Ladies and gentlemen, greetings, and welcome to the Fuel Tech Incorp. 2025 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Devin Sullivan, the Managing Director of the Equity Group. Please go ahead.

Thank you, Allerik, and good morning, everyone. Thank you for joining us today for Fuel Tech's 2025 Second Quarter Financial Results Conference Call. Yesterday, after the close, we issued a press release, a copy of which is available at the company's website, www.ftek.com. Our speakers for today will be Vince Arnone, Chairman, President and Chief Executive Officer; and Ellen Albrecht, the company's Chief Financial Officer. After prepared remarks, we will open the call for questions from our analysts and investors. Before turning things over to Vince, I'd like to remind everyone that matters discussed on this call, except for historical information, are 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 company's 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 the company's annual report on Form 10-K and Item 1A under the caption of Risk Factors and subsequent filings under the Securities Exchange Act of 1934 as amended which could cause Fuel Tech's actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunity 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 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 the company's filings with the SEC. With that said, I'd now like to turn the call over to Vince Arnone, Chairman, President and CEO of Fuel Tech. Vince, please go ahead.

Thank you, Devin. Good morning, and I'd like to thank everyone for joining us on the call today. Our second quarter results were largely in line with our expectations and reinforced our belief that 2025 will be a year of growth for our company versus prior year. For the quarter versus the prior year period, we expanded our gross margin, managed expenses, continued to invest in our emerging technologies and maintained a strong financial position with cash, cash equivalents and investments of nearly $31 million at quarter end and no long-term debt. We are also pleased with the pace of business development at each of our three businesses, which includes the expectation of a receipt of an incremental $2.5 million to $3 million in new APC awards before the end of the month of August as well as customer demonstrations that are underway for our dissolved gas infusion technology and plan to commence later in the year for our FUEL CHEM business segment. We are also increasingly optimistic about the application of our APC suite of emissions control solutions and the construction of AI- related data centers in the United States, and I'll make further comments on this topic in a moment. Revenues for our FUEL CHEM segment were essentially flat for the quarter versus prior year, reflecting seasonal weather transition from spring to summer. However, the warm weather that much of the country began to experience late in the second quarter has translated into higher energy demand, which has had a positive effect on FUEL CHEM's results as we entered to the current third quarter. With each of our base accounts in operation, including the incremental contribution from the new commercial account that we added in the fourth quarter of 2024, we recorded more than $2 million in revenue…

Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues declined to $5.6 million from $7 million in the prior year's period due to lower APC segment revenue. APC segment revenue declined to $2.5 million from $3.9 million, primarily related to the timing of project execution on existing contracts, while as expected, FUEL CHEM segment revenue remained flat at $3.1 million for the quarter. Consolidated gross margin for the second quarter rose to 46% of revenues from 42% in last year's second quarter due to segment contribution mix. FUEL CHEM gross margin increased to 47% compared to 46% in the second quarter of 2024 despite flat segment revenues, which was mainly due to account mix combined with relatively flat segment administration expenses. APC segment margin rose to 44% in the second quarter as compared to 39% in the prior year's period as a result of project and product mix. The APC segment contains revenues from capital projects and ancillary revenue for items such as post-contractual spare parts and services. Ancillary point-in-time revenue maintain a higher margin profile and will offset fluctuating capital project revenue margins, which are recognized over time based on project completion. Consolidated APC segment backlog on June 30, 2025, was $7.8 million, up from a backlog of $6.2 million as of December 31. Backlog at June 30 included $2.8 million of domestically delivered project backlog and $5 million of foreign delivered project backlog compared to $1.9 million of domestic delivered project backlog and $4.3 million of foreign delivered project backlog as of December 30, 2024. We expect that approximately $5 million of current consolidated backlog will be recognized in the next 12 months. SG&A expenses in the second quarter rose slightly to $3.3 million from $3.2 million in the prior year period due primarily to…

Thanks very much, Ellen. Operator, let's please go ahead and open the call for questions.

