Arq Maintains Profit Momentum and Advances GAC Ramp Despite Operational Hurdles

Six Consecutive Quarters of Positive Adjusted EBITDA Highlight Operational Strength

Arq, Inc. (NASDAQ: ARQ), a leading producer of activated carbon and related environmental solutions, continues its steady turnaround, posting $35.1 million in third-quarter revenue for 2025. This 1% year-over-year revenue rise reflects both sustained pricing power in its core PAC business—where the average sales price grew 7%—and its sixth consecutive quarter of positive Adjusted EBITDA at $5.2 million. The performance comes as Arq begins initial commercial sales of granular activated carbon (GAC) at its Red River facility, marking a milestone in product diversification and growth strategy.

Gross Margin and Net Income Dented by Early GAC Ramp

Despite headline growth, gross margin narrowed to 28.8% from last year’s 38.6%. The decline is mainly due to initial commercial GAC production at Red River—where lower output collided with fixed costs and post-commissioning inefficiencies. Consequently, Arq recorded a net loss of $0.7 million for the quarter, reversing the $1.6 million net income reported in the prior year period. Adjusted EBITDA also dipped versus the prior year, pressured by several million dollars in non-recurring expenses tied to the GAC ramp-up.

Strong PAC Business Underpins Growth While GAC Ramp Remains in Focus

The PAC segment delivered robust results, leveraging improved pricing to drive earnings despite softer volumes due to timing factors. According to CEO Bob Rasmus, Arq’s PAC business achieved a turnaround exceeding expectations—with more than $25 million in Adjusted EBITDA improvement since September 2023 on a trailing twelve-month basis, funding strategic initiatives in new products and markets. The first commercial phase GAC sales have started to flow, although the GAC ramp at Red River has been hampered by process variability and design challenges. Full nameplate capacity is now expected by mid-2026, with Phase II expansion decisions to coincide with this timeline.

Robust Market Dynamics Offer Room for Margin Expansion

Industry conditions for GAC remain favorable, as evidenced by spot market demand at higher-than-contracted prices. Management expects these dynamics to persist due to continued supply constraints, which could bolster margins once ramp inefficiencies are resolved. Operational strategies, such as potentially blending or switching feedstocks to lower-moisture coal, aim to streamline costs and improve output as Arq addresses ramp-up hurdles with the discipline that fueled the PAC business revival.

Balance Sheet Shows Continued Investment in Growth

Arq ended the quarter with $15.5 million in total cash (including $8.5 million restricted), and capital expenditures on track at $8–$12 million for 2025. The debt position modestly increased to $25.9 million, primarily driven by its revolving credit facility, reflecting ongoing investments in the GAC expansion and Corbin facility enhancements.

Alternative Product Initiatives Could Diversify Revenue Streams

Arq’s efforts to advance beyond core activated carbon include ongoing asphalt market testing, a signed non-binding MOU for purified coal, and governmental funding discussions for R&D in rare earth minerals and synthetic graphite. Each initiative provides potential future upside, diversifying both product risk and revenue opportunities, especially in markets such as semiconductors.

Takeaway: GAC Ramp a Hurdle, But Strategic Foundations Remain Solid

While the initial GAC production phase has reduced margins and temporarily weighed on net results, Arq’s continued PAC strength and disciplined investment in product innovation signal resilience. The market will be closely watching whether the company’s operational fixes can deliver on the full GAC capacity by mid-2026—and how soon the new product lines and market expansion can further bolster profitability. With six straight quarters of positive Adjusted EBITDA, a strong pricing environment, and targeted investment, Arq’s current setbacks may set the stage for stronger future returns—if execution follows the promise.

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