Q3 2025 Arq Inc Earnings Call

Speaker #4: Good morning , ladies and gentlemen , and welcome to the arc . Third quarter 2020 Earnings Conference Call . At this time , all lines are in a listen only mode .

Speaker #4: Following the presentation , we will conduct a question and answer session . If at any time during this call , you need assistance , please press Star zero for the operator .

Speaker #4: This call is being recorded on Thursday , November 6th , 2025 . I will now turn the conference over to Anthony Nathan . Please go ahead .

Speaker #5: Thank you . Operator . Good morning , everyone , and thank you for joining us today for our third quarter 2020 earnings results call .

Speaker #5: With me on the call today , are Bob Rasmus , Ark's chief executive officer . Jay Voncannon Ark's chief financial officer . And Stacia Hansen Ark's chief accounting officer .

Speaker #5: 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 .

Speaker #5: A webcast replay will also be available on our site , and you can contact our Investor Relations team at investors at . Com .

Speaker #5: Let me remind you that the presentation and remarks made today include forward looking statements as defined in section 21 of the Securities Exchange Act .

Speaker #5: 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 #5: 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 #5: Except as expressly required by the securities laws , the company undertakes no obligation to update these factors or any forward looking statements to reflect future events , developments or change circumstances , or for any other reason .

Speaker #5: In addition , it is especially important to review presentation and today's remarks in conjunction with the GAAP references in the financial statements . With that , I would like to turn the call over to Bob .

Speaker #6: Thank you . Anthony , and thanks to everyone for joining us . This morning . Our pack business delivered yet another strong quarter .

Speaker #6: The continued and ongoing turnaround of our pack operations yielded strong financial results , driven primarily by continued average selling price strength of 7% over the prior year , as well as a further 43% reduction in SG&A expenses .

Speaker #6: We also made progress on the granular activated carbon front , achieving first commercial production , delivering initial product , and generating our first gas revenues .

Speaker #6: Our third quarter financial performance was achieved despite operating gassy at well below capacity with significantly reduced our financial results . Our third quarter adjusted EBITDA of $5.2 million included the negative impact of several million dollars of inefficiencies caused by non-recurring items associated with handling and post costs for our granular activated carbon ramp , as well as impacts due to inefficiencies driven by low early ramp volumes .

Speaker #6: We previously noted that early gassy production would carry elevated costs due to the high fixed expenses , meaning the first pounds produced would cost more than those made later .

Speaker #6: That proved true . This quarter , but the impact of these dynamics was larger than expected . We expect profitability to improve as volumes ramp and production efficiencies are achieved .

Speaker #6: Turning back to our pack business , third quarter prices increased by approximately 7% versus the prior year period , and 6% versus last quarter .

Speaker #6: Reinforcing that our foundational pack platform is not only sustainably profitable , but also capable of fully funding maintenance capital needs for the broader business , driven by continued pricing improvements , higher volumes in 2025 , broader end market diversification and disciplined G&A reductions .

Speaker #6: The company is generating $16.7 million of adjusted EBITDA on a trailing twelve-month basis. This marks a significant achievement, both in absolute terms and relative to our starting point.

Speaker #6: At the end of September 2023 , when trailing 12 month adjusted EBITDA was a negative $8.7 million at the outset of the turnaround .

Speaker #6: This is more than a $25 million improvement in trailing 12 month adjusted EBITDA . I'm proud of what the team has accomplished and even more encouraged by the upside that still lies ahead .

Speaker #6: Turning now to our strategic investment in granular activated carbon, the operational ramp-up has been impacted by previously discussed design issues while processing the carbon feedstock at scale.

Speaker #6: As a result , based on recent operational observations , we now expect to reach full gassy capacity sometime around mid 2026 . While this timing adjustment is disappointing , we believe that this revised target is achievable .

Speaker #6: With that said , let me address head on the logical question of what has caused this extension . Our operations team is still working through certain design issues that have required refining and updating the process for handling the new carbon waste derived feedstock efficiently , at scale .

Speaker #6: This feedstock differs from the traditional lignite coal that we have historically used to produce our pack products . Specifically , the carbon feedstock has some greater than anticipated variability , which , due to design flaws and constraints as required adaptations to processing methodology .

Speaker #6: You might be wondering how this differs from the Red River commissioning challenges we faced earlier . To clarify , those earlier delays were about getting the plant up and running for the first time .

