Arq, Inc.: Form 10-Q for the period ended Sep 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 Company's Annual Report on Form 10-K for the year ended December 31, 2023 (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 that is 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, water, and soil 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 (the "Arq Acquisition," and hereafter the Arq Limited subsidiaries are referred to as "Legacy Arq") 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. Using the Corbin Facility's 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 during the first quarter of 2025.

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 nine months ended September 30, 2024, we experienced a decrease in demand for our products from certain coal-fired dispatch and electricity power generation customers compared to the same periods in 2023. 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 the year to date impact of 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 nine months ended September 30, 2024, we recognized net income of $1.6 million and net loss of $3.8 million, respectively, compared to net loss of $2.2 million and $15.5 million for the three and nine months ended September 30, 2023. The most significant factor impacting results for the three months ended September 30, 2024 was higher revenue as a result of increased average selling price, which was partially offset by a decrease in demand for our AC and chemical products with power generation customers, when compared to the three months ended September 30, 2023. The decrease in demand from our power generation customers was primarily driven by continued low prices of alternative energy sources for power generation. These factors also impacted our results for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Additionally, during the nine months ended September 30, 2023, we recorded expenses related to the Arq Acquisition that did not occur in 2024.

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, 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 September 30, 2024 and 2023 is as follows:

(in thousands, except percentages)

Revenue and Cost of revenue

For the three months ended September 30, 2024, revenue increased from the comparable quarter in 2023 primarily driven by overall favorable product mix and higher pricing of approximately $2.7 million and $1.2 million, respectively. The increase from favorable product mix was primarily driven by sales to municipal water customers and a large non-power generation customer. Also contributing to an increase in revenue between periods was $0.2 million attributable to volumes sold, despite lower natural gas prices compared to the same quarter in 2023, which contributed to decreased utilization of coal-fired generation and decreased demand for our products by customers in the power generation market. The average Henry Hub natural gas spot prices ($/MMBtu) for the three months ended September 30, 2024 and 2023 were $2.11 and $2.59, respectively.

Gross margin, exclusive of depreciation and amortization, increased for the three months ended September 30, 2024 compared to the corresponding quarter in 2023. The increase in gross margin was primarily due to favorable product mix as described above, as well as lower fixed costs as a percentage of total cost of revenue due to higher production volumes for the three months ended September 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 September 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 three months ended September 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 September 30, 2024 compared to the corresponding quarter in 2023 primarily due to severance related costs of $1.0 million associated with the termination of an executive officer during the three months ended September 30, 2023, and decreased salaries and wages in the current quarter primarily from lower executive compensation, which was a result of personnel changes implemented in 2023.

Legal and professional fees

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

General and administrative

General and administrative expenses increased for the three months ended September 30, 2024 compared to the corresponding quarter in 2023 by approximately $1.0 million, primarily due to an increase in rent and occupancy expenses, third-party services at the Corbin Facility, and franchise taxes.

Research and development

Research and development expense increased for the three months ended September 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, and increased research and development payroll costs.

Depreciation, amortization, depletion and accretion

Depreciation, amortization depletion and accretion expense remained flat for the three months ended September 30, 2024 compared to the corresponding quarter in 2023.

Gain on sale of assets

Gain on sale of assets for the three months ended September 30, 2024 primarily relates to a gain on the sale of equipment.

Other (Expense) Income, net

A summary of the components of other (expense) income, net for the three months ended September 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 September 30, 2024 represented cash distributions from Tinuum Group. Earnings from equity method investments for the three months ended September 30, 2023 represented cash distributions from both Tinuum Group and Tinuum Services. Tinuum Group continues to wind down their services into 2024. We do not expect further distributions from Tinuum Services as Tinuum Services has completed its wind-down.

Interest expense

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

Other

The decrease in Other for the three months ended September 30, 2024 as compared to the corresponding quarter in 2023 was primarily driven by a decrease in interest income of $0.4 million due to lower average balances in the Company's cash sweep accounts during the current quarter compared to the prior year quarter.

Income tax expense

For the three months ended September 30, 2024 and 2023, we had pretax income of $1.6 million and pretax loss of $2.2 million, respectively. For the three months ended September 30, 2024, we recorded no income tax expense as we expect to incur pretax loss for the year ending December 31, 2024. For the three months ended September 30, 2023, we 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 year ended December 31, 2023.

Comparison of the Nine Months Ended September 30, 2024 and 2023

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, 2024 and 2023 is as follows:

(in thousands, except percentages)

Revenue and Cost of revenue

For the nine months ended September 30, 2024, revenue increased from the comparable period in 2023 primarily driven by overall favorable product mix and higher pricing of approximately $5.4 million and $3.9 million, respectively. The increase from favorable product mix was primarily driven by sales to municipal water customers and a large non-power generation customer. These increases to revenue were partially offset by approximately $0.4 million attributable to lower volumes sold. Product sale volumes were lower among power generation customers primarily due to lower natural gas prices compared to the same period in 2023, which contributed to decreased utilization of coal-fired generation and decreased demand for our products. The average Henry Hub natural gas spot prices ($/MMBtu) for the nine months ended September 30, 2024 and 2023 were $2.11 and $2.47, respectively.

Gross margin, exclusive of depreciation and amortization, increased for the nine months ended September 30, 2024 compared to the corresponding period in 2023. The increase in gross margin was primarily due to favorable product mix and pricing as described above.

Operating Expenses

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

(in thousands, except percentages)

Selling, General and Administrative

A summary of the components of selling, general and administrative expenses for the nine months ended September 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 nine months ended September 30, 2024 compared to the corresponding period in 2023 primarily due to $1.1 million related to severance expense of former executives of Arq Limited and $1.0 million of severance related costs associated with the termination of an executive officer incurred during the nine months ended September 30, 2023, as well as decreased salaries and wages in the current year primarily from lower executive compensation, which was a result of personnel changes implemented in 2023.

Legal and professional fees

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

General and administrative

General and administrative expenses increased for the nine months ended September 30, 2024 compared to the corresponding period in 2023 by approximately $1.8 million, primarily due to increases in rent and occupancy expenses, franchise tax expenses, outside construction-related labor and license and fee expenses.

Research and development

Research and development expense increased for the nine months ended September 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, and increased research and development payroll costs.

Depreciation, amortization, depletion and accretion

Depreciation, amortization, depletion and accretion expense decreased by approximately $1.2 million for the nine months ended September 30, 2024 compared to the corresponding period in 2023, primarily due to increased absorption in inventory of $1.4 million, decreased amortization of leasehold improvements, customer relationships and developed technology of $0.5 million, and decreased depletion of $0.2 million, partially offset by increased depreciation expense, primarily related to Legacy Arq assets purchased in February 2023.

Gain on sale of assets

On March 27, 2023, we completed the sale of all of our membership interests in Marshall Mine, LLC to a third party. During the nine months ended September 30, 2023, we recognized a gain of $2.7 million on the sale of Marshall Mine, LLC. Gain on sale of assets for the nine months ended September 30, 2024 was primarily due to a gain on the sale of equipment.

Other Income (Expense), net

A summary of the components of other income (expense), net for the nine months ended September 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 nine months ended September 30, 2024 represented cash distributions from Tinuum Group. During the nine months ended September 30, 2023, the amount represented cash distributions from both Tinuum Group and Tinuum Services. Tinuum Group continues to wind down their services into 2024. We do not expect further distributions from Tinuum Services as Tinuum Services has completed its wind-down.

Interest expense

Interest expense increased for the nine months ended September 30, 2024 compared to the corresponding period in 2023 primarily due to higher interest expense of $0.3 million related to the CFG Loan incurred for the nine months ended September 30, 2024. This increase was due to a higher principal balance from the accrual of interest payable upon the termination date of the CFG Loan.

Other

The decrease in Other for the nine months ended September 30, 2024 was primarily driven by a decrease in interest income of $0.5 million due to lower balances in the Company's cash sweep accounts during the current period compared to the prior year period.

Income tax expense

For the nine months ended September 30, 2024 and 2023, we had pretax losses of $3.7 million and $15.6 million, respectively, and recorded no income tax benefit for the pretax losses due to the recording of a full valuation allowance based on our forecast of pretax losses for the year ending December 31, 2024 and the year ended December 31, 2023. For the nine months ended September 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, other non-cash losses and non-recurring costs and fees. 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 income (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 income (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 nine months ended September 30, 2023 are zero and $4.9 million, respectively of transaction and integration costs incurred related to the Arq Acquisition. Additionally, for the three and nine months ended September 30, 2023, Net loss included $2.5 million and $4.2 million of Legacy 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, 2024, our principal sources of liquidity included:

• cash on hand of $48.7 million, excluding $8.7 million of restricted cash, including net proceeds received from issuance and sale of our common stock of $42.4 million in the current year; and
• cash from operations.

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

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

Cash Flows

Nine Months Ended September 30, 2024 vs. Nine Months Ended September 30, 2023

Cash and restricted cash increased from $54.2 million as of December 31, 2023 to $57.4 million as of September 30, 2024. The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023, respectively:

(in thousands)

Cash flow from operating activities

Cash flow from operating activities for the nine months ended September 30, 2024 were $5.3 million and represented a net increase of $26.4 million from cash used in operating activities for the nine months ended September 30, 2023 of $21.1 million. The net increase was primarily attributable to a decrease in cash payments on accounts payable and accrued expenses of $9.4 million, primarily due to payments made in 2023 of Legacy Arq assumed liabilities, comprised of accrued employee-related compensation and accrued transaction costs related to the Arq Acquisition in 2023; a decrease in net loss of $11.8 million; and a decrease in non-cash items primarily from a gain of $2.7 million recognized from the sale of Marshall Mine, LLC for the nine months ended September 30, 2023.

Cash flow from investing activities

Cash flows used in investing activities increased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 increased by $24.8 million primarily as a result of an increase in property, plant and equipment additions of $25.2 million from construction activities related to the expansion of our Red River Plant; $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 $1.4 million. Partially offsetting the net increase in cash flows used in investing activities were a cash payment of $2.2 million made in the prior year required in the sale of Marshall Mine, LLC, a decrease in expenditures on mine development costs of $1.7 million, and cash received in 2024 of $0.2 million from the sale of equipment.

Cash flow from financing activities

Cash flows provided by financing activities for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 increased by $16.7 million primarily due to proceeds of $42.4 million, net of offering costs, we received related to issuance and sale of our common stock in both the Public Offering and the Private Placement, including $0.8 million received in April 2024 pursuant to a subscription agreement between the Company and its CEO executed in July 2023. During the nine months ended September 30, 2023, cash flows from financing activities included the receipt of proceeds of $15.2 million, net, from the PIPE Investment and proceeds from the CFG Loan of $8.5 million, net of debt issuance costs paid.

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 by improving our customer and product mix.

We expect that our cash on hand as of September 30, 2024 and proceeds from additional debt financing, if needed, 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. We expect to finance the timely completion of the project with cash on hand, cash generation from operations, ongoing cost reduction initiatives, potential customer prepayments for GAC contracts, and an anticipated refinancing and expansion of the CFG Loan.

During 2024, we expect to spend between $60 and $70 million on construction and commissioning of our plants, depending on the pace of the project. Capital expenditures planned for 2024 are dependent on many factors, which may impact the timing and amount of capital expenditures, with $20 to $25 million expected to be spent in the fourth quarter of 2024.

Surety Bonds

As of September 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 September 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, which relate primarily to our obligations under the CFG Loan and CTB Loan, see Note 5 of the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not changed from those reported in Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" 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. 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) the ability to successfully integrate Legacy Arq's business;

(e) the ability to develop and utilize Legacy Arq’s products and technology and the anticipated timing for bringing such products to market;

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

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

(h) future level of research and development activities;

(i) future plant capacity expansions and site development projects, including the GAC facility at our Red River Plant;

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

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

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

(m) the performance of obligations secured by our surety bonds;

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

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

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

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

(r) 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 and scope 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 we operate; 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 GAC facility at our Red River Plant 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 inflation and macroeconomic uncertainty, including from the ongoing 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; 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 we do business and meet supply requirements, or our 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; 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; and the other risk factors described in our other filings with the SEC, including the 2023 Form 10-K. 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.

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