Arq, Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of our financial condition and results of our operations should be read together with the unaudited Condensed Consolidated Financial Statements and notes of Advanced Emissions Solutions, Inc. ("ADES" or the "Company") included elsewhere in Item 1 of Part I ("Item 1") of this Quarterly Report and with the audited consolidated financial statements and the related notes of ADES included in the 2022 Form 10-K.

The results of operations discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are those of ADES and its consolidated subsidiaries, collectively, the "Company," "we," "our" or "us."

Overview

We are an environmental technology company and sell consumable products that utilize activated carbon ("AC") and chemical-based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants, and other diverse markets served by one of our major customers. Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials. Our AC products include both powdered activated carbon, Colloidal Activated Carbon Product and granular activated carbon. Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants to meet the challenges of existing and potential future regulations. Additionally, we own an associated lignite mine that supplies the primary raw material for the manufacturing of our current products.

Acquisition

On February 1, 2023, we completed the Arq Acquisition and as Purchase Consideration, issued 3,814,864 shares of Common Stock and 5,294,462 shares of Series A Convertible Preferred Stock. The Purchase Consideration was valued at $31.2 million.

On June 13, 2023, and pursuant to the Purchase Agreement, the Company's stockholders approved the conversion of all of the outstanding shares of Series A Preferred Stock and the corresponding issuance of 5,362,926 shares of Common Stock.

CFG Loan Agreement

On February 1, 2023, we and CFG entered into the Term Loan in the amount of $10.0 million, less original issue discount of $0.2 million. The Term Loan matures on February 1, 2027 and bears interest at a rate equal to either (a) Adjusted Term SOFR (subject to a 1.00% floor and a cap of 2.00%) plus a margin of 9.00% paid in cash and 5.00% paid in kind or (b) Base Rate plus a margin of 8.00% paid in cash and 5.00% paid in kind, which interest on the Term Loan in each case is payable (or capitalized, in the case of in kind interest) quarterly in arrears. The Term Loan is secured by substantially all of the assets of ADES and its subsidiaries (including those acquired in the Acquisition, but excluding those pledged as collateral under the Arq Loan, as defined and described in Note 6 "Debt Obligations" to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report), subject to customary exceptions. We incurred issuance costs of $1.3 million associated with the CFG Loan Agreement.

Pursuant to the CFG Loan Agreement, we issued the Warrant to CFG to purchase 325,457 shares of Common Stock, which represented 1% of the post-Arq Acquisition and PIPE Investment fully diluted share capital (as defined in the CFG Loan Agreement), at an exercise price of $0.01 per share. The Warrant has a term of 7 years and contains a cashless exercise provision.

Equity Financings

On February 1, 2023, we and the Subscribers, which included existing shareholders of Arq Ltd., entered into the PIPE Investment for the purchase of 3,842,315 shares of Common Stock for an aggregate purchase price of $15.4 million and at a price per share of $4.00.

On July 17, 2023, we entered into the Subscription Agreement with Mr. Rasmus and entities controlled by Mr. Rasmus, in connection with his appointment as our President and Chief Executive Officer. Pursuant to the Subscription Agreement, Mr. Rasmus subscribed for and agreed to purchase 950,000 shares of Common Stock from us for an aggregate purchase price of $1.8 million (at a price per share of approximately $1.90). In September 2023, the Company received cash of $1.0 million and issued 527,779 shares of Common Stock to Mr. Rasmus pursuant to the Subscription Agreement. The Company expects to receive the remaining cash of $0.8 million due under the Subscription Agreement during the fourth quarter of 2023 and, when received, will issue Mr. Rasmus 422,221 shares of Common Stock.

Drivers of Demand and Key Factors Affecting Profitability

Drivers of demand and key factors affecting our profitability are sales of our consumables-based solutions for coal-fired power

generation, industrials, municipal water customers and other diverse markets served by one of our major customers. Our operating results are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in average selling price and product mix; (3) changes in coal-fired dispatch and electricity power generation sources and (4) changes in demand for contaminant removal within water treatment facilities and contaminated soil and groundwater sites.

