Fuel Tech, Inc. Stock

Greetings. Welcome to the Fuel Tech, Inc. 2026 Second Quarter Financial Results Conference Call and Webcast. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to Devin Sullivan, Managing Director of The Equity Group. You may begin.

Thank you, Jasmina, and good morning, everyone. Thank you for joining us today for Fuel Tech's 2026 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, the 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, 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 reasons. 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.

Devin, good morning, and I'd like to thank everyone for joining us on the call today, and we apologize for the technical difficulties. Before I review our results, I want to acknowledge that, as announced last night, this will be my final earnings call as President and CEO of Fuel Tech. Effective August 10, 2026, Ramesh Nuggihalli will succeed me in this role. I will share some additional thoughts on this transition at the conclusion of my remarks, but first, let's discuss our performance for the second quarter.

Our performance in the second quarter was improved versus the prior year period across both of our business segments. Consolidated revenues rose 17% to $6.5 million, with our APC and FUEL CHEM business segments delivering double-digit revenue growth of 11% and 21% respectively. We continued to make progress toward commercialization with our Dissolved Gas Infusion, or DGI, business initiative, and we ended the quarter in a strong financial position with cash, cash equivalents, and investments of approximately $30 million and no debt. We are pleased with our performance at the midpoint of the year, and we remain optimistic about the outlook for each of our business segments for full year 2026.

Let's begin with our APC business segment. On our last call, I noted that we had secured our largest set of awards in recent history, totaling approximately $10 million in contracts with utility and industrial customers. As a reminder, these awards were anchored by a contract for the integration of our selective catalytic reduction technology with 2 new natural gas-fired turbines for a large, publicly-owned Midwest municipal utility. The installation of these new GE Vernova turbines will increase the plant's output by approximately 100 megawatts, with the expansion expected to become operational in 2029. I'm pleased to report that engineering work has commenced on this project and equipment will be ready to deliver in the fourth quarter of 2027.

In combination, these awards drove our consolidated APC backlog to $14.3 million at June 30, 2026, which was the largest quarter-end backlog that we had reported since 2018. Last week, we were pleased to announce new APC contracts valued at $2.6 million that addressed the needs of 2 industrial customers. One, a new customer that is active in the gas infrastructure market space, and the other, a long-term recurring customer. Both customers required our SCR technology to address their emissions reduction requirements. In our last quarterly conference call, we had noted that these contracts were close to being awarded. Inclusive of these new awards, our effective backlog as of today is approximately $17 million.

With respect to the larger data center opportunity, the U.S. data center market remains in an historic boom, driven primarily by AI, cloud computing, and hyperscale deployments. Demand continues to exceed supply in most major markets. Capital investment is setting records, and developers are aggressively pursuing new projects. However, the industry is increasingly constrained by 4 major factors. First, power availability, which is the single largest bottleneck. Second, permitting and zoning delays. Third, growing local community opposition. And lastly, supply chain shortages for electrical equipment and skilled labor. The result is a market where capital is abundant, but getting projects energized and operational is becoming increasingly difficult.

Regarding power generation specifically, many of the major gas turbine suppliers have delivery lead times of greater than 5 years for large turbines, and many are evaluating investments in an incremental manufacturing capacity. As a result, we are seeing more data center development using aeroderivative turbines and, in some cases, reciprocating engines as a source of power for the data centers. With respect to Fuel Tech's participation in this market space, our sales pipeline for these opportunities remains strong and approximates $75 million to $100 million per project integrating our SCR technology with power generation sources. Please note that the value of the pollution control scope of supply represents a very small fraction of the estimated total AI infrastructure spend.

I want to again emphasize that in all instances, we are a subcontractor to the data center integrator or to the turbine or engine OEM. Our role remains to support the needs of our direct customers regarding the design and delivery of a pollution control system that can best benefit the application. Beyond that, our knowledge regarding project funding, approval, and timing is generally limited. At present, we are in various stages of participation in project opportunities for several different data center projects in conjunction with integrators and turbine and engine OEMs, including some of the largest companies in the industry. All of these inquiries are for pollution control systems, primarily SCR, in support of the development of on-site power generation. The size of these projects ranges from a few systems for up to 30 to 40 units per project, with pricing at about $1 million to $4 million per unit.

Regarding timing, on our last call, I had mentioned that there were 2 opportunities that could come to fruition in the second quarter. One of them did not continue to develop, and the timing of the second one had been delayed. That said, there is a possibility that 1 of our inquiries can convert to a commercial award based on our conversations with the various parties involved before the end of Q3. With this specific customer, we have been discussing a capacity reservation and long lead time procurement agreement where we would guarantee available capacity and for fabrication capability and longer lead time items for our technology with our supply chain in exchange for a capacity reservation fee. We are watching this development closely.

However, the remainder of the inquiries will develop further as we move throughout the year. We believe that we are still very much in the running to capture a share of these opportunities, and we remain optimistic about our prospects for 2026. As a side note, none of these project opportunities are in states that have placed a moratorium on data center development, including New York.

Regarding our near-term APC sales pipeline, exclusive of the data center opportunities, we are currently tracking $8 million to $10 million in additional potential awards for project opportunities integrating our SCR and other pollution control technologies with power generation sources. We would expect to close on at least $3 million to $5 million of these awards before the end of the third quarter or early in the fourth.

Now, let's discuss our FUEL CHEM business segment, which produced another solid quarter with revenues rising 21% to $3.7 million for the quarter versus prior year, primarily due to increased operational dispatch at legacy accounts. Our FUEL CHEM segment is benefiting from high dispatch in these warm summer months, with a particular benefit to our legacy units. We expect to see strong performance in Q3 and continue to expect that segment revenues for the full year will approximate last year's results.

Last quarter, we disclosed that a FUEL CHEM customer had temporarily halted a 6-month commercially priced demonstration program that commenced in early November of 2025. The halt was due to an issue with the plant's operations with no relation to FUEL CHEM's performance. In fact, the customer noted that we helped produce a material reduction in downtime and maintenance costs, largely attributed to decreased offline cleaning. The customer is planning to restart the program in mid-Q4 2026, and we expect to realize a modest impact on fourth quarter results.

That said, if we are able to convert this account to a commercial account, 2027 would see a material benefit as this program could contribute approximately $2.5 million to $3 million in revenue on an annualized basis based on running the program full-time with historic FUEL CHEM gross margins. In addition to this demonstration, we are pursuing at least 1 other coal-fired unit opportunity that could result in a demonstration before the end of the year. We will provide more color on this opportunity on our third quarter earnings conference call.

I wanted to mention one last point regarding our FUEL CHEM segment, and that is the status of an opportunity that has been dormant for some time, and that is our opportunity in Mexico. As we have discussed previously, this promising but still developing opportunity is tied primarily to the desire of the Mexican government to put emphasis on emissions and pollution control, specifically as it relates to the use of heavy fuel oil generated from their refining operations as fuel for power generation. Heavy fuel oil is being used in abundance to generate power in Mexico, as this fuel is readily available, inexpensive, and provides a transitional source of power generation in Mexico while other sources are being developed. Conversations with our partners in Mexico have recently been rekindled. We are hopeful that working together, we can expand the provision of our chemical technology in that country.

On the regulatory front, we have seen that the current administration is pursuing both the rollback of specific regulations that had been put in place previously and the implementation of new regulations that are less restrictive than those currently in place. These proposed rollbacks do not loosen the nitrogen oxide emissions reduction 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 emissions profile. We will take the opportunity, where applicable, to offer retrofit and maintenance solutions to accommodate the extension of useful life.

Regarding the implementation of new rules, earlier this year, we reported that EPA had issued New Source Performance Standards, also known as NSPS, for new gas turbines which were published in the Federal Register on January 15th. A category of gas turbines was created called temporary power turbines, and it's applicable to units below 85 megawatts and installed to run for 24 months or less. These units will be required to achieve NOx levels of 25 ppm, which may not require SCR for all turbines. Turbines greater than 5 megawatts with high operating capacity will need to meet 15 ppm NOx, likely requiring SCR. Turbines greater than 85 megawatts will need to get to 5 ppm NOx, which will require SCR in almost all cases.

With this rule in place, power generation developers will need to decide how best to proceed with their air pollution control solutions for their new sources of power generation. Based on the discussions that we have had with our potential customer base, we are not aware of this new regulation having a significant negative impact on decision making regarding the implementation of pollution controls.

We know that there are legal challenges to the NSPS that could affect the timing or final requirements of the rule, and we will continue to monitor the situation. It is important to note that state-specific permitting requirements can vary from the new federal regulation. It is also important to note that outside of the NSPS requirements, the use of multiple small gas turbines working together could classify them as a major source for emission control. Major sources are governed by other regulations and are often required to meet more stringent NOx emissions, which would require SCR.

Now, I'd like to turn the discussion to DGI. An extended DGI demo at a Western U.S. fish hatchery was completed at the end of the second quarter, and the DGI technology delivered strong performance with optimized oxygen delivery, program-based, and efficient operation, program cost savings, and fish growth. We have been asked by this client to prepare a proposal for a DGI system that could meet the oxygen requirements of the full hatchery, and we are in the process of developing that proposal right now.

Our second trial at a Southeast U.S. municipal wastewater facility is now on extended month-to-month rental in follow-up to the original 6-month rental term, and we expect this trial to generate approximately $100,000 in rental revenue in 2026. With this trial, the client reported that odor-related complaints in the area surrounding the plant have been dramatically reduced, and we have been working with the customer to assist them in assessing their oxygen delivery needs. This client is in the process of upgrading their primary aeration system, and this upgrade will be complete later this year. Upon completion, the client will evaluate the need for the supplemental aeration that DGI has been providing. Additionally, we are currently in discussions with multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical, and horticulture.

As noted earlier, we are optimistic about our outlook for 2026, driven by an expanded project backlog and opportunity landscape at APC, anticipated strong results at FUEL CHEM, and progress toward our first commercial DGI contract. Taking all of this into account, we expect that revenues for 2026 will exceed the level of 2025, with FUEL CHEM approximating 2025 revenues and APC exceeding 2025 performance. I want to emphasize that while our backlog has risen substantially, the majority of the revenue assigned to the new large APC contract award that I discussed earlier will be generated in 2027. Further, this 2026 APC outlook excludes the benefit of specific data center awards, which would be additive to this forecast.

