Arq (ARQ) Q3 2026 Earnings Call: Rekordumsatz und höhere EBITDA-Prognose

Wichtigste Erkenntnisse

• Arq meldete für das dritte Quartal 2026 einen Rekordumsatz von 38,2 Millionen US-Dollar, was einem Zuwachs von rund 9 % gegenüber dem Vorjahr entspricht und vor allem auf saisonal bedingt höhere Absätze von pulverförmiger Aktivkohle (PAC) zurückzuführen ist.
• Die Bruttomarge stieg von 28,8 % auf 39,7 %, während das bereinigte EBITDA von 5,2 Millionen US-Dollar auf 8,8 Millionen US-Dollar zulegte. Dies war für Arq das zehnte Quartal in Folge mit einem positiven bereinigten EBITDA.
• Der Nettogewinn erreichte 2,5 Millionen US-Dollar, verglichen mit einem Nettoverlust von rund 900.000 US-Dollar im dritten Quartal 2025.
• Die Unternehmensführung engte ihre Prognose für das bereinigte EBITDA im Gesamtjahr 2026 von 17 bis 20 Millionen US-Dollar auf 19 bis 20 Millionen US-Dollar ein und behielt die Umsatzprognose von 120 bis 125 Millionen US-Dollar bei.
• Arq rechnet damit, dass PAC für PFAS im Jahr 2027 zum Wachstum beitragen wird, wobei die Umsätze vor allem in der zweiten Jahreshälfte anfallen dürften. Es wurden bereits mehr als ein Dutzend bestehende oder geplante Testmöglichkeiten identifiziert.
• Die Unternehmensführung hält weiterhin zuversichtlich an ihrem Ziel fest, das Jahr 2027 mit einer bereinigten EBITDA-Run-Rate von rund 30 Millionen US-Dollar abzuschließen – ohne Berücksichtigung der Produktion von kornförmiger Aktivkohle (GAC) und der damit verbundenen Investitionsausgaben.

Wichtigste Finanzdaten

In den ersten neun Monaten des Jahres 2026 belief sich das bereinigte EBITDA auf insgesamt 17,4 Millionen US-Dollar und übertraf damit bereits die im gesamten Jahr 2025 verzeichneten 13,0 Millionen US-Dollar.

Geschäftliche und operative Entwicklung

Das fundamentale PAC-Geschäft blieb der wichtigste Ertragstreiber. Die Unternehmensführung führte das Umsatzwachstum im dritten Quartal vor allem auf das Absatzvolumen zurück und rechnet mit weiteren Zuwächsen durch Mengensteigerungen, Vertragsverlängerungen und die Preisgestaltung. Zudem beabsichtigt das Unternehmen, die Margen durch operative Effizienzsteigerungen und eine Verlagerung hin zu höherwertigen Produkten zu verbessern.

PAC für PFAS ist Arqs unmittelbare Priorität bei der PFAS-Sanierung. Erste Kundentests zeigten, dass die Produkte geringere PFAS-Verunreinigungen beseitigen und gleichzeitig Geschmacks- und Geruchsprobleme lösen können. Die Testmengen wurden nicht kostenlos zur Verfügung gestellt, sondern verkauft – und zwar zu Preisen, die deutlich über dem durchschnittlichen Verkaufspreis von Arq für herkömmliche PAC lagen.

Die Unternehmensführung schätzt, dass der adressierbare Markt für PAC zur PFAS-Beseitigung bis 2029 jährlich rund 160 Millionen Pfund erreichen könnte. Das Unternehmen verfügt über mehr als ein Dutzend bestehende oder terminierte Testmöglichkeiten bei Kunden, wobei die Tests im Allgemeinen ein bis drei Monate dauern. Parallel zu den Tests finden Vertragsgespräche statt.

Die Produkte nutzen bestehende Anlagen und Systeme, sodass kaum oder gar keine zusätzlichen Investitionsausgaben erforderlich sind. Laut Arq könnte PAC für PFAS in einigen Anwendungen als Alternative zu kornförmiger Aktivkohle dienen oder parallel zu GAC eingesetzt werden, um die Austauschhäufigkeit zu verringern.

