Good day ladies and gentlemen and welcome to the Fourth Quarter 2014 Fuel Tech, Incorporated Financial Results Conference Call. My name is Katina and I'll be your coordinator for today. At this time all participants are in listen-only mode. Later we'll facilitate a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Devin Sullivan, Senior Vice President at the Equity Group. Please proceed.

Thank you, Katina. Good morning everyone and thank you for joining us for Fuel Tech’s 2014 Fourth Quarter and Full Year Financial Results Conference Call. Yesterday after the close, we issued a copy of our results and is available on our website at www.ftek.com. The speakers on today's call will be Doug Bailey, Chairman, President and Chief Executive Officer; Dave Collins, Senior Vice President and Chief Financial Officer and Vince Arnone, Chief Operating Officer. After prepared remarks, we will open the call for questions. Before turning things over to Doug, I'd like to remind everyone that 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 during the 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'd now like to turn the call over to Doug Bailey. Doug, please go ahead.

Good morning and thank you everyone for joining us on the call today. As you've seen over the last few days, we've quite a bit of ground to cover on today's call and I would like to begin with a discussion of our air pollution control business segment. As I discussed with you on our third quarter call, generating sales momentum at our APC business has been challenging. Conversion times from bid to signed contract have extended far beyond historical norms. This has largely been driven by deferred client purchases stemming from protracted regulatory delays affecting the utility markets. This has also been exacerbated by continuing shifts in fuel type and generation mix, specifically the increased use of natural gas over coal in the United States. Although our international business development efforts over multiple years have helped to stem this domestic market softness to an important degree, our full year 2014 EPC revenues declined by about $30 million as expected. A significant percentage of this year-over-year revenue change was anticipated from the timing of revenues and work completion on our large multiyear capital project in Chili. However, somewhat larger percentage of this reduction can be attributed to recent market conditions in the U.S. With this as a backdrop, under generally accepted accounting principles, we're required to conduct in the fourth quarter of each year an annual goodwill impairment test for each of our two reporting units, air pollution control and FUEL CHEM. As a result of that test, we determine that a non-cash write down of $23.4 million in our APC segment was required in the fourth quarter of 2014. No impairment was required to the $2.1 million of carrying value of goodwill in our FUEL CHEM segment. Let me make two important points about this charge. Number one, this…

Thank you very much, Doug, and good morning, everyone. It's my pleasure to participate in today's call. I have spent the majority of my time over the past few years focusing on the further development of Fuel Tech's international presence. As Doug mentioned, the geographic diversity provided by our international business has allowed us to navigate the uncertainty created by regulatory drivers and they are specific to each country in which we do business. It has also provided significant benefit to overall company profitability over these past few years. Further development and expansion of our global footprints remains a high priority. To expand on Doug's commentary, China remains a market that we believe holds promise. Public criticism of the government handling of the country's air pollution control issue is growing stronger and stronger with each passing day. The increasing dissatisfaction among China's citizens has made addressing the country's air quality a top government priority. Fuel Tech's investment in the China market has provided a solid return since its inception in 2007, and we expect to capitalize on future opportunities that are driven by increased pressure on compliance with existing regulation, further tightening in regulation and the implementation of a legal mechanism for panelizing non-compliance in a meaningful way. Basically, China needs to ensure that the capital investment that has been spent thus far and that will be spent prospectively on pollution control remedies has been allocated wisely and effectively. Control technologies need to be operational continuously, and strong penalties need to be put in place for non-compliance. We still expect to capitalize on near-term business opportunities in China with a renewed focus on improved product positioning and on generating partnerships with organizations that appreciate our advanced technology. In the near-term, we are optimistic about our business development activities in Europe…

Thank you, Vince and good morning everyone. Consolidated revenues for the full year totaled $79 million, decrease of $30.3 million or 28% from the prior year. This decrease was observed in both our U.S. domestic and foreign APC segment businesses. These decreases were due to a variety of factors including anticipated reductions in our Chile project revenue due to the further completion of that project and declines in both U.S. and China revenue due to slower business activity. During 2014, our U.S. revenues declined by $12.4 million or 20% to $50.9 million, while our foreign revenues decreased by $70.9 million or 39% to $28.1 million. We will discuss activity in our APC and FUEL CHEM segments in just a minute. Consolidated gross margin percentage for the full year was 44%, which was up slightly from 43% in the prior year. Our consolidated gross margin performance in both segments was comparable with the prior year. Our selling, general and administrative expenses for 2014 totaled $35.4 million, a decrease of $943,000 from the prior year. Our SG&A as a percentage of revenues however increased from 33% in 2013 to 45% in 2014 due to the reduction in revenues. As discussed previously, we have mentioned our supporting infrastructure for anticipated domestic and foreign business expansion. During 2014 decreases in commissions and bonuses of $3.3 million were offset by increases in stock compensation, depreciation and amortization, professional fees and other costs. We also incurred specific cost related to long-term strategic initiatives of $600,000 during 2014 and recorded bad debt expense of $760,000. During 2014, we impaired $23.4 million of our APC technology segment goodwill due to delays in expected order flow from various regulatory drivers. The majority of the goodwill was recorded in relation to an acquisition we completed in 2009. We continue to…

