Arq, Inc.

Thank you for joining us today for a fireside chat with Robert Rasmuth, Chief Executive Officer of ARK Incorporated, NASDAQ ticker ARQ. I'm Peter Gastreich, Energy Transition and Sustainable Investing Analyst here at Watertower Research. So ARK is an environmental technology company producing activated carbon products, which are used to reduce or reverse environmental liabilities, including things like forever chemicals from public drinking water systems, removing mercury emissions from coal-fired power plants, remediating contaminated soil and groundwater, and removing impurities from renewable natural gas. Before we begin, I want to remind listeners that the company's safe harbor statements can be found under the investor relations tab on the company's corporate homepage. Also note this fireside chat may not be reproduced or written transcript distributed without the express written consent of Watertower Research. Our discussion could include forward-looking statements as of today, March 25th, 2026. This Fireside Chat is an open access forum for investors, analysts, and stakeholders and is being recorded. Recording can be accessed later via a Watertower Research website. With that, let's turn to Bob Rasmus. So, Bob, good morning, and thank you so much for joining us today.

Thanks, Peter. It's a pleasure to be here, and thank you for taking the time.

Okay, great. So, Bob, can we please kick off here with a high-level background on ARC?

You actually did a pretty good job in your introduction on that, so I won't repeat all of that, but I'll just say to people, listen to what Peter said as it relates to that. As mentioned, we're an environmental technology company whose products are principally activated carbon, and really in the form of two components, one powdered activated carbon, and the second is we're aspiring to granular activated carbon. The powdered activated carbon really focuses on the power generation industries, scrubbing mercury emissions from coal-fired power plants, improving the taste and odor in municipal drinking water, removing micropollutants, micropollutants being trace pharmaceuticals, being pesticides, being microplastics, other things that are harmful to people. aquatic life and human health. And we've got a leading market share in the powdered activated carbon business. And we've done a great job of transforming that business from the last three years from a money losing operation to a free cash flow generating business. And there's a diverse group of markets we serve there. And we're continuing to expand in that based on our technological capabilities. and strong technical team. On the granular activated carbon side, our principal focus is removing PFAS or the forever chemicals from municipal drinking water, scrubbing biogas, the sulfur and other pollutants from biogas before it enters... pipeline grid, and also looking at other things like food and beverage as well. The great thing about the granular activated carbon business and the reason we're looking to expand into that area is there has been, and we expect to continue, well into the future, a persistent demand-supply imbalance where there is significant excess demand versus the existing supply. In addition, there are barriers to entry that would make it very long and costly for any new entrant or greenfield entrant to come into the marketplace.

Well, you started to touch there on the industry landscape. And, you know, we could have some listeners here who are sort of new to the activated carbon space. I think for those listeners, it'd be useful if you could just elaborate a little bit more in terms of the activated carbon industry, sort of, you know, what's driving the demand today? How do we see that the market evolving over the next several years and kind of overlay that with the what the supply outlook is looking like?

Sure. And again, I'll break it down into the two components, the powdered activated carbon business and our granular activated carbon business. Powdered activated carbon, we use lignite coal, which we ground up into a fine powder for our powdered activated carbon. You can also use other feedstocks such as wood char, olive pits, coconut husks, again, being a predominant ingredient. source of feedstock that some of our competition uses. One of our competitive advantages is that we have the only fully domestic, fully vertically integrated supply chain on the powdered activated carbon side of things. The competition there is widespread. It is from a wide variety, both domestic and imported. Most of the feedstock is imported, so our being the only domestic supplier is with fully vertically integrated supply chain gives us an advantage. The granular activated carbon side that you really need to use bituminous coal-based granular activated carbon as the feedstock for your product. The reason being that the Other don't have the pore space or the molecular structure to be able to attract and retain and remove the harmful pollutants such as PFAS from the water system as it relates to that. So that gives us a significant advantage. It also means there's much less competition in the granular activated carbon space. And it is basically there's two or three people in the U.S., that compete on the granular activated carbon side of things. One of the reasons the market is so attractive to us from an entrance standpoint is because of that supply-demand imbalance that we can take market share without having to take market share from any competitors just through the normal growth of the market and the fact that it is under supply. There's a desperate need for additional granular activated carbon.

Okay, great. So why don't we move on to, you know, your granular activated carbon business, maybe dive in a bit deeper there. You know, you recently announced a pause in that GAC production. Could you walk us through the challenges that you faced and why you ultimately decided that this pause was necessary? Sure.

