Mar 12, 2024 5:05 PM
Q4 2023 revenues from foundational Powder Activated Carbon business increase 20% YoY while gross margin improves to 50%, generating Adjusted EBITDA of
Financial Highlights
(1) Adjusted EBITDA is a non-GAAP financial measure. Please refer to the paragraph titled “Non-GAAP Measures” for the definitions of non-GAAP financial measures.
Recent Business Highlights
"We capped off 2023 with strong momentum and are very pleased with the steps we have taken and continue to take to further improve our foundational PAC business," said
Rasmus continued, "We continue to make good progress in executing our high-return strategic growth projects focused on the robust and growing GAC market. The primary focus is completing the optimization at our Corbin facility to produce cost-effective feedstock for
Rasmus added, "While the timing to complete our Red River Phase 1 facility expansion remains on track, the cost to complete the expansion has increased versus our original forecast. The increase was driven by higher construction costs, increased equipment costs and engineering fees, completion schedule acceleration, and inaccurate estimate inputs provided by third party consultants. Despite this increase, we remain in a position to fund the project from cash on hand, cash generation, ongoing cost reduction initiatives, potential customer prepayments for GAC contracts, and a planned refinancing and potential expansion of our term loan - and importantly, we have no plans to issue equity. Despite the cost increases, the project's investment economics remain attractive, as we expect we will achieve investment payback in 3 years or less, while generating long-term stakeholder value."
Fourth Quarter 2023 Results
Revenues totaled
Cost of revenues totaled
Gross margin was 49.8% for the fourth quarter of 2023, compared to 25.4% in the prior year period. The increase in gross margin during the quarter was driven by continued focus on profitability over volume, cost management, positive changes in product mix, and take-or-pay revenue.
Other operating expenses totaled
Operating income was
Interest expense was
Income tax expenses were
Net income was
Adjusted EBITDA was
See note below regarding the use of the Non-GAAP financial measure Adjusted EBITDA and a reconciliation to the most comparable GAAP financial measure.
Capex & Balance Sheet
Capital expenditures totaled
Cash as of
Total debt, inclusive of financing leases, as of
Red River Update & 2024 Capex Forecast
Capital expenditures for full year 2024 are expected to total
The latest capital expenditures forecast for Red River Phase 1 reflects a midpoint increase of approximately 36% versus the Company's previous forecast provided in
Of this increase, approximately 45% is due to more accurately accounting for inflation in construction costs, and the impact of shifting to a 6-day accelerated workweek. Approximately 45% is due to increased equipment costs, associated with design changes that will drive greater efficiency and volumes, and correcting for inaccurate estimate inputs previously provided by third party consultants. The remaining approximately 10% is due to various items including engineering fees.
Despite the increase for the
Capital expenditures for full year 2024 are expected to be funded with cash on hand, cash generation, ongoing cost reduction initiatives, potential customer prepayments for GAC contracts, and a planned refinancing and potential expansion of our term loan.
Full Year 2023 Results
Revenues totaled
Cost of revenues totaled
Gross margin was 32.1% for full year 2023, compared to 21.9% in the prior year. The increase was driven by higher average selling prices, positive changes in product mix, and take-or-pay revenue, partially offset by lower volumes.
Other operating expenses were
Operating loss totaled
Interest expense was
Income tax expenses were
Net loss was
Adjusted EBITDA loss was
Conference Call and Webcast Information
Arq has scheduled a conference call to begin at
Individuals wishing to join the call may dial (877) 407-0890 (Domestic) or +1 (201) 389-0918 (International) or may join by webcast at https://www.webcast-eqs.com/arq031324.
