Greetings, and welcome to the Fuel Tech Inc.’s 2017 First Quarter Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Devin Sullivan, Senior Vice President of the Equity Group. Thank you. You may begin.

Thank you, Audrey. Good morning, everyone, and thank you for joining us today for Fuel Tech's 2017 first quarter financial results conference call. Yesterday after the close, we issued a copy of the earnings release, which is available on our website at ftek.com. The speakers on today's call will be Vince Arnone, President and Chief Executive Officer; and Dave Collins, Senior Vice President and Chief Financial Officer. After prepared remarks, we will open the floor for questions from our analysts and investors. Before turning things over to Vince, 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 would 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 during the 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 and can be accessed at our website www.ftek.com. With that said, I'd now like to turn the call over to Vince Arnone, President and CEO of Fuel Tech. Vince, please go ahead.

Thank you, Devin. Good morning, and thank you, everyone, for joining us on the call today. It’s been about two months since our last call, and so I will give my remarks brief and focus primarily on the most significant changes in our business segment since that date. We continue to operate under two primary mandates within our company. First, achieving positive cash flow from our base business segments APC and FUEL CHEM, by maximizing global revenues, and leveraging our rationalized SG&A infrastructure; and second continue to invest in technologies that we believe will define our future. Our financial results for the first quarter of 2017 came in as expected. As many of the same issues that influenced our performance in 2016 have continued into the new year. Although APC revenues declined during the quarter, we are confident that we are on the right path towards building our revenue base. Our backlog at March 31, 2017 increased to $22.5 million from $8 million at December 31, 2016. We had announced $17 million of new contracts during the first quarter of 2017 making it among the best quarters in our recent history for business development. In Q2, I fully expect that we will announce $10 million to $15 million in new contract awards, which would bring our booking total to approximately $30 million for the first half of 2017. In terms of our sales pipeline, we are pursuing many promising new projects in all geographies with an estimated total value of approximately $150 million. As a complement to expected higher revenue levels, as we proceed throughout 2017, our focus on cost containment continues. SG&A in Q1 2017 declined by $2 million from Q1 of 2016. By the end of 2017, we will have removed more than $15 million in cost from…

Thanks, Vince, and good morning, everyone. Revenues for the first quarter of 2017 totaled $8.5 million, which we expected due to our low APC backlog figure of $8 million carried over from year end. During the quarter, we announced $17.2 million of new APC orders, which will provide support for improved revenue in the second half of 2017. As we have previously noted, we started 2017 with the highest APC segment, quarterly booking amount in recent history, and we are expecting additional orders to be announced, which will contribute significantly to the 2017 results. Our FUEL CHEM revenue for the first quarter of 2017 totaled $4.5 million and were slightly below the comparative prior year quarter. We expect our FUEL CHEM revenue for the remaining three quarters of 2017 to be consistent with our current quarter results and we do have some opportunities to improve our outlook with new customer contracts. Our FUEL CHEM business seems to be stable with a good mix of continuing customers and some new market opportunities. Our gross margin percentage was 44% for the first quarter of 2016, compared to 34% in the comparative prior year quarter. This increase resulted from a higher concentration of FUEL CHEM segment product revenues and APC product mix. Our current quarter results were favorably impacted by the sales mix with a higher percentage of FUEL CHEM revenue and resulting gross margin. We expect to report a blended gross margin between 35% and 38% in 2017. For the first quarter of 2017, our selling, general, and administrative expenses declined $5.2 million or 28% from the comparative prior year quarter of $7.2 million. This reduction was due to the continuation of various restructuring and cost reduction initiatives that have resulted in over $15 million of cost being eliminated from our expense…

Thank you, Dave. Operator, let’s go ahead and open the call for questions.

[Operator Instructions] First question comes from the line of Pete Enderlin with MAZ Partners. Please state your question.

Thank you, good morning.

Hi, good morning Pete.

Vince and Dave, what is the main gating factor in the expected ramp of the APC business in the second half, instead of potentially more in the second quarter, I mean obviously takes a lot of gear some of these up. But are there other factors that determine how quickly you can begin to generate actual revenues off of orders that you received recently?

Yes Pete thanks for the question. Good question. With our APC projects, every project has a - call it a predetermined schedule that we work to execute off of with the customer, and so as we look at projects that we book and then we evaluate how those projects are executed over time, every project has a specific schedule whereby we will walk off cost for that project and then the related revenues. So based upon the project backlog that we have in hand at the end of the first quarter of this year, this particular project mix will actually generate revenues more on the second half of this year and in some cases early in 2018 then necessarily in the second quarter of 2017. So at each point in time that, call it that walk off if you well is a little bit different, solely depending on that product mix.

