Item 1. Business
General
Arq, Inc., together with its consolidated subsidiaries ("Arq", the "Company," "we," "us", or "our") is an environmental technology company 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 powdered activated carbon ("PAC") and granular activated carbon ("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.
Our predecessor, ADA-ES, Inc. ("ADA"), a Colorado corporation, was incorporated in 1997. Pursuant to an Agreement and Plan of Merger, effective July 1, 2013, the Company (formerly known as Advanced Emissions Solutions, Inc. ("ADES")), a Delaware company incorporated in 2011, succeeded ADA as the publicly held corporation and ADA became a wholly-owned subsidiary of the Company. In 2018, we acquired ADA Carbon Solutions, LLC to expand our product offerings in the mercury control industry and enter into other applicable APT markets. 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 (the "Arq Acquisition" or the "Transaction," and hereafter the Arq Limited subsidiaries referred to as "Legacy Arq") 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 to manufacture new advanced GAC products for sale into the APT and other markets. 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."
This Annual Report on Form 10-K is referred to herein as the "Form 10-K" or the "Report."
Products and Markets
AC is a specialized sorbent material that is used widely in a host of industrial and consumer applications to remove impurities, pollutants and contaminants from gas, water, soil and other product or waste streams. AC is produced by activating carbonaceous raw materials, including wood, coal, nut shells, resins and petroleum pitch. Properties such as surface area, pore volume, surface chemical functionalities and particle size and form can be specifically engineered to selectively target various contaminants to meet end-use application requirements. Our AC products are manufactured in several different forms that are important for the end-use application, including PAC, GAC, and colloidal carbon product ("CCP").
Key markets for AC products include treatment of drinking and waste waters, industrial and renewable gas purification and odor removal, automotive gasoline emission control, soil and ground water remediation, food and beverage process and product purification and removal of pollutants from emissions produced by coal-fired electrical generation and other industrial processes. Demand for AC products has been, and is expected to continue to be driven by environmental regulations pertaining to water, soil, and air quality, especially in the developed and more industrialized areas of the world, and increased consumer attention towards environmental, health and safety issues. Additionally, we believe enhanced environmental and health advisory issues will continue to drive demand for AC in rapidly developing countries. We continuously pursue opportunities to expand and diversify our customer base into markets for our purification products including industrial applications, water treatment plants and other end markets. In addition, we see significant opportunities emerging in the soil, sediment and groundwater treatment markets. Increased attention has been drawn to the monitoring and treatment of heavy metals, organic and inorganic compounds, including PFAS substances, in groundwater to improve overall ground and drinking water quality across North America. AC, in various forms, has and will continue to play a key role in these remediation efforts.
Our current products (also referred to as "consumables") are used to purify contaminated liquid, soil, and gas streams from a variety of industrial sources including wastewater treatment plants, coal-fired power plants and other end markets. Most of the North American coal-fired power generators and other industrial customers installed equipment to control air pollutants, such as
mercury, prior to or since the implementation of the Mercury and Air Toxics Standards ("MATS") by the U.S. Environmental Protection Agency ("EPA"). However, many power generators need consumable products to complement the operation of installed equipment on a recurring basis to more effectively capture mercury and other contaminants. AC has been adopted as the most widely used technology to capture mercury due to product efficiency and effectiveness, and currently accounts for the majority of the mercury control consumables in the North American market. We offer AC and other chemical products and work with customers as they develop and implement a compliance control strategy that utilizes the consumables solutions that fit their unique operating and pollution control configuration.
Coal-fired power plants continue to be a significant, though declining, source of electricity generation in the United States ("U.S."). Demand for our AC products related to coal-fired electricity generation is highly dependent on the availability and cost of alternative energy sources, such as natural gas, solar and wind energy. We continue to pursue markets for our purification products outside of coal-fired power generation, including industrial applications, (such as waste-to-energy and cement making), water treatment and other markets.
