Q2 2021 Fuel Tech Inc Earnings Call
[music].
Greetings and welcome to the fuel Tech second quarter, 2021 financial results conference call.
This time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host Devin Sullivan Senior Vice President of the equity group. Thank you you may begin.
<unk>.
Thank you Alex good morning, everyone and thank you for joining us today for fuel Tech second quarter 2021 financial results conference call.
Yesterday after the close we issued a copy of our results which are available on the company's website Www Dot F. T E K dot com.
Our speakers for today will be Vince Arnone, President and Chief Executive Officer, and Ellen Albrecht The company's principal financial officer.
After prepared remarks, we will open the call for questions from our analysts and investors.
Before turning things over to Vince I'd like to remind everyone that matters discussed on this call except for historical information are forward looking statements as defined in section 21 E of the Securities Act of 1930 for as amended which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and reflect fuel tech.
Current expectations regarding future growth results of operations cash flows performance business prospects and opportunities as well as assumptions made by and information currently available to our company's management.
Fuel Tech has tried to identify forward looking statements by using words, such words and anticipate believe plan expect estimate intend will and similar expressions, but these words are not the exclusive means of identifying forward looking statements.
Statements are based on information currently available for fuel Tech and are subject to various risks uncertainties and other factors, including but not limited to those discussed in fuel Tech's annual report on Form 10-K and item one a under the caption risk factors and subsequent filings under the Securities Exchange Act of 1930 for as amended.
Which could cause fuel tech's actual growth results of operations financial condition cash flows performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements.
Fuel Tech undertakes no obligation to update such factors or publicly announce the results of any forward looking statements contained herein to reflect future events developments or changed circumstances or for any other reason.
Investors are cautioned that all forward looking statements and.
Risks and uncertainties, including those detailed and the company's filings with the SEC.
With that said I'd now like to turn the call over to Vince Arnone, President and CEO of fuel Tech Vincent. Please go ahead.
Yeah.
Thank you Darren.
Good morning, and I want to thank everyone for joining us on the call today.
We are continuing to emerge from the restrictions imposed by the COVID-19 pandemic.
And our optimism for the balance of 2021 and beyond is strengthening.
Although challenges remain.
Our fuel Chem and air pollution control business segment are each making progress and their respective end markets and.
And our developmental wastewater treatment business that we call the dissolved gas infusion or D. G. I, it's taking positive steps forward as well.
Our financial position is the strongest it has been and our near term history.
Having ended the second quarter with nearly $37 million and cash and no debt.
We significantly narrowed our losses in the quarter and continued to pursue sustainable operating profitability.
To that and we continue to maintain a lean operating structure that will allow us to produce breakeven operating results.
On an annual revenue range of $25 million to $30 million, depending on project mix.
Our second quarter 2021 revenues rose approximately 19% from the prior year.
Driven by a nearly 72% increase and net sales for our fuel Chem business segment.
This segment has continued to benefit from the operations of our current installed base Inc.
<unk> New program installations that occurred in the fourth quarter of last year, and and overall rise and demand for energy.
Some of this demand is tied to the resumption of economic activity and some is tied to increased seasonal power usage and specifically in the summer months.
Through the first six months of 2021 fuel Chem remains on pace to eclipse its full year 2020 performance when the segment generated $14 million of revenue and gross margin of $6.7 million.
Although our results at a D. C continued to be impacted by pandemic driven project delays and cancellations through the end of the second quarter. We are seeing some economic improvement on our end markets and we were encouraged by the for $5 million of new orders, we announced at the end of July.
We continue to pursue a global EPC APC sales pipeline and a $40 million to $50 million.
Although many of these opportunities will likely be tied to the pace of resumption of growth global economic activity. We do expect to see contracts awarded with an aggregate value of $5 million to $10 million before the end of this year.
Which will enable us to end 2021, with a healthier backlog and we have seen since pre COVID-19.
Beyond our two base businesses, we made good progress and are dissolved gas infusion business during the second quarter.
We continue to address multiple growth pathways, including the development of a large scale <unk> delivery system.
And in depth market assessment, and research and the pursuit of commercial opportunities.
Regarding our <unk> business development and during the quarter, we completed demonstrations of this technology at two locations and the United States.
The first was in our pulp and paper facility and the northwest that is examining ways to increase its production capacity by as much as 80%.
