Arq, Inc. Price & Performance (ARQ)

Good morning, everyone, and thank you for joining us today for our fourth quarter and full year twenty twenty four earnings results call. With me on the call today are Bob Rasmus, Arc's Chief Executive Officer and President as well as Stacia Hansen, Arc's Treasurer and Chief Accounting Officer.

This conference call is being webcasted live within the Investor section of our website. A webcast replay will also be available on our site and you can contact ARC's Investor Relations team at investorsark dot com. 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 statements. These risks and uncertainties include, but are not limited to, those factors identified on Slide two of today's slide presentation in our Form 10 ks for the year ended 12/31/2024, and other filings with the Securities and Exchange Commission. 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. 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.

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 Airc 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. This was driven by continued strong operational execution in our foundational pack business. Today's results highlight the profound transformation of our foundational pack business, demonstrating both its sustainability and ongoing evolution. As I've often said, there's no magic bulb potion behind the 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.

We've achieved this through a concerted relentless and ongoing effort throughout the organization to focus on shareholder returns. We've utilized our fully integrated domestic supply chain to ensure and we've expanded into new markets. Our goal was and is to maximize AARC's profitability and future opportunities ensuring a lasting transition. As part of this process, we've successfully 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 IHOP to grow future revenues and more importantly profitability and the numbers show it. Today, we were proud to report a 10% year over year increase in our revenues for full year 2024 to approximately $109,000,000 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 $1,000,000 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 pack business, this has been as critical as ASP increases to the turnaround we've achieved.

It truly is a case where every penny counts. And I am proud to report that we achieved an increased not just in our average selling price, but also in gross margin year over year up approximately four ten basis points in fiscal year twenty twenty four versus 2023. I strongly believe there is room for further improvement. Our PAC turnaround in 2024 is a major achievement but the turnaround is not a one time event. Looking ahead, we continue to forecast ongoing in the profitability of our foundational pack 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 price increases. Particularly as we continue our diversification into adjacent markets and explore product alternatives. While the pace of improvement may moderate over time, 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 and A which I've long felt was disproportionately high for a business of our size.

SG and A fell from approximately $34,000,000 in 2023 to approximately $29,000,000 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 AUC acquisition completed in 2023. 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 in SG and 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. 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 $500,000,000 that 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 correspond we believe the granular activated carbon business is our future growth engine. To this end, we were extremely pleased to attract a approximately $42,000,000 in new net equity investment during 2024.

Equally important, our overall market capitalization 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 $10,000,000 CFG term loan with a more cost effective and substantially larger $30,000,000 revolving asset back facility from MidCap Financial. By executing this refinancing, we've materially reduced our cost of [indiscernible] This refinancing was a key milestone we set for 2024. 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 twelve months ago. That being said, like any business, 2024 was not without its [indiscernible] 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 $60,000,000 to $70,000,000 However, Red River project CapEx for the year totaled $80,000,000 which reflects $10,000,000 above the high end of our most recent [indiscernible] 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. The $10,000,000 overage was primarily driven by three factors. First, approximately $4,000,000 to $5,000,000 was due to issues with estimated 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 $3,000,000 to $4,000,000 was driven by various smaller expenses incurred, while pulling the process forward and working to drive more timely completion.

Finally, roughly $2,000,000 was driven by higher than expected final invoices, including some that are disputed. I'd emphasize that a majority of these overages 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 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 one of our GAC 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 and remain confident that we will be able to bring a second phase at $3 per pound of annual production or $75,000,000 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 pack business in Q4, including average selling price growth of Net net, our foundational pack 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. Switching now to the construction 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 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 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. 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 Based on our latest expectations, this ramp up phase will take three to six months.

