Q4 2024 Arq Inc Earnings Call

Greetings and welcome to the Arc Q4, and full year 2024 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation should anyone require operator assistance during the conference. Please press star zero on your.

Operator: Greetings and welcome to the Arq Q4 and full year 2024 earnings call. At this time, all participants are in a listen-only mode.

Operator: A brief question and answer session will follow the formal presentation.

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

Your telephone keypad as a reminder, this conference is being recorded.

Anthony Nathan: It is now my pleasure to introduce your host, Anthony Nathan with Arq Investor Relations. Thank you. You may begin. Thank you, operator.

Speaker Change: It is now my pleasure to introduce your host Anthony Nathan with Arc Investor Relations. Thank you you may begin.

Thank you operator.

Anthony Nathan: Good morning, everyone. And thank you for joining us today for our fourth quarter and full year 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 webcasted live within the Investor section of our website, and a downloadable version of today's presentation is available there as well. A webcast replay will also be available on our site, and you can contact Arq's Investor Relations team at investorsatarq.com.

Speaker Change: Good morning, everyone and thank you for joining us today for our fourth quarter and full year 2024 earnings results call.

Speaker Change: With me on the call today are Bob Rasmus, Chief Executive Officer, and President as well as Stacey Hudson Ox, Treasurer, and Chief Accounting Officer.

Speaker Change: Okay.

Speaker Change: Conference call is being webcast live within the investors 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 us investor relations team at <unk>.

Speaker Change: <unk> at all we don't call them.

Speaker Change: Okay.

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 implied by these 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-K for the year ended December 31st, 2024, and other filings with the Securities and Exchange Commission.

Speaker Change: Let me remind you that the presentation and remarks made today include forward looking statements as defined in section 21 E of the Securities Exchange Act.

Speaker Change: These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements.

Speaker Change: 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-K for the year ended December 31st 2024, and other filings with the Securities and Exchange Commission.

Anthony Nathan: Except as expressly required by the securities laws, the company undertakes no obligation to obtain those factors or any forward-looking statements to reflect future events, developments, or changed circumstances, or for any other reason.

Speaker Change: 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.

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

Anthony Nathan: In addition, it is especially important to review the presentation and today's remarks in conjunction with the GAP references in the financial statement.

Bob Rasmus: With that, I'd like to turn the call over to Bob. Thank you, Anthony. And thanks to everyone for joining us this morning. As you can see from the results we've shared today, 2024 was a very good year for Arq. Our results for 2024 reflect a business which has been successfully turned around into a cash flow contributor. We ended the year in a position of strength. In the fourth quarter, our average selling price increased by approximately 14%. We lowered our cost of capital and increased financial flexibility by refinancing our term loan. And we had another quarter of positive adjusted EBITDA.

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

Speaker Change: We can see from the results. We shared today 2024 was a very good year for iron.

Speaker Change: Our results for 'twenty 'twenty four we like the business, which has been successfully turned around into a cash flow contributor. We ended the year in a position of strength in the fourth quarter, our average selling price increased by approximately 14%, we lowered our cost of capital and increased financial flexibility.

Speaker Change: By refinancing our term loan and we had another quarter of positive adjusted EBITDA.

Bob Rasmus: This was driven by continued strong operational execution in our foundational PAC business. Today's results highlight the profound transformation of our foundational PAC business, demonstrating both its sustainability and ongoing evolution. As I've often said, there's no magic potion behind this success, just consistent, laser-focused execution on the fundamentals, increasing operational efficiencies, expanding into new markets, increasing our ASP, all while driving down costs. Considering where we started when I took over as CEO in 2023, I'm immensely proud of the turnaround the team has delivered. From the beginning of 2023, we've transformed from a business losing money on nearly one quarter of all volumes sold at the gross margin level to a business where every contract is profitable as of 2025.

Speaker Change: This was driven by continued strong operational execution and our foundational Pat business today's results highlight the profound transformation about foundational pack business, demonstrating both its sustainability and ongoing evolution.

Speaker Change: As I've, often said, there's no magic potion behind the success just consistent laser focused execution on the fundamentals increasing operational efficiencies expanding into new markets, increasing our E. S. P. All while driving down costs, considering where we started.

Speaker Change: When I took over as CEO in 2023, I'm immensely proud of the turnaround the team has delivered.

Speaker Change: From the beginning of 2023, we've transformed from a business, losing money and nearly one quarter of all volumes sold at the gross margin level to a business where every contract is profitable as of 2025. We've achieved this through a concerted relentless an ongoing effort throughout the organization.

Bob Rasmus: We've achieved this through a concerted, relentless, and ongoing effort throughout the organization to focus on shareholder return. We've utilized our fully integrated domestic supply chain to ensure product availability, and we've expanded into new markets. Our goal was, and is, to maximize Arq's profitability and future opportunities, ensuring a lasting transition. As part of this process, we've successfully diversified our PAC business, increasing our presence in end markets like water, cement, and industrial sectors, while reducing reliance on the power generation sector. We believe this ongoing effort positions IREP to grow future revenues and, more importantly, profitability, and the numbers show it.

Speaker Change: Station to focus on shareholder returns, we've utilized our fully integrated domestic supply chain to ensure product availability and we've expanded into new markets. Our goal was and is to maximize our profitability and future opportunities ensuring our last.

Speaker Change: And transition.

Speaker Change: As part of this process, we have successfully diversified our Pac business, increasing our presence in the end markets like water cement and industrial sectors, while reducing reliance on the power generation sector. We believe this ongoing effort positions I hope to grow future revenues and more importantly.

Speaker Change: Profitability and the numbers show. It today, we were proud to report a 10% year over year increase in our revenues for full year 'twenty 'twenty four to approximately $109 million is.

Bob Rasmus: Today, we were proud to report a 10 percent year-over-year increase in our revenues for full year 2024 to approximately $109 million. As many of you heard me say, I'm constantly urging our operating team to remember that every penny counts. Every penny saved in operating costs is nearly a million dollars added to our bottom line. While I am proud of our ability to grow revenue in 2024, we were also successful in controlling our cost of goods sold increases to approximately 3%, enabling us to expand gross margins. Given the historic margins of the PAC business, this has been as critical as ASP increases to the turnaround we've achieved.

Speaker Change: As many of you heard me say I'm constantly urging our operating team to remember that every penny counts every penny saved and operate in classes nearly a million dollars added to our bottom line, while I am proud of our ability to grow revenue in 'twenty 'twenty. Four we were also successful in controlling our cost of good.

Speaker Change: So that increases to approximately 3%, enabling us to expand gross margins.

Speaker Change: Given the historic margins of the Pac business. This has been as critical as a S. P increases due to the turnaround we've achieved.

Bob Rasmus: It truly is a case where every penny counts, and I am proud to report that we achieved an increase, not just in our average selling price, but also in gross margin year over year, up approximately 410 basis points in fiscal year 2024 versus 2023. I strongly believe there is room for further improvement.

Speaker Change: It truly is a case, where every penny counts and I am proud to report that we achieved an increase not just in our average selling price, but also in gross margin year over year are up approximately 410 basis points in fiscal year 'twenty 'twenty four versus 2023 I strongly believe.

Speaker Change: There is room for further improvement.

Bob Rasmus: Our PAC turnaround in 2024 is a major achievement and one in which I am very proud, but the turnaround is not a one-time event. Looking ahead, we continue to forecast ongoing sustainable improvements in the profitability of our foundational PAC business. While the current trajectory remains positive, we recognize that at some point the curve will naturally begin to flatten. That said, we are still actively optimizing the business. There is room for further efficiencies through improved operations and strategic price increases, particularly as we continue our diversification into adjacent markets and explore product alternatives. While the pace of improvement may moderate over time, we remain focused on driving long-term growth and profitability.

Speaker Change: Our paths turnaround in 'twenty 'twenty four is a major achievement and one in which I am very proud with the turnaround is not a one time event. Looking ahead, we continue to forecast ongoing sustainable improvements in the profitability of our foundational pack business.

Speaker Change: While the current trajectory remains positive we recognize that at some point the tariff will naturally begin to flatten.

Speaker Change: That said, we are still actively optimizing the business.

Speaker Change: There is room for further efficiencies through improved operations and strategic price increases, particularly as we continue our diversification into adjacent markets and explore product alternatives, while the pace of improvement may moderate over time, we remain focused on driving long term growth.

Speaker Change: Profitability.

Bob Rasmus: The reduction in operating costs is particularly encouraging, reinforcing my belief that our cost-cutting strategy is delivering results. As I said, I strongly believe there is room for further improvement. In fact, we have already taken steps this quarter to further reduce our costs. We also made significant progress in reducing SG&A, which I've long felt was disproportionately high for a business of our size. SG&A fell from approximately $34 million in 2023 to approximately $29 million in 2024, a reduction of about 15% year over year. The primary drivers were a reduction in payroll expenses and a decrease in legal costs, the majority of which related to the Arq acquisition completed in 2023.

Speaker Change: The reduction in operating costs, as particularly encouraging reinforcing my belief that our cost cutting strategy is delivering results.

