November 27, 2020

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Fuel Tech Reports 2020 Second Quarter Financial Results

WARRENVILLE, Ill.--(BUSINESS WIRE)--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, 2020 (“Q2 2020”). “We believe that the COVID-19 pandemic affected our Air Pollution Control (“APC”) and FUEL CHEM® operations in the second quarter,” said Vincent J. Arnone, President and CEO. “The delays that we had been experiencing in closing new APC business awards were extended as a result of COVID-19. However, we do have active projects in our current pipeline and we are confident that we will close new awards with an aggregate total value of $10 to $15 million by the end of the year. Our FUEL CHEM segment was impacted by slower activity due to COVID-19, particularly in the months of April and May. A decline in economic activity caused reduced electricity demand which led to a reduction in electricity generation and dispatch, in particular for coal-fired power generation units. Fortunately, the month of June showed improvement and thus far in the third quarter we have returned to normalized run rates for use of our FUEL CHEM programs. Early in the third quarter, we announced a new order for equipment supporting our TIFI® Targeted In-Furnace Injection technology on three coal-fired units in the United States. The equipment installation and startup for these units should occur before the end of the third quarter, and we expect to see contributions from these units throughout the second half of the year.” Mr. Arnone concluded, “We have collected and repatriated in excess of $1.0 million in cash as of June 30, 2020 following the closure of our underperforming China operation (“Beijing Fuel Tech”) and expect to continue these collections throughout 2020. We ended the quarter with $11.3 million in cash and cash equivalents.” DGI™ Dissolved Gas Infusion The Company previously reported that an on-site demonstration of its water technology at a pulp and paper facility in the Midwest planned for early in Q2 2020 had been delayed due to the impact of COVID-19, and this demonstration is still delayed as of this date. In July, the Company signed a new license agreement related to the DGI technology from Kadance Corporation, an entity that purchased the assets from the prior licensor of the technology, NanO2, LLC. Kadance Corporation is a company active in municipal wastewater treatment, with a focus on delivering biological solutions to this market. Under the terms of the new agreement, Fuel Tech has more flexibility regarding non-exclusive market access and now can manufacture all DGI delivery systems on its own. The Company continues to advance conversations with several other potential customers of our DGI technology across a variety of industries. Q2 2020 Consolidated Results Overview Consolidated revenues declined to $4.4 million from $8.9 million in Q2 2019, reflecting lower APC and FUEL CHEM revenues. Results for Q2 2020 and Q2 2019 did not include any revenue from Beijing Fuel Tech. Gross margin for Q2 2020 was 13.7% of revenues compared to 43.6% of revenues in Q2 2019, primarily reflecting lower revenues in the current quarter and a $1.1 million charge in our APC segment (described below). Excluding the APC charge, consolidated gross margin for Q2 2020 was 40%. SG&A expenses declined by 38.2% to $2.8 million from $4.5 million in Q2 2019. Included in this amount for Q2 2020 is a reversal of $0.5 million in expense related to the allowance for doubtful accounts associated with the aforementioned APC charge. Net loss from continuing operations was $(2.5) million, or $(0.10) per share, compared to net loss from continuing operations of $(0.9) million, or $(0.04) per share in Q2 2019. Net (loss) from continuing operations in Q2 2020 and Q2 2019 attributable to Beijing Fuel Tech