Fuel Tech Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 12, 2024

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Fuel Tech Inc. 4th Quarter and Full Year 2023 Financial Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

I would now like to turn the conference over to your host, Devin Sullivan, Managing Director of The Equity Group. Thank you. You may begin.

Speaker 1

Thank you, Melissa. Good morning, everyone, and thank you for joining us today for Fuel Tech's 2023 Q4 and full year 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. Our speakers for today will be Vince Arnone, Chairman, President and Chief Executive Officer and Ellen Albrecht, the company's Chief Financial Officer. After prepared remarks, we will open the call for questions from our analysts and investors.

Speaker 1

Before turning things over to Vince, I'd like to remind everyone that matters discussed on this call, 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 of 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 FuelSet's Annual Report on Form 10 ks in 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 conditions, 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.

Speaker 1

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'd like to thank everyone for joining us on the call today. We were pleased with our business progress along several fronts in 2023. Total revenue of $27,100,000 was within our previous guidance range and represented our highest annual revenue level since 2019. Our APC business segment performed well, reflecting more than $8,300,000 of new project awards during the year, and we entered the year with a backlog of $7,500,000 at December 31, 2023.

Speaker 2

Further, we were pleased to announce the additional 2,100,000 in new contract awards yesterday. We completed a successful trial of our dissolved gas infusion technology in an aquaculture setting, and we believe that we are well positioned to commercialize DGI in 2024. And lastly, we continue to maintain a conservative cost profile with SG and A expenses up modestly from 2022 levels and ended the year in a strong financial position with $33,400,000 in cash and investments and no long term debt. We are most heartened by the progress we have made in our DGI business initiative in 2023. Last month, we announced the publication of a white paper that detailed the benefits of deploying DGI for oxygen injection at a shrimp farm in the United States.

Speaker 2

As a reminder, our DGI technology involves the efficient transfer of high concentrations of gas into a body of water through a patented saturator and a patent pending injection array to drive chemical or biological reactions such as for wastewater treatment, odor control and pH adjustment or for process improvements in industrial applications or in this case aquaculture. Specifically, the use of DGI at this location increased shrimp production compared to traditional aeration methods and contributed to likely health improvements. Demand for shrimp is increasing globally and inland shrimp farming is an important source to help meet the growing demand in a safe and sustainable manner, while reducing overfishing of the marine environment and lowering the overall carbon footprint by reducing transportation costs. By deploying DGI, producers now have an opportunity to improve stock health and yields, while achieving more efficient operations immediately adjacent to their customer locations. At present, we are utilizing DGI to deploy oxygen into bodies of water.

Speaker 2

However, we believe that DGI can be applicable for other gases as well, such as CO2 and ozone. CGI's benefits include the precise control of dissolved oxygen levels for all process applications and ability to extend plant capacity without major capital expansion or capital outlay, odor reduction and minimal bubble formation for extended residence time. We believe that DGI can be applied across several end markets, including pulp and paper, food and beverage, chemical and petrochemical, water and wastewater treatment, horticulture and aquaculture. As a follow-up to the publication of our DGI white paper, we presented our technology and favorable findings from our aquaculture demonstration at the Aquaculture America 2024 Conference last month. This annual conference provides members and participants with the opportunity to stay current with technical advancements and inspect the latest in products and services in the aquaculture industry.

Speaker 2

In recent months, in part driven by the interest generated after publishing and presenting our demonstration results, we have received a notable increase in inquiries regarding our DGI technology from potential customers in multiple end markets, including municipal odor control, pH control from municipal and industrial applications, agricultural applications and additional aquaculture applications. We are currently in negotiations with potential customers regarding on-site demonstrations of DGI and we are targeting to sign our first commercial contract for DGI in 2024. Lastly, to further expedite the introduction of DGI into end markets, we have recently hired a former water treatment executive on a consulting basis. This individual is well experienced in the application of dissolved gas technologies and we look forward to his contributions over these next several months.

