $1.4 million that brought forward our biennial plant maintenance, that increase would have been more than doubled, to give you an indication. And we think we still have more that we can ring out there. And again, like I mentioned, there's no magical elixir.

Bob Rasmus: Another sector that I want to briefly touch on is the GAC demand relating to renewable or biogas production. Renewable natural gas or RNG is essentially biogas derived from the thermal gasification or biodecaposition and digestion of organic matter. The organic matter can come from livestock waste, land fields, water, sludge, food waste, and other organic waste operations. The RNG in turn has to be processed to purity standards before being introduced to the pipeline grid, and this processing includes the removal of sulfur-containing components such as hydrogen sulfide or H2S and silicone-containing impurities.

Speaker Change: No, there's definitely improvement there. As we mentioned, we had a 700 basis point improvement in our gross margin this quarter. If we had not had the extraneous $1.4 million to bring forward our biennial plant maintenance

Speaker Change: That increase would have been more than double, to give you an indication. And we think we still have more that we can wring out there. And again, like I mentioned, there's no magical elixir. Every penny counts. I was just recently at a plant with the chief operating officer to speak about the need to make sure everyone is paying attention, that details matter. And before the meeting, I threw some pennies on the ground beforehand.

Bob Rasmus: And again, like I mentioned, there's no magical elixir. Every penny counts.

Robert Rasmus: Every penny counts. That was just recently said at our plant by the chief operating officer to speak about the need to make sure everyone is paying attention because details matter. And before the meeting, I threw some pennies on the ground beforehand to see who picked them up. And what I was trying to emphasize was that every penny counts. Every penny we save in terms of operating costs has almost a $1 million impact directly on our bottom line. So would people stop to pick up a penny?

Bob Rasmus: That was just recently at our plant with the chief operating officer to speak about the need to make sure everyone has paying attention that details matter. And before the meeting, I threw some pennies on the ground beforehand to see who picked those up. And what I was trying to emphasize is that every penny counts. Every penny we save in terms of operating costs has almost a $1 million impact directly to our bottom line. So would people stop to pick up a penny? I hope so because it's equivalent of picking up a million dollars. So we're continuing to emphasize and reinforce that everything matters; everything counts.

Speaker Change: to see who picked those up. And what I was trying to emphasize is that every penny counts. Every penny we save in terms of operating costs has almost a $1 million impact directly to our bottom line. So would people stop to pick up a penny? I hope so, because it's the equivalent of picking up a million dollars.

Robert Rasmus: I hope so because it's the equivalent of picking up a million dollars. So we're continuing to emphasize and reinforce that everything matters, everything counts. And it's not just on the operating side, either. It's also on the SG&A side.

Speaker Change: So we're continuing to emphasize and reinforce that everything matters, everything counts, and it's not just on the operating side, too, it's also on the SG&A side. We're pleased we were able to bring our SG&A down this quarter by over a million dollars. So it's looking at all aspects of the business. Every penny, nickel, and dime counts.

Bob Rasmus: And it's not just down the operating side, too.

Graham Madison: It's also on the SG&A side, where, please, we were able to bring our SG&A down this quarter by over a million dollars. So it's looking at all aspects of the business; every penny, nickel, and dime counts. Got it. Great. Thank you.

Robert Rasmus: We're pleased we were able to bring our SG&A down this quarter by over a million dollars. So it's looking at all aspects of the business; every penny, nickel, and dime counts. Got it, great.

Graham Madison: Question on the new GAC customers: where are they coming from? Are they sort of companies that are, you know, looking to secure supply, or are they moving from another supplier to you? You know, it's really a combination of both. For some people, they're attracted to the quality of our product. They're attracted to, you know, have been beating a dead horse on our vertically integrated supply chain. The certainty of supply not having to rely on imports or others. So I think that's one aspect of it.

Speaker Change: Question on the new GAC customers, where are they coming from? Are they companies that are new to looking to secure supply or are they moving from another supplier to you?

Graham Madison: Thank you. Question on the new GAC customers. Where are they coming from? Are they sort of companies that are, you know, new looking to secure supply, or are they moving from another supplier to you? You know, it's really a combination of both.

Robert Rasmus: For some people, they're attracted to the quality of our product. They're attracted to it as a, you know, we've been beating a dead horse on our vertically integrated supply chain. The certainty of supply, not having to rely on imports or others. So I think that's one aspect of it. The other is that it's both existing users of granular activated carbon and new ones who are looking for granular activated carbon supply because the market is so woefully undersupplied and demand is so great.

