Fuel Tech, Inc.

Greetings and welcome to the FuelTech, Inc. Third Quarter 2023 Financial Results Conference. At this time, all participants are in the 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. Thank you, Devin. You may begin.

Thank you, Kat, and good morning, everyone. Thank you for joining us today for FuelTech's third quarter 2023 financial results conference call. Yesterday after the close, we issued a copy of our results. That release 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, 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 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 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, Chairman, President, and CEO of FuelTech. Vince, please go ahead.

Thank you, Devin. Good morning, and I'd like to thank everyone for joining us on the call today. Our results for the third quarter reflected continued double-digit revenue growth for our air pollution control, or APC, segment, with sales up 36% from last year's third quarter and an expected and welcomed rebound in revenue at FuelChem, which saw revenue double from the immediately preceding second quarter of 2023. As program activity for this segment normalized, following a period of reduced operation driven by unscheduled downtime and temporary maintenance on our installed units. We continued to maintain a conservative cost profile with SG&A expenses trending at or slightly below 2022 levels, secured new APC contracts, and ended the quarter with over $33 million in total cash and investments and no long-term debt. We believe that the future of our company lies not only on capitalizing on the opportunities offered by our existing products and then markets, but also on developing and commercializing new product and market opportunities. To that end, the continuing development of our Dissolved Gas Infusion Technology, or DGI, remains as a high priority. In following up on our discussion from our Q2 earnings conference call regarding DGI, We are very pleased to have completed the onsite deployment and pilot testing of our DGI technology at an aquaculture setting in the Western United States. Over the 100-day demonstration, the DGI technology delivered and consistently controlled the dissolved oxygen levels in a band between 9 and 12 milligrams per liter, which is approximately 150% of atmospheric saturation. Based on an analysis of the results and post-study consultation with the client, the DGI technology not only met the pilot study expectations and parameters, but in many cases exceeded them for consistent delivery of high-quality dissolved oxygen on demand. The client reported excellent results from taste tests by local chefs, including an absence of trimethylamines within the harvest. Results from this study will be published in an abstract and presented at the Aquaculture America conference in February of 2024. We are currently in negotiations with this client to deploy our DGI system at their location for both their next growth cycle and their larger scale development plans. In addition to this demonstration, we are continuing our conversations with other potential channel partners as we look to deploy DGI in other end markets either late this year or early in 2024. DGI is best described as a technology that involves the efficient transfer of high concentrations of gas into a body of water to drive chemical or biological reactions, such as wastewater treatment, or for process improvements, such as industrial applications or aquaculture. Our DGI system is a two-step technological process, where first a slipstream of processed water is pressurized and infused with oxygen using FuelTech's patented saturator. And secondly, this oxygen-laden slipstream is returned to the process basin through a patent-pending injection array for optimal distribution and gas residence time. At present, we are utilizing DGI to deploy oxygen into bodies of water. However, we do believe that DGI can be applicable for other gases as well, such as ozone. DGI's benefits include the precise control of dissolved oxygen levels for all process applications, an ability to extend plant capacity without major expansion or capital outlay, odor reduction, and minimal bubble formation for extended residence time. We believe that DGI is applicable across several end markets, including pulp and paper, food and beverage, chemical or petrochemical, water and wastewater treatment, and aquaculture. Now, let's please spend a few minutes discussing our APC and fuel chem business segments. Our fuel chem business segment benefited from the return of our larger-scale customer units to more normalized levels of usage after experiencing extended downtime in the second quarter associated with reduced dispatch driven by weather-related demand and unscheduled maintenance outages. We expect FuelChem's performance in the fourth quarter of this year to be at a reduced level from the 4.1 million reported in last year's fourth quarter due primarily to a reduction in program utilization levels at our primary accounts from the very high levels experienced in 2022. This will result in lower annual revenues at FuelChem when compared to full year 2022. With respect to international opportunities for the FuelChem 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. Earlier this year, we executed a two-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 a state-owned utility, CFE, regarding the application of our technology at several units. For the APC segment, revenue rose by 36% to 3.7 million from last year's third quarter, driven primarily by the timing of project awards and the commencement of work on contracts announced during 2022 and continuing through the first nine months of 2023. These projects involved our SCR, SNCR, and ULTRA emissions control solutions at natural gas and coal-fired units in the US, Europe, and the Pacific Rim. As previously announced, we have secured $2.2 million of new project awards during the third quarter, And earlier this week, we announced an additional $2.6 million of new awards. Based on our visibility to projects that are in development, we expect a minimum of $3 to $4 million in additional awards before the end of this year. Last quarter, we discussed the US Environmental Protection Agency's issuance of a rule finalizing requirements that obligate 23 states to reduce emissions of nitrogen oxides from power plants and certain industrial facilities. According to the EPA, this action was designed to tighten nitrogen oxide emission requirements by updating the cross-state air pollution control rule to meet the good neighbor requirements of the Clean Air Act. The good neighbor rule has currently been stayed by several circuit courts covering sources in upwind states. Within the past few weeks, Sources in affected downwind states have petitioned the Supreme Court to proceed with the rule. For the near term, upwind sources will likely not be required to reduce their nitrogen oxide emission levels until the requirements and timing of the final rule have been resolved. We continue to believe that this new federal rule will serve as a catalyst for new APC orders over the next several years as utility and industrial customers explore ways to further reduce NOx emissions. In fact, it is important to note that we have received and responded to several requests for budgetary proposals as customers prepare to address the upcoming compliance requirements as part of their capital budgeting requirements for 2024 and beyond. We will provide further analysis and commentary on this regulation as more information becomes available in the future. Through the first nine months of 2023, APC revenues have already exceeded the revenue recognized for the entirety of 2022. Based on our effective backlog at quarter end, the business development activities we are pursuing, and our previously noted expectations for fuel chem, we expect that total revenues for 2023 will increase modestly to between $27 and $28 million, up from $26.9 million in 2022. This base case outlet excludes any material contributions from DGI, as we are still in the early stages of commercialization, and any significant contributions to APC from the EPA rule earlier this year. In closing, I want to once again thank the FuelTech team for their ongoing continued hard work and dedication. and our shareholders for their continued support as we continue to evolve our operations and expand our presence as a global supplier of technologies that enable clean air and pure water. With that said, I'm going to turn the discussion over to Ellen. Ellen, please go ahead.