Speaker 3

Let's now please spend a

Speaker 2

few minutes discussing our FUEL CHEM and APC business segments. As we had expected, revenues for our FUEL CHEM segment declined from 2022 levels due to the effects of warmer weather across the U. S. Which impacted overall demand and related unit dispatch. However, segment gross margin was essentially unchanged for the year and remain at historical levels.

Speaker 2

Our base FUEL CHEM unit count remains intact as we enter 2024. And for the first time in a few years, I'm very pleased to say that we are currently pursuing multiple additional FUEL CHEM development opportunities, which could provide incremental revenue contribution in 2024 and beyond. These opportunities are for both coal and biomass fired boilers. For 2024, excluding any material incremental revenue from new business development activities, we would expect that FUEL CHEM revenue would remain at parity with 2023. With respect international opportunities for the FUEL CHEM segment, we continue to follow the opportunity to expand the provision of our chemical technology in Mexico via our partner in that country to address the emissions created by the burning of high sulfur fuel oil, which is being undertaken without the necessary environmental remediation and at the expense of the health of surrounding communities.

Speaker 2

In 2023, we executed a 2 year extension to the program that we currently have in place at one facility. With the upcoming presidential election in Mexico in June of this year, we believe that political pressure is building in favor of our implementation of our FUEL CHEM program at additional facilities in this country. Our partner is currently in discussions with the state owned utility, CFE, regarding the application of our technology at several units. Now, turning over to our APC segment. We benefited in 2023 from the continued adoption of our Ultra, SCR, SNCR and FGC emissions control solutions at natural gas and coal fired units in the U.

Speaker 2

S, Europe, South Africa and Pacific Rim. Independent of the potential impact of favorable regulatory outcomes, which I will discuss here shortly, we remain well positioned to take advantage of current industrial end 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 system as a safe source of ammonia for SCRs at hospitals and universities across the U. S. On the regulatory front, we continue to monitor progress related to the adoption of the U. S.

Speaker 2

EPA's cross state air pollution control rule 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. We have in fact received and responded to several requests for budgetary proposals as customers prepare to address the upcoming compliance requirements as part of their capital budgeting requirements for 2024 and beyond. 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. The ultimate timing of the effectiveness of the rule is uncertain because several upwind effective states and sources have challenged the efficacy of EPA's proposed regulation in multiple courts and stays of the effectiveness of the rule have been issued for many upwind states. Last month, oral arguments were presented to the Supreme Court by both parties and we will closely monitor the potential impact of the Supreme Court's ruling on whether to stay the rule for all states when it was issued later this year.

Speaker 2

In addition to the Good Neighbor Rule, we are also watching the progress of EPA's rule for large municipal waste combustors, 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 their compliance requirements and we have had discussions with customers in this segment to support them in their compliance planning. The municipal waste combustion rule is currently in a public comment period, with compliance deadlines expected sometime in the next 3 years. Based on our effective backlog at year end, the business development activities we are pursuing and our previously noted expectations for HUEL CHEM, we expect that total revenues for 2024 will exceed the total revenues recognized in 20 23 of $27,100,000 and we will provide further guidance as we move throughout 2024.

Speaker 2

This base case outlook 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 activities for FUEL CHEM. Now in closing, I want to thank the Fuel Tech team for their contributions to the improvement of our business in 2023. It is their continued hard work, passion and dedication that drive our ability to be successful. Additionally, I thank our shareholders for their continued support. We expect that 2024 will be an important year in the growth and evolution of Fuel Tech and we look forward to keeping everyone apprised of our progress.

Speaker 2

With that said, I would now like to turn the call over to Ellen to talk about our financial statements. Ellen, please go ahead.

Speaker 4

Thank you, Vince, and good morning, everyone. The primary takeaways from 2023 were improved total revenue, margin maintenance, a continuing focus on cost containment 2024 in a strong and secure financial position. We accomplished all of this while navigating some industry headwinds in our 2 primary business segments. I'll start off today by reviewing our 4th quarter results. For the quarter, consolidated revenues declined to $6,300,000 from $7,000,000 in last year's Q4, reflecting declines in both the APC and FUEL CHEM segment from the prior year period.