Bob Rasmus: I referenced this market for two reasons. One, because it demonstrates that our growth business is not just tied to the fortunes of PFAS-related regulations. And two, because not only is the RNG market another rapidly growing industry, but it is also one which is dominated by producers who have massive engineering expertise and capital budgets to facilitate this expansion. To give you some idea of the scale, in the EU today there are some 1300 biogas sites already in production and this figure is estimated to be growing at roughly 20 percent per year.

Speaker Change: You know, it's really a combination of both. For some people, they're attracted to the quality of our product, they're attracted to, as I've been beating a dead horse, on our vertically integrated supply chain, the certainty of supply, not having to rely on imports or others.

Bob Rasmus: The other is it's both existing users of granular activated carbon and new who are looking for granular activated carbon supply because the market is so woefully under-supplied and demand is so great. So we're seeing demand and signing contracts and interest in negotiating contracts from both existing users who like the quality of our product, existing users who need access to additional products, and new potential users who need access to the product.

Speaker Change: So I think that's one aspect of it. The other is, it's both existing users of granular activated carbon and new who are looking for granular activated carbon supply because the market is so woefully undersupplied and demand is so great. So we're seeing demand in signing contracts and interest in negotiating contracts.

Robert Rasmus: So we're seeing demand and signing contracts and interest in negotiating contracts from both existing users who like the quality of our product, existing users who need access to additional products, and new potential users who need access to the product. Great. Thank you.

Speaker Change: from both existing users who like the quality of our product, existing users who need access to additional products, and new potential users who need access to the product.

Bob Rasmus: In terms of energy production and to give you an idea of scale, this equates to more than 120 million barrels of oil equivalent per annum. In the US where the industry was slower to start, the figure is closer to 12 million barrels of oil equivalent per annum, but growing quickly and rapidly catching up. We are focused on multiple industries and end users across the wide swath of the market. This diversity of customers can help eliminate reliance on any one segment or sector.

Bob Rasmus: Great, thank you. And then, in terms of as the market grows, what are your options for increasing capacity? So, you know, we've talked about this is the first 25 million pound expansion. It's really a series of modular expansions. You know, we've always assumed and run our numbers on 25 million pounds. We do have some expectation and belief that we will be able to generate additional production capability over and above that 25 million pounds. Could it be 10 percent, 20 percent, 30 percent? Time will tell, but for now we want to be conservative in terms of what we've modeled and what we have discussed with the marketplace.

Graham Madison: And then, in terms of as the market grows, what are your options for increasing capacity? So, you know, as we've talked about, this is the first 25 million pound expansion. It's really a series of modular expansions. You know, we've always assumed and run our numbers on 25 million pounds. We do have some expectation and belief that we will be able to generate additional production capability over and above that 25 million pounds. Could it be 10 percent, 20 percent, 30 percent? Time will tell.

Speaker Change: Great, thank you. And then in terms of as the market grows, what are your options for increasing capacity?

Speaker Change: So, you know, as we've talked about, this is the first 25 million pound expansion. It's really a series of modular expansions.

Speaker Change: You know, we've always assumed and run our numbers on 25 million pounds.

Speaker Change: We do have some expectation and belief that we will be able to generate additional production capability over and above that 25 million pounds. Could it be 10 percent, 20 percent, 30 percent?

Bob Rasmus: In turn, our customers focus is on being able to secure a product from a fully integrated supplier of granular activated carbon who also offers best in-class performance. Our ability to provide incremental environmental benefits as well makes us a very compelling offering.

Robert Rasmus: But for now, we want to be conservative in terms of what we've modeled and what we have discussed with the marketplace. So that's one area where we could increase capacity. Two, as it relates to phase two, we expect that the market fundamentals will remain extremely strong. And when you look at the advantages we have, not only the product advantages we have that we mentioned in terms of Jerry's question, but we also have first mover advantages.

Speaker Change: Time will tell, but for now we want to be conservative in terms of what we've modeled and what we have discussed with the marketplace.