Speaker Change: I said I strongly believe there is room for further improvement in fact, we have already taken steps this quarter to further reduce our costs.

Speaker Change: We also made significant progress in reducing SG&A, which I've long felt was disproportionately high for a business of our size.

Speaker Change: SG&A fell from approximately $34 million in 2023 to approximately $29 million in 'twenty 'twenty four a reduction of about 15% year over year.

Speaker Change: The primary drivers were a reduction in payroll expenses and a decrease in legal costs, the majority of which related to the alkali acquisition completed in 2023.

Bob Rasmus: partially offset by an increase in franchise and use taxes, rent and occupancy expenses, construction-related labor, and licensing and fees. Importantly, this work is ongoing. We expect further efficiencies and SG&A reductions in 2025. We've laid the groundwork for a leaner, more efficient business, while at the same time working to bring our new GAC product online with more cost savings expected to come.

Speaker Change: Partially offset by an increase in franchise and use taxes rent and occupancy expenses construction related labor and licensing fees.

Speaker Change: Importantly, this work is ongoing we expect further efficiencies and SG&A reductions in 2025, we've laid the groundwork for a leaner more efficient business while at the same time working to bring our new G. H C proud of down line with more cost saving is expected to come.

Speaker Change: Our Pac business serves as a crucial operational baseline or as we call. It a foundation when combined with our exceptionally valuable asset base conservatively estimated to have a replacement value of at least half a billion dollars. It creates a strong foundation for our.

Bob Rasmus: Our PATH business serves as a crucial operational baseline, or as we call it, a foundation. When combined with our exceptionally valuable asset base, conservatively estimated to have a replacement value of at least half a billion dollars, it creates a strong foundation for our business. From this foundation, we've been able to begin expanding into the more dynamic, higher-growth GAC segment. With higher pricing, ultimately anticipated better margins, and corresponding stronger returns on capital, we believe the granular activated carbon business is our future growth engine. To this end, we were extremely pleased to attract approximately $42 million in new net equity investment during 2024.

Speaker Change: And this.

Speaker Change: From this foundation, we've been able to begin expanding into the more dynamic higher growth G. A C segment with higher pricing ultimately anticipated better margins and corresponding stronger returns on capital. We believe the granular activated carbon business is a future growth engine.

Speaker Change: Does this and we were extremely pleased to attract approximately $42 million in new net equity investment during 'twenty 'twenty four equally.

Bob Rasmus: Equally important, our overall market capitalization more than doubled over the course of 2024, a clear testament to investor confidence in our PAC business, the transformative GAC opportunity, and the solid growth strategy we've implemented. This improved investor confidence was further validated by the successful debt refinancing recently completed on December 27. This transaction allowed us to replace the expensive legacy $10 million CFG term loan with a more cost-effective and substantially larger $30 million revolving asset-backed facility from MidCap Financial. By executing this refinancing, we've materially reduced our cost of capital. This refinancing was a key milestone we set for 2024.

Speaker Change: Equally important our overall market capitalization more than doubled over the course of 'twenty 'twenty four a clear testament to investor confidence in our Pac business. The transformative G E C opportunity and a solid growth strategy. We've implemented this improved investor confidence was further validated.

Speaker Change: By the successful debt refinancing recently completed on December 27.

Speaker Change: This transaction allowed us to replace the expensive legacy $10 million C. F. G term loan with a more cost effective and substantially larger $30 million revolving asset backed facility from midcap financial.

Speaker Change: By executing this refinancing we've materially reduced our cost of capital.

Speaker Change: This refinancing was a key milestone we set for 2024, we're pleased to have completed as successfully reducing our costs and expanding our credit capacity.

Bob Rasmus: We're pleased to have completed it successfully, reducing our costs and expanding our credit capacity. Coupled with the equity raised in 2024, we are now in a stronger and more flexible position with a strong balance sheet and appropriate debt structure and a growing base of sophisticated institutional investors. I believe we've materially evolved as a business. We entered 2025 in a significantly stronger position than 12 months ago.

Speaker Change: With the equity raised in 'twenty 'twenty four we are now in a stronger and more flexible position with a strong balance sheet and appropriate debt structure and a growing base of sophisticated institutional investors I believe we've materially evolved as a business, we entered 2025 and <unk>.

Speaker Change: Significantly stronger position than 12 months ago.

Speaker Change: That being said like any business 2024 was not without its challenges.

Bob Rasmus: That being said, like any business, 2024 was not without its challenges. First, I'd specifically highlight CapEx for our GAC expansion at Red River. After a few increases in our expected spending announced throughout the year, we last estimated in November that our full year 2024 CapEx for this project would total $60 to $70 million. However, Red River Project CapEx for the year totaled $80 million, which reflects $10 million above the high end of our most recent forecast. As CEO, I own this cost increase. As CEO and a material shareholder, I am immensely frustrated. While we own our outcomes and our entire team operates daily with a clear understanding of accountability, many of these drivers were led by factors out of our direct control.

Speaker Change: First I'd, specifically highlight capex for G. H T expansion at Red River. After a few increases in our expected spending announced throughout the year. We last estimate in November that our full year 'twenty 'twenty four capex for this project would total $60 million to $70 million.

Speaker Change: However, Red River project Capex for the year totaled $80 million, which reflects $10 million above the high end of our most recent forecast.

Speaker Change: C E O I own this cost increase as C. E O N a material shareholder I am immensely frustrated while we own our outcomes and our entire team operate daily with a clear understanding of accountability. Many of these drivers were led by factors out of our direct control.

Bob Rasmus: The $10 million overage was primarily driven by three factors. First, approximately $4 to $5 million was due to issues with estimated requirements for small bar piping, including additional electrical work, switches, and related labor costs. This is one element of our recently announced suit against our former lead engineering contractor. Secondly, roughly $3 to $4 million was driven by various smaller expenses incurred while pulling the process forward and working to derive a more timely completion. Finally, roughly $2 million was driven by higher-than-expected final invoices, including some that are disputed. I'd emphasize that a majority of the overages described above related to issues that should have been identified by our former partners.

Speaker Change: 10 million dollar overage was primarily driven by three factors.

Speaker Change: First approximately $4 million to $5 million was due to issues with estimated requirements for small bar piping, including additional electrical works switches and related labor cost. This is one element of our recently announced suit against our former lead engineering contractor.

Speaker Change: Secondly, roughly $3 million to $4 million was driven by various smaller expenses incurred while pulling the process forward and working to drive a more timely completion finally, roughly $2 million was driven by higher than expected final invoices, including some that are disputed.

Speaker Change: I'd emphasize that a majority of the overage as described above related to issues that should have been identified by our former partners. Our team took decisive actions throughout last year, including taking almost all development activity in house. Unfortunately, we've continued to.

Bob Rasmus: Our team took decisive actions throughout last year, including taking almost all development activity in-house. Unfortunately, we've continued to feel the repercussions. We take responsibility for not identifying these errors even sooner and our team remains focused on driving the project through completion and achieving the attractive target returns we continue to expect. While these challenges, combined with weather-related issues during Q2, did impact Phase 1 of our GAC development, we do expect future phases to benefit from our learnings. We therefore believe that this should represent a high watermark in cost of construction as it relates to Phase 2 development, and remain confident that we will be able to bring a second phase at $3 per pound of annual production, or $75 million.

Speaker Change: Feel the repercussions we.

Speaker Change: We take responsibility for not identifying these errors, even sooner and our team remains focused on driving the project through completion and achieving the attractive target returns we continue to expect.

Speaker Change: While these challenges combined with weather related issues. During Q2 did impact phase one of our G. A Z development, we do expect future phases to benefit from our learnings. We therefore believe that this should represent a high watermark and cost of construction as it relates to phase two development.

Speaker Change: And remain confident that we will be able to bring a second phase at $3 per pound of annual production or $75 million.

Bob Rasmus: More recently, in the fourth quarter, we experienced two unplanned shutdowns at Red River of one week each. These unplanned outages related to boiler repairs that are now resolved, but did negatively impact margins during the period. Despite this, we still delivered strong results from our PAC business in Q4, including average selling price growth of 14% year over year. NetNet, our foundational PAC business, is in very good shape following the significant actions we've taken over the last several quarters. We believe it will continue to be a sustainable cash flow contributor on an annualized basis going forward.

Speaker Change: More recently in the fourth quarter, we experienced two unplanned shutdowns that Red River of one week. Each these unplanned outages related to boiler repairs that are now resolved, but did negatively impact margins during the period.

Speaker Change: Spike this we still delivered strong results from our pet business in Q4, including average selling price growth of 14% year over year.

Speaker Change: Net net our foundational pack business is in very good shape bombing and the significant actions we've taken over the last several quarters.

Speaker Change: We believe it will continue to be a sustainable cash flow contributor on an annualized basis going forward.

Speaker Change: Which you can out of the construction at Red River or our new G. H C. Production line. We're excited to announce that we expect to complete commissioning of the plant in the next few weeks running the first product through the plant and producing and specification granular activated carbon.

