Good day to you, ladies and gentlemen, and welcome to your Fuel Tech Second Quarter 2014 Financial Results Conference Call, which is hosted today by your Senior Vice President, Mr. Devin Sullivan, President of the Equality Group. My name is Kathy, and I'm your event coordinator during the call. [Operator Instructions] And this call is being recorded for replay purposes. And now, I'd like to hand over to Mr. Sullivan. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for Fuel Tech's 2014 Second Quarter Financial Results Conference Call. Yesterday after the close, we issued a copy of our press release. A copy of which is available at www.ftek.com. Our speakers for today's call will be Doug Bailey, Chairman, President and Chief Executive Officer; and Dave Collins, Senior Vice President and Chief Financial Officer. Before turning things over to Doug and Dave, I'd like to remind everyone that matters discussed during 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 Fuel Tech's filings with the Securities and Exchange Commission. 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 during this call. And as a reminder, the call is being broadcast over the Internet and can be accessed at company's website at www.ftek.com. With that said, we'll now begin the call, and I'd like to turn things -- the call over to Dave Collins, Fuel Tech's Chief Executive Officer. Dave, please go ahead.

Thank you, Devin, and good morning, everyone. Thank you for participating in today's call. Our current quarter and year-to-date results remain sluggish due to a continuing slow pace of bookings within our APC segment business. This trend has been observed in both our U.S. and our foreign APC markets. While we wait for clarity from the EPA regarding the impact of the favorable ruling from the U.S. Supreme Court on CSAPR, we will continue to look to our foreign markets for growth opportunities. Offsetting the slower APC market revenues is a pickup in new customer activity within our FUEL CHEM segment, which we believe will contribute incremental revenues through the second half of 2014 and into 2015. While the initial revenue pickup is expected to be modest, we do have the potential to gain significant new incremental FUEL CHEM revenues based on these new orders. Consolidated revenues for our second quarter decreased $8.9 million to $20.2 million, a year-over-year decrease of 31%. For the first 6 months of 2014, our consolidated revenue decreased $12.7 million to $38.9 million, a year-over-year decrease of 25%. The decrease in revenue for both the current quarter and year-to-date periods is focused on our APC segment. The decline in foreign revenue is due in part to the further completion of our project in Chile. Our foreign revenues in the current quarter decreased by $0.4 million or 46% to $6.5 million and for the first 6 months of 2014, our foreign revenues have decreased $5.6 million or 26% to $15.9 million. Our U.S. revenue decreased $3.5 million or 20% to $13.7 million and for the first 6 months of 2014, our U.S. revenue has decreased $7.1 million or 24% to $23 million. I will speak more in depth in a moment about our segment and geographic…

Good morning, everyone, and thank you, all, for joining us today. We issued our results for the second quarter yesterday afternoon, and they were to a large degree as expected. Our FUEL CHEM business segment maintained its overall revenue profile as compared to last year and continued to post good margin results. Our APC business segment, as we stated on our last quarterly call, has witnessed a slower pace of domestic bookings as utilities have delayed purchases, while awaiting regulatory clarity around EPA's cross state air pollution rule over CSAPR. As you will recall, that rule was stayed at the end of 2011 and ultimately vacated 2 years ago by the U.S. Court of Appeals for the District of Columbia Circuit Court. It was not until April 29 of this year, 1 month into the second quarter, that the Supreme Court upheld CSAPR and remanded it back to the D.C. circuit. Our APC segment recognized lower year-over-year quarterly revenues, principally as a result of this slower domestic market, coupled with lessening activity in Chile, as our large project there matures closer to completion. I'd like to briefly comment on the regulatory environment. We continue to expect that a revived CSAPR will be a growth driver for our domestic APC business once start dates and timeline for utility compliance are finalized. In the month of June, following our last call, EPA asked the D.C. Circuit to lift the stay on CSAPR and allow the agency to implement the first phase of the program for 2015 and the second phase in 2017. The Court of Appeals subsequently gave parties until August 22 or 10 days from now to file motions in support of EPA's motion to lift that stay. However, industry groups in several states have since asked the D.C. Circuit to…

[Operator Instructions] We have your first question and that comes from Mr. Lucas Pipes from Brean Capital.