was $(0.1) million and $(0.5) million, respectively. Capital projects backlog at June 30, 2020 was $8.3 million, $7.2 million of which was domestic. Backlog at December 31, 2019 was $9.7 million, of which $8.6 million was domestic. APC segment revenues declined to $1.9 million from $4.8 million in Q2 2019, primarily the result of project timing, lower capital projects backlog and a delay in new contract awards. APC gross margin was $(0.4) million reflecting a $1.1 million charge associated with a previously disclosed equipment warranty liability with a U.S. customer. Excluding the charge, APC gross margin for Q2 2020 was $0.7 million, or 39%. Fuel Tech has submitted a reimbursement request to its insurer for the amount expended in remediation, and such amount is within the coverage limits of its insurance policy. Fuel Tech and the insurance company continue to work amicably to resolve this matter and, upon settlement with its insurer, all amounts received will be applied to reverse the charge. FUEL CHEM segment revenues were $2.5 million compared to $4.1 million in Q2 2019. This segment’s performance was impacted by a reduced demand for power, extended unscheduled outages, and significantly reduced operations largely caused by the COVID-19 pandemic. Segment gross margin was 40.0% in Q2 2020 and 49.9% in Q2 2019. Adjusted EBITDA loss was $(2.2) million in Q2 2020 compared to an Adjusted EBITDA loss of $(0.5) million in Q2 2019. Financial Condition At June 30, 2020 total cash was $11.3 million including restricted cash of $3.0 million, down from total cash of $13.5 million, including restricted cash of $2.6 million, at December 31, 2019. Stockholders’ equity was $21.1 million, or $0.86 per share. As previously announced, on April 15, 2020 the Company received $1.6 million in loan proceeds from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan is evidenced by a promissory note of the Company dated April 15, 2020 (the “Note”) in the principal amount of $1.6 million issued to BMO Harris Bank N.A. (the “Bank”), the lender, pursuant to a loan agreement, dated April 15, 2020, between the Company and the Bank. Under the terms of the Agreement, the Note and the PPP Loan, interest will accrue on the outstanding principal at the rate of 1.0% per annum. Additional information concerning this loan is available in the Company’s Form 10-Q for the period ended June 30, 2020. Conference Call Management will host a conference call on Wednesday, August 12, 2020 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 [email protected] For those who cannot listen to the live broadcast, an online replay will be available at www.ftek.com. About Fuel Tech Fuel Tech develops and commercializes state-of-the-art proprietary technologies for air pollution control, process optimization, water treatment, and advanced engineering services. These technologies enable customers to operate in a cost-effective and environmentally sustainable manner. Fuel Tech is a leader in nitrogen oxide (NOx) reduction and particulate control technologies and its solutions have been in installed on over 1,200 utility, industrial and municipal units worldwide. The Company’s FUEL CHEM® technology improves the efficiency, reliability, fuel flexibility, boiler heat rate, and environmental status of combustion units by controlling slagging, fouling, corrosion and opacity. Water treatment technologies include DGI™ Dissolved Gas Infusion Systems which utilize a patented nozzle to 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, aeration, biological treatment and wastewater odor management. 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. 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. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share data) June 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 8,254 $ 10,914 Restricted cash 2,639 2,080 Accounts receivable, net 5,658 6,473 Inventories, net 342 264 Prepaid expenses and other current assets 1,410 1,879 Income taxes receivable 69 — Total current assets 18,372 21,610 Property and equipment, net of accumulated depreciation of $26,503 and $26,174, respectively 5,437 5,662 Goodwill 2,116 2,116 Other intangible assets, net of accumulated amortization of $6,756 and $6,671, respectively 838 906 Restricted cash 364 507 Right-of-use operating lease assets 1,035 980 Other assets 395 443 Total assets $ 28,557 $ 32,224 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,585 $ 2,117 Current portion of long-term borrowings 684 — Accrued liabilities: Operating lease liabilities - current 279 300 Employee compensation 679 519 Income taxes payable 36 — Other accrued liabilities 2,104 1,976 Total current liabilities 5,367 4,912 Operating lease liabilities - non-current 738 680 Long-term borrowings, net of current portion 872 — Deferred income taxes, net 172 171 Other liabilities 278 286 Total liabilities 7,427 6,049 COMMITMENTS AND CONTINGENCIES (Note 13) Stockholders’ equity: Common stock, $.01 par value, 40,000,000 shares authorized, 25,476,420 and 25,053,480 shares issued, and 24,701,159 and 24,592,578 shares outstanding, respectively 255 254 Additional paid-in capital 139,710 139,560 Accumulated deficit (115,436 ) (110,325 ) Accumulated other comprehensive loss (1,857 ) (1,778 ) Nil coupon perpetual loan notes 76 76 Treasury stock, at cost (1,618 ) (1,612 ) Total stockholders’ equity 21,130 26,175 Total liabilities and stockholders’ equity $ 28,557 $ 32,224 FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues $ 4,401 $ 8,948 $ 8,179 $ 19,103 Costs and expenses: Cost of sales 3,799 5,050 6,050 11,191 Selling, general and administrative 2,755 4,455 6,641 8,913 Restructuring charge — 30 — 625 Research and development 271 205 595 471 Intangible assets abandonment — 51 — 51 6,825 9,791 13,286 21,251 Operating loss from continuing operations (2,424 ) (843 ) (5,107 ) (2,148 ) Interest expense (3 ) (3 ) (6 ) (4 ) Interest income 2 9 13 11 Other income (expense), net (88 ) (97 ) 138 (72 ) Loss from continuing operations before income taxes (2,513 ) (934 ) (4,962 ) (2,213 ) Income tax expense (31 ) (2 ) (149 ) (2 ) Net loss from continuing operations (2,544 ) (936 ) (5,111 ) (2,215 ) Loss from discontinued operations — (9 ) — (19 ) Net loss $ (2,544 ) $ (945 ) $ (5,111 ) $ (2,234 ) Net loss per common share: Basic Continuing operations $ (0.10 ) $ (0.04 ) $ (0.21 ) $ (0.09 ) Discontinued operations $ — $ — $ — $ — Basic net loss per common share $ (0.10 ) $ (0.04 ) $ (0.21 ) $ (0.09 ) Diluted Continuing operations $ (0.10 ) $ (0.04 ) $ (0.21 ) $ (0.09 ) Discontinued operations $ — $ — $ — $ — Diluted net loss per common share $ (0.10 ) $ (0.04 ) $ (0.21 ) $ (0.09 ) Weighted-average number of common shares outstanding: Basic 24,668,000 24,187,000 24,633,000 24,182,000 Diluted 24,668,000 24,187,000 24,633,000 24,182,000 FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net loss $ (2,544 ) $ (945 ) $ (5,111 ) $ (2,234 ) Other comprehensive income loss: Foreign currency translation adjustments 152 (43 ) (79 ) 61 Comprehensive loss $ (2,392 ) $ (988 ) $ (5,190 ) $ (2,173 ) FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 2020 2019 Operating Activities Net loss $ (5,111 ) $ (2,234 ) Loss from discontinued operations — 19 Net loss from continuing operations (5,111 ) (2,215 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 329 478 Amortization 85 68 Loss (gain) on disposal of equipment — 2 Provision for doubtful accounts, net of recoveries (1,082 ) — Intangible assets abandonment — 51 Stock-based compensation, net of forfeitures 150 219 Changes in operating assets and liabilities: Accounts receivable 1,863 3,870 Inventories (78 ) 640 Prepaid expenses, other current