Fuel Tech Inc (FTEK) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Fuel Tech Fourth Quarter and Year-end 2020 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you. You may begin.

Thank you, Jessie. Good morning, everyone, and thank you for joining us today for Fuel Tech's Fourth Quarter and Year-end 2020 Financial Results Conference Call. Yesterday, after the close, we issued a copy of the press release, which is available at the company's website, www.ftek.com.

Our speakers today will be Vince Arnone, President and Chief Executive Officer; and Ellen Albrecht, Fuel Tech's Principal 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 future growth and results of operations, cash flows, performance and business prospects 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 Risk Factors and subsequent filings under the Securities Exchange Act of 1934 as amended, which could cause Fuel Tech's actual results -- 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, President and CEO of Fuel Tech. Vince, please go ahead.

Thank you, Devin. Good morning. And I want to thank everyone for joining us on the call today. I am very proud of what our team has accomplished during this period of uncertainty. And I am optimistic regarding our outlook for 2021 and beyond as we continue on our path towards establishing a foundation for long-term and sustainable growth. We entered 2021 facing challenges related to the timing of contract awards, especially at our APC business and the potential lingering impact of the COVID-19 pandemic on our operating results.

With the February 2021 financing that raised gross proceeds of $25.8 million, today, we have approximately $37 million in cash on our balance sheet and no debt. This capital raise has helped to significantly reduce the near-term risks associated with these challenges and has provided us with the support for near-term initiatives. As a company, we have the benefit of providing 3 distinct and proprietary environmental remediation platforms to the markets in which we serve, APC, FUEL CHEM, and our dissolved gas infusion business. We believe that each of these technologies will allow us to capture significant opportunities in their respective end markets as we emerge from the effects of the pandemic, uncertainty lift and when global economic activity resumes to normalized levels.

With the financing, we are in the best position in our recent history to find strategic solutions to return our base businesses to profitability, expedite the demonstration and further market discovery of our DGI technology and to investigate other product market opportunities. While we intend to capitalize on the flexibility that our strong cash position affords us, our immediate focus will be on expediently furthering the commercial development of our DGI technology via the necessary investments in human and equipment resources.

Concurrently, we will be assessing the business landscape in detail for our APC and FUEL CHEM business segments to better enable us to focus on the markets and products that can lead to profitability. I want to thank all of our shareholders, both old and new, for your support and the Fuel Tech team is dedicated to work diligently to provide value for your investment in Fuel Tech.

Let's begin with a discussion of our APC business where COVID-19 has continued to affect the timing of new business awards, due in large part to its impact on industrial purchasing activity. We are continuing to emphasize support for client bid requests for custom-engineered solutions that fulfills our unique needs of each of our customers. On our last call, we had noted that we expected to have final decisions on multiple projects for an aggregate contract value of $10 million to $15 million. Within that group of project opportunities, the most critical project in terms of contract value was canceled by the end customer due to the inability to obtain financing, which was largely driven by COVID.

The remainder of the projects were pushed into 2021 for award decisions. The active markets have shifted to more industrial opportunities, led by our SCR and ULTRA technologies, which are driven by permits for new units and retrofit regulatory requirements. We are actively involved with the turbine suppliers, the heat recovery steam generator manufacturers, rice engine suppliers, carbon black manufacturers and municipal solid waste, biomethane and pulp and paper facilities. We are also monitoring activities at the state level where new environmental guidelines, including compliance with the EPA Boiler MACT and Regional Haze Rules may produce opportunities to install best available retrofit control technology on certain sources of emissions.

As a company, we are watching the actions of the Biden administration very closely. However, we don't believe that near-term actions will have a material impact on our business activities, either positively or negatively. In general, the APC landscape remains a very competitive space, and opportunities are at, currently, in a state whereby they are smaller by volume. We continue to work on positioning with multinational firms that are developing business on a global basis.

As we have seen many times before in our company's history, we continue to receive phone calls to provide assistance to our customer base when they have difficulty with competitive systems. For 2021, we do expect to have an increase in APC Project award activity from our recent experience. And we would expect revenue to be moderately improved versus 2020. However, this will depend on the timing of contract award and required execution. Our FUEL CHEM segment continued to produce strong results in the fourth quarter and finished the year on a high note after a sluggish start due to COVID.