Bob Rasmus: So that's one area where we could increase capacity. Two is it relates to Phase Two. We expect that the market fundamentals will remain extremely strong. And when you look at the advantages we have, not only the product advantages we have that we mentioned in terms of Gerard's question, but also we have first mover advantages. As I mentioned, we could expand four more times beyond this to a total of 125 million pounds of granular activated carbon capability. We are fully permitted, not just on the initial 25 million pounds, but all 125 million pounds. That gives us a significant advantage relative to somebody else who would be greenfield or brownfield.

Speaker Change: So that's one area where we could increase capacity.

Bob Rasmus: We remain extremely excited about this space, continue to see strong demand across the board and anticipate updating the market as we win more contracts over the coming months. As we mentioned previously, our CAPEX guidance for four-year 2024 remains in line with our previously committed guidance of between $60 and $70 million. We continue to aggressively seek and identify opportunities to reduce our expenditures and have been successful in capturing multiple savings as a result.

Jerry Sweeney: The two is it relates to phase two. We expect that the market fundamentals will remain extremely strong, and when you look at the advantages we have, not only the product advantages we have that we mentioned in terms of Jerry's question, but also we have first mover advantages. As I mentioned, we could expand four more times beyond this to a total of 125 million pounds.

Robert Rasmus: As I mentioned, we could expand four more times beyond this to a total of 125 million pounds of granular activated carbon capability. We are fully permitted, not just on the initial 25 million pounds but all 125 million pounds.

Jerry Sweeney: of granular activated carbon capability.

Jerry Sweeney: We are fully permitted, not just on the initial 25 million pounds, but all 125 million pounds.

Robert Rasmus: That gives us a significant advantage relative to somebody else who would be Greenfield or Brownfield. We think that gives us a minimum one-year advantage and potentially as much as a two-year advantage. The other aspect for us there in terms of bringing on capacity is that we can do it for three dollars a pound or less versus, we think, a minimum of five to seven dollars a pound for Greenfield capacity as it relates to that.

Bob Rasmus: I would emphasize that our 2024 CAPEX spending forecast remains unchanged despite the negative impacts associated with the unprecedented rain in the region of our Red River facility. These conditions have contributed to a construction delay of roughly six to seven weeks. Our team is working actively to identify solutions to claw back some of these delays. And as of today, we remain confident in achieving first deliveries in Q1 2020 live as previously forecasted.

Jerry Sweeney: That gives us a significant advantage relative to somebody else who would be Greenfield or Brownfield. We think that gives us a minimum one-year advantage and potentially as much as a two-year advantage.

Bob Rasmus: We think that gives us a minimum one-year advantage and potentially as much as a two-year advantage. The other aspect for us there in terms of bringing on capacity is that we can do it for $3 a pound or less versus we think a minimum of $5 to $7 a pound for a Greenfield capacity as it relates to that. And the other advantage of phase two is that we've spent a lot of money still with a three-year or less payback on this first line of 25 million pounds. But some of the funds that we've already spent will a nerd of the benefit of phase two, so we'll be able to even more attractive returns.

Jerry Sweeney: The other aspect for us there, in terms of bringing on capacity, is that we can do it for $3 a pound or less versus, we think, a minimum of $5 to $7 a pound for greenfield capacity, as it relates to that. And the other advantage of Phase II is that we've spent a lot of money still with a three-year or less payback on this first line of 25 million pounds, but some of the funds that we've already spent will inure to the benefit of Phase II, so we'll be able to get even more attractive returns. So we have plenty of options, both in terms of being able to produce more than 25 million pounds on this initial capacity, as well as being able to rapidly go and expand into Phase II and Phase III.

Robert Rasmus: And the other advantage of phase two is that we've already spent a lot of money, still with a three-year or less payback on this first line of 25 million pounds. But some of the funds that we've already spent will go towards the benefit of phase two. So we'll be able to get even more attractive returns. We have plenty of options, both in terms of being able to produce more than 25 million pounds on this initial capacity, as well as being able to rapidly go and expand into phase two and phase three and phase four or phase five if needed. Okay, great. And definitely, I think on the permitting side, it's probably a longer than two-year head start on that front.

Bob Rasmus: Related to CAPEX spend, and as we previously mentioned, we took the decision in April to implement our maintenance program, which we typically execute every two years. The logic for this decision was that we wanted to do it ahead of our expansion into GAC production so that we could minimize downtime once we are at main plate capacity in 2025. I believe this will prove to be a prudent decision, and although it drove approximately $1.4 million of costs that we were not able to capitalize during the second quarter, we are highly confident the near and long-term benefits will far outweigh this.