Thank you all for your time. I can assure you that we remain fully committed enhancing the value of our shareholder's investment in Fuel Tech and on behalf of our employees around the world, I do thank you for your continuing support. I'll turn it back over to the operator.

Thank you. [Operator Instructions] Your first question comes from the line of Lucas Pipes representing Brean Capital. Please proceed.

Hey good morning, everyone.

Good morning, Lucas.

Good morning.

So first I wanted to follow up on the China opportunity, I've covered Fuel Tech for a while and I’m still waiting for the lift there and if you could maybe just help me get a little more tangible about this opportunity and how you think you’re going to capture that market? What are you doing differently now from let's say a year ago, what have you learned from your presence there? How do you think you can really capture this opportunity?

Let me ask Vince to answer that question as the China operations have reported [produced] [ph] last five years.

Hi Lucas, how are you?

Doing well, thank you.

Good. Regarding China, obviously we've had local presence in China now for going on little over seven and half years and on an overall basis we feel as though we've been successful on that marketplace from a profitability perspective. Our growth has not been at the level that we would have liked however. The marketplace itself is -- obviously it’s a large market opportunity that we do have here okay. Competition is strong in the China marketplace and there are a lot of local Chinese suppliers that are copycat suppliers for technology okay. We want a nice share of work okay and I continue to expect us to continue to win our nice share of work in that marketplace okay. But for us to see a what I would call dramatic uptick in work in contract awards in the China marketplace we’re going to need a little bit of help from local China regulation to the point whereby there are very specific penalties put in place for the power generation industrial entities that have implemented technologies, but they're not running these technologies today. But if they are running them, they’re not running them effectively. China’s pollution control issue is worst today than it was four or five years ago prior to the implementation of these technologies. So what does that mean? It means that capital has been spent by a lot of entities, but that capital has not been spent wisely and it's been spent in a way whereby these entities are not running the capital installations that they put in place. So we need for us to go ahead and take that next step forward from a revenue generation perspective, we do need a little bit of assistance from our regulatory push that will effectively penalize entities, they aren’t running their systems that will help us dramatically. On the other hand, what we’re looking to do is to better position ourselves with larger partners in that marketplace that we can use to leverage the deployment of our technologies in the market. So it's going to be a twofold approach for us. One is we need some help. Two, we need to push a little bit harder with some larger partners to get our technologies better deployed.

I can add to that color Lucas saying that what Vince is saying is correct. We’ve seen an increasing competition offering copied versions of technology, perhaps not necessarily offering the true same performance. It's just a matter of fact if you don’t play and run these installations the performance doesn’t matter and it’s a little bit cosmetic to do that. We do have a little bit of a I suppose cynical view because we’re out there trying to do good work with the right solutions. I encourage you to watch this documentary because I think it gives you a very gripping realistic story of the challenges that faces the Chinese market. This is trade off for money versus the environment and money has won, but this cannot go on forever. I would actually like in this documentary to the wakeup book that Rachel Carson wrote was Silent Spring many years ago, which I’m sure you've read. I think that’s getting to the time when the people of China must and are demanding a better environment because their health is at risk. As Vince also mentioned, we do seek partnering opportunities that give us greater market cloud. I think these are significantly important.

I wanted to follow up on this. These testing opportunities, are there specific discussions at this time? Do you have many be a timing in mind for announcing a potential partnership and are you thinking about strategically local Chinese producers, larger Western manufactures? How do you -- could you maybe describe these partnerships in a little more detail?

Okay. Just on a high level Lucas; yes, we will be looking local because it would be a local that would really provide us the additional to Doug’s word, cloud in that marketplace. So local will be the focus. Timing for us is difficult to provide you with at this point in time, but I definitely understand that it's something that we're in the process of evaluating right now.

I think it's fair to say that the trade-off for getting large markets significance gives you a nice partner a very large company many times our size that we had discussions with many such companies. But keep in mind that the decision making process for them and for us is one of a paced longer term nature. So though I ultimately think that a partnered arrangement will serve Fuel Tech best and could be realized in China? Yes I do, but we're not going to be in a rush to partner with the wrong company either.