Much of this recovery was attributable to the installation of our TIFI, Targeted In-Furnace Injection, technology on 3 new domestic coal-fired units for a repeat customer in the northeast as well as a return to more normalized run rates across our fleet, following a period of slower unit activity earlier in the year due to the impact of the pandemic.

As we look ahead to 2021, when these new units are operational and utilizing the technology on a continual basis throughout the year, we would expect to see revenues of $500,000 to $750,000 per unit at FUEL CHEM's historical gross margin.

In 2021, we will continue to pursue FUEL CHEM application opportunities in the U.S. where the remaining fleet of coal-fired power generation boilers seeks to remain competitive in dispatch markets via the utilization of lower-cost, lower-quality fuel. It is these scenarios that are likely to create the slagging and following issues that could necessitate the installation of our FUEL CHEM program. We are also continuing to work with our partner in Mexico to employ our solutions to help them mitigate harmful emissions derived from the burning of high sulfur fuel oil. Our partner continues to engage with local officials in Mexico to advance this solution.

The current Mexican government is in favor of utilizing indigenous fuel sources for power generation to ensure that they can become energy independent, and the recent power generation dilemma in Texas, further solidified their position that as a country, they do not want to be dependent on external fuel sourcing for power generation, such as natural gas from the U.S. Additionally, there's a current plex of high sulfur fuel oil in Mexico as the international market for this product has been significantly reduced with the adoption of the new international maritime organization restrictions, which prohibit the use of this fuel. We believe that these political and regulatory drivers have created an environment that will encourage the further utilization of high sulfur fuel oil for power generation in Mexico.

In June of this past year, our partner solidified contract extensions through 2022 with CFE, the state-owned utility, for the 2 sites at which we currently have our FUEL CHEM program installed. Also, prior to the end of 2020, we provided cost estimates to our partner for the expansion of our program to a site in Mexico that has 5 large power generation units, all that burn high sulfur fuel oil. This site is adjacent to a Pemex refinery. As of today, our partner is in midst of discussions with CFE regarding this expansion opportunity and others. We know that high-sulfur fuel oil is currently being burned at facilities in Mexico without the necessary environmental controls, and local communities are rendering complaints about the impact of the severe pollution.

We will watch the development activity closely. However, we believe that pressure is building in favor of the implementation of our FUEL CHEM program at additional facilities in Mexico. We are also continuing to pursue opportunities for additional FUEL CHEM applications at biomass and municipal solid waste units in Europe. In Southeast Asia via our partner, Amazon Papyrus, for the pulp and paper industry, where we use our RECOVERY CHEM program. And in other southeastern Asian countries, where coal is a primary source of fuel, power demand and related pricing is high, and we're slagging and following as an issue.

Although some uncertainty remains with respect to the lingering economic impact of COVID on power generation here in 2021, we have an optimistic outlook for FUEL CHEM this year, driven by the stability of our installed client base, expected incremental revenues from our new unit installations and the increasingly recognized economic and environmental benefits that our chemical technologies deliver.

After a slow start attributable to the pandemic, we are starting to realize some momentum in our DGI business. As noted in our press release, we have completed 2 demonstrations in Q1 of this year. The first at a municipal wastewater treatment facility on the West Coast; and the second, at a new customer in the pulp and paper business located in the Pacific Northwest. We are currently reviewing data from each demonstration to specifically clarify and document the benefits of our delivery system, and we will have a clearer road map of how to commercialize these opportunities shortly thereafter.

We also expect to commence a demonstration at a separate wastewater treatment facility on the West Coast within the next 30 days. While each demonstration opportunity addresses customer-specific issues, the first demonstration at the municipal wastewater treatment facility on the West Coast was intended to provide supplemental oxygenation during a high waste volume period for the municipality.

This particular municipality is located in a recreational area that receives an influx of visitors during the holiday periods. And when this happens, the wastewater treatment plant does not have the capacity to treat the incremental waste and remain in compliance. During the demonstration, the DGI system was able to efficiently deliver supersaturated oxygen to improve the quality of the water to a level that was actually better than the prior year when the volume of wastewater to be treated was actually lower.

Ellen will take you through the 2020 results here shortly. However, with respect to 2021, as I noted previously, we expect APC Project award activity to pick up as we move through the year. And as a result, we would expect revenue to be moderately improved versus 2020. And we expect FUEL CHEM to grow its top line modestly versus the prior year.