assets and other non-current assets 424 1,163 Accounts payable (531 ) (5,595 ) Accrued liabilities and other non-current liabilities 537 (1,485 ) Net cash used in operating activities - continuing operations (3,414 ) (2,804 ) Net cash used in operating activities - discontinued operations — (19 ) Net cash used in operating activities (3,414 ) (2,823 ) Investing Activities Purchases of equipment and patents (122 ) (359 ) Net cash used in investing activities (122 ) (359 ) Financing Activities Proceeds from borrowings 1,556 — Taxes paid on behalf of equity award participants (6 ) (2 ) Net cash used in financing activities 1,550 (2 ) Effect of exchange rate fluctuations on cash (258 ) 44 Net decrease in cash, cash equivalents and restricted cash (2,244 ) (3,140 ) Cash, cash equivalents, and restricted cash at beginning of period (Note 2) 13,501 18,059 Cash, cash equivalents and restricted cash at end of period (Note 2) $ 11,257 $ 14,919 FUEL TECH, INC. BUSINESS SEGMENT FINANCIAL DATA (Unaudited) (in thousands) Three months ended June 30, 2020 Air Pollution Control Segment FUEL CHEM Segment Other Total Revenues from external customers $ 1,937 $ 2,464 $ — $ 4,401 Cost of sales (2,320 ) (1,479 ) — (3,799 ) Gross margin (383 ) 985 — 602 Selling, general and administrative — — (2,755 ) (2,755 ) Research and development — — (271 ) (271 ) Operating (loss) income from continuing operations $ (383 ) $ 985 $ (3,026 ) $ (2,424 ) Three months ended June 30, 2019 Air Pollution Control Segment FUEL CHEM Segment Other Total Revenues from external customers $ 4,803 $ 4,145 $ — $ 8,948 Cost of sales (2,975 ) (2,075 ) — (5,050 ) Gross margin 1,828 2,070 — 3,898 Selling, general and administrative — — (4,455 ) (4,455 ) Restructuring Charge (30 ) — — (30 ) Research and development — — (205 ) (205 ) Intangible assets abandonment — — (51 ) (51 ) Operating income (loss) from continuing operations $ 1,798 $ 2,070 $ (4,711 ) $ (843 ) Six months ended June 30, 2020 Air Pollution Control Segment FUEL CHEM Segment Other Total Revenues from external customers $ 3,133 $ 5,046 $ — $ 8,179 Cost of sales (3,086 ) (2,964 ) — (6,050 ) Gross margin 47 2,082 — 2,129 Selling, general and administrative — — (6,641 ) (6,641 ) Research and development — — (595 ) (595 ) Operating (loss) income from continuing operations $ 47 $ 2,082 $ (7,236 ) $ (5,107 ) Six months ended June 30, 2019 Air Pollution Control Segment FUEL CHEM Segment Other Total Revenues from external customers $ 10,592 $ 8,511 $ — $ 19,103 Cost of sales (6,864 ) (4,327 ) — (11,191 ) Gross margin 3,728 4,184 — 7,912 Selling, general and administrative — — (8,913 ) (8,913 ) Restructuring Charge (625 ) — — (625 ) Research and development — — (471 ) (471 ) Intangible assets abandonment — — (51 ) (51 ) Operating income (loss) from continuing operations $ 3,103 $ 4,184 $ (9,435 ) $ (2,148 ) 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, 2020 2019 2020 2019 Revenues: United States $ 3,310 $ 7,562 $ 6,407 $ 16,377 Foreign 1,091 1,386 1,772 2,726 $ 4,401 $ 8,948 $ 8,179 $ 19,103 June 30, 2020 December 31, 2019 Assets: United States $ 22,090 $ 23,460 Foreign 6,467 8,764 $ 28,557 $ 32,224 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, 2020 2019 2020 2019 Net Loss $ (2,544 ) $ (945 ) $ (5,111 ) $ (2,234 ) Interest (income) expense, net 1 (9 ) (7 ) (10 ) Income tax expense 31 2 149 2 Depreciation expense 166 234 329 478 Amortization expense 42 36 85 68 EBITDA (2,304 ) (682 ) (4,555 ) (1,696 ) Intangible assets abandonment - 51 - 51 Stock compensation expense 69 123 150 219 ADJUSTED EBITDA (2,235 ) (508 ) (4,405 ) (1,426 ) 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, and 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. Contacts Vince Arnone President and CEO (630) 845-4500 Devin Sullivan Senior Vice President The Equity Group Inc. (212) 836-9608

