ARQ

Arq($ARQ) CEO Buys 50K Shares at $3.79 Amid Stock Decline...Management Confidence Firm Despite GAC Delays Until 2026

11/13/2025 13:40

Arq Inc ($ARQ) stands as North America's only vertically integrated activated carbon producer, manufacturing both Powdered Activated Carbon (PAC) and Granular Activated Carbon (GAC) products for environmental purification solutions. The company is currently expanding GAC production at its Red River facility, though progress has been delayed due to design flaws and feedstock variability issues. The most striking development is recent insider trading patterns. In November, CEO Robert Rasmus purchased 50,000 shares at an average price of $3.79, while CFO Jay Voncannon bought 15,000 shares and Director Richard Campbell-breeden acquired 28,638 shares in the $3.54-$3.74 range. This mirrors similar patterns in May when executives aggressively bought shares as the stock fell to the low-$4 range. Particularly noteworthy is the CEO's consistent buying behavior. After purchasing 25,000 shares at $5.25 in September 2024, he continued buying during May's decline at $3.60-$4.10, and recently made another large purchase at $3.79. This suggests management views the current stock price as significantly undervalued. Conversely, executives sold shares in March at $4.68, though this appears tied to restricted stock compensation rather than investment judgment. August sales at $5.20 were minimal and occurred at levels substantially higher than current buying prices. Financially, the company faces ongoing challenges. Third-quarter revenue increased 1% year-over-year to $35.1 million, but gross margin compressed to 28.8% from 38.6% in the prior year due to early-stage GAC facility inefficiencies. However, the company maintained positive adjusted EBITDA of $5.2 million for the sixth consecutive quarter. The company's biggest challenge remains achieving full GAC facility operation. While first commercial GAC production began in August, design issues and feedstock variability have pushed full capacity to mid-2026. This delay is the primary source of current margin pressure and stock price decline. Cash position stands at $9.5 million ($15.5 million including restricted cash), providing near-term liquidity but with limited cushion given negative levered free cash flow of -$42.97 million and a current ratio of 1.10. Annual capital expenditure guidance remains $8-12 million. From an industry perspective, ARQ occupies a unique position. Growing environmental regulations and renewable natural gas (RNG) market expansion support continued activated carbon demand growth. EPA regulations and Asian market demand particularly drive long-term growth prospects. Investors should consider two scenarios. In an optimistic case, GAC facility normalization by mid-2026 combined with successful Phase II expansion (adding ~25 million pounds capacity) could justify current insider buying confidence, suggesting significant undervaluation. The cautionary scenario involves prolonged GAC facility issues or additional capital requirements. Limited liquidity headroom could pressure funding needs, while the stock's high volatility (beta 3.17) amplifies risk. Key monitoring points include monthly GAC production progress and margin improvement trends. The company is exploring lower-moisture coal feedstock to reduce variability, potentially accelerating normalization ahead of 2026. Trading at 0.73x book value suggests asset-based attractiveness, though continued losses seem likely until operational issues resolve. While insider buying may signal a bottom, prudent approach remains warranted until operational uncertainty clears.