Now, before I turn the call over to Ellen, I'd like to spend a few moments on my upcoming retirement and the transition of leadership at Fuel Tech. After considerable reflection, I decided that the time had come for me to retire from Fuel Tech, concluding what has been a remarkable journey of 27 years with the company, including the privilege of serving as President and CEO for the past 11 years.

When I joined Fuel Tech nearly 3 decades ago, I could not have foreseen what lay ahead. Together, as a team, we have navigated changing markets, evolving technologies, and periods of growth and transformation. Along the way, I have been fortunate to work alongside extremely talented colleagues and have experienced business protocols in more than 15 countries and with a multitude of different companies. If there is 1 lesson I have learned throughout my career, that success in business and happiness in life are always driven by people.

To our employees, thank you. Your diligence, commitment, and teamwork have been the foundation of everything we have accomplished. To our Board of Directors, thank you for your counsel and stewardship. And to our shareholders, thank you for your trust and investment, which have enabled us to pursue our mission and work to create long-term value. Serving this company has been one of the greatest honors of my professional life. I am proud of what we have built together and optimistic about Fuel Tech's future. And while I am retiring from my day-to-day responsibilities, I will remain a proud advocate of Fuel Tech and will continue to serve on the Board as a non-independent director.

With that said, I'd like to say a few words about my successor, Ramesh Nuggihalli. Ramesh's selection was the result of a thorough, months-long executive search process conducted by the Board, which involved the evaluation and interviewing of multiple qualified candidates, and I'm very pleased that Ramesh has agreed to join the Fuel Tech team. Ramesh is a global, commercially oriented operating executive who has led growth, restructuring, and operational improvement initiatives across industries directly relevant to Fuel Tech, including environmental technologies, power generation, water infrastructure, and engineered systems.

He has held senior leadership roles at General Electric, AMETEK, Tyco, Pentair, Xylem, and most recently, CECO Environmental, with expertise spanning capital allocation, growth strategy, M&A, and operational improvement. In getting to know Ramesh during this process, I am confident that his background, temperament, and accomplishments make him exceptionally well-positioned to lead Fuel Tech into its next chapter of growth and development.

Now, for the last time, I'd like to turn the call over to Ellen for her comments on our financial results. For those of you that are not aware, I have had the privilege of working alongside Ellen for most of my 27 years at Fuel Tech. And it would be impossible in a few brief remarks to fully capture the breadth and impact of her contributions to our organization.

Ellen, please go ahead.

Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues rose by 17% to $6.5 million from $5.6 million in the prior year period, driven by increases in both FUEL CHEM and APC segment revenues. Consolidated gross margin for the second quarter declined to 41% of revenues from 46% in the last year's first quarter as a result of lower segment gross margins for both the FUEL CHEM and APC segments.

FUEL CHEM revenue rose 21% to $3.7 million from $3.1 million, primarily due to increased operational dispatch at legacy accounts. Segment margin declined slightly to 45% from 47% in the second quarter of 2025 due to demonstration costs, increased freight costs, and additional labor costs for unit maintenance.

APC segment revenue rose 11% to $2.8 million from $2.5 million, primarily related to the timing of project execution on existing contracts. Despite higher segment revenue, APC segment gross margin decreased to 36% from 44%. The decrease in APC margin reflected project mix, contract timing, and costs associated with project execution. We expect segment margins to continue to vary based on revenue mix, customer activity, project milestones, and related cost levels.

Consolidated APC segment backlog on June 30, 2026 was $14.3 million compared to backlog of $7 million at December 31, 2025. Backlog at June 30th included $11.3 million of domestically delivered project backlog and $3 million of foreign delivered project backlog. The company's backlog and recently awarded contracts are expected to affect revenue recognition in future periods. However, the timing of revenue recognition may vary based on customer schedules, project milestones, contract terms, and execution risks. Approximately $10.5 million of the $14.3 million backlog at June 30th is expected to be recognized in the next 12 months, barring no customer-driven delay.

SG&A expenses rose to $3.6 million in the second quarter compared to $3.3 million last year. As a percentage of revenue, SG&A expenses declined to 55% from 60% in the prior year period, reflecting higher consolidated sales growth compared to SG&A growth during the quarter. For 2026, we continue to expect SG&A expenses will range between $14.5 million to $15 million.

Research and development expenses for the second quarter rose to $646,000 from $490,000 during the prior year period. Our R&D investments largely reflect our ongoing investment in our water and wastewater treatment technologies, specifically our DGI systems. Our investment in DGI will continue throughout 2026 to support ongoing site demonstrations and other growth initiatives as we ramp up towards commercialization later this year.

Operating loss in the second quarter was $1.6 million compared to a loss of $1.3 million in the prior year period. Net loss was $1.2 million, or $0.04 per diluted share, compared to a net loss of $689,000, or $0.02 per diluted share in the prior year period. Adjusted EBITDA loss was $1.2 million in the second quarter compared to an adjusted EBITDA loss of $948,000 in the prior year period.

Lastly, moving to the balance sheet, our financial condition remains strong. As of June 30th, we had total cash, cash equivalents and investments of $29.6 million, which was comprised of cash and cash equivalents of $7.6 million and short and long-term investments of $22 million. Shares outstanding at quarter end were approximately 31.2 million, equating to cash per share of $1.05. Working capital was $20.1 million, or $0.65 per share. Stockholders' equity was $37.4 million, or $1.20 per share. And the company continues to have no outstanding debt. We remain greatly confident in our ability to maintain a strong financial position to fund our short and long-term growth initiatives for FUEL CHEM, APC, and DGI.

Before I turn the call back over to Vince, I'd like to take a moment to express on behalf of myself, both as an employee and a shareholder, and on behalf of the company, what an honor and privilege it has been to work for and with Vince. Vince's dedication to this company, its employees, its operation, and its long-term success has been extraordinary. While much of this work has taken place behind the scenes and may not always been visible to others, those of us who have had the opportunity to work alongside him have experienced the leadership that he has brought to this organization every day. His contributions have had a lasting impact on this company and are deeply appreciated by me and my colleagues.

As Vince begins this new chapter, we wish him continued success. At the same time, we are excited about the future of the company and the opportunity to build upon the strong foundation he has spent so many years creating and nurturing. His legacy will continue to shape our success for years to come. Thank you, Vince, for your leadership, your dedication, and everything you have done for Fuel Tech and its people. The pleasure truly has been ours.

Ellen, thank you very much for the very kind words. And, operator, let's go ahead and open the call for questions.

[Operator Instructions] Our first question is from Sameer Joshi with H.C. Wainwright. Please go ahead.

Sad to see you leave, but you have done great for the company for the last so many years. So it's been great covering the company while you were at the helm.

Thank you. A pleasure working with you as well over the years, Sameer. It's been a pleasure.

So just in terms of the opportunity that you have highlighted last call and this call and the other call. Sorry, I'm hearing an echo. In 2027, should we expect this to become a significant source of revenues or should we expect this to be like a '28 or '29 upside?

I think relative to the data center opportunity, Ramesh (sic) [ Sameer ], everything depends on timing of contract award at the end of the day, right? I made reference to 1 opportunity that we are indeed following very closely right now. The delivery timeframes for this opportunity are early to mid-2027 delivery timeframes are what we are talking about right now. So there is the opportunity for some revenues to come into the 2027 timeframe, but it fully depends on the timing of when the contract comes into fruition and then the expected delivery timeframes for having those turbines and then our related pollution control systems at site. So I'd say as we sit here today, there is a possibility for material revenues in 2027, pending contract award, of course.

Yes, you did mention the 4Q '27 possibility of that -- some revenues from this. On the DGI front, it seems like that the fisheries' demo went very well and they might be looking at a proposal or waiting for a proposal from you guys. Do we know what the size of that award could look like and what would be the timeline of implementation and revenue recognition on that if it comes through?

Understood. So, for a full system for that particular hatchery, I'll give you a range because it will depend on what level of equipment configuration that the client ultimately wants. But the sale of the DGI system could range anywhere from $500,000 to as much as $1 million, depending on the configuration, the level of redundancy that we would have with that system as well. So that's the range we're talking about. And the revenue profile, if we were actually awarded a contract for that system before the end of the year, all of that revenue would be recognized in 2027. It would be probably a 5- to 6-month project build, if you will, for that equipment build-out.

Understood. And then this could act as a demo or demonstration of your capacity for other similar applications as well, I guess.

It sure would. It would be an outstanding reference if this was able to move forward.

And then on the FUEL CHEM side, I know you mentioned 1 additional potential customer is on the horizon. Is there a concerted effort to increase this customer base in 2027? How should we look at revenues from FUEL CHEM in 2027 and beyond?

Please stand by. Ladies and gentlemen, we thank you for your patience. Gentlemen, you may resume your event.

This is Vince Arnone back online. Sameer, are you there?

Yes, I can hear you. Yes, the question was about FUEL CHEM's outlook for 2027. Are there additional customers or installations that you may be looking for beyond the one that you're working on?

Yes, so as I had noted as part of my comments, first course of action is to convert the client that we'll be restarting the demo on in the fourth quarter of this year. We're looking to convert that to a commercial account as we move into 2027. So as I mentioned, if that does convert and does run full-time throughout the year, that's about a $2.5 million to $3 million incremental revenue contribution for 2027. And then I mentioned that there's at least 1 other coal-fired account that we're hoping to get a demonstration opportunity on later in this year. But right now I would say it's premature to look to account for anything regarding that opportunity in 2027.

And then just last one, given that there is going to be change at the CEO position, is there a mandate that has been given to Ramesh? Especially because you have a strong balance sheet and there could be acquisitions that could be had with Ramesh's experience in integrating those in his past experience.

Right. So I would say as we sit here today, Sameer, that there is no specific mandate. But I will tell you that Ramesh, along with the Board's support, will be looking at a variety of different opportunities to see if we can enhance our top line. That could include some level of M&A, if and when it makes sense for Fuel Tech. If we find an appropriate organization that we think would be accretive incrementally for us to take a look at for the company. I think that'll be part of his overall scope as he evaluates how we move Fuel Tech to the next level.

We have reached the end of the question and answer session. I would like to turn the floor back over to Vince Arnone for closing comments.

Thank you, operator. I want to thank everyone for joining the call today. It truly has been my privilege to speak with everyone on these calls over the many years both as CEO and previously as CFO. My goal has always been to provide a transparent and factual depiction of our company, its operations, and its opportunities, and I hope I have conveyed the messaging well over the years.

