Q2 2019 Earnings Call
[noise] greetings and welcome to the fuel Tech 2019 second quarter 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 conference is being recorded it is now my pleasure to introduce your host Devin Sullivan Senior Vice President of the equity group. Thank you you may begin.
Thank you Jessica and good morning, everyone. Thank you for joining us today for fuel Techs 2019 second quarter financial results Conference call yesterday. After the close we issued a copy of the release, which is available at the company's website www Dot F.T.K. dotcom.
The speakers on today's call will be Vince Arnone, Chairman, President and Chief Executive Officer, and Jim Pos 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.
Securities Exchange Act of 1934, as amended which are pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and reflect the fuel Tech's current expectations regarding future growth results 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 report on Form 10-K in item one a under the caption risk factors and subsequent filings under the Securities Exchange Act of 1934, as amended which could cause fuel tech's actual growth results of operations financial condition cash flows performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements.
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 companys 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 I am here today with the impacts our principal financial officer and controller.
Our second quarter results did not meet our expectations.
Predominantly due to an extended period of sluggish new APC business awards that I will address in more detail in a few minutes.
Although we did a reported net loss from continuing operations of $843000 for the quarter. Our soon to be closed China operations were responsible for $540000 of this operating loss.
Absent China losses in one time charges. The financial result from our core operations was a loss of $300000 slightly larger than the $100000 loss from operations, we reported in the first quarter of this year.
We continue to make progress towards the suspension of our China operations.
And we expect that the activities associated with the suspension.
Will be substantially completed in the second half of the year.
As discussed on last quarter's call. We are no longer originating project work from our Beijing office.
Our primary office has been closed.
And we have retained three individuals that are focused solely on completing field work and field work activities at a few customer sites and on collecting the remainder of our outstanding accounts receivable.
We had strong cash collections from China during the second quarter.
And our outstanding accounts receivable in China at June Thirtyth 2019 declined by $2.4 million from March 30, Onest of this year.
As we wind down these operations, we will have removed approximately $2 million in annual operating losses from our profit and loss statement.
APC contract activity has been slower than expected.
As some of the contracts that we had hoped to secure during the first half of the year have been delayed or canceled by the potential clients and in a couple of instances loss to competing bids.
Our sales pipeline still remains active.
And in the aggregate on a global basis, we are tracking approximately $80 million to $100 million in potential project work.
We do expect to close on new contract awards during the third quarter and the remainder of the year.
On a more positive note.
Our fuel Chem business performed quite well during the second quarter with an increase in revenue and profitability versus the prior year.
During the quarter, we successfully installed our fuel Chem program on two additional coal fired units at a domestic utility and this contributed to our solid second quarter performance.
With respect to the second half of 2019.
We expect fuel cams performance to show a modest improvement over the first half of the year.
We are continuing to pursue fuel chem applications and geographies outside of the U.S.
In Europe , where we are focusing on biomass and municipal solid waste opportunities.
In Southeast Asia via our partner Amazon for Paris for the pulp and paper industry, where we are using our recovery Chem program.
And in other southeastern Asian countries, where coal is the primary source of fuel power demand and related pricing is high.
And were Slagging and following as an issue.
Moving down the profit and loss statement, our SDMA declined by approximately $300000 from Q2 of 2018.
The restructuring efforts completed over these past three years have provided us with an SDN a profile that will mitigate operating losses in times of weaker revenue generation or can be leveraged to generate operating income in periods, where we have improved revenue generation.
Consolidated gross margin was approximately 44% in the second quarter of 2019 up significantly from Q2 of 2018.
Reflecting the mix between 80, CNG fuel Chem revenues recognized during the quarter and two and improvements in APC gross margin to 38% from 25% in Q2 of this year.
Total cash was approximately 14.9 million at the end of the quarter and we remain debt free.
Our restricted cash balance is now reduced reflecting our new credit agreement with BMO Harris and a reduction in outstanding letters of credit with existing customers.
Jim will discuss the details of this new arrangement shortly.
Now I'd like to take a few minutes to discuss our globally PC platform.
As it is this area that has fallen short of our expectations. Thus far this year.
As mentioned previously domestically, we have been negative negatively impacted by APC project delays.
Cancellations and buy one project loss.
We have been in the APC business now for three decades.
