Q2 2016 Overview
- Revenues of $15.2 million compared to
$18.7 million in Q2 2015
- Gross profit of $5.6 million, or 36.8%
of revenue, compared to $7.1 million, or 38.2% of revenue, in Q2
2015
- Net loss was $2.6 million, or $0.11 per
diluted share, compared to net loss of $1.4 million, or $0.06 per
diluted share, in Q2 2015
- At June 30, 2016 total cash and
equivalents of $19.4 million, or $0.84 per diluted share
- No long-term debt
Fuel Tech, Inc. (NASDAQ:FTEK), a world leader in advanced
engineering solutions for the optimization of combustion systems
and emissions control in utility and industrial applications, today
reported financial results for the second quarter ("Q2") ended
June 30, 2016.
Q2 2016 Results Overview
Consolidated revenues for Q2 2016 were $15.2 million as compared
to $18.7 million in Q2 2015, reflecting slower business activity
within our Air Pollution Control ("APC") technology segment, as
well as lower revenues at FUEL CHEM®.
Operating loss for Q2 2016 was $2.3 million as compared to an
operating loss of $2.2 million in Q2 2015. Net loss for Q2 2016 was
$2.6 million, or $0.11 per diluted share, compared to net loss of
$1.4 million, or $0.06 per diluted share, in the same period last
year.
APC segment revenues in Q2 2016 declined by 9.5% to $10.0
million from $11.1 million in Q2 2015.
APC gross profit decreased to $2.9 million from $3.3 million in
Q2 2016. Gross margin for Q2 2016 declined to 28.7% of segment
revenues from 29.9% in Q2 2015, primarily due to declines in
margins on certain projects in China and Italy.
FUEL CHEM segment revenues declined to $5.1 million during Q2
2016 from $7.6 million during Q2 2015. This segment will likely
continue to be affected by a reduction in electricity demand from
coal-fired combustion units and low natural gas prices, which leads
to fuel switching, unscheduled outages, and combustion units
operating at less than capacity. Further, the mild weather
conditions in the U.S. during Q2 2016 resulted in soft demand.
Despite lower revenues, gross margin during Q2 2016 rose to 52.5%
from 50.3% in Q2 2015.
The Fuel Conversion segment generated an operating loss of $0.8
million in Q2 2016, reflecting the Company's continuing investment
in developing this potential new business.
Capital projects backlog in the APC segment stood at $11.6
million at June 30, 2016 compared to $22.2 million at
December 31, 2015, reflecting a slower pace of U.S. bookings
in Q2 2016. During Q2 2016, Fuel Tech announced new project awards
covering multiple geographies and solutions with an aggregate value
of $4.8 million, as well as an exclusive agreement under which Fuel
Tech has licensed its Selective Non-Catalytic Reduction (SNCR)
technology to ISGEC Heavy Engineering Ltd. (ISGEC). Subsequent to
the end of Q2 2016, the Company announced new project awards
totaling $2.3 million, which included the first order generated
under the contract with ISGEC. The Company believes that APC
revenues in 2016 will approximate the same level as 2015.
Selling, general and administrative (SG&A) expenses for Q2
2016 declined 20% to $6.8 million, or 44.5% of revenues, from $8.4
million, or 45.0% of revenues, in Q2 2015, reflecting the favorable
impact of previously announced cost cutting initiatives on
employee-related costs, professional and consulting fees, and
travel expenses. These reductions were offset by higher
administrative costs associated with our foreign operations.
Fuel Tech's research and development expenses for Q2 2016
increased to $1.1 million from $1.0 million in Q2 2015, with
increased spending primarily related to ongoing projects associated
with the Fuel Conversion development initiative.
Year-to-Date Results
Overview
Consolidated year-to-date revenues for the six months ended
June 30, 2016 were $33.0 million as compared to $33.8 million
in 2015, due primarily to the reasons cited above.
Operating loss for the six months ended June 30, 2016 was
$4.9 million as compared to an operating loss of $4.7 million in
2015. Net loss was $5.3 million, or $0.23 per diluted share,
compared to net loss of $3.0 million, or $0.13 per diluted share in
the same period last year.
Year-to-date APC segment revenues increased to $23.0 million
from $17.9 million in the comparable prior year period due to the
timing of project bookings.
APC gross profit increased to $6.6 million, or 28.5% of segment
revenues, in the six months ended June 30, 2016 from $5.9
million, or 32.6% of segment revenues in the same period last
year.
