Item 7. Management’s Discussion and Analysis
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (amounts in thousands of dollars)
Overview
In 2023, the Company continued to successfully execute on existing orders resulting in improved performance in the APC segment. We continue to invest in development of new technologies to expand our product offerings into the water and waste-water treatment market. Our capital resources are sufficient for our immediate and longer-term needs, and we continue to enjoy the services and support of a dedicated workforce. We expect that our cost control efforts will maintain our existing levels of operating expenditures and the diminishing effects of the pandemic should lead to an improved market outlook.
Key Operating Factors
Our FUEL CHEM segment faced difficult market circumstances in 2023, and experienced a decline in revenues and segment operating profits compared to 2022. The FUEL CHEM segment was negatively impacted due to the reduction in demand from other customers due to unfavorable climate conditions and to operating and maintenance scheduling.
Our APC business experienced improvement in 2023, compared to 2022, due to the execution of projects awarded in the second half of 2022 and in 2023. Sales growth experienced headwinds in the United States due to regulatory unclarity resulting from legal challenges to the Cross State Air Pollution Control rule. We are encouraged by the pace and depth of our business development activities, which reflects an increased focus on global emissions protocols across a variety of fuel sources. Our Consolidated APC backlog at year end was $7,458 and our global sales pipeline has increased to $50 -75 million range.
Background
We have two broad technology segments that provide advanced engineered solutions to meet the pollution control, efficiency improvement and operational optimization needs of energy-related facilities worldwide. They are as follows:
Air Pollution Control Technologies
The Air Pollution Control technology segment includes technologies to reduce NOx emissions in flue gas generated by the firing of natural gas or coal from boilers, incinerators, furnaces and other stationary combustion sources. These include SCR systems, NOxOUT and HERT™ SNCR systems. Our SCR systems can also include AIG, and GSG™ systems to provide high NOx reductions at significantly lower capital and operating costs than conventional SCR systems. ULTRA ® technology creates ammonia at a plant site using safe urea for use with any SCR application. ESP technologies make use of electrostatic precipitator products and services to reduce particulate matter. FGC systems are chemical injection systems offered in markets outside the U.S. and Canada to enhance electrostatic precipitator and fabric filter performance in controlling particulate emissions. We distribute our products through our direct sales force and third-party sales agents.
FUEL CHEM Technologies
The FUEL CHEM technology segment, which uses chemical processes in combination with advanced CFD and CKM boiler modeling, for the control of slagging, fouling, corrosion, opacity and other sulfur trioxide-related issues in coal-fired furnaces and boilers through the addition of chemicals into the furnace using TIFI ® Targeted In-Furnace Injection™ technology. Fuel Tech sells its FUEL CHEM program through its direct sales force and agents to industrial and utility power-generation facilities. FUEL CHEM programs have been installed on combustion units in North America, Europe, China, and India, treating a wide variety of solid and liquid fuels, including coal, heavy oil, biomass and municipal waste. The FUEL CHEM program improves the efficiency, reliability and environmental status of plants operating in the electric utility, industrial, pulp and paper, waste-to-energy, university and district heating markets and offers numerous operational, financial and environmental benefits to owners of boilers, furnaces and other combustion units.
The key market dynamic for both technology segments is the continued use of fossil fuels, especially coal, as the principal fuel source for global electricity production. In 2023, coal accounted for approximately 14% of all U.S. electricity generation and roughly 36% of global electricity generation. Major coal consumers include China, the U.S. and India.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (GAAP), which require us to make estimates and assumptions. We believe that our accounting policies (see Note 1 to the consolidated financial statements), involve a higher degree of judgment, estimates and assumptions and are deemed critical. We routinely discuss our critical accounting policies with the Audit Committee of the Board of Directors.
Revenue Recognition
The Company recognizes revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
FUEL CHEM
Revenues from the sale of chemical products are recognized when control transfers to customer upon shipment or delivery of the product based on the applicable shipping terms. We generally recognize revenue for these arrangements at a point in time based on our evaluation of when the customer obtains control of the promised goods or services.
