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 (“Q2 2019”) and six months ended
June 30, 2019.
“Our Q2 2019 operating loss from continuing operations of
$843,000 included operating losses at our soon-to-be suspended Air
Pollution Control (“APC”) China operations (“Beijing Fuel Tech”) of
$540,000,” said Vincent J. Arnone, Chairman, President and CEO of
Fuel Tech. “Excluding the impact of these Beijing Fuel Tech losses,
our consolidated operating loss from continuing operations for Q2
2019 was approximately $300,000. We have substantially completed
the wind down of our Beijing Fuel Tech operations and we expect
that this process will be finished by year end. Upon completion, we
expect to eliminate approximately $2.0 million in annual operating
losses associated with Beijing Fuel Tech.
“Business development activity for our APC business segment has
been slower than anticipated during the first half of this year, as
many of the contracts that we had hoped to secure have been delayed
or canceled by the end customer and in a couple of select cases
lost to competing bids. As a result, Q2 2019 APC revenues declined
from Q2 2018. We continue to pursue a promising pipeline of APC
contract opportunities, particularly in the US, and we remain in
various stages of negotiation with potential clients for contract
award opportunities that we expect will close during 2019.
“Performance at FUEL CHEM® was strong, with Q2 2019 revenues
rising 20% from Q2 2018 and operating income up 26%. We expect FUEL
CHEM performance for the second half of 2019 to modestly improve
from the level achieved in the first half of 2019.”
Mr. Arnone continued, “At June 30, 2019, total cash was $14.9
million, including restricted cash of $3.3 million, down from
restricted cash of $6.0 million at December 31, 2018 reflecting our
new credit agreement and reductions in our outstanding letters of
credit with existing customers. Stockholders’ equity was $32.1
million, or $1.32 per share, and the Company had zero debt.”
Q2 2019 Consolidated Results
Overview
Consolidated revenues declined to $8.9 million from $11.8
million in Q2 2018, reflecting lower revenues at APC partially
offset by higher revenues at FUEL CHEM.
Gross margin was 43.6% of revenues compared to 31.4% of revenues
in Q2 2018, reflecting the mix between APC and FUEL CHEM revenues
recognized during the quarter and to an improvement in APC gross
margin to 38.1% from 24.7% in Q2 2018.
SG&A expenses declined to $4.5 million from $4.8 million in
Q2 2018. As a percentage of revenues, SG&A totaled 49.8% of
revenues in Q2 2019 as compared to 40.2% of revenues in Q2
2018.
Net loss from continuing operations was $(0.9) million, or
$(0.04) per diluted share, compared to net loss from continuing
operations of $(1.7) million, or $(0.07) per diluted share, in Q2
2018. Net loss from continuing operations in Q2 2019 included the
above-referenced losses at Beijing Fuel Tech of $0.5 million.
Capital projects backlog at June 30, 2019 was $8.0 million, $6.4
million of which was domestic.
APC segment revenues declined to $4.8 million from $8.4 million
in Q2 2018, primarily the result of a lower capital projects
backlog and a delay in new contract awards. APC gross margin was
$1.8 million, or 38.1%, as compared to $2.1 million, or 24.7%, in
Q2 2018. APC results for Q2 2019 included $0 revenues from Beijing
Fuel Tech and an operating loss of $0.5 million. In Q2 2018,
revenues from Beijing Fuel Tech were $0.7 million and the operating
loss was $0.6 million.
FUEL CHEM segment revenues improved to $4.1 million from $3.4
million in Q2 2018, reflecting the addition of two new coal-fired
units during Q2 2019. As previously announced, in addition to the
normal sale of chemical as part of the FUEL CHEM program for the
two new units that were installed during Q2 2019 , this project
included an order for approximately $0.9 million for equipment and
installation that was realized as revenue in Q2 2019. These units
are not base-loaded units and the revenue potential on an
annualized basis will be driven by power demand and dispatch on a
seasonal basis. When operational, these new units are expected to
generate historical FUEL CHEM gross margin levels. Segment gross
margin was 49.9% in Q2 2019 and 47.8% in Q2 2018.
Adjusted EBITDA loss was $(0.5) million compared to an Adjusted
EBITDA loss of $(1.1) million in Q2 2018.