Right, that would be a mistake, absolutely agreed.

That we're in control of our destiny.

Lucas, I would be happy to share with you offline at some point in time, some very specific instances of our experience in the marketplace as it relates to how we’ve seen customers run their units and what provides us with some additional insight as to what’s really going on in that marketplace for capital equipment for our pollution control, it's really quite fascinating, it truly is.

And let us also say that as competition emerges and pricing becomes a little irrational, we’re not going to chase projects for the sake of the revenue line. We aim to make money in the business that we conduct over there. So we would rather steward our business activities for the bottom-line.

Right, may be if I can just squeeze in final question here, on the margin side, I think you were at 41% in APC, 53% FUEL CHEM. What’s your outlook for '15? I didn’t catch at in the prepared remarks, I want to see if there is some color at this point.

Yeah, this is Dave. We would -- we’re expecting our margins in '15 to drop a bit from the '14 level, just on the APC side, not on the FUEL CHEM side. We expect FUEL CHEM to be consistent, but we would look for a couple percentage point drop on the APC side and that‘s just due to project mix that’s expected to come true in 2015 that’s all.

Great. Okay. All right, well I appreciate all your good answers and good luck.

Thank you, Lucas. Back to the operator.

Your next question comes from the line of John Quealy representing Canaccord. Please proceed.

Hey, good morning folks. How are you?

Hi, John.

So a quick question Doug, why now the time to pass the rains over to Vince? Can you give us any insight in terms of your timing or your thoughts around the organization for this?

Sure, I would be happy to. I was asked by the Board to step in service the company’s present CEO, which I didn’t assume as of April 1, 2010, and it’s been a privilege to do that and I've really enjoyed working with the people here. We also did a few things related to good succession planning and governance, created denominating corporate governance committee shortly thereafter. Through that committee and the Board, we put in place a number of good practices. One very important of which was management as well as Board succession planning. We’ve used that planning process not only to shape the recruiting and constituency of our Board, which represents our shareholders, which I think about the development at multiple levels of our talent. And when we look at planning for the next CEO, we’ve observed that well run companies are better off if they have good internal candidates to rise to higher level positions. When you bring somebody in from the outside, you may or may not know that person well. That person may or may not be able to quickly assess the needs of the company. So I advocated with our Board that as part of the development of our management team and that of kind of told them that we ought to look very hard at having a good qualified internal candidate. Vince Arnone was interested in the position that created in September 2010 as Executive Vice President Worldwide Operations. We transitioned over time that title to Chief Operating Officer and the duties have both positioned in being much the same. In that role, those roles he has been responsible for all of our international operations particularly China and Europe and he also oversaw our entire engineering and project execution organization. In other words most…

Thanks for that. Vince, congratulations. So you’ve a big role to sell after the Bailey’s succession. You’ve been around Fuel Tech a long time. Can you talk about from a macro perspective, what your assessment, where would you like to go? Is it still too early? What can you offer us in terms of moving forward under your new job here as CEO?

Hey John, how are you? It's been a long time since we’ve actually spend some time talking together and I look forward to that happening again here in the near-term and I’m obviously extremely pleased. I’m honored to have the opportunity to become Fuel Tech’s President and CEO. Relative to your question more specifically it’s a little early for me to go ahead and pass on call it more specific direction at this point in time. I’m going to take this next handful of weeks and months to assess that a little bit more thoroughly. And then obviously what we’ll be talking I think with yourself and with others about how we see the direction of Fuel Tech moving into the future. I think we’ll expand on some of the themes that we have been engaging in relative to our geographical diversity that’s been very favorable and very positive for us. And as both Doug and I had noted, I think we’re going to see a nice boost coming out of the European marketplace here in the near-term, which is something that we’ve been working on very specifically in this past two to three year timeframe, so very excited about that looking to come to fruition. China is going to still be a focus, but the focus there is going to be more about how we leverage our technologies in that marketplace and that would also apply to other geographies as well. We need a renewed effort on new product development and on business developments in general. Fuel Tech needs to bring different products to our markets. So that will be a big focus of ours. Nothing to lend to discussion today, but know that that's something that we’ll be talking about further in the future. And again I’m optimistic. I think that we’re going to see a turnaround here in 2015 relative to order flow, which will go nicely for us and that we’ll have opportunities to discuss further in the future John.

All right guys, thanks very much. Good luck.

Thank you.

Thanks John.

Your next question comes from the line of Joel Marcus representing Network Financial. Please proceed.

