Q4 2021 Fuel Tech Inc Earnings Call
Hello, and welcome to the fuel Tech Inc. Fourth quarter 2021 financial results conference call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Devin Sullivan with the equity group. Please go ahead Devin.
Thank you, Kevin and good morning, everyone and thank you for joining us today for fuel Tech's fourth quarter 2021 financial results Conference call yesterday. After the close we issued we issued the company's financial results a copy of the releases are available at fuel Tech's website Www Dot F. T E K dot com.
Our speakers today will be Vince Arnone, Chairman, President and Chief Executive Officer, and Ellen Albrecht at 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 Exchange Act of 1934 as amended which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and.
Fuel Tech's current expectations regarding future growth 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 and other factors, including but not limited to those discussed in fuel Tech's annual.
Port 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 flow performance and business prospects and opportunities to differ materially from those expressed in or imply.
Led by these statements fuel Tech 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 company's filings with the SEC.
With that said I'd now like to turn the call over to Vince Arnone Vince. Please go ahead.
Thank you Devin good morning, and I want to thank everyone for joining us on the call today.
We were very pleased to end the year with improved operating performance.
For the full year 2021.
We generated higher revenues.
Continued a strict cost control discipline that produce lower selling general and administrative expenses.
Significantly reduced our operating loss.
And we reported annual net income for the first time since 2013.
Our current balance sheet is among the strongest in our history and we ended 2021 with $37 1 million and total cash and no debt.
Okay.
Our fuel Chem segment generated higher revenues and higher segment gross margin compared to 2020.
Net sales for fuel Chem increased 24, 1% to $17 4 million from last year's $14 million number benefiting from our current installed base.
New program installations, and an overall rise in demand for energy related to increased economic activity and higher seasonal power usage.
Versus the heavily COVID-19 impacted year in 2020.
As I discussed in last quarter's call.
We continue to expect some pressure on our fuel Chem business segment, resulting from the reduced use of our chemical technology due to scheduled coal fired plant shutdowns and to a decline in coal fired dispatch.
By way of background <unk>.
COVID-19 had distinct impact on our fuel chem business over the past two years.
In 2020 utility and industrial power plant operators experienced higher levels of downtime due to overall lower demand for energy usage.
In some cases these operators took advantage of that downtime to perform extensive non routine maintenance on their units.
Conversely, too.
2021 turned out to be a better than expected year for fuel Chem.
Given the economic tailwind created by the country's initial emergence from COVID-19 related shutdowns last year and to fewer than normal downtime related outages. As these outages were largely taken in 2020.
Okay.
As we look ahead to 2022.
We see fuel Chem revenues of $13 million to $15 million approximating $14 1 million in revenues at this segment generated in 2019.
This reduction from 2021 is due to one known plant shut down as of 12 31, 21 from a long term customer and the business segment.
The return of a more normalized maintenance outage schedule in 2022.
And to the continued pressure on the remainder of our customer base to optimize program usage.
APC revenues for the year were lower although we did generate approximately $8 million of New awards in the APC segment during 2021, and we added $2 million of new bookings during the first quarter of 2022.
Our total APC backlog inclusive inclusive of these recent awards is approximately $10 5 million as of this date.
Well not quite at the levels of prior years. It is strengthening and we continue to pursue a global sales pipeline of between $50 million to $75 million.
Yeah.
We believe that 2021 was the low point for our AP for our APC business and.
I'd expect that revenues from this segment will improve significantly in 2022 from the $6 9 million and recorded this year.
In conjunction with anticipated fuel Chem revenues of $13 million to $15 million. We expect that total revenues for 2022 will show a modest improvement from 2021.
We are continuing to explore ways to broaden fuel techs portfolio of environmental remediation solutions.
One such opportunity, which we have discussed in prior calls involves providing our chemical technology 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 in Mexico.
As the international market for this product has been significantly reduced with the adoption of 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.
Implementation of our fuel Chem program at 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.
For the APC segment.
We continue to pursue opportunities for our SCR and ultra product offerings How's.
However, our recent contract awards press release fully demonstrates that our full suite of APC technologies remains relevant.
Recent contract awards and current discussions have involved the application of our <unk> emissions control solution to reduce nitrogen oxide from stationary combustion sources for domestic and international applications.
And also our flue gas conditioning technology.
To improve the performance of electrostatic precipitated for an international client.
Additionally.
De carbonization is top of mind for many industries.