Bob Rasmus: Switching now to the construction at Red River of our new GAC production line, we're excited to announce that we expect a complete commissioning of the plant in the next few weeks, running the first product through the plant and producing on-specification granular activated carbon. This is a significant achievement by our operational team, reflecting years of research, development, and successful execution. Taking bituminous coal waste, converting it into purified carbon, and then using that as a feedstock to produce activated carbon, which is then used to reduce or even reverse harmful environmental liabilities like PFAS, was previously thought impossible.

Speaker Change: This is a significant achievement by our operational team, reflecting years of research development and successful execution, taking bituminous coal waste converting it into purified Caribbean and then using that as a feedstock to produce activated carbon which is then used to reduce or even <unk>.

Speaker Change: Reverse harmful environmental liabilities like P. Fast was previously thought impossible not only are we on the cusp of making this a reality, but we would be producing a product that has competitive advantages over technologies currently available in the market.

Bob Rasmus: Not only are we on the cusp of making this a reality, but we will be producing a product that has competitive advantages over technologies currently available in the market. As we previously guided, while getting the first product out of the plant is a tremendous milestone, it will take time to ramp up production to our full nameplate capacity of 25 million pounds. Based on our latest expectations, this ramp up phase will take approximately three to six months, and we anticipate reaching nameplate capacity in the second half of 2025. Although we had originally hoped to achieve this a bit sooner, and still might, we are adopting a further level of conservatism around our timeline forecast, given the challenges we face to date and our ongoing focus on doing what we said we'd do.

Speaker Change: As we've previously guided while getting the first product out of the plant is a tremendous milestone it will take time to ramp up production to a full nameplate capacity of 25 million pounds.

Speaker Change: Based on our latest expectations. This ramp up phase will take approximately three to six months and we anticipate reaching nameplate capacity in the second half of 2025.

Speaker Change: Although we had originally hoped to achieve this a bit sooner and still might we are adopting a further level of conservatism around our timeline forecast given the challenges we face to date and our ongoing focus on doing what we said, we'd do we expect production levels to ramp up progressively drawing.

Bob Rasmus: We expect production levels to ramp up progressively during the second quarter, and we will continue to provide updates to the market as we reach key milestones. Realistically, we expect to achieve nameplate capacity around the middle of the second half of 2025, but will provide updates as appropriate as our timelines become more defined. Our goal of expanding production by 10 to 20 percent above nameplate capacity remains unchanged. The timing of defining the upside production run rate will be determined once nameplate capacity is achieved.

Speaker Change: The second quarter, and we will continue to provide updates to the market as we reach key milestones realistically, we expect to achieve nameplate capacity around the middle of the second half of 2025, but we will provide updates as appropriate as our timelines become more defined.

Speaker Change: Our goal of expanding production by 10% to 20% above nameplate capacity remains unchanged.

Speaker Change: Timing of defining the upside production run rate will be determined once the nameplate capacity is achieved.

Speaker Change: Turning now to an update on our granular activated carbon contracting performance during our Q3 earnings call I expressed confidence in being fully contracted by the time, we began G. C production, while we remain fully capable of contracting all capacity.

Bob Rasmus: Turning now to an update on our granular activated carbon contracting performance. During our Q3 earnings call, I expressed confidence in being fully contracted by the time we begin GAC production. while we remain fully capable of contracting our capacity. and are currently contracted at approximately 16 million pounds today, two key factors have led us to take a more strategic approach. First, fully contracting now is not in the best long term interest of our shareholders. Holding back a portion allows us to better align with our production ramp up while also entering more diverse markets, which we expect to drive stronger returns in both the near and long term.

Speaker Change: And our currently contracted at approximately 16 million pounds today, two key factors have led us to take a more strategic approach first fully contracting now is not in the best long term interest of our shareholders whole.

Speaker Change: <unk> back a portion allows us to better align with our production ramp up while also entering more diverse markets, which we expect to drive stronger returns in both the near and long term.

Bob Rasmus: Second, ongoing discussions with biogas and other industrial customers outside of PFAS-related applications indicate a strong preference for pilot-scale testing at their facilities. With Red River now imminently operational, these tests are almost underway and results are expected within one to six months, depending upon the application. Given that we anticipate more attractive pricing in these sectors, it makes sound business sense to reserve capacity for these contracts once testing is successfully completed and production is fully ramped. Overall, our confidence in selling everything we produce remains extremely high. Successful customer testing to date, both in our labs and independently, reinforces this belief.

Speaker Change: Second ongoing discussions with biogas and other industrial customers outside of P. Fast we laid it applications indicated a strong preference for pilot scale testing at their facilities with Red River now imminently operational. These tests started almost underway and results are expected.

Speaker Change: Within one to six months, depending upon the application.

Speaker Change: Given that we anticipate more attractive pricing in these sectors. It make sound business sense to reserve capacity for these contracts. Once testing is successfully completed and production is fully ramped.

Speaker Change: Overall, our confidence in selling everything we produce remains extremely high.

Speaker Change: Successful customer testing to date, both in our labs and independently reinforces this belief.

Bob Rasmus: Additionally, we are taking a disciplined approach to pricing, looking towards our product's superior performance and the growing shortage of GAC supply in the market.

Speaker Change: Additionally, we are taking a disciplined approach to pricing looking towards our product's superior performance and the growing shortage of GAC supply in the market.

Speaker Change: Shifting focus to our markets a key area of investor attention has been the potential impact of regulatory changes, particularly following the P. Fast related regulations implemented in April 24 under the Biden administration.

Bob Rasmus: Shifting focus to our markets, a key area of investor attention has been the potential impact of regulatory changes, particularly following the PFAS-related regulations implemented in April 24 under the Biden administration. Our discussions with customers suggest no concerns over a possible rollback. In fact, the trend appears to be moving in the opposite direction. Many municipalities are actively engaging to secure granular activated carbon supply in advance, anticipating rising demand and potential constraints. Public awareness of PFAS risks continues to grow, and major lawsuits against historical PFAS producers are further accelerating the industry's response. For water utilities, this is not just about regulatory compliance.

Speaker Change: Our discussions with customers suggest no concerns over a possible roll back in fact, the trend appears to be moving in the opposite direction. Many municipalities are actively engaging to secure granular activated carbon supply and advance anticipating rising demand and potential.

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Speaker Change: Public awareness of P. Fast risks continues to grow and major lawsuits against historical P. Fast producers are further accelerating the industry's response.

Speaker Change: For water utilities. This is not just about regulatory compliance. It's also about strategic planning.

Bob Rasmus: It's also about strategic planning. Given the potential for GAC supply shortages, customers are locking in contracts now to manage costs and avoid future price increases. A prime example is American Water, the largest U.S. water utility, which recently secured a nine-year GAC supply contract with one of our competitors. This development highlights two key trends. First, proactive supply security as water utilities are acting ahead of regulations, recognizing the long-term need to manage PFAS levels. And second, tighter market dynamics. Large, long-term contracts are removing significant product from the market, just as other companies are seeking supply. We view this as a positive signal for our business.

Speaker Change: Given the potential for GAC supply shortages customers are locking in contracts now to manage costs and avoid future price increases a Prime example is American water the largest U S water utility, which recently secured a nine year GAC supply contract with one of our competitors.

Speaker Change: This development highlights two key trends first proactive supply security as water utilities are acting ahead of regulations, recognizing the long term need to manage P fast levels and second tighter market dynamics large long term contracts already moving.

Speaker Change: <unk> product from the market just as other companies are seeking supply we view this as a positive signal for our business demand remains strong and our disciplined approach to contracting positions us well to capitalize on these market dynamics.

Bob Rasmus: Demand remains strong, and our disciplined approach to contracting positions us well to capitalize on these market dynamics.

Speaker Change: As we entered the year ahead, we do so with both excitement and determination. This past year marked a transformational period for Eric as we successfully executed a full turnaround of our foundational pack business now with our G. AC line poised to begin production we are focused on turning.

Bob Rasmus: As we enter the year ahead, we do so with both excitement and determination. This past year marked a transformational period for Arq as we successfully executed a full turnaround of our foundational practice. Now with our GAC line poised to begin production, we are focused on turning that progress into tangible results, bringing an attractive concept to life as a compelling reality. We see significant opportunities across diverse applications and pricing environments, and our strategy remains clear. Maximize shareholder returns while mitigating risk. Product, customer, and geographic diversification will be key in achieving this.

Speaker Change: That progress into tangible results bring in attractive concept of life as a compelling reality.

Speaker Change: We see significant opportunities across diverse applications in pricing environments, and our strategy remains clear maximize shareholder returns while mitigating risk.

Speaker Change: Duct customer and geographic diversification will be key in achieving this while our primary commercial focus. This year is on activated carbon I want to briefly highlight our asphalt project, which continues to make encouraging progress.

Bob Rasmus: While our primary commercial focus this year is on activated carbon, I want to briefly highlight our asphalt project, which continues to make encouraging progress. This opportunity excites us, not only for its uncorrelated product diversity, but also for its potential for strong economics and operational efficiencies at our Corbin site. We are actively engaging with potential partners on a commercial testing program. While success is not guaranteed, our work to date gives us confidence in its potential, though commercialization is unlikely before 2026. As always, execution is the priority. You'll hear me say this often, but our approach remains simple and effective.

