Fuel Tech(FTEK) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Fuel Tech, Inc Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Fuel Tech, Inc., including the balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, revenue recognition, segment data, and other financial disclosures for the three months ended March 31, 2025 and 2024 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $46,709 | $48,797 | | Total liabilities | $5,271 | $6,842 | | Total stockholders' equity | $41,438 | $41,955 | | Cash and cash equivalents | $11,821 | $8,510 | | Accounts receivable, net | $5,635 | $9,368 | | Total current assets | $29,146 | $29,619 | | Total current liabilities | $4,287 | $5,855 | - Total assets decreased by $2,088 thousand from December 31, 2024, to March 31, 2025. Total liabilities decreased by $1,571 thousand, and total stockholders' equity decreased by $517 thousand during the same period[9] Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over a specific period | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Revenues | $6,382 | $4,957 | | Cost of sales | $3,423 | $2,928 | | Selling, general and administrative | $3,341 | $3,345 | | Research and development | $570 | $376 | | Operating loss | $(952) | $(1,692) | | Net (loss) income | $(739) | $281 | | Basic net (loss) income per common share | $(0.02) | $0.01 | | Diluted net (loss) income per common share | $(0.02) | $0.01 | - Revenues increased by 29% year-over-year, from $4,957 thousand in Q1 2024 to $6,382 thousand in Q1 2025. The company reported a net loss of $739 thousand in Q1 2025, compared to a net income of $281 thousand in Q1 2024[11] Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the net income or loss along with other comprehensive income or loss items not recognized in net income | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net (loss) income | $(739) | $281 | | Foreign currency translation adjustments | $135 | $(143) | | Comprehensive (loss) income | $(604) | $138 | - Comprehensive loss for Q1 2025 was $604 thousand, a decrease from comprehensive income of $138 thousand in Q1 2024, primarily due to the net loss and positive foreign currency translation adjustments in 2025 compared to negative adjustments in 2024[12] Condensed Consolidated Statements of Stockholders' Equity This section shows changes in the equity accounts, including common stock, retained earnings, and other comprehensive income | Component | Balance at Dec 31, 2024 (in thousands) | Net Loss/Income (in thousands) | FX Adjustments (in thousands) | Stock Comp Expense (in thousands) | Other (in thousands) | Balance at Mar 31, 2025 (in thousands) | | :-------------------------- | :----------------------------------- | :----------------------------- | :---------------------------- | :-------------------------------- | :------------------- | :----------------------------------- | | Common Stock | $317 | — | — | — | $1 | $318 | | Additional Paid-in Capital | $165,295 | — | — | $110 | — | $165,405 | | Accumulated Deficit | $(119,472) | $(739) | — | — | — | $(120,211) | | Accumulated Other Comp Loss | $(1,915) | — | $135 | — | — | $(1,780) | | Treasury Stock | $(2,346) | — | — | — | $(24) | $(2,370) | | Total Stockholders' Equity | $41,955 | $(739) | $135 | $110 | $(23) | $41,438 | - Total stockholders' equity decreased from $41,955 thousand at December 31, 2024, to $41,438 thousand at March 31, 2025, primarily due to a net loss of $739 thousand, partially offset by foreign currency translation adjustments of $135 thousand and stock compensation expense of $110 thousand[15] Condensed Consolidated Statements of Cash Flows This section reports the cash generated and used by operating, investing, and financing activities | Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by (used in) operating activities | $1,508 | $(1,075) | | Net cash provided by (used in) investing activities | $1,692 | $(5,005) | | Net cash used in financing activities | $(24) | — | | Net increase (decrease) in cash and cash equivalents | $3,311 | $(6,196) | | Cash and cash equivalents at end of period | $11,821 | $11,382 | - Operating activities provided $1,508 thousand in cash in Q1 2025, a significant improvement from cash used of $1,075 thousand in Q1 2024. Investing activities provided $1,692 thousand in Q1 2025, reversing from cash used of $5,005 thousand in Q1 2024[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the figures presented in the financial statements 1. General This section describes the company's business, operations, and significant accounting policies - Fuel Tech, Inc. develops and provides proprietary technologies for air pollution control, process optimization, water treatment, and advanced engineering services, including NOx reduction, particulate matter mitigation, FUEL CHEM® technology, and DGI® Dissolved Gas Infusion Systems[19][20] - The company accounts for the Employee Retention Credit (ERC) by analogy to IAS 20, recognizing a $1,677 thousand benefit as other income in 2024 and as a component of Accounts Receivable as of March 31, 2025[23][24] 2. Summary of Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the financial statements - The company's investment policy allocates $20,000 thousand to debt securities at BMO Harris Bank, with a portion restricted as collateral for standby letters of credit[26] | Held-to-maturity debt securities | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------- | :----------------------------- | :----------------------------- | | Amortized cost | $19,349 | $21,059 | | Gross unrecognized gains | $59 | $50 | | Gross unrecognized losses | $(12) | $(33) | | Fair value | $19,396 | $21,076 | - Inventories are stated at the lower of cost or net realizable value using the weighted-average cost method, with equipment for resale at $176 thousand and spare parts at $358 thousand as of March 31, 2025[30] - The company applies FASB ASU 2019-10 for expected credit losses, using a forward-looking model based on historical experience, current conditions, and forecasts, excluding US Government securities from the calculation[31][32] 3. Revenue This section details the sources and recognition of the company's revenue streams | Revenue by Product Technology | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :---------------------------- | :--------------------------------------- | :--------------------------------------- | | Air Pollution Control | $1,303 | $2,318 | | FUEL CHEM technology solutions | $5,079 | $2,639 | | Total Revenues | $6,382 | $4,957 | | Revenue by Geography | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :------------------- | :--------------------------------------- | :--------------------------------------- | | United States | $5,359 | $3,595 | | Foreign Revenues | $1,023 | $1,362 | | Total Revenues | $6,382 | $4,957 | - Revenue from FUEL CHEM technology solutions significantly increased by 92% year-over-year, from $2,639 thousand in Q1 2024 to $5,079 thousand in Q1 2025, while Air Pollution Control revenue decreased by 44%[35] - Remaining performance obligations for APC technology booked orders totaled $10,328 thousand as of March 31, 2025, with approximately $6,924 thousand expected to be recognized within the next 12 months[42] 4. Restructuring Activities This section describes ongoing or planned restructuring efforts and their financial impact - Fuel Tech is continuing the planned suspension of its APC business operation in China, initiated in January 2019, to prioritize resource allocation and drive profitability. Remaining activities include satisfying requirements for $3 thousand in APC projects and subsidiary closure[44] | China Operations | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--------------- | :--------------------------------------- | :--------------------------------------- | | Total revenues | $0 | $0 | | Net loss | $(18) | $(13) | | Total assets (as of March 31, 2025) | $794 | $788 (Dec 31, 2024) | | Total net assets (as of March 31, 2025) | $705 | $704 (Dec 31, 2024) | 5. Accumulated Other Comprehensive Loss This section explains the components and changes in accumulated other comprehensive income or loss | Component | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Balance at beginning of period | $(1,915) | $(1,748) | | Foreign currency translation adjustments | $135 | $(143) | | Total accumulated other comprehensive loss | $(1,780) | $(1,891) | - Accumulated other comprehensive loss improved from $(1,915) thousand at the beginning of Q1 2025 to $(1,780) thousand at the end, driven by positive foreign currency translation adjustments of $135 thousand[47] 6. Treasury Stock This section details the company's repurchased shares and their impact on stockholders' equity - Treasury stock increased to 1,083,399 shares with a cost of $2,370 thousand at March 31, 2025, from 1,059,056 shares with a cost of $2,346 thousand at December 31, 2024. These shares were withheld from employees to settle tax obligations from vested restricted stock units[48] 7. Earnings per Share This section presents the basic and diluted earnings per share calculations | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Basic weighted-average shares | 30,718,000 | 30,385,000 | | Unexercised options and unvested RSUs | — | 371,000 | | Diluted weighted-average shares | 30,718,000 | 30,756,000 | - For Q1 2025, basic and diluted EPS were equal at $(0.02) due