Fuel Tech Inc. (FTEK)

Q1 2010 Earnings Call Transcript

May 7, 2010 9:00 AM ET

Executives

Tracy Krumme – VP, IR

Doug Bailey – Chairman and Interim President and CEO

Ellen Albrecht – Controller and Acting Treasurer and CFO

Analysts

John Quealy – Canaccord

Graham Mattison – Lazard Capital Markets

Jeremy Sussman – Brean Murray and Company

Aaron Husock – Lanexa Global

Scott Reynolds – Thomas Weisel

Steven Charest [ph] – Divine Capital

Dan Mannes – Avondale Partners

Presentation

Operator

Welcome to the First Quarter 2010 Fuel Tech Inc. Earnings Conference call. My name is Jasmine and I will be your operator for today. At this time all participants are in listen-only mode.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes.

At this time, I would like to turn the conference over to your host for today, Ms. Tracy Krumme, Vice President, Investor Relations and Corporate Communications. Please proceed.

Tracy Krumme

Thank you. Good morning and thank you for participating on today’s conference call to discuss our first quarter results. Joining me on the call is Douglas Bailey, Chairman and Interim President and Chief Executive Officer; Ellen Albrecht, Controller and Acting Treasurer and Chief Financial Officer.

As a reminder, the matters discussed in this conference call except for historical information are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in our forward-looking statements. The factors that could cause results to differ materially are included in our filings with the SEC.

The information contained in this call is accurate only as of the date discussed and investors should not assume that statements made in this call remain operative at a later date. Fuel Tech undertakes no obligation to update any information discussed in this call and as a reminder this conference call is being broadcast over the internet and can be accessed at our website, www.ftek.com.

With that said, I would now like to turn the call over to Doug Bailey. Doug, please go ahead.

Doug Bailey

Thanks Tracy and good morning to everyone. We appreciate all of you joining us on this call. I realized I may have met only a few of you. So if I may, I would like to first briefly introduce myself. I’ve been associated with Fuel Tech for 12 years commencing with the investment made in the Company in 1998 by those of us affiliated with the American Bailey Corporation.

Over those 12 years, I had continuously served as a Director and thus come to know the Company quite well from that perspective. In January 2004, I was named Deputy Chairman of the Board and subsequently succeeded to the position of Chairman on January 1 of this year. Approximately five weeks ago, I was subsequently appointed to the additional positions of Interim President and Chief Executive Officer at the time that the retirement of John Norris was announced.

While we have commenced the search for my successor I have dedicated my attention to carrying out all the duties of the President and CEO and will continue to do so until that search is fully completed. With me is Ellen Albrecht, our Controller and Acting Treasurer and Chief Financial Officer, who similarly is carrying out the full duties of the CFO position on an interim basis.

We are currently in the later stage of our search for new CFO and we expect to successful complete that search in due course. While I will provide you with an overview of our financial operating results, in a few minutes Ellen will discuss those results and our financial positions in greater detail.

Our financial results for the first quarter included total revenues of $17.6 million up 2% from the comparable prior year period. Net income for the quarter was $0.2 million on $0.01 per diluted share which compares to a net loss of $1.6 million or $0.06 a share in the same quarter a year ago. Our balance sheet remains exceptionally strong with cash and cash equivalence of $21.4 million and debt of only $2.9 million.

At current revenue levels, our business model generates positive cash flow that can be expected to increase measurably with topline growth. Let’s begin by taking a closer look at the business behind these overall numbers. As most of you know, Fuel Tech is a fully integrated Company that uses an extensive suite of technologies to provide boiler optimization and efficiency improvements along with air pollution reduction and control solutions to utility and industrial customers worldwide.

For reporting purposes, we broadly group those technologies into two principal business segments. One is the return on investment driven specialty chemical business for efficiency improvements that we call FUEL CHEM. The second is a regulatory driven business for air pollution controls or APC that consists of capital projects.

So beginning with our FUEL CHEM business, segment revenues were $9.4 million for the quarter, up 11% from the first quarter of 2009. Gross margins were 55% for the quarter, up from 41% in the same quarter last year. This was primarily due to the one time recognition of the $2 million risk share payment from a successful demonstration project at a domestic electric utility on one of the largest coal-fire boilers in the United States.

However excluding that risk share payments, gross margins for the FUEL CHEM segment would have been 43%. In 2009, the downturn in the US economy did have a significant impact on energy demand and this situation continues today. In particular, electricity demand fell almost 4% last year, while coal consumption in power generating stations declined over 10%, marking the greatest annual decline in electricity generation since 1938.

This drop in demand has resulted in a dampening of electric generating loads causing certain units to be run at reduced power levels or even shut down for period of time. This has impacted the FUEL CHEM segment as certain clients scale back or temporary suspended chemical injection on units that utilize FUEL CHEM programs.

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