Market Overview

Fuel Tech Reports 2017 Fourth Quarter and Full Year Financial Results

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Company Returned to Operating Profitability in
Q4 2017, Driven by Higher Revenues and
Positive
Effect of Previously Announced Cost Containment Initiatives

Q4 2017 Overview

  • Revenues rose 39.9% to $13.4 million from $9.6 million
  • Operating results from continuing operations improved to income of
    $448,000 from a loss of $6.4 million
  • Net income from continuing operations of $470,000, or $0.02 per
    diluted share, compared to net loss from continuing operations of $8.5
    million, or $(0.36) per diluted share
  • Adjusted EBITDA of $559,000 as compared to a loss of $3.8 million
  • At December 31, 2017:
    • capital projects backlog rose to $22.1 million
    • total cash and equivalents (including restricted cash) of $14.4
      million, or $0.60 per diluted share
    • no long-term debt

Fuel Tech, Inc. (NASDAQ:FTEK), a world leader in advanced
engineering solutions for the optimization of combustion systems and
emissions control in utility and industrial applications, today reported
financial results for the fourth quarter ("Q4 2017") and full year ("FY
2017") ended December 31, 2017.

Q4 Operating Profit; Achieved Performance
Targets for Second Half of 2017

"We returned to operating profitability in Q4 2017 - our first operating
profit since Q3 2014 - and reported our second consecutive quarter of
positive Adjusted EBITDA," said Vincent J. Arnone, Chairman, President
and CEO of Fuel Tech. "We also achieved our performance targets for the
second half of 2017 when compared to the first six months of the year.
For the second half of 2017, revenues increased by 48% in comparison to
the prior year primarily reflecting the ongoing conversion of $36
million of new orders announced during 2017. SG&A declined 11.7% to $9.8
million, the result of our previously announced cost-containment
initiatives that, in total, have removed approximately $19 million of
costs (excluding one-time charges) for the three-year period ending
December 31, 2017. We expect to realize the full benefit of this $19
million cost reduction in 2018.

"We ended the year with a capital projects backlog of $22.1 million, up
$14.1 million from backlog of $8.0 million at December 31, 2016. Our
total cash position (including restricted cash) of $14.4 million at
December 31, 2017 increased by $1.8 million as compared to June 30, 2017
and our long-term debt remained at zero."

2018 Outlook

Mr. Arnone continued, "We expect continuing operational improvement in
2018, based on the success of our cost reduction initiatives, our
year-end backlog, and business development activities and pipeline. For
2018, we expect higher total revenues, driven primarily our Air
Pollution Control ("APC") business. We also expect to operate profitably
and generate positive cash flow due, in large measure, to our lower cost
structure."

He continued, "We are also committed to capitalizing on all relevant
opportunities for our base businesses, and expanding our product
portfolio into new verticals and potential growth markets. To this end,
and as previously announced, we have expanded our mission to include
environmental solutions focused on water by entering into an exclusive
license agreement with NanO2 LLC ("NanO2") to market and sell NanO2's
dissolved gas technology. We are optimistic about the long-term growth
opportunities associated with the application of this technology in the
water and wastewater industries."

Q4 2017 Results Overview

Consolidated revenues rose 39.9% $13.4 million from $9.6 million in Q4
2016, reflecting the timing of project execution due to the conversion
of previously announced new orders during the first half of 2017.

SG&A expenses declined 16.5% to $4.9 million from $5.8 million in Q4
2016, reflecting the impact of ongoing cost containment initiatives.

Operating income from continuing operations for Q4 2017 was $448,000, a
significant improvement from an operating loss of $6.4 million in Q4
2016 which included an intangible assets impairment charge of $2.1
million.

Net income from continuing operations was $470,000, or $0.02 per diluted
share, compared to a net loss from continuing operations of $8.5
million, or $0.36 per diluted share, in Q4 2016.

Net loss for Q4 2017 was $1.2 million, or $0.05 per diluted share, as
compared to a net loss of $9.1 million, or $0.39 per share, in Q4 2016.
Net loss in Q4 2017 included a loss from discontinued operations of $1.7
million, or $0.07 per diluted share, primarily reflecting a $1.3 million
impairment of an intangible asset and severance costs associated with
the previously announced suspension of the Company's Fuel Conversion
initiative.

Net loss in Q4 2016 included the above referenced intangible assets
impairment charge of $2.1 million, income tax expense of $1.9 million
primarily associated with the establishment of a full valuation reserve
for China deferred tax assets, and a loss from discontinued operations
of $0.7 million.