And none of the activities that we experienced in the first half of this year are unusual they did however impact us at a time when we were expecting a general increase in overall business activity.
Thanks, Ed.
Gas turbine demands for SCR and ultra systems have steadily increased.
Driven by permits for new units and retrofit regulatory requirements.
We are actively involved with the turbine suppliers the heat recovery steam generator manufacturers.
And overall system integrators in an effort to capitalize on this market trend.
We are also seeing a consistent flow of new small to medium gas turbine combined cycle plant projects.
Such as the combined heat and power upgrades and many universities and large hospital complexes.
Here.
We are focused on building our relationships with package boilers suppliers also to supply SCR Ultra systems.
The combined heat and power opportunities also include industrial plants were processed theme as needed at the plant site and locations where distributed generation is used for improved energy efficiency.
We are continuing to pursue work with various industries in this country that have benefited from recent term favorable economic conditions.
One example has been the steel industry, we are where we are seeing a trend in this country whereby demand for higher quality metals is driving both greenfield projects in connection with new line and plant construction and retrofits for other entities that have committed to modernizing their plants.
We have had great relationships with the steel industry, historically and expect to leverage these relationships for new project development.
Another trend that we are seeing is that certain states are establishing new regulatory guidelines that will require expedited implementation schedules to install and best available retrofit control technology.
On surface sources of emissions.
In Southern California, as an example per share pursuant to recent directives from the South Coast Air Quality Management District, which includes portion of Los Angeles, Riverside and San Bernardino counties, and all of Orange County individual units may require modifications to existing SCR systems as well as new SCR as for smaller boiler applications.
Effective sources include steel processing.
Refineries waste incinerators and turbines for power generation.
With respect to our ultra system. We are now performing our second demonstration for a small ultra system in the Los Angeles area to replace existing direct year urea injected injection systems because of their poor performance.
In Europe .
Breast, which is the best available reference technology.
Guidelines that were issued in August 2017 have a compliance timeline through 2020, the guidelines reduced target Nox emissions from current levels.
It is generally believed that this timeline will be extended by 1% to three years as adoption is slow and dependent on funding sources, especially in eastern European countries.
The level of new increase thus far in 2019 in the European market remains high and have generally come from clients in Western Europe , Europe pursuing projects, both in Europe and internationally.
The ultra inquiries have been limited to two new units within and outside Europe and being supplied by European companies active in the supply of gas turbines and heat recovery steam generators.
We received an award for an Ultra project earlier this year for delivery to Hong Kong.
The SCR system inquiries have included new or upgraded industrial units, both waste to energy and biomass.
And potential new units outside of Europe , being supplied by European EPC and boiler companies and for upgrades to ammonia delivery systems on utility boilers.
In the UK or there is some uncertainty and compliance activity due to Brexit.
We continue to pursue opportunities associated with our licensing agreement in India.
Although as we have mentioned in prior quarters, the Indian government backed off from initial compliance timelines and and prioritized remediation targets in order of importance.
First particulate matter, then socs and finally Knox.
While we believe that this will present, an opportunity for fuel tech to capitalize on our flue gas conditioning technology.
In that marketplace and showcase did as a low cost highly effective articulate particulate control technology compared to SP and bag filter hybrid systems adoption of this technology will likely be slow.
The level of inquiry for SNC. Our systems has picked up in 2019 as technology demonstrations are now concluded that end TPC plants.
If the Indian government maintains the requirement for pre 2016 units to attain a 300 milligram per normal cubic meter Nok target, we would expect to see RF queues for SCR to commence before the end of the year.
Regarding our dissolved gas infusion water technology business.
We continued to advance conversations with multiple potential customers across a variety of industries with a primary focus currently on the oil and gas industry and the pulp and paper industry.
In addition to our own discovery and selling efforts, we are looking to add subject matter experts on a consulting basis to aid in the identification of specific problems that our guys system can address.
Our overall investment in this venture has been modest thus far however.
Incremental investment will be necessary to ensure that we move forward with pace.
The Permian Basin is now the largest oil production region in the world and the fate for produced water is either reuse or for fracking disposal wells or recycling.
It is important to note that disposal wells are becoming more difficult permit due to seismic considerations and transportation costs either via truck our pipeline to more remote disposal wells are becoming a severe economic issue.
The specific water issues that guy can address include.
Total suspended solids.
Hydrogen sulfide and metals removal, along with keeping basins, our robotic overtime.
