Increased Revenues,
Improved Cost Structure Drive Profitable Q4 and FY
2018
Q4 2018 Overview
- Revenues rose 18.2% to $15.8 million
from $13.4 million in Q4 2017
- SG&A declined to $4.8 million from
$4.9 million in Q4 2017
- Operating income from continuing
operations increased to $0.9 million from $0.4 million in Q4
2017
- Adjusted EBITDA improved to $1.2
million from $0.6 million
- At December 31, 2018:
- $18.1 million in total cash and
equivalents, including restricted cash
- $4.9 million of net cash provided by
operating activities
- Debt free
Fuel Tech, Inc. (NASDAQ: FTEK), a technology company
providing advanced engineering solutions for the optimization of
combustion systems, emissions control and water treatment in
utility and industrial applications, today reported financial
results for the fourth quarter (“Q4 2018”) and full year ended
December 31, 2018.
“We ended 2018 with two of the strongest quarters in recent
history,” said Vincent J. Arnone, Chairman, President, and CEO of
Fuel Tech. “In Q4 2018, specifically, revenues rose at our Air
Pollution Control (“APC”) and FUEL CHEM® segments, SG&A
declined on a quarterly comparative basis for the fourth
consecutive quarter, and we generated operating income from
continuing operations of $0.9 million. For all of 2018, revenues
increased by 25.2%, SG&A declined by 11.3% and we reported our
first annual operating profit since 2013. We ended the year with
over $18.0 million in total cash and are debt free.
“Our consolidated financial performance in 2018 included the
negative impact of our China operations (“Beijing Fuel Tech”). For
the full year of 2018, Beijing Fuel Tech generated an operating
loss of $1.9 million and revenues of just $3.0 million. As
previously announced, we have commenced the process of suspending
our operations in China and expect that this will be substantially
completed by the end of Q2 2019. As we complete our planned
suspension activities in 2019, the negative impact of Beijing Fuel
Tech’s operating losses on Fuel Tech’s overall performance will
dissipate.”
He continued, “Our APC solutions portfolio continued to
demonstrate flexibility and adaptability with respect to fuel
source. In 2018, approximately 60% of total APC revenue was derived
from natural gas applications, up from 21% in 2017 and 4% in 2016.
Our ability to apply our technology suite to natural gas-fired
applications is critical for our Company, as the fuel mix for new
power generation sources has shifted dramatically in favor of
natural gas and away from other fossil fuels. For our FUEL CHEM
business, which predominantly assists coal-fired power generation
in their effort to burn lower-quality fuels more cleanly and
efficiently, we had a nice improvement in revenue generation in
2018 versus 2017. Coal as a fuel source for power generation is
likely to be a part of the fuel mix in the U.S. for many years to
come, and we expect to maintain a consistent level of revenue
contribution from this business segment in the near-term.
“We continue to progress in developing our new water treatment
business. We are in discussions with multiple potential customers
and we target to have a demonstration up-and-running by early Q2
2019. We now have a mobile demonstration-scale system ready to be
deployed and can respond rapidly to a customer request. While we do
not expect our water treatment technology venture to have a
significant impact on near-term results, we do look forward to it
being a significant contributor in future years.”
Mr. Arnone concluded, “We have successfully emerged from
executing on a multi-year program of cost reduction and
rationalization initiatives. The completion of the suspension of
our China operation in 2019 will enable improved profitability for
the Company as a whole, and for full year 2019 we expect to
generate both income from continuing operations and positive cash
flow for the second consecutive year. Further business development
for our APC and FUEL CHEM business segments remains as priority. We
are currently pursuing a pipeline of opportunities with an
aggregate value of greater than $100 million that covers all fuel
sources, involves the application of the entirety of our product
line and serves customers in multiple geographies. We are also
looking forward to our first commercial efforts in water
treatment.”
Q4 2018 Results Overview
Consolidated revenues rose 18.2% to $15.8 million from $13.4
million in Q4 2017, reflecting higher revenues at APC and FUEL
CHEM.