Lastly, I'd be remiss if I didn't provide a quick thank you to a few special individuals prior to signing off, as I would not have been able to provide the stewardship for Fuel Tech without the support of these individuals. To Sharon, my partner of 18 years, and to her children, Isabel and Grant, thanks for your ongoing care and support. I love you guys. I look forward to spending more time with you in the future. And I also want to thank my brother, Bobby, who has always been there for me.

With that, thanks, everyone, and I truly wish everyone my best.

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

Greetings, and welcome to the Fuel Tech, Inc. 2026 First Quarter Financial Results Conference Call and Webcast.

[Operator Instructions]

As a reminder, this conference is being recorded.

It is now my pleasure to introduce Devin Sullivan, Managing Director of the Equity Group. Devin?

Thank you, Joe. Good morning, everyone, and thank you for joining us today for Fuel Tech's 2026 First 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 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, 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, circumstances or for any other reasons. 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'd like to thank everyone for joining us on the call today. Our first quarter results, although strong, fell slightly short of last year's Q1 results with improved performance in our Air Pollution Control business segment being offset by a decline in revenues for our FUEL CHEM business segment. We continue to validate the efficacy and clients' return on investment for our Dissolved Gas Infusion demonstrations, and we maintained a strong financial position with cash, cash equivalents and investments of nearly $31 million at quarter end and no long-term debt. Most importantly, our outlook for the year has changed significantly and for the better.

The expanded opportunity landscape that we have been tracking for our APC business segment resulted in the largest set of awards in terms of contract value that we have received in recent history. Last week, we announced multiple Air Pollution Control contracts valued at approximately $10 million with utility and industrial customers. The new awards were anchored by a contract for the integration of our selective catalytic reduction pollution control technology with 2 new natural gas-fired turbines for a large publicl-owned Midwest Municipal Utility. The installation of these new GE Vernova turbines will increase the plant's output by approximately 100 megawatts.

The expansion of the generating station is expected to become operational in 2029. We are scheduled to commence engineering work this quarter with equipment deliveries scheduled to begin in the fourth quarter of 2027. The utility is undertaking this expansion to meet the region's rapidly growing electricity demand. We believe that this project reflects the growing focus on municipalities and states working together to plan infrastructure upgrades in response to and in anticipation of population expansion and commercial and data center growth.

A strong, reliable power grid is one of the largest factors in determining where data centers are developed and operators need abundant capacity, reliability and a path to fast interconnection as well as emissions control solutions that address compliance, reporting and air permitting requirements that reduce carbon footprints and meet sustainability goals. These contracts have more than doubled our pro forma APC backlog to approximately $17 million at this date. which is the largest backlog that we have had since 2018. With respect to the larger data center opportunity, our sales pipeline for these opportunities remain strong and approximate $75 million to $100 million for projects integrating our SCR technology with power generation sources.

Please note that the value of the pollution control scope of supply represents a very small fraction of the estimated total AI infrastructure spend. I want to again emphasize that in all instances, we are a subcontractor to the data center integrator or to the turbine or engine OEM. Our role remains to support and education of our direct customer regarding the design and delivery of a pollution control system that can best benefit the application. Beyond that, our knowledge regarding funding, approval and timing is generally limited.

As I noted on our year-end conference call in March, data center awards are likely to be the primary source of material near-term growth for our company. Our optimism remains high. As such, we have been and continue to devote substantial internal and external resources to position Fuel Tech with data center developers and turbine and engine providers to deliver NOx reduction technologies as part of a data center's power generation platform.

At present, we are in various stages of participation and project opportunities for 8 to 10 different data center projects in conjunction with integrators and turbine and engine OEMs, including some of the largest companies in the industry. All of these inquiries are for pollution control systems, primarily SCR in support of the development of on-site power generation. The size of these projects ranges from as few as 2 to 5 units to as many as 30 to 40 NOx reduction units with pricing predominantly in the range of $1 million to $3 million per unit.

Regarding timing, on our last call, I had mentioned that there were 2 opportunities that could come to fruition in the second quarter. One of them did not continue to develop and the timing of the second one has been delayed. That said, there is a possibility that one of our 8 to 10 inquiries can convert to a commercial award based on our conversations with the various parties involved before the end of Q2. However, the remainder of the inquiries will develop further as we move throughout the year. We believe that we are still very much in the [ writing ] to capture our share of these opportunities, and we remain optimistic about our prospects for 2026.

As one last comment, I did want to note that we did not consider the large contract that we were awarded for the Midwest utility to be a data center-specific application as the 2 new units will be deployed in front of the meter as part of the municipality's generating infrastructure. However, this award is material and significant for Fuel Tech as the SCR pollution control system that we are providing is for a model of GE Vernova turbine that is commonly being deployed for data center-specific opportunities. This win lends credibility to our company as we move to capture a portion of the larger market opportunity. Regarding our near-term APC sales pipeline, exclusive of data center opportunities, we are currently tracking $8 million to $10 million in additional potential awards, of which we expect to close on at least $3 million to $5 million of these awards before the end of the current second quarter or early in the third.

Included in this near-term pipeline are opportunities emanating from our recent acquisition of the technology portfolio of WAHLCO, Inc., a well-established environmental equipment and services company with several hundred project installations worldwide. The pace and scope of inquiries from WAHLCO customers remains encouraging. Now let's discuss our FUEL CHEM business segment. Following a strong 2025, our FUEL CHEM segment produced another solid quarter of revenue. Across the country, the operating lives of coal-fired units are being extended to meet rising energy demand with many facilities dispatched at levels not seen in several years.

Our FUEL CHEM segment continues to benefit from this trend, particularly across our legacy units. On our last conference call, I noted that we received benefit in the fourth quarter of 2025 from a new U.S. customer that is currently operating with us under a 6-month commercially priced demonstration program that commenced in early November. As we have discussed previously, the annual revenue potential from this commercial opportunity should it convert from a demonstration is expected to be approximately $2.5 million to $3 million based on the customer running the program full time and with the revenue expected to generate historic FUEL CHEM gross margins.

During the first quarter of this year, the demonstration experienced a temporary interruption driven by unrelated plant operations, which limited its contribution to revenue. As of today, the customer has not yet completed the demonstration program. However, they have noted a material reduction in downtime and maintenance costs largely attributed to decreased offline cleaning, which bodes well for a successful demonstration. These results continue to support a positive outlook for the demonstration, and we remain optimistic that this account will convert to a commercial program later in the year.

On the regulatory front, we have seen that the current administration is currently pursuing both the rollback of specific regulations that had been put in place previously and the implementation of new regulations that are less restrictive than those currently in place. These proposed rollbacks do not loosen the nitrogen oxide emissions 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 emissions profile. We will take the opportunity where applicable, to offer retrofits and maintenance solutions to accommodate the extension of useful life. Regarding the implementation of new rules, earlier this year, we reported that EPA had issued new source performance standards, also called NSPS for new gas turbines, which were published in the Federal Register on January 15 of this year.

A new category of gas turbines was created called Temporary Power Turbines and is applicable to units below 85 megawatts and installed to run for 24 months or less. These units will be required to achieve NOx levels of 25 ppm, which may not require SCR for all turbines. Turbines greater than 5 megawatts with operating capacity will need to meet 15 ppm NOx, likely requiring SCR. And finally, turbines greater than 85 megawatts will need to get to 5 ppm NOx, which will require SCR in almost all cases.

With this rule in place, Power generation developers will need to decide how best to proceed with Air Pollution Control solutions for their new sources of power generation. Based on the discussions that we have had with our potential customer base, we are not aware of this new regulation having a significant negative impact on decision-making regarding the implementation of pollution controls. It is important to note state-specific permitting requirements can vary from the new federal regulation.

It is also important to note that outside of the NSPS requirements, the use of multiple small gas turbines working together could classify them as a major source for NOx emissions control. Major sources are governed by other regulations and are often required to meet more stringent NOx emissions, which would require SCR.

DGI continued its extended technology demo at a Western U.S. fish hatchery, which is on track to end this quarter and has been delivering strong performance with optimized oxygen delivery, program cost savings and improved fish growth. A second trial at a Southeast U.S. wastewater facility is on schedule to end its extended 6-month rental phase in the third quarter. With this trial, the client reports that odor-related complaints in the area surrounding the plant have been dramatically reduced, and we are working with the customer to assist them in assessing their oxygen delivery needs. In both instances, we are discussing the post-demonstration next steps with the clients and remain hopeful that DGI will become a commercial solution for them. We are also currently in discussions with multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical and horticulture.

As I noted earlier, we are optimistic about our outlook for 2026, driven by an expanded project backlog and opportunity landscape at APC, anticipated strong results at FUEL CHEM and our first commercial DGI contract. Taking all of this into account, we expect that revenues for 2026 will exceed the level of 2025, with FUEL CHEM approximating 2025 revenues and APC exceeding 2025 performance. I want to emphasize that while our backlog has risen substantially, the majority of the revenue assigned to the new large APC contract award that I discussed earlier will be generated in 2027.

Further, this 2026 APC outlook excludes the benefit of specific data center awards, which would be additive to this forecast. Before turning things over to Ellen, I want to thank the entire Fuel Tech team for their continued dedication in advancing our strategic objectives and our shareholders for their patience and support. We are very excited about what the future holds for our company.

Now I'd like to turn the call over to Ellen for her comments on our financial results. Ellen, please go ahead.

Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues declined to $6.1 million from $6.4 million in the prior year period. Higher revenues in our APC business segment were offset by a decline in revenue for the FUEL CHEM segment. Consolidated gross margin for the first quarter declined slightly to 43% of revenues from 46% in last year's first quarter as a result of segment concentration. APC segment revenue rose 23% to $1.6 million from $1.3 million, primarily related to timing of project execution and existing contracts and ancillary business activity. Higher segment revenues and product and project mix led to a nearly 600 basis point expansion in segment margin to 38.3%. FUEL CHEM revenue declined to $4.5 million from $5.1 million, primarily due to seasonal maintenance outages and dispatch-related decreases in operational demand.