For the purification of water, our AC products have been used in the treatment of drinking water, wastewater, contaminated soil and groundwater to adsorb compounds causing unpleasant taste and odor and other toxic contaminants. Both industrial and municipal wastewater treatment plants have deployed the use of our AC products in their treatment processes. Groundwater contamination has become a matter of increasing concern to federal and state governments as well as to the public, especially over recent years. The U.S. AC market may see significant growth from water purification markets, especially as implementation dates for new regulations issued by the EPA in April 2024 are nearing, with full compliance currently required by April 2029. In addition, certain states and certain municipal water treatment systems across the U.S. require pre-approval for the use of GAC products in their public water systems. Approval processes can vary in length from a number of days to multiple months. We have commenced the pre-approval process with a number of relevant state and municipal agencies. Please note, U.S. regulations are subject to continuing change, as further discussed in "Legislation and Environmental Regulations" included in Item 1 of this Report.
The existing technologies for treatment of groundwater, including removal of contaminated soil for external treatment or landfill, pumping groundwater above the surface for treatment and/or installing treatment trenches or barriers often utilize PAC and GAC products. An emerging technology generating increasing interest by site engineering firms and owners is injecting highly engineered ACs into the subsoil, also described as "in situ" treatment, to intercept the contamination plume or to treat the groundwater. In response to this market opportunity, in late 2021, we developed a new CCP platform, FluxSorb RC, which is a treatment option in certain contaminated soil and groundwater remediation treatment sites.
Legacy Arq Products and Markets
With the acquisition of Legacy Arq in February 2023, we now control reserves of high-quality recovered bituminous coal fines and own a manufacturing facility, both located in Corbin Kentucky (the "Corbin Facility"). Our facility remediates these reserves, using a patented manufacturing process to convert the recovered bituminous coal fines into a purified, microfine carbon powder known as Arq powderTM ("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. These applications are currently in various stages of proof of concept testing or preliminary customer testing.
Sales and Customers
We sell consumables primarily through our internal sales group and generally enter into customer contracts ranging from one to five years in duration. We generally recognize revenue as orders are fulfilled. Revenue from our top three customers comprised approximately 36% of our revenue for the year ended December 31, 2024, and the loss of any of these customers would have a material adverse effect on our operating results.
Seasonality
The timing of the sale of our consumable products is dependent upon several factors. Power generation is weather dependent, with electricity and steam production varying in response to heating and cooling demands. As a result, our revenue is generally higher in our first and third fiscal quarters during the warmer and colder months of the year. Abnormally high and low temperatures during the summer and winter months, respectively, may significantly increase coal consumption for electricity generation and cause increased impurities within various municipalities' water sources, and thus increase the demand for our products. Additionally, power generating units routinely schedule maintenance outages in the spring and/or fall depending on the operation of their boilers. During the period in which an outage may occur, which may range from one week to over a month, our product sales may decrease.
Also, our revenue and sales volumes are highly dependent upon the level of coal consumption at coal-fired power plants, which in turn is significantly affected by the prices of competing power generation sources, such as natural gas and renewables. During periods of low natural gas prices, natural gas provides a competitive alternative to coal-fired power generation and therefore, coal consumption for power generation may be reduced, which in turn reduces the demand for our products. In contrast, during periods of higher prices for competing power generation sources, coal consumption generally increases and thus demand for our products also increases.
In water purification, the sale of our products depends on demand from municipal water treatment facilities that use these products. Depending on weather conditions and other environmental factors, the summer months historically have the highest demand for our PAC products in water treatment. One of the major uses for PAC is for the treatment of taste and odor impurities caused by increased degradation of organic contaminants and natural materials in water that occurs predominately during the summer months. Additionally, the rainy season generally results in more demand for PAC products to water municipalities due to rain run-offs and contaminant dilution.
Competition
Our primary competitors in the AC consumables industry include Norit Americas, Inc., which is owned by One Equity Partners, and Calgon Carbon, which is owned by Kuraray Co., Ltd.
Sources and Availability of Raw Materials
Currently, the principal raw material we use in the manufacturing of AC is lignite coal, which is readily available through our 100% ownership of a lignite coal mine (the "Five Forks Mine") located in Saline, Louisiana. All production from the Five Forks Mine is used in our manufacturing process. The Five Forks Mine is operated for us by a subsidiary of the North American Coal Company. We may also periodically purchase various ACs to supplement our inventory levels or to produce various products to serve certain AC markets. We purchase these various ACs through supply agreements or spot purchases with the producers.