For the three and nine months ended September 30, 2023, we experienced a decrease in demand for our product from certain coal-fired dispatch and electricity power generation customers. This was primarily due to lower than anticipated natural gas prices, resulting in several large utility customers opting to use natural gas versus coal as a primary source for power generation, and mild temperatures during the spring and early summer season, resulting in lower demand for power generation compared to 2022. We expect that natural gas prices will remain relatively consistent through 2023, which, we expect, will negatively impact sales of our products even with higher than average summer temperatures.

Marshall Mine

On March 27, 2023, we closed the sale of Marshall Mine, LLC and we remitted a cash payment to the Buyer in the amount of $2.2 million in connection with the sale. As of March 27, 2023, Marshall Mine, LLC had outstanding liabilities of approximately $4.9 million that were discharged upon the closing, and as a result, we recognized a gain of approximately $2.7 million for the nine months ended September 30, 2023.

Results of Operations

For the three and nine months ended September 30, 2023, we recognized net loss of $2.2 million and $15.5 million, compared to net loss of $2.4 million and $5.8 million for the three and nine months ended September 30, 2022. The most significant factors impacting results for the comparable prior year periods were higher expenses related to the Arq Acquisition and lower revenues as a result of a decrease in demand for our AC and chemical products with power generation customers, primarily due to continued low prices of alternative energy sources for power generation.

The following sections provide additional information regarding these comparable periods. For comparability purposes, the following tables set forth our results of operations for the periods presented in the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report. The current year period to prior year period comparisons of financial results may not be indicative of financial results to be achieved in future periods.

Comparison of the Three Months Ended September 30, 2023 and 2022

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the three months ended September 30, 2023 and 2022 is as follows:

(in thousands, except percentages)

Consumables and consumables cost of revenue

For the three months ended September 30, 2023, consumables revenues increased from the comparable quarter in 2022 primarily driven by overall higher pricing and favorable product mix of approximately $4.3 million and $1.0 million, respectively. Offsetting these increases to Consumables revenues was approximately $3.9 million attributable to lower volumes sold. Product volumes were lower among power generation customers primarily due to low natural gas prices compared to the same quarter in 2022, which contributed to decreased utilization of coal-fired generation and decreased demand for our products. The average natural gas spot prices ($MMBtu) for the three months ended September 30, 2023 and 2022 were $2.59 and $7.99, respectively.

Consumables gross margin, exclusive of depreciation and amortization, increased for the three months ended September 30, 2023 compared to the corresponding quarter in 2022. Driving the increase in gross margin was a decrease in the price of our feedstock and additives, primarily as a result of decreased production volumes for the three months ended September 30, 2023 from the corresponding quarter in 2022. Offsetting the overall increase in gross margin for the three months ended September 30, 2023 from the corresponding quarter in 2022 were higher fixed costs as a percentage of total consumables cost of revenue primarily due to lower production volumes for the three months ended September 30, 2023 from the corresponding quarter in 2022. Further reducing gross margin for the three months ended September 30, 2023 was severance expense of $0.3 million related to the termination of an executive.

We expect that consumables revenues and gross margin will continue to be positively impacted by our product price increases and our efforts to move our product mix to higher margin products. We anticipate that the product price increases will help offset decreases in volumes due to prices of alternative energy sources impacting the demand for our AC and chemical products related to power generation. However, there is risk to our gross margin outlook driven by inflationary pressures that may increase our overall operating costs for our manufacturing operations.

Consumables revenues continues to be affected by electricity demand driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas and renewables.

Other Operating Expenses

A summary of the components of our operating expenses for the three months ended September 30, 2023 and 2022, exclusive of cost of revenue items (presented above), is as follows:

(in thousands, except percentages)

Payroll and benefits

Payroll and benefits, which represent costs related to selling, general and administrative personnel, increased for the three months ended September 30, 2023 compared to the corresponding quarter in 2022 primarily due to the addition of Arq employees from the date of the Arq Acquisition, which represented $1.0 million of the increase, and an increase of $0.2 million related to non-Arq employees. Further, for the three months ended September 30, 2023, we incurred severance related costs of $1.0 million associated with the termination of an executive officer. Offsetting these increases was a reduction in retention bonuses of $0.3 million, which were paid in full in January 2023.

