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 2019”) and full year ended
December 31, 2019.
“2019 was a challenging year for our Company, driven primarily
by ongoing delays in closing new Air Pollution Control (“APC”)
business awards with such delays continuing into the first quarter
of 2020,” said Vincent J. Arnone, Chairman, President and CEO of
Fuel Tech. “These delays have been frustrating; however, we are
fortunate that the operating leverage that we created via our
domestic and international restructuring efforts over these past
several years has served to mitigate their impact.
“Our APC business is tracking an active global sales pipeline of
approximately $75 million to $100 million in potential project
work, largely in the U.S. and Europe. We remain confident in the
long-term APC opportunity and we expect contract awards to come our
way before the end of the 2020 second quarter or shortly
thereafter.”
Mr. Arnone continued, “The suspension of our underperforming
China operation (“Beijing Fuel Tech”) is nearly complete and, as
expected, the associated losses were minimal in Q4 2019. The wind
down of these operations has resulted in the removal of
approximately $2.0 million in annual operating losses, the full
benefit of which we are realizing in 2020. Cash collections in
China are ongoing and we ended the year with $1.4 million of cash
in China. We commenced the repatriation application process and
received funds in the first quarter of 2020.”
DGI™ Dissolved Gas
Infusion
The Company expects to commence an on-site demonstration of its
water technology at a pulp and paper facility in the Midwest early
in the second quarter of 2020. Fuel Tech continues to advance
conversations with several other potential customers across a
variety of industries, which has been accelerated in large part by
the Company’s investment in the use of subject matter experts on a
consulting basis to aid in the identification and diagnosis of
specific problems that its DGI system can address.
During the first quarter of 2020, the Company filed a
provisional patent application to protect certain enhancements to
the DGI™ technology that improve its performance as management
looks to use DGI to displace competing technologies directly or
provide cost-effective augmentation to a range of environmental
treatment processes with an eye toward greener solutions.
Q4 2019 Consolidated Results
Overview
Consolidated revenues declined to $4.9 million from $15.8
million in Q4 2018, primarily reflecting significantly lower
revenues at APC. Results for Q4 2019 and Q4 2018 included revenues
from Beijing Fuel Tech of approximately $0 and $0.6 million,
respectively.
Cost of sales for Q4 2019 included a $2.0 million charge
associated with the accounting treatment of an insurance receivable
related to a previously disclosed equipment warranty liability with
a U.S. customer. Fuel Tech has submitted a reimbursement request to
its insurer for the $2.0 million expended in remediation, and such
amount is within the coverage limits of its insurance policy. Fuel
Tech and the insurance company continue to work amicably to resolve
this matter and, upon settlement with its insurer, all amounts
received will be applied to reverse the charge.
Reflecting the inclusion of the insurance receivable, gross
margin for Q4 2019 was less than 1% of revenues compared to 37.3%
of revenues in Q4 2018. Excluding the impact of the insurance
receivable, gross margin in Q4 2019 was 41.1% of revenues,
reflecting the mix between APC and FUEL CHEM revenues recognized
during the quarter.
SG&A expenses declined by 6.7% to $4.5 million from $4.8
million in Q4 2018.
Net loss from continuing operations, which included the
insurance receivable, was $(4.3) million, or $(0.18) per share,
compared to net income from continuing operations of $0.9 million,
or $0.04 per diluted share, in Q4 2018. Excluding the impact of the
insurance receivable, net loss from continuing operations in Q4
2019 was $(2.3) million, or $(0.10) per diluted share. Net loss
from continuing operations in Q4 2019 also included losses at
Beijing Fuel Tech of $(0.2) million.
Capital projects backlog at December 31, 2019 was $9.7 million,
$8.6 million of which was domestic.
APC segment revenues declined to $1.7 million from $10.5 million
in Q4 2018, primarily the result of a lower capital projects
backlog and a delay in new contract awards. APC gross margin,
including the $2.0 million insurance receivable, was $(1.5) million
as compared to $3.2 million, or 30.4%, in Q4 2018. Excluding the
insurance receivable, APC gross margin in Q4 2018 was $0.5 million,
or 28.1%. APC results for Q4 2019 also included $0 revenues from
Beijing Fuel Tech and an operating loss of $(0.2) million. In Q4
2018, revenues from Beijing Fuel Tech were $0.6 million and the
operating loss was $(0.4) million.
