Ladies and gentlemen, greetings and welcome to the Fuel Tech Inc. 2025 Second Quarter Financial Results Conference Call. 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 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 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 the 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 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 at FUEL CHEM for the month of July. As of today, we believe that we are well positioned to meet our annual objective of $15 million to $16 million in FUEL CHEM revenue. In addition, we are also expecting to commence a new 6-month demonstration of our TIFI Targeted In-Furnace Injection technology early in the fourth quarter of this year at a new customer's coal-fired unit in the Midwest. The purpose of the demonstration is to improve boiler availability and reliability and reduce maintenance downtime for off-line boiler cleaning in order to maximize the power generation profile of this unit. Should this demonstration result in a new contract, we would expect the annual revenue potential to be approximately $2 million to $2.5 million based on the customer running the program full time and with the revenue expected to generate historic FUEL CHEM gross margins. With respect to international FUEL CHEM opportunities, we remain in discussions with our partner in Mexico to expand the provision of our chemical technology in that country. Based on conversations with our partner in Mexico, it is still our understanding that the recently elected government is targeting the implementation of environmental policy aimed at the reduction of pollutants that can cause climate change. As Mexico is planning to use the heavy fuel oil generated from their oil refining operations as fuel for power generation for the near-term future, we are hopeful that our FUEL CHEM program will be an integral part of President Sheinbaum's plan. Revenues for our APC business in the second quarter declined compared to the prior period due primarily to the timing of project execution on existing contracts. With that said, we are pleased to report that we are expecting to announce an incremental $2.5 million to $3 million in new APC contracts before the end of this month from new and existing U.S. and international customers for our emissions control solutions. Further, we do expect to close an additional $3 million to $5 million in new awards before the end of this year, which would be exclusive of any data center opportunities. We are continuing to pursue additional new awards driven by industrial expansion globally and by state-specific regulatory requirements in the U.S. and we are continuing to monitor progress of the EPA's rule for large municipal waste combustor units. This rule reduces the nitrogen oxide emissions requirements for the large MWC units. Fuel Tech has a long history of assisting this industry and meeting its compliance requirements, and we have had discussions with customers in this segment to support their compliance planning. The final rule has been delayed by EPA until December of this year with compliance deadlines expected 3 years from the date of issue. That being said, there are some specific states that are currently requiring lower NOx emissions that are consistent with the proposed MWC rule, and we are actively pursuing those opportunities today. Additionally, EPA under the current administration is currently pursuing the rollback of rules related to the reduction of greenhouse gases. It is important to note that the proposed rollback of the 2009 EPA endangerment finding does not loosen the nitrogen oxide emission requirements for any sources and could potentially extend the life of some coal and natural gas-fired units that may not have to reduce their carbon dioxide emission profile. Lastly, as discussed on our previous conference calls, we are not expecting any specific tailwinds that would come from the implementation of new regulation and the opportunities that we are pursuing today are not contingent on the implementation of any specific new regulations. For our dissolved gas infusion business, we commenced an extended demonstration in mid-July at a fish hatchery in the Western U.S. that is expected to last until the second quarter of 2026. The demonstration is designed to evaluate the benefits of delivering consistent and precise levels of dissolved oxygen for the raising of gain fish in a controlled environment over a complete growth cycle. Specifically, this user is interested in ascertaining how DGI will affect yield, fish growth cycles and operational costs for the program. What's interesting about this particular demonstration is that our DGI technology will be going head-to-head with the technology that is currently being used by this hatchery, and we believe that this comparison will provide a very clear view of the advantages of our DGI system in this setting. In addition to this demonstration, we are still in discussions with the municipal wastewater treatment facility in the Southeastern United States, and we are pursuing multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical and horticulture. We continue to receive inquiries regarding DGI from potential customers in multiple end markets, and we are hopeful that we can generate our first commercial revenues in 2025. Additionally, we continue to cultivate our sales representative network to broaden the introduction of DGI to various end markets across the U.S. We expect to add new sales representatives later this year. These would be in addition to the two companies with whom we executed sales agreements in the first half of this year. As a follow-up to the commentary that we provided on our previous conference call, one of the most exciting opportunities that we have seen in quite some time for our company relates to the application of our APC emissions control solutions as part of the proliferation and investment in data center infrastructure being built in support of AI, cloud computing and the general trend for digital expansion. Data centers are becoming the backbone of the digital age. And as such, their development necessitates the increase in demand for power generation to support data center operation. This demand in power will require emissions control solutions for many of the energy sources that necessitate a low-carbon footprint. In fact, the primary factors that determine whether a data center will require NOx control using SCR technology are the following: First, site location. Is the site in an attainment or non-attainment area for ozone ambient air quality standards as NOx is a contributor to ozone? There will be more stringent NOx requirements in the non-attainment areas. Second, the planned utilization of the power generation application. Is the generation source for primary or backup power? And what are the expected number of operating hours per year? Primary power sources and backup power that is expected to run extensively will be more likely to require SCR. And third, the baseline NOx of the power generation source. Some combustion turbines can be equipped with combustion controls to enable a lower baseline NOx emissions level. However, ultimately, the site permit will define the required level of emissions control. The interest in our technology solutions for these applications has continued throughout the recent quarter. And as of today, 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. We are watching the progress of the bid activity closely and are proactively working with our supply chain partners to ensure that we are ready to capitalize on the opportunity when it comes our way. As we look ahead to the balance of 2025, based on our effective backlog, impending contract awards, the APC business development activities that we are pursuing and our previously noted expectations for FUEL CHEM, we are reducing our revenue guidance for 2025 modestly from approximately $30 million to a range of $28 million to $29 million. We are confident that FUEL CHEM will well exceed its revenue level for 2024. However, the timing of both the receipts and execution of APC awards has some uncertainty. And as a result, we are being cautious in our guidance. Also, please note that this base case outlook excludes any material contributions from DGI, any significant contributions to APC from data center contract awards and any material impact from new business development activities for FUEL CHEM. In closing, I want to express my thanks to the Fuel Tech team for their continued efforts in support of our strategic goals, and I want to thank our shareholders for their continued interest in and support of Fuel Tech. We are excited about the business opportunity landscape that lies in front of us today. And one of our primary objectives for our company is to build a material contract backlog as we move towards the end of 2025 and into 2026 and thereafter. Now I'd like to turn the call over to Ellen for her comments on the financial results. Ellen, please go ahead.

