Fuel Tech, Inc.

Greetings, and welcome to the FuelTech, Inc. Second 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 should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Devin Sullivan, Senior Vice President of the Equity Group. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today for FuelTech's second quarter 2022 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, President and Chief Executive Officer, and Ellen Albrecht, the company's Chief 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 of 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 through 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'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 posted another improved quarter and believe that our recovery is continuing in a measured and sustainable fashion. For the 2022 second quarter, revenues improved by 22%. SD&A reflected our continuing commitment to cost control and operational efficiency, and our backlog rose to more than $10 million. Our balance sheet of June 30th reflected total cash of more than $33 million with no long-term debt. In addition, we announced $3.6 million of new APC awards during the quarter, which brings us to approximately $9 million year-to-date. We commenced operations of a new fuel chem targeted in-furnace injection system and, importantly, demonstrated material progress in commercializing our dissolved gas infusion, or DGI program, with the completion of a white paper that will be published shortly, which validates this technology's best in class oxygen transfer efficiency. APC revenues increased by approximately 1.8 million from last year's second quarter, and we are confident that APC revenues for the year will exceed the 6.9 million reported for full year 2021, and this could happen as early as the end of the current third quarter. We continue to pursue a global sales pipeline of between 50 to 75 million, consisting of a variety of projects and end markets. And we are tracking projects with a contract value of $5 to $10 million that are expecting to be awarded before the end of the third quarter of this year, or early in the fourth. Fuelchem revenues declined from last year's second quarter due largely to the expected loss of one customer due to permanent plant retirement and to unforeseen plant outages. We did receive some good news within this business segment regarding client attrition as one of our long-term customers that had been planning to discontinue the use of our program will instead remain operational through 2023 and perhaps longer. This change in course is in response to several factors, including high energy demand in the region where these units are located and to the operational efficiency and economic advantages delivered by our chemical technology program as these units continue to utilize lower cost fuels. This development, in combination with the commencement of operations at a new coal-fired unit in the western United States that is expected to run during the high power demand summer months, should help to ensure a base level of fuel count revenues through 2023 at a minimum. For the full year 2022, we expect fuel count revenues in the $13 to $15 million range. I want to take a moment to discuss the current environment for coal. and clarify how the recent increased use of coal impacts our business. Increased energy demand overall, driven by climate factors and by the resurgence in economic activity, is forcing coal-fired plants in certain geographies to be dispatched in order to meet rising energy demand. This trend is occurring despite the increase in coal prices as energy demand is requiring that coal-fired units generate electricity in certain regional areas as other fuel sources aren't available. Additionally, natural gas prices have remained high vis-a-vis coal, and as a result, the favorable dispatch price of coal-fired generation has enabled more coal-fired power to be placed onto the grid. This trend provides a favorable landscape for us to be able to take advantage of possible pollution control projects in the future. These projects include those driven by the proposed recent update of the Cross-State Air Pollution Control Rule, also known as CASPER, and the good neighbor provisions of the Clean Air Act. To this end, over the past few months, 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 CASPER, 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 nitrogen oxide is a precursor pollutant to ozone. The EPA entered into a consent decree earlier 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 tasks for revisions could impact utility and industrial sources requiring additional NOx control starting as early as 2023 for utilities and 2026 for industrial units, and we are receiving inquiries related to these potential new standards today. For the APC segment, we continue to pursue opportunities for our SCR and Ultra product offerings and have been awarded multiple contracts in recent months for the provision of these technologies. Additionally, other recent contract awards 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. Decarbonization continues to be 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. As we stated in our last call, we continue to develop new marketing strategies to reach key decision makers at all domestic coal-fired utilities to reintroduce our fuel chem program benefits. These benefits include lowering the cost of dispatch by offering fuel flexibility and the ability for a power generation unit to burn lower cost fuels of opportunity, extending facility life and improving overall facility profitability, and structuring a program that is active only when the unit owner wants to capitalize on high energy demand and related high unit capacity factor opportunities. We also 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 will continue to watch the development of this activity closely. 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. We are very excited to announce significant progress at our Developmental Dissolved Gas Infusion, or DGI, business initiative. which focuses on the efficient delivery of oxygen for industrial and municipal water and wastewater treatment. As outlined in our soon to be published white paper, our DGI technology demonstrated that greater than 99% of the oxygen supplied to the DGI system was delivered to the treatment reservoir as dissolved oxygen with no loss to the atmosphere. Our DGI channel injector was fully capable of transferring oxygen-infused water to the treatment reservoir while only being placed 24 inches below surface level without any measurable loss of oxygen to the environment or any delay in flow of oxygen to react in the aqueous phase. This study is an important validation of our DGI technology, and we work with two experienced experts in the fields of aeration and water and wastewater treatment to structure the test protocol and to measure and evaluate the performance results. DGI has the potential to displace or enhance traditional aeration technologies by enhancing or increasing the capacity of underperforming aeration systems, providing supplementary oxygen for existing operations, delivering residual dissolved oxygen at higher concentrations and dosing rates than traditional technologies, or meeting demand immediately for wastewater streams during process upsets. changing requirements, or short retention scenarios. The benefits to be derived from the application of DGI are many and can include regulatory compliance, increased treatment capacity, and the avoidance of material capital spending, water preservation, the minimization of chemical utilization, odor control, and improving overall water quality for humans and wildlife. We continue to work with our water and wastewater treatment marketing specialists to identify and address our addressable markets that 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. Additionally, we have commenced our search, excuse me, we have commenced our search for an experienced water and wastewater treatment executive to guide the development, commercialization, and ultimate expansion of our DGI business, and we are hoping to complete this search in the third quarter. In closing, I want to again thank the FuelTech team for their continued hard work and dedication. We have improved operational performance in the first half of the year, and we are excited about the balance of 2022. We look forward to keeping everyone apprised of our progress. And with all of that said, I'll now turn the discussion over to Ellen. Ellen, please go ahead.