# Fuel Tech, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Fuel Tech, Inc.](/companies/ftek.md) (CIK 846913)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 16:31 ET
- Period: 2023-06-30
- Accession: 0001437749-23-022534
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/846913/000143774923022534/ftek20230630_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/846913/000143774923022534/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $5.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $12.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $3.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $7.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $2.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $4.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $413.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $631.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $2.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $6.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$2.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $5.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $10.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$1.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$1.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 30,324,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 30,310,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $17.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $103.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2023-06-30 | $15.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $36.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $49.6m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $5.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $6.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $43.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 16,120 characters.

### Overview

In the second quarter of 2023, the Company continued to experience a challenging operational environment resulting from customers delaying the timing of purchasing decisions in our APC segment and unscheduled outages resulting in decreased chemical purchases in our FUEL CHEM segment. We continue to invest in development of new technologies to expand our product offerings into the water and waste-water treatment market. Our capital resources are sufficient for our immediate and longer-term needs, and we continue to enjoy the services and support of a dedicated workforce. We expect that our cost control efforts will maintain our existing levels of operating expenditures and the diminishing effects of the pandemic should lead to an improved market outlook.

### COVID-19 Pandemic and Geopolitical Events

Management cannot predict the full impact of the COVID-19 pandemic and geopolitical events on the Company’s sales and marketing channels and supply chain, and as a result, the ultimate extent of the effects on the Company is highly uncertain and will depend on future developments. The Company continues to monitor the potential impacts on the business.

### Key Operating Factors

Our FUEL CHEM segment experienced a decrease in revenues and segment operating profits in the quarter compared to 2022. The FUEL CHEM segment was impacted primarily due to unplanned unit outages for maintenance at multiple customer sites.

Our Air Pollution Control (APC) business experienced improvement in the quarter compared to 2022, due to the execution on projects awarded in the prior years. We are also encouraged by the pace and depth of our business development activities, which reflects an increased focus on global emissions protocols across a variety of fuel sources. Our Consolidated APC backlog at June 30, 2023 was $6,613 and our global sales pipeline is in the $50 -75 million range.

### Results of Operations

### Revenues

Revenues for the three-month periods ending June 30, 2023 and 2022 were $5,461 and $6,368, respectively, representing a decrease of $907, or 14%, versus the same period last year. Revenues for the six-month periods ending June 30, 2023 and 2022 were $12,748 and $11,903, respectively, representing an increase of $845, or 7%, versus the same period last year.

The APC technology segment generated revenues of $3,422 for the three-month period ended June 30, 2023, representing an increase of $684, or 25%, from the prior year amount of $2,738. The APC technology segment generated revenues of $6,981 and $4,942 for the six-month periods ending June 30, 2023 and 2022, respectively, representing an increase of $2,039, or 41%. This increase in APC revenue was primarily related to the timing of project execution and new APC orders announced during 2022 and continuing through the first six months of 2023. Consolidated APC backlog at June 30, 2023 was $6,613 versus backlog at December 31, 2022 of $8,245. Our current backlog consists of U.S. domestic projects totaling $5,244 and international projects totaling $1,369.

The FUEL CHEM technology segment generated revenues of $2,039 and $3,630 for the three-month periods ended June 30, 2023 and 2022, respectively, representing a decrease of $1,591, or 44%. The FUEL CHEM technology segment generated revenues of $5,767 and $6,961 for the six-month periods ended June 30, 2023 and 2022, respectively, representing a decrease of $1,194, or 17%. This decrease in FUEL CHEM revenue for the three and six months ended June 30, 2023 as compared to the same period of the prior year was primarily due to unplanned client maintenance and outages.

### Cost of sales and gross margin

Consolidated gross margin percentage for the three-month periods ended June 30, 2023 and 2022 were 37% and 42%, respectively. Gross margin decreased versus the comparable period due to the change in segment mix and to the decreases in the APC and FUEL CHEM operating segment gross margin. For the three-month periods ended June 30, 2023 and 2022 the APC gross margin decreased to 31% from 34%, respectively, primarily due to product and project mix. FUEL CHEM operating segment gross margins decreased to 45% from 48% primarily due to the reduction in revenue.

