EX-99.1 2 ftek-20130930xex991.htm EX-99.1 FTEK-2013.09.30-EX99.1




CONTACT:     David S. Collins        Devin Sullivan
Chief Financial Officer    Senior Vice President
(630) 845-4500        The Equity Group Inc.    
(212) 836-9608    


FUEL TECH REPORTS THIRD QUARTER 2013 RESULTS

Q3 2013 Overview
•
Revenues rose 34.7% to $33.6 million from $24.9 million in Q3 2012
•
Gross profit was $15.1 million, or 45.0% of revenue, as compared to $10.2 million, or 41.1% of revenue, in Q3 2012
•
Net income rose to $3.5 million, or $0.15 per diluted share, from net income of $1.2 million, or $0.05 per diluted share, in Q3 2013

At September 30, 2013
•
Total cash and equivalents of $23.7 million, or $1.05 per diluted share
•
Working capital of $46.4 million
•
Backlog of $33.4 million

WARRENVILLE, Ill., November 11, 2013 – Fuel Tech, Inc. (NASDAQ: FTEK), a world leader in advanced engineering solutions for the optimization of combustion systems and emissions control in utility and industrial applications, today reported unaudited results for the three and nine months ended September 30, 2013.
Third Quarter 2013 Results Overview
Consolidated revenues for the third quarter of 2013 rose 35% to $33.6 million from $24.9 million in the third quarter of 2012, driven by revenue increases in the Air Pollution Control (APC) and FUEL CHEM business segments. Operating income rose to $5.3 million from $1.6 million in the year ago quarter. Net income for the third quarter increased to $3.5 million, or $0.15 per diluted share, from net income of $1.2 million, or $0.05 per diluted share, in the comparable prior year period.





APC segment revenues in the third quarter of 2013 increased 52% to $23.4 million from $15.4 million in the third quarter of 2012 due to progress on existing international and domestic APC projects, including a large contract in Chile. Segment gross margins increased to 41% from 33% in the third quarter of 2012, primarily due to a higher concentration of domestic projects with higher gross margin percentages.
Capital projects backlog at the APC segment stood at $33.4 million at September 30, 2013, compared to $45.1 million as of June 30, 2013 and $46.7 million at December 31, 2012. Subsequent to September 30, 2013, the APC segment was awarded contracts with an aggregate value of approximately $2.5 million.
The FUEL CHEM segment generated revenues of $10.1 million during the third quarter of 2013, an increase of 7% from $9.5 million in the third quarter of 2012. FUEL CHEM revenues generated from coal-fired units totaled $9.3 million, a 10% increase from the same period last year, while revenues generated from non-coal-fired units decreased 20% to $0.8 million. Although the FUEL CHEM segment continues to operate in an environment challenged by low natural gas prices and low electricity demand, gross margins have remained substantially intact at 53% in the 2013 third quarter compared to 54% in the prior year period.
Selling, general and administrative (SG&A) expenses for the third quarter of 2013 were $9.3 million as compared to $8.1 million in last year’s third quarter. As a percentage of revenues, SG&A declined to 28% from 32% in the same year-ago quarter. The net-dollar increase in SG&A expenses is attributable to an increase in employee-related costs, outside service fees, stock compensation, travel costs, bad debt expense and administrative costs related to our foreign subsidiaries, partially offset by a decrease in bonuses and commissions, and professional fees.
Fuel Tech's research and development (R&D) expenses for the third quarter remained steady at $0.5 million compared to $0.6 million in the third quarter of 2012, reflecting a continuing focus on commercial applications for its technologies outside of its traditional markets, and in the development and analysis of new technologies that could represent incremental market opportunities.
First Nine Months 2013 Results Overview
Consolidated revenues for the nine months ended September 30, 2013 totaled $85.1 million, up 20% from $71.0 million in the same period last year. Operating income increased to $7.5 million from $4.3 million in the year ago nine-month period. Net income for the nine months ended September 30, 2013 increased to $4.7 million, or $0.21 per diluted share, from net income of $2.8 million, or $0.12 per diluted share, in the comparable prior year period.