Speaker 4

APC segment revenue marginally decreased to $2,800,000 from $2,900,000 due primarily to the timing of execution on projects and services during the quarter. The fuel can segment revenue declined from $4,100,000 to $3,600,000 mainly due to an expected decrease in dispatch electrical generation demand from the very high levels experienced in 2022 and changes in product and fuel usage. Consolidated gross margins for 2023 Q4 was 51% of revenue, a significant increase from 43% in the Q4 of 2022, reflecting increased APC segment gross margin of 55%, up from 35% in the same quarter a year ago. This higher gross margin for APC can be attributed to a change in projects and product mix. Filchim segment gross margin remained essentially unchanged at 48%, consistent with historical performance.

Speaker 4

Consolidated APC segment backlog on December 31, 2023 was $7,500,000 up from a backlog of $5,600,000 at September 30, 2023 and down slightly from backlog of $8,200,000 at December 31, 2022. Backlog on December 31, 2023 included 2 point $6,000,000 of domestically delivered project backlog and $4,900,000 of foreign delivered project backlog as compared to the $3,700,000 of domestic project backlog and the $4,500,000 of international project backlog at December 31, 2022. We expect that $7,400,000 of the current consolidated backlog will be recognized in the next 12 months. SG and A expenses increased to $3,700,000 from $3,100,000 in last year's 4th quarter, reflecting the timing of employee and employee related expenses. As a percentage of revenue, SG and A in the 2023 Q4 increased to 58% from 44% in the 2022 Q4.

Speaker 4

Research and development expenses for the 4th quarter rose to $367,000 from $179,000 in the same period a year ago, mainly attributed to continued investment in water treatment technology and more specifically our DGI technology. Our operating loss was $801,000 compared to $250,000 in last year's Q4, reflecting a reduction in overall revenue, a shift in margin contribution from product mix and higher operating expenses for the quarter. We continue to take advantage of the favorable interest rate environment and as of December 31, 2023 have invested more than $30,000,000 in held to maturity debt securities and money market funds. This generated $322,000 of interest income in the 4th quarter and $1,300,000 of interest income for 2023, up from just $200,000 in 2022. Our net loss for the quarter was $539,000 or $0.02 per share compared to a net loss of $402,000 or $0.01 per share in the same period 1 year ago.

Speaker 4

Adjusted EBITDA loss was $646,000 compared to an adjusted EBITDA loss of $263,000 in the same period last year. Moving to results for the full year 2023, consolidated revenue rose to $27,100,000 from $26,900,000 in 2022, reflecting a 27% increase in our APC segment revenue, offset by a 17% decline in the FUELCOME segment. As previously mentioned, the increase in APC segment revenue is attributed to the timing of project execution and new orders and a 50% increase in our ancillary product line revenue. The FUEL CHEM segment revenue decreased for the year was driven by decreased unit dispatch demand and unforeseen plant outages experienced in the Q2 of 2023. Consolidated gross margin remained flat at 43% compared to last year, reflecting an increase in the APC segment gross margin, offset by a slight decrease in the FUEL CHEM gross margin.

Speaker 4

APC segment gross margin was primarily growth was primarily due to product and project mix. SG and A expenses for 2023 increased by 4% to $12,800,000 from $12,300,000 in 2022, which fell within the low end of the forecasted range. We continue to prioritize our strategic investments and resources to support current and upcoming business initiatives while maintaining prudent cost controls. For 2024, we expect SG and A expenses to range between $13,000,000 13,500,000 dollars Research and development expenses were $1,500,000 for 2023 compared to $895,000 in dollars in 2022. As Vince discussed, our investment in commercializing our DGI technology is a primary focus for the company.