WARRENVILLE, Ill.–(BUSINESS WIRE)–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, 2020 (“Q2 2020”).

“We believe that the COVID-19 pandemic affected our Air Pollution Control (“APC”) and FUEL CHEM® operations in the second quarter,” said Vincent J. Arnone, President and CEO. “The delays that we had been experiencing in closing new APC business awards were extended as a result of COVID-19. However, we do have active projects in our current pipeline and we are confident that we will close new awards with an aggregate total value of $10 to $15 million by the end of the year. Our FUEL CHEM segment was impacted by slower activity due to COVID-19, particularly in the months of April and May. A decline in economic activity caused reduced electricity demand which led to a reduction in electricity generation and dispatch, in particular for coal-fired power generation units. Fortunately, the month of June showed improvement and thus far in the third quarter we have returned to normalized run rates for use of our FUEL CHEM programs. Early in the third quarter, we announced a new order for equipment supporting our TIFI® Targeted In-Furnace Injection technology on three coal-fired units in the United States. The equipment installation and startup for these units should occur before the end of the third quarter, and we expect to see contributions from these units throughout the second half of the year.”

Mr. Arnone concluded, “We have collected and repatriated in excess of $1.0 million in cash as of June 30, 2020 following the closure of our underperforming China operation (“Beijing Fuel Tech”) and expect to continue these collections throughout 2020. We ended the quarter with $11.3 million in cash and cash equivalents.”

DGI™ Dissolved Gas Infusion

The Company previously reported that an on-site demonstration of its water technology at a pulp and paper facility in the Midwest planned for early in Q2 2020 had been delayed due to the impact of COVID-19, and this demonstration is still delayed as of this date. In July, the Company signed a new license agreement related to the DGI technology from Kadance Corporation, an entity that purchased the assets from the prior licensor of the technology, NanO2, LLC. Kadance Corporation is a company active in municipal wastewater treatment, with a focus on delivering biological solutions to this market. Under the terms of the new agreement, Fuel Tech has more flexibility regarding non-exclusive market access and now can manufacture all DGI delivery systems on its own. The Company continues to advance conversations with several other potential customers of our DGI technology across a variety of industries.

Q2 2020 Consolidated Results Overview

Consolidated revenues declined to $4.4 million from $8.9 million in Q2 2019, reflecting lower APC and FUEL CHEM revenues. Results for Q2 2020 and Q2 2019 did not include any revenue from Beijing Fuel Tech.

Gross margin for Q2 2020 was 13.7% of revenues compared to 43.6% of revenues in Q2 2019, primarily reflecting lower revenues in the current quarter and a $1.1 million charge in our APC segment (described below). Excluding the APC charge, consolidated gross margin for Q2 2020 was 40%.

SG&A expenses declined by 38.2% to $2.8 million from $4.5 million in Q2 2019. Included in this amount for Q2 2020 is a reversal of $0.5 million in expense related to the allowance for doubtful accounts associated with the aforementioned APC charge.

Net loss from continuing operations was $(2.5) million, or $(0.10) per share, compared to net loss from continuing operations of $(0.9) million, or $(0.04) per share in Q2 2019. Net (loss) from continuing operations in Q2 2020 and Q2 2019 attributable to Beijing Fuel Tech was $(0.1) million and $(0.5) million, respectively.

Capital projects backlog at June 30, 2020 was $8.3 million, $7.2 million of which was domestic. Backlog at December 31, 2019 was $9.7 million, of which $8.6 million was domestic.

APC segment revenues declined to $1.9 million from $4.8 million in Q2 2019, primarily the result of project timing, lower capital projects backlog and a delay in new contract awards. APC gross margin was $(0.4) million reflecting a $1.1 million charge associated with a previously disclosed equipment warranty liability with a U.S. customer. Excluding the charge, APC gross margin for Q2 2020 was $0.7 million, or 39%.

Fuel Tech has submitted a reimbursement request to its insurer for the amount expended in remediation, and such amount is within the coverage limits of its insurance policy. Fuel Tech and the insurance company continue to work amicably to resolve this matter and, upon settlement with its insurer, all amounts received will be applied to reverse the charge.