With respect to pulp and paper, we are actively engaged in data analysis and application and review for a mid sized the paper production facility in the Midwest US and we are also engaged with a longstanding customer a customer of ours in the same industry, where we are focused on incorporating DG technology as part of the customers new water treatment facility, which is currently in the planning and engineering phase.
In closing I want to thank you once again for your ongoing interest in fuel Tech.
One year ago, we were struggling financially.
Our available operating cash was diminishing.
And we had $10.4 million in global cash at the end of the second quarter of 2018.
Additionally.
We were uncertain as to the source of bookings for the remainder of 2018.
And we were on the verge of taking that to the decision to wind down our operation in China.
Today.
Liquidity has stabilized.
We ended the second quarter of 2019, with approximately $50 million and global cash and our balance sheet remains strong.
The wind down of our China operation has gone successfully thus far.
We will have eliminated approximately approximately $2 million in annual operating losses from our profit and loss statement.
And we are likely to have $2 million to $3 million in cash available to repatriate.
We successfully installed fuel chem.
At two new coal fired units this year.
And demand in weather permitting these units will run for a good portion of the summer and winter months.
Lastly in general.
The us economy remains favorable for the further expansion of business.
And the us regulatory landscape has become modest modestly more favorable from fossil fuels.
All of that said, we recognize and accept the near term challenges that we have at our APC business.
But we remain confident in the longer term opportunity landscape.
For 2019.
Although our outlook for generating income from continuing operations. This year has shifted as a result of our APC performance.
The operating leverage that we have created in VR VR restructuring efforts over these past few years will enable us to weather our current delay in orders.
Our goal as a company.
And as a team is the generation of sustained profitability and cash flow.
And I remain confident that the fuel tech team will be successful in the achievement of this goal.
Now I will turn things over to Jim for a discussion of our financial results. Jim. Please go ahead.
Thanks, Vince and good morning, everyone.
As Vince noted our Q2 results were impacted by losses at our China operations totaling 540000 and slower than expected New APC award activity during the first half of this year.
Excluding China, our consolidated loss from continuing operations was approximately zero point $3 million.
With respect to the topline second quarter revenues declined to $8.9 million from 11.8 million, reflecting a 3.6 million revenue decline at APC, partially offset by a zero point $7 million increase in revenues at fuel Chem as compared to last year's second quarter lower APC revenues were the result of a decline in backlog entering the second quarter and slower than expected New APC contract awards as Vince node has noted in mention we are pursuing several avenues for new APC business in the U.S.
Consolidated gross margin was 43.6% of revenues compared to 31.4% of revenues in Q2, 2018, primarily due to mix in revenues between APC and fuel Chem.
APC gross margin was 1.8 million or 38.1% of revenues as compared to $2.1 million or 24.7% in Q2 2018.
APC results for Q2 2019 included no revenues from Beijing fuel Tech and an operating loss of zero point $5 million in Q2, 2018 revenues from Beijing fuel Tech were approximately zero point $7 million with an operating loss of approximately zero point $6 million.
Fuel Chem segment revenues improved to 4.1 million from 3.4 million in Q2 2018, reflecting the addition of a new coal fired units during the second quarter that included an approximately 0.9 million order for equipment installation that was recognized as revenue.
Segment gross margin was 49.9% in Q2, 2019 and $47.8 million in Q2 2018.
For the full year 2019, we are targeting a blended gross margin of APC and fuel chem of between 35 and 40% excluding the impact of China.
We continue to focus on cost control and our SG name for Q2 reflects that.
SGT for Q2, 2019 was 4.5 million a decline of 6.5% from Q2 2018, we are on track to meet our full year 2019 objective of M&A ranging between 15, and 16 million, which includes China, ASG, which excludes China SGN name and restructuring cost of approximately $1.4 million, which we expect to reported discontinued operations. Following the anticipated completion of the suspension of our APC activities in that geography.
R&D expenses of zero point $2 million were slightly lower than last years second quarter.
R&D for 2019 is expected to be comparable to 1.1 million, we reported in 2018 with higher spending driven in a large part prior development of the dissolve gas infusion technology.
Our net loss from continuing operations was $936000 or four cents per diluted share compared to a net loss from continuing operations of $1.7 million or seven cents per diluted share in last year's second quarter.
