Q1 2024 Fuel Tech Inc Earnings Call

May 8, 2024

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Hi.

Operator: Greetings. Welcome to Fuel Tech Inc.'s first quarter 2024 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.

Greetings welcome to fuel Tech, Inc. First quarter 'twenty 'twenty four financial results conference call. At this time, all participants are in a listen only mode.

Operator: A question and answer session will follow the firewall presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.

Operator: Please note. This conference is being recorded I will now turn the conference over to Devin Sullivan managing director at the equity group. Thank you you may begin.

Operator: Please note this conference is being recorded. I will now turn the conference over to Devin Sullivan, Managing Director of the Equity Group. Thank you. You may begin. Devin Sullivan, Managing Director, Equity Group, Inc. Thank you.

Devin Sullivan: Thank you Sherry good morning, everyone and thank you for joining us today for fuel Tech's 2024 first quarter financial results Conference call yesterday. After the close we issued a press release, a copy of which is available at the company's website www Dot FTE K dot com.

Devin Sullivan: Thank you, Sherry. Good morning, everyone, and thank you for joining us today for Fuel Tech's 2024 First Quarter Financial Results Conference Call. Yesterday, after the close, we issued a press release, a copy of which is available on the company's website, www.ftek.com. Our speakers for today will be Vincent Arnone, Chairman, President, and Chief Executive Officer, and Ellen Albrecht, the company's Chief Financial Officer.

Devin Sullivan: Our speakers for today will be Vince Arnone, Chairman, President and Chief Executive Officer, and Ellen Albrecht Company's Chief Financial Officer. After prepared remarks, we will open the call for questions from our analysts and investors.

Devin Sullivan: 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 21E 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 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 and information currently available to our companies' managers.

Devin Sullivan: 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 report on Form 10-K in Item 1A under the caption of 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.

Devin Sullivan: 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 20, <unk> 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.

Devin Sullivan: 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 details 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.

Vincent J. Arnone: And 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 and information currently available to our company's management.

Vincent J. Arnone: 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.

Vincent J. Arnone: 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.

Vincent J. Arnone: In fuel Tech's annual report on Form 10-K in item one a under the caption of 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 express.

Vincent J. Arnone: In or implied by these statements.

Vincent J. Arnone: 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.

Vincent J. Arnone: Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in the company's filings with the SEC.

Devin Sullivan: With that said I'd now like to turn the call over to Vince Arnone Vince. Please go ahead.

Vincent J. Arnone: Thank you Devin.

Vincent J. Arnone: Good morning, and I'd like to thank everyone for joining us on the call today. Given that we last spoke not that long ago in connection with our year-end results, I'll keep my commentary brief today. Although we've begun the year more slowly than anticipated in our APC and Fuel Chem business segments, we expect that our performance for these businesses will show steady improvement as we move through 2024. In addition, we are very encouraged by the progress we are making on our Dissolved Gas and Fusion, or DGI, business initiatives, and we ended the quarter in a very strong financial position with cash, cash equivalents, and investments of over $32 million and no long Now, let's discuss our results for the first quarter in more detail.

Vincent J. Arnone: Good morning, and I'd like to thank everyone for joining us on the call today.

Vincent J. Arnone: Given that we last spoke not that long ago in connection with our year end results I'll keep my commentary brief today.

Vincent J. Arnone: Although we have begun the year more slowly than anticipated and our APC and fuel Chem business segment, we expect that our performance for these businesses will show steady improvement as we move through 2024.

Vincent J. Arnone: In addition, we are very encouraged by the progress we are making it our dissolved gas infusion or D. G. I business initiative, and we ended the quarter and a very strong financial position with cash cash equivalents and investments of over 30 $32 million and no long term debt.

Vincent J. Arnone: Now, let's discuss our results for the first quarter in more detail.

Vincent J. Arnone: As a general statement our results reflected the impact of customer driven delays in the execution of existing contracts and our APC business segment, while our performance in fuel Chem was impacted detrimentally by historic warm weather across the U S that affected unit dispatch.

Vincent J. Arnone: As a general statement, our results reflected the impact of customer-driven delays in the execution of existing contracts in our APC business segment, while performance in fuel chem was impacted detrimentally by historic warm weather across the US that affected unit dispatch and by unscheduled plant outages. I remain pleased with our ongoing execution of existing projects and our team's current business development activities, which continue to reflect an increased focus on global emissions protocols across a variety of fuel sources.

Vincent J. Arnone: And by unscheduled plant outages.

Vincent J. Arnone: For the APC segment.

Vincent J. Arnone: I remain pleased with our ongoing execution of existing projects and our team's current business development activities, which continue to reflect an increased focus on global emissions protocols across a variety of fuel sources.

Vincent J. Arnone: In 2023, we benefited from the continued adoption of our ULTRA, SDR, SNCR, and FGC emissions control solutions at natural gas and coal-fired units in the U.S., Europe, South Africa, and the Pacific Rim. And I expect this to continue into 2024 and beyond.

Vincent J. Arnone: In 2023, we benefited from the continued adoption of our ultra S. E. R. S N E R and FTC emissions control solutions.

Vincent J. Arnone: Natural gas and coal fired units in the U S Europe, South Africa, and the Pacific Rim and I expect this to continue into 2024 and beyond.

Vincent J. Arnone: Independent of the potential impact of a favorable regulatory outcome, which I will discuss shortly we are well positioned to take advantage of current industrial market trends, which include plant capacity expansion across several industries.

Vincent J. Arnone: Independence of the potential impact of favorable regulatory outcomes, which I will discuss shortly, we are well positioned to take advantage of current industrial market trends, which include plant capacity expansion across several industries. The incentivized use of small turbines to replace traditional, less clean power generation. The development of the biocarbon industry, the continued emphasis on decarbonization on a global basis, and the focus on using our ultra systems as the safe source of ammonia for SCRs at hospitals and universities across the U.S. We are providing proposals to customers for both near and longer-term needs, regardless of regulatory drivers, and we are currently watching the progress of $5 to $10 million in APC contract opportunities that could close in our favor before the end of the second quarter or shortly thereafter.

