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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-05-12 · 46 added, 32 removed, 56 unchanged (58% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

In the first quarter of 2025, the Company was awarded several new APC segment projects and had improved performance in the FUEL CHEM Segment across our customer fleet.

The Company continues to execute on existing project backlog and support our legacy accounts while actively pursuing additional market opportunities.

We continue to invest in development of new technologies to expand our product offerings into the water and waste-water treatment market.

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Key Operating Factors

Our FUEL CHEM segment experienced a significant increase in revenue and segment operating profits in the current quarter as compared to 2024.

The FUEL CHEM segment was positively impac ted by dispatch related increases in operational demand from our client base and the contribution of a new account added in the second half of 2024.

Our FUEL CHEM segment performance is in line with expectations in revenue and segment operating profits in the current quarter as compared to 2024.

The FUEL CHEM segment continues to thrive from operational demand from our client base and the contribution of a new account added in the second half of 2024.

Our Air Pollution Control (APC) business experienced a decrease in revenue in the current quarter as compared to 2024, primarily due to timing of project execution and customer driven delays.

We are encouraged by the depth of our business development activities, which reflects an increased focus on global emissions protocols across a variety of fuel sources.

We announced $5,600 of new contract awards in the current quarter and have experienced increased segment activity as a result.

Our Consolidated APC backlog at March 31, 2025 was $ 10,328 and our global sales pipeline is in the $50 -75 million range.

Our Consolidated APC backlog at June 30, 2025 was $ 7,811 and our global sales pipeline is in the $75 -100 million range.

Results of Operations

Revenues for the three-month periods ending March 31, 2025 and 2024 were $6,382 and $4,957 , respectively, representing an increase of $1,425 , or 29% , versus the same period last year.

The APC technology segment generated revenues of $ 1,303 for the three-month period ended March 31, 2025 , representing a decrease of $1,015 , or 44% , from the prior year amount of $ 2,318 .

Revenues for the three-month periods ending June 30, 2025 and 2024 were $5,558 and $7,042 , respectively, representing a decrease of $1,484 , or 21% , versus the same period last year.

Revenues for the six-month periods ending June 30, 2025 and 2024 were consistent at $11,940 and $11,999 , respectively.

The APC technology segment generated revenues of $ 2,505 for the three-month period ended June 30, 2025 , representing a decrease of $1,444 , or 37% , from the prior year amount of $ 3,949 .

The APC technology segment generated revenues of $3,808 for the six-month period ended June 30, 2025 , representing a decrease of $2,459 , or 39% , from the prior year amount of $6,267 .

This decrease in APC revenue was primarily related to timing of project execution on existing contracts.

Consolidated APC backlog at March 31, 2025 was $ 10,328 versus backlog at December 31, 2024 of $6,175 .

Consolidated APC backlog at June 30, 2025 was $ 7,811 versus backlog at December 31, 2024 of $6,175 .

Our current backlog consists of U.S.

domestic delivered projects totaling $ 2,833 and international delivered projects totaling $ 4,978 .

The FUEL CHEM technology segment generated revenues of $ 5,079 and $ 2,639 for the three-month periods ended March 31, 2025 and 2024 , respectively, representing an increase of $2,440 , or 92% .

This increase in FUEL CHEM revenue for the three months ended March 31, 2025 as compared to the same period in the prior year was primarily due to outage completions and increased dispatch, as well as sustained business from a new customer account added midyear in 2024.

The FUEL CHEM technology segment generated revenues of $ 3,053 and $ 3,093 for the three-month periods ended June 30, 2025 and 2024 , respectively .

The FUEL CHEM technology segment generated revenues of $8,132 and $5,732 for the six-month periods ended June 30, 2025 and 2024 , respectively, representing an increase of $2,400 , or 42% .

This increase in FUEL CHEM revenue for the six months ended June 30, 2025 as compared to the same period in the prior year was primarily due to outage completions and increased operation dispatch at legacy accounts, as well as sustained business from a new customer account added midyear in 2024.

Cost of sales and gross margin

Consolidated gross margin percentage for the three-month periods ended March 31, 2025 and 2024 was 46% and 41% , respectively .

For the three-month periods ended March 31, 2025 and 2024 the FUEL CHEM operating segment gross margin was 50% and 43%, respectively.