Bob Rasmus: So we have plenty of options, both in terms of being able to produce more than 25 million pounds on this initial capacity, as well as being able to rapidly go and expand into phase two and phase three and phase four or phase five if need be.

Graham Madison: Okay, quick, and definitely think on the permitting side it's probably longer than two-year ahead start on that front.

Jerry Sweeney: phase 4 or phase 5 if need be.

Robert Rasmus: and Robert Rasmus.

Robert Rasmus: Okay, great.

Graham Madison: One last question. On pack pricing, what's been driving the improvement in margin as you go forward? Is it customers seeing the demand and market price going up, better negotiating or discussions with your customers, or is it just a mix of the new customers that you're bringing in? So our head of sales would definitely say better negotiating on their part with our customers as it relates to that. But I think that is an element for which they deserve kudos.

Robert Rasmus: Definitely, I think on the permitting side, it's probably longer than two year head start on that front.

Bob Rasmus: One last question on pack pricing. What's been driving the improvement in margin as you go forward? Is it customers seeing the demand and market price going up better negotiating or discussions with your customers or is it just a mix of the new customers that you're bringing in? So our head of sales would definitely say better negotiating on their part with our customers is it relates to that. But I think that is an element at which they deserve pudos for. But as I mentioned with Jerry, it's also expanding into adjacent markets as well. It's in the water market.

Robert Rasmus: One last question. On PAC pricing, what's been driving the improvement in margin as you go forward? Is it customers seeing the demand and market price going up, better negotiating or discussions with your customers, or is it just a mix of the new customers that you're bringing in?

Bob Rasmus: As I noted earlier, we have signed a non-binding term sheet to refinance the company's existing term loan that would materially expand the size of the facility while further enhancing liquidity. We continue to be conservative in our assumptions, and the contemplated facility is size to fully finance our capital investment, and working capital requirements as relates to our ongoing granular activated carbon projects, which we expect to contribute quickly to our cash flow generation.

Speaker Change: So our head of sales would definitely say better negotiating on their part with our customers as it relates to that. But I think that is an element at which they deserve kudos for. But as I mentioned with Jerry, it's also expanding into adjacent markets as well. It's in the water market, it's in the waste to energy, it's in the remediation markets, all of which carry a higher average selling price and as consequence...

Robert Rasmus: But as I mentioned with Jerry, it's also expanding into adjacent markets as well. It's in the water market. It's in the waste to energy. It's in the remediation markets, all of which carry a higher average selling price and, as a consequence, a much higher margin.

Bob Rasmus: It's in the waste of energy. It's in the remediation markets, all of which carry a higher average selling price. And there's consequences, much higher margin. So all of those factors prioritizing profitability over volume, as well as adjacent market, being able to tap those, is what has enabled the price increases in the margin expand.

Stacia Hansen: With that, I will hand over to Stacia to discuss the latest financials in greater detail. Thanks Bob and thanks everybody for joining us today. We delivered strong financial results during the second quarter with revenue growing 24% year-over-year, driven largely by enhanced contract's terms, which includes 16% growth on average selling price. Our fifth consecutive quarter of double digit year-over-year percentage growth in ASP, as well as positive changes in product mix and a 3% increase in volume.

Graham Madison: So all of those factors prioritizing profitability over volume, as well as adjacent markets, being able to tap those is what has enabled the price increases and the margin expansion. Got it. Great. Thanks so much. I'll jump back in queue. Okay, thank you.

Speaker Change: much higher margins. So all of those factors, prioritizing profitability over volume as well as adjacent market, being able to tap those is what has enabled the price increases and the margin expansion.

Speaker Change: Got it. Great. Thanks so much. I'll jump back in queue. Okay. Thank you.

Speaker Change: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Rasmus for any final comments.

Stacia Hansen: Our growth margin in the quarter was approximately 32% up more than 700 basis points versus the 25% margins reported in prior year period. As Bob mentioned, these results were achieved despite the inclusion of approximately $1.4 million of cost associated with our proactive acceleration, a certain maintenance cost, without which our growth margin would have been even better. We generated positive adjusted EBITDA of approximately $450,000 compared to an adjusted EBITDA loss of $3 million in the prior year period.