Speaker #6: The current issues are about scaling , reaching full , efficient production of tens of millions of pounds . The delay in achieving nameplate gas capacity is extremely frustrating , as we previously noted , design issues and flaws have impacted our production capacity , which , combined with the inherent variability of our arc wetcake as we acquired additional process and methodology changes .

Speaker #6: While we've solved several issues , we're continuing to explore additional options to further enhance performance and reduce operating costs . One potential solution is to blend or replace Corbyn feedstock with low moisture coal .

Speaker #6: This should reduce feedstock variability as well as improve production rates and operating costs . We are working to resolve these challenges and are applying the same rigor and discipline utilized to successfully turn around the pack business .

Speaker #6: Importantly , despite the challenges noted , we successfully produced initial and specification commercial granular activated carbon volumes in Q3 and completed our first sales into a supply constrained market .

Speaker #6: As news of our production start up spread , we received numerous inbound requests for spot purchases . These purchase requests were at pricing levels above our existing contract rates .

Speaker #6: This is further evidence of the supply constraints and favorable long term market dynamics . While our strategy remains centered on long term contracts , the spot inquiries are priced above our initial agreements and could offer attractive diversification opportunities alongside our contracted sales .

Speaker #6: In addition , we have extended numerous gas contracts to account for the updated timelines . We're also seeing positive results from ongoing renewable natural gas field testing and remain confident in our ability to capture value in that market .

Speaker #6: Once testing concludes . At the same time , the broader gassy water market provides a reliable outlet and we expect both markets to grow significantly in the years ahead .

Speaker #6: Our operational focus is now on rapidly increasing volumes to leverage our fixed cost base and achieve consistent , granular activated carbon profitability . As we've previously discussed , we are also evaluating adjacent revenue opportunities that could further improve overall returns .

Speaker #6: This includes determining whether our feedstock can be used in profitable alternative applications , creating diversified end use cases for the feedstock to maximize shareholder value .

Speaker #6: As such , I would like to provide an update on those efforts . We've previously indicated that there are four key product avenues of interest , including asphalt , purified coal , rare earth materials , and synthetic graphite .

Speaker #6: Starting with asphalt , we're continuing our testing with a major asphalt company early indications show it could make asphalt last longer and perform better in cold weather .

Speaker #6: Second , purified coal we have signed a non-binding MoU to test using our material as a coal substitute for making silicon wafers used in semiconductors .

Speaker #6: With our partner covering all the initial costs . If we elect to proceed . Next , rare earth minerals with growing demand for us sourced materials , we're working with the Doe to explore potential government funding to help us test this .

Speaker #6: At our facility . With research starting in 2026 . In finally synthetic graphite , this potential product would benefit from the high purity of our arc wetcake , and we are currently pursuing government funding opportunities to evaluate its commercial potential .

Speaker #6: Importantly , these opportunities aren't mutually exclusive , meaning we could theoretically produce arc wetcake for asphalt blending while generating byproducts for rare earth markets from the same source material .

Speaker #6: Success with these alternative products could create a standalone business line in new markets . By turning these products into revenue contributors , and thereby further improving profitability and margins .

Speaker #6: Looking ahead , fundamentals for granular activated carbon remain very strong , with phase two already essentially permitted . We continue to carefully evaluate future gas facility expansions , specifically , FID timing is now anticipated to coincide with reaching gas phase one nameplate capacity around mid 2026 .

Speaker #6: We believe that the experiences gained from phase one , along with the ongoing improvements , will provide a strong foundation for any future granular activated carbon expansion projects .

Speaker #6: With that, I'll now turn it over to Jay for a detailed financial review.

Speaker #7: Thanks , Bob , and thanks , everyone for joining us today . Notwithstanding the impact of the granular activated carbon ramp up arc continued to deliver strong financial results during the third quarter with revenue of $35.1 million .

Speaker #7: This continues to be driven largely by enhanced contract terms , including a 7% growth in average selling price year on year . In part the result of ongoing successful in-market diversification .

Speaker #7: Our gross margin in the quarter was 28.8% . Well below our steady state margin of recent quarters , primarily due to the negative impact of gassy fixed production costs .

