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
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 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200811005805/en/
Vince Arnone President and CEO (630) 845-4500 Devin Sullivan
Senior Vice President The Equity Group Inc. (212) 836-9608
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