Market Overview

Fuel Tech Reports 2018 Second Quarter Financial Results

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Reiterates 2018 Outlook of Increased Revenue
and the Generation of
Operating
Profit and Positive Cash Flow

Q2 2018 Overview

  • Revenues rose 21.6% to $11.8 million from $9.7 million as compared to
    Q2 2017
  • SG&A declined 19.6% to $4.8 million from $5.9 million as compared to
    Q2 2017
  • Net loss from continuing operations of $1.7 million, or $0.07 per
    diluted share, compared to a net loss from continuing operations of
    $5.6 million, or $0.24 per diluted share
  • At June 30, 2018:
    • capital projects backlog of $14.4 million
    • total cash and equivalents (including restricted cash) of $10.4
      million, or $0.43 per diluted share
    • debt free

Fuel Tech, Inc. (NASDAQ:FTEK), a technology company providing
advanced engineering solutions for the optimization of combustion
systems, emissions control and water treatment in utility and industrial
applications, today reported financial results for the second quarter
ended June 30, 2018 ("Q2 2018").

"Our results for Q2 2018 continued to reflect the primary themes of our
ongoing operational improvement: higher revenues due to our successful
business development in 2017 and early 2018, and lower selling, general
and administrative (SG&A) expenses resulting from our previously
announced cost-containment initiatives," said Vincent J. Arnone,
Chairman, President, and CEO of Fuel Tech.

"Although we are disappointed with our loss in the quarter, we attribute
this result to the following factors: customer-driven delays in the
execution of projects under contract that shifted revenue from Q2 into
Q3; margin erosion on lower-margin projects being executed in foreign
geographies, which will not recur; incurring certain S,G&A expenses
earlier than planned that will not recur in the second half of 2018; and
a $0.3 million non-cash abandonment charge associated with certain
patents that we do not expect to provide value to the Company in future
periods.

"We continue to pursue a promising pipeline of additional contract
opportunities, particularly in the US. We are in various stages of
negotiation with potential clients that, in the aggregate, represent
$10-$15 million of contract awards that we expect to close during the
current third quarter ending September 30. We are pursuing additional
opportunities beyond this, which we expect to announce prior to year-end
2018. We are therefore reiterating our outlook for growth and full year
operating profitability for 2018."

Mr. Arnone concluded, "We continue to advance our entry into the water
treatment space via our previously announced exclusive license agreement
with NanO2 LLC ("NanO2"). We have had productive conversations with
several of our existing clients and remain encouraged by the long-term
opportunities offered by this technology. We are now in the process of
securing demonstration-scale and lab-scale equipment which will enable
us to rapidly respond to technology demonstration requests and enable
the Fuel Tech team to study the capabilities of the existing technology
as we look to possibly address additional customer needs."

2018 Outlook

The Company reiterates its forecast for continuing operational
improvement in 2018 when compared to 2017. This includes higher total
revenues, driven primarily by the Air Pollution Control ("APC") segment,
profitability from continuing operations, and positive cash flow
generation, due in large part to a lower cost structure.

Q2 2018 Results Overview

Consolidated revenues rose 21.6% to $11.8 million from $9.7 million in
Q2 2017, reflecting the timing of project execution due to the
conversion of previously announced new orders during 2017 and early 2018.

Cost of sales rose to $8.1 million, or 68.6% of revenues, from $6.1
million, or 62.8% of revenues, in Q2 2017, due primarily to the
conversion of previously announced new orders, project mix, and certain
product demonstration expenses.

Gross margin declined to 31.4% of revenues from 37.2% in Q2 2017, due to
the revenue mix between APC and FUEL CHEM, the above-referenced
execution issues on foreign projects, and certain product demonstration
expenses.

SG&A expenses declined 19.6% to $4.8 million, or 40.2% of revenues, from
$5.9 million, or 60.8% of revenues, in Q2 2017, driven primarily by the
previously announced cost containment initiatives.

Net loss from continuing operations was $1.7 million, or $0.07 per
diluted share, compared to a net loss from continuing operations of $5.6
million, or $0.24 per diluted share, in Q2 2017. Net loss from
continuing operations in Q2 2018 and Q2 2017 included non-cash charges
of $0.3 million and $3.0 million, respectively.

Net loss for Q2 2018 was $1.7 million, or $0.07 per diluted share, as
compared to a net loss of $6.9 million, or $0.29 per diluted share, in
Q2 2017. In addition to the above-referenced non-cash charges, net loss
in Q2 2018 and 2017 also included losses from discontinued operations of
$0.1 million, or $0.00 per diluted share, and $1.3 million, or $0.05 per
diluted share, respectively.

