Greetings. And welcome to the Fuel Tech, Inc. 2017 third quarter financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Devin Sullivan, Senior Vice President of Equity Group.

Thank you, Michelle. Good morning, everyone. And thank you for joining us today for Fuel Tech's 2017 third quarter financial results conference call. Yesterday, after the close, we issued a copy of the results, which is available at the company's website, www.ftek.com. The speakers on today's call will be Vince Arnone, Chairman, President and Chief Executive Officer, and Jim Pach, the company's Acting Principal Financial Officer and Controller. After prepared remarks, we will open the call for questions from our analysts and investors. Before turning things over to Vince, I'd like to remind everyone the matters discussed on this call except for historical information are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 as amended, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech's current expectations regarding future growth results of operations, cash flows, performance and business prospects and opportunities, as well as assumptions made by and information currently available to our company's management. Fuel Tech has tried to identify forward-looking statements by using words such as anticipate, believe, plan, expect, estimate, intend, will and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties and other factors including, but not limited to, those discussed in Fuel Tech's annual report on Form 10-K in Item 1A under the caption Risk Factors and subsequent filings under the Securities Exchange Act of 1934 as amended, which could cause Fuel Tech's actual growth results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the company's filings with the SEC. With that said, I'd now like to turn the call over to Vince Arnone, Chairman, 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. Before we begin, I would like to acknowledge Jim Pach, our controller, who was appointed last week to be Fuel Tech's acting treasurer and Principal Financial Officer. Our Chief Financial Officer, Dave Collins, remains on a leave of absence for health reasons. Jim has been a vital and engaged member of Fuel Tech's finance and accounting team for almost two years now and I have every confidence that Jim will be successful as he transitions into his new role. Thank you, Jim. Now, let's review our results for the third quarter. Revenues rose almost 8% to $13.5 million. SG&A declined for the third consecutive quarter of 2017 and has decreased by $3.7 million or 18.6% for the first nine months of the year. We approached breakeven operating performance, with an operating loss of just $134,000. We reported positive adjusted EBITDA for the first time since the fourth quarter of 2015. We have announced $29 million of new orders thus far in 2017 and we expect to announce between $8 million and $12 million in additional contracts before the end of this year. 2017 has been one of the more successful booking periods in the company's recent history. Our backlog at September 30 rose to $23.4 million, a $15.4 million increase from the backlog of $8 million at December 31, 2016. Our results for the third quarter reflects the favorable impact of the two-year program of organizational restructuring and cost reductions that we commenced early in 2016 and I am very pleased with our progress thus far. Based on our results through the first nine months of the year, we are confident that we will achieve our previously announced guidance for the second half of…

Thanks, Vince. And good morning, everyone. Revenues for the third quarter of 2017 totaled $13.5 million, reflecting a $2.8 million revenue increase for APC, offset by a $1.8 million revenue decline at FUEL CHEM. As Vince noted, revenues have risen on a sequential basis from the first quarter of 2017 and we expect backlog to revenue conversion to continue to accelerate in the current fourth quarter as a result of the $29 million of new APC orders announced to date. Our FUEL CHEM revenue for the third quarter of 2017 declined $4.7 million from the $6.6 million in the prior-year. However, revenues rose by about $550,000 from the second quarter of 2017. This segment continues to be affected by the soft electric demand market and low natural gas prices, which leads to fuel switching, unscheduled outages and combustion units operating at less than capacity. Our gross margin percentage was 37.3% for the third quarter of 2017, down from 42.2% in last year's third quarter. The difference was primarily due to the revenue mix between APC and FUEL CHEM quarter-over-quarter. APC gross margin was $2.6 million or 29.7% as compared to $1.8 million or 29.9% in Q3 2016. FUEL CHEM segment gross margin was 51.3% as compared to 53.5% for the same period last year. We continue to expect to report a blended gross margin between 35% and 40% in 2017. There were no charges or unusual items this quarter whereas the third quarter of 2016 included restructuring charges of $1.1 million. For the third quarter of 2017, our selling, general and administrative expenses declined to just under $5 million from $5.8 million in the comparative prior-year quarter. We remain on plan to remove more than $19 million of costs over the last three years by the end of 2017. Our…

Okay. Thank you, Jim. Operator, let's go ahead and open the call for questions.

