Fuel Tech, Inc. (FTEK)

Q2 2010 Earnings Call Transcript

August 9, 2010 9:00 am ET


Tracy Krumme – VP, IR and Corporate Communications

Doug Bailey – Chairman, President and CEO

David Collins – SVP, Treasurer and CFO

Ellen Albrecht – VP and Controller


Jeremy Sussman – Brean Murray Carret & Company

Rick Hoss – Roth Capital Partners

John Quealy – Canaccord Genuity

Dan Mannes – Avondale Partners

Jeff Osborne – Stifel Nicolaus

Graham Mattison – Lazard Capital Markets

Carter Shoop – Deutsche Bank



Good day ladies and gentlemen, and welcome to second quarter 2010 Fuel Tech Incorporated earnings conference call. My name is Lumida, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions) As a reminder, this call is being recorded for replay purposes.

I will now like to turn this presentation over to your host for today’s call, Ms. Tracy Krumme, Vice President of Investor Relations and Corporate Communications. You may proceed ma’am.

Tracy Krumme

Thank you. Good morning everyone. Thank you for participating on today’s conference call to discuss our second quarter results. Joining me on the call this morning is Doug Bailey, Chairman, President and Chief Executive Officer; David Collins, Senior Vice President, Treasurer, and Chief Financial Officer; and Ellen Albrecht, Vice President and Controller.

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

Thank you Tracy and good morning to everyone. We appreciate all of you joining us on this call. Our financial results for the second quarter include revenues of $18.9 million, which were virtually flat from the comparable prior-year period. We recorded a net loss for the quarter of $0.3 million or a loss of $0.01 per diluted share, which was the same result for the second quarter of 2009.

In a few minutes, Dave Collins, our newly appointed Senior Vice President, Treasurer and Chief Financial Officer who will discuss our financial operating results in greater detail. Dave will also cover our balance sheet in detail. It remains exceptionally strong with cash and cash equivalents of $21.1 million, $33.4 million in working capital and debt of only $2.2 million. We have an attractive business model which generates significant amount of positive cash flow with topline growth.

As most of you know, Fuel Tech is a fully integrated company that uses the extensive suite of technologies, 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 these technologies into two principal business segments. One is the return on investment driven specialty chemical business for efficiency improvements that we call FUEL CHEM, and the second is a regulatory driven business for air pollution controls or APC that consists of capital projects.

To begin with our FUEL CHEM business, segment revenues were $9.6 million for the quarter, down 1% from the comparable 2009 quarter. Gross margins were 48% for the quarter, up from 42% in the same quarter last year. This margin increase was principally driven by costs associated with international demonstrations in the prior year that did not occur in 2010. In 2009, the downturn in US economy had a significant impact on energy demand and to some extent, the situation will continue 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 resulted in a dampening of electric generating loads causing units to be run at reduced power levels or even shut down for a period of time. This situation has impacted our FUEL CHEM segment as certain clients scale back or temporarily turned off chemical injection on units utilizing FUEL CHEM programs. Our realized growth rate therefore was moderated by those curtailments resulting from overall weak power market.

So far this year, we have announced the receipt of three commercial FUEL CHEM orders from two existing domestic electric utility customers. All of these orders were from existing FUEL CHEM customers and as a result, you are able to receive straight commercial status without the need for a demonstration, reflecting a trend that we are increasingly experiencing. This summer much warmer than the last summer resulting in more demand for air-conditioning. Cooling degree days during June was 28% higher than June 2009. The US Energy Information Administration or EIA estimate that total consumption of electricity across all sectors during the first half of this year increased by 3.8% from the first half of 2009.

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