No, absolutely. It was a difficult decision in some respects, but it was absolutely the right decision made for the right reasons at the right time for long-term shareholder value. Based on the original design flaws from the original engineering firm with whom we're in active litigation, we had been systematically and methodically solving a variety of different production challenges for on the front end and the middle end. And then we also knew that there were design deficiencies on the back end in the off-gas system. That's why we brought in a thermal oxidizer as a temporary solution to be able to finish commissioning and to start producing granular activated carbon. It became apparent that we were going to have to modify that existing thermal oxidizer. We knew it could only achieve 15 million pounds versus our stated goal, design goal of 25 million pounds. And we wanted to determine what modifications were necessary to the thermal oxidizer to get us to 25 million pounds of granular activated carbon production. Under new operating management, we decided to take a more proactive approach to test the existing off-gas system design to see if it was capable of producing 25 million pounds of granular activated carbon, assuming we made the necessary modifications to the thermal oxidizer. And the testing was completed in late December. The analysis was completed in the test results in late January. And what it showed is that, again, due to original design deficiencies, that no amount of modifications that we would undertake or make to the thermal oxidizer would get us to 25 million pounds of annual production. So working with the outside engineering firm, the new outside engineering firm, I want to emphasize, and with equipment manufacturers, to come up with what the new design would be, what the cost would be, and what the timing would be. And oh, by the way, we need this answer and want this answer prior to our earnings call, which occurred approximately a week ago today. What they came back with was a new design, a new timing, and new cost, but they said it was plus or minus 25 to 35 percent factor. So if you think about it, you've got a bracket. You've got 50% to 70%. That isn't something that it would be prudent to make a capital decision based on. So we made the decision to pause the granular activated carbon process until we could further refine the ROI, that is, the outside engineering firm and the equipment manufacturer could further refine what the cost, timing, and design would be down to a tolerance of roughly 5% or 10%.

And you've mentioned before, I think at the earnings call, that the new plan could involve significant scaling versus the previous plan. I think you mentioned as high as 50 million pounds for the first phase. How should investors think about the potential shift in that profile?

We know there absolutely exists the underlying demand for granular activated carbon. If we could produce 50 million pounds right now, we could sell all 50 million pounds of granular activated carbon. So when we're taking this pause, we thought, let's refine further the what the cost would be, because we know we ultimately are going to want to expand from 25 million pounds to 50 million pounds. And let's undertake these significant modifications we're going to have to undertake. If we're doing that now to get to 25 million is to get to 50 million 2x. Is it 1.5x? Is it 1.7x? Is it 1.25x? What that cost is. And it behooves us to do that analysis now for two reasons. One, it all comes down to economics. What's the best economic return and long-term benefit for our shareholders as it relates to that? And second is we want to make sure that any modifications that we make now don't inhibit or create further problems down the road when we're trying to expand from 25 to 50 million pounds.

And what do you think is a kind of realistic framework in terms of the time that you could be coming out with a plan for investors?

Our goal is to definitely have an update by the next earnings call, which is roughly the first week in May, less than 60 days away. That's our goal.

Okay, great. So, you know, regarding the Corbin feedstock facility, you've idled that facility, you know, it took a significant write down, and you're switching, you know, from the wet cake at that facility to purchase bituminous coal. You know, this is obviously a major pivot. What gives you the confidence that that product quality is going to hold up, you know, with this change? And And also, for that facility, what kind of optionality do you still have in terms of other products?