Speaker Change: This opportunity excites us not only for its uncorrelated product diversity, but also for its potential for strong economics and operational efficiencies at our carbon site.

Speaker Change: We're actively engaging with potential partners on the commercial testing program, while success is not guaranteed.

Speaker Change: Work to date gives us confidence in its potential they'll commercialization is unlikely before 'twenty 'twenty six.

Speaker Change: And as always execution as the priority you'll hear me say this often but our approach remains simple and effective expand our product lineup reduce costs increase our E S P and drive efficiencies.

Bob Rasmus: Expand our product lineup, reduce costs, increase our ASP and drive efficiency.

Bob Rasmus: One final topic I'd like to touch on before handing over to discuss our financials is the topic of guidance, which we raised on our Q3 earnings call. This remains an item we are keen to introduce as we seek to create an even more informed investor base. To this end, we remain entirely committed to providing guidance at the appropriate time, but as things stand, I believe the appropriate time to do that will be once we have better visibility on our GAC production ramp up at Red River. In the meantime, we're pleased to have expanded our research coverage in what represents an increasingly robust consensus.

Speaker Change: One final topic I'd like to touch on before handing over to discuss our financials is the topic of guidance, which we raised on our Q3 earnings call.

Speaker Change: This remains an item we are keen to introduce as we seek to create an even more informed investor base does.

Speaker Change: Does this and we remain entirely committed to providing guidance at the appropriate time, but as things stand I believe the appropriate time to do that we will be once we have better visibility on our G. H C production ramp up at Red River in the meantime, we're pleased to have expanded our research coverage and what represents and then.

Stay Shut: Pleasingly robust consensus we hope to expand our relationships and coverage following even more over the coming quarters with that I'll hand, it over to stay shut for a more detailed look at our financials.

Bob Rasmus: We hope to expand our relationships and coverage following even more over the coming quarters.

Stacia Hansen: With that, I'll hand it over to Stacia for a more detailed look at our financials. Thanks, Bob. And thanks, everybody, for joining us today. We delivered strong financial results during the fourth quarter and full year of 2024. 2024 was a significant year of growth for Arq. Revenue grew 10 percent year over year to approximately $109 million, driven primarily by strong improvements in our average selling price and was partially offset by a decrease in volume. Our focus on contract economics yielded a strong year-to-date gross margin of 36.2%, transforming our foundational PAC business from a starting point of nearly one in every four contracts generating a loss to generating $7.7 million in adjusted EBITDA in 2024.

Speaker Change: Thanks, Bob and thanks, everybody for joining US today, we delivered strong financial results during the fourth quarter and full year of 'twenty 'twenty four 'twenty.

Speaker Change: Only 24 hours a significant year of growth for arc revenue grew 10% year over year to approximately $109 million driven primarily by strong improvement in our average selling price and was partially offset by a decrease in volume.

Speaker Change: Focus on contract economics, although it is strong year to date gross margin of 36, 2% transforming our foundational pack business from a starting point of nearly one in every four contracts generating a loss to generating $7 $7 million and adjusted EBITDA in 2024.

Speaker Change: The fourth quarter marked our third consecutive quarter of adjusted EBITDA. We are determined to maintain this momentum in our Pac business moving forward into 2020 five.

Stacia Hansen: The fourth quarter marked our third consecutive quarter of adjusted EBITDA. We are determined to maintain this momentum in our PAC business moving forward into 2025. Turning now to a discussion of the fourth quarter, revenue total $27 million, driven largely by enhanced contract terms, including 14% quarter-over-quarter growth in our average selling price and positive changes in our product mix. This is our seventh consecutive quarter of double-digit year-over-year percentage growth in ASP. Our gross margin for quarter was 36.3% compared to 49.8% reported in the prior year period. We point out for the fourth quarter of 2023, our gross margin benefited from recognizing higher revenue related to our take or pay agreements of $4.7 million versus $1.6 million in the current quarter, as well as other one-off items. It is worth noting that the lower level of take or pay agreements in 2024 related to volume increases resulted in improved demand for our product.

Speaker Change: Turning now to a discussion of the fourth quarter revenues totaled $27 million, driven largely by enhanced contract terms, including 14% quarter over quarter growth in our average selling price and positive changes in our product mix.

Speaker Change: This is our seventh consecutive quarter of double digit year over year percentage growth in E. S. P.

Speaker Change: Our gross margin from partner was 36, 3% compared to 49, 8% reported in the prior year period.

Speaker Change: We played out for the fourth quarter of 2023 our gross margin benefited from recognizing higher revenue related to our take or pay agreements of $4 $7 million versus one 6 million in the current quarter as well as other one off items. It is worth noting that the lower level of take or pay agreements in 'twenty 'twenty four and related to <unk>.

Speaker Change: Volume increases resulted in improved demand for our products.

Speaker Change: Net loss was $1 $3 million in the fourth quarter of 2024 compared to net income of $3 $3 million in Q4 of 2023.

Stacia Hansen: Net loss was $1.3 million in the fourth quarter of 2024 compared to net income of $3.3 million in Q4 of 2023. We generated positive adjusted EBITDA of approximately $3.3 million in the fourth quarter of 2024 compared to an adjusted EBITDA of $7.2 million in the same period during 2023. Both these changes versus the prior year were primarily driven by the decreases in revenue recognized related to our take or pay contracts, as well as a reduction in our compensation expense that positively impacted the fourth quarter of 2023. As I mentioned earlier, average selling price for the quarter improved 14% period over period.

Speaker Change: Generated positive adjusted EBITDA of approximately $3 $3 million in the fourth quarter of 'twenty 'twenty four compared to an adjusted EBITDA of $7 $2 million in the same period during 2023.

Speaker Change: Both these changes versus the prior year were primarily driven by the decreases in revenue recognized related to our take or pay contracts as well as a reduction in our compensation expense that positively impacted the fourth quarter of 2023.

Speaker Change: As I mentioned earlier average selling price for the quarter improved 14% period over period.

Stacia Hansen: At the beginning of 2025, we have eliminated all negative margin contracts, which represented roughly 24% of volumes as we entered into 2023 and approximately 13% as we entered 2024. Selling general and administrative expenses totaled $6 million, reflecting a reduction of approximately 8% versus the prior year period, driven by a reduction in payroll and benefit expenses, as well as legal and professional fees. Research and development costs for the fourth quarter also decreased 39%, or approximately $460,000 compared to the prior year period. Decrease in R&D was primarily driven by conducting product qualification testing with potential lead GAC adopters in the fourth quarter of 2023.

Speaker Change: At the beginning of 2025, we have eliminated all negative margin contracts, which represented roughly 24% of volumes as we entered into 2023 and approximately 13% as we enter 2024.

Speaker Change: Selling general and administrative expenses totaled $6 million, reflecting a reduction of approximately 8% versus the prior year period, driven by a reduction in payroll and benefit expenses as well as legal and professional fees.

Speaker Change: Research and development costs for the fourth quarter also decreased 39% or approximately $460000 compared to the prior year period deep.

Speaker Change: The decrease in R&D was really driven by conducting product qualification testing with potential lead GAC of doctors in the fourth quarter of 2023.

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 high growth opportunities with our expanding GAC business.

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, while further enabling us to pursue and execute on high-growth opportunities with our expanding GAC business. We remain extremely confident that our PAC business will continue to be cash generative in fiscal year 2025 and beyond. The strong annual performance of our PAC business in 2024 demonstrates its potential as a secure foundation on which we can continue to build our compelling GAC business. Turning to the balance sheet, we ended the fourth quarter with cash of $22.2 million, of which approximately $13.5 million is unrestricted.

Speaker Change: We remain extremely confident that our Pac business will continue to be cash generative in fiscal year, 'twenty 'twenty five and beyond the strong annual performance of our Pac business in 'twenty 'twenty four demonstrates its potential.

Speaker Change: Secure foundation on which we can continue to build our compelling GAC business.

Speaker Change: Turning to the balance sheet, we ended the fourth quarter with cash of $22 $2 million of which approximately $13.5 million of unrestricted.

Stacia Hansen: The change versus last quarter was driven by CapEx spend to complete the GAC line. As Bob mentioned, we successfully closed our revolving credit facility with mid-cap financial in late Q4 of 2024, an important milestone for several reasons. First, it allowed us to retire the costly $10 million CFG term loan, which had been on our balance sheet since the legacy ARQ acquisition in 2023. The loan was secured against the majority of our assets, assets we now value at over $500 million. More importantly, it carried an extremely high cost of capital with a limited capacity of $10 million.

Speaker Change: Change versus last quarter was driven by Capex spend to complete the GAC line.

Speaker Change: As Bob mentioned, we successfully closed a revolving credit facility with Midcap financial in late Q4 of 'twenty 'twenty four.

Speaker Change: An important milestone for several reasons.

