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 third quarter (“Q3 2019”) and nine months ended
September 30, 2019.
“Our results for Q3 2019 reflect the ongoing delays in closing
new Air Pollution Control (“APC”) business awards,” said Vincent J.
Arnone, Chairman, President and CEO of Fuel Tech. “The strong
financial condition and the operating leverage that we have created
via our domestic and international restructuring efforts over these
past several years has served to mitigate the impact caused by
these delays. We are beginning to see modest progress with respect
to business development, as evidenced by our recent contract
announcement. Near-term challenges notwithstanding, we remain
confident in the long-term APC opportunity and continue to track an
active global sales pipeline of approximately $80 million to $100
million in potential project work. We expect to close on new
contract awards before the end of 2019.”
Mr. Arnone continued, “The suspension of our underperforming
China operation (“Beijing Fuel Tech”) is nearing completion and, as
expected, the associated losses narrowed significantly in Q3 2019.
The wind down of these operations is expected to be completed by
the end of 2019 and will result in the removal of approximately $2
million in annual operating losses, the full benefit of which we
will realize in 2020. Our liquidity is strong, and we ended the
third quarter with $15.3 million in total cash and no debt.”
Q3 2019 Consolidated Results
Overview
Consolidated revenues declined to $6.4 million from $16.1
million in Q3 2018, primarily reflecting significantly lower
revenues at APC. Results for Q3 2019 and Q3 2018 included revenues
from Beijing Fuel Tech of approximately $0 and $1.1 million,
respectively.
Gross margin was 44.8% of revenues compared to 33.7% of revenues
in Q3 2018, reflecting the mix between APC and FUEL CHEM revenues
recognized during the quarter.
SG&A expenses declined by 7.0% to $3.8 million from $4.1
million in Q3 2018.
Net loss from continuing operations was $(1.3) million, or
$(0.05) per diluted share, compared to net income from continuing
operations of $1.1 million, or $0.04 per diluted share, in Q3 2018.
Net loss from continuing operations in Q3 2019 included losses at
Beijing Fuel Tech of $0.2 million.
Capital projects backlog at September 30, 2019 was $6.8 million,
$5.4 million of which was domestic. Capital projects backlog at
September 30, 2019 does not include new awards in the amount of
approximately $2 million announced subsequent to the close of the
quarter.
APC segment revenues declined to $1.8 million from $10.9 million
in Q3 2018, primarily the result of a lower capital projects
backlog and a delay in new contract awards. APC gross margin was
$0.6 million, or 34.1%, as compared to $2.8 million, or 25.4%, in
Q3 2018. APC results for Q3 2019 included $0 revenues from Beijing
Fuel Tech and an operating loss of $0.2 million. In Q3 2018,
revenues from Beijing Fuel Tech were $1.1 million and the operating
loss was $0.4 million.
FUEL CHEM segment revenues were $4.6 million compared to $5.2
million in Q3 2018. 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. Segment gross margin was 49.0% in Q3 2019 and
51.1% in Q3 2018.
Adjusted EBITDA loss was $(0.8) million compared to Adjusted
EBITDA of $1.3 million in Q3 2018.
Nine Month 2019 Overview
Consolidated revenues for the first nine months of 2019 were
$25.6 million as compared to $40.7 million in the same period last
year, due primarily to the reasons cited above.
Gross margin was 42.3% as compared to 34.8% of revenues, due to
the mix between APC and FUEL CHEM revenues recognized during the
year and to year on year improvement in APC gross margins.
SG&A expenses for the 2019 nine-month period declined 7.6%
to $12.7 million from $13.8 million in comparable 2018 period. On a
total dollar basis, SG&A for the 2019 nine-month period
decreased by $1.1 million.
Net loss from continuing operations was $(3.5) million, or
$(0.15) per share, compared to a net loss from continuing
operations of $(0.8) million, $(0.04) per share, in the 2018
nine-month period.
Results for the 2019 and 2018 nine-month periods included
revenues from Beijing Fuel Tech of $0.3 million and $2.4 million,
respectively, and operating losses of $1.5 million and $1.6
million, respectively.
Adjusted EBITDA loss was $(2.3) million compared to Adjusted
EBITDA of $0.2 million in last year’s nine-month period.
Mr. Arnone concluded, “Regarding our progress in developing our
DGI™ Dissolved Gas Infusion (water) technology business, we
continue to advance conversations with multiple potential customers
across a variety of industries, with a primary focus currently on
the pulp & paper industry and the oil & gas industry. In
addition to our own discovery and selling efforts, we have added
two subject matter experts on a consulting basis to aid in the
identification and diagnosis of specific problems that our DGI
system can address in these industries. We target to have a
demonstration up-and-running by the end of this year or early in
2020. 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.”
Financial Condition
At September 30, 2019, total cash was $15.3 million including
restricted cash of $2.5 million, down from restricted cash of $6.0
million at December 31, 2018 reflecting the Company’s new credit
agreement and reductions in outstanding letters of credit with
existing customers. Stockholders’ equity was $30.7 million, or
$1.27 per share, and the Company had zero debt.
Conference Call
Management will host a conference call on Thursday, November 14,
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
(Unaudited)
(in thousands, except share and
per share data)
September 30, 2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
12,850
$
12,039
Restricted cash
988
6,020
Accounts receivable, net of allowance for
doubtful accounts of $1,175 and $1,411, respectively
10,124
18,399
Inventories, net
291
957
Prepaid expenses and other current
assets
1,834
3,184
Income taxes receivable
130
118
Total current assets
26,217
40,717
Property and equipment, net of accumulated
depreciation of $25,993 and $26,528, respectively
5,712
5,976
Goodwill
2,116
2,116
Other intangible assets, net of
accumulated amortization of $6,611 and $6,608, respectively
966
1,164
Restricted cash
1,494
—
Right-of-use operating lease assets
1,104
—
Assets held for sale
—
485
Other assets
270
1,261
Total assets
$
37,879
$
51,719
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
2,618
$
9,499
Accrued liabilities:
Operating lease liabilities - current
376
—
Employee compensation
661
1,563
Other accrued liabilities
2,419
6,099
Total current liabilities
6,074
17,161
Operating lease liabilities -
non-current
715
—
Deferred income taxes
171
171
Other liabilities
278
335
Total liabilities
7,238
17,667
COMMITMENTS AND CONTINGENCIES (Note
14)
Stockholders’ equity:
Common stock, $.01 par value, 40,000,000
shares authorized, 24,843,668 and 24,825,891 shares issued, and
24,186,824 and 24,170,585 shares outstanding, respectively
248
248
Additional paid-in capital
139,349
138,992
Accumulated deficit
(105,985
)
(102,495
)
Accumulated other comprehensive loss
(1,561
)
(1,285
)
Nil coupon perpetual loan notes
76
76
Treasury stock, at cost
(1,486
)
(1,484
)
Total stockholders’ equity
30,641
34,052
Total liabilities and stockholders’
equity
$
37,879
$
51,719
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(in thousands, except share and
per-share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenues
$
6,452
$
16,070
$
25,555
$
40,708
Costs and expenses:
Cost of sales
3,563
10,654
14,754
26,545
Selling, general and administrative
3,822
4,105
12,735
13,789
Restructuring charge
—
—
625
—
Research and development
352
265
823
814
Intangible assets abandonment
76
—
127
317
7,813
15,024
29,064
41,465
Operating income (loss) from continuing
operations
(1,361
)
1,046
(3,509
)
(757
)
Interest expense
(4
)
—
(8
)
—
Interest income
19
1
30
3
Other expense
71
8
(1
)
(59
)
Income (loss) from continuing
operations before income taxes
(1,275
)
1,055
(3,488
)
(813
)
Income tax expense
(21
)
—
(23
)
(2
)
Net income (loss) from continuing
operations
(1,296
)
1,055
(3,511
)
(815
)
Income (loss) from discontinued operations
(net of income tax benefit of $0 in 2019 and 2018)
18
(10
)
(1
)
(109
)
Net income (loss)
$
(1,278
)
$
1,045
$
(3,512
)
$
(924
)
Net income (loss) per common
share:
Basic
Continuing operations
$
(0.05
)
$
0.04
$
(0.15
)
$
(0.04
)
Discontinued operations
$
—
$
—
$
—
$
—
Basic net income (loss) per common
share
$
(0.05
)
$
0.04
$
(0.15
)
$
(0.04
)
Diluted
Continuing operations
$
(0.05
)
$
0.04
$
(0.15
)
$
(0.04
)
Discontinued operations
$
—
$
—
$
—
$
—
Diluted net loss per common
share
$
(0.05
)
$
0.04
$
(0.15
)
$
(0.04
)
Weighted-average number of common
shares outstanding:
Basic
24,187,000
24,171,000
24,183,000
24,162,000
Diluted
24,187,000
24,588,000
24,183,000
24,162,000
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net income (loss)
$
(1,278
)
$
1,045
$
(3,512
)
$
(924
)
Other comprehensive income (loss):
Foreign currency translation
adjustments
(337
)
(263
)
(276
)
(441
)
Unrealized losses from marketable
securities, net of tax
—
—
—
(3
)
Total other comprehensive income
(loss)
(337
)
(263
)
(276
)
(444
)
Comprehensive income (loss)
$
(1,615
)
$
782
$
(3,788
)
$
(1,368
)
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
(in thousands)
Nine Months Ended September
30,
2019
2018
Operating Activities
Net loss
$
(3,512
)
$
(924
)
Loss from discontinued operations
1
109
Net loss from continuing operations
(3,511
)
(815
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation
644
502
Amortization
118
158
Loss (gain) on disposal of equipment
4
(11
)
Provision for doubtful accounts, net of
recoveries
—
(62
)
Intangible assets abandonment
127
317
Stock-based compensation, net of
forfeitures
357
135
Changes in operating assets and
liabilities:
Accounts receivable
8,601
(7,192
)
Inventories
654
280
Prepaid expenses, other current assets and
other non-current assets
1,804
1,840
Accounts payable
(6,812
)
3,896
Accrued liabilities and other non-current
liabilities
(4,306
)
(1,378
)
Net cash used in operating activities -
continuing operations
(2,320
)
(2,330
)
Net cash used in operating activities -
discontinued operations
(21
)
(334
)
Net cash used in operating activities
(2,341
)
(2,664
)
Investing Activities
Purchases of equipment and patents
(431
)
(392
)
Proceeds from the sale of equipment
—
1
Net cash used in investing activities -
continuing operations
(431
)
(391
)
Net cash provided by investing activities
- discontinued operations
505
—
Net cash provided by (used in) investing
activities
74
(391
)
Financing Activities
Taxes paid on behalf of equity award
participants
(2
)
(12
)
Net cash used in financing activities
(2
)
(12
)
Effect of exchange rate fluctuations on
cash
(458
)
(601
)
Net decrease in cash, cash equivalents
and restricted cash
(2,727
)
(3,668
)
Cash, cash equivalents, and restricted
cash at beginning of period
18,059
14,386
Cash, cash equivalents and restricted
cash at end of period
$
15,332
$
10,718
FUEL TECH, INC.