Die strategische Optimierungsprüfung der GAC-Anlage von Arq ist im Wesentlichen abgeschlossen. Die Unternehmensführung erklärte jedoch, dass der Zeitpunkt künftiger Investitionen vom Renditeprofil und einer akzeptablen Finanzierungslösung abhängen wird. GAC bleibt eher eine längerfristige Option als eine Voraussetzung für kurzfristiges Wachstum.

Prognose der Unternehmensführung

Das Management erwartet, dass PAC für PFAS zum Wachstum im Jahr 2027 beitragen wird, wenngleich die Umsätze voraussichtlich vor allem in der zweiten Jahreshälfte anfallen werden. Eine offizielle Prognose für 2027 ist für Anfang des neuen Jahres geplant.

Als weitere Gewinntreiber für 2027 nannte die Unternehmensführung organisches PAC-Wachstum, Preisanpassungen, operative Effizienzgewinne, niedrigere Vertriebs- und Verwaltungskosten sowie eine potenzielle Refinanzierung. Arq strebt den Abschluss einer Refinanzierung seiner Mid-Cap-Kreditfazilität innerhalb von sechs Monaten an, sofern akzeptable Konditionen erzielt werden können.

Risiken und Beobachtungspunkte

• Das dritte Quartal ist für Arq typischerweise das saisonal stärkste Quartal, was eine direkte Hochrechnung der Margenentwicklung einschränkt.
• PAC für PFAS befindet sich weiterhin in der Phase der Kundentests und der frühen Kommerzialisierung. Nennenswerte Umsätze im Jahr 2027 dürften voraussichtlich schwerpunktmäßig im zweiten Halbjahr anfallen.
• Sollte sich die Nachfrage der bestehenden Kapazitätsgrenze nähern, könnte das Management Mengen mit niedrigeren Preisen und Margen reduzieren, um Premiumprodukten Vorrang einzuräumen.
• Der Zeitpunkt und die Finanzierung der künftigen GAC-Produktion sind weiterhin unentschieden und hängen von akzeptablen Renditen und Finanzierungskonditionen ab.
• Die Monetarisierung des Corbin-Vermögenswerts ist ungewiss. Die Unternehmensführung hofft, dass dies innerhalb von zwölf Monaten geschehen könnte, bezieht dies jedoch nicht in ihre Erwartungen für 2027 ein.

Wichtigste Punkte aus der Fragerunde mit Analysten

Nach Angaben des Managements dürften die bestehenden Beziehungen von Arq zu kommunalen Wasserbehörden und privaten Versorgern die Kommerzialisierung von PAC für PFAS unterstützen. Tests haben die Leistungsfähigkeit bei geringerer PFAS-Belastung bestätigt, wenngleich das Unternehmen noch den optimalen technischen Einsatzbereich des Produkts ermittelt.

Mit Blick auf die Margen erklärte Finanzvorstand Shimon Steinmetz, dass weitere Verbesserungen durch Kostensenkungen, Wachstum im PAC-Kerngeschäft und die Markteinführung von PAC für PFAS erzielt werden dürften. Die Umsatzprognose blieb trotz der höheren EBITDA-Prognose unverändert, da erste Effizienzsteigerungen die Rentabilität verbessern, ohne dass zusätzliche Umsätze erforderlich sind.

Hinsichtlich der Kapazitäten erklärte die Unternehmensführung, dass für PAC für PFAS voraussichtlich deutlich höhere Preise erzielt werden können als für herkömmliche PAC. Sollten die Kapazitäten knapp werden, würde Arq erwägen, margenschwächere Volumina aufzugeben.

Das Management betonte zudem, dass der Übergang von der bloßen PFAS-Überwachung zur Einhaltung gesetzlicher Grenzwerte (Compliance) die Kundenbeziehungen vertiefen und zusätzliche ein- sowie mehrjährige Vertragsvolumina ermöglichen könnte.