Speaker Change: It allowed us to retire the costly $10 million C. F. G term loan which had been on our balance sheet since the legacy arc acquisition in 2023.

Speaker Change: Loan was secured against the majority of our asset.

Speaker Change: We know value at over $500 million more importantly, it carried an extremely high cost of capital with a limited capacity of $10 million.

Stacia Hansen: In contrast, the new MidCap facility boosts a $30 million capacity at a stated rate of less than 9% annually, effectively halving our cost of capital while expanding our availability funding. As of December 31, 2024, we have drawn approximately $13.8 million on the revolving facility as we continue to use our credit availability in measured moderation. This facility not only strengthens our near-term liquidity, but provides us strategic capital flexibility as we look to the future with much more reasonable terms than the company's prior related-party fixed-par debt. We recognize that capital expenditures for Red River expansion increased meaningfully in 2024, and with the anticipated working capital needs in 2025 as we ramp up production, securing this facility, we've built a financial cushion, helping offset CapEx overruns in Q4 of 2024, and then manage potential working capital needs in 2025.

Speaker Change: In contrast, the new mid cap facility boost a 30 million dollar capacity at a stated rate of less than 9% annually.

Speaker Change: Secondly, having our cost of capital, while expanding our availability funding.

Speaker Change: As of December 31st 2024, we have drawn approximately $13 $8 million on our revolving facility as we continue to use our credit availability and measured moderation.

Speaker Change: This facility not only strengthens our near term liquidity provides us strategic capital flexibility as we look to the future.

Speaker Change: With much more reasonable terms than the company's prior related party fixed part that.

Speaker Change: We recognize that capital expenditures for Red River expansion increased meaningfully in 'twenty 'twenty, four and with the anticipated working capital needs in 2025, as we ramp up production securing this facility, we felt a financial cushion, helping offset capex overruns in Q4 of 'twenty 'twenty four and then manage.

Speaker Change: Working capital needs in 2025.

Stacia Hansen: With that said, we look back on 2024 with pride in our financial performance and are excited to enter 2025 with a strong financial foundation, and we are well-positioned to execute on our growth strategy.

Speaker Change: With that said, we look back on 'twenty 'twenty, four with pride and our financial performance and are excited to enter 2025 with a strong financial foundation, and we are well positioned to execute on our growth strategy with that I will turn things back over to Bob. Thanks, Stacia before we move to Q&A I want to leave you with a few key takeaways.

Bob Rasmus: With that, I will turn things back over to Bob. Thanks, Stacia.

Bob Rasmus: Before we move to Q&A, I want to leave you with a few key takeaways from today's discussion. First, we have significantly strengthened our PAC business, reducing costs, improving efficiency, profitability, and cash flow generation. This remains a stable foundation for our growth initiatives and crucially one which we believe is now a sustainable cash flow producer. Second, our granular activated carbon expansion is on track, with initial product out of the plant imminently and meaningful contracts secured. As in-situ testing is successfully completed, we are extremely well-positioned to finalize negotiations to match contracting with the ramping up of production.

Speaker Change: From today's discussion.

Bob: First we have significantly strengthened our pac business, reducing costs, improving efficiency profitability and cash flow generation. This remains a stable foundation for our growth initiatives and crucially, one which we believe is now is sustainable cash flow producer.

Bob: Second our granular activated carbon expansion is on track with initial product out of the plant imminently and meaningful contracts secured.

Bob: As Institute testing is successfully completed we are extremely well positioned to finalize negotiations to match contracting with the ramping up of production.

Bob: Third our disciplined financial strategy has reinforced our balance sheet, providing the flexibility to invest in growth, while maintaining stability. While the Q4 Capex increase was frustrating I am confident in our management of expenses moving forward and we have sufficient liquidity to <unk>.

Bob Rasmus: Third, our disciplined financial strategy has reinforced our balance sheet, providing the flexibility to invest in growth while maintaining stability. While the Q4 CapEx increase was frustrating, I am confident in our management of expenses moving forward, and we have sufficient liquidity to manage it.

Bob: Manage it.

Bob Rasmus: Finally, we remain focused on operational excellence and customer engagement to drive long-term value. The granular activated carbon opportunity at Red River, with additional phases in development, represents a major growth avenue. Additionally, while our asphalt opportunity is in its early stages, we are encouraged by the progress and its potential as a future diversification of revenues and products.

Bob: Finally, we remain focused on innovation operational excellence and customer engagement to drive long term value the granular activated carbon opportunity at Red River with additional phases of development represents a major growth Avenue.

Bob: Additionally, while our asphalt opportunity is in its early stages. We are encouraged by the progress and its potential as a future diversification of revenues and products.

Bob Rasmus: I want to thank our employees, partners, and shareholders for their continued support. 2024 brought both successes and challenges, and we navigated them well. As we enter 2025, I'm optimistic about what's ahead and look forward to building on our momentum. We are in a great and growing market, and Arq remains uniquely positioned as the only public pure play activated carbon company. Along these lines, I would like to remind investors that my share ownership and compensation make me fully aligned with shareholders.

Bob: Want to thank our employees partners and shareholders for their continued support 'twenty 'twenty four brought both successes and challenges and we navigated them well as we enter 2025 I'm optimistic about what's ahead and look forward to building on our momentum.

Bob: We are in a great and growing market and aric remains uniquely positioned as the only public pure play activated carbon company.

Bob: Along these lines I would like to remind investors that my share ownership and compensation make me fully aligned with shareholders with that operator, let's open the call for questions.

Operator: With that, operator, let's open the call for questions. Thank you.

Speaker Change: Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and maybe necessary.

Operator: We will now 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please while we poll for questions.

Speaker Change: To pick up your handset before pressing the star keys, one moment, please while they pull for questions.

Speaker Change: The first question is from Gerry Sweeney from Roth Capital Partners. Please go ahead.

Gerard Sweeney: The first question is from Gerard Sweeney from Ross Capital Partners. Please go ahead. Good morning, Bob. No problem. Good morning, Jerry. First question, Red River ramp-up phase. If you review the process Milestones we should keep an eye out for.

Speaker Change: Good morning, Bob Stacy Thanks for taking my call.

Bob Stacy: No problem good morning Gerry.

Speaker Change: <unk>.

Speaker Change: First question Red River ramp up phase could you review the process and potential key milestones, we should keep an eye out for and then finally will you provide updates as you go through that process.

Bob Rasmus: And then finally, will you provide Absolutely, and let me talk a little bit about the commissioning process because that relates directly to the ramp-up process. Yeah, no, that that's okay. I knew what you meant. The commissioning is not an all or nothing scenario. And to provide some color detail on the process, we have broken down the operational steps and hence the commissioning into six functional zones. So zone one is essentially where we introduce the Arq wet take made at Corbin. Zone two is where we ensure that that feedstack is consistent with respect to moisture and certain other items to ensure we have stable, excuse me, raw material property.

Speaker Change: Oh, absolutely and let me talk a little bit about the commissioning process because that relates directly to the ramp up process and so.

Speaker Change: To start commissioning sorry, yeah yeah.

No that's okay I knew what you meant.

Matt: Hi, Matt.

Speaker Change: Commissioning is not an all or nothing scenario and to provide some color or detail on the process, we have broken down the operational steps and hence the commissioning into six functional zones.

Speaker Change: So zone, one is essentially where we introduced the Oracle web take made at carbon zone. Two is where we ensure that that feedstock is consistent with respect of moisture and certain other items to ensure we have stable excuse me raw material properties.

Bob Rasmus: Zone 3 is where we add additives to the granular activated carbon to the carbon feedstock and re-agglomerate or essentially bring it back together, that combination to form our granular activated carbon shape. Zone 4 is the first of two high-temperature heat treatment steps, where the granules are heated to remove remaining moisture. Zone 5 is the second of those two heat treatment steps, where the active granules are essentially activated under very specific thermal properties. And the final stage is Zone 6, where we screen and inventory the final GAC product.

Speaker Change: Zone, three is where we add a additives to the granular activated carbon to the carbon feedstock and Ria glamour radar are essentially bring it back together that combination to form a granular activated carbon shape.

Speaker Change: Zone four is the first of two high temperature heat treatment steps, where the granule granular excuse me. He did to remove remaining moisture zone. Five is the second of those two heat treatment steps, where the active the granules or are there essentially activated under very.

Speaker Change: Specific thermal properties in the final stages zone, six where we screen and the inventory of the final G. H Z Braddock I'm not trying to bore everyone back going through this but I think it's germane to what we're doing and I want to emphasize that we have successfully completed all six zones and produce granular activated carbon.

Bob Rasmus: I'm not trying to bore everyone by going through this, but I think it's germane to what we're doing. And I want to emphasize that we have successfully completed all six zones and produced granular activated carbon. What we're doing currently is fine-tuning the process to ensure we maximize the efficiencies and ensure repeatability. Once we are absolutely confident we can have ensured repeatability, we'll say that we are in full commercial production. But we have produced granular activated carbon and successfully on that, but we just want to make sure we can produce it on a repeatable scale.