Gross margin declined to 37.3% of revenues from 42.0% in Q4
2017, due to the mix between APC and FUEL CHEM revenues recognized
during the quarter. With an increase in APC revenues in Q4 2018 as
compared to Q4 2017, the overall weighted average margin on a
consolidated basis declined.
SG&A expenses declined to $4.8 million, or 30.2% of
revenues, from $4.9 million, or 36.5% of revenues, in Q4 2017.
Net income from continuing operations was $0.9 million, or $0.04
per diluted share, compared to net income from continuing
operations of $1.0 million, or $0.04 per diluted share, in Q4 2017.
Results for Q4 2017 were revised to include an income tax benefit
of $0.6 million reflecting a deferred tax liability associated with
the historical goodwill of FUEL CHEM.
Net income was $0.9 million, or $0.04 per diluted share, as
compared to a net loss of $(0.7) million, or $(0.03) per diluted
share, in Q4 2017.
Results for Q4 2018 included revenues of $0.6 million from
Beijing Fuel Tech as compared to $1.6 million in Q4 2017, and
operating losses of $0.4 million for both Q4 2018 and Q4 2017.
APC segment revenues rose by 11.4% to $10.5 million from $9.5
million in Q4 2017, driven by the conversion of new orders. APC
gross margin was $3.2 million, or 30.4%, as compared to $3.8
million, or 39.9%, in Q4 2017. The decline in gross margin in Q4
2018 was due to product line and geographical mix as compared to
the prior year’s quarter.
FUEL CHEM segment revenues rose 34.6% to $5.3 million from $3.9
million in Q4 2017, reflecting favorable weather conditions and the
addition of a new coal-fired unit at an existing customer in the
midwestern US during Q3 2018. Segment gross margin was 51.1% in Q4
2018 and 47.2% in Q4 2017.
Research and development expenses for Q4 2018 and Q4 2017 were
$0.3 million.
Capital projects backlog at December 31, 2018 was $12.4 million,
$11.0 million of which was domestic.
Adjusted EBITDA for Q4 2018 rose to $1.2 million from Adjusted
EBITDA of $0.6 million in Q4 2017.
Balance Sheet Data
At December 31, 2018, cash and cash equivalents were $18.1
million, including restricted cash of $6.0 million. Net cash
provided by operating activities was $4.9 million, shareholders’
equity was $34.1 million, or $1.38 per share, and the Company had
zero debt.
2018 Annual Results
Consolidated revenues for 2018 rose 25.2% to $56.5 million from
$45.2 million in 2017, due primarily to the reasons cited
above.
Gross margin declined to 35.5% of revenues from 39.9% in 2017,
due to the mix between APC and FUEL CHEM revenues recognized during
the year.
SG&A expenses for the year declined 11.3% to $18.6 million
from $20.9 million in 2017. On a total dollar basis, SG&A for
the year decreased by $2.4 million.
Net income from continuing operations was $85,000, or $0.00 per
share, compared to a net loss from continuing operations of $(6.5)
million, $(0.28) per share, in 2017. Results for 2017 were revised
to include the above-referenced income tax benefit of $0.6
million.
Net loss for 2018 was $28,000, or $0.00 per diluted share, as
compared to a net loss of $(10.5) million, or $(0.44) per diluted
share, in 2017.
Results for 2018 included revenues of $3.0 million from Beijing
Fuel Tech as compared to $8.0 million in 2017, and operating losses
of $1.9 million as compared to operating losses of $1.3 million in
2017.
Adjusted EBITDA was $1.5 million compared to an Adjusted EBITDA
loss of $(3.5) million last year.
Conference Call
Management will host a conference call on Friday, March 15, 2019
at 10:00 am ET / 9:00 am CT to discuss the results and business
activities. Interested parties may participate in the call by
dialing:
- (877) 423-9820 (Domestic)
- (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. Following
management’s opening remarks, there will be a question and answer
session. For those who cannot listen to the live broadcast, an
online replay will be available at www.ftek.com.
About Fuel Tech
Fuel Tech develops and commercializes state-of-the-art
proprietary technologies for air pollution control, process
optimization, water treatment, and advanced engineering services.