Operator: Thank you. Thank you, Melissa, and thank you to everyone for joining us today. We continue to make exciting and undeniable progress on our ongoing transformation to an environmental technology company. We are improving the performance and value of our foundational path business and executing steadily on our GAC growth strategy. Having the right relationships, the right team, and the right tools is an essential component of success. I am entirely confident that at Arq, our tools, our team, our platform, and our opportunity are unique and will continue to contribute to our ongoing future success.

Rasmus: Thank you, Melissa, and thank you to everyone for joining us today. We continue to make exciting and undeniable progress on our ongoing transformation to an environmental technology company. We are improving the performance and value of our foundational path business and executing steadily on our GAC growth strategy.

Bob Rasmus: Having the right relationships, the right team, and tools is an essential component of success. I am entirely confident that at ARP, our tools, our team, our platform, and our opportunity are unique, and we'll continue to contribute to our ongoing future success. We are confident that the investment we are making in GAC and our ongoing execution will drive very attractive returns and shareholder value over both the near and long term.

Rasmus: Having the right relationships, the right team and tools is an essential component of success.

Rasmus: I am entirely confident that at AHRQ, our tools, our team, our platform, and our opportunity are unique and will continue to contribute to our ongoing future success.

Stacia Hansen: Net loss was $2 million, a significant improvement versus net loss of $5.9 million in Q2 of 2023. As I mentioned earlier, average selling price for the quarter improved 16% year-over-year. We continued to eliminate negative margin contracts as we focused on profitability over volumes, and at the end of the second quarter, coverage is loss-making contracts to roughly 2% of volumes versus roughly 24% in 2022 and approximately 13% in 2023. Subsequent to quarter end, we have amended the sole remaining loss-making contract, which we expect to be a net contributor in 2025.

Operator: We are confident that the investments we are making in GAC and our ongoing execution will drive very attractive returns and shareholder value over both the near and long term. I look forward to our next quarterly call. Thank you, everyone. This concludes today's conference call. You may disconnect your lines at this time.

Rasmus: We are confident that the investments we are making in GAC and our ongoing execution will drive very attractive returns and shareholder value over both the near and long term. I look forward to our next quarterly call. Thank you, everyone.

Bob Rasmus: I look forward to our next quarterly call. Thank you, everyone. Thank you.

Operator: This concludes today's conference call. You may disconnect your lines at this time.

Speaker Change: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: [inaudible]

Stacia Hansen: Selling general and administrative expenses totaled $7 million, reflecting a reduction of approximately $1 million versus the prior year period driven by a reduction in payroll and benefits expenses as well as legal and professional fees. Our research and development cost for the second quarter totaled approximately $900,000. This is compared to approximately $800,000 in the prior year period. Year-over-year growth in R&D was primarily driven by conducting further product qualification testing with potential lead GAC adopters.

Speaker Change: [inaudible]

Stacia Hansen: 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, but further enabling us to pursue and execute on growth and high margin opportunities within our expanded GAC business. As Bob mentioned, we fully anticipate that our PAC business will be cash generative in 2024 and with it, we will have much more secure foundational business on which we can add more rewarding GAC opportunities.

Stacia Hansen: Turning to the balance sheet, we ended the second quarter with cash of $28.5 million. The change versus last year and quarter driven by our ongoing strategic investment and expansion at Corbin and Red River. This is partially offset by the $15 million pipe investment we made by an institutional investor in May. Today, we are reiterating our 2024 CAPEX forecast of $60 to $70 million of which we continue to expect Red River Phase 1 will account for $55 to $60 million.

Speaker Change: [inaudible]

Stacia Hansen: We continue to expect to fund our CapEx needs via our existing cash, cash generation, ongoing cost reduction initiative, potential prepayments on GAC contracts, and importantly an anticipated credit refinancing. As Bob noted, we continue to have positive discussions with potential lenders on refinancing of the company's existing term loans. That when finalize, we provide an increased facility that we believe would be sufficient to cover the expected capital requirements through this year and beyond.

Stacia Hansen: We expect to complete this refinancing later in the third quarter.

Bob Rasmus: With that, I'll turn things back to Bob. Thanks, Stacia. Overall, this has been another steady quarter of progress.

Bob Rasmus: I'd like to leave you all with what I believe are the four key takeaways today. First, I am confident that we have secured the long-term stability of our foundational PAC business, such that it will now be self-sustaining and continue to grow. We continue to believe that this business will be cash flow positive for the full year, 2024, and beyond. We continue to build momentum throughout the second quarter, providing strong tailwinds as we head into the second half of the year, which represents our seasonally strong period.