Speaker #7: As we ramped up volumes . We continue to incur post-commissioning costs associated with pre-production feedstock used in our granular activated carbon line . Additional negative impact to margin this quarter was related to low volumes versus higher fixed costs .

Speaker #7: We generated positive adjusted EBITDA of approximately $5.2 million compared to adjusted EBITDA of $5.9 million in the prior year period . I would note that the consistent with many market participants beginning in Q1 2025 , we have added back stock based compensation as part of our adjusted EBITDA calculation and revised corresponding 2024 adjusted EBITDA calculations for comparability .

Speaker #7: As Bob noted , this quarter saw significant anticipated ramp up cost associated with GAC . As we continue to work to get the GAC line to run rate capacity with only approximately two months of commercial production in Q3 , margins were materially impacted by the high fixed production costs related to granular activated carbon .

Speaker #7: While we do not intend to split our business lines in the future for competitive reasons , I think it is important to note today that we achieved an extremely strong quarter in regards to our pack performance .

Speaker #7: As noted earlier , our third quarter adjusted EBITDA performance of $5.2 million included several million dollars of non-recurring expenses associated with handling and post-commissioning costs for our GAC ramp , as well as impacts due to inefficiencies driven by low early ramp volumes .

Speaker #7: Q3 is often a strong quarter for us , but this was an especially solid quarter for our pack business , demonstrating not only the impact of our enhanced pricing , but also our cost reduction initiatives .

Speaker #7: We incurred a net loss of approximately $700,000 versus net income of $1.6 million in Q3 of 2024 , primarily attributable to the high fixed production costs on initial volumes from our phase one GAC line .

Speaker #7: As we continue to ramp up to nameplate capacity . Selling general and administrative expenses totaled $4.6 million , reflecting a reduction of approximately 43% versus the prior year period .

Speaker #7: This reduction was primarily driven by a reduction in payroll and benefits , as well as general and administrative expenses . Research and development costs .

Speaker #7: For the third quarter increased to $2.6 million , up from approximately $800,000 in the prior year quarter . This increase was primarily attributable to the ramp up of the GAC line .

Speaker #7: We discussed earlier . Overall , our performance in Q3 2025 demonstrates our ability to operate our Pact efficiently such that it contributes very positively and sustainably to our economic position .

Speaker #7: While further enabling us to pursue and execute on anticipated high growth and high margin opportunities with our expanding GAC business . As always , we remain focused on enhancing the profitability of our pack business even further , and I believe that is how a business which can , on a medium term basis , feasibly generate significantly greater than our previous target of simply covering maintenance CapEx .

Speaker #7: To discuss the impacts of the quarter on our balance sheet , let me turn it over to our Chief Accounting Officer , Stacia Hansen .

Speaker #8: Thanks , Jay . Turning to the balance sheet , we ended the third quarter with total cash of $15.5 million , of which approximately $7 million is unrestricted .

Speaker #8: This is compared to total cash of $22.2 million as of year end 2020 . For this change was driven primarily by trailing CapEx spend at Red River relating to the GAC line and build up of Arq, Inc. inventory and critical spare parts .

Speaker #8: Today , we are also reiterating our full year 2025 CapEx forecast of between 8 and $12 million . This is particularly relevant given Bob's comments about potential work at Red River , which we do not believe will add materially to our budgeted CapEx for the year .

Speaker #8: As we continue to expect to fund our operating CapEx needs via our existing cash , cash generation debt facilities and ongoing cost reduction initiatives .

Speaker #8: With that , I will turn things back to Bob .

Speaker #6: Thanks , Jay and Stacia . Before we turn to questions , I'd like to leave you with four key takeaways . First , our pack business continues to perform extremely well .

Speaker #6: As mentioned earlier , the $5.2 million of adjusted EBITDA we reported this quarter included the negative effect of several million dollars of non-recurring items associated with granular activated carbon .

Speaker #6: This reflects the underlying strength of our foundational pack business . Our pack turnaround has exceeded expectations , and while we view packs long term growth potential is more limited than that of granular activated carbon or our potential emerging product lines .

Speaker #6: It's now clear that this foundational business delivers meaningful and sustained value . I remain confident there is still room to further improve our pack business .

Speaker #6: My goal has always been for pack profitability to fully cover maintenance , CapEx across the business , and I now believe it can do even more than that .