And we are closely watching the planning of the steel industry and others as they pledge to invest in technologies to improve their global carbon footprint.
Fuel Tech has long standing relationships with technology suppliers and end users that will assist in our ability to capitalize on these opportunities as they continue to develop.
During the year, we made significant progress with our developmental dissolved gas infusion or DDI business initiative.
Over the past couple of years, we have made measured strategic investments in this technology, which is focused on industrial and municipal water and wastewater treatment.
During 2021, we completed three successful demonstrations in the United States and are currently working with these potential customers to determine next steps.
We completed the fabrication of a higher capacity DTI equipment delivery system that will allow us to offer a treatment solution, which we believe will be required for our targeted applications.
We recently finalized a market opportunity assessment in conjunction with an outside firm that we believe will assist our long term product commercialization activities.
We are continuing to execute on our commercialization and development plan.
The primary market areas of opportunity that we have identified include the following.
Municipal wastewater.
Agricultural production.
Food and beverage natural waters and landfill leachate.
These addressable markets are material, however, our ability to capture a share of the market opportunity is solely dependent on our ability to execute on our commercialization and development plan.
As a result, as we look ahead to 2022 for <unk>, we have established the following goals for our company.
We need to complete verifiable documented dji performance testing that is independently confirmed by experts in the field. This work is currently in process.
Next we are working with water and wastewater treatment marketing specialists to develop our approach to our identified markets.
Lastly, we are looking to begin to build an internal resource space specifically in support of Dji starting later in the year.
We believe that we have created a strong foundation upon which to commercialize this technology and we are targeting for late 2022.
In closing I want to thank the fuel tech team for their continued hard work and dedication to our company.
Like many companies we have worked diligently through two very challenging years impacted by the pandemic.
We are excited about 2022.
And we look forward to keeping you apprised of our progress.
With that said I'll now turn the call over to Ellen Ellen. Please go ahead.
Thank you Vince and good morning, everyone.
For the quarter consolidated revenues rose to $6 5 million from $6 2 million in last year's fourth quarter.
Segment revenue rose to $3 1 million from $2 5 million in last year's fourth quarter, reflecting project execution timing and revenue generation from new orders booked throughout the year.
Fuel Chem product line revenue declined slightly to $3 4 million.
From $3 7 million, primarily due to a onetime system sale in the fourth quarter of 2020 that was not repeated in 2021.
Chemical revenue on a comparative basis slightly increased over the prior year quarter.
Consolidated gross margin for 2020 , one fourth quarter improved to 52% of revenues from 41, 9% of revenues due to segment mix.
APC gross margin improved to 55, 6% of revenue from 29% of revenue in last year's fourth quarter refracting product mix and the impact of a lost contact you to a warranty remediation that occurred in late 2020.
Fuel Chem gross margin was 45, 3% compared to 57% in last year's fourth quarter, reflecting the system sale previously mentioned and the comparative 2020 period.
Consolidated APC segment backlog as of December 31, 2021, with $9 1 million up from $8 2 million at September 32021, and $5 3 million at December 31 2020.
Higher backlog at year end was the result of $7 8 million of New contract awards received during the year.
Backlog at December 31st included $3 4 million of domestic delivered project backlog and $5 7 million of ore and delivered project backlog as compared to $1 $9 million of domestic project backlog and $3 4 million of international delivered project backlog as of December 31.
2020.
We expect that $5 6 million of current consolidated backlog will be recognized in the next 12 months.
Yeah.
SG&A expenses declined by 15, 3% to $3 2 million compared to $3 8 million in last year's fourth quarter, reflecting lower employee related expenses and office and administrative cost on a global basis.
As a percentage of revenue SG&A in the 2021 fourth quarter declined to 49, 6% from 67% in the 2024th quarter.
Research and development expenses for the fourth quarter were steady at approximately $300000 primarily attributed to the continued efforts on the commercialization of our D. G I technology.
Our operating loss narrowed to 221000 from $1 7 million in last year's fourth quarter, reflecting higher revenues improved margin and significantly lower operating costs.
Our net loss for the quarter was 244000 or <unk> <unk> per share compared to a net loss of $1 5 million or <unk> <unk> per share in the same period, one year ago.
Adjusted EBITDA loss was $46000 compared to an adjusted EBITDA loss of $1 1 million in the same period last year.
