Q3 2021 Fuel Tech Inc Earnings Call
Greetings and welcome to the fuel Tech Inc. Third quarter 2021 financial results call. At 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 as a reminder, this conference is.
Recorded I would now like to turn the conference over to your host Devin Sullivan Investor Relations for fuel Tech Inc. Thank you you may begin.
Thank you.
Good morning, everyone and thank you for joining us today for fuel Tech's third quarter 2021 financial results conference call yesterday. After the close we issued a copy of the release, which is available at the company's website www Dot FTE K dot com.
On today's call will be Vince Arnone, Chairman, President and Chief Executive Officer, and Illinois, <unk>, 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 in this call except for historical information are forward looking statements as defined in section 21 E of the Securities Exchange Act of $19 34, as amended which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
And reflect fuel Tech's current expectations regarding future growth future growth of results of operations cash flows performance and 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 as anticipate believe plan expect estimate intend will and similar expressions, but these words are not the exclusive means of identifying forward looking statements. These statements are based on information currently available to fuel tech and are subject to various risks uncertainties.
<unk> and other factors, including but not limited to those discussed in fuel Tech's annual report on Form 10-K in item <unk> under the caption risk factors and subsequent filings under the Securities Exchange Act of 1934, 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.
<unk> undertakes no obligation to update such factors or to 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 involve risks and uncertainties, including those detailed in the companys filings with the SEC.
With that said I'd now like to turn the call over to Vince Arnone Vince. Please go ahead.
Yes.
Thank you Devin.
Good morning, and I want to thank everyone for joining us on the call today.
We were very pleased to report strong third quarter financial performance highlighted by continued strength in our fuel Chem segment.
New contract awards in our APC segment.
And incremental progress in our developmental dissolved gas infusion or DTI business that is focused on wastewater treatment.
We continued to focus on maintaining and deploying a cost effective infrastructure, while providing the highest levels of client service.
We operated profitably in the quarter without the impact of any extraordinary items.
And ended the quarter with a very strong financial position with more than $36 million in cash and no debt.
Net sales for fuel Chem increased to $5 6 million from last year's $5 3 million.
Benefiting from our current installed base.
New program installations, and an overall rise in demand for energy.
Some of which is related to increased economic activity.
And some of which reflected the higher power usage during the summer months.
Through the first nine months of 2021.
<unk> revenues have matched the revenue level for all of 2020.
And we continue to expect strong performance during the remainder of 2021.
Okay.
As we look ahead into 2022.
We do expect some pressure on our fuel Chem business segment.
As we have been informed that one of our long term installations.
Will cease operations in connection with the planned shutdown of the associated coal fired plant.
Scenarios such as this has been long anticipated.
Given the expanding diversity of our nations sources of fuel for power generation.
It is the primary reason, we are broadening fuel techs portfolio of environmental remediation solutions.
Specifically with our <unk> business.
It is also important however to consider that we are pursuing a number of new opportunities both domestically and internationally to apply fuel Chem chemical technology.
Yes.
One such opportunity, which we have discussed on prior calls.
Involves providing our solution to address the emissions created by the burning of high sulfur fuel oil in 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 officials to advance this solution.
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.
There is currently a glut of high sulfur fuel oil and fuel oil in Mexico as 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 for Ocean transport.
We will continue to watch the development of this activity closely however.
We 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 the technology at several units at one plant site.
Okay.
APC revenues declined in the third quarter as pandemic driven project delays and cancellations continued to weigh on this segment's operations.
However, we are beginning to see some evidence of improvement in our APC business.
We were encouraged by the $4 $5 million of new orders, we announced at the end of July which helped to improve our backlog from the immediately preceding second quarter of 2021.
The pace and depth of our business development activities.
Accelerated over the past few months.
With these conversations involving both existing and new potential clients.
As a result, we have good visibility into new contract awards of between three and $5 million, which could close by the end of this year.
These discussions have also provided us with confidence to.
To increase the value of our current global sales pipeline to $50 million to $75 million.
The 40% to $50 million level that we have noted on recent conference calls.
Okay.
While we continue to pursue opportunities for our SCR and ultra product offerings.
Recent discussions have involved the application of our <unk> emissions control solutions to reduce nitrogen oxides from stationary combustion sources for domestic and international applications.
And our flue gas conditioning technology to improve the performance of electrostatic precipitated foreign international client.
