Arq, Inc.: Form 10-Q for the period ended Jun 30, 2024

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 Arq, Inc. ("Arq" 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 Arq included in the 2023 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 Arq, Inc. and its consolidated subsidiaries, collectively, the "Company," "we," "our" or "us."

Overview

We are an environmental technology company and are principally engaged in the sale of consumable air and water treatment solutions primarily based on Activated Carbon ("AC"). Our proprietary AC products enable customers to reduce air, soil, and water contaminants, including mercury, per - and polyfluoroalkyl substances ("PFAS") and other pollutants, to help our customers maximize effectiveness and to improve operating efficiencies to meet the challenges of existing and pending air quality, soil, and water regulations. We manufacture and sell AC and other chemicals used to capture and remove contaminants for coal-fired power generation, industrial and water treatment markets, which we collectively refer to as the advanced purification technologies ("APT") market.

Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials. Our AC products include both powdered activated carbon ("PAC") and granular activated carbon ("GAC"). Additionally, we own the Five Forks Mine, a lignite mine that currently supplies the primary raw material for the manufacturing of our products.

In February 2023, we acquired 100% of the equity of the subsidiaries of Arq Limited (hereafter the Arq Limited subsidiaries referred to as "Legacy Arq", and the acquisition itself referred to as the "Arq Acquisition") to secure access to a feedstock, a manufacturing facility and certain patented processes as a means to manufacture additional GAC products for sale into the APT market and other markets. With the Arq Acquisition, we now control bituminous coal waste reserves and own a manufacturing facility, both located in Corbin, Kentucky (the "Corbin Facility"), and a process to recover and purify the bituminous coal fines for sale or further conversion to GAC products. Under this manufacturing process, we convert coal waste into a purified, microfine carbon powder known as Arq powderTM ("Arq Powder"). We expect to begin using Arq Powder as a feedstock to manufacture high-quality GAC products for sale in the APT and other markets by the end of 2024.

We believe Arq Powder has additional potential for us to access new markets and applications. We expect to secure customer interest in Arq Powder as an additive into other markets, such as components for asphalt. These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials. These applications are currently in various stages of proof of concept testing or preliminary customer testing.

In February 2024, as part of a larger rebranding, we changed our name to Arq, Inc., and on February 1, 2024, our common stock commenced trading under the ticker symbol, "ARQ".

Drivers of Demand and Key Factors Affecting Profitability

Drivers of demand and current key factors affecting our profitability are sales of our AC products to the APT market. Our operating results are influenced by: (1) changes in our manufacturing production and sales volumes; (2) changes in 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.

For the three and six months ended June 30, 2024, we experienced a decrease in demand for our products from certain coal-fired dispatch and electricity power generation customers. This was primarily due to lower 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 winter and spring seasons, resulting in lower demand for power generation compared to 2023. We expect that natural gas prices will remain relatively consistent through 2024 due to surplus natural gas reserves in storage, which, we expect, will negatively impact sales of our products even with higher than average summer temperatures.

On April 10, 2024, the United States Environmental Protection Agency ("EPA") issued its first nationally enforceable PFAS National Primary Drinking Water Regulation, confirming a material tightening to an existing framework of guidance and regulations relating to the control and limitation of PFAS in municipal water. The regulatory changes are anticipated to phase in over an approximate five-year period. We expect the implementation of the announced regulations will drive a material increase in GAC demand in the water purification market.

Results of Operations

For the three and six months ended June 30, 2024, we recognized net loss of $2.0 million and $5.4 million compared to net loss of $5.9 million and $13.4 million for the three and six months ended June 30, 2023. The most significant factors impacting results for the comparable prior year period were expenses related to the Arq Acquisition during 2023 that did not occur in 2024, and higher revenue as a result of increased average selling price, partially offset by 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 June 30, 2024 and 2023

Revenue and Cost of revenue

A summary of the components of our Revenue and Cost of revenue for the three months ended June 30, 2024 and 2023 is as follows:

(in thousands, except percentages)

Revenue and Cost of revenue

For the three months ended June 30, 2024, revenue increased from the comparable quarter in 2023 primarily driven by overall favorable product mix, higher pricing, and increased volumes of approximately $1.5 million, $1.2 million and $0.8 million, respectively. Product volumes increased most notably from a large non-power generation customer and from municipal water customers, partially offset by lower volumes among power generation customers primarily due to low natural gas prices compared to the same quarter in 2023, which contributed to decreased utilization of coal-fired generation and decreased demand for our products. The average Henry Hub natural gas spot prices ($/MMBtu) for the three months ended June 30, 2024 and 2023 were $2.08 and $2.16, respectively.

Gross margin, exclusive of depreciation and amortization, increased for the three months ended June 30, 2024 compared to the corresponding quarter in 2023. Driving the increase in gross margin was a decrease in the price of our feedstock and additives, primarily as a result of lower raw material input costs and lower fixed costs as a percentage of total cost of revenue primarily due to higher production volumes for the three months ended June 30, 2024 compared to the corresponding quarter in 2023.

We expect that revenue 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.

Revenue 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.

Operating Expenses

A summary of the components of our operating expenses for the three months ended June 30, 2024 and 2023 is as follows:

(in thousands, except percentages)

21

Selling, General and Administrative

A summary of the components of selling, general and administrative expenses for the three months ended June 30, 2024 and 2023, 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, decreased for the three months ended June 30, 2024 compared to the corresponding quarter in 2023 primarily due to decreased salaries and wages in the current year primarily from lower executive compensation, which was a result of personnel changes between periods.

Legal and professional fees

Legal and professional fees decreased for the three months ended June 30, 2024 compared to the corresponding quarter in 2023 primarily from consulting and accounting costs incurred related to the Arq Acquisition during the period ended June 30, 2023.

General and administrative

General and administrative expenses decreased for the three months ended June 30, 2024 compared to the corresponding quarter in 2023 by approximately $0.1 million, primarily related to decreases in banking costs, franchise tax, and travel, which were partially offset by increases in rent and occupancy expense.

Research and development

Research and development expense increased for the three months ended June 30, 2024 compared to the corresponding quarter in 2023, primarily due to conducting product qualification testing with potential lead-adopters as part of our ongoing GAC contracting process.

Depreciation, amortization, depletion and accretion

Depreciation, amortization depletion and accretion expense decreased by approximately $0.8 million for the three months ended June 30, 2024 compared to the corresponding quarter in 2023, primarily due to increase in absorption in inventory of approximately $0.5 million, decreased amortization of leasehold improvements, customer relationships and developed technology of $0.2 million, and decreased depletion of approximately $0.1 million, partially offset by increased depreciation related to Legacy Arq assets purchased in February 2023.

Other Income (Expense), net

A summary of the components of other income (expense), net for the three months ended June 30, 2024 and 2023 is as follows:

(in thousands, except percentages)

* Percent change in excess of 100% not considered meaningful.

Earnings from equity method investments

Earnings from equity method investments for the three months ended June 30, 2023 represented cash distributions from Tinuum Group and Tinuum Services. Tinuum Group and Tinuum Services continue to wind down their services into 2024, and we have not received any cash distributions from either entity during the three months ended June 30, 2024.

Interest expense

Interest expense remained flat for the three months ended June 30, 2024 compared to the corresponding quarter in 2023.

Other

The decrease in Other for the three months ended June 30, 2024 is primarily driven by a decrease in interest income of $0.3 million due to lower balances in the Company's cash sweep accounts during the current quarter compared to the prior quarter.

Income tax expense

For the three months ended June 30, 2024 and 2023, we had pretax loss of $1.9 million and $5.9 million, respectively, and recorded no income tax benefit for the pretax loss due to the recording of a full valuation allowance based on our forecast of pretax loss for the years ending December 31, 2024 and 2023. For the three months ended June 30, 2024, we recorded out of period state income tax expense related to an assessment.

Comparison of the Six Months Ended June 30, 2024 and 2023

Total Revenue and Cost of Revenue

A summary of the components of our revenues and cost of revenue for the six months ended June 30, 2024 and 2023 is as follows:

(in thousands, except percentages)

Revenue and Cost of revenue

For the six months ended June 30, 2024, revenue increased from the comparable quarter in 2023 primarily driven by overall favorable product mix and higher pricing of approximately $2.8 million and $2.7 million, respectively. Offsetting these increases to revenue were approximately $1.0 million attributable to lower volumes sold. Product volumes were lower among power generation customers primarily due to low natural gas prices compared to the same period in 2023, which contributed to decreased utilization of coal-fired generation and decreased demand for our products. The average Henry Hub natural gas spot prices ($/MMBtu) for the six months ended June 30, 2024 and 2023 were $2.11 and $2.41, respectively.

Gross margin, exclusive of depreciation and amortization, increased for the six months ended June 30, 2024 compared to the corresponding period in 2023. 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 six months ended June 30, 2024 from the corresponding period in 2023 and lower raw material input costs. Offsetting the overall increase in gross margin for the six months ended June 30, 2024 from the corresponding period in 2023 were higher fixed costs as a percentage of total cost of revenue primarily due to lower production volumes for the six months ended June 30, 2024 from the corresponding period in 2023.

Operating Expenses

A summary of the components of our operating expense for the six months ended June 30, 2024 and 2023 is as follows:

(in thousands, except percentages)

* Percent change in excess of 100% not considered meaningful.

Selling, General and Administrative

A summary of the components of selling, general and administrative expenses for the six months ended June 30, 2024 and 2023, exclusive of cost of revenue items (presented above), is as follows:

(in thousands, except percentages)

Payroll and benefits

Payroll and benefits decreased for the six months ended June 30, 2024 compared to the corresponding period in 2023 primarily due to $1.3 million related to severance expense of former executives of Arq, Limited incurred during the six months ended June 30, 2023, and decreased salaries and wages primarily from reduced executive salaries and lower headcount, as well as lower benefits and insurance costs in the current year.

Legal and professional fees

Legal and professional fees decreased for the six months ended June 30, 2024 compared to the corresponding period in 2023 primarily from consulting, legal, and accounting costs incurred related to the Arq Acquisition during the six months ended June 30, 2023.

General and administrative

General and administrative expenses increased for the six months ended June 30, 2024 compared to the corresponding period in 2023 by approximately $0.8 million, primarily related to increases in rent and occupancy expense, license and fee expense, franchise tax, and advertising costs.

Research and development

Research and development expense increased for the six months ended June 30, 2024 compared to the corresponding period in 2023, primarily due to conducting product qualification testing with potential lead-adopters as part of our ongoing GAC contracting process.

Depreciation, amortization, depletion and accretion

Depreciation, amortization depletion and accretion expense decreased by approximately $1.2 million for the six months ended June 30, 2024 compared to the corresponding period in 2023, primarily due to increased absorption in inventory of $1.2 million, decreased amortization of leasehold improvements, customer relationships and developed technology of $0.4 million, and decreased depletion of $0.2 million, partially offset by increased depreciation, primarily related to Legacy Arq assets purchased in February 2023.

Gain on sale of Marshall Mine, LLC

On March 27, 2023, the Company completed the sale of all of its membership interests in Marshall Mine, LLC to a third party. During the six months ended June 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 other income (expense), net for the six months ended June 30, 2024 and 2023 is as follows:

(in thousands, except percentages)

* Percent change of 100% or greater not considered meaningful.

Earnings from equity method investments

Earnings from equity method investments for the six months ended June 30, 2024 and 2023 represented cash distributions from Tinuum Group and Tinuum Services. Tinuum Group and Tinuum Services continue to wind down their services into 2024, and we have not received any cash distributions from either entity in 2024.

Interest expense

Interest expense increased for the six months ended June 30, 2024 compared to the corresponding period in 2023 primarily due to interest expense incurred for the six months ended June 30, 2024 of $1.1 million related to the CFG Term Loan, which was entered into on February 1, 2023 in connection with the Arq Acquisition, and $0.3 million related to the CTB Loan, which we assumed in the Arq Acquisition.

Other

The decrease in Other for the six months ended June 30, 2024 is primarily driven by a decrease in interest income of $0.2 million due to lower balances in the Company's cash sweep accounts during the current period compared to the prior period.

Income tax expense

For the six months ended June 30, 2024 and 2023, we had pretax loss of $5.4 million and $13.4 million, respectively, and recorded no income tax benefit for the pretax loss due to the recording of a full valuation allowance based on our forecast of pretax loss for the years ending December 31, 2024 and 2023. For the six months ended June 30, 2024, we recorded out of period state income tax expense related to a state assessment.

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), we provide certain supplemental financial measures, including EBITDA and Adjusted EBITDA, which are measurements that are not calculated in accordance with U.S. GAAP. EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA reduced by the non-cash impact of equity earnings from equity method investments and other non-cash gains, increased by cash distributions from equity method investments and other non-cash losses. EBITDA and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income (loss) in accordance with U.S. GAAP as a measure of performance. See below for a reconciliation from net loss, the nearest U.S. GAAP financial measure, to EBITDA and Adjusted EBITDA.

We believe that the EBITDA and Adjusted EBITDA measures are less susceptible to variances that affect the Company's operating performance. We include these non-GAAP measures because management uses them in the evaluation of our operating performance, and believe they help to facilitate comparison of operating results between periods. We believe the non-GAAP measures provide useful information to both management and users of the financial statements by excluding certain expenses, gains, and losses which 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.

EBITDA and Adjusted EBITDA:

The following table reconciles net loss, our most directly comparable as-reported financial measure calculated in accordance with U.S. GAAP, to EBITDA loss and Adjusted EBITDA loss.

(in thousands)

(1) Included in Net loss for the three and six months ended June 30, 2023 are $0.6 million and $4.9 million, respectively of transaction and integration costs incurred related to the Arq Acquisition. Additionally, for the three and six months ended June 30, 2023, Net loss included $0.8 million and $1.7 million of Legacy Arq payroll and benefit costs.

Liquidity and Capital Resources

Current Resources and Factors Affecting Our Liquidity

As of June 30, 2024, our principal sources of liquidity included:

• cash on hand of $28.5 million, excluding $8.7 million of restricted cash; and
• our operations.

As of June 30, 2024, our principal uses of liquidity included:

• our business operating expenses;
• capital expenditures, including those related to the Red River Plant expansion and commissioning of the Corbin Facility;
• payments on our lease obligations; and
• payments on our debt obligations.

Cash Flows

Six Months Ended June 30, 2024 vs. Six Months Ended June 30, 2023

Cash and restricted cash decreased from $54.2 million as of December 31, 2023 to $37.2 million as of June 30, 2024. The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023, respectively:

(in thousands)

Cash flow from operating activities

Cash flows used in operating activities for the six months ended June 30, 2024 decreased by $18.7 million compared to the six months ended June 30, 2023. The net decrease was primarily attributable to a decrease in cash used in accounts payable and accrued expenses of $8.3 million, primarily from payments of Legacy Arq assumed liabilities, comprised of accrued employee-related compensation and accrued transaction costs related to the Arq Acquisition in 2023; net loss of $5.4 million recognized for the six months ended June 30, 2024 compared to net loss of $13.4 million recognized for the six months ended June 30, 2023; and the add-back of a non-cash gain of $2.7 million recognized from the sale of Marshall Mine, LLC for the six months ended June 30, 2023.

Cash flow from investing activities

Cash flows used in investing activities increased for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 by $18.4 million primarily as a result of an increase in property, plant and equipment additions of $18.4 million from construction activities at our Red River Plant expansion; $2.2 million of cash acquired in the Arq Acquisition during the prior year; and a decrease in distributions from equity earnings in excess of cumulative earnings of $1.1 million. Partially offsetting the net increase in cash flows used in investing activities was a cash payment of $2.2 million made during the six months ended June 30, 2023 required in the sale of Marshall Mine, LLC.

Cash flow from financing activities

Cash flows provided by financing activities for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 decreased by $8.5 million primarily due to the proceeds from the CFG Loan of $8.5 million, net of debt issuance costs paid, which were received during the six months ended June 30, 2023. During the six months ended June 30, 2024, we received proceeds of $15.0 million, net of offering costs, related to issuance of our common stock pursuant to a securities purchase agreement with certain accredited investors. During the six months ended June 30, 2023, cash flows from financing activities included the receipt of proceeds of $15.2 million, net, from issuance of our common stock pursuant to subscription agreements with certain individuals, including existing shareholders of Arq Ltd. These decreases were partially offset by an increase of $0.8 million pursuant to a subscription agreement between the Company and its CEO executed in July 2023, whose shares were issued during the second quarter of 2024.

Material Cash Requirements

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations depends upon several factors. These include executing on our contracts and initiatives and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and increasing our gross margin from improving our customer and product mix.

We expect that our cash on hand as of June 30, 2024 and anticipated proceeds from additional debt financing will provide sufficient liquidity to fund operations for the next 12 months while maintaining the cadence of our capital expenditures.

Capital expenditures

We have targeted the first quarter of 2025 for our first GAC deliveries. To meet this target, we need to incur substantial capital spend for additional equipment, labor, and project costs. The Company anticipates financing the timely completion of the project funded with cash on hand, cash generation, ongoing cost reduction initiatives, potential customer prepayments for GAC contracts, and a planned refinancing and expansion of the CFG Loan. If we are not able to secure expanded or additional financing, the project timeline for our Red River Plant expansion will be delayed beyond the end of 2024.

During 2024, we expect to spend between $55 and $60 million on the Red River Plant expansion, depending on the pace of the project, as well as between $5 and $10 million to complete our commissioning of the Corbin Facility. Capital expenditures planned for 2024 are dependent on many factors, including our ability to raise additional funding, which may impact the timing and amount of capital expenditures.

Surety Bonds

As of June 30, 2024, we had outstanding surety bonds with regulatory commissions totaling $11.2 million primarily related to the Five Forks Mine and the Corbin Facility. As of June 30, 2024, and as required by our surety bond provider, we held restricted cash of $8.5 million pledged as collateral related to performance requirements required under a reclamation contract for the Five Forks Mine and the Corbin Facility. We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related surety bonds may be released and collateral requirements may be reduced. However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider.

Long Term Requirements

For a discussion of our long-term cash requirements, see Item 1. Note 5 of this Report.

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 2023 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 Quarterly 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 AC products and services;

(d) increasing competition in the AC market;

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

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

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

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

(i) future level of research and development activities;

(j) future plant capacity expansions and site development projects, including the GAC Facility;

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

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

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

(n) 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;

(o) the amount and timing of future capital expenditures needed for our business plan;

(p) the amount, timing, and favorability of terms related to additional required financing

(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; and;

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

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; competition within the industries in which the Company operates; our inability to commercialize our products on favorable terms; our inability to effectively and efficiently commercialize new products; changes in construction costs or availability of construction materials; our inability to effectively manage construction and startup of the Red River GAC Facility or Corbin Facility; our inability to obtain required financing or financing on terms that are favorable to us; our inability to ramp up our operations to effectively address recent and expected growth in our business; loss of key personnel; ongoing effects of the inflation and macroeconomic uncertainty, including from the ongoing pandemic and armed conflicts around the world, and such uncertainty's effect on market demand and input costs; availability of materials and equipment for our business; intellectual property infringement claims from third parties; pending litigation; 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 others with whom it does business and meet supply requirements, or its results of operations and business generally; risks related to diverting management's attention from our ongoing business operations; costs related to the Arq Acquisition; opportunities for additional sales of our AC products and end-market diversification; the timing and scope of new and pending regulations and any legal challenges to or extensions of compliance dates of them; 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 June 30, 2024.

Changes in Internal Control Over Financial Reporting

On February 1, 2023, we acquired Legacy Arq and, as permitted by Securities and Exchange Commission Staff interpretative guidance for newly acquired businesses, management excluded Legacy Arq from our assessment of internal control over financial reporting as of December 31, 2023. We are in the process of documenting and testing Legacy Arq's internal controls over financial reporting and will incorporate Legacy Arq into our annual report on internal control over financial reporting for the year ending December 31, 2024.

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 June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material updates to our risk factors as disclosed in the fiscal year 2023 annual report on Form 10-K.