Legal and professional fees

Legal and professional fees decreased for the three months ended September 30, 2023 compared to the corresponding quarter in 2022 primarily from a decrease in legal and consulting costs incurred related to the Arq Acquisition.

General and administrative

General and administrative expenses increased for the three months ended September 30, 2023 compared to the corresponding quarter in 2022 by approximately $0.8 million quarter over quarter, mostly related to increases in travel, insurance, and Board compensation, as three new directors were added to the Board in connection with the Arq Acquisition. Further, driving the increase was $0.3 million of additional rent and occupancy expense, primarily from additional leased space related to the Arq Acquisition, and higher research and development of $0.2 million.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense increased for the three months ended September 30, 2023 compared to the corresponding quarter in 2022 primarily due to depreciation and amortization of approximately $0.7 million from the addition of long-lived assets and intangible assets acquired as part of the Arq Acquisition. Further driving the increase were higher production volumes compared to sales volumes for the three months ended September 30, 2023, resulting in $0.3 million of additional absorption of depreciation in inventory.

Other Income (Expense), net

A summary of the components of other income (expense), net for the three months ended September 30, 2023 and 2022 is as follows:

(in thousands, except percentages)

* Calculation not meaningful

Earnings from equity method investments

Earnings from equity method investments for the three months ended September 30, 2023 and 2022 represented cash distributions from Tinuum Group and Tinuum Services. Tinuum Group and Tinuum Services continuing to wind down their services in 2023.

Additional information related to equity method investments is included in Note 10 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Interest expense

Interest expense increased for the three months ended September 30, 2023 compared to the corresponding quarter in 2022 primarily due to interest expense incurred for the three months ended September 30, 2023 of $0.5 million related to the Term Loan, which was entered into on February 1, 2023 in connection with the Arq Acquisition, and $0.1 million related to the Arq Loan, which we assumed in the Arq Acquisition.

Other

During the three months ended September 30, 2023, we earned $0.6 million of interest income from cash on hand.

Income tax expense

For three months ended September 30, 2023, we had pretax loss of $2.2 million and recorded no income tax expense or benefit due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ending December 31, 2023. For the three months ended September 30, 2022, we had pretax loss of $2.4 million and recorded no income tax benefit due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ended December 31, 2022.

Comparison of the Nine Months Ended September 30, 2023 and 2022

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the nine months ended September 30, 2023 and 2022 is as follows:

(in thousands, except percentages)

26

Consumables and consumables cost of revenue

For the nine months ended September 30, 2023, consumables revenues decreased from the corresponding period in 2022 primarily driven by a decrease in volumes sold, which comprised $16.7 million of the total change. Product volumes decreased among power generation customers primarily due to low natural gas prices compared to the corresponding period in 2022, which contributed to decreased utilization of coal-fired generation and decreased demand for our products. Total consumables revenues also decreased for the nine months ended September 30, 2023 by approximately $0.1 million from the corresponding period in 2022 due to unfavorable product mix. Offsetting these period over period decreases to Consumables revenues was an increase of approximately $8.3 million from overall higher pricing of our products for the nine months ended September 30, 2023 compared to the corresponding period in 2022.

Consumables gross margin, exclusive of depreciation and amortization, increased for the nine months ended September 30, 2023 compared to the corresponding period in 2022. Driving the increase in gross margin was a decrease in the price of our feedstock and additives, primarily as a result of decreased production volumes for the nine months ended September 30, 2023. compared to the corresponding period in 2022. Our consumables gross margin was negatively impacted by a decrease in volumes sold.

Other Operating Expenses

A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the nine months ended September 30, 2023 and 2022 is as follows:

(in thousands, except percentages)

* Calculation not meaningful

Payroll and benefits

Payroll and benefits increased for the nine months ended September 30, 2023 compared to the corresponding period in 2022 primarily due to the addition of Arq employees, which increased expenses by $4.2 million for the period, of which $1.1 million related to severance expense of former executives of Arq. In addition, for the nine months ended September 30, 2023, we incurred severance related costs of $1.0 million associated with the termination of an executive officer. Further, payroll and benefits expenses related to non-Arq employees for the nine months ended September 30, 2023 increased by $0.7 million compared to the corresponding period in 2022. These increases were offset by a decrease in retention bonuses with our executive officers and certain other key employees of $0.9 million, which were paid in full in January 2023.