Vincent J. Arnone: The incentivize views of small turbines to replace traditional less clean power generation.

Vincent J. Arnone: The development of the bio carbon industry. The continued emphasis on de carbonization on a global basis and the focus on using our ultra system is the safe source of ammonia for S. C ours at hospitals and universities across the U S.

Vincent J. Arnone: We are providing proposals to customers for both near and longer term needs regardless of regulatory drivers and we are currently watching the progress of $5 million to $10 million and APC contract opportunities that could close in our favor before the end of the second quarter or shortly thereafter.

Vincent J. Arnone: On the regulatory front, we continue to monitor progress related to the adoption of the U.S. EPA's Cross-State Air Pollution Control Regulation to meet the good neighbor requirements of the Clean Air Act, which we believe can be a potential catalyst for APC growth in 2024 and for the remainder of this decade, as utility and industrial customers explore ways to further reduce NOx emissions. Over the past several months, we have received and responded to multiple requests for budgetary proposals as customers prepare to address the upcoming compliance requirements as part of their capital budget planning for this year and beyond.

Vincent J. Arnone: Now on the regulatory front.

Vincent J. Arnone: We continue to monitor my other progress related to the adoption of the U S. Epa's Cross state Air pollution control regulation.

Vincent J. Arnone: To meet the good neighbor requirements of the clean Air Act, which we believe can be a potential catalyst for APC growth in 2024 and for the remainder of this decade.

Vincent J. Arnone: Its utility and industrial customers explore ways to further reduce nox emissions.

Vincent J. Arnone: Over the past several months, we have received and responded to most of them multiple requests for budgetary proposals as customers prepare to address the upcoming compliance requirements as part of their capital budget planning for this year and beyond.

Vincent J. Arnone: Yeah.

Vincent J. Arnone: As discussed on previous calls, the rule currently obligates 23 states to reduce emissions of nitrogen oxides from power plants and certain industrial facilities to limit their impact on downwind states. However, the ultimate timing of the effectiveness of the rule is uncertain, because several upwind affected states and sources have challenged the efficacy of EPA's proposed regulation in multiple courts, and Say's of the effectiveness of the rule have been issued for many upwind states.

Vincent J. Arnone: As discussed on previous calls the rule currently obligates 23 states to reduce emissions of nitrogen oxides from power plants and certain in certain industrial facilities to limit their impact on downwind states.

Vincent J. Arnone: The ultimate timing of the effectiveness of the rule is uncertain because several upwind effected affected states and sources have challenged the efficacy of Epa's proposed regulation in multiple courts.

Vincent J. Arnone: And stays of the effectiveness of the rule had been issued for many upwind states.

Vincent J. Arnone: In February of this year, oral arguments were presented to the Supreme Court by both sides, and we are closely monitoring the potential impact of the Supreme Court's ruling on whether to stay the rule for all states when it is issued later this year.

Vincent J. Arnone: In February of this year oral arguments were presented to us or to the Supreme Court by both sides and we are closely monitoring the potential impact of the Supreme Court's ruling on whether to stay the rule for all states. When it is issued later this year.

Vincent J. Arnone: In addition to the good neighbor rule, we are also watching the progress of EPA's rule for large municipal waste combustor units, which is independent of the good neighbor rule. This rule reduces the nitrogen oxide emissions requirements for large municipal waste combustor units. Fuel Tech has had a long history of assisting this industry in meeting its compliance requirements, and we have had discussions with customers in this segment to support them in their compliance planning.

Vincent J. Arnone: In addition to the good neighbor rule. We are also watching the progress of Epa's rule for large municipal waste combustor units, which is independent of the good neighbor rule. This rule reduces the nitrogen oxide emissions requirements for large municipal waste combustor units fuel.

Vincent J. Arnone: Fuel Tech has had a long history of assisting this industry and meeting its compliance requirements and we have had discussions with customers in this segment to support them in their compliance planning.

Vincent J. Arnone: The municipal waste combustion rule is currently in a public comment period with compliance deadlines expected sometime in the next three years.

Vincent J. Arnone: The Mutant Municipal Waste Combustor Rule is currently in a public comment period, with compliance deadlines expected sometime in the next three years. Lastly, within the past two weeks, EPA has issued new stringent greenhouse gas emission standards that require 90% reductions for most new gas fired plants and existing coal units by 2032. This same proposed rule tightens mercury and air toxic standards requirements by 2028, wastewater discharge limits for coal-fired power plants by 2029, and ash handling and disposal from coal-fired power plants over the next several years.

Vincent J. Arnone: Lastly, within the past few weeks EPA has issued new stringent greenhouse gas emission standards that require 90% reductions for most new gas fired plants and existing coal units by 2032.

Vincent J. Arnone: This same proposed rule tightened and see the Mercury and air toxic standards.

Vincent J. Arnone: Requirements by 2028 waste wastewater discharge limits for coal fired power plants by 2029.

Vincent J. Arnone: And ash handling and disposal from coal fired power plant over the next several years.

Vincent J. Arnone: This combined rule comes at a time when there are projections of potential shortfalls in power generation over the next five to seven years in certain geographic regions in this country due to data center power demands and increases in computing power requirements resulting from the adoption of artificial intelligence.

Vincent J. Arnone: This combined rule comes at a time when there are projections of potential shortfalls in power generation over the next five to seven years in certain geographic regions. In this country due to data center power demand and increases in computing power requirements, resulting from the adoption of artificial intelligence.

Vincent J. Arnone: And we are in the process of evaluating the potential impact of these rules across our technologies in the power generation market.

