Arq Earnings Call: PAC Strength Versus GAC Setback

Arq, Inc. ((ARQ)) has held its Q4 earnings call. Read on for the main highlights of the call.

Arq’s latest earnings call painted a mixed picture for investors. Management struck a confident tone around the core powdered activated carbon business, which is growing, profitable and now carries detailed 2026 guidance. Yet that optimism was tempered by a major setback in granular activated carbon, including a large noncash write-down and lingering uncertainty on when, or at what scale, that venture can become economic.

PAC Revenue Growth and Profitability Momentum

Arq’s PAC segment remains the bright spot, delivering roughly $120 million in PAC-related revenue for 2025, up about 10% from 2024. Higher average selling prices and modest volume gains powered the increase, while adjusted EBITDA reached $13.2 million, a 26% improvement year over year despite GAC-related drag on overall results.

2026 PAC-Driven Outlook and Operational Metrics

For the first time, Arq issued full-year 2026 guidance built entirely on PAC and other products, excluding any GAC contribution. Management expects revenue of $120 million to $125 million and adjusted EBITDA of $17 million to $20 million, underpinned by PAC volumes rising to 122–125 million pounds and ASPs edging up to $0.88–$0.91 per pound.

Contract Coverage and Customer Stickiness

The company emphasized strong commercial visibility underpinning its PAC guidance, which should reassure investors wary of volume risk. Approximately 96% of 2026 targeted PAC volumes are already under contract, with visibility of 75% through 2027 and 43% through 2028, while three-year customer retention stands at a solid 86%.

Strengthened Operations and Commercial Leadership

Management highlighted several leadership changes aimed at tightening execution after a difficult year. Eric Robinson, who has a track record at the Red River facility, was promoted to SVP of Operations, alongside the addition of an on-site process engineer, a new Head of Sales and broader executive restructuring intended to improve plant performance and commercial focus.

Product Quality Validation Using New Feedstock

On the technical side, Arq reported encouraging data on its GAC product despite broader production problems. Testing of GAC made from purchased bituminous coal indicates product quality is at or above industry benchmarks, and executives said they do not expect the change in feedstock to materially affect customer acceptance once production issues are resolved.

CapEx Discipline and Free Cash Flow Aims

Capital spending plans support a narrative of a maturing PAC business generating cash even as GAC remains on hold. For 2026, the company guided to CapEx of $8 million to $10 million, including about $3 million for a routine turnaround, and expects PAC operations to be free-cash-flow positive after maintenance capital.

GAC Production Halt and Lost 2026 Contribution

The largest negative surprise was the formal pause of GAC production, with management now planning no GAC output at all in 2026. The company will instead conduct a broad engineering and production optimization review, and executives declined to offer a firm timetable for restarting or scaling GAC, leaving a major growth pillar in limbo.

$45 Million Noncash Corbin Asset Write-Down

Reflecting the GAC pause and shift to purchased coal feedstock, Arq recorded a roughly $45 million noncash impairment on its Corbin assets this quarter. The charge stems from idling those operations and raises questions about the ultimate economic value of the original GAC asset base until a new design and scale plan is confirmed.

Sharp Q4 Loss and Margin Compression

The fourth quarter numbers showed just how much the GAC start-up weighed on financials, with Arq posting a net loss of about $50 million versus a $1.3 million loss a year earlier. Gross margin plunged to 13.6% from 36%, while adjusted EBITDA fell to roughly $0.3 million from $3.8 million, as ramp-up costs and downtime overwhelmed PAC strength.

Engineering Failures and GAC Scale Uncertainty

Management laid out a stark diagnosis of systemic engineering missteps in the original GAC design, including flawed elevations, long duct runs, poor conveyance and inadequate controls. The off-gas system’s thermal oxidizer can support only about 15 million pounds annually, well below the 25 million pounds the business case requires, leaving both the cost and timing to reach economic scale unresolved.

Operational Drag from GAC Start-Up and Balance Sheet Strain

GAC issues also hurt day-to-day operations, as plugging, moisture challenges and unsellable product consumed furnace hours and added several million dollars of cost, weighing on PAC performance. At year-end, Arq held $15 million of cash, including about $6.6 million unrestricted, against $28.5 million of total debt, with higher revolver usage tied to the troubled GAC build-out.

Litigation Over Flawed Design Work

Arq is pursuing legal action against the former engineering firm tied to the GAC design problems, signaling an effort to recoup some of the financial damage from costly rework and impaired assets. Management provided few details on timing or potential recovery, underscoring that litigation outcomes remain highly uncertain and cannot be baked into the investment case.

Forward Guidance Anchored in PAC Stability

Looking ahead to 2026, management is effectively asking investors to value Arq on the predictability of its PAC franchise while treating GAC as a long-dated option. With revenue guided to $120–$125 million, adjusted EBITDA to $17–$20 million and PAC volumes and prices both trending higher under robust contract coverage, the company aims to generate free cash flow even as it works through GAC redesign.

Arq’s earnings call left a clear message for the market: the PAC business is a steady engine that can fund the company, but GAC remains a high-risk, unresolved story. Investors will likely reward execution against PAC guidance and cash generation, while keeping a close eye on engineering milestones, capital needs and any legal recovery that could reshape the narrative around the troubled GAC project.