With the acquisition of Legacy Arq in 2023, we secured a second feedstock, Arq Powder, which is made from high-quality recovered bituminous coal fines, for use in manufacturing of GAC products. Through internal testing, we have demonstrated that Arq Powder can be shaped and successfully activated using industrially available equipment and technology with our proprietary know-how. Arq Powder has unique properties, including low levels of impurities and small average particle size, which when used as a feedstock to produce certain carbon products may provide for advantages compared to lignite coal, other bituminous coals, or oil-based feedstocks in terms of cost and performance. In the U.S., the availability of feedstock for GAC manufacturing is limited, as it is either supplied by specialty mined coal or coconut husks, which need to be imported. Between the Corbin Facility and the Five Forks Mine, we have a fully integrated supply chain in multiple feedstocks - bituminous coal fines (Corbin Facility) and lignite coal (Five Forks Mine) to produce both GAC and PAC products.
We purchase various additives utilized in the production of our AC products. The manufacturing of AC is dependent upon these various additives, which are subject to price fluctuations and supply constraints. In addition, the number of suppliers who provide the necessary additives needed to manufacture our AC products is limited. We purchase these additives through supply agreements or spot purchases with the producers. Supply agreements with these producers are generally renewed on an annual basis.
We also purchase additives that are included in certain chemical products for resale to our customers through contracts with suppliers. The manufacturing of these chemical products is dependent upon certain discrete additives, which are subject to price fluctuations and supply constraints. In addition, the number of suppliers who provide the necessary additives needed to manufacture our chemical products are limited. We purchase these chemical products through spot purchases with the producers.
Due to the seasonality of our business, which is primarily driven by our high concentration of customers in the coal-fired power generation and municipal water treatment markets, our sales and inventory levels may vary throughout the year.
Facilities
We own and operate a manufacturing plant (the "Red River Plant"), located in Coushatta, Louisiana. We also operate a production and distribution facility located on land we lease in Coushatta. In addition, we own and operate the Corbin Facility, where we process bituminous coal fines and apply patented technology to produce Arq Powder. In January 2024, we executed a contract with a third-party contractor for the construction of a GAC facility at the Red River Plant, (the "GAC Facility") and immediately commenced construction operations. In September 2024, we terminated the contract with the third-party contractor and moved the construction and project management functions for the GAC Facility internally. Mechanical completion of our GAC Facility was completed in January 2025. We expect to commence initial production of our proprietary GAC product at the GAC Facility by the end of the first quarter of 2025. For the year ended December 31, 2024, construction costs for the GAC Facility were approximately $80 million.
We completed commissioning at our Corbin Facility in January 2025. Total construction and commissioning costs at the Corbin Facility were approximately $7 million for the year ended December 31, 2024.
Research and Development Activities
We conduct research and product development activities for further enhancement of our consumables. For the years ended December 31, 2024 and 2023, we incurred research and development costs of $4.1 million and $3.3 million, respectively.
Legislation and Environmental Regulations
We are subject to various legislative enactments and regulations relating to the protection of the environment, health and safety, including the Occupational Safety and Health Act ("OSHA") and comparable state laws. While we cooperate with governmental authorities and take commercially practicable measures to meet regulatory requirements and avoid or limit environmental effects, some risks are inherent in our business. Among the risks are costs associated with operating manufacturing plants and mining operations, fines and penalties if we are found to be in violation of laws and regulations (and/or our operating permits), as well as modifications, disruptions or discontinuation of certain operations. Additionally, our products and services are used for the reduction of certain pollutants and other contaminants and legislation and regulations that limit the amount of pollutants and other contaminants permitted in air, water and soil may increase or decrease the need for our products.
We regularly monitor and review our operations, procedures and policies for compliance with these and other laws and regulations. Compliance with these laws and regulations often requires the dedication of time and effort of employees, as well as financial resources. We believe our operations are in substantial compliance with these laws and regulations and that there are no violations that would have a material effect on our business. Despite these compliance efforts, there can be no assurance that material violations will not occur in the future. During the fiscal year ended December 31, 2024, compliance with the regulations applicable to our operations did not have a material effect on our capital expenditures, earnings, or competitive position, and the cost of compliance with these laws and regulations is not expected to have a material adverse effect on our business in the future. Below is a summary of the primary legislation and regulation that currently affects our business and the market for our current products. See “Item 1A. Risk Factors” below for further information on the uncertainty surrounding current U.S. regulatory landscape.
