Q2 2023 Fuel Tech Inc Earnings Call
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Greetings and welcome to the fuel Tech second quarter 2023 financial results Conference 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.
This conference is being recorded it is now my pleasure to introduce your host corner Rodriguez Investor Relations at the equity group. Thank you you may begin.
Yeah.
Thank you good morning, everyone. Thank you for joining us today for <unk> second quarter 2023 financial results Conference call yesterday. After the close we issued a copy of the release, which is available on the company's website www dot fuel tech Dot com.
Our speakers for today will be Vince Arnone, Chairman, President and Chief Executive Officer, and Allen Albright, Our Chief 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 and Exchange Act of 1934 as amended which are made pursuant to the safe Harbor provisions of the private securities.
Litigation Reform Act of 1095 and reflect reflect 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 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.
Well 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 those discussed in fuel Tech's annual report on Form 10-K.
In item <unk> under the caption of risk factors and subsequent filings under the Securities Exchange Act of 1934, as amended which could cause <unk> actual growth results of operations financial condition cash flows.
Performance and business prospects and opportunities to differ materially from those expressed in or implied of the statement.
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 in the <unk> and the company's filed.
As with the SEC.
With that said I'd like to turn the call over to Vince Arnone Vince. Please go ahead.
Thank you Connor.
And I'd like to thank everyone for joining us on the call today.
Our results for the second quarter of this year.
Mixed between our business segments.
With APC segment revenues rising 25% from last year's second quarter offset by a decline in revenue from the fuel Chem segment due to unscheduled and temporary maintenance related downtime at units utilizing our technology.
We continue to maintain a conservative cost profile invest in our growth specifically with respect to our water and wastewater treatment technology.
<unk>, our balance sheet, and we ended the quarter with total cash and investments of nearly $33 million and no long term debt.
As discussed last quarter, we commenced our first onsite demonstration as part of our dissolved gas infusion technology initiative, which we call dji using a small scale dissolved oxygen infusion system at an aquaculture setting in the western United States.
The deployment, which is scheduled to conclude later in the third quarter of this year has already demonstrated encouraging results that are in line with our objective of improving the customers' operational productivity and efficiency using optimized high levels of dissolved oxygen.
The <unk> system is able to consistently maintain dissolved oxygen levels in excess of 150% of saturation across a variety of site conditions and the deal level is being maintained within an optimal range for the agriculture application utilizing programming based on D O sensors.
And the treatment basin.
At this stage of the demonstration it is too early to tell the total effect of the higher level of <unk> on the growth rate of the animals being farmed. However, initial data appears to show an improvement in this metric.
We are meeting all of the customers test objectives, thus far and our internal expectations at this point as well.
We look forward to successfully completing this trial in Q3 and are in discussions for a longer term solution with this customer pending the outcome of this pilot.
In addition to this demonstration we are continuing to pursue additional demonstration opportunities across multiple end markets finalizing marketing documentation for all markets of interest are in the process of identifying channel partners and supply chain partners and lastly, we are working on the design.
Basis for a commercial scale small scale dji system.
Now, let's spend a few minutes discussing our APC and fuel Chem business segments.
Our fuel Chem segment experienced a decrease in revenue and operating profit in the second quarter of this year due to the impact of unplanned unit outages for maintenance at multiple customer sites.
As we have now entered the third quarter of the year all of our larger scale customer units are running at historically normalized levels due to weather related dispatch and we expect to improve performance for fuel Chem for the second half of 2023.
With respect to international opportunities for the fuel Chem segment we.
We are continuing to follow the opportunity to expand the provision of our chemical technology in Mexico via our partner in that country to address the emissions created by the burning of high sulfur fuel oil, which is being undertaken without the necessary environmental remediation.
And at the expense of the health of surrounding communities.
We recently executed a two year extension to the program that we currently have in place at one facility and we do believe that political pressures building in favor of the implementation of our fuel Chem program and additional facilities in this country.
Our partner is currently in discussions with the state owned utility Cfe regarding the application of our technology at several units.
As we look out to 2023 on a full year basis, we continue to expect that fuel Chem revenues will decline modestly from 2022 levels due primarily to a reduction in program utilization levels at our primary accounts from the high levels experienced in 2002.
Client maintenance driven outages during the second quarter, which I, just mentioned and to the elimination of one account due to plant closure.
Now for the APC segment.
Revenue rose to $3 4 million from $2 7 million in last year's second quarter, driven primarily by the timing of project awards and the commencement of work on contracts announced during 2022 and continuing through the first six months of 2023.
These projects.
