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Item 7. Management’s Discussion and Analysis

2026-03-10 compared with 2025-03-05 · 159 added, 130 removed, 200 unchanged (59% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are an environmental technology company and are principally engaged in the sale of consumable air, water, and soil treatment solutions primarily based on AC.

Our proprietary AC products enable customers to reduce air, soil, and water contaminants, including mercury, PFAS and other pollutants to meet the challenges of existing and pending air quality, soil, and water regulations.

We manufacture and sell AC and other chemicals used to capture and remove impurities, contaminants and pollutants for the coal-fired power generation, industrial, water treatment, and water and soil remediation markets, which we collectively refer to as the APT market.

The following discussion and analysis of our financial condition and results of our operations should be read together with the audited Condensed Consolidated Financial Statements and notes of Arq, Inc.

included in Item 1 of Part II, Item 8 of this Form 10-K.

The results of operations discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are those of Arq, Inc.

and its consolidated subsidiaries, collectively, the "Company," "we," "our" or "us."

We are an environmental technology company that is principally engaged in the sale of consumable air, water and soil treatment solutions primarily based on activated carbon ("AC").

Our proprietary AC products enable customers to reduce air, water, and soil contaminants, including mercury, per- and polyfluoroalkyl substances ("PFAS") and other pollutants, to meet the challenges of existing and pending air quality and water regulations.

We manufacture and sell AC and other chemicals used to capture and remove impurities, contaminants, and pollutants for the coal-fired power generation, industrial, water treatment, and water and soil remediation markets, which we collectively refer to as the advanced purification technologies ("APT") market.

Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials.

Our AC products include both PAC and GAC, among others.

Additionally, we own the Five Forks Mine, a lignite coal mine that currently supplies the primary raw material for the manufacturing of our products.

In February 2023, we acquired 100% of the equity interests, assets and liabilities of the subsidiaries of Arq Limited, an environmental technology company incorporated under the laws of Jersey (hereafter the Arq Limited subsidiaries referred to as "Legacy Arq", and the acquisition itself referred to as the "Arq Acquisition") to secure access to additional U.S.

based bituminous coal feedstock, a manufacturing facility located in Corbin, Kentucky (the "Corbin Facility") and certain patented processes as a means to manufacture new advanced GAC products for sale into the APT and other markets.

Under this manufacturing process, we convert high-quality recovered bituminous coal fines into a purified, microfine carbon powder known as Arq powder TM ("Arq Powder") for high value applications, such as for a raw material to produce GAC products.

We expect to begin using Arq Powder as a feedstock to produce high-quality GAC products by the end of the first quarter of 2025 for sale into the APT and other markets.

We anticipate that our GAC products made using these highly purified recovered bituminous coal fines will have a materially lower carbon footprint than other coal-based competitor alternatives.

We believe Arq Powder has additional potential to enable us to access new markets and applications.

We intend to secure customer interest in Arq Powder as an additive into other markets, such as components for asphalt.

These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials and have demonstrated other beneficial performance attributes during lab-scale customer testing.

Our AC products include both powdered activated carbon ("PAC") and granular activated carbon ("GAC").

Additionally, we own a lignite mine located in Saline, Louisiana (the "Five Forks Mine") that currently supplies the primary raw material for the manufacturing of the majority of our products.

We also control bituminous coal waste reserves and own a manufacturing facility, both located in Corbin, Kentucky (the "Corbin Facility"), and a process to recover and purify the bituminous coal fines.

Using the Corbin Facility's manufacturing process, we convert coal waste into a purified, microfine carbon powder for high value applications ("Corbin Wetcake").

On August 6, 2025, we announced that we had successfully commissioned our Red River Plant’s GAC Facility (the "GAC Facility") and produced our first commercial volumes of on-specification GAC product.

However, after initial production runs, in December 2025, it became clear that ramp-up to nameplate capacity could not be accomplished without further modifications to the existing systems because of design flaws in our GAC Facility, on a standalone basis as well as in combination with the inherent variability of Corbin Wetcake, which we planned to use to manufacture our GAC products.

As a result, we have paused GAC production, idled the Corbin Facility as a cost saving measure, and have launched an engineering and production process optimization review, which will include an evaluation of potential GAC Facility design modifications and production economics at different scales.

Additionally, 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.

Management's Discussion and Analysis of Financial Condition and Results of Operations – Drivers of Demand and Key Factors Affecting Profitability" for further information.

As a result of the adverse impacts noted above related to the Corbin Facility and GAC production and as part of our periodic review of the carrying values of our long-lived assets, we performed an impairment analysis of the Corbin Facility long-lived assets (the "Corbin Asset Group") as of December 31, 2025.

We determined that the estimated undiscounted cash flows for the Corbin Asset Group were less than its carrying value, and the Corbin Asset Group was impaired.

The Company further determined that the GAC Facility assets were not impaired as the estimated undiscounted cash flows associated with the assets exceeded their carrying value.

