Fuel Tech Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 5 speakers on the call.

Operator

Greetings, and welcome to Fuel Tech First Quarter 2023 Financial Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Devin Sullivan. Please go ahead.

Speaker 1

Call. Thank you, Stacy. Good morning, everyone. Thank you for joining us today for Fuel Tech's Q1 2023 Financial Results Conference Call. Yesterday after the close, we issued a copy of the release, which is available at the company's website, www.ftek.com.

Speaker 1

Our speakers for today will be Vince Arnone, Chairman, President and Chief Executive Officer and Ellen Albrecht, LTV's Chief Financial Officer. After prepared remarks, we will open the call for questions from our analysts and investors. Before turning things over to Vince, I'd like to remind everyone That matters discussed in this call, except for historical information, are forward looking statements as defined in Section 21E 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. Fuel Tech has tried to identify forward looking statements by using words such statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties and other factors, call, including but not limited to those discussed in Fuel Tech's Annual Report on Form 10 ks and Item 1A 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.

Speaker 1

Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any forward looking statements contained herein call may be recorded to reflect future events, developments or changed circumstances or for any other reason. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in the company's filings with the SEC. With that said, I'd now like to turn the call over to Vince Arnone. Vince, please go ahead.

Speaker 2

Thank you, Devin. Good morning, and I want to thank everyone for joining us on the call today. Following an improved year of financial performance in 2022, we started off the New Year on very solid ground. Both the APC and FUEL CHEM business segments reported higher revenues, which resulted in a 32% increase in consolidated revenue call from the prior year to $7,300,000 We maintained a conservative cost profile, narrowed our losses And ended the quarter with total cash and investments of nearly $34,000,000 with no long term debt. Our backlog was $7,600,000 down slightly from $8,200,000 at year end and including There was a promising development with respect to new U.

Speaker 2

S. Government emissions control legislation that we have been discussing with you for quite some time. We believe that this ruling can provide a long term uplift for our APC product line, and I'll discuss this development shortly. Bill Decker, our recently appointed Vice President of Water and Wastewater Treatment Technologies has been very active in getting up to speed on the business, Leveraging his industry network and helping to drive this segment towards commercialization. To that end, We expect to commence our first on-site demonstration using our small scale dissolved oxygen infusion system The deployment is scheduled to last approximately 3 months with the objective of improving the productivity and efficiency of the customer's operation Through the use of optimized high levels of dissolved oxygen.

Speaker 2

In addition to this opportunity, we are also pursuing additional demo opportunities across various end markets, preparing end market specific marketing materials and continuing the development Our FUEL CHEM business segment had a strong Q1 with revenue increasing to $3,700,000 from $3,300,000 in the same period last year. An overall increase in energy demand year on year positively impacted coal fired dispatch In regional areas where we have our programs installed, we continue to develop new marketing strategies to reach key decision makers At all domestic coal fired utilities to reintroduce our FUEL CHEM program benefits, including lowering the cost of dispatch By offering fuel flexibility, extending facility life and improving overall facility profitability and structuring a program that is active only when the unit owner wants to capitalize on high energy demand and related high unit capacity factor opportunities. With respect to international opportunities for the FUEL CHEM segment, we are continuing to follow the opportunity to expand the provision of our chemical technology In Mexico, via our partner in that country, to address the emissions created by the burning of high sulfur fuel oil, which is being undertaken without the necessary environment and additional facilities in this country.

Speaker 2

Our partner is currently in discussions with the state owned utility, CFE, Regarding the application of our technology at several units. As we look out to 2023, We currently expect that FUEL CHEM revenues will decline modestly from 2022 levels, due primarily to a reduction in program utilization levels At our primary accounts, from the high levels experienced in 2022 and to the elimination of one account due to plant closure. For the APC segment, revenue rose to $3,600,000 from $2,200,000 in last year's Q1, call is due largely to the timing of project bookings and project execution against our backlog. During the quarter, we either commenced or continued emissions control projects that included our SCR, SNCR and our ULTRA Technologies. Based on our Q1 performance, the effective backlog that we have in place today and the visibility that we have into potential new orders, We are confident that our APC revenues for 2023 will well exceed 2022 APC revenues of $10,600,000 A potential source of new business for the APC segment for 2023 years beyond was further clarified in March of this year When the U.