Speaker Change: What we're doing currently is fine tuning the process to ensure we maximize the efficiencies and ensure repeat ability. Once we are absolutely confident we can have ensured repeated ability will say that we are in full commercial production, but we have produced granular activated carbon and <unk>.

Speaker Change: Separately on that but we just wanted to make sure we can produce it on a repeatable scale.

Bob Rasmus: So sorry for being so long-winded, but hopefully that answers your question. More detail on that.

Speaker Change: So sorry for being so long winded, but hopefully that answers your question.

More detail on that subject is important at this juncture. So I appreciate it switching gears slightly natural gas pack natural gas prices have gone up I think around $4 50.

Bob Rasmus: Switching gears slightly, natural gas pack, natural gas prices have been going up, I think they're around four. Dare I say, potentially sustainable, I think there's a lot of demand for natural gas, especially going into next year with LNG exports and the current administration, etc. Is this changing the positively changing the landscape for pack sales as we look into 2025? So, you know, NatGas pricing, once NatGas gets above $3.54, we see switching on the part of utilities from NatGas to coal fired generation. And we've seen that impacted in volumes, particularly in some of the initial months of 2025 so far.

Speaker Change: There I say potentially sustainable I think theres a lot of demand for natural gas, especially going into next year with LNG exports in the current administration et cetera.

Speaker Change: Is this changing the positively changing the landscape for pack sales as we look into 2025.

Speaker Change: So you know Nat gas pricing once Nat gas gets above $3 54 blocks, we see switching on the part of utilities from Nat gas to coal fire generation and we've seen that impacted in volumes, particularly and some of the initial months of 2025, so far.

Bob Rasmus: But, you know, while we have a leading market share in scrubbing mercury emissions from the power generation industry, that is an area that is becoming less and less important to us as we expand into adjacent markets for the PAC business, and those adjacent markets carry a higher margin. You know, as we talk about PAC being foundational, the PT&I segment is foundational for our PAC business, and it's nice to get those increased volumes, and that is additive to the results and what we had expected. Got it. Third question, I'll jump back in the line. Great to see you talking about a line two.

Speaker Change: But you know while the we have a leading market share in scrubbing Mercury emissions from the power generation industry that is in the area that is becoming less and less important to us as we expand into adjacent markets for the Pac business and that was adjacent markets carry a higher margin.

Speaker Change: There's we talk about Pat being foundational B P. T. At ice segment is foundational for our Pac business and it's nice to get those increased volumes and that is additive to the results and what we had expected.

Speaker Change: Got it.

Speaker Change: Third question I will jump back in line great to see you talking about a line to you know obviously, we have to get the commissioning process up and going but create the seed line too and even forward.

Bob Rasmus: You know, obviously, we have to get the commissioning process up and going. But great to see line two and even forward. I think I've shared my channel text with you, and the market is becoming increasingly undersupplied.

I think I've shared my channel checks with you and the market is becoming increasingly under supplied but can you discuss capex for 2025, and maybe the build out of line too there's probably some moving parts timeline of building cost cash flow overall liquidity.

Bob Rasmus: But can you discuss CapEx for 2025? And maybe the build out of line two, there's probably some moving parts timeline of building costs, cash flow, overall liquidity. How do we look at that? And just the level set, I think, from a balance sheet perspective, you're in very good shape of line one. But as we look out the line two, I think there's some moving parts payment. and funding it, et cetera. Just wanted to see if you could put any details around. No, sure, there's I think three or four questions in that question. I think the and I'll try and answer each of them.

Speaker Change: How do we look at that and just to level set I think from a balance sheet perspective, you're in very good shape with line one but as we look out the line too I think there's some moving parts payment and funding et cetera.

Speaker Change: Wanted to see if you could put any details around that.

Speaker Change: No sure there's I think three or four questions in that question I think the and I'll try and answer each of them. So capex that we expect for 2025 is kind of $8 million to $12 million in total that includes on maintenance capex as it relates to that obviously that doesn't include anything for potential phase two.

Bob Rasmus: So CapEx that we expect for 2025 is kind of eight to 12 million dollars in total. That includes all maintenance CapEx as it relates to that. Obviously, that doesn't include anything for potential phase two as it relates to to that phase to the visibility on that. I think a comment relates to contracting, if you will, is that the demand we're contracting for for phase one is really only a small portion of our customers. Total expected demand is our customers needs grow and our customers do expect significant growth in their GAC requirements. So does interest in phase two.

Speaker Change: As it relates to our two that phase two you know the visibility on that I think a comment relates to contract and you're if you will is that the.

Speaker Change: The demand we're contracting for for Phase one is really only a small portion of our customers total expected demand is our customers' needs grow and our customers do expect significant growth in their G. A Z requirements. So does interest in phase two and so one is we.

Bob Rasmus: And so one, as we've said, and I said in my prepared remarks that we want to ensure we have full production ramp up, full visibility. And we've been able to determine what amount over the 25 million pound nameplate capacity we are able to produce. Is it 10 percent, 20 percent, 33 percent? And once we have a firm handle on that, plus additional visibility as the months go on, we'll be in a better decision to make the FID on phase two as it relates to financing phase two. It's our belief that we'll be able to use our balance sheet to do that, that the cash flow that we're producing from the turnaround of the PAC business, the cash flow that we'll generate from the GAC business should allow us to fund that on balance sheet with debt.

Speaker Change: Said and you know I said in my prepared remarks that we want to ensure we have full production ramp up full visibility and we've been able to determine what amount over the 25 million pound nameplate capacity, we are able to produce is it 10%, 20%, 33% and once we have a firm handle on that.

Speaker Change: That plus additional visibility as the months go on we'll be in a better decision to make the F I D and phase two.

Speaker Change: As it relates to financing phase two it's our belief that we'll be able to use our balance sheet to do that that the cash flow that we're producing from the turnaround of the Pac business. The cash flow that we'll generate from the GAC business should allow us to fund that on balance sheet with debt.

Bob really appreciate it.

Bob Rasmus: Bob, really appreciate it. I think that answers all your questions. Yep. Absolutely. Thanks. Yep.

Speaker Change: Question, Yeah, absolutely. Thanks.

Speaker Change: Yep.

Speaker Change: The next question is from George John every cuts from Canaccord Genuity. Please go ahead.

George Janarikis: The next question is from George Janarikis from Canaccord Genuity. Please go ahead. Thank you for taking my question. Happy to do it, George. Thank you. Could you possibly share what? Maybe in broad strokes, what the magnitude of the differential is between... Pricing you're seeing for granular in water-related markets and in other markets, that's giving you the confidence that you want to sort of delay, or not necessarily delay, but push out the contract signings that you're doing with the water utilities. Just curious as to whether you can share what the economic differential is there that you're waiting to do that.

Speaker Change: Thank you for taking my questions.

Speaker Change: I'm happy to do with yours.

Speaker Change: Thank you.

Speaker Change: Possibly share.

Speaker Change: What.

Speaker Change: Maybe in broad strokes, what the magnitude of the differential is between the pricing you're seeing for granular in water related markets and in other markets. That's giving you the confidence that you want to sort of delay or not not necessarily delay would push out the contract signings that youre doing.

Speaker Change: With the water utilities, just curious as to whether you could share what the economic differential is there that that you were waiting to do that thank you yeah no absolutely. So at one point I'd like to make is that we could conscience excuse me contract all of our remaining capacity right now in the water market.

Bob Rasmus: Yeah, no, absolutely.

Bob Rasmus: So one point I'd like to make is that we could concentrate, excuse me, contract all of our remaining capacity right now in the water market. That would, in some respects, derisk it from investors' minds. But also, I think it makes strong business sense to defer that for other diversification into other markets from just, as I say, risk mitigation, but not concentrating solely on one market. The other is that, and a specific answer to your question, the pricing differential outside of the water markets for the adjacent markets that we're discussing is on the magnitude of 20% to 40% or more as it relates to that.

Speaker Change: That would in some respects derisking from investors' minds, but also a I think it makes strong business sense to defer that for other diversification into other markets from just as I say risk mitigation Baghdad, not concentrating solely on one market or the.

Speaker Change: The other is that in specific answer to your question the pricing differential are outside of the water Americans for the adjacent markets that we're discussing is on the magnitude of 20% to 40% or more as it relates to that so we think it makes sound business sense because of the ramping up of our.

Bob Rasmus: So we think it makes sound business sense because the ramping up of our production matches what we believe will be the culmination of those in-situ field tests. And as I mentioned, that's the final step of negotiations in finalizing the contracts outside of the water market. We always have the water market we can fall back on, but we're talking a 20% to 40% price differential by those other markets. Thank you. And maybe.

Speaker Change: And matches, what we believe will be the culmination of those instead to field test and as I mentioned, that's the final step of negotiations and finalizing the contracts outside of the water market. We always have the water market. We can fall back on but you're talking a 20% to 40% price differential by those other markets.

Speaker Change: Yeah.

Speaker Change: Thank you and maybe.

