Fuel Tech, Inc.

Greetings and welcome to the Field Tech fourth quarter and year-end 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 fourth quarter and year-end 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. Our speakers today will be Vince Arnone, President and Chief Executive Officer, and Ellen Albrecht, FuelTech'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 and results of operations, cash flows, performance, and business prospects. 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. Shultech 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 change 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, President and CEO of Shultech. Vince, please go ahead.

Thank you, Devin. Good morning, and I want to thank everyone for joining us on the call today. I am very proud of what our team has accomplished during this period of uncertainty, and I am optimistic regarding our outlook for 2021 and beyond as we continue on our path towards establishing a foundation for long-term and sustainable growth. We entered 2021 facing challenges related to the timing of contract awards especially at our ATC business, and the potential lingering impact of the COVID-19 pandemic on our operating results. With the February 2021 financing that raised gross proceeds of $25.8 million, today we have approximately $37 million in cash on our balance sheet and no debt. This capital raise has helped to significantly reduce the near-term risk associated with these challenges and has provided us with the support for near-term initiatives. As a company, we have the benefit of providing three distinct and proprietary environmental remediation platforms to the markets in which we serve, APC, FuelChem, and our dissolved gas infusion business. We believe that each of these technologies will allow us to capture significant opportunities and their respective end markets as we emerge from the effects of the pandemic, uncertainty lifts, and when global economic activity resumes to normalized levels. With the financing, we are in the best position in our recent history to find strategic solutions to return our base businesses to profitability, expedite the demonstration and further market discovery of our DGI technology, and to investigate other product market opportunities. While we intend to capitalize on the flexibility that our strong cash position affords us, our immediate focus will be on expediently furthering the commercial development of our DGI technology via the necessary investments in human and equipment resources. Concurrently, we will be assessing the business landscape in detail for our APC and fuel can business segments to better enable us to focus on the markets and products that can lead to profitability. I want to thank all of our shareholders, both old and new, for your support, and the FuelTech team is dedicated to work diligently to provide value for your investment in FuelTech. Let's begin with a discussion of our APC business, where COVID-19 has continued to affect the timing of new business awards do in large part to its impact on industrial purchasing activity. We are continuing to emphasize support for client bid requests for custom engineered solutions that fulfill the unique needs of each of our customers. On our last call, we had noted that we expected to have final decisions on multiple projects for an aggregate contract value of $10 to $15 million. Within that group of project opportunities, The most critical project in terms of contract value was canceled by the end customer due to the inability to obtain financing, which was largely driven by COVID. The remainder of the projects were pushed into 2021 for award decisions. The active markets have shifted to more industrial opportunities led by our SCR and ultra technologies, which are driven by permits for new units and retrofit regulatory requirements. We are actively involved with the turbine suppliers, the heat recovery steam generator manufacturers, rice engine suppliers, carbon black manufacturers, and municipal solid waste, biomethane, and pulp and paper facilities. 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. As a company, we are watching the actions of the Biden administration very closely. However, we don't believe that near-term actions will have a material impact on our business activities, either positively or negatively. In general, the ATC landscape remains a very competitive space, and opportunities are currently in a state whereby they are smaller by volume. We continue to work on positioning with multinational firms that are developing business on a global basis. As we have seen many times before in our company's history, we continue to receive phone calls to provide assistance to our customer base when they have difficulty with competitive systems. For 2021, we do expect to have an increase in APC project award activity from our recent experience, and we would expect revenue to be moderately improved versus 2020. However, this will depend on the timing of contract award and required execution. Our fuel chem segment continued to produce strong results in the fourth quarter and finished the year on a high note after a sluggish start due to COVID. Much of this recovery was attributable to 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 earlier in the year due to the impact of the pandemic. As we look ahead to 2021, when these new 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 at FuelChem's historical gross margin. In 2021, we will continue to pursue FuelChem application opportunities in the U.S. where the remaining fleet of coal-fired power generation boilers seeks to remain competitive in dispatch markets via the utilization of lower cost, lower quality fuel. It is these scenarios that are likely to create the slagging and fouling issues that could necessitate the installation of our fuel chem program. 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 current Mexican government is in favor of utilizing indigenous fuel sources for power generation to ensure that they can become energy independent. And the recent power generation dilemma in Texas further solidified their position that as a country, they do not want to be dependent on external fuel sourcing for power generation, such as natural gas from the US. Additionally, there is a current glut of high sulfur fuel oil in Mexico as the international market for this product has been significantly reduced with the adoption of the new international maritime organization restrictions which prohibit the use of this fuel. We believe that these political and regulatory drivers have created an environment that will encourage the further utilization of high sulfur fuel oil for power generation in Mexico. In June of this past year, Our partners solidified contract extensions through 2022 with CFE, the state-owned utility, for the two sites at which we currently have our fuel chem program installed. Also, prior to the end of 2020, 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. As of today, our partner is in the midst of discussions with CFE regarding this expansion opportunity and others. We know that high sulfur fuel oil is currently being burned at facilities in Mexico without the necessary environmental controls, and local communities are rendering complaints about the impact of the severe pollution. We will watch the development activity closely. However, we believe that pressure is building in favor of the implementation of our fuel chem program at additional facilities in Mexico. We are also continuing to pursue opportunities for additional fuel chem applications at biomass and municipal solid waste units in Europe. In Southeast Asia, we are our partner Amazon Papyrus for the pulp and paper industry. where we use 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. Although some uncertainty remains with respect to the lingering economic impact of COVID on power generation here in 2021, we have an optimistic outlook for fuel chem this year, driven by the stability of our installed client base expected incremental revenues from our new unit installations, and the increasingly recognized economic and environmental benefits that our chemical technologies deliver. After a slow start attributable to the pandemic, we are starting to realize some momentum in our GGI business. As noted in our press release, we have completed two demonstrations in Q1 of this year. the first at a municipal wastewater treatment facility on the West Coast, and the second at a new customer in the pulp and paper business located in the Pacific Northwest. We are currently reviewing data from each demonstration to specifically clarify and document the benefits of our delivery system, and we will have a clearer roadmap of how to commercialize these opportunities shortly thereafter. We also expect to commence a demonstration at a separate wastewater treatment facility on the West Coast within the next 30 days. While each demonstration opportunity addresses customer specific issues, the first demonstration at the municipal wastewater treatment facility on the West Coast was intended to provide supplemental oxygenation during a high waste volume period for the municipality. This particular municipality is located in a recreational area that receives an influx of visitors during the holiday periods. And when this happens, the wastewater treatment plant does not have the capacity to treat the incremental waste and remain in compliance. During the demonstration, the DGI system was able to efficiently deliver supersaturated oxygen to improve the quality of the water to a level that was actually better than the prior year when the volume of wastewater to be treated was actually lower. Ellen will take you through the 2020 results here shortly. However, with respect to 2021, as I noted previously, we expect ABC project award activity to pick up as we move through the year. And as a result, we would expect revenue to be moderately improved versus 2020. And we expect fuel chem to grow its top line modestly versus the prior year. With DGI, we are focused on further evolving and commercializing this technology. To that end, and with the benefit of new capital, we will look to design and fabricate higher capacity DGI equipment delivery systems, which we believe will be necessary to address the needs of the majority of our end markets. We will continue to pursue additional demonstration with a target of having a commercial system online before the end of this year. For 2021, We intend to maintain the lean operating structure that we have created over the last several years, and we will ensure that the SG&A line aligns closely with anticipated growth. Our multi-year cost reduction initiatives, including the wind-down of our China operation, should allow us to profitably leverage top-line growth with annual break-even revenue of between $25 and $30 million. depending on the product segment mixed. In 2021, the FuelTech team will be guided by a focus on operational excellence, client service, innovation, and financial improvement. With that said, I'll turn the call over to Ellen. Ellen, please go ahead.