Executive Summary / Key Takeaways

• Fuel Tech, Inc. is poised for significant growth, driven by a resurgence in its core Air Pollution Control (APC) and FUEL CHEM segments, and substantial emerging opportunities in the data center and water treatment markets.
• The company reported a return to profitability in Q3 2025, with net income of $303,000 and adjusted EBITDA of $228,000, underpinned by strong gross margin expansion to 49% consolidated.
• A strategic acquisition of Wahlco, Inc.'s intellectual property in October 2025 enhances Fuel Tech's APC portfolio, promising accretive aftermarket revenues and expanded global solutions.
• Fuel Tech is actively pursuing a robust sales pipeline of $80 million to $100 million in data center-related APC projects, leveraging its SCR technology to meet escalating power generation demands.
• The company maintains a strong financial position with $33.8 million in cash and investments and no long-term debt as of September 30, 2025, providing ample liquidity for strategic initiatives and growth.

A Specialized Player in a Transforming Industrial Landscape

Fuel Tech, Inc., established in 1987, has carved out a specialized niche in providing proprietary technologies for air pollution control, process optimization, and water treatment. The company's enduring mission is to enable utility and industrial customers to operate cost-effectively and sustainably, a mission that resonates deeply in today's rapidly evolving energy and industrial sectors. Fuel Tech's strategic focus centers on leveraging its advanced engineering processes and differentiated technologies to address critical environmental and operational challenges.

The broader industry landscape is characterized by an unprecedented increase in demand for power generation globally, fueled by the digital economy, artificial intelligence (AI), electrification, and a massive industrial and energy transition. This dynamic environment presents both immense opportunities and intense competition. Larger, diversified industrial conglomerates like General Electric and Siemens Energy offer integrated, large-scale solutions across the energy value chain, benefiting from extensive global reach and substantial R&D budgets. Babcock & Wilcox (BW) also competes in boiler and emissions control, often with established utility relationships. Fuel Tech, in contrast, positions itself as an agile, technology-focused specialist, offering targeted solutions that can provide distinct advantages in specific applications, often with a focus on cost-effectiveness and rapid deployment. While Fuel Tech's scale is smaller, its deep expertise in niche applications allows for a more tailored approach, potentially leading to higher efficiency and lower operating costs for its customers in specific industrial settings.

Technological Edge: Precision, Efficiency, and Innovation

Fuel Tech's competitive moat is built on its proprietary technologies, which offer tangible benefits over conventional alternatives.

The Air Pollution Control (APC) technology segment is central to its offerings, providing solutions to reduce nitrogen oxide (NOx) emissions from various combustion sources. This includes Over-Fire Air systems, NOxOUT and HERT Selective Non-Catalytic Reduction (SNCR) systems, and advanced Selective Catalytic Reduction (SCR) systems. The SCR systems are further enhanced by Ammonia Injection Grid (AIG) and Graduated Straightening Grid (GSG) systems, designed to achieve high NOx reductions at significantly lower capital and operating costs than traditional SCR setups. The ULTRA technology, which generates ammonia from safe urea on-site, further streamlines SCR applications. For particulate matter control, Fuel Tech offers Electrostatic Precipitator (ESP) products and services, along with flue gas conditioning systems that modify ash properties for improved collection efficiency. These technologies are underpinned by the company's robust computational fluid dynamics (CFD) modeling capabilities and proprietary visualization software, enabling precise and optimized solutions.

The FUEL CHEM technology segment focuses on process optimization within furnaces and boilers. Utilizing chemical processes in conjunction with advanced CFD and Chemical Kinetics Modeling, FUEL CHEM programs control slagging, fouling, corrosion, opacity, and sulfur trioxide-related issues. This Targeted In-Furnace Injection (TIFI) technology directly improves boiler efficiency, reliability, fuel flexibility, and heat rate, while also enhancing the environmental profile of combustion units. The tangible benefits include reduced maintenance downtime and maximized power generation, directly impacting a customer's bottom line.