Bob Rasmus: Similarly, what are the What's the magnitude of the difference that you're seeing between granular and packed? You know, the best way is, you know, my oft repeated maxim that pricing in granular is a multiple and in some cases, depending upon the markets, a significant multiple of the average pack price.

Speaker Change: Similarly, what what are the.

Speaker Change: What's the magnitude of the difference that you're seeing between granular and pack.

Speaker Change: Today in the marketplace.

Speaker Change: You know the best way as you know my offer repeated Maxim that pricing and granular. It is a multiple and in some cases, depending upon the markets a significant multiple of the average pack pricing.

Speaker Change: And then maybe a final question just on your Opex for 2024, he did a nice job of.

Bob Rasmus: And then maybe a final question just on your op-ed. 24. He did a nice job. bringing that down. How should we think about modeling that for this? There's, I believe that we should operate in costs and SG&A, there's still room for further improvement. As I mentioned, we've already taken actions in the first quarter of this year to reduce SG&A. I think there's further room to go on both and we'll have a better view and handle on that as we begin full-scale production of the GAC as it relates to that. But also, you know, as Jerry mentioned in his question, that the additional volumes we're seeing from related to the PG&I segment due to the cold winter are also helping cost absorption, which will help margins as well.

Speaker Change: Bringing that down how should we think about modeling that for this year. Thank you.

Speaker Change: There's I believe that we should the operating cost and SG&A, there's still room for further improvement as I mentioned, we've already taken actions in the first quarter of this year to reduce SG&A I think there's further room to go on both and we will have a better view and a handle on that as we.

Speaker Change: <unk> began full scale production of the G. H C. As it relates to that but also you know as as Jerry mentioned in his question or.

Speaker Change: That the additional volumes, we're seeing a fraud related to the P. G and ice segment due to the cold winter are also helping cost absorption, which will help margins as well.

Speaker Change: Thank you.

Bob Rasmus: Thank you.

George John: Thanks George.

Peter Gastrike: Thank you, Arq. The next question is from Peter Gastrike from Water Tower Research. Please go ahead. Thank you. Good morning and congratulations on your results and thanks for the presentation. I really appreciate the details, especially on the CapEx. First of all, I just have a follow-up question, an earlier question on CAPEX. I just wanted to confirm that if you do go forward with this additional capacity for Phase 1, can you just confirm that there will not be any associated CAPEX for that? So I think when you say go forward with additional capacity for phase one, I think what you're referring to is the, what we believe is that we'll be able to produce more than the, what we refer to as the 25 million pounds of nameplate capacity.

Speaker Change: The next question is from Peter gas strike from water Tower Research. Please go ahead.

Speaker Change: Thank you good morning, and congratulations on your results and thanks for the presentation I'm I really appreciate the details, especially on the Capex review.

Speaker Change: First of all I just have a follow up question earlier question on Capex I just wanted to confirm that if you do go forward with this additional.

Speaker Change: Capacity for phase, one which can.

Speaker Change: Can you just confirm that there will not be any associated capex for that.

Speaker Change: So I think when you say go forward with the additional capacity for phase one I think what you're referring to is the what we believe is that we'll be able to produce more than the what we referred to as the 25 million pounds of nameplate capacity. So one we think that is eminently achievable.

Bob Rasmus: So one, we think that is eminently achievable and two, I can confirm that that will not entail any additional cap backs to achieve those amounts.

Speaker Change: Two I can confirm that that will not entail any additional capex to do achieve those amounts.

Speaker Change: Okay. Thanks, and an earlier just want to understand it sounds like it is.

Bob Rasmus: Okay, thanks. And earlier, just want to understand, it sounds like it is within possibility that it could be more than 20%. That's correct. Okay, great. Thank you. Let me emphasize when I talk about payback on that, you know, again, it's the and talked about at $3 a pound at $75 million. Obviously, it's about 13% higher with the capex we've expended on that, that doesn't include anything above the nameplate capacity of that 25 million pounds. Okay, okay, that's great. Thank you.

Speaker Change: Within possibility that it could be more than 20%.

Speaker Change: That's correct.

Speaker Change: Okay, great. Thanks, Let me, let me emphasize when I talk about payback on that you know again, it's the and talked about at $3 a pound at $75 million, obviously, it's about 13% higher with the Capex. We've expanded on that that doesn't include any.

Speaker Change: Thing above the nameplate capacity of that 25 million.

Speaker Change: Pounds.

Speaker Change: Okay. Okay. That's great. Thank you.

Bob Rasmus: My second question is just about the Q4 results. I wonder if you could give any color about what it would have looked like without the impact of allergies or take or pay, and also regarding unplanned shutdowns, what would be a typical number of days ARQ would experience in any given year? I think you mentioned that the unplanned shutdowns were around two weeks in the fourth quarter. That's correct. So, the boiler shutdown, and I'll come back to answering the fourth quarter, the two unplanned shutdowns were related to the boiler. The first is we noted that a seal wasn't working properly, and when you're working at temperatures in excess of 1700 degrees, you need to make sure that seal works properly.

Speaker Change: My second question is just about the Q4 results.

I Wonder if you could give any color about what it would have looked like.

Speaker Change: Without the impact of allergists are take or take or pay and also regarding unplanned shutdowns what would be a typical number of days arc with experience in any given year. I think you mentioned that the unplanned shutdowns were around two weeks in the fourth quarter.

Speaker Change: That's correct, so the boiler shut down and I'll come back to answering the fourth quarter are they to.

Speaker Change: Two one week plant unplanned shutdowns were related to the boiler. The first as we noted that a seal wasn't working properly and when you're working at temperatures in excess of 1700 degrees you need to make sure that seal works properly.

Bob Rasmus: You know, as we always talk about, that our goal is to be the safest, lowest cost, and most profitable company in the industry. So, safety is our absolute number one priority. So, we made those repairs, and then the repairs weren't working as effectively as we initially expected. So, we had to shut down again. The reason it takes one week, you say, well, how does repairing a boiler take a week? Well, the problem is you have to cool down the apparatus from the 1700 degrees, make sure it's a safe environment for people to enter, and then it takes some time to ramp up those temperatures to be able to begin production again.

Speaker Change: We always talk about that our goal is to be the safest lowest cost and most profitable company in the industry. So that safety is our absolute number one priority. So we made those repairs and then the repairs weren't working as effectively as we initially expected. So we had to shut down again the reason it takes.

Speaker Change: One week, you say well how does repairing a boiler it takes a week where the problem is you have to cool down the apparatus from the 1700 degrees make sure. It's a safe environment for people to enter and then it takes some time to ramp up those temperatures to be able to begin production again. So that's why it's going to it takes you know fairly long.

Bob Rasmus: So, that's why it takes fairly long when you have something to do with a boiler and repair. In terms of the results, if you look at it, we had approximately $4.7 million in Q3, excuse me, Q4 2023, and take or pay contracts, plus some accounting reversals, accrual reversals on expenses that favorably impacted those results in 2023. In 2024, if you look at it, we had the 14% increase in our average selling price. And if you take out the $4.7 million of take or pay on a production-to-production, apples-to-apples basis, revenue was actually up. And even with the two one-week unplanned outages, gross margin was the same.

Speaker Change: When you have something to do with the boiler and repair in terms of the results. If you look at it we had approximately $4.7 million in Q3, excuse me Q4 of 2023 and take or pay contracts plus some accounting reversals that accrual reversals and expenses that favorably in.

Speaker Change: Pat did those results in 'twenty three.

Speaker Change: And 24, we had a if you look at it we had a 14% increase in our average selling price and if you take out the board point $7 million of take or pay on a production the production apples to apples basis revenue was actually up and even with the two one week.

Speaker Change: Unplanned outages gross margin was roughly would have been the same so I think it was a really good result in the fourth quarter. Although if you look at it from the first optics you say it was down it was actually a very good strong operating results.

Bob Rasmus: So, I think it was a really good result in the fourth quarter. Although, if you look at it from the first optics, you say it was down. It was actually a very good, strong operating result.

Speaker Change: Okay, great. Thank you very much I'll just sneak in one more question here and get back in the queue or are there any tariff implications for the use of activated carbon market I understand that your supply chain is fully integrated in domestic but just curious if there are broader implications for the industry and if so how would that impact arc.

Bob Rasmus: Okay, great. Thank you very much.

Bob Rasmus: I'll just take one more question here and get back in the queue. Are there any tariff implications for the US activated carbon market? I understand that your supply chain is fully integrated in domestic, but just curious if there are broader implications for the industry and if so, how would that impact our So tariffs are beneficial to us because, as we've always emphasized, and you pointed out, we're the only fully vertically integrated, fully domestic supply chain. That helps us in a number of ways and our customers in terms of product availability, reliability, and cost. And a lot of our competitors import product or raw material from overseas, which will be subject to tariffs.

Speaker Change: So tariffs are beneficial to us because as we've always emphasized and you pointed out we were the only fully vertically integrated fully domestic supply chain that helps us in a number of ways and our customers in terms of product availability reliability and cost and a lot of our competitors import product or raw materials.