The second was it a municipal wastewater treatment facility on the West coast there.
It was designed to show the benefits that could be derived from the delivery of supplemental dissolved oxygen by D. G I D.
During periods of high waste treatment volume for the municipality or potentially at a lower cost substitute two and expensive capital expansion.
Both demonstrations were success based on customer feedback and supporting data analysis, and we are not working with both customers to determine our next course of action.
Regarding the development of our large scale <unk> delivery system. We had noted during our Q1 conference call that we were moving forward with the investment and the design and fabrication of a higher capacity dji equipment delivery system, Yes, we believe the increased capacity as necessary to address them.
Needs of the majority of our end markets.
This system is currently and fabrication and will be completed next month.
We are excited to have this unit available for deployment out and the field.
And lastly, regarding our dji and market assessment.
In Q2, we engaged a firm to assist us with the evaluation of the market opportunity landscape for the dji technology, including an assessment of competitive in class and out of class technologies.
When this evaluation is completed by the end of Q3, we.
We will be better positioned as a company to understand our addressable markets and our available market channels.
With this information we will then prepare our detailed development plan, including the resources necessary, both human and capital to Expediently bring this technology to commercialization.
Now I'd like to take a little bit of a deeper dive into our APC and fuel Chem segments before turning the call over to Alan.
Yeah.
For APC.
We continue to pursue opportunities for our SCR and ultra product offerings.
SCR is the most widely used technology.
To reduce Nox emissions are following the combustion of fossil fuels and we remain actively engaged with turbine suppliers.
Heat recovery steam generator manufacturers.
Rice engine suppliers carbon black manufacturers and municipal solid waste biomethane and pulp and paper facilities.
We are also monitoring activities at the state level, where new environmental guidelines, including compliance with the EPA as cross state Air pollution, and regional haze rules may produce opportunities to install best available retrofit control technology on certain sources of emissions.
The $1 billion infrastructure Bill, making its way through Congress may also provide fuel tech with opportunities that involve our emissions control technologies.
As a company and we are watching the actions of the bite and administration very closely especially with regard to nitrogen oxide emissions.
The focus on climate change and greenhouse gas reduction.
And may include options beyond traditional renewable and renewable energy from wind and solar.
The interest and hydrogen as a fuel source option for utility and industrial units.
Is growing since there are no greenhouse gas emissions for this option would increase nox emissions and acquire require additional controls over time.
As noted we believe that for fuel Chem segment will continue to produce strong results during the remainder of 2021.
Domestically, we will continue to support utility industrial customers by applying our technology to allow them to bear and lower cost lower quality fuel, while mitigating the associated emissions and operational issues.
Internationally, our primary upside potential lies and providing our solution to address the emissions created by the burning of high sulfur fuel oil and Mexico, which is being undertaken without the necessary environmental remediation.
And at the expense of the health of surrounding communities.
We are continuing to support our partner in Mexico as they engage with local issues to advance this dilution.
The current Mexican government is in favor of utilizing indigenous fuel sources for power generation to ensure that they can move towards becoming energy independent and the power generation dilemma, and Texas and the first quarter of this year further solidify their position that as a country. They do not want to be dependent on external.
Fuel sourcing for power generation, such as natural gas coming from the U S.
There is currently a glut of high sulfur fuel oil and Mexico is the international market for this product has been significantly reduced with the adoption of the new International Maritime organization restrictions, which prohibit the use of this fuel.
We will continue to watch the development of this activity closely however.
However, we do believe that political pressure is building in favor of the implementation of our fuel Chem program and additional facilities in Mexico and our partner is currently in discussions with the state owned utility Cfe regarding application of this technology at several units at one plant site.
As we have discussed previously with the financing that we completed and in the first quarter of the year, we are and the best position and our recent history to find strategic solutions to return our base businesses to profitability.
Expedite the demonstration and further market discovery of our <unk> technology and to investigate other product and market opportunities.
And closing.
I want to thank thanks for fuel Tech team for their continued hard work and dedication as we continue to execute against our plan.
And I would like to thank our shareholders, both long term and short term for their support and patience as we continue on our path towards delivering long term shareholder value.
And with that said I'll turn the.
And the discussion over to Ellen Ellen Please go ahead.
Thank you Vince and good morning, everyone.