Net loss from continuing operations in Q2 2018 included a noncash intangible assets abandonment charge of approximately $317000.
Excluding the impact of operating losses at Beijing fuel Tech fuel tax net loss from continuing operations for Q2, 2019 was 0.4 million or two cents per diluted share.
Given our cumulative net operating losses of 28.2 million at June Thirtyth, 2019, which covers several geographies. We continue to expect that our income tax expense for 2019, we'll be at or near zero.
And this figure includes China, and our wells, which we will maintain given that we are preserving the legal entity in China.
Our balance sheet at June 32019 remain debt free and we had cash and cash equivalents of $14.9 million, including restricted cash of $3.3 million.
During the second quarter, we entered into a cash collateral agreement with BMO Harris to facilitate the issuance of our standby letters of credit for our Emmc business.
This agreement requires us to provide cash collateral of 105% of the aggregate face value of our outstanding standby letters of credit upon signing this arrangement, we reduced our Jpmorgan chase facility and a half to 2.75 million, resulting in the reduction of the restricted cash during the quarter.
We anticipate migrating the outstanding letters of credit with JP Morgan to BMO Harris during the third quarter and will terminate our facility with JP Morgan.
The overall reduction in restricted cash since December 31, 2018 is a reduction of this new or is a reflection of this new banking arrangement as well as reductions in our outstanding letters of credit with existing customers.
Our working capital balance at June Thirtyth, 2019 was $21.2 million, which will continue to support our ongoing operating needs of the business.
In China, we currently have $3.1 million of trade accounts receivable outstanding at June 32019 down from $5.5 million of trade accounts receivable outstanding as of March 31.
Receivables at June 32019, or an offset by a valuation allowance of $1.1 million.
We reduced our trade accounts receivable balance in China by 2.4 $2.4 million during the quarter, which I think is comprised of cash collection activities offset by invoicing activity on the remaining projects in that geography.
We continue to actively pursue cash collections in China through a variety of means with our recently announced suspension in that geography.
With respect to valuation or book value per share was $1.32. Our tangible book value per share was $1.20 and our working capital per share was 88 cents at June Thirtyth 2019. In addition, we have approximately 69 cents per share in deferred tax liabilities for the U.S. in Italy, which have been fully reserved and are not included in any of the per share amounts quoted above.
With that I would like to turn the call back over to Vince.
Thank you Jim Operator lets please go ahead and open the line for for Q1 day. Thank you very much. Thank you ladies and gentlemen, we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation total 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 for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Amit Dayal with HC Wainwright. Please proceed with your question.
Thank you good morning, everyone.
Hey, good morning Amir.
Hi, guys. So with respect to how are you.
Air pollution control business.
You highlighted.
Of various initiatives to sort of drive growth over here.
What are the timeline you think you know some of these efforts will dig to begin reflecting unit in the backlog will review the financials.
Right, but from a timeline perspective on that obviously youre right now we're in the right in the middle of.
Q3 timeframe right as I noted in my commentary, we are expecting some contract bookings to come our way here in Q3 and before the end of the year difficult to project a dollar value.
On those items, but what we've seen largely as a is a push towards what I would call. Some of our larger dollar value contract opportunities a push towards late this year or into early 2020 timeframe.
So we we are going to see a little bit of a push of revenue generation from APC.
From 2019 into 2020 timeframe at least that's the way we're looking at it right now.
Got it thanks.
Okay by the again the opera loot opportunity landscape that we are seeing is is is still robust. So we're we're not.
Concerned by some of the the timing delays that we're seeing thus far.
However, there are delays.
And listen.
Your comments regarding sort of.
Losing certain bids.
I mean, how should we read into this is there sort of a more price sensitive environment.
In the industry right now our competitors Lake mill.
Turning to.
Hey, guys just sort of a margins. They came in just one on pricing basically how should we read into euros, so movies coming through the base.
Understood in Amit I would read it as is not not solely that issue it's actually.
A little bit of a mix, what I would call specifically to fuel Tech. One example, I'll give you is that.
One of the larger projects that we were actually targeting to win and to have significant impact on 2019, what was actually a larger.
ESP retrofit project bid and ultimately what transpired here was the plant.
Owners of making a decision to go with a a non union bid for a union plant as opposed to taking a a union contractor bid for the AD Union plant and so it was.
