Marvelous Microcaps

Arq, Inc. (ARQ)

INTRO:

At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our ongoing series “Marvelous Microcaps – Big Ideas on Small Companies.”  This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.

THE COMPANY:

Arq, Inc. (ARQ) is an environmental technology company producing activated carbon (AC) products that reduce or reverse environmental liabilities.  The AC market is entering a period of supply shortage.  AC removes impurities, contaminants, and pollutants in many industries.  When carbon is activated, it results in a highly porous substance that can absorb compounds.  ARQ has a patented process that can be tailored to each customer.  Management is in the process of turning around the company’s legacy powdered activated carbon (PAC) operations into higher margin granular activated carbon (GAC) operations.

WHY WE OWN: THE PERRITT ADVANTAGE

New management entered in 2023 with the focus of optimizing and improving the financial performance of the PAC business.  In 2023, 24% of the contracts had a negative gross margin.  At the end of 2024, only one contract remained with negative gross margins of 2%.  They have lowered their borrowing costs to half of the previous rate.  Then they concentrated on the GAC expansion in the beginning 1Q25 as they begin to phase it into the PAC production site.  They have $57.4m in cash to expand two additional GAC lines.  These two new lines will start 1Q25 and 1Q27, each with an incremental twenty-five million pounds of production.  EBITDA could grow at an 81% CAGR from 2024 to 2028.  They have a longer-term opportunity in asphalt emulsions.  This could surpass the GAC business.

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Data here is obtained from what are considered reliable sources. We consider the data used to be relevant and reliable.
Fund holdings and sector allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Please click PRCGX for a list of the top ten holdings.

Gross margin is the percentage of a company’s revenue that is retained after direct expenses such as labor and materials have been subtracted.
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternative measure of a company’s overall financial performance.
The compound annual growth rate (CAGR) is the rate of return that an investment would need to have every year to grow from its beginning balance to its ending balance, over a given time interval.

Before you invest in the Perritt MicroCap Opportunities Fund, please refer to the prospectus for important information about the investment company, including investment objectives, risks, charges, and expenses. You may also obtain a hard copy of the prospectus by calling 800-331-8936. The prospectus should be read carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible. The Fund invests in smaller companies, which involve additional risks, such as limited liquidity and greater volatility. The Fund invests in microcap companies which tend to perform poorly during times of economic stress.
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Past Performance does not guarantee future results.

The Perritt Fund is distributed by Quasar Distributors, LLC.

First published February 2025.

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