Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Fuel Tech Earnings Conference Call. My name is Dorsel, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Devin Sullivan, Senior Vice President of The Equity Group. Please proceed, sir.

Thank you, Dorsel. Good morning, everyone. Thank you for participating on today's conference call to discuss Fuel Tech's fourth quarter and full year financial results. As Dorsel mentioned, my name is Devin Sullivan of The Equity Group, and our firm has been recently retained by Fuel Tech to provide Investor Relations services. On the call this morning are Doug Bailey, Chairman, President and Chief Executive Officer; Dave Collins, Senior Vice President 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 forward-looking statements. Factors that could cause results to differ materially are included in Fuel Tech's filings with the SEC. 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, the 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, Devin, and good morning, everyone. Thank you for participating in today's call. Let me briefly touch on the independence matter before we talk through the numbers. We did issue a press release discussing this matter on March 1 and have provided full disclosure of this in our 10-K. This independence matter, which involve the inadvertent use of the McGladrey entity report [ph] bookkeeping services in China, delayed until today our ability to report fourth quarter and year-end results and has also delayed the filing of our Form 10-K. We filed for an extension of time to April 1 for filing our 10-K and expect to meet that extended due date. Whilst it is an unfortunate and costly divergent from our normal year-end close process, we are thankful that we have reached an agreeable path forward and are progressing through our year-end reporting process. Now onto our discussion of the fourth quarter and year-end results. Consolidated revenues for the fourth quarter were $26.6 million, down 5% from $28 million in the same period last year. Consolidated revenues for the full year of 2012 were a record $97.6 million, up 4% from $93.7 million in 2011. Foreign revenues for the fourth quarter were $13.7 million, up 122% from $6.2 million in the same period last year. And foreign revenues for the full year were $27.2 million, up 55% from $17.6 million in 2011. Foreign revenues represented 51% of current quarter revenues and 28% of full year revenues. Consolidated gross margin for the fourth quarter was 35.6%, down from 47.2% in 2011. Consolidated gross margin for the full year was 41.7%, down from 46.8% in 2011. This change is attributable to a year-over-year decline in our APC segment gross margin through the impact of lower-margin foreign sales, coupled with a decrease…

Thank you, Dave, and good morning, everyone. Thank you for joining us today. I'll add a few thoughts to what Dave said, beginning with the year as a whole and then moving to our APC and FUEL CHEM business segments. After that, I'll spend a few minutes discussing our markets and our approaches to them. 2012 was a good year for Fuel Tech. We did report record revenues, the highest annual bookings in our history, significant geographic expansion and a 50% increase in APC backlog of $46.7 million. The year was not without its challenges, however. Our domestic APC business struggled in the wake of regulatory gridlock while FUEL CHEM continued to be impacted by lower energy demand and declining coal consumption. We remain profitable but at a lower level than 2011 while investing in future opportunities. Despite all of this, our balance sheet remains strong, allowing us to return $7.8 million through our share repurchase program and investing $2.9 million in new product development. We're pleased with the year-over-year sales growth for APC, especially given the sluggish domestic market. Last year, we experienced a surge in domestic orders for Selective Non-Catalytic Reduction or SNCR technology that were placed to meet the requirements of the then Cross-State Air Pollution Rule. This regulation mandated greater reductions in domestic NOx emissions beginning January 1, 2012. After that rule was vacated in December 2011, any source of immediate pressure to comply disappeared. As a result, during 2012, many utilities delayed their purchasing decisions in order to consider how to best comply with current EPA regulations. This resulted in a more modest level of domestic sales, driven primarily by state consent decrees and existing regulation, including CAIR or the Clean Air Interstate Rule, MATS or the Mercury and Air Toxic Standards and the Regional…

[Operator Instructions] Your first question comes from the line of John Quealy with Canaccord.

It's Chip Moore for John. Was wondering if you could give us just a little more color on the roll-off of existing backlog in '13? And then you alluded to what sounded like some potentially lumpier orders in the pipeline. Could you just talk about potential timing and margin profile there?

Okay, the roll-off of -- are you talking about the backlog as of year end, the roll-off of that?

Yes, the $54 million or so in backlog now, I guess, how you see that rolling off?

Okay, sure. $29 million of that is sitting in Chile. That's going to run over the next, call it, 6 quarters. Our last installation project is in 2014, Q2 of 2014. So I would -- and that portion of the backlog carries a 20% margin profile on it, so you can run that over the next 6 quarters. The rest of the backlog I would look to see pull through by the end of Q3.