Consolidated revenues during the quarter increased 18, 6% to $5.2 million from $4.4 million and last year's second quarter, reflecting significantly higher revenues and our fuel Chem segment offset by revenue decline and our air pollution control or APC segment.
<unk> segment revenues rose $4.2 million from $2.4 million and last year's second quarter, primarily reflecting higher power demand and.
Revenue attributed to the addition of new accounts.
And recovery from the initial emergence from the COVID-19, pandemic, which significantly impacted results and the prior year period.
Segment gross margins improved to 49, 7% and at 2021 second quarter from 40% and last year's second quarter as many customers returned to normalized run rate.
APC segment revenue declined to $1 million and the second quarter from one 9 million and the second quarter of 2020, primarily the result of timing of completion and current projects and delayed project awards related to the COVID-19 pandemic.
APC gross margin and the second quarter of 2021 with 479000 for 48, 6% and revenue compared to a negative gross margin of 383000 and last year second quarter that included a $1.1 million charge for warranty remediation.
Excluding this charge APC gross margins for the second quarter of 2020 with seven.
700000 or 39%.
The increase and margin for the APC segment is attributed to product mix.
Consolidated margin for the second quarter was 49, 5% of revenues compared to 13, 7% of revenues and last year's second quarter.
Excluding the impact of the aforementioned $1.1 million charge for the APC segment consolidated gross margin for the same quarter in 2020 with 40%.
Consolidated APC segment backlog at June 32021, less $4.9 million compared to $5.3 million at December 31, 21.
Backlog at June 30th included $4, six nine and domestic backlog as compared to $4.9 million of domestic backlog at the end of December.
We expect that $2.8 million of current consolidated backlog will be recognized and the next 12 months.
Backlog at June 30th did not include the $4.5 million and new contracts from customers and Korea, North America and Europe awarded in July from this year.
Despite an 18% rise and revenue SG&A expenses increased by 7% to 3 million from $2.8 million and net 2022nd quarter.
This reflects higher administrative and employee expenses offset by a $500000 reversal of a charge to the allowance for doubtful accounts recorded in last year's second quarter.
As a percentage of revenue SG&A in 2021, and the spring 'twenty, one second quarter was 56, 7% compared to 62, 6% and the 2022nd quarter.
For for full year 2021, we continue to expect SG&A expenses to range between 12, and $12.5 million. However, we will adjust our spending as necessary to reflect any material changes and business activity, including new contract awards or further developments and the application of our <unk> technology.
Research and development expenses for the second quarter were 315000, a 16% increase from the prior year quarter, a 271000, which was primarily attributed to the continued efforts on the commercialization of our <unk> technology.
Operating loss narrowed for 689000 from an operating loss of $2.4 million and last year's second quarter <unk>.
Excluding the $1.1 million warranty charge from the second quarter of 2020, the operating loss for the same quarter in 2000 and funding was $1.3 million.
Yes.
Adjusted EBITDA loss was <unk> 6 million and the second quarter compared to an adjusted EBITDA loss of $2.2 million and the same period last year.
With respect to China, we continue to focus on our collection efforts and as of June 30, <unk>. We are pursuing an estimated 500 to $750000 of China receivable.
Cash repatriated and the second quarter of 2021 with $850000.
Moving to the balance sheet I am happy to report that our financial condition remains very strong as of June 32021, we had cash and cash equivalents of $36.6 million and our restricted cash has declined for 368000.
Working capital was $37.9 million or a dollar 1.25 per share.
Stockholders equity was $45.9 million for a $1.51 per share and the company has no debt.
Cash provided by operating activities at June 30th with 229000 compared to a use of cash of $3.4 million and the same period last year.
I'll now turn the call back over to day.
Thank you Ellen operator.
Please go ahead and open the line for for questions.
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Our first question comes from Sameer Joshi with H C. Wainwright. Please proceed with your question.
Thank you good money on selling.
Sure.
Good morning Samir.
The city into the revenue.
For the rest of the year.
The for <unk>.
New orders from Korea, and North America Europe than.
And then not included in your $2.8 million and expectations for the next 12 months.
But based on the timeline that was provided.
And as it seems like the North American and the European.
All those are likely to be delivered during 2021.
And how does that impact for APC.
Revenues for the next two quarters.
Right I think that given where we are and the year right now Sameer, we are not going to have a great deal of revenue contribution.