APC segment revenues rose by 51.6% to $8.4 million from $5.5 million in
Q2 2017, driven by the conversion of orders received in 2017. APC gross
margin was $2.1 million, or 24.7%, as compared to $1.4 million, or 26%,
in Q2 2017, due to product line and geographical mix versus the prior
quarter.

FUEL CHEM segment revenues decreased to $3.4 million from $4.2 million
in Q2 2017, with gross margin of 48% as compared to 52% for the same
period last year. FUEL CHEM revenues in 2018 are expected to trend
similarly to 2017.

Research and development expenses for Q2 2018 and Q2 2017 were $0.3
million, respectively, which supports our continued development of new
products.

Adjusted EBITDA loss for Q2 2018 was $1.1 million as compared to an
Adjusted EBITDA loss of $2.2 million for Q2 2017.

At June 30, 2018, cash and cash equivalents were $10.4 million, which
included restricted cash of $6.5 million. Shareholders' equity was $32.4
million, or $1.34 per share, and the Company had zero long-term debt.

Capital projects backlog was $14.4 million, as compared to $22.1 million
at December 31, 2017.

Year-to-Date Results Overview

Consolidated revenues for the first six months of 2018 rose 35.1% to
$24.6 million from $18.2 million in the comparable period of 2017, due
primarily to the reasons cited above.

SG&A expenses for the six months ended June 30, 2018 declined 12.6% to
$9.7 million from $11.1 million in the same period last year. On a total
dollar basis, SG&A for the year-to-date period decreased by $1.4 million.

Net loss from continuing operations narrowed to $1.9 million, or $0.08
per share, compared to a net loss from continuing operations of $7.4
million, $0.31 per share, in the same period last year.

Net loss for the first half of 2018 was $2.0 million, or $0.08 per
diluted share, as compared to a net loss of $9.4 million, or $0.39 per
diluted share, for the same period in 2017. Net loss in the 2017 period
also included a loss from discontinued operations of $2.0 million, or
$0.08 per diluted share.

Conference Call

Management will host a conference call on Tuesday, August 14, 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:

  • (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, water treatment and advanced engineering services. These
technologies enable customers to produce energy and processed materials
and deliver water treatment solutions 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.

Water treatment technologies include DGI™ Dissolved Gas Infusion Systems
which utilize a patented nozzle to provide a competitive advantage over
conventional utility and industrial aeration. An innovative alternative
to current aeration technology among other applications, DGI systems can
deliver supersaturated oxygen solutions and other gas-water combinations
to target process applications or environmental issues. This infusion
process has a variety of applications in the water and wastewater
industries, including remediation, treatment, biological activity and
wastewater odor management. DGI technology benefits include reduced
energy consumption, installation costs, and operating costs, while
improving treatment performance.

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

(Unaudited)

(in thousands, except share and per share data)

 
  June 30,
2018
  December 31,
2017
 
ASSETS
Current assets:
Cash and cash equivalents $ 3,912 $ 8,366
Restricted cash 6,520 1,020
Marketable securities 2 6
Accounts receivable, net of allowance for doubtful accounts of
$1,460 and $1,545, respectively
21,294 19,690
Inventories, net 725 945
Prepaid expenses and other current assets 3,819 3,592
Income taxes receivable 140     129  
Total current assets 36,412 33,748
Property and equipment, net of accumulated depreciation of $26,262
and $25,938, respectively
6,066 6,272
Goodwill 2,116 2,116
Other intangible assets, net of accumulated amortization of $6,522
and $6,421, respectively
1,234 1,671
Restricted cash 5,000
Assets held for sale 485 485
Other assets 644     1,192  
Total assets $ 46,957     $ 50,484  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,766 $ 9,065
Accrued liabilities:
Employee compensation 1,484 1,487
Income taxes payable 73
Other accrued liabilities 2,919     5,098  
Total current liabilities 14,169 15,723
Other liabilities 367     420  
Total liabilities 14,536     16,143  
COMMITMENTS AND CONTINGENCIES (Note 12)
Shareholders' equity:

Common stock, $.01 par value, 40,000,000 shares authorized,
24,825,891 and 24,777,001
shares issued, and 24,170,585, and
24,132,910 shares outstanding, respectively

248 248
Additional paid-in capital 138,797 138,760
Accumulated deficit (104,267 ) (102,503 )
Accumulated other comprehensive loss (949 ) (768 )
Nil coupon perpetual loan notes 76 76
Treasury stock, at cost (1,484 )   (1,472 )
Total shareholders' equity 32,421     34,341  
Total liabilities and shareholders' equity $ 46,957     $ 50,484  
 