With DGI, we are focused on further evolving and commercializing this technology. To that end and with the benefit of new capital, we will look to design and fabricate higher capacity DGI equipment delivery systems, which we believe will be necessary to address the needs of the majority of our end markets. We will continue to pursue additional demonstration with a target of having a commercial system online before the end of this year.

For 2021, we intend to maintain the lean operating structure that we have created over the last several years. And we will ensure that the SG&A line aligns closely with anticipated growth. Our multiyear cost reduction initiatives, including the wind down of our China operation, should allow us to profitably leverage top line growth with annual breakeven revenue of between $25 million and $30 million, depending on the product segment mix.

In 2021, the Fuel Tech team will be guided by a focus on operational excellence, client service, innovation and financial improvement. With that said, I'll turn the call over to Ellen. Ellen, please go ahead.

Thank you, Vince, and good morning, everyone. We hope you have the opportunity to review our results. So my comments will be brief and focus on the fourth quarter. Consolidated revenues during the quarter increased 26.5% to $6.2 million from $4.9 million in last year's fourth quarter reflecting higher revenue for both the APC and FUEL CHEM business segments. After a sluggish start to the year due primarily to the impact of COVID, we experienced a strong second half.

APC segment revenues increased to $2.5 million from $1.7 million, primarily as the result of project timing and completion. APC backlog at the end of the quarter was $5.3 million, $4.9 million of which was domestic, and included a variety of Fuel Tech's APC technology offerings across multiple geographies, including the U.S., Europe and China.

We anticipate approximately $3 million of current backlog will be recognized over the next 12 months. APC backlog has trended downwards during 2020 as a result of the sluggish overall market that was compounded by deferred purchasing due to the uncertainties created by COVID-19.

As mentioned in our press release, we are pursuing a global sales pipeline of approximately $40 million to $50 million. FUEL CHEM segment revenues rose $3.7 million from $3.2 million in last year's fourth quarter, primarily reflecting contributions from the completion of installation of equipment on 3 new coal-fired units, which began during 2020 third quarter as well as a recovery to more normalized run rates across our fleet.

Consolidated gross margin for the 2020 fourth quarter was 41.9% of revenues compared to 0.1% of revenue in last year's fourth quarter, which reflected an impact of a $2 million warranty charge to APC cost of sales in the fourth quarter of 2019. Excluding the charge, consolidated gross margin in 2019 was 41.1%. APC gross margin was 29% in the fourth quarter of 2020. Excluding the warranty charge, gross margin for APC in the fourth quarter of 2019 was 30%.

On an annualized basis, both 2020 and 2019 were impacted by this warranty claim that was settled in 2020. Excluding these charges, APC gross margin for 2020 was 30% as compared to 36% in 2019. The decrease in margin profile is attributed to the overall project mix. FUEL CHEM gross margin was 51% in the 2020 fourth quarter as compared to 48% in the same period 1 year ago.

As Vince mentioned, our cost control initiatives are ongoing and continue to be reflected in SG&A. SG&A for the fourth quarter declined by over 15% to $3.8 million from $4.5 million, reflecting lower administrative and professional costs. R&D activities remained flat. For 2021, we will maintain our focus on cost control initiatives and invest in projects and resources necessary to support the business and drive sustainable growth. Net loss from continuing operations for the quarter was $1.5 million or $0.07 -- a loss of $0.07 per share compared to a net loss from continuing operations of $2.3 million or $0.10 per share, excluding the aforementioned warranty charge.

Adjusted EBITDA loss was $1.1 million for the 2020 fourth quarter compared to an adjusted EBITDA loss of $3.9 million in the third -- in the fourth quarter of 2019.

Moving to the balance sheet. At December 31, we had cash and cash equivalents of $10.6 million and restricted cash of $2 million for a total cash position of $12.6 million. In January of this year, $1.2 million of restricted cash has been released into operating cash related to December 2020 guarantee expiration. Working capital was $15.5 million. These figures do not reflect the February 2021 financing in which we raised the total gross proceeds of $25.8 million.

With respect to China, we collected and repatriated $1.9 million in cash from our China subsidiary in 2020. We continue to focus on collection efforts against an estimated available $1.5 million to $2 million of receivables, and we expect to continue to repatriate additional funds in 2021. At December 31, we had 25.8 million common shares issued and outstanding. This figure excludes the 5 million shares of common stock and the $2.5 million common stock purchase warrants issued in connection with the February 2021 capital raise.