These technologies enable customers to operate in a cost-effective
and environmentally sustainable manner. Fuel Tech is a leader in
nitrogen oxide (NOx) reduction and particulate control technologies
and its solutions have been in installed on over 1,200 utility,
industrial and municipal units worldwide. The Company’s FUEL CHEM®
technology improves the efficiency, reliability, fuel flexibility,
boiler heat rate, and environmental status of combustion units by
controlling slagging, fouling, corrosion and opacity. Water
treatment technologies include DGI™ Dissolved Gas Infusion Systems
which utilize a patented nozzle to deliver supersaturated oxygen
solutions and other gas-water combinations to target process
applications or environmental issues. This infusion process has a
variety of applications in the water and wastewater industries,
including remediation, aeration, biological treatment and
wastewater odor management. 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. For more
information, visit Fuel Tech’s web site at www.ftek.com.
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This press release contains “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
Fuel Tech’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 management. Fuel Tech 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 Fuel
Tech and are subject to various risks, uncertainties, and other
factors, including, but not limited to, those discussed in Fuel
Tech’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 Fuel Tech’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. Fuel Tech undertakes no obligation to update such
factors or to publicly announce the results of any of the
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 Fuel
Tech’s filings with the Securities and Exchange Commission.
Fuel Tech, Inc.
Consolidated Balance Sheets
(in thousands of dollars, except share and
per-share data)
December 31, 2018 2017
ASSETS
Current assets: Cash and cash equivalents $ 12,039 $ 8,366
Restricted cash 6,020 1,020 Marketable securities — 6 Accounts
receivable, net 18,399 19,690 Inventories, net 957 945 Prepaid
expenses and other current assets 3,184 3,592 Income taxes
receivable 118 129 Total current assets 40,717 33,748
Property and equipment, net 5,976 6,272 Goodwill 2,116 2,116 Other
intangible assets, net 1,164 1,671 Restricted cash — 5,000 Assets
held for sale 485 485 Other assets 1,261 1,192 Total
assets $ 51,719 $ 50,484
LIABILITIES AND
STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $
9,499 $ 9,065 Accrued liabilities: Employee compensation 1,563
1,487 Income taxes payable — 73 Other accrued liabilities 6,099
5,098 Total current liabilities 17,161 15,723
Deferred income taxes 171 169 Other liabilities 335 420
Total liabilities 17,667 16,312 COMMITMENTS AND
CONTINGENCIES (Note 9) Stockholders’ equity:
Common stock, $.01 par value, 40,000,000
shares authorized, 24,825,891 and 24,777,001shares issued, and
24,170,585 and 24,132,910 outstanding in 2018 and 2017,
respectively
248 248 Additional paid-in capital 138,992 138,760 Accumulated
deficit (102,495 ) (102,672 ) Accumulated other comprehensive loss
(1,285 ) (768 ) Nil coupon perpetual loan notes 76 76 Treasury
stock, 655,306 and 644,091 shares in 2018 and 2017, respectively,
at cost (1,484 ) (1,472 ) Total shareholders’ equity 34,052
34,172 Total liabilities and shareholders’ equity $ 51,719
$ 50,484
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per-share
data)
Three Months EndedDecember 31, Twelve
Months EndedDecember 31, 2018 2017 2018
2017
Revenues $ 15,827 $ 13,386 $ 56,535 $ 45,166
Costs
and expenses: Cost of sales 9,926 7,761 36,471 27,144 Selling,
general and administrative 4,775 4,887 18,564 20,933 Restructuring
charge — — — 119 Research and development 259 290 1,073 1,070
Intangible assets abandonment and building impairment — —
317 2,965 Total Costs and Expenses 14,960
12,938 56,425 52,231
Operating
income (loss) from continuing operations 867 448 110 (7,065 )
Interest income 3 2 6 10 Other expense 61 (16 ) 2 (60
)
Income (loss) from continuing operations before income
taxes 931 434 118 (7,115 ) Income tax benefit (expense) (31 )
570 (33 ) 580
Net income (loss) from continuing
operations 900 1,004 85 (6,535 ) Loss from discontinued
operations (net of income tax benefit of $0 in 2018 and 2017) (4 )
(1,676 ) (113 ) (3,914 )
Net income (loss) $ 896 $
(672 ) $ (28 ) $ (10,449 )
Net income (loss) per common
share: Basic Continuing operations $ 0.04 $ 0.04
$ — $ (0.28 ) Discontinued operations $ — $
(0.07 ) $ — $ (0.16 )
Basic net income (loss) per common
share $ 0.04 $ (0.03 ) $ — $ (0.44 )
Diluted Continuing operations $ 0.04 $ 0.04 $
— $ (0.28 ) Discontinued operations $ — $ (0.07 ) $ —
$ (0.16 )
Diluted net income (loss) per common share
$ 0.04 $ (0.03 ) $ — $ (0.44 )
Weighted-average
number of common shares outstanding: Basic 24,171,000
24,133,000 24,164,000 23,872,000 Diluted
24,784,000 24,133,000 24,164,000 23,872,000
Fuel Tech, Inc.
Consolidated Statements of
Comprehensive (Loss) Income
(in thousands of dollars)
For the years ended December 31, 2018
2017 2016 Net loss $ (28 ) $ (10,449 ) $ (17,388 )
Other comprehensive income (loss): Foreign currency translation
adjustments (513 ) 802 (6 ) Unrealized losses from marketable
securities, net of tax (4 ) (2 ) (6 ) Total other comprehensive
income (loss) (517 ) 800 (12 ) Comprehensive loss $ (545 ) $
(9,649 ) $ (17,400 )
See notes to consolidated financial statements.
Fuel Tech, Inc.
Consolidated Statements of Cash
Flows
(in thousands of dollars)
For the years ended December 31, 2018
2017 2016
OPERATING ACTIVITIES Net loss $ (28
) $ (10,449 ) $ (17,388 ) Loss from discontinued operations 113
3,914 2,800 Net income (loss) from continuing
operations 85 (6,535 ) (14,588 ) Adjustments to reconcile net
income (loss) to net cash used in operating activities:
Depreciation 654 1,312 1,780 Amortization 193 215 1,118 Loss on
disposal of equipment 142 304 60 Provision for doubtful accounts,
net (64 ) — (111 ) Deferred income taxes 2 (534 ) 1,196 Stock
compensation expense, net of forfeitures 233 1,389 1,991 Intangible
assets abandonment and building impairment 317 2,965 2,074 Excess
and obsolete inventory provision 78 228 825 Changes in operating
assets and liabilities: Accounts receivable 848 113 3,522
Inventories (108 ) (134 ) 446 Prepaid expenses, other current
assets and other non-current assets 251 (1,084 ) 2,893 Accounts
payable 521 2,500 (2,445 ) Accrued liabilities and other
non-current liabilities 1,897 (2,439 ) 699 Net cash
provided by (used in) operating activities - continuing operations
5,049 (1,700 ) (540 ) Net cash used in operating activities -
discontinued operations (122 ) (1,868 ) (2,198 ) Net cash provided
by (used in) operating activities 4,927 (3,568 ) (2,738 )
INVESTING ACTIVITIES Purchases of equipment and
patents (570 ) (492 ) (940 ) Proceeds from the sale of equipment 1
2 2 Net cash used in investing activities (569
) (490 ) (938 )
FINANCING ACTIVITIES Treasury shares
withheld (12 ) (258 ) (172 ) Net cash used in financing activities
(12 ) (258 ) (172 ) Effect of exchange rate fluctuations on cash
(673 ) 856 10
Net increase (decrease) in cash,
cash equivalents and restricted cash 3,673 (3,460 ) (3,838 )
Cash, cash equivalents and restricted cash at beginning of period
14,386 17,846 21,684
Cash, cash equivalents
and restricted cash at end of period $ 18,059 $ 14,386
$ 17,846 Supplemental Cash Flow Information:
Cash paid for: Interest $ — $ — $ — Income taxes paid $ 27 $ 31 $
368
See notes to consolidated financial statements.
FUEL TECH, INC.