FUEL CHEM segment revenues were $2.5 million compared to $4.1 million in Q2 2019. This segment’s performance was impacted by a reduced demand for power, extended unscheduled outages, and significantly reduced operations largely caused by the COVID-19 pandemic. Segment gross margin was 40.0% in Q2 2020 and 49.9% in Q2 2019.

Adjusted EBITDA loss was $(2.2) million in Q2 2020 compared to an Adjusted EBITDA loss of $(0.5) million in Q2 2019.

Financial Condition

At June 30, 2020 total cash was $11.3 million including restricted cash of $3.0 million, down from total cash of $13.5 million, including restricted cash of $2.6 million, at December 31, 2019. Stockholders’ equity was $21.1 million, or $0.86 per share.

As previously announced, on April 15, 2020 the Company received $1.6 million in loan proceeds from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan is evidenced by a promissory note of the Company dated April 15, 2020 (the “Note”) in the principal amount of $1.6 million issued to BMO Harris Bank N.A. (the “Bank”), the lender, pursuant to a loan agreement, dated April 15, 2020, between the Company and the Bank. Under the terms of the Agreement, the Note and the PPP Loan, interest will accrue on the outstanding principal at the rate of 1.0% per annum. Additional information concerning this loan is available in the Company’s Form 10-Q for the period ended June 30, 2020.

Conference Call

Management will host a conference call on Wednesday, August 12, 2020 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 [email protected] For those who cannot listen to the live broadcast, an online replay will be available at www.ftek.com.

About Fuel Tech

Fuel Tech develops and commercializes state-of-the-art proprietary technologies for air pollution control, process optimization, water treatment, and advanced engineering services. These technologies enable customers to operate in a cost-effective and environmentally sustainable manner. Fuel Tech is a leader in nitrogen oxide (NOx) reduction and particulate control technologies and its solutions have been in installed on over 1,200 utility, industrial and municipal units worldwide. The Company’s FUEL CHEM® technology improves the efficiency, reliability, fuel flexibility, boiler heat rate, and environmental status of combustion units by controlling slagging, fouling, corrosion and opacity. Water treatment technologies include DGI™ Dissolved Gas Infusion Systems which utilize a patented nozzle to 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, aeration, biological treatment and wastewater odor management. 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. 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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)

June 30,

2020

December 31,

2019

ASSETS

Current assets:

Cash and cash equivalents

$

8,254

$

10,914

Restricted cash

2,639

2,080

Accounts receivable, net

5,658

6,473

Inventories, net

342

264

Prepaid expenses and other current assets

1,410

1,879

Income taxes receivable

69

Total current assets

18,372

21,610

Property and equipment, net of accumulated depreciation of $26,503 and $26,174, respectively

5,437

5,662

Goodwill

2,116

2,116

Other intangible assets, net of accumulated amortization of $6,756 and $6,671, respectively

838

906

Restricted cash

364

507

Right-of-use operating lease assets

1,035

980

Other assets

395

443

Total assets

$

28,557

$

32,224

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

1,585

$

2,117

Current portion of long-term borrowings

684

Accrued liabilities:

Operating lease liabilities – current

279

300

Employee compensation

679

519

Income taxes payable

36

Other accrued liabilities

2,104

1,976

Total current liabilities

5,367

4,912

Operating lease liabilities – non-current

738

680

Long-term borrowings, net of current portion

872

Deferred income taxes, net

172

171

Other liabilities

278

286

Total liabilities

7,427

6,049

COMMITMENTS AND CONTINGENCIES (Note 13)

Stockholders’ equity:

Common stock, $.01 par value, 40,000,000 shares authorized, 25,476,420 and 25,053,480 shares issued, and 24,701,159 and 24,592,578 shares outstanding, respectively

