ades-20250331

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025


☐			TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37822

______________________________________

ARQ, INC.

(Exact name of registrant as specified in its charter)

______________________________________


Delaware						27-5472457
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

8051 E. Maplewood Ave., Ste. 210, Greenwood Village, CO						80111
(Address of principal executive offices)						(Zip Code)

(720) 598-3500
(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.001 per share

ARQ

Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of May 5, 2025, there were 42,211,120 outstanding shares of Arq, Inc. common stock, par value $0.001 per share.

INDEX


		PAGE
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 20 24	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31 , 202 5 and March 31 , 20 24	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2025 and March 31 , 20 24	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and March 31 , 20 24	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26

PART II. - OTHER INFORMATION

Item 1.	Legal Proceedings	27
Item 1a.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	29
	Signatures	30

Part I. – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Arq, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


	As of
(in thousands, except share data)	March 31, 2025		December 31, 2024
ASSETS
Current assets:
Cash	$	6,336	$	13,516
Receivables, net	15,368		14,876

Inventories, net	21,749		19,314




Prepaid expenses and other current assets	4,781		4,650
Total current assets	48,234		52,356
Restricted cash, long-term	8,467		8,719
Property, plant and equipment, net of accumulated depreciation of $28,500 and $26,619, respectively	181,202		178,564





Other long-term assets, net	45,768		44,729
Total Assets	$	283,671	$	284,368
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	17,482	$	21,017
Revolving credit facility	16,184		13,828
Current portion of long-term debt obligations	1,570		1,624



Other current liabilities	7,738		8,184
Total current liabilities	42,974		44,653
Long-term debt obligations, net of current portion	9,086		9,370




Other long-term liabilities	13,438		13,069
Total Liabilities	65,498		67,092
Commitments and contingencies (Note 6)

Stockholders’ equity:
Preferred stock: par value of $0.001 per share, 50,000,000 shares authorized, none issued or outstanding	—		—
Common stock: par value of $0.001 per share, 100,000,000 shares authorized, 46,782,399 and 46,639,930 shares issued, and 42,164,253 and 42,021,784 shares outstanding at March 31, 2025 and December 31, 2024, respectively	47		47
Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of March 31, 2025 and December 31, 2024, respectively	(47,692)		(47,692)
Additional paid-in capital	199,181		198,487
Retained earnings	66,637		66,434

Total Stockholders’ Equity	218,173		217,276
Total Liabilities and Stockholders’ Equity	$	283,671	$	284,368

See Notes to the Condensed Consolidated Financial Statements.

Arq, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended March 31,
(in thousands, except per share data)	2025		2024






Revenue	$	27,247	$	21,740

Cost of revenue, exclusive of depreciation and amortization	17,332		13,713


Operating expenses:



Selling, general and administrative	6,053		7,666

Research and development	874		1,625

Depreciation, amortization, depletion and accretion	2,181		1,716

Loss on sale of assets	145		—
Total operating expenses	9,253		11,007
Operating income (loss)	662		(2,980)
Other expense:
Earnings from equity method investments	155		—

Interest expense	(724)		(791)




Other	110		352
Total other expense	(459)		(439)
Income (loss) before income taxes	203		(3,419)
Income tax expense	—		—
Net income (loss)	$	203	$	(3,419)
Income (loss) per common share (Note 1):
Basic	$	—	$	(0.09)
Diluted	$	—	$	(0.09)
Weighted-average number of common shares outstanding:
Basic	41,322		37,062
Diluted	42,530		37,062

See Notes to the Condensed Consolidated Financial Statements.

Arq, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)


	Common Stock			Treasury Stock
(in thousands, except share data)	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
Balances, January 1, 2025	46,639,930	$	47	(4,618,146)	$	(47,692)	$	198,487	$	66,434	$	217,276

Stock-based compensation	142,683	—		—	—		736		—		736



Repurchase of common shares to satisfy minimum tax withholdings	(214)	—		—	—		(42)		—		(42)





Net income	—	—		—	—		—		203		203
Balances, March 31, 2025	46,782,399	$	47	(4,618,146)	$	(47,692)	$	199,181	$	66,637	$	218,173


	Common Stock			Treasury Stock
(in thousands, except share data)	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
Balances, January 1, 2024	37,791,084	$	38	(4,618,146)	$	(47,692)	$	154,511	$	71,543	$	178,400

Stock-based compensation	81,253	—		—	—		782		—		782


Repurchase of common shares to satisfy minimum tax withholdings	(104,163)	—		—	—		(599)		—		(599)
Exercise of warrant, net	324,955	—		—	—		—		—		—


Net loss	—	—		—	—		—		(3,419)		(3,419)
Balances, March 31, 2024	38,093,129	$	38	(4,618,146)	$	(47,692)	$	154,694	$	68,124	$	175,164

See Notes to the Condensed Consolidated Financial Statements.

