ades-20260331

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, 2026


☐			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 4, 2026, there were 42,926,258 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, 2026 and December 31, 20 25	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 202 6 and March 31, 2025	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2026 and M arch 31, 2025	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and March 31, 2025	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	26
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	28
	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, 2026		December 31, 2025
ASSETS
Current assets:
Cash	$	4,672	$	6,573
Receivables, net	15,952		14,980

Inventories, net	19,913		15,895




Prepaid expenses and other current assets	5,513		6,404
Total current assets	46,050		43,852
Restricted cash, long-term	11,184		8,467
Property, plant and equipment, net of accumulated depreciation of $31,289 and $28,375, respectively	141,061		143,154





Other long-term assets, net	33,840		35,107
Total Assets	$	232,135	$	230,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	17,107	$	15,269
Revolving credit facility	20,908		18,950
Current portion of long-term debt obligations	1,075		1,063



Other current liabilities	5,988		7,015
Total current liabilities	45,078		42,297
Long-term debt obligations, net of current portion	8,194		8,452




Other long-term liabilities	11,051		11,868
Total Liabilities	64,323		62,617
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, 47,494,404 and 47,348,394 shares issued, and 42,876,258 and 42,730,248 shares outstanding at March 31, 2026 and December 31, 2025, respectively	47		47
Treasury stock, at cost: 4,618,146 and 4,618,146 shares as of March 31, 2026 and December 31, 2025, respectively	(47,692)		(47,692)
Additional paid-in capital	202,475		201,784
Retained earnings	12,982		13,824

Total Stockholders’ Equity	167,812		167,963
Total Liabilities and Stockholders’ Equity	$	232,135	$	230,580

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)	2026		2025






Revenue	$	29,053	$	27,247

Cost of revenue, exclusive of depreciation and amortization	19,114		17,332


Operating expenses:



Selling, general and administrative	7,369		6,053

Research and development	982		874

Depreciation, amortization, depletion and accretion	2,570		2,181

Loss on sale of assets	—		145
Total operating expenses	10,921		9,253
Operating (loss) income	(982)		662
Other income (expense):


Interest expense	(705)		(724)




Other income	845		265
Total other income (expense)	140		(459)
(Loss) income before income taxes	(842)		203
Income tax expense	—		—
Net (loss) income	$	(842)	$	203
(Loss) income per common share (Note 1):
Basic	$	(0.02)	$	—
Diluted	$	(0.02)	$	—
Weighted-average number of common shares outstanding:
Basic	41,732		41,322
Diluted	41,732		42,530

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, 2026	47,348,394	$	47	(4,618,146)	$	(47,692)	$	201,784	$	13,824	$	167,963

Stock-based compensation	165,890	—		—	—		891		—		891



Repurchase of common shares to satisfy minimum tax withholdings	(19,880)	—		—	—		(200)		—		(200)





Net loss	—	—		—	—		—		(842)		(842)
Balances, March 31, 2026	47,494,404	$	47	(4,618,146)	$	(47,692)	$	202,475	$	12,982	$	167,812


	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

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)	2026		2025
Cash flows from operating activities
Net (loss) income	$	(842)	$	203
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation, amortization, depletion and accretion	2,570		2,181
Stock-based compensation expense	891		736
Operating lease expense	686		541
Amortization of debt discount and debt issuance costs	98		6
Loss on sale of long-term assets, net	—		145









Other non-cash items, net	(73)		(157)
Changes in operating assets and liabilities:
Receivables	(972)		(492)
Prepaid expenses and other assets	798		(113)
Inventories	(3,332)		(2,338)



Other long-term assets, net	501		(1,801)
Accounts payable and accrued expenses	1,726		(4,494)
Other current liabilities	(1,122)		(907)
Operating lease liabilities	(776)		826




Other long-term liabilities	(89)		(139)

Net cash provided by (used in) operating activities	64		(5,803)
Cash flows from investing activities
Acquisition of property, plant, equipment and intangible assets, net	(740)		(3,710)
Acquisition of mine development costs	(92)		(43)
Distributions from equity method investee in excess of cumulative earnings	78		155







