Fuel Tech, Inc.

Greetings and welcome to FuelTech First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. Please go ahead.

Thank you, Stacey. Good morning, everyone. Thank you for joining us today for FuelTech's first quarter 2023 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, Chairman, President, and Chief Executive Officer, and Ellen Albrecht, 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 in 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 in 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 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. Vince, please go ahead. Thank you, Devin.

Good morning, and I want to thank everyone for joining us on the call today. Following an improved year of financial performance in 2022, we started off the new year on very solid ground. Both the APC and fuel chem business segments reported higher revenues, which resulted in a 32% increase in consolidated revenue from the prior year to $7.3 million. We maintained a conservative cost profile, narrowed our losses, and ended the quarter with total cash and investments of nearly $34 million with no long-term debt. Our backlog was $7.6 million, down slightly from $8.2 million at year end, and including the $5.2 million of new 2023 orders announced in February. We continue to pursue a global sales pipeline of $50 to $75 million, consisting of a variety of projects and end markets. To that end, during the quarter, there was a promising development with respect to new U.S. government emissions control legislation that we have been discussing with you for quite some time. We believe that this ruling can provide a long-term uplift for our APC product line, and I'll discuss this development shortly. Bill Decker, our recently appointed vice president of water and wastewater treatment technologies, has been very active in getting up to speed on the business, leveraging his industry network, and helping to drive this segment towards commercialization. To that end, we expect to commence our first on-site demonstration using our small-scale dissolved oxygen infusion system at an aquaculture setting in the United States late in the second quarter or early in the third. The deployment is scheduled to last approximately three months, with the objective of improving the productivity and efficiency of the customer's operation through the use of optimized high levels of dissolved oxygen. In addition to this opportunity, we are also pursuing additional demo opportunities across various end markets, preparing end market specific marketing materials, and continuing the development of our engineering design standards for DGI delivery systems of different capabilities. Our fuel cam business segment had a strong first quarter, with revenue increasing to 3.7 million from 3.3 million in the same period last year. An overall increase in energy demand year-on-year positively impacted coal-fired dispatch in regional areas where we have our programs 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 union owner wants to capitalize on high energy demand and related high unit capacity factor opportunities. With respect to international opportunities for the fuel chem segment, We are continuing 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 recently executed a one year extension to the program that we currently have in place at one facility. And 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 high levels experienced in 2022 and to the elimination of one account due to plan closure. For the APC segment, revenue rose to $3.6 million from $2.2 million in last year's first quarter due largely to the timing of project bookings and project execution against our backlog. During the quarter, we either commenced or continued emissions control projects that included our SCR, SNCR, and our Ultra technologies. Based on our first quarter performance, the effective backlog that we have in place today, and the visibility that we have into potential new orders, we are confident that our APC revenues for 2023 will well exceed 2022 APC revenues of $10.6 million. A potential source of new business for the APC segment for 2023 and years beyond was further clarified in March of this year when the U.S. EPA issued a rule finalizing requirements that obligate 23 states to reduce emissions of nitrogen oxides from power plants and certain industrial facilities. This updates the cross-state air pollution control rule while meeting the good neighbor requirements of the Clean Air Act. These CASPER revisions could impact utility industrial resources requiring additional NOx control starting as early as 2023 for utility units and 2026 for industrial units. We believe that this new legislation could drive new orders over the next several years for our selective catalytic reduction systems for higher reductions of NOx, selective non-catalytic reduction systems, or SNCR technology, for units that require incremental NOx control, and for our Ultra systems, which provide a safe reagent for SCR installations. Although it is difficult to quantify the impact at this time, I can definitively say that we are having more meaningful and directed conversations with potential customers since the ruling was passed in March. Given the respective outlooks for both the APC and FuelChem segments, We continue to expect that total revenues for 2023 will improve to between $27 million and $32 million, up from $26.9 million in 2022. This base case outlook excludes any material contributions from DGI, as we are still in the early stages of commercialization, and any significant contributions to APC from the recent EPA ruling in March. 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. I also want to thank our shareholders and other stakeholders for their continued support as we strive to grow our business as a global supplier of technologies for clean air and pure water. With that said, I'd like to turn the discussion over to Ellen. Ellen, please go ahead.