Speaker #6: As a major shareholder , I see this combined with our substantial asset base , which has a replacement value . Well in excess of $500 million , is a strong foundation for the company's long term valuation .

Speaker #6: Second , while cost related to granular activated carbon ramp up weighed on our financial results this quarter , it's important to recognize that we have now produced and sold commercial quantities of granular activated carbon from Red River , a major milestone for our company .

Speaker #6: My primary focus remains on driving profitability as we scale production . It is also important to highlight that we have overcome business challenges before , as I discussed earlier , we successfully transformed a loss making pack business to an attractive business , generating attractive profit and cash flow .

Speaker #6: We are confident our best in class team will be able to work through the Gas production challenges . We will get this resolved .

Speaker #6: Third , granular activated carbons underlying market fundamentals remain exceptionally strong , which makes the delays in scaling production even more frustrating . The market opportunity is there for us to capture .

Speaker #6: And fourth , I believe our ongoing review of potential feedstock alternatives helps to ensure we are scaling this business as efficiently and profitably as possible .

Speaker #6: Separately , our assessment of potential alternative product opportunities creates additional diversification and upside over the long term . With that , I'll hand it back to our moderator to open for questions .

Speaker #4: Thank you . Ladies and gentlemen , we will now begin the question and answer session . Should you have a question , please press the star , followed by the one on your touchtone phone .

Speaker #4: You will hear a prompt that your hand has been raised . If you wish to decline from the polling process , please press star followed by the two .

Speaker #4: And if you are using a speakerphone , please lift the handset before pressing any keys . And the first question comes from Jerry Sweeney at Roth Capital .

Speaker #4: Please go ahead .

Speaker #9: Good morning , Bob and team . Thanks for taking my call .

Speaker #6: Happy to do so , Jerry .

Speaker #9: Bob , I'm just gonna I don't know if you can answer this or would want to answer this , but . At what ?

Speaker #9: How much g are you producing at spec and I think what people want to know or what I would like to know , is where you are today versus what you know , nameplate capacity is .

Speaker #6: We're producing less than we want to . That's for sure . What we're producing is on spec as it relates to that . You're right that for competitive reasons , I'm not going to in for other reasons , I'm not going to give you the specific answers , but it's clear that the suboptimal production volumes are impacting our gross margin and our financial results .

Speaker #9: Can you produce gas at a level that's we'll just say break even while you test alternatives ? Or is this going to be a drag until we get the problem solved ?

Speaker #6: And so , you know , if you look at it , what is break even ? We have an idea what that is on that .

Speaker #6: But you know , as we start out at any time you start out a new production process , they're going to be costs associated with the ramp up , the cost of clearly been greater than we had anticipated .

Speaker #6: And we've had some greater difficulty in ramping up the production volume as it relates to that . And progress isn't linear . We believe that the best thing to do long term is to both evaluate blending of a feedstock , drier feedstock to overcome some of these design issues .

Speaker #6: That will help us get to profitability and commercial production , even faster .

Speaker #9: Speaking of alternatives , I'm assuming that's a drier feedstock . That would be met coal , which is traditionally used as gas and would that have an impact on margins ?

Speaker #6: You know , first of all , we're going to do what's in the best economic interest for our shareholders . And , you know , we're evaluating blending drier coal as really one way to help overcome the design issues that have been affecting our ability to deal with the variable feedstock .

Speaker #6: And while we're evaluating that , because a logical question is , you know , we're also evaluating whether it makes sense to switch to drier coal .

Speaker #6: Why would we switch to drier coal ? Well , if one of the four alternate uses for carbon feedstock develop , it would account for all of the carbon capacity and then some .

Speaker #6: So it behooves us to evaluate alternative feedstock to maintain full optionality . And , you know , keep in mind from an economic standpoint as well as you mentioned in your question , Jerry , that , you know , the Corbin feedstock is essentially 50% water , we're paying to ship 50% water that we then take out of the product as it relates to that .

Speaker #6: So we believe it's a distinct possibility that blending drier coal with the feedstock could also have a positive CapEx implications .

Speaker #9: Got it . One more for me . Just want to understand the numbers 5.2 million in EBITDA in the quarter . That does not include some of the extraneous costs that were incurred with this ramp up .

Speaker #9: Correct . So in other words , that 5.2 million , 2 million in EBITDA would have been higher by a couple million dollars if these issues didn't arise .

