- Record PAC revenue and profitability driven by ongoing and sustainable improvements
- Strategic GAC project at Red River remains on target for first deliveries in Q1 2025 with modular commissioning already underway; capex, timing and contracting advancing in-line with expectations
- Expect to ramp Red River GAC run-rate to 25 million nameplate by end of Q1 2025; identified potential to increase GAC nameplate capacity by 10-20% with no anticipated additional capex required
Arq, Inc. (NASDAQ: ARQ) ("Arq"), a producer of activated carbon and other environmentally efficient carbon products for use in purification and sustainable materials, today announced its financial and operating results for the quarter ended September 30, 2024.
Financial Highlights
- Generated revenue of $34.8 million in Q3 2024, up 17% over the prior year period, driven largely by higher ASP, positive changes in product mix
- Improved gross margin to 38.6% in Q3 2024, an improvement of approximately 800 basis points vs. 30.6% in the prior year period, driven by higher revenue, continued focus on profitability over volume, and ongoing operational cost management
- Increased ASP in Q3 2024 by approximately 15% over the prior year period, reflecting the 6th consecutive quarter of double-digit YoY percentage growth in ASP
- Reported Net income of $1.6 million in Q3 2024, reflecting a significant improvement over the prior year period Net loss of $2.2 million
- Adjusted EBITDA of $5.1 million in Q3 2024 vs. Adjusted EBITDA of $0.9 million in the prior year period(1)
- Raised approximately $27 million of net equity proceeds during September 2024 in an oversubscribed confidentially marketed public offering met by strong institutional demand; increased YTD 2024 net equity raised to approximately $42 million
- Exited Q3 2024 with cash and restricted cash of $57.4 million
Capital expenditure forecasts for full year 2024 remain at $60-$70 million, with $20-$25 million remaining to be spent in Q4 2024
Recent Business Highlights
- Modular commissioning at Red River facility underway; on target to achieve first deliveries in Q1 2025 following decision to take general contracting activities in house
- Continued strong granular activated carbon (“GAC”) contracting activity, reaching approximately 60% of our 25 million pound per year nameplate capacity
- In negotiation for the remaining nameplate capacity at Red River; expect to be fully contracted by the time nameplate run-rate capacity is achieved in Q1 2025
- Identified potential to increase Red River’s 25 million pound per year nameplate capacity by 10-20% with no anticipated additional capex required; upsized production run-rate expected to be achievable by Q3 2025
“Our third-quarter results show the continued solid progress we are making across our PAC business,” said Bob Rasmus, CEO of Arq. “We posted record PAC revenues and Adjusted EBITDA yet again, surpassing forecasts and reflecting the improved strength and stability of our core operations. This performance was driven by higher average selling prices, lower costs, and increased consumables volumes year on year, which all contributed to strong gross margins and reflect the diligent and successful business improvement initiatives we have been focused on over the past 12 months. While these results and trends are great, we remain focused on further enhancements to our business and results.”
“During the third quarter, we made the strategic decision to raise equity to fund our GAC expansion, rather than take on additional debt. The net result, in addition to greater balance sheet flexibility, was accretive to EPS versus issuing debt. The raise was met with strong investor interest, resulting in an oversubscribed offering. This strengthened our financial position, enabling us to pursue further growth, including a potential second GAC line.”
“2025 is poised to be the most transformational period for Arq yet. Our Red River project is progressing well, with the expansion on budget with most recent guidance, first deliveries on track for Q1 2025, and the pace of contracting in-line with expectations. With modular commissioning underway, we’re already completing critical components of the project, allowing us to manage the process in stages and expect to achieve full run-rate capacity of 25 million pounds by the end of Q1 2025.”
Mr. Rasmus concluded, “Given the efficiency of our build and insights gained during our ongoing construction process, we have identified the potential to increase production levels by 10-20% higher than our 25 million pound targeted nameplate capacity with no anticipated additional capex required, and believe we could achieve this upsized production run-rate by Q3 2025. While our focus is firmly on the first phase of Red River, we are actively exploring the next phase of this strategic GAC investment, pending the successful ramp-up and strong market demand.”
Third Quarter 2024 Results
Revenue totaled $34.8 million for the third quarter of 2024, reflecting an increase of 17% compared to $29.8 million in the prior year period. The improvement was driven by favorable product mix, higher pricing and slightly higher consumables volumes. Average selling prices for the third quarter of 2024 were up approximately 15% compared to prior year period, marking the 6th consecutive quarter of double-digit year-over-year percentage growth in ASP.
Costs of revenue totaled $21.3 million for the third quarter of 2024, an increase of approximately 3% compared to $20.7 million in the prior year period. As a percentage of revenue, costs were approximately 61% for the third quarter of 2024, down from approximately 70% in the prior year period. The improvement was driven by ongoing operational cost management.
Gross margin improved to 38.6% for the third quarter of 2024, compared to 30.6% in the prior year period. The approximately 800 basis point increase in gross margin was driven by higher revenue as a result of our focus on profitability over volume and ongoing operational cost management.
Selling, general and administrative expenses totaled $8.1 million, compared to $8.3 million in the prior year period. The reduction of approximately $0.2 million or 3% was primarily driven by a reduction in payroll and benefits as well as legal and consulting fees as the Company incurred incremental fees related to the legacy Arq acquisition in 2023.
Research and development costs totaled $0.8 million, compared to $0.6 million in the prior year period. This increase was primarily due to the Company conducting ongoing product qualification testing in the third quarter of 2024 with potential lead-adopters as part of its ongoing GAC contracting process, which also contributed to elevated costs in the first half of 2024.
Operating income was $2.0 million for the third quarter of 2024, compared to an operating loss of $2.5 million in the prior year period. The significant improvement was mainly driven by the higher revenue and reduced cost drivers discussed above.
Net income was $1.6 million, or $0.04 per diluted share in the third quarter of 2024, compared to a net loss of $2.2 million, or ($0.07) per diluted share, in the prior year period. The significant improvement was driven by enhanced gross margins and lower SG&A costs. Notably, the significant improvement in earnings per share was achieved notwithstanding the increase in the weighted average number of common shares outstanding following approximately $27 million of net equity proceeds raised in May and September 2024 to fund Arq’s GAC strategic growth initiatives at Red River.
Adjusted EBITDA was $5.1 million for the third quarter of 2024, compared to Adjusted EBITDA of $0.9 million in the prior year period. The improvement was primarily driven by revenue growth and cost reduction factors discussed above.
Capex and Balance Sheet
Capital expenditures totaled $42.2 million for the nine months ended September 30, 2024, compared to $17.0 million in the prior year. The increase versus the prior year was driven by the ongoing expansion of our Red River and Corbin facilities. Capex for 2024 remains in line with previous guidance at $60-$70 million, with $20-$25 million remaining to be spent in Q4 2024.
The Company raised approximately $27 million of net equity proceeds in September 2024, which combined with approximately $15 million raised via a private placement of common stock in May 2024, resulted in year-to-date net equity proceeds raised through Q3 2024 of approximately $42 million.
Cash as of September 30, 2024, including $8.7 million of restricted cash, totaled $57.4 million, compared to $37.2 million as of June 30, 2024. The increase was largely driven by the net equity proceeds raised in September 2024, offset by increased expenditures relating to Red River.
Total debt, inclusive of financing leases, as of September 30, 2024, totaled $20.0 million compared to $20.9 million as of December 31, 2023. The decrease was driven by principal payments made during the nine months ended September 30, 2024.