Bob Rasmus: Second, we continue to make outstanding progress on contracting granular activated carbon volumes at attractive pricing well ahead of our first production. This provides third-party validation of our shift towards granular activated carbon, while also demonstrating the quality of our offering. We continue to believe our GAC capacity will be fully contracted prior to initial production, and our confidence that there is more encouraging news to come in the weeks and months ahead. Third, carbon commissioning has been successful, and we are now in a position to stockpile feedstack for use at Red River as required.

Bob Rasmus: I am very pleased with the way our new team has been able to focus on cost-saving initiatives to keep this project on track for first deliveries in Q1 2025. And for our capital position remains strong, and upon completion of our refinancing, we will have further enhanced our capital structure.

Bob Rasmus: Over the coming months, we will continue to update the market as appropriate, and as a team, we remain very excited by the busy but transformational period that lies ahead.

Operator: With that, I will turn the call back over to our operator to move us to Q&A. Thank you.

Operator: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star 2 if you'd like to remove your question from the Q. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Jerry Sweeney: Our first question comes from the line of Jerry Sweeney with Roth MKM. Please proceed with your question. Hey, Rath, thanks for taking my call this morning. Happy to do it, Jerry. I've got a few different questions all over the place, but I'm just going to start with Red River the delay. May, you're targeting 60 to 70 million, I think, in catbacks. Have you looked at maybe spending a little bit more to get the project back on track?

Jerry Sweeney: There's obviously put and take to that, just curious to your view. Or is it short enough of delay that, you know, puking catback, that just doesn't make sense? A couple comments on your question, Jerry. One, the catbacks project actually is on target. We had hoped I'm a conservative guy and always prefer to under-promise and over-deliver. We had hoped that it built in some delays such that we would be able to actually begin first deliveries in the fourth quarter, given the seven weeks delay due to the biblical reins that is unfortunately not going to happen. However, we still are on target for commissioning the facility, beginning that in the fourth quarter, and still on target for first deliveries in the first quarter of 25.

Bob Rasmus: And based on our model and our numbers and based on how we, you know, originally made the financial investment decision, we don't think it's a prudent use of capital to increase that expenditure and to bring it back to our hoped-for timeline as opposed to our planned timeline. Got it. Now, just for the sake of clarity, I sort of anticipated sales, we'll say early Q1. There was a delay. I was thinking later on Q1, but it sounds as though you were being conservative.

Bob Rasmus: So, it's fair to say that maybe some product sales, at least in the first half of Q1, not late in Q1. You know, I think, again, it's what's first half is that February 14th or below, you know, or as the later, but I think rather than splitting hairs as it relates to days, you know, as I say, we're entirely confident that we will have completed the commissioning in the first quarter and begun first deliveries in the first quarter.

Bob Rasmus: And that will, you buy, certainly by the end of the first quarter, we'll be able to realize the full impact of the expanded GAC capacity and production. Okay, that's fair. I got you. And then, Corbin, I think he touched on it a little bit at the end. You know, it sounds like it's fully commissioned, you're stockpiling, but I just want to get a little bit more depth and clarity on that. Is that facility you're comfortable with the commercialization process and any items that we should be paying attention to there?

Bob Rasmus: Sure. No, we're very pleased with the way Corbin has worked out. One, just to reiterate something we always mentioned, that the unique quality of our feedstock using bi-tuminous coal waste and using that waste as the ability to remediate other waste gives us two bites at the environmental apple. So, then you add that to the operational capability. It's fully commissioned. We are very pleased with that. We're ahead of time. We're under budget in terms of Corbin.

Bob Rasmus: So, we're very pleased with that aspect of it. And so we have done, if you will, the full commissioning process. We are just waiting to turn that back on to begin stockpiling feedstock and anticipation of being able to supply commercial quantities to Red River once we begin production of our GAC there, mentioned the uniqueness of the two-minute product out of Corbin. And you're seeing, I think some very good interest, not just in municipal water, but air filtration and biogas.

Bob Rasmus: We've spoken in the past, Arq's GAC is for lack of a term different size and conformity of size and shape. Is that different driving and advantage in the air filtration and biogas markets or even the municipal water market by chance? I think a couple things there. One, just the overall market fundamentals are very compelling in all aspects of the market, whether it's renewable natural gas, whether it's water filtration, whether it's PFAS remediation, whether it is air purification, soil or water remediation.