A telephonic replay of the call will be available by dialing (877) 660-6853 (Domestic) or +1 (201) 612-7415 (International) and providing the access ID 13744701. The replay will be available until
About Arq
Arq (NASDAQ: ARQ) is a diversified, environmental technology company with products that enable a cleaner and safer planet while actively reducing our environmental impact. As the only vertically integrated producer of activated carbon products in
Caution on Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a “safe harbor” for such statements in certain circumstances. When used in this press release, the words “can,” “will,” "may," “intends,” “expects,” "continuing," “believes,” similar expressions and any other statements that are not historical facts are intended to identify those assertions as forward-looking statements. All statements that address activities, events or developments that the Company intends, expects or believes may occur in the future are forward-looking statements. These forward-looking statements include, but are not limited to, statements or expectations regarding: business strategy, expectations about future demand and pricing for our PAC and GAC products and our ability to enter into new markets, the ability to successfully integrate legacy Arq's business and effectively utilize legacy Arq's products and technology, the estimated costs and timing associated with potential capital improvements at our facilities, financing sources for such projects and potential production outputs thereafter, expected market supply of GAC products and the cost savings and environmental benefits of our GAC products, and the timing and scope of future regulatory developments and the related impact of such on the demand for our products. These forward-looking statements involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, the Company’s ability to maintain relationships with customers, suppliers and others with whom it does business and meet supply requirements, or its results of operations and business generally; risks related to diverting management’s attention from the Company’s ongoing business operations; changes in construction costs or availability of construction materials; our inability to effectively manage construction and startup of the Red River GAC Facility or Corbin Facility; our inability to ramp up our operations to effectively address recent and expected growth in our business; the timing and cost of capital expenditures and the resultant impact to our liquidity and cash flows; our inability to obtain required financing or obtain financing on terms that are favorable to us; the ability to meet Nasdaq’s listing standards following the consummation of the Transaction; opportunities for additional sales of our activated carbon products and end-market diversification; the Company’s ability to meet customer supply requirements; the rate of coal-fired power generation in
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Consolidated Balance Sheets
| As of | ||||||||
| (in thousands, except share data) | 2023 | 2022 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 45,361 | $ | 66,432 | ||||
| Receivables, net | 16,192 | 13,864 | ||||||
| Inventories, net | 19,693 | 17,828 | ||||||
| Prepaid expenses and other current assets | 5,215 | 7,538 | ||||||
| Total current assets | 86,461 | 105,662 | ||||||
| Restricted cash, long-term | 8,792 | 10,000 | ||||||
| Property, plant and equipment, net of accumulated depreciation of | 94,649 | 34,855 | ||||||
| Other long-term assets, net | 45,600 | 30,647 | ||||||
| Total Assets | $ | 235,502 | $ | 181,164 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 14,603 | $ | 16,108 | ||||
| Current portion of long-term debt | 2,653 | 1,131 | ||||||
| Other current liabilities | 5,792 | 6,645 | ||||||
| Total current liabilities | 23,048 | 23,884 | ||||||
| Long-term debt, net of current portion | 18,274 | 3,450 | ||||||
| Other long-term liabilities | 15,780 | 13,851 | ||||||