Vincent J. Arnone: And we are in the process of evaluating the potential impact of these rules across our technologies in the power generation market. Now for the Fuel Chem segment. Revenues declined from the prior year first quarter due to a decrease in operational demand from our client base due to warm weather across the US and, to a lesser extent, unscheduled planned outages and closures compared to the same period in 2023.

Vincent J. Arnone: Yeah.

Vincent J. Arnone: Now for the fuel Chem segment.

Vincent J. Arnone: Revenues declined from the prior year first quarter due to due to a decrease in operational demand from our client base, resulting from warm weather across the U S and to a lesser extent unscheduled plant outages and closures compared to the same period in 2023.

Vincent J. Arnone: As mentioned on our last conference call, we have been pursuing multiple additional fuel chem development opportunities, which could provide incremental revenue contribution in the second half of 2024 for both coal and biomass fired bones. I'm very pleased to say that we have received an order for our fuel chem demonstration at a new coal-fired power generation site in the western U.S. The demonstration is expected to commence later this month and, if it becomes a commercial account, is expected to generate annualized revenue of approximately $1.5 to $2 million at historic fuel chem gross margins.

Vincent J. Arnone: I am very pleased to say that we have received an order for our fuel Chem demonstration at a new coal fired power generation site in the Western U S.

Vincent J. Arnone: The demonstration is expected to commence later this month and if it becomes a commercial account is expected to generate annualized revenue of approximately one and a half to $2 million of historic fuel Chem and fuel Chem gross margins.

Vincent J. Arnone: And in addition to this domestic opportunity, we are in discussions with one additional coal-fired power generation facility regarding a demonstration later this year, also in the western U.S., and we are also pursuing an opportunity to address the concerns of a biomass-fired boiler operator with respect to international fuel chem opportunities. We remain in discussions with our partner in Mexico to expand the provision of our chemical technology in that country. We expect that the nation's upcoming presidential election in June will provide us with additional clarity on the likelihood of this opportunity as the favorite candidate is an environmental engineer by background and could take a favorable position on the implementation of environmental policies.

Vincent J. Arnone: And in addition to this domestic opportunity we are in discussions with one additional coal fired power generation facility regarding a demonstration later this year also in the Western U S. And we are also pursuing an opportunity to address the concerns of our biomass fired boiler operator.

Vincent J. Arnone: With respect to international fuel Chem opportunities, we remain in discussions with our partner in Mexico to expand the provision of our chemical chemical technology in that country, we expect that the nation's upcoming presidential election in June will provide us with additional clarity on the likelihood of this opportunity.

Vincent J. Arnone: As the favorite candidate candidates is an environmental engineer by background and could take a favorable position on the implement and the implementation of environmental policy.

Vincent J. Arnone: We will provide more color on this opportunity on our next conference call. As we move into the second half of 2024, we expect fuel chem revenue to improve due to the increased power demand and associated unit dispatch that comes during the summer months and to contributions from the new coal-fired unit demonstration that will commence later this month. With our DGI initiative, our momentum continues. Last month, we executed an agreement to commence and complete a demonstration of DGI at a municipal wastewater site. In this instance, our DGI solution will be used to reduce hydrogen sulfide in the wastewater via oxygenation to reduce corrosion inside the wastewater line.

Vincent J. Arnone: We will provide more color on this opportunity on our next conference call.

Vincent J. Arnone: As we move into the second half of 2024, we expect fuel Chem revenues to improve due to the increased power demand and associated unit dispatch that comes that comes during the summer months.

Vincent J. Arnone: And the contributions from the new coal fired unit demonstration that will commence later this month.

Vincent J. Arnone: With our D. G I initiative, our momentum continues.

Vincent J. Arnone: Last month, we executed an agreement to commence and complete a demonstration of T. G I.

Vincent J. Arnone: Full wastewater site.

Vincent J. Arnone: In this instance, our D. G I solution will be used to reduce hydrogen sulfide and the wastewater the oxygenation to reduce corrosion inside the wastewater lines.

Vincent J. Arnone: This application will demonstrate DGI's capability to extend the life cycle of aging infrastructure and eliminate the need for costly maintenance activities. Following the successful demonstration of our technology at a U.S. shrimp farming facility last year, we are in discussions with the owners of that same facility to incorporate DGI into their commercial-scale planned stacked raceway system. The client is expecting to have their aquaculture system functional by the end of the year, and we are in the process of providing a proposal for a DGI system that will meet the precise needs of this aquaculture environment.

Vincent J. Arnone: This application will demonstrate D. G I capability to extend the lifecycle of aging infrastructure and eliminate the need for costly maintenance activities.

Vincent J. Arnone: Following the successful demonstration of our technology at a U S. Shrimp farming facility last year, we are in discussions with the owners of that same facility to incorporate <unk> into their commercial scale plant stacked Raceway system.

Vincent J. Arnone: The client is expecting to have their aqua culture system functional functional by the end of the year and we are in the process of providing a proposal for a TGI system that will meet the precise needs of this aqua culture environment.

Vincent J. Arnone: Additionally for Aqua culture, we are in discussions with potential new agriculture client.

Vincent J. Arnone: Additionally, for aquaculture, we are in discussions with potential new aquaculture clients in the US that are considering incorporating DGI into a greenfield Fitch Hatchery Site in the Western States. There are many other target markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical, and horticulture, and we look forward to addressing these markets prospectively on the marketing front. We have been increasing our efforts to communicate the benefits of DGI to targeted end markets and customers, and we will be present at additional conferences later this year.

Vincent J. Arnone: In the U S that is considering incorporating <unk> into a greenfield.

Vincent J. Arnone: Tasha reside in the Western States.

Vincent J. Arnone: There are many other target markets of interest for D. G I, including pulp and paper food food and beverage chemical petrochemical and horticulture and we look forward to addressing these markets prospectively.

