Fuel Tech, Inc.

Greetings and welcome to the FuelTech, Inc., second quarter 2020 financial results conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, you may press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 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, Donna. Good morning, everyone, and thank you for joining us today for FuelTech's second quarter 2020 financial results conference call. Yesterday after the close, we issued a copy of the release, which is available at the company's website, www.ftek.com. Our speakers for today 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 on 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 and opportunities, as well as 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 1-A 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 conditions, cash flows, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. FuelTech undertakes no obligation to update such factors or to publicly announce the results of any 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 the company's filings with the SEC. With that said, I'd now like to turn the call over to Vince Arnone. Vince, please go ahead. Thank you, Devin.

Good morning, and I want to thank everyone for joining us on the call today. I hope that you and your families are safe and in good health. I'll begin today with an overview of how the COVID-19 pandemic is impacting fuel tech and how we are addressing these challenges. We believe that the COVID-19 pandemic affected our air pollution control and fuel chem operations in the second quarter, although the impact is difficult to quantify. Many of the project-specific delays that we had been experiencing in closing new APC business awards were extended as a result of COVID-19. Our fuel chem segment was impacted by slower activity due to COVID-19 in particular in the months of April and May. A decline in economic activity drove 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. It is important to note that FuelTech qualified as an essential business under the state of Illinois' executive order and our operations have been active not only in the U.S. but on a global basis as well. We 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 ACC and FuelChem 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. For our ACC 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 have been delayed until such time as the economic outlook becomes more clear. 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 this year. We did secure $2.2 million of new awards in early Q3 and are in various stages of the proposal and negotiation processes with customers for the additional awards that I just mentioned. 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 and 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 look to 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, including compliance with the EPA Boilermact and regional Hays Rules, may produce opportunities to install best available retrofit control technology on certain sources of emissions. We continue to attract opportunities in Europe related to our Ultra, SNCR, and SCR technologies, as well as those associated with BREF, the best available reference technology guidelines that were first issued in August of 2017 and that had compliance timelines through 2020 and beyond. Longer term, we are tracking APC opportunities in India, Southeast Asia, and South Africa. At our fuel chem business segment, as I noted previously, revenue generation was impacted by slower economic activity due to COVID-19, in particular in the months of April and May, due to the overall decline in economic activity and related decline in electricity demand. In the month of June and thus far in the third quarter, we have returned to normalized run rates for use of our fuel chem programs, and we expect our third quarter revenue to approximate the revenue generated from the first six months of this year. 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. 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 following is an issue. Longer term, we continue to build on our progress with our partner in Mexico to employ our solutions to help mitigate harmful emissions by burning high sulfur fuel oil. Our partner continues to engage with local officials in Mexico to advance this solution. The reduction in oil price has provided impetus for the Mexican government to explore the burning of the high sulfur fuel oil produced by Pemex, the state-owned oil company, and this oil is being burned, however, largely without pollution control measures. Pressure is now being placed on CFE, the state-owned utility, to install pollution control measures wherever this fuel is burned. In June, our partners solidified contract extensions with CFE for the two sites at which we currently have our fuel chem programs installed. And now, we are in the process of working with our partner to provide cost estimates for the expansion of our program to other sites that burn the high sulfur fuel oil. We will watch this development closely as we move throughout the year. Regarding our DGI dissolved gas infusion initiative, we previously reported that a planned on-site demonstration of our water technology at a pulp and paper facility in the Midwest early in the second quarter of 2020 had been delayed to the impact of COVID-19, and this demonstration is still delayed as of this date. In July, we signed a new license agreement related to the DGI technology with Cadence Corporation, an entity that purchased the assets from the prior licensor of the technology, Nano 2 LLC. Cadence 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, FuelTech has more flexibility regarding non-exclusive market access and can now manufacture all DGI delivery systems on its own. We continue to advance conversations with several other potential customers of our DGI technology across a variety of industries. We continue to focus on our cost structure and on maintaining an efficient financial profile relative to the opportunities offered by our current market environment. Our SG&A was approximately $3.25 million in the second quarter of the year when excluding the favorable impact of a reversal of a bad debt charge in the quarter. For the full year, we expect SG&A to approximate $13 to $13.5 million. The execution of our cost reduction initiatives over these past few years, including the wind down of our China operation, has enabled us to sustain in this difficult market environment. In China, we have collected and repatriated in excess of $1 million in cash from our China customers as of June 30th of this year, with additional repatriation of funds expected later in the year. We ended the quarter with over $11 million in cash and cash equivalents. As I noted during our first quarter conference call, On April 15, 2020, the company entered into an agreement with its 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 reflected in our financial statements at the end of Q2. We 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 and that all of the cost reduction efforts that we've accomplished have established a basis for material improvement in our financial performance as we move throughout the remainder of 2020 and beyond. Despite this challenging business environment, The FuelTech team remains focused and committed to delivering long-term value for our shareholders. With that said, I'll turn the call over to Ellen for her comments. Please go ahead, Ellen.