And we anticipate reaching nameplate capacity in the second half of twenty twenty five. 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 today and our ongoing focus on doing what we said we'd do, 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 second half of twenty twenty five, but we'll provide updates as appropriate as our timelines become more defined. Our goal of expanding production by [indiscernible] The timing of defining the Upskide production run rate will be determined once nameplate capacity is achieved. Turning now to an update on our granular activated carbon contracting performance. During our Q3 earnings call, I expressed comp While we remain fully capable of contracting all capacity, and are currently contracted at approximately 16,000,000 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 [indiscernible] 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. 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 Arq 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 Successful customer testing to date both in our labs and independently reinforces this belief. 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. Shifting focus to our Arq, a key area of investor attention has been the potential impact of regulatory change particularly following the PFAS related regulations implemented in April 24, under the Biden administration. Our discussions with customers suggest no concerns over a possible 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. 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 This development highlights two key trends. First, proactive supply security as water you 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 Demand remains strong and our disciplined approach to contracting positions us well to capitalize on these market dynamics. As we enter the year ahead, we do so with both a excitement and determination. This past year marked a transformational period for Arq as we successfully executed a full turnaround of our foundational Arq this 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 application 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. While our primary commercial focus this year is on activated carbon, I want to briefly highlight our asphalt project continues to make encouraging progress. [indiscernible] This opportunity excites us not only for its uncorrelated product diversity, but also for its potential for strong economic and operational efficiencies at our Corbin site. We are actively engaging with potential partners on the 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. Expand our product lineup, reduce costs, increase our ASP and drive efficiencies. 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 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 We hope to expand our relationships and coverage following even more over the coming quarters. With that, I'll hand it over to Stayshia 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 ARC Arq. Revenue grew 10% year over year to approximately 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% Arq, transforming our foundational pack business from a starting point of nearly one in every four contracts generating a loss to generating $7,700,000 in adjusted EBITDA in 2024. 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. Turning now to a discussion of the fourth quarter. Revenues totaled $27,000,000 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 quarter was 36.3% compared to 49.8% reported in the prior year period. We point out for the fourth quarter of twenty twenty three, our gross margin benefited from recognizing higher revenue related to our take or pay agreements of $4,700,000 versus $1,600,000 in the current quarter, as well as other one off items It is worth noting that the lower level of taker pay agreements in 2024 related to volume increases resulted in improved demand for our products.

Net loss was $1,300,000 in the fourth quarter of twenty twenty four compared to net income of $3,300,000 in Q4 of twenty twenty three. We generated positive adjusted EBITDA of compared to an adjusted EBITDA of $7,200,000 in the same period during 2023. Both these changes versus the prior year were primarily driven by the decrease as well as a reduction in our compensation expense that positively impacted the fourth quarter of twenty twenty three. As I mentioned earlier, average selling price for the quarter improved 14% period over period. As the beginning of 2025, we have eliminated all negative margin contracts contracts, which represented roughly 24% of volume as we entered into 2023 and approximately 13% as we entered 2024. Selling, general and administrative expenses totaled $6,000,000 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 and D was primarily driven by conducting product qualification testing with potential lead GAC adopters in the fourth quarter of twenty twenty three.

Overall and on an annualized basis, our 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 twenty twenty five 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 $22,200,000 of which approximately $13,500,000 is unrestricted.

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 twenty twenty four. An important milestone for several reasons. First, it allowed us to retire the costly $10,000,000 CFG term loan which had been on our balance sheet since the legacy ARC acquisition in 2023. A loan was secured against the majority of our assets. Assets we now value at over $500,000,000 More importantly, it carried an extremely high cost of capital with a limited capacity of $10,000,000 In contrast, the new MidCap facility boosts a $30,000,000 capacity at a stated rate of less than 9% annually. Effectively having our cost of capital while expanding our availability funding. As of 12/31/2024, we have drawn approximately $13,800,000 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 [indiscernible] 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 twenty twenty four and manage potential working capital needs in 2025.

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. Arq 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 and 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. 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 now our management of expenses moving forward and we have sufficient liquidity to manage it. 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 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.