Speaker #9: All things being equal , right . So .

Speaker #6: Yeah . So at the $5.2 million includes the negative impact of several million dollars of the of costs associated with the gassy . Now , again , what several million dollars ?

Speaker #6: It's more than a couple is it relates to that . I'm not going to be specific but I can try and provide an analogy .

Speaker #6: If you look at the gross margin of the last four quarters prior to this . So third quarter of 24 to second quarter of 25 , and you added back those several million dollars in cost .

Speaker #6: Our gross margin would have been several percentage points above the average for those four quarters .

Speaker #9: Yeah . No , I mean , listen , three . ASPs were up year over year . Demand was up . Coal plants aren't being shut down as fast .

Speaker #9: So I mean , there's demand for pack out there . So I mean it would have been a very strong quarter for the pack business .

Speaker #9: I get it okay . Got it . I'll jump back in line . I know we have a follow up call at some point .

Speaker #9: I have a bunch of other questions , but they can wait . So thanks .

Speaker #6: Okay , thanks , Jerry .

Speaker #4: Thank you . The next question comes from George Generics at Canaccord Genuity . Please go ahead .

Speaker #10: Hi . Good morning . Thank you for taking my questions . I'd like to dig in some more on the on the Corbin feedstock issue .

Speaker #10: I'm just curious , what can you go into a little bit more detail around what you mean about variability , and when did you figure out that this was an issue ?

Speaker #10: I'm assuming that there had been tests prior to starting production that indicated that this wouldn't be a problem . So just a little bit more detail as to exactly what you discovered and when .

Speaker #10: Thank you .

Speaker #6: Sure . You know , this is really a design flaw issue . We always knew as part of our due diligence that there would be variability in the feedstock from Corbin regarding the design issues .

Speaker #6: You know , we work through many of those design flaws in the original engineering to just be able to complete commissioning and achieve commercial production .

Speaker #6: But those design flaws and some of those design flaws and constraints still impact our production on the granular line . One , our essentially that the original engineering firm really failed to account for the moisture content and variability in the feedstock in the of some of the openings and chutes and some of the consider what you have .

Speaker #6: It's extremely sharp angles , which led to inefficiencies and led to plugging and tearing on that . So we knew there was going to be variability , but that the design did not account for that .

Speaker #10: Right . So just sort of begs the question , if it's a design issue as opposed to a necessarily a feedstock issue , because the

Speaker #10: feedstock is something that you knew about going in , wouldn't why are you exploring other alternatives to to feedstock as opposed to just redesigning the facility .

Speaker #6: Redesigning the facility would cost more . We know that , and we think that , you know , one of the issues relates to , as I say , if you think of a 90 degree angle and you're trying to push product that has some moisture content or some sticky content through that 90 degree angle , it's going to catch on that the the curve on the corners , etc.

Speaker #6: by blending it with drier coal and reducing that moisture content on the input , it makes it easier to make that it's less likely to to stick for lack of a more technical term .

Speaker #6: As it relates to going around those corners . So it would be easier to blend that feedstock and cheaper than it would be to redesign and put in place the additional equipment .

Speaker #6: .

Speaker #10: Right . And maybe just last question , in terms of I think it was asked previously as well , how do we think about the long term margin implications of the of some of the changes ?

Speaker #10: You're making ? Thank you .

Speaker #6: Yeah . No , a couple of things . One , you know , short term there's clearly a negative impact from their ability or inability to reach full run rate production on granular activated carbon .

Speaker #6: Long term , the granular activated carbon , you know , margins we expect to be extremely strong for all the , you know , the market fundamentals that I discussed in the prepared remarks and pricing continues to be even stronger than it was in terms of even a year ago , as it relates to that .

Speaker #6: And if you look at , you know , one benefit of blending some drier coal , as I mentioned in my answer to Jerry's question , is that we won't be shipping as much water that we're taking out of the system .

Speaker #6: So that in and of itself should lead to lower operating costs and improve margins .

Speaker #10: Thank you .

Speaker #6: Thank you George .

Speaker #4: Thank you . The next question comes from Aron Spychala at Craig-hallum . Please go ahead .

Speaker #11: Yeah . Hi , Bob . Thanks for taking the questions . You know , maybe just just one on on GAC . I mean , can you just , you know , maybe at a high level , just what gives you confidence in hitting the mid 2026 targets ?