APC segment revenues in Q4 2017 rose by 89.7% to $9.5 million from $5.0
million in Q4 2016. Although the challenging operating environment for
coal-fired utility and industrial plants remains, the pace of U.S.
bookings increased considerably during 2017 as compared to historical
levels. APC gross margin was $3.8 million, or 39.9%, as compared to $0.3
million, or 6.5%, in Q4 2016. APC gross margin in Q4 2016 included
charges totaling $0.8 million consisting of $0.6 million related to a
sub-contractor dispute and a non-cash excess and obsolete inventory
reserve of $0.2 million; exclusive of these charges, APC gross margin in
Q4 2016 would have been $1.1 million, or 23%.

FUEL CHEM segment revenues decreased to $3.9 million during Q4 2017 from
$4.6 million during Q4 2016, with gross margin of 47.2% as compared to
33.4% for the same period last year. Gross margin in Q4 2016 included
the impact of the above-referenced inventory reserve of $0.6 million;
excluding this impact, gross margin for Q4 2016 would have been 46%.
This segment will likely continue to be affected by a reduction in
electricity demand from coal-fired combustion units and low natural gas
prices, which leads to fuel switching, unscheduled outages, and
combustion units operating at less than capacity.

Research and development ("R&D") expenses for Q4 2017 and Q4 2016 were
$0.3 million, respectively, which supports our continued development of
new products.

Adjusted EBITDA for Q4 2017 was $559,000 as compared to an Adjusted
EBITDA loss of $3.8 million for Q4 2016.

At December 31, 2017, cash and cash equivalents were $14.4 million,
which included restricted cash of $6.0 million. Shareholders' equity was
$34.3 million, or $1.44 per share, and the Company had zero long-term
debt.

FY 2017 Results Overview

Consolidated revenues for FY 2017 were $45.2 million as compared to
$55.2 million in 2016, due primarily to the reasons cited above related
to the FUEL CHEM segment revenues and overall decline in the APC segment
revenues due to timing of business activity and project execution
primarily due to the low backlog of $8.0 million at December 31, 2016.

SG&A expenses for FY 2017 declined by 18.1% to $20.9 million from $25.6
million in FY 2016. On a total dollar basis, SG&A for FY 2017 decreased
by $4.6 million from FY 2016 attributable to organizational actions
taken in both 2016 and 2017.

For FY 2017, R&D expenses were $1.1 million compared to $1.8 million FY
2016, with the decline attributable to organizational actions taken in
both 2016 and 2017.

Operating loss from continuing operations was $7.1 million as compared
to an operating loss of $12.0 million in 2016.

Net loss from continuing operations was $7.1 million, or $0.30 per
diluted share, compared to a net loss from continuing operations of
$14.6 million, or $0.62 per diluted share in FY 2016. Net loss was $11.0
million, or $0.46 per share, as compared to a net loss of $17.4 million,
or $0.74 per share.

Losses for FY 2017 included a $3.0 million building impairment charge,
while losses in FY 2016 included a $1.4 million restructuring charge,
$2.1 million intangible assets impairment charge, and income tax expense
of $1.7 million.

Conference Call

Management will host a conference call on Tuesday, March 13, 2018 at
10:00 am ET / 9:00 am CT to discuss the results and business activities.
Interested parties may participate in the call by dialing:

Interested parties may participate in the call by dialing:

  • (877) 423-9820 (Domestic) or
  • (201) 493-6749 (International)

The conference call will also be accessible via the Upcoming Events
section of the Company's web site at www.ftek.com.
Following management's opening remarks, there will be a question and
answer session. Questions may be asked during the live call, or
alternatively, you may e-mail questions in advance to dsullivan@equityny.com.
For those who cannot listen to the live broadcast, an online replay will
be available at www.ftek.com.

About Fuel Tech

Fuel Tech is a leading technology company engaged in the worldwide
development, commercialization and application of state-of-the-art
proprietary technologies for air pollution control, process
optimization, and advanced engineering services. These technologies
enable customers to produce both energy and processed materials in a
cost-effective and environmentally sustainable manner.

The Company's nitrogen oxide (NOx) reduction technologies
include advanced combustion modification techniques and post-combustion
NOx control approaches, including NOxOUT®,
HERT™, and Advanced SNCR systems, ASCR™ Advanced Selective Catalytic
Reduction systems, and I-NOx® Integrated NOx
Reduction Systems, which utilize various combinations of these systems,
along UDI™ Urea Direct Injection system for SCR reagent supply, and the
ULTRA® process for safe ammonia generation. These
technologies have established Fuel Tech as a leader in NOx
reduction, with installations on over 900 units worldwide.