For the year consolidated revenues rose to $24 3 million from $22 6 million in 2020, reflecting a 24, 1% increase in fuel Chem revenues offset by a 19, 4% decline in APC revenue.
The increase in fuel Chem segment revenue was attributed to had returned to normal run rate among our existing fleet and the addition of new units.
APC segment revenue declined year over year due to due to a delay in contract bookings and the timing of completion on existing projects.
Consolidated gross margins rose to 49% from 47, 2% last year.
We recorded a $2 6 million dollar insurance settlement in the third quarter of 2020 apps.
Absent that settlement gross margin for the 2020 full year was 29, 8%.
SG&A expenses for 2021 declined by 11, 4% to $12 1 million from $13 6 million in 2020, which falls within the forecasted range. We previously provided.
For full year 2022, we expect SG&A expenses to range between 12, and 12 and a half million. However, we will adjust our spending as necessary to reflect any material changes in business activity, including new contract awards or further developments in the application of our D. G I technology.
Operating loss narrowed to $1 5 million from $4 3 million in 2020.
Net income for 2021 was 54000 or zero cents per diluted share compared to a net loss of $4 3 million or <unk> 17 per diluted share in 2020.
Net income for 2021 included other income of $1 6 million, reflecting full forgiveness of the loan proceeds from the Paycheck protection program established pursuant to the cares Act.
Other income in 2020 was 119000.
Adjusted EBITDA loss for 2021 with 662.
In 2021 compared to the adjusted EBITDA loss of $2 9 million in 2020.
Moving to the balance sheet I'm happy to report that our financial condition remains very strong.
As of December 31, 2021, we had cash and cash equivalents of $35 9 million and restricted cash of $1 2 million.
Working capital was $38 2 million or $1 26 per share stockholders equity was $46 2 million or $1 53 per share and the company had no debt.
Cash provided by operating activities at December 31 was 761000 compared to a use of cash of $2 7 million last year.
To reiterate vince's earlier comment.
We're very pleased with the improved operating performance of the company, we remain focused on cost control initiatives and efforts related to our core and expanding businesses as we move into 2022.
I will now turn the call back over to Matt.
Thanks, very much Alan operator, why don't we go ahead and open the line for questions.
Certainly, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing star one.
One moment, please while we poll for questions. Our first question today is coming from Amit Dayal from H C. Wainwright. Your line is now live.
Thank you good morning, everyone.
Wins, maybe good morning.
Gross margin side.
2020, do with the mix of business, you're expecting between APC and fuel Chem this year.
Will you sort of be able to maintain gross margins at the 50% level seen in <unk> or should we expect that to come in a little bit longer.
Yes.
As we look at 2022 as I had noted if we're going to have a slight shift in revenue mix between fuel Chem at ATC I would expect the overall weighted average gross margin to notch down a little bit.
As we look at 2022 ultimately it will depend on on the APC side, what is the mix of technologies that we're going to be selling and what are the related gross margins that are associated with those projects, but overall answer I would expect as we sit here today.
Decline in weighted average gross margin.
Okay understood. Thank you for that and then do you have any.
Any exposure to the European markets, where the positive ones.
But given all of the macro.
Well issues playing out over there.
Yes, the most of the.
Project work that we're doing.
In Europe is as indeed natural gas based work for plants that are burning natural gas and some biomass as well and municipal solid waste.
We as we sit here today, we don't see any any downside to what were tracking for 2022.
As it relates to.
What's going on with our geopolitical situation today.
Okay understood.
I mean, just to add one more thing.
Supply chains are still an issue on a global basis, whether it be Europe or the United States as well we've been working through some of those issues with all of our projects on a global basis, but I would continue to see some disruptions in 2022 and probably beyond as we sit here today.
It's still challenging to have.
Many of our suppliers.
Keep schedules intact and that does impact our project work and particularly the timing of execution.
Yeah, I was just going to okay.
The COVID-19 .
Related delays are behind you.
Supply chain issues still sort of are in play at least for the next few quarters right.
Absolutely so absolutely so it's still difficult to.
To work logistics in this country and around the world as well.
Trying to <unk>.
Planned and scheduled shipments of goods is a challenge and against some of the pieces and parts that we utilize for our systems.
Involve.
Obviously, some manufacturing processes that are located in parts of the world that were heavily impacted by Covid.
And then just going to D. G I.
It would I mean would it be too optimistic to expect potential sales in 'twenty <unk> three.