Speaker 4

Strategic expenditures in this area will continue throughout 2024. Operating loss was $2,700,000 for the 2023 compared to a loss of $1,500,000 in 2022, reflecting the change in mix of segment revenue and higher operating expenses. Net loss for 20.22 was $1,500,000 or $0.05 per diluted share compared to a net loss of $1,400,000 or $0.05 per share in 2022. Adjusted EBITDA loss was $2,000,000 in 20.23 compared to an adjusted EBITDA loss of $909,000 in 20.22. We generated nearly $700,000 in cash from operations in 2023 as compared to a use of cash of $4,100,000 in 2022.

Speaker 4

Lastly, moving to the balance sheet, our financial condition remains strong. As of December 31, 2023, we had cash and cash equivalents of $17,600,000 and short and long term investments totaling 15,800,000 dollars In 2023, our largest use of cash was the incremental investment of $6,000,000 in debt securities to drive a sustainable long term financial profile. Working capital was $32,600,000 or $1.08 per share. Stockholders' equity was $43,700,000 or $1.44 per share and the company continues to have no outstanding debt. We remain confident in our ability to fuel our growth initiatives, pursue new products and market opportunities and maintain our strong financial position, which we view as important as an important competitive advantage.

Speaker 4

To reiterate Vince's earlier comments, we are pleased with our results and remain optimistic about our opportunities in 2024 and beyond. I'll now turn the call back over to Vince.

Speaker 2

Helen, thank you very much. Operator, I think it's time to open the line for calls now. Thank you.

Operator

Thank Our first question comes from the line of Amit Dayal with H. C. Wainwright. Please proceed with your question.

Speaker 5

Thank you. Good morning, everyone.

Speaker 2

Good morning, Amit.

Speaker 6

Hey, Vince. So it looks like DJI is going to be a big focus for you this year. My one question is, how are these potential customers finding out about DGI? Can you just give us a sense of what you guys are doing in terms of just getting in front of this audience?

Speaker 2

Right. So we over this past 6 months, we've definitely enhanced our marketing efforts. And as I just noted, our presentation at Aquaculture America was actually our first presentation at a water and wastewater treatment conference. And we received some very favorable impact from the results of that body of work. So my comment would be, we are increasing our exposure to end markets.

Speaker 2

We really needed to have something to go ahead and put out there publicly that we can support as part of our market reach out and the successful demonstration that we did have in the aquaculture application afforded us the opportunity to start to go a little bit more public with DGI and its capabilities. And so my expectation is that is going to continue. We are going to have more of a, call it, a public Phase 4 for DGI, But it also needs to continue to be supported by specific favorable actions from end results of that technology, if you will. So we are going to do additional demonstrations. We are going to do white papers on those additional demonstrations and put those results out publicly as well.

Speaker 2

So again, high level answer, we are going to be out there more publicly with DGI in 2020 4 and beyond.

Speaker 6

Understood. Thank you. And then the OpEx guidance you provided for the year, does that already include some of the marketing and sort of business development efforts? Or will that potentially be a little bit more additional costs to your normal sort of operating activities?

Speaker 2

Yes, right now the range that Ellen provided $13,000,000 to $13,500,000 does include a nice uptick in additional spending related to DGI marketing efforts. As we've discussed our investment in DGI over this past handful of years, we've been very measured in how we've been investing. As we see the opportunity to invest based on successes, we'll go ahead and enhance that investment in those activities. So right now, I would tell you that the range Ellen gave does include a nice increase in expenditures for DGI marketing efforts. If we feel this is as though we need to do more prospectively, we'll share that with you on future calls.

Speaker 6

Thank you. Understood. Maybe just last one on the EPC and FUEL CHEM businesses. Should we expect the second half to be stronger for those segments or sort of evenly spread throughout the year? It looks like just from the press release and some of your commentary, maybe the second half looks like it could be more heavier in terms of revenue versus first half of the year?