From contract awards that R&D part of the $4.5 million that we were awarded and the month of July.
Nor from anything incremental that would be coming our way as I had as I had noted.
Somewhere between five and $10 million possible new orders between now and the end of the year. We're just we wouldn't expect a lot of revenue flowing into 2021 from those contract awards okay.
As we look at the remainder of this year total EPC revenue will likely be at the same level as prior year, perhaps a little bit less just based on behind timing, but what we're looking to do right now is to indeed build a.
Call it a little bit more of a respectable <unk>.
<unk> backlog as we and this year and look to move into 2022.
Okay from the from the backlog that Ellen noted as of the end of the month of June.
June.
We're looking at around.
Between two five and $3 million debt will roll into 2020 one's revenue line for APC.
And then anything over and above that would come from from the new orders that we were just discussing.
Understood Thanks for that and.
Then just staying on revenues.
Do you expect any additional fuel team.
<unk> installations.
During the rest of the year that could be incremental to the fuel Chem revenue line.
As we sit here today Samir we are we are not forecasting anything incremental for the remainder of 2021 do we have upside potential we do we talked about Mexico, but debt that timing is uncertain and in all likelihood the contributions that we would get here and to.
'twenty, one would be would be minimal and nature just due to the timing that would be required to receive the contract Award V go and go through the procurement and fabrication process for equipment that we would then need to have installed at a site for starting up our program. So.
Would not necessarily expect anything incremental for fuel Chem. This year. However, as we have noted on prior calls our current run rate for for fuel Chem is nicely ahead of what we realized in 2020.
So fuel Chem, where we are indeed expecting.
Somewhere in the $15 million to $16 million range and revenues for full year, perhaps a little bit more.
And depending on on dispatch rates, depending on also the the weather for the remainder of this summer, which indeed also would impact.
Utility utility facility dispatch rate and will require our units to run a little bit more frequently.
So that run rate is as healthy as we sit here today.
Yes, yes, thanks for that.
The award with them and make a couple of next question for both Mexico and the summer months.
Thanks for that.
And <unk>.
Wilson.
Also since the third demonstration that was being planned or is that going to be done.
On the after the EBITDA scale up is accomplished contiguous.
And so I can do that.
Right, we actually did have a third demonstration that was actually.
Started towards the end of 2020 and winter slightly into 2021 that was also at a municipal wastewater treatment facility that also did didn't work very well from a customer Receptiveness perspective, we don't have anything incremental on the table right now that we're planning.
<unk> for from a demonstration perspective, okay.
We are looking at in terms of our focus on <unk> right now is finalizing the the study that we're in the midst of with our with our third party consultants and.
And then going ahead, and and looking to put together a very specific development and.
And commercialization plan for for the technology.
As you know over this past couple of years prior to our financing.
We have not put a great deal of incremental funds into the development and commercialization of UGI.
Due to our financial and financial position now that we have the ability to invest further we are going to look to move forward on incremental investment for <unk>, but we need to be a little bit more specifically aware of the directions that we need to go in to capture the best opportunity for that business.
And <unk>.
Understood.
And I think maybe I have asked this question to just calls, but the strong balance sheet.
And how do you intend to utilize it.
Next few quarters.
In terms of flow.
And expanded sales force and new product offerings and <unk>.
And as part of that development.
But also maybe.
Some kind of flow of M&A activity and it can go give us what your thoughts are.
Right right now.
Sameer the focus is very strongly on pgi.
We'll get caught our indicative results from our study here on or around the end of Q3 once.
Once we have that and hand, we'll be better positioned to better understand how much we're going to need to invest and dji and then relative to what we think that is be able to then take decisions in terms of where else. We could go for further development activities over and above DTI, but today, our focus is and <unk>.
And the Gi.
Understood.
Great. Thanks for.
Continued medically and speaking of interest thanks, Okay. Thanks Amir.
Thank you and.
A reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Pete Enderlin with Amazing Partners. Please proceed with your question.
Good morning, Vincent Alan Thanks for taking my question.
Thank you for pleasure. Thank you.
The.
Can you quantify in any way the project delays that you've talked about and.
And the IPC area.
Just give us any sense of the size of what has been delayed or for cancels.
Yes, I'll give you a range Pete and and it has been a combination of delays and and some cancellations just due to lack of financing into our funding for projects, but I would tell you right now that is.