<unk> SDR <unk> and ultra emissions control solutions at natural gas and coal fired units in the U S Europe and the Pacific rim.
Last week, we were pleased to announce $2 2 million in New project Awards. These.
These awards support projects are in various end markets and with scheduled completion dates ranging from Q3 of this year to Q1 of 2024.
Additionally.
We have good visibility to incremental contract awards and the amount of $3 million to $5 million, which we would expect to be awarded before the end of Q3.
Last quarter, we discussed the U S environmental protection agency's issuance in a rule finalizing requirements that obligate 23 states to reduce emissions of nitrogen oxides from power plants and certain industrial facilities.
According to EPA. This action was designed to tightened Nox emission requirements.
By updating the cross state Air pollution control rule to meet the good neighbor requirements of the clean Air Act.
We continue to believe that this new federal rule will serve as a catalyst for new APC orders over the next several years as utility and industrial customers explore ways to further reduce nox emissions.
Based on our actual performance in the first half of this year.
The effective backlog that we have in place today.
And the business development activities, we are pursuing.
We remain confident that our APC revenues for 2023 will exceed 2022, APC revenues of $10 $6 million.
Driven primarily by the APC business. We also continue to expect that total revenues for 2023 will increase modestly to between 28 and $30 million up from $26 9 million in 2022.
This base case outlook excludes any material contributions from TGI as we are still in the early stages of commercialization and any significant contributions to APC from the recent EPA ruling in March.
Yes.
In closing.
I want to once again, thank the fuel tech team for their continued hard work and dedication and our shareholders for their continued support as we continue to have all of our operations and expand our presence as a global supplier of technologies that enable that enabled clean air and pure water.
With that said I'd like to turn the call over to Ellen <unk>. Please go ahead.
Thank you Vince and good morning, everyone.
For the quarter consolidated revenues were $5 5 million compared to $6 4 million in last year's second quarter, reflecting higher APC segment revenues offset by a decline in fuel Chem product revenue.
APC segment revenue increased 25% to $3 4 million from $2 7 million in the prior year period.
This increase was primarily driven by timing of project execution, and new APC orders announced during 2022 and continuing through the first six months of 2023.
Fuel Chem product revenue was $2 million compared to $3 6 million in the prior year quarter, primarily the result of unplanned client maintenance and outages throughout the quarter as.
As Vince mentioned, we believe these outages have subsided and at fuel Chem as performance has returned to historical operating levels and will improve in the second half of the year.
Consolidated gross margin for the second quarter was 37% of revenues as compared to 42% of revenues in the prior year period.
This decline can be attributed to changes in segment mix with a slight decline in APC gross margin due to project and technology mix and lower fuel Chem margin due to the lower revenue for the fuel Chem segment.
Consolidated APC segment backlog as of June 30 was $6 6 million down sequentially from $7 6 million at March 31, 2023, and $8 2 million at December 31 2022.
Backlog at quarter end consisted of $3 4 million of domestic delivered project backlog and $3 1 million of foreign delivered project backlog.
SG&A expenses for the quarter were flat year over year at $2 9 million for the full year 2023, we expect SG&A expenses to range between 13, and $13 5 million as we invest in resources to support current business initiatives and in the development of our <unk> technology.
<unk> operation.
Research and development expenses for the second quarter increased to 413000 from 289000 in last year's second quarter.
The increase was driven by new product development efforts and water treatment technologies and more specifically commercializing our dissolved gas infusion technology.
Our operating loss was $1 3 million compared to 485000 for the prior year period, primarily driven by lower fuel Chem revenues the effect of which were mitigated by relatively stable year on year expense at.
At year on year expense profile.
As we discussed last quarter, we continue to take advantage of the favorable interest rate environment and as of June 32023 have invested approximately $30 million in held to maturity debt securities and money market funds.
This generated 307000 of interest income in the second quarter and 646000 for the six months period ended June 30, compared to 9000 for the same period in 2022.
We continue to expect net interest income for 2023, barring any unusual deployments to grow the business will will exceed $1 2 million.
Our net loss for the quarter was $1 million or <unk> <unk> per share compared to a net loss of 356000 or one <unk> per share in the same period, one year ago.
Adjusted EBITDA loss was $1 2 million compared to an adjusted EBITDA loss of 200000 in the prior year period.
Our financial position remained quite strong as of June 30, we had cash and cash equivalents of $15 1 million and short and long term investments totaling an additional $17 7 million.
Working capital was $31 2 million or $1 four per share stockholders equity was $44 6 million or $1 44 per share and the company continues to have no outstanding debt.