Sure. There are a number of questions there, Peter, and I'll try and take the most important first. And what makes us feel comfortable that we still have a competitive advantage for the performance of our product, given the fact that we'll be switching feedstock and that we'll be using a feedstock that's similar to what our competitors use? And that relates to the unique shaping process that we undertake for our granular activated carbon. Our granular activated carbon is spherically shaped. That means it has a larger surface area and therefore a larger pore structure and therefore that we can attract and inhibit PFAS to a much greater extent. So a pound of our granular activated carbon is is much more effective than a pound of the competitor's activated granular activated carbon because of the unique spherical nature of our product as it relates to that. In terms of what gives us confidence and comfort that the front end is going to work, I'm going to answer that question and be a politician and also answer another question as it relates to that. We're comfortable that both the front end and the middle is going to work. One, the front end switching to purchase coal, we know we can make granular activated carbon. We just couldn't make it in the quantities and the efficiencies we wanted with the arc wet cake. due to the design deficiencies and that using drier six to 8% purchased bituminous coal as opposed to 40 to 42% arc wet cake should alleviate those previous design flaws. In terms of the quality, again, you've heard me say multiple times, both on this chat and in previously that we have a best in class technical team on site. And when we identified that it was the right decision to go to switch feedstocks, we identified almost 55 separate coal streams that would meet our requirements as feedstocks. We then narrowed that down under five or six key criteria to about 13, then narrowed that down to less than five that were the best of the best, and then have identified that further down to a top two or three all who could be interchangeable and wouldn't cause problems going forward as it relates to that. So we're comfortable the front end is going to work. We know that we can bind, shape, and activate in the middle process as it relates to granular activated carbon. And now what we're doing is using this pause to make sure we get the right answer to be most efficient on the back end in the off-gas design.

And how about the Corbin facility? Probably a secondary consideration for now, but you have mentioned that you have other product optionality coming out of that facility. Could you share a bit of that with investors?

Sure, absolutely. So, you know, Corbin still has great optionality for us and for investors. There's really several components of additional products we're looking at. And I'll go into a little bit more detail. It's one, asphalt emulsion, two, synthetic graphite and graphene, and the third is graphite. rare earth minerals and critical elements is part of the manufacturing process or creating the ARC or Corbin wet cake that we wash those coal finds and that isolates rare earth minerals and critical elements. The question is whether those are insufficient quantities to be able to be commercial. We're working with the DOE and several prospective partners to analyze that to see if there's commercial possibilities that relates to that. We're also working with the DOE and the nuclear labs to analyze arc wet cake as a source of synthetic graphite or graphene. That's going to take several years to be able to finish that research. The most likely in the nearest term is use of arc wet cake as an additive to asphalt emulsion. You've heard me say in the past that it would create to a quicker setting, a less prone to degradation in the freeze-thaw cycle, and it would retain its blackness longer on the testing. We're working with a third-party national asphalt company, one which is in almost 80 percent of the United States in terms of their operations. They've already completed two phases of testing as it relates to that. and we're going to the third. The upside of that is that the testing continues to work as we expect it is going to work, and it appears so far that could take up all of the production of Corbin, Wet Cake, their existing capability, and then some. As an aside, the 25 million pounds that we would produce in GAC when we were originally going to use our wet cake would use about 35 to 40 percent of Corbin production. So it would be a significant cash flow and value enhancer for the company. And the way I would describe these is the asphalt emulsion is probably still a year away. I would describe that as ground sirloin or maybe a, you know, a lower grade steak. And where I would put that the synthetic graphite and graphene are still more aroma or sizzle than substance at this point, but it's still worth going into and continuing the research on those products.

OK, thanks. That's great context. But let's move on to the powder activated carbon business, which has been kind of I view it as kind of the gift that keeps on giving. It's been a source of upside surprise for the last one or two years. So not without a lot of hard work out, obviously. But, you know, in the recent, you know, Q4 earnings call, you described, you know, the business model for ARK as essentially, you know, quote unquote, selling furnace hours online. Could you unpack this concept for investors and explain how pausing GAC improves your near-term outlook for powdered activated carbon?

The context and description of selling furnace hours is critical because it really explains our business model. As you mentioned, we effectively operate by selling furnace hours. We have a finite number of hours we can run our furnaces each year. And we must make the optimal decisions about how to allocate those hours in terms of what products, what provides the most value, et cetera. You know, for the past year or more than a year, we've been allocating furnace hours to GAC production that generated losses instead of profits. And so by pausing the GAC, we're redirecting those furnace hours back to our proven and profitable, excuse me, profitable PAC business. And so this isn't just about avoiding or limiting GAC losses by the pause. It's about actively improving our near-term financial performance by optimizing our PAC furnace hours.

So your contract visibility and customer retention numbers that you disclosed in the recent results look very strong for PAC. Could you talk about what's driving that customer loyalty and how your customer mix has evolved?