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 timing of routine expenditures. As a percentage of revenue, SG&A expenses rose to 60% from 46% in the prior year period, reflecting lower consolidated revenue in the current period. For 2025, we expect SG&A expenses to increase modestly from the prior year as we focus on the development of our infrastructure and business segments. Research and development expenses for the second quarter rose to $490,000 from $422,000 in the prior year period due to our continuing investment in water and wastewater treatment technologies, specifically our DGI systems and including the demonstration Vince previously mentioned. Our investment in DGI will continue throughout 2025 to support ongoing site demonstrations and other growth initiatives. Our second quarter operating loss was $1.3 million compared to an operating loss of $715,000 in the prior year period. Interest income increased to $537,000 in the second quarter, up from $334,000 in the prior year period. Interest income in the 2025 second quarter included $257,000 related to the one-time recognition of the employee retention credit funds under the CARES Act. Collection of approximately 75% of ERC funds, including the interest, was completed in the second quarter, with the remaining balance fully collected as of today. Our net loss for the quarter was $689,000 or $0.02 per share compared to a net loss of $421,000 or $0.01 per share in the prior year period. Adjusted EBITDA loss was $948,000 compared to an adjusted EBITDA loss of $529,000 in the prior year period. Lastly, moving to the balance sheet. Our financial condition remains very strong. As of June 30, 2025, we had cash and cash equivalents of $10.6 million and short- and long-term investments of $20.3 million for a total of $30.9 million. Shares outstanding at the quarter were approximately $30.9 million, equating to cash per share of $1. Working capital was $25.7 million or $0.83 per share. Stockholders' equity was $40.7 million or $1.32 per share, and the company continues to have no outstanding debt. We remain greatly confident in our ability to maintain a strong financial position and to fund our short- and long-term growth initiatives. I'll now turn the call back over to Vince.

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

The first question comes from Sameer Joshi with H.C. Wainwright.

I would like to ask about the financials and outlook. You mentioned that FUEL CHEM revenues for the year are expected to be the highest since 2022, with estimates in the range of $15 million to $16 million. Is that for the entire year, and is it related to additional units coming online later in the year? You mentioned some activity in the fourth quarter, and I would appreciate more details 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?

