Fuel Tech, Inc. (FTEK) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call shows a mixed financial performance with slight revenue decline but improved margins and net income. The Q&A reveals potential in data center opportunities and no significant additional investments needed for recent acquisitions. Despite reduced revenue guidance, the company exhibits strong cash flow and no debt, indicating financial health. Overall, the positive aspects slightly outweigh the negatives, suggesting a likely positive stock price movement.

Key Financial Performance

Consolidated Revenues $7.5 million, a slight decline from $7.9 million in the prior year period, due to lower APC segment revenues, partially offset by higher FUEL CHEM segment revenue.

APC Segment Revenue $2.7 million, down from $3.2 million in the prior year period, primarily related to the timing of project execution on existing contracts.

FUEL CHEM Segment Revenue $4.8 million, up from $4.6 million in the prior year period, driven by increased dispatch at legacy clients and contributions from a new account added in mid-2024.

Consolidated Gross Margin 49% of revenues, up from 43% in the prior year period, due to increases in both FUEL CHEM and APC segment gross margins.

FUEL CHEM Gross Margin 50%, up from 49% in the prior year period, due to an increased volume of sales activity combined with relatively flat segment administrative expenses.

APC Segment Gross Margin 47%, up from 35% in the prior year period, as a result of product and project mix that included a higher proportion of ancillary revenue consisting of spare parts and service revenue.

Consolidated APC Segment Backlog $9.5 million as of September 30, 2025, up from $6.2 million at the end of 2024, with $4 million of domestically delivered projects and $5.5 million of foreign delivered project backlog.

SG&A Expenses $3.2 million, flat compared to the prior year period, but as a percentage of revenue, it rose to 43% from 41% due to lower consolidated revenue.

Research and Development Expenses $450,000, up from $361,000 in the prior year period, reflecting ongoing investment in water and wastewater treatment technologies, notably DGI systems.

Net Income $303,000 or $0.01 per share, up from $80,000 or $0.00 per share in the prior year period.

Adjusted EBITDA $228,000, up from an adjusted EBITDA loss of $35,000 in the prior year period.

Total Cash and Investments $33.8 million as of September 30, 2025, comprised of cash and cash equivalents of $13.7 million and short- and long-term investments of $20.2 million.

Net Cash Provided by Operating Activities $4.6 million for the 9 months ended September 30, up from a use of cash totaling $1.8 million for the same period in the prior year.

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Operating Highlights

Dissolved Gas Infusion (DGI) Technology: Advanced through industry outreach and extended demonstration at a fish hatchery in the Midwest U.S. Significant interest generated at a recent exhibition. Discussions ongoing with multiple industries for potential applications.

FUEL CHEM Segment: Solid growth driven by increased dispatch at legacy clients and a new account added in mid-2024. A new 6-month demonstration program commenced with potential annual revenue of $2.5M-$3M. Full-year 2025 revenue guidance increased to $16.5M-$17M.

APC Business Expansion: $3.2M of new APC awards announced in Q3 from clients in the U.S., Europe, and Southeast Asia. Consolidated APC backlog increased to $9.5M. Pursuing $3M-$5M of additional APC contracts.

Data Center Opportunities: Engaging with multiple potential customers for SCR technology applications in data centers. Sales pipeline of $80M-$100M for projects integrating SCR technology with power generation sources.

Financial Position: Maintained strong financial position with $34M in cash, cash equivalents, and investments, and no long-term debt. Positive operating income and net income of $303,000 in Q3.

Gross Margins: Consolidated gross margin rose to 49% in Q3, driven by increases in both FUEL CHEM and APC segment gross margins.

Strategic Acquisition: Acquired complementary intellectual property and customer-related assets from Wahlco, Inc. for $350,000. Enhances APC portfolio and aligns with long-term strategy to address global air pollution control needs.

Regulatory Monitoring: Monitoring EPA's rule for large municipal waste combustor units and pursuing opportunities in states with lower NOx emissions requirements.

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Risk or Challenges

Market Conditions: Revenues for the APC business in the third quarter declined due to the timing of project execution on existing contracts. This indicates potential challenges in aligning project timelines with revenue recognition.

Regulatory Hurdles: The EPA's delay in finalizing the rule for large municipal waste combustor units and the rollback of greenhouse gas reduction rules under the current administration create regulatory uncertainty. This could impact compliance planning and the demand for emissions control solutions.

Supply Chain Disruptions: Lead times for large gas turbines are expanding to 5-7 years or more, which could delay project execution and impact the company's ability to meet customer demands.

Economic Uncertainties: The company is not expecting specific tailwinds from new regulations, and its opportunities are not contingent on the implementation of new regulations. This reliance on existing market conditions could pose risks if economic conditions deteriorate.

Strategic Execution Risks: The company is pursuing a sales pipeline of $80 million to $100 million for data center projects, but these are still in the bidding phase. Delays or failures in securing these contracts could impact future growth.

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Guidance & Outlook

FUEL CHEM Segment Revenue: The company expects FUEL CHEM's full year 2025 segment revenue to approximate $16.5 million to $17 million, up from prior guidance of $15 million to $16 million. This would be the highest level since 2022. The new demonstration program is expected to contribute positively to FUEL CHEM results in Q4 2025, with sustained contributions in 2026. Annual revenue potential from this commercial contract is estimated at $2.5 million to $3 million.