Six Month 2019 Overview
Consolidated revenues for the first six months of 2019 were
$19.1 million as compared to $24.6 million in the same period last
year, due primarily to the reasons cited above.
Gross margin was 41.4% as compared to 35.5% of revenues, due to
the mix between APC and FUEL CHEM revenues recognized during the
year and to the year on year improvement in APC gross margins.
SG&A expenses for the year declined 8.0% to $8.9 million
from $9.7 million in the same period last year. On a total dollar
basis, SG&A for the 2019 six-month period decreased by $0.8
million.
Net loss from continuing operations was $(2.2) million, or
$(0.09) per share, compared to a net loss from continuing
operations of $(1.9) million, $(0.08) per share, in the 2018
six-month period.
Results for the 2019 and 2018 six-month periods included
revenues from Beijing Fuel Tech of $0.3 million and $1.3 million,
respectively, and operating losses of $1.4 million and $1.2
million, respectively.
Adjusted EBITDA loss was $(1.4) million compared to an Adjusted
EBITDA loss of $(1.1) million in last year’s six month period.
Mr. Arnone concluded, “We continue to progress in developing our
DGI™ Dissolved Gas Infusion (water) technology business and are in
discussions with multiple potential customers. We target to have a
demonstration up-and-running before the end of this year. While we
do not expect our water treatment technology venture to have a
significant impact on near-term results, we do look forward to it
being a significant contributor in future years.”
Conference Call
Management will host a conference call on Wednesday, August 14,
2019 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)
- (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. 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.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and
per share data)
June 30, 2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
11,664
$
12,039
Restricted cash
2,768
6,020
Accounts receivable, net of allowance for
doubtful accounts of $1,216 and $1,411, respectively
14,627
18,399
Inventories, net
317
957
Prepaid expenses and other current
assets
2,241
3,184
Income taxes receivable
129
118
Total current assets
31,746
40,717
Property and equipment, net of accumulated
depreciation of $26,481 and $26,528, respectively
5,832
5,976
Goodwill
2,116
2,116
Other intangible assets, net of
accumulated amortization of $6,601 and $6,608, respectively
1,070
1,164
Restricted cash
487
—
Right-of-use operating lease assets
1,293
—
Assets held for sale
396
485
Other assets
1,041
1,261
Total assets
$
43,981
$
51,719
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
3,890
$
9,499
Accrued liabilities:
Operating lease liabilities - current
472
—
Employee compensation
947
1,563
Other accrued liabilities
5,282
6,099
Total current liabilities
10,591
17,161
Operating lease liabilities -
non-current
810
—
Deferred income taxes
172
171
Other liabilities
290
335
Total liabilities
11,863
17,667
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Common stock, $.01 par value, 40,000,000
shares authorized, 24,843,668 and 24,825,891 shares issued, and
24,186,824 and 24,170,585 shares outstanding, respectively
248
248
Additional paid-in capital
139,211
138,992
Accumulated deficit
(104,707
)
(102,495
)
Accumulated other comprehensive loss
(1,224
)
(1,285
)
Nil coupon perpetual loan notes
76
76
Treasury stock, at cost
(1,486
)
(1,484
)
Total stockholders’ equity
32,118
34,052
Total liabilities and stockholders’
equity
$
43,981
$
51,719
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,
2019
2018
2019
2018
Revenues
$
8,948
$
11,847
$
19,103
$
24,638
Costs and expenses:
Cost of sales
5,050
8,125
11,191
15,891
Selling, general and administrative
4,455
4,763
8,913
9,684
Restructuring charge
30
—
625
—
Research and development
205
261
471
549
Intangible assets abandonment
51
317
51
317
9,791
13,466
21,251
26,441
Operating loss from continuing
operations
(843
)
(1,619
)
(2,148
)
(1,803
)
Interest expense
(3
)
—
(4
)
—
Interest income
9
—
11
2
Other expense
(97
)
(59
)
(72
)
(67
)
Loss from continuing operations before