Speaker #11: I mean , have you started to implement some of these design tweaks or are you seeing some consistency benefit from , you know , the changes you're making on the feedstock side ?

Speaker #11: It doesn't sound like there's a lot of cost you're expecting , but just , you know , again , trying to just understand the confidence in reaching these targets now .

Speaker #6: Sure . Great question , Aaron . And I'm going to apologize in advance because it's going to be either , depending on your point of view , long winded or you ask what time it is .

Speaker #6: I'm going to tell you how to make a watch , but I think it's important to provide that context . Is everybody knows that design flaws led to the delays in commissioning the granular activated carbon facility earlier this year , and while we successfully direct , excuse me , address those issues to complete commissioning the same design flaws , as we've mentioned , have continued to affect our ongoing granular activated carbon production and the ramp up to full capacity .

Speaker #6: And in answer to your question , I think its important to provide context as to why and how we expect to achieve full run rate production .

Speaker #6: You know , around mid 2026 . Yeah . So going into that detail and also this is some additional detail for George's question as well .

Speaker #6: The initial design and construction included a 320 foot off gas line from the kiln . The design was not only inefficient , but unworkable , and part of the original commissioning delay stemmed from a design defects in the system that led to the cooling of the line and subsequent tar , and plugging in particulate plugging , really so in collaboration with a new engineering firm , we determined that installing a thermal oxidizer and shortening that off gas line from 320ft to 28ft was the best solution .

Speaker #6: Locating a suitable unit , a suitable thermal oxidizer was difficult is really only one with the required specifications existed in the US . We have secured that on a rental basis and once installed , it enabled us to have successful plant commissioning and to start commercial production .

Speaker #6: And after getting that thermal oxidizer successfully in place and beginning production , we determined that the current rental thermal oxidizer could really only support production of about £15 million of granular activated carbon per year .

Speaker #6: As a result , and working with that new design firm , we now plan to purchase and install a purpose built thermal oxidizer , which is designed to support £25 million of granular activated carbon production a year .

Speaker #6: The lead time for construction and installation of this new purpose built , £25 million capable thermal oxidizer is why we have moved our expectations of full run rate production to around mid 2026 .

Speaker #6: That is when we expect to receive and install that purpose built thermal oxidizer . And once on site installation will take about six days .

Speaker #6: One day to cool the existing unit , one day for removal and four days for replacement . And connections . The GAC production will have to pause for roughly one week during this but operations should quickly get to full run rate capacity once installation is complete .

Speaker #6: Because all we're changing that at that point is working through the full capacity of the and having a thermal oxidizer , which allows us to get to £25 million .

Speaker #6: And we're confident we will be able to have solved the input issues , be prior to that time . Logical question is what's it going to cost us the new thermal oxidizer will require an estimated total investment of 8 to $10 million .

Speaker #6: That includes roughly $3 million for the equipment and the remainder is for installation . The vast majority of the spending will occur at the time of final shipment , and installation .

Speaker #6: This will be funded as 2026 CapEx and based on our conversations with current and potential lenders , along with our available cash and operating cash flow , we believe that this can be readily funded in that capital efficient manner .

Speaker #6: And to minimize disruption , we plan to complete our biannual Tar during that same period . That way , we avoid any additional planned downtime in 26 or 27 .

Speaker #6: So apologize for being so long winded , but I think it's important to show that , you know , that the detail behind why we have changed our prognosis , you .

Speaker #11: No , I appreciate that that color that's helpful . You know , and then you kind of talked to I mean on the pack business , you know , if you back out a few million dollars , it obviously really good margin performance , you know , seems like the outlook still remains strong there .

Speaker #11: Can you just kind of talk about that . And , you know , potential further diversification and kind of ASPs and just what the outlook on the pack side .

Speaker #6: Sure . You know , we had again , another strong quarter of average selling price increase . We were up 7% year over year .

Speaker #6: 6% quarter to quarter . You know that pace has abated somewhat from our nine previous quarters of 9% or better . Double digit or excuse me , average selling price increases .

Speaker #6: And it was natural we couldn't continue that cadence forever . We still expect to see continued improvement from the pack business and the pack related results from a combination of increased volumes .