The recording of the proceeds from the capital raise will be reflected in our Q1 2021 10-Q filings. On January 8, 2021, the company was informed by the small business administration that is Payroll Protection Plan loan in the amount of $1.5 million have been forgiven in its entirety. Income from the forgiveness of the debt will be realized in the first quarter of 2021.

With respect to valuation, our book value per share was $0.88, our tangible book value per share was $0.78, and our working capital per share was $0.62. Our cumulative net operating losses at year-end totaled $25.5 million, these NOLs cover several geographies, including China, approximately 10.7 will begin to expire in 2034. As a result of these NOLS, our income tax expense for 2020 was immaterial, and we expect to have the same results in 2021.

Now I'd like to turn the call back over to Vince.

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

(Operator Instructions) Our first question comes from the line of Sameer Joshi with H.C. Wainwright.

So it seems like a good end to the year and it looks like modest growth expected in 2021. And you have a good balance sheet now. What are the particular areas of focus? I know you mentioned DGI development and scale-up, but are you planning on getting more -- the more units in place? Or is the focus going to be on scaling and building larger units?

Okay. First of all, thanks for the commentary. And yes, we are looking for a modest improvement here in '21 versus '20. And to your point, our balance sheet right now is probably stronger than it's been for the past 8-year time frame. So we're very pleased in terms of where we're positioned today.

Okay. So in terms of where we're going. As I noted this part of my commentary, the further development and commercialization of water is, if not #1 priority, #2 priority for us as a company as we sit here today. And so we need to convert our existing demonstration or demonstrations into commercial systems. And -- along with that and working concurrently, we are going to look to make some investments to design and fabricate larger DGI delivery systems.

What we found is as part of our discovery for end markets over this past couple of years is that the demonstration unit that we have been working with, while being a nice effective unit. In some cases, it does not provide us with the ability to prove out efficacy during that demonstration phase. So we need a larger, a more upscale unit to be able to do that.

And so this next step is an important investment point for us. We've been working diligently on the design of the upscaled delivery system. And I'm confident that we're going to start to make some investments in that system here as we move into Q2. But that is, as I said, if it's not #1 priority, it's definitely #2. The other part of our equation is returning our base business segment to complete profitability.

Our focus needs to remain on that because that's necessary for our future success as well. We're continuing our focus on SG&A. I would expect we're going to come in, in 2021 with a slight reduction in SG&A from 2020 due to some steps that we took during 2020. So we're going to have an infrastructure that's going to be able to be better leveraged as well. So I think we're well positioned to move forward here.

So Vince, you just mentioned the first priority would be to return to profitability. And -- but at the same time, you are saying that your SG&A will be lower so what exactly are the -- is the push towards profitability going to look like?

It's a combination of both factors, Sameer. Obviously, as I just said, SG&A is going to come down. But our top line, as I mentioned, for both FUEL CHEM and APC, we're expecting to be improved versus 2020. 2020 was an extraordinarily difficult year for APC, in particular. But even our FUEL CHEM performance was not at the level that it should have been, given some of the reductions in power generation demand that we had, in particular, in Quarter 2 and Q3 of 2020. So it's going to be a combination of both factors, Sameer, both top line growth and continued good management of our internal infrastructure.

Got it. Mexico and the high sulfur fuel oil usage there seems to be emerging and has been emerging as a good opportunity. What is your visibility in terms of time line from revenues from that source?

Yes. We've been watching this, as you well know, for the better part of this past year. And as we sit here today, there have been strong movements forward within Mexico to move towards burning more of the high sulfur fuel oil, but not just burning it, burning it while deploying the necessary pollution control systems that are necessary to go ahead and protect the local population from the pollution, okay? As we sit here today, we know they are burning more of the heavy sulfur fuel oil than they have in past years. And we have every reason to believe that the Mexican government is going to take the next step to go ahead and ensure that the pollution controls are going to be placed on these facilities, okay?

They probably have to work out funding mechanisms and they like to ensure that this is able to get done within a reasonable time frame. But again, we've seen -- and working with our partner, we've seen continued steps forward locally in Mexico that leads us to believe that this is moving forward. From my perspective, I would think we would see something here in 2021 relative to it going forward. Exact time frame, I don't know.