Segment margin declined to 45.3% from 49.9% in the first quarter of 2025, but is expected to return to historical averages as we move throughout the remainder of the year. Consolidated APC segment backlog on March 31, 2026, was $6.9 million, roughly flat compared to a backlog of $7 million at December 31, 2025. Backlog at March 31 included $3.6 million of domestically delivered project backlog and $3.3 million of foreign delivered project backlog. Approximately $6 million of the $6.9 million project backlog at March 31 is expected to be recognized in the next 12 months, barring no customer-driven delays.

We were very pleased to secure the recent APC contracts referenced by Vince. These agreements represent approximately $10 million in new bookings, strengthening our backlog, enhancing revenue visibility and supporting both gross margin and cash flow as project milestones are achieved. While APC projects have traditionally spanned 8 to 24 months, we are observing increased forward planning from our clients, resulting in some projects with longer execution timelines. This will impact timing of revenue recognition. We will continue to actively manage these extended project durations to optimize strategic pricing and operational efficiency, while further reinforcing our backlog for future periods.

SG&A expenses rose to $3.7 million in the first quarter compared to $3.3 million last year. As a percentage of revenue, SG&A expenses rose to 61% from 52% in the prior year period, reflecting higher total SG&A expenses and the effect of lower consolidated revenue. For 2026, we continue to expect SG&A expenses will range between $14 million and $15 million. Research and development expenses for the first quarter were stable at $524,000. Our R&D investments largely reflect our ongoing investment in water and wastewater treatment technologies, specifically our DGI systems.

Our investment in DGI will continue throughout 2026 to support ongoing site demonstrations and other growth initiatives as we ramp up towards initial commercial sales later this year. Operating loss for the first quarter was $1.6 million compared to a loss of $952,000 in the prior year period. Net loss was $1.4 million or $0.04 per diluted share compared to a net loss of $739,000 or $0.02 per diluted share in the same prior year period. Adjusted EBITDA loss was $1.3 million in the first quarter compared to an adjusted EBITDA loss of $735,000 in the prior year period.

Lastly, moving to the balance sheet. Our financial condition remains very strong. As of March 31, 2026, total cash and investments was $30.6 million, comprised of cash and cash equivalents of $9.1 million and short- and long-term investments of $21.5 million. Shares outstanding at the quarter were approximately 31.2 million equated to a cash per share of $0.98. Working capital was $22.2 million or $0.71 per share. Stockholders' equity was $38.6 million or $1.24 per share, and the company continues to have no outstanding debt. We remain very comfortable with our financial position and our ability to funding these awards while pursuing new contract opportunities across FUEL CHEM, APC and DGI.

I'll now turn the call back over to Vince.

Ellen, thank you very much. Operator, let's please go ahead and open the line for questions.

[Operator Instructions]

And our first question comes from the line of Sameer Joshi with H.C. Wainwright.

The first question on the regulatory front. The retrofit opportunity for old plants that will be required to continue to work. Can you give us an idea of the opportunity for Fuel Tech and what kind of efforts or resources have you applied towards this effort? And when should we start seeing any like orders emanating from this effort?

Are you referring to anything related to the extension of coal-fired lives, Sameer?

Yes, yes. extension of the coal fire. Yes.

Understood. So those -- as I sit here right now, our largest landscape of opportunity is truly more so in the data center and other power generation build-out, right? Obviously, as a company, we have a long history of doing successful business with coal-fired utilities in this country. And so as those plants would look to extend their lives and where they indeed have the need to enhance their emissions control portfolios at that site, we're going to be there to assist them.

As I sit here today, although I do believe there will be opportunities there, that's not something that I could necessarily readily quantify for you right now, just given the unknown circumstances there.

Understood. Okay. And does the applications for 85 megawatts or greater sizes of new source power, are you -- like same question sort of what are your efforts? Are you adding additional resources to identify specific locations where the installations might be bigger than 85 megawatts? And what pipeline should we expect on that front?

Yes. No specific resources added. These types of opportunities we'll call it -- they'll follow our normal supply chain interaction activity using our internal sales force and manufacturers' representative individuals that we have out in the marketplace here in the U.S. specifically. And so I don't anticipate adding anything specific there. But relative to timing and/or volume, those are the opportunities that we're following for power generation build-outs and data center build-outs as we sit here today.

The larger contract that we just announced that is regarding the municipal public utility, that was actually a public tender that we were invited to bid on amongst quite a few other companies being invited to bid as well. So that came out to us directly from an organization that was looking to build out their internal generation capability planning for the future, and we became part of that bidding process. So no real change in how we're doing business Sameer.

The only -- what I would say, primary difference is with the focus on the data center specific build-out, we have been engaging with a significant amount of, call it, newer parties or companies that as Fuel Tech, we just haven't engaged with previously because it's a different type of customer for us, generally speaking. But over this past year, we've been doing an excellent job at developing relationships with companies that are indeed looking to help with the build-out of data centers here in this country. And I think we're -- today, we're nicely positioned with some of the larger, more reputable parties that are looking to take part of this opportunity landscape.

And you did mention that this opportunity uses a GE Vernova turbine, which is the same or similar type that is used for these new data center kind of applications.

That is correct. I mean this new award is very important for us because of the scale of the award, because of the fact that we are going to be fixing our NOx reduction SCR solution onto one of the predominant power generating sources that are indeed being deployed today. Again, it's not like as Fuel Tech, we don't have credibility, we do. We've been in the business for almost 4 decades now, providing successful solutions for emissions reduction for both utility and industrial customers. But in today's marketplace, this contract just lends us what I would call more specific credibility to enable us to have a better chance at obtaining and winning opportunities for the data center build-out specifically.

Understood. And maybe just one last one again on FUEL CHEM. The outlook for the year is sort of similar levels flattish relative to 2025. Are there any potential new build-outs that could materialize from now -- between now and the end of the year that could add incremental revenues here?

So as part of my commentary, I did mention the one new customer that we're looking to go ahead and turn a demonstration into a commercial account, right? So that is the primary new accounts that we are indeed focused on as we sit here right now in 2026, okay? Our revenue outlook, we're saying is going to be approximately the same year-on-year, mainly because of the fact that there are so many unknowns that we deal with regarding some of the unscheduled outages that we do deal with on occasion with some of our installed base already that it's difficult to forecast exactly how the full year is going to pan out.

If the new customer that we're looking to convert to a commercial system, if they convert sooner in the year rather than later in the year, that could provide a little bit of upside to us. But that -- those are just unknowns for us right now. It's a little bit more conservative for us to target an equivalent Chem tech revenue year-on-year, which, again, last year was an excellent year of performance for FUEL CHEM. If we can achieve that again this year, I'd be pleased with it. But I do want us to add that additional new account and have that convert to commercial.

[Operator Instructions]

And the next question will come from the line of William Bremer with Vanquish Capital Partners.

So I'd like to first start off with FUEL CHEM.

Given the harsh winter that we had that was broad-based, Midwest, et cetera, and the duration of it, I was expecting much stronger figures from the FUEL CHEM division.

Yes. The winter was mixed, Bill, from an overall temperature perspective in certain parts of the country. And again, we don't have the ability to be able to predict when our customers' units are going to be dispatched to run at certain points in time or when they actually have to come down for their scheduled planned outages or when they have unplanned outages. That's something that's out of our control. So we did have a mix of performance at our base clients in the first quarter of the year.

But again, if we look back at Q1 over the past several years, with the exception of 2025's Q1, our Q1 of '26 was one of the better performing quarters that we've had for Q1. So hopefully, that, again, we'll pull a little bit more forward here for the rest of the year, and we'll have dispatch at all of our base load of accounts here for the rest of the year, but difficult for us to predict.

Okay. Now on the air side, congratulations on this last order. It seems as though -- and based upon your articulation of how you achieved this close to $10 million contract, this was not from your sales team personnel, but in essence, hey, you were able to bid for it and the offset, hey, having the customer of GE Vernova and supporting their equipment is monumental, extremely positive for Fuel Tech. My question is, okay, at what point do you and the Bailey's, finally make some changes on your sales personnel?

And I look at the figures, and I've been a long shareholder I have more shares than yourself and many of your team. I do not see any insider purchases other than yourself here and there. If the outlook is so strong, why are we not seeing some insider purchases, number one?

Second question I have, I would welcome William Cummings to be on our next call. He's been there an exorbitant amount of time. Him and his sales team, I think, should be on the clock, either they start producing or we need to start making some changes. I mean your peers are exploding in the space. You have in September of 2018, everybody could look this up. You guys landed a $15.8 million order for backup systems for power generation for the data center market. That was in 2018. We were ahead of the curve back then. And now all of a sudden, we are trying to land something, trying, when the field has been exploding for years. Changes have to be made there. And we are all -- we all see the value in FUEL CHEM. That's why we're shareholders. We're just -- I'm just starting to wonder, is this a value trap or are we ever going to grow this company?

Anything further, Bill?

Changes have to be made, Vince.

Yes, let me start by going through some of your questions, okay? Okay. First of all, regarding the contract that we just won. There are companies that will put their project opportunities out to bid on a regular basis. So the fact that this contract was a public bid, it's not unusual by any sense of the word. The public bid starts the sales process. It is just the beginning. So to make the comment that our sales team had nothing to do with it is completely off base. And that's just fact as we sit here today. That's fact. That starts the sales process. And from there, our team has been intimately involved from the end of 2025 when this first started up until final award and going back and forth and back and forth iteration after iteration, responding to questions, comments and any other inquiry that comes our way comes through our sales team.

That's the way the process works. As part of that process, our sales team has to indeed build in the fact that Fuel Tech is indeed a credible supplier of these technologies. And from that perspective, that's all us. That's Fuel Tech and its sales team. That doesn't just happen, Bill. So I just want to correct the record on the statement because it's simply not a fair statement to make regarding how that award was won by the company. It's a team award. There are a lot of individuals involved in bringing a contract of that magnitude to Fuel Tech. We're proud of the effort, and we're looking forward to more of those coming our way, okay?

Secondarily, and we've discussed this previously, insider purchasing is something that's governed by the individuals on the Board and within the company. We don't put pressure on our internal folks to be buying shares of the company. Do I know that there are some nonreportable Fuel Tech employees that have bought shares? I do. I am aware of that, but that's not something that we do indeed announce publicly. I can tell you that from the Board's perspective and from the leadership team and the employee team's perspective, we have every confidence in the world that Fuel Tech is indeed going to become a profitable company once again, okay?