Thank you. [Operator Instructions]. Our first question comes from the line of Peter Enderlin with MAZ Partners. Please proceed with your question.

Thank you. Good morning, Vince and Jim.

Hey. Good morning, Pete. How are you today?

Good morning, Pete.

Good, good. Congratulations on the results. First question, as you mentioned, there was an increase of about $2.5 million in accounts receivable. Did that indicate any sort of slowness on the part of some particular payers?

Pete, it definitely does not. It actually reflects, what I would call, timing on project execution and, call it, invoicing on some of the new project bookings that we have brought on board in the first nine months for the year. There is no indication that the increase is due to any timeliness in customer payment whatsoever.

And you mentioned backlog conversion, which is a good thing, but then that also obviously means you have a need for ongoing new orders. Are there some potential large doors that are up for decision at this point?

As I noted in my commentary, we – before the end of this year, we are expecting – I had given a range of $8 million to $12 million in new contract orders. That's currently our expectation as we look at it today and that's pretty much all I can say about that at this point in time, Pete. Sometimes it takes a bit longer for the – call it, the order process to actually convert into actual hard contracts. Seems to be more and more so in our business environment these days. But we feel pretty good about the $8 million and $12 million between now and the end of the year.

I was sort of trying to get a sense of how lumpy that is. In other words, is it a number of smaller contracts or are there couple of big ones in there that are sort of critical decision points?

I'd say a combination of both.

Okay. Do FUEL CHEM customers have kind of a rule of thumb about what natural gas prices allow them to justify using your technology?

Typically, with FUEL CHEM, it ends with being related to, just call it, the dispatch level of that coal-fired unit. If there's a customer that has a need for our program because they're burning a fuel that causes them difficultly as part of the combustion process, usually that – call it that problem in that boiler occurs when they're actually pushing their boiler to higher capacity levels, right? So, what we've seen in the marketplace is, yes, we do have a handful of key accounts. But because of where they are situated geographically or because of the fuel they burn or a combination thereof, they continue to use our program on a recurring basis. But then, there are also those units because their capacity factor has dropped so low, 50%, 40%, that they just don't generate the same issue with inside their boiler that necessitates the use of our program. So, natural gas pricing is obviously an issue. That pricing is what is causing a lot of the dispatch to coal to be reduced dramatically. And so, that's the issue we're facing in the marketplace today. There is a trigger price point there, if you will, relative to dispatch. But, unfortunately, I don't have that information readily available for you, Pete.

I'm sure, as you said, it varies by geographical area.

It does.

Is there any progress you can talk about on the coal conversion assets, monetization or the IP thereof?

Yes. We did not mention that in comments, but it is still in process. At the end of the third quarter, we still have the intangible asset and the quality – the tangible asset, which is the kiln still on our balance sheet at the end of Q3. And, basically, what that means is that we are still in the process of investigating the sale and/or licensing of those assets to third parties. And that is in process as we sit here today. And we still remain hopeful that we're going to be able to recover some of our investment in the development of that technology over the past two-and-a-half to three years. But, as of right now, it's in process and there isn't anything more substantive that I can say about it right now.

Okay. Thanks for the information.

Our pleasure, Pete. Thank you.

Thank you. Our next question comes from the line of George Gaspar who is a private investor. Please proceed with your question.

Thank you. Sorry, I got knocked off the call and got back in. So, I might be repeating some questions here. First of all, could you divide out your business US versus international at this point in time? If you look at the total year period or what you anticipate on the basis of this year, what the percentages would be for each of them?

Yeah. George, if you can hold on that question for a second, we will give that here in a moment for you. Can you move on your second question?

All right. And then, in the past quarter, not the second quarter, the asset write-downs that took place, there is a non-cash charge with $3 million to $4 million. You can correct me because to the specific number. Is there a possibility that there is – some of those are salable and they could come back into your financial statement as a positive?

The primary asset that was written down was actually our corporate headquarters building. And there was a fair value adjustment that was required, basically driven by our share price versus the book value of our equity. At this point, we're not looking at making any modifications relative to our corporate headquarters in the building we reside in today. So, I would consider that to be a one-time write down as we sit here right now.