On occasion, Fuel Tech will engineer and sell its chemical pumping equipment. These projects are similar in nature to the APC projects described below and for those projects where control transfers over time, revenue is recognized based on the extent of progress towards completion of the single performance obligation.
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For projects containing multiple performance obligations, the Company allocates the transaction price based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.
The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.
Air Pollution Control Technology
Fuel Tech’s APC contracts are typically six to eighteen months in length. A typical contract will have three or four critical operational measurements that, when achieved, serve as the basis for us to invoice the customer via progress billings. At a minimum, these measurements will include the generation of engineering drawings, the shipment of equipment and the completion of a system performance test.
As part of most of its contractual APC project agreements, Fuel Tech will agree to customer-specific acceptance criteria that relate to the operational performance of the system that is being sold. These criteria are determined based on modeling that is performed by Fuel Tech personnel, which is based on operational inputs that are provided by the customer. The customer will warrant that these operational inputs are accurate as they are specified in the binding contractual agreement. Further, the customer is solely responsible for the accuracy of the operating condition information; typically all performance guarantees and equipment warranties granted by us are voidable if the operating condition information is inaccurate or is not met.
Since control transfers over time, revenue is recognized based on the extent of progress towards completion of the single performance obligation. Fuel Tech uses the cost-to-cost input measure of progress for our contracts since it best depicts the transfer of assets to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost input measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. Costs to fulfill include all internal and external engineering costs, equipment charges, inbound and outbound freight expenses, internal and site transfer costs, installation charges, purchasing and receiving costs, inspection costs, warehousing costs, project personnel travel expenses and other direct and indirect expenses specifically identified as project- or product-line related, as appropriate (e.g. test equipment depreciation and certain insurance expenses). Unexpected or unknown costs could affect the timing of revenue recognition and the cumulative profitability of the related projects.
Fuel Tech’s APC product line also includes ancillary revenue for post contractual goods and services. Revenue associated with these activities are recognized at a point in time when delivery of goods or completion of the service obligation is performed.
Fuel Tech has installed over 1,300 units with APC technology and normally provides performance guarantees to our customers based on the operating conditions for the project. As part of the project implementation process, we perform system start-up and optimization services that effectively serve as a test of actual project performance. We believe that this test, combined with the accuracy of the modeling that is performed, enables revenue to be recognized prior to the receipt of formal customer acceptance.
As of December 31, 2023 and 2022, we had no construction contracts in progress that were identified as a loss contract.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the consolidated balance sheets. In our Air Pollution Control technology segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. These assets are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. At December 31, 2023 , 2022 , and 2021 contract assets for APC technology projects were approximately $2,285 and $3,082 , and $1,277, respectively, and are included in accounts receivable on the consolidated balance sheets. There were no contract assets for the FUEL CHEM technology segment as of December 31, 2023 , 2022 , and 2021 .
However, the Company will periodically bill in advance of costs incurred before revenue is recognized, resulting in contract liabilities. These liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Contract liabilities were $1,279 , $372 , and $390 at December 31, 2023 , 2022 , and 2021 , respectively, and are included in other accrued liabilities on the consolidated balance sheets.
Allowance for Credit Losses
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Company adopted these ASUs on January 1, 2023 and began using our expected credit loss model to calculate the allowance. The allowance for credit losses is management’s best estimate of the amount of credit losses in accounts receivable. The allowance for credit losses balance can be impacted by unforeseen collectability issues. In order to control and monitor the credit risk associated with our customer base, we review the credit worthiness of customers on a recurring basis. Factors influencing the level of scrutiny include the level of business the customer has with us, the customer’s payment history and the customer’s financial stability. Receivables are considered past due if payment is not received by the date agreed upon with the customer, which is normally 30 days after invoice. Representatives of our management team review all past due accounts on a monthly or as-needed basis to assess collectability. At the end of each reporting period, the allowance for credit losses balance is reviewed relative to management’s expected credit loss model and is adjusted if deemed necessary through a corresponding charge or credit to bad debt expense, which is included in selling, general, and administrative expenses in the consolidated statements of operations. Bad debt write-offs are made when management believes it is probable a receivable will not be recovered.
