Fuel Tech, Inc.

Hello, and welcome to the FuelTech Inc. Fiscal 2022 Fourth Quarter Financial Results Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Devin Sullivan, Managing Director of the Equity Group. Please go ahead, Devin.

Thank you, Kevin. Good morning, everyone. And thank you for joining us today for FuelTech's 2022 fourth quarter and full year financial results conference call. Yesterday after the close, we issued a copy of the press release, which is available at the company's website at www.ftek.com. Our speakers for today will be Vince Arnone, Chairman, President, and Chief Executive Officer, and Ellen Albrecht, 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 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 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 reasons. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the company's filings with the SEC. With all that said, I'd 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. We reported a strong finish to what was a successful year for FuelTech in 2022. Full year 2022 revenue was $26.9 million, our highest consolidated revenue since 2019, increased 11% from full year 2021, and was driven by an operational rebound in our air pollution control business segment, where revenues improved by 54% from full year 2021. For the fourth quarter of 2022, total revenues rose 8.8% to $7 million due to improved performance at our fuel chem segment. Our backlog at year end was $8.2 million and did not reflect $3.6 million of new 2023 orders announced just last week. Our effective backlog today is approximately $12 million. We continue to pursue a global sales pipeline of $50 to $75 million, consisting of a variety of projects and end markets, and we are pleased with the improvement in contract awards that we have realized over these past 6 to 12 months. Our balance sheet at December 31st remained strong and reflected cash and cash equivalents of more than $23.3 million, $9.3 million in investment securities, and no debt. Last week, we made significant progress in our Dissolved Gas Infusion, or DGI, technology business with the announcement of Bill Decker as our new Vice President of Water and Wastewater Treatment Technologies. Bill brings a wealth of knowledge and industry experience to FuelTech, and we are pleased to have him on board in this capacity. With respect to our operations, let's begin with a discussion of our fuel chem business. Our fuel chem business segment had a strong fourth quarter, with revenue rising 21% to $4.1 million compared to $3.4 million in the fourth quarter of 2021. Full year 2022 revenue for fuel chem was $16.3 million, exceeding our previous guidance of $14.5 to $15.5 million for the year, and we were very pleased with our full year performance. An overall increase in energy demand positively impacted coal-fired dispatch in regional areas where we have our program installed. 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, including lowering the cost of dispatch by offering fuel flexibility, 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 continue to follow the opportunity to expand the provision of our chemical technology in Mexico via our partner in that country, to address the emissions created by the burning of high sulfur fuel oil, which is being undertaken without the necessary environmental remediation and at the expense of the health of surrounding communities. We do believe that political pressure is building in favor of the implementation of our fuel chem program at additional facilities in this country. Our partner is currently in discussions with the state-owned utility, CFE, regarding the application of our technology at several units. As we look out to 2023, we currently expect that fuel chem revenues will decline modestly from 2022 levels due primarily to a reduction in program utilization levels at our primary accounts from the very high levels experienced in 2022 and to the elimination of one account due to plant closure. For the APC segment, Revenue for the fourth quarter of 2022 fell modestly to $2.9 million, compared to $3.1 million in the fourth quarter of last year due to the timing of project execution. APC's full-year revenue was $10.6 million, a significant improvement from full-year 2021 revenue of $6.9 million, driven by project execution on approximately $10 million in new project awards announced throughout 2022. Based on the effective backlog that we have in place today and to the visibility that we have into potential new orders, we are confident that our APC revenues for 2023 will exceed 2022. This expectation excludes the possible favorable revenue impact of legislative initiatives that could manifest as early as the current first quarter. We believe incremental orders for our selective non-catalytic reduction, or SNCR technology, will be driven by the proposed EPA cross-state air pollution control rule, also known as CASPR. The EPA entered into a consent decree in 2022 to update the CASPR rule with NOx reduction requirements so that sources in up to 25 specific states can comply 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 utility units and 2026 for industrial units. EPA issued the draft rule last year for public comment and the revised final rule is currently at the White House Office of Management and Budget for interagency review and is due to be issued later this month. The final rule is also expected to open up opportunities over the next several years for selective catalytic reduction or SCR systems for higher reductions of NOx and for our ultra systems that provide safe reagent for SCR installations. Once this rule becomes finalized, we will be better prepared to understand the implications on the impacted units and on our potential contract pipeline. We continue to pursue a robust global pipeline of business opportunities stemming from an increasing focus on global decarbonization as companies continue to invest in technology to improve their carbon footprints. We expect that further environmental legislation will spur growth and generate long-term business opportunities. FuelTech has longstanding relationships with technology suppliers and end users that will assist in our ability to capitalize on these opportunities as they develop. And we are pursuing business relationships where our technologies can become embedded as part of our customer solutions. We are continuing 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. Many of these contracts for our ultra-technology solution, which provides a safe reagent alternative to ammonia for SCR systems, have been driven by stringent safety requirements at universities and medical facilities. 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 our flue gas conditioning technology to improve the performance of electrostatic precipitators for an international client. For DGI, I want to once again welcome Bill Decker to his new role, which begins on March 15. Bill brings to FuelTech more than 30 years of engineering, operational, and financial experience serving industrial and municipal water and wastewater clients across the United States and around the world. In addition to his work in the private sector, Bill is well respected among his peers and government officials. He was selected five times by multiple U.S. Secretaries of Commerce to serve on the Environmental Technologies Trade Advisory Committee, including twice as chairman. This organization makes recommendations to the Secretary of Commerce on issues that affect export competitiveness of U.S. environmental technologies. In November 2022, Bill was elected chairman of the Water and Wastewater Equipment Manufacturers Association, a Washington, D.C.-based nonprofit trade association representing water and wastewater technology and service providers since 1908. This group works closely with Congress and other regulatory agencies, monitors legislative actions, testifies before congressional committees, and advocates for funding to meet environmental goals. We believe that DGI represents a future driver of growth for FuelTech and an excellent opportunity to diversify our revenue stream. We are currently evaluating demonstration opportunities in a variety of end markets. and I look forward to speaking with everyone further regarding DGI as we move throughout 2023. Given the respective outlooks for both APC and FuelChem, we expect that total revenues for 2023 will improve to between $27 million and $32 million. This base case outlook excludes any material contribution from DGI as we commence the early stages of commercialization of this technology under Bill's guidance and any possible material uplift from new federal emissions control regulations that are expected to be finalized shortly. In closing, I want to again thank the FuelTech team for their continued hard work and dedication as we work diligently each day to satisfy our customers' requirements and plan for the development and expansion of our water technology initiative. We are pleased with our positive fourth quarter and annual financial performance and are very excited about our prospects in 2023. With that said, I'll turn the discussion over to Ellen. Ellen, please go ahead.