Legal and professional fees

Legal and professional fees increased for the nine months ended September 30, 2023 compared to the corresponding period in 2022 primarily as a result of an increase in costs incurred related to the Arq Acquisition, and were comprised mostly of legal and consulting fees. For the nine months ended September 30, 2023, we incurred $2.4 million of legal and professional fees related to non-recurring transactions costs associated with the Arq Acquisition.

General and administrative

General and administrative expenses increased for the nine months ended September 30, 2023 compared to the corresponding period in 2022 as a result of $1.9 million of expenses incurred by Arq, which included $0.9 million from rent and occupancy expense from additional leased space. Additional increases period over period of approximately $1.7 million were increases in research and development, insurance, travel, recruiting and Board compensation, as three new directors were added to the Board in connection with the Arq Acquisition.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense increased for the nine months ended September 30, 2023 compared to the corresponding period in 2022 primarily due to depreciation and amortization of approximately $2.2 million from the addition of long-lived assets and intangible assets acquired in the Arq Acquisition. Also contributing to the increase was an increase in Depreciation and amortization expense due to higher production volumes compared to sales volumes for the nine months ended September 30, 2022, which resulted in $0.3 million additional absorption of depreciation in inventory.

Gain on sale of Marshall Mine, LLC

As discussed above, for the nine months ended September 30, 2023, we recognized a gain of $2.7 million on the sale of Marshall Mine, LLC.

Other Income (Expense), net

A summary of the components of our other income (expense), net for the nine months ended September 30, 2023 and 2022 is as follows:

(in thousands, except percentages)

Earnings from equity method investments

Earnings from equity method investments for the nine months ended September 30, 2023 and 2022 represented cash distributions received from Tinuum Group and Tinuum Services. The decrease was primarily due to Tinuum Group and Tinuum Services continuing to wind down their services in 2023.

Additional information related to equity method investments is included in Note 10 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Interest expense

Interest expense increased for the nine months ended September 30, 2023 compared to the corresponding period in 2022 primarily due to interest expense of $1.5 million related to the Term Loan, which was entered into on February 1, 2023 in connection with the Arq Acquisition, and interest expense of $0.4 million incurred for the nine months ended September 30, 2023 related to the Arq Loan, which we assumed in the Arq Acquisition.

Other

During the nine months ended September 30, 2023, we earned $1.3 million in interest income from cash on hand. For the nine months ended September 30, 2022, Other is primarily comprised of a loss of $0.5 million recognized on the early settlement of an amount owed by Norit for reclamation of the Marshall Mine as a result of Norit's acquisition by a third party, which triggered a change of control provision in our supply agreement with Norit.

Income tax expense

For the nine months ended September 30, 2023, we had pretax loss of $15.6 million and recorded income tax benefit related to out-of-period state income tax refunds received during the period. We recorded no additional income tax benefit for the nine months ended September 30, 2023 due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ending December 31, 2023. For the nine months ended September 30, 2022, we had pretax loss of $5.8 million and recorded no income tax benefit due to the recording of a full valuation allowance based on our forecast of pretax loss for the year ended December 31, 2022.