Speaker #6: We are still seeing increased average selling prices and also the additional fixed cost absorption related to additional volumes . Is it relates to new markets .

Speaker #6: Our sales force has done an outstanding job of looking to develop and penetrate additional markets. And those additional markets also have higher average selling prices than some of our other outlets.

Speaker #6: So we're optimistic about the future for pack as our foundational business .

Speaker #11: All right. Thanks for taking the questions. I'll turn it over.

Speaker #6: Thank you George .

Speaker #4: Thank you . The next question .

Speaker #6: Sorry , Aaron .

Speaker #12: Sorry .

Speaker #4: Thank you . The next question comes from Peter Gastric at Water Tower Research . Please go ahead .

Speaker #13: Thank you . So good morning , and thanks for taking my my questions here . Just a few , if I may . The first one is regarding the delay for the gassy .

Speaker #13: Is there any risks or penalties that could be associated with the contracted customers for the for the delay ?

Speaker #6: You know , our customers have been have been great with this . You know , we've worked closely with all of our contracted customers to provide visibility on production outlet or output .

Speaker #6: Excuse me , as it relates to their needs . All of our customers have worked with us to amend their orders , and they're ordering cadence and all of our gassy contracts that were one year or less have been extended .

Speaker #6: So I think that's a testament both to the strength of our relationships and to the under-supplied nature of the market . But , you know , everything is , you know , is going as well as it could be .

Speaker #13: Okay , great . Thank you . So my second question , just following on from the previous question about the pack prices . Yeah , congratulations .

Speaker #13: It's great to see that, even though you mentioned the slowed year-on-year growth, you're still able to raise, which is really, really commendable.

Speaker #13: I just wanted to ask though is that for that 7% increase , are we talking purely about the pack there or are we seeing any kind of a measurable impact from the gassy spot volumes that you mentioned ?

Speaker #6: So we didn't sell anything on the spot market . We're concentrating on meeting our customer contracted orders on that , which is the right thing to do from a relationship standpoint .

Speaker #6: So all of the price increases that we refer to , that 7% are coming from the pack business .

Speaker #13: Okay . Got it . Okay . Thanks . And just a final question on the SG&A . So , you know , regarding the reduction SNA , how much of that , you know , can be sustained ?

Speaker #13: And also for that portion , if I understand that was allocated to cost of goods sold , why was that decision made . ?

Speaker #7: So , Peter , this is Jay . Yeah . The reductions are coming from prior year to this current year . And yes , those are definitely sustainable .

Speaker #7: We actually think that the we'll see as a percentage of revenue as the granular line comes up and starts coming up in 26 , you'll start seeing revenue or a percentage of revenue decline because we don't anticipate needing to increase the cost as we ramp up the the gassy line .

Speaker #7: With regard to , I think your second question there , which is on the reclassification into R&D , most of that we won't have that going forward .

Speaker #7: We did that . Reclass also in Q2 , as it relates to pre-production volumes , as we were commissioning , bringing the granular activated line to a commissioning point .

Speaker #7: So most of that cost that was reclassed in Q3 was the July . And really like one week of August , cost for volume , pre-production volumes .

Speaker #7: Once we commissioned the facility , all of that cost has been running through the cost of goods sold line . And that's why we're seeing it impact the negative or the margin in Q3 was negatively impacted by those fixed costs being spread across fewer .

Speaker #7: A few fewer pounds . As we not up to really a break even point yet for granular .

Speaker #13: Okay , great . Thanks very much . That's all my questions . I appreciate it . Thank you .

Speaker #4: Thank you . The next question comes from Tim Moore at Clearstream . Please go ahead .

Speaker #14: Thanks . I just want to follow up an important thread . I mean , it's great the gas is going underway . That was really important .

Speaker #14: Milestone . And you know , you've got a lot of things to optimize . Before you add additional lines over the coming years .

Speaker #14: But you know , I just want to really dig into one other thing . I get the SG&A reconciliation and J just went through that .

Speaker #14: But , you know , how should we think about really gross margin in the next two quarters until you get enough utilization underway on gassy ?

Speaker #14: I was kind of under the impression that the really big drag was the June quarter , and it won't be as bad in September , but , you know , you can expect a big step up .

Speaker #14: I mean , there should be a step up in the December quarter for gross margin right ?