Federal National Primary Drinking Water Regulation and other PFAS Regulations
In October 2021, the EPA released its PFAS Strategic Roadmap, laying out its approach to addressing PFAS and other pollutants, which set a timeline by which the EPA planned to take certain actions through 2024, including establishing a national primary drinking water regulation for certain PFAS and taking Effluent Limitations Guidelines actions to regulate certain PFAS discharges from industrial categories. On March 14, 2023, the EPA proposed a National Primary Drinking Water Regulation ("NPDWR") for six specific PFAS substances. On April 10, 2024, the EPA announced the final NPDWR, which established legally enforceable maximum contaminant levels ("MCL") for six PFAS substances, including a MCL for Perfluorooctane Acid ("PFOA") and Perfluorooctane Sulfonate ("PFOS") of 4.0 parts per trillion. Under the NPDWR, drinking water utilities have three years from the publication of the final rule, or until April 2027, to comply with monitoring requirements and have five years from the publication of the final rule, or until April 2029, to implement solutions that reduce the applicable PFAS substances below the MCLs. We anticipate that these new regulations will increase demand in the U.S. for PFAS water treatment products and services, including our GAC products.
On May 8, 2024, the EPA finalized new regulations that treat PFOS and PFOA as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). The new rules allow the EPA to hold polluters financially responsible for contaminated sites and will also lead to these PFAS chemicals being listed as "hazardous materials" under the Hazardous Materials Transportation Act, which will require materials containing these chemicals to be transported using special protocols. Although final rules have not been issued, in February 2024 the EPA proposed changes to the Resource Conservation and Recovery Act ("RCRA") regulations by adding nine PFAS chemical compounds to its list of hazardous constituents. Combined with the new CERCLA regulations, a final RCRA regulation of PFAS may increase the costs of the handling, transport, and disposal of PFAS-containing materials including water treatment waste.
Federal MATS Affecting Electric Utility Steam Generating Units
The EPA's final "MATS Rule" went into effect in April 2012. The EPA structured the MATS Rule as a Maximum Achievable Control Technology-based ("MACT-based") hazardous pollutant regulation applicable to coal and oil-fired Electric Utility Steam Generating Units ("EGUs"). The MATS Rule sets a limit that we believe requires the capture of 80-90% plus of the mercury in the coal burned in electric power generation boilers as measured at the exhaust stack outlet for most plants. The MACT-based standards are also known as National Emission Standards for Hazardous Air Pollutants ("NESHAP"). Plants generally had four years to comply with the MATS Rule, and implementation of the MATS Rule is now largely completed. We estimate that 59% of the coal-fired units that were operating in December 2012 when the MATS Rule was finalized have been permanently shut down, leaving approximately 405 units in operation in the U.S. as of December 31, 2024.
In May 2020, the EPA reconsidered and found that it was not "appropriate and necessary" to regulate Hazardous Air Pollutants ("HAPs") emissions from coal- and oil-fired EGUs. However, the EPA expressly stated that the reconsideration neither removed coal- and oil-fired EGUs from the list of sources that must comply with the MATS Rule, nor rescinded the MATS Rule, which has remained continuously in effect. On February 15, 2023, the EPA issued a final rule revoking the May 2020 reconsideration and affirming that it is "appropriate and necessary" to regulate HAP emissions from coal- and oil-fired EGUs. On April 3, 2023, the EPA issued a proposed update to MATS that, amongst other potential modifications, proposed a reduction to the mercury emission limits for lignite coal-fired EGUs. The EPA adopted the final rule on April 25, 2024.
State Mercury and Air Toxics Regulations Affecting EGUs
In addition, certain states have their own mercury rules that are similar to or more stringent than the MATS Rule. Coal-fired electricity generating units in the U.S. are subject to consent decrees that require the control of acid gases and particulate matter, in addition to mercury emissions.
Other Legislation and Regulation
Our manufacturing plants are subject to federal, state and local laws and regulations relating to discharge of substances into the environment and to the transportation, handling and disposal of such substances. The primary federal statutes that apply to our activities in the U.S. are the Clean Air Act and the Clean Water Act. We make capital investments and expenditures to comply with environmental laws and regulations and to promote employee safety. To date, such expenditures have not had a significant adverse effect on our consolidated results of operations, financial position or cash flows.