FUEL CHEM generated revenues of $10.0 million during the
six-month period ending June 30, 2016, down from revenues of
$15.8 million in the same prior year period, primarily for the
reasons cited above. The gross margins during 2016 and 2015 were
50.9% and 50.2%, respectively.
SG&A expenses for the six months ended June 30, 2016
and 2015 were $14.2 million and $16.6 million, respectively. On a
total dollar basis, SG&A for the year-to-date period decreased
by $2.4 million, or 14.2%, for the same reasons as Q2 2016.
Fuel Tech's research and development expenses for the
year-to-date period increased to $2.3 million from the comparable
prior year amount of $1.9 million. The increased spending levels
are primarily related to ongoing projects associated with our Fuel
Conversion business development initiative.
Vincent J. Arnone, President and Chief Executive Officer of Fuel
Tech, commented, “We recognize that we must continue to evolve and
refine Fuel Tech’s operating strategy in response to
still-challenging end markets served by our APC and FUEL CHEM
business segments. We are focusing on developing new technologies
and relationships that allow us to grow in existing and adjacent
markets, expand our solutions portfolio, diversify our revenue
streams, and elevate our profile among potential customers.
“In that regard, we were very pleased to announce our exclusive
licensing agreement with ISGEC, one of India’s leading engineering
companies, as well the first order generated as a result of this
partnership. Agreements like this are an ideal way to expand Fuel
Tech’s global reach in a cost-effective manner. We are also
pursuing potential in-licensing opportunities, where we can
leverage Fuel Tech’s existing global sales channels to bring
relevant and exciting products to market. We are pleased with the
progress being made at our new Fuel Conversion business segment. As
we advance through 2016, our attention is on commercial development
and expansion. Product engineering and enhancement continue as part
of a collaborative effort with potential end users. We are also
evaluating various build-out strategies and potential manufacturing
scenarios, including pursuing ways to accelerate market
introduction while minimizing associated capital requirements. This
process remains quite fluid, however we are encouraged by our
progress to date.”
Mr. Arnone concluded, “We also continue to align our cost
structure with the current market environment, and are on plan to
realize annual corporate cost savings of approximately $5.0
million. Our financial position is strong. At June 30, 2016, we
reported total cash and cash equivalents of $19.4 million, or $0.84
per diluted share, and no long-term debt.”
Conference Call
Management will host a conference call on Wednesday,
August 10, 2016 at 9:00 AM ET to discuss the results.
Interested parties may participate in the call by dialing:
· (877) 423-9820 (Domestic) or
· (201) 493-6749 (International)
The conference call will also be accessible via the Upcoming
Events section of the Company’s web site at www.ftek.com. For those
who cannot listen to the live broadcast, an online replay will be
available at www.ftek.com, or a phone replay will be available
through August 17, 2016 by dialing (877) 660-6853 (domestic) or
(201) 612-7415 (international) and entering the passcode
13642095.
About Fuel Tech
Fuel Tech is a leading technology company engaged in the
worldwide development, commercialization and application of
state-of-the-art proprietary technologies for air pollution
control, process optimization, and advanced engineering services.
These technologies enable customers to produce both energy and
processed materials in a cost-effective and environmentally
sustainable manner.
The Company’s nitrogen oxide (NOx) reduction technologies
include advanced combustion modification techniques and
post-combustion NOx control approaches, including NOxOUT®, HERT™,
and Advanced SNCR systems, ASCR™ Advanced Selective Catalytic
Reduction systems, and I-NOx Integrated NOx Reduction Systems,
which utilize various combinations of these systems, along with the
ULTRA™ process for safe ammonia generation. These technologies have
established Fuel Tech as a leader in NOx reduction, with
installations on over 900 units worldwide.
Fuel Tech’s technologies for particulate control include
Electrostatic Precipitator (ESP) products and services including
complete turnkey capability for ESP retrofits, with experience on
units up to 700 MW. Flue gas conditioning (FGC) systems include
treatment using sulfur trioxide (SO3) and ammonia (NH3) based
conditioning to improve the performance of ESPs by modifying the
properties of fly ash particles. Fuel Tech’s particulate control
technologies have been installed on more than 125 units
worldwide.