Chip, if I may comment on that. As Dave noted, the Chile project is the biggest part of our backlog. And as we've previously said, there is a low margin on that project, but it was strategically important for us to win. It's on 6 units and the actual project work on-site depends on the outage schedule. So the first outage is coming up in April. Other units have their outages scheduled in the second and third quarters of this year. And then in the first and second quarters of 2014, the remaining 2 units have their outages scheduled. So following our revenue recognition accounting policies, you'll see a rather steady recognition of that total contract amount at fairly modest margins and that will be in contrast to the more typical margins that we see domestically. So that'll carry with us all the way through well into the middle of 2014.

Okay, that's helpful. And then it sounded like you referenced some orders. There are some potential larger projects in the pipeline, just maybe you can talk about those?

Well, I sure can. We don't specifically talk about contracts that we have not yet won, but we do anticipate additional wins for our traditional SNCR capabilities relatively near term. And as I noted in my prepared remarks, we are quoting on some relatively large projects that utilize, for example, our Selective Catalytic Reduction technology. So these projects have a very long sales cycle, a very complex bidding process and decision process. And thereby, if we are to win those, they will represent typically higher contract amounts than you might see for the kind of bread-and-butter SNCR contracts that you saw us collecting in 2011. And yet, I think, when we look back at some of the large projects that we have won, they've demonstrated Fuel Tech's ability to take on work of that complexity and scope. So thereby, it's very hard to predict exactly what our bookings might be because they could be highly influenced by one single large contract.

Right, okay. That's helpful. And then just lastly, on the strategic growth front. Cash flow is obviously good. Could you talk about M&A and new product developments, where we stand there?

Sure. On new product developments where we focused much of our effort, we manage a portfolio of projects, really, not only relating to renewing, extending the capabilities of our more mature processes, but really, importantly developing through chemistry new opportunities aimed at pollutant removal but using our FUEL CHEM business model. I do anticipate over the years ahead that you'll see a little bit of merging of those 2 business segments in terms of their business characteristics. Traditionally, our APC segment is the capital project portfolio of activities that we win and execute, but don't carry with it typically recurring revenues, and they're aimed at meeting a regulatory requirement. Our FUEL CHEM business model is one of -- we don't sell the capital equipment. We own it, and we sell a revenue stream of chemicals. At its infancy, as you can imagine, the range of products that FUEL CHEM offered was more narrow. We've expanded that somewhat. But now we're moving beyond flagging and fouling issues by looking at opportunities to remove SO2, hydrogen chloride or other acid gases, issues related to mercury. So now, it's a more of a multi-pollutant recurring revenue FUEL CHEM-type application. Those require development at the chemistry and mechanics that deliver those solutions. Through the last couple of years, we've steadily worked towards demonstrating our capability in that area. We've done significant field testing and we're hopeful that before this year is over, you'll see the fruit of that effort offered in the marketplace.

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

A couple of quick follow-up questions. First, for Doug, you talked a lot about China and I certainly appreciate the color. Can you maybe talk a little bit about if there are any specific regulations you're tracking that are already in place that line up well with your current product mix, or are you more talking about a generalized trend over an extended period of time relating to emissions controls that will benefit you? Is there something sort of discrete and specific you're pointing to, or this sort of more of a broad-based move?

Sure, Dan. I would say I was not trying to address anticipated new regulations inasmuch as I think the current environment over there is -- the general lack of enforcement of regulations that are in place, or quite honestly, the growth of the economy has outstripped the country's ability to maintain control of the concomitant emissions that have affected China. We've all seen the reports of air qualities such as in Beijing. It's reached completely unhealthy hazardous levels. And I think what you're seeing is a rising cry of public demand for the national government to enforce the regulation. I think that bodes well for what we're able to do. Now many of the projects over there related to new power plants have applied elective catalytic reductions systems, large-scale capital projects that you know we don't participate in. We've been successful at selling many ULTRA systems that convert urea to ammonia to support those systems. But I think we're now beginning to see more interest in some of our other capabilities. Generally, I think you're going to see a strong, growing willingness to adopt more engineered solutions that address what is, I think, a growing crisis in that country. There will be many other companies helping to contribute to that beyond Fuel Tech. But we're very unique in our early position as a U.S. company over there with a good demonstrated track record. We have reliable credible solutions, so that's really the point I was trying to make, Dan.