| Total Liabilities | 57,102 | 41,185 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock: par value of | — | — | ||||||
| Common stock: par value of | 38 | 24 | ||||||
| (47,692 | ) | (47,692 | ) | |||||
| Additional paid-in capital | 154,511 | 103,698 | ||||||
| Retained earnings | 71,543 | 83,949 | ||||||
| Total stockholders’ equity | 178,400 | 139,979 | ||||||
| Total Liabilities and Stockholders’ equity | $ | 235,502 | $ | 181,164 | ||||
Consolidated Statements of Operations
| Three Months Ended | Years Ended | |||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| (unaudited) | ||||||||||||||||
| Revenue: | ||||||||||||||||
| Consumables | $ | 28,104 | $ | 23,409 | $ | 99,183 | $ | 102,987 | ||||||||
| Total revenue | 28,104 | 23,409 | 99,183 | 102,987 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Consumables cost of revenue, exclusive of depreciation and amortization | 14,105 | 17,473 | 67,323 | 80,465 | ||||||||||||
| Payroll and benefits | 2,672 | 3,082 | 15,154 | 10,540 | ||||||||||||
| Legal and professional fees | 1,528 | 2,060 | 9,588 | 9,455 | ||||||||||||
| General and administrative | 3,464 | 2,483 | 12,641 | 8,145 | ||||||||||||
| Depreciation, amortization, depletion and accretion | 3,267 | 1,651 | 10,543 | 6,416 | ||||||||||||
| Gain on sale of | — | — | (2,695 | ) | — | |||||||||||
| Other | (36 | ) | 34 | (36 | ) | 34 | ||||||||||
| Total operating expenses | 25,000 | 26,783 | 112,518 | 115,055 | ||||||||||||
| Operating income (loss) | 3,104 | (3,374 | ) | (13,335 | ) | (12,068 | ) | |||||||||
| Other income, net: | ||||||||||||||||
| Earnings from equity method investments | 111 | 319 | 1,623 | 3,541 | ||||||||||||
| Interest expense | (859 | ) | (77 | ) | (3,014 | ) | (336 | ) | ||||||||
| Other | 1,120 | 174 | 2,630 | 155 | ||||||||||||
| Total other income, net | 372 | 416 | 1,239 | 3,360 | ||||||||||||
| Gain (loss) before income tax expense | 3,476 | (2,958 | ) | (12,096 | ) | (8,708 | ) | |||||||||
| Income tax expense | 186 | 209 | 153 | 209 | ||||||||||||
| Net income (loss) | $ | 3,290 | $ | (3,167 | ) | $ | (12,249 | ) | $ | (8,917 | ) | |||||
| Income (loss) per common share: | ||||||||||||||||
| Basic | $ | 0.10 | $ | (0.17 | ) | $ | (0.42 | ) | $ | (0.48 | ) | |||||
| Diluted | $ | 0.10 | $ | (0.17 | ) | $ | (0.42 | ) | $ | (0.48 | ) | |||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||
| Basic | 32,367 | 18,506 | 29,104 | 18,453 | ||||||||||||
| Diluted | 32,952 | 18,506 | 29,104 | 18,453 | ||||||||||||
Consolidated Statements of Cash Flows
| Years Ended | ||||||||
| (in thousands) | 2023 | 2022 | ||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (12,249 | ) | $ | (8,917 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation, amortization, depletion and accretion | 10,543 | 6,416 | ||||||
| Operating lease expense | 2,757 | 2,709 | ||||||
| Gain on sale of | (2,695 | ) | — | |||||
| Stock-based compensation expense | 2,648 | 1,981 | ||||||
| Earnings from equity method investments | (1,623 | ) | (3,541 | ) | ||||
| Amortization of debt discount and debt issuance costs | 546 | — | ||||||
| Other non-cash items, net | (111 | ) | 530 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables and related party receivables | (2,264 | ) | 1,169 | |||||
| Prepaid expenses and other current assets | 4,777 | (876 | ) | |||||
| Inventories, net | (2,571 | ) | (9,686 | ) | ||||
| Other long-term assets, net | (4,762 | ) | 245 | |||||
| Accounts payable and accrued expenses | (12,061 | ) | (911 | ) | ||||
| Other current liabilities | (184 | ) | 1,008 | |||||
| Operating lease liabilities | (168 | ) | 1,521 | |||||
| Other long-term liabilities | 764 | (6 | ) | |||||
| Distributions from equity method investees, return on investment | — | 2,297 | ||||||
| Net cash used in operating activities | (16,653 | ) | (6,061 | ) | ||||
| Cash flows from investing activities | ||||||||
| Acquisition of property, equipment and intangible assets, net | (27,516 | ) | (8,914 | ) | ||||
| Mine development costs | (2,690 | ) | (583 | ) | ||||