But the longer that time passes before there's implementation, obviously, then only further delays that could come from that. But as we sit here today, even in today's Mexican newspapers, there are at least 2 articles that are talking about CFE and burning heavy sulfur fuel oil and requiring plants to put on the pollution controls in conjunction with burning that fuel.

What happened in Texas was just further impetus for the Mexican government to say internally and to try to sell internally the fact that they want to be power generation independent. They don't want to solely be responsible for relying on natural gas coming from the U.S. because we've just proven out in the month of January and February, basically, the fact that natural gas lines were shut down, Mexico was not -- afforded the opportunity to receive that natural gas, there were millions of people over and above what we heard about in Texas that went without power for weeks. And so that will not continue. So there's impetus. Timing is still difficult to predict, but I would expect something here in 2021, Sameer.

Understood. No, that's fair enough. Just a sub-question to that. So does this potential from Mexico increase the upside to revenues, which you already are expecting to be modest growth year-over-year? So would this Mexico revenues be additional upside? Or have you included that in your expectation?

We have included nothing from what I would call Mexico upside in our figures as we sit here today. The potential in Mexico is quite sizable. But until we have a, call it, stronger feeling that it's going to be realized, we won't include any of those possible upside figures included in our numbers.

Okay. And may I just go back to DGI for a quick second. What is the scope of -- or dollars required for this upscale unit? And also, what would be a typical first project implementation look like in terms of revenues for you?

There are going to be ranges, of course, Sameer, depending on size of system required by the end customer to address their issues. And the ranges could be pretty wide, okay? As we look at our capital investment internally for call it, our next delivery system, I'll give you a range of anywhere between $150,000 and $300,000 for internal capital spend to build out an incremental system that we can use for demonstration purposes or otherwise, but that will be an upscale system compared to the one that we have operating today, okay?

On a plant-by-plant basis, once we get to actual commercialization, there could be multiples of these types of systems that could be deployed to a plant site to meet their demand. And so take the low end of the numbers that I provided, multiply that by 5x to 6x, and that could be a capital equipment sale, if you will, it also could be a long-term lease scenario as well, whereby we're providing our delivery system with the maintenance contract and other services that could go along and coincide with that capital equipment.

So we're open-minded to the business model as we sit here today, and we need to better understand end markets and their constraints relative to funding as to how best suit their needs.

Got it. Understood. You mentioned your sales pipeline that you're looking at is around $40 million to $50 million. Can you compare it to how it was at the end of 2019 and the previous years? Is the sales pipeline much larger now or much smaller or?

Yes. In general, Sameer, I would say it's a little bit smaller than we've seen it historically. And the primary reason being is that within our current sales pipeline, we don't have, say, 2 or 3 of what I would call larger contract value opportunities that reside within that pipeline. And that's not to say that they won't materialize once again because they seem to every year or 2, we'll have something like that come through our pipeline. And then we've proven historically that we'll have contract bookings of $7 million or $12 million on a per contract award basis. But as we sit here today, within our pipeline, I would say it's approximately the same number of opportunities, but not necessarily the level of overall contract value that we've seen historically.

Keep in mind, we're coming off of 2020. And that -- last year was a unique year for everyone in our business. And so I look at where we stand right now as a rebuilding of pipeline scenario as we move forward here in '21.

Got it. One last question on gross margins. I think Ellen mentioned you expect historical gross margins on DGI sales as well? Or maybe I got it wrong. Can you confirm that?

Yes. We actually did not make a comment relative to gross margin on DGI. I think it's premature to comment on that right now, Sameer. But I -- just as a call it, at the lower end of the scale, I would think that we'd be targeting 30% plus gross margins, generally speaking, for that product line.

(Operator Instructions) The next question comes from the line of Pete Enderlin with MAZ Partners.

Vince, you talk about the $40 million to $50 million pipeline opportunity globally. Can you give us some sense of how that breaks down between the domestic and the international pieces?

Yes. As we sit here today, I'd say it's approximately $25 million domestic and then $15 million international with the European marketplace, representing the majority of that international piece.

Okay. Your business today, obviously, is mostly domestic, and you could be looking for equal amounts coming from overseas. And you mentioned talking or using partners, but do we have any sense of how many partners you're talking to or using and how you relate to them? How do you get people to be partners with you in trying to market the APC systems?