Adjusted EBITDA for the nine months ended September 30, 2013 was $10.8 million, an increase of $3.3 million from Adjusted EBITDA of $7.4 million in the same period one year ago.
APC segment revenues were $56.6 million in the first nine months of 2013, an increase of $12.6 million or 29% from the prior year amount of $44.0 million, due primarily to the reasons cited above. For the first three quarters of 2013, segment gross margins were 38%, a slight decline from 39% reported in prior year.
Revenues for the FUEL CHEM segment for the nine-month period totaled $28.5 million, an increase of $1.5 million or 5% from $27.1 million in the same period one year ago. Nine-month revenues include $26.5 million from coal-fired units, a 7% increase versus a year ago, and $2.0 million from non-coal fired units, a 10% decline versus the year-earlier period. Segment gross margin was 53% in the first three quarters of 2013 and 2012.
SG&A expenses totaled $27.1 million in the first nine months of 2013, up from $24.9 million in the same year-ago period. SG&A as a percentage of revenues declined by over 300 basis points from the year earlier period. The net-dollar increase in SG&A expenses is attributable to the same factors that impacted the 2013 third quarter.
R&D for the first nine months of 2013 was $1.8 million compared to $2.0 million in the same period last year.
Douglas G. Bailey, Chairman, President, and Chief Executive Officer, commented, “Higher revenues, improved consolidated gross margins, and increased profits for the 2013 third quarter were driven by a favorable mix of domestic and international APC projects, as well as steady contributions from FUEL CHEM. We also ended the quarter in a strong financial position that included $1.05 per share in cash, and a very modest debt profile.”
“Our business development efforts continue in earnest, and we are currently pursuing a number of large project awards in the U.S. and overseas. We continue to focus on broadening our international presence, especially in China, and addressing domestic opportunities driven largely by state consent decrees and other mandates. We also remain committed to investing in R&D and pursuing licensing opportunities as a means to enter new markets and build upon our existing competencies."







Conference Call
Management will host a conference call on Tuesday, November 12, 2013 at 10:00 AM ET to discuss the results

•
(877) 546-5019 (Domestic) or
•
(857) 244-7551 (International)

Passcode: FUEL TECH 
A replay of the call will be available on our website, and can be accessed by dialing (888) 286-8010 (domestic) or (617) 801-6888 (international) and using the passcode “10076297.”  The replay will be available through December 7, 2013.
About Fuel Tech
Fuel Tech is a leading technology company engaged in the worldwide development, commercialization and application of state-of-the-art proprietary technologies for air pollution control, process optimization, and advanced engineering services.  These technologies enable customers to produce both energy and processed materials in a cost-effective and environmentally sustainable manner.
The Company’s nitrogen oxide (NOx) reduction technologies include advanced combustion modification techniques - such as Low NOx Burners and Over-Fire Air systems - and post-combustion NOx control approaches, including NOxOUT® and HERT™ SNCR systems as well as systems that incorporate ASCR™ (Advanced Selective Catalytic Reduction), NOxOUT CASCADE®, ULTRA™ and NOxOUT-SCR® processes. These technologies have established Fuel Tech as a leader in NOx reduction, with installations on over 700 units worldwide, where coal, fuel oil, natural gas, municipal waste, biomass and other fuels are utilized.
The Company’s FUEL CHEM® technology revolves around the unique application of chemicals to improve the efficiency, reliability, fuel flexibility and environmental status of combustion units by controlling slagging, fouling, corrosion, opacity and operational issues associated with sulfur trioxide, ammonium bisulfate, particulate matter (PM2.5), carbon dioxide and NOx.  The Company has experience with this technology, in the form of a customizable FUEL CHEM program, on over 110 combustion units burning a wide variety of fuels including coal, heavy oil, biomass, and municipal waste.   
Fuel Tech also provides a range of combustion optimization services, including airflow testing, coal flow testing and boiler tuning, as well as services to help optimize selective catalytic reduction system performance, including catalyst management services and ammonia injection grid tuning.  In addition, flow




corrective devices and physical and computational modeling services are available to optimize flue gas distribution and mixing in both power plant and industrial applications.
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.  These capabilities, coupled with the Company’s innovative technologies and multi-disciplined team approach, enable Fuel Tech to provide practical solutions to some of our customers’ most challenging problems.  For more information, visit Fuel Tech’s web site at www.ftek.com.

This press release may contain statements of a forward-looking nature regarding future events. These statements are only predictions and actual events may differ materially. Please refer to documents that Fuel Tech files from time to time with the Securities and Exchange Commission for a discussion of certain factors that could cause actual results to differ materially from those contained in the forward-looking statements.



























FUEL TECH, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data)
 
 
 
September 30,
2013
 
December 31,
2012
 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
23,672

 
$
24,453

Marketable securities
 
28

 
44

Accounts receivable, net of allowance for doubtful accounts of $945 and $460, respectively
 
43,430

 
30,169

Inventories
 
538

 
513

Prepaid expenses and other current assets
 
2,555

 
3,956

Prepaid income taxes
 
—

 
156

Deferred income taxes
 
555

 
573

Total current assets
 
70,778

 
59,864

Property and equipment, net of accumulated depreciation of $19,551 and $19,421, respectively
 
13,484

 
13,749

Goodwill
 
21,051

 
21,051

Other intangible assets, net of accumulated amortization of $4,906 and $4,270, respectively
 
4,420

 
4,838

Deferred income taxes
 
6

 
3,688

Other assets
 
2,438

 
2,707

Total assets
 
$
112,177

 
$
105,897

Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
1,626

 
—

Accounts payable
 
12,521

 
12,828

Accrued liabilities:
 
 
 
 
Employee compensation
 
3,830

 
3,175

Income taxes payable
 
353

 
—

Other accrued liabilities
 
6,032

 
4,943

Total current liabilities
 
24,362

 
20,946

Other liabilities
 
800

 
715

Total liabilities
 
25,162

 
21,661

Shareholders’ equity:
 
 
 
 
Common stock, $.01 par value, 40,000,000 shares authorized, 22,478,488 and 22,111,675 shares issued, and 22,381,123 and 22,102,549 outstanding, respectively
 
225

 
221

Additional paid-in capital
 
131,500

 
133,498

Accumulated deficit
 
(44,433
)
 
(49,128
)
Accumulated other comprehensive income (loss)
 
37

 
(392
)
Nil coupon perpetual loan notes
 
76

 
76

Treasury stock, 97,365 and 9,126 shares in 2013 and 2012, respectively, at cost
 
(390
)
 
(39
)
Total shareholders’ equity
 
87,015

 
84,236

Total liabilities and shareholders’ equity
 
$
112,177

 
$
105,897








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,
 
 
2013
 
2012
 
2013
 
2012
Revenues
 
$
33,555

 
$
24,907

 
$
85,131

 
$
71,030

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of sales
 
18,455

 
14,671

 
48,734

 
39,771

Selling, general and administrative
 
9,304

 
8,064

 
27,069

 
24,932

Research and development
 
461

 
569

 
1,824

 
2,044

 
 
28,220

 
23,304

 
77,627

 
66,747

Operating income
 
5,335

 
1,603

 
7,504

 
4,283

Interest expense
 
(19
)
 
(16
)
 
(29
)
 
(90
)
Interest income
 
14

 
16

 
43

 
56

Other expense
 
(82
)
 
(27
)
 
(291
)
 
(78
)
Income before income taxes
 
5,248

 
1,576

 
7,227

 
4,171

Income tax expense
 
(1,768
)
 
(382
)
 
(2,532
)
 
(1,366
)
Net income
 
$
3,480

 
$
1,194

 
$
4,695

 
$
2,805

Net income per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.16

 
$
0.05

 
$
0.21

 
$
0.12

Diluted
 
$
0.15

 
$
0.05

 
$
0.21

 
$
0.12

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
22,376,000

 
22,105,000

 
22,229,000

 
22,932,000

Diluted
 
22,534,000

 
23,022,000

 
22,458,000

 
23,749,000





















FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
 
2013
 
2012
Net income
 
$
3,480

 
$
1,194

 
$
4,695

 
$
2,805

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
162

 
(420
)
 
439

 
(316
)
Unrealized gains (losses) from marketable securities, net of tax
 
2

 
11

 
(10
)
 
—

Total other comprehensive income (loss)
 
164

 
(409
)
 
429

 
(316
)
Comprehensive income
 
$
3,644

 
$
785

 
$
5,124

 
$
2,489





























FUEL TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
Operating Activities
 
 
 
 
Net income
 
$
4,695

 
$
2,805

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
Depreciation
 
1,662

 
1,644

Amortization
 
636

 
680

Bad debt expense (recovery)
 
475

 
(113
)
Deferred income taxes
 
(16
)
 
(170
)
Stock based compensation
 
1,207

 
844

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(13,333
)
 
4,890

Inventories
 
(19
)
 
(646
)
Prepaid expenses, other current assets and other noncurrent assets
 
1,708

 
741

Accounts payable
 
1,489

 
(653
)
Accrued liabilities and other noncurrent liabilities
 
880

 
(3,488
)
Net cash (used in) provided by operating activities
 
(616
)
 
6,534

Investing Activities
 
 
 