Accordingly, we completed a valuation of the Corbin Asset Group with the assistance of an independent third party to estimate its fair value.

We estimated the fair value of the Corbin Asset Group at $10.9 million and recorded an impairment charge (the "Corbin Impairment Charge") and corresponding write-down of the Corbin Asset Group in the amount of $38.1 million.

Included in this amount is also $0.3 million of Corbin Wetcake inventory that was written-off as of December 31, 2025.

In addition, the Company concluded that the intangible asset, developed technology, which comprised a number of patents and other intellectual property attributable to the proprietary manufacturing process for Corbin Wetcake, was also impaired and that its estimated fair value as of December 31, 2025 was zero.

Accordingly, the Company recorded an impairment charge and a corresponding write-down of the developed technology in the amount of $6.6 million as of December 31, 2025.

We believe that Corbin Wetcake has the potential to enable us to access new markets and applications.

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.

In addition, we are exploring uses for certain rare earth minerals and critical elements that can be isolated during the manufacturing process at our Corbin Facility for use in a variety of applications.

These applications are currently in various stages of proof of concept testing or preliminary customer testing.

In February 2024, as part of a larger rebranding, the Company changed its name to Arq, Inc., and on February 1, 2024, our common stock commenced trading on the Nasdaq Global Market under the ticker symbol, "ARQ."

Drivers of Demand and Key Factors Affecting Profitability

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(5) changes in environmental regulations;

and (6) state or municipal approval and customer acceptance for our new GAC products.

and (6) state or municipal approval and customer acceptance of our new GAC products once production recommences.

GAC Engineering and Production Process Optimization Review

As previously disclosed, on August 6, 2025, we announced that we had successfully commissioned our GAC Facility and produced our first commercial volumes of on-specification GAC product.

This decision follows independent testing results received in January 2026 demonstrating that our current thermal oxidizer can only support approximately 15 million pounds of annual GAC production, but will require additional modifications to achieve our original design capacity of 25 million pounds or higher.

Our analysis indicates that a 15 million pound per year scenario on a stand-alone basis does not provide sufficient returns to make it economically attractive.

The optimization review is expected to determine production scale, capital requirements, and return profiles before we commit to additional investment in our GAC Facility.

These constraints emerged as we prepared to transition from our Corbin Wetcake to bituminous proven performance coal, a solution which is expected to address previously announced design and feedstock variability challenges at our GAC Facility.

The current issues that we are experiencing with our thermal oxidizer and their impact on the capacity of our GAC Facility stem from the previously disclosed design flaws by the firm originally engaged to design our GAC Facility, with whom litigation remains ongoing.

Due to the issues described above, we do not expect material GAC revenue in fiscal year 2026.

Components of Revenue, Expenses and Equity Method Investees

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The Tinuum Group Royalty is included in Consumables cost of revenue.

The Tinuum Group Royalty Agreement expires at the end of 2027, with an option to extend.

Other Operating Expenses

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Other (Expense) Income, net

Earnings from equity method investments

Earnings from equity method investments represent our share of earnings related to equity method investments, and in 2023 and 2024, primarily from Tinuum Group.

Through December 31, 2021, we had substantial earnings from Tinuum Group and Tinuum Services, LLC ("Tinuum Services").

With the expiration of the tax credit program under IRC Section 45 afforded to producers of refined coal as of December 31, 2021, both Tinuum Group and Tinuum Services commenced winding down their operations related to the Section 45 tax credit program.

We have recognized earnings in both 2023 and 2024 related to residual cash distributions received from Tinuum Group.

Tinuum Services ceased operations and completed its wind down in 2024.

Earnings from equity method investment

Earnings from equity method investment represents our share of earnings related to equity method investments, and in 2024 and 2025, primarily from Tinuum Group.

Through December 31, 2021, we had substantial earnings from Tinuum Group.

With the expiration of the tax credit program under IRC Section 45 afforded to producers of refined coal as of December 31, 2021, Tinuum Group commenced winding down their operations related to the Section 45 tax credit program.

Additionally, under an agreement executed in December 2022 amongst certain owners of Tinuum Group, we became party to a distribution and repayment agreement (the "Repayment Agreement").

Under the terms of the Repayment Agreement, we became contractually liable for up to $1.7 million of a contingent liability of Tinuum Group (the "Tinuum Group Obligation") and recorded a liability of $1.7 million which is presented in the "Other current liabilities" line item in the Consolidated Balance Sheet as of December 31, 2024.

In December 2025, we were released from our obligation under the Repayment Agreement, largely based on the expiration of the contingency, and the Tinuum Group Obligation was discharged in full.

We recognized a gain related to the release of the liability, which is presented in the "Earnings from equity method investment" line item for the year ended December 31, 2025.

Other (expense) income

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Revenue and cost of revenue

For the years ended December 31, 2024 and 2023, revenue increased year over year primarily driven by the impact of favorable product mix of approximately $6.9 million and improved pricing for our products of approximately $4.9 million.