Speaker 2

As a general statement, I would say, yes, that is correct. Based upon the way we see things right now, we would expect a stronger second half than first half of the year.

Speaker 6

Okay. That's all I have. I'll take my other questions offline. Thank you.

Speaker 2

Thanks, Amit.

Operator

Thank you. Our next question comes from the line of William Brenner with Vanquish Capital Partners. Please proceed with your question.

Speaker 5

Good morning, Vince.

Speaker 2

Hey, good morning, Bill. How are you?

Speaker 5

Good. I want to specifically target your the Air Pollution Control segment, the APC segment. Yes. Regarding our product offering, how would you rate that?

Speaker 2

I think our product offering for these technologies is best in class. For what we put out into the marketplace for SNCR and SCR Technologies and Ultra as well, They're best in class. And actually for Ultra, there is no competitive product in the marketplace today domestically.

Speaker 5

And I completely agree with you. I mean, thus I've been with and having a material stake in this company for north of 7 years. My concern is on the sales front and the bookings. Your Senior VP of Sales has been with you over 25 years. I mean 25 years is an enormous amount of time.

Speaker 5

You voiced about the regulatory front in the EPA and the Good Neighbors Act that should be a major catalyst for us going forward. At what point does the Board have to make a change here to start bringing in some confident individuals to ramp up the sales, utilize the balance sheet and hire some executive VPs to go after the submissions opportunity that's in front of us?

Speaker 2

So to specifically address your question, Fuel Tech as a company has a lot of longer tenured employees. I'm at 24 years myself and so I would put myself in the category as a lot of well experienced folks with FuelTech that I believe are still doing a pretty darn good job, okay. So specifically on the APC side of the equation, as you note, what's potentially out there related to regulatory opportunities, I'll tell you right now that there is no one that is better positioned to capitalize on those opportunities should the regulatory requirement be officially put in place in a way that drives business because I can tell you right now, I've seen the proposals and work that we've put out to the utility customer base in this country that supports the work that we would be doing if we had a firm regulation in place. So I have every confidence in the world, Bill, and you and I have discussed this previously with the team that we have in place and I am Chairman of the Board, so I'll speak on behalf of the Board as well. We're confident in the team that we have in place to be able to capture these future opportunities that are potentially out there for us.

Speaker 2

If that wasn't the case, Bill, we'd be making dramatic changes. Simple as that. Simple as that.

Speaker 5

I hope you're right. I haven't seen a book to burn ratio over 1.5 in years in this segment. I

Speaker 2

don't disagree with you there. The end markets, particularly on the utility segment have been a little shallow over these past several years. Fortunately, we've been supported by industrial market activity, which in the absence of anything that happens regulatorily, that base business level is still going to be there for us prospectively. It's the upside that we're talking

Speaker 5

stepping in pretty much every year consistently and I appreciate that as well as my fellow shareholders, I have not seen any Form 4 open market purchases from anyone else on the Board for years or your CFO, your division heads, etcetera. If the company is making a change and we're selling below a tangible book as you articulated and we are flushed with cash, okay, when is the management team going to step forward here and align themselves with current shareholders?

Speaker 2

It's a good point, Bill. As you stated, I've been out there buying. There's been at least one other high level officer of the company that has been out there buying over these past few years. We only have 3 reportable employees that we form for as we sit here today. So there is some other activity that the public world does not see relative to purchases.

Speaker 2

All I can say is that it's difficult for me to go ahead and mandate that whether it be the Board or the leadership team, difficult to mandate that they take their personal situations and further invest in Fuel Tech. The Board and the employees of this team are already well invested in Fuel Tech. I can definitely make that statement honestly and clearly. I think you'll see some additional purchases from the leadership team and or Board in the future. I just can't tell you when.

Speaker 2

But I can tell you from my perspective, I have been a supporter and I will continue to be a supporter from that perspective.

Speaker 5

I thank you for that. I truly do. I would welcome to see some additional sales hires. I think that would be a good use of capital versus the dividend or share repurchase agreement. I think we need to drive top line sales restructuring has been performed over the last few years and now it's a time to grow the top line.