We've had some headwinds as a small public company over these past several years. And no doubts, our performance -- and again, I'm the first one to raise my hand and say that our performance needs to be better, and you and I have discussed that as well. I believe we're finally on the track towards making that shift. This last award is meaningful to us, particularly as we look at some of the larger scale opportunities that we're looking at and with the parties that we're dealing with. So there's a lot that's going on here, Bill.

We just don't pick up and change personnel because we go through a slow period of time. We have some of the most well-respected individuals in the industry that represent Fuel Tech and its technologies. I'm very confident of that. Will changes be made within the leadership team here at Fuel Tech over time? Sure, they will and when they're warranted. So from that perspective, again, I appreciate your comments and questions. I always do. Thanks for being a shareholder of the company. And we're looking to go ahead and again, show that there is value added to Fuel Tech as we sit here today, and we should be trading much higher than where we are today, which isn't that much higher than cash value.

That's correct. And I've read all of your executive management bios in depth, and they do have incredible backgrounds. The numbers, though, Vince, are the numbers. And for the last 10 years, where are the numbers? So you got a light of fire underneath them. The bellies have the light of fire in them or they need to be replaced because as a shareholder, I'm getting tired of waiting. Thank you.

This concludes the question-and-answer session. And I'll turn the call back over to Vince Arnone for closing remarks.

Operator, thank you very much. I want to thank everyone for joining us on the call today. We are very much looking forward to our performance here for the remainder of 2026. The recent contract awards are milestones for us as a company, and I look forward to further expanding on those awards as we move throughout the year. So thanks, everyone, for taking the time today, and we look forward to talking with you again in the future. Thank you

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to Fuel Tech's 2025 Fourth Quarter and Full Year Financial Results Conference Call and webcast. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Devin Sullivan, Managing Director at The Equity Group. Thank you. You may begin.

Thank you, Rob. Good morning, everyone, and thank you for joining us today. 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 Techs' current expectations regarding future growth, results of operations, cash flows, performance and business prospects and opportunities as well as assumptions made by in 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'd like to thank everyone for joining us on the call today. 2025 was a year of multiple achievements for Fuel Tech, marked by an expanded opportunity sets in our Air Pollution Control business segment, driven largely by anticipated growth in data center development and construction, a resurgence in revenue for our FUEL CHEM operations, where revenues for the year exceeded our expectations and reached their highest levels since 2018 and tangible progress at our Dissolved Gas Infusion business.

We maintained a strong financial position with cash, cash equivalents and investments of nearly $32 million at year-end and no debt. Our FUEL CHEM segment ended an already strong year on a high note. Across the country, the useful life of coal-fired units is being extended to satisfy growing energy demand, and many of these units were dispatched at levels that haven't been realized in several years. Our results for the FUEL CHEM segment benefited from this phenomenon, in particular for our legacy units. In addition, 2025 results were favorably impacted by the full year performance of a U.S. commercial unit that we added late in 2024 and from a new U.S. customer that is currently operating with us under a 6-month commercially priced Demonstration Program that commenced in early November of 2025.

As we have discussed previously, the annual revenue potential from this commercial opportunity, should it convert from a demonstration, is expected to be approximately $2.5 million to $3 million based on the customer running the program full time with the revenue expected to generate historic FUEL CHEM gross margins.

I want to share a bit of additional color regarding our FUEL CHEM Demonstration Program. This customer was interested in our program as a means to improve boiler availability and reliability and to reduce maintenance downtime for off-line boiler cleaning, in particular, during periods of high power generation demand. This customer utilizes a source of coal that is high in sodium content and is prone to extensive slagging and fouling. To-date, the customer has realized a material reduction in downtime and maintenance costs due to a reduction in off-line cleaning, which bodes well for a successful demonstration.

Revenues generated by our APC segment rose in the fourth quarter, but declined annually, reflecting customer-driven delays and project award timing. We secured $8.8 million of APC awards during 2025 from new and existing customers in the U.S., Europe and Southeast Asia. Our near-term sales pipeline of APC contracts, exclusive of data center opportunities is between $3 million and $5 million. While we had hoped to close on these opportunities by year-end, discussions remain active, and we expect to close before the end of the current second quarter. Even with these delays, we ended the year with a consolidated APC segment backlog of $7 million, up from $6.2 million at the end of 2024.

As we announced last quarter, we expanded our APC portfolio through a small strategic acquisition of complementary intellectual property and customer-related assets from Wahlco Inc., a well-established, environmental equipment and services company with several hundred project installations worldwide. As we continue to integrate Wahlcos' operations, we have been encouraged by the pace of project inquiries from their client base and others, including a number of near-term needs. The value proposition for us in acquiring Wahlco was in securing these high-value assets at a modest price, strengthening our technology portfolio and attracting a broader base of potential customers. This proposition seems to be playing out thus far.

With respect to the data center opportunity, these facilities will potentially require emissions control solutions to mitigate their environmental footprint, comply with federal, state and local regulations and align with corporate sustainability mandates. Our sales pipeline for these opportunities remain strong and approximate $75 million to $100 million for projects integrating our SCR technology with power generation sources. Please note that the value of the pollution control scope of supply represents a very small fraction of the estimated total AI infrastructure spend.

I want to provide a little more information about our data center opportunity. First, I think that we have been clear that any material near-term growth for our company will likely derive from our success in addressing this opportunity. As such, we have been and continue to devote substantial internal and external resources to position Fuel Tech with data center developers and turbine and engine providers to deliver NOx reduction technologies as part of a data center's power generation platform. One point that I want to highlight is that Fuel Tech is a subcontractor in the data center ecosystem. In all instances, we are a subcontractor to the data center integrator or to the turbine or engine OEM. This relationship limits our knowledge of the development of the data center opportunity, its funding, its phase of approval and its timing.

Our role remains the support and education of our direct customer regarding the design and delivery of our Pollution Control System that can best fit the application. This does not dilute the opportunity landscape or temper our enthusiasm in any way, but it does make providing specific insights with respect to the timing of awards more challenging. This is what we concurrently share about the opportunity. At present, we are in various stages of participation in project opportunities with more than 10 different data center integrators and turbine and engine OEMs, including some of the largest companies in the industry. All of these inquiries are for Pollution Control Systems, primarily SCR in support of the development of on-site power generation. The size of these projects run the gamut, from as little as 2 to 5 units per project to as many as 30 to 40 NOx reduction units with pricing predominantly in the range of $1 million to $2.5 million per unit.

Regarding timing, the earliest we expect any of these inquiries to convert to a commercial award based on our conversations with the various parties involved, is Q2 2026 as the schedule requirements for at least 2 of the projects would necessitate the receipt of an award by then. The remainder of the inquiries will develop further as we move throughout the year. To the best of our knowledge, with just one exception, none of the inquiries that we are currently involved with, have been awarded. More specifically, we are still very much in the running, to capture our share of these opportunities, and we remain optimistic about our prospects for 2026.

On the regulatory front, we have seen that the current administration is currently pursuing both the rollback of specific regulations that had been put in place previously and the implementation of new regulations that are less restrictive than those currently in place. Regarding the rollback of regulations, EPA announced the recision of rules related to the reduction of greenhouse gases. Regulation of these emissions started in 2009 with the EPA engagement finding based on a 2007 Supreme Court ruling. EPA has also announced the repeal of the 2024 mercury and air toxic standards for coal-fired units. It is important to note that both of these proposed rollbacks, do not loosen the nitrogen oxide emissions reduction 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 emissions profile. We will take the opportunity where applicable to offer retrofit and maintenance solutions to accommodate the extensions of useful life.

Now regarding the implementation of new rules. Earlier this year, EPA issued new stores performance standards, also known as NSPS, for new gas turbines, which were published in the Federal Register on January 15. The NSPS was required for EPA consent decree with Sierra Club and the Environmental Defense Fund and were in response to the proposed rules that were issued in November 2024. A new category of gas turbines was created called Temporary Power Turbines and is applicable to units below 85-megawatts installed to run for 24 months or less. These units will be required to achieve NOx levels of 25 ppm, which in some cases, may not require SCR for all turbines. Turbines greater than 5-megawatts with high operating capacity will need to meet 15 ppm of NOx, which will likely require SCR and turbines greater than 85-megawatts will need to get to 5 ppm NOx, which will require SCR in almost all cases. So what is the impact of the new regulation?

First of all, several organizations, including the Clean Air Task Force, Sierra Club, and the Environmental Defense Fund have filed a petition for reconsideration with the EPA and the hard deadline to file a formal lawsuit challenging these amendments in the U.S. Court of Appeals for the D.C. Circuit is March 16 of this year. It is certain that lawsuits will be filed. And second, with this rule in place, power generation developers will need to decide how best to proceed with their pollution control solutions for their new sources of power generation. Based on the discussions that we have had with our potential client base, we are not aware of this new regulation having a significant negative impact on decision-making regarding the implementation of pollution controls. It is important to note that state-specific permitting requirements can vary from the new federal regulation. And it's also important to note that outside of the NSPS requirements, the use of multiple gas turbines working together classify them as a major source for NOx. Major sources are governed by other regulations and are often required to meet more stringent NOx emissions, which would require SCR.

We continue 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 the progress of the EPA's rule for large municipal waste combustion units. This rule reduces the nitrogen oxide emissions requirements for up to 150 large MWC units across the country. Fuel Tech has had 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 is currently in the White House Office of Management and Budget and is expected to take effect before the end of March, with NOx emission levels likely requiring advanced SNCR technology to meet compliance deadlines, 3 years from the date of issue.

Moving over to DGI. We are continuing the extended demonstration of the technology at a fish hatchery in the Western U.S., which remains on track to conclude in the second quarter of this year. The system is performing well, meeting customer expectations for the precise delivery of concentrated dissolved oxygen and generating positive results in terms of reduced operational costs and improved fish growth.

A second trial that commenced at a municipal wastewater site in the Southeast U.S. was successfully completed in January of this year and converted to a 6-month rental contract that is expected to run through the beginning of the third quarter of this year. Our DGI system is delivering the designated volume of oxygen and the client reports that odor-related complaints in the area surrounding the plant have been dramatically reduced. We are currently in discussions with multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical and horticulture, and we have been supported in these efforts with the addition of representative firms with end market expertise.