255

254

Additional paid-in capital

139,710

139,560

Accumulated deficit

(115,436

)

(110,325

)

Accumulated other comprehensive loss

(1,857

)

(1,778

)

Nil coupon perpetual loan notes

76

76

Treasury stock, at cost

(1,618

)

(1,612

)

Total stockholders’ equity

21,130

26,175

Total liabilities and stockholders’ equity

$

28,557

$

32,224

FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

Three Months Ended

June 30,

Six Months Ended

June 30,

2020

2019

2020

2019

Revenues

$

4,401

$

8,948

$

8,179

$

19,103

Costs and expenses:

Cost of sales

3,799

5,050

6,050

11,191

Selling, general and administrative

2,755

4,455

6,641

8,913

Restructuring charge

30

625

Research and development

271

205

595

471

Intangible assets abandonment

51

51

6,825

9,791

13,286

21,251

Operating loss from continuing operations

(2,424

)

(843

)

(5,107

)

(2,148

)

Interest expense

(3

)

(3

)

(6

)

(4

)

Interest income

2

9

13

11

Other income (expense), net

(88

)

(97

)

138

(72

)

Loss from continuing operations before income taxes

(2,513

)

(934

)

(4,962

)

(2,213

)

Income tax expense

(31

)

(2

)

(149

)

(2

)

Net loss from continuing operations

(2,544

)

(936

)

(5,111

)

(2,215

)

Loss from discontinued operations

(9

)

(19

)

Net loss

$

(2,544

)

$

(945

)

$

(5,111

)

$

(2,234

)

Net loss per common share:

Basic

Continuing operations

$

(0.10

)

$

(0.04

)

$

(0.21

)

$

(0.09

)

Discontinued operations

$

$

$

$

Basic net loss per common share

$

(0.10

)

$

(0.04

)

$

(0.21

)

$

(0.09

)

Diluted

Continuing operations

$

(0.10

)

$

(0.04

)

$

(0.21

)

$

(0.09

)

Discontinued operations

$

$

$

$

Diluted net loss per common share

$

(0.10

)

$

(0.04

)

$

(0.21

)

$

(0.09

)

Weighted-average number of common shares outstanding:

Basic

24,668,000

24,187,000

24,633,000

24,182,000

Diluted

24,668,000

24,187,000

24,633,000

24,182,000

FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

Three Months Ended

June 30,

Six Months Ended

June 30,

2020

2019

2020

2019

Net loss

$

(2,544

)

$

(945

)

$

(5,111

)

$

(2,234

)

Other comprehensive income loss:

Foreign currency translation adjustments

152

(43

)

(79

)

61

Comprehensive loss

$

(2,392

)

$

(988

)

$

(5,190

)

$

(2,173

)

FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

Six Months Ended

June 30,

2020

2019

Operating Activities

Net loss

$

(5,111

)

$

(2,234

)

Loss from discontinued operations

19

Net loss from continuing operations

(5,111

)

(2,215

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

329

478

Amortization

85

68

Loss (gain) on disposal of equipment

2

Provision for doubtful accounts, net of recoveries

(1,082

)

Intangible assets abandonment

51

Stock-based compensation, net of forfeitures

150

219

Changes in operating assets and liabilities:

Accounts receivable

1,863

3,870

Inventories

(78

)

640

Prepaid expenses, other current assets and other non-current assets

424

1,163

Accounts payable

(531

)

(5,595

)

Accrued liabilities and other non-current liabilities

537

(1,485

)

Net cash used in operating activities – continuing operations

(3,414

)

(2,804

)

Net cash used in operating activities – discontinued operations

(19

)

Net cash used in operating activities

(3,414

)

(2,823

)

Investing Activities

Purchases of equipment and patents

(122

)

(359

)

Net cash used in investing activities

(122

)

(359

)

Financing Activities

Proceeds from borrowings

1,556

Taxes paid on behalf of equity award participants

(6

)

(2

)

Net cash used in financing activities

1,550

(2

)

Effect of exchange rate fluctuations on cash

(258

)

44

Net decrease in cash, cash equivalents and restricted cash

(2,244

)

(3,140

)

Cash, cash equivalents, and restricted cash at beginning of period (Note 2)

13,501

18,059

Cash, cash equivalents and restricted cash at end of period (Note 2)

$

11,257

$

14,919

FUEL TECH, INC.