Bob Rasmus: It's very compelling market dynamics, but then you layer on top of that our very unique product offering. And as you have heard me say previously that activated carbon is a technical sale. It's not something where our salesman just shows up and says to a customer or a potential customer, we can have a truckload of granular activated carbon here next week, next month, when do you want it? You have to undergo and meet and pass very stringent product qualification and testing.

Bob Rasmus: And so as a result, we began this in the second half of last year as we talked about previously, we identified over 100 potential lead adopters across a wide variety of industries, biogas, municipal water, you know, remediating runway foam, remediating deicing liquids, you know, air filtration, etc. And in every instance where we engage with those 100 lead adopters, 100 plus actually, we either move from product testing to actually committed contract, product testing to contract negotiations, which were engaged in now or product testing to the next level of testing.

Bob Rasmus: You combine that with the lower CO2 footprint from our process versus mining virgin coal as much as a 40% reduction in reduced CO2 exposure as well as adding into that that being the only domestic fully vertically integrated supply chain we qualify for the build America by America, which is important at many federal, state, and local contract levels. All of those factors combine to make our product a very attractive offering. Sure, questions.

Bob Rasmus: I know you're not going to tell me pricing per pound, but I was wondering. You're right. You could maybe we have municipal water, you have air, you have RNG, you know, what's the more the higher ASP in those markets, the sort of rank of person. So pricing varies across the various market segments. You know, I'll reiterate what I've said in the past, the market pricing for a granular activated carbon as a whole is a multiple of our path pricing.

Bob Rasmus: Does it cost more to produce granular activated carbon versus powder activated carbon? Yes. Does it cost a multiple to produce granular activated carbon versus powder activated carbon? Absolutely not. In the important thing in terms of the pricing in the actual contracts we've signed across three different industries, as well as the pricing discussions we are having in our current contract negotiations, they provide further evidence and further validity that this is a very compelling economic investment with a three year or less investment payback for us.

Bob Rasmus: Got it. Okay, last final question. Congrats, you know, knocking out the negative contracts. Just curious if, as you look at the pack market and just moving forward, curious if there's actually some opportunity to continue to drive some pricing and some better contracts, especially maybe contracts that you reworked a couple of years ago. Any thoughts on that front? I'm sure now we're absolutely not done. You know, as we mentioned, this is the fifth consecutive quarter of double digit average selling price increase.

Bob Rasmus: You know, some of that is the low hanging fruit that we've been able to harvest, but there's been no magical elixir in terms of doing what we've been doing and being able to continue to do that. It's basic blocking and tackling. It's concentrating on profitability over volume. It's having customers and selling the value of our vertically integrated, you know, domestic supply chain and the certainty and availability of supply in the advantages that entails for our customers.

Bob Rasmus: You need regular activated carbon to be able to do that, but in instances where municipal water authorities is currently at 10 parts per trillion or less, they can use a really high quality or highest quality pack product to get them in compliance with the new EPA regulations. Now, that is capable only from 10 parts per trillion down to four, it doesn't get you from 30 to four, doesn't get you from 70 to four, doesn't get you from 100 parts per trillion to four, but that's another avenue where we can think we can continue to expand margins and average selling price on our foundational pack business. Got it. I've asked a lot of questions. I'll jump back in line. I appreciate it. Thanks. Okay. Thank you, Gerard.

Graham Madison: Thank you. Our next question comes from the line of Graham Madison with Water Tower Research. Please proceed with your question.

Graham Madison: Hi. Good morning, guys. Just to follow up on Gerard's last question, you know, obviously huge improvements on the pack side with the pricing and it sounds like there's definitely more room to run on that side for improving margins there. How much opportunities there's still left with in terms of operational improvements to help the margin there? No, there's definitely improvement there. As we mentioned, we had a 700 basis point improvement in our gross margin this quarter.

Graham Madison: If we had not had the extraneous $1.4 million that bring forward our biennial plant maintenance, that increase would have been more than double to give you an indication and we think we still have more that we can ring out there. And again, like I mentioned, there's no magical elixir. Every penny counts. That was just recently at our plant with the chief operating officer to speak about the need to make sure everyone has paying attention that details matter.