 

FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
2018   2017   2018   2017
Revenues $ 11,847   $ 9,741 $ 24,638   $ 18,232
Costs and expenses:
Cost of sales 8,125 6,116 15,891 10,885
Selling, general and administrative 4,763 5,923 9,684 11,077
Restructuring charge 58 119
Research and development 261 280 549 564
Intangible assets abandonment and building impairment 317     2,965     317     2,965  
13,466     15,342     26,441     25,610  
Operating loss from continuing operations (1,619 ) (5,601 ) (1,803 ) (7,378 )
Interest income 3 2 6
Other expense (59 )   (2 )   (67 )   (4 )
Loss from continuing operations before income taxes (1,678 ) (5,600 ) (1,868 ) (7,376 )
Income tax (benefit) expense (1 )   15     (2 )   15  
Net loss from continuing operations (1,679 )   (5,585 )   (1,870 )   (7,361 )
Loss from discontinued operations (net of income tax benefit of $0
in 2018 and 2017)
(74 )   (1,269 )   (99 )   (1,999 )
Net loss $ (1,753 )   $ (6,854 )   $ (1,969 )   $ (9,360 )
Net loss per common share:
Basic
Continuing operations $ (0.07 )   $ (0.24 )   $ (0.08 )   $ (0.31 )
Discontinued operations $     $ (0.05 )   $     $ (0.08 )
Basic net loss per common share $ (0.07 )   $ (0.29 )   $ (0.08 )   $ (0.39 )
Diluted
Continuing operations $ (0.07 )   $ (0.24 )   $ (0.08 )   $ (0.31 )
Discontinued operations $     $ (0.05 )   $     $ (0.08 )
Diluted net loss per common share $ (0.07 )   $ (0.29 )   $ (0.08 )   $ (0.39 )
Weighted-average number of common shares outstanding:
Basic 24,170,000     23,738,000     24,158,000     23,606,000  
Diluted 24,170,000     23,738,000     24,158,000     23,606,000  
 
 

FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
2018   2017   2018   2017
Net loss $ (1,753 )   $ (6,854 ) $ (1,969 )   $ (9,360 )
Other comprehensive income (loss):
Foreign currency translation adjustments (594 ) 380 (179 ) 496
Unrealized gains (losses) from marketable securities, net of tax (2 )       (2 )   1  
Total other comprehensive income (loss) (596 )   380     (181 )   497  
Comprehensive loss $ (2,349 )   $ (6,474 )   $ (2,150 )   $ (8,863 )
 
 

FUEL TECH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
  Six Months Ended
June 30,
2018   2017
Operating Activities  
Net loss $ (1,969 ) $ (9,360 )
Loss from discontinued operations 99     1,999  
Net loss from continuing operations (1,870 ) (7,361 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 355 755
Amortization 106 109
Loss on disposal of equipment 17 114
Provision for doubtful accounts, net of recoveries (62 ) 30
Excess and obsolete inventory reserve 228
Intangible assets abandonment and building impairment 317 2,965
Stock-based compensation, net of forfeitures 38 1,156
Changes in operating assets and liabilities:
Accounts receivable (1,766 ) (110 )
Inventories 213 (570 )
Prepaid expenses, other current assets and other non-current assets 229 16
Accounts payable 714 (1,591 )
Accrued liabilities and other non-current liabilities (1,760 )   323  
Net cash used in operating activities - continuing operations (3,469 ) (3,936 )
Net cash used in operating activities - discontinued operations (43 )   (1,316 )
Net cash used in operating activities (3,512 )   (5,252 )
Investing Activities
Purchases of equipment and patents (214 ) (233 )
Proceeds from the sale of equipment 2     1  
Net cash used in investing activities (212 )   (232 )
Financing Activities
Taxes paid on behalf of equity award participants (13 )   (258 )
Net cash used in financing activities (13 )   (258 )
Effect of exchange rate fluctuations on cash (217 )   492  
Net decrease in cash, cash equivalents and restricted cash (3,954 ) (5,250 )
Cash, cash equivalents, and restricted cash at beginning of period 14,386     17,846  
Cash, cash equivalents and restricted cash at end of period $ 10,432     $ 12,596  
 
 

FUEL TECH, INC.