Net cash used in investing activities	(754)		(3,598)
Cash flows from financing activities
Borrowings on revolving credit facility	32,439		30,700
Repayments of revolving credit facility	(30,481)		(28,344)
Repurchase of common stock to satisfy tax withholdings	(200)		(42)
Principal payments on notes payable	(196)		(144)
Principal payments on finance lease obligations	(56)		(201)







Net cash provided by financing activities	1,506		1,969
Increase (decrease) in Cash and Restricted Cash	816		(7,432)
Cash and Restricted Cash, beginning of period	15,040		22,235
Cash and Restricted Cash, end of period	$	15,856	$	14,803



Supplemental disclosure of non-cash investing and financing activities:
Change in accrued purchases for property and equipment	$	112	$	959

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", 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.

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 are collectively referred 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").

The Company owns a lignite coal mine located in Saline, Louisiana (the "Five Forks Mine") that currently supplies the primary raw material for the manufacturing of the majority of Company’s products at its facility in Coushatta, Louisiana (the "Red River Plant"). In addition, the Company leases land in Corbin, Kentucky, where it holds an idled manufacturing facility (the "Corbin Facility") capable of processing of bituminous coal fines into a purified, microfine carbon powder (the "Corbin Wetcake") for high value applications.

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, 2025 (the "2025 Form 10-K"). Significant accounting policies disclosed therein have not changed.

(Loss) Earnings Per Common Share

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

For the three months ended March 31, 2026 and March 31, 2025, 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 (loss) earnings per common share:


	Three Months Ended March 31,
(in thousands, except per share amounts)	2026		2025
Net (loss) income	$	(842)	$	203



Basic weighted-average number of common shares outstanding	41,732		41,322
Add: dilutive effect of equity instruments	—		1,208


Diluted weighted-average shares outstanding	41,732		42,530
(Loss) earnings per share - basic	$	(0.02)	$	—
(Loss) earnings per share - diluted	$	(0.02)	$	—

For the three months ended March 31, 2026 and 2025, potentially dilutive securities of 2.4 million and 0.1 million shares of common stock, respectively, are outstanding but are not included in the calculation of diluted net (loss) earnings 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 2025 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 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, the Company's revenue is generally higher in the first and third fiscal quarters during the colder and warmer 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 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 water treatment products. One of the major uses for PAC is for the treatment of taste and odor impurities caused by organic contaminants and natural materials in water that predominantly degrade during the summer months. Additionally, the rainy season generally results in more demand from water municipalities due to increased contaminated water volume from rain run-off.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

New Accounting Standards

Recently Adopted

In July 2025, the FASB issued Accounting Standards Update 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ("ASU 2025-05"). ASU 2025-05 provides a practical expedient that all entities can use when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. Under this practical expedient, an entity is allowed to assume that the current conditions it has applied in determining credit loss allowances for current accounts receivable and current contract assets remain unchanged for the remaining life of those assets. Entities that elect the practical expedient and, if applicable, make the accounting policy election are required to apply the amendments prospectively. The Company adopted ASU 2025-05 effective January 1, 2026. The adoption of this new accounting standard did not have a material impact on the Company's Condensed Consolidated Financial Statements.

Recently Issued

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, 2026 and December 31, 2025:


	As of
(in thousands)	March 31, 2026		December 31, 2025
Product inventory, net	$	13,617	$	10,403
Raw material inventory	6,296		5,492

Total inventories, net	$	19,913	$	15,895

Note 3 - Revenue

For the three months ended March 31, 2026 and 2025, 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, 2026 and December 31, 2025.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	As of
(in thousands)	March 31, 2026		December 31, 2025


Trade receivables, net	$	15,801	$	14,830
Other	151		150

Receivables, net	$	15,952	$	14,980

As of January 1, 2025, Trade receivables, net and Other receivables were $13.3 million and $1.6 million, respectively.

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, 2026 and December 31, 2025.

Note 4 - Debt Obligations


	As of
(in thousands)	March 31, 2026		December 31, 2025
Revolving credit agreement	$	20,908	$	18,950

CTB Loan due January 2036	8,266		8,403
Finance lease obligations	263		319
Other	972		1,031
	30,409		28,703
Unamortized debt discounts	(24)		(24)
Unamortized debt issuance costs	(208)		(214)

	30,177		28,465
Less: Current maturities	(21,983)		(20,013)
Total long-term debt obligations	$	8,194	$	8,452

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 equipment, eligible accounts receivable and eligible 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 Agreement. 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 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

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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.