International Regulations
There are various international regulations related to mercury control. For example, in Canada, the Canada-Wide Standard ("CWS") was initially implemented in 2010, with increasingly stringent limits through 2020 and varying mercury emissions caps for each province. In May 2017, the EU ratified the Minimata Convention on Mercury, triggering mercury control regulations with implementation starting in 2021. Specific emissions limits for dust, nitrogen oxides (NOx), sulfur dioxide (SO2), mercury and particulate matter (PM) are currently being developed, guided by the best available technologies reference ("BREF") document for limiting stack emissions and liquid effluents from industrial processes. The BREF conclusions for large coal-fired electricity generating units were adopted by the European Commission in July 2017.
In October 2022, the European Commission proposed new directives for better and more cost-effective treatment of urban wastewater, which included among other things new standards on micropollutants and new monitoring requirements for microplastics. In January 2024, there was a provisional agreement that revised the October 2022 proposed directives. The revised directive was adopted by the European Parliament and the Council on November 5, 2024, and is enforceable on European Union Member States, subject to the revised directive’s implementation period, which requires European Union Member State compliance by mid-2027.
Mining Environmental and Reclamation Matters
Federal, state and local authorities regulate the U.S. coal mining industry with respect to matters such as employee health and safety and the environment, including the protection of air quality, water quality, wetlands, special status species of plants and animals, land uses, cultural and historic properties and other environmental resources identified during the permitting process. Reclamation is required during production and after mining has been completed. Materials used and generated by mining operations must also be managed according to applicable regulations and law.
The Surface Mining Control and Reclamation Act of 1977 ("SMCRA"), establishes mining, environmental protection, reclamation and closure standards for all aspects of surface mining. Mining operators must obtain SMCRA permits and permit renewals from the Office of Surface Mining (the "OSM") or from the applicable state agency if the state agency has obtained regulatory primacy. A state agency may achieve primacy if the state regulatory agency develops a mining regulatory program that is no less stringent than the federal mining regulatory program under SMCRA. The Five Forks Mine operates in Louisiana, which has achieved primacy and issues permits in lieu of the OSM.
Mine operators are often required by federal and/or state laws, including SMCRA, to assure, usually through the use of surety bonds, payment of certain long‑term obligations including mine closure or reclamation costs, federal and state workers’ compensation costs, coal leases and other miscellaneous obligations. Although surety bonds are usually non-cancelable during their term, many of these bonds are renewable on an annual basis and collateral requirements may change. As of December 31, 2024, we posted surety bonds of approximately $7.5 million and $3.0 million for reclamation of the Five Forks Mine and the Corbin Facility, respectively.
Our mining operations and properties are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977, as amended (the "Mine Act"). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the "Dodd-Frank Act"), issuers are required to disclose specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities in periodic reports. MSHA inspects our mines on a regular basis and may issue various citations and orders if it believes a violation has occurred under the Mine Act.
Intellectual Property
As of December 31, 2024, we held 84 U.S. patents and 10 international patents that were issued or allowed, 15 additional U.S. provisional patents or applications that were pending, and 36 international patent applications that were either pending or filed relating to different aspects of our technology. During the year ended December 31, 2024, we were granted 3 new patents. Our existing patents generally have terms of 20 years from the effective date of filing, with our next patents expiring in 2025.
During the year ended December 31, 2024, 19 U.S. and 41 international patents and applications from our patent portfolio were abandoned or allowed to expire, as we determined that they no longer represent future markets or economic opportunities for us.
As of December 31, 2024, we owned over 50 trademark registrations and applications globally.
Human Capital Resources
We believe our success as an organization is enabled by the extensive expertise of our teams. As of December 31, 2024, we employed 203 people, of which 200 were employed full-time, across our four facilities and strive to maintain a robust company culture. Through our policies, activities, and core values, we believe that we are driving positive change for our employees and the local communities in which we operate.
Talent Acquisition and Retention
We seek to employ talented and knowledgeable people who share in our passion, vision, and mission to enable a cleaner and safer planet. We provide opportunities for our people to collaborate with all levels of the business, including senior management, and make meaningful contributions to our direction and success. We also invest in the growth of our employees to ensure ambition is recognized and people can reach their potential. We have a strong commitment to pay for performance at all levels. We offer competitive compensation to attract and retain the best people.
