Fuel Tech, Inc.

Greetings and welcome to the FuelTech Third 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, and thank you for joining us today for FuelTech's third 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. The speakers for 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 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, 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 condition, 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 would now like to turn the call over to Vince Arnone. Chairman, President, and CEO of FuelTech. 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, and I'd like to thank all of our veterans for their service. I want to begin by thanking everyone at FuelTech for their hard work and adaptability and addressing the challenges of the COVID-19 pandemic. The effects of the pandemic continue to affect our operations, most notably at our air pollution control business with respect to the timing of new business awards. I want to emphasize, however, that we remain intensely focused on providing support for client bid requests for custom engineered solutions that fulfill the unique needs of each of our customers and expect the final decisions to be made on multiple projects for an aggregate contract value of $10 to $15 million by the end of the year. These awards are weighted towards the U.S. and Europe and primarily for our SDR, ULTRA, and SNCR offerings. Our fuel chem segment produced strong results in the third quarter. reflecting contributions from the installation of our TIFI-targeted in-furnace injection technology on three new domestic coal-fired units for a repeat customer in the Northeast, as well as a return to more normalized run rates across our fleet following a period of slower unit activity in Q2 of 2020 due to the impact of the COVID-19 pandemic. The commercial programs represented by these three new units will generate revenue when the units are dispatched to produce power in their geographic area. If these units are operational and utilizing the technology on a continual basis throughout the year, we would expect to see revenues of $500,000 to $750,000 per unit, which would be welcome upside for 2021. Anticipating the combined effect of these factors during our second quarter conference call, we stated that we expected third quarter revenue at FuelChem to approximate revenue generated from the first six months of the year. In fact, third quarter revenue at FuelChem exceeded that benchmark by approximately $350,000. For the remainder of the year, we would expect to continue to see revenue at more normalized levels. We are also continuing to work with our partner in Mexico to employ our solutions to help them mitigate harmful emissions derived from the burning of 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 the impetus for the Mexican government to explore the burning of high sulfur fuel oil produced by Penex, the state-owned oil company, and this oil is currently being burned, however, largely without pollution control measures. In June, our partners solidified contract extensions with CFE, the state-owned utility, for the two sites at which we currently have our fuel chem program installed. Last month, we provided cost estimates to our partner for the expansion of our program to a site in Mexico that has five large power generation units all that burn high sulfur fuel oil. This site is adjacent to a P-MEX refinery. Our partner is now in the midst of discussions with CFE regarding this expansion opportunity and we will watch the development of this activity closely as we move throughout the remainder of this year. We are also continuing to pursue opportunities for additional fuel chem applications at Biomass in 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 the primary source of fuel, power demand and related pricing is high, and where slagging and fouling is an issue. Notwithstanding the impact of COVID-19 on new project awards, SDR and Ultra for natural gas applications and industrial markets continue to provide our best business opportunity. This includes focusing on small to medium-sized 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 are looking 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 Boiler Max 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 issued in August of 17 and with compliance timelines throughout 2020 and beyond. Longer term, we are tracking ATC opportunities in India, Southeast Asia and South Africa. We are continuing to advance our DGI dissolved gas infusion initiative against the headwinds of COVID-19. Although COVID continues to delay the commencement of a product demonstration, at a pulp and paper facility in the Midwest that was planned for early in Q2 of this year, we have added three additional demonstration opportunities for our DGI technology. Two for the municipal wastewater treatment market and one with a new customer in the pulp and paper business. The municipal wastewater opportunities resulted from our new license agreement with Cadence Corporation. which 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 and we are grateful for the supports and introductions they are facilitating on our behalf. Regarding timing, our DGI trailer is expected to arrive at a wastewater treatment facility in California next week for the first demonstration, which will last 30 to 45 days, and then we will likely move the trailer directly to either one of the other demonstration sites as we anticipate that the demonstrations could occur consecutively. I look forward to keeping everyone apprised of our progress on this initiative prospectively. Turning to a summary of our financial results, as announced in September, We finalized a settlement with our insurance carrier in the amount of $2.6 million related to an outstanding claim that was previously reported in 2019. In the quarter, we recorded a receivable for this amount from the insurance company, with the offset being a reduction in cost of sales for the APC business. The funds were actually received during the month of October. We remain diligent with respect to our cost structure and financial position relative to the opportunities offered by our current market environment. Our STNA declined by $600,000 in the third quarter of 2020 versus the prior year, and we remain on track to achieve our full year STNA target of $13 to $13.5 million. Our cost reduction initiatives and the wind down of our China operation should allow us to profitably leverage top-line growth with annual break-even revenue of between $28 to $32 million per year, depending on the product segment mix. With respect to China, we have collected and repatriated in excess of $1 million in cash from our China customers as of September 30th of this year against an estimated available total of $2 to $2.5 million. We expect to repatriate additional funds later in this year and then again next year. We ended the quarter with $11.8 million in cash and cash equivalents. As I noted during our first quarter conference call this year, on April 15th, 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. As of September 30th of this year, the company has utilized the entire balance of the loan proceeds to fund its qualifying expenses. As a result, the company believes it has met the eligibility criteria for forgiveness. 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. The cost reduction efforts that we executed as a company over these past few years have provided us with a platform for material improvement in our financial performance as we move through the remainder of 2020 and beyond. and endeavor to capitalize on the business opportunities that I described previously. The FuelTech team remains focused and committed to delivering long-term value for our shareholders. And with that said, I'll turn the call over to Ellen for some financial commentary. Please go ahead, Ellen.