Good day, ladies and gentlemen, and welcome to the third quarter 2012 Fuel Tech Inc. earnings conference call. My name is Clarissa and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host Ms. Tracy Krumme, Vice President of Investor Relations and Corporate Communications. Please proceed.

Thank you, Clarissa. Good morning, everyone, and thank you for participating on today's conference call to discuss our third quarter 2012 results. Joining me on the call this morning is Doug Bailey, Chairman, President and Chief Executive Officer; Dave Collins, Senior Vice President, Treasurer and Chief Financial Officer; and Bill Cahill, Controller. As a reminder, the matters discussed in this call, except for historical information, are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in our forward-looking statements. The factors that could cause results to differ materially are included in our filings with the SEC. The information contained in this call is accurate only as of the date discussed and investors should not assume that statements made in this call remain operative at a later date. Fuel Tech undertakes no obligation to update any information discussed in this call and as a reminder, this call is being broadcast over the Internet and can be accessed at our website www.ftek.com. With that said, I would now like to turn the call over to Dave Collins. Dave, please go ahead.

Thank you, Tracy, and good morning, everyone. We closed a strong quarter in which we delivered record bookings of $53 million and record quarterly international revenues of $8 million, up 70% over the prior year. We have previously highlighted the accelerating rate of enquiries and bookings in our China Pacific Rim operations and we are pleased to see those revenues materializing. Additionally, we booked the largest order in our company history for $37 million in Chile. The continued development of our international markets has been critical for us while we work through a phase of slower domestic activity. Consolidated revenue for the third quarter of $25 million was flat year-over-year, while our nine months revenue was $71 million, increased $5 million or 8% over the prior year. Net income for the current quarter was $1.2 million or $0.05 per diluted share and $2.8 million or $0.12 per diluted share for the nine month period. Our adjusted EBITDA for the first nine months of 2012 was $7.4 billion. For the current quarter, our Air Pollution Control or APC segment revenue of $15 million increased $3 million or 29% over prior year. For the first nine months our APC segment revenue of $44 million has increased $11 million or 33%over the prior year. Our strong APC segment revenue was due to carry over domestic business resulting from the cash CSAPR issued in July of 2011, coupled with the development of record foreign bookings and revenue for the first nine months of 2012. We are seeing our booking in revenue in our China Pacific Rim APC business accelerate and have now reported sequential growth in our China Pacific Rim APC bookings for each of the first three quarters in 2012 with over 225% growth in the first two quarters of this year and…

Thank you, Dave. Good morning, everyone and thank you for joining us on this call on election day. I hope you have all either voted or plan to do so. As you heard from Dave, we had a strong quarter in the Air Pollution Control or APC segment with third quarter revenues up 29% from the same period last year. This was driven primarily by revenue recognition of an increasing number of foreign orders, predominantly from China and Chile. We have consciously expanded our international presence to achieve both growth and regulatory diversification in our APC business during a period of domestic regulatory uncertainty. We realized record bookings of $52.3 million during the third quarter, more than double the $21.1 million recognized in the same period last year. This was primarily the result of the $36.6 million order, the largest APC contract in our company history. This order placed by a major utility in Chile includes turnkey installation of over-fire air systems and mill modernization for six coal-fired units and Low NOx burners. This represents our second Low NOx burner project in Chile and it advances our combustion capability to the international marketplace. Equipment deliveries are scheduled to commence during the first quarter of 2013, with project completion anticipated to occur during the third quarter of 2014. This will offset near-term softness regarding our domestic APC business and provide added visibility for 2013 and 2014. Additionally, this project demonstrates that we can run larger combustion modification jobs, the successful completion of which should help us win similar opportunities in the future. In China, third quarter bookings of $11.6 million were also strong more than double the $4.1 million that were booked in the third quarter a year ago. During the quarter, seven awards for 15 ULTRA projects were announced as…

(Operator Instructions) Your first question comes from the line of John Quealy of Canaccord. Please proceed.

Nice quarter. I have several questions. First, I am sorry, a remedial question for me. Dave, can you talk about the APC guidance again for Q4? I missed what you were saying. I don’t know if it was about '12 in to '13 or not, but the question boils down to, should we step up sequentially in the APC revenue number in December? Thanks.

Yes. The answer to that is yes. We should see it go up. That’s year-over-year, John. So on a sequential basis, it will be about flat with Q3, might be down just a little bit. So that’s on the APC side. But it will be up over the prior year.

Okay, and then, just in terms of a couple of data points you saw, AEP is considering breaking into two companies there and we have seen some improved market dynamics for coal from nat gas on the powergen side. I know you guys talked about the next couple of quarters, FUEL CHEM will be impacted negatively by spot spread but anecdotally can you talk about, are you seeing your customers giving you little bit better visibility in that six month timeframe or how are you getting that confidence that six months is all we need for FUEL CHEM to come back?

