Fuel Tech, Inc.

Greetings. Welcome to FuelTech's first quarter 2022 financial results conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll now turn the conference over to Devin Sullivan, Senior Vice President of the Equity Group. Devin, you may now begin.

Thank you, Rob. Good morning, everyone, and thank you for joining us today for FuelTech's first quarter 2022 financial results conference call. Yesterday after the close, we issued the press release, a copy of which is available at 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 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 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 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, 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. After a strong end to 2021, I am pleased to be able to report an improved beginning to the new year versus prior year performance. For the 2022 first quarter, revenues improved by 10%. SG&A reflected a continuing commitment to cost control measures. Backlog improved, and our current balance sheet reflects total cash of more than $35 million and no debt. APC revenues increased by about $1.3 million from last year's first quarter. While still well below historical levels, we continue to believe that APC revenues for the year will exceed the $6.9 million reported for full year 2021. To that end, our backlog at March 31, 2022 was $9.6 million, approximately $7 million of which is expected to be realized over the next 12 months. We announced $5.3 million of new orders during the first quarter of the year and are pursuing a global sales pipeline of $50 to $75 million. We are tracking projects with a contract value of $5 to $10 million that are expecting to be awarded before the end of Q2 or early in Q3, and we are optimistic regarding the outcome. Fuelchem revenues declined due to a decrease in power generation demand in the areas of the country that our units serve, and margins were down slightly as a result. As we head into the warmer summer months, we are expecting to see a seasonal increase in demand as the end of Q2 and all of Q3 are typically the best performing months for our fuel chem business segment. When we last spoke, I had noted that we had expected fuel chem revenues to be in the 13 to $15 million range for 2022, and that the reduction from 2021 was due to one known plant shutdown as of 12-31-21, from a long-term customer in the business segment, the return of a more normalized maintenance outage schedule in 2022, and to the continued pressure on the remainder of our customer base to optimize program usage. We are still expecting revenues to be in this range, and I'm pleased to report that we recently started up a fuel chem program on a new coal-fired unit this past month in the Western United States And thus far, the program is working well. The new customer is using our program to burn a challenging coal as they seek to generate power at full capacity levels during the high demand summer months. If the program continues to be successful, we would expect to see revenues of $500,000 to $1 million for the full year 2022. Overall, when taken in combination with the improved outlook at APC, we continue to expect that total revenues for 2022 will show a modest improvement from 2021. For the APC segment, we continue to pursue opportunities for our SCR and Ultra product offerings. Recent contract awards and current discussions have involved the application of our SNCR emissions control solution to reduce nitrogen oxides from stationary combustion sources for domestic and international applications, and also our flue gas conditioning technology to improve the performance of electrostatic precipitators for an international client. Additionally, decarbonization is top of mind for many industries, and we are closely watching the planning of the steel industry and others as they pledge to invest in technologies to improve their global carbon footprint. FuelTech has longstanding relationships with technology suppliers and end users that will assist in our ability to capitalize on these opportunities as they develop. Of note, we have been receiving a noticeably higher volume of inquiries from potential new and former utility and industrial customers regarding EPA's proposed update to the Cross-State Air Pollution Control Rule, also known as CASPR, that was published on April 6th of this year in the Federal Register. The previous CASPER rule was based on 2008 Ozone National Ambient Air Quality Standards, where NOx is a precursor pollutant to ozone. The EPA entered into a consent decree early this year to update the CASPER rule to make it compliant with the 2015 National Ozone Standards while meeting the good neighbor requirements of the Clean Air Act. These CASPER revisions could impact utility and industrial sources, requiring additional NOx control starting as early as 2023 for utilities and 2026 for industrials. And we are receiving inquiries related to these potential new standards as we speak. For our fuel chem segment, we are continuing to explore ways to broaden the application of our chemical technologies. We are preparing to do a fresh reach out to all domestic coal-fired utilities to reintroduce our fuel chem program benefits, including the following. Lowering the cost of dispatch by offering fuel flexibility and the ability to burn lower cost fuels of opportunity. Extending facility life and improving overall facility profitability, and lastly, Our program can be structured to be utilized only when the union owner wants to capitalize on high demand and related high capacity opportunities. Additionally, as we have discussed in prior calls, we continue to investigate providing our chemical technology 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 the solution. The current Mexican government supports utilizing indigenous fuel sources for power generation to ensure that they can move towards becoming energy independent. 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 for ocean transport. 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 the technology at several units at one plant site. With respect to our developmental dissolved gas infusion or DGI business initiative, we continue to have high expectations for this technology, which focuses on industrial and municipal water and wastewater treatment. I'm pleased to report that we have made progress towards advancing this nascent business towards commercialization. DGI offers an innovative alternative to current aeration technologies. Utilizing a patent-pending saturator vessel, DGI infuses gas into a liquid at high operating pressure, which allows the gas to be dissolved into the liquid with greater than 95% efficiency. The gas-infused liquid is then injected to an end-use reservoir using a patent-pending zoned injection array that delivers best-in-class gas transfer efficiency. This delivery system enables our DGI technology to provide fast, precise, and controllable dosing of dissolved gas, augmenting underperforming traditional technologies and providing real-time response to varying process needs. The modular, compact, and scalable system configuration of DGI technology allows for rapid deployment. The system can be used as a standalone operation or to augment aeration assets for increased treatment capacity without significant capital investment. On our last call, we laid out our 2022 goals for DGI. Today, I want to give you an update on where we stand with respect to those objectives and provide some additional information. The first goal was the completion of documented DGI performance testing that is independently verified by experts in the fields of aeration and wastewater treatment. While supply chain difficulties delayed our ability to start our testing by about six to eight weeks, We have made good progress in this area and expect to have the results of our testing before the end of the second quarter. I'm pleased to report that DGI is performing favorably. Second, we targeted to identify our addressable markets in conjunction with our water and wastewater treatment marketing specialists. Our addressable markets consist of municipal wastewater and water utilities, agricultural applications, food and beverage facilities, including dairy farms and soft drink manufacturers, landfills, and natural bodies of water and reservoirs. Across these end markets, DGI can address a variety of issues, including regulatory compliance, water preservation as a replacement for chemicals to treat wastewater, odor reduction, and improving overall water quality for humans and wildlife. We have begun to identify potential customers in each of these business verticals and will create specialized marketing campaigns that address the individual concerns of these customers. Our third goal was to construct an internal resource base specifically in support of DGI. Goals number one and two were intended to be a precursor to this third goal. But now that we have confidence in the performance of the DGI technology, and also in our belief that there are viable end markets for the technology, we will begin to plan for the build-out of a resource base in support of DGI as we move throughout the remainder of 2022. As I have indicated previously, we have been very measured in our approach towards our investment in DGI, and this approach will continue as we evaluate resource requirements prospectively. Our current goal for DGI is to have one to two commercial applications before the end of 2022. That's ambitious, but we are working diligently to achieve this objective, and we look forward to keeping you apprised of our progress as we work throughout the year. In closing, I want to again thank the FuelTech team for their continued hard work and dedication. We remain excited about 2022, and we look forward to keeping you apprised of our progress. With that said, I'll now turn the discussion over to Ellen. Ellen, please go ahead.