Fuel Tech (FTEK) Q2 2025: Data Center Pipeline Surges to $100M as AI Demand Reshapes Order Book
Fuel Tech’s second quarter revealed a business in transition, with legacy segment stability offset by a swelling pipeline tied to AI-driven data center buildouts. While near-term revenue guidance was trimmed on APC timing, management’s focus is now squarely on capitalizing on the largest opportunity in a decade. Investors are watching for backlog conversion and commercial traction in emerging technologies as 2025 unfolds.
Summary
- AI Data Center Pipeline Expansion: Outstanding bids for emissions control tied to data centers now top $100 million.
- Fuel Chem Resilience: Recurring revenue base and margin strength anchor near-term results amid APC volatility.
- Guidance Reset: Revenue outlook trimmed to reflect APC timing, with upside possible from new awards and DGI commercialization.
Performance Analysis
Fuel Tech’s Q2 financials reflected a mixed quarter, shaped by segment divergence and a shifting project mix. Consolidated revenue fell to $5.6 million, with the Air Pollution Control (APC) segment, emissions reduction solutions for power and industry, down sharply due to project timing. In contrast, Fuel Chem, recurring chemical services for power generation, held steady at $3.1 million, supported by seasonal demand and a stable base of accounts. Gross margin improved to 46%, up from 42% last year, as higher-margin Fuel Chem and ancillary APC revenue offset project variability.
SG&A expenses ticked up modestly, but the revenue decline pushed SG&A as a percentage of sales to 60%. R&D investment increased, primarily funding demonstration work for Dissolved Gas Infusion (DGI), water and wastewater treatment technology. The company posted an operating loss of $1.3 million, with net loss widening to $689 thousand. However, the balance sheet remains robust, with $31 million in cash and investments and no debt, positioning Fuel Tech to pursue large-scale growth initiatives.
- Backlog Growth: APC backlog rose to $7.8 million, up from $6.2 million at year-end, with $5 million expected to convert in the next 12 months.
- Margin Mix Shift: Fuel Chem and ancillary APC revenue, both higher margin, lifted overall profitability despite revenue contraction.
- DGI Investment: R&D spend rose to $490 thousand as the company accelerates commercialization of next-gen water treatment.
While Q2 results were pressured by APC timing, the underlying financial structure remains sound, with recurring Fuel Chem revenue providing ballast as the company pursues transformative growth avenues.
Executive Commentary
"Our second quarter results were largely in line with our expectations and reinforced our belief that 2025 will be a year of growth for our company versus prior year. We are also increasingly optimistic about the application of our APC suite of emissions control solutions and the construction of AI-related data centers in the United States."
Vince Arnone, Chairman, President & CEO
"Consolidated gross margin for the second quarter rose to 46% of revenues from 42% in last year's second quarter due to segment contribution mix... Our financial condition remains very strong. As of June 30, 2025, we had cash and cash equivalents of $10.6 million and short and long-term investments of $20.3 million, for a total of $30.9 million. The company continues to have no outstanding debt."
Ellen Albrecht, Chief Financial Officer
Strategic Positioning
1. Data Center Opportunity as Growth Catalyst
Fuel Tech’s strategic focus has pivoted to the AI and cloud data center buildout, where emissions control for on-site power generation is driving a surge in demand for SCR (Selective Catalytic Reduction) systems. The company now has $100 million in active bids—orders ranging from $1 million to $2.5 million per unit, with each data center site often requiring clusters of units. Management describes this as the “largest opportunity” in over a decade, with modular site expansion and repeatable engineering designs increasing addressable scale and speed to market.
2. Fuel Chem: Recurring Revenue and Margin Anchor
Fuel Chem remains the company’s most reliable cash generator, with 2025 revenue expected at $15 to $16 million, all from existing accounts. The segment’s gross margin improved to 47%, and management highlighted the potential for incremental growth if new commercial accounts are secured, including a pending demonstration at a coal-fired plant that could add $2 to $2.5 million annually if converted.
3. DGI Commercialization: R&D to Revenue Pathway
Dissolved Gas Infusion (DGI) is still pre-revenue but is a strategic bet on water and wastewater treatment innovation. Extended demonstrations are underway, including a high-visibility head-to-head trial at a Western US fish hatchery. Management is investing in sales network expansion and expects first commercial revenues in 2025, though timing remains uncertain.
