Fuel Tech Inc. Reports Operating Results (10-Q)
Fuel Tech Inc. has a market cap of $123.3 million; its shares were traded at around $5.49 with a P/E ratio of 20.4 and P/S ratio of 1.3.
Highlight of Business Operations:The Air Pollution Control (APC) technology segment generated revenues of $12,818 and $28,532 for the three- and six-months ended June 30, 2012, respectively, an increase of $3,174, or 33%, and $7,796 or 38%, from the prior year periods reflecting work progress on construction project bookings made primarily during the third and fourth quarter of 2011. This segment remains positioned to capitalize on the next phase of increasingly stringent U.S. air quality standards, specifically on NOx control. Interest in Fuel Techs suite of air pollution control technologies, on both a new and retrofit basis, remains strong both domestically and abroad. The Company expects demand for its APC products to grow significantly based on the compliance deadlines in multiple market segments that will be phased in over the next three years.
The FUEL CHEM technology segment generated revenues of $8,093 and $17,591 for the three- and six-months ended June 30, 2012, respectively, a decrease of $1,284, or 14%, and a decrease of $3,316 or 16% versus the respective prior year periods. The decrease is due to attrition at existing customer accounts in part due to the soft electric demand market and fuel switching as a result of low natural gas prices. These factors led to unscheduled outages and coal combustion units operating at less than full capacity which resulted in a corresponding decrease in our quarter-over-quarter and overall year-to-date revenue. Also contributing to the decrease in overall year-to-date revenues was a non-recurring sale of low margin installation-related work totaling $2.7 million that was recognized in the first two quarters of 2011.
Cost of sales as a percentage of revenue for the three-month periods ended June 30, 2012 and 2011 was 57% and 55%, respectively. For the three-month period, the cost of sales percentage for the APC technology segment increased to 62% from 54% in the comparable prior-year period, primarily due to an increase in the volume of lower margin foreign projects. For the FUEL CHEM technology segment, the cost of sales percentage decreased to 49% from 57% in the comparable prior-year quarter due to a higher margin mix of customer orders and the aforementioned non-recurring sale of lower margin installation work recognized in the first two quarters of 2011, which diluted the margin percentage for that period.
Cost of sales as a percentage of revenue for the six months ended June 30, 2012 and 2011 was 54% and 53%, respectively. The cost of sales for the APC technology segment increased to 59% from 52% due to an increase in lower margin foreign projects as described above. For the FUEL CHEM technology segment, the cost of sales percentage decreased to 48% from 54% due to the mix of customer business, offset by the aforementioned non-recurring sale of low margin installation work recognized in the first six months of 2011.
Selling, general and administrative expenses (SG&A) for the three-month periods ended June 30, 2012 and 2011 were $7,874 and $7,966, respectively. This represents a 4% decrease in SG&A as a percentage of revenues to 38% from 42%. Although on a total dollar basis SG&A remained relatively flat for the quarter versus the prior year, increases in employee related costs of $221, sales commissions of $468, and outside service fees and employee travel of $93 was partially offset by a decrease in stock-based compensation of $898. SG&A for the six-month periods ended June 30, 2012 and 2011 were $16,868 and $15, 917, respectively, which represents a 1% decrease as a percentage of revenues to 37% from 38%. The increase of $951 was primarily related to increases in employee related costs of $652, sales commissions of $1,041, legal costs of $92, fees to outside service providers of $324, and business taxes $88, partially offset by a decrease in stock compensation of $1,319.
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