| Cash and restricted cash acquired in acquisition of business | 2,225 | — | ||||||
| Payment for disposal of | (2,177 | ) | — | |||||
| Distributions from equity method investees in excess of cumulative earnings | 1,623 | 3,636 | ||||||
| Proceeds from sale of property and equipment | — | 1,253 | ||||||
| Net cash used in investing activities | $ | (28,535 | ) | $ | (4,608 | ) | ||
| Cash flows from financing activities | ||||||||
| Net proceeds from common stock issuance | $ | 15,220 | $ | — | ||||
| Net proceeds from CFG Loan, related party, net of discount and issuance costs | 8,522 | — | ||||||
| Principal payments on finance lease obligations | (1,130 | ) | (1,246 | ) | ||||
| Net proceeds from common stock issuance, related party | 1,000 | — | ||||||
| Principal payments on Arq Loan | (473 | ) | — | |||||
| Repurchase of shares to satisfy tax withholdings | (230 | ) | (388 | ) | ||||
| Dividends paid | — | (45 | ) | |||||
| Net cash provided by (used in) financing activities | 22,909 | (1,679 | ) | |||||
| Decrease in Cash and Restricted Cash | (22,279 | ) | (12,348 | ) | ||||
| Cash and Restricted Cash, beginning of year | 76,432 | 88,780 | ||||||
| Cash and Restricted Cash, end of year | $ | 54,153 | $ | 76,432 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 1,727 | $ | 334 | ||||
| Cash (received) paid for income taxes | $ | (1,697 | ) | $ | 3 | |||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Equity issued as consideration for acquisition of business | $ | 31,206 | $ | — | ||||
| Change in accrued purchases for property and equipment | $ | 914 | $ | 532 | ||||
| Paid-in-kind dividend on Series A Preferred Stock | $ | 157 | $ | — | ||||
| Acquisition of property and equipment under finance lease | $ | — | $ | 1,641 | ||||
Non-GAAP Financial Measures
This press release presents certain supplemental financial measures, including EBITDA and Adjusted EBITDA, which are measurements that are not calculated in accordance with
The Company believes that the EBITDA and Adjusted EBITDA measures are less susceptible to variances that affect the Company's operating performance. The Company includes these non-GAAP measures because management uses them in the evaluation of the Company's operating performance and believes they help to facilitate comparison of operating results between periods. The Company believes the non-GAAP measures provide useful information to both management and users of the financial statements by excluding certain expenses, gains, and losses which can vary widely across different industries or among companies within the same industry and may not be indicative of core operating results and business outlook.
Reconciliation of Net (loss) income to EBITDA (EBITDA Loss) and Adjusted EBITDA (EBITDA Loss)
| Three Months Ended | Years Ended | |||||||||||||||||||
| (in thousands) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| Net (loss) income | $ | (2,175 | ) | $ | 3,290 | $ | (3,167 | ) | $ | (12,249 | ) | $ | (8,917 | ) | ||||||
| Depreciation, amortization, depletion and accretion | 2,711 | 3,267 | 1,651 | 10,543 | 6,416 | |||||||||||||||
| Amortization of Upfront Customer Consideration | 127 | 127 | 127 | 508 | 508 | |||||||||||||||
| Interest expense (income), net | 224 | 346 | (66 | ) | 1,168 | 97 | ||||||||||||||
| Income tax expense | — | 186 | 209 | 153 | 209 | |||||||||||||||
| EBITDA (EBITDA Loss) | 887 | 7,216 | (1,246 | ) | 123 | (1,687 | ) | |||||||||||||
| Cash distributions from equity method investees | 412 | 111 | 320 | 1,623 | 5,933 | |||||||||||||||
| Equity earnings | (412 | ) | (111 | ) | (319 | ) | (1,623 | ) | (3,541 | ) | ||||||||||
| Gain on sale of | — | — | — | (2,695 | ) | — | ||||||||||||||
| (Gain) loss on change in estimate, asset retirement obligation | — | (37 | ) | — | (37 | ) | 34 | |||||||||||||
| Loss on early settlement of an account receivable | — | — | — | — | 535 | |||||||||||||||
| Adjusted EBITDA (EBITDA loss) | $ | 887 | $ | 7,179 | $ | (1,245 | ) | $ | (2,609 | ) | $ | 1,274 | ||||||||