So my first question is just on the APC side. You mentioned in the press release that you have visibility into a pipeline of domestic APC projects. I wondered if it was possible for you to kind of thread in sort of frame of reference regarding the magnitude of those projects.

Well, as I said in the past, and that continues to be the case, many of these, Lucas, are somewhat lumpy in size. They have relatively long-term sales cycles. They are largely driven by, as I said, consent decrees, permits. We are beginning to see some varied opportunities outside the utility sector in growing number for industrial projects, as I commented. I would say overall, with the current state of regulatory uncertainty, you're probably seeing a more competitive bidding environment for these projects. So while the pipeline might be large, the competition for wins is still relatively intense. We are seeking work that can support good traditional margins. We have passed on work that has gone at pricing that we believe is much too close to cost level. So I would say that the overall domestic market has been a smaller market, it's still large enough opportunities, but we are going to be a bit selective in what we choose to win. And that's reflected in the decision of our bid processes.

Okay. But, so is it maybe a reflection of 2011 activity or any sort of frame of reference in terms of going back to prior years, what it could look like?

I can't compare it to 2011, which was really -- had quite a acceleration of activity, when CSAPR was first enacted in the summer of that year. I think we booked over $40 million of orders in the following 2 quarters. Our bidding activity is high. It's not necessarily fast in terms of award decisions, simply because of the regulatory hiatus. That was a very different environment once CSAPR was enacted and had a compliance deadline that loomed not much more than 6 months later. Right now, they're continuing to debate the compliance timeframe of the renewed CSAPR enforcement. I expect it to be a little bit more reasonable and yet, I do expect to see projects requiring execution in 2015. So in the meantime, we continue to pursue non-CSAPR related opportunities.

That's helpful. And on that note, could you maybe share with us what the China contribution was to revenue in the second quarter, and kind of how you expect that to grow over the coming year or years to come?

Sure. China, for the second quarter, was little bit shy of $4 million. And that's down year-over-year and it's down because our first 6-month period of bookings was slower. Again, we don't see that as a continuing trend. We think it's timing related. We're still active in that marketplace. But when the orders are signed up can differ year-over-year, so we would expect the back half of this year to be comparable with prior periods and continue to look for that market to deliver growth to the company.

That being said, Lucas, it has evolved into a more competitive market, so we've seen emerging competition. We've seen there, as well as with here, similar efforts to win business at what we would view to be lower margin tendered bids. So it's more important for us to dedicate our resources to better margin projects. So we continue to expect order announcements in China, but we're also aiming to preserve margins at the same time.

No, that makes perfect sense. And if I could maybe squeeze in 1 last question. Very happy to see the acquisition on April 30. When I look at the backlog of PECO-FGC, if I noticed it correctly that there's a little bit of the decline over the most recent quarter to 3.7 million tons of backlog. Is that kind of the normal figure? Was it a little elevated before? How should we think about kind of the recurring contribution from that business?

2 factors, Lucas. There was 1 order that was in the backlog, when we acquired the company. That was a planned project in late 2015, at the very fourth quarter. That was an order that had been booked in early 2013. It was expected that, that would go forward and now, its -- plans are underway to convert those units to natural gas, part of an overall trend. There is possible plans to continue another unit on coal but -- and if that remains a fact, that contract could restart. But it carried about a 10% cancellation fee, Dave mentioned about $680,000 that went straight to bottom line. So that was a $6.8 million contract with equipment deliveries like around November 2015. So while we're sorry to see it go, its margin would have been a little bit better if we monetized the value of it today. On the other hand, we have won some domestic business, in particular, $5 million plus contract being awarded this quarter and expect to be complete second quarter of 2015, I believe. And we are working on a fairly large project pipeline. The pipeline of ESP projects that we are looking at is in excess of $25 million. The award dates vary from the current quarter that we're in to dates in 2015, and they also vary in size from about $0.5 million to $5 million, $6 million in contract size. So generally, we're pleased with the prospects of the PECO-FGC acquisition. But like all of our project activity in the APC segment, it is subject to puts and takes on contract execution or cancellation.

[Operator Instructions] And your next question comes from Mr. Dan Mannes from Avondale Partners.