Vollständiges Transkript der Telefonkonferenz zu den Quartalsergebnissen

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Good morning, ladies and gentlemen, and welcome to the Arq Q3 2026 Earnings Conference Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, November 5, 2026. And I would now like to turn the conference over to Anthony Nathan, Head of Investor Relations. Thank you. Please go ahead.

Anthony Nathan

Thank you, operator. Good morning, everyone, and thank you for joining us today for our third quarter 2026 earnings results call. With me on the call today are Bob Rasmus, our Chief Executive Officer, and Shimon Steinmetz, our Chief Financial Officer.

This conference call is being webcasted live within the investor 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 September 30th, 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 and 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.

Robert Rasmus

Thank you, Anthony, and thanks to everyone for joining us this morning. During my remarks, I will cover the entire business, but there are three points I want to emphasize. First, our foundational PAC business is performing very well. Volumes and margins are growing organically, and we achieved record quarterly revenue. Importantly, this has been a strong year, not just a great quarter. As a result, we are raising the bottom end of our 2026 adjusted EBITDA guidance, with the range converging toward the top end of original guidance.

Second, the PFAS remediation market is robust. Customers are proactively seeking remediation solutions, and market prices are rising. That is the ideal backdrop for our PAC for PFAS products. Customer testing is advancing. And third, we believe there is a clear path to meaningfully grow profits in 2027. This is driven by the organic growth just mentioned, the addition of our PAC for PFAS products, our cost and efficiency initiatives, and a simpler balance sheet.

Turning to our third quarter results, this was a strong quarter driven by our foundational PAC business. We had record revenues of $38.2 million, up approximately 9% from the prior year. Gross margin for the third quarter was 39.7% compared to 28.8% in the prior-year period, and adjusted EBITDA was $8.8 million versus $5.2 million in the prior-year period. That is our 10th consecutive quarter of positive adjusted EBITDA. We generated net income of approximately $2.5 million in the quarter compared to a net loss of approximately $900,000 in the prior-year period.

I want to highlight two important points. First, we delivered on what we told you we would do. Rebuilding credibility with investors is my priority, and the way we rebuild credibility is simple: communicate our target to investors and then meet or beat them. Second, these results come before any expected contribution from PAC for PFAS.

To put our progress in context, through the first 3 quarters of 2026, our adjusted EBITDA of $17.4 million has already exceeded the $13.0 million of adjusted EBITDA we reported for the whole of 2025, as well as the low end of our full year 2026 guidance. We have had a strong year-to-date, not just a great quarter.

That brings me to guidance. We are tightening our full year 2026 adjusted EBITDA guidance to $19 million to $20 million, from $17 million to $20 million previously. At the same time, we are reiterating our revenue guidance of $120 million to $125 million.

Turning now to one of the biggest drivers of our future growth, PFAS remediation. With the April 2027 monitoring and reporting deadline approaching, PFAS is front of mind for most of our water customers. Many municipalities tell us they want to get into compliance as soon as possible, irrespective of the regulatory timetable. This is entirely rational, particularly given the reputational risk of being seen to accept PFAS contamination above mandated levels. That demand, together with anecdotal price increases reported across the activated carbon industry confirms that PFAS remediation remains an attractive market, a market that will likely continue to grow in both size and pricing as we approach both the EPA's PFAS contaminant threshold reporting and compliance effective dates.

With this in mind, we believe our targeted portfolio approach to being able to provide multiple PFAS solutions offers the best range of strategies for our customers. While PAC for PFAS will likely be the first off the line for next year, we have the option to start advancing additional product lines such as granular activated carbon and other solutions as the 2029 to 2031 compliance deadline gets closer. Our focus remains on capturing near-term opportunities, maintaining optionality, and maximizing shareholder returns.

Turning to the more immediate opportunity, we are continuing to make progress with PAC for PFAS, a key component of our PFAS remediation strategy. Testing is ongoing with major customers, and I would note that these test volumes have been sold, not given away. Initial customer testing results have been successful in demonstrating that these products remove lower-level PFAS contamination while simultaneously addressing taste and odor requirements.