to a net loss, making all outstanding stock awards, warrants, and convertible loan notes anti-dilutive. In Q1 2024, diluted EPS included the effect of dilutive options and RSUs[49][50] 8. Stock-Based Compensation This section describes the company's stock-based incentive plans and related compensation expenses - Fuel Tech's 2024 Long-Term Incentive Plan (2024 Plan) replaced the prior 2014 LTIP, allowing for various share-based awards to directors, officers, employees, consultants, or advisors. As of March 31, 2025, 2,485,543 shares were available for issuance[51][52] | Stock-Based Compensation | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Stock options and restricted stock units, net of forfeitures | $110 | $104 | | After-tax effect of stock-based compensation | $110 | $104 | - Unrecognized compensation cost related to non-vested share-based compensation arrangements totaled $1,149 thousand as of March 31, 2025, expected to be recognized over a remaining service period of 2.26 years[62] | Restricted Stock Unit Activity | Shares | Weighted Average Grant Date Fair Value | | :----------------------------- | :------- | :----------------------------------- | | Unvested RSUs at January 1, 2025 | 1,082,122 | $1.26 | | Granted | 921,050 | $1.02 | | Vested | (85,328) | $1.26 | | Forfeited | (425,100) | $1.18 | | Unvested RSUs at March 31, 2025 | 1,492,744 | $1.11 | 9. Warrants This section details outstanding warrants and their potential dilutive effect on earnings per share | Exercise Price | Number Outstanding/Exercisable | Weighted Average Remaining Life in Years | Weighted Average Exercise Price | | :------------- | :----------------------------- | :--------------------------------------- | :------------------------------ | | $5.10 | 2,500,000 | 1.37 | $5.10 | | $6.45 | 350,000 | 1.37 | $6.45 | | Total | 2,850,000 | | | - As of March 31, 2025, Fuel Tech had 2,850,000 warrants outstanding and exercisable, with a weighted average remaining life of 1.37 years[66] 10. Debt Financing This section outlines the company's debt obligations and financing arrangements - The company's Investment Collateral Security Agreement with BMO Harris requires pledging investments as collateral for 150% of outstanding standby letters of credit. As of March 31, 2025, outstanding standby letters of credit totaled $2,124 thousand, with $3,186 thousand in investments held as collateral[67] 11. Business Segment and Geographic Financial Data This section provides financial information broken down by business segments and geographical regions - Fuel Tech operates in two reportable segments: Air Pollution Control (APC) technology and FUEL CHEM® technology. The CEO, as CODM, reviews gross margin by segment for performance evaluation and resource allocation[68][69] | Segment Performance (Q1 2025) | Air Pollution Control (in thousands) | FUEL CHEM (in thousands) | Total (in thousands) | | :---------------------------- | :----------------------------------- | :----------------------- | :------------------- | | Revenues | $1,303 | $5,079 | $6,382 | | Cost of sales | $(878) | $(2,545) | $(3,423) | | Gross margin | $425 | $2,534 | $2,959 | | Gross margin percentage | 33% | 50% | 46% | | Segment Performance (Q1 2024) | Air Pollution Control (in thousands) | FUEL CHEM (in thousands) | Total (in thousands) | | :---------------------------- | :----------------------------------- | :----------------------- | :------------------- | | Revenues | $2,318 | $2,639 | $4,957 | | Cost of sales | $(1,428) | $(1,500) | $(2,928) | | Gross margin | $890 | $1,139 | $2,029 | | Gross margin percentage | 38% | 43% | 41% | - FUEL CHEM segment revenues increased by 92% year-over-year, while APC segment revenues decreased by 44%. FUEL CHEM gross margin improved from 43% to 50%, whereas APC gross margin decreased from 38% to 33%[70] | Geographic Revenues | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :------------------ | :--------------------------------------- | :--------------------------------------- | | United States | $5,359 | $3,595 | | Foreign | $1,023 | $1,362 | | Total Revenues | $6,382 | $4,957 | | Geographic Assets | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------- | :----------------------------- | :----------------------------- | | United States | $42,788 | $44,430 | | Foreign | $3,921 | $4,367 | | Total Assets | $46,709 | $48,797 | 12. Accrued Liabilities This section details the company's accrued expenses and other short-term obligations | Other Accrued Liabilities | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------ | :----------------------------- | :----------------------------- | | Contract liabilities | $627 | $721 | | Deferred revenue | $316 | $360 | | Warranty reserve | $159 | $159 | | Accrued professional fees | $0 | $86 | | Other accrued liabilities | $237 | $289 | | Total other accrued liabilities | $1,339 | $1,615 | - Total other accrued liabilities decreased from $1,615 thousand at December 31, 2024, to $1,339 thousand at March 31, 2025, primarily due to decreases in contract liabilities, deferred revenue, and accrued professional fees[75] 13. Commitments and Contingencies This section discloses potential future obligations and uncertain events that could impact the company - Fuel Tech records liabilities for probable and estimable contingent losses and discloses reasonably possible material losses. Management believes no pending loss contingencies will materially affect financial position, results of operations, or cash flows[76][78] - The company issues a standard product warranty, with the warranty liability balance remaining unchanged at $159 thousand for both March 31, 2025, and December 31, 2024[79][80] 14. Income Taxes This section explains the company's income tax provisions, deferred taxes, and effective tax rates | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | 0.0% | 3.8% | - The effective tax rate for Q1 2025 was 0.0%, down from 3.8% in Q1 2024, primarily due to a full valuation allowance on deferred tax assets in the U.S., China, and Italy, and other factors like foreign losses and non-deductible expenses[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Fuel Tech's financial performance and condition for the three months ended March 31, 2025, highlighting key operating factors, detailed results of operations, liquidity, and capital resources. It emphasizes the significant revenue growth in the FUEL CHEM segment and ongoing investments in new technologies like DGI® Dissolved Gas Infusion Systems Overview This section provides a high-level summary of the company's performance and strategic direction - In Q1 2025, Fuel Tech secured new APC segment projects and saw improved performance in the FUEL CHEM Segment. The company continues to invest in new technologies, particularly for the water and wastewater treatment market, and expects cost control and new business to improve its financial outlook[82] Key Operating Factors This section discusses the primary drivers influencing the company's operational performance - The FUEL CHEM segment experienced a significant increase in revenue and operating profits in Q1 2025, driven by increased operational demand from clients and a new account added in H2 2024[83] - The Air Pollution Control (APC) business saw a revenue decrease in Q1 2025 due to project execution timing and customer delays, but new contract awards of $5,600 thousand and a consolidated APC backlog of $10,328 thousand at March 31, 2025, indicate increased segment activity[84][86] Results of Operations This section provides a detailed analysis of the company's financial performance over the reporting period Revenue Performance (YoY) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (in thousands) | % Change | | :------- | :--------------------- | :--------------------- | :-------------------- | :------- | | Revenues | $6,382 | $4,957 | $1,425 | 29% | Segment Revenue Performance (YoY) | Segment | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (in thousands) | % Change | | :-------- | :--------------------- | :--------------------- | :-------------------- | :------- | | APC | $1,303 | $2,318 | $(1,015) | -44% | | FUEL CHEM | $5,079 | $2,639 | $2,440 | 92% | Gross Margin Performance (YoY) | Metric | Q1 2025 | Q1 2024 | | :-------------------- | :------ | :------ | | Consolidated Gross Margin % | 46% | 41% | | FUEL CHEM Gross Margin % | 50% | 43% | | APC Gross Margin % | 33% | 38% | - Selling, general and administrative (SG&A) expenses remained flat at $3,341 thousand in Q1 2025 compared to $3,345 thousand in Q1 2024, decreasing as a percentage of revenues from 67% to 52% due to increased revenues[89] R&D and Other Income/Expense (YoY) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :------------------------ | :--------------------- | :--------------------- | | Research and development | $570 | $376 | | Interest income | $279 | $311 | | Other (expense) income, net | $(66) | $1,673 | - Other expense, net, was $66 thousand in Q1 2025, primarily due to transactional foreign exchange losses, a significant change from other income, net, of $1,673 thousand in Q1 2024, which included a $1,677 thousand employee retention credit[92] Liquidity and Sources of Capital This section analyzes the company's ability to meet its short-term and long-term financial obligations and its funding strategies Cash Flow Summary (YoY) | Activity | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--------------------------------- | :--------------------- | :--------------------- | | Net cash provided by (used in) operating activities | $1,508 | $(1,075) | | Net cash provided by (used in) investing activities | $1,692 | $(5,005) | | Net cash used in financing activities | $(24) | $0 | | Net increase (decrease) in cash and cash equivalents | $3,311 | $(6,196) | | Cash and cash equivalents at end of period | $11,821 | $11,382 | - As of March 31, 2025, Fuel Tech had $11,821 thousand in cash and cash equivalents and $24,859 thousand in working capital, with no outstanding debt other than letters of credit[94] - Management believes current cash position and expected net cash flows from operations are adequate to fund planned operations for the next 12 months, including capital expenditures for the DGI business and equipment maintenance[99][100] - The company's investment policy involves investing $20,000 thousand in held-to-maturity debt securities (US Treasuries and Government Agency securities) with a maturity 'ladder' strategy to manage liquidity and interest rate exposure[101] Contingencies and Contractual Obligations This section outlines potential future liabilities and commitments arising from contracts or uncertain events - Fuel Tech issues a standard product warranty, and there was no change in the warranty liability balance during the three months ended March 31, 2025[103] Forward-Looking Statements This section provides a cautionary note regarding statements about future events or financial performance - This report contains forward-looking statements subject to various risks and uncertainties, as detailed in Fuel Tech's Annual Report on Form 10-K, and the company undertakes no obligation to update these statements[104] Item 3. Quantitative and Qualitative Disclosures about Market Risk Fuel Tech's financial results are exposed to fluctuations from foreign currency exchange rates. The company does not use foreign currency forward or option contracts to manage this risk, citing the immaterial nature of the transactions - Fuel Tech's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. The company does not use foreign currency forward or option contracts to manage this risk due to the immaterial nature of the transactions[105] Item 4. Controls and Procedures Fuel Tech's management, including the CEO and principal financial officer, evaluated the company's disclosure controls and procedures as of March 31, 2025, and concluded they are effective. There have been no material changes in internal control over financial reporting during the quarter - Fuel Tech's CEO and principal financial officer evaluated the company's disclosure controls and procedures as of March 31, 2025, and concluded they are effective in ensuring timely and accurate reporting[106] - There have been no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2025[107] PART II. OTHER INFORMATION This section includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Fuel Tech is occasionally involved in litigation incidental to its business but is not currently engaged in any legal proceedings that management believes would have a material adverse effect on its business, financial condition, results of operations, or prospects - Fuel Tech is not currently involved in any litigation that management believes would have a material adverse effect on its business, financial conditions, results of operations, or prospects[108] Item 1A. Risk Factors The risk factors previously disclosed in Fuel Tech's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, have not materially changed - The risk factors included in Fuel Tech's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, have not materially changed[109] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities and use of proceeds to report[110] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and principal financial officer, and various Inline XBRL taxonomy documents - Exhibits filed include certifications from the CEO and principal financial officer (Sections 302 and 906 of Sarbanes-Oxley Act of 2002) and various Inline XBRL documents (Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Prevention Linkbase, and Cover Page Interactive Data File)[110] SIGNATURES The report is duly signed on May 12, 2025, by Vincent J. Arnone, President and Chief Executive Officer, and Ellen T. Albrecht, Vice President, Chief Financial Officer and Treasurer, in accordance with the Securities Exchange Act of 1934 - The report was signed on May 12, 2025, by Vincent J. Arnone, President and Chief Executive Officer, and Ellen T. Albrecht, Vice President, Chief Financial Officer and Treasurer[113]