These increases were partially offset by lower volumes sold, which negatively impacted revenue by $2.2 million.

Product volumes decreased among power generation customers in 2024, primarily due to lower natural gas prices compared to 2023, which contributed to decreased utilization of coal-fired generation and decreased demand for our products.

Also offsetting the overall increase was a decrease in revenue recognized from the settlement of certain contracts with customers containing minimum quantity purchases ("MQ Contracts").

Consumables gross margin, exclusive of depreciation and amortization, increased for the year ended December 31, 2024 compared to 2023.

The increase in gross margin was primarily driven by an increase in revenue resulting from increased pricing of our products, while the cost to manufacture our products increased between periods, partially due to increased variable production costs on lower production volumes during 2024.

Our consumables gross margin was negatively impacted by a decrease in volumes sold and lower revenue recognized from MQ Contracts in 2024 compared to 2023.

We currently expect consumables revenue to increase in the coming years as a result of increased regulatory requirements finalized by the EPA in April 2024, especially with respect to PFAS substances.

However, there is substantial uncertainty regarding the future of these regulations in light of the change in the U.S.

presidential administration.

See "Legislation and Environmental Regulations" included in Item 1 and our risk factor discussion in Item 1A of this Report for further information.

Consumables revenue continues to be affected by electricity demand, driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas and renewables.

For the years ended December 31, 2025 and 2024, revenue increased year over year due to record activated carbon revenue.

This increase was driven by both higher volumes sold and improved pricing for our products, which led to increases in revenue of $5.5 million and $5.4 million, respectively.

Additionally, our revenue for the year ended December 31, 2025 benefited from favorable product mix, which contributed $0.5 million of the increase in revenue.

The increase in product volumes was driven by sales to power generation customers during 2025, primarily due to higher natural gas prices compared to 2024 and overall increases in power demand.

Gross margin, exclusive of depreciation and amortization, decreased for the year ended December 31, 2025 compared to 2024, primarily driven by increases to cost of revenue, exclusive of depreciation and amortization due to fixed production costs associated with the GAC and Corbin Facilities and amounts recognized upon completion of the GAC Facility, as described above.

The increase in fixed production costs were primarily a result of lower initial commercial phase GAC production volumes compared to higher fixed production costs at our Red River Plant and Corbin Facility, and the majority of the expenses were composed of direct labor, utilities, and equipment rental costs following the commencement of commercial operation of the GAC Facility.

During 2025, 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 2024.

This was primarily due to higher natural gas prices in 2025, resulting in several large utility customers opting to use coal instead of natural gas as a primary source for power generation, and the year to date impact of moderate to severe temperatures during the winter and summer seasons, which resulted in higher demand for power generation compared to 2024.

Additionally, demand for power generation has and continues to grow driven by macroeconomic trends, such as increased consumption related to data and computer centers, electric vehicles, and other large scale power consumers.

On April 10, 2024, the United States Environmental Protection Agency ("EPA") issued its first nationally enforceable PFAS National Primary Drinking Water Regulation, confirming a material tightening to an existing framework of guidance and regulations relating to the control and limitation of PFAS in municipal water.

The regulatory changes were anticipated to phase in over an approximate five-year period;

however, the EPA has indicated that it will potentially extend the compliance date from 2029 to 2031.

We expect the implementation of the announced regulations will drive a material increase in GAC demand in the water purification market.

Operating Expenses

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Depreciation, amortization, depletion and accretion 11,747 8,594 3,153 37 %

Loss (gain) on sale of assets 64 (2,731) 2,795 *

Impairment of long-lived assets 44,756 — 44,756 *

Loss on sale of assets 96 64 32 50 %

$ 86,490 $ 41,403 $ 45,087 *

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Payroll and benefits

Payroll and benefits expenses decreased year over year primarily due to expenses recorded during the year ended December 31, 2023 relating to severance expense of former executives, which comprised $1.7 million of the total payroll and benefit expense, and $1.1 million related to severance expense of former executives of Legacy Arq.

Additionally, salaries and wages and other benefit-related expenses decreased by $1.0 million year over year primarily as a result of lower CEO compensation beginning in July 2023.

Payroll and benefits expenses decreased year over year primarily driven by the allocation of expense related to payroll and benefits of $1.6 million associated with our Corbin Facility to Cost of revenue, exclusive of depreciation and amortization as well as overall decreased salaries and wages.

The remaining $0.9 million decrease was primarily driven by lower than anticipated metric achievement during 2025 for our short-term incentive compensation and lower employer payroll tax expenses driven by decreases in other payroll expenses.

Legal and professional fees

Legal and professional fees decreased year over year primarily from decreased consulting, legal, and accounting costs incurred related to the acquisition of Legacy Arq during 2023.

Legal and professional fees remained flat year over year.

General and administrative

General and administrative expenses increased year over year by approximately $2.2 million, primarily due to increases in franchise & use tax expenses, rent and occupancy expenses, outside construction-related labor and license and fee expenses, partially offset by decreases in property and liability insurance.

General and administrative expenses decreased year over year by approximately $3.5 million.

This decrease was primarily due to lower rent and occupancy expenses of $1.4 million incurred during the year ended December 31, 2025, which was primarily due to allocation of expenses related to lease of the Corbin Facility site to Cost of revenue, exclusive of depreciation and amortization, as initial production runs began in early 2025.

Additional decreases were due to lower expenses related to state franchise taxes, sales and use taxes, third-party services, licenses and fees, director fees, and advertising.

Research and development

Research and development expenses increased year over year primarily due to increased research and development payroll costs and conducting product qualification testing with potential lead-adopters as part of our GAC contracting process.

Research and development expenses increased year over year by approximately $3.3 million.

The increase was primarily due to expenses related to feedstock consumed and outside services engaged during initial testing of the GAC Facility of $2.9 million and $0.6 million, respectively, during the year ended December 31, 2025.

The increases were partially offset by expenses incurred during the year ended December 31, 2024 in connection with conducting product qualification testing with potential lead-adopters as part of the GAC contracting process.

Depreciation, amortization, depletion and accretion

Depreciation.

amortization, depletion and accretion expense decreased by approximately $1.9 million year over year primarily due to higher absorption of depreciation into cost of goods sold during 2024 compared to 2023, which resulted in lower expense of $2.0 million for the year ended December 31, 2024, and decreased amortization of leasehold improvements, customer relationships and developed technology of $0.6 million.

These decreases were partially offset by an increase in depreciation expense for property, plant and equipment acquired and placed in service during 2024.

Loss (gain) on sale of assets

For the year ended December 31, 2023, we recognized a one-time gain of $2.7 million on the sale of Marshall Mine, LLC.

Loss on sale of assets was not significant for the year ended December 31, 2024.

amortization, depletion and accretion expense increased by approximately $3.2 million year over year primarily due to property, plant and equipment acquired and placed in service during 2025 as a result of completion of the GAC Facility, which contributed $2.3 million of additional depreciation expense in 2025.

Also contributing to the increase was increased absorption of depreciation expense into cost of goods sold during 2025 compared to 2024, which resulted in higher expense of $1.1 million for the year ended December 31, 2025.

The increases were partially offset by decreases related to accretion of our asset retirement obligation and lower amortization of leasehold improvements.

Impairment of long-lived assets

As referenced under this Item 7.

above, we recorded an impairment charge of $44.8 million for the year ended December 31, 2025.

Loss on sale of assets

Loss on sale of assets was not significant for the years ended December 31, 2025 or 2024.

Other (Expense) Income, net

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2025 2024 ($) (%)

Other (expense) income:

Earnings from equity method investments $ 127 $ 1,623 $ (1,496) (92) %

Other income (expense):

Earnings from equity method investment $ 1,951 $ 127 $ 1,824 *

Interest expense (2,449) (3,257) 808 (25) %

Loss on extinguishment of debt — (1,422) 1,422 (100) %

Other 1,238 2,630 (1,392) (53) %

Total other (expense) income $ (3,314) $ 1,239 $ (4,553) *

Other income 858 1,238 (380) (31) %

Total other income (expense) $ 360 $ (3,314) $ 3,674 *

* Percent change in excess of 100% not considered meaningful.

Earnings from equity method investments

The following table presents the equity method earnings for the years ended December 31, 2024 and 2023:

Years Ended December 31, Change

(in thousands) 2024 2023 ($) (%)

Earnings from Tinuum Group $ 127 $ 1,148 $ (1,021) (89) %

Earnings from Tinuum Services — 475 (475) (100) %

Earnings from equity method investments $ 127 $ 1,623 $ (1,496) (92) %

Earnings from equity method investments for the year ended December 31, 2024 represented cash distributions from Tinuum Group.

Earnings from equity method investments for the year ended December 31, 2023 represented cash distributions received from both Tinuum Group and Tinuum Services.

Earnings from equity method investments for the year ended December 31, 2025 primarily represented recognition of earnings related to the discharge of the Tinuum Group Obligation.

Earnings from equity method investments for the year ended December 31, 2024 represented cash distributions received from Tinuum Group.

Tinuum Group continues to wind down their services into 2026.

The Tinuum Group Royalty Agreement expires at the end of 2027, with an option to extend.

We do not expect further distributions from Tinuum Services as Tinuum Services has completed its wind-down.

Interest expense

Interest expense increased for the year ended December 31, 2024 compared to the corresponding period in 2023 primarily due to paid in kind interest on the $10 million term loan with CF Global (the "CFG Loan"), which accrues to the principal portion and is payable upon the termination of the CFG Loan.

The CFG Loan was paid in full in December 2024, and the loan agreement was terminated.

Interest expense decreased for the year ended December 31, 2025 compared to 2024 primarily due to lower average interest rates on our outstanding debt facilities.