Completely you know basically a surprise to us in terms of how that ended up coming down because we were well well aligned with the what I would call. The the primary union contractor for the for the facility. Okay. So it's not like we were going up up on an apples to apples basis with competitor for for this particular bid. It was a completely different choice in terms of how that customer chose to move forward with their selection of a contractor.
So that was that that's one example, but thats actually a larger contract value item.
In Europe , we have come across at least one situation whereby the.
Competitive pricing issue was something that we had to address and we found that again and in certain markets. You will find this on certain bids you will find this.
Whereby.
Competitors in the marketplace solely to bring work in house will put price points out there that that are either at cost or below cost and we're not in a position here today, whereby we're we're looking to go ahead and and engaged add add projects. They read cost or below cost is just not worth our effort.
To pursue this sort of work so it will take decisions on a project by project basis. If we think a project is strategic to us.
Relative to maintaining a long term relationship with a customer or developing a new relationship with the customer, but but just on a project by project basis independent of a strategic reason, we're not going to be bidding add zero or below zero gross margin.
Fair enough.
Okay.
Yes, yes, yes.
This eliminating backlog.
Vince is this to be recognized before the end of the year or what's the timeframe on delivering this backlog.
I would say about three quarters of that is going to come into.
2019 on it.
Okay.
Thanks, and then obviously we have to replenish.
Right.
And just finally on the fuel Chem side this 4 million.
Sort of run rate levels for the quarter is this what we should expect I know you previously highlighted that.
It depends on consumption on the consumer side, our local store side, but.
Is this radiancy.
At least on the quarterly basis around 4 million is a steady state for you now.
Actually.
The fuel Chem business is seasonal.
We see better performance in in Q3 and in Q1, just due to the.
The temperature extremes, if you will so generally speaking.
What we saw as an annualized revenue run rate in that $17 million to $18 million range is what we would expect to continue we have some some higher revenue in Q3 and in Q1 slightly lower in Q2 and Q4.
Okay. So we would expect to see for Q3 as an example, we would expect to see a number of larger than than than the $4 million number in Q3 versus what we experienced in Q2.
Okay, and can you remind us how many customers on the fuel Chem side do we have greater.
In terms of what I would call active feeding customers today.
I'd say approximately 15 active feeding customers today.
And I think thats all that have Vince.
I will step back in queue.
Thank you.
Thank you very much thank you.
Thank you. Our next question comes from Pete Enderlin with MDC Partners. Please proceed with your question.
Good morning, Vincent Jim Thanks, Hey, good morning, Pete how are you.
Good how are you.
So the first question is.
Sort of Simplistically speaking why does it take so long to close the China, Russia still not closed quite and in other words, what would've been the downside is just.
Basically we've shutting it down I am sure there were some downsides, but can you explain a little more.
Absolutely Pete's on.
Obviously, a beijing fuel tech was a.
An active viable business.
Full employee team engaging in sales project execution and various administrative expenses.
So our objective was to take a systematic way of of winding down the business, whereby we still had to meet our our customer requirements that were under contract. So we had to complete work there.
Point number two.
We had been carrying a a sizable accounts receivable balance for our China business for quite some time, so very important for us not not to strand those receivables there.
And and put active effort for us to go ahead and collect as much as we can be before completely looking to to shutdown the operation and and thirdly, ensuring that we did take care of our longer term Beijing fuel tech employees in the proper way. So so three factors.
But it wasnt as simple as saying as of X date, we were going to look to close down the operation shutdown. The legal entity, because we had we had contract exposure legal requirement to fill contract.
Requirements.
A significant outstanding accounts receivable that we were not going to lease stranded and so we wanted to ensure that we wind this down in the correct way. So thats why its it's taken us a little bit longer than one might think.
Does that help our those reis the remaining receivables any of those at risk at this point.
Of the 3 million that that Jim mentioned that we have outstanding today, we actually do have a reserve on that $3 million of about a third of that amount. Okay. Okay. So so net net balance of what's outstanding is around 2 million use d. today, we have collection efforts in place.
That I mentioned in my script, whereby we're looking to to have what I would call excess or remaining cash in China of somewhere in the $2 million to $3 million range. So we're pursuing efforts to collect as much of that outstanding aer, including.
Well, it's some pieces of what we have reserved.
Before we stop our efforts fully on the our collection side.
You lost some competing bids.