BUSINESS SEGMENT FINANCIAL DATA
(Unaudited)
(in thousands)
For the three Months
Ended December 31, 2018
Air PollutionControlSegment
FUEL CHEMSegment
Other Total Revenues from external customers $ 10,545 $ 5,282 $ — $
15,827 Cost of sales (7,342 ) (2,584 ) — (9,926 ) Gross
margin 3,203 2,698 — 5,901 Selling, general and administrative — —
(4,775 ) (4,775 ) Research and development — — (259 )
(259 ) Operating income (loss) from continuing operations $ 3,203
$ 2,698 $ (5,034 ) $ 867
For the three Months
Ended December 31, 2017
Air PollutionControlSegment
FUEL CHEMSegment
Other Total Revenues from external customers $ 9,462 $ 3,924 $ — $
13,386 Cost of sales (5,691 ) (2,070 ) — (7,761 ) Gross
margin 3,771 1,854 — 5,625 Selling, general and administrative — —
(4,887 ) (4,887 ) Research and development — — (290 )
(290 ) Operating income (loss) from continuing operations 3,771
1,854 (5,177 ) 448
For the twelve
months ended December 31, 2018
Air PollutionControlSegment
FUEL CHEMSegment
Other Total Revenues from external customers $ 38,417 $ 18,118 $ —
$ 56,535 Cost of sales (27,382 ) (9,089 ) — (36,471 ) Gross
margin 11,035 9,029 — 20,064 Selling, general and administrative —
— (18,564 ) (18,564 ) Research and development — — (1,073 ) (1,073
) Intangible assets abandonment — — (317 ) (317 )
Operating income (loss) from continuing operations $ 11,035
$ 9,029 $ (19,954 ) $ 110
For the twelve
months ended December 31, 2017
Air PollutionControlSegment
FUEL CHEMSegment
Other Total Revenues from external customers $ 27,808 $ 17,358 $ —
$ 45,166 Cost of sales (18,478 ) (8,666 ) — (27,144 ) Gross
margin 9,330 8,692 — 18,022 Selling, general and administrative — —
(20,933 ) (20,933 ) Restructuring charge (58 ) (61 ) — (119 )
Research and development — — (1,070 ) (1,070 ) Building impairment
— — (2,965 ) (2,965 ) Operating income (loss) from
continuing operations $ 9,272 $ 8,631 $ (24,968 ) $
(7,065 )
Note: Fuel Tech is an integrated company that segregates its
financial results into two reportable segments, both providing
advanced technology and engineering solutions for the optimization
of combustion systems in utility and industrial applications. 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)
For the years ended
December 31,
2018 2017 2016 Revenues: United States $ 43,887 $ 29,510 $ 42,545
Foreign 12,648 15,656 12,616 $ 56,535 $ 45,166
$ 55,161
As of December
31,
2018 2017 Assets: United States $ 36,784 $ 29,945 Foreign 14,935
20,539 $ 51,719 $ 50,484
FUEL TECH, INC.
RECONCILIATION OF GAAP NET LOSS TO EBITDA
AND ADJUSTED EBITDA
(Unaudited)
(in thousands)
Three Months EndedDecember 31, Twelve
Months EndedDecember 31, 2018 2017 2018
2017 Net income (loss) $ 896 $ (672 ) $ (28 ) $ (10,449 ) Interest
income (3 ) (2 ) (6 ) (10 ) Income tax (benefit) expense 31 (570 )
33 (580 ) Depreciation expense 152 237 654 1,312 Amortization
expense 35 30 193 492 EBITDA 1,111 (977
) 846 (9,235 ) Intangible assets abandonment and building
impairment — — 317 2,965 Intangible assets impairment (discontinued
operations) — 1,354 57 1,354 Stock compensation expense 98
182 233 1,389 ADJUSTED EBITDA $ 1,209 $
559 $ 1,453 $ (3,527 )
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, stock compensation expense, and intangible
assets abandonment and building impairment. 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190314005723/en/
Jim PachPrincipal Financial Officer(630) 845-4500Devin
SullivanSenior Vice PresidentThe Equity Group Inc.(212)
836-9608
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