10-Q: Arq, Inc. Q1 2026 Results: Revenue Up, Net Loss Widens

Arq, Inc. reported a 7% revenue increase for Q1 2026, driven by higher demand for activated carbon products, but also a wider net loss due to increased operating expenses and a pause in GAC production.

Summary

• Arq, Inc. reported revenue of $29.05 million for the three months ended March 31, 2026, a 7% increase from $27.25 million in the same period of 2025.
• The company experienced a net loss of $0.84 million for the quarter, compared to a net income of $0.20 million in the prior year's quarter.
• Cost of revenue increased by 10% to $19.11 million, impacting gross margins.
• Selling, general, and administrative expenses rose by 22% to $7.37 million, largely due to increased legal, professional, and general administrative costs.
• The company has paused Granular Activated Carbon (GAC) production due to design flaws and is undertaking an optimization review, expecting no GAC production in fiscal year 2026.
• Cash flow from operations improved significantly to $0.06 million from a negative $5.80 million in the prior year's quarter.
• The company's liquidity is expected to be sufficient for the next 12 months, supported by cash on hand and revolving credit facility availability.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative sentiment due to the widening net loss, increased operating expenses, and significant operational disruptions like the pause in GAC production, despite revenue growth.

Positives

• Revenue increased by 7% to $29.05 million for the quarter, driven by higher sales volumes of activated carbon (AC) products and increased sales of other chemical products.
• Demand for products from coal-fired power generation customers increased due to higher natural gas prices and seasonal temperature variations.
• Cash flow from operating activities improved substantially, turning positive at $0.06 million from a negative $5.80 million in the prior year.
• The company expects revenue to continue to be positively impacted by demand for its Powdered Activated Carbon (PAC) products.
• Gross margin is expected to improve as the impact of fixed production costs related to GAC products lessens due to the pause in production.

Negatives

• The company reported a net loss of $0.84 million for the quarter, a significant decrease from a net income of $0.20 million in the prior year.
• Cost of revenue increased by 10% to $19.11 million, outpacing revenue growth and negatively impacting gross margin.
• Selling, general, and administrative expenses increased by 22% to $7.37 million, driven by higher legal, professional, and general administrative costs.
• The company has paused GAC production due to design flaws and expects no GAC production in fiscal year 2026.
• Inventories increased by $4.02 million to $19.91 million, indicating potential build-up or preparation for future production.
• Cash used in investing activities decreased by $2.84 million, primarily due to a significant reduction in capital expenditures for plant expansion.

Risks

• Design flaws in the GAC Facility and variability of Corbin Wetcake feedstock have led to a pause in GAC production and an ongoing optimization review.
• Litigation remains ongoing with the engineering firm engaged for the design of the GAC facility.
• The company's reliance on coal-fired power generation customers makes it susceptible to fluctuations in natural gas prices and environmental regulations affecting coal usage.
• The company is subject to surety bonds totaling $11.2 million for mine reclamation and performance requirements, with restricted cash of $9.2 million pledged as collateral.
• The Tax Asset Protection Plan (TAPP) is designed to deter ownership changes but has an expiration date of December 31, 2027, or December 31, 2026, if stockholder approval is not obtained.
• The company's ability to utilize net operating losses and tax credits could be substantially limited if an 'ownership change' occurs.

Future Outlook

The company expects revenue to continue to be positively impacted by demand for its PAC products. As GAC production is paused, gross margin is expected to improve as fixed production costs related to GAC lessen. An engineering and production process optimization review is underway for GAC products, which is expected to improve operational efficiency and product mix. The company anticipates that its cash on hand and borrowing availability under the Revolving Credit Facility will provide sufficient liquidity for operations over the next 12 months. Capital expenditures for the remainder of 2026 are expected to relate to regularly scheduled plant maintenance and improvements.

Management Comments

• We experienced an increase in demand for our products from certain coal-fired dispatch and electricity power generation customers compared to the same period in 2025.
• We expect that natural gas prices will remain relatively consistent through 2026 at an elevated level due to increased demand for liquid natural gas exports, and conflict in the Middle East impacting supply, partially offset by increases in anticipated natural gas inventory levels.
• We now expect to transition away from using Corbin Wetcake for the production of our GAC products to a bituminous proven performance coal feedstock, which we believe can more effectively overcome design constraints.
• We intend to secure customer interest in Corbin Wetcake as an additive into other markets, such as a component for asphalt, or for use in the purified coal and synthetic graphite industries.
• We continue to believe that Corbin Wetcake has the potential to enable us to access new markets and applications.

Industry Context

StockSavvy.ai notes that Arq, Inc.'s performance is closely tied to the energy sector, particularly coal-fired power generation, and is influenced by natural gas prices and environmental regulations. The company's focus on activated carbon for contaminant removal positions it within the growing environmental technology market, addressing concerns around mercury, PFAS, and other pollutants.

Legal Proceedings

• The company has commenced legal proceedings against the firm engaged for the design of the GAC facility at the Red River Plant, alleging negligence and breach of contract, seeking to recover damages.
• The design firm has filed a counterclaim to recover certain fees associated with services provided.

Stakeholder Impact

• Shareholders may be impacted by the net loss and the operational challenges affecting future profitability.
• Employees may be affected by severance expenses related to employees terminated at the Corbin Facility.
• Customers in the power generation market benefit from increased product demand due to higher natural gas prices.
• Suppliers may be impacted by changes in production volumes and feedstock requirements.

Next Steps

• Complete the engineering and production process optimization review for GAC products.
• Evaluate potential GAC Facility design modifications and production economics.
• Secure customer interest in Corbin Wetcake for new market applications.
• Explore uses for rare earth minerals and critical elements isolated during Corbin Facility manufacturing.
• Continue with regularly scheduled plant maintenance and improvements for the remainder of 2026.

Key Dates

Recommendation

While revenue has increased, the company reported a net loss, increased operating expenses, and significant operational disruptions with the pause in GAC production and ongoing litigation. The future outlook depends heavily on the successful resolution of GAC production issues and the optimization review. The company's liquidity appears sufficient for the near term, but the path to profitability is uncertain. Therefore, a 'hold' recommendation is appropriate pending further clarity on operational improvements and financial performance.

Keywords

Arq Inc, Activated Carbon, PAC, GAC, Environmental Technology, Air Purification, Water Treatment, PFAS, Mercury Removal, Form 10-Q, Quarterly Report, Financial Results