Gentlemen I have to say I’m extremely impressed with this business. Certainly you’ve managed to transition the business. You’ve managed to stay cash flow positive through some challenging times. I think you've got a tremendously impressive business. Unfortunately there currently seems to be a dramatic disconnect between this business, the value of this business and that thing under the symbol FTEK that seems to happen between 9:30 and 4 from Monday to Friday when the stock market is open. I know you currently have a rather dramatic negative enterprise value, which I certainly personally don’t take as justified and you're trading under book, by every metric the stock seems to be tremendously, tremendously undervalued. I appreciate your plans for growing the business for seeing the business be successful in the short and long term, but are there any plans regarding that other thing that occurs under the symbol FTEK to make this stock into an investable successful stock that shareholders to own and expect to see a reasonable return on investment. Certainly you have a very large cash balance. It would certainly seem possible to pay a dividend. It would certainly maybe possible to monetize some of your enormous intellectual property suite. So I’m very happy with you plans for the business. What are your plans to make this into a successful investable stock?

Joe, you asked great questions and you have a lot of insight. I couldn’t agree with you more. I particularly believe that our company is undervalued as a large stockholder myself. I’ve been a recent buyer of the stock. I hope that indicates to everyone else that inherent belief. The value the company is in the hands of those shareholders who decide buy and sell each day. Like the industries we served, we've seen a lot of unwelcomed erosion in the market capitalization. For example the utility industry which is faced with modest growth and supplied by the coal industry. Many great companies have seen as much as 90% of their value eroded. Now some of that has come from perhaps their own doing with acquisitions has transformed the balance sheet. A lot of it has come from causing a fuel of that type to go out of favor. It’s been reinforced by many other statements and policies of the current administration, but has more than grew up in that industry and recognized the importance of having a balanced energy mix I think that will change in time. Perhaps when [Michael] [ph] cap stocks like ours start trading below a certain level such as our dollars are sharing to less than crucial interest. We also have a large concentrated ownership position in our family and we've also have several shareholders who have been long-term investors in the company. It's not a long list of shareholders who represent probably two thirds of the holdings in Fuel Tech, but what you say is true. We're in a situation where we've developed a nice growing steady contributor to earnings and cash flow from our FUEL CHEM business. Its growth probably was tempered by the change in the utility environment after the financial crises…

Well, I certainly appreciate that answer. I feel that in the crucible last year and finding the headwinds that the company was presented with. I think it's a magnificent achievement for this company to have been cash flow positive for the year. Obviously the talent of management comes to the floor when times are difficult as opposed to when times are easy. So I appreciate what you've just said. I just hate to see the paper of the company become I mean, obviously it will be difficult for you to use stock currently to make an acquisition due to the fact that you're trading so far under book value, but you a negative enterprise value. I mean with the cash balances of this company one would hope that maybe in the shorter intermediate term, you can express that confidence and point the markets of the stock in the right direction to restore a rational value to the shares via reinstituting a buyback, which you certainly have the cash to do, about may be even considering instituting a dividend. But, you know, at this point in time, I'm hoping in the short and intermediate term to see the company take steps to restore value to the symbol and to create or may be begin conditions in which your shareholders can see a rational return on their investment, which certainly at current levels. I believe your shares represent an absolutely excellent opportunity and have tremendously good investment potential. So -- but I would like to see the company in some way point the market in the right direction, let's say in the short-term, to get that process started.

Well, just to wrap up with some final comments, Joel, we recognized this valuing trend against what we saw is the intrinsic value of the company. A couple of years ago, we instituted a stock buyback of $12 million. But we didn't want to use all our resources that put us alone. Stock buyback is perhaps the most tax efficient way to return money to shareholders over dividends. But the opportunity to use our capital resources for long-term development growth, whether that was internal, in new product development or through external acquisitions has to play an important role. And I think you've seen us do that. So, we've kept our liquidity, our generation of cash flow alive and well. And our balance sheet is strong. We will continue, however, to look for important partnering opportunities and unlock those values and create return to our shareholders that we're all looking for. So, thank you for that question. I'll turn it back over to the operator for the next question.

Thank you. Your next question comes from the line of John Rast representing Wheelhouse Securities. Please proceed.

Thank you for taking my question.

Good morning, John.

Yeah. Good morning. Thank you. Most of my questions have been answered, but I just had one further question. If in the event that ABC business does not recover as you are anticipating for 2015, do you currently have plans in effect to address that just as far as cost line?