Fuel Tech's technologies for particulate control include Electrostatic
Precipitator (ESP) products and services including complete turnkey
capability for ESP retrofits, with experience on units up to 700 MW.
Flue gas conditioning (FGC) systems include treatment using sulfur
trioxide (SO3) and ammonia (NH3) based
conditioning to improve the performance of ESPs by modifying the
properties of fly ash particles. Fuel Tech's particulate control
technologies have been installed on more than 125 units worldwide.

The Company's FUEL CHEM® technology revolves around the
unique application of chemicals to improve the efficiency, reliability,
fuel flexibility, boiler heat rate, and environmental status of
combustion units by controlling slagging, fouling, corrosion, opacity
and improving boiler operations. The Company has experience with this
technology, in the form of a customizable FUEL CHEM program, on over 110
units.

Fuel Tech also provides a range of services, including boiler tuning and
selective catalytic reduction (SCR) optimization services. In addition,
flow corrective devices and physical and computational modeling services
are available to optimize flue gas distribution and mixing in both power
plant and industrial applications.

Many of Fuel Tech's products and services rely heavily on the Company's
exceptional Computational Fluid Dynamics modeling capabilities, which
are enhanced by internally developed, high-end visualization software.
These capabilities, coupled with the Company's innovative technologies
and multi-disciplined team approach, enable Fuel Tech to provide
practical solutions to some of our customers' most challenging problems.
For more information, visit Fuel Tech's web site at www.ftek.com.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release contains "forward-looking statements" as defined in
Section 21E of the Securities Exchange Act of 1934, as amended, which
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and reflect Fuel Tech's current
expectations regarding future growth, results of operations, cash flows,
performance and business prospects, and opportunities, as well as
assumptions made by, and information currently available to, our
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 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. Fuel Tech undertakes no obligation
to update such factors or to publicly announce the results of any of the
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 Fuel Tech's filings
with the Securities and Exchange Commission.

Fuel Tech, Inc.
Consolidated Balance Sheets

(in thousands of dollars, except share and per-share data)

 
December 31,
2017   2016
ASSETS
Current assets:
Cash and cash equivalents $ 8,366 $ 11,826
Restricted cash 1,020 6,020
Marketable securities 6 9
Accounts receivable, net 19,690 18,790
Inventories, net 945 1,012
Prepaid expenses and other current assets 3,592 2,891
Income taxes receivable 129   87  
Total current assets 33,748 40,635
Property and equipment, net 6,272 10,517
Goodwill 2,116 2,116
Other intangible assets, net 1,671 1,796
Restricted cash 5,000
Assets held for sale 485 2,058
Other assets 1,192   666  
Total assets $ 50,484   $ 57,788  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,065 $ 6,303
Accrued liabilities:
Employee compensation 1,487 1,390
Income taxes payable 73
Other accrued liabilities 5,098   6,357  
Total current liabilities 15,723 14,050
Other liabilities 420   346  
Total liabilities 16,143 14,396
 
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized,
24,777,001 and 23,800,924 shares issued, and 24,132,910 and
23,446,035 outstanding in 2017 and 2016, respectively
248 238
Additional paid-in capital 138,760 137,380
Accumulated deficit (102,503 ) (91,520 )
Accumulated other comprehensive (loss) income (768 ) (1,568 )
Nil coupon perpetual loan notes 76 76
Treasury stock, 644,091 and 354,889 shares in 2017 and 2016,
respectively, at cost
(1,472 ) (1,214 )
Total stockholders' equity 34,341   43,392  
Total liabilities and stockholders' equity $ 50,484   $ 57,788  
 
 
FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per-share data)

   
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017   2016
Revenues $ 13,386 $ 9,568 $ 45,166 $ 55,161
Costs and expenses:
Cost of sales 7,761 7,717 27,144 36,367
Selling, general and administrative 4,887 5,853 20,933 25,564
Restructuring charge 3 119 1,428
Research and development 290 314 1,070 1,752
Building and intangible assets impairment   2,074   2,965   2,074  
Total Costs and Expenses 12,938   15,961   52,231   67,185  
Operating income (loss) from continuing operations 448 (6,393 ) (7,065 ) (12,024 )
Interest income 2 4 10 25
Other expense (16 ) (187 ) (60 ) (925 )
Income (loss) from continuing operations before income taxes 434 (6,576 ) (7,115 ) (12,924 )
Income tax benefit (expense) 36   (1,872 ) 46   (1,664 )
Net income (loss) from continuing operations 470 (8,448 ) (7,069 ) (14,588 )
Loss from discontinued operations (net of income tax benefit of $0
in 2017 and 2016)
(1,676 ) (656 ) (3,914 ) (2,800 )
Net loss $ (1,206 ) $ (9,104 ) $ (10,983 ) $ (17,388 )
Net income (loss) per common share:
Basic
Continuing operations $ 0.02   $ (0.36 ) $ (0.30 ) $ (0.62 )
Discontinued operations (0.07 ) (0.03 ) (0.16 ) (0.12 )
Basic net loss per common share (0.05 ) (0.39 ) (0.46 ) (0.74 )
Diluted
Continuing operations $ 0.02   $ (0.36 ) $ (0.30 ) $ (0.62 )
Discontinued operations (0.07 ) (0.03 ) (0.16 ) (0.12 )
Diluted net loss per common share (0.05 ) (0.39 ) (0.46 ) (0.74 )
Weighted-average number of common shares outstanding:
Basic 24,133,000   23,446,000   23,872,000   23,365,000  
Diluted 24,133,000   23,446,000   23,872,000   23,365,000  
 