FUEL CHEM segment revenues were $3.2 million compared to $5.3
million in Q4 2018. This segment’s performance was impacted by
unplanned customer unit outages, warmer than usual weather and the
continued trend towards the reduction in electricity demand from
coal-fired combustion units driven by the availability of low-cost
natural gas units in many regions of the country. Segment gross
margin was 47.8% in Q4 2019 and 51.1% in Q4 2018.
Adjusted EBITDA loss was $(3.9) million compared to Adjusted
EBITDA of $1.2 million in Q4 2018.
Twelve Month Overview
Consolidated revenues for 2019 were $30.5 million as compared to
$56.5 million last year, due primarily to the reasons cited
above.
Cost of sales for 2019 also included the $2.0 million of
unreimbursed customer remediation costs.
Reflecting the inclusion of the unreimbursed customer
remediation costs, gross margin for 2019 was 35.5% as compared to
35.5% of revenues for 2018. Excluding the unreimbursed customer
remediation costs, gross margin for 2019 was 42.1%.
SG&A expenses for 2019 declined 7.4% to $17.2 million from
$18.6 million in 2018. On a total dollar basis, SG&A for 2019
decreased by $1.4 million. SG&A attributable to the Company’s
China operations was $1.7 million in 2019 as compared to $2.2
million in 2018.
Net loss from continuing operations, including the unreimbursed
customer remediation costs, was $(7.9) million, or $(0.32) per
share, compared to net income from continuing operations of $0.1
million, or $0.00 per share, in 2018. Excluding the impact of the
unreimbursed customer remediation costs, net loss from continuing
operations was $(5.9) million, or $(0.24) per share.
Results for the 2019 and 2018 included revenues from Beijing
Fuel Tech of $0.3 million and $3.0 million, respectively, and
operating losses of $1.8 million and $1.9 million,
respectively.
Adjusted EBITDA loss was $(6.2) million compared to Adjusted
EBITDA of $1.5 million last year.
Financial Condition and Liquidity
Preservation
At December 31, 2019, total cash was $13.5 million including
restricted cash of $2.6 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 $26.2 million, or
$1.08 per share, and the Company had zero debt.
“Although our liquidity remains strong overall, we are mindful
of the current state of our APC business and the inherent
uncertainties regarding the timing of contract awards,” said Mr.
Arnone. “To that end, Fuel Tech’s senior leadership and Board of
Directors are working collaboratively to align the Company’s cost
structure with current market conditions and ensure financial
stability. Our Board of Directors has accepted the Leadership
Team’s offer to voluntarily reduce the base salary of all Officers
of the Company by 10% effective March 1, 2020. Moreover, each
non-employee member of the Board of Directors reduced his or her
base Director Fee by 10% effective March 1, 2020. These reductions
will be in effect until it becomes apparent that the Company’s
financial condition has improved and is sustainable.”