Vincent J. Arnone: On the marketing front, we have been increasing our reference efforts to communicate the benefits of D. G. I to targeted end markets and customers and we will be present at additional conferences later this year.

Vincent J. Arnone: Based on our effective backlog today the business development activities, we are pursuing and our previously noted the expectations for fuel Chem.

Vincent J. Arnone: Based on our effective backlog today, the business development activities we are pursuing, and our previously noted expectations for fuel chem, we expect that total revenues for 2024 will exceed the total revenues recognized in 2023 of $27.1 million, and we will provide further guidance as we move throughout 2024. [inaudible] excludes any material contributions from DGI, as we are still in the early stages of commercialization, any significant contributions to APC from the above referenced EPA regulations, and the impact of material business development, business development activities for fuel chem.

Vincent J. Arnone: We expect that total revenues for 2024 will exceed the total revenues recognized in 2023 of $27 1 million and we will provide further guidance as we move throughout 2024.

Vincent J. Arnone: This base case outlook excludes any material contributions from E. G. I as we're still in the early stages of commercialization.

Vincent J. Arnone: Any significant contributions to ATC from the above referenced EPA regulations, and the impact of material business development.

Vincent J. Arnone: Development activities for fuel Chem.

Vincent J. Arnone: In closing... I want to thank the Fuel Tech team for their continued contributions to our business. Is it hard work, passion, and dedication that drive our ability to be successful as a company? Additionally, I thank our shareholders for their continued support. We continue to expect that 2024 will be an important year in the growth, development, and evolution of Fuel Tech, and we look forward to keeping you apprised of our progress. Now, I'd like to turn the call over to Ellen.

Speaker Change: In closing.

Ellen: I want to thank the fuel tech team for their continued contributions to our business.

Ellen: It is their hard work passion and dedication that drive our ability to be successful as a company.

Ellen: Additionally, I, thank our shareholders for their continued support.

Ellen: We continue to expect that 2024 will be an important year in the growth and development and evolution of fuel Tech and we look forward to keeping you apprised of our progress.

Vincent J. Arnone: Now I'd like to turn the call over to Ellen.

Ellen: Thank you Vince and good morning, everyone.

Ellen T. Albrecht: Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues declined to $5 million from $7.3 million in last year's first quarter, reflecting declines in both the APC and Fuel Chem segments from the prior year period. APC segment revenue decreased to $2.3 million from $3.6 million in the first quarter of 2023, primarily related to customer-related delays and project execution. Fuel Kim segment revenue declined to $2.6 million from $3.7 million in the first quarter of 2023 due to a decline in electrical generation demand and unscheduled plant outages.

Ellen T. Albrecht: For the quarter consolidated revenues declined to 5 million from $7 3 million in last year's first quarter, reflecting declines in both the APC and fuel Chem segments from the prior year period.

Ellen T. Albrecht: A P. C segment revenue decreased to $2 3 million from $3 6 million in the first quarter of 2023, primarily related to customer related delays and project execution.

Ellen T. Albrecht: Gil can segment revenue declined to $2 6 million from $3 7 million in the first quarter of 2023 due to a decline in electrical generation demand and unscheduled plant outages.

Ellen T. Albrecht: Consolidated gross margins for the first quarter, what we're fifth were 41% of revenues an increase from 38% in the first quarter of 2023, reflecting an increase in APC segment gross margin to 38% of segment revenues from 27% in the prior year period.

Ellen T. Albrecht: Consolidated growth margins for the first quarter were 41% of revenues, an increase from 38% in the first quarter of 2023, reflecting an increase in APC segment growth margin to 38% of segment revenues from 27% in the prior year period, due in large part to the mix of projects and services executed during the quarter. Fuel Kim's segment growth margin declined to 43% from 49% in the first quarter of 2023 as a direct result of lower segment revenue. We expect fuel chem segment margins to return to historical levels as we continue throughout the year.

Ellen T. Albrecht: Do you in large part to the mix of projects and services executed during the quarter.

Ellen T. Albrecht: <unk> segment gross margin declined to 43% from 49% in the first quarter of 2023 as a direct result of lower segment revenue.

Ellen T. Albrecht: We expect fuel Chem segment margins to return to historical levels as we continue throughout the year.

Ellen T. Albrecht: Yeah.

Ellen T. Albrecht: Consolidated APC segment backlog on March 31 was $6.2 million, down from a backlog of $7.5 million at December 31, 2023. Backlog at March 31st, 2024 included 1.8 million of domestically delivered project backlog and 4.4 million of foreign delivered project backlog, compared to 2.6 million of domestically delivered project backlog and 4.9 million of foreign delivered project backlog at December 31st. We expect that 6 million of the current consolidated backlog for the APC segment will be recognized in the next 12 months.

Ellen T. Albrecht: Consolidated APC segment backlog at March 31 was $6 2 million down from a backlog of $7 5 million at December 31 2023.

Ellen T. Albrecht: Backlog at March 31, 2024 included $1.8 million of domestically delivered project backlog and $4 4 million of foreign delivered project backlog compared to $2 6 million of domestically delivered project backlog and $4 9 million of foreign delivered project backlog at December 31st.

Ellen T. Albrecht: We expect that $6 million of current consolidated backlog for the APC segment will be recognized in the next 12 months.

Ellen T. Albrecht: SG&A expenses increased slightly to $3 3 million from $3 2 million in Q1 of 2023, reflecting higher employee related expenditures.

Ellen T. Albrecht: SG&A expenses increased slightly to $3.3 million from $3.2 million in Q1 of 2023, reflecting higher employee-related expenditures. Given the decline in revenue, SG&A as a percentage of revenue in the 2024 first quarter increased to 68% from 45% in the same prior year period. Research and development expenses for the first quarter rose to $376,000 from $218,000 in the same period a year ago, mainly reflecting our ongoing investment in the development of new technologies to expand our product offerings into the water and wastewater treatment markets, and more specifically, our DGI system.