The Company’s FUEL CHEM®technology revolves around the unique
application of chemicals to improve the efficiency, reliability,
fuel flexibility, boiler heat rate, and environmental status of
combustion units by controlling slagging, fouling, corrosion,
opacity and improving boiler operations. The Company has experience
with this technology, in the form of a customizable FUEL CHEM
program, on over 110 units.
Fuel Tech also provides a range of services, including boiler
tuning and selective catalytic reduction(SCR) optimization
services. In addition, flow corrective devices and physical and
computational modeling services are available to optimize flue gas
distribution and mixing in both power plant and industrial
applications. Many of Fuel Tech’s products and services rely
heavily on the Company’s exceptional Computational Fluid Dynamics
modeling capabilities, which are enhanced by internally developed,
high-end visualization software. These capabilities, coupled with
the Company’s innovative technologies and multi-disciplined team
approach, enable Fuel Tech to provide practical solutions to some
of our customers’ most challenging problems. For more information,
visit Fuel Tech’s web site at www.ftek.com.
This press release may contain statements of a forward-looking
nature regarding future events. These statements are only
predictions and actual events may differ materially. Please refer
to documents that Fuel Tech files from time to time with the
Securities and Exchange Commission for a discussion of certain
factors that could cause actual results to differ materially from
those contained in the forward-looking statements.
FUEL TECH, INC.CONSOLIDATED BALANCE
SHEETS(Unaudited)(in thousands, except share and per share
data)
June 30,2016
December 31,2015
Assets Current assets: Cash and cash equivalents $
12,426 $ 21,684 Restricted cash 7,020 — Marketable securities 7 19
Accounts receivable, net of allowance for doubtful accounts of
$1,894 and $1,772, respectively 22,429 23,060 Inventories 1,498
1,653 Prepaid expenses and other current assets 2,390 3,889 Prepaid
income taxes 659 1,857 Deferred income taxes — 239
Total current assets 46,429 52,401 Property and equipment, net of
accumulated depreciation of $24,268 and $23,414, respectively
11,247 12,001 Goodwill 2,116 2,116 Other intangible assets, net of
accumulated amortization of $8,313 and $7,452, respectively 6,381
7,144 Deferred income taxes 1,205 992 Restricted cash — — Other
assets 1,320 1,357 Total assets $ 68,698 $
76,011
Liabilities and Shareholders’ Equity Current
liabilities: Accounts payable $ 7,267 $ 8,942 Accrued liabilities:
Employee compensation 1,556 1,645 Other accrued liabilities 4,487
5,949 Total current liabilities 13,310 16,536 Other
liabilities 503 501 Total liabilities 13,813
17,037 Commitments and contingencies Shareholders’ equity:
Common stock, $.01 par value, 40,000,000
shares authorized, 23,800,924 and23,419,008 shares issued, and
23,446,035, and 23,167,216 shares outstanding, respectively
238 234 Additional paid-in capital 136,429 135,394 Accumulated
deficit (79,398 ) (74,132 ) Accumulated other comprehensive loss
(1,246 ) (1,556 ) Nil coupon perpetual loan notes 76 76 Treasury
stock, at cost (1,214 ) (1,042 ) Total shareholders’ equity 54,885
58,974 Total liabilities and shareholders’ equity $
68,698 $ 76,011
FUEL TECH, INC.CONSOLIDATED
STATEMENTS OF OPERATIONS(Unaudited)(in thousands, except share and
per-share data)
Three Months EndedJune 30,
Six Months EndedJune 30,
2016 2015 2016 2015
Revenues $
15,175 $ 18,683 $ 32,997 $ 33,786
Costs and expenses: Cost
of sales 9,595 11,547 21,369 19,984 Selling, general and
administrative 6,760 8,400 14,239 16,603 Research and development
1,122 982 2,280 1,854 17,477
20,929 37,888 38,441
Operating (loss)
(2,302 ) (2,246 ) (4,891 ) (4,655 ) Interest expense — (3 ) — (30 )
Interest income 6 7 16 14 Other expense (221 ) (65 ) (484 ) (161 )
(Loss) before income taxes (2,517 ) (2,307 ) (5,359 ) (4,832
) Income tax (expense) benefit (111 ) 936 94 1,807
Net (loss) $ (2,628 ) $ (1,371 ) $ (5,265 ) $ (3,025
)
Net (loss) per common share: Basic $ (0.11 ) $ (0.06 ) $
(0.23 ) $ (0.13 ) Diluted $ (0.11 ) $ (0.06 ) $ (0.23 ) $ (0.13 )