 
Fuel Tech, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(in thousands of dollars)
 
For the years ended December 31,
2017   2016   2015
Net (loss) $ (10,983 ) $ (17,388 ) $ (12,380 )
Other comprehensive (loss):
Foreign currency translation adjustments 802 (6 ) (1,097 )
Unrealized (losses)/gains from marketable securities, net of tax (2 ) (6 ) (11 )
Total other comprehensive income (loss) 800   (12 ) (1,108 )
Comprehensive (loss) $ (10,183 ) $ (17,400 ) $ (13,488 )
 

See notes to consolidated financial statements.

 
 
Fuel Tech, Inc.
Consolidated Statements of Cash Flows

(in thousands of dollars)

 
For the years ended December 31,
2017   2016   2015
OPERATING ACTIVITIES
Net loss $ (10,983 ) $ (17,388 ) $ (12,380 )
Loss from discontinued operations 3,914   2,800   2,826  
Net loss from continuing operations (7,069 ) (14,588 ) (9,554 )
Adjustments to reconcile net loss to net cash used in (provided by)
operating activities:
Depreciation 1,312 1,780 2,067
Amortization 215 1,118 1,536
Loss (gain) on disposal of equipment 304 60 (26 )
Provision for doubtful accounts, net (111 )
Deferred income taxes 1,196 4,916
Stock compensation expense, net of forfeitures 1,389 1,991 1,809
Building and intangible assets impairment 2,965 2,074 1,425
Excess and obsolete inventory provision 228 825
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 113 3,522 7,880
Inventories (134 ) 446 (560 )
Prepaid expenses, other current assets and other noncurrent assets (1,084 ) 2,893 (1,245 )
Accounts payable 2,500 (2,445 ) 1,817
Accrued liabilities and other noncurrent liabilities (2,439 ) 699   (913 )
Net cash (used in) provided by operating activities - continuing
operations
(1,700 ) (540 ) 9,152
Net cash used in operating activities - discontinued operations (1,868 ) (2,198 ) (2,224 )
Net cash (used in) provided by operating activities (3,568 ) (2,738 ) 6,928  
 
INVESTING ACTIVITIES
Purchases of property, equipment and patents (492 ) (940 ) (802 )
Proceeds from the sale of equipment 2   2   26  
Net cash used in investing activities (490 ) (938 ) (776 )
 
FINANCING ACTIVITIES
Payments on short-term borrowings (1,623 )
Change in restricted cash (6,020 )
Treasury shares withheld (258 ) (172 ) (252 )
Net cash used in financing activities (258 ) (6,192 ) (1,875 )
Effect of exchange rate fluctuations on cash 856   10   (1,230 )
Net (decrease) increase in cash and cash equivalents (3,460 ) (9,858 ) 3,047
Cash and cash equivalents at beginning of year 11,826   21,684   18,637  
Cash and cash equivalents at end of year $ 8,366   $ 11,826   $ 21,684  
 
Supplemental Cash Flow Information:
Cash paid for:
Interest $ $ $ 27
Income taxes paid $ 31 $ 368 $
 

See notes to consolidated financial statements.

 
 
FUEL TECH, INC.