Ellen T. Albrecht: Given the decline in revenue SG&A as a percentage of revenue in the 2020 for first quarter increased to 68% from 45% in the same prior year period.

Ellen T. Albrecht: Research and development expenses for the first quarter Rose to 376000 from 218000 in the same period, a year ago, mainly reflecting our ongoing investment in the development of new technologies to expand our product offerings into the water and wastewater treatment market and more specifically our D. G.

Ellen T. Albrecht: Systems.

Ellen T. Albrecht: Our operating loss was $1 7 million compared to a loss of 658000 in last year's first quarter, reflecting a reduction in overall revenue a shift in margin contribution from product mix and slightly higher operating expenses for the quarter.

Ellen T. Albrecht: Our operating loss was $1.7 million compared to a loss of $658,000 in last year's first quarter, reflecting a reduction in overall revenue, a shift in margin contribution from product mix, and slightly higher operating expenses for the quarter. We continue to take advantage of the favorable interest rate environment, and as of March 31st, we have invested more than $30 million in debt securities held to maturity and money market funds. This generated $311,000 of interest income in the first quarter, compared to $339,000 in the prior year period.

Ellen T. Albrecht: We continued to take advantage of the favorable interest rate environment and as of March 31st have invested more than 30 million and held to maturity debt securities and money market funds. This generated 311000 of interest income in the first quarter compared to 339000 in the prior year period.

Ellen T. Albrecht: Our net income for the quarter was 281000 or one seven per share compared to a net loss of 414000 or a loss of one seven per share in the same period one year ago.

Ellen T. Albrecht: Our net income for the quarter was $281,000, or $0.01 per share, compared to a net loss of $414,000, or a loss of $0.01 per share, in the same period one year ago. Net income for the first quarter of 2024 included an extraordinary other income amount of $1.7 million related to the recording of income associated with the expected receipt of the employee retention credit during the quarter, as compared to an other expense of $90,000 in last year's first quarter.

Ellen T. Albrecht: Net income for the first quarter of 2024 included an extraordinary other income amount of 1.7 million related to the recording of income associated with the expected receipt of the employee retention credit during the quarter.

Ellen T. Albrecht: As compared to other expense of 90000 in last year's first quarter.

Ellen T. Albrecht: For those of you not familiar with the Employee Retention Credit, the CARES Act established by the U.S. government was enacted to provide certain relief as a result of the COVID-19 pandemic. This tax relief, along with other stimulus measures, allowed employers to claim a refundable tax credit against the employer's share of Social Security tax for qualifying periods in 2020 and 2021, subject to certain criteria. Under the provision of the CARES Act, the company was eligible for a fund for a fundable employee retention credit, which was claimed in Q1 of 2024.

Ellen T. Albrecht: For those of you not familiar with the employee retention credit the cares Act established by the U S. Government was enacted to provide certain relief as a result of the COVID-19 pandemic.

Ellen T. Albrecht: This tax relief along with other stimulus measured measures allowed for employers to claim a refundable tax credit against the employer share of social security tax for qualifying period in 2020, and 2021 subject to certain criteria.

Ellen T. Albrecht: Under the provision of the cares Act the cares Act the company was eligible for fun for a fundable employee retention credit, which was claimed in Q1 of 2024.

Ellen T. Albrecht: Yeah.

Ellen T. Albrecht: The adjusted EBITDA loss was $1.5 million compared to an adjusted EBITDA loss of $569,000 in the same period last year. Lastly, moving to the balance sheet, our financial condition remains very strong. As of March 31st, we had cash and cash equivalents of $11.4 million, and short and long-term investments totaling $20.7 million, working capital of $27.7 million, or $0.90 per share, stockholders equity of $44 million, or $1.43 per share, and the company continues to have no outstanding debt.

Ellen T. Albrecht: Adjusted EBITDA loss was $1 5 million compared to an adjusted EBITDA loss of 569000 in the same period last year.

Ellen T. Albrecht: Yeah.

Ellen T. Albrecht: Lastly, moving to the balance sheet, our financial condition remains very strong as of March 31, we had cash and cash equivalents of $11 4 million and short and long term investments totaling $27 million.

Ellen T. Albrecht: Working capital was $27 7 million or <unk> 90 per share stockholders equity was $44 million or $1.43 per share and the company continues to have no outstanding debt.

Ellen T. Albrecht: To reiterate Vince's earlier comments, we remain confident in our ability to fuel our growth initiatives pursue new product and market opportunities and maintain our strong financial position, which we view as important as an important competitive advantage given given an growing ongoing macroeconomic uncertainties, we have a pipeline of Sydney.

Ellen T. Albrecht: To reiterate Vince's earlier comments, we remain confident in our ability to fuel our growth initiatives, pursue new product and market opportunities, and maintain our strong financial position, which we view as an important competitive advantage given ongoing macroeconomic uncertainties. We have a pipeline of significant growth opportunities across business segments that position us for positive growth in 2024. I'll now turn the call back over to Vince.

Ellen T. Albrecht: Significant growth opportunities across thickness business segments that position us for positive growth in 2024.

Ellen T. Albrecht: I'll now turn the call back over to Dan.

Vincent J. Arnone: Thanks very much, Ellen. I would like now to turn the call back to the operator for questions.

Vince: Thanks, very much Alan I would like now to kind of fall back to the operator for questions.

Speaker Change: Thank you.

Operator: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Amit Dayal, with H.C. Wainwright. Please proceed.

Vince: If he would 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. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Operator: Our first question is from Amit Dayal with H C. Wainwright. Please proceed.