We offer a comprehensive benefits package for all eligible employees, including medical insurance, dental insurance, vision insurance, 401(k), paid time off, and paid maternity and paternity leave.
Learning, Development and Employee Engagement
We offer a range of skills-based and compliance training programs, including environmental courses on topics including hazardous waste, water treatment, and environmental awareness, and a large number of safety courses. These programs are owned and organized by each department and are focused on the development requirements of the specific roles held by our employees. In addition, we provide regular performance and development meetings to encourage employees and managers to frequently discuss growth opportunities and provide a forum for honest feedback on performance and concerns.
Employee Health and Safety
We continuously work to be the "safest activated carbon manufacturer," recognizing it as a critical factor in our ongoing success. Our Environmental Health and Safety ("EHS") Team manages our safety programs, policies, systems, and the emergency action plans in place for each of our facilities.
Our approach is underpinned by compliance with the regulations of OSHA and MSHA at the applicable facilities. We have an established health and safety management system that is modeled after OHSAS 18001. This approach includes a program of health and safety training, which is mandatory for all employees alongside additional job and location-specific training for relevant employees, including, when applicable, annual MSHA training approved by the MSHA Secretary to meet MSHA’s mandatory requirements and functions. These trainings and programs empower our employees to be collectively responsible for everyone’s safety.
Recent Developments
Revolving Credit Facility
On December 27, 2024 (the "Closing Date"), we and certain of our subsidiaries entered into a Credit, Security and Guaranty Agreement (the "Revolving Credit Agreement") with MidCap Funding IV Trust, in its capacity as agent, the lenders from time to time party thereto, and any entities that become party thereto as Guarantors.
The Revolving Credit Agreement provides for a secured revolving credit facility (the "Revolving Credit Facility") under which we may borrow up to $30,000,000 at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain eligible accounts receivable and inventory carrying balances, less applicable reserves established under the Revolving Credit Agreement, in accordance with a formula set forth in the Revolving Credit Agreement.
The Revolving Credit Facility has a maturity date of December 27, 2029. Borrowings under the Revolving Credit Agreement bear interest at the Standard Overnight Financing Rate ("SOFR") plus an applicable margin of 4.50% per annum, subject to a SOFR floor of 2.50% per annum.
September 2024 Equity Offering
On September 20, 2024, we entered into an underwriting agreement (the "Underwriting Agreement") with Canaccord Genuity LLC, as the representative of the underwriters named therein (the "Underwriters"), relating to the issuance and sale (the "Offering") of 4,770,000 shares (the "Firm Shares") of the Company's common stock, par value $0.001 per share, at a price to the public of $5.25 per share. Under the terms of the Underwriting Agreement, the Underwriters agreed to purchase the Firm Shares from the Company at a price of $4.935 per share. We also granted the Underwriters an option exercisable for 30 days from the date of the Underwriting Agreement to purchase up to an additional 715,500 shares of common stock, on the same terms and conditions (the "Option Shares," and, together with the Firm Shares, the "Offered Shares"), which was subsequently exercised by the Underwriters.
Net proceeds from the Offering were approximately $26.7 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Firm Shares and Option Shares were offered and sold pursuant to a prospectus supplement dated September 20, 2024 and an accompanying base prospectus that form a part of our registration statement on Form S-3 (File No. 333-281762) filed with the SEC on August 23, 2024, which became effective on September 4, 2024.
May 2024 Private Placement
On May 15, 2024, we entered into a securities purchase agreement with certain accredited investors for the private placement of an aggregate of 2,142,858 shares of common stock, at a purchase price of $7.00 per share (the "Private Placement"). The aggregate gross proceeds for the Private Placement were approximately $15 million, before deducting offering expenses, and the Private Placement closed on May 16, 2024. The Private Placement was exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") pursuant to the exemption for transactions by an issuer not involving
any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws.