Or is that a possibility given sort of the timeline provided for different.
Efforts.
As it relates to our water initiative Amit.
Yes.
Yeah as it relates to 'twenty three as I sit here today, yes, I would expect some revenues in 2023 I would hope that we.
Have our first opportunity at a commercial sale before the end of this year given the efforts that we are extending and given the additional bit of an investment we are making in water at this point in time.
I would expect to see the beginnings of commercialization towards the end of this year and then in some revenue flow from 'twenty three dollar amount yet at this point in time is is indeed unknown as we sit here we'll talk.
More about.
Forecast as it relates to DTI.
As we get a little bit more traction in marketplaces, but today, it's a little premature, but but the expectation is there.
Well that's good to hear you know what it is good to see a new revenue stream potentially.
Yes.
As we've discussed on prior calls over these past couple of three years.
Having us develop a stream of revenue from a new product market combination is indeed essential for us.
It is it's very it was very important for us to stabilize the company and with 2021 basically being a breakeven year on the financial statements and then also on.
From a cash flow.
Generation statement as well and we're very pleased that we've come back to stability that enables us to spend more time in it and invest some money on the water side of the equation.
Right.
You guys have done a pretty good job on the operational cost side.
So 2022 should we expect similar levels as what we saw in 2021 from an Opex perspective.
I would say as we sit here right now a similar amount for SG&A is a good bit based upon where we are today.
Okay understood.
Yes, SG&A and SG&A and R&D level should should approximate.
Yes.
2021 levels in 2022.
Okay.
Thank you so much I appreciate it thank you.
Thank you Amit thanks for that and thanks for the call and thanks for the questions.
Thank you. Our next question today is coming from Pete Enderlin from <unk> Partners. Your line is now live.
Hey, good morning, good morning, Good morning, Hello, Pete.
Can you give a little more color on that.
Decline in the revenues.
Fuel Chem segment in the fourth quarter, you mentioned lower revenues from non chemical.
Sales does that strictly mean equipment or is there something else.
Effective in the fourth quarter a year ago.
No I mean, basically what happened there Pete is the fact that we had the opportunity to actually sell some of our chemical technology equipment in the prior year.
That's a little bit unusual for us typically we don't sell our chemical technology equipment, but if the customer wants to take ownership of the equipment, we will work with them to actually sell it to them, but generally speaking that's not our mode of operation, but thats. The reason why we actually had a decline year on year the chemicals.
Sense of how how much.
Equipment portion of it was.
Prior quarter.
Approximately half a million dollars give it give or take okay.
That's helpful.
And then when you're talking about you mentioned opportunities for de carbonization and different industries, specifically, including the steel industry, what form would the application take there for steel production.
For us that it would really include our SCR and ultra technologies.
Because for the steel industry, we treat their process gases.
And.
So much.
Much of the steel industry is looking to go ahead and at this point in time, we've seen.
A lot of activity from Nucor steel, we've seen arcelormittal come out and make public statements about looking to specifically decarbonize their facilities on a global basis.
And.
Where we have relationships with new core we have a good relationship with the at the primary technology supplier to our slower.
And we're seeing other.
Investments if you will our statements regarding investments from other industries as well so we see a little bit more of this coming and we're going to willing to look to participate in some of that movement.
We're a long term supplier to nucor and we intend to continue to be a long term supplier of Newport and is that specifically for blast furnaces or as it's for other kinds of.
No.
Cargo operations as they may have.
It would be on there.
Theyre furnace related activities, yes, without getting into technical details, which are beyond my capability, yes, it's related to their furniture.
Okay and then.
The thing about TGI, you did say that you completed.
Or had an outside firm completed a market assessment, yes.
Can you give us any sense at all of the potential size of the available market I mean, even if it's not.
Directly addressable by you in some cases, but are we talking.
Hundreds of millions of dollars for the whole effort of improving wastewater treatment and other kinds of water treatment operations.
Obviously, that's a long term project, but something that could give us a sense of the economic significance of the whole venture the hole.
Matrix of border treatment.
You could address it.
Right.
As I noted in my comments by saying that the markets are material and I.
Try not to be specific relative to the size of the mark.
The water related investments that we see that are going to be made in the next decade or so.
They are in the it's in the hundreds of millions in and larger.
Dollars that we're talking about we have infrastructure issues as it relates to municipal wastewater.
We have on the natural water side food and beverage side.