Amit Dayal: Thank you. Good morning, everyone. Good morning, Amit. Good morning. So with respect to, you know, I know weather-related issues, et cetera, you know, cause a little bit of weakness in OneQ. But overall, have we been adding new customers? It looks like in the fuel chem segment, you may have added new customers. Unknown Attendee, Vincent Arnone, Sameer Joshi, Peter Enderlin, William Bremer, Ellen Albrecht,

Amit Dayal: Thank you good morning, everyone.

Amit Dayal: Good morning, Paul.

Speaker Change: Hey, good morning, So with respect to you know I know weather related issues et cetera, you know, causing a little weakness in one queue, but overall have you been adding new car, sometimes it looks like it assumes some segment you may have added new customers.

Speaker Change: Oh, and then maybe if you could give us some color on you know how that part of the business is holding up in terms of new customer additions et cetera.

Vincent J. Arnone: Right, I would say in terms of adding new customers, this year is really In terms of those types of opportunities, we're seeing more of them this year than we have in a little while, which is great for us to see at this point in time. As I mentioned, as part of my script, we just signed an order for a demonstration that will literally be starting in about two weeks.

Speaker Change: Right I would say in terms of adding new customers. This year is really.

Vincent J. Arnone: In terms of those types of opportunities, we're seeing more of them. This year than we have in a little while which is which is great for us to see at this point in time as I mentioned as part of my script, we just signed.

Vincent J. Arnone: In order for a demonstration that we're literally be starting in about two weeks time.

Vincent J. Arnone: And so we're encouraged about that opportunity. It's a large coal-fired unit in the western U.S., and we're in discussions with a second coal-fired unit, a similar geographic location, coal-fired, as I said, and also a large unit. And that possibly could start sometime in Q3.

Vincent J. Arnone: And so we're encouraged about that opportunity. It's a large coal fired unit in the Western U S and we're in discussions with a second coal fired unit.

Vincent J. Arnone: Similar geographic location coal fired as I said and also a large unit and.

Vincent J. Arnone: That possibly could start there.

Vincent J. Arnone: Sometime in Q3.

Vincent J. Arnone: And then on top of that we we've had some discussions with some owners of biomass fire fired boiler units as well that also could be new business opportunities. So I would say this year is really the first year in a while that we're seeing.

Vincent J. Arnone: And then on top of that, we've had some discussions with some owners of biomass-fired boiler units as well, which could be new business opportunities. So I would say this year is really the first year in a while that we're seeing a larger scale of new business opportunities. We have not seen that in the past couple of years.

Vincent J. Arnone: A larger scale of new business opportunity, we have not seen that in the past couple of years. So it's it's a new outlook for us it's driven by.

Vincent J. Arnone: So it's a new outlook for us. It's driven by pressures on those remaining coal-fired utilities to reduce their cost structure. It's driven by the need for some units to be available to run as support power for certain regions of the country and other drivers as well. So I'm very pleased that we're seeing Chemtech opportunities come in our direction. They are very solid gross margin generating business opportunities, and I would love to be able to see total revenue from Chemtech kick back up to where it was four or five years ago. I'm not saying it's going to get there, but any addition that we can bring on board right now, particularly in a coal-fired unit, is a nice benefit for us. So long answer to your question.

Vincent J. Arnone: Pressures for for those remaining coal fired utilities to reduce their cost structure, its driven by the need for some units.

Vincent J. Arnone: To be available to run as support power for certain regions of the country and other drivers as well. So I'm very pleased that we're seeing the chem tech opportunities coming our direction. They are a very solid gross margin generating business opportunities and I would love to be able to.

Vincent J. Arnone: <unk> total revenue from Chem Tech.

Vincent J. Arnone: Kicked back up two it was four or five years ago, I'm, not saying, it's going to get there, but any addition that we can bring on board right now, particularly in our coal fired unit is a nice benefit for us So long answer to your question.

Amit Dayal: I appreciate that, Vincent. You also mentioned, you know... the increase in electricity demand stemming from AI and data needs, et cetera, that is underway at a macro level. You have a balance sheet, and I know your immediate products may not directly cater to those opportunities, but are you thinking about, you know, any acquisition opportunities that bring you closer to those types of opportunities going forward?

Speaker Change: Well I appreciate that and you also mentioned you know.

Amit Dayal: So the increase in electricity demand stemming salami and data needs et cetera that is underway at a macro level.

Amit Dayal: You have a balance sheet that you know I know your immediate products made a direct communicator do those opportunities, but are you thinking about getting any.

Amit Dayal: Acquisition opportunities that it brings you closer to those types of opportunities going forward.

Vincent J. Arnone: Nothing that we're looking at right now, Amit. When we talk about some of those macroeconomic trends, it ultimately is supporting some of the, call it, lengthening of the life of the utilization of a lot of coal-fired units. That, in its own right, is going to hopefully mean additional business for fuel tech in our current technology suite. So we're looking at that macroeconomic trend in a favorable light as we sit here today, but we aren't necessarily pursuing any acquisitions that would provide us the ability to address that.

Speaker Change: Nothing that we're looking at right now Amit when we when we talk about some of those macroeconomic trends.

Vincent J. Arnone: It ultimately is supporting some of the call it lengthening.

Vincent J. Arnone: Of of of the life of the utilization of a lot of the coal fired units that in its own right is going to hopefully mean additional business for fuel tech in our current technology suite, So where we're looking at that and macroeconomic trends and are in a favorable light as we sit here today, but we arent necessarily pursuing any.

Vincent J. Arnone: Acquisitions.

Vincent J. Arnone: That would provide us the ability to address.

Vincent J. Arnone: Other needs, if you will, that are driven by additional power demand, whether it be AI or data centers and the like. But those trends are generally favorable for Fuel Tech, as are the trends in support of some additional environmental regulations.