 
Purchases of property, equipment and patents
 
(1,611
)
 
(2,071
)
Net cash used in investing activities
 
(1,611
)
 
(2,071
)
Financing Activities
 
 
 
 
Payments to repurchase common stock
 
—

 
(7,889
)
Proceeds from short-term borrowings
 
1,608

 
—

Acquisition of treasury stock
 
(351
)
 
—

Net cash provided by (used in) financing activities
 
1,257

 
(7,889
)
Effect of exchange rate fluctuations on cash
 
189

 
(320
)
Net decrease in cash and cash equivalents
 
(781
)
 
(3,746
)
Cash and cash equivalents at beginning of period
 
24,453

 
28,229

Cash and cash equivalents at end of period
 
$
23,672

 
$
24,483


















FUEL TECH, INC.
BUSINESS SEGMENT FINANCIAL DATA
(Unaudited)
(in thousands)

Three months ended September 30, 2013
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
23,420

 
$
10,135

 
$
—

 
$
33,555

Cost of sales
 
(13,718
)
 
(4,737
)
 
—

 
(18,455
)
Gross margin
 
9,702

 
5,398

 
—

 
15,100

Selling, general and administrative
 
—

 
—

 
(9,304
)
 
(9,304
)
Research and development
 
—

 
—

 
(461
)
 
(461
)
Operating income
 
$
9,702

 
$
5,398

 
$
(9,765
)
 
$
5,335

 
Three months ended September 30, 2012
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
15,432

 
$
9,475

 
$
—

 
$
24,907

Cost of sales
 
(10,282
)
 
(4,389
)
 
—

 
(14,671
)
Gross margin
 
5,150

 
5,086

 
—

 
10,236

Selling, general and administrative
 
—

 
—

 
(8,064
)
 
(8,064
)
Research and development
 
—

 
—

 
(569
)
 
(569
)
Operating income
 
$
5,150

 
$
5,086

 
$
(8,633
)
 
$
1,603

 Nine months ended September 30, 2013
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
56,606

 
$
28,525

 
$
—

 
$
85,131

Cost of sales
 
(35,384
)
 
(13,350
)
 
—

 
(48,734
)
Gross margin
 
21,222

 
15,175

 
—

 
36,397

Selling, general and administrative
 
—

 
—

 
(27,069
)
 
(27,069
)
Research and development
 
—

 
—

 
(1,824
)
 
(1,824
)
Operating income
 
$
21,222

 
$
15,175

 
$
(28,893
)
 
$
7,504

Nine months ended September 30, 2012
 
Air Pollution
Control Segment
 
FUEL CHEM
Segment
 
Other
 
Total
Revenues from external customers
 
$
43,964

 
$
27,066

 
$
—

 
$
71,030

Cost of sales
 
(26,984
)
 
(12,787
)
 
—

 
(39,771
)
Gross margin
 
16,980

 
14,279

 
—

 
31,259

Selling, general and administrative
 
—

 
—

 
(24,932
)
 
(24,932
)
Research and development
 
—

 
—

 
(2,044
)
 
(2,044
)
Operating income
 
$
16,980

 
$
14,279

 
$
(26,976
)
 
$
4,283


Note: Fuel Tech is an integrated company that segregates its financial results into two reportable segments, both providing advanced technology and engineering solutions for the optimization of combustion systems in utility and industrial applications. 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)

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
2012
 
2013
2012
Revenues:
 
 
 
 
 
 
United States
 
$
20,685

$
16,609

 
$
50,795

$
57,519

Foreign
 
12,870

8,298

 
34,336

13,511

 
 
$
33,555

$
24,907

 
$
85,131

$
71,030


 
 
September 30,
2013
 
December 31,
2012
Assets:
 
 
 
 
United States
 
$
88,568

 
$
86,466

Foreign
 
23,609

 
19,431

 
 
$
112,177

 
$
105,897









































FUEL TECH, INC.
RECONCILIATION OF GAAP NET INCOME TO EBITDA AND ADJUSTED EBITDA
(Unaudited)
(in thousands)
 
 
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
Net income
 
$
4,695

 
$
2,805

Interest expense
 
29

 
90

Income tax expense
 
2,532

 
1,366

Depreciation expense
 
1,662

 
1,644

Amortization expense
 
636

 
680

EBITDA
 
9,554

 
6,585

Stock compensation expense
 
1,207

 
844

ADJUSTED EBITDA
 
$
10,761

 
$
7,429


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 and stock compensation expense. 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 financial table above.