Weighted-average number of common shares outstanding:
Basic 23,381,000 23,140,000
23,283,000 23,034,000 Diluted 23,381,000
23,140,000 23,283,000 23,034,000
FUEL TECH, INC.CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(Unaudited)(in
thousands)
Three Months EndedJune 30,
Six Months EndedJune 30,
2016 2015 2016 2015 Net (loss) $ (2,628
) $ (1,371 ) $ (5,265 ) $ (3,025 ) Other comprehensive income
(loss): Foreign currency translation adjustments (111 ) 97 318 (64
) Unrealized (losses) from marketable securities, net of tax (5 ) —
(8 ) — Total other comprehensive income (loss) (116 )
97 310 (64 ) Comprehensive (loss) $ (2,744 ) $ (1,274
) $ (4,955 ) $ (3,089 )
FUEL TECH, INC.CONSOLIDATED
STATEMENTS OF CASH FLOWS(Unaudited)(in thousands)
Six Months EndedJune 30, 2016
2015
Operating Activities Net loss $ (5,265 ) $
(3,025 ) Adjustments to reconcile net loss to net cash (used in)
provided by operating activities: Depreciation 926 1,049
Amortization 861 1,075 Loss (Gain) on disposal of equipment 26 (26
) Provision for doubtful accounts 151 — Deferred income taxes (10 )
(167 ) Stock-based compensation 1,041 833 Changes in operating
assets and liabilities: Accounts receivable 173 2,378 Inventories
149 (279 ) Prepaid expenses, other current assets and other
non-current assets 2,861 183 Accounts payable (1,630 ) 1,674
Accrued liabilities and other non-current liabilities (1,482 )
(5,002 ) Net cash (used in) operating activities (2,199 ) (1,307 )
Investing Activities Purchases of property, equipment and
patents (302 ) (383 ) Proceeds from the sale of equipment 1
26 Net cash (used in) investing activities (301 ) (357 )
Financing Activities Proceeds on short-term borrowings — —
Change in restricted cash (7,020 ) — Excess tax benefit from
exercises of stock options — — Treasury shares withheld (172 ) (252
) Net cash (used in) financing activities (7,192 ) (1,888 ) Effect
of exchange rate fluctuations on cash 434 (118 )
Net
decrease in cash and cash equivalents (9,258 ) (3,670 ) Cash
and cash equivalents at beginning of period 21,684 18,637
Cash and cash equivalents at end of period $ 12,426
$ 14,967
FUEL TECH, INC.
BUSINESS SEGMENT FINANCIAL DATA (Unaudited) (in thousands)
Information concerning Fuel Tech’s reporting segment net sales
and gross margin are provided below:
Three months ended June 30, 2016
Air PollutionControl Segment
FUEL CHEMSegment
Fuel ConversionSegment
Other Total Revenues from external customers $ 10,031
$ 5,144 $ — $ — $ 15,175 Cost of sales (7,152 )
(2,443 ) — —
(9,595 ) Gross margin 2,879 2,701 — — 5,580 Selling, general and
administrative — — — (6,760 ) (6,760 ) Research and development
— — (827 )
(295 ) (1,122 ) Operating income (loss) $ 2,879 $
2,701 $ (827 ) $ (7,055 ) $ (2,302 )
Three months ended June 30, 2015
Air PollutionControl Segment
FUEL CHEMSegment
Fuel ConversionSegment
Other
Total
Revenues from external customers $ 11,087 $ 7,596 $ — $ — $ 18,683
Cost of sales (7,769 ) (3,778 ) —
— (11,547 ) Gross margin 3,318
3,818 — — 7,136 Selling, general and administrative — — — (8,400 )
(8,400 ) Research and development — —
(629 ) (353 ) (982 ) Operating
income (loss) $ 3,318 $ 3,818 $ (629 )
$ (8,753 ) $ (2,246 )
Six months ended June 30, 2016
Air PollutionControl Segment
FUEL CHEMSegment
Fuel ConversionSegment
Other
Total
Revenues from external customers $ 23,021 $ 9,976 $ — $ — $ 32,997
Cost of sales (16,471 ) (4,898 ) —
— (21,369 ) Gross margin 6,550
5,078 — — 11,628 Selling, general and administrative — — — (14,239
) (14,239 ) Research and development — —
(1,514 ) (766 ) (2,280 )
Operating income (loss) $ 6,550 $ 5,078 $ (1,514 )
$ (15,005 ) $ (4,891 )
Six months ended June 30, 2015
Air PollutionControl Segment
FUEL CHEMSegment
Fuel ConversionSegment
Other
Total
Revenues from external customers $ 17,944 $ 15,842 $ — $ — $ 33,786
Cost of sales (12,090 ) (7,894 ) —
— (19,984 ) Gross margin 5,854
7,948 — — 13,802 Selling, general and administrative — — — (16,603
) (16,603 ) Research and development — —
(1,101 ) (753 ) (1,854 )
Operating income (loss) $ 5,854 $ 7,948 $ (1,101 )
$ (17,356 ) $ (4,655 )
Note: Fuel Tech is an integrated company that
segregates its financial results into three reportable segments.
