FTEK

Leadership Transition

• Current Chairman, President and CEO Vince Arnone will retire effective August 10, 2026, after 27 years with the company and 11 years as CEO. He will remain on the board as a non-independent director.
• Ramesh Nagahali will succeed Arnone as CEO. He is a seasoned global operating executive with deep experience in environmental technologies, power generation, water infrastructure, and engineered systems, including senior leadership roles at multiple industrial firms, with expertise in growth strategy, M&A, and operational improvement.

APC Segment Operational Updates

• The $10 million in large APC awards secured in the prior quarter, anchored by a large SCR technology integration contract for a Midwest municipal utility natural gas turbine expansion, have commenced engineering work. Equipment delivery is scheduled for Q4 2027, with commercial operation expected in 2029. These awards pushed APC backlog to a 2018-high of $14.3 million at quarter-end, and post-quarter new awards of $2.6 million bring current effective backlog to ~$17 million.
• The U.S. data center market is experiencing a historic boom driven by AI, cloud, and hyperscale growth, but project development is constrained by power availability bottlenecks, permitting delays, community opposition, and electrical equipment/labor supply chain shortages. FuelTech's SCR technology pipeline for data center onsite power generation totals $75 million to $100 million, with individual project opportunities ranging from a few systems up to 30-40 units priced at $1 million to $4 million per unit.
• One previously expected Q2 2026 data center award was canceled, and a second was delayed, but there is potential for one award to close by the end of Q3 2026. FuelTech is negotiating a capacity reservation agreement for this opportunity, and excludes any data center awards from its 2026 revenue outlook. Excluding data center opportunities, APC has an additional $8 million to $10 million in near-term pipeline, with $3 million to $5 million expected to close by early Q4 2026.

FuelChem Segment Operational Updates

• Revenue growth is driven by increased dispatch at legacy customer accounts, particularly during warm summer months. A halted 6-month demonstration program (paused due to unrelated customer plant operational issues, not FuelChem performance) will restart in mid-Q4 2026. If converted to a full commercial account, it could add $2.5 million to $3 million in annualized revenue starting in 2027.
• One additional coal-fired unit demonstration opportunity is expected to launch by the end of 2026. Development discussions for the Mexican market opportunity have recently rekindled, as the Mexican government prioritizes emissions controls for domestic heavy fuel oil power generation.

DGI (Dissolved Gas Infusion) Initiative Updates

• A full extended demonstration at a Western U.S. fish hatchery completed in Q2 2026 with strong performance on oxygen delivery, cost savings, and fish growth. FuelTech is currently preparing a full-system proposal for the hatchery.
• A second demonstration at a Southeast U.S. municipal wastewater facility is on extended month-to-month rental, expected to generate ~$100,000 in rental revenue in 2026. The customer is currently upgrading its primary aeration system, and will evaluate a permanent DGI installation after the upgrade completes.
• DGI discussions are ongoing with multiple additional end markets including pulp and paper, food and beverage, chemicals, petrochemical, and horticulture.

Regulatory Update

• The EPA's new New Source Performance Standards (NSPS) for new gas turbines went into effect in January 2026, creating a new temporary power turbine category. Requirements vary by turbine size, with most large turbines still requiring SCR to meet NOx emissions limits. Management does not expect the new rule to have a material negative impact on demand, but is monitoring ongoing legal challenges that could alter timing or requirements.

• Full year 2026 consolidated revenue is expected to exceed 2025 levels. FuelChem full year 2026 revenue is expected to approximate 2025's results, while APC full year 2026 revenue is expected to exceed 2025 performance. The majority of revenue from the large new APC contract will be recognized in 2027, and 2026 APC guidance excludes any potential revenue from data center awards, which would be additive.
• 2026 SG&A expenses are projected to range between $14.5 million and $15 million, maintained from prior guidance.
• If the paused FuelChem demonstration converts to a full commercial account in 2027, it will add $2.5 million to $3 million in annualized revenue, delivering a material benefit to 2027 results. A potential data center award that closes in Q3 2026 could deliver material revenue to FuelTech in 2027, dependent on contract timing.
• R&D spending will continue throughout 2026 to support DGI commercialization efforts, with the goal of securing the first commercial DGI contract by the end of 2026.

FuelTech operates two core reporting segments, APC and FuelChem. Consolidated second quarter 2026 total revenue increased 17% year-over-year to $6.5 million.

• APC Segment: Revenue rose 11% year-over-year to $2.8 million, representing 43.1% of total consolidated Q2 2026 revenue. Segment gross margin decreased to 36% from 44% in the prior year period, driven by project mix, contract execution timing, and higher project execution costs. As of June 30, 2026, APC segment backlog reached $14.3 million, up from $7 million at December 31, 2025, with approximately $10.5 million of this backlog expected to be recognized as revenue within the next 12 months barring customer delays.
• FuelChem Segment: Revenue grew 21% year-over-year to $3.7 million, representing 56.9% of total consolidated Q2 2026 revenue. Segment gross margin declined slightly to 45% from 47% in the prior year period, due to demonstration program costs, higher freight costs, and increased labor for unit maintenance.

• APC project revenue recognition timing is subject to customer-driven delays, which can push expected revenue recognition out of projected periods.
• Data center project development is heavily constrained by industry-wide bottlenecks including power availability, permitting delays, community opposition, and supply chain/labor shortages, which can delay or prevent award of contracted projects to FuelTech.
• Legal challenges to the EPA's new NSPS for gas turbines could alter the final requirements or implementation timing of the regulation, potentially impacting demand for SCR technology.
• State-specific air permitting requirements can differ from federal NSPS rules, which may create unexpected compliance or demand dynamics.

Q: When could data center opportunities begin contributing significant revenue, and will the impact hit in 2027 or later? / A: The timing of any material revenue contribution depends entirely on when contracts are awarded. One closely tracked opportunity could award before the end of Q3 2026, with delivery scheduled for early to mid-2027. If awarded, this opportunity could deliver material revenue to FuelTech in 2027.

Q: What is the potential size and timeline of the first commercial DGI contract from the fish hatchery demo? Would it serve as a reference for future projects? / A: A full DGI system for the hatchery would range from $500,000 to $1 million, depending on final configuration and redundancy requirements. If awarded before the end of 2026, all revenue would be recognized in 2027, following a 5-6 month equipment build. A completed project at this site would serve as a strong reference for future DGI opportunities in similar end markets.

Q: What is FuelChem's 2027 revenue outlook and growth plan, and are new customer acquisition efforts a priority? / A: The restarted demonstration program is targeted for conversion to a full commercial account in 2027, which would add $2.5 million to $3 million in incremental annual revenue if successful. One additional demonstration opportunity is expected to launch by the end of 2026, but it is too early to include any revenue from this opportunity in 2027 projections at this stage.

Q: Will new CEO Ramesh Nagahali have a mandate to pursue acquisitions, given his M&A experience and FuelTech's strong balance sheet? / A: There is no specific mandatory acquisition plan in place. Ramesh and the board will evaluate all opportunities to drive top-line growth, including M&A, and will pursue acquisitions if they are accretive and strategically aligned with FuelTech's growth objectives.