We are also continuing to monitor the infrastructure bill, making its way through Congress.
As you know this bill has taken many forms over the past several months as we continue to believe that the administration's focus on climate change and greenhouse gas reduction may include options beyond traditional renewable energy from wind and solar which could bode well for fuel tech.
Infrastructure improvement improvement and investment in water treatment is another area of focus that could have a positive impact.
During the quarter, we made incremental progress in our dissolved gas infusion business as we continue to explore how to best commercialize our wastewater treatment technology.
We continue to view <unk> as possessing long term upside potential for fuel tech.
Especially when considering the modest investment.
Less than $1 million as far.
As discussed.
We have completed three successful demonstrations in the United States and continue to work with these potential customers to determine next steps.
We have also completed the fabrication of a higher capacity <unk> equipment delivery system.
It will allow us to offer a treatment solution, which we believe will be required for the majority of our targeted applications.
Additionally, as discussed previously.
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 glass technologies.
This study will be completed shortly and we will be better positioned as a company to understand our addressable markets and our available market channels.
With this information in hand.
Our goal is to complete our detailed commercialization and development plan before the end of this year, which will include the resources necessary, both human and capital to Expediently bring this technology to market.
In closing I want to thank the fuel tech team for their continued hard work and dedication.
We are excited about 2022 and the opportunities that may present.
And as always I want to thank our shareholders for your continued support and patience as we continue to execute on our plan to deliver long term shareholder value.
With all of that said I'd like to turn the discussion over to Ellen <unk>. Please go ahead.
Thank you Vince and good morning, everyone.
Consolidated revenues during the quarter declined to $7 6 million from $8 2 million and in the last years third quarter, reflecting higher revenues in our fuel Chem segment offset by a decline in revenue in our APC segment.
Fuel Chem segment revenues rose to $5 6 million from $5 3 million in last year's third quarter, primarily reflecting contributions from our installed base higher power demand.
Revenue attributed to the addition of new accounts and increased post COVID-19 economic recovery, which significantly impacted results in the prior year.
Segment gross margin was stable at 51, 8% compared to 51, 5% in the 2023rd quarter.
APC segment revenues declined to $1 9 million in the 2021 third quarter from $2 9 million in the third quarter of 2020, primarily the result of timing of completion on current projects and delayed project awards related to the COVID-19 pandemic.
APC gross margin in the 2021 third quarter was $810000 or <unk> 41, 7% of revenue.
And the 2023rd quarter, we recorded a $2 6 million dollar insurance settlement that reduced cost of sales in the APC business segment in that quarter by a like amount.
Including the impact of the settlement APC gross margin in last year's third quarter was $3 2 million or 110, 5% of revenue.
Excluding this settlement APC gross margin for Q3 2020 with 28%.
The increase in gross margin in the current period, excluding the increase in gross margin. Excluding this settlement is directly attributed to product mix within the APC technology segment.
Consolidated gross margin for the 2021 third quarter was 49, 2% of revenues compared to 72, 4% of revenues in Q3 2020 <unk>.
Including the insurance settlement excluding.
Excluding this settlement consolidated gross margin in last year's third quarter with 47.
Consolidated APC segment backlog at September 32021, with $8 2 million, which reflects $4 5 million of new contract Awards announced in the third quarter of 2021.
Backlog at September 30th included $8 million of domestic backlog compared to $4 9 million of domestic backlog at December 31 2020.
We expect that $5 5 million of current consolidated backlog will be recognized in the next 12 months.
SG&A expenses declined by 12% compared to last year's third quarter, reflecting decreases in employee related costs and professional services, partially offset by increases in certain administrative expenses.
As a percentage of revenue SG&A in the 2021 third quarter was 31 37, 1% compared to 39% in the 2023rd quarter.
SG&A for the first nine months of 2021 declined to $8 9 million from $9 8 million in the same period for 2020.
For full year 2021, we expect SG&A expenses to range between 12, and $12 5 million. However, we will adjust our spending as necessary to reflect any material any material changes in business activity, including new contract awards or further developments in the application of our DTI.
Technology.
Research and development expenses for the third quarter were $340000, a 19, 3% increase from the prior year quarter of 285000, which was primarily attributed to the continued efforts on the commercialization of our <unk> technology.
