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

- Company: [Fuel Tech, Inc.](/companies/ftek.md) (CIK 846913)
- Form: 10-Q
- Filed: 2023-11-07
- Accepted by EDGAR: Nov 7, 2023, 21:30 ET
- Period: 2023-09-30
- Accession: 0001437749-23-030663
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/846913/000143774923030663/ftek20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/846913/000143774923030663/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $8.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $20.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $4.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $12.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $3.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $8.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $513.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $1.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $3.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $9.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $133.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$1.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $5.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $15.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $459.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$999.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 30,627,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 30,336,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $391.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $201.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2023-09-30 | $13.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $37.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $50.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $5.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $6.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $44.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 16,613 characters.

### Overview

In the third quarter of 2023, the Company continued to successfully execute on existing orders resulting in improved performance in the APC segment. Revenues from our Fuel Chem technology segment increased 110% from the prior quarter as our customer base returned from maintenance outages. 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.

### Key Operating Factors

Our FUEL CHEM segment experienced an increase in revenue and segment operating profits from prior quarter in 2023 and a decrease in the current quarter as compared to 2022. The FUEL CHEM segment was impacted by decreased operational demand from our client base and partially due to scheduled plant closures versus the same period in 2022.

Our Air Pollution Control (APC) business experienced improvement in the quarter compared to 2022, due to the execution of projects awarded in the prior years and earlier in this year and due to increased sales of aftermarket products. We are encouraged by the depth of our business development activities, which reflects an increased focus on global emissions protocols across a variety of fuel sources. We continue to experience a challenging operational environment resulting from customers delaying the timing of purchasing decisions. Our Consolidated APC backlog at September 30, 2023 was $5,624 and our global sales pipeline is in the $50 -75 million range.

### Results of Operations

### Revenues

Revenues for the three-month periods ending September 30, 2023 and 2022 were $7,988 and $8,017, respectively, representing an decrease of $29, or 0%, versus the same period last year. Revenues for the nine-month periods ending September 30, 2023 and 2022 were $20,736 and $19,920, respectively, representing an increase of $816, or 4%, versus the same period last year.

The APC technology segment generated revenues of $3,711 for the three-month period ended September 30, 2023, representing an increase of $983, or 36%, from the prior year amount of $2,728. The APC technology segment generated revenues of $10,692 and $7,670 for the nine-month periods ending September 30, 2023 and 2022, respectively, representing an increase of $3,022, or 39%. 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 nine months of 2023. Consolidated APC backlog at September 30, 2023 was $5,624 versus backlog at December 31, 2022 of $8,245. Our current backlog consists of U.S. domestic projects totaling $4,788 and international projects totaling $836.

The FUEL CHEM technology segment generated revenues of $4,277 and $5,289 for the three-month periods ended September 30, 2023 and 2022, respectively, representing a decrease of $1,012, or 19%. The FUEL CHEM technology segment generated revenues of $10,044 and $12,250 for the nine-month periods ended September 30, 2023 and 2022, respectively, representing a decrease of $2,206, or 18%. This decrease in FUEL CHEM revenue for the three and nine months ended September 30, 2023 as compared to the same periods of the prior year was primarily due to a decrease in electrical generation demand, unscheduled plant outages and plant closures.

### Cost of sales and gross margin

Consolidated gross margin percentage for the three-month periods ended September 30, 2023 and 2022 were 45% and 46%, respectively. Gross margin decreased versus the comparable period due to the decrease in the FUEL CHEM operating segment gross margin partially offset by an increase in APC operating segment gross margin. For the three-month periods ended September 30, 2023 and 2022 the FUEL CHEM operating segment gross margins decreased to 49% from 52% primarily due to the reduction in revenue. APC gross margin increased to 40% from 34% primarily due to product and project mix.

Consolidated gross margin percentage for the nine-month periods ended September 30, 2023 and 2022 were 41% and 43%, 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 nine-month periods ended September 30, 2023 and 2022 the APC gross margin decreased to 33% from 34%, respectively, primarily due to product and project mix. FUEL CHEM operating segment gross margin remained flat at 49%.

### Selling, general and administrative

Selling, general and administrative expenses (SG&A) were $2,966 and $3,273 for the three-month periods ended September 30, 2023 and 2022, respectively. For the three-month period ended September 30, 2023 the decrease of $307 is primarily the result of decreases in employee compensation and benefit related costs of $283, professional fees of $44, and certain administrative expenses of $30, partially offset by increases in depreciation of $30 and other miscellaneous expenses of $20 primarily relating to the corporate headquarters. For the three-month periods ending September 30, 2023 and 2022, SG&A as a percentage of revenues decreased to 37% from 41%. The decrease versus the comparable period is primarily due to the decrease in SG&A expenses when revenues were flat compared to prior year quarter.

SG&A expenses were $9,126 and $9,201 for the nine-month periods ended September 30, 2023 and 2022, respectively. For the nine-month period ended September 30, 2023 the decrease of $75 is primarily the result of decreases in certain administrative expenses of $132 and other miscellaneous expenses of $47, partially offset by increases in employee compensation and benefit related costs of $74, professional fees of $17, and depreciation expense of $13. For the nine-month periods ending September 30, 2023 and 2022, SG&A as a percentage of revenues decreased to 44% from 46%. 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 nine-month periods ended September 30, 2023 were $513 and $1,144, respectively, and for the same periods in 2022 were $207 and $716, 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 $322 for the three-month period ended September 30, 2023 compared to $92 for the same period in 2022. Interest income was $968 for the nine-month period ended September 30, 2023 compared to $101 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 income (expense), net

Other income, net was $9 for the three-month period ended September 30, 2023 compared to Other income, net of $34 for the same period in 2022. Other expense, net was $95 for the nine-month period ended September 30, 2023 compared to Other income, net of $158 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 nine-month period ended September 30, 2023 totaling $1,857. Our cash provided by operations for this same period totaled $391.

Our cash and cash equivalent balance as of September 30, 2023 totaled $13,483, which includes $980 of cash equivalents, and our working capital totaled $31,916. 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 $391 for the nine-month period ended September 30, 2023, primarily due to an increase in other liabilities of $519 due to timing of project related activity, a decrease in other current assets of $365, an increase in accounts payable of $172 due to timing of project related activity, and removals of non-cash items from our net loss from continuing operations for depreciation and amortization of $293 and stock-based compensation of $288.

Operating activities used cash of $2,591 for the nine-month period ended September 30, 2022, primarily due to an increase in accounts receivable balances of $3,449 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 loss from continuing operations for depreciation and amortization of $337, an increase in accounts payable balances of $1,094, and a decrease in other assets of $370.

Investing activities used cash of $10,227 and $9,963 for the nine-month periods ended September 30, 2023 and 2022, respectively. Investing activities for the nine-month periods ended September 30, 2023 and 2022 primarily consisted of purchases of debt securities as investments of $14,026 and $9,777, respectively. Investing activities for the nine-month period ended September 30, 2023 was funded by the maturities of debt securities of $4,000.

Financing activities provided cash of $42 for the nine-month period ended September 30, 2023 compared to cash used of $17 for the nine-month period ended September 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 and certain geopolitical events 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 September 30, 2023, the Company had outstanding standby letters of credit totaling approximately $992 under the Investment Collateral Security agreement. At September 30, 2023, the investments held as collateral totaled $1,488. 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 nine months ended September 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 Nov 7, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-030663. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.