As we look ahead to 2026, we are optimistic about our potential financial outlook. Our FUEL CHEM business is expected to continue to perform well, driven by the performance of our base accounts and by the expectation that we will convert another demonstration account to commercial operation. Our APC business development activities, including our standard opportunities, those associated with respect to the Wahlco acquisition and the potential tailwinds from data center opportunities are at the highest level that we have experienced in several years. And regarding DGI, based on progress at our demonstrations, it is expected that we will have our first commercial contract in 2026.

Overall, we expect that revenues for 2026 will exceed the level of 2025, with FUEL CHEM approximating 2025 revenues and APC exceeding 2025 performance without considering the benefit of data center awards, which would be additive to the forecast.

Before turning things over to Ellen, I want to thank the entire Fuel Tech team for their dedication in advancing our strategic objectives and our shareholders for their patience and support. Now I'd like to turn the call over to Ellen for her comments on the financial results. Ellen, please go ahead. Thank you.

Thank you, Vince, and good morning, everyone. I'll start off today by reviewing our fourth quarter results. For the quarter, consolidated revenues rose 37% to $7.2 million from $5.3 million in the prior year period, reflecting growth from both our APC and FUEL CHEM segment revenues.

APC segment revenue increased 37% to $2.4 million from $1.8 million, primarily related to timing of project completion. FUEL CHEM had a very strong quarter, generating a 37% increase in revenue to $4.9 million from $3.5 million, reflecting contributions from our legacy portfolio and the 6-month commercially priced Demonstration Program that commenced in early November. Consolidated gross margin for the fourth quarter rose to 45% of revenues from 42% in last year's fourth quarter, with APC and FUEL CHEM each producing higher margins for the quarter.

FUEL CHEM gross margin increased to 46% from 45% in the fourth quarter of 2024 due to the increase in the revenue base. APC gross margin expanded significantly to 42% in the fourth quarter compared to 36% in the prior year period as a result of project and product mix. Consolidated APC segment backlog on December 31, 2025, was $7 million, up from backlog of $6.2 million on December 31, 2024. Backlog at the end of 2025 included $3.4 million of domestically delivered project backlog and $3.6 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 at the end of 2024. We expect that approximately $6 million of current consolidated backlog will be recognized in the next 12 months.

SG&A expenses were $4.2 million in the fourth quarter compared to $3.9 million in the prior year period. As a percentage of revenue, SG&A expenses declined to 57% from 75%, reflecting higher consolidated revenue in the current period, offset by the timing of certain expenditures. Research and development expenses for the fourth quarter rose to $504,000 from $405,000 in the same period a year ago, mainly attributed to our commercialization efforts for our DGI technology.

Our operating loss narrowed to $1.4 million compared to a loss of $2.1 million in last year's fourth quarter, reflecting higher revenue and margin contributions from our operating segments. We continue to take advantage of the favorable interest rate environment and as of December 31, 2025, have invested a majority of our $31.9 million in held-to-maturity debt securities and money market funds. This generated $288,000 of interest income in the fourth quarter and $1.4 million of interest income for 2025.

Moving to the results for full year 2025. Consolidated revenue rose 6% to $26.7 million, in line with our most recent guidance provided in November. The increase in full year revenue was driven by a 28% rise in FUEL CHEM segment revenue to $17.8 million, exceeding our guidance for the year. This increase in revenue was partially offset by a decrease in APC segment revenue.

Consolidated gross margin for 2025 rose to 46% from 42% in 2024 with higher margins for both the FUEL CHEM and APC operating segments. SG&A expenses for 2025 modestly increased to $14.1 million from $13.8 million in 2024, within the guidance range we provided at this time last year. The increase was mainly attributed to employee-related expenditures. As a percentage of revenue, SG&A decreased to 53% from 55%, reflecting higher consolidated revenue. For 2026, we expect SG&A expenses to increase modestly from those in 2025.

Research and development expenses for the year were $2 million for 2025 compared to $1.6 million in 2024, as we move closer to fully commercializing our DGI segment technologies. In addition, we also continue to invest efforts related to our legacy technologies as necessary.

Operating loss narrowed to $3.7 million for 2025 compared to a loss of $4.7 million in 2024, reflecting higher segment revenues and relatively flat total costs and expenses. Net loss for 2025 was $2.3 million or $0.08 per diluted share compared to a net loss of $1.9 million or $0.06 per diluted share in 2024. Adjusted EBITDA loss was $2.7 million in 2025 compared to an adjusted EBITDA loss of $2.2 million in 2024.

Lastly, moving to the balance sheet. Our financial condition remains very strong. As of December 31, total cash and investments was $31.9 million, comprised of cash and cash equivalents of $11.9 million and short- and long-term investments of $20 million. Net cash provided by operating activities was $3 million for the year as compared to a use of total cash of $2.8 million in the same period last year. Shares outstanding at quarter-end were approximately 31.1 million, equating to cash per share of $1.03. Working capital was $25.7 million or $0.83 per share. Stockholders' equity was $40 million or $1.29 per share, and the company continues to have no outstanding debt.

We remain fully confident in our ability to uphold a strong financial condition and continue funding both short- and long-term growth initiatives across FUEL CHEM, APC and DGI. I'll now turn the call back over to Vince.

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

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

So first, the data center opportunity should be significant for the company. You mentioned you're reliant on these integrators or OEMs for getting the final order. My question is, are you already designed-in with these participants? Or is there further sort of competition once those guys get the orders from data centers?

I can't say that we were specifically designed-in for these operators at this point in time, Sameer. What we're doing is we would obviously, we would like to be at the point whereby we are designed-in with an integrator or operator that's looking to build several sites.

But right now, at the beginning phase with some of these operators, what we're doing is establishing ourselves as a potential trusted partner to be able to do the design pollution control system for them. A lot of the parties that are coming to us aren't necessarily -- not necessarily very familiar with pollution control requirements. So we are definitely playing an educational role as we work with some of these parties at this point in time. But we are hoping that the upfront time that I mentioned that we are investing with these opportunities, is going to pay off a little bit longer term as these projects actually do come through their evolution and are ultimately awarded. So that's where we stand today. And the situation, I would say, is slightly different across the different parties that we are dealing with.

Understood. And I do not want to conflate this, but the requirements for the less than 85-megawatt plants and short-term working less than 24 months. Does that in any way affect or impact these data center opportunities? Just -- I just don't want to conflate those, but is there any relation?

Right. Ultimately, on a long-term basis, that should not have an impact, Sameer, because most of the projects that we read about, most of the projects that we're having discussions about are intended to be long-term power generation solutions for that particular data center, right? It would only be in the instance whereby a potential operator or integrator needed that to meet perhaps a very specific start-up date and they had the ability to have some power generation equipment up and running for a short period of time to meet that start-up date, again, perhaps, right?

But again, from our perspective, the people and parties that we are dealing with, they're looking at long-term power generation solutions that are indeed not temporary in nature because they're looking to support that data center long term, not just for less than 24 months.

Got it. Sticking to sort of regulatory environment with the EPA declaring carbon dioxide not a pollutant and you talked about the mercury toxins action. And it's indirectly helping you because it does not require NOx reductions. And so existing plants may have extended life because of the other reductions, in requirement or loosening of requirement. Are you already seeing any increased activity as a result of this where some of the plants that may be on the way to shut down are now saying that, hey, we can work, we can continue to function and reaching out to you?

At this point in time, Sameer, it's a little bit too early to assess the impact of those relatively recent rollbacks. We just wanted to point out very specifically that those rollbacks, do not impact Fuel Tech's opportunity to capture prospective awards that are specifically related to nitrogen oxide reduction opportunities. So we just want to ensure that there is no confusion related to those rollbacks, which are not going to impact Fuel Tech business opportunities. Longer term, those rollbacks, they could indeed have the impact of possibly extending the useful lives of some facilities.

Got it. And then moving to FUEL CHEM. It's nice to see the 6-month sort of trial order and likely because they are seeing the results likely to convert. Are there more such potential customers that you have in the pipeline or are at least talking to in terms of getting -- because each additional customer could bring $2-plus million or almost $4-plus million in orders, annual recurring revenues.

So at this point in time, yes, we're very optimistic about converting this demonstration to a commercial contract. Hopefully, that will bode well for us here in 2026. But incrementally, as I've said on prior conference calls, the coal-fired base-loaded unit, just call it phenomenon, it isn't as robust as it used to be a decade or 15 years ago with so many coal-fired plants being shut down. We are looking for these pockets of opportunity whereby we can on an incremental basis, add these one-off opportunities for us, okay?

And we need to be a little bit careful about saying that each incremental unit is going to be between $2 million and $3 million per opportunity in revenue because it does vary by unit size and the specific run time of that unit. So I just wanted to qualify that.

So to specifically answer your question, we don't have anything of what I would call specifically that we're looking for imminent demonstration, but we are looking at some other opportunities that could be for us and perhaps with the same body of plants that we're doing business with today to add another unit or 2 at plant sites. So there is opportunity there. But again, as I've said previously, we haven't looked at FUEL CHEM as being what I would call a material growth opportunity for the past several years. What we're seeing here in the recent term, we're very, very pleased with. We finished 2025 at just under $18 million in revenue, which if you had asked me that question 5 years ago, I would have said it wouldn't have been possible. So we're very pleased with where we are. And there is some, I'll call it, moderate upside opportunity, but it's moderate.

Right, right. And just -- I'm guessing this outlook for 2026 where FUEL CHEM is expected to be at same levels as 2025. This does not include this incremental opportunity that may convert into -- from trial to full time?

Yes. We're looking at it right now very conservatively, Sameer, without knowing exactly what the outcome is going to be as we sit here today. We'll have more information to share in early May when we have our first quarter conference call.

Yes. That's fair. And just squeezing in one last one on VGI. It seems this fishery that -- sorry, municipal wastewater seems to be working well as well as the fishery seems to be working well. Should we expect revenues from DGI during 2026? Because on the outlook, you didn't mention any of that.

Right. So we are going to recognize a small dollar value of revenue from the rental of the system at the municipality. That's only $10,000 per month. As we look at the remainder of the year, we are hoping to have a system sale between now and the end of 2026 of one of our DGI units. It's not going to be material to our overall results.

But what is important regarding that activity is, it sets a platform for us to be able to further and go ahead and discuss a success story, specifically with the end markets that we're looking to chase. And we haven't had the opportunity to do that yet. So that moment is extremely critical for us as we look to further develop and commercialize DGI.

[Operator Instructions] Our next question comes from Adam Waldo with Lismore Partners.