On each of May 6, 2025, December 9, 2025, January 28, 2026, and February 27, 2026, the Company entered into amendments to the Revolving Credit Agreement, all of which provided for, among other things, a revision to the borrowing availability calculation and a reduction in the minimum liquidity requirement for the period beginning May 6, 2025 through March 31, 2026. On March 31, 2026, the Company entered into an amendment to the Revolving Credit Agreement, which provided for, among other things, the replacement of the existing minimum liquidity covenant with a $2.5 million availability reserve requirement, which will increase to $5.0 million beginning in January 2027, the addition of certain eligible equipment and Rolling Stock (as defined in the Revolving Credit Agreement) to the borrowing availability calculation included in the Revolving Credit Agreement, and certain amendments to the definition of Eligible Accounts to allow for higher single customer concentration until August 2026.

As of March 31, 2026, the Company's net borrowings under the Revolving Credit Facility totaled $20.9 million.

CTB Loan

On February 1, 2023, the Company assumed a term loan (the "CTB Loan") with Community Trust Bank, Inc. ("CTB") as lender 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 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.

On March 5, 2026, the Company entered into an amendment to the CTB Loan (the "CTB Second Amendment"). Under the CTB Second Amendment, the lender waived the Company’s obligation to satisfy certain financial covenants for the fiscal year ending December 31, 2025 and suspended financial covenant testing for the fiscal year ending December 31, 2026. As a condition of the waiver, the Company was required to increase its deposits held in reserve at CTB.

The carrying values of both the Revolving Credit Facility and the CTB Loan approximate their fair values as both instruments bear 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, 2026 and December 31, 2025 consisted of the following items:


	As of
(in thousands)	March 31, 2026		December 31, 2025
Operating Leases






Operating lease right-of-use assets, net of accumulated amortization (1)	$	6,108	$	6,793

Operating lease obligations, current	$	2,933	$	2,842
Long-term operating lease obligations	5,220		6,086
Total operating lease obligations	$	8,153	$	8,928

Finance Leases



Finance lease right-of-use assets, net of accumulated amortization (2)	$	221	$	276

Finance lease obligations, current	$	236	$	231
Long-term finance lease obligations	27		88
Total finance lease obligations	$	263	$	319

(1) Operating lease ROU assets are reported net of accumulated amortization of $7.3 million and $6.6 million as of March 31, 2026 and December 31, 2025, respectively.

(2) Finance lease ROU assets are reported net of accumulated amortization of $2.5 million and $2.8 million as of March 31, 2026 and December 31, 2025, respectively.

Operating leases

ROU assets under operating leases are included in the "Other long-term assets" line item, and operating lease liabilities are included in "Other current liabilities" and "Other long-term liabilities" line items, respectively, in the Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025.

Lease expense for operating leases for the three months ended March 31, 2026 was $1.5 million, of which $1.3 million is included in the "Cost of revenue, exclusive of depreciation and amortization" line item, and $0.2 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, 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.

In 2025, the Company renewed its lease of land where the Corbin Facility is located (the "Corbin Lease") through August 31, 2030 in accordance with the Corbin Lease renewal term, which allows for automatic five-year renewals by the Company. As of December 31, 2025 and based on the Company's decision to idle the Corbin Facility indefinitely, the Company revalued the Corbin Lease liability and the related ROU asset (the "Corbin ROU Asset") based on a reduction from its estimated expected termination date of August 31, 2040, to August 31, 2030. The revaluation resulted in a reduction to both the Corbin Lease Liability and the Corbin ROU Asset in the amount of $0.8 million.

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" line items, respectively, in the Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025.