Arq Acquisition
On February 1, 2023 (the "Acquisition Date"), we entered into a Securities Purchase Agreement (the "Purchase Agreement") with Arq Ltd., pursuant to which we acquired all of the direct and indirect equity interests, assets and liabilities of Legacy Arq in exchange for consideration (the "Purchase Consideration") totaling $31.2 million and consisting of (i) 3,814,864 shares of our common stock, valued at $12.4 million and (ii) 5,294,462 shares of our Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), valued at $18.8 million. On June 13, 2023, our stockholders approved the conversion of all of the outstanding shares of the Series A Preferred Stock and the corresponding issuance of 5,362,926 shares of common stock.
PIPE Investment and Loan Agreement
On February 1, 2023, and in connection with the Arq Acquisition, we entered into subscription agreements with certain persons (the "Subscribers"), which included existing shareholders of Arq Ltd., three of which were appointed to our board of directors (the "Board"), pursuant to which the Subscribers subscribed for and purchased 3,842,315 shares of common stock for an aggregate purchase price of approximately $15.4 million and at a price per share of $4.00 (the "PIPE Investment"). The securities issued to the Subscribers under the Subscription Agreements were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act, Rule 506 of Regulation D, which is promulgated thereunder, and Regulations S of the Securities Act. The Company and its affiliates relied on this exemption from registration based in part on representations made by each of the Subscribers under the Subscription Agreements.
Pursuant to the terms of the Purchase Agreement, we entered into a Registration Rights Agreement (the "Registration Rights Agreement") with Arq Ltd. and the Subscribers to the Subscription Agreements described above. On January 25, 2024, we filed a registration statement on Form S-3/A with the Securities and Exchange Commission ("SEC") to register all shares of common stock issued in the Purchase Agreement, all shares of common stock issued in the PIPE Investments, and all shares of common stock issued from the conversion of all shares of the Series A Preferred Stock subject to the Registration Rights Agreement and 325,457 underlying shares of common stock issuable upon the exercise of the Warrant (as defined below) issued as consideration in the CFG Loan (as defined below). The registration was declared effective by the SEC on January 31, 2024.
Also on February 1, 2023, and in connection with the Arq Acquisition, we, as borrower, certain of our subsidiaries, as guarantors, and CF Global Credit, as administrative agent and lender, entered into a $10.0 million term loan (the "CFG Loan") upon execution of a Term Loan and Security Agreement (the "Loan Agreement"). The CFG Loan had a term of 48 months and bore interest at a rate equal to either (a) Adjusted Term SOFR (subject to a 1.00% floor and a 2.00% cap) plus a margin of 9.00% paid in cash and 5.00% paid in kind or (b) Base Rate plus a margin of 8.00% paid in cash and 5.00% paid in kind, which interest on the CFG Loan in each case was payable (or capitalized, in the case of in kind interest) quarterly in arrears. On December 27, 2024, in connection with the Closing of the Revolving Credit Facility described above, we repaid in full all amounts outstanding and due under the CFG Loan and terminated the Loan Agreement.
In addition, in connection with the Loan Agreement and as consideration for the CFG Loan, we issued to CF Global a warrant (the "Warrant") to purchase 325,457 shares of common stock. The Warrant had an exercise price of $0.01 per share, subject to adjustment as set forth in the Warrant, was exercisable immediately, contained a cashless exercise provision and was set to expire on February 1, 2030. On March 29, 2024, the Warrant was exercised in full.
Available Information
Our periodic and current reports are filed with the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and are available free of charge within 24 hours after they are filed with, or furnished to, the SEC at the Company’s website at www.arq.com. Alternatively, these reports can be accessed at the SEC’s website at www.sec.gov. The information contained on our website shall not be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act.