APC Business Revenue and Backlog: The company expects revenues for 2025 to be approximately $27 million, representing an 8% increase over 2024. The APC segment backlog increased to $9.5 million at the end of Q3 2025, with $7.1 million expected to be recognized in the next 12 months. The company is pursuing $3 million to $5 million of additional APC contracts expected to close by the end of 2025 or early Q1 2026. A sales pipeline of $80 million to $100 million for SCR technology projects related to data centers is being actively pursued.

Dissolved Gas Infusion (DGI) Technology: An extended demonstration of DGI technology at a fish hatchery is expected to last until the end of Q1 2026. The company is engaging with multiple end markets, including pulp and paper, food and beverage, chemical, petrochemical, and horticulture, and is expanding its sales representative network to support DGI commercialization.

Regulatory and Market Trends: The company is monitoring the EPA's rule for large municipal waste combustor units, with compliance deadlines expected three years from the rule's issuance in December 2025. Opportunities are being pursued in states with lower NOx emissions requirements. The company is also exploring opportunities driven by global industrial expansion, state-specific regulations, and increased demand for power generation due to the digital economy, AI, and data centers.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Do you need to make any additional investments to monetize the recent acquisition?

A:No significant additional investments are anticipated to monetize the acquisition. The company is familiar with the acquired technologies and expects small contributions from aftermarket opportunities in the near term, with larger benefits expected in 2026 and beyond.

Q:What is the timeline for seeing contributions from the acquired IP?

A:Small contributions are expected relatively quickly from aftermarket opportunities, but larger-scale benefits from capital project awards are anticipated in 2026 and beyond.

Q:Are you working with any entities in the value chain for data center opportunities?

A:The company is typically brought into data center projects by engine or turbine OEMs. Recently, they have also been contacted by nontraditional players, such as companies repurposing aircraft engines, and integrators packaging solutions for end customers.

Q:How big is the pipeline for data center opportunities?

A:The pipeline consists of 8 to 10 opportunities worth $80 million to $100 million. A few are commercial and may finalize by the end of the year or early 2026, while the rest are in the budgetary inquiry phase.

Q:What is the timeline for pipeline opportunities to come to fruition?

A:2 to 3 commercial opportunities are expected to conclude by late this year or Q1 2026. The timeline for the remaining opportunities is uncertain as they are in earlier project development phases.

Q:Are the upcoming opportunities platform opportunities with potential for future orders?

A:Yes, the initial orders could lead to expanded business with these customers and incremental future orders, though it is not guaranteed.

Q:What is the cash flow outlook for Q4?

A:Cash flow is expected to be flat to slightly down by the end of 2025. The company is pleased with its current cash balance of $34 million and no debt, providing flexibility for future opportunities.

Q:Does the global sales pipeline of $75 million to $100 million include data center opportunities?

A:No, the $75 million to $100 million figure specifically refers to data center opportunities. An additional $10 million to $20 million pipeline exists for standard APC business.

Q:Review of Unclear Management Responses

A:Management avoided providing specific timelines for the majority of pipeline opportunities, citing their early project development phases. Additionally, while they acknowledged the potential for future orders from initial platform opportunities, they did not guarantee these outcomes, leaving some uncertainty.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

FTEK Transcript

Fuel Tech, Inc. (FTEK) Q3 2025 Earnings Call Transcript

Positive11-5

Fuel Tech, Inc. ( FTEK) Q2 2025 Earnings Conference Call Transcript

Unknown8-6

The earnings call reveals mixed signals. Strong growth in FUEL CHEM and a significant APC backlog are positive, but increased operating losses and lack of immediate revenue from DGI weigh negatively. The Q&A highlights potential in AI-related projects but lacks specific timelines, adding uncertainty. The company's financial health is stable with substantial cash reserves, but the absence of new revenue guidance and increased expenses temper optimism. Overall, the sentiment is neutral given the balance of positive growth prospects and financial challenges.

Fuel Tech, Inc. (FTEK) Q1 2025 Earnings Call Transcript

Positive5-13

The earnings call highlights strong financial performance with a 29% YoY revenue increase and improved operating loss. Despite competitive pressures and regulatory uncertainties, the company is optimistic about future opportunities in data centers and international expansion. The Q&A section reveals positive sentiment towards market drivers and potential large contracts. However, the lack of specific shareholder return plans and unclear management responses slightly dampen sentiment. Overall, the solid financial metrics and growth prospects suggest a positive stock price movement in the short term.

Fuel Tech, Inc. (NASDAQ:FTEK) Q4 2024 Earnings Call Transcript

Unknown3-6

The earnings call shows mixed signals: 2024 revenue was at the lower guidance end, indicating challenges, but there's optimism for 2025, especially with the DGI initiative. The share buyback is positive, but project execution delays and commercialization risks are concerns. The Q&A highlighted uncertainties in revenue impact and plant outages, which might worry investors. With no significant new partnerships or guidance adjustments, the stock is likely to remain stable. Given the lack of market cap information, a neutral prediction is prudent.

FTEK Report

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