BUSINESS SEGMENT FINANCIAL
DATA
(Unaudited)
(in thousands)
Three months ended September 30, 2019
Air Pollution Control Segment
FUEL CHEM Segment
Other
Total
Revenues from external customers
$
1,816
$
4,636
$
—
$
6,452
Cost of sales
(1,197
)
(2,366
)
—
(3,563
)
Gross margin
619
2,270
—
2,889
Selling, general and administrative
—
—
(3,822
)
(3,822
)
Research and development
—
—
(352
)
(352
)
Intangible assets abandonment
—
—
(76
)
(76
)
Operating income (loss) from continuing
operations
$
619
$
2,270
$
(4,250
)
$
(1,361
)
Three months ended September 30, 2018
Air Pollution Control Segment
FUEL CHEM Segment
Other
Total
Revenues from external customers
$
10,882
$
5,188
$
—
$
16,070
Cost of sales
(8,116
)
(2,538
)
—
(10,654
)
Gross margin
2,766
2,650
—
5,416
Selling, general and administrative
—
—
(4,105
)
(4,105
)
Research and development
—
—
(265
)
(265
)
Operating income (loss) from continuing
operations
$
2,766
$
2,650
$
(4,370
)
$
1,046
Nine months ended September 30, 2019
Air Pollution Control Segment
FUEL CHEM Segment
Other
Total
Revenues from external customers
$
12,408
$
13,147
$
—
$
25,555
Cost of sales
(8,061
)
(6,693
)
—
(14,754
)
Gross margin
4,347
6,454
—
10,801
Selling, general and administrative
—
—
(12,735
)
(12,735
)
Restructuring charge
—
—
(625
)
(625
)
Research and development
—
—
(823
)
(823
)
Intangible assets abandonment
(127
)
(127
)
Operating income (loss) from continuing
operations
$
4,347
$
6,454
$
(14,310
)
$
(3,509
)
Nine months ended September 30, 2018
Air Pollution Control Segment
FUEL CHEM Segment
Other
Total
Revenues from external customers
$
27,872
$
12,836
$
—
$
40,708
Cost of sales
(20,040
)
(6,505
)
—
(26,545
)
Gross margin
7,832
6,331
—
14,163
Selling, general and administrative
—
—
(13,789
)
(13,789
)
Research and development
—
—
(814
)
(814
)
Intangible assets abandonment
—
—
(317
)
(317
)
Operating income (loss) from continuing
operations
$
7,832
$
6,331
$
(14,920
)
$
(757
)
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
“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 Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenues:
United States
5,727
11,629
22,104
30,701
Foreign
725
4,441
3,451
10,007
6,452
16,070
25,555
40,708
September 30, 2019
December 31, 2018
Assets:
United States
$
29,437
$
36,784
Foreign
8,442
14,935
$
37,879
$
51,719
FUEL TECH, INC.
RECONCILIATION OF GAAP NET LOSS
TO EBITDA AND ADJUSTED EBITDA
(Unaudited)
(in thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net income (loss)
$
(1,278
)
$
1,045
$
(3,512
)
$
(924
)
Interest income
(19
)
(1
)
(30
)
(3
)
Interest expense
4
—
8
—
Income tax expense
21
—
23
2
Depreciation expense
166
147
644
502
Amortization expense
50
52
118
158
EBITDA
(1,056
)
1,243
(2,749
)
(265
)
Intangible assets abandonment
76
—
127
374
Stock compensation expense
138
97
357
135
ADJUSTED EBITDA
(842
)
1,340
(2,265
)
244
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/20191113005881/en/
Jim Pach Principal Financial Officer (630) 845-4500 Devin
Sullivan Senior Vice President The Equity Group Inc. (212)
836-9608
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