Inventories
Inventories consist primarily of equipment constructed for resale and spare parts and are stated at the lower of cost or net realizable value, using the weighted-average cost method. Usage is recorded in cost of sales in the period that parts were issued to a project or used to service equipment. Inventories are carried at weighted average cost and periodically evaluated to identify obsolete or otherwise impaired parts that are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and the existing sales pipeline for which the inventory could be used.
Assessment of Potential Impairments of Goodwill and Intangible Assets
Goodwill is not amortized, but rather is reviewed annually (in the fourth quarter) or more frequently if indicators arise, for impairment. We do not have any indefinite-lived intangible assets other than goodwill. Such indicators include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, a decrease in our market capitalization to an amount less than the carrying value of our assets, or slower growth rates, among others.
Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. We have two reporting units: the FUEL CHEM segment and the APC technology segment. Goodwill is only related to the FUEL CHEM segment.
Our evaluation of goodwill impairment involves first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We may bypass this qualitative assessment, or determine that based on our qualitative assessment considering the totality of events and circumstances including macroeconomic factors, industry and market considerations, current and projected financial performance, a sustained decrease in our share price, or other factors, that additional impairment analysis is necessary. This additional analysis involves comparing the current fair value of a reporting unit to its carrying value. Fuel Tech uses a discounted cash flow (DCF) model to determine the current fair value of its FUEL CHEM reporting unit as this methodology was deemed to best quantify the present values of our expected future cash flows and yield a fair value that should be in line with the aggregate market value placed on the outstanding common stock as reflected by the current stock price multiplied by the outstanding shares of common stock. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce and working capital changes. Events outside our control, specifically market conditions that impact revenue growth assumptions, could significantly impact the fair value calculated. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. However, actual fair values that could be realized in an actual transaction may differ from those used to evaluate the impairment of goodwill.
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The application of our DCF model in estimating the fair value of each reporting segment is based on the ‘net asset’ approach to business valuation. In using this approach for each reportable segment, we forecast segment revenues and expenses out to perpetuity and then discount the resulting cash flows to their present value using an appropriate discount rate. The forecast considers, among other items, the current and expected business environment, expected changes in the fixed and variable cost structure as the business grows, and a revenue growth rate that we feel is both achievable and sustainable. The discount rate used is composed of a number of identifiable risk factors, including equity risk, company size, and certain company-specific risk factors such as our debt-to-equity ratio, among other factors, that when added together, results in a total return that a prudent investor would demand for an investment in our Company.
In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional analysis would be required. The additional analysis would compare the carrying amount of the reporting unit’s goodwill with the implied fair value of that goodwill. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair values assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price.
The Company utilizes Accounting Standards Update (ASU) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment for the annual goodwill impairment test.
Fuel Tech performed its annual goodwill impairment analysis for its FUEL CHEM reporting unit as of October 1, 2023 and determined that no impairment of goodwill existed within the FUEL CHEM technology segment.
Impairment of Long-Lived Assets and Amortizable Intangible Assets
Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment when events and circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable. If impairment indicators exist, we perform a more detailed analysis and an impairment loss is recognized when either estimated future undiscounted cash flows expected to result from the use of the asset (or asset group) and its eventual disposition are less than the carrying amount or the determined fair value is less than the carrying amount. This process of analyzing impairment involves examining the operating condition of individual assets (or asset group) and estimating a fair value based upon current condition, relevant market factors and the remaining estimated operational life compared to the asset’s remaining depreciable life. Quoted market prices and other valuation techniques are used to determine expected fair value. Due to the existence of impairment indicators, we performed a more detailed analysis of potential long-lived and intangible asset impairment in the APC technology asset group during the fourth quarter of 2023 and determined no impairment exists. There was no impairment recorded during 2023.