I sure Vince's optimism about our future and upcoming improved performance and our ability to support fuel Tech's expected growth I. Appreciate your time and now I'll turn the call back over to Vince.
Thanks, very much Alan operator, I'd now like to open the call for questions. Please.
Ladies and gentlemen, we will now be conducting our question and answer session.
We'd like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
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Our first question is coming from the line of Sameer Joshi with H C. Wainwright. Please proceed with your question.
Thanks for taking my questions.
Good morning Samir.
Good money on the fuel Chem front.
Are you getting the full benefit of the quarter that is where all the.
Land.
And this activity is it your client sites complete before commencement of the <unk>.
Can you ask that question one more time Sameer.
Last a little bit of a pleased yeah, sorry, sorry on the fuel Chem front.
Three Q are you getting all the unplanned maintenance all flow into the three Q or was it all completed in Q3 Q you will have some revenues yes. It was largely completed in Q2 Samir yes.
As we've moved into Q3.
Those outages have had been eliminated we are seeing a more normalized run rate for our primary accounts here in Q3, thus far so we are not expecting.
And any material changes in that activity right now.
Right right.
It takes into account.
One of the plant closures.
Previously you discussed that is correct that is correct.
Okay got it.
On the SG&A front.
Can you little bit more than we had expected and I know you have guided for range.
But are there any specific actions that you took to bring the SDN.
SG&A down or.
Or was there some one time in this Q.
No I wouldn't say that there is anything unusual occurring right now with SG&A Sameer.
Sure.
We're watching our development on the DTI front.
I have mentioned on prior conference calls, we have not invested significantly in human resources or other SG&A related expenses as it relates to <unk> and <unk>.
So we're watching the timing of that quickly as we do see signs that this is going to fully turn into a commercially viable activity. We will see increases in SG&A related to that further investment.
Other than bringing in our leader dji earlier.
This year Bill Decker, we have not made material changes in human resources for TGI, but as soon as we signed see signs of success.
And particularly with the demonstration that's ongoing right now as we move throughout this year into 'twenty four we will be talking about some expanse expanded investment in SG&A as it relates to water and wastewater treatment.
That just has not happened yet.
Understood.
On the SG&A front on direct.
Yes, but on the R&D front.
<unk> expenses were slightly higher because of this demonstration.
I think you are working on.
Opportunities should we expect R&D expense to be couple of hundred thousand dollars more.
In line with <unk> rather than <unk>.
I would say that the Q2 number that youre seeing right now you would expect to see in Q3, and perhaps Q4, yes, we are investing in the demonstration.
That is going to continue into Q3, and we would expect as we move throughout the year to have the opportunity to engage in additional demonstrations as well so.
Yes, I confirm that we would expect to see that that uptick a little bit through the through the remainder of this year.
Okay and sticking.
Two DGA.
Yes.
We have discussed with us, but would be a systems solution b customer wins or do you have.
Sandburg module.
And the.
With multiple units.
Can you just give us a sense of how it looks.
Right I mean, the the way we originally looked at the design for the Dji systems is to be able to have the modular in nature.
To be able to meet.
Current application requirements.
So that is our approach the demonstration that we are doing right now is a small scale dji system demonstration it delivers about 15 pounds of oxygen per day.
As I've mentioned in prior conference calls, we actually have designed and built a <unk> delivery system that can deliver up to 2000 pounds of oxygen per day.
So we're looking at developing a call. It a modular range of systems that can be used for a variety of different end market applications Thats our intent.
Understood and.
Just maybe last one.
<unk> expecting any I know in your outlook you do not have any revenues from dji, but is there a possibility that one of these demonstrations would convert into order that can be recognized.
In the fourth quarter.
2020.
I would say is that there is a possibility.
I would not expect it to be material Sameer, but yes. It is a definite possibility.
I think those were all my questions. Thanks.
Hum.
Thank you Samir.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad at this time, please hold while we poll for any additional questions.
Okay.
I'm not seeing any additional questions at this time, so I'd like to pass the floor back over to Vince arnone for any additional closing remarks.
Thank you operator.
Once again I'd like to thank all of our stakeholders our employee team.
Our board of directors and of course, our shareholders for their continued support.
We are working diligently to bring our our water and wastewater treatment initiative to commercialization at the same time.
We're continuing our focus on efforts on expanding our base business segments to the extent, we can on a global basis. Thanks again for your time and thanks for your interest in fuel Tech everyone have a great day. Thank you.
Ladies and gentlemen, this does conclude today's teleconference and webcast. Once again, we thank you for your participation and you may disconnect your lines at this time.
Okay.
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