[Operator Instructions] The first question comes from Sameer Joshi with H.C. Wainwright.

Just a few on the actual financials and outlook. Just want to make sure, you mentioned FUEL CHEM revenues for the year are likely to be highest since 2022 and also further clarified it to be expected in the $15 million to $16 million range. Is that -- for the year, is that because of any additional units coming online later in the year? You did mention some 4Q activity. Just would like to get some color on that.

Right. Now the number that I provided as the range of $15 million to $16 million does not include contributions from any new accounts as we sit here today. Anything that would be added from a new account perspective would be incremental to those numbers.

Understood. And then the backlog of $7.8 million, I think Ellen mentioned $5 million to be expected to be recognized during 2025. Is there any seasonality or rather cadence to that over the next 2 quarters or it's evenly distributed?

Right. Ellen had actually mentioned that, that backlog number is largely going to be recognized over the next 12-month time horizon, not necessarily solely in 2025. And the backlog is -- it's definitely project specific in nature. So it's not like we can easily allocate that over the 12-month time frame, if you will.

Understood. Yes. No, I misspoke. 12 months is correct. On the DGI front, this 9- to 12-month demonstration at [indiscernible], are there any costs being reimbursed? Or is it being considered as R&D expense from an accounting point of view?

It is largely considered to be R&D expense, Sameer. And no, we are not expecting to collect any funds from the customer for this demonstration. This is solely Fuel Tech investing in ensuring that we look to commercialize DGI as quickly as we can.

Understood. And you did reiterate commercial revenues from, I guess, the 1 or 2 prior engaged customers during 2025. Is that -- did I hear that correct?

We have not recognized commercial revenues on DGI as of yet.

But do you expect to before the end of 2025?

We -- it is our hope and expectation that we will be fortunate enough to recognize some commercial revenue in 2025, yes.

So then stepping back and just some like higher-level macro questions. You did address the proposed rollbacks of EPA Clean Air Act regulations and indicated neither headwinds nor tailwinds resulting from that. Are there any particular areas where you might see some improvements on the NOx front maybe or some -- like I just wanted to see because you are in the pollution control NOx control business and the regulations might have some impact. That's just -- that's how I feel.

Yes. So at this point in time, our opportunities for APC, they are being driven predominantly by continued business expansion. The contract awards that we're looking to announce here in this next 2- to 3-week time frame are for plant expansions, both in this country and in Europe as well. So we'll continue to participate in those types of activities as we continue to have manufacturing build-out around the world. And then obviously, our largest opportunity that we're seeing today is indeed the AI-related data center build-out that pretty much everyone has been speaking about here over the past several months. Regulatorily, we are not expecting any downside nor any upside that will be driven by regulation as we sit here today.

Understood. So the upside, and you did address it in your commentary, the APC opportunity from the data center/crypto/AI space. So it will be -- because they will be deploying more power resources that will require your services. That's where you see the upside from. Is there -- I think that is correct. Is there any time line? Are you seeing increased activity toward this? Or you just are expecting it in the future?

Yes. I don't have a specific time line for you as we sit here today, Sameer. We have active proposals in place with multiple turbine manufacturer OEMs. The proposals are -- there's a combination of both budgetary and what I would call commercial proposal activity. The commercial ones are likely to be more current in their timeliness relative to the customer acting on them. But as we sit here today, we would expect to hear some level of response on these awards before the end of 2025. But hopefully sooner than that, hopefully sooner than that. These projects do take time to develop, obviously. And we are working with our partners very, very closely. And we are active in terms of supporting them with bids for our services. And it's something we're following extremely closely. It is literally the largest opportunity that we have seen for our technologies in probably 10 to 15 years. So it's critical for us to capitalize on these.

Yes, yes. No, that was sort of where I was going and towards my last question as well about what is the pipeline of opportunities, not only from the AI, but also from FUEL CHEM in the next 2 years or even DGI that you're emerging, just a broader marketplace pipeline for the company over the next 2 years?

