Fuel Tech, Inc.

Ladies and gentlemen, greetings and welcome to the FuelTech INCOP 2025 Second Quarter Financial Results Conference Call. At this time, all participants are in the listen-only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal the operator by pressing star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Devin Sullivan, the Managing Director of the Equity Group. Please go ahead.

Thank you, Alarik, and good morning, everyone. Thank you for joining us today for FuelTech's 2025 Second Quarter Financial Results Conference Call. Yesterday, after the close, we issued a press release, a copy of which is available at the company's website, .ftek.com. Our speakers for today will be Vince Arnone, Chairman, 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 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 the not limited to those discussed in the company's annual report on Form 10K and Item 1A, under the caption of 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 opportunity 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 change circumstances or for any other reason. Investors are cautioned that all forward-looking statements about 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 second quarter results were largely in line with our expectations and reinforced our belief that 2025 will be a year of growth for our company versus prior year. For the quarter versus the prior year period, we expanded our gross margin, managed expenses, continued to invest in our emerging technologies, and maintained a strong financial position with cash, cash equivalents, and investments of nearly $31 million at quarter end, and no long-term debt. We are also pleased with the pace of business development at each of our three businesses, which includes the expectation of a receipt of an incremental $2.5 to $3 million in new APC awards before the end of the month of August, as well as customer demonstrations that are underway for our dissolved gas infusion technology, and plan to commence later in the year for our fuel chem business segment. We are also increasingly optimistic about the application of our APC suite of emissions control solutions and the construction of AI-related data centers in the United States, and I'll make further comments on this topic in a moment. Revenues for our fuel chem segment were essentially flat for the quarter versus prior year, reflecting seasonal weather transition from spring to summer. However, the warm weather that much of the country began to experience late in the second quarter has translated into higher energy demand, which has had a positive effect on fuel chem's results as we entered the current third quarter. With each of our base accounts in operation, including the incremental contribution from the new commercial account that we added in the fourth quarter of 2024, we recorded more than $2 million in revenue at fuel chem for the month of July. As of today, we believe that we are well positioned to meet our annual objective of $15 to $16 million in fuel chem revenue. In addition, we are also expecting to commence a new six-month demonstration of our TIFI-targeted infernus injection technology early in the fourth quarter of this year at a new customer's coal-fired unit in the Midwest. The purpose of the demonstration is to improve boiler availability and reliability and reduce maintenance downtime for offline boiler cleaning in order to maximize the power generation profile of this unit. Should this demonstration result in a new contract, we would expect the annual revenue potential to be approximately $2 to $2.5 million based on the customer running the program full-time and with the revenue expected to generate historic fuel chem gross margins. With respect to international fuel chem opportunities, we remain in discussions with our partner in Mexico to expand the provision of our chemical technology and that country. Based on conversations with our partner in Mexico, it is still our understanding that the recently elected government is targeting the implementation of environmental policy aimed at the reduction of pollutants that can cause climate change. As Mexico is planning to use the heavy fuel oil generated from their oil refining operations as fuel for power generation for the near-term future, we are hopeful that our fuel chem program will be an integral part of President Shane Baum's plan. Revenues for our APC business in the second quarter declined compared to the prior period due primarily to the timing of project execution on existing contracts. With that said, we are pleased to report that we are expecting to announce an incremental $2.5 to $3 million in new APC contracts before the end of this month from new and existing U.S. and international customers for our emissions control solutions. Further, we do expect to close an additional $3 to $5 million in new awards before the end of this year, which would be exclusive of any data center opportunities. We are continuing to pursue additional new awards driven by industrial expansion globally and by state-specific regulatory requirements in the U.S., and we are continuing to monitor progress of the EPA's rule for large municipal waste combustor units. This rule reduces the nitrogen oxide emissions requirements for the large NMWC units. FuelTech has had a long history of assisting this industry and meeting its compliance requirements, and we have had discussions with customers in this segment to support their compliance planning. The final rule has been delayed by EPA until December of this year, with compliance deadlines expected three years from the date of issue. That being said, there are some specific states that are currently requiring lower NOx emissions that are consistent with proposed MWC rule, and we are actively pursuing those opportunities