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, 2026 and 2025.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Lease financial information as of and for the three months ended March 31, 2026 and 2025 is provided in the following table:


	Three Months Ended March 31,
(in thousands)		2026			2025
Finance lease cost:
Amortization of right-of-use assets		$	55		$	116
Interest on lease liabilities		26			38
Operating lease cost		884			837
Short-term lease cost		544			274
Variable lease cost (1)		77			9

Total lease cost		$	1,586		$	1,274

Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases		$	26		$	38
Operating cash flows from operating leases		$	776		$	540
Financing cash flows from finance leases		$	56		$	201

Right-of-use assets obtained in exchange for new operating lease liabilities		$	—		$	1,366
Weighted-average remaining lease term - finance leases		1.0 year			1.4 years
Weighted-average remaining lease term - operating leases		3.6 years			6.7 years
Weighted-average discount rate - finance leases		8.9		%	6.2		%
Weighted-average discount rate - operating leases		9.6		%	11.6		%

(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.

Note 6 - Commitments and Contingencies

Surety Bonds and Restricted Cash

As the owner of the Five Forks Mine, the Company is required to post a surety bond with a regulatory commission related to performance requirements associated with the Five Forks Mine. As of March 31, 2026, the amount of this surety bond was $7.5 million.

The Company leases land adjacent to the Corbin Facility and is required to post surety bonds with a regulatory commission for reclamation. As of March 31, 2026, the amount of these surety bonds was $3.0 million.

The Company holds permits for an abandoned mine in West Virginia ("Mine 4") and is required to post a surety bond with a regulatory commission for reclamation. As of March 31, 2026, the amount of this surety bond was $0.7 million.

As of March 31, 2026 and December 31, 2025, the Company posted cash collateral of $9.2 million and $8.5 million, respectively, as required by the Company's surety bond providers, which is reported as long-term restricted cash in the Condensed Consolidated Balance Sheets. As of March 31, 2026, the Company holds a deposit of $0.4 million with a third party for collateral as required under a bonding arrangement for Mine 4. This deposit is included in "Other long-term assets, net" in the Condensed Consolidated Balance Sheets as of March 31, 2026.

From time to time, the Company will enter into customer supply agreements which require the Company to obtain performance bonds equal to the annual contract values. The most significant of these was renewed January 1, 2026 and requires the Company to post a performance bond in an amount equal to the annual contract value of $4.0 million. As of March 31, 2026, the remaining commitment under this customer contract, which expires on December 31, 2026, was approximately $3.9 million. As of March 31, 2026, the amount of performance bonds outstanding as required by other customer supply agreements was $0.3 million.

Arq, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Tinuum Group

The Company has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. The Company, along with certain other owners of Tinuum Group, have provided another Tinuum Group owner with limited guarantees (the "Tinuum Group Party Guarantees") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants. The Company also is a party to a contribution agreement under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contribution from the other party equal to 50% of the amount paid. No liability or expense provision has been recorded by the Company related to this contingent obligation as the Company believes that it is not probable that a loss will occur with respect to Tinuum Group Party Guarantees.

Legal Proceedings

The Company is from time to time subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes, the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, settlements and judgments where management has assessed that a loss is probable and an amount can be reasonably estimated.

On February 7, 2025, the Company announced that it had commenced legal proceedings against the firm engaged for design of the GAC facility constructed at the Red River Plant (the "GAC Facility"). The Company believes that the design firm was, among other things, negligent and breached its contract with the Company and as a direct result, the Company suffered material damages including a material increase in costs and time delays associated with the project versus original forecasts. The Company is now seeking to recover damages resulting from such negligence and contractual breaches. On April 11, 2025, the design firm filed a counterclaim to recover certain fees associated with the services provided.

Note 7 - Supplemental Financial Information

Supplemental Balance Sheet Information

The following table summarizes the components of Prepaid expenses and other current assets and Other long-term assets, net as presented in the Condensed Consolidated Balance Sheets:


	As of
(in thousands)	March 31, 2026		December 31, 2025








Prepaid expenses and other current assets:
Prepaid expenses	$	2,105	$	2,959
Prepaid lender fees, net (1)	1,520		1,472
Prepaid taxes and tax refunds	141		147
Other	1,747		1,826
Total prepaid expenses and other current assets	$	5,513	$	6,404

Other long-term assets, net:
Spare parts, net	$	10,755	$	11,017
Mine development costs, net	6,701		6,763
Right of use assets, operating leases, net	6,108		6,793
Upfront Customer Consideration (2)	5,459		5,639
Mine reclamation asset, net	1,613		1,645
Intangible assets, net	585		570
Other	2,619

SEC Form 10-Q filed by Arq Inc.