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with U.S. GAAP (or "GAAP"), we provide non-GAAP measures of certain financial performance. These non-GAAP measures include EBITDA (EBITDA Loss) and Adjusted EBITDA (Adjusted EBITDA Loss). We have included these non-GAAP measures because management believes that they help to facilitate period to period comparisons of our operating results and provide useful information to both management and users of the financial statements by excluding certain expenses, gains and losses that can vary widely across different industries or among companies within the same industry and may not be indicative of core operating results and business outlook. Management uses these non-GAAP measures in evaluating the performance of our business.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from, and may not be comparable to, similarly titled non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

We define EBITDA (EBITDA Loss) as net income (loss) adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance: depreciation, amortization, depletion, accretion, amortization of upfront customer consideration ("Upfront Customer Consideration"), interest expense, net and income taxes. We define Adjusted EBITDA (Adjusted EBITDA Loss) as EBITDA (EBITDA Loss), reduced by the non-cash impact of equity earnings from equity method investments and gain on sale of Marshall Mine, LLC, increased by cash distributions from equity method investments, loss on early settlement of a long-term receivable and loss on change in estimate, asset retirement obligation. Because Adjusted EBITDA omits certain non-cash items, we believe that the measure is less susceptible to variances that affect our operating performance.

When used in conjunction with GAAP financial measures, we believe these non-GAAP measures are supplemental measures of operating performance that explain our operating performance for our period-to-period comparisons and against our competitors' performance. Generally, we believe these non-GAAP measures are less susceptible to variances that affect our operating performance results.

We expect the adjustments to EBITDA and Adjusted EBITDA in future periods will be generally similar. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP.

EBITDA and Adjusted EBITDA

(in thousands)

(1) Included in Net loss for the three and nine months ended September 30, 2023 is zero and $4.9 million, respectively, of transaction and integration costs incurred related to the Arq Acquisition. Included in Net Loss for the three and nine months ended September 30, 2022 is $2.4 million and $3.7 million, respectively, of transaction and integration costs incurred related to the Arq Acquisition. Additionally, for the nine months ended September 30, 2023, Net loss included $4.2 million of Arq payroll and benefit costs. Further included in Net Loss for the three and nine months ended September 30, 2023 is $1.3 million of severance expense related to two executive employees.

Liquidity and Capital Resources

Current Resources and Factors Affecting Our Liquidity

As of September 30, 2023, our principal sources of liquidity included:

• cash on hand, excluding $8.8 million of restricted cash; and
• our operations.

As of September 30, 2023, our principal uses of liquidity included:

• our business operating expenses;
• capital and spare parts expenditures;
• payments on our lease obligations;
• payments on our debt obligations; and
• payments for reclamation work associated with the Five Forks Mine.

Cash Flows

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

Cash and restricted cash decreased from $76.4 million as of December 31, 2022 to $61.3 million as of September 30, 2023. The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022, respectively:

(in thousands)

Cash flow from operating activities

Cash flows used in operating activities for the nine months ended September 30, 2023 increased by $21.5 million compared to the nine months ended September 30, 2022. The net increase was primarily attributable to net loss of $15.5 million recognized for the nine months ended September 30, 2023 compared to net loss of $5.8 million recognized for the nine months ended September 30, 2022; the add-back of a non-cash gain of $2.7 million recognized from the sale of Marshall Mine, LLC for the nine months ended September 30, 2023; a decrease in accounts payable and accrued expenses of $13.9 million, primarily from payments of Arq assumed liabilities, comprised of accrued employee-related compensation and accrued transaction costs, in the Arq Acquisition; payment of the balance of retention bonuses; an increase in Other long-term assets, net of $5.8 million, primarily from a payment received from settlement on a long-term receivable in 2022; and a decrease in Distributions from equity method investees, return on investment of $2.3 million. Offsetting the net increase in cash flows used in operating activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was a decrease in non-cash net working capital, excluding accounts payable and accrued expenses, of $8.2 million, a decrease in Earnings from equity method investments of $1.7 million and an increase in Depreciation, amortization, depletion and accretion of $2.5 million due to a higher asset base from the Arq Acquisition.

Cash flow from investing activities

Cash flows used in investing activities increased for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 by $15.3 million primarily as a result of an increase in property, plant and equipment additions of $10.8 million from the Arq Acquisition; an increase in mine development costs of $1.5 million; a decrease in distributions from equity earnings in excess of cumulative earnings of $1.8 million; a cash payment of $2.2 million made in March 2023 required in the sale of Marshall Mine, LLC; and a decrease in cash received from the sale of property and equipment of $1.2 million. Offsetting the net increase in cash flows used in investing activities was $2.2 million of cash acquired in the Arq Acquisition.

