Fuel Tech, Inc. 2026 Q2 Earnings Call

Please stand by. Ladies and gentlemen, we are having a technical problem with the line of Devin Sullivan.

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Please go ahead. Thank you, Jasmina.

Good morning, everyone. Thank you for joining us today for Fuel Tech's 2026 second quarter financial results conference call. Yesterday after the close, we issued a press release, a copy of which is available at the company's website, www.ftek.com. Our speakers for today will be Vince Arnone, Chairman, President, and Chief Executive Officer, and Ellen Albrecht, the company's Chief Financial Officer. After prepared remarks, we will open the call for questions from our analysts and investors.

Before turning things over to Vince, I'd like to remind everyone that matters discussed on this call, except for historical information, are 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, the results of operations, cash flows, performance in business prospects and opportunities, as well as assumptions made by and information currently available to our company's 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, 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 of 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, 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 forward-looking statements contained herein to reflect future events, developments or changed circumstances or for any other reasons. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the company's filings with the SEC.

With that said, I'd now like to turn the call over to Vince Arnone. Vince, please go ahead. Devin.

Good morning, I'd like to thank everyone for joining us on the call today, and we apologize for the technical difficulties. Before I review our results, I want to acknowledge that, as announced last night, this will be my final earnings call as President and CEO of Fuel Tech. Effective August 10th, 2026, Ramesh Nuggihalli will succeed me in this role. I will share some additional thoughts on this transition at the conclusion of my remarks. First, let's discuss our performance for the second quarter. Our performance in the second quarter was improved versus the prior year period across both of our business segments. Consolidated revenues rose 17% to $6.5 million, with our APC and FUEL CHEM business segments delivering double-digit revenue growth of 11% and 21%, respectively.

We continued to make progress toward commercialization with our Dissolved Gas Infusion or DGI business initiative, and we ended the quarter in a strong financial position with cash equivalents, and investments of approximately $30 million and no debt. We are pleased with our performance at the midpoint of the year, and we remain optimistic about the outlook for each of our business segments for full year 2026. Let's begin with our APC business segment. On our last call, I noted that we had secured our largest set of awards in recent history, totaling approximately $10 million in contracts with utility and industrial customers. As a reminder, these awards were anchored by a contract for the integration of our Selective Catalytic Reduction technology with two new natural gas-fired turbines for a large, publicly owned Midwest municipal utility.

The installation of these new GE Vernova turbines will increase the plant's output by approximately 100 MW, with the expansion expected to become operational in 2029. I am pleased to report that engineering work has commenced on this project, and equipment will be ready to deliver in the fourth quarter of 2027. In combination, these awards drove our consolidated APC backlog to $14.3 million at June 30, 2026, which was the largest quarter-end backlog that we had reported since 2018. Last week, we were pleased to announce new APC contracts valued at $2.6 million that address the needs of two industrial customers. One, a new customer that is active in the gas infrastructure market space, and the other, a long-term recurring customer. Both customers required our SCR technology to address their emissions reduction requirements.

In our last quarterly conference call, we had noted that these contracts were close to being awarded. Inclusive of these new awards, our effective backlog as of today is approximately $17 million. With respect to the larger data center opportunity, the U.S. data center market remains in an historic boom, driven primarily by AI, cloud computing, and hyperscale deployments. Demand continues to exceed supply in most major markets. Capital investment is setting records, and developers are aggressively pursuing new projects. However, the industry is increasingly constrained by four major factors. First, power availability, which is the single largest bottleneck. Second, permitting and zoning delays. Third, growing local community opposition. Lastly, supply chain shortages for electrical equipment and skilled labor. The result is a market where capital is abundant, but getting projects energized and operational is becoming increasingly difficult.

Regarding power generation specifically, many of the major gas turbine suppliers have delivery lead times of greater than five years for large turbines, and many are evaluating investment in incremental manufacturing capacity. As a result, we are seeing more data center development using aeroderivative turbines and in some cases, reciprocating engines as a source of power for the data centers. With respect to Fuel Tech's participation in this market space, our sales pipeline for these opportunities remains strong and approximates $75 million to $100 million for projects integrating our SCR technology with power generation sources. Please note that the value of the pollution control scope of supply represents a very small fraction of the estimated total AI infrastructure spend. I want to again emphasize that in all instances, we are a subcontractor to the data center integrator or to the turbine or engine OEM.