I want to thank our employees, partners and shareholders 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. Are in a great and growing market and ARC remains uniquely positioned as the only public pure play activated carbon 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. Morning, Bob, Pastacia. Thanks for taking my call. No problem. Good morning, Jerry.

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? Absolutely. And let me talk a little bit about the commissioning process because that relates directly to the ramp up process. And Yes. No, that's okay. I knew what you meant. The 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 in to six functional zones. So zone one is essentially where we introduced the Arq wet cake at Corbin. Zone two is where we ensure that that feedstock is consistent With respect to moisture and certain other items, to ensure we have stable raw material properties. Zone three 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 four is the first of two high temperature heat treatment steps where the granule excuse me, are heated to remove remaining moisture Zone five 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 six where we screen an inventory of the final GAC product. 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. 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 been going up I think they're around $4.50. Dare I say potentially sustainable think there's a lot of demand for natural gas especially going into next year with LNG exports in the current administration etcetera. Is this changing the positively changing the landscape for pack sales as we look into 2025 forward? So, nat gas pricing, once nat gas gets above $3.54 we see switching on the part of utilities from nat gas to coal fired generation And we've seen that impacted in volumes part particularly in some of the initial months of 2025 so far. But while the 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 and those adjacent markets carry a higher margin As we talk about PATH being foundational, the PT and I segment is foundational for our PAC business. And it's nice to get those increased volumes and that is additive the results and what we had expected. Got it. Third question, I'll jump back in line. Great to see you talking about a line to obviously we had to get the commissioning process and going, but create the seed line to and even forward think I've shared my channel checks with you and the market is becoming increasingly undersupplied.

But can you discuss CapEx for 2025 and maybe the build out of Line two there's probably some moving Arq, timeline of building, cost, 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 to line two, I think there's some moving Arq, payment, and funding and etcetera. Just wanted to see if you could put any details around that.

No, sure. There's I think three or four questions I think the and I'll try and answer each of them. So CapEx that we expect for 2025 is kind of $8,000,000 to $12,000,000 in total. That includes maintenance CapEx as it relates to that. Obviously, that doesn't include anything for potential Phase II as it relates to that. Phase two, the visibility on that, I think a comment relates to [indiscernible] is that the demand we're contracting for Phase one is really only a small portion of our customers' total expected demand As our customers' needs grow and our customers do expect significant growth in their GAC requirements. So does interest in Phase two. 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 nameplate capacity we are able to produce. Is it 10%, 20%, 33%, And once we have a firm handle on that, plus a additional visibility as the months go on, we'll be in a better decision to make the FID on Phase [indiscernible] 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 we're producing from the turnaround of the pack business the cash flow that we'll generate from the GAC business, debt.

Absolutely. Thanks. [indiscernible] The next question is from George Genaricos from Canaccord Genuity. Please go ahead. Thank you for taking my questions. Happy to do it, George. Thank you.

Could you possibly share what Maybe in broad strokes, what the magnitude of the differential is between the pricing you're seeing [indiscernible] granular in water related markets and in other markets that's giving you the confidence that you want to sort of delay not necessarily delay but push out the contract signings that you're doing with the water utilities Just curious as to whether you could share what the economic differential is there that that you're waiting to do that?

Yes. No, absolutely. So one point I'd like to make is that we could contract all of our remaining capacity right now in the water market. That would, as some respects, derisk it from [indiscernible] strong business sense to defer that for other diversified just as I say, risk mitigation by 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 Arq 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 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 you're talking a 20% to 40% price differential by those other markets.

Thank you. And maybe similarly, what are the what's the magnitude of the difference that you're seeing between granular and pack. Today in the Arq. Thank you.

You. The best way is my off repeated Maxim that pricing and granular is a multiple and in some cases depending upon the Arq a significant multiple of the average pack pricing.

And then maybe final question just on your OpEx for 2024, you did a nice job of bringing that down How should we think about modeling that for this year?

