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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180312006119/en/
Fuel Tech, Inc.Jim Pach, 630-845-4500Principal Financial
OfficerorThe Equity Group Inc.Devin Sullivan, 212-836-9608Senior
Vice President
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