Right. So the -- I'll start with FUEL CHEM, right? So we don't actually measure a pipeline for FUEL CHEM because that's recurring revenue. So as I said, for 2025, we are looking at $15 million to $16 million in revenue. '26 and beyond is going to depend on whether or not we are able to add some new commercial accounts to our base accounts for FUEL CHEM. I had mentioned that we are looking at demonstrating at a large coal-fired unit here before the end of 2025. If that does come on board, and is operational for the majority of 2026. That could be an incremental $2 million to $2.5 million revenue amount for 2026. That would also assume the same level of contribution from all of our other base accounts. So no backlog, if you will, for FUEL CHEM recurring revenue with some opportunities for upside. For DGI, I really can't speak to a backlog number here at this point in time. It's -- we're still pre-revenue, and it would be, on my behalf, making a statement that I really don't have any justification for here today. So we'll hold off on DGI for the time being. For APC, the pipeline, just for the bids we have in place related to AI data centers, it's approximating $100 million in bids that we have outstanding today. It's a significant material opportunity for our company. And then the pipeline for, call it, what I would call more standard APC business that's related to normal business growth, I'd put that in the $20 million to $25 million range.

Yes. No, that's the number I was getting at. It's a significant opportunity ahead of you, and it is emerging. So good luck with that.

The next question comes from Marc Silk with Silk Investment Advisors.

[Technical Difficulty]

We can barely hear you.

How is that...

That is much better. Thank you.

Okay. Did you say the opportunity for the data centers is $100 million?

I said that that's what we have in our pipeline today. The opportunity itself could be larger than that. But that represents what we have in terms of bid pipeline activity today.

That's impressive. Most of my questions are answered, so I just have one more. Obviously, the data centers is a big U.S. phenomenon, but is there also additional data centers being built around the world that you could be part of as well?

We believe that we will see data center build-out in other parts of the world as well. We're involved in what I would call a lesser amount or number of inquiries for those opportunities because they are not as developed or not as advanced as the activity that we are seeing here in the U.S. But we would expect that there would be some opportunities outside of the U.S. prospectively.

The next question comes from Richard Greulich with REG Capital Advisors.

In related question, so I noticed in the 10-Q that you changed your global sales pipeline range from -- in the last quarter, it was $50 million to $75 million. And in this 10-Q, it's $75 million to $100 million. Does that reflect accelerating interest in the data center area or maybe accelerating bids placed by you?

It actually does. And as I just mentioned to the prior caller, our range in total is -- at this point in time, it is greater than $100 million in terms of our sales pipeline. And yes, it is specifically being driven by the opportunities that are out there related to AI data centers.

If these opportunities came to fruition, would you be able to expand your production capacity or installation capacity on a timely basis to take advantage of that over the next year to 2?

Yes. We are working with our supply chain partners and have had discussions with them over these past few months as some of these inquiries have come in. Fuel Tech does not manufacture anything ourselves. We use our supply chain partners to actually manufacture and fabricate the equipment that we provide. So we do have the ability to scale up by bringing on board additional qualified suppliers for this type of work, and that would be our intention.

For the benefit of people who may not have listened to the last conference call, in that call, you delineated sort of why this is such a big opportunity in the sense of not just having multiple centers, but multiple units at each center. Is that still the case?

That is absolutely the case. Most of the bids that we are providing to our customers, it could range from anywhere from one up to 25 to 30 units that we're actually bidding on. The data center sites are scaling up in blocks or in stages. And typically, each stage will require a multitude of units for that stage. And then that enables them to develop and add modularly to that site prospectively when they have additional data requirements that they're looking to fill. So yes, answering your question, these bids are for multiple units at a site.

And the revenue that you receive for each unit is in the range of what?

Per unit, it ranges anywhere from a little over $1 million per unit to as high as $2.5 million per unit.

