Arq, Inc. (ARQ) Q2 2026 Earnings Report, Transcript and Summary

Greetings. Welcome to the ARQ Q2 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Anthony Nathan, Head of Investor Relations. Thank you, Anthony. You may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us today for our second quarter 2026 earnings results call. With me on the call today are Bob Rasmus, ARQ's Chief Executive Officer; and Shimon Steinmetz, ARQ's Chief Financial Officer. This conference call is being webcast live within the Investors section of our website, and a downloadable version of today's presentation is available there as well. A webcast replay will also be available on our site, and you can contact ARQ's Investor Relations team at investors@arq.com. Let me remind you that the presentation and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to, those factors identified on Slide 2 of today's slide presentation, in our Form 10-Q for the quarter ended June 30, 2026, and other filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, the company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments, or changed circumstances or for any other reason. In addition, it is especially important to review the presentation in today's remarks in conjunction with the GAAP references in the financial statements. With that, I would like to turn the call over to Bob.

Thank you, Anthony, and thanks to everyone for joining us this morning. We'll cover a lot of ground on today's call, so I'd like to begin by providing an overview of the key points we'll address. First, our second quarter results underscore the underlying strength and improving profitability of our foundational PAC business. Despite Q2 typically being a seasonally softer quarter and being further impacted by the biennial plant turnaround completed in April, we delivered adjusted EBITDA well ahead of the prior year period with gross margin up roughly 520 basis points. This quarter is a clear demonstration of the earnings power of our PAC business. A business unencumbered by the GAC challenges that weighed on the prior year period. Powdered activated carbon remains the foundation of our company, providing both operational continuity and the financial base from which we see multiple avenues for growth, which I'll cover in more detail shortly. Second, I'll walk through the progress of our granular activated carbon optimization review. The PFAS opportunity remains a core focus. And while we continue to refine our view on the cost and timing of GAC development, we're also encouraged by progress with customers on what we're calling our path for PFAS strategy, which we believe could offer a near-term solution to the PFAS compliance challenges that some of our water customers face. Demand for products that help water companies reduce PFAS contamination remains strong, and we're seeing broad interest in solutions that let customers achieve compliance now. We believe that by using our new PAC for PFAS, certain water companies may not need to invest the substantial capital required to use granular activated carbon to comply with the EPA's PFAS standards. I want to stress that this is not a one-size-fits-all solution. It applies to water systems, which are currently close to meeting the PFAS standards. In addition to assisting with near-term PFAS compliance, using PAC for PFAS will allow these water companies to utilize existing equipment potentially without the need for new CapEx associated with GAC systems. And third, we continue to see several ways to strengthen our balance sheet and profitability in the near term. These include the potential monetization of Corbin and our coal waste purification technology, which has potentially multiple valuable end market applications. Finally, my excitement around the appointment of Shimon Steinmetz as Chief Financial Officer. I cannot emphasize the importance of having an experienced, committed contributor to the CFO position enough. Shimon has already brought a number of ideas for making the business more efficient and financially productive, which he'll be expanding on shortly. I am looking forward to partnering with Shimon to create value for our shareholders. Turning to our second quarter results. Revenue was approximately $30 million, up modestly year-over-year with continued volume and pricing strength. We expect the modest shortfall in chemicals revenue to reflect timing rather than demand and believe it will be recovered later in the year. Gross margin was approximately 38.5%, up roughly 520 basis points from the prior year quarter. This reflects the continued improvement in PAC profitability in the absence of GAC start-up costs that weighed on the prior year period. Adjusted EBITDA was approximately $5.8 million, a substantial increase over the $3.7 million we reported in the prior year period and well ahead of the first quarter of 2026. This performance reflects the underlying strength of the PAC business, our continued pricing discipline and the benefit of our cost and operational initiatives delivered without the drag of GAC production. The biennial Red River plant turnaround was completed in April and, importantly, under budget. Today, we are reiterating our full year CapEx guidance of between $8 million and $10 million. Overall, this was a strong and encouraging quarter in what is typically our seasonal low point. Having covered our core markets, let me turn to where we see potential for growth. I know many of you are keen to hear about the status of our strategic optimization review. But before I get to that, I want to spend some time on an exciting PAC growth initiative, one that speaks directly to the PFAS opportunity and which our sales team has labeled PAC for PFAS. PAC for PFAS is a new line of powdered activated carbon products designed to address the PFAS removal market. As a reminder, that market remains strong with mandatory PFAS monitoring and public reporting for U.S. water companies beginning in April 2027. We've been looking for ways to help customers prepare for the broader compliance changes slated for 2029 to 2031. At that time, all water companies will need to bring PFAS levels below the new 4 parts per trillion threshold down from the previous 70 parts per trillion threshold. Adapting to these changes will be expensive for many water companies since GAC application typically requires new equipment at meaningful cost. Given the short runway before monitoring reporting begins in Q2 2027, we set out to offer customers what can be both a permanent or an interim solution that enables compliance at a lower capital cost using existing equipment where possible. That's where PAC for PFAS comes in. Utilizing our best-in-class research and technology capabilities and through our specialized product engineering and manufacturing, we've developed a PAC product capable of removing low levels of PFAS contamination. While the upper limit of contamination it can handle hasn't been confirmed, we believe a meaningful number of water companies, particularly those marginally outside the 4 parts per trillion compliance level, stand to benefit. For these customers, the appeal is twofold. First, they can achieve compliance or work toward compliance without the significant capital cost of installing the vessels, systems and equipment that a GAC solution typically requires. And second, for the many utilities already using PAC for taste and odor control, our product can address PFAS and taste and odor together, avoiding the need to double up on treatment. Initial customer conversations suggest this product could be priced similar to our conventional GAC products. To be clear, this doesn't change our view of bituminous granular activated carbon effectiveness at removing PFAS. If successfully adopted, this product could solve a real near-term problem for customers while adding a higher-value product to our portfolio. Customer trials remain ongoing, so I don't expect a material contribution during the remainder of 2026. But I do see potential for this to meaningfully boost our performance in 2027 and beyond. This product was developed by our technology team as part of our goal to create and sell high-performance specialty products custom-designed to meet our end users' needs. It is another excellent example of our technical and sales teams working with customers as partners, not counterparties. By addressing customer problems in real time, we strengthen those relationships to our mutual benefit. To be clear, exciting as this is, I don't believe it has any material impact on our sales potential into the GAC market. Rather, it's an adjacent solution for specific customers, many of whom may well become GAC customers down the road. I'd now like to provide an update on where we stand on our strategic optimization review and GAC. The strategic optimization review remains ongoing. It has expanded to encompass not just bituminous-based granular activated carbon, but also includes a broader operational assessment that has identified near- and medium-term opportunities to increase furnace time and reduce product costs. We are also focusing on how to best utilize our technology advantages and our relationships. The overall goal is to maximize returns to our shareholders. While our review is not yet fully complete, it has uncovered several ideas about increasing the profitability around our foundational PAC business. The outcomes involve several areas: the PAC for PFAS mentioned previously and multiple operational efficiencies designed to increase plant capacity and lower costs. We believe the opportunity to significantly increase EBITDA is real and attainable. So where does bituminous-based GAC fit into this discussion? The PFAS opportunity remains compelling. We continue to see an important role for GAC in providing solutions for our customers. With that in mind and as a possible interim step while we determine the best path to bring our own bituminous-based GAC product online, I am encouraged by the early progress of PAC for PFAS. I believe this could meaningfully add volumes, price, and margins for our PAC business while still helping remove PFAS from our nation's water. The GAC segment of the review is not fully complete, but we do have enough information to share meaningfully more than we could last quarter. We have received cost estimates from 2 independent engineering consultants to finish the conversion and fix the issues previously discussed. Those estimates have a fairly wide range. Given the uncertainty still built into any estimate at this stage, the currently anticipated range for the project is potentially somewhere between $40 million and $60 million. That number could change depending upon the final design. We are working to narrow it, and we will update you as we do. Here is the point I want to make sure lands clearly because it is the most important part of this update. Sharing that number does not mean we have decided to invest in it, and it does not mean we are walking away from GAC either. Both things are true at once. We still believe GAC is a real differentiated opportunity for this company, one that few others have the assets or the position to pursue. And we are not going to invest this kind of capital until we know it will generate a return that justifies the investment. In the meantime, we are focused entirely on making our existing business more profitable. That means continuing to push our PAC business toward a higher earnings run rate, capturing additional capacity and cost improvements we have identified through the same review process, evaluating the monetization of Corbin, and building out PAC for PFAS is a near-term way to serve that demand while we work through the larger GAC decision. As that base gets stronger, our ability to finance GAC on reasonable terms, including through additional debt rather than equity, improves as well. I have been very clear that we will not invest in GAC at any cost. We think the market has been assuming the worst of both worlds: that we will eventually dilute shareholders to fund this and still not generate an attractive return on it. We wanted to give you a clearer picture of both the cost and our approach because we think it tells a more complete story than the market may currently be pricing in. Let me expand on my earlier comments on Corbin monetization. As of midyear, we've made encouraging progress with our asphalt partner, and our blending component product has performed well in trials. The partner completed a successful crack test at the National Center for Asphalt Technology at Auburn University. This program is transitioning to the next phase of technical validation and third-party laboratories, which will include performance and durability evaluations against strict highway safety standards. This validation work will be conducted through Q4 2026 with feedback beginning in Q1 2027. The path towards commercializing new asphalt road products is highly detailed, so we are very pleased with the progress that has been accomplished. As I mentioned, we're actively evaluating the most efficient way to monetize both the Corbin asset and its associated technologies. As it relates to asphalt, in addition to operating the Corbin facility as a supplier of feedstock, we may ultimately license the technology, sell the plant, or pursue some form of joint venture. Separately, we continue to evaluate unsolicited interest from third parties around an asset sale or joint venture covering a broad range of applications, including silicone wafers, rare earth materials and other specialty products. With that, I'll turn it over to Shimon for a detailed financial review, along with an introduction and his initial thoughts since joining the team.

Thank you, Bob, and thank you, everyone, for joining us today. I'm very excited to join the ARC team. The company is at a pivotal point in its growth, and I see enormous potential in what lies ahead. In terms of where I see the core focus in the initial months of my tenure, I'm particularly concentrated on driving greater operations and financial efficiency across the business, strengthening our financial planning and analysis, and identifying opportunities to reduce costs and improve profitability, all in support of the growth priorities Bob outlined. Meanwhile, turning to what we reported overnight, Arq delivered another strong set of financial results in the second quarter, with revenues of approximately $30 million, up modestly year-over-year. This continues to be driven largely by improved volumes and pricing. Our gross margin in the quarter was approximately 38.5%, up approximately 520 basis points as compared to the second quarter of 2025, reflecting the ongoing improvement of the PAC performance and the lack of GAC start-up offsets. On the biannual plant turnaround we completed in April, the associated cost of $3.1 million was capitalized. The work was completed under budget, and we do not anticipate the need to repeat it before April 2028. We reported a net loss of approximately $700,000 for the quarter compared with a net loss of $2.4 million in the second quarter of 2025, reflecting the improved operating performance just described. We generated adjusted EBITDA of approximately $5.8 million, up meaningfully from $3.7 million in the prior year period. The improvement reflects the continued strength and improving profitability of our PAC business, our pricing and cost initiatives, and the absence of the GAC production costs and challenges that weighed on prior periods. Our adjusted EBITDA also included add-backs for severance associated with recent leadership changes in noncash equity compensation. Selling, general and administrative expenses totaled $6.8 million, reflecting a $900,000 increase versus the prior year period. This was primarily driven by severance and recruiting costs tied to recent leadership changes. Research and development costs for the second quarter were about $1 million versus $2.7 million in the prior year period. Much of this is attributed to the increased spend in the prior year period related to GAC ramp-up. Overall, our second quarter performance was strong for what is typically a softer shoulder quarter, and it demonstrates the earnings power of the PAC business. We remain focused on enhancing the profitability of the PAC business even further and believe it is now genuinely cash generative on an annual basis. Turning to the balance sheet. We ended the second quarter with total cash of $12.1 million, of which approximately $11.2 million was restricted. The movement versus year-end primarily reflects capital expenditures, the turnaround, and the timing of working capital. Unrestricted cash at the quarter end was lower than in recent quarters, and I want to address that directly. This reflects the timing of our borrowing base and receipts rather than any change in our liquidity position. Our borrowing draw settles midweek. And because the quarter ended on a Tuesday, the timing of payroll, other payables, and slow customer receipts around period end resulted in the unrestricted cash carrying balance at June 30 not reflecting our normal level of available cash. To emphasize and illustrate this point, unrestricted cash increased to $3 million as of July 1. And as of July 31, 2026, it stood at approximately $3.1 million. At June 30, we were not constrained by our credit facility, and there was significant availability remaining under our borrowing base. Total debt as of June 30 stood at $30.9 million, including around $21.4 million related to the MidCap revolving credit facility and around $8.1 million related to the CTV loan secured against the Corbin asset. This reflects an increase of about $2.2 million versus December 2025 and is largely driven by an increase in the amount drawn on the MidCap facility. Today, we are also reiterating our 2026 CapEx forecast of between $8 million and $10 million. Finally, we are reaffirming our full year 2026 guidance. We continue to expect revenues to be between $120 million and $125 million and adjusted EBITDA of between $17 million and $20 million for the full year. We continue to expect to fund our operating and CapEx needs via our existing cash, cash generation, and ongoing cost reduction initiatives. We are also confident that the incremental credit could be added to the balance sheet given our strong asset base and growing profitability. And we are already looking at ways to enhance our existing facility terms to better reflect the state of the business today. We will, of course, provide any updates on this process as and when appropriate. With that, I will turn things back to Bob.

Thanks, Shimon. Before we turn to questions, let me leave you with three key takeaways. First, our PAC business continues to deliver, and this quarter demonstrated its earnings power. Q2 is typically a seasonally muted quarter, yet we delivered adjusted EBITDA well ahead of the prior year period and gross margin up roughly 520 basis points year-over-year. With the warm summer now underway, I'm confident in the outlook for the third quarter. Second, realizing value across the business will be a core focus in the months and quarters ahead. This includes not only new products like our PAC for PFAS strategy, but expanding our customer mix, streamlining operational performance, and delivering prudent cost savings wherever possible. I believe we can make the existing business meaningfully more efficient and profitable than it is today. Our goal is to increase adjusted EBITDA up to 50%. With Shimon's arrival, I'm confident we now have the right management team in place to deliver on this strategy. Third, our PFAS strategy remains central to our growth initiatives. I believe our discipline around capital allocation and shareholder value takes priority. My goal is to deliver first-class solutions for our customers and, in doing so, deliver strong returns for our shareholders, myself included as a significant shareholder. The PFAS opportunity remains core to our growth potential. We believe PAC for PFAS can serve as both a permanent and an effective interim solution while we finalize our granular activated carbon plans. In conclusion, our foundational PAC business continues to deliver solid results. In addition to PAC for PFAS, we have multiple avenues for growth that we're actively pursuing. We look forward to updating you on our progress across all elements of this strategy. With that, I'll hand it back to our moderator to open for questions.

[Operator Instructions] Our first question comes from Gerry Sweeney with ROTH Capital Partners LLC.

I'm going to start with the GAC. I know the number you put out there; I think it was $40 million to $60 million on the CapEx. Not saying you aren't going to do anything. But with that backdrop and that number, that number, I believe, falls into the realm of where I think previously, you said you could use debt to pursue this as an opportunity. Is that correct?

It does. But I also want to stress that that evaluation work is still ongoing and that there are really 2 basic reasons for that range. One, there are 2 different designs in the 25% contingency. And what we're doing is we're honing and sharpening the features on our preferred design that will allow us to further refine the price and narrow the scope in what we're doing. But our key focus, as I mentioned, we're only going to do what's in the best value for our shareholders, what creates maximum shareholder value. And that's continuing to focus on transforming our core pack business. And while bituminous-based GAC is attractive, we're not going to pursue it at any price.

I just want to make sure that that number fell into some of the equations that we discussed in the past.` Switching over to PAC, the PAC for PFAS. Is there any uniqueness to the product in terms of manufacturing or additives that allow it to go after the PFAS market? And the follow-up to that would be, yes or no, how much capacity do you have to sell into the PFAS market versus maybe the foundational market?

So I'm going to answer your second question first, Gerry. We look at the PAC business as a whole. And what we're doing and what we have done as part of the strategic optimization review is how do we increase the overall capacity? How do we most effectively utilize our furnace time to sell the maximum and manufacture and sell the maximum pack volumes as it relates to that? The PAC for PFAS is really a tailored solution for a specific segment of the market. And that specific target market is substantial, and it's really tailored and targeted to those entities that are close but not yet in compliance that can use the specialty formulated product to comply. The product is potentially meaningful to ARC due to the attractive volumes, pricing, and margins. We would expect and expect the ASP on PAC for PFAS and margins to be substantially greater than our ASP and our margins on our basic PAC business.

How much capacity do you have to sell into the PFAS for PAC market?

Yes. Well, in some respects, it's TBD, but the reality is if we are so successful that we run up against our capacity constraints, which we still have significant unused capacity, we would then substitute PAC for PFAS by eliminating some of our lower-margin product production.

And then obviously, great results. How much of a drag in the quarter was the turnaround? And then I'll add to this, I'll jump back in line. But how much of a drag was the turnaround? And obviously, going into Q3, which is the peak season, we should be looking at a very strong quarter.

Thank you, Gerry. This is Simon. The turnaround costs were $3.1 million of which we capitalized. So you won't even see that impact on the income statement. We capitalized the operational expenses and are going to amortize over the next 2 years, right? The impact of the turnaround that was expensed that will not repeat next quarter is about -- the impact of that is about $300,000 that was expensed.

Okay. So I mean, there was some cost, but it wasn't big. I mean, result 38%, we'll take that all day long. And going into Q3 should be seasonally strong as well, especially on the volume front.

And the other impact is we essentially shut down the plant for 3 to 4 weeks, too. So that does have an effect, too, that isn't directly attributable to the financial statements.

Well, congrats on a great quarter and glad to see the PAC for PFAS moving forward. And some of my channel checks thought it was a very interesting opportunity. So I appreciate it.

Our next question comes from Jason Tilchen with Canaccord Genuity.

I start just a bit of a follow-up on the last question. Are there any gating factors in terms of commitments of existing PAC production capacity that historically has been viewed as a positive, but maybe could hinder the pace of shifting some of your production of existing PAC into the PAC for PFAS side of things?

No, Jason. We have plenty of capacity that we can use, and we've created additional capacity as a result of the strategic optimization review. So that, combined with the cost reduction initiatives we've undertaken on the operational side, gives us plenty of room to be able to service the PAC for PFAS market.

And in terms of that additional capacity that you've identified through this review process, is there a sense of the materiality of the investment required and/or the timing for when that would sort of be available to you?

No, excellent question that, yes, it's de minimis capital expenditure that is required for both PAC for PFAS and to realize the efficiencies. That's why Shimon, in his remarks, reaffirmed our guidance on the CapEx for the year in the range of $8 million.

And then one other one for me. Trying to tie together some of the comments that were made. I believe you said that there's no GAC production expected in 2027 at this point, and there's a 12-month construction timeline that was put out in the deck as sort of a rough timeline. Is the right interpretation there that you're not going to make any decision before the end of this year as you continue to evaluate the path for PFAS test pilot with clients and customers? Or is it more so that you're just taking a conservative approach to the process and it's possible that a decision could be made sooner and all that?

We're taking a conservative approach to the process, and that's why we've guided people, saying, expect no bituminous GAC sales or production in 2027. As I mentioned earlier, we're working on honing and sharpening the design, narrowing down the cost, and then evaluating what process going forward maximizes shareholder value. So is there a potential a decision could be made later this year? Yes. Is there a potential the decision could be pushed into '27? Yes.

Our next question comes from Aaron Spychalla with Craig-Hallum.

Maybe first, just following up on the PAC for PFAS. Can you just kind of talk about -- would these be contract sales, spot sales? And just what are kind of those gating factors or kind of timeline for customer evaluation? And then just as a follow-up, I mean, any kind of investments in R&D that might be needed coming out of that?

Yes. No, these would anticipate that these would be contract sales, not necessarily spot sales. So there will be strong, repeatable business as it relates to that. The R&D function has already been performed. The product was really developed from 2 ways: one, from discussions with our sales force, with our customers and potential customers, but also then in consultation with and developed by our technology team, as I've always said, and you've heard me say, we have a best-in-class technology team. So that work has already been done. What we're doing now is doing the testing phase with customers and a target market group there, and we're very encouraged by that initial testing.

And sorry if I missed it, but just any thoughts on timeline for testing and when that might be the larger volumes?

Yes. No, the testing is ongoing. We've already completed some tests, and we're working with customers. We expect some sales in the second half of 2026, but then meaningful contribution in terms of volumes, ASP and gross margin in 2027.

All right. And then on the GAC $40 million to $60 million, is that just Phase 1 or in the past, you've kind of talked about maybe looking at Phase 1 and Phase 2? Just trying to understand what broader kind of needs or costs might look like as you pursue maybe a further build-out?

That is Phase 1. And again, just for clarity for everyone, Phase 1 is 25 million pounds of bituminous GAC capacity. Some of that expenditure would benefit a potential Stage 2, but it would all be required for Stage 1.

And then just one last question on free cash flow. So with the turnaround behind you now is looking at the business close to the $20 million EBITDA run rate? Can you just frame how you think about free cash flow conversion from EBITDA moving forward?

Sure. So the way I look at it is really on a 2-year basis because you have to factor in the biennial plant turnaround. As Shim mentioned in his remarks, we anticipate that continuing to happen every 2 years. So if you look at CapEx, $8 million to $10 million a year, you adjust that up a little bit for some growth and/or inflation. So you say $20 million at the high end, or $22 million or $24 million even at the high end over a 2-year period. And depending upon whether you want to use $20 million of EBITDA or $30 million a year. So you're generating $40 million to $60 million of EBITDA, and you're spending roughly $24 million at the extreme high end, I believe, in terms of CapEx over that period. So you're generating somewhere between $16 million and $26 million of free cash flow.

Our next question comes from Tim Moore with Clear Street.

It was nice to see the adjusted EBITDA margin rebound to the high level without the GAC drag. My first question is directed to Shim. We know you haven't been in the role for a lot of time, and some of this question is probably not fair, but you might have gotten a look inside the company since your hiring announcement in late May. Can you just give us an initial preliminary sense of maybe your first take on commercialization, the growth acceleration potential? Bob's talked about some of the strategies and just kind of what you're seeing with the start of the company.

Sure. Thank you very much for the question. As you mentioned, I was named 2 months ago, but I've really only been in the seat for about 10 days now. That being said, what excites me most is really the demand and the strength in the existing tech business, as that product still has tremendous demand, as we've seen this quarter with the upsized volume and pricing ability in the quarter. On top of that, this new launch of PAC for PFAS opens additional strength in that core capability with some pricing protection. That's a higher-margin business. So ultimately, as the high-demand PAC business stabilizes, we'll still have pricing power with the PAC for PFAS element. Obviously, I don't have to say the people are very excited. In all my management meetings and discussions and learning where things are and how the business is running, the executive management team is fully engaged. They understand the setback of the GAC plant and are fully aligned, looking for new products, new cost opportunities, et cetera, to get the business back in fighting shape. And that brings me to the last opportunity. There are significant opportunities to take cost out of the business. We have already identified about 5 different categories of non-people-related cost reductions that are timely. We need to negotiate them. We need to sharpen the pencil and find them. But I believe there's significant opportunity to generate cash just through cost removal.

That's really helpful color, and it was really good to hear that inside of here, even though you've only been there less than 2 weeks. I just wanted to follow up on one of Bob's prepared remarks. He mentioned, I think, the goal of a 50% increase in EBITDA. And then he just ran us through the EBITDA potential range, maybe $30 million to $40 million in the free cash flow conversion. I just want to clarify that 50% increase in that $30 million to $40 million EBITDA; that's entirely without GAC. I just want to clarify that.

And I want to clarify your question, Tim. One, what I was saying, the $30 million is the goal that we have for next year in terms of cost takeout as well as product expansion. That represents a 50% increase over the high end of the target for this year, the guidance that we've given people, which is about a 45% increase over the prior year as it relates to that. I don't think I mentioned $40 million other than as it relates to over a 2-year basis on that, not a single year.

That's fine. I like targets, and that could be a good target. I just want to clarify that's without GAC, if you could get to $40 million maybe over 2 years?

Yes. No, absolutely. Our focus and absolute focus is on creating maximum shareholder value. And our core PAC business has been transformed into a growing business. The key is that our growth is not reliant on bituminous-based GAC, which used to be the case. And so when we talk about these numbers, that gives no value, no earnings potential, no contribution from bituminous-based GAC.

Our last question comes from Peter Gastreich with Water Tower Research.

Congratulations on the results. It's great to hear you firming up on the strategy on the PAC for PFAS and some of the other levers. I'd like to start with the industry landscape. So Palagon just announced up to a 25% global increase effective next month. And I know Bob won't want to comment on competitors' actions, but just curious if you'd be able to look at this from a high-level read on the drivers for the industry. So from a market perspective, is this purely market tightness? Is it rising costs? Is there any impact from imported material here? Is it all of the above? Just kind of curious what your lay of the land would be into the end of this year.

So a couple of things, as you say, I don't want to comment on the rationale for our competitors. But we've done an excellent job as a company of raising our ASP over the last 12 quarters. We have seen costs increase; hence, our focus on reducing those costs across the board. We've also seen tightness in the marketplace. And as it relates to certain segments of the marketplace, despite the fact that we still haven't made a go or no-go decision as it relates to GAC, that market remains extremely effective. Bituminous-based GAC is still the best available technology for remediating PFAS and letting the water utilities reach the 4 parts per trillion level. And the PAC for PFAS, as mentioned, is both an interim opportunity and potentially a permanent solution for certain people. But that, again, going back and not meaning to digress, I think it relates to market tightness, and I think it relates to overall inflation from a cost indication.

My second question is a technical question, kind of following up on the PAC for PFAS. If I understand this correctly, so basically, the PAC for PFAS partially addresses the problem; say, does that mean that it can bring PFAS down to a certain parts per million doesn't bring us quite to the level of compliance, but it gets us partway there. Is that the right way to look at it?

No, that's not. What PAC for PFAS does for a certain segment of the market that is close to but not currently in compliance, they can use our PAC for PFAS product to get them into compliance. That has 2 benefits. One, obviously, is compliance in advance of the EPA regulations in terms of permissible PFAS in the water system. The other is they can use existing equipment and don't have to do the CapEx, which sometimes can be substantial, to put in GAC systems to be able to meet those standards. That's for a certain segment of the marketplace. There is another very large segment of the marketplace that could use PAC for PFAS. But at some point, the quantities needed for that segment to comply make it more cost-effective to utilize the GAC. What we're focusing on is that market and those customers and potential customers that are close but not yet in compliance, where PAC for PFAS is an economically attractive alternative to using bituminous-based GAC.

And are there competitors positioned to supply this as well?

We think that we are fairly unique in that.

So just one more question here, 2 more questions just for clarification. So for the GAC CapEx range, just to be clear, is it $40 million to $50 million, 5-0 or $40 million to $60 million, 6-0?

$40 million to $60 million, 6-0, and that's based on the 2 designs. But as I say, we have a preferred design, and we're working to finalize that and sharpen the pencil on it as it relates to that design.

And for that design, in that range, is this a single capacity in mind? Or is there a capacity range within that figure as well?

What we're looking at is 25 million pounds of GAC capacity. Some of that expenditure, as I mentioned earlier, will go to benefit a potential second line if and when we decide to do that. But all of that expense, whether it's 40 million, 50 million or 60 million, would be required to reach that 25 million pound capacity.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Bob Rasmus for closing comments.

Thanks, Dylan. I know granular activated carbon has been a key focus for investors and rightly sold, but I think the market may be looking at us the wrong way. When we first showed a path to $30 million of EBITDA with granular activated carbon as the driver, our valuation reflected roughly 10x that forecast. We are now nearly 2/3 of the way there, yet we are trading at a multiple less than 5x this year's guidance and approximately 3x our $30 million goal. We acknowledge the varying growth trajectories of each business, but we believe there is a mismatch, one driven simply by the fact that we are delivering that EBITDA through a different product mix. We have transformed ARC so that our growth is not reliant on granular activated carbon. Our focus has been on and will be on optimizing our foundational PAC business, and our guidance, performance and expectations for 2026 reflect substantial improvements in that core business, both in relative and absolute terms. And based on our strategic optimization review, we believe we can make the PAC business meaningfully more efficient and profitable than it is today and more profitable than we expect for 2026. That improvement will come through new products- that's products plural, not just PAC for PFAS- as well as expanding our customer mix, streamlining operations, increasing effective furnace capacity, and finding cost savings wherever possible. As mentioned earlier, our goal is to increase adjusted EBITDA in our core PAC business by up to 50% while still retaining the granular activated carbon optionality. I want to thank everyone for their time today and their continued interest in ARC, and we look forward to providing the market further updates.

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