In December 2024, we terminated our existing term loan with CF Global Credit, LP (the "CFG Loan") and established a new $30 million revolving credit facility with MidCap Financial (the "Revolving Credit Facility"), which reduced interest expense during the year ended December 31, 2025.

Loss on extinguishment of debt

Loss on extinguishment of debt increased year over year due to the write-off of deferred financing costs associated and unamortized debt discount with the termination of the CFG Loan.

The decrease in Other year over year is primarily driven by a decrease in interest income of $0.7 million as a result of lower cash on hand in 2024, and was driven by increased capital expenditures during 2024.

Income tax (benefit) expense

For the year ended December 31, 2024, we reported income tax benefit of $0.2 million and an effective tax rate of 3%.

The difference between our reported income tax benefit and the expected federal benefit of $1.1 million, as a result of pretax loss recognized for the year ended December 31, 2024, was primarily due to an increase in the valuation allowance on our deferred tax assets offset by the benefit of permanent differences related to stock-based compensation.

Loss on extinguishment of debt for the year ended December 31, 2024 was related to the write-off of deferred financing costs and unamortized debt discount associated with the termination of the CFG Loan.

The decrease in Other income year over year is primarily driven by a decrease in interest income of $1.0 million as a result of lower cash on hand in 2025, which was driven by increased capital expenditures during 2024 and 2025.

This decrease was partially offset by a gain related to an insurance claim related to equipment at our Five Forks Mine during the year ended December 31, 2025.

Income tax expense (benefit)

For the year ended December 31, 2025, we reported income tax benefit of zero and an effective tax rate of zero.

The difference between our reported income tax benefit and the expected federal benefit of $11.0 million, as a result of pretax loss recognized for the year ended December 31, 2025, was primarily due to an increase in the valuation allowance.

For the year ended December 31, 2024, we reported income tax expense of $0.2 million and an effective rate of 3%.

The difference between our reported income tax expense and the expected federal benefit of 2.5 million, as a result of pretax loss recognized for the year ended December 31, 2024, was primarily due to the expense of permanent differences related to acquisition-related costs and an increase in the valuation allowance on our deferred tax assets.

The difference between our reported income tax expense and the expected federal benefit of $1.1 million, as a result of pretax loss recognized for the year ended December 31, 2024, was primarily due to an increase in the valuation allowance on our deferred tax assets.

Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against their deferred tax asset based on an assessment of the amount of the deferred tax asset that is "more likely than not" to be realized.

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In connection with the equity offerings completed at various dates during 2024, we issued additional shares of our common stock.

We performed an IRC Section 382 analysis as of those dates and determined that we had not experienced an ownership change as of those dates.

Prior to the Acquisition Date, Legacy Arq completed numerous equity offerings that resulted in ownership changes.

We have not completed a formal IRC Section 382 analysis of Legacy Arq equity changes from its inception through the Acquisition Date, however, we believe that one or more "ownership changes" occurred during this time period as defined under Sections 382 and 383 and that a portion or all the Legacy Arq Tax Assets may be subject to an annual limitation.

As of December 31, 2025, we performed an IRC Section 382 analysis and determined that we had not experienced an ownership change as of that date.

We completed the acquisition of 100% of the equity interest, assets and liabilities of the subsidiaries of Arq Limited, an environmental technology company incorporated under the laws of Jersey (the "Arq Acquisition" and hereafter the Arq Limited subsidiaries referred to as "Legacy Arq"), in which we acquired certain tax assets (the "Legacy Arq Tax Assets"), totaling approximately $12.5 million.

The Legacy Arq Tax Assets are comprised of net operating loss carryforwards, of which $8.8 million were recognized in the U.S.

Prior to the Arq Acquisition, the acquiree completed numerous equity offerings that resulted in ownership changes.

We have not completed a formal IRC Section 382 analysis of the acquiree's equity changes from acquiree's inception through the date of the Arq Acquisition.

We believe that one or more "ownership changes" occurred prior to the date of the Arq Acquisition as defined under Sections 382 and 383 and that a portion or all the Legacy Arq Tax Assets may subject to an annual limitation.

Non-GAAP Financial Measures

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Generally Accepted Accounting Principles ("GAAP"), we provide certain supplemental financial measures, including EBITDA and Adjusted EBITDA, which are measurements that are not calculated in accordance with GAAP.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA reduced by the non-cash impact of equity earnings from equity method investment, loss on extinguishment of debt, loss (gain) on sale of assets, increased by cash distributions from equity method investments, loss on change in estimate, asset retirement obligations and charges incurred in as a result of our financing activities.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA reduced by gains on insurance proceeds and the non-cash impact of earnings from equity method investments, and increased by loss on impairment, share-based compensation expense, GAC Facility pre-production feedstock, cash distributions from equity method investments, loss on extinguishment of debt, loss on sale of assets, and charges incurred as a result of our financing activities.

EBITDA and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance.

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EBITDA and Adjusted EBITDA

The following table reconciles net loss, our most directly comparable as-reported financial measure calculated in accordance with GAAP to EBITDA, Adjusted EBITDA and (Adjusted EBITDA Loss).

Year ended December 31,

The following table reconciles net loss, our most directly comparable as-reported financial measure calculated in accordance with GAAP, to (EBITDA Loss), EBITDA and Adjusted EBITDA.

Years ended December 31,

(in thousands) 2025 2024

$ (5,109) $ (12,249)

Net loss $ (52,610) $ (5,109)

Depreciation, amortization, depletion and accretion 11,747 8,594

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Interest expense, net 2,383 2,154

Income tax (benefit) expense (164) 153

EBITDA 5,983 123

Cash distributions from equity method investees 127 1,623

Equity earnings (127) (1,623)

Loss on extinguishment of debt 1,422 —

Loss (gain) on sale of assets 64 (2,695)

Gain on change in estimate, asset retirement obligation — (37)

Income tax expense (benefit) 12 (164)

(EBITDA Loss) EBITDA (37,848) 5,983

Corbin Facility impairment and write-down of related assets (1)

Share-based compensation (2)

GAC Facility pre-production feedstock (3)

Earnings from equity method investment (1,951) (127)

Cash distributions from equity method investment 251 127

Gain on insurance proceeds (4)

Loss on sale of assets 96 64

Financing costs — 275

Adjusted EBITDA (Adjusted EBITDA Loss) $ 7,744 $ (2,609)

(1) Included in Net loss for the year ended December 31, 2023 was $4.9 million of transaction and integration costs incurred related to the Arq Acquisition, $4.9 million of Legacy Arq payroll and benefit costs and $1.7 million of severance expense related to three executive employees.

Loss on extinguishment of debt — 1,422

Adjusted EBITDA $ 13,164 $ 10,459

(1) Represents impairment charge recognized at our Corbin Facility of $44.8 million as well as the write-down of certain additional assets at the GAC Facility related to the use of product produced at the Corbin Facility that could not be reused or repurposed, resulting in an additional loss of $2.3 million during the year ended December 31, 2025.

(2) Represents non-cash stock-based compensation expenses that are included within "Cost of revenue, exclusive of depreciation and amortization" and "Selling, general and administrative" expenses in the Consolidated Statements of Operations.

Previously reported Adjusted EBITDA for the year ended December 31, 2024 has been revised to include non-cash stock-based compensation expense.

(3) Represents expenses related to feedstock utilized in pre-production testing of our GAC Facility during the year ended December 31, 2025 included within "Research and development" expense in the Consolidated Statements of Operations.

(4) Represents gain related to an insurance claim related to equipment at our Five Forks Mine during the year ended December 31, 2025 included within "Other income" in the Consolidated Statements of Operations.

We received the proceeds in October 2025.

Liquidity and Capital Resources

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• cash on hand, excluding restricted cash of $8.5 million primarily pledged as collateral under a surety bond agreement;

• cash flows from operations of $10.5 million;

• proceeds received from issuance and sale of our common stock, which totaled $42.4 million in the current year;

• availability of $16.2 million under our recent $30.0 million secured revolving credit facility (the "Revolving Credit Facility").

• availability under the Revolving Credit Facility, which as of December 31, 2025 had $1.4 million available;

• cash from operations.

For the year ended December 31, 2025, our principal uses of liquidity included:

• capital expenditures, including those related to the Red River Plant expansion and commissioning of the Corbin Facility;

• capital expenditures, including those related to the Red River Plant expansion;

• our business operating expenses;

• payments on our lease obligations;

• payments on our debt obligations, including the extinguishment of the CFG Loan principal and accrued interest in the amount of $11.1 million.

Tinuum Group and Tinuum Services Distributions

The following table summarizes the cash distributions from our equity method investments for the years ended December 31, 2024 and 2023:

Year ended December 31,

(in thousands) 2024 2023

Tinuum Group $ 127 $ 1,148

Tinuum Services — 475

Distributions from equity method investees $ 127 $ 1,623

Cash distributions from Tinuum Group and Tinuum Services for 2024 decreased by $1.5 million compared to 2023, as both Tinuum Group and Tinuum Services ceased material operations as of December 31, 2021, and began wind-down of their business at that time.

Tinuum Group continues to wind down their services into 2025;

the Tinuum Group Royalty Agreement currently remains active through 2027 with options to extend.

We do not expect further distributions from Tinuum Services as Tinuum Services has completed its wind-down.

• payments on our debt obligations.

Cash and restricted cash decreased from $22.2 million as of December 31, 2024, to $15.0 million as of December 31, 2025, a decrease of $7.2 million.

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Cash flows from operating activities

Cash flows provided by operating activities for the year ended December 31, 2024 was $10.5 million compared to cash flows used in operating activities of $16.7 million for the year ended December 31, 2023.

The increase in cash provided by operating activities was primarily due to the following:

(1) a decrease in net loss of $7.1 million year over year;

(2) a net increase in working capital of $17.8 million primarily as a result of significant payments made in 2023 on accounts payable and accrued expenses assumed in the Arq Acquisition, (3) a one-time $2.7 million gain on the sale of the Marshall Mine, LLC in 2023, and (4) a decrease in Earnings from equity method investments of $1.5 million.

Partially offsetting the net increase in cash flows used in operating activities year over year was a decrease in Depreciation, amortization, depletion and accretion of $1.9 million.

Cash flows used in operating activities for the year ended December 31, 2025 was $2.7 million compared to cash flows provided by operating activities of $10.5 million for the year ended December 31, 2024.

This decrease in cash flows from operating activities was primarily due to the following:

(1) an increase in net loss of $47.5 million year over year;

(2) a net decrease in working capital of $11.3 million primarily as a result of significant payments made in 2025 on accounts payable and accrued expenses, as well as increases in prepaid expenses and other assets, and (3) an increase in Earnings from equity method investment of $1.8 million.

Partially offsetting the net increase in cash flows used in operating activities year over year were increases in Impairment of long-lived assets of $44.8 million and Depreciation, amortization, depletion and accretion of $3.2 million.

Cash flows from investing activities

Cash flows used in investing activities for the year ended December 31, 2025 was $8.2 million compared to cash flows used in investing activities of $85.1 million for the year ended December 31, 2024.

The increase in cash used was primarily due to an increase in acquisition of property, equipment and intangibles, net, of $57.7 million primarily related to capital expenditures for our Red River Plant expansion, $2.2 million cash acquired as part of the Legacy Arq Acquisition in 2023, and a decrease in distributions from equity earnings in excess of cumulative earnings of $1.5 million.

Partially offsetting the net increase in cash flows used in investing activities year over year was a payment of $2.2 million related to the disposal of Marshall Mine, LLC in 2023 and a decrease in mine development costs of $2.5 million.

The decrease in cash used was primarily due to a decrease in acquisition of property, equipment and intangibles, net, of $76.6 million primarily related to capital expenditures for our Red River Plant expansion in 2024.

Partially offsetting the net decrease in cash flows used in investing activities year over year was an increase in mine development costs of $0.4 million.

Cash flows from financing activities

Cash flows provided by financing activities for the year ended December 31, 2024 increased by $19.8 million compared to the year ended December 31, 2023 primarily due to proceeds from the issuance and sale of our common stock in a public offering of $26.7 million and a net increase in borrowings year over year of $5.3 million associated with a borrowing on the Revolving Credit Facility in 2024 that exceeded proceeds from the CFG Loan in 2023.

These increases were offset by decreases due to the prepayment of the principal of the CFG Loan of $10.0 million in 2024 and a net decrease in proceeds from common stock issued and sold in private placements of $0.5 million year over year.

Additional decreases in cash flows year over year provided by financing activities were due to costs associated with extinguishment of the CFG Loan and associated financing costs for the Revolving Credit Facility, both in 2024.

Cash flows provided by financing activities for the year ended December 31, 2025 decreased by $39.0 million compared to the year ended December 31, 2024 primarily due to significant equity financing activities completed in 2024.

These include proceeds from the issuance and sale of our common stock in both private and public offerings totaling $42.4 million and a net increase in borrowings year over year of $8.7 million on the Revolving Credit Facility.

These increases were offset by a net decrease in principal payments on notes payable of $9.9 million due to the prepayment of the principal of the CFG Loan of

$10.0 million in 2024.

Additional increases in cash flows year over year provided by financing activities were due to costs associated with extinguishment of the CFG Loan and associated financing costs for the Revolving Credit Facility, both in 2024.

Material Cash Requirements

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These include executing on our contracts and initiatives and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and increasing our gross margin from improving our customer and product mix.

Based on current operating levels, we expect that our cash on hand and borrowing availability on the Revolving Credit Facility as of December 31, 2024 will provide sufficient liquidity to fund operations for the next 12 months.

Based on current operating levels, we expect that our cash on hand and borrowing availability under the Revolving Credit Facility as of December 31, 2025 will provide sufficient liquidity to fund operations for the next 12 months.

Capital expenditures

We are targeting the first quarter of 2025 for the completion of our Red River Plant expansion which is necessary to commence production of our new GAC products.

To meet this target, we have incurred and may continue to incur substantial capital spend in excess of our originally forecasted amount for additional equipment, labor, and project costs.

The Company anticipates financing the timely completion of the project funded with cash on hand, borrowing availability on the Revolving Credit Facility, and ongoing cost reduction initiatives.

During 2025, we expect our capital expenditures to primarily relate to the completion of the Red River Project.

Capital expenditures planned for 2025 are dependent on many factors, including the approval of certain environmental permits, and the pace and progression of the project, which may impact the timing and amount of capital expenditures.