Pipeline.
To home can you give us some of the explanation.
Details on that.
Without giving specific names.
And we have obviously market leaders.
We have multiple can competitors for our for our different technologies as I was just mentioning in.
And Mike previous response to his question on this ERP Project Award, we have two or three competitors that do SP retrofit work in this country and we see them on a recurring basis on on on bids and sometimes they win sometimes we win so that's not unusual. This particular bid that I was talking about was was it was a little bit unique from from from our perspective in terms of how the the bid ended up being awarded Okay. In Europe . There are a handful of companies that will provide SCR or SNC, our technology to to that customer base.
And so it's it's some of the same names it and again typically it's the case whereby the the awards will go back and forth across that competitive base. There aren't a large number of competitors, we have seen a reduction in the competitive landscape over the past two three years generally as the focus on fossil fuels has declined so generally it's a smaller competitive landscape up we still have competition.
Is it.
Merrell.
Somewhat more in the DSP.
Excuse me.
The emissions area other than electrostatic.
Generally in the US I would say, yes, although there is still there's still competition for SCR and us NCR.
In Europe , we're we're app to find in general a little bit more overall competition in general.
On the $80 million to $100 million pipeline.
Give us a little sort of us overall breakdown.
Maybe some detail on how that looks by.
By verticals.
Also between coal and gas and maybe geographically as well anything.
Give us there would help understand potential out there.
Right. So when we talk about pipeline, it's basically basically a list of project opportunities that will cover a actually goes out to two intermediate term to a sort of a five year landscape of opportunity and it will still largely be a domestic us.
Dominated pipeline of projects on because still out of the majority of our businesses here.
It covers it covers all of our technology landscape and.
Both.
Power generation and a variety of interest industries as well as as we look out over this to call. It immediate term to five year time horizon, so difficult to give much more detail than that Pete.
Okay.
Can you help us understand the current state of play with respect to.
Cleaner rules and modification by the EPA for power plant as you said there is some sort of using going on.
Expand on that a little bit.
Yes generally speaking.
The what happened.
A couple of months ago was the the former clean power plan.
That was that was put in place was was actually removed from from being effective.
New new government is actually.
Putting in in regulation that is it's generally more fossil fuel favorable generally speaking.
Now I can't say, specifically that it's going to drive a material uptick in business when I make the comment I make the comment to be able to say that it's not going to detract us from future business opportunities. Okay. So thats just the general trend at least within this.
This current.
Governmental regime.
And does it.
In any way possible improved prospect or.
Chris the rate of decline for coal as opposed to natural gas.
Yes and that.
I wish I had a.
A better answer more a more specific answer to that it is difficult to predict.
Right.
Coal has gone through a very significant impact over this five to eight year time horizon and.
Even though there might be a call. It a favorable regulatory landscape that doesn't mean that there's still isn't going to be pressure on on coal specifically right. We've seen a significant.
Fundamental change towards basically natural gas now being used at.
At levels as power generation source.
That were only seen by coal five to eight years ago now natural gas. This is being used at that call. It 45.
Percent fuel utilization rate for power Gen.
Coal is now back down to the to the upper twentys or around 30% in the renewables or are providing the remainder so we've gone through a fundamental shift already natural gas prices are still extremely low.
Absent something that changes the outlook on natural gas from a pricing perspective.
I'm not so sure we see anything change on the coal side Pete.
Okay, and then one last one.
What would it take to dramatically accelerate the pace of development of your water technology.
In other words sort of like what is the main limiting factor right now.
My perspective, Pete it's.
Having in our hands are first or second successful internal demonstration that we can use that as soon as the basis for a for expanding into specific market applications.
Once we have that are in our hands and we better understand.
Call. It the application base it will give us the impetus to go ahead and look to invest more in the expansion of the proliferation of of the technology across different industries right today were not trying to attack multiple industries that theres too much there for us to be able to focus on so just focusing on pulp and paper oil and gas. It. That's that's a lot for us to handle today based on how we're structured but we took took the approach with our investments in water that we were going to invest modestly at particularly given our financial condition that we've been in here and the recent near term, but our investment has been modest we have not hired outside individuals to go ahead and move this forward yet.
We purchased a demonstration systems.
That will enable us to go to market and prove out technology and Thats. All we have done thus far there are additional investments that we can make to help this move forward faster as well.