So does that mean in some cases you get some upfront cost that are unmatched with revenues right away, I mean do you have to carry a little bit of that in terms of the overhead in the expense burden.

Actually no Pete, as soon as we incur cost, we are able to recognize revenues on a pro rata basis. So, it solely depended on how we actually incur cost as we execute those projects over time. So that’s how that works. And so projects that have protracted schedules will basically incur cost over a longer period of time, and as a result will incur revenues over that long period of time as well.

You mentioned the pipeline of potential business in APC of 150 million, what is the shape of that pipeline, I mean is it in terms of both geography and the timetable involved in that? I mean are these typically fairly long term again or could they ramp up more quickly.

Yes it will be a mix in terms of what we actually roll up into a pipeline. Our sales cycle for the APC projects is long, typically, but as we look to build a pipeline, first of all to answer your geographical question it’s predominantly domestic oriented at this point in time, but we have a nice percentage of pipeline that’s also Europe and China related as well, but the majority of that 150 is going to be domestic based. And from a timeframe perspective, some of these projects could come to fruition well within a year, some could be in a three-year to four year range, but it’s something we track and watch closely and we use that as a gauge to how we see that business develop prospectively as we look towards our future, just in terms of what is the - call it the make-up of that pipeline, are they good projects we have confidence in those projects, it’s something that we actually use as a forward-looking tool for us on a regular basis.

Okay that’s very helpful, and then I have a couple of financial questions and I will get back in the queue. Why was there a difference in the way accounts receivable affected your cash flow versus a year ago, in other words the flows where I think it was plus $3.5 million versus minus $3.3 million, was there any specific reason for that change or that difference, which helped your cash flow.?

Sure. Yes, Pete included in our - and we have a footnote disclosure added. Included in our accounts receivable is the unbilled for projects that are in process. We don't break that out on a separate line, so that impacts our receivable balance and cause it a little bit of consistency change there.

And then what are the actual restrictions on your “restricted cash”, I mean how fenced off is it?

I'm sorry what was that Pete?

What restrictions are there on your restricted cash?

Yes it is in a separate account and we can’t access that. It’s based on the line of credit balance that the full committed line of credit balance the JPMorgan has provided us. So we have currently $5 million in the U.S. and we have $1 million in China. So it’s a $6 million total facility that we have with JPMorgan. We haven’t advanced any cash against that. We do have letters of credit that are posted against the line of credit. If we chose to change the balance, the commitment balance, either reduce it or increase it, then we would adjust our restricted cash balance accordingly. So that that changes depending on what type of line we have in place with JPMorgan.

Okay, I'll get back in line. Thanks.

Thank you, Pete.

Thank you. [Operator Instructions] Our next question comes from the line of Barry Blank with Divine Capital. Please state your question.

Yes, good morning. I'd like to address the proxy statement and the issuance of the possible reverse split. Reverse splits don't work, and over 98% of all companies that reverse split, the stock drops after the reverse split on an adjusted basis for the reverse split. The company is not in compliance with the New York Stock Exchange Rule, because the stock is A, under a dollar, and you don't have $50 million in market cap. Assuming you do a reverse split and there's almost always the stock drops in value, your market valuation is going to go down even more, further away from the $50 million that you need to retaining listing, which is counterproductive to doing it. And in time it has shown that it's not where the stock trades, it's how the stock trades, and it's far more advantageous for shareholders value. To maintain the value of the investments for the shareholders, I don't think this reverse split is at all productive, and in fact, it could be very much counterproductive?

Yes. Hi Barry, this is Dave. I appreciate the question. Yes, the proposal in the proxy is not - we are not doing the reverse split. It's not a given, it's a request. So that the Board has the ability to maintain our listing status, that's all that it is right now. So, it is not a committed reverse split. I would just highlight the comments at the end of my script around book value per share of $1.74, tangible book of $1.51, and working capital of $1.06. Vince mentioned the cash balance per share of $0.70.

$0.70, correct.

So, there’s clearly support for our stock being higher than what it is today. And we are certainly hopeful that here in the near-term future, we can see some of that value restored to our stock. And that goes along with the comments that Vince made about restructuring the business, improved operations, bookings in the first quarter, we have reason to believe that we will restore value to the stock and not have to consider the reverse split. But it’s there only as a precaution, that's all.