Speaker 5

So I would echo and my fellow shareholders and I would hope the Board and yourself decide to start hiring some additional sales personnel and the ones that aren't producing have to go at this point.

Speaker 2

Understood, Bill. I appreciate your commentary as always. And I can tell you that we review everyone in this company on an annual basis relative to performance. But as I said, I am very confident that we are well positioned to take advantage of opportunities that are going to come our way.

Speaker 5

All right. Thank you.

Speaker 2

You're welcome. Thank you, Bill.

Operator

Thank you. Our next question comes from the line of Jim McIlree with Dawson James. Please proceed with your question.

Speaker 7

Thank you. Good morning.

Speaker 2

Hey, good morning, Jim.

Speaker 7

Yes. Hey, Vince. I just wanted to make sure I heard your comment correctly regarding the APC revenue this year. That assumes no impact from a potential favorable Good Neighbor ruling. Is that correct?

Speaker 2

That is correct.

Speaker 7

And so and I know there's a lot of different end cases on the ruling, but can you kind of bracket what you think that might do for APC over a couple of year time period? How big of an impact do you think it might have over a couple of years?

Speaker 2

Jimmy, it's quite favorable. We went through approximately 9, 10 years ago a scenario whereby the effectiveness of regulation had a very favorable impact on the company as well. But what I can say is this, we have $50,000,000 plus in budgetary quotes dollars 50,000,000 plus in budgetary quotes out to utilities in this country to assist them with compliance. The numbers, it's greater than that. And it's everything can't be done at once, obviously.

Speaker 2

So this would be implemented over a, I'll say, a 3 to 5 year time horizon approximately. But it's a magnitude over the APC revenue that we've generated over these past 3 to 4 years. It's a material impact on our company. As I said, it's something that we've dealt with historically. We would love to be able to address those needs again.

Speaker 7

Understood. Thank you. That's helpful. And then my second question is on the you talked about the initial DGI contract this year. Can you be a little bit more specific on timing, first half, second half?

Speaker 7

And just how big can these contracts be, these initial contracts? Are we talking sub-one million or are we talking greater than 1,000,000?

Speaker 2

Dollars Right. So on your first question, I would look at second half of the year from a timing perspective. And then on your second question, I'd probably expect the first system sales that we'll see that are they're going to be sub $1,000,000 and not and lot larger than $1,000,000 Our smaller systems are anywhere in the $100,000 to $200,000 range assuming it would be a capital sale. Some of the larger scale systems R and D going to potentially exceed $1,000,000 completely depends on the magnitude of the process environment that we're looking to treat. But when I look at something commercially happening this year, I think we're probably seeing something more on the smaller side than on the larger side.

Operator

Thank you. Our next question comes from the line of Mark Silk with Silk Investment Advisors. Please proceed with your question.

Speaker 3

Hey, Vince. How are you doing?

Speaker 2

I'm good, Mark. How are you?

Speaker 3

I'm doing fine. Thank you. Good. So let's go and stick with the good neighbor rule. You said you've received a bunch of requests, etcetera.

Speaker 3

Are these mostly from downwind states or upwind or it's a mix?

Speaker 2

I would say predominantly upwind, but some downwind.

Speaker 3

Okay.

Speaker 2

And Primarily upwind folks, again, looking at their potential range of outcome given what way the regulatory rule falls. Correct.

Speaker 5

Yes.

Speaker 3

And then so like on the $50,000,000 plus of let's just say potential there, I know it could be a lot more. Is that like a fifty-fifty mix?

Speaker 2

I'd say it would be more in favor of upwind.

Speaker 3

Of upwind, okay.

Speaker 2

Yes.

Speaker 3

And then on the DGI, you talked about multiple end markets. You mentioned a bunch of things like municipalities, etcetera. Let's say money was an object that you had an unlimited budget, unlimited cash. Where would you aggressively be putting money based on what you've seen up to now or is it too early to kind of say? This is more of a hypothetical just so we can kind of see where maybe the biggest growth can come from over the next few years?

Speaker 2

Right. To be honest, I would say that it's premature for me to say where we would invest the majority of that capital, assuming we had end pockets, if you will. It's premature to say. It's premature to say. We're looking for, what I would call, near term opportunities for success of the technology to form building blocks for whatever comes prospectively from that.

Speaker 2

We need to build the success building blocks. The demonstration we did last year was one of those. We need more of those in end markets to prove out the viability of the technology. And then once we have a little bit more of that information, we can then better assess where our investment dollars are going to be better spent relative to approaching one end market over another.

Speaker 3

As far as municipalities, what are some of the areas they're looking at? I know you mentioned it earlier, but I can't read my notes here.

Speaker 2

1 of the ones we're looking at here near term is actually an odor control application for a municipal water lift station. That's a huge problem for them, But there's other applications for municipalities that we'll be able to address as well. This one for odor control is an immediate requirement for us.

Speaker 3

Great. Thanks for taking my questions.

Speaker 2

Thank you, Mark. Appreciate it.

Operator

Thank you. Our next question comes from the line of Pete Enderlin with MAZ Partners. Please proceed with your question.

Speaker 8

Thank you.

Speaker 5

Good morning.

Speaker 8

Hi, Vince. I just have a couple of questions. You've mentioned a lot of different opportunities for the DGI technology. One that you didn't mention, and I don't know if it's actually valid or not and that is related to 3 ms. Last June, 3 ms agreed to pay $10,300,000,000 over 13 years for the remediation of forever chemicals in drinking water.

Speaker 8

That's a lot of money obviously. And so the question is, will DG or could DGI play a role in that process? I mean, I'm sure that there's some filtration and other stuff going on to remove those chemicals, but would DGI enhance that process and is that a valid opportunity?

Speaker 2

As we look at it right now, Pete, DGI would not have a direct impact on PFAS, PFOS, forever chemicals. To your point, it's a very, very, very widely watched area today on a global basis. And the EPA is coming out with regulatory requirements and guidance that I don't think anyone can achieve at this point in time because no one has all the answers. It's something we're going to watch closely. I think again to your point to see if DGI can help enhance certain whether it be chemical related processes or otherwise that could address the forever chemical issue.

Speaker 2

But as of today, it's not something where we're relying on that end market as something that we're focusing on right now. But it is something that we'll watch.

Speaker 8

Thank you. And then one for Helen. The SG and A expense in the Q4 was $3,700,000 versus $3,100,000 And the press release says it's related to the timing of employee and employee related expenses. Can you just elaborate on that a little bit? Was there anything sort of non recurring in there?

Speaker 8

Because obviously, if you annualize $3,700,000 it's a lot more than your projected level for this year.

Speaker 4

Correct. There were some employee and employee related expenses that last year were spread out over the last 6 months of the year and in 2023 just happened to all hit in Q4. Okay.

Speaker 8

So it's nothing specifically identifiable as non recurring, just basically as it says the timing?

Speaker 4

Correct. It's just timing.

Speaker 8

Okay. Thanks a lot.

Speaker 2

Hey, Pete. Thank you.

Speaker 4

Sure.

Operator

Thank you. Ladies and gentlemen, there are no other questions at this time. I'll turn the floor back to Mr. Arnone for any final comments.

Speaker 2

Thank you, operator. Once again, I'd like to thank everyone who participated in the call today. I'd like to thank all of our shareholders and of course, the entirety of the Fuel Tech employee team. As both Ellen and I noted, 2024 is indeed a critical and pivotal year for Fuel Tech. And as we move throughout the year, we are excited and we look forward to having further discussions with everyone at later points in time this year.

Speaker 2

Thanks to everyone and have a great day.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Fuel Tech Q4 2023
00:00 / 00:00