I mentioned very specific industry related subject matter experts that we believe will help us be more expedient and market penetration. Those we were looking at we are looking at right now and we're going to have.
One to two individuals onboard here that will be market specific.
By the end of Q3 or early in Q4, but they will help us expedite the penetration of markets.
We realize that we need to move water along more expediently and we're going to do everything that we can given our financial situation to make that happen.
Okay. Thank you very much.
Thank you beating speed.
Thank you. The next question is from the line of William Bremer with English capital. Please proceed with your question.
Good morning, Vince how are you.
Hey, Bill how are you doing.
Okay. My first question I'd like to get a sense of what percent of the backlog of $90 million.
Is from your direct sales force versus your distribution partners.
It's all from our direct sales force.
From my perspective, we don't have our representative network is solely contact base.
Our direct Salesforce handles all of the the sales execution activity and the relationship ultimately so I'd say, 100% of that amount is related to direct sales force and that's the way we've operated historically.
Okay.
So given the bookings or I should say limited bookings at this point, yes in quite some time, what changes have you been making primarily on your sales force.
As we sit here today I have every confidence in the world that Salesforce. We have in house is going to be able to to go ahead and bring in the bookings that we need.
To move forward and re revitalize our backlog.
As as we're sitting here today, we're looking at perhaps changing out a sales rep or two or adding a sales rep or two in specific areas.
But relative to internal direct salesforce no changes planned.
Can you give us an idea of how many sales individuals at this time this company has.
Okay.
Off the top of my head right now with the number I'm going to give you was eight.
And that includes APC and fuel Chem sales.
Hi, Brian dataset to seven or eight.
Oh, sorry.
It doesn't need to pick it up as we've seen the figures and the stock is carefully reflecting.
That lack of initiatives, we need to close some deals here.
Next question is on the dissolve gas infusion.
Can you give us a sense of what on the technology side.
Still needs to be done.
And always slow one trailer or do we have possibly another in fabrication was an update there.
Right.
Today, we still have one demonstration trailer okay.
That's that's that's outfitted and ready to go from a technology developed for development perspective, Bill from from my viewpoint, the only thing incremental that we could be doing today.
Call. It in advance of actually getting customer business would be to put our heads together on what would what I would call an upscale system are up scaled systems systems that have significantly greater capacity to to go ahead and service larger bodies of water okay.
Prior to doing that okay. We wanted to get that first demonstration done first but our internal team is giving thought to how that upscale system might look and function as well. So a tech technically that's that stay at Thats, what I would call. The next focus as we sit here right now.
Okay, and I'm, assuming based upon larger bodies awards are going to need multiple modular units at some point.
That's correct that net debt that is a correct statement in most cases it we we will be modular and we will have multiple units.
However to be.
Cost conscious as we do look at some of the the larger applications, which are more than likely to come our way based upon our discussions with with current customer base opportunities. We are still going to have to upscale from from what we have in hand today and and we will be able to do that it will still be modular we will still require multiple units, but the units will be just much larger than we have.
In terms of a set of versus our demonstration system today.
No no thats perfect by pointing out that too we have sufficient in a demonstration in pilot stage at this time.
So really have proof of concept.
We do we believe we do.
Okay wouldn't it be advantageous for us to utilize the balance sheet and have multiple pilots proceeding almost immediately.
If bill if we have a chance to move forward with with a couple of customers that that are willing to go ahead and do demonstrations.
We can have another system fabricated and ready to go we were within an eight to 10 week timeframe.
It's not going to hold us back we're not we're not going to let bad hold us back if we have the opportunity to spend money to do a demonstration we're going to spend the money.
We won't hesitate.
Okay that soon.
Okay. Thank you.
Thank you Bill.
Thank you as a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad. Please hold while we poll for any additional questions.
Thank you. It appears we have no additional questions at this time, so I'd like to pass the floor back over to Mr. arnone for any additional concluding comments.
Thank you very much I would like to thank everyone for joining on the call today and for your interest in fuel Tech as I mentioned in my closing comments I would like to reiterate that.
Yes, we have been through a little bit of a slower period in APC bookings. However, I have every confidence in this fuel tech team that we're going to re bolster.
Our APC project project backlog here in the near term I set our goals were sustained.
Profitability and cash flow and I'm confident that we will achieve that.
Thanks, everybody have a great day.
Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.