Okay. And then switching gears real quick. You mentioned sort of large lumpy orders, but then you also talked about maybe some of the consent decrees we've seen in the Southwest U.S. Are those 2 things connected? Because my understanding is the consent decrees are more traditional SNCR. Or are you -- were those 2 discrete items or were you kind of tying those 2 things together?

Well, some of those SNCR projects are larger, more than $10 million. And so, yes, we are aware of Southwest U.S. needs that they've already successfully settled with the EPA and plan to retire units and put SNCR on their other units. Those are some of the, I believe, near-term contract wins that we have opportunity with. And I'm talking about relatively near-term decisions we would be taken in the next quarter. So that market is active and while we don't have a national rule like CSAPR to drive NOx control, we still have CAIR and we have the Regional Haze Rule, which we're talking about here. And these consent decrees, sometimes there are plant permit requirements that are the driver. But they still show that we have an active SNCR market, but it's more lumpy. We saw in the end of 2011 was a sudden surge of orders to meet the January 1, 2012, compliance date, but then it was canceled. So we executed a lot of those projects in 2012. We turned our attention to the international markets as the U.S. market was unsettled. We won significant business over there and that does come at lower margin for a couple of reasons. But you'll see us execute those projects through 2013 while we replenish the sales pipeline with more traditional domestic products.

Okay. And then again, I think this was your comment to a prior question. It sounded like you did think you're maybe closer to your ASCR or SCR-type solution. Is that a domestic opportunity or international? Or can you maybe give us a little bit more visibility on where the demand might be coming from?

Sure, it's domestic. And these are -- if we were to win projects, this would potentially set even further record for contract size. So there's a lot in the planning stage. We are assembling resources in our catalyst technology center that we maintain in Durham and support our APC sales force. So I expect that to result in contract wins. I would say more of our large contract win opportunities are in the SCR technology area against the combustion area. And we're executing a large combustion project in Chile. We previously executed a large one in the U.S. But we think the future is more aimed at the SCR's side of technology portfolio.

Okay. And then one last question on FUEL CHEM. Obviously, it's been under some pressure given what we've seen in terms of coal usage and the low price of gas. There's also a decent amount of seasonality in that business. I mean, as we move the calendar over to Q1, do you expect things to maybe get a little bit better sequentially, or have you seen your customer count and the usage per customer decline enough that maybe the seasonality doesn't help you out this year the way it did last year?

Yes, Dan. This is Dave. I think we've seen the drop in FUEL CHEM. So from a -- for year-over-year basis, I don't think you'll see a lot of variation from prior year levels. The question is whether we do have some new customer opportunities, either existing fleets or new fleets and if we could get some of those online, that'd give us a lift. But I don't think you'll see further attrition.

So you're at the right level. But again, I mean, if you look at sort of Q4 versus Q1, I think there's almost $2.5 million revenue delta. Is that just seasonality, or was there more customer attrition over the course of 2012?

A little bit of both, Dan. But there is seasonality involved.

And your next question comes from the line of Steve Shaw with Sidoti & Company. Steve Shaw - Sidoti & Company, LLC: Can you just provide a little more color on what you might see or expect from the macro environment, whether it's nat gas prices or anything else, what you see in the first quarter and what you may expect going forward for the rest of the year?

I missed a couple of words. You said with respect to natural gas prices? Steve Shaw - Sidoti & Company, LLC: Yes, or any other factor in the macroeconomic environment in 2013?

I think if you limit the question to the short term of the first quarter, even extend that a little bit, I think we're going to see low natural gas prices for a while. I don't seem to have a better crystal ball than many experts. And you often hear it said in the years ahead that, that situation may not be the same. That being said, I think we discovered large sources of natural gas supply, particularly coming from shale gas. And so I think that's beneficial to the U.S. economy. I think it will help drive renewed manufacturing in industries such as petrochemical. I think you're going to see the ability to make careful considerations as to what your fuel strategies will be. They certainly cannot or will not, in a huge way, just convert to natural gas. You can't be dependent upon that for baseload generation. So I think you're going to see strategies that balance the use of natural gas and coal. Now, the coal industry is not going to sit idle by the side. They have many things to bring to the table. I think you're going to see increasing awareness of opportunities to blend coals, that take advantages of bearing heterogeneous coal qualities from different coal fields as well as the changing prices in those coal markets to bring the price of net fuel down, and importantly, to enable them to utilize that fuel in such a way that can help avoid some of the large capital expenditure requirements that is a pressure on the coal-fired generation utility market. That's where Fuel Tech stands to help. We're known to be a low-capital solutions provider. We can provide a lot of expertise to our customers as to how to maintain the use of coal and cleanly burn it. And we're, of course, aiming with our own product development to provide further capabilities in that area. But in the short term, I for one, believe that natural gas prices will remain relatively low as compared to historical level.