Speaker Change: From overseas, which will be subject to tariff. So there's the potential for costs going up to the industry due to our competitors, but our cost due to being fully domestic will not be rising so it should add to the opportunity for margin enhancement for us.

Bob Rasmus: So there's the potential for cost going up to the industry due to our competitors, but our costs due to being fully domestic will not be rising. So it's an opportunity for margin enhancement for us. Great, thank you very much.

Speaker Change: Great. Thank you very much.

Peter: Thank you Peter.

Tim Moore: Thank you, Peter. The next question is from Tim Moore from Clear Street. Please go ahead. Thanks and congratulations with progress in the turnaround. My first question is on GAC utilization, Bob. You know, you mentioned, I think you said 60 million contracted, so that's about 80% of the 75 million pounds. Is it fair to assume that you could probably get 80% utilization in the June quarter, or do you think it'll be a bit slower than that? So the couple of things I just want to clarify. So it's 16 million pounds of the 25 million pounds. I think you may have spent said 70 and this may have been conflating the 75 million dollar cost target to produce those.

Speaker Change: The next question is from Tim Moore from Clear Street. Please go ahead.

Tim Moore: Thanks, and congratulations with the progress on the turnaround my Yeah. My first questions on GAC utilization. Bob You know you mentioned I think you said 60 million contracted so that's about 80% of the 75 million pounds is it fair to assume that you could probably get.

Tim Moore: You know, 80% utilization in the June quarter, where do you think it'll be a bit slower than that.

Tim Moore: So the a couple of things I just wanted to clarify so at 16 million pounds of the 25 million pounds. I think it may have spent said 70 and that may have been conflating, the $75 million cost aggregate to Purdue I apologize node.

Bob Rasmus: Yeah, no, no problem. I just wanted to clarify on that, you know, production ramp up. As I say, we're producing GAC now on that, but we just want to get to the point where it's repeatable and so we can then give the market an update and give because I know the market is eager to get more detail and we're eager, eager to be able to provide the market with more detail as it relates to production ramp up and timing as it relates to that. You know, we said our goal is sometime by the middle of the second half.

Tim Moore: Yeah, No problem I just wanted to clarify.

Tim Moore: On that production.

Tim Moore: <unk> ramp up as I say, we're producing G. C. Now on that but we just wanted to get to the point, where it's repeatable and so we can then give the market an update and give them because I know the market is eager to get more detail on where eagles are eager to be able to provide the market with more detail.

Tim Moore: As it relates to production ramp up and timing as it relates to that you know we said our goal is sometime by the middle of the second half are we'd hope to be able to bring that forward on.

Bob Rasmus: We'd hope to be able to bring that forward on that and we'll be working diligently to be able to do that. Okay, fair enough. Yes, I was just thinking, should we assume that the contracted amount you mentioned today could be the June revenue amount? Well, so yeah, no, absolutely. I mean, we expect revenue this quarter from the GAC and having it build into the second quarter, as well, as we begin ramping up production, and we start selling under the contracts and through other spot market sales as well. Great. The next question I think is probably important for investors to know, you know, until you do a line two, you know, whether that's summer next year, whenever that is, we should be modeling no cannibalization of the PAC volumes, right, because that's the plan is no cannibalization in the first line.

Tim Moore: And that will be working diligently to be able to do that.

Speaker Change: Okay Fair enough, yes, I was just thinking should we assume that the contracted amount you mentioned today it could be the June revenue.

Speaker Change: Amount, but so yeah no absolutely I mean, what do you expect revenue this quarter from the GAC and having it build a into the second quarter as well as we begin ramping up production and we start selling under the contracts and through other spot market sales as well.

Speaker Change: Your next question I think is probably important for investors to know.

Speaker Change: Until you to align to know whether that's summer next year whenever that is we should be modeling no cannibalization of the PUC volumes right. Because that's the plan is no cannibalization in the first line and if that's the case and you're beginning P. A few sales plus Z.

Bob Rasmus: And if that's the case, you'll be getting PAC sales plus GAC sales, which, you know, could be up to, who knows, the blended price point almost double. Is that how we should be thinking about everything? No cannibalization? Absolutely. There's the GAC production as it is online is additive to our existing production at Red River. So not only will we see margin improvement from just the pricing as it relates to granular activated carbon production, but again, also additional flow cost absorption at Red River as well. That's terrific, and I think investors have probably been underestimating the incremental margin there, because you'd be selling both of them at the same time.

Speaker Change: G C sales, which could be up to who knows the blended price point almost double is that how we should be thinking about everything.

Speaker Change: No cannibalization absolutely theres the GAC production as it is online is additive to our existing production at Red River. So not only will we see margin improvement from just the pricing as it relates to granular activated carbon production, but again also additional flow cost absorption at Red Red River.

Speaker Change: As well.

Speaker Change: That's terrific.

Speaker Change: There's probably been underestimating the incremental margin there because you'd be selling both of them at the same time and then my last question is just looking out because everyone wants to know.

Bob Rasmus: And then my last question is, you know, just looking out, everyone wants to know, you know, what's the growth driver late next year and the following year, and, you know, they start asking about line two. You know, I know you haven't committed to that yet, but it seems like it's a high probability. So you know, the question I have is... You know, you mentioned a commentary on that, you know, starting some of those conversations. You know, theoretically, you know, you want to make sure line one's working well, you know, optimize it, get that all squared away, quality, execution.

Speaker Change: What's the growth driver like next year and the following year and start asking about lying to you know I know you haven't committed to that yet, but it seems like it's a high probability. So another question I have is.

Speaker Change: You mentioned a commentary on that you know starting some of those conversations you know theoretically.

Speaker Change: Theoretically you know you want to make sure our main ones working well optimize it get that all squared away quality execution.

Bob Rasmus: When would you expect to get comfort around, you know, maybe getting enough percentage contracted to move forward with CapEx spending for line two? Do you think that'll be December, January? You know, is it that far out, you think? I think it's in the second half of this year, the visibility and we're seeing such strong demand for the granular activated carbon product and the pricing. So, and as I say, conversations with our existing customers, it's that we've already contracted is only a portion of their anticipated needs going forward. So they expect more demand next year. As I mentioned in my prepared remarks, we're actually seeing an acceleration of demand and interest in water, municipal water utilities, complying with the PFAS regulations in advance.

Speaker Change: When would you expect to get comfort around.

Speaker Change: And then maybe getting enough percentage contracted to move forward with Capex spending for line. Two do you think there'll be December January as you know is it that far out you think.

Speaker Change: I think it's in the second half of this year the visibility that we're seeing such strong demand for granular activated carbon product and the pricing so and as I said conversations with our existing customers that we've already contracted it is only a portion of their anticipated needs going forward. So they.

Speaker Change: Expect more demand next year as I mentioned in my prepared remarks, we're actually seeing an acceleration of demand and.

Speaker Change: And interest in our water municipal water utilities complying with the Pea fashion regulations in advance. So I think that's one component. So we would expect that in the second half and as far as growth drivers for next year as well you know theres the potential for the asphalt emotion as you know as we complete those testings.

Bob Rasmus: So, I think that's one component. So we would expect that in the second half and as far as growth drivers for next year as well, there's the potential for the asphalt emulsion as we complete those testings. And that is occur throughout the year and that is extremely attractive margins that we've modeled as well. But again, we've got to get through the testing phase on that. Yeah, that's great, Bob. Yeah, no, that's definitely a kicker. That's probably your highest margin, Marc, as well.

Speaker Change: And that does occur throughout the year and that is extremely attractive margins that we've modeled as well, but again, we've got to get through the testing phase on that.

Speaker Change: Yeah, that's that's great Bobby I know, that's definitely a kicker there probably your highest margin markets as well. Thanks, a lot that's it for my questions.

Bob Rasmus: Well, thanks a lot. That's it for my questions. Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Operator: There are no further questions at this time.

Speaker Change: There are no further questions at this time I would like to turn the floor back over to Bob Rasmus CEO for closing comments.

Bob Rasmus: I would like to turn the floor back over to Bob Rasmus, CEO, for closing comments. Thank you, Sachi. And thank you to everyone for your time and interest in Arq. As I mentioned, I really like where we are today as a company. We have successfully transformed the foundational path business, and I think that turnaround is evident in our full year 2024 and fourth quarter 2024 financial results. As I mentioned, I also feel there's still room to further optimize the path business going forward.

Speaker Change: Thank you Staci and thank you to everyone for your time and interest in arc.

Bob Rasmus: I've mentioned I really like where we are today as a company we have successfully transformed the foundational pet business and I think that turnaround is evident in our full year 2024, and fourth quarter 2024 financial results as I mentioned I also feel there's still room to further optimize the Pac business going forward.

Bob Rasmus: In addition, we are eminently poised to begin full-scale commercial production of our granular activated carbon product, so we look forward to providing that milestone update shortly and look forward to talking with you all soon.

Bob Rasmus: In addition, we are imminently poised to begin full scale commercial production of our granular activated carbon products. So we look forward to providing that milestone updates shortly and look forward to talking with you all soon.

Bob Rasmus: Yeah.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Bob Rasmus: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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