A significant portion of our property and equipment is comprised of assets deployed at customer locations relating to our FUEL CHEM technology asset group, and due to the shorter-term duration over which this equipment is depreciated, the likelihood of impairment is mitigated. The discontinuation of a FUEL CHEM program at a customer site would most likely result in the re-deployment of all or most of the affected assets to another customer location rather than an impairment.
Valuation Allowance for Deferred Income Taxes
Deferred tax assets represent deductible temporary differences and net operating loss and tax credit carryforwards. A valuation allowance is recognized if it is more likely than not that some portion of the deferred tax asset will not be realized. At the end of each reporting period, management reviews the realizability of the deferred tax assets. As part of this review, we consider if there are taxable temporary differences that could generate taxable income in the future, if there is the ability to carry back the net operating losses or credits, if there is a projection of future taxable income, and if there are any tax planning strategies that can be readily implemented. As required by ASC 740 "Income Taxes", a valuation allowance must be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. This assessment resulted in a valuation allowance on our deferred tax assets of $15,699 and $15,627 at December 31, 2023 and 2022, respectively.
Stock-Based Compensation
We recognize compensation expense for employee equity awards ratably over the requisite service period of the award, adjusted for estimated forfeitures.
We utilize the Black-Scholes option-pricing model to estimate the fair value of stock option awards. Determining the fair value of stock options using the Black-Scholes model requires judgment, including estimates for (1) risk-free interest rate - an estimate based on the yield of zero-coupon treasury securities with a maturity equal to the expected life of the option; (2) expected volatility - an estimate based on the historical volatility of our common stock for a period equal to the expected life of the option; and (3) expected life of the option - an estimate based on historical experience including the effect of employee terminations.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which provides guidance for additional disclosures around segment reporting. The standard will become effective for annual periods beginning on January 1, 2024 for Fuel Tech and for interim periods thereafter. Application of the amendments is retrospective. The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures in the Segment note when the ASU is adopted.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides guidance for additional disclosures around the tax rate reconciliation and other tax disclosures. The standard will become effective for annual periods beginning on January 1, 2025 for Fuel Tech. Application of the amendments should be applied prospectively but retrospective application is permitted. The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures in the Tax note when the ASU is adopted.
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2023 versus 2022
Highlights for the year ended December 31, 2023, compared to 2022:
For the years ended December 31,
2023
2022
Change
Revenues
$
27,081
$
26,941
$
140
Costs and expenses:
Cost of sales
15,425
15,298
127
Selling, general and administrative
12,803
12,275
528
Research and development
1,511
895
616
Total costs and expenses
29,739
28,468
1,271
Operating loss
(2,658
)
(1,527
)
(1,131
)
Interest expense
(21
)
(17
)
(4
)
Interest income
1,300
202
1,098
Other expense, net
(90
)
(46
)
(44
)
Loss before income taxes
(1,469
)
(1,388
)
(81
)
Income tax expense
(69
)
(54
)
(15
)
Net loss
$
(1,538
)
$
(1,442
)
$
(96
)
Revenues
Revenues for the years ended December 31, 2023 and 2022 were $27,081 and $26,941, respectively. The year-over-year increase of $140 or 1%, was driven by the increase in revenue in our APC technology segment in our U.S. operations, partially offset by a decrease in our FUEL CHEM technology segment. Our U.S. revenues increased by $751, or 4%, from $20,311 in 2022 to $21,062 in 2023, and our international revenues decreased by $611, or 9%, from $6,630 in 2022 to $6,019 in 2023.
Revenues for the APC technology segment were $13,483 for the year ended December 31, 2023, an increase of $2,886, or 27%, versus fiscal 2022. The increase in APC revenue for the twelve-month period ending December 31, 2023 in comparison to the prior year amount was principally related to the timing of project execution and new APC orders. Consolidated APC backlog was $7,458 and $8,245 at December 31, 2023 and 2022, respectively. Our backlog at December 31, 2023 consists of U.S. domestic projects totaling $6,878 and international projects totaling $580.