Net income was 678000 or <unk> <unk> per diluted share compared to net income of $2 4 million or <unk> <unk> per diluted share in last year's third quarter, which included the $2 6 million insurance settlement excluding.
Excluding the impact of the settlement net loss in last year's third quarter with <unk>.
With <unk> 2 million or <unk> <unk> per share.
Adjusted EBITDA was $9 million in the third quarter compared to adjusted EBITDA of $2 7 million in the same period last year.
With respect to China, we continue to focus on our collection efforts and as of September 30th cash collection of receivables during the first nine months exceeded $700000.
Through the first nine months of 2021 cash repatriated from China totaled 850000.
Moving to the balance sheet I am happy to report that our financial condition remains very strong at.
At September 32021, we had cash and cash equivalents of $35 2 million and our restricted cash was $1 1 million.
Working capital was $38 3 million or $1 27 per share.
Stockholders equity was $46 4 million or $1 53 per share and the company had no debt.
Cash provided by operating activities at September 32021 was 572000 compared to a use of cash of $3 3 million in the same period last year.
Now I'd like to turn the call back over to Vince.
Thanks, very much Alan operator, let's please go ahead and open the call for questions.
Thank you.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our first question comes from the line of Amit Dayal with H C. Wainwright. Please proceed with your question.
Thank you good morning, everyone.
Yeah.
Hey, Ramsey.
So this fuel chem customer that is shutting down operations.
Operations, how much impact from that.
Can we expect going forward.
From from this one particular customer Amit.
Approximately.
3% to 5%.
Impact in revenues somewhere in that range.
Okay.
Is it possible to makeup for this with other customers or is this something that we should assume is gone.
No I would not assume that it has gone I had mentioned that we do have some upside potential at other customers, including domestic customers as well so I would not make the assumption that it is gone.
As we sit here right now.
<unk>.
We do have visibility to opportunities that could recover that amount, but we'll know more about that as we move into the first quarter of next year.
Okay understood, yes, so what we're I mean.
As you know we've talked about our <unk>.
Fuel Chem business as it relates to its overall run rates and its capability to stay functioning it at levels that we've had over these past couple of years for quite some time now. This is the the beginning of the the further impact of the the strong pressure on coal fired generation.
<unk> in this country in other parts of the world and where we're starting to see a little bit more of that impact as we move into 2022.
Okay, Okay understood.
With respect to the operating costs, the Netherlands, we see in <unk> is that.
Something we can expect going forward as well or are you expecting some increases given higher costs in <unk>.
That's helpful.
Right the annualized numbers that <unk> provided for SG&A, the 12 to $12 five range. That's a good range in all likelihood we will probably be closer to the lower end of that on a full year basis.
But as.
As we look at moving into into 2022.
Our only basis for seeing that changed dramatically would be us adding.
Adding resources to support our wastewater development initiatives <unk> other than that I would not expect dramatic increases in SG&A as we look to the near term future.
Okay understood, yes overall.
The economies open up.
Energy prices higher energy demand surging.
What's your.
Take on the next 12 to 18 months in terms of your <unk>.
Prospects.
And our ability to bring revenues back.
Right as I noted in my commentary we.
We are seeing an increase in <unk>.
Contract opportunities I should say larger dollar value contract our opportunities.
And that could come our way there are three or four.
Such contract opportunities that we're tracking right now.
That are all in the.
Call it five to possibly 10% to $15 million range of course, we have to win them, but these are contract value opportunities that we had not seen as part of our sales pipeline for the large majority of this past two years that have been impacted by Covid. So we are seeing some additional development activity.
Materialized, so that bodes well for us, but as we know.
These need to need to be converted to contracts and then we need to execute but winning the contracts comes first of course, and obviously, we'll be tracking that very closely on a regular basis.
Okay, Alright, thats all evidence. Thank you so much thank.
Thank you Amit.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad will pause a moment to allow for questions.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Arnone for any final comments.
Thank you very much operator, I'd like to thank everyone for joining us on the call today.
As I noted previously I am very pleased with our financial results for the third quarter.
Our ability to generate profit, it's actually our first profitable quarter without the inclusion of any exceptional items since the end of 2018. So we're very pleased with performance.
And we look forward to hopefully continuing that performance and improving it as we move throughout the remainder of this year and into 2022.
Again, thanks for everyone for joining the call and have a good day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.