Arq, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2025		2024
Cash flows from operating activities
Net income (loss)	$	203	$	(3,419)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation, amortization, depletion and accretion	2,181		1,716
Stock-based compensation expense	736		782
Operating lease expense	541		596
Loss on sale of assets	145		—
Amortization of debt discount and debt issuance costs	6		149
Earnings from equity method investments	(155)		—








Other non-cash items, net	(2)		(19)
Changes in operating assets and liabilities:
Receivables, net	(492)		5,264
Prepaid expenses and other assets	(113)		1,067
Inventories, net	(2,338)		(1,240)



Other long-term assets, net	(1,801)		(556)
Accounts payable and accrued expenses	(4,494)		(3,481)
Other current liabilities	(907)		1,190
Operating lease liabilities	826		(592)




Other long-term liabilities	(139)		(931)

Net cash (used in) provided by operating activities	(5,803)		526
Cash flows from investing activities
Acquisition of property, plant, equipment and intangible assets, net	(3,710)		(9,596)
Acquisition of mine development costs	(43)		(51)

Distributions from equity method investees in excess of cumulative earnings	155		—






Net cash used in investing activities	(3,598)		(9,647)
Cash flows from financing activities


Borrowings on revolving credit facility	30,700		—
Repayments of revolving credit facility	(28,344)		—
Principal payments on finance lease obligations	(201)		(280)

Principal payments on notes payable	(144)		(134)
Repurchase of common stock to satisfy tax withholdings	(42)		(599)




Net cash provided by (used in) financing activities	1,969		(1,013)
Decrease in Cash and Restricted Cash	(7,432)		(10,134)
Cash and Restricted Cash, beginning of period	22,235		54,153
Cash and Restricted Cash, end of period	$	14,803	$	44,019



Supplemental disclosure of non-cash investing and financing activities:
Change in accrued purchases for property and equipment	$	959	$	1,415

See Notes to the Condensed Consolidated Financial Statements.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Organization and Basis of Presentation

Arq, Inc., together with its consolidated subsidiaries ("Arq" or the "Company"), is 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"). The Company's 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. The Company manufactures and sells 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.

The Company’s primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials. The Company’s AC products include powdered activated carbon ("PAC") and granular activated carbon ("GAC"). Additionally, the Company owns the Five Forks Mine, a lignite coal mine located in Saline, Louisiana, that currently supplies the primary raw material for the manufacturing of the Company’s products, and bituminous coal feedstock and a manufacturing facility located in Corbin, Kentucky (the "Corbin Facility").

The Company, formerly known as Advanced Emissions Solutions, Inc., is a Delaware corporation with its principal office located in Greenwood Village, Colorado, with manufacturing, mining and logistics operations located in Louisiana and coal recovery and manufacturing operations located in Kentucky.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements of Arq are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and with Article 10 of Regulation S-X of the Securities and Exchange Commission. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

The unaudited Condensed Consolidated Financial Statements of Arq in this Quarterly Report on Form 10-Q ("Quarterly Report") are presented on a consolidated basis and include Arq and its wholly-owned subsidiaries. Also included within the unaudited Condensed Consolidated Financial Statements are the Company's unconsolidated equity investments, Tinuum Group, which is accounted for under the equity method of accounting, and Highview Enterprises Limited (the "Highview Investment"), which is accounted for in accordance with U.S. GAAP applicable to equity investments that do not qualify for the equity method of accounting.

Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated in consolidation for all periods presented in this Quarterly Report.

In the opinion of management, these Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary for a fair presentation of the results of operations, financial position, stockholders' equity and cash flows for the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K"). Significant accounting policies disclosed therein have not changed.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the weighted-average number of shares of the Company's common stock outstanding during the reporting period. Diluted earnings (loss) per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities.

For the three months ended March 31, 2025 and March 31, 2024, potentially dilutive securities consist of unvested restricted stock awards ("RSAs"), stock options, and contingent performance stock units ("PSUs").

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table sets forth the calculations of basic and diluted earnings (loss) per share:


	Three Months Ended March 31,
(in thousands, except per share amounts)	2025		2024
Net income (loss)	$	203	$	(3,419)



Basic weighted-average number of common shares outstanding	41,322		37,062
Add: dilutive effect of equity instruments	1,208		—


Diluted weighted-average shares outstanding	42,530		37,062
Earnings (loss) per share - basic	$	—	$	(0.09)
Earnings (loss) per share - diluted	$	—	$	(0.09)

For the three months ended March 31, 2025 and 2024, potentially dilutive securities of 0.1 million and 2.6 million shares of common stock, respectively, are outstanding but are not included in the calculation of diluted net earnings (loss) per share because the effect would be anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There have been no changes in the Company's critical accounting estimates from those that were disclosed in the 2024 Form 10-K. Actual results could differ from these estimates.

Fair value measurements

The carrying amounts of the Company's cash, restricted cash, accounts receivable, accounts payable and other current liabilities approximate fair value as recorded due to the short-term nature of these instruments.

Seasonality

The timing of the sale of the Company's 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, the Company's revenue is generally higher in the 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 during the summer season, higher temperatures may cause increased impurities within various municipalities' water sources and thus increase the demand for the Company's 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, the Company's product sales may decrease.

Also, the Company's 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 the Company's products. In contrast, during periods of higher prices for competing power generation sources, coal consumption generally increases, which generally increases demand for the Company's products.

Demand for the Company's water purification products is driven largely from municipal water treatment facilities. Depending on weather conditions and other environmental factors, the summer months historically have the highest demand for the Company's products used 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 from water municipalities due to rain run-off and contaminant dilution.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

New Accounting Standards

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ("ASU 2023-09"). ASU 2023-09 requires entities to disclose: (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. This update also makes several other changes to the income tax disclosure requirements. For public entities, the amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and are required to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its financial statement disclosures.

In November 2024, the FASB issued Accounting Standards Update 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"). ASU 2024-03 requires entities to disclose disaggregated information related to certain costs and expenses, including amounts relating to purchases of inventory, employee compensation, depreciation, intangible asset amortization and depletion, for each income statement line item that contains those expenses. For public entities, the amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 is required to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2024-03 on its financial statement disclosures.

Note 2 - Inventories, net

The following table summarizes the Company's inventories as of March 31, 2025 and December 31, 2024:


	As of
(in thousands)	March 31, 2025		December 31, 2024
Product inventory, net	$	13,792	$	11,166
Raw material inventory	7,957		8,148

Total inventories, net	$	21,749	$	19,314

Note 3 - Revenue

For the three months ended March 31, 2025 and 2024, all material performance obligations related to revenue recognized were satisfied at a point in time.

Trade receivables

Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company invoices its customers in accordance with the terms of the contract. Credit terms are generally net 30 - 45 days from the date of invoice. The timing between the satisfaction of performance obligations and when payment is due from the customer is generally not significant.

Contract assets

Contract assets comprise unbilled receivables from customers and are included in Receivables, net in the Condensed Consolidated Balance Sheets. Unbilled receivables represent a conditional right to consideration in exchange for goods or services transferred to a customer. The Company did not have material unbilled receivables or other contract assets outstanding as of March 31, 2025 and December 31, 2024.

The following table shows the components of the Company's Receivables, net:


	As of
(in thousands)	March 31, 2025		December 31, 2024


Trade receivables, net	$	14,120	$	13,265
Other	1,248		1,611

Receivables, net	$	15,368	$	14,876

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contract liabilities

Contract liabilities comprise deferred revenue, which represents an obligation to transfer goods or services to a customer for which the Company has received consideration from the customer and, if deliverable within one year or less, are included in "Other current liabilities" in the Condensed Consolidated Balance Sheets and, if deliverable outside of one year, are included in "Other long-term liabilities" in the Condensed Consolidated Balance Sheets. The Company did not have material contract liabilities outstanding as of March 31, 2025 and December 31, 2024.

Note 4 - Debt Obligations


	As of
(in thousands)	March 31, 2025		December 31, 2024
Revolving credit agreement	$	16,184	$	13,828

CTB Loan due January 2036	8,840		8,983
Finance lease obligations	1,121		1,269
Other	951		1,004
	27,096		25,084
Unamortized debt discounts	(24)		(24)
Unamortized debt issuance costs	(232)		(238)

	26,840		24,822
Less: Current maturities	(17,754)		(15,452)
Total long-term debt obligations	$	9,086	$	9,370

Revolving Credit Agreement

In December 2024, the Company and certain of its subsidiaries entered into a credit agreement (the “Revolving Credit Agreement”) with MidCap Funding IV Trust (the "Lender"), providing for a five-year $30.0 million secured revolving credit facility (the "Revolving Credit Facility"). Pursuant to the terms of the Revolving Credit Facility, Arq may borrow up to $30.0 million, the availability of which is determined based on a borrowing base equal to percentages of certain eligible accounts receivable and inventory carrying balances of the Company and certain of its subsidiaries, less applicable reserves established under the Revolving Credit Facility (together, the "Revolving Loan Commitment"), in accordance with a formula set forth in the Revolving Credit Facility. All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate on a periodic basis. The Company's obligations under the Revolving Credit Facility are secured by first-priority liens on substantially all of the Company's assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets, subject to certain negotiated exceptions.

Borrowings under the Revolving Credit Facility 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. In addition to paying interest on the outstanding loans under the Revolving Credit Facility, the Company is also required to pay an unused line fee equal to 0.50% per annum in respect of unused commitments under the Revolving Credit Facility, a fee for failure to maintain a minimum balance under the Revolving Credit Facility, a collateral management fee under the Revolving Credit Facility equal to 0.25% per annum of the amount outstanding under the Revolving Credit Facility, and certain other customary fees related to the Lender's administration of the Revolving Credit Facility. If the Revolving Loan Commitment is terminated prior to its maturity date, the Company is required to make certain prepayment fees in an amount equal to (i) 2.00% of the terminated amount of the Revolving Loan Commitment in the first year following the Closing Date, (ii) 1.00% of the terminated amount of the Revolving Loan Commitment in the second year following the Closing Date, (iii) 0.50% of the terminated amount of the Revolving Loan Commitment in the third year following the Closing Date and (iv) 0.00% at any time thereafter.

The Revolving Credit Facility contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including, without limitation, covenants that, among other things, require delivery of certain financial statements, projections and reports, require maintenance of property and insurance, limit or restrict the ability of the Company, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Revolving Credit Facility requires the Company and certain of its subsidiaries party thereto to maintain their aggregate Total Leverage Ratio at or below a maximum leverage ratio and to maintain minimum liquidity of $5.0 million, in each case as specified in the Revolving Credit Facility.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On May 6, 2025, the Company entered into the first amendment to the Revolving Credit Agreement (the "First Amendment"), which provides for, among other things, amendments to the borrowing availability calculation under the Revolving Loan Commitment, and an update to the Company's minimum liquidity covenant providing for decreased minimum liquidity required through certain applicable date ranges as shown in the table below:


Applicable Dates						Minimum Liquidity Required
May 6th, 2025 through June 30th, 2025						$1.0 million
July 1st, 2025 through July 31st, 2025						$0.0 million
August 1st, 2025 through August 31st, 2025						$1.0 million
September 1st, 2025 through September 30th, 2025						$1.5 million
October 1st, 2025 through October 31st, 2025						$2.0 million
November 1st, 2025 through November 30th, 2025						$3.0 million
December 1st, 2025 and at all times thereafter						$5.0 million

As of March 31, 2025, the Company's net borrowings under the Revolving Credit Facility totaled $16.2 million.

CTB Loan

On February 1, 2023, the Company assumed a term loan (the "CTB Loan") in the principal amount of $10.0 million held by certain subsidiaries acquired by the Company on that date (the "Borrowers"). The Company initially recorded the CTB Loan at its estimated fair value of $9.7 million, with the difference of $0.3 million between the estimated fair value and the principal amount recorded as a debt discount and recognized as interest expense over the term of the CTB Loan.