Importantly, I would note that PAC for PFAS is an outgrowth of our long history of researching, developing, and producing powdered activated carbons. We have been adapting and customizing our PAC products going all the way back to 2010. PAC for PFAS is a product line extension similar to our previous developments, created by our technology team and driven by customer feedback. This is known and proven technology development, adding new functionalities to one of our existing product families. PAC for PFAS utilizes existing operational equipment and systems, entirely avoiding the specific challenges we encountered with granular activated carbon production. We now have the opportunity to pull the PAC for PFAS product forward commercially and are quickly moving to do so. All of this is being accomplished with little to no CapEx.

On the point of customer feedback and benefits, there is also a clear economic case beyond just early compliance. Placing PAC for PFAS at the front of a water system, including ahead of an existing GAC system, can reduce how often that granular activated carbon needs to be changed out. This is a potential material cost savings and operational improvement for the customer. Importantly, it also demonstrates that the potential for these PAC for PFAS products is significant, as they can work both as alternatives to granular activated carbon in certain situations or in combination with GAC and others.

Some of our advanced PAC for PFAS water carbons have outperformed standard market products, and the test volumes we have sold to date of this premium product were priced materially above our traditional PAC average selling price. In light of this improved performance, we have pending patent protection for this line of products.

To give you a sense of the opportunity, we believe the addressable market for PAC for PFAS could be substantial, conservatively estimated around 160 million pounds per year by 2029. We will further refine these numbers as customer testing continues. It is early, so I want to be measured about volumes. What I can say is that we believe meaningful orders are feasible in 2027. I expect PAC for PFAS to be a contributor to our growth next year. As we build our sales record and better define the customer base over the next few months, we expect to share more detail on market size, volumes, and pricing as part of the formal 2027 guidance we plan to provide early in the new year.

We expect our foundational PAC business to continue growing through organic volume and pricing gains, and we also expect PFAS remediation to be an additional driver of Arq's near-term growth. PAC for PFAS is our first step into that market. GAC remains a potential longer-term addition, but it is no longer essential to meaningful near-term growth in revenue, margin, and profitability.

The strategic optimization review relating to the company's granular activated carbon facility is now effectively complete. We now know the preferred design as well as estimated cost and construction duration, which remain unchanged from the amounts disclosed during our earnings call in August. As I also said in August, PFAS remediation is our strategy and GAC remains an option, and one which we expect to exercise, but in the future. For now, we are focused on PAC for PFAS as one component to maximize the profitability of our core activated carbon business. PAC for PFAS is currently our PFAS remediation priority for one simple reason, we believe it can currently deliver similar or better cash margins than granular activated carbon with little or no CapEx. It doesn't need to be more complicated than that.

Now let me turn to 2027. Budgeting is still underway and we expect to provide formal 2027 guidance early in the new year. I don't want to get ahead of that, but we do want to share how we're thinking about the building blocks. First, PAC for PFAS. As I just described, this is an attractive near and long-term opportunity. I expect it to be a meaningful contributor to growth next year.

Second, cost efficiencies. Shimon's arrival as Chief Financial Officer, coupled with our new Chief Accounting Officer, Peter Avellino, is already improving our financial efficiency. This will include freeing up excess cash in working capital, better matching of receivables and payables, shortening our monthly close, and renegotiating long-standing contracts that have not been aggressively renewed in years. I expect sustainable reductions in our SG&A expense and efficiency savings in 2027 from these ongoing actions.

Third, credit refinancing. We are exploring a refinancing of our mid-cap financial credit facility. When we signed that facility, we were generating around $7 million of adjusted EBITDA annually. Today, the top end of our guidance is $20 million. A lower cost of capital may be possible, but more importantly, believe we can secure a much simpler facility that removes the reporting burden of the current structure, effectively lowering cost and providing increased liquidity against our assets. Our target is to complete the refinancing within 6 months.

Fourth, operational efficiencies. Our focus is on improving efficiency and margins across our existing operations, thereby increasing profitability with higher throughput as a secondary opportunity. And fifth, Corbin monetization. Corbin is a unique asset. In terms of sale, the universe of potential buyers is specialized.