Fuel Tech's commitment to innovation extends to new markets with its Dissolved Gas Infusion (DGI) Systems. This emerging technology employs a patented gas-infusing saturator vessel and a patent-pending channel injector to deliver supersaturated oxygen-water solutions (or other gas-liquid combinations) for municipal and industrial water treatment. DGI systems promise reduced energy consumption, lower installation and operating costs, and improved treatment performance across diverse applications such as aquaculture, wastewater odor management, and industrial processes. While specific quantitative performance metrics for DGI are still emerging from ongoing demonstrations, the strategic intent is to disrupt existing aeration technologies with a more efficient and cost-effective solution.

A recent strategic move further solidifies Fuel Tech's technological standing. On October 3, 2025, the company acquired intellectual property assets from Wahlco, Inc. for $350,000. This acquisition strategically expands Fuel Tech's APC portfolio to include flue gas conditioning systems, ammonia handling equipment, and urea-to-ammonia conversion technologies. This move is expected to drive accretive aftermarket revenues from Wahlco's extensive installed base and enhance Fuel Tech's competitive position by broadening its solution offerings for APC customers globally.

Financial Performance and Operational Momentum

Fuel Tech's financial performance in 2025 reflects a positive inflection point, particularly in the third quarter. The company returned to profitable operations, reporting net income of $303,000, or $0.01 per share, for the three months ended September 30, 2025, a notable improvement from $80,000 in the prior-year period. Adjusted EBITDA also turned positive, reaching $228,000 compared to a loss of $35,000 in Q3 2024.

Consolidated gross margin expanded significantly to 49% of revenues in Q3 2025, up from 43% in Q3 2024. This improvement was driven by strong contributions from both segments. The FUEL CHEM segment's gross margin increased to 50% (from 49% in Q3 2024) due to higher sales volume and relatively flat administrative expenses. The APC segment's gross margin saw a substantial expansion to 47% (from 35% in Q3 2024), primarily due to a favorable product and project mix, including a higher proportion of ancillary revenues like spare parts and services, which typically carry higher margins.

For the nine months ended September 30, 2025, total revenues were $19.430 million, a slight decrease from $19.850 million in the prior year. However, this masks divergent trends within the segments. FUEL CHEM revenues surged by 25% to $12.915 million for the nine-month period, driven by increased operational dispatch at legacy accounts and sustained business from a new customer added in mid-2024. This performance marks the best first quarter for FUEL CHEM in over ten years. Conversely, APC revenues declined by 31% to $6.515 million for the nine months, primarily due to the timing of project execution and customer-driven delays. Selling, general and administrative (SG&A) expenses remained relatively flat, decreasing by $18,000 in Q3 2025 compared to the prior year, while research and development (R&D) expenses increased to $450,000 in Q3 2025, reflecting ongoing investment in DGI systems.

Fuel Tech maintains a robust financial position, with cash, cash equivalents, and investments totaling $33.8 million as of September 30, 2025. The company operates with no long-term debt, providing significant financial flexibility. Net cash provided by operating activities for the nine months ended September 30, 2025, was $4.583 million, a substantial turnaround from a cash usage of $1.785 million in the same period of 2024. This strong liquidity is strategically managed through an investment policy that allocates $20 million to held-to-maturity debt securities, balancing returns with liquidity needs. Management believes its current cash position and expected cash flows are adequate to fund operations for the next 12 months.

Strategic Initiatives and a Compelling Outlook

Fuel Tech's strategic initiatives are tightly aligned with capitalizing on current market dynamics and its technological strengths.

The FUEL CHEM segment is projected to achieve full-year 2025 revenues of approximately $16.5 million to $17 million, an upward revision from prior guidance and its highest level since 2022. This positive outlook is bolstered by a new six-month commercially priced demonstration program for a U.S. coal-fired unit, which commenced in Q4 2025 and has an estimated annual revenue potential of $2.5 million to $3 million. Internationally, discussions continue with a partner in Mexico, with hopes that FUEL CHEM technology will become integral to the new government's environmental policies, particularly concerning heavy fuel oil power generation.

The APC segment is experiencing a significant resurgence in opportunities. Consolidated APC backlog stood at $9.472 million as of September 30, 2025, up from $6.175 million at the end of 2024, with approximately $7.134 million expected to be recognized in the next 12 months. The company is actively pursuing an additional $3 million to $5 million in APC contracts expected to close by year-end 2025 or early Q1 2026, driven by global industrial expansion and state-specific regulatory requirements.

A particularly exciting opportunity lies in the data center market. Fuel Tech is engaging with multiple potential customers, representing a sales pipeline of current outstanding project bids of approximately $80 million to $100 million. These projects involve integrating Fuel Tech's SCR technology with power generation sources for data centers across the U.S. over the next several years. The demand for power generation for AI and data centers is unprecedented, and these facilities, often permitted as primary power sources, require robust NOx control. Fuel Tech's experience from a 2018 data center project, where it supplied SCR for 20 natural gas backup power units, provides a strong foundation. The company is working with turbine OEMs, non-traditional players (like those repurposing aircraft engines), and system integrators. The trend towards smaller engines and turbines for quicker deployment is also preferential for Fuel Tech, given the long lead times for large gas turbines. Each unit can represent $1 million to $2.5 million in revenue, with sites often requiring multiple units.

For its DGI Systems, an extended demonstration at a fish hatchery in the Western U.S. is underway, expected to last until Q1 2026. This head-to-head comparison with existing technology aims to validate DGI's benefits for fish yield, growth cycles, and operational costs. Fuel Tech is also expanding its sales representative network and remains hopeful for its first commercial DGI revenues in 2025.

Overall, Fuel Tech expects total revenues for 2025 to be approximately $27 million, representing an 8% increase over 2024. This guidance is a base case, explicitly excluding material contributions from data center contract awards and new FUEL CHEM business development activities, suggesting significant potential upside. Management believes the APC landscape is the best it has seen in several years.

Risks and Challenges

Despite the optimistic outlook, Fuel Tech faces inherent risks. The timing of APC project awards and execution remains a key uncertainty, as demonstrated by past revenue fluctuations. While the company is not expecting specific tailwinds from new environmental regulations, the existing regulatory framework is assumed to remain in place, and any significant changes could impact demand. The EPA's rule for large municipal waste combustor units, though delayed, is being monitored, with compliance deadlines expected three years from its anticipated December 2025 finalization.

Fuel Tech's smaller scale compared to industry giants like General Electric (GE) and Siemens Energy (SIEGY) could pose challenges in competing for very large, integrated projects or in rapidly scaling to meet massive demand, though its fabless model and supply chain partnerships aim to mitigate this. The company's reliance on industrial supply chains also exposes it to potential disruptions and tariff impacts, which could affect costs and project timelines.

Conclusion

Fuel Tech, Inc. is at a pivotal juncture, transforming from a company that experienced revenue shortfalls in 2024 to one with a compelling growth narrative for 2025 and beyond. The core investment thesis is rooted in the company's proprietary and differentiated technologies, its strong financial foundation, and its strategic positioning to capitalize on significant market opportunities. The return to profitability and robust gross margin expansion in Q3 2025, coupled with the strong performance of the FUEL CHEM segment and a growing APC backlog, underscore operational effectiveness.

The strategic acquisition of Wahlco, Inc.'s intellectual property and the burgeoning $80 million to $100 million data center pipeline represent substantial catalysts for future revenue and market share expansion, leveraging Fuel Tech's specialized emissions control solutions. While the company operates in a competitive landscape dominated by larger players, its focus on targeted, cost-effective, and technologically advanced solutions provides a distinct competitive edge in niche applications. With a healthy balance sheet, no long-term debt, and a clear roadmap for commercializing its DGI technology, Fuel Tech is well-equipped to execute its growth initiatives and deliver enhanced shareholder value in a world increasingly demanding both energy and environmental responsibility.