And your next question comes from the line of George Gaspar [ph], a private investor.

You may have covered this, but could you give us an update on what your strategy might be on your stock repurchase program and if there's any chance that you would accelerate or expand the program?

Let me just touch real quickly on that. This is Dave. We manage our capital base and we need to carry a certain amount of capital for bonding purposes on our projects. So just a comment in general, we do manage that pretty closely. And if you look at the cash balance and wonder what we're doing that, just understand there is a need for our business to support our business with our capital projects work.

That being said, George, and thank you for the question, when we, from time to time, have seen disparities in what we think the future value of the company is and what the market seems to suggest, we've taken advantage of that. You don't always have a perfect crystal ball. It's only been 3 times, and I remember in our history when we've done that once was, gosh, almost 10 years ago. And we did it twice in 2 programs announced at $6 million. We do not have any present program in place because we've completed those 2.

Okay. And a question on your research development, mentioning your Durham operation as to your technology focus, if you could explain that, if that, in fact, is true. How do you see the possibility of expanding your R&D program and trying to broaden your spectrum of chemical development?

Sure. In Durham, our group there is totally focused on our catalyst technologies. Our R&D efforts are centralized in the Warrenville area. And so we have a new product development team that manages projects across all technologies. Our Ph.D.s, our scientists, our engineers who work on those projects is a more centralized activity. We have a steering committee, we have an executive management review committee that each regulates on those projects and go/no go decisions get made if we see promising results. So it's a program that we have strategically said we're going to commit certain percentage level of our revenues toward with a balanced view between short term and long-term product launch. I think, having had this program in place and rigorously followed over the last 2 years now, we're going to begin to see some fruits of that effort. A lot of our R&D dollars, I can say, George, goes into field testing. That might be at an external laboratory handling [ph] our own its early work and then that might move to a customer site for demonstration. And so, we evaluate test results that are in real environments before finalizing the product attributes and structure. So we're encouraged by what we're doing. As I said earlier, much of that work is aimed at building a more recurring revenue stream for Fuel Tech. That gives us a better flywheel, I call it, to the business versus what you see when you win, execute and then have to go find new capital projects. And I would say, most of our R&D activity is aimed still at pollutant removal, which is where, while it may sound like a FUEL CHEM business model, it's really helping customers meet air pollution control needs.

I see, okay. I know you've got a very high level of chemical analysis and expansion in your field. Have you ever thought -- there's a lot of new streams coming out of liquefied natural gas -- natural gas liquids and it seems like there's more movement toward the use of certain chemical strains in the pentane 5, 6 range for oil fans work in Canada. Is there anything that you see in your broad opportunity scale that could move you in the direction of something like that?

Personally, I've looked a little bit at some of the issues related to the oil sands. There's no particular program active at Fuel Tech today to address opportunities like that. But I can tell you that the bench strength of chemical analysis that we've built is certainly aimed at taking on new, more complex problems. Certainly, I can also tell you that each and every project is carefully scrubbed with respect to near term as well as longer term and bigger market opportunities. So it's still a market-driven process.

And your next question comes of the line of Lucas Pipes with Brean Capital.

This is actually Derek Hernandez for Lucas Pipes. I'm his associate here in Capital. And a number of my questions have been answered already, but I wanted to touch on your understanding is that gas prices will remain around historically low levels. And I wondered how that might affect your FUEL CHEM margins in terms of what kind of projects you're finding and ...