Revenues for the FUEL CHEM technology segment for the year ended December 31, 2023 were $13,598, a decrease of $2,746, or 17%, versus fiscal 2022. The decrease in FUEL CHEM revenue was due to dispatch/demand and unforeseen plant outages. We remain focused on attracting new customers in our FUEL CHEM business, for both coal and non-coal applications. Our ability to attract new coal customers continues to be affected by the electric demand market and fuel switching as a result of low natural gas prices.
Cost of sales and gross margin
Consolidated cost of sales for the years ended December 31, 2023 and 2022 were $15,425 and $15,298, respectively. Consolidated gross margin percentages for the years ended December 31, 2023 and 2022 were 43% and 43%, respectively. The gross margins for the APC technology segment increased to 38% in 2023 from 35% in 2022. The overall increase in gross margin in the APC technology segment is primarily due to product and project mix. Gross margin percentage for the FUEL CHEM technology segment decreased to 48% from 49% for the years ended December 31, 2023 and 2022.
Selling, general and administrative
Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 were $12,803 and $12,275, respectively. The increase of $528, or 4%, is attributed to the following:
•
An increase in employee related costs of $604
•
An increase in travel expense of $45
•
An increase in professional services of $44
•
A decrease in office and administrative costs relating to our foreign subsidiaries of $129
•
A decrease in other administrative costs of $36
Depreciation and Amortization
Depreciation and amortization are calculated using the straight-line method and included in selling, general and administrative expense. For the years ended December 31, 2023 and 2022, the Company recorded depreciation of $281 and $352 and amortization of $61 and $88, respectively.
Research and development
Research and development expenses were $1,511 and $895 for the years ended December 31, 2023 and 2022, respectively. The expenditures in our research and development expenses were focused on new product development efforts in the pursuit of commercial applications for technologies outside of our traditional markets, and in the development and analysis of new technologies that could represent incremental market opportunities. This increase was mainly attributed to water treatment technologies and more specifically, our DGI® Dissolved Gas Infusion Systems, an innovative alternative to current gas transfer and chemical replacement technologies. This infusion process has a variety of applications in the water and wastewater segments, including irrigation, treatment of natural waters, supply of oxygen for biological remediation, wastewater odor management, pH adjustment, re-carbonization, etc. DGI® technology benefits include improved treatment performance and reduced treatment time, and the potential for reduced energy consumption, along with lower installation and operating costs. Third party validation testing of the efficiency of transferring oxygen to a treatment basin has been completed and results have been published.
Interest income
Interest income was $1,300 for the year ended December 31, 2023 compared to $202 for the same period in 2022. Interest income increased due to the interest income on the held-to-maturity (HTM) debt securities and money market funds.
Other Expense, net
Other expense, net was $90 for the year ended December 31, 2023 compared to Other expense, net of $46 for the same period in 2022. The change of $44 is due primarily to an increase in bank fees associated with our standby letters of credit.
Income tax benefit expense
For the year ended December 31, 2023, we recorded an income tax expense of $69 on pre-tax loss of $1,469. Our effective tax rates were (-4.7% and (3.9)% for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2022, we recorded an income tax expense of $54 on pre-tax income of $1,388. The effective tax rate for the year ended December 31, 2023 differed from the federal statutory rate of 21% as a result of establishing a deferred tax liability associated with a certain book-to-tax timing difference.
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Liquidity and Sources of Capital
At December 31, 2023 , we had cash and cash equivalents of $17,578 (which includes $ 5,083 of cash equivalents) and working capital of $32,633 versus cash and cash equivalents of $23,328 (which includes $ 10,768 of cash equivalents) and working capital of $31,059 at December 31, 2022 . We have no outstanding debt other than our outstanding letters of credit, under our Investment Collateral Security agreement with BMO Harris Bank, N.A. (the Investment Collateral Security agreement), which does not have any financial covenants. We expect to continue operating under this arrangement for the foreseeable future.