$10 million to $15 million at a minimum.
And some of that presumably will come back at some point, but and Thats included in your <unk>.
Perspective.
Pipeline I suppose.
From from definitely from a delays perspective, yes canceled.
Cancellations those I mean, those again, they would need to develop new life.
And in and of itself, depending on the project owner and whether or not they decide to.
To continue to pursue those opportunities, but the delays absolutely so and some of the projects that indeed, we are delayed we are including as part of our sales pipeline here for the near term.
And that $40 million to $50 million pipeline.
Roughly how does that breakdown by geographic regions.
It's still.
Dominantly U S based in terms of where the contracts would originate from so I'd say, 75% of that debt sales pipeline is indeed domestic.
Well, yes, which is maybe even a little more.
Internationals and the mix of business. So this shows there is some potential to expand overseas as well I guess.
There is and keeping keep in mind that.
As an example, the the the the <unk>.
Contracted and we announced at the end of the month of July one of the contracts or I should say the most material contract.
It's a contract with fuel tech here in the United States, but the actual project is located out in China. So.
Again, there are opportunities, where whereby we'll work through.
Engineering organizations or Oems that do business on a global basis, the projects themselves wont necessarily be here and the U S. But the contracts may come through the U S right.
For fuel Chem to the existing arrangements.
Any sort of like us.
You wouldn't call it that for a sunset for.
Visionary aspects.
Good.
I mean the.
The.
Long term outlook.
Sure.
Show, some kind of a phase out or anything that would limit for life of the new streams of fuel Chem revenues in the foreseeable future and other.
Is there anything to keep them from.
I'm, just being ongoing long term contracts for the for the definitely there is time.
Understood.
There arent sunset provision specifically Pete.
However.
And given.
Given what we know about coal fired units and given what we've seen happened over the past decade, and particular here in this country. There is no guarantee that that any of the customers that represent our base of customers will take chemical next month that there are no guarantees along those lines. So it is something that we.
And we watch day.
And day out month and month out.
And as economic activities develop on a regional basis here in this country that could indeed impact our base accounts.
And there arent sunset clauses, but given the direction that.
And that we have seen the impact of environmental regulation and and pressure on coal fired units has been going we anticipated will indeed continue.
And there there is likely and game in mind for fuel Chem and at some point in time.
So hence our focus on trying to get a and other business unit up and running as quickly as we can because there is some uncertainty there.
Well understood.
Understood, but as it stands now.
The existing fuel Chem installations.
And you don't know of any towards that particular utilities scheduled even contemplated to shut down is that fair to say.
There is there is there is at least one unit that we are aware of today that is likely going to shutdown in 2022.
His impact half a million dollars and $1 million or Sheryl.
The debt planning evolves on.
And on a recurring basis piece. So we again, we are watching it closely for.
Generally as we look at the remainder of this year.
Outlook is very positive and very strong.
And we will look to the extent, we have opportunities to add additional units where the opportunities could come our way as you know we've had the good fortune to be to be able to add units at two facilities over this past year and a half.
And that have been contributing nicely based upon their specific.
Economic drivers for their region.
Great. Thank you and just one last one Vince you mentioned green hydrogen and I guess, you're talking about green hydrogen and debt.
Process for some aspects of that produce Knox.
Can you elaborate a little bit on that and where you would apply your technology and that process.
Yes, it wouldnt be the actual call and manufacturer of the hydrogen itself, Pete and that and not as part of that process right. If hydrogen used is used as a fuel source to generate power.
That's where there is a likelihood likelihood that incremental nox nitrogen oxide emissions would result, and there could be some on some opportunities there, but that would be on call at larger scale.
On.
Operations were and then to your entity would choose to utilize hydrogen as the fuel source itself for power generation.
Okay, so not for fuel cells or hydrogen operations and vehicles and things like that correct.
Okay, alright, thanks for that clarification and and good luck. Thank you.
Thank you Pete.
Thank you.
Ladies and gentlemen, we have reached the end for the question and answer session I will now turn the call over to Vince Arnone for closing remarks.
Thank you very much Alex I would like to thank everyone for joining us on the call today.
And thanks for the support of our shareholder base and thank you for the.
To the fuel tech team for their continued contributions and we look forward to talking with everyone again.
On our third quarter conference call and in the month of November. Thank you have a great day everyone.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.