The capacity constraints with systems that are existent existing today. So as we look at all of these markets.
Peter There are large markets. The pgi system as we look at share of marketplace has the capability to play a role in all of these markets right.
It's premature for me to say what are we think our capture rate can be right. The markets are large it wouldn't take.
Much of a percentage of capture to have material impact on fuel Tech's businesses right.
But as we sit here today, it's it's premature for me to be stating anything specific about our target for a dollar value in market capture for dji I hope to be able to speak more about that as we move towards later in 2022 and 'twenty three we have some critical steps that we have to to accomplish here internally.
Within fuel tech before at that point, but.
We did the study to ensure that the market opportunity was indeed worth us continuing to invest in DTI and so it did confirm that okay. That's very helpful perspective. Thank you very much youre welcome.
Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Kurt <unk> from Carl M. Hennig. Your line is now live.
Hi, guys. Thanks for taking my call.
How do you see your overall pipeline in this environment I guess to somewhat of a novice it seems like it's all hands on deck, all energy coal natural gas everything with all the issues is it too early to tell if this opens up new opportunities or how could you.
See your pipeline of opportunity developing over the next.
Maybe several months few months kind of thing.
Thanks for the question Kurt I appreciate it and it's a it's a very relevant question with what's going on in the world today and pressure on.
Energy related marketplaces in all parts of the world.
For the pipeline that we are tracking today and I had mentioned a dollar value of $50 million to $75 million.
We're not expecting to see a material change on.
That activity level as we sit here today based upon what's going on with world activities.
2021.
Country saw more utilization of coal that we've seen in quite some time, but does that mean, it's going to continue prospectively not necessarily show. So it's difficult for us to be able to make a statement that we're going to see an uptick in business as it relates to what's happened in 2021.
Right.
Natural gas prices are high they are high on a global basis Theres a lot of pressure on natural gas.
That doesn't mean that natural gas isn't going to be burned in large quantities in this country because 40% of our energy in this country is coming from natural gas now Fortunately.
Our technologies are applicable to natural gas and the majority of our APC revenues over these past two to three to four years have come from natural gas applications. So that's going to stay as part of our mix.
So.
Call. It summarized answer to your question I don't think we're going to see a an impact.
Based upon what we know today.
Positively or negatively based upon world events today.
Tracking it closely it would would it be nice to see some favorable trends come our way Sherwood, but I really don't see.
A lot of reversal of pressure on <unk>.
Coal in this country coming to bear.
Does that help Kurt Yeah, I didn't know if around the world that I'm having to use more.
Would it make a difference but that makes.
Sense to me, but the other thing with you you've got quite a few irons in the fire and things look.
Quite constructive overall with and with the water treatment thing on the uptick with trading at nearly cash management.
Management team, considering making some purchases of stock to show confidence in the future how how should we look at that.
Yes, given where we're trading today and actually we obviously youre correct were trading at a little bit.
Below I'm, sorry above cash cash value.
With our discussions at board level at this point in time, we are not giving consideration to buying back stock as we sit here today, we would like to have positive news from our business actually drive shareholder value and share price and I believe that as a company we can do that.
We do have investments to make in developing.
Our water treatment technology Thats going to obviously requires some funds.
And the capital raise that we did last year was predominantly focused on us being able to have fuel tech continue as a long term viable company.
So until we've taken some steps down that path.
I think it's more opportune for us to use that cash to invest in our company and our people to ensure that we are indeed, pointing ourselves in the proper direction for the future. So that's the way that's the way we look at that today for <unk>.
Yeah, I agree I was mainly talking about purchases by insiders actually buying the stock.
Give us some confidence to the to.
The street and not the company I totally got you there blender understood yes.
Uh huh.
No I understand your question and we've had some inside purchasing over the past couple of years I've done. Some a couple of other employees have done a as well.
I wouldn't be surprised if we saw a little bit of that activity moving forward as well.
Great well, thanks, and good luck thank.
Thank you Kurt.
Thank you we reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
Thank you Kevin.
And whilst I want to thank everyone for joining us on the call today.
Thanks to all of our stakeholders for their interest and participation in our company and lots of things going on in the world today. It sometimes it makes what we're doing here within fuel tech seem to be.
Minimal in nature, given concerns over over in Ukraine, and other parts of the world but.
The employee team the board of directors are fully in support of ensuring that we continue to look to push fuel tech forward and to generate shareholder value in any way that we can thanks everyone.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.