4. Regulatory and International Leverage
While current US regulatory rollbacks are not expected to materially impact demand, state-specific rules and international climate policy (notably in Mexico) present upside. Mexican government pressure on PEMEX and CFE is increasing, and Fuel Tech’s longstanding partner is actively engaged, with the company able to deploy Fuel Chem solutions rapidly if orders materialize.
5. Supply Chain Scalability
Fuel Tech’s asset-light model, relying on third-party supply chain partners for manufacturing, provides flexibility to scale production rapidly if large data center orders are won. Engineering leverage from repeat turbine designs further enhances delivery speed and margin potential.
Key Considerations
Fuel Tech’s Q2 underscores a transition phase, with legacy business stability offsetting APC lumpiness and a swelling pipeline tied to secular AI infrastructure demand. The company’s margin profile and balance sheet underpin the ability to pursue transformative growth, but backlog conversion and commercial traction in new segments remain critical watchpoints.
Key Considerations:
- Data Center Bid Conversion: Timing and win rate on $100 million+ in data center-related APC bids will determine the pace and scale of revenue acceleration.
- Fuel Chem Upside: New account wins or regulatory-driven expansion, especially in Mexico, could drive above-guidance margin and revenue contributions.
- DGI Commercialization Risk: First commercial revenue is targeted for 2025, but demonstration outcomes and customer adoption remain uncertain.
- APC Timing Volatility: Project execution and award timing continue to drive quarterly revenue swings, reflected in more cautious guidance.
- Balance Sheet Strength: Ample cash and no debt provide strategic flexibility to invest or scale rapidly if large awards are secured.
Risks
Fuel Tech’s growth thesis is now highly levered to the timing and success of large, lumpy APC orders in the data center vertical. Delays or losses in competitive bids could prolong revenue volatility. DGI remains pre-revenue, and regulatory or political shifts in core geographies could alter demand. Execution risk in scaling up supply chain and engineering resources to meet potential surge orders is also material.
Forward Outlook
For Q3 and Q4 2025, Fuel Tech guided to:
- Fuel Chem revenue of $15–16 million for the full year, with upside possible from new accounts.
- APC backlog conversion of $5 million over the next 12 months, with additional $2.5–3 million in new awards expected imminently and $3–5 million more by year-end (excluding data center wins).
For full-year 2025, management lowered revenue guidance to $28–29 million, citing APC timing uncertainty. This outlook excludes any material DGI revenue or significant APC contributions from data center contracts, positioning upside potential if pipeline conversion accelerates.
- Management highlighted a focus on building material backlog into 2026 and scaling for large data center opportunities.
- Ongoing investment in DGI and expanded sales channels to drive new market entry.
Takeaways
Fuel Tech’s Q2 marks an inflection point, with legacy segment resilience providing a base as the company pivots to capitalize on the largest industrial emissions control opportunity in years.
- AI Infrastructure Tailwind: The $100 million+ data center pipeline is now the primary growth lever, with potential to transform the revenue base if conversion rates hold.
- Recurring Revenue Foundation: Fuel Chem’s stable, high-margin contribution anchors near-term results and funds investment in new growth vectors.
- Execution Watchpoints: Investors should track APC order conversion, DGI commercialization milestones, and international regulatory momentum as key value drivers into 2026.
Conclusion
Fuel Tech enters the second half of 2025 with a robust balance sheet and a strategic pivot toward AI-driven infrastructure, but must now deliver on backlog conversion and commercialize emerging technologies to unlock the next phase of growth. The scale of the data center opportunity is clear, but execution and timing remain critical variables.
Industry Read-Through
The rapid expansion of AI and cloud data centers is creating new demand streams for emissions control and power infrastructure vendors, with regulatory requirements and modular buildouts increasing order size and complexity. Companies positioned with scalable, flexible delivery models and repeatable engineering designs stand to benefit as digital infrastructure becomes a dominant industrial growth driver. For the broader environmental technology and industrial services sector, Fuel Tech’s experience highlights the growing importance of aligning with secular digital trends and maintaining operational agility to capture large, fast-moving opportunities.