Asphalt remains the leading opportunity and testing continues to progress well, but because a commercial solution will take time, we are maintaining optionality across all the opportunities previously discussed. These opportunities include rare earths, synthetic graphite, silicone wafers, and potentially as a feedstock source for energy storage applications.

I won't speculate on what Corbin is worth or how quickly we can monetize it, but it is probably worth clarifying what it costs us today so you can better understand the thought process. The site carries around $8 million of debt through our loan with Community Trust Bank, which requires approximately $1.9 million of cash held in escrow. It also carries about $1.2 million a year in operating costs, and around $1.4 million a year in SG&A.

Relative to our size, monetizing Corbin would meaningfully benefit both our balance sheet and our operating results. We are working to expedite the process and I hope it might happen within 12 months, but it would be premature to build it into our 2027 expectations.

Taken together, these are largely independent levers that we believe can collectively deliver material value, and we will provide more precise guidance once we close out the year. Meanwhile, I remain comfortable with my previous statement of exiting 2027 at an adjusted EBITDA run rate of around $30 million without granular activated carbon or any of its associated CapEx, but crucially, while still retaining the granular activated carbon optionality with a substantially completed plant that offers a rapid route to production once we determine an acceptable funding solution.

Finally, a word on how the market see Arq. We continue to believe that our story is misunderstood and undervalued, and that there are four elements that will rectify this. First, we are now delivering on guidance and beating expectations. Second, we have multiple avenues to increase profitability in 2027 and beyond. Third, PFAS remediation is a major growth opportunity via both PAC for PFAS and GAC optionality. Fourth, our balance sheet is robust, strengthened through increased profitability and a growing cash position. The potential refinancing process which we are now exploring could strengthen it further.

Beyond that, the Board and management remain significantly aligned with all shareholders, and our existing NOLs put us in a strong position to convert operating profit into net income. Importantly, I believe we can deliver material near-term growth without significant additional CapEx. We are well-positioned to grow cash from here and potentially in combination with a more straightforward credit facility further strengthen our balance sheet.

With that, I'll turn it over to Shimon for the financial review.

Shimon Steinmetz

Thank you, Bob, and thank you, everyone, for joining today. As reported overnight, Arq delivered a very strong third quarter, with revenues of $38.2 million compared to $35.1 million in the prior-year period. This was driven primarily by higher seasonal PAC volume throughout the quarter. Gross margin was approximately 39.7% compared to 28.8% in the third quarter of 2025. This improvement reflects management's focus on our foundational PAC business.

Adjusted EBITDA was approximately $8.8 million compared with $5.2 million in the prior-year period. This was primarily driven by continued strength and improving profitability in our core PAC business. Net income was $2.5 million compared with net loss of approximately $900,000 in the third quarter of 2025.

SG&A expenses totaled $7.2 million compared with $4.6 million in the prior-year period. The increase was primarily driven by increased incentive compensation, as well as legal and other professional fees. R&D costs for the third quarter were approximately $800,000 compared to $2.6 million in the prior-year period. The decrease reflects GAC's ramp-up expense in the prior-year period that did not and will not reoccur in 2026.

Overall, our third quarter was very strong and ahead of expectations. It points to a strong second half and gives us confidence that we can deliver full year results at the top end of our original range. We remain focused on further improving the profitability and cash generation of our PAC business.

Turning to the balance sheet, we ended the third quarter with a total cash of $19.1 million, of which approximately $7.8 million was unrestricted. Our unrestricted position increased by nearly $7 million over the prior quarter. This was a result of strong quarterly revenue and disciplined cash management. Total debt at the end of the quarter was $28.2 million, a $2.5 million reduction from prior quarter, and includes $19.2 million drawn under the mid-cap facility.

Today, we are reiterating our 2026 CapEx guidance of $8 million to $10 million. As Bob noted, we are tightening our full-year adjusted EBITDA guidance to $19 million to $20 million, reflecting the high end of our previous range. We are also reiterating our full year revenue guidance of $120 million to $125 million.