Operating activities provided cash of $696 for the year ended December 31, 2023, primarily due to a decrease in accounts receivable balances of $1,039, an increase in accrued liabilities and other non-current liabilities of $1,239, partially offset by an increase in accounts payable balances of $295 and adjustments for non-cash items from our net loss from continuing operations for interest income on held-to-maturity securities of $433, depreciation and amortization of $342 and stock compensation expense of $389.
Operating activities used cash of $4,139 for the year ended December 31, 2022 , primarily due to an increase in accounts receivable balances of $4,448, an increase in prepaid expenses and other assets of $314, and an adjustment for non-cash items from our net loss from continuing operations for the provision for credit losses of $106, partially offset by increases in accounts payable balances of $1,159 and accrued liabilities and other non-current liabilities of $360, and adjustments for non-cash items from our net loss from continuing operations for depreciation and amortization of $440 and stock compensation expense of $224.
Investing activities used cash of $6,444 and $9,483 for the years ended December 31, 2023 and 2022, respectively. Investing activities for the years ended December 31, 2023 and 2022 primarily consisted of purchases of HTM debt securities as investments of $14,026 and $9,777, respectively, and the purchases of equipment and patent related costs and of $418 and $206, respectively. Investing activities for the years ended December 31, 2023 and 2022 were partially funded by the maturities of debt securities of $8,000 and $500, respectively.
Financing activities provided $42 and used $17 of cash for the years ended December 31, 2023 and 2022 . In 2023, the finan cing activity was related to proceeds from the exercise of stock options. In 2022, financing activities were related to taxes paid on behalf of the equity award participants on the vesting of restricted stock units.
We continue to monitor our liquidity needs and in response to our recent periods of net losses have taken measures to reduce expenses and restructure operations which we feel are necessary to ensure we maintain sufficient working capital and liquidity to operate the business and invest in our future. We have evaluated our ongoing business needs, and considered the cash requirements of our base business of Air Pollution Control and FUEL CHEM. This evaluation included consideration of the following customer and revenue trends in our APC and FUEL CHEM business segments current operating structure and expenditure levels, and other research and development initiatives. Based on this analysis, management believes that currently we have sufficient cash and working capital to operate our base APC and FUEL CHEM businesses. We believe our current cash position and net cash flows expected to be generated from operations are adequate to fund planned operations of the Company for the next 12 months.
We expect capital expenditures in 2024 for the DGI business, maintenance of field equipment, computer and systems, and general office equipment. We expect to fund our capital expenditures with cash from operations or cash on hand.
In June 2022, the Board of Directors approved an investment plan that would hold $10,000 in funds at BMO Harris Bank (BMO Harris) to be invested in held-to-maturity debt securities of United States (US) Treasuries, including Notes, Bonds, and Bills, or US Government Agency securities. In December 2022, the Board of Directors approved an additional investment of $10,000. The funds are held in money market funds until they are invested in those securities. The investments would be structured to create a maturity “ladder” where the proceeds from maturities are re-invested to maintain a balance of short- and long-term investments based on the expected business needs. Maturities will be between three and thirty-six months. This strategy allows the Company to provide returns on excess cash, while managing liquidity and minimizing exposure to interest rate fluctuations.
On June 30, 2022, the Company entered into the Investment Collateral Security agreement to use for the sole purpose of issuing standby letters of credit, which replaces the Cash Collateral Security agreement with BMO Harris Bank, N.A. (the Former Collateral agreement). The Investment Collateral Security agreement requires us to pledge our investments as collateral for 150% of the aggregate face amount of outstanding standby letters of credit. The Company pays 250 basis points on the face values of outstanding letters of credit. There are no financial covenants set forth in the Investment Collateral Security agreement. At December 31, 2023, the Company had outstanding standby lett ers of credit totaling approximately $904 under the Investment Collateral Security agreement. At December 31, 2023 , the investments held as collateral totaled $1,356 . Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instru ments. The outstanding standby letters of credit mature as follows:
Total
2024
2025
2026
Thereafter
Standby letters of credit and bank guarantees
$
904
$
769
$
135
$
—
$
—
Total
$
904
$
769
$
135
$
—
$
—