Conference Call
Management will host a conference call on Thursday, March 12 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 available 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, except share and per
share data)
December 31, 2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
10,914
$
12,039
Restricted cash
2,080
6,020
Accounts receivable, net
6,473
18,399
Inventories, net
264
957
Prepaid expenses and other current
assets
1,879
3,184
Income taxes receivable
—
118
Total current assets
21,610
40,717
Property and equipment, net
5,662
5,976
Goodwill
2,116
2,116
Other intangible assets, net
906
1,164
Restricted cash
507
—
Right-of-use operating lease assets
980
—
Assets held for sale
—
485
Other assets
443
1,261
Total assets
$
32,224
$
51,719
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
2,117
$
9,499
Accrued liabilities:
Operating lease liabilities - current
300
—
Employee compensation
519
1,563
Income taxes payable
—
—
Other accrued liabilities
1,976
6,099
Total current liabilities
4,912
17,161
Operating lease liabilities -
non-current
680
—
Deferred income taxes
171
171
Other liabilities
286
335
Total liabilities
6,049
17,667
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Common stock, $.01 par value, 40,000,000
shares authorized, 25,053,480 and 24,825,891
shares issued, and 24,592,578 and
24,170,585 outstanding in 2019 and 2018, respectively
254
248
Additional paid-in capital
139,560
138,992
Accumulated deficit
(110,325
)
(102,495
)
Accumulated other comprehensive loss
(1,778
)
(1,285
)
Nil coupon perpetual loan notes
76
76
Treasury stock, at cost
(1,612
)
(1,484
)
Total stockholders’ equity
26,175
34,052
Total liabilities and stockholders’
equity
$
32,224
$
51,719
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands,
except share and per-share data)
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Revenues
$
4,912
$
15,827
$
30,467
$
56,535
Costs and expenses:
Cost of sales
4,883
9,926
19,637
36,471
Selling, general and administrative
4,456
4,775
17,191
18,564
Restructuring charge
—
—
625
—
Research and development
304
259
1,127
1,073
Intangible assets abandonment
—
—
127
317
9,643
14,960
38,707
56,425
Operating income (loss) from continuing
operations
(4,731
)
867
(8,240
)
110
Interest income
19
3
41
6
Foreign exchange gain
370
—
370
—
Other expense
(7
)
61
(8
)
2
Income (loss) from continuing
operations before income taxes
(4,349
)
931
(7,837
)
118
Income tax expense
9
(31
)
(14
)
(33
)
Net income (loss) from continuing
operations
(4,340
)
900
(7,851
)
85
Income (loss) from discontinued operations
(net of income tax benefit of $0 in 2019 and 2018)
—
(4
)
(1
)
(113
)
Net income (loss)
$
(4,340
)
$
896
$
(7,852
)
$
(28
)
Net income (loss) per common
share:
Basic
Continuing operations
$
(0.18
)
$
0.04
$
(0.32
)
$
—
Discontinued operations
$
—
$
—
$
—
$
—
Basic net income (loss) per common
share
$
(0.18
)
$
0.04
$
(0.32
)
$
—
Diluted
Continuing operations
$
(0.18
)
$
0.04
$
(0.32
)
$
—
Discontinued operations
$
—
$
—
$
—
$
—
Diluted net loss per common
share
$
(0.18
)
$
0.04
$
(0.32
)
$
—
Weighted-average number of common
shares outstanding:
Basic
24,257,000
24,171,000
24,202,000
24,164,000
Diluted
24,257,000
24,784,000
24,202,000
24,164,000
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in
thousands)
For the years ended December
31,
2019
2018
2017
Net loss
$
(7,852
)
$
(28
)
$
(10,449
)
Other comprehensive income (loss):
Foreign currency translation
adjustments
(493
)
(513
)
802
Unrealized losses from marketable
securities, net of tax
—
(4
)
(2
)
Total other comprehensive income
(loss)
(493
)
(517
)
800
Comprehensive loss
$
(8,345
)
$
(545
)
$
(9,649
)
FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Twelve Months Ended December
31,
2019
2018
2017
Operating Activities
Net loss
$
(7,852
)
$
(28
)
$
(10,449
)
Loss from discontinued operations
1
113
3,914
Net income (loss) from continuing
operations
(7,851
)
85
(6,535
)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation
810
654
1,312
Amortization
186
193
215
Loss (gain) on disposal of equipment
(3
)
142
304