Speaker #7: I mean , what I would say is , is , you know , as we're producing volumes at this suboptimal point level , there's a lot of fixed costs at the plant that's getting , as I said , getting spread across fewer volumes , which are dragging the gross margin .

Speaker #7: I would what I would say is that it's not the fixed cost is going to go up . So , you know , the fixed cost is pretty stable .

Speaker #7: So what we'll continue to see is probably in Q2 four and in Q1 of next year , margins similar to what we produced in Q3 .

Speaker #7: And it's , you know , it's until we're able to get the volume up and actually have more pounds to sell and spreading those costs across that greater pounds , then we'll then we'll see the margin improve .

Speaker #7: So I would expect probably for the next two quarters and probably even some even into Q3 when we're once we get the new oxidizer installed .

Speaker #7: I mean , it's Q2 of next year , get the new oxidizer installed that we'll probably see a fairly consistent gross margin . Now , we're also expecting , you know , hopefully we'll see continued improvement in pack as we have , you demonstrated over the last 12 months .

Speaker #7: And so that may offset some of that as we continue to grow and improve . Pack performance going into next year as well .

Speaker #14: No thanks for that . That's really helpful . Color on the cadence of and the other question I had was I can understand right now , like GHC revenue is not that much .

Speaker #14: It'll be pretty sizable , sizable by the June quarter . And for competitive reasons , you might not want to disclose it . You know , Calgon Carbon's owned by another firm .

Speaker #14: It's a small sliver of their conglomerate . Do you think that at some point , I mean , given that it's £25 million , you add another more lines that you think you would break out maybe a year or two from now or , you know , GHC revenue just to just to have the difference and especially when maybe it starts cannibalizing pack a little bit on the feedstock later on .

Speaker #6: A couple of things on that . I think that one , you know , given the long term favorable market dynamics , I think it's highly probable that we will build a line to and further increase capacity .

Speaker #6: You mentioned competitive reasons . I'll refer to it more as competitive tension . There is always competitive tension between , you know , the IR side of things and the sales side of things .

Speaker #6: As to what we break out , as you know , I'm a big believer in providing detail and informed investor is a good investor .

Speaker #6: And is a long term investor . The flip side of that is that we are the only public company , so we're handing competitive information .

Speaker #6: To our competitors on a platinum platter on that . And so the long winded answer is maybe .

Speaker #7: What I would say also add to Bob's comments is , you know , once we get to the 25 million nameplate and then we add another line to and we're then at 50 million of capacity , I mean , you know , we're probably , you know , we're at about £100 million capacity on the pack there .

Speaker #7: You'll be able to begin to see you can do correlations and kind of , you know , it wouldn't take wouldn't be very difficult to back into what the ultimate margin is between two .

Speaker #7: So that that will , you know , and as we continue to grow and we start seeing pack get cannibalized , as you mentioned .

Speaker #7: Yeah , there probably will become a point where we'll be the bulk of our discussion in the , in the , in the MDA and the Q will be around the granular business and the pack will be , you know , just kind of a base level that that we know and talk about .

Speaker #14: Now , that's fine because I'll be able to back into the gassy revenue pretty closely when you lap a full year . Just if you keep announcing average price increase when you start year over year on the GSC , but no thanks for that , Bob and Jay , I appreciate it .

Speaker #14: That was it for my questions .

Speaker #7: Okay . Thanks .

Speaker #15: Tim .

Speaker #4: Thank you . We have no further questions . I will turn the call back over to Bob Rasmus for closing comments .

Speaker #6: Thank you very much . Both short term and long term , the outlook for the powdered activated carbon business is strong . We also continue to expect even better performance from the pack side .

Speaker #6: And this is a dramatic improvement from two years ago when the pack business was a significant money loser . Short term , there clearly remains some challenges to getting the granular activated carbon business up to full run rate , we're applying the same rigor , discipline , focus , and resolve .

Speaker #6: We successfully applied to the pack business to solving these challenges . The long term market dynamics for granular activated carbon remain extremely strong and is a reminder I'm fully aligned with shareholders with my minimum salary and my large stock ownership , I want this fixed as badly , if not more so , than you all do , and we will get this resolved .

Speaker #6: So thank you all for your interest . And we look forward to continued communication .

Speaker #4: Ladies and gentlemen , this concludes your call for today . We thank you for participating , and we ask that you please disconnect your lines .