The CTB Loan was originally entered into on January 27, 2021 and is comprised of two promissory notes (the "Notes"): (1) "Note A" in the principal amount of $8.0 million, which is guaranteed by the U.S. Department of Agriculture; and (2) "Note B" in the principal amount of $2.0 million. The Notes mature on January 27, 2036 and bear interest at 6.0% per annum through January 2026 and at the prime rate plus 2.75% thereafter. The Company is required to make combined interest and principal payments monthly in the fixed amount of $0.1 million. Interest is computed and payable on the outstanding principal as of the end of the prior month and the balance of the fixed monthly payment amount is applied to the outstanding principal. The Notes carry a prepayment penalty of 3.0% of the outstanding principal if paid prior to January 27, 2024, 2.0% of the outstanding principal if paid prior to January 27, 2025 and 1.0% of the outstanding principal if paid prior to January 27, 2026. Thereafter, the Notes may be prepaid without penalty.

The CTB Loan is secured by substantially all assets of the Borrowers and includes among others, the following covenants with respect to the Borrowers, which are tested annually (Capitalized terms are defined in the CTB Loan Agreement): (a) Total Indebtedness to Net Worth greater than 4 to 1; (b) Balance Sheet Equity greater than or equal to 20% of the book value of all assets of the Borrowers; (c) (i) net income plus interest, taxes, depreciation and amortization divided by (ii) interest expense plus current maturities on long-term debt greater than or equal to 1.25 to 1.

The carrying value of the CTB Loan approximates its fair value as the instrument bears interest at rates indexed to market rates for similar instruments.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 5 - Leases

The Company's operating and finance lease right-of-use ("ROU") assets and liabilities as of March 31, 2025 and December 31, 2024 consisted of the following items:


	As of
(in thousands)	March 31, 2025		December 31, 2024
Operating Leases






Operating lease right-of-use assets, net of accumulated amortization (1)	$	10,137	$	9,312

Operating lease obligations, current	$	2,525	$	2,081
Long-term operating lease obligations	7,842		7,460
Total operating lease obligation	$	10,367	$	9,541

Finance Leases



Finance lease right-of-use assets, net of accumulated amortization (2)	$	707	$	824

Finance lease obligations, current	$	788	$	855
Long-term finance lease obligations	333		414
Total finance lease obligations	$	1,121	$	1,269

(1) Operating lease ROU assets are reported net of accumulated amortization of $5.0 million and $4.5 million as of March 31, 2025 and December 31, 2024, respectively.

(2) Finance lease ROU assets are reported net of accumulated amortization of $3.3 million and $3.2 million as of March 31, 2025 and December 31, 2024, respectively.

Operating leases

ROU assets under operating leases and operating lease liabilities are included in the "Other long-term assets" and "Other current liabilities" and "Other long-term liabilities" line items, respectively, in the Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024.

Lease expense for operating leases for the three months ended March 31, 2025 was $1.1 million, of which $1.0 million is included in the "Cost of revenue, exclusive of depreciation and amortization" line item, and $0.1 million is included in the "Selling, general and administrative" line item in the Condensed Consolidated Statements of Operations for those periods.

Lease expense for operating leases for the three months ended March 31, 2024 was $1.4 million, of which $1.0 million is included in the "Cost of revenue, exclusive of depreciation and amortization" line item, and $0.4 million is included in the "Selling, general and administrative" line item in the Condensed Consolidated Statements of Operations for those periods.

Finance leases

ROU assets under finance leases are included in the "Property, plant and equipment" line item, and finance lease liabilities are included in the "Current portion of long-term debt" and "Long-term debt, net of current portion" in the Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024.

Interest expense related to finance lease obligations and amortization of ROU assets under finance leases are included in the "Interest expense" and "Depreciation, amortization, depletion and accretion" line items, respectively, in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Lease financial information as of and for the three months ended March 31, 2025 and 2024 is provided in the following table:


	Three Months Ended March 31,
(in thousands)		2025			2024
Finance lease cost:
Amortization of right-of-use assets		$	116		$	210
Interest on lease liabilities		38			51
Operating lease cost		837			911
Short-term lease cost		274			336
Variable lease cost (1)		9			108

Total lease cost		$	1,274		$	1,616

Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases		$	38		$	51
Operating cash flows from operating leases		$	540		$	592
Financing cash flows from finance leases		$	201		$	280

Right-of-use assets obtained in exchange for new operating lease liabilities		$	1,366		$	—
Weighted-average remaining lease term - finance leases		1.4 years			1.6 years
Weighted-average remaining lease term - operating leases		6.7 years			7.6 years
Weighted-average discount rate - finance leases		6.2		%	5.9

SEC Form 10-Q filed by Arq Inc.