Okay, thanks, Derek. Maybe Dave and I might both answer that. I'll start. Personally, I don't believe it's going to affect our margins. As we stated before, obviously when a unit may switch from coal to natural gas, our Fuel Tech -- FUEL CHEM program will be retired at that unit. We've seen that and spoken to the attrition that the fuel switching has occurred. But we've also seen a major issue with respect to overall electrical load demand. So as units operate at lower load levels, they don't have the same tendency to have a large, significant ongoing piling and slagging problem. So that, too, has affected our FUEL CHEM revenues. But that doesn't have a lot to do with natural gas. I think we have the opportunity to provide new additional products that utilize the FUEL CHEM business model that address multiple needs inside a boiler. And I also think that we will be, in the long term, addressing opportunities that the coal industry can bring back and offer to this dilledant [ph] industry relative to greater awareness of how fuel blending, more so than is being done today, coupled with our type solutions where we're the glue that provides a level of chemistry between the characteristics of coal from this field and coal from that field to provide a very capital efficient as well as cost efficient in operation cost approach to maintaining pollutant emissions. So when you look at an industry that's facing billions and billions of dollars of potential capital investment and does not want to retire asset that have significant infrastructure value at a sudden disruptive period and then all of a sudden natural gas prices are low, and I don't think anybody believes that, decades from now, that we'll be seeing the same situation, we will be there to enable that to smartly consume coal or other fuels and cleanly and efficiently burn those. That's where a lot of our R&D effort is aimed at, Derek.

Precisely, precisely. And then lastly, if I might touch on, you mentioned various coalfields obviously being sourced and many blends being tested right now by utilities in this volatile time. Could you give us maybe a little bit of color on kind of which of these fields are coming up more often in your conversations and how you may be reacting to this on your end?

Sure. Well, I think people are generally aware that the Central Appalachian, Northern Appalachian coalfields are maturing and are higher cost. However, they have a transportation advantage to geographic markets where a lot of people in this country live. The Powder River Basin grew to where it was supplying over 1/2 the coal's usage for electricity generation. And so when you're the biggest market share field contributor and you see natural gas taking some share of that market, you're going to see demand lower. So prices are now a little lower out there. They face the longer transportation hauls and therefore, well, we are delivering PRB coals in far-reaching locations, they still have quality characteristics and mining cost characteristics that make it an advantageous field. The Illinois Basin field is the one that has seen some recent growth. It has some of the "ballsy" characteristics that our customers have turned to Fuel Tech to help alleviate. So if you combine the FOB mine price attributes, the coal quality attributes and the transportation cost attribute and look for blending strategies and couple that with low capital cost, sensible chemistry in-furnace injection programs that we offer, you can optimize your overall costs between the cost of the fuel and the operating and maintenance costs of the plant. That's where we see the market heading. Having grown up in the coal industry, that there's 3 things that are really driving the coal markets: it's the cost to mine the coal, it's the quality of the coal and it's the transportation cost. Those 3 legs of the stool will persist forever. So we have heterogeneous coalfields and yet those are tremendous assets to this country. United States must recognize the value of this resource base because we know where it is, it's plentiful and we have a growing international appetite for that product where they don't have the same fuel alternatives that we have in this country. So that's going to translate into long-term infrastructure shift that will enable us to find new markets for the coal. That means new markets for Fuel Tech and smarter engineered solutions to burn those in a cleaner manner. I think you'll see the market share of coal reverse. I don't think it's going to go back over 50% anytime soon, but you'll see a balance between natural gas and coal. And there's a reason for that. This country and every country needs every possible energy source it can economically develop and there are economic trade-offs between them. So alternative energy has a role. Natural gas has a role. Oil, coal, nuclear, they all have defined roles. And so as I look ahead, I'm hopeful that this country will develop a balanced energy and environmental policy that takes advantage of all those resources.

And there are no further questions at this time. I will now turn the call back over to Mr. Bailey.

Thank you, operator. Well, you know, the financial results of the quarter weren't our best quarter. But the financial success of the year, given the market environment that we were in, I think speaks well for what this company is capable of doing. I'm just as encouraged as I ever have been about our potential, maybe partially because I have a little bit of an inside view of what I think our organization can deliver. So it's an exciting company working diligently at identifying some new product opportunity. I think you're going to see Fuel Tech reemerge as a growth company, taking advantage of looking for its ability to provide solutions that address these customer needs. What we really are good at is understanding complex combustion processes, the chemistry, chemical kinetics, the mechanics of figuring out how to deliver a solution where it's needed in order to perform a useful function. That's what we do. And so we're encouraged. 2013 will have its bumps as well as successes and I do believe that we'll again post a record year, and we're going to continue to invest for the long term. And we thank you for the kind of questions you asked today that help us convey to you the extent of our understanding of that opportunity. Thank you very much for today's call. Bye for now.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.