Speaker 2

S. EPA issued a rule finalizing requirements that obligate 23 states to reduce emissions of nitrogen oxides from power plants and certain industrial facilities. This updates the cross state air pollution control rule while meeting the Good Neighbor requirements of the Clean Air Act. These Casper revisions could impact utility industrial resources Requiring additional NOx control starting as early as 2023 for utility units and 2026 for industrial units. We believe that this new legislation could drive new orders over the next several years for our selective catalytic reduction systems For higher reductions of NOx, selective noncatalytic reduction systems or SNCR technology call for units that require incremental NOx control and for our Ultra systems, which provide a safe reagent for SCR installations.

Speaker 2

Although it is difficult to quantify the impact at this time, I can definitively say that we are having more meaningful and directed conversations with potential customers since the ruling was passed in March. Given the respective outlooks For both the APC and FUEL CHEM segments, we continue to expect that total revenues for 2023 will improve to between $27,000,000 30 $2,000,000 up from $26,900,000 in 2022. This base case outlook excludes any material contributions from DGI as we are still in the early stages of commercialization And any significant contributions to APC from the recent EPA ruling in March. In closing, I want to again thank the Fuel Tech team for their continued hard work and dedication as we work diligently each day to satisfy our customers' requirements and plan for the development and expansion of our water technology initiative. I also want to thank our shareholders and other stakeholders for their continued support as we strive to grow our business as a global supplier of technologies for clean air and pure water.

Speaker 2

With that said, I'd like to turn the discussion over to Ellen. Ellen, please go ahead.

Speaker 3

Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues rose 31.7 percent to $7,300,000 from $5,500,000 in last year's first quarter with both our primary business segments recognizing higher revenues. APC segment revenue increased to increase of $3,600,000 from $2,200,000 in last year's Q1, reflecting the execution of orders reflected in our year end backlog and bookings received during the Q1 of 2023. Fiochem product line revenue rose to $3,700,000 from $3,300,000 due primarily to improved dispatch levels for power generation facilities that use our program. Consolidated gross margin for 2023 Q1 dropped slightly to 38.5 percent of revenues from 41.4 percent of revenues in last year's Q1.

Speaker 3

This decline can be attributed to lower APC segment gross margins, Which were 27.1 percent in Q1 of 2023 as compared to 35.2% in Q1 of 2022, The reduction being driven by project and product mix. FUEL CHEM margins remained strong, improving to 49.4% from 45.5 percent in the prior year Q1 due to increased top line performance. Consolidated APC segment backlog at March 31, 2023 was $7,600,000 down from $8,200,000 at December 31, 2022. Backlog at quarter end included $6,100,000 of domestic delivered project backlog and $1,500,000 of foreign delivered project backlog as compared to $6,300,000 of domestic project backlog and $1,900,000 of international project backlog as of December 31, 2022. We expect that $7,300,000 of current consolidated backlog will be recognized in the next 12 months.

Speaker 3

SG and A expenses rose slightly to $3,200,000 from $3,100,000 in last year's Q1. However, as a percentage of revenue, SG and A in the 2023 Q1 declined to 45% We invest in resources to support current business initiatives and in the development of our DGI technology operations. Research and development expenses for the Q1 were steady at approximately $220,000 primarily attributable presentation has been using our small scale dissolved oxygen infusion system and are pursuing several other opportunities and will adjust R and D spending as needed for the commercialization and development of our DGI technology. Our operating loss declined to $658,000 from 984 call. As we discussed last quarter, we continue to take advantage of the favorable interest rate environment and as of March 31, 2023, have invested approximately $30,000,000 and held to maturity debt securities and money market funds.

Speaker 3

This generated $339,000 of interest income in the Q1 compared to virtually no return in the same period last year. We estimate that interest income for 2023, barring any unusual cash deployments to grow the business, will be approximately 1,200,000 Our net loss for the quarter narrowed to $414,000 or $0.01 per share, Compared to a net loss of nearly $1,000,000 or $0.03 per share in the same period 1 year ago. Adjusted EBITDA loss was $569,000 compared to an adjusted EBITDA loss of $868,000 in the same period last year. Our financial position is amongst the strongest in our history. As of March 31, we had cash and cash equivalents of 15,700,000 and short and long term investments totaling $18,100,000 Working capital was $30,200,000 or $1 per share.

Speaker 3

Stockholders' equity was $44,600,000 or $1.47 per share and the company had no debt. Cash provided by operating activities at March 31 was $1,000,000 driven primarily by the timing of AR collections compared to cash used in operating presentation of $1,700,000 at March 31, 2022. I share Vince's optimism about our future and look forward to keeping you all apprised of our progress and developments.

Speaker 2

Helen, thank you very much. Operator, I would now like

Operator

Your first question comes from Sameer Joshi with H. C. Wainwright. Please go ahead.

Speaker 4

Thanks. Good morning, Vince, Alan. Really nice results. Congrats on the performance.