Well, I think realistically, the FUEL CHEM business has been challenged by, number one, reduced electricity demand, number two, economic reasons and many plans to convert to natural gas. We think that natural gas prices compared to historical levels, the outlook over the next several quarters is in the lower price ranges that we have seen, putting pressure. However, I think that of there is some compelling thinking going on to maintain a diverse portfolio of fuels in power generation market. It varies by utilities, course but I think we have seen more of bottoming out of reduction of coal. I think, in my conversations with those in our customer base, they are certainly making decisions as to the future of their generating units. I think a number of them AEP, obviously is one who has some low cost access to coal as a fuel and I think they are realizing that companies like Fuel Tech can offer them low capital cost solutions to utilize coal as the primary fuel source. So while I think there has been a significant share and we know the reasons why, from coal to natural gas, I don’t think coal is going to dramatically lose its long-term share. Low natural gas prices probably will play an important rule in revitalization of our economy. That, in turn, will lead to higher electricity demand and the requirement for fuels and energy sources of all kinds. So this is a country that needs all sources of fuel and I believe coal has a very important future and we will continue to work with customers to provide them with of FUEL CHEM solutions that will address not only fouling, slagging and the Illinois Basin, Powder River Basin coal that they have seen in the past but innovative solutions to reduce emissions as well through the FUEL CHEM business model. I do think you are seeing an absolute maturing in the Appalachian coalfields as costs are vastly different from other providers. So we continue to be a great believer in the future of cold used by the power generation market and we stand ready to provide the responsible solutions to efficiently utilize that fuel.

Doug, can you give us an update on the R&D efforts? It's good to the financial commitment step up a little bit last quarter. I think you talked about new products in along the lines of recurring revenue type models vis-à-vis FUEL CHEM. Can you give us an update of where you are, from a commercialization standpoint, for those products?

Sure, I can give you a good general feel. We undergo, first of all, a good conceptual, theoretical evaluation of what would represent an innovative approach and all that has to be tested. So we may do our own internal testing and evaluation. Then we go to independent laboratories, research institutes to test and make adjustments and continue to optimize the chemistry of those products. So where we are today is, we are still midstream in some of that laboratory testing. In some project areas, we have done testing at the commercial units and in other important new product areas. We are still doing independent test prior to taking those to customer sites. So over the next several months, we plan to further validate and optimize our chemistries, both at independent test sites and at customer sites, knowing that we have products that will meet the expectations of what we are offering to our customers. Then we will bring those to market. I can't say specifically what month or quarter but we expect 2013 to be a free clearing year for our R&D efforts. In so doing, I think this company will realize what it is founded on and its ability to uniquely take advantage of its understanding of the complex chemistries and mechanics of combustion and innovate products that offer us proprietary capabilities. One of my significant beliefs is that we will be able to merge a little bit, the business models of our two segments in that, whereas the APC segment is largely a capital project, single contract non-recurring revenue business. We believe that we will be able to offer products that will address pollutants on a recurring revenue chemical feed basis. So, we are really hopeful but we will now announce those products until the rigorous has been completed.

Thank you. Then my last question. In terms of the pipelines, I know you folks gave, I think it was $62 million in backlog as we speak today or rolling forward the Q3 balance with the new orders that were announced. Can you folks quantify, if you could, pipeline potential on the next 12 months and what you see by geography? Is it one or two times backlog potential? Thanks very much.

Okay, let me try to address what we are seeing pretty wide. The China market has been very strong for us, especially the last couple of quarters. We see that business continuing to be strong through 2013. I don’t think you will see the accelerated growth rates that we have witnessed this year but certainly from an expectations perspective, China will continue to deliver strong revenues for us. Domestically we are looking, from a bookings perspective to see growth next year. There is a good opportunity. A set of customers that we are working through. So look for some growth in bookings next year from our domestic APC business. Then we do have opportunities beyond that as well internationally that we are working through. I don’t know that we have anything as large as the Chile project in the queue but we do have some other international opportunities as well.

Your next question comes from the line of Graham Mattison of Lazard Capital Markets. Please proceed.

I apologize I missed this but can you just talk about how we should think about margins in China and how they compare to the international margins in, say, South America versus what we are seeing on the APC side in the U.S.?

Sure. The Chile project that we talked about before is carrying about 20% margin profile. That’s a large burner job that we signed up. So I would say the opportunities in that part of the world, the globe are also in that range. They are also burner type jobs. So the China projects are carrying low 30s on a margin profile right now. When we look out next year, our expectations are to drop that just a bit and that is due to some competition and things and just dynamics of that market place. But to-date, we have carried some very strong margin profiles coming out of China, low 30s.

