Fuel Tech, Inc.

Greetings and welcome to the FuelTech First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you. You may begin.

Thank you, Jesse. Good morning, everyone. Thank you for joining us today for FuelTech's first quarter 2020 financial results conference call. Yesterday after the close, we issued a copy of the press release, which is available at the company's website, www.ftek.com. The speakers on today's call will be Vince Arnone, Chairman, President, and Chief Executive Officer, and Ellen Albrecht, the company's Principal Financial Officer. After prepared remarks, we will open the call for questions from our analysts and investors. Before turning things over to Vince, I'd like to remind everyone that matters discussed in this call, except for historical information, are 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 FuelTech's current expectations regarding future growth, results of operations, cash flows, performance, and business prospects. opportunities and assumptions made by and information currently available to our company's management. FuelTech 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 FuelTech and are subject to various risks, uncertainties, and other factors including but not limited to those discussed in FuelTech'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 FuelTech's actual growth, results of operations, financial condition, cash flows, performance, business prospects, and opportunities to differ materially from those expressed in or implied by these statements. FuelTech undertakes no obligation Thank you, Devin.

Good morning and I want to thank everyone for joining us on the call today. I hope that your families are safe and in good health. We are just a short time removed from our 2019 year-end results and so my remarks today will be brief. I'll begin with an overview of how the COVID-19 pandemic is impacting FuelTech and how we are addressing these challenges. FuelTech qualifies as an essential business under the state of Illinois' executive order, and our operations remain active. We have developed and deployed a series of initiatives designed to minimize disruptions to our normal business activities and preserve our ability to execute on our objectives. We are focused on supporting our current and potential future customer requirements for our APC and fuel chem business segments during this critical period of time, and are deploying recommended safety protocols across our enterprise to ensure that our employees, customers and suppliers remain safe. Overall, the impact of COVID-19 on our financial results for the first quarter of 2020 was not material. However, as we have moved into the second quarter, we are seeing some impact on our business activity. For our fuel chem business segment, operations have continued and we have continued to provide our program to our customer base. However, the extensive economic slowdown driven by COVID-19 has dramatically reduced electricity demand and as a result, energy dispatch to many power generation units. Our fuel cam revenue will deteriorate at accounts that are not dispatched for power generation. It is difficult to quantify the overall impact on financial performance as electricity demand and dispatch will vary by geographic region with the timing of return of economic activity and the impact of weather likely to be critical drivers. For our APC business, both for potential new awards and for execution on existing contracts, depending on the nature of the customer's business, and their near-term planning requirements, we are finding that some projects are moving forward as planned, while others are being delayed until such time as the economic outlet becomes more clear. Against this backdrop, however, we are experiencing some progress with respect to new business development at each of our operating segments. We were very pleased to announce last week the receipt of two demonstration orders using the FuelChem proprietary TIFI Biotechnology. I referenced this opportunity during our fourth quarter call in March, and we are very pleased that this came to fruition. The demonstrations are for new domestic industrial renewable power customers that utilize biomass as a source of fuel, which has been a target application for us in both the U.S. and Europe markets for some time. Chemical injection for all three units is scheduled to commence this quarter and, assuming a successful demonstration, ongoing commercial programs will begin in the third quarter of 2020. These commercial programs are estimated to generate annual revenues of $500,000 to $750,000 per site when the units at the site are operational and utilizing the technology on a continual basis throughout the year. Beyond biomass, we are closely following additional opportunities to expand Fuel Chem's domestic operations, including those that require the conversion of a unit's fuel source to a lower-rank coal to reduce the unit's operating cost structure. In Q4 of 2019, we installed our Fuel Chem program on two domestic coal-fired utility units at the same site where the plant was switching to a lower-quality coal to reduce their cost of dispatch and we are in discussions with this same customer to install our fuel chem program on multiple units at a separate site later this year. We will discuss our progress on this opportunity as we move throughout the year. We are continuing to pursue opportunities for additional fuel chem applications at biomass and municipal solid waste units in Europe, in Southeast Asia via our partner Amazon Papyrus for the pulp and paper industry, where we are using our recovery chem program, and in other southeastern Asian countries where coal is a primary source of fuel, power demand and related pricing is high and where slagging and fouling is an issue. Longer term, we continue to build on our progress with our partner in Mexico to employ our solutions to help them mitigate harmful emissions by burning high sulfur fuel oil. Our partner continues to engage with government officials in Mexico to advance this solution as the reduction in oil price has provided further impetus