Consolidated gross margin percentage for the six-month periods ended June 30, 2023 and 2022 were 38% and 42%, respectively. Gross margin decreased versus the comparable period due to the change in segment mix and to the decrease in the APC operating segment gross margin. For the six-month periods ended June 30, 2023 and 2022 the APC gross margin decreased to 29% from 35%, respectively, primarily due to product and project mix. FUEL CHEM operating segment gross margins increased to 48% from 47%.

### Selling, general and administrative

Selling, general and administrative expenses (SG&A) were $2,915 and $2,874 for the three-month periods ended June 30, 2023 and 2022, respectively. For the three-month period ended June 30, 2023the increase of $41 is primarily the result of increases in employee compensation and benefit related costs of $103 and professional fees of $65, partially offset by decreases in certain administrative expenses of $95, and other miscellaneous expenses of $32. For the three-month periods ending June 30, 2023 and 2022, SG&A as a percentage of revenues increased to 53% from 45%. The increase versus the comparable period is primarily due to the decrease in revenues in the current quarter.

SG&A expenses were $6,160 and $5,928 for the six-month periods ended June 30, 2023 and 2022, respectively. For the six-month period ended June 30, 2023 the increase of $232 is primarily the result of increases in employee compensation and benefit related costs of $357 and professional fees of $61, partially offset by decreases in certain administrative expenses of $102, depreciation expense of $18, and other miscellaneous expenses of $66. For the six-month periods ending June 30, 2023 and 2022, SG&A as a percentage of revenues decreased to48% from 50%. The decrease versus the comparable period is primarily due to the increase in revenues in the current year.

### Research and development

Research and development expenses for the three and six-month periods ended June 30, 2023 were $413 and $631, respectively, and for the same periods in 2022 were $289 and $509, respectively. The expenditures in our research and development expenses are focused on new product development efforts in the pursuit of commercial applications for technologies outside of our traditional markets, and in the development and analysis of new technologies that could represent incremental market opportunities. This includes water treatment technologies and more specifically, our DGI® Dissolved Gas Infusion Systems, an innovative alternative to current aeration technology. This infusion process has a variety of applications in the water and wastewater industries, including remediation, treatment, biological activity, and wastewater odor management. DGI® technology benefits include reduced energy consumption, installation costs, and operating costs, while improving treatment performance.

### Interest income

Interest income was $307 for the three-month period ended June 30, 2023 compared to $8 for the same period in 2022. Interest income was $646 for the six-month period ended June 30, 2023 compared to $9 for the same period in 2022. Interest income increased due to the interest income on the held-to-maturity debt securities and money market funds.

### Other (expense) income, net

Other expense, net was $14 for the three-month period ended June 30, 2023 compared to Other income, net of $134 for the same period in 2022. Other expense, net was $104 for the six-month period ended June 30, 2023 compared to Other income, net of $124 for the same period in 2022. The changes in Other (expense) income, net were mainly due to transactional foreign exchange losses.

### Liquidity and Sources of Capital

We have losses from operations during the six-month period ended June 30, 2023 totaling $1,990. Our cash provided by operations for this same period totaled $17.

Our cash and cash equivalent balance as of June 30, 2023 totaled $15,134, which includes $2,780 of cash equivalents, and our working capital totaled $31,459. We have no outstanding debt other than our outstanding letters of credit, under our Investment Collateral Security agreement with BMO Harris Bank, N.A. (the Investment Collateral Security agreement), which does not have any financial covenants. We expect to continue operating under this arrangement for the foreseeable future.

Operating activities provided cash of $17 for the six-month period ended June 30, 2023, primarily due to the collection of accounts receivable balances, a decrease in other current assets of $114, an increase in accounts payable of $383 due to timing of project related activity and the impact of non-cash items of $168, offset by an increase in inventory of $135 for anticipated ancillary project demand.

Operating activities used cash of $3,321 for the six-month period ended June 30, 2022, primarily due to an increase in accounts receivable balances of $3,245 due to the timing of project milestone billings and the net loss from continuing operations, partially offset by removals of non-cash items from our net income from continuing operations for depreciation and amortization of $232, increases in accounts payable balances of $812, and a decrease in other assets of $205.

Investing activities used cash of $8,288 and $138 for the six-month periods ended June 30, 2023 and 2022, respectively. Investing activities for the six-month periods ended June 30, 2023 primarily consisted of purchases of debt securities as investments partially offset by maturities of debt securities.

