Part 1: Performance Analysis
Fuel Tech's financial performance in 2022 was affected by a challenging operational environment resulting from the substitution of gas-fired and renewable energy plants for coal-fired installations and ongoing geopolitical events and the COVID-19 pandemic. The company invested in the development of new technologies to expand its product offerings into the water and waste-water treatment market and also approved a plan to invest excess capital to provide returns on excess cash while preserving capital and managing liquidity.
FUEL CHEM performance was affected by the loss of one customer from permanent plant retirement and reduction in demand from other customers due to unfavorable climate conditions and to operating and maintenance scheduling, resulting in a decline in revenues and segment operating profits compared to 2021. On the other hand, Fuel Tech's APC business experienced improvement compared to 2021 due to the execution of projects awarded in the second half of 2021 and 2022. The Consolidated APC backlog at the year-end was $8,245, and the global sales pipeline has increased to $50-75 million range.
The key market dynamic for both technology segments is the continued use of fossil fuels, especially coal, as the principal fuel source for global electricity production. While coal accounted for approximately 20% of all US electricity generation and roughly 39% of global electricity generation in 2022, this trend is not expected to continue in the long run due to higher natural gas pricing.
Part 2: Forward-Looking Analysis
Fuel Tech faces risks due to the lasting effects of the COVID-19 pandemic, geopolitical events, global economic sanctions, inflation, and fluctuations in shipping, transportation, raw material, and labor costs. The ultimate impact on Fuel Tech's business is highly uncertain and depends on future developments. These risks could exist for an extended period, and the company will continue to monitor the potential impacts on its business.
Fuel Tech expects that its cost control efforts will maintain existing levels of operating expenditures, and the diminishing effects of the pandemic should lead to an improved market outlook. The company's continued investment in the development of new technologies to expand its product offerings into the water and waste-water treatment market is aimed at diversifying its revenue streams.
Fuel Tech's management is encouraged by the pace and depth of its business development activities, reflecting an increased focus on global emissions protocols across a variety of fuel sources. Furthermore, the company's Consolidated APC backlog and global sales pipeline have increased, indicating potential growth opportunities.
In conclusion, Fuel Tech's financial performance in 2022 was affected by a challenging operating environment, but the company has taken steps to manage liquidity, invest in new product offerings, and control costs. Fuel Tech faces uncertainty related to COVID-19 and geopolitical events, but the company remains optimistic about its growth prospects, driven by expansion into new markets and increased focus on emissions protocols.