Sure. I mean, we do address our cost on a continuous basis. We actually had about an 8% reduction in staff in 2014. It's a business where you have to be thoughtful and plan both in your hiring and your management of organizational levels. We're seeing the APC market become one where we're bidding on larger, lumpier contracts. I think the people have been on these calls have heard me speak to the lumpiness, and some of our -- the opportunities that we've tendered bids on are significant in dollar size. So we have to be able to execute new windows. On the other hand, when you have competition there is no certainly that you will win those. So we will continue to align our organizational level needs to meet -- well, we think will be the opportunities for the company. That is a greater challenge in the air pollution control segment than it is in the FUEL CHEM segment. If you think about FUEL CHEM as a pretty specific technology, it's got a great sales and organization staff to support that and has a recurring revenue business. With respect to air pollution control, as we grow our capabilities, we've expanded around technologies where some parts of our organization are specifically highly trained. So, we have an organization in Durham, North Carolina focuses on SCR applications. We acquired a business in Westlake, Southern of the Cleveland, Ohio that focuses on particulate control technology. We have to be in a position to best utilize those people for the contracts that their talent and experience and skills are directed. At the same time, we took a measured step to increase our international footprint. So, therefore, when you have operations in Europe, in Chile and China and different places, you know, you can…

Yeah. Thank you.

I think we have one more question in the queue, do we?

Your final question comes from the line of Robert Manning. Please proceed.

One of the things obviously that will help the value of the stock is in past questions, is if the fuel conversion business begins to look like something that can visibly report actual results. Could you bring us up-to-date on that? And milestones we might look for during the year 2015?

Sure Bob, hi. The milestones for 2015 are really related to the front-end engineering work for that. It's a great opportunity. We have to do it right. So, our spending program in 2015 is aimed at completing a full process design. That's about a three to four-month effort that we just undertook at the beginning of the year. We will follow that with detailed engineering designs process that we envision can be represented in the right choice of equipment and associated capital cost. And we continued even before we undertook this acquisition of technology to refine the financial model around that the markets are concerned. These markets are ones that are going to need innovative solution. A good example of that is if you look at the aged infrastructure of the American coke industry, and you could segment that both in furnace coke and foundry coke. These are very highly polluting facilities that are vital to the American iron and steel industry and yet they have infrastructure that often dates back to the 40s and 50s and 60s. The value per ton of these kind of fuels are significant compared to their feedstock, particularly if you look at the iron industry where certain engineered shapes can provide energy efficiency, products that have removed the pollutants that we now have regulations to capture. A good example of that is mercury. Why put expensive investment on the backhand of a poorly designed polluting facility to try to capture mercury, if you have been remove it from the fuel itself. I think this is a very important long term need of the American coal industry and related fuels and this can range from Biomass to coals of any rank or in liquid from, but if you can process those feed stocks to prevent the disease rather than treat the disease and create the specialty, custom engineered fuels and custom engineered that the overall chemistry and mechanical performance of those fuels, the needs for those type of products will be enduring.

Is there any way to assess, how closely are to having the solution here? We’ve got a pilot plant using this technology down in Wise County, do we just have to tweak out a little bit to get something its economically viable or do we have to kind of redesign from the ground? I have no idea if we're in the early stage of a five-year project to get this thing going or whether we are really close to having something that will actually work and become commercially viable.

Well, actually Bob this area of development has seen multiple earlier pilot plans. So working with companies in the steel and foundry business to conduct test in today's marketplace, they're realizing that the frailty of supply is one that's becoming strategically of concern. So the pilot -- the commercial demonstration facility that you’re referring to is one that was created by those from whom we actually bought just the intellectual property and not the facility, but we work with that facility before we have one of our own to prove out what its already able to demonstrate with its own commercial sales. It actually is a licensee of the technology that we purchased and then therefore we licensed to it. So our approach is to really do good, sound process of design engineering of the next generation facility that’s very, very careful efficient. It’s got the right scale and 2015 will consist of business development activities that have been well underway to look for strategic off take partners for those kind of facilities. We don’t expect to have one operating this year, but we expect to have one fully engineered.

Great. Thank you.

Yes Bob, thank you.

With no further questions at this time, I would now like to turn the call back to Mr. Doug Bailey for closing remarks.

Well, thank you. As always there's good questions that come from our interested analysts, investors and I appreciate some of the baffled comments that were made. 2014, we knew was going to be a challenging year. I’m actually very pleased that we accomplished what we did. I’m increasingly optimistic about 2015. Surely we'll have challenges before us, but we’re not alone in our marketplace for companies that have those, but you got a great team of people working here at Fuel Tech and I particularly again I express my great confidence in Vince to succeeds as CEO. I'll continue to work with him on a daily basis in the role of Executive Chair and we'll try to deliver the kind of results that I as one shareholder and you as others would like to see. So thank you everybody for today's call. Much appreciated. Bye for now.

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.