Fuel Tech Reports Second Quarter 2013 Results

Fuel Tech Reports Second Quarter 2013 Results

Q2 2013 Overview

• Revenues rose 39.0% to $29.1 million from $20.9 million in Q2 2012

• Gross profit was $11.9 million, or 40.8% of revenue, as compared to $9.0 million, or 43.2% of revenue, in Q2 2012

• Net income rose to $1.2 million, or $0.05 per diluted share, from net income of $0.1 million, or $0.00 per diluted share, in Q2 2012

At June 30, 2013

• Total cash and equivalents of $23.1 million, or $0.99 per diluted share

• Working capital of $41.9 million

• $0 long-term debt

• Backlog of $45.1 million

WARRENVILLE, Ill.--(BUSINESS WIRE)-- Fuel Tech, Inc. (NAS: 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 six months ended June 30, 2013.

Consolidated revenues for the second quarter of 2013 totaled $29.1 million, up 39% from the comparable prior-year quarter, driven by revenue increases in the Air Pollution Control (APC) and FUEL CHEM business segments. Operating income rose to $2.1 million from $0.2 million in the year ago quarter. Net income for the quarter increased to $1.2 million, or $0.05 per diluted share, from net income of $0.1 million, or $0.00 per diluted share, in the comparable prior year period.

Consolidated revenues for the six months ended June 30, 2013 totaled $51.6 million, up 12% from the comparable prior-year period amount of $46.1 million. Operating income decreased to $2.2 million from $2.7 million in the year ago six-month period. Net income for the six months ended June 30, 2013 decreased to $1.2 million, or $0.05 per diluted share, from net income of $1.6 million, or $0.07 per diluted share, in the comparable prior year period. Adjusted EBITDA for the six months ended June 30, 2013 was $4.2 million, a decrease of $0.4 million from Adjusted EBITDA of $4.6 million in the same period one year ago.

APC segment revenues were $20.2 million, an increase of 58% from the second quarter of 2012. APC segment revenues were $33.2 million in the first half of 2013, an increase of $4.7 million or 16% from the prior year amount of $28.5 million. Higher APC revenues for the three- and six-month periods ended June 30, 2013 were the result of progress on international and domestic APC project bookings, particularly from a large project in Chile. Segment gross margins declined to 35% from 38% in the second quarter of 2012. For the first half of 2013, segment gross margins were 35% versus 41% reported in the prior year. The decrease in margins for both the quarter and year-to-date periods are primarily due to a higher mix of lower margin international projects.

Capital projects backlog at the APC segment stood at $45.1 million at June 30, 2013, compared to $44.7 million as of March 31, 2013 and $46.7 million at December 31, 2012.

The FUEL CHEM segment generated revenues of $8.9 million during the second quarter of 2013, an increase of 9% from $8.1 million in the second quarter of 2012. Gross margin rose to 53% from 51% in the prior year period. FUEL CHEM revenues generated from coal-fired units totaled $8.3 million, a 12% increase from the same period last year, while revenues generated from non-coal-fired units was $0.6 million, which was comparable to the same period last year. Increased revenues were primarily attributable to higher levels of shipping activity at a few key existing customer accounts. Although the FUEL CHEM segment continues to operate in an environment challenged by low natural gas prices and low electricity demand, margins have remained substantially intact.

Revenues for the FUEL CHEM segment for the six-month period totaled $18.4 million, an increase of $0.8 million or 5% versus the prior year amount of $17.6 million. Six-month revenues include $17.2 million from coal-fired units, a 5% increase versus a year ago, and $1.2 million from non-coal fired units, a 6% decrease versus the year-earlier period. Segment gross margin increased to 53% in the first half of 2013 from 52% in the comparable period in 2012. The higher gross margin in 2013 is attributable to a comparatively higher margin mix of customer shipments, including the aforementioned non-recurring sale of low margin installation work recognized in the first half of 2012.

Selling, general and administrative (SG&A) expenses were $9.3 million as compared to $7.9 million in last year's second quarter. As a percentage of revenues, SG&A declined to 32% from 38% in the same year-ago quarter, the result of increased revenue in the second quarter.

SG&A expenses totaled $17.8 million in the first half of 2013, versus $16.9 million in the same year-ago period, representing a two point decrease in SG&A costs as a percentage of revenue. The net-dollar increase in SG&A expenses is attributable to an increase in employee-related costs, outside service fees, stock compensation, travel costs, and administrative costs related to our foreign subsidiaries, partially offset by a decrease in bonuses, commissions and professional fees.

Research and development (R&D) expenses were $0.4 million in the second quarter versus $1.0 million in the year-ago quarter. R&D expenses moderately decreased to $1.4 million in the first half of the year versus $1.5 million in the year-ago period. The Company plans to continue its focused R&D efforts in pursuit of 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.

Douglas G. Bailey, Chairman, President, and Chief Executive Officer, commented, "A combination of new international and domestic orders, and continuing backlog conversion produced solid expected results in the second quarter. International interest for our solutions is rising, and we believe that the U.S. market is firming as it acclimates to a purchasing environment currently driven largely by consent decree activity. Across markets, our proprietary emissions control solutions are being recognized for their efficacy and diverse applications. Through the first six months of 2013, we announced APC contract awards with a value of approximately $29.0 million and, subsequent to quarter end, announced additional APC orders valued at $6.4 million."

Mr. Bailey concluded, "We look to the remainder of 2013 with optimism, and continue to pursue a number of strategies utilizing our financial strength to further our growth."

Conference Call

Management will host a conference call on Thursday, August 8, 2013 at 9:00 AM ET to discuss the results

• (866) 700-5192 (Domestic) or

• (617) 213-8833 (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 "43552645." The replay will be available through August 15, 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 (NO_x) reduction technologies include advanced combustion modification techniques - such as Low NO_x Burners and Over-Fire Air systems - and post-combustion NO_x control approaches, including NO_xOUT^® and HERT™ SNCR systems as well as systems that incorporate ASCR™ (Advanced Selective Catalytic Reduction), NO_xOUT CASCADE^®, ULTRA™ and NO_xOUT-SCR^® processes. These technologies have established Fuel Tech as a leader in NO_x 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 (PM_2.5), carbon dioxide and NO_x. 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.