Finally, an update on the cost and efficiency program we outlined in August. The work is ongoing, but we have already identified over 15 opportunities to improve efficiency, reduce cost, and unlock liquidity across 8 departments. As we go through the 2027 budget process, we are interrogating each opportunity to validate or disprove its feasibility.

As you would expect, we will remove some of the identified opportunities while also adding other levels of value creation during budget planning. With that, I'll turn it back to you, Bob.

Robert Rasmus

Thanks, Shimon. As you can see, the roadmap we laid out in August is on track and, in some areas, ahead of our expectations. New products are progressing to market, cost reduction initiatives are advancing, and the balance sheet simplification is underway.

We expect to provide detailed 2027 guidance early in the new year. Our focus is on steady, consistent execution. Our strong year-to-date results show that approach is working.

Before we turn to questions, let me leave you with two key takeaways. First, our foundational PAC business is thriving. Volumes, revenue, and adjusted EBITDA are up, margins are improving, and we still see significant room to grow into even higher-value, higher-margin products. Second, the PFAS remediation opportunity is as strong as it has ever been. Prices for remediation solutions are rising ahead of the April 2027 monitoring and reporting deadline. PAC for PFAS gives customers an immediate solution with minimal CapEx and the potential for operating cost savings. We expect this market to deliver material value to Arq in 2027, while GAC remains a potential part of our PFAS remediation portfolio further into the future. With that, I'll hand it back to our moderator to open for questions.

Operator

[Operator Instructions] And your first question comes from the line of Gerry Sweeney from ROTH Capital.

Fragen und Antworten

Gerard Sweeney

But just for the, on the PAC for PFAS strategy, just wanted to understand maybe next steps in terms of testing, certification, and then sales. I'm not sure if you've already sort of gone through a couple of those steps, but just wanted to understand where we are today versus getting product into customers' hands.

Robert Rasmus

Sure. So, on the customer trial and contracting, between existing and scheduled testing, we have more than a dozen opportunities that we have identified. We expect that number to continue to grow. Testing typically takes 1 to 3 months to complete, and contract discussions are occurring simultaneously with the testing. We would expect the PAC for PFAS revenue to contribute in 2027 and to be back-end loaded.

Gerard Sweeney

Got it. And obviously you've been involved in the water industry, I mean, in different capacities with PAC and you do have relationships with water systems. How does this sort of help jumpstart maybe the PAC for PFAS strategy? Is that a fair assumption?

Robert Rasmus

It is a fair assumption, Gerry. We have an outstanding relationship with a large number of municipal water authorities and private utilities. And you combine that with our outstanding technical and R&D capabilities, and that certainly gives us a leg up in terms of getting into the companies and discussing PAC for PFAS and getting momentum on that product.

Gerard Sweeney

Okay. One more question, then I'll turn back in line. I think the regulations are 4 parts per trillion, and obviously I think we've discussed that PAC has remedial capacity up to a certain level. Actually, it can go to probably any level, just it becomes an economic question. But obviously, just curious is if you've gotten any data back on sort of what the sweet spot for MCLs for PAC for PFAS remediation, where they may fall into place.

Robert Rasmus

Sure. Our testing to date, Gerry, confirms that PAC for PFAS removes lower-level PFAS contamination and can also address taste and odor at the same time. That's an important component. Product can serve as an alternative to granular activated carbon in some situations and in combination with GAC and others. And using PAC for PFAS in lieu of GAC really offers the utilities an immediate path to compliance, as well as saving the customer time and money and CapEx. Using PAC for PFAS in combination with GAC has the potential to reduce how often the GAC needs to be changed out as well. And we're still at work determining the technical sweet spot for the PAC for PFAS product, but it's up to a reasonably high level.

Operator

And your next question comes from the line of Aaron Spychalla from Craig-Hallum.

Aaron Spychalla

Maybe first for us, can you just talk a little bit about the strength in the quarter and maybe some of the end-market drivers of that? And then, just on the guide, and kind of implications for the fourth quarter, can you talk about maybe the mix of kind of conservatism there or if there was some pull-forward strength in the third quarter? Just help unpack that a little bit for us.