All right, great. That’s helpful. Then on the FUEL CHEM side, can you give us a sense of the coal switching with FUEL CHEM? Are you seeing, is it more a case of fleets running more, utilities running the fleet of more natural gas units rather than coal to meet load? Or is it some of the plants you have FUEL CHEM on being phased out on the lower demand in the region where those plants are?

Well, we certainly have seeing movement towards the Illinois Basin, Powder River Basin coals. The Illinois Basin is seeing some renewed growth and we are seeing, they said earlier that the maturing of the Central Application and Northern Appalachian fields. Now, sometimes you will find plants that are still under contract for some time, paying a pretty high price for the Central Appalachian coal but it is not going to play big in the future burns at most of those plants. What we certainly have seen is reduced overall levels of load that mitigate the problems that the FUEL CHEM systems are designed to take care of, even after burning an Illinois Basin or Powder Basin coal. So to some extent those plants might shed their slag at nights or they are operating just at load levels that aren’t producing the same problems that we take care of. To certainly an extent we have seen units retire. We have seen units converting to natural gas that reflect attrition in this business that we have. So the FUEL CHEM business has always been made up of both forward growth as we bring new units on line with our program and some attrition as they have been shut down or switched fuels. As I said before, I think the overall economic level that has an influence on what electrical demand is, is the sea tide for the FUEL CHEM business. Now where we are going is that we are taking our knowledge of chemistry and looking at problems other than fouling and slacking. So SO3 mitigation, SO2, acid gases, Mercury issues that will be before us, these are all areas where we can of apply the FUEL CHEM approach and our knowledge of college chemistry to address those needs whatever the fuel.

All right. Then, the new products that you alluded to being commercialized, coming out in 2013, will we see revenues from those in 2013 or is that more a '14, '15 and beyond?

I think you will se the beginning of revenues in 2013. There won't' be full year of revenues for new products like those but we are going to see evidence as we bring those to customer sites to test to give us a better to give us a better feel that they have the potential to meet their needs on an ongoing basis to see the final chemical consumption levels associated with the pollutant removals remains to be answered and that of course is the determinant of the actual monthly revenue out of a site. Of course, the adoption rate among other customers. So I think selecting 2013 will be the transition year. I would expect to see robust growth in the 2014 and '15 for those kind of applications. I will say this. I think our core strength is in developing these kind of products. So we have some tremendous talent in our organization, very motivated to solve these problems. It is what we do well and I will continue to reinvest our earnings probably at the 3% to 4% level of revenues, as stated before. We are already at 3% and continue to find those kind of opportunities to give us a long term growth.

Your next question comes from the line of Dan Mannes of Avondale. Please proceed.

A couple of follow-ups. First, on FUEL CHEM. I think the thing maybe a little bit surprising here is how well the margins have carried. Can you talk, maybe a little bit about what is still running and maybe why the margins are so strong? And maybe as you are able to either roll out new products or get new FUEL CHEM customers, how we should think about margins going forward?

Yes, this is Dave. The margins vary depending on which of the products they are using. We have you two different products on our FUEL CHEM side. So the mix and concentration of those will cause your margins to vary. It's also customer specific and so it depends on what that particular plants or customers are pulling from our FUEL CHEM side of the business. So that’s best, essentially the guidance going forward to 48% to 52% contemplates some additional business and some shifting in the product that’s being sold.

Okay. We have seen your backlog obviously shift a lot on the APC side towards international. It's just a little bit lower margin. But it sounds like there is some good opportunities. I guess the question, and I know, I am very focused on the domestic side is, given what you are seeing in the west, when do you expect to start seeing the order flow in the SNCR side given some of the state plans?

Well, we have some bidding activity right now on SNCR work, primarily related to either permits, consent decree. Admittedly CSAPR has been stayed as a driver. We think that the SNCR market while it's one that we have developed over many, many years, it's a more maturing markets. But that doesn't mean that there aren’t good applications particularly when we find the level of NOx reduction that are required to fit within our capability. We are working to certainly enhance the level of NOx reduction we can give with that technology. It's sort of an extension of life of that capability. I will also say this that we have proven that it’s a low capital approach to moderate NOx reductions. You combine that with our capabilities than Low NOx burners, over-fire air systems, we can combine all those to achieve additional amounts of reduction. It is not going be the same market in every geography. In part because of what the regulations are, in part because a lot of new plants are designed. For example in China, large new power plants are largely being provided with SCR solutions. We have a play in that. Our ULTRA technology plays in that, our ASCR offerings have a play in that. But SNCR is alive and well. I think when I look at the bidding level of activity that was taking place a few months ago and where that is today, it has certainly softened. But it is going to return. So I expect to see SNCR to continue as an important not the dominant but a very important part of our offerings. But we must continue to innovate other technologies to amplify what SNCR is capable in achieving.

Okay, and then in terms of the high level guidance for next year and thanks for providing that, when you think about the revenue for next year, in order to get to the numbers said that you are seeing, first on the APC side, do you need to see much of a contribution from domestic or can you get there mostly on international? Two, on the FUEL CHEM side or the new products, do you need to see much penetration on new products or you will be able to get there mostly with the existing FUEL CHEM. customers?

We do need to see contribution from the domestic business.

On APC?

I am sorry?

On APC?

Correct. Yes. We don’t want to put too much emphasis on that. If you are overseeing in China and the of course, you have got the Chile order booked up. We think the numbers are achievable domestically. So there is that. There is also some growth on the FUEL CHEM side that we are looking for, whether it is through existing products sold to our current customers and new customers or whether it's some of the new products that Doug talked about, we think it's reasonable to expect some growth on that side as well.

Okay, and then last thing, obviously you still have a pretty strong cash position, $24 million. You have done a couple of buybacks in the last few quarters. What's your thinking as it relates to the cash because it's obviously being ETF positive? You don’t need the cash to support R&D or operations? What's your thinking in terms of the cash position for the next couple of quarters?

I would expect that we would continue to build our cash position from cash from operations. Some portion of that will, as we said: go into new product development. One can potentially anticipate that if there were M&A opportunity that we were ready to pursue that. Depending upon the structure of such transaction, cash could be an important element of that but as a balance sheet policy, we intend to stay strong. We announced and completed two stock buyback programs that we were satisfied with. We haven’t announced further such activities. So we will just continue to see our current ratio, particularly coming from strong cash position to further strengthen our company's ability to move forward.

Okay, sorry, you just opened up one last question. You mentioned M&A. Are you actually, without talking about specific deals, are you pursuing M&A opportunities or is that not a key focus right now?

That question comes up on most calls. We obviously aren’t going to publicly talk about something that could be the subject of non-disclosure agreements but every year, we are looking at opportunities and evaluating whether or not those make sense to us. So that remains an ongoing activity. The intensity of which is transaction potential related. So we will continue to look for M&A opportunities that could enhance our organic growth an increased our overall revenues.

Your next question comes from the line of Steven Charest of Divine Capital Markets. Please proceed.

Very good morning. Good quarter there. Just for any color to assimilate a bit more clarity, quotation activity, RFPs or RFQs, domestically, has that been characterize it, has that been steady, has that slowed down? How would you call that one?

On the APC side, you are saying?

Yes.

The domestic activity, if anything, when we look at our managed pipeline of potential business, it's probably grown. However, the portion of that we think is deferred has also grown and that was directly related to CSAPR stay in August, inside this past quarter. So until we get some clarity on that, there is that significant percentage of our pipeline that we know will not be converted into contract awards over the next couple of months. I think everybody truly is probably been waiting on today's election, and who will be President. There is such strongly different ideologies by the two candidates that the choice of one or the other might shape customer's expectation of what kind of policies they will get, particularly for coal. So, as I said, we are hopeful that we get a good leader. One that’s good for the economy in the first place. I think what's good for the economy will be good for Fuel Tech. We feel confident that with whatever party is in office that the long-term needs of cleaner and more efficient energy society will remain the force. So there is plenty of work of for us to do. However if you at the last four years, personally, I am very disappointed at the ability to set clear regulatory guidance. Here we sit today with no real clarity as to what our customers should expect to do. They know they will have to do it. They are going to making some pivotal decisions relative to, do they maintain or do they retire important infrastructure assets such as coal burning power plants. We have got capabilities to help them continue to operate those cleanly and efficiently. But we have to have an administration that is pro-fossil fuel because we can't solve all of our needs just by alternative energies. No, we can't solve all of our needs just by fossil fuels. Though I am very hopeful that we get some clear vision of setting a good energy policy and an economic job growth creating a landscape for the months ahead. I will add, I think while certain people might view that low natural gas prices could be bad for Fuel Tech because we have been so much on the coal side, but low natural gas prices can revitalize our economy. That, in my opinion, is good for our company and there is plenty of work for us to do but what we really need to do is economic growth going again.

(Operator Instructions) There are no further questions at this time. I would like to turn the call over to Doug Bailey for closing remarks.

Well, thank you everybody. It's interesting to sit here and talk to you not knowing what I am going to know about midnight tonight but I think this election is a very important day in America. We look forward to working as a company, as I said, regardless of the outcome, because it's certainly going to be a close race but we will continue to develop products, work with our customers to meet needs and hopefully we will see 2013 led by an individual that can restore economic growth of this country and when it does so, we are going to have a lot of work to do. If it's still a difficult economic time, we are going to continue to find opportunities. That’s why we have expanded our international capabilities and that’s why we are investing in new products. So be assured that whatever the outcome of today's election is, we will going to work hard for our customers and our shareholders and we are very confident we can continue to grow in to 2013. Thank you very much for your questions. I thought they were all good. Thank you for your time today on today's call. Bye, everybody.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.