This is Stefan on for Dan. Just real quick, I wanted to get your thoughts going back to CSAPR, you noted in the press release and just a minute ago that you expect to kind of a long-term pickup in orders. Do you have any commentary regarding what the EPA mentioned in their petition that CSAPR may have limited effect given that there's -- we're already near compliance on the original emission levels?

The commentary I can say is this. I'm not the expert, but I am aware that since you saw a more than 2.5 years delay, there has been progress on attainment over the previous baseline. So where we are today in 2014 may very well be different than where we were in 2011. And so the states and various groups are looking for an update to the starting point as it relates to what percentage improvements are needed. As you know, the CSAPR is all about the upwind states contributing to pollution and the downwind states for sulfur dioxides and NOx emissions. And so the current baseline measurements are probably going to be refreshed, I would say, as it relates to determining what improvements are needed.

All right. Also talking about FUEL CHEM, you noted the increase in demand for new domestic orders and I think you said kind of one of the catalysts for that, maybe I misheard you, was for tax reasons. Could you expand on it a little bit? That seems to be pretty new.

That was only in the case of 1 particular customer, who used a refined fuel. We don't see that as a primary driver to our FUEL CHEM business, but it has been in the case of that 1 particular customer.

And we have been engaged with that customer on another unit, so we've proven out the effectiveness of the program. So we're not expanding that across our fleet, so.

Okay. All right, great. And also on FUEL CHEM, I think you noted in your release that you were seeing some international opportunities, as well. I know you guys have tried that before and found the costs were a little difficult. Can you comment on any opportunities you're seeing there, as far as FUEL CHEM is concerned?

Well, we are seeing some opportunities in Europe. We've done a demonstration over there and a program that began at the end of March. We're tracking about a half a dozen opportunities in different countries, Italy, Netherlands, Switzerland, Finland, Poland, all of which represent interesting incremental opportunities. We see nearest short-term opportunities over there in black liquor recovery boilers, waste incinerators, pulp and paper industry. But I'll add that the -- probably the biggest international opportunity that we have is still in China. As you know, China is an air pollution control market, for us, today. But we've come to recognize and hear growing customer interest and possibly partnering interest for FUEL CHEM. We have actually done a lot of work in analyzing slag samples from various Chinese coals. We've developed localized sources of supply and we aim to commence some demonstration programs over there later this year and into next year. That being said, that business is at its embryonic stage, but could emerge to be a very important opportunity for Fuel Tech, and we certainly aim to capitalize on that. I'll also add that we made an even earlier commitment to the Mexican market. There, the fuel that's burned is Pemex oil. It's very problematic. It results in significant SO3 emissions and we've been working with the 1 and only state Utility CFE, and have a local partner in Mexico and established Pemex supply there with local content. And we've been able to overcome some very significant technical challenges to be able to remove SO3. So we're very optimistic that over time that we can become the leader in that market. That is a royalty generating income stream for Fuel-Tech because of our partnering relationship as opposed to a traditional top line revenue that we have here in the United States. It remains to be seen how we construct the business model in China, but I think it probably is reasonable to say that the partnering solution will be sought in order to get larger market access.

Okay, perfect. And then 1 last quick 1 on the SG&A line. Can you give us any idea of how much acquisition costs were included in that for the quarter?

Yes, it was minimal at about $50,000. So acquisition-related was minimal. We brought on in the quarter about $400,000 of costs associated with that business, that would be personnel and overhead-related costs and that showed up in the quarter.

But I will add that, as part of our strategic development, we're pursuing other opportunities, which have not been consummated and those necessarily involve planning and pre-acquisition SG&A costs.

We have no other questions, so I would now like to hand back to Doug Bailey for closing remarks.

Okay. Thank you very much. Here at Fuel Tech, we continue to believe that we're progressing as a leader on global markets for air pollution control and energy efficiency solutions. We have a really great dedicated team of professionals that's working around the world to achieve both immediate near-term and very importantly, our long-term objectives. And so we thank you, all, for joining us on today's call, and we certainly appreciate your continued interest in Fuel Tech. Thank you, operator, and thank you those of you who joined the call today. Bye, everyone.

Thank you, ladies and gentlemen. And that concludes your conference call for today. You all may now disconnect, and thank you for joining.