During 2026, we expect our capital expenditures to primarily relate to routine maintenance on our Red River Plant and potential modifications to our GAC Facility, pending the results of our engineering and production process review as described above in "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview".

Capital expenditures planned for 2026 are dependent on many additional factors, including delays in procurement or construction, shortages of materials or availability of qualified contractors, liquidity requirements for funding the modifications to our GAC Facility, ongoing compliance with regulatory requirements, and environmental and operational licenses and approvals for additional GAC Facility expansion, which may impact the timing and amount of capital expenditures.

The Company anticipates financing the capital expenditures with cash on hand, borrowing availability under the Revolving Credit Facility, and ongoing cost reduction initiatives.

As of December 31, 2025, we had outstanding surety bonds with regulatory commissions totaling $11.2 million primarily related to the Five Forks Mine and the Corbin Facility.

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We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms.

To the extent that the

obligations are performed, the related surety bonds may be released and collateral requirements may be reduced.

To the extent that the obligations are performed, the related surety bonds may be released and collateral requirements may be reduced.

However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider.

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$ 22,269 $ 5,222 $ 6,336 $ 4,826 $ 5,885

The table above excludes our asset retirement obligation ("ARO") related to reclamation of the Five Forks Mine, as the timing and amount of payments to satisfy the ARO are uncertain and are based on numerous factors including, but not limited to, the expected closure date of the Five Forks Mine.

As of December 31, 2024, our Consolidated Balance Sheet reflects a liability for ARO related to reclamation of the Five Forks Mine of $4.5 million.

The table above excludes our asset retirement obligations ("AROs") related to reclamation of the Five Forks Mine, for which we have recorded a liability of $4.9 million within our Consolidated Balance Sheet as of December 31, 2025, as the timing and amount of payments to satisfy the AROs are uncertain and are based on numerous factors including, but not limited to, the expected closure date of the Five Forks Mine.

The table above also excludes amounts outstanding under our Revolving Credit Facility, as the timing and amount of repayments are uncertain and are based on the nature and timing of our operating cash flows.

Our outstanding borrowings under the Revolving Credit Facility were $19.0 million as of December 31, 2025.

Additionally, the table above excludes construction costs related to the Red River Plant expansion referred to under the "Capital Expenditures" caption above, as the timing and amount of payments to satisfy these obligations are conditional and based on numerous factors including, but not limited to, the pace of construction activities and the timing of mechanical completion of the Red River Plant expansion.

Critical Accounting Policies and Estimates

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We believe that the accounting estimates discussed below are critical to understanding our historical and future performance, as these estimates relate to the more significant areas involving management’s judgments and estimates.

Business Combinations, including asset acquisitions

We apply the acquisition method to acquisitions of both businesses and assets and allocate the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

The purchase price allocation process requires us to make significant estimates and assumptions with respect to assets acquired and liabilities assumed.

We believe the assumptions and estimates we make are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired company or group of assets and are inherently uncertain.

Examples of critical estimates in valuing certain of long-lived assets, including intangible assets, we have acquired or may acquire in the future include but are not limited to:

• future expected cash flows from revenue;

• the acquired company’s developed technology as well as assumptions about the period of time the acquired developed technology will continue to be used in the combined company's product portfolio;

• the expected use and useful lives of the acquired assets;

• valuation methods and discount rates used in estimating the values of the assets acquired and liabilities assumed.

Carrying value of long-lived assets and intangibles

We review and evaluate our long-lived assets and intangibles for impairment at least annually, or more frequently when events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

An impairment loss is measured and recorded for long-lived assets and intangibles based on the excess of their carrying amounts over their estimated fair values.

Fair value is typically determined through the use of an income approach utilizing estimates of discounted pretax future cash flows or a market approach utilizing recent transaction activity for comparable assets.

We evaluate our long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (defined as an "Asset Group").

We make various estimates and assumptions about an Asset Group to determine whether a quantitative impairment test is necessary.

Our qualitative assessment includes evaluating the following indicators of impairment for an Asset Group:

• Significant decrease in its market price;

• Significant adverse change in the extent or manner in which it is being used or its physical condition;

• Significant adverse change in legal factors or in the business climate;

• Accumulation of costs significantly in excess of its original acquisition or construction estimates;

• Operating or cash flow losses (current results, combined with either historical or forecasted);

• Whether it is more likely than not that it will be disposed of significantly before the end of its previously estimated life.

If indicators of impairment are determined to exist for an Asset Group, we perform a recoverability test using undiscounted cash flows.

The forecast of an Asset Group's undiscounted cash flows requires the use of estimates and assumptions.

An impairment loss exists if the carrying value of an Asset Group exceeds its undiscounted cash flows.

An impairment loss is measured as the excess of the carrying value of an Asset Group over its estimated fair value.

Fair value is determined based on various valuation models, including an income approach, a market approach and a cost approach.

The use of these models entails the use of estimates and assumptions.

Asset Retirement Obligations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis