Arq, Inc. (ARQ) stock intrinsic value fair value estimate & owner earnings analysis

Arq, Inc. (formerly Advanced Emissions Solutions) makes activated carbon at its Red River Plant in Coushatta, Louisiana and sells it mainly to coal-fired power generators (mercury control) and to water treatment customers. In 2025 revenue was $120.3 million, up 10% from $109.0 million, driven by higher volumes and better pricing as utilities burned more coal. Its top three customers were about 42% of revenue and its top five about 50%, mostly under contracts with minimum purchase obligations. What owner earnings look like. We measure what the business leaves for shareholders after operating cash flow (with working-capital swings removed), stock compensation and the routine capital spending needed to stand still. On that basis Arq has been negative every year since its 2022-2023 transformation: about $(0.37), $(0.51), $(0.18) and $(0.21) per share for 2022 through 2025. Earlier years belonged to a different business, dominated by royalties and equity earnings from the Tinuum refined-coal partnerships, so we do not use them. We treated the 2023-2024 build-out of the Red River granular activated carbon (GAC) facility ($27.5 million and $85.2 million of capital spending) as growth spending and charged only a normal maintenance level of about 7.9% of revenue. The $44.8 million 2025 impairment is non-cash and does not distort the figures. Owner earnings per share fell slightly in 2025 (from $(0.18) to $(0.21)); we assume no improvement in year one. What went wrong. GAC was meant to be the growth engine. In December 2025 the company concluded that the GAC facility could not reach nameplate capacity because of design flaws (litigation against the original design firm is ongoing, per the filing), paused GAC production, idled its Corbin, Kentucky facility, and expects no material GAC revenue in 2026. The company took a $44.8 million impairment on Corbin assets. Gross margin before depreciation fell from about 36% in 2024 to about 28% in 2025 as fixed GAC and Corbin costs weighed on results. Base case: $0.00 per share. The record shows no year of positive owner earnings, and none of the potential upside (PFAS drinking-water rules, GAC ramp-up, rare-earth and asphalt uses for Corbin material) is secured today: the GAC plant is not producing, and the EPA has signaled the PFAS compliance date may slip from 2029 to 2031. We therefore credit no growth and treat the existing carbon business as roughly covering its own costs and no more. Bull case: $0.35 per share. If the fixed costs tied to GAC and the idled Corbin plant fall away, gross margin can return to the roughly 36% earned in 2024, which on 2025 revenue would lift owner earnings to about breakeven-to-slightly-positive (around $0.02 per share) and sustain it. We credit nothing from GAC sales. Bear case: $(0.90) per share. Owner earnings keep running around $(0.21) per share for roughly five years while the company carries $19.0 million drawn on its revolving credit facility (only $1.4 million still available at year-end 2025) and a $10.0 million term loan. Losing part of the concentrated top-customer base, or renewing at lower prices as gas prices ease and coal burn falls, would deepen the drain. In this case the company owes more than the business generates, roughly $0.90 per share. What would make this wrong: a working GAC facility on the new coal feedstock, or PFAS-driven demand arriving on schedule, would make all three cases too low. The main unreconciled item is that management's adjusted EBITDA ($13.2 million for 2025) is well above our cash-based figure because it excludes stock compensation and other items; we relied on the audited cash flow statement. We valued only the businesses actually operating; balance sheet cash and debt were not netted, since debt costs are already in operating cash flow and are reflected in the bear case.