Ellen mentioned that the backlog number will primarily be recognized over the next 12 months, rather than exclusively in 2025. Additionally, the backlog is specific to individual projects, which means we cannot easily distribute it over the 12-month period.

Understood. Yes, I misspoke. Twelve months is correct. Regarding the DGI aspect, for this 9- to 12-month demonstration, are there any costs being reimbursed, or is this being treated as an R&D expense from an accounting perspective?

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.

Got it. You mentioned commercial revenues from one or two previously engaged customers during 2025. Did I understand that correctly?

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

But do you expect to before the end of 2025?

We hope and expect to be fortunate enough to recognize some commercial revenue in 2025.

Looking at the broader macro perspective, you mentioned the proposed rollbacks of EPA Clean Air Act regulations and noted that they aren't expected to create any significant advantages or disadvantages. Are there any specific areas where you anticipate potential improvements in NOx emissions, considering your involvement in pollution control? I'm curious about how these regulations may influence your business.

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. The potential growth you mentioned regarding the APC opportunity in the data center, crypto, and AI sectors is significant. This is because there will be an increased demand for power resources that will require our services. Is that correct? Do you have a timeline for this? Are you observing any heightened activity in this area, or are you anticipating it will happen later?

I don't have a specific timeline for you at this moment, Sameer. We have active proposals with several turbine manufacturer OEMs. These proposals include both budgetary and commercial activity. The commercial proposals are likely to be more timely in terms of customer response. Currently, we expect to receive some feedback on these awards before the end of 2025, but hopefully even sooner. Developing these projects takes time, and we are collaborating closely with our partners and actively supporting them with bids for our services. We are monitoring this situation very closely as it represents the largest opportunity for our technologies in the last 10 to 15 years. It is essential for us to take advantage of these opportunities.

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?

I will start with FUEL CHEM. We don't measure a pipeline for FUEL CHEM since it generates recurring revenue. For 2025, we expect revenue to be between $15 million and $16 million. Revenue for 2026 and beyond will depend on our ability to add new commercial accounts to our existing ones for FUEL CHEM. I mentioned that we are planning to demonstrate at a large coal-fired unit before the end of 2025. If that becomes operational for most of 2026, it could contribute an additional $2 million to $2.5 million in revenue for that year, assuming similar contributions from our other base accounts. There is no backlog for FUEL CHEM's recurring revenue, but there are opportunities for growth. Regarding DGI, I cannot provide a backlog number at this time since we are still pre-revenue, and I wouldn't want to make unsupported assertions. So we will pause on DGI for now. For APC, we have approximately $100 million in bids related to AI data centers. This represents a significant opportunity for our company. Additionally, for what I consider standard APC business related to normal growth, the pipeline is estimated to be in the range of $20 million to $25 million.

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.

It's a significant material opportunity for our company. The pipeline for what I would consider more standard APC business related to normal growth is estimated to be in the $20 million to $25 million range.

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 a related question, I noticed in the 10-Q that you changed your global sales pipeline range from $50 million to $75 million last quarter to $75 million to $100 million in this 10-Q. Does that reflect increased interest in the data center area or perhaps more bids placed by you?

It actually does. As I mentioned to the prior caller, our total sales pipeline is currently greater than $100 million. This is specifically driven by the opportunities 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, I agree. Now, as I mentioned, we are extremely excited about this opportunity.

Fantastic. I want to discuss Mexico. Recently, specifically in March of this year and even last week, there has been an increasing amount of news about Pemex and their failure to meet emissions regulations, which seems to be creating more pressure in that region. Are you noticing this as well?

We have been anticipating increased pressure not only on Pemex but also on CFE, the state-owned power generation company. Observing the pressure on Pemex is a promising sign of what might happen in the future. We hoped that this administration would take these issues more seriously, and it seems we are starting to see more focus in this area. I believe it's trending positively, as this presents another opportunity for us. We've discussed this for several years, and this could be our best chance to advance FUEL CHEM in Mexico. The added pressure on emissions from Pemex, CFE, or other industries in Mexico is encouraging, and I hope it leads to an expansion of our program there.

Agreed. We're discussing FUEL CHEM, which is currently our highest margin product. We have some facilities operating there at the moment, or at least that's my understanding. Additionally, the leader there is an environmentalist, so it seems like all the potential is present. I know you're managing a partnership in that region. Could you provide more insight into the partnership's engagement with the entities in Mexico and how it's connecting 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.