Consolidated gross margin percentage for the three-month periods ended June 30, 2025 and 2024 was 46% and 42% , respectively .

For the three-month periods ended June 30, 2025 and 2024 the FUEL CHEM operating segment gross margin was 47% and 46%, respectively.

FUEL CHEM gross margin increased from the prior year primarily due to an increased volume of sales activity combined with relatively flat segment administrative expenses.

APC segment gross margin decreased to 33% from 38% primarily due to product and project mix.

APC segment gross margin increased to 44% from 39% primarily due to product and project mix.

Consolidated gross margin percentage for the six-month periods ended June 30, 2025 and 2024 was 46% and 42% , respectively.

For the six-month periods ended June 30, 2025 and 2024 the FUEL CHEM operating segment gross margin was 49% and 44%, respectively.

FUEL CHEM gross margin increased from the prior year primarily due to an increased volume of sales activity combined with relatively flat segment administrative expenses.

APC segment gross margin increased to 40% from 39% primarily due to product and project mix.

Selling, general and administrative

Selling, general and administrative expenses (SG&A) remained relatively flat at $3,341 and $3,345 for the three-month periods ended March 31, 2025 and 2024 , respectively.

For the three-month periods ending March 31, 2025 and 2024 , SG&A as a percentage of revenues decreased to 52% from 67% .

The decrease versus the comparable period is primarily due to the increase in revenues compared to prior quarter.

Selling, general and administrative expenses (SG&A) were $3,347 and $3,245 for the three-month periods ended June 30, 2025 and 2024 , respectively.

For the three-month period ended June 30, 2025, the increase of $102 is primarily the result of increases in professional service fees of $54, increases in international and domestic administrative expenses of $33 and $32, respectively, and increases in employee related expenses of $8, offset by a decrease in travel expenses of $24.

For the three-month periods ending June 30, 2025 and 2024 , SG&A as a percentage of revenues increased to 60% from 46% .

The increase versus the comparable period is primarily due to the decrease in revenues compared to prior quarter.

Selling, general and administrative expenses (SG&A) were $6,688 and $6,590 for the six-month periods ended June 30, 2025 and 2024 , respectively.

For the six-month period ended June 30, 2025, the increase of $98 is primarily the result of increases in professional service fees of $80 and an increase in employee related costs of $61, offset by a decrease in travel expenses of $43.

For the six-month periods ending June 30, 2025 and 2024 , SG&A as a percentage of revenues remained relatively flat.

Research and development

Research and development expenses were $570 and $376 for the three-month periods ended March 31, 2025 and 2024 , respectively.

Research and development expenses were $490 and $422 for the three-month periods ended June 30, 2025 and 2024 , respectively.

Research and development expenses were $1,060 and $798 for the six-month periods ended June 30, 2025 and 2024 , respectively.

The expenditures in our research and development expenses are 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.

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Interest income

Interest income was $279 for the three-month period ended March 31, 2025 compared to $311 for the same period in 2024 .

Interest income was $537 for the three-month period ended June 30, 2025 compared to $334 for the same period in 2024 .

Interest income for the three-month period ended June 30, 2025 included $257 in interest income related to collection of our ERC benefit.

Interest income was $816 for the six-month period ended June 30, 2025 compared to $645 for the same period in 2024 .

Interest income primarily relates to interest received on the held-to-maturity debt securities and money market funds.

Other income (expense), net

Other expense, net was $66 for the three-month period ended March 31, 2025 compared to Other income, net of $1,673 for the same period in 2024 .

Other expense in 2025 was mainly due to transactional foreign exchange losses.

Other income in 2024 primarily relates to the employee retention credit of $1,677 recorded in the first quarter of 2024.

Other income, net was $86 for the three-month period ended June 30, 2025 compared to Other expense, net of $34 for the same period in 2024 .

Other income, net was $20 for the six-month period ended June 30, 2025 compared to Other income, net of $1,639 for the same period in 2024 .

Other income in 2025 and Other expense for the three-month period ended June 30, 2024 was mainly due to transactional foreign exchange gains and losses recognized from repayment of intercompany balances.

Other income for the six-month period ended June 30, 2024 primarily relates to the employee retention credit of $1,677 recorded in the first quarter of 2024.

Liquidity and Sources of Capital

We have losses from operations during the three -month period ended March 31, 2025 totaling $952 .

