What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-04 compared with 2026-05-05 · 58 added, 42 removed, 46 unchanged (68% of the section changed)

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

In the first quarter of 2026, the Company continued to execute on existing APC segment projects while actively pursuing new contract awards.

FUEL CHEM segment revenue was negatively impacted due to seasonal maintenance outages and dispatch related decreases in operational demand.

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 that new business opportunities will lead to an improved financial and market outlook.

During the quarter, the Company delivered revenue growth in both reportable segments, reflecting improved demand in FUEL CHEM and continued execution in Air Pollution Control.

The FUEL CHEM segment benefited from higher activity levels at legacy customer accounts, while the Air Pollution Control segment revenue increased as the Company advanced existing projects and continued to pursue and secure new contract awards.

Management believes the Company’s operating performance and Air Pollution Control backlog provide improved revenue visibility, while business development activity continues to reflect market interest in emissions-control solutions across multiple fuel sources.

The Company is also investing in new technologies intended to broaden its addressable market, including potential applications in the water and wastewater treatment market.

The Company believes its existing capital resources are sufficient to support current operations, planned technology development, and reasonably anticipated operating requirements.

Management remains focused on disciplined cost control while pursuing opportunities that could support improved financial performance, market position, and long-term shareholder value.

The Company’s future results will depend in part on the level of activity from legacy FUEL CHEM customers, the timing and conversion of Air Pollution Control backlog and new contract awards, the pace of technology development and commercialization, and the Company’s ability to manage costs while supporting growth initiatives.

Key Operating Factors

Our FUEL CHEM segment experienced a decrease in revenue and segment operating profits in the current quarter as compared to 2025.

The FUEL CHEM segment was impacted by weather and seasonal maintenance outages at customer plants as well as dispatch related decreases in operational demand.

Our APC business experienced an increase in revenue and segment operating profit in the current quarter as compared to 2025, primarily due to timing of project execution as well as an increase in ancillary revenue.

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.

Our Consolidated APC backlog at March 31, 2026 was $ 6,923 and our global sales pipeline is in the $75 -100 million range.

The Company’s FUEL CHEM segment generated higher revenue in the current quarter compared to the corresponding 2025 period, while segment operating profit decreased slightly.

The increase in revenue was primarily attributable to higher operating activity from the segment’s existing customer base.

The Company’s Air Pollution Control segment also generated higher revenue in the current quarter compared to the corresponding 2025 period, primarily due to the timing of project execution and increased ancillary revenue.

The Company continues to execute on existing Air Pollution Control projects while pursuing and booking new contract awards.

Management is encouraged by the depth of the Company's business development activities, which reflects increased market attention to global emissions protocols across a variety of fuel sources.

Consolidated APC backlog at June 30, 2026 was $ 14,308 and the Company's global sales pipeline was approximately $75 -100 million.

Results of Operations

Revenues for the three-month periods ending March 31, 2026 and 2025 were $6,080 and $6,382 , respectively, representing a decrease of $302 , or 5% , versus the same period last year.

The APC technology segment generated revenues of $ 1,604 for the three-month period ended March 31, 2026 , representing an increase of $301 , or 23% , from the prior year amount of $ 1,303 .

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

Consolidated APC backlog at March 31, 2026 was $ 6,923 versus backlog at December 31, 2025 of $7,047 .

Revenues for the three-month periods ending June 30, 2026 and 2025 were $6,485 and $5,558 , respectively, representing an increase of $927 , or 17% , versus the same period last year.

Revenues for the six-month periods ending June 30, 2026 and June 30, 2025 were $12,565 and $11,940, representing an increase of $625, or 5%, versus the same period last year.

The APC technology segment generated revenues of $ 2,785 for the three-month period ended June 30, 2026 , representing an increase of $280 , or 11% , from the prior year amount of $ 2,505 .The APC technology segment generated revenues of $4,389 for the six-month period ended June 30, 2026 , representing an increase of $581, or 15%, from the prior year amount of $3,808.

The increase was primarily attributable to the timing of project execution on existing contracts and increased consolidated segment backlog resulting from new project awards.

Consolidated APC backlog at June 30, 2026 was $ 14,308 versus backlog at December 31, 2025 of $7,047 .

Our current backlog consists of U.S.

domestic delivered projects totaling $ 11,262 and international delivered projects totaling $ 3,046 .

The FUEL CHEM technology segment generated revenues of $ 4,476 and $ 5,079 for the three-month periods ended March 31, 2026 and 2025 , respectively, representing a decrease of $603 , or 12%, versus the same period last year.

This decrease in FUEL CHEM revenue for the three months ended March 31, 2026 as compared to the same period in the prior year was primarily due to seasonal maintenance outages and dispatch related decreases in operational demand.

The FUEL CHEM technology segment generated revenues of $ 3,700 and $ 3,053 for the three-month periods ended June 30, 2026 and 2025 , respectively, representing an increase of $647, or 21%, versus the same period last year.

This increase in FUEL CHEM revenue for the three months ended June 30, 2026 as compared to the same period in the prior year was primarily due to increased operational dispatch at legacy accounts .

FUEL CHEM technology segment revenues remained relatively flat for the six-month periods ended June 30, 2026 and 2025 at $8,176 and $8,132, respectively.

Cost of sales and gross margin

Consolidated gross margin percentage for the three-month periods ended March 31, 2026 and 2025 was 43% and 46% , respectively .

For the three-month periods ended March 31, 2026 and 2025 the FUEL CHEM operating segment gross margin was 45% and 50%, respectively.

FUEL CHEM gross margin decreased from the prior year primarily due to a decreased volume of sales activity combined with relatively flat operational expenses.

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

Consolidated gross margin percentage for the three-month periods ended June 30, 2026 and 2025 was 41% and 46% , respectively .

For the three-month periods ended June 30, 2026 and 2025 the FUEL CHEM operating segment gross margin was 45% and 47%, respectively.

FUEL CHEM gross margin decreased slightly from the prior year primarily due to demonstration costs, increased freight costs and additional internal labor costs for unit maintenance.

APC segment gross margin decreased to 36% from 44% primarily due to product and project mix.

Consolidated gross margin percentage for the six-month periods ended June 30, 2026 and 2025 was 42% and 46% , respectively .

For the six-month periods ended June 30, 2026 and 2025 the FUEL CHEM operating segment gross margin was 45% and 49%, respectively.

Similarly to the decrease for the three-month periods ended June 30, 2026 and 2025, FUEL CHEM gross margin decreased from the prior year primarily due to increased costs.

APC segment gross margin decreased to 37% from 40% primarily due to product and project mix.

Selling, general and administrative

Selling, general and administrative expenses (SG&A) were $3,716 and $3,341 for the three-month periods ended March 31, 2026 and 2025 , respectively.

For the three-month period ended March 31, 2026, the increase of $375 is primarily the result of an increase in employee-related expenses of $195, an increase in professional fees of $109, and an increase in administrative expenses for domestic and international locations of $74.

For the three-month periods ending March 31, 2026 and 2025 , SG&A as a percentage of revenues increased to 61% from 52% .

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

Selling, general and administrative expenses (SG&A) were $3,594 and $3,347 for the three-month periods ended June 30, 2026 and 2025 , respectively.

For the three-month period ended June 30, 2026, the increase of $247 is primarily the result of an increase in professional fees of $127, an increase in employee-related expenses of $86, and an increase in travel and administrative expenses for domestic and international locations of $36.

For the three-month periods ending June 30, 2026 and 2025 , SG&A as a percentage of revenues decreased to 55% from 60% .

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

Selling, general and administrative expenses (SG&A) were $7,310 and $6,688 for the six-month periods ended June 30, 2026 and 2025 , respectively.

For the six-month period ended June 30, 2026, the increase of $622 is primarily the result of an increase in employee-related expenses of $281, an increase in professional fees of $236, and an increase in travel and administrative expenses for domestic and international locations of $107.

For the six-month periods ending June 30, 2026 and 2025 , SG&A as a percentage of revenues increased to 58% from 56% .

The increase versus the comparable period is primarily due to the increase in SG&A expenses.

Research and development

Research and development expenses were $524 and $570 for the three-month periods ended March 31, 2026 and 2025 , respectively.

Research and development expenses were $646 and $490 for the three-month periods ended June 30, 2026 and 2025 , respectively and $1,170 and $1,060 for the six-month periods ended June 30, 2026 and 2025 .

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.

This includes water treatment technologies and more specifically, our DGI® Dissolved Gas Infusion Systems, an innovative alternative to current aeration technology.

This infusion process has a variety of applications in the water and wastewater industries, including remediation, treatment, biological activity, and wastewater odor management.

This infusion process has a variety of potential applications in the water and wastewater industries, including remediation, treatment, biological activity, and wastewater odor management.

DGI® technology benefits include reduced energy consumption, installation costs, and operating costs, while improving treatment performance.

Interest income

Interest income was $240 for the three-month period ended March 31, 2026 compared to $279 for the same period in 2025 .

Interest income was $266 for the three-month period ended June 30, 2026 compared to $537 for the same period in 2025 .

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

Interest income was $506 for the six-month period ended June 30, 2026 compared to $816 for the same period in 2025 .

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 $0 for the three-month period ended March 31, 2026 compared to Other expense, net of $66 for the same period in 2025 .

Other expense for the three-month period ended March 31, 2025 was mainly due to transactional foreign exchange gains and losses recognized from repayment of intercompany balances.

Other income, net

Other income, net was $79 for the three-month period ended June 30, 2026 compared to Other income, net of $86 for the same period in 2025 .

Other income, net was $79 for the six-month period ended June 30, 2026 compared to Other income, net of $20 for the same period in 2025 .

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

Liquidity and Sources of Capital

We have losses from operations during the three -month period ended March 31, 2026 totaling $1,596 .

We have losses from operations during the six -month period ended June 30, 2026 totaling $3,161 .

Our cash used in operations for this same period totaled $1,741 .

Our cash and cash equivalent balance as of March 31, 2026 totaled $ 9,109 , which includes $1,320 of cash equivalents, and our working capital totaled $ 22,166 .

Our cash and cash equivalent balance as of June 30, 2026 totaled $ 7,620 , which includes $1,004 of cash equivalents, and our working capital totaled $ 20,118 .

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

1 unchanged sentence

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

Operating activities used cash of $847 for the three -month period ended March 31, 2026 , primarily due to a decrease in accounts payable of $1,095 and a decrease in accrued liabilities and other non-current liabilities of $183, offset by a decrease in accounts receivable of $1,176.

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 loss from continuing operations of interest income on held-to-maturity securities of $50.

Investing activities used cash of $1,914 and provided cash of $1,692 for the three -month periods ended March 31, 2026 and 2025 , respectively.

Investing activities for the three -month periods ended March 31, 2026 and 2025 primarily consisted of purchases of debt securities as investments of $6,092 and $993, respectively.

Investing activities for the three -month periods ended March 31, 2026 and 2025 were funded by the maturities of debt securities of $4,500 and $2,750, respectively.

Financing activities used cash of $34 and $24, respectively, for the three months ended March 31, 2026 and 2025 due to taxes paid on behalf of the equity award participants on the vesting of restricted stock units.

Operating activities used cash of $1,741 for the six -month period ended June 30, 2026 , primarily due to a decrease in accrued liabilities and other non-current liabilities of $931 and a decrease in accounts payable of $417, offset by a decrease in accounts receivable of $1,434.

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, collection of the ERC receivable of $1,232, an increase in accrued liabilities and other non-current 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.

Investing activities used cash of $2,502 and provided cash of $700 for the six -month periods ended June 30, 2026 and 2025 , respectively.

Investing activities for the six -month periods ended June 30, 2026 and 2025 primarily consisted of purchases of debt securities as investments of $9,103 and $4,949, respectively.

Investing activities for the six -month periods ended June 30, 2026 and 2025 were funded by the maturities of debt securities of $7,000 and $5,750, respectively.

Financing activities used cash of $45 and $222, respectively, for the six months ended June 30, 2026 and 2025 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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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 additional capital expenditures in 2026 for the DGI business, maintenance of field equipment, computer and systems, and general office equipment.

We expect additional capital expenditures during the remainder of 2026 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.

8 unchanged sentences

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

At March 31, 2026 , the Company had outstanding standby letters of credit totaling approximately $ 1,866 under the Investment Collateral Security agreement.

At March 31, 2026 , the investments held as collateral totaled $ 2,798 .

At June 30, 2026 , the Company had outstanding standby letters of credit totaling approximately $ 1,716 under the Investment Collateral Security agreement.

At June 30, 2026 , the investments held as collateral totaled $ 2,574 .

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

1 unchanged sentence

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, 2026.

There was no change in the warranty liability balance during the six months ended June 30, 2026.

Forward-Looking Statements

8 unchanged sentences

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