There's I believe that we should operating costs and SG and 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 and A. I think there's further room to go on both and we'll have better view and handle on that as we begin full scale production of the GAC as it relates to that. But also, as Jerry mentioned in his question or that the additional volumes we're seeing from related to the PG and I segment due to the cold winter are also helping absorption, which will help margins as well.

Thank you. Thanks, George.

The next question is from Peter Gasterik from Water Research.

Thank you. Good morning and congratulations on your results and thanks for the presentation. I really appreciate the details especially on the CapEx [indiscernible] First of all, I just have a follow-up question, earlier question on CapEx. So I just wanted to confirm that if you do go forward with this additional capacity for Phase one, which 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 referred to as the 25,000,000 pounds nameplate capacity. So one, we think that is eminently achievable and two, I can confirm that that will not entail any additional CapEx to achieve those amounts.

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. But let me emphasize [indiscernible] again, it's the and talked about at $3 a pound at $75,000,000 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 25,000,000 pounds Okay. Okay. That's great. Thank you. 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 outages or take or pay and also regarding unplanned shutdowns, what would be a typical number of days Arc Arq 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 1,700 degrees, you need to make sure that seal works properly. 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 1,700 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 fairly long when you have something to do with the boiler and repair. In terms of the results, if you look at it, we had approximately $4,700,000 in Q3 Q4 twenty twenty three and take or pay contracts plus some accounting accrual reversals on expenses that favorably impacted those results in 2023.

In 2024, we had, if you look at it, we had the 14% increase in our average selling price And if you take out the $4,700,000 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 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 Okay, great. Thank you very much. I'll just sneak in one more question here and get Are there any tariff implications for The U. S. Activated carbon market? I understand that your supply chain is fully integrated in domestic, but just curious if there are broader implications for the And if so, how would that impact Arq?

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. So there's the potential for cost going up to the industry due to our competitors, but our cost due to being fully domestic will not be rising. So it's an add to the opportunity for margin enhancement for us.

Great.

Thank you very much.

Thank you, Peter.

The next question is from Tim Moore from Clear Street.

Thanks and congratulations with the progress in the turnaround. My first question is on GAC utilization, Bob. You mentioned I'd think you said $60,000,000 contracted, so that's about 80% of the £75,000,000 it fair to assume that you could probably get 80% utilization in the June or do you think it will be a bit slower than that?

So, the couple of things I just want to clarify £25,000,000 I think you may have spent said £70,000,000 and this may have been conflating the $75,000,000 cost target to produce those. Yes, no problem. I just wanted to clarify on that.

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 [indiscernible] sometime by the middle of the second half. We'd hope to be able bring that forward on that and we'll be working diligently to be able to do that.

Okay. Fair enough. Yes. So I was just thinking should we assume that the contracted amount you mentioned today could be the June revenue Amount?

Well, so yes, 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. Your next question, I think, is probably important for investors to know. Until you do a line two, 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. And if that's the case, you'll be getting PAC sales plus GAC sales, which could be up to who knows the blended price point almost double Is that how we should be thinking about everything? No cannibalization for the Absolutely. There's the GAC per 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 full cost absorption at Red River as well.

That's terrific. And I think investors 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 what's the growth driver late next year and the following year and they're going to start asking about Line two. I know you haven't committed to that yet, but seems like it's a high probability. So the question I have is, you mentioned a commentary on that, starting some of those conversations Theoretically, you want to make sure Line one is working well, optimize it, get that all squared away, quality execution. When would you expect to get comfort around maybe December, January? 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 then as I say, conversations with our existing customers, it's that we've already contracted. There's 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. 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 emotion as we complete those testings and that has occurred 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.

That's great, Bob. Yes, no, that's definitely a kicker. Your highest margin market that has fall. Well, thanks a lot. That's it for my questions.

Thank you.

There are no further questions at this time. I would like 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 ARC. As I've 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 twenty twenty four financial results. As I mentioned, I also feel there's still room to further optimize the path business going forward. In addition, we are imminently poised to be 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.

Conference. You may disconnect your lines at this time. Thank you for your participation.