Speaker 2

Thank you, Sameer.

Speaker 4

The first question is just in terms of APC backlog As well as the pipeline that you see in front of you, do you have an estimation of what kind of gross margins you would expect from it given that the current quarter gross margins were lower year over year?

Speaker 2

Yes. I would still expect, even though we did have a little bit of a lower gross margin, particularly on the APC segment In Q1, I still expect APC segment gross margins to be between 30% 35% on a full year basis. That would be our target for that business segment. Very, very often go ahead, Sameer, please.

Speaker 4

Yes, yes. No, I was just going to ask like was there something extraordinary or one time in the current quarter or rather 1Q 'twenty three Cost of goods sold or something?

Speaker 2

Actually, no. What we do experience from project to project is that Certain technologies are prone to realize different gross margin levels, if you will. And then as we execute out in those projects from quarter to quarter, We will have a mix impact on the APC gross margin depending on what technologies are actually being executed during that quarterly period of time. So Nothing exceptional going on. Just during Q1, we had execution on APC projects that just happened to have slightly lower gross margins.

Speaker 2

Simple as that.

Speaker 4

Got it. Just digging a little deeper. So I think you said new orders were 5,200,000 during the quarter and the backlog decreased by around 600,000. It seems most of the orders that you received in the quarter or at least there was a conversion of orders during the quarter. And So just wanted to see if these orders were short term quick turnaround or was this something that was already in the backlog that was converted?

Speaker 2

Right. So the projects that we actually announced, the $5,200,000 that we announced during Q1, it did include some projects that were Technically booked before the end of 2022. We typically look to aggregate before we announce. And so the $5,200,000 did include some projects that were booked prior to the end of 2022. Relative to the timing of execution on backlog, as Ellen noted, I think of the backlog that we have out there Today, the great majority is going to be basically executed upon within this next 12 month period of time.

Speaker 2

So obviously, We will be looking to rebuild backlog as we move throughout 2023.

Speaker 4

Thanks for that. On the FUEL CHEM side, I guess I know the answer, but will you clarify how the revenue was higher quarter over quarter year over year even though one of the facilities was not included anymore?

Speaker 2

Right. From year to year, what we find is that our customers will take their outages Or they'll take downtime due to demand reasons at various points in time. So from year to year, that will indeed vary. So the performance we did have in Q1 of 'twenty three Was a little bit of a surprise to us in terms of the magnitude of revenues that we did derive. But as it relates to comparison to 'twenty two, Higher demand, higher uptime on our base units, on our largest units.

Speaker 4

Okay. And the outlook, I think you mentioned it will FUEL CHEM will be slightly lower year over year because of that one unit, Not in the picture anymore.

Speaker 2

That is correct. And also because on an overall basis in 2022, We had extraordinary uptime and demand for our program on the units that we were actually Running on for 2022. We're just not necessarily expecting that to recur for the full year of 2023. It could, But that would be an extraordinarily optimistic outlook.

Speaker 4

Understood. A clarification on the outlook For the SG and A, I think Alan said $13,000,000 to $14,000,000 Just wanted to confirm that this is a GAAP outlook Or is it just non GAAP without stock based comp and other stuff?

Speaker 2

It's GAAP. It is a GAAP outlook.

Speaker 4

It is a GAAP outlook. Okay. And on the DGI front, how much cost do you expect to incur in the 2Q and 3Q timeframe for this demo, on-site demo?

Speaker 2

I would probably say in the range of $100,000 Sameer, Approximately, yes.

Speaker 4

Okay. So it's not significant. And what is the like Do you have any level of confidence or visibility in terms of you guys are really looking for it and if it works, they They will actually place orders for this unit. What is the comfort level there?

Speaker 2

I'd say that we're extremely confident that we're going to have DGI perform very well for this particular customer's application. I think we have a high level of confidence.

Speaker 4

Great, great. And Good job on investing and getting interest. I think that's such a good line and also congrats on a positive cash flow quarter. That's all from me. Thanks and good luck.

Speaker 2

Sameer, thank you very much.

Operator

Okay. There are no further questions at this time. I would like to turn the floor over to Vincent for closing remarks.

Speaker 2

Thank you very much. As I had noted, we are pleased with our start to 20 23 with a good Q1 performance for us. Our objective obviously is to generate operating profit as a company as a whole, and we are moving Positively in that direction, I want to again thank the Fuel Tech team and thank all of our shareholders and stakeholders Thanks to everyone and have a great day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Powered by Quartr
Earnings Conference Call
Fuel Tech Q1 2023
00:00 / 00:00