Robert Rasmus

Sure. So, the revenue growth in the quarter was driven predominantly by volume. We expect our core business to continue to grow through volume and pricing gains, including as contracts renew. We did sell some small PAC for PFAS volumes. Those that we've sold to date were priced materially above our traditional PAC average selling price. So as that product grows, it should lift the overall average. As far as 2027 guidance, we'll give that early in the new year. In terms of guidance for the fourth quarter, as we say, we've upgraded our EBITDA to the higher end of the range.

As in terms of revenue, we've kept that flat. And as part of the optimization review, we assessed how we could optimize the returns from the core PAC business. And raising adjusted EBITDA but not revenue is really a direct result of us being able to capture some of those initial efficiencies identified in the review. It's also evidence of the underlying strength of the business. And in terms of why we haven't adjusted the EBITDA, again, as I mentioned in my prepared remarks, our goal is to restore investor credibility. We've had a strong year-to-date, but our focus has been and remains meet or beat, and we want to maintain those trends.

Aaron Spychalla

Understood. And then maybe second just on gross margin. Obviously sounds like you're still expecting good volume growth, some of these cost reductions and efficiency initiatives, and then PAC for PFAS can be additional. But it just seems like, I know it's a seasonally really strong quarter for you in the third quarter, but still optimistic of margin expansion as we look to move forward.

Shimon Steinmetz

Yes, absolutely. And thanks for the question. Gross margin was 39.7%, up 1,100 basis points from the 28.8% a year ago, right? Revenue rose 9%, while costs really fell about 8%. It's important to note that to -- and I should say that that was largely driven by higher volume, but it is important to note that third quarter is typically our strongest quarter. We intend to continue to strengthen our margin through a combination of our cost mitigation strategies that Bob alluded to, as well as the growth in our core PAC business and the launch of our PAC for PFAS product.

Aaron Spychalla

Understood. And then maybe just one last one on, you had some commentary in the release on the replacement versus book value of Red River and kind of the substantial undervaluation there. Can you just kind of unpack that a little bit to talk a little more about how you see that disconnect, and that's it for me.

Robert Rasmus

I think it's a dual disconnect. One is the value in terms of replacement value of our assets are a significant multiple of the book value or carrying value on our balance sheet right now. I think that's one. The second is, if you look at our performance and where we've been trading as a multiple of enterprise value, I think we're severely undervalued.

Operator

And your next question comes from the line of Jason Tilchen from Canaccord Genuity.

Jason Tilchen

I guess to start, just curious, the comments you made around the strategic optimization review being completed and obviously PAC for PFAS being the immediate priority for PFAS remediation. Wondering how we should think about some of the gating factors to eventually proceeding there, given it's going to take some time to ramp PAC for PFAS. You're not going to really see that operating momentum start to build through until the sort of back half of 2027.

So, just thinking if it's possible we could have to wait until after you see some of that evidence about how that's working in the marketplace before making a formal decision, if Corbin resolution there plays into that timeline as well. Any commentary there would be would be very helpful.

Robert Rasmus

Sure. We're very confident in the PAC for PFAS product and its market attractiveness. That's based on conversations with customers and initial testing results. As it relates to granular activated carbon, the review is effectively complete, as we mentioned, but there's really no open date to commit to in terms of timing. It's not dependent upon PAC for PFAS adoption. As we mentioned, our business is PFAS remediation, and PAC for PFAS as well as granular activated carbon are 2 components of that product.

What remains as it relates for granular activated carbon is a decision on timing and funding, and the decision depends on the return profile. And the funding solution we find acceptable, not really on any calendar or dependent upon PAC for PFAS. As I say, right now we're focused on PAC for PFAS as a component to maximize the profitability of our core business, and PAC for PFAS is the immediate priority in that respect and one for the simple reasons that we could believe it can deliver similar or better cash margins than granular activated carbon with little to no CapEx on our part.