Unfortunately, George, you can't write up an asset once you've written it down. So, I can't even look at how you're going to do that. And then, your second question was on the revenue mix for the nine months. US revenues were $21.5 million, so it's about 68% roughly. Yes. [indiscernible] was about $10.2 million, so that's 32%.

I see, okay.

George, historically, we've been in the 70/30 range, sometimes 75/25. That's been about the range we've been in the recent past.

I see. Okay, thank you. And then, a question. I don't recall you mentioning anything about South America. And I know you've done some business down there. How does that market look to you?

Right. We, obviously – we were fortunate to win some excellent work down in Chile over the course of this past several years down in South America. The unfortunate part is that we do still have our foot in that marketplace, working with sales representatives and agents and the like. And we're watching for developments on a country by country basis. And as opportunities arise, we'll go ahead and look to capitalize, but we really don't see what I would call a robust market opportunity coming from South America here in the near term in any event.

Okay. Thank you for that. And a question I have on the expansion possibilities or broadening your business. And you mentioned water treatment. Could you – is there any chance you could discuss that a little bit further? What application you might be looking at? Would it be just general water? Would it be zeroed in on a specific kind of water treatment?

I think really the only thing I can say at this point in time, George, is that we're looking at licensing technology and the technology we believe could have applications across different market segments, if you will, across different industries as a variety of industries look to process water, to achieve their own objectives. And so, I have to keep it broad for right now, George. Again, this is something we are working on diligently. And, again, I am very hopeful that, in the very near term, we're going to be able to talk about it a little bit publicly with everybody.

Okay. Just one comment on that. In fact, my background in oil and gas. This area is really needing a lot of application. And international, there is an amazing opportunity developing in the Russian market on the oil side where water treatment is becoming a very considerable situation. And, of course, we face that down in the southwestern part of the United States also. So, it's very interesting to see your thoughts on going in that direction. I hope that works out. And just an overview comment. You're getting this thing turned around very well. And we're hopeful obviously that you can continue to push ahead into 2018 and really rebuild this company. Thank you.

George, thank you very much for your comments and have a good day.

Yes.

Thanks, George.

Thank you. Our next question is a follow-up from Peter Enderlin with MAZ Partners. Please proceed with your question.

Yes. Thanks again. Just one more and that is – Vince, do you have sort of a sense of what the sustainable gross margin on the APC business can be going out longer-term?

Peter, actually, it varies by product line mix and it also varies by geography. So, at any point in time, it really depends on where the bulk of our revenue recognition is going to be coming from. A high level – as we roll into 2018, some of the more recent projects that we've booked domestically are a little bit of a higher gross margin profile than maybe we've had in the recent past. So, I'm pleased with that. But on the opposite side of that, we have been seeing, on a year-over-year basis, some increasing pressures in the Asia market, in China, just relative to more copycat types of companies looking to provide what I would call similar technology solutions in the marketplace, but also at significantly lower pricing in nature. So, we have seen a little bit of a depression in some of the margins that we have been realizing down in Asia. So, Pete, it's a mix. And as I said, at any given point in time, it really depends on where that revenue recognition is coming from and the mix of those technologies that we would sell as well. One other factor to keep in mind is, on occasion, we will sell a project on a turnkey basis, which means that we don't only provide the equipment solution, call it the equipment and technology solution, but we also provide the construction and installation as part of the job as well. In cases where we provide that full turnkey scope of work, our margins are going to be a little bit reduced as well.

And on the China situation, is that true in the ULTRA business there as well?

Yes.

It is?

It is. There have been additional players that have come into the marketplace there with an ULTRA-like solution. And so, we've seen some price pressure there too.

All right. Thanks again for the information.

Okay, Pete. Thanks.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Arnone for closing remarks.

Thank you very much. And as I mentioned previously, I'm very pleased that our company has been able to return to a level of what I would call sustainability and stability financially on an overall basis. As I mentioned, we do have a long way to go provide shareholder value to all of our shareholding base and we are working diligently to attain their goal as well. But we've gone through a long path over this past two-and-a-half to three years and a lot of hard work. And I'm pleased with where we are. But believe me, there more to come with Fuel Tech. Thanks, everyone, for your participation on the call today and have a good remainder of the day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.