Yes. So when we talk in terms of partners, we usually talk in terms of either an OEM that requires our solutions as part of their ultimate package that they provide to an end customer or an installation contractor or engineering firm that is providing turnkey installation work, but as part of their bid package, they require the, call it the technology package as well. And these are companies that we work with, in many cases, historically, but we are looking to build new relationships as well. But it's typically a contract or a subcontractor relationship that we have with these firms.

And about how many such firms would you say you could characterize as having a relationship with now?

I'd say 4 to 5. 4 to 5.

Okay. I mean, I would have thought that on a worldwide basis, there could be multiples of 10 types of companies that you could work with, but you're not working with them yet. Fair enough to say?

Well, from a differentiation point, right, there's a firm that we would call a partner that we are calling more aligned with on a bid-by-bid basis versus firms that we will bid to on a recurring basis because we know that they're looking for our scope of work, but we don't necessarily have a, call it, a recurring business relationship with them per se. They'll go out for multiple bids on a recurring basis. So there's a difference between what I would call a close partner versus firms that we do business with on a regular basis. You know what I mean?

Yes. Okay. And I have a question on the DGI technology. You talk about higher capacity, which would be necessary for demos and maybe for many of the commercial installations ultimately as well. So what physical metric do you use to talk about the throughput of these systems? I heard you mentioned the dollar amounts, but I mean, give us some idea what size and how you measure the size of such systems and physically?

Understood. So when we're talking about delivery systems, we're talking about delivering pounds of oxygen per day into a body of water that needs to be treated. So as an example, the systems that we have today, as a demonstration system, delivers around 250 pounds per day of oxygen. There are going to be requirements that are going to be several multiples of that amount to be able to treat the body of wastewater that requires treatment. It's going to be completely different by industry. But that's why we need to look to scale-up as a next step. We've had enough experience with the system we've been working with to date that we are taking all of our learnings and building them into our next phase of design and control, and that's what we'll look to put forth as a next step.

And it's -- go ahead, please, Pete. No, no, you first, please.

This may be a naive question, but if you want to make it, say, 3 to 4x bigger, why don't you just design the specs to make it physically 3 or 4x bigger. What else do you need to do besides scale it up?

Yes. No, we need to be able to be sure -- a couple of things, right? Number one, scale-up isn't as always as it might seem to be, right? So we need to ensure that the various components that are required to do the -- to scale-up are indeed going to be able to function in certain ways, okay? Secondarily, we're looking to go ahead and build delivery systems that are going to be able to be delivered in a -- I'm not -- in a repeatable way, whereby, if we have designed a system that's capable of delivering 1,000 pounds a day. If a customer requires 2,000 pounds a day, we may have, as opposed to one system capable of 2,000 pounds a day, we may provide them with two 1,000 pound systems, which will give them more flexibility to adapt to their operating environment on a recurring basis.

So we need to be sure that we're scaling up in the proper way that's going to be able to meet the needs of potential customers, and we're taking all of that into consideration.

Okay. It makes sense. One last question, that is the provision for doubtful accounts seems to be fairly significant, is a lot of that China? Or is there some other stuff in there?

No, it's currently -- the majority of it is for China. Our collection efforts have been very strong. But from a conservative perspective, we find it prudent to reflect the allowance for the China receivables.

So what's the current reserve for China against the total amount approximately?

Yes, about $1 million.

The reserve is about $1 million versus total possible collectability in China of...

$2 million.

$2 million or thereabouts, Pete. To Ellen's point earlier, we've collected and repatriated just under $2 million from China in 2020. At a minimum here in 2021, we're going to be able to repatriate at least another $1 million from China. And then we'll see what happens relative to outstanding collections after that. I have to tell you that I'm extremely pleased with the outcome that we've had with the wind-down from China and our ability to go ahead and not only collect but repatriate some of those funds back to the United States.

It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Arnone for any additional closing comments.

Thank you, operator. I want to thank everyone that joined us on the call today. I want to thank all of our shareholders for their continued belief in Fuel Tech and the entirety of the employee team. As I mentioned as part of my Q&A with Sameer, we are better positioned today as a company that we've been here -- been in approximately 8 years from a strength of balance sheet perspective. We are dedicating all of our efforts right now to return to profitability and developing a growth-based platform of technologies for our future. And I thank, everyone, and have a good day.

Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation, and you may disconnect your lines at this time.