Jason Tilchen

Okay, that's very helpful. And then, just one additional follow-up. In the deck you talk about the 2027 growth drivers. You also mentioned those in your prepared remarks. And as it relates to the volume, I believe you mentioned 15% to 20% upside. The guide for this year was about in the mid-120s range for pounds. So I'm just curious, you're bumping up against the capacity there.

And then you talk about a potential market size in a few years for PAC for PFAS that even exceeds your current capacity. Wondering what some of the puts and takes are there. It implies some meaningful upside given the higher prices from a revenue and margin standpoint for the core PAC business over time over the next few years. Just wondering how you're thinking about that and some of those moving parts.

Robert Rasmus

Sure. So as we stated, we expect our profitability improvement in 2027 to come from a variety of different factors: lower operating cost, higher pricing, cost efficiencies, increased revenue and volumes. And as such, we would expect to see the effects of those initiatives to occur gradually throughout the year. And as I mentioned before, the PAC for PFAS results to be more back-end weighted.

As far as pricing and volume and capacity, if we were to be bumping up against our capacity constraints, that would be a very pleasant problem to have. We know that the PAC for PFAS is going to be priced significantly higher than our current average selling price. And so, if we did start running up against capacity constraints, we would do -- what we would do is carve out or eliminate the lower end and lower margin segment of the of the volumes.

Jason Tilchen

Congrats on the strong results.

Operator

[Operator Instructions] And your next question comes from the line of Peter Gastreich from Water Tower Research.

Peter Gastreich

Congratulations on the results and execution. Just the first one about the PAC for PFAS addressable market. I appreciate the data on the size of market by 2029. Are you able to talk about how that 160 million pounds was estimated? And also any comments on what share Arq could reasonably be able to capture by that year?

Robert Rasmus

Sure. The addressable target market has grown, and we expect it to continue to grow. The growth has really come from 2 areas: conversations with customers and prospective customers, as well as additional in-depth market research. As the compliance deadline nears, both in '29 to '31, as well as the monitoring and reporting deadlines in April of '27, we anticipate that the total addressable market will continue to get even larger. We would expect even modest amounts in the PFAS remediation market overall are going to mean very attractive returns to Arq.

Peter Gastreich

My next question, you recently appointed a new Senior Vice President of Operations. Could you talk about his hire, what he brings to the table and what his first priorities look like?

Robert Rasmus

Sure, Thad Ratliff is the person, and he replaced Eric Robinson. Eric joined us about a year ago to stabilize operations and really to build the next layer of operating leadership. And he has achieved both well ahead of our original estimate and his original estimate and timeline of 2 to 3 years. We identified Thad Ratliff fairly early on as his successor. Thad has extensive experience in activated carbon, carbon black, and specialty chemical operations. And as we have focused near term on PAC for PFAS and our existing operations ahead of any granular activated carbon construction, the scope of the role, the operational role, changed and the timing of the transition was right.

Eric remains a consultant for Arq and will advise us if we proceed with granular activated carbon. We didn't announce the appointment separately because it occurred during the quarter and the role is not part of the C-suite.

Peter Gastreich

And just one more question. With your customers, you're moving from monitoring to compliance, for utilities customers. How will that start to kind of change Arq's relationship with them? For example, should we expect longer-term contracts? Are we going to have more customized products or added services or other things that your team has been evaluating?

Robert Rasmus

So, it's going to be definitely be a relationship enhancement for us because we're solving a significant problem for the utilities as it relates to PFAS contamination. And we would expect it to lead to additional contract volumes, including single-year and multi-year contract volumes as well.

Peter Gastreich

And again congratulations.

Operator

There are no further questions at this time. I will now hand the call back to Mr. Bob Rasmus for closing remarks.

Robert Rasmus

Thanks, operator. We're very pleased with the progress we have made executing on our strategic optimization review. It's not just the strong quarter and year-to-date results, but how we are positioned to grow in 2027. We are also proud of our ability to achieve this growth with the level of capital efficiency we have now. I thank you for your interest in Arq and your ongoing interest, and we look forward to providing additional updates in the future.

Operator

And this concludes today's call. Thank you for participating. You may all disconnect.