Provision for doubtful accounts, net of
recoveries
421
(64
)
—
Deferred income taxes
—
2
(534
)
Excess and obsolete inventory reserve
(131
)
78
228
Intangible assets abandonment
127
317
2,965
Stock-based compensation, net of
forfeitures
574
233
1,389
Foreign currency gain
370
—
—
Changes in operating assets and
liabilities:
Accounts receivable
11,415
848
113
Inventories
818
(108
)
(134
)
Prepaid expenses, other current assets and
other non-current assets
2,239
251
(1,084
)
Accounts payable
(7,331
)
521
2,500
Accrued liabilities and other non-current
liabilities
(5,010
)
1,897
(2,439
)
Net cash provided by (used in) operating
activities - continuing operations
(3,366
)
5,049
(1,700
)
Net cash used in operating activities -
discontinued operations
(21
)
(122
)
(1,868
)
Net cash provided by (used in) operating
activities
(3,387
)
4,927
(3,568
)
Investing Activities
Purchases of equipment and patents
(550
)
(570
)
(492
)
Proceeds from the sale of equipment
—
1
2
Net cash used in investing activities -
continuing operations
(550
)
(569
)
(490
)
Net cash provided by investing activities
- discontinued operations
505
—
—
Net cash provided by (used in) investing
activities
(45
)
(569
)
(490
)
Financing Activities
Taxes paid on behalf of equity award
participants
(128
)
(12
)
(258
)
Net cash used in financing activities
(128
)
(12
)
(258
)
Effect of exchange rate fluctuations on
cash
(998
)
(673
)
856
Net decrease in cash, cash equivalents
and restricted cash
(4,558
)
3,673
(3,460
)
Cash, cash equivalents, and restricted
cash at beginning of period
18,059
14,386
17,846
Cash, cash equivalents and restricted
cash at end of period
$
13,501
$
18,059
$
14,386
FUEL TECH, INC. BUSINESS
SEGMENT FINANCIAL DATA (in thousands)
Three months ended December 31, 2019
Air Pollution Control Segment
FUEL CHEM Segment
Other
Total
Revenues from external customers
$
1,674
$
3,238
$
—
$
4,912
Cost of sales
(3,194
)
(1,689
)
—
(4,883
)
Gross margin
(1,520
)
1,549
—
29
Selling, general and administrative
—
—
(4,456
)
(4,456
)
Research and development
—
—
(304
)
(304
)
Operating income (loss) from continuing
operations
$
(1,520
)
$
1,549
$
(4,760
)
$
(4,731
)
Three months ended December 31, 2018
Air Pollution Control Segment
FUEL CHEM Segment
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
Twelve months ended December 31, 2019
Air Pollution Control Segment
FUEL CHEM Segment
Other
Total
Revenues from external customers
$
14,082
$
16,385
$
—
$
30,467
Cost of sales
(11,256
)
(8,381
)
—
(19,637
)
Gross margin
2,826
8,004
—
10,830
Selling, general and administrative
—
—
(17,191
)
(17,191
)
Restructuring charge
(625
)
—
—
(625
)
Research and development
—
—
(1,127
)
(1,127
)
Intangible assets abandonment
—
—
(127
)
(127
)
Operating income (loss) from continuing
operations
$
2,201
$
8,004
$
(18,445
)
$
(8,240
)
Twelve months ended December 31, 2018
Air Pollution Control Segment
FUEL CHEM Segment
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
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.
For the years ended
December 31,
2019
2018
2017
Revenues:
United States
$
25,882
$
43,887
$
29,510
Foreign
4,585
12,648
15,656
$
30,467
$
56,535
$
45,166
As of December 31,
2019
2018
Assets:
United States
$
23,460
$
36,784
Foreign
8,764
14,935
$
32,224
$
51,719
FUEL TECH, INC.
RECONCILIATION OF GAAP NET LOSS TO EBITDA AND ADJUSTED EBITDA (in
thousands)
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Net income (loss)
$
(4,340
)
$
896
$
(7,852
)
$
(28
)
Interest income
(19
)
(3
)
(41
)
(6
)
Income tax expense
(9
)
31
14
33
Depreciation expense
166
152
810
654
Amortization expense
68
35
186
193
EBITDA
(4,134
)
1,111
(6,883
)
846
Intangible assets abandonment
—
—
127
317
Intangible assets abandonment
(discontinued operations)
—
—
—
57
Stock compensation expense
217
98
574
233
ADJUSTED EBITDA
(3,917
)
1,209
(6,182
)
1,453
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/20200311005777/en/
Vince Arnone President and CEO (630) 845-4500 Devin Sullivan
Senior Vice President The Equity Group Inc. (212) 836-9608
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