The Air Pollution Control technology segment includes technologies
to reduce NOx emissions in flue gas from boilers, incinerators,
furnaces and other stationary combustion sources. The FUEL
CHEM®technology segment, which uses chemical processes in
combination with advanced CFD and CKM boiler modeling, for the
control of slagging, fouling, corrosion, opacity and other sulfur
trioxide-related issues in furnaces and boilers through the
addition of chemicals into the furnace using TIFI®Targeted
In-Furnace Injection™ technology. The Fuel Conversion segment
represents CARBONITE® fuel conversion process and technology, which
can convert coals of various grades into value-added products that
are high in energy content, carbon-rich and less pollutive. The
“Other” classification includes those profit and loss items not
allocated by Fuel Tech to each reportable segment.
FUEL TECH, INC.
GEOGRAPHIC INFORMATION (Unaudited) (in thousands)
Information concerning Fuel Tech’s operations by geographic area
is provided below. Revenues are attributed to countries based on
the location of the customer. Assets are those directly associated
with operations of the geographic area.
Three Months EndedJune 30,
Six Months EndedJune 30,
2016 2015 2016 2015 Revenues: United
States $ 12,255 $ 11,901 $ 26,685 $ 24,476 Foreign 2,920
6,782 6,312 9,310 $ 15,175 $ 18,683 $ 32,997 $
33,786
June 30,2016
December 31,2015
Assets:
United States $ 46,093 $ 47,437 Foreign 22,605 28,574
$ 68,698 $ 76,011
FUEL TECH, INC.RECONCILIATION OF
GAAP NET LOSS TO EBITDA AND ADJUSTED EBITDA(Unaudited)(in
thousands)
Three Months EndedJune 30,
Six Months EndedJune 30,
2016 2015 2016 2015 Net loss $ (2,628 )
$ (1,371 ) $ (5,265 ) $ (3,025 ) Interest expense — 3 — 30 Income
tax (expense) benefit 111 (936 ) (94 ) (1,807 ) Depreciation
expense 440 529 926 1,049 Amortization expense 427 532
861 1,075 EBITDA (1,650 ) (1,243 ) (3,572 )
(2,678 ) Stock compensation expense 580 561 1,041
833 ADJUSTED EBITDA $ (1,070 ) $ (682 ) $ (2,531 ) $
(1,845 )
Adjusted EBITDA
To supplement the Company's consolidated financial statements
presented in accordance with generally accepted accounting
principles in the United States (GAAP), the Company has provided an
Adjusted EBITDA disclosure as a measure of financial performance.
Adjusted EBITDA is defined as net income (loss) before interest
expense, income tax expense (benefit), depreciation expense,
amortization expense and stock compensation expense. The Company's
reference to these non-GAAP measures should be considered in
addition to results prepared in accordance with GAAP standards, but
are not a substitute for, or superior to, GAAP results.
Adjusted EBITDA is provided to enhance investors' overall
understanding of the Company's current financial performance and
ability to generate cash flow, which we believe is a meaningful
measure for our investor and analyst communities. In many cases
non-GAAP financial measures are utilized by these individuals to
evaluate Company performance and ultimately determine a reasonable
valuation for our common stock. A reconciliation of Adjusted EBITDA
to the nearest GAAP measure of net income (loss) has been included
in the above financial table.
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version on businesswire.com: http://www.businesswire.com/news/home/20160809006478/en/
Fuel Tech, Inc.David S. Collins, 630-845-4500Chief Financial
OfficerorThe Equity Group Inc.Devin Sullivan, 212-836-9608Senior
Vice President
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