BUSINESS SEGMENT FINANCIAL DATA

(Unaudited)

(in thousands)

       

For the three Months Ended December 31, 2017

Air Pollution

Control Segment

FUEL CHEM

Segment

Other Total
Revenues from external customers $ 9,462 $ 3,924 $ $ 13,386
Cost of sales (5,691 ) (2,070 )   (7,761 )
Gross margin 3,771 1,854 5,625
Selling, general and administrative (4,887 ) (4,887 )
Restructuring Charge
Research and development     (290 ) (290 )
Operating income (loss) from continuing operations $ 3,771   $ 1,854   $ (5,177 ) $ 448  
 
 

For the three Months Ended December 31, 2016

Air Pollution

Control Segment

FUEL CHEM

Segment

Other Total
Revenues from external customers $ 4,989 $ 4,579 $ $ 9,568
Cost of sales (4,666 ) (3,051 )   (7,717 )
Gross margin 323 1,528 1,851
Selling, general and administrative (5,853 ) (5,853 )
Restructuring Charge (3 ) (3 )
Research and development (314 ) (314 )
Intangible assets impairment     (2,074 ) (2,074 )
Operating income (loss) from continuing operations $ 323   $ 1,525   $ (8,241 ) $ (6,393 )
 
 

For the twelve months ended December 31, 2017

Air Pollution

Control Segment

FUEL CHEM

Segment

Other Total
Revenues from external customers $ 27,808 $ 17,358 $ $ 45,166
Cost of sales (18,478 ) (8,666 )   (27,144 )
Gross margin 9,330 8,692 18,022
Selling, general and administrative (20,933 ) (20,933 )
Restructuring charge (58 ) (61 ) (119 )
Research and development (1,070 ) (1,070 )
Building impairment     (2,965 ) (2,965 )
Operating income (loss) from continuing operations $ 9,272   $ 8,631   $ (24,968 ) $ (7,065 )
 
 

For the twelve months ended December 31, 2016

Air Pollution

Control Segment

FUEL CHEM

Segment

Other Total
Revenues from external customers $ 34,052 $ 21,109 $ $ 55,161
Cost of sales (25,370 ) (10,997 )   (36,367 )
Gross margin 8,682 10,112 18,794
Selling, general and administrative (25,564 ) (25,564 )
Restructuring charge (537 ) (891 ) (1,428 )
Research and development (1,752 ) (1,752 )
Intangible assets impairment     (2,074 ) (2,074 )
Operating income (loss) from continuing operations $ 8,145   $ 9,221   $ (29,390 ) $ (12,024 )

Note: Fuel Tech is an integrated company that segregates its
financial results into two reportable segments, both providing advanced
technology and engineering solutions for the optimization of combustion
systems in utility and industrial applications. The "Other"
classification includes those profit and loss items not allocated by
Fuel Tech to each reportable segment.

FUEL TECH, INC.

GEOGRAPHIC INFORMATION

(Unaudited)

(in thousands)

     

For the years ended December 31,

2017 2016 2015
Revenues:
United States $ 29,510 $ 42,545 $ 51,485
Foreign 15,656   12,616   22,179
$ 45,166   $ 55,161   $ 73,664
 
 

As of December 31,

2017 2016
Assets:
United States $ 29,945 $ 37,684
Foreign 20,539   20,104
$ 50,484   $ 57,788
 
 
FUEL TECH, INC.

RECONCILIATION OF GAAP NET LOSS TO EBITDA AND ADJUSTED EBITDA

(Unaudited)

(in thousands)

   
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017   2016
Net loss $ (1,206 ) $ (9,104 ) $ (10,983 ) $ (17,388 )
Interest income (2 ) (4 ) (10 ) (25 )
Income tax (benefit) expense (36 ) 1,872 (46 ) 1,664
Depreciation expense 237 421 1,312 1,780
Amortization expense 30   435   492   1,720  
EBITDA (977 ) (6,380 ) (9,235 ) (12,249 )
Building and intangible assets impairment 2,074 2,965 2,074
Carbonite intangible assets impairment (discontinued operations) 1,354 1,354
Stock compensation expense 182   471   1,389   1,991  
ADJUSTED EBITDA $ 559   $ (3,835 ) $ (3,527 ) $ (8,184 )

Adjusted EBITDA

To supplement the Company's consolidated financial statements presented
in accordance with generally accepted accounting principles in the
United States (GAAP), the Company has provided an Adjusted EBITDA
disclosure as a measure of financial performance. Adjusted EBITDA is
defined as net income (loss) before interest income, income tax expense,
depreciation expense, amortization expense, non-cash impairment charges,
and stock compensation expense. The Company's reference to these
non-GAAP measures should be considered in addition to results prepared
in accordance with GAAP standards, but are not a substitute for, or
superior to, GAAP results.

Adjusted EBITDA is provided to enhance investors' overall understanding
of the Company's current financial performance and ability to generate
cash flow, which we believe is a meaningful measure for our investor and
analyst communities. In many cases non-GAAP financial measures are
utilized by these individuals to evaluate Company performance and
ultimately determine a reasonable valuation for our common stock. A
reconciliation of Adjusted EBITDA to the nearest GAAP measure of net
income (loss) has been included in the financial table above.

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