Vincent J. Arnone: Other names if you will that are driven by additional power demand, whether it be AI or datacenters and and the like but those trends are generally favorable for fuel tech as are the trends in support of some additional environmental regulation.

Speaker Change: Understood. Thank you and just last one for me on the D. G I side it.

Amit Dayal: Unknown Speaker Thank you. I'm just the last one for me on the DGI site. It looks like you potentially could convert the pilot right shrimp farm into a customer. But how big should we think these order sizes can be when you deploy no sort of a full system or full, full scale offering for these types of customers?

Amit Dayal: It looks like you potentially could convert the final turn rate shrimp farm into a customer like how big should be too.

Amit Dayal: All of these sizes.

Amit Dayal: When you when you deploy most of our food system will see Hum.

Amit Dayal: Who's getting offering with these types of platforms.

Vincent J. Arnone: So, to answer your question, yes, we are hopeful that we're able to go ahead and convert that demonstration, which was indeed successful, to a commercial sale. We're looking at putting the configuration together for a DGI system that will meet the needs of a commercial-scale system for this shrimp farm owner, if you will. Right now, I probably see this as a capital sale, and I'm just going to give you a ballpark in terms of what this system would be offered for. I'd say between half a million and a million dollars in terms of a capital sale of a DGI system, just to give you a ballpark range.

Speaker Change: So to answer your question, Yes, we are hopeful that we're able to go ahead and convert that demonstration, which was indeed successful to a commercial sale.

Vincent J. Arnone: We're looking at putting the configuration together for a <unk> system that will meet the needs of a commercial scale system for for this shrimp farm owner. If you will yeah right now I'd, probably see this as a capital sale and I'm just going to give you a ballpark in terms of what this system.

Vincent J. Arnone: It would be to offer that and I'd say, a half a million to a $1 million in terms of a capital sale or a D. G. I system just to give you a ballpark range.

Vincent J. Arnone: Okay, and when these are deployed, Vincent, do they also, do you attach sort of maintenance type of contracts or additional revenues?

Speaker Change: Okay and when these are deployed wins do they also do you have to have sort of maintenance type of contracts or additional revenues.

Vincent J. Arnone: Yeah, to the extent we're able to build in support aftermarket contracts, we will. But I still think we have a little bit to learn relative to the deployment of these systems at sites and the ongoing necessary maintenance that's going to be required. We're not expecting that it's going to be extensive at customer sites once it's up and running, but to the extent that we can provide ongoing support on a quarterly basis or whatever is needed via contracts that support that activity, we'll definitely look to do so.

Vincent J. Arnone: Yes.

Vincent J. Arnone: To the extent, we're able to build in support aftermarket contracts, we will I still think we have a little bit to learn relative to the.

Vincent J. Arnone: The deployment of these systems at sites and the ongoing necessary maintenance, that's going to be required we're not expecting that it's going to be extensive.

Vincent J. Arnone: Customer sites once it's up and running.

Vincent J. Arnone: To the extent that we can provide ongoing support.

Vincent J. Arnone: The basis or whatever is needed via the.

Vincent J. Arnone: Contracts that support that activity, we will definitely look to do so.

Vincent J. Arnone: Okay.

Amit Dayal: That's all I have. Thank you so much.

Speaker Change: Well, that's a lot of it thank you so much.

Vincent J. Arnone: Okay, Amit, thank you so much.

Speaker Change: Okay. Thank you so much.

Vincent J. Arnone: As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from Marc Silk with Silk investment advisors. Please proceed.

Operator: As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from Marc Silk with Silk Investment Advisories.

Marc Silk: Hey, Vince Thanks for taking my questions Hi, Mark No problem. How are you I'm doing fine. Thank you on the a P. C. Delays was that is that focus is that really basically because of the court issues or this is just a regular delay.

Marc Silk: Hi Vince. Thanks for taking my questions. Hi Marc, no problem. How are you? I'm doing fine, thank you. On the APC delays, is that really basically because of the court issues, or is this just a regular delay?

Vincent J. Arnone: I would say more regular delays, not necessarily related to court issues, because with the business that we were expecting to pull into 2024, we really didn't factor in anything that was going to be regulatory driven. That would be what I would call an incremental business opportunity for us, and we'll know more about that a little bit later this year. So I would call the delays just normal delays in both project execution and in coming to terms with certain potential customers.

Vince: I would say more regular delays not necessarily related to the court issues because with the the business that we were expecting to pool pull into 2024, we really didn't factor in anything that was going to be regulatory driven.

Vincent J. Arnone: That would be what I would call incremental business opportunity for us and we'll know more about that a little bit later on this year. So I would I would call. The delay is just normal delays and both project execution and in incoming to contract with certain potential customers.

Unknown Speaker: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com. Or call us, and we'll be happy to help you.

Vincent J. Arnone: Okay, that's encouraging and then and your guidance, you're basically not I'm, putting in there any any positive court rulings correct. So that could be that's correct and the upside okay correct rate on the fuel Chem, that's a that's actually exciting that our that's coming to life a little bit.

Unknown Speaker: Also you know you you laid out really the the the reasons, but another one I want to know is is it because also there are not many other competitors anymore, but just because it's just not a growing industry.

Vincent J. Arnone: Actually, for this particular technology application market, there really aren't any competitors for what we do specifically with Fuel Chem, but it requires a specific customer need for us to be utilized, and our program is not inexpensive, but if we offer a client the ability to keep their units running during high demand times and by perhaps using a less fuel, they recover the cost of our program very, very quickly. So no one else does what we do with this technology, but the very specific need isn't necessarily out there in all coal-fired units.

Unknown Speaker: Actually for for this particular technology application market, there really arent any competitors for for what we do specifically with fuel Chem, but it requires a specific customer need for us to be utilized and our program is not inexpensive.

Vincent J. Arnone: But if we offer a a client the ability to keep their units running during high demand times and by perhaps using a lesser quality coal or a difficult to burn coal.