BUSINESS SEGMENT FINANCIAL DATA

(Unaudited)

(in thousands)

Three months ended June 30, 2020

Air Pollution

Control Segment

FUEL CHEM

Segment

Other

Total

Revenues from external customers

$

1,937

$

2,464

$

$

4,401

Cost of sales

(2,320

)

(1,479

)

(3,799

)

Gross margin

(383

)

985

602

Selling, general and administrative

(2,755

)

(2,755

)

Research and development

(271

)

(271

)

Operating (loss) income from continuing operations

$

(383

)

$

985

$

(3,026

)

$

(2,424

)

Three months ended June 30, 2019

Air Pollution

Control Segment

FUEL CHEM

Segment

Other

Total

Revenues from external customers

$

4,803

$

4,145

$

$

8,948

Cost of sales

(2,975

)

(2,075

)

(5,050

)

Gross margin

1,828

2,070

3,898

Selling, general and administrative

(4,455

)

(4,455

)

Restructuring Charge

(30

)

(30

)

Research and development

(205

)

(205

)

Intangible assets abandonment

(51

)

(51

)

Operating income (loss) from continuing operations

$

1,798

$

2,070

$

(4,711

)

$

(843

)

Six months ended June 30, 2020

Air Pollution

Control Segment

FUEL CHEM

Segment

Other

Total

Revenues from external customers

$

3,133

$

5,046

$

$

8,179

Cost of sales

(3,086

)

(2,964

)

(6,050

)

Gross margin

47

2,082

2,129

Selling, general and administrative

(6,641

)

(6,641

)

Research and development

(595

)

(595

)

Operating (loss) income from continuing operations

$

47

$

2,082

$

(7,236

)

$

(5,107

)

Six months ended June 30, 2019

Air Pollution

Control Segment

FUEL CHEM

Segment

Other

Total

Revenues from external customers

$

10,592

$

8,511

$

$

19,103

Cost of sales

(6,864

)

(4,327

)

(11,191

)

Gross margin

3,728

4,184

7,912

Selling, general and administrative

(8,913

)

(8,913

)

Restructuring Charge

(625

)

(625

)

Research and development

(471

)

(471

)

Intangible assets abandonment

(51

)

(51

)

Operating income (loss) from continuing operations

$

3,103

$

4,184

$

(9,435

)

$

(2,148

)

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,

2020

2019

2020

2019

Revenues:

United States

$

3,310

$

7,562

$

6,407

$

16,377

Foreign

1,091

1,386

1,772

2,726

$

4,401

$

8,948

$

8,179

$

19,103

June 30,

2020

December 31,

2019

Assets:

United States

$

22,090

$

23,460

Foreign

6,467

8,764

$

28,557

$

32,224

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,

2020

2019

2020

2019

Net Loss

$

(2,544

)

$

(945

)

$

(5,111

)

$

(2,234

)

Interest (income) expense, net

1

(9

)

(7

)

(10

)

Income tax expense

31

2

149

2

Depreciation expense

166

234

329

478

Amortization expense

42

36

85

68

EBITDA

(2,304

)

(682

)

(4,555

)

(1,696

)

Intangible assets abandonment

51

51

Stock compensation expense

69

123

150

219

ADJUSTED EBITDA

(2,235

)

(508

)

(4,405

)

(1,426

)

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, and 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.

Contacts

Vince Arnone

President and CEO

(630) 845-4500

Devin Sullivan

Senior Vice President

The Equity Group Inc.

(212) 836-9608

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