We have losses from operations during the six -month period ended June 30, 2025 totaling $2,260 .

Our cash provided by operations for this same period totaled $1,487 .

Our cash and cash equivalent balance as of March 31, 2025 totaled $ 11,821 , which includes $2,574 of cash equivalents, and our working capital totaled $ 24,859 .

Our cash and cash equivalent balance as of June 30, 2025 totaled $ 10,589 , which includes $1,791 of cash equivalents, and our working capital totaled $ 25,685 .

We have no outstanding debt other than our outstanding letters of credit, under our Investment Collateral Security agreement with BMO Harris Bank, N.A.

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We expect to continue operating under this arrangement for the foreseeable future.

Operating activities provided cash of $1,508 for the three -month period ended March 31, 2025 , primarily due to a decrease in accounts receivable of $3,768 and removals of non-cash items from our net loss from continuing operations of depreciation and amortization of $173 and stock-based compensation, net of forfeitures of $110, offset by a decrease in accounts payable of $1,340, a decrease in accrued liabilities and other non-current liabilities of $249, an increase in inventory of $137, an increase in prepaid expenses, other current assets and other non-current assets of $28, and removals of non-cash items from our net income from continuing operations of interest income on held-to-maturity securities of $50.

Operating activities used cash of $1,075 for the three -month period ended March 31, 2024 , primarily due to an increase in accounts receivable of $427 (including the impact of the employee retention credit receivable), a decrease in accrued expenses and other current liabilities of $609, and a decrease in accounts payable of $563, offset by removals of non-cash items from our net income from continuing operations for depreciation and amortization of $96 and stock-based compensation of $104.

Investing activities provided cash $1,692 and used cash of $5,005 for the three -month periods ended March 31, 2025 and 2024 , respectively.

Investing activities for the three -month periods ended March 31, 2025 and 2024 primarily consisted of purchases of debt securities as investments of $993 and $7,641, respectively.

Investing activities for the three -month periods ended March 31, 2025 and 2024 were funded by the maturities of debt securities of $2,750.

Financing activities used cash of $24 for the three months ended March 31, 2025 due to taxes paid on behalf of the equity award participants on the vesting of restricted stock units.

Operating activities provided cash of $1,487 for the six -month period ended June 30, 2025 , primarily due to a decrease in accounts receivable of $1,987, collections of the ERC receivable of $1,232, an increase in accrued liabilities and other noncurrent liabilities of $203, and removals of non-cash items from our net loss from continuing operations of depreciation and amortization of $345 and stock-based compensation, net of forfeitures of $212, offset by a decrease in accounts payable of $833 and an increase in inventory of $218.

Operating activities used cash of $2,664 for the six -month period ended June 30, 2024 , primarily due to an increase in accounts receivable of $1,928 (including the impact of the employee retention credit receivable) and a decrease in accrued expenses and other current liabilities of $1,728, offset by an increase in accounts payable of $524 and removals of non-cash items from our net income from continuing operations for depreciation and amortization of $192 and stock-based compensation of $228.

Investing activities provided cash of $700 and used cash of $4,311 for the six -month periods ended June 30, 2025 and 2024 , respectively.

Investing activities for the six -month periods ended June 30, 2025 and 2024 primarily consisted of purchases of debt securities as investments of $4,949 and $11,107, respectively.

Investing activities for the six -month periods ended June 30, 2025 and 2024 were funded by the maturities of debt securities of $5,750 and $7,000, respectively.

Financing activities used cash of $222 and $95, respectively, for the six months ended June 30, 2025 and 2024 due 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 declines in revenue and 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.

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There are no financial covenants set forth in the Investment Collateral Security agreement.

At March 31, 2025 , the Company had outstanding standby letters of credit totaling approximately $ 2,124 under the Investment Collateral Security agreement.

At March 31, 2025 , the investments held as collateral totaled $ 3,186 .

At June 30, 2025 , the Company had outstanding standby letters of credit totaling approximately $ 2,923 under the Investment Collateral Security agreement.

At June 30, 2025 , the investments held as collateral totaled $ 4,385 .

Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

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Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note 13.

There was no change in the warranty liability balance during the three months ended March 31, 2025.

There was no change in the warranty liability balance during the six months ended June 30, 2025.

Forward-Looking Statements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis