FUEL TECH, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview 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 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 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 $ 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 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 $3,594 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. 15 Table of Contents Research and development 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 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 $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, 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 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 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. (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 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. 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: a) customer and revenue trends in our APC and FUEL CHEM business segments, b) current operating structure and expenditure levels, and c) 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. 16 Table of Contents 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. The Company's investment policy provides for $20,000 in funds at BMO Harris Bank, N.A. (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. The funds are held in money market funds until they are invested in those securities. The investments are 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 expected business needs. Maturities are 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. The Company's Investment Collateral Security agreement is used for the sole purpose of issuing standby letters of credit and 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 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. Contingencies and Contractual Obligations 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 six months ended June 30, 2026. Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech’s current expectations regarding future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. Fuel Tech has tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “plan,” “expect,” “estimate,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, 2025 in Item 1A under the caption “Risk Factors,” which could cause Fuel Tech’s actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in Fuel Tech’s filings with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures about Market Risk Fuel Tech’s earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. We do not enter into foreign currency forward contracts nor into foreign currency option contracts to manage this risk due to the immaterial nature of the transactions involved.