Fuel Tech, Inc.

Greetings. Welcome to the FuelTech second quarter 2021 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. Please note this conference is being recorded. I will now turn the conference over to your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you. You may begin.

Thank you, Alex. Good morning, everyone, and thank you for joining us today for FuelTech's second quarter 2021 financial results conference call. Yesterday after the close, we issued a copy of our results, which are available in the company's website, www.ftek.com. Our speakers for today will be Vince Arnone, 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 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, 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 such words 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, 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 do 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, 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. We are continuing to emerge from the restrictions imposed by the COVID-19 pandemic, and our optimism for the balance of 2021 and beyond is strengthening. Although challenges remain, our fuel chem and air pollution control business segments are each making progress in their respective end markets. And our developmental wastewater treatment business that we call dissolved gas infusion, or DGI, is taking positive steps forward as well. Our financial position is the strongest it has been in our near-term history, having ended the second quarter with nearly $37 million in cash and no debt. We significantly narrowed our losses in the quarter and continue to pursue sustainable operating profitability. To that end, we continue to maintain a lean operating structure that will allow us to produce break-even operating results at an annual revenue range of $25 to $30 million, depending on project mix. Our second quarter 2021 revenues rose approximately 19% from the prior year, driven by a nearly 72% increase in net sales for our fuel chem business segment. This segment has continued to benefit from the operations of our current installed base, including new program installations that occurred in the fourth quarter of last year and an overall rise in demand for energy. Some of this demand is tied to the resumption of economic activity, and some is tied to increased seasonal power usage, specifically in the summer months. Through the first six months of 2021, FuelChem remains on pace to eclipse its full year 2020 performance when the segment generated $14 million of revenue and gross margin of $6.7 million. Although our results at APC continue to be impacted by pandemic-driven project delays and cancellations through the end of the second quarter, we are seeing some economic improvement in our end markets, and we were encouraged by the $4.5 million of new orders we announced at the end of July. We continue to pursue a global APC sales pipeline of 40 to $50 million. Although many of these opportunities will likely be tied to the pace of resumption of global economic activity, we do expect to see contracts awarded with an aggregate value of $5 to $10 million before the end of this year, which will enable us to end 2021 with a healthier backlog than we have seen since pre-COVID. Beyond our two base businesses, we made good progress at our dissolved gas infusion business during the second quarter. We continue to address multiple growth pathways, including the development of a large scale DGI delivery system, in-depth market assessment and research, and the pursuit of commercial opportunities. Regarding our DGI business development, during the quarter, we completed demonstrations of this technology at two locations in the United States. The first was at a pulp and paper facility in the northwest that is examining ways to increase its production capacity by as much as 80%. The second was at a municipal wastewater treatment facility on the west coast that was designed to show the benefits that could be derived from the delivery of supplemental dissolved oxygen by DGI during periods of high waste treatment volume for the municipality or potentially as a lower cost substitute to an expensive capital expansion. Both demonstrations were a success based on customer feedback and supporting data analysis, and we are now working with both customers to determine our next course of action. Regarding the development of our large-scale DGI delivery system, we had noted during our Q1 conference call that we were moving forward with the investment in the design and fabrication of a higher capacity DGI equipment delivery system. as we believe the increased capacity is necessary to address the needs of the majority of our end markets. This system is currently in fabrication and will be completed next month. We are excited to have this unit available for deployment out in the field. And lastly, regarding our DGI market assessment. In Q2, we engaged a firm to assist us with the evaluation of the market opportunity landscape for the DGI technology, including an assessment of competitive in class and out of class technologies. When this evaluation is completed by the end of Q3, we will be better positioned as a company to understand our addressable markets and our available market channels. With this information, we will then prepare our detailed development plan, including the resources necessary, both human and capital, to expediently bring this technology to commercialization. Now, I'd like to take a little bit of a deeper dive into our APC and fuel chem segments before turning the call over to Alan. For APC, we continue to pursue opportunities for our SCR and Ultra product offerings. SCR is the most widely used technology to reduce NOx emissions following the combustion of fossil fuels, and we remain actively engaged with turbine suppliers 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's cross-state air pollution and regional haze rules, may produce opportunities to install best available retrofit control technology on certain sources of emissions. The $1 trillion infrastructure bill making its way through Congress may also provide FuelTech with opportunities that involve our emissions control technologies. As a company, we are watching the actions of the Biden administration very closely, especially with regard to nitrogen oxide emissions. The focus on climate change and greenhouse gas reduction may include options beyond traditional renewable energy from wind and solar. The interest in hydrogen as a fuel source option for utility and industrial units is growing since there are no greenhouse gas emissions, but this option would increase NOx emissions and require additional controls over time. As noted, we believe that the fuel chem segment will continue to produce strong results during the remainder of 2021. Domestically, we will continue to support utility industrial customers by applying our technology to allow them to burn lower cost, lower quality fuel, while mitigating the associated emissions and operational issues. Internationally, our primary upside potential lies in providing our solution to address the emissions created by the burning of high sulfur fuel oil in Mexico. which is being undertaken without the necessary environmental remediation and at the expense of the health of surrounding communities. We are continuing to support our partner in Mexico as they engage with local officials to advance this solution. The current Mexican government is in favor of utilizing indigenous fuel sources for power generation to ensure that they can move towards becoming energy independent And the power generation dilemma in Texas in the first quarter of this year 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 coming from the U.S. There is currently a 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 will continue to watch the development of this activity closely. However, we do believe that political pressure is building in favor of the implementation of our fuel chem program at additional facilities in Mexico, and our partner is currently in discussions with the state-owned utility, CFE, regarding application of this technology at several units at one plant sites. As we have discussed previously, with the financing that we completed in the first quarter of the year, 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 and market opportunities. In closing, I want to thank the FuelTech team for their continued hard work and dedication as we continue to execute against our plan. And I would like to thank our shareholders, both long-term and short-term, for their support and patience as we continue on our path towards delivering long-term shareholder value. And with that said, I'll turn the discussion over to Ellen. Ellen, please go ahead.