Cash flow from financing activities

Cash flows provided by financing activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 increased by $24.7 million primarily due to the net borrowings, net of debt issuance costs paid, of $8.5 million from the Term Loan; net proceeds from the PIPE Investment of $15.2 million; and net proceeds from common stock sold to a related party of $1.0 million .

Material Cash Requirements

With the Arq Acquisition, we assumed liabilities, including the Arq Loan, that will increase our cash requirements for the next 12 months and beyond. In addition, our success with the Arq acquisition will require significant capital expenditures as quantified below. Under the payment terms of the Term Loan, we are required to make quarterly interest payments through February 1, 2027, and a balloon payment of principal and PIK interest totaling approximately $12.2 million on this date. We expect that our cash on hand as of September 30, 2023 will provide sufficient liquidity to fund contractual obligations due and expected operating loss for the next 12 months.

Capital Expenditures

For 2023, we expect to incur between $35.0 million and $40.0 million in capital expenditures as follows:

• Between $14.0 million and $16.0 million is forecast for capital improvements at the Red River Plant related to scheduled maintenance improvements and to complete current capital projects; and
• Between $21.0 million and $24.0 million is forecast for growth capital for the modifications of the Red River Plant and Corbin Plant in order to incorporate Arq Powder as feedstock.

For the nine months ended September 30, 2023, we incurred $17.0 million in capital expenditures. We expect to fund all capital expenditures for 2023 from cash on hand.

Surety Bonds and Mine Obligations

As of September 30, 2023, we had outstanding surety bonds with regulatory commissions totaling $7.5 million related to reclamation of the Five Forks Mine. As of September 30, 2023, and as required by a surety bond provider, we also held restricted cash of $8.5 million pledged as collateral for such surety bonds related to the Five Forks Mine and other surety obligations.

As September 30, 2023, we had outstanding surety bonds with a regulatory commission totaling $3.0 million for reclamation obligations of the land adjacent to the Corbin Facility.

As of September 30, 2023, we had an outstanding surety bond with a regulatory commission totaling $0.7 million for reclamation obligations of Mine 4 located in West Virginia.

We expect that the obligations secured by these surety bonds associated with the Five Forks Mine and the Corbin Facility will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that we perform the obligations, the related surety bonds should be released and collateral requirements reduced. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider. We intend to fund our mine reclamation costs associated with the Five Forks Mine and the Corbin Facility from cash on hand.

We have a customer supply agreement that requires us to post a performance bond in an amount equal to the annual contract value of $3.7 million. As of September 30, 2023, the remaining commitment under this customer contract, which expires on December 31, 2023, was approximately $0.4 million.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not changed from those reported in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Part II in the 2022 Form 10-K.

Recently Issued Accounting Standards

Refer to Note 1 of the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for information regarding recently issued accounting standards applicable to us.

Forward-Looking Statements Found in this Report

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that involve risks and uncertainties. In particular such forward-looking statements are found in this Item 2 of Part I above. Words or phrases such as "anticipates," "believes," "expects," "intends," "plans," "estimates," "predicts," the negative expressions of such words, or similar expressions are used in this Quarterly Report to identify forward-looking statements, and such forward-looking statements include, but are not limited to, statements or expectations regarding:

(a) the anticipated effects from an increase in pricing of our AC products;

(b) the anticipated effects from an increase in costs of our AC products and related cost increases in supply and logistics;

(c) expected supply and demand for our activated carbon ("AC ") products and services;

(d) increasing competition in the AC market;

(e) the effects of the Arq Acquisition;

(f) the ability to successfully integrate Arq's business;

(g) the ability to develop and utilize Arq’s products and technology;

(h) the ability to make Arq's products commercially viable;

(i) the expected future demand of Arq's products;

(j) future level of research and development activities;

(k) future plant capacity expansions and site development projects;

(l) the effectiveness of our technologies and the benefits they provide;

(m) probability of any loss occurring with respect to certain guarantees made by Tinuum Group;

(n) the timing of awards of, and work and related testing under, our contracts and agreements and their value;

(o) the timing and amounts of, or changes in, future revenues, backlog, funding for our business and projects, margins, expenses, earnings, tax rates, cash flows, royalty payment obligations, working capital, liquidity and other financial and accounting measures;

(p) the amount and timing of future capital expenditures needed for our APT business and Arq to fund our business plan;

(q) awards of patents designed to protect our proprietary technologies both in the U.S. and other countries;

(r) the adoption and scope of regulations to control certain chemicals in drinking water and other environmental concerns;

(s) the impact of adverse global macroeconomic conditions, including rising interest rates, recession fears and inflationary pressures, and geopolitical events or conflicts;

(t) opportunities to effectively provide solutions to U.S. coal-related businesses to comply with regulations, improve efficiency, lower costs and maintain reliability;

(u) the impact of prices of competing power generation sources such as natural gas and renewable energy on demand for our products; and

(v) bank failures or other events affecting financial institutions.

The forward-looking statements included in this Quarterly Report involve risks and uncertainties. Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors including, but not limited to, timing of new and pending regulations and any legal challenges to or extensions of compliance dates of them; the U.S. government’s failure to promulgate regulations that benefit our business; changes in laws and regulations, accounting rules, prices, economic conditions and market demand; impact of competition; availability, cost of and demand for alternative energy sources and other technologies; technical, start up and operational difficulties; our inability to commercialize our APT technologies on favorable terms; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; as well as other factors relating to our business strategy, goals and expectations concerning the Arq Acquisition (including future operations, future performance or results); our ability to maintain relationships with customers, suppliers and other with whom we do business, or our results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; the ability to meet Nasdaq's listing standards following the consummation of the Arq Acquisition; costs related to the Arq Acquisition; opportunities for additional sales of our lignite AC products and end-market diversification; our ability to meet customer supply requirements; the rate of coal-fired power generation in the U.S., the timing and cost of capital expenditures and the resultant impact to our liquidity and cash flows; as described in our filings with the SEC, with particular emphasis on the risk factor disclosures contained in those filings. You are cautioned not to place undue reliance on the forward-looking statements made in this Quarterly Report and to consult filings we have made and will make with the SEC for additional discussion concerning risks and uncertainties that may apply to our business and the ownership of our securities. The forward-looking statements contained in this Quarterly Report are presented as of the date hereof, and we disclaim any duty to update such statements unless required by law to do so.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a‑15(b) under the Exchange Act, we have evaluated, under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

On February 1, 2023, we acquired Arq and excluded their business from our assessment of internal control over financial reporting as of September 30, 2023, as allowed under general guidance issued by the Staff of the Securities and Exchange Commission. There have been no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company is evaluating the impacts of the Arq Acquisition to our internal control over financial reporting as allowed under general guidance issued by the Staff of the Securities and Exchange Commission.

There are no material updates to our risk factors as disclosed in the 2022 Form 10-K except as described below.

Bank failures or other events affecting financial institutions could have a material adverse effect on our business, results of operations or financial condition, or have other adverse consequences.

We primarily use two U.S. banks for our operations. Cash deposits are held by these banks and may, at times, exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limits. The failure of these banks or events involving limited liquidity, non-performance or other adverse conditions in the financial or credit markets impacting these banks, or concerns or rumors about such events, may lead to disruptions in access to our cash balances, adversely impact our liquidity or limit our ability to process transactions related to our customers. In the event of a failure of these banks, there can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be recoverable or, even if ultimately recoverable, there may be significant delays in our ability to access those funds. Furthermore, bank failures, non-performance, or other adverse developments that affect other financial institutions could impair the ability of these banks to honor our commitments. Such events could have a material adverse effect on our financial condition or results of operations.

Similarly, our customers may be adversely affected by any bank failure or other event affecting financial institutions. If our customers are unable, or if our customers in the future are unable, to meet their obligations to us as a result of a bank failure or other event affecting financial institutions, we may be exposed to potential risks that could impact our financial condition or results of operations. Furthermore, a significant change in the liquidity or financial position of our customers could cause unfavorable trends in cash collections, which could have a material adverse effect on our financial condition or results of operations.