I hope you can hear me okay.

Yes, we can, Adam. Thank you.

So very high-level question. Your stock trades at $1.20, $1.25 a share. You have about $1 a share in cash on your balance sheet. You have a reasonable prospect of being cash flow positive in 2026. And you articulate a sizable new business pipeline in the data center area. I would argue that with your stock trading where it is, the market doesn't believe you're going to close any of that pipeline. You're more optimistic that you can over the balance of 2026, and you were optimistic in the second half of 2025 as well. The timing of these projects is very hard to predict. What gives you so much confidence and optimism that you're going to close a sizable number of data center projects over the next 12 to 18 months?

Adam, thanks very much for the question. Yes, you're correct. I mean we're in a position whereby, yes, we're trading just a little bit above cash value today. We, as a company, have not been able to go ahead and bring to the table any material award as of yet, as it relates to the data center opportunity.

So in response to your question, my level of confidence lies in a couple of areas. First of all, as we've seen this opportunity develop and literally over the past 9 to 12 months because it is still, what I would call a new opportunity, and it's one that we don't believe as Fuel Tech is a short-term opportunity. It's one that's going to develop over the next 5 to 10 years. But what we have seen over this past 9 to 12 months is more and more players, if you will, players defined as data center integrators, parties that have access to power generation equipment in the form of turbines or engines and just then the OEMs of those turbines or engines themselves. There are -- there have been more inquiries come our way literally over this past 3 months than we saw come our way over the initial 6 to 9 months, relative to parties seeking to take advantage of the opportunity to provide power generation solution to the data centers that are going to be built out, okay?

So point number one, it's just the volume of activity, the different types of parties and players that are coming to the table. And also, what I would call, it's the caliber of the parties that we're dealing with as well in terms of them being, in some cases, multinational organizations with scale and capability that give us the confidence that at some point in time here, just given the demand that Fuel Tech's products and solutions are going to be pulled into this ultimate data center solution, okay? So number one, the volume of activity is -- it gives me a very high level of confidence.

Point number two is my confidence in the Fuel Tech team, to be able to go ahead and basically assimilate all of the inquiries that have been coming our way and determine our best path with these data center integrators and/or engine or turbine suppliers to be able to position us well with those organizations and give these organizations the confidence that we, at Fuel Tech can deliver on our Air Pollution Control Solution for them. So it's twofold. And yes, I am optimistic. I mean the level of inquiry is indeed extraordinary. And so it's up to us to capitalize on it, and we're doing everything that we can to do so at this point in time. I hope that answers your question.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Vince Arnone for closing comments.

Thank you, operator. In closing, I want to thank, obviously, our Fuel Tech team for their continued support and dedication. Thanks to all of our stakeholders, again, for your patience. We're doing everything that we can to create shareholder value. And we have an opportunity landscape in front of us today that we know we need to capitalize on, and we're going to do everything that we can. Thanks to our Board for support as well. With that, I want to wish everyone a good day, and thanks for participating in the conference call.

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

Thank you for your patience. Mr. Sullivan, you may now begin.

Thank you, Michelle. Apologies for those technical difficulties. Good morning, everyone, and thank you for joining us today for Fuel Tech's 2025 Third Quarter Financial Results Conference Call. Yesterday, after the close, we issued a press release, a copy of which is available on 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 to 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 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 section -- in Item 1A under the caption of Risk Factors and subsequent filings under the Securities Act of 1934 as amended, which could cause Fuel Tech's actual growth, results of operations, financial conditions, 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'd like to thank everyone for joining us on the call today.

For the third quarter of 2025, we operated profitably, enhanced our gross margins, broadened the client base for our APC and FUEL CHEM business segments and maintained a strong financial position with cash, cash equivalents and investments of nearly $34 million at quarter end and no long-term debt. We are continuing to advance our Dissolved Gas Infusion technology through industry outreach and are well underway with an extended demonstration of this offering at a fish hatchery in the Midwest U.S. We also closed a modest acquisition of complementary APC intellectual property that we believe will help us address customer APC needs on a global basis.

Our FUEL CHEM segment produced a solid quarter of growth, driven by increased dispatch at legacy clients and contributions from a new account added in mid-2024. Just a few days ago, we commenced a 6-month commercially priced demonstration program for a new FUEL CHEM customer in the U.S. As discussed on our second quarter call, 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. This new engagement will have a positive initial effect on our FUEL CHEM results in the current fourth quarter with sustained segment contributions in 2026. We estimate the annual revenue potential from this commercial contract to be approximately $2.5 million to $3 million based on the customer running the program full time with the revenue expected to generate historic FUEL CHEM gross margins.

Based on FUEL CHEM segment performance year-to-date and the impact of this new demonstration program, we now believe FUEL CHEM's full year 2025 segment revenue will approximate $16.5 million to $17 million, up from our prior guidance of $15 million to $16 million, which would be the highest level since 2022.

Revenues for our APC business in the third quarter declined compared to the prior period due primarily to the timing of project execution on existing contracts. During the third quarter, however, we announced $3.2 million of new APC awards from new and existing clients in the U.S., Europe and Southeast Asia. These contracts helped to increase our consolidated APC segment backlog to $9.5 million at the end of the third quarter. We are currently pursuing $3 million to $5 million of potential additional APC contracts that we would expect to close before the end of the year or in the early part of Q1 2026. This is exclusive of data center opportunities, which I will discuss shortly.

Next, I'd like to note that subsequent to quarter end, we expanded our APC portfolio through a small strategic acquisition of complementary intellectual property and customer-related assets from Wahlco, Inc., a well-established environmental equipment and services company with several hundred project installations worldwide. The total cash consideration for the transaction was $350,000, representing a strategic and cost-effective expansion of our IP portfolio and demonstrating our disciplined approach to capital allocation. We were able to secure high-value assets at a modest price, strengthening our technology base and aligning with our long-term strategy to address customer air pollution control needs globally.

The acquired suite of assets includes technology applicable to flue gas conditioning systems, ammonia handling equipment for a wide range of industrial applications, and urea to ammonia conversion technologies for NOx reduction using complementary technologies to our existing portfolio in these areas. Also included as part of the portfolio, our customer installation and aftermarket data, which we believe will drive accretive aftermarket revenues. We view this acquisition as both strategically and operationally attractive, enhancing our competitive position and expanding the solutions we can offer to our APC customers worldwide.

We continue to pursue additional new awards driven by an industrial expansion globally and by state-specific regulatory requirements in the U.S., and we are continuing to monitor the progress of EPA's rule for large municipal waste combustor units. This rule reduces the nitrogen oxide emissions requirements for large MWC units. Fuel Tech has had a long history of assisting this industry and meeting its compliance requirements, and we have had discussions with customers in this segment to support the 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. The public comment period closed at the end of May of this year, so the final rule remains on track.

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.

As we have discussed on our few prior conference calls, we are experiencing an unprecedented increase in demand for power generation in this country and globally that is being driven by the digital economy, including AI and data centers, the electrification of everything and a massive industrial and energy transition, all happening simultaneously. This represents one of the most exciting opportunities that we have seen in quite some time for our company as it 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 the general trend for digital expansion. Data centers are expected to become the backbone of the digital age and their development is driving new power generation demand.

This demand in power, in some instances, 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 a nonattainment area for ozone ambient air quality standards as NOx is a contributor to ozone. There will be more stringent NOx reduction requirements in nonattainment areas.

Second, what is the planned utilization of the power generation application? Is the power generation source for primary or backup power and what are the expected number of operating hours per year of the generating source? Primary power sources and backup power that is expected to run extensively will be more likely to require SCR for NOx reduction.

And third, what is the baseline NOx emission of the power generation source? Some rotating internal combustion engines or combustion turbines can be equipped with combustion controls to enable a lower NOx baseline level and possibly eliminate the need for SCR. However, ultimately, the site permit will define the required level of emissions control.

Interest in our technology solutions for these applications has continued throughout the recent quarter. And as of today, we are continuing to engage with multiple potential customers, representing a sales pipeline of current outstanding project bids of approximately $80 million to $100 million for projects integrating our SCR technology with power generation sources to meet emissions control requirements for data centers planned across the U.S. over the next several years. We are continuing to work with our supply chain partners and engineering colleagues to prepare for these opportunities.

While the majority of our inquiries over these past few months have been from turbine OEMs, in recent weeks, we have had discussions with a variety of different companies that are looking to address the market need for the expedient deployments of reliable power generation as either a permanent solution or as a temporary bridge solution for a gap period, such as waiting for a permanent grid connection. Such companies include those that have access to aircraft engines and are looking to bring these assets into the power generation market and also system integrators.

Additionally, we are finding that the use of smaller engines and turbines is coming into favor, which is generally preferential for Fuel Tech as near-term developments require power generation in support of bringing data centers online sooner rather than later and lead times for large gas turbines are expanding to periods of 5 to 7 years or more. We see this expansion of interest from these parties as an exciting opportunity, and we will continue to investigate and pursue both conventional and nontraditional sources to ensure that our technology offerings enhance the benefits of temporary and long-term power generation solutions.

For our Dissolved Gas Infusion business, we had a very successful exhibition of DGI at the Water Environment Federation Technical Exhibition and Conference, or WEFTEC, in Chicago last month and generated significant interest in the technology. We are continuing an extended demonstration of DGI at a fish hatchery on the Western U.S., which we expect will last until the end of Q1 of 2026. We are continuing discussions with multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical and horticulture. As discussed last quarter, we have been looking to expand our network of sales representatives in support of DGI, and we did add one additional representative during the quarter to augment the work being done by 2 existing firms. We expect to continue to build this network as we experience further interest in DGI.

As we look ahead to the balance of 2025, based on our effective backlog and pending contract awards, the APC business development activities that we are pursuing and our previously noted expectations for FUEL CHEM, we are expecting revenues for 2025 to be approximately $27 million, which represents an 8% increase over 2024. This is a base case outlook and excludes any material contributions from APC from data center contract awards and any material impact from the new business development activities for FUEL CHEM.

In closing, I'd like to thank the entire Fuel Tech team for their continued dedication to advancing our strategic objectives and our shareholders for their ongoing confidence and support. We look forward to keeping you apprised of our progress as we move forward towards the end of 2025 and into 2026.

Now I'd like to turn the call over to Ellen for her comments on our financial results. Ellen, please go ahead.

Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues declined slightly to $7.5 million from $7.9 million in the prior year period due to lower APC segment revenues, partially offset by higher FUEL CHEM segment revenue. APC segment revenue declined to $2.7 million from $3.2 million, primarily related to the timing of project execution on existing contracts. As expected, FUEL CHEM had a solid quarter with revenue improving to $4.8 million from $4.6 million.

Consolidated gross margin for the third quarter rose to 49% of revenues from 43% in last year's third quarter due to increases in both FUEL CHEM and APC segment gross margins. FUEL CHEM gross margin increased to 50% compared to 49% in the third quarter of 2024 due to an increased volume of sales activity, combined with relatively flat segment administrative expenses. APC segment gross margins expanded significantly to 47% in the third quarter compared to 35% in the prior year period as a result of product and project mix that included a higher proportion of ancillary revenue consisting of spare parts and service revenue, which represents a higher margin contribution to traditional capital project margins.

Consolidated APC segment backlog as of September 30, 2025, was $9.5 million, up from backlog of $6.2 million at the end of 2024. Backlog at September 30 included $4 million of domestically delivered projects and $5.5 million of foreign delivered project backlog. We expect that approximately $7.1 million of current consolidated backlog will be recognized in the next 12 months.

SG&A expenses were flat at $3.2 million in the third quarter. As a percentage of revenue, SG&A expenses rose to 43% from 41% in the prior year period, reflecting lower consolidated revenue in the current period. For 2025, we continue to expect SG&A expenses to increase modestly from prior year as we focus on the development of our infrastructure in support of our business segments.

Research and development expenses for the third quarter of 2025 rose to $450,000 from $361,000 in the prior year period, reflecting our ongoing investment in water and wastewater treatment technologies, notably our DGI systems and the site demonstration previously referenced by Vince. Our investment in DGI will continue throughout 2025 to support ongoing site demonstrations and other growth initiatives as we ramp up towards commercialization.

During the third quarter, we delivered profitable results with positive operating income, net income of $303,000 or $0.01 per share compared to a net income of $80,000 or $0.00 per share in the prior year period. And adjusted EBITDA was $228,000 compared to an adjusted EBITDA loss of $35,000 in the prior year period.

Lastly, moving to the balance sheet. Our financial condition remains very strong. As of September 30, 2025, total cash and investments was $33.8 million, comprised of cash and cash equivalents of $13.7 million and short- and long-term investments of $20.2 million. Net cash provided by operating activities was $4.6 million for the 9 months ended September 30 as compared to a use of cash totaling $1.8 million for the same period in the prior year.

Shares outstanding at quarter end were approximately $31.2 million, equating to cash per share of $1.08. Working capital was $26 million or $0.83 per share. Stockholders' equity was $41 million or $1.31 per share, and the company continues to have no outstanding debt.

We remain greatly confident in our ability to maintain a strong financial position to fund and to fund our short- and long-term growth initiatives for our FUEL CHEM, APC and DGI business segments.

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.

[Operator Instructions] Our first question comes from the line of Amit Dayal with H.C. Wainwright.

This acquisition, do you need to make any additional investments to meaningfully monetize this acquisition?

And just in terms of the time line for you to see any sort of contribution from this IP, should we expect anything coming in this year itself? Or is this more of a 2026, 2027 type situation?

Okay. Two questions there. I'll answer your first question at this point in time. I don't expect that we may need to make a significant amount of incremental investment here internally to capitalize on the IP that we've acquired. We are familiar with the technologies that we have brought in-house. And so, at this point in time, no, I'm not anticipating any sort of significant investment required to monetize.

Your second question is, we are going to get at least some small contributions relatively quickly from some of the aftermarket opportunities that will come our way from the very large installation base that Wahlco, Inc., does have in place and that they've built historically over the past 3 decades. So we will see some near-term benefits as an incremental to our aftermarket business. But obviously, we would like to see some larger scale benefits in terms of capital project awards as we move into 2026 and beyond.

So specifically, we will see some near-term favorable impacts from an aftermarket business, but those won't be what I would call extraordinarily material. As we move into '26, we'll look to capitalize on utilizing that IP to pursue some capital project awards. But from our perspective, this was an easy decision and a very solid strategic investment for us to make as we look to continue to build out our APC portfolio of solutions for our end markets here in this country and the remainder of the world.

Understood. And then for the data center type opportunities, are you working with any folks in the value chain from a distribution perspective? Or are you directly approaching some of these entities with their solutions?

So as we've discussed a little bit previously, we are the back end of the solution to your power generating source. So we are typically brought into the equation for the data center build-out from one of the engine or turbine OEMs, okay? That's generally how we're brought in. And so, we're looking to work with those parties to try to bring ourselves into the opportunity that's there.

As I noted in my script, so recently, we have been contacted by some other parties that are looking to enter this space that are what I would call nontraditional players. I mentioned a company that manages aircraft engines. They maintain, they lease and so on and so forth, very large organization, but they're looking to repurpose some of their aircraft engines to be applicable to generating power for data centers. So that's a new entrant that we're trying to work with to bring our solution to the opportunity. And we have been contacted recently by some of the integrators as well that are looking to package a solution and bring that solution to the end customer.

So now it's the OEMs, it's some new market entrants and some integrators as well. And so, we're expanding our, call it, our method of opportunity, our method of supply chain to get into this data center marketplace.

Understood. And then from a pipeline perspective, how big is the pipeline already? I don't know if you can share color on that. But I'm just trying to see if you have already started to include some of this data center opportunity from a pipeline perspective.

So from a pipeline perspective, we have 8 to 10 opportunities that we are pursuing today, and those opportunities are worth $80 million to $100 million in total. That's what we're sitting on today. Those opportunities are broken down into different categories. A couple of them are commercial, and we would expect to have finalization on those opportunities either before the end of the year or early in 2026. The majority of the remainder are what I would call more initial inquiry, budgetary inquiry in nature, whereby a customer comes to us and they are looking to evaluate how they're going to make a proposal to their end customer, and we give them a budgetary quote. So in total, as I said, 8 to 10 opportunities valued at $80 million to $100 million in total.

Our next question comes from the line of [ Ankur Sagar ], who's a private investor.

Vince, as you -- thank you for elaborating on the factors for the data center opportunity. As you listed, I mean, there is an immense shortage of these gas turbines and some of the entities have even just started using like aircraft engines, which require emission control. And it's been on the news, for example, like xAI, which is a large hyperscaler, which really put this whole setup with gas turbines quickly, but then had to go back and get a permit for refitting these turbines with SCR. So there is a lot happening, and you're involved in this. But anything you can share from a time line perspective on when do you expect sort of like in any of these pipeline opportunities to come to fruition?

Yes. So as I just mentioned in my comment to Amit, 2 or 3 of these contract opportunities we consider to be commercial opportunities, and we would expect to have a response on them, again, late this year or sometime in Q1 at the latest on those 2 to 3. The remainder need to progress a little further relative to the project development phase. And so, I can't offer time lines on that as we sit here today. But with the 2 or 3 that are indeed commercial, I would expect some sort of conclusion on them here within this next few months' time frame at the most.

Okay. And then these couple -- 2 or 3 that you expect some response before that -- are these like more like where they will convert from pipeline into orders? Or these are also like platform opportunities where you are retrofitting your solution with some other vendor, whether it be a gas turbine or OEM or an integrator where you can probably have more than just the 2 orders or anything?

Can you clarify your question one more time between the -- before I give you an answer, if you don't mind, please.

The couple of opportunities that you would see some news or results on before the end of this year, are these also like platform opportunities where your solution will get retrofitted in another company's solution, whether it be an OEM turbine maker or an integrator where it will not just be just the 2 orders, let's say, you get, but there is a potential to get more than just the 2 in '26.

Ankur, thanks for the clarification. To answer specifically, these initial orders that if we're able to bring them to fruition, would be giving us the ability to expand and participate on additional opportunities that these customers would have prospectively. So yes, if these orders come in-house, I would expect that -- it's not going to be an automatic that we're fixed to all of those customers' opportunities prospectively, but it is going to give us a very nice opportunity to expand business with these entities prospectively, and we would expect then incremental orders prospectively.

Got it. Okay. One last one. In this, I think, fiscal year in the last 3 quarters, I mean, from a cash flow perspective, I think your team has done really well. Your cash on the balance sheet has increased from working capital done really good. How do you expect Q4 to be from a cash flow perspective?

Yes. I would think as we look to our cash balance towards the end of 2025, I would say flat to slightly down as we look at the end of the year. Q3 is typically our best performing quarter, generally speaking. So we have the opportunity for increased cash flow. And we did have some excellent cash collections in Q3 as well to build the amount. But as we look towards -- moving in towards the end of 2025, I'd say flat to slightly lower for the end of the year. But still, we're very pleased with our cash balance in terms of where it is today at around $34 million and no debt. It gives us a great platform to be able to evaluate and assist our potential customer base as we're looking at the landscape of opportunities that we do have. It gives us a lot of flexibility.

Our next question comes from the line of Richard Greulich with REG Capital Advisors.

Vince, last quarter conference call, you mentioned a global sales pipeline of, I don't know, $75 million to $100 million. Was that including the data center opportunities that you've been talking about today?

No. Actually, that number would not have included the data center. Actually, that number was the data center opportunity more specifically. And we would have had, call it, more regular ordinary recurring APC business that would have been another $10 million to $20 million in pipeline on top of that number.

So today, as I'm talking about 8 to 10 opportunities for $80 million to $100 million, that's data center opportunities only. We have an additional pipeline of what I would call more standard APC business that is another $10 million to $20 million on top of that amount.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Arnone for any closing remarks.

Thank you, operator. I'd like to thank everyone who joined the call today. We were indeed pleased with our results for Q3. We are very excited about our outlook as we look to end 2025 and move into 2026. The APC landscape of opportunities is indeed the best landscape that we have seen in several years as a company. Our goal as a team is to capitalize on that opportunity.

For our Chemical Technologies business, we -- this year, we're looking at our best performance with that business segment since 2022. And with the very solid opportunity of bringing on another coal-fired unit as we look to end this quarter and move into 2026, we have a wonderful outlook for 2026 for our Chemical Technologies segment as well. So very pleased with where we are sitting today as a company.

Again, thank the Fuel Tech employee team, thank our shareholder base. Everyone, have a wonderful day. Thank you.

Thank you. This concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.