Sure. So a couple of things in terms of why we have such strong loyalty and visibility on the contracts, as well as such a high renewal rate. It really relates to our performance. One, the strong technical capabilities. We've been doing it for years and people are going to say they can't they don't want to switch because they know that. that we perform and there's no reason to switch on that. We have performance, we have the customer service, our product shows up in the quantities and in the requirements they need, when they need it, and in the amounts they need. So it's our customer service team, our sales team has great relationships, and our technical capabilities. How it has changed over time, it was originally almost predominantly power generation, scrubbing mercury emissions from coal-fired power plants. We've expanded that into other industrial components. We've expanded that into the municipal water segment. We've expanded into the micropollutants. We're expanding into Europe right now through our – sales agreement with LSR. And so it was predominantly scrubbing mercury emissions from coal-fired power plants. And now that's still the largest segment, but it is nowhere near. It's less than 40% of the business now.

I'd like to get your thoughts on the regulatory landscape with respect to your PAC business. There has been a little bit of a tailwind there. Does that existing regulation provide a durable demand floor, or do you see any risks that there could be rollbacks?

I don't see any risk of rollbacks. You've had existing, you know, mats or mercury emissions regulations for coal-fired power plants for almost two decades now. So that's one. The second is the real cost of complying that is in the upfront installation of the equipment. The pack that we sell is not even a rounding error for the utilities industry. as it relates to that. So I think, one, I don't see any risk of regulation. Two, it's such a microscopic addition to their cost factor that even if the regulations were rolled back, that I don't think people would stop and indications with customers that they would keep on providing mercury emission scrubbing as it relates to that. So I don't see any possibility really of rolling back the mercury emissions. And the other question I think goes to the unasked question as it relates to the granular and the PFAS as it relates to that. So if you look at the original PFAS regulations or legislation authorizing the EPA to come up with regulations that as it relates to PFAS exposure, was passed on a bipartisan basis. Lee Zeldin, who was then in Congress, voted in favor of that, who is now head of the EPA, that both Lee Zeldin and President Trump have been quite vociferous and strident in saying that clean air, clean water, are a fundamental American right and an economic advantage for us. So I don't see any rollback of those regulations. And also, it occupies such a large component or segment of investor in the public's mindset right now that I don't see that it would be feasible to even attempt to roll that back.

So you issued formal guidance for the first time and you have a EBITDA range, I believe, around 17 to 20 million. What's behind the confidence at this time to come out with that guidance? And how should we think about the GAC pause impacting that year on year improvement?

You know, we've issued the guidance for a couple of reasons. One, we wanted to increase investor transparency. Two, it's easier to provide the guidance right now that we don't have the distraction and the cost of trying to ramp up GAC production as it relates to that. And we also that understand is the only public company in a rather opaque industry that it would make it easier for investors to understand our company and understand the risk reward dynamics by providing that guidance. And so, you know, as you mentioned, we have great contract visibility, 96 percent in the 2026 for our PAC business. Plus, we know we're going to be able to sell additional volumes on a spot basis. We know and have an understanding of both some of the hard and soft costs relating to GAC production. We know that several million dollars of hard costs detracted from the bottom line as it relates to GAC in 2025. We won't have those distractions in 2026 or those costs. And also, there were the soft costs. When we talked about furnace hours, there was the need to not utilize the furnaces because of changeovers, because of unplugging, because of trying to figure out what was going on on GAC. So we know that we can be more efficient than we were. And so... We thought it was important for transparency reasons and to reflect our confidence in the PAC turnaround to provide that guidance to investors.

So you have the excess furnace capacity, you know, between that, you know, tariffs, rising electricity demand from AI data centers and other factors. Would these be potential sources to, you know, upside risks to your scenario?

I don't view it as upside risk. I view it as upside potential in terms of the guidance scenario. But, you know, yes, we have going forward. We still plan on coal fired power plants being retired. But that conversations with our customers show that. And the actual results, especially related to natural gas prices right now, that those mothballing or idling of coal-fired power plants are being pushed out further and further into the future. So that's a great tailwind for our business, but we're not planning on that. What we are planning on is going into new markets like micropollutants, municipal water, and other industrial segments to further expand both our average selling price and our margin. So we see upside in terms of volume and EBITDA over and above our current guidance.

Well, from a financial perspective, squaring this EBITDA range against the CapEx range that you highlighted in the analyst briefing, it appears that you're headed toward free cash flow this year. You've got a stable cash position. But yet going forward, you will eventually need to fund this GAC ramp up. What do you think is important for investors to understand with respect to your project funding plans for that GAC?