for the Mexican government to explore the burning of the high sulfur fuel oil produced by Pemex, the state-owned oil company. Our partner began discussions last month with CFE, the state-owned utility, for contract extensions for the two current sites on which we are installed. and these contracts should be executed shortly. Once signed, it is our hope that we will be able to expand our program to several other sites that are capable of burning the high sulfur fuel oil. For APC, we are cautiously optimistic about new awards this year and are in various stages of negotiations for contracts with an aggregate total value of 10 to 15 million dollars. that we are targeting to close by the end of the current second quarter. These awards are weighted towards the U.S. and Europe and primarily for our SCR, Ultra, and SNCR offerings. Notwithstanding the impact of COVID-19 on new project awards, SCR and Ultra for natural gas applications in industrial markets continue to provide our best business opportunity. This includes focusing on small to medium gas turbine combined cycle plant projects such as the combined heat and power upgrades at universities and large medical complexes and new opportunities in the oil and gas segment. We continue to support and partner with small turbine suppliers and suppliers of internal combustion engines for stationary deployment and exploit the development of plug-and-play small engine SCR solutions for the distributed power generation market. We are also monitoring activities at the state level where new environmental guidelines may produce opportunities to install best available retrofit control technology on certain sources of emissions. We continue to track opportunities in Europe related to our ULTRA, SNCR, and SDR technologies, as well as those associated with BREF, the best available reference technology guidelines that were issued in August of 2017 with compliance timelines through 2020 and beyond. Longer term, we are tracking APC opportunities in India, Southeast Asia, and South Africa. The emergence of COVID-19 to an already challenging business environment has amplified the importance of our previously announced financial and operational restructuring initiatives. As previously announced, I'm very grateful for the support of FuelTech's senior leadership and board of directors who have agreed to voluntary compensation reductions of 10% that are expected to produce annualized cost savings of approximately $300,000. The suspension of our underperforming China operation is substantially complete, which has removed $2 million of annual operating losses from our profit and loss statement and we have collected and repatriated a total of approximately $800,000 in cash from our China customers as of March 31st, 2020 with additional repatriation of funds expected later in the year. With all of these initiatives, we have taken significant strides to better align our cost structure to meet the level of business generated by our markets today while maintaining the ability to deliver all of our products and technologies to markets we serve, and we will continue to review our cost structure on an ongoing basis. For 2020, we target total SD&A costs of between $13.5 and $14 million. We ended the quarter with $11.1 million in cash and cash equivalents and no debt, which we view as a significant advantage as we weather this challenging environment. We continue to closely monitor and manage our cash flow and liquidity needs, and believe that our current cash position combined with the cash flow expected to be generated from operations are adequate to fund planned operations of the company for the next 12 months. We believe that the actions noted above will also establish a basis for material improvement in our financial performance as we move through 2020 and beyond. As we noted in our press release, an onsite demonstration of our water technology solution and a pulp and paper facility in the Midwest was delayed due to COVID-19 restrictions. We expect to commence this trial once the restrictions are lifted. However, we cannot at this time determine when the demonstration will commence. Before turning things over to Ellen, our acting principal financial officer, I'd like to address a couple of additional items. First, we changed the date of our annual meeting of shareholders to June 16, 2020 at 10 a.m. Central Time from the originally scheduled date of May 20, 2020. This change was made to accommodate public health measures in Illinois that were put in place to respond to COVID-19. We do expect that in-person attendance will be possible by June 16. However, we have also provided a dial-in number for anyone interested in attending virtually and that information is available in our press release dated May 5th on this subject. On this same topic, among the proposals for votes is one that provides the Board of Directors with the ability to affect the reverse stock split if necessary to maintain our NASDAQ listing. The NASDAQ stock market has informed us that due to the market volatility associated with COVID-19, The date by which we must regain compliance has been extended until September 18, 2020. Compliance is regained after our stock closes above $1 for 10 consecutive trading days. We welcome this extension and appreciate the NASDAQ's stance during these unprecedented times. Finally, on April 15, 2020, we entered into an agreement with our lender pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, providing for a loan in the principal amount of approximately $1.6 million. This funding was completed in the second quarter and is therefore not reflected in our financial statements for Q1 2020. In closing, I want to thank everyone once again for your ongoing interest in FuelTech. The FuelTech team has proven to be a committed, resilient, and creative group of individuals and we remain motivated to ensure financial sustainability and ultimately a growth platform for our stakeholders. I'm very proud of our team's response to a very, very difficult business environment. With that said, I'll turn the discussion over to Ellen. Ellen, please go ahead.