Vincent J. Arnone: We recover the cost of our program very very quickly. So no one else does what we do with this technology, but the very specific need isn't necessarily out there at all coal fired units.

Unknown Speaker: Okay, that's great. And then.

Vincent J. Arnone: That's great and then.

Marc Silk: I'm intrigued by this municipal wastewater site. Can you talk more about this, like, what are they looking for, and what are you bringing to the table? That's the first question, and then we'll go from there.

Speaker Change: I'm intrigued by this municipal wastewater site can you talk more of this like what are they looking for what are you bringing to the table. That's the first question and then we'll go from there.

Vincent J. Arnone: Yeah, so the site we're looking to demonstrate at is, it's again, a municipal plant, and in certain stages of the treatment process, there are areas where the wastewater becomes less than oxygenated or it has less oxygen that it needs to go ahead and maintain what I would call good quality water. And when, in this part of the application, when it doesn't have the oxygen it needs, it actually creates hydrogen sulfide.

Speaker Change: Yeah. So the site we're looking to demonstrate that is it's again, that's I mean doesn't municipal plant.

Vincent J. Arnone: And in certain stages of the treatment process.

Vincent J. Arnone: There are areas whereby the the wastewater.

Vincent J. Arnone: Becomes less in oxygenated or it has lesser less oxygen that it needs.

Vincent J. Arnone: To go ahead, and and maintain what I would call good quality water and when in this.

Vincent J. Arnone: And this part of the application when it doesn't have the oxygen needs. It actually creates hydrogen sulfide and overtime hydrogen sulfide is going to erode the insides of those lines. So the application. We're working on is specifically attempting to keep these these these fees lines as part of the waste.

Vincent J. Arnone: And over time, hydrogen sulfide is going to erode the insides of those lines. So the application we're working on is specifically attempting to keep these feed lines as part of the wastewater treatment plant, keep them oxygenated at specific levels whereby they don't create any detrimental effects on that piping system.

Vincent J. Arnone: Water treatment plant keeps them oxygenated that specific levels, whereby they they don't create any detrimental effects to that piping system.

Speaker Change: So how do they find you by the way.

Marc Silk: So how do they find you, by the way?

Marc Silk: How do these guys behind us that's a good question actually they are these folks.

Vincent J. Arnone: How did these guys find us? That's a good question.

Speaker Change: Actually we're a contact of Bill Decker Bill is the gentleman, who we hired last year to now to help us support the development of UGI. So these folks that we're working with our are well established in the water and wastewater treatment industry and hopefully they will turn out to be a good partner of fuel Tech's prospectively.

Unknown Speaker: Actually, these folks were a contact of Bill Decker, the gentleman we hired last year to help us support the development of UGI. So these folks that we're working with are well-established in the water and wastewater treatment industry, and hopefully, they will turn out to be a good partners from Fuel Tech's point of view.

Marc Silk: So the interesting thing is, you know, with municipalities versus private industry, it's not a competitive, let's say, competition, right? So are you able to kind of... work with them and say, listen, we want other municipalities to watch this, so it's more of an open trial, just because it's going to benefit, really, any water, any municipality in the country?

Unknown Speaker: So the interesting thing as you know with municipalities versus private industry, it's not a competitive let's say competition right. So are you able to kind of well.

Marc Silk: Work with them and say listen we want other municipalities to watch. This so it's more of an open trial, just because it's going to benefit really did any water.

Marc Silk: Michelle.

Marc Silk: Kelly in the country.

Marc Silk: Yeah.

Vincent J. Arnone: Yeah, um, we're really taking this step by step, right? What we need is a first success. And once we have the first success, then we'll be able to work with that documented science-based data-driven result. And then we can expand on that documentation, if you will, with other municipalities. So I think we need to take the first step here and ensure we have a successful demonstration, and then we can move forward from there.

Marc Silk: Where we're really we're taking this step by step right, but what we need is a I a first success.

Vincent J. Arnone: And once we have the first success then we'll be able to work with that are documented science based data driven results.

Vincent J. Arnone: And then we could we can expand on.

Vincent J. Arnone: That.

Vincent J. Arnone: Documentation, if you will with other values municipalities. So I think we need to take the first step here and and ensure we have a successful demonstration and then we move forward from there.

Marc Silk: Okay, and then on the last call, someone was asking about insider buying, so hopefully, it sounds like you're getting your ducks lined up, so hopefully, we see some more insider buying, and good luck going forward.

Speaker Change: Okay, and then I know last call someone was asking about insider buying so hopefully it sounds like youre getting your ducks lined up so hopefully we see some more insider buying and good luck going forward.

Vincent J. Arnone: Okay, Marc, thank you very much.

Marc Silk: Mark Thank you very much.

Vincent J. Arnone: We have reached the end of our question and answer session I would like to turn the call back over to Mr. Arnone for closing comments.

Operator: We have reached the end of our question and answer session. I would like to turn the call back over to Mr. Arnone for closing comments.

Vincent J. Arnone: Thank you, operator. I'd like to thank everyone that joined the call today. I'd like to thank the entirety of the Fuel Tech team for their support of Fuel Tech activities and, as usual, thank all of our stakeholders and shareholders for their continued support of Fuel Tech.

Marc Silk: Thank you operator.

Arnone: Like to thank everyone that joined the call today I'd like to thank the entirety of the fuel tech team for their support and fuel tech's activities and and as usual. Thank all of our stakeholders shareholders for their continued support of fuel tech everyone have a great day, and we'll talk to you again soon thank you.

Operator: Everyone have a great day, and we'll talk to you again soon. Thank you. Thank you. This will conclude today's conference. You may disconnect your lines at this time.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Operator: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Operator: Okay.

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Q1 2024 Fuel Tech Inc Earnings Call

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