Greetings, and welcome to Fuel Tech's First Quarter 2023 Financial Results Conference Call. At this time, all participant are in listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Devin Sullivan. Please go ahead.

Thank you, Stacy. Good morning, everyone. Thank you for joining us today for Fuel Tech's First Quarter 2023 Financial Results Conference Call. Yesterday, after the close we issued a copy of the release, 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, 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 in 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 Fuel Tech's annual report on Form 10-K in 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. Vince, please go ahead.

Thank you, Devin. Good morning, and I want to thank everyone for joining us on the call today. Following an improved year of financial performance in 2022, we started off the New Year on very solid ground. Both the APC and FUEL CHEM business segments reported higher revenues, which resulted in a 32% increase in consolidated revenue from the prior year to $7.3 million. We maintain a conservative cost profile, narrowed our losses and ended the quarter with total cash and investments of nearly $34 million, with no long-term debt. Our backlog was $7.6 million, down slightly from $8.2 million at year-end, and including the $5.2 million of new 2023 orders announced in February. We continue to pursue a global sales pipeline of $50 million to $75 million, consisting of a variety of projects and end markets. To that end, during the quarter, there was a promising development with respect to new US government emissions control legislation that we have been discussing with you for quite some time. We believe that, this ruling can provide a long-term uplift for our APC product line, and I'll discuss this development shortly. Bill Decker, our recently appointed Vice President of Water and Wastewater treatment technologies, has been very active in getting up to speed on the business leveraging his industry network, and helping to drive this segment towards commercialization. To that end, we expect to commence our first on-site demonstration using our small-scale dissolved oxygen infusion system, at an aquaculture setting in the United States late in the second quarter, or early in the third. The deployment is scheduled to last approximately 3 months, with the objective of improving the productivity and efficiency of the customers' operation through the use of optimized, high levels of dissolved oxygen. In addition to this opportunity, we…

Thank you, Vince and good morning everyone. For the quarter, consolidated revenues rose 31.7% to $7.3 million from $5.5 million in last year's first quarter with both our primary business segments recognizing higher revenues. APC segment revenue increased to $3.6 million from $2.2 million in last year's first quarter, reflecting the execution of orders reflected in our year-end backlog and bookings received during the first quarter of 2023. FUEL CHEM product line revenue rose to $3.7 million from $3.3 million, due primarily to improved dispatch levels for power generation facilities that use our program. Consolidated gross margin for 2023 first quarter dropped slightly to 38.5% of revenues from 41.4% of revenues in last year's first quarter. This decline can be attributed to lower APC segment gross margins, which were 27.1% in Q1 of 2023 as compared to 35.2% in Q1 of 2022, the reduction being driven by project and product mix. FUEL CHEM margins remained strong improving to 49.4% from 45.5% in the prior year first quarter due to increased topline performance. Consolidated APC segment backlog at March 31, 2023, was $7.6 million, down from $8.2 million at December 31, 2022. Backlog at quarter end included $6.1 million of domestic delivered project backlog and $1.5 million of foreign deliver project backlog, as compared to $6.3 million of domestic project backlog and $1.9 million of international project backlog as of December 31, 2022. We expect that $7.3 million of current consolidated backlog will be recognized in the next 12 months. SG&A expenses rose slightly to $3.2 million from $3.1 million in last year's first quarter. However, as a percentage of revenue, SG&A in the 2023 first quarter declined to 45% from 55% in 2022 first quarter reflecting significantly higher consolidated revenue. For full year 2023, we expect SG&A expenses to range…

Ellen, thank you very much. Operator, I would now like to go ahead and open the line for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Your first question comes from Sameer Joshi with H.C. Wainwright. Please go ahead.

Thanks. Good morning, Vince, Ellen really nice results congrats on the performance.

Thank you, Sameer.

The first question is just in terms of APC backlog as well as the pipeline that you see in front of you, do you have an estimation of what kind of gross margins you would expect from it, given that the current quarter gross margins were lower year-over-year?