I think a couple of things. One is you articulated that we will generate at least eight to $10 million of free cashflow. We believe from the PAC business this year, you combine that with, well, let's just assume the upper end of the range, $20 million of EBITDA and let's say three times leverage, which is about the max I'd be feel comfortable with. That implies $60 million of debt capability to, We've got approximately $27 million of existing debt. So that's an additional $33 million of debt capability combined with the free cash flow. So that significant additional funding capacity, depending upon what the results are of this pause in the refinement. Our goal is to not dilute shareholders on that. Our goal is to create the best long-term value for our shareholders.

So you've had, you know, you announced several leadership changes, a new head of sales, a CFO departure, the COO role has been eliminated. What was the thinking behind restructuring your team and what does the evolved structure bring to the table here?

Sure. The whole idea is that we're always looking to upgrade the talent level of our team. We're always looking to see where we can perform and what we can do better. On the sales side, the previous sales head had done a great job, but when we were able to looking at when Jeanette McQueenie was available, we knew she not only had proven activated carbon, but chemical sales experience, but also a strategic selling band entering into new markets. And that's important to us, as you mentioned, that the power generation has been great for us, but we need to make sure we're not resting on our laurels. We need to make sure we're staying ahead of the curve and expanding into new markets with higher average selling price, higher margins. And so Jeanette was great for that. The former COO had long and significant operating experience, but didn't have the necessary experience for dealing with more organic production materials that we have. We brought in Eric Robinson as a consultant to help him late in 2025, and it really became apparent that Eric's experience, both in activated carbon in general, operating in general, as well as at the Red River plant, He had worked in 2012 at one of ARC's predecessors when they were having post-construction production challenges and increased the efficiency by 20% and doubled production, that bringing Eric online would be additive. And one of the ways we've seen the immediate benefits of that in terms of upgrading that talent is is the decision to do that off-gas testing before we spent the money to modify the thermal oxidizer so it saved us time and money and allowed us to be proactive in our talent search. It will also allow us to increase the efficiencies that I mentioned, some of those soft costs or soft benefits by utilizing more furnace hours, looking at how we run production and various products rather than batch-based. Maybe we run it – you know, four or five days at a time rather than on a bespoke basis to increase efficiency. Eric has definitely upgraded the talent level there. And on the CFO side, it just wasn't a fit. The prior, you know, person there, he came from a private company, a large private company, and working at a smaller public company involved a different set of challenges and just wasn't a good fit and wanted, you know – First way to solve a problem is recognizing you have a problem. And so I believe what we've done is upgraded significantly. Two of those areas that I mentioned, sales and operations, and we're in advanced discussions on the CFO, which I also think will be an upgrade.

Okay, great. Fantastic. So, Bob, this has been very comprehensive today. But before we conclude, just want to check if there's anything major that we might have missed or if you'd like to provide any concluding remarks.

I think a couple of things. One, that the PAC business transformation is real and ongoing. It's been almost a $35 to $40 million turnaround in the last three years, and there's still room for further improvement. And more importantly, it's gone from a cash consumer to a cash flow generating machine going forward with great visibility going forward in terms of our contracts. On the granular activated carbon side, the original assumptions we made about the marketplace being a persistent and long-term demand, supply imbalance, barriers to entry, customers wanting new entrants like ourselves to come into the business, all are still there. The pause was made is a difficult decision, but was made for the right reasons at the right time for shareholder value. And management and the board owns roughly 20 percent of the stock. And so we're definitely aligned with shareholder value and looking to make the right and best decisions for long term shareholder interests.

OK, that's great. So, Bob, thank you again so much for joining us today and sharing your insights. We'll look forward to having you back very soon.

Great. Thanks, Peter.

I appreciate it. And also thank you to the investors who joined us today for the fireside chat with Bob Rasmus, CEO of ARK. We'll be following developments at ARQ very closely. So check in for our research content at Watertile Research. For investors who would like to follow our research on energy transition and sustainable investing and other sectors, please access our website, www.watertowerresearch.com. Of course, keep an eye out for a forthcoming write-up of today's Fireside Chat with ARQ, and that will be a management series. Please note that the views expressed in this Fireside Chat may not necessarily reflect the views of Watertower Research LLC and are provided for informational purposes only. This fireside chat may not be redistributed or reproduced without the written consent of Watertower Research and should not be considered research nor recommendation. WTR is an investor engagement firm, not a licensed broker, broker dealer, market maker, investment bank, underwriter, or investment advisor. Additional disclaimers can be found at www.watertowerresearch.com. Thank you.