The next question comes from William Bremer with Vanquish Capital Partners.

The previous caller did an excellent job of articulating where I was going. What I'll add in terms of the modular mix of these data center opportunities for the SCR units is I'm assuming your engineering team, once they fulfill the specific engineering that's needed for the turbine manufacturer, I'm assuming that going forward, that time to prove yourself or the technical aspect just needs to be tweaked. So thus, you can leverage the building out of the bids that you're possibly doing right now. Is that correct?

I would say yes to that, Bill. Once we have a specific design in place for a specific turbine, that design can be leveraged for future applications. Assuming that the permitting requirement for the emissions reduction for this site is indeed similar in nature. If the permitting requirements are different, we would then need to modify that design accordingly. However, I will say that having a base design in place for a turbine of a certain make and model does provide some leverage, absolutely.

And I guess what surprises many of us is that the minimum potential dollar figure is just a single 7 figures, a single million dollars here. I mean, so boy, if you guys restart receiving clusters of these, the leverage you'll have is tremendous.

No, agreed. Agreed. Now we're -- as I noted, we are extremely excited about this opportunity.

Fantastic. I want to go to Mexico. And there's been recent -- and what I mean by recent, I'm talking, hey, in March of this year and even currently last week, there's been more and more news regarding Pemex and the fact that they are not fulfilling their emissions regulatory fulfillments there, and there seems to be an increased amount of pressure down there. Are you seeing that as well?

We have been waiting for pressure to be applied not just on Pemex, but on CFE, who is the state-owned power generation company as well. But seeing the pressure being put on Pemex is a good indicator of what might be coming here in the future. It's been our hope and expectation that this administration would be looking at these issues more stringently. And I think to your point, we are starting to see the administration perhaps put a little bit more focus in this area. So I'm hoping it's trending in the right way, Bill, because, again, this is another opportunity for us. And we've talked about this now for several years, but this might be the best opportunity that we have to see something move forward for FUEL CHEM down in Mexico that the additional pressure on the emissions, whether it be from Pemex, CFE or other industries in Mexico, that is -- it's good to see. And hopefully, that will indeed expand to the point whereby our program in Mexico can be well expanded.

Agreed. I mean -- and we're talking about FUEL CHEM, which is currently your highest margin product. We have some facilities down there currently being run right now. That's my assumption. That's what I recall. And the fact that the leader down there is an environmentalist. So it seems as though all the potential is right there that -- so I know you're dealing with a partnership down there. Can you give us some color in terms of the partnership's engagement to the entities in Mexico and back to us?

The engagement is very heavy. We've worked with this partner for more than 15 years. They were able to establish our Chemtech program down there going back to 2007, 2008 time frame, so quite a long time ago. The issue has been the lack of support of an administration to actually have concern for the environment. So our partner is well engaged and well connected with parties down there without getting into too much detail. I have phone calls with him at a minimum every 2 weeks, getting updates on where things stand and where his team has been working to go ahead and try to push this forward. So it's regular and ongoing. It's great to see that the government is providing some additional pressure. And again, we're watching for that next step.

Final question. If you did receive an order via your partner from Mexico, how quickly would you be able to complete that order with the FUEL CHEM division and send it down there?

Yes. Very, very quickly. We actually have equipment that is ready to go. So it would be less than a couple of month deployment time for us to be able to get up and running on a new facility down there. It would be a fast response. Thank you Bill. Thanks for your questions.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Vincent Arnone for the closing comments.

Thanks very much, operator. Again, a reach out and thank you to the Fuel Tech team and the same for our shareholder base. Thanks for your confidence in us. We are well motivated, very excited about the landscape of opportunity that we do see in front of us today, and we look forward to executing on this opportunity. I want to thank everyone for attending the call today, and everyone, have a good remainder of your day. Thank you very much.

Thank you. Ladies and gentlemen, the conference of Fuel Tech has now concluded. Thank you for your participation, and you may now disconnect your lines.