Yeah. I would still expect even though we did have a little bit of a lower gross margin particularly on the APC segment in Q1. I still expect APC segment gross margins to be between 30% and 35% on a full year basis. That would be our target for that business segment very, very often oh go ahead Sameer please.

Yeah, yeah, no. I was just going to ask like was there something extraordinary or onetime in the current quarter or rather 1Q '23 cost of goods sold or something?

Actually no. What we do experience from project to project is that certain technologies are prone to realize different gross margin levels if you will. And then as we execute out in those projects from quarter-to-quarter, we will have a mix impact on the APC gross margin depending on what technologies are actually being executed during that quarterly period of time. So, nothing exceptional going on. Just during Q1 we had execution on APC projects that just happen to have slightly lower gross margins. As simple as that.

Got it. Got it. Just digging a little bit a little deeper. So I think you said new orders were $5.2 million during the quarter and the backlog decreased by around 600,000. It seems most of the orders that you received in the quarter or at least there was a conversion of orders during the quarter. And so just wanted to see if these orders were short-term quick turnaround or was this something that was already in the backlog that was converted?

Right. So the projects that we actually announced the $5.2 million that we announced during Q1, it did include some projects that were technically booked before the end of 2022. We typically look to aggregate before we announce and so the $5.2 million did include some projects that were booked prior to the end of 2022. Relative to the timing of execution on backlog, as Ellen noted, I think of the backlog that we have out there today the great majority is going to be basically executed the pond within this next 12-month period of time. So obviously, we will be looking to rebuild backlog as we move throughout 2023.

Thanks for that. On the FUEL CHEM side, I guess I know the answer, but will you clarify how the revenue was higher year-over-year even though one of the facilities was not included anymore?

Right. From year-to-year, what we find is that our customers will take their outages or they'll take downtime due to demand reasons at various points in time. So from year-to-year that will indeed vary. So the performance we did have in Q1 of 2023 was a little bit of a surprise to us in terms of the magnitude of revenues that we did derive. But as it relates to comparison to 2022, higher demand, higher uptime on our base units on our largest units.

Okay. And the outlook I think you mentioned FUEL CHEM will slightly lower year-over-year because of that one unit not in the picture anymore.

That is correct. And also, because on an overall basis in 2022, we had extraordinary uptime and demand for our program on the units that we were actually running on for 2022. We're just not necessarily expecting that to recur for the full year of 2023. It could but that would be an extraordinarily optimistic outlook.

Understood.

Okay.

A clarification on the outlook for the SG&A. I think Alan said, $13 million to $14 million. I just wanted to confirm that this is a GAAP outlook, or is it just a non-GAAP without stock-based comp and other stuff?

It is a GAAP outlook.

It is a cap outlook. Okay. And on the DGI front, how much cost do you expect to incur in the 2Q and 3Q time frame for this MO on-site demo?

I would probably say in the range of $100,000, Sameer. Approximately there. Yes.

Okay. So it's not significant. And what is the -- and do you have any level of confidence or visibility in terms of these guys who are really looking for it? And if it works they will actually place orders for this unit. What is the comfort level there?

I'd say that we're extremely confident that we're going to have DGI perform very well for this particular customer's application. I think we have a high level of confidence.

Great. Great. And good job on investing and getting interest. I think that's a good line, and also congrats on a positive cash flow quarter. That's all from me. Thanks and good luck.

Sameer, thank you very much.

[Operator Instructions] There are no further questions at this time I would like to turn the floor over to Vincent for closing remarks.

Thank you very much. As I have noted, we are pleased with our start to 2023 with a good first quarter of performance for us. Our objective obviously is to generate operating profit as a company as a whole and we are moving positively in that direction. I want to, again, thank the Fuel Tech team and thank all of our shareholders and stakeholders for their support of our company. Thanks to everyone and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.