Earnings Call Insights: Fuel Tech, Inc. (FTEK) Q2 2025
Management View
- CEO Vincent J. Arnone highlighted that "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." He emphasized expansion in gross margin, disciplined expense management, ongoing investment in emerging technologies, and a strong financial position with nearly $31 million in cash, cash equivalents, and investments and no long-term debt.
- Arnone announced 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" and noted customer demonstrations for dissolved gas infusion (DGI) technology are underway, with additional demonstrations for the FUEL CHEM segment planned later in the year.
- The CEO discussed optimism about the application of the APC suite for emissions control in U.S. data center construction, stating, "we have multiple bids outstanding for the integration of our SCR technology with the power generation sources to address the emissions control requirements of data centers to be built in the U.S. over the next several years."
- Regarding FUEL CHEM, Arnone reported more than $2 million in revenue for July and reaffirmed the company is "well positioned to meet our annual objective of $15 million to $16 million in FUEL CHEM revenue."
- CFO Ellen T. Albrecht stated, "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."
Outlook
- Management reduced 2025 revenue guidance from approximately $30 million to a range of $28 million to $29 million, citing timing uncertainty for APC awards while stating, "we are confident that FUEL CHEM will well exceed its revenue level for 2024."
- The base case outlook excludes material contributions from DGI, significant APC impact from data center contracts, and new business development for FUEL CHEM.
- Arnone reiterated, "we are being cautious in our guidance," and explained, "the timing of both the receipts and execution of APC awards has some uncertainty."
Financial Results
- Consolidated revenues for the second quarter were $5.6 million, with FUEL CHEM segment revenue flat at $3.1 million and APC segment revenue at $2.5 million.
- Gross margin rose to 46% of revenues from 42% in the prior year, with FUEL CHEM gross margin increasing to 47% and APC segment margin rising to 44%.
- SG&A expenses totaled $3.3 million, up slightly from $3.2 million, with research and development at $490,000, reflecting ongoing investment in DGI.
- The company reported an operating loss of $1.3 million, a net loss of $689,000 or ($0.02) per share, and an adjusted EBITDA loss of $948,000 for the quarter.
- Cash and cash equivalents were $10.6 million, with total investments bringing liquidity to $30.9 million and no debt.
Q&A
- Sameer S. Joshi, H.C. Wainwright: Asked for clarity on FUEL CHEM revenue range and potential for new accounts; Arnone replied the $15 million to $16 million range "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."
- Joshi inquired about backlog recognition; Arnone clarified that $7.8 million backlog is project-specific and not evenly distributed, with recognition expected over the next 12 months.
- Joshi discussed DGI demonstration costs and commercial revenue expectations; Arnone confirmed demonstration is R&D expense, and "we have not recognized commercial revenues on DGI as of yet," but "we will be fortunate enough to recognize some commercial revenue in 2025."
- Joshi probed on regulatory impacts; Arnone said APC opportunities are driven by business expansion, not regulatory changes, and that the largest opportunity is the AI-related data center build-out.
- Marc Silk, Silk Investment Advisors: Asked about the data center pipeline size and international opportunity; Arnone stated the pipeline is "greater than $100 million" and expects future opportunities outside the U.S.
- Richard E. Greulich, REG Capital Advisors: Noted pipeline increase to $75 million–$100 million and asked about scaling; Arnone confirmed capacity to scale via supply chain partners and noted bids often cover "anywhere from one up to 25 to 30 units" per data center site.
- William D. Bremer, Vanquish Capital Partners: Discussed leveraging engineering for repeat data center projects and asked about Mexico FUEL CHEM opportunity; Arnone confirmed design leverage and rapid deployment capability for Mexico.
Sentiment Analysis
- Analysts displayed a positive but probing tone, particularly on the scale and timing of pipeline opportunities, with emphasis on FUEL CHEM and data center APC, and some skepticism about regulatory catalysts.
- Management maintained a confident and optimistic tone during both prepared remarks and Q&A, frequently referencing strong positioning, large pipeline opportunities, and readiness to capitalize on data center and international expansion. Phrases like "we are extremely excited about this opportunity" and "we are well motivated, very excited about the landscape of opportunity" reflected high confidence.
- Compared to the previous quarter, management's tone remained confident but became slightly more cautious due to the modest revenue guidance reduction, while analysts continued to focus on growth and execution risks.
Quarter-over-Quarter Comparison
- The company reduced its 2025 revenue guidance from $30 million to $28 million–$29 million, citing APC award timing uncertainty, while in Q1 guidance was maintained at $30 million.
- FUEL CHEM revenue expectations remained firm at $15 million–$16 million, with management reiterating confidence in exceeding 2024 levels.
- The data center APC pipeline was quantified as exceeding $100 million, up from $50 million–$75 million in Q1, with management describing it as "the largest opportunity that we have seen for our technologies in probably 10 to 15 years."
- Analysts' focus shifted more toward execution and timing of large pipeline opportunities, especially in data centers, while management's confidence in core business strength persisted despite more cautious guidance language.
Risks and Concerns
- Management highlighted uncertainty in the timing of APC contract awards as the main reason for lowering revenue guidance.
- Analysts raised questions about backlog cadence and recognition, regulatory uncertainty, and the pace of DGI commercialization.
- Arnone addressed regulatory changes, stating that opportunities "are being driven predominantly by continued business expansion" and not by new or anticipated regulations.
- Execution risk on large-scale data center APC contracts and international FUEL CHEM expansion, particularly in Mexico, was discussed, with management asserting readiness to scale operations rapidly if needed.
Final Takeaway
Fuel Tech management emphasized continued gross margin expansion, robust cash reserves, and a strong pipeline of APC opportunities, particularly in data centers, as key drivers for future growth. Despite a slight reduction in annual revenue guidance to $28 million–$29 million due to APC timing uncertainties, the company reiterated confidence in surpassing prior FUEL CHEM performance and readiness to rapidly scale for significant new business, positioning itself for material contract backlog growth into 2026 and beyond.
Read the full Earnings Call Transcript
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