Yes, Barry, just one more thing to reiterate, and it’s the fact that, we wanted to be prudent in terms of being ready to be able to do a split, if indeed we were forced to do a split. It is not something that we necessarily want to do as we sit here today by any means because of many of the reasons that you stated a few minutes ago. And to Dave’s point, it’s something that we're watching very, very closely. And it is our plan to have ourselves come out of the sub-dollar level over this next couple of months here by being able to discuss some positive activities for our business. So, again, I just wanted to reiterate that point that it’s more of a prudent planning requirement as much as anything else.

I may make one more comment. I don't wish to dwell on this at all because of your time. The exchange does not want to delist stocks, that's not what they want to do. And if you give them a plan that shows that you can get in compliance that you believe if they can get compliance at 18 months. This way better than a 75% chance they'll go along with it. And the fact that if you go to them and talk to them the key is just talking to them and staying in contact with your listing representative. I was a member of the New York Stock Exchange for many years and again the Exchange does not want to delist .So, I'll get of the queue and I will be, but I just wanted to mention that.

Hey, we’ll do Barry. Thanks for your comment. We appreciate the question.

Thank you. Your next question is a follow-up Pete Enderlin. Please state your question.

Thanks. I have some questions about the fuel conversion program, how proprietary is your technology in that area?

Yes, Pete, I would say that the strength of our intellectual property is actually in the know-how that we've developed about this process over the past 2.5 years, as we’ve looked to further develop the technology that we actually purchased back in September of 2014. We are in the midst of looking at a variety of different pattern filings as we look to refine the, call it, our know-how. At this point in time, I'd say, that the strength is really embodied by the folks within Fuel Tech that have been developing this technology over this past 2.5 years.

Are there people that are doing similar things or plan to do similar things?

Pete, I would say that, I think, we're unique in how we're approaching this application. And I'm not aware of others that are looking at this type of technological application in the marketplace today.

Okay. And you have mentioned in the past some financing alternatives, can you give us any clarity on what may happen on that regard?

I think we'll have to defer commentary on that until a little bit later, Pete. We’re looking at a variety of different financing alternatives, which include, I would call, municipal and governmental funds, strategic investing funds in a variety of other sources, but there isn't more than I can add at this point in time.

I saw some reference to carbon nanoparticles, I guess, the question is, what are they and what are the applications for them? And is that really mainly what this fuel conversion program is all about?

Pete, I'm not familiar with the carbon nanoparticle reference.

Okay.

What…

You guys mentioned?

All right. It’s - we focus on, I call it, an engineered carbon product, whereby we're looking to tailor our carbon products specifically for our customer's needs. No nothing nanoparticle-oriented in the process.

Okay. So what kinds of applications would there be for, I guess, very high purity carbon, which would be the end product of this process?

Pete, we're looking at a variety of different end markets. Some are consumer-based and others are related to the manufacturing industry, the production manufacture of a variety of different types of metals as well. And so there are several different end markets that we're looking at.

Do you have any sense at this point about how big this total market could be?

Difficult for us to define, Pete, at this point in time. I mean, we're taking a step by step approach. I mean, it has the potential to be more than tens of millions. It could be hundreds of million dollars in terms of the marketplace ultimately.

You mentioned in the R&D area looking at things like water treatment, does water treatment come up as potential application for the fuel conversion product to or is that separate?

That is something that we're looking at independent, Pete. We’re looking at further defining our company as a whole. So the water treatment area itself, it would be a new one for Fuel Tech. I can't comment on anything specific as we sit here today, but I'm hopeful that sometime here in the near-term that I'll be able to talk to all of our investors about what we're doing in that area.

Okay. Well, thanks for the perspective.

Thank you, Pete.

Thank you. [Operator Instructions] I'm showing no further questions. This does conclude our question-and-answer session. I will now turn it back to your CEO, Mr. Vince Arnone for closing comments.

Thank you. I'd like to thank everyone for taking the time today to listen to the call and for your continued interest in Fuel Tech. We do see a, definitely an improving revenue and cost structure profile for the remainder of 2017. And we are aggressively continuing to work towards commercialization of our fuel conversion business and towards developing some additional new business initiatives. Thanks again. We know that challenges remain, but we are very confident that we are going to bring value to our shareholder base here in the near term. Thanks very much.

This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.