FUEL TECH, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• The company returned to profitability in Q3 2024, largely due to strength in the FUEL CHEM segment.
• FUEL CHEM revenues rose 8% year-over-year, with a new coal-fired account expected to generate annualized revenues of $1.5M-$2M. Pursuing other opportunities in the Midwest and Eastern US.
• APC faced revenue delays but announced $2M in new orders and expects $2M-$4M more by end of 2024/early 2025. Well-positioned to benefit from industrial trends like plant expansion and decarbonization.
• DGI technology: Executed a demonstration agreement for aquaculture, with discussions for 2 additional end markets (municipal wastewater, food processing). Demonstration for fish hatchery to commence in Q1 2025, lasting 4-6 months.
• Financial position: Ended Q3 with over $31M in cash, cash equivalents, and investments, no debt.

Segment Performance:

• FUEL CHEM: Revenues increased to $4.6 million from $4.3 million in the third quarter of 2023, contributing approximately 58.2% of consolidated revenue ($7.9 million). Gross margin was flat at 49% compared to the prior year. This growth was due to returning customers and a new coal-fired account.
• APC: Revenue declined to $3.2 million from $3.7 million in the third quarter of 2023, contributing approximately 40.5% of consolidated revenue. Gross margin decreased to 35% of segment revenues from 40% in the prior year period, primarily due to changes in product and project mix. $2 million in new ATC orders were announced, with expected additional $2 million to $4 million in orders by end of 2024/early 2025.

Guidance:

• Total revenues for 2024 expected to be in the range of $25 million to $26 million.
• Q4 revenue expected lower due to delays in APC project execution, but backlog will be recognized in 2025.

Risks:

• Uncertainty in regulatory timelines, such as EPA's Good Neighbor rule and municipal waste combustor unit rule.
• Difficulty in converting DGI demonstrations to commercial deals.
• Dependence on customer project timelines and regulatory approvals affecting revenue recognition.

Q: About EPA action on Good Neighbor provision, any timeline visibility?

A: Difficult to predict due to changing administration, specific timeline uncertain. Additional project opportunities from Good Neighbor rule are upside, not impacting base revenues.

Q: On fish hatchery demo, is there cost recovery?

A: No cost recovery expected for this demo or others in progress; absorbing demonstration costs to commercialize technology.

Q: On DGI pilots, details on end markets?

A: One demo in municipal wastewater for supplemental oxygen, another in food processing for wastewater treatment; both potential to start before end of 2024.

Q: On Mexico opportunity, number of additional units?

A: Approximately 13-15 additional coal-fired units burning heavy fuel oil in Mexico with potential for FUEL CHEM technology, but funding uncertainty remains from Mexican government.