Financing activities provided cash of $42 for the six-month period ended June 30, 2023 compared to cash used of $17 for the six-month period ended June 30, 2022. In 2023, the financing activity was related to proceeds from the exercise of stock options. In 2022, financing activities were related to taxes paid on behalf of the equity award participants on the vesting of restricted stock units.

The effects of the COVID-19 global pandemic have presented significant risks to the Company, not all of which the Company is able to fully evaluate or even foresee at the current time. Although the impact of the pandemic is difficult to quantify, the Company has experienced, and may continue to experience, reductions in demand for certain of our products due to the delay or abandonment of ongoing or anticipated projects due to our customers’, suppliers’ and other third parties’ financial distress or concern regarding the volatility of global markets. Other directly or indirectly COVID-19 related effects, such as supply chain disruptions and travel restrictions, have been impacting operations and financial performance to varying degrees. We continue to monitor our liquidity needs and in response to our recent periods of declines in revenue and net losses have taken measures to reduce expenses and restructure operations which we feel are necessary to ensure we maintain sufficient working capital and liquidity to operate the business and invest in our future. We have evaluated our ongoing business needs and considered the cash requirements of our base business of Air Pollution Control and FUEL CHEM, as well as our efforts to wind-down our APC operations in China. This evaluation included consideration of the following: a) customer and revenue trends in our APC and FUEL CHEM business segments, b) current operating structure and expenditure levels, and c) the costs of winding down our APC operations in China as well as other research and development initiatives. Based on this analysis, management believes that currently we have sufficient cash and working capital to operate our base APC and FUEL CHEM businesses. We believe our current cash position and net cash flows expected to be generated from operations are adequate to fund planned operations of the Company for the next 12 months.

We expect additional capital expenditures in 2023 for maintenance of field equipment, computer and systems, and general office equipment. We expect to fund our capital expenditures with cash from operations or cash on hand.

In 2022, the Board of Directors approved an investment plan that would hold $20,000 in funds at BMO Harris Bank (BMO Harris) to be invested in held-to-maturity debt securities of United States (US) Treasuries, including Notes, Bonds, and Bills, or US Government Agency securities. The funds would be held in money market funds until they are invested in those securities. The investments would be structured to create a maturity “ladder” where the proceeds from maturities are re-invested to maintain a balance of short- and long-term investments based on the expected business needs. Maturities will be between three and thirty-six months. This strategy allows the Company to provide returns on excess cash, while managing liquidity and minimizing exposure to interest rate fluctuations.

On June 30, 2022, the Company entered into the Investment Collateral Security agreement to use for the sole purpose of issuing standby letters of credit, which replaces the Cash Collateral Security agreement with BMO Harris Bank, N.A. (the Former Collateral agreement). The Investment Collateral Security agreement requires us to pledge our investments as collateral for 150% of the aggregate face amount of outstanding standby letters of credit. The Company pays 250 basis points on the face values of outstanding letters of credit. There are no financial covenants set forth in the Investment Collateral Security agreement. At June 30, 2023, the Company had outstanding standby letters of credit totaling approximately $414 under the Investment Collateral Security agreement. At June 30, 2023, the investments held as collateral totaled $621. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

### Contingencies and Contractual Obligations

Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note 13. There was no change in the warranty liability balance during the six months ended June 30, 2023.

### Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 for the year ended December 31, 2022 in Item 1A under the caption “Risk Factors,” 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.

## Market risk

As filed, 291 characters.

Fuel Tech’s earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. We do not enter into foreign currency forward contracts nor into foreign currency option contracts to manage this risk due to the immaterial nature of the transactions involved.

## Controls and procedures

As filed, 1,221 characters.

### Evaluation of Disclosure Controls and Procedures

Fuel Tech maintains disclosure controls and procedures and internal controls designed to ensure (a) that information required to be disclosed in Fuel Tech’s filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) that such information is accumulated and communicated to management, including the principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure. Fuel Tech’s Chief Executive Officer and principal financial officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d -15(e) of the Exchange Act, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.

### Changes in Internal Control over Financial Reporting

There has been no change in the Company's internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

## Risk factors

As filed, 128 characters.

The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2022 have not materially changed.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-022534. Last ingested by Listed: Nov 3, 2026, 20:38 ET. No prices; not investment advice.