income taxes
(934
)
(1,678
)
(2,213
)
(1,868
)
Income tax expense
(2
)
(1
)
(2
)
(2
)
Net loss from continuing
operations
(936
)
(1,679
)
(2,215
)
(1,870
)
Loss from discontinued operations (net of
income tax benefit of $0 in 2019 and 2018)
(9
)
(74
)
(19
)
(99
)
Net loss
$
(945
)
$
(1,753
)
$
(2,234
)
$
(1,969
)
Net loss per common share:
Basic
Continuing operations
$
(0.04
)
$
(0.07
)
$
(0.09
)
$
(0.08
)
Discontinued operations
$
—
$
—
$
—
$
—
Basic net loss per common share
$
(0.04
)
$
(0.07
)
$
(0.09
)
$
(0.08
)
Diluted
Continuing operations
$
(0.04
)
$
(0.07
)
$
(0.09
)
$
(0.08
)
Discontinued operations
$
—
$
—
$
—
$
—
Diluted net loss per common
share
$
(0.04
)
$
(0.07
)
$
(0.09
)
$
(0.08
)
Weighted-average number of common
shares outstanding:
Basic
24,187,000
24,170,000
24,182,000
24,158,000
Diluted
24,187,000
24,170,000
24,182,000
24,158,000
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net loss
$
(945
)
$
(1,753
)
$
(2,234
)
$
(1,969
)
Other comprehensive income (loss):
Foreign currency translation
adjustments
(43
)
(594
)
61
(178
)
Unrealized losses from marketable
securities, net of tax
—
(2
)
—
(3
)
Total other comprehensive income
(43
)
(596
)
61
(181
)
Comprehensive income (loss)
$
(988
)
$
(2,349
)
$
(2,173
)
$
(2,150
)
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
(in thousands)
Six Months Ended June 30,
2019
2018
Operating Activities
Net loss
$
(2,234
)
$
(1,969
)
Loss from discontinued operations
19
99
Net loss from continuing operations
(2,215
)
(1,870
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation
478
355
Amortization
68
106
Loss on disposal of equipment
2
17
Provision for doubtful accounts, net of
recoveries
—
(62
)
Intangible assets abandonment
51
317
Stock-based compensation, net of
forfeitures
219
38
Changes in operating assets and
liabilities:
Accounts receivable
3,870
(1,766
)
Inventories
640
213
Prepaid expenses, other current assets and
other non-current assets
1,163
229
Accounts payable
(5,595
)
714
Accrued liabilities and other non-current
liabilities
(1,485
)
(1,760
)
Net cash used in operating activities -
continuing operations
(2,804
)
(3,469
)
Net cash used in operating activities -
discontinued operations
(19
)
(43
)
Net cash used in operating activities
(2,823
)
(3,512
)
Investing Activities
Purchases of equipment and patents
(359
)
(214
)
Proceeds from the sale of equipment
—
2
Net cash used in investing activities
(359
)
(212
)
Financing Activities
Taxes paid on behalf of equity award
participants
(2
)
(13
)
Net cash used in financing activities
(2
)
(13
)
Effect of exchange rate fluctuations on
cash
44
(217
)
Net decrease in cash, cash equivalents
and restricted cash
(3,140
)
(3,954
)
Cash, cash equivalents, and restricted
cash at beginning of period
18,059
14,386
Cash, cash equivalents and restricted
cash at end of period
$
14,919
$
10,432
FUEL TECH, INC.
BUSINESS SEGMENT FINANCIAL
DATA
(Unaudited)
(in thousands)
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
)
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
)
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
)
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
)
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,
2019
2018
2019
2018
Revenues:
United States
$
7,562
$
8,830
$
16,377
$
19,072
Foreign
1,386
3,017
2,726
5,566
$
8,948
$
11,847
$
19,103
$
24,638
June 30, 2019
December 31, 2018
Assets:
United States
$
33,777
$
36,784
Foreign
10,204
14,935
$
43,981
$
51,719
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,
2019
2018
2019
2018
Net loss
$
(945
)
$
(1,753
)
$
(2,234
)
$
(1,969
)
Interest income
(9
)
—
(10
)
(2
)
Income tax expense
2
1
2
2
Depreciation expense
234
160
478
355
Amortization expense
36
53
68
106
EBITDA
(682
)
(1,539
)
(1,696
)
(1,508
)
Intangible assets abandonment
51
374
51
374
Stock compensation expense
123
97
219
38
ADJUSTED EBITDA
(508
)
(1,068
)
(1,426
)
(1,096
)
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190813005660/en/
Jim Pach Principal Financial Officer (630) 845-4500
Devin Sullivan Senior Vice President The Equity Group Inc. (212)
836-9608
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