BUSINESS SEGMENT FINANCIAL DATA

(Unaudited)

(in thousands)

 
Three months ended June 30, 2018   Air Pollution
Control Segment
  FUEL CHEM
Segment
  Other   Total
Revenues from external customers $ 8,407   $ 3,440   $   $ 11,847
Cost of sales (6,328 )   (1,797 )       (8,125 )
Gross margin 2,079 1,643 3,722
Selling, general and administrative (4,763 ) (4,763 )
Research and development (261 ) (261 )
Intangible assets abandonment         (317 )   (317 )
Operating income (loss) from continuing operations $ 2,079     $ 1,643     $ (5,341 )   $ (1,619 )
 
Three months ended June 30, 2017   Air Pollution
Control Segment
  FUEL CHEM
Segment
  Other   Total
Revenues from external customers $ 5,545   $ 4,196   $   $ 9,741
Cost of sales (4,103 )   (2,013 )       (6,116 )
Gross margin 1,442 2,183 3,625
Selling, general and administrative (5,923 ) (5,923 )
Restructuring charge (58 ) (58 )
Research and development (280 ) (280 )
Building impairment         (2,965 )     (2,965 )
Operating income (loss) from continuing operations $ 1,384     $ 2,183     $ (9,168 )   $ (5,601 )
 
Six Months Ended June 30, 2018   Air Pollution
Control Segment
  FUEL CHEM
Segment
  Other   Total
Revenues from external customers $ 16,990   $ 7,648   $   $ 24,638
Cost of sales (11,924 )   (3,967 )       (15,891 )
Gross margin 5,066 3,681 8,747
Selling, general and administrative (9,684 ) (9,684 )
Research and development (549 ) (549 )
Intangible assets abandonment         (317 )   (317 )
Operating income (loss) from continuing operations $ 5,066     $ 3,681     $ (10,550 )   $ (1,803 )
 
Six Months Ended June 30, 2017   Air Pollution
Control Segment
  FUEL CHEM
Segment
  Other   Total
Revenues from external customers $ 9,547   $ 8,685   $   $ 18,232
Cost of sales (6,603 )   (4,282 )       (10,885 )
Gross margin 2,944 4,403 7,347
Selling, general and administrative (11,077 ) (11,077 )
Restructuring charge (58 ) (61 ) (119 )
Research and development (564 ) (564 )
Building impairment         (2,965 )   (2,965 )
Operating income (loss) from continuing operations $ 2,886     $ 4,342     $ (14,606 )   $ (7,378 )
 

Note: Fuel Tech is an integrated company that segregates its
financial results into three reportable segments. The Air Pollution
Control technology segment includes technologies to reduce NOx emissions
in flue gas from boilers, incinerators, furnaces and other stationary
combustion sources. The FUEL CHEM®technology segment, which uses
chemical processes in combination with advanced CFD and CKM boiler
modeling, for the control of slagging, fouling, corrosion, opacity and
other sulfur trioxide-related issues in furnaces and boilers through the
addition of chemicals into the furnace using TIFI®Targeted In-Furnace
Injection™ technology.
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)

 

Information concerning Fuel Tech's operations by geographic area is
provided below. Revenues are attributed to countries based on the
location of the customer. Assets are those directly associated with
operations of the geographic area.

  Three Months Ended
June 30,
  Six Months Ended
June 30,
2018   2017   2018   2017
Revenues:      
United States $ 8,830 $ 5,915 $ 19,072

$

12,649
Foreign 3,017     3,826     5,566     5,583
$ 11,847     $ 9,741     $ 24,638  

$

18,232
 
June 30,
2018
 

December 31,
2017

Assets:
United States $ 29,593 $ 29,945
Foreign 17,364  

 

20,539

$ 46,957   $ 50,484
 
 

FUEL TECH, INC.

RECONCILIATION OF GAAP NET LOSS TO EBITDA AND ADJUSTED EBITDA

(Unaudited)

(in thousands)

 
  Three Months Ended

June 30,

  Six Months Ended
June 30,
2018   2017   2018   2017
Net loss $ (1,753 )   $ (6,854 ) $ (1,969 )   $ (9,360 )
Interest income 3 (2 )
Income tax expense 1 (15 ) 2 (15 )
Depreciation expense 160 350 355 755
Amortization expense 53     205     106     410  
EBITDA (1,539 ) (6,311 ) (1,508 ) (8,210 )
Intangible assets abandonment and building impairment 374 2,965 374 2,965
Stock compensation expense 97     1,166     38     1,156  
ADJUSTED EBITDA (1,068 )   (2,180 )   (1,096 )   (4,089 )
 

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 expense, income tax expense
(benefit), depreciation expense, amortization expense, stock
compensation expense, intangible assets abandonment and building
impairment. 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 above financial table.

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