Graham Madison: And before the meeting, I threw some pennies on the ground beforehand to see who picked those up. And what I was trying to emphasize is that every penny counts. Every penny we save in terms of operating costs has almost a $1 million impact directly to our bottom line. So would people stop to pick up a penny? I hope so because it's equivalent of picking up a million dollars. So we're continuing to emphasize and reinforce that everything matters, everything counts.

Graham Madison: And it's not just down the operating side, too. It's also on the SG&A side, where please, we were able to bring our SG&A down this quarter by over a million dollars. So it's looking at all aspects of the business, every penny, nickel, and dime counts. Got it. Great. Thank you.

Graham Madison: Question on the new GAC customers, where are they coming from? Are they sort of companies that are, you know, looking to secure supply, or are they moving from another supplier to you? You know, it's really a combination of both. For some people, they're attracted to the quality of our product. They're attracted to, you know, have been beating a dead horse on our vertically integrated supply chain. The certainty of supply not having to rely on imports or others.

Graham Madison: So I think that's one aspect of it. The other is it's both existing users of granular activated carbon and new who are looking for granular activated carbon supply because the market is so woefully under-supplied and demand is so great. So we're seeing demand and signing contracts and interest in negotiating contracts from both existing users who like the quality of our product, existing users who need access to additional products, and new potential users who need access to the product. Great, thank you.

Graham Madison: And then in terms of as the market grows, what are your options for increasing capacity? So, you know, we've talked about this is the first 25 million pound expansion. It's really a series of modular expansions. You know, we've always assumed and run our numbers on 25 million pounds. We do have some expectation and belief that we will be able to generate additional production capability over and above that 25 million pounds. Could it be 10 percent, 20 percent, 30 percent?

Graham Madison: Time will tell, but for now we want to be conservative in terms of what we've modeled and what we have discussed with the marketplace. So that's one area where we could increase capacity. Two is it relates to phase two. We expect that the market fundamentals will remain extremely strong. And when you look at the advantages we have, not only the product advantages we have, that we mentioned in terms of Gerard's question, but also we have first mover advantages.

Graham Madison: As I mentioned, we could expand four more times beyond this to a total of 125 million pounds of granular activated carbon capability. We are fully permitted, not just on the initial 25 million pounds, but all 125 million pounds. That gives us a significant advantage relative to somebody else who would be Greenfield or Brownfield. We think that gives us a minimum one-year advantage and potentially as much as a two-year advantage. The other aspect for us there in terms of bringing on capacity is that we can do it for $3 a pound or less versus we think a minimum of $5 to $7 a pound for a Greenfield capacity as it relates to that.

Graham Madison: And the other advantage of phase two is that we've spent a lot of money still with a three-year or less payback on this first line of 25 million pounds. But some of the funds that we've already spent will a nerd of the benefit of phase two, so we'll be able to even more attractive returns. So we have plenty of options both in terms of being able to produce more than 25 million pounds on this initial capacity as well as being able to rapidly go and expand into phase two and phase three and phase four or phase five if need be. Okay, quick and definitely think on the permitting side it's probably longer than two-year ahead start on that front.

Graham Madison: One last question on pack pricing. What's been in driving the improvement in margin as you go forward? Is it customers seeing the demand and market price going up better negotiating or discussions with with with your customers or is it just a mix of the new customers that you're bringing in? So our head of sales would definitely say better negotiating on their part with our customers is it relates to that. But I think that is an element at which they deserve pudos for.

Graham Madison: But as I as I mentioned with Jerry, it's also expanding into adjacent markets as well. It's in the water market. It's in the waste of energy. It's in the remediation markets, all of which carry a higher average selling price. And there's consequences much higher margin. So all of those factors prioritizing profitability over volume as well as adjacent market, being able to tap those is what has enabled the price increases in the margin expand.

Bob Rasmus: Thank you for joining us today. We continue to make exciting and undeniable progress on our ongoing plans formation to an environmental technology company. We are improving the performance and value of our foundational path business and executing steadily on our GAC growth strategy. Having the right relationships, the right team and tools is an essential component of success. I am entirely confident that at ARP, our tools, our team, our platform, and our opportunity are unique, and we'll continue to contribute to our ongoing future success. We are confident that the investment we are making in GAC and our ongoing execution will drive very attractive returns and shareholder value over both the near and long term.

Bob Rasmus: I look forward to our next quarterly call. Thank you everyone. Thank you.

Operator: This concludes today's conference call.

Operator: You may disconnect your lines at this time.

Q2 2024 Arq Inc Earnings Call

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