Forward-Looking Statements Found in this Report
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that involve risks and uncertainties. In particular statements about our beliefs, plans, objectives, expectations, assumptions, future events or future performance contained in this report, including certain statements found in this Part I and
under the heading in Part II, Item 7 below, are forward-looking statements. In some cases, forward-looking statements can be identified by words or phrases such as "anticipates," "believes," "expects," "intends," "plans," "estimates,", "may," "predicts," the negative expressions of such words, or similar expressions, and such forward-looking statements include, but are not limited to, statements or expectations regarding:
(a)the anticipating timing of the completion of commissioning of the GAC Facility, ramp-up to full nameplate capacity at our Red River Plant, and commercial production of our GAC products;
(b)the anticipated effects from fluctuations in the pricing of our AC products;
(c)expected supply and demand for our AC products and services, including our GAC products;
(d)the seasonal impact on our customers and their demand for our products;
(e)the ability to continue to successfully integrate Legacy Arq's business and recognize the benefits and synergies from the Arq Acquisition;
(f)the ability to continue to develop and utilize Legacy Arq’s products and technology and the anticipated timing for bringing such products to market;
(g)our ability to access new markets for our GAC and other products;
(h)any future plant capacity expansions or site development projects and our ability to finance any such projects;
(i)the effectiveness of our technologies and the benefits they provide;
(j)the timing of awards of, and work and related testing under, our contracts and agreements and their value;
(k)probability of any loss occurring with respect to certain guarantees made by Tinuum Group;
(l)the timing and amounts of or changes in future revenue, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, royalty payment obligations, working capital, liquidity and other financial and accounting measures;
(m)the performance of obligations secured by our surety bonds;
(n)the amount and timing of future capital expenditures needed to fund our business plan;
(o)the impact of capital expenditure overruns on our business;
(p)awards of patents designed to protect our proprietary technologies both in the U.S. and other countries;
(q)the adoption and scope of regulations to control certain chemicals in drinking water and other environmental concerns and the impact of such regulations on our customers' and our businesses, including any increase or decrease in sales of our AC products resulting from such regulations;
(r)the impact of adverse global macroeconomic conditions, including rising interest rates, recession fears and inflationary pressures, and geopolitical events or conflicts;
(s)opportunities to effectively provide solutions to our current and future customers to comply with regulations, improve efficiency, lower costs and maintain reliability; and
(t)the impact of prices of competing power generation sources such as natural gas and renewable energy on demand for our products.
Our expectations are based on certain assumptions, including without limitation, that:
(a)coal will continue to be a significant source of fuel for electrical generation in the U.S.;
(b)we will continue as a key supplier of consumables to the coal-fired power generation industry as it seeks to implement reduction of mercury emissions;
(c)we will successfully complete commissioning of our GAC Facility and our GAC products will be accepted by the APT market;
(d)we will be able to obtain adequate capital and personnel resources to meet our operating needs and to fund anticipated growth and our indemnity obligations;
(e)significant customers will continue to purchase consumables from us;
(f)we will be able to establish and retain key business relationships with current and other companies;
(g)orders we anticipate receiving will be received;
(h)we will be able to formulate new consumables that will be useful to, and accepted by, the markets;
(i)we will be able to effectively compete against others;
(j)we will be able to meet any technical requirements of projects we undertake; and
(k)existing environmental regulations stay in place and are adequately enforced.
The forward-looking statements included in this Report 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 timing and scope of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate new regulations or enforce existing regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; availability, cost of and demand for alternative energy sources and other technologies and their impact on coal-fired power generation in the U.S.; technical, start up and operational difficulties; competition within the industries in which the Company operates; risks associated with our debt financing; our inability to effectively and efficiently commercialize new products, including our GAC products; our inability to effectively manage commissioning and startup of the GAC Facility at our Red River Plant; disruptions at any of our facilities, including by natural disasters or extreme weather; risks related to our information technology systems, including the risk of cyberattacks on our networks; failure to protect our intellectual property from infringement or claims that we have infringed on the intellectual property of others; our inability to obtain future financing or financing on terms that are favorable to us; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; ongoing effects of the inflation and macroeconomic uncertainty, including from the new U.S. presidential administration, increased domestic and international tariffs, lingering effects of the pandemic and armed conflicts around the world, and such uncertainty's effect on market demand and input costs; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; factors relating to our business strategy, goals and expectations concerning the Arq Acquisition; our ability to maintain relationships with customers, suppliers and others with whom the Company does business and meet supply requirements; our results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; costs related to the ongoing manufacturing of our products, including our GAC products; opportunities for additional sales of our AC products and end-market diversification; the rate of coal-fired power generation in the U.S.; the timing and cost of any future capital expenditures and the resultant impact to our liquidity and cash flows; and the other risk factors described in our filings with the SEC, including those described in Item 1A. Risk Factors of this Report. You are cautioned not to place undue reliance on the forward-looking statements made in this Report and to consult filings we have made and will make with the SEC for additional discussion concerning risks and uncertainties that may apply to our business and the ownership of our securities. The forward-looking statements contained in this Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required by law.