today. Additionally, EPA, under the current administration, is currently pursuing the rollback of rules related to the reduction of greenhouse gases. It is important to note that the proposed rollback of the 2009 EPA endangerment finding does not loosen the nitrogen oxide emission requirements for any sources and could potentially extend the life of some coal and natural gas-fired units that may not have to reduce their carbon dioxide emission profile. Lastly, as discussed in our previous conference calls, we are not expecting any specific tailwinds that would come from the implementation of new regulation, and the opportunities that we are pursuing today are not contingent on the implementation of any specific new regulations. For our dissolved gas infusion business, we commenced an extended demonstration in mid-July at a fish hatchery in the Western US that is expected to last until the second quarter of 2026. The demonstration is designed to evaluate the benefits of delivering consistent and precise levels of dissolved oxygen for the raising of game fish in a controlled environment over a complete growth cycle. Specifically, this user is interested in ascertaining how DGI will affect yield, fish growth cycles, and operational costs for the program. What's interesting about this particular demonstration is that our DGI technology will be going head to head with the technology that is currently being used by this hatchery, and we believe that this comparison will provide a very clear view of the advantages of our DGI system in this setting. In addition to this demonstration, we are still in discussions with a municipal wastewater treatment facility in the Southeastern United States, and we are pursuing multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical, and horticulture. We continue to receive inquiries regarding DGI from potential customers in multiple end markets, and we are hopeful that we can generate our first commercial revenues in 2025. Additionally, we continue to cultivate our sales representative network to broaden the introduction of DGI to various end markets across the U.S. We expect to add new sales representatives later this year. These would be in addition to the two companies with whom we executed sales agreements in the first half of this year. As a follow-up to the commentary that we provided on our previous conference call, one of the most exciting opportunities that we have seen in quite some time for our company relates to the application of our APC emissions control solutions as part of the proliferation and investment in data center infrastructure being built in support of AI, cloud computing, and the general trend for digital expansion. Data centers are becoming the backbone of the digital age, and as such, their development necessitates the increase in demand for power generation to support data center operation. This demand in power will require emissions control solutions for many of the energy sources that necessitate a low-carbon footprint. In fact, the primary factors that determine whether a data center will require NOx control using SDR technology are the following. First, site location. Is the site in an attainment or non-attainment area for ozone ambient air quality standards, as NOx is a contributor to ozone? There will be more stringent NOx requirements in the non-attainment areas. Second, the planned utilization of the power generation application. Is the generation source for primary, or backup power, and what are the expected number of operating hours per year? Primary power sources and backup power that is expected to run extensively will be more likely to require SDR. And third, the baseline NOx of the power generation source. Some combustion turbines can be equipped with combustion controls to enable a lower baseline NOx emissions level. However, ultimately, the site permit will define the required level of emissions control. The interest in our technology solutions for these applications has continued throughout the recent quarter. And as of today, we have multiple bids outstanding for the integration of our SDR technology with the power generation sources to address the emissions control requirements of data centers to be built in the U.S. over the next several years. We are watching the progress of the bid activity closely, and are proactively working with our supply chain partners to ensure that we are ready to capitalize on the opportunity when it comes our way. As we look ahead to the balance of 2025, based on our effective backlog, impending contract awards, the APC business development activities that we are pursuing, and our previously noted expectations for fuel chem, we are reducing our revenue guidance for 2025 modestly from approximately $30 million to a range of $28 to $29 million. We are confident that fuel chem will well exceed its revenue level for 2024. However, the timing of both the receipts and execution of APC awards has some uncertainty, and as a result, we are being cautious in our guidance. Also, please note that this base case outlook excludes any material contributions from DGI, any significant contributions to APC from data center contract awards, and any material impact from new business development activities for fuel chem. In closing, I want to express my thanks to the FuelTech team for their continued efforts in support of our strategic goals, and I want to thank our shareholders for their continued interest in and support of FuelTech. We are excited about the business opportunity landscape that lies in front of us today, and one of our primary objectives for our company is to build a material contract backlog as we move towards the end of 2025 and into 2026 and thereafter. Now, I'd like to turn the call over to Ellen for her comments on the financial results. Ellen, please go ahead.