Greetings, and welcome to the Fuel Tech's First Quarter 2020 Financial Results Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Devin Sullivan, Senior Vice President of The Equity Group. Thank you. You may begin.

Thank you, Jesse. Good morning, everyone. Thank you for joining us today for Fuel Tech's First Quarter 2020 Financial Results Conference Call. Yesterday after the close, we issued a copy of the press release, 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 Ellen Albrecht, the company's Principal Financial Officer. 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 that matters discussed in 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, opportunities and 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, 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. Vince, please go ahead.

Thank you, Devin. Good morning, and I want to thank everyone for joining us on the call today. I hope that your families are safe and in good health. We are just a short time removed from our 2019 year-end results and so my remarks today will be brief. I'll begin with an overview of how the COVID-19 pandemic is impacting Fuel Tech, and how we are addressing these challenges. Fuel Tech qualifies as an essential business under the State of Illinois Executive Order and our operations remain active. We have developed and deployed a series of initiatives designed to minimize disruptions to our normal business activities and preserve our ability to execute on our objectives. We are focused on supporting our current and potential future customer requirements for our APC and FUEL CHEM business segments during this critical period of time and are deploying recommended safety protocols across our enterprise to ensure that our employees, customers and suppliers remain safe. Overall, the impact of COVID-19 on our financial results for the first quarter of 2020 was not material. However, as we have moved into the second quarter, we are seeing some impact on our business activity. For our FUEL CHEM business segment, operations have continued, and we have continued to provide our program to our customer base. However, the extensive economic slowdown driven by COVID-19 has dramatically reduced electricity demand, and as a result, energy dispatched to many power generation units. Our FUEL CHEM revenue will deteriorate at accounts that are not dispatched for power generation. It is difficult to quantify the overall impact on financial performance as electricity demand and dispatch will vary by geographic region, with the timing of return of economic activity and the impact of weather, likely to be critical drivers. For our APC business,…

Thank you, Vince, and good morning, everyone. Consolidated revenues declined to $3.8 million from $10.2 million in Q1 of 2019, reflecting significantly lower revenues from our APC segment as well as the revenue decline for FUEL CHEM. APC revenues for the first quarter of 2020 were $1.2 million as compared to $5.8 million in the first quarter of 2019. Lower APC revenues were the result of a decline in backlog entering the first quarter and slower-than-expected new APC contract awards as well as the timing of completion of current projects. Backlog at the end of the quarter was $9.2 million, comprised of $8.4 million in domestic projects and $0.8 million from our foreign entities. Projects included in backlog represent a variety of Fuel Tech's technology offerings across many geographies. FUEL CHEM revenues for the quarter were $2.6 million as compared to $4.4 million during the first quarter of 2019. The decline in revenues is attributed to lower electrical demand, which affected normal operation and allows for unplanned outages at several accounts. As Vince mentioned, we recently secured 2 new demonstration orders for FUEL CHEM, which are expected to begin chemical injection in the second quarter. Consolidated gross margin for Q1 2020 and 2019 were 40% of revenue. Consolidated gross margins were flat despite lower revenues due primarily to the mix between APC and FUEL CHEM. APC gross margin was $430,000 or 36% as compared to $1.9 million or 33% in Q1 of 2019. This slight improvement is also attributed to product mix in the segment. FUEL CHEM gross margin was $1.1 million or 42.5% in Q1 as compared to $2.1 million or 48.4% in Q1 2019. For comparative purposes, APC results for Q1 2020 included no revenues from Beijing Fuel Tech and an operating loss of approximately $20,000. In Q1…

Thanks very much, Ellen. Operator, let's please go ahead and open the line for some questions. Thank you.

[Operator Instructions]. Our first question comes from the line of Amit Dayal with H.C. Wainwright.

So with respect to the $10 million to $15 million in APC deals you guys are pursuing and expecting to close by the end of 2020, what are the steps remaining in the sales process to close these deals? And how many customers is this attributed to?

Right. Regarding the -- first of all, thanks for your question, and I hope that you and your family are safe and healthy. So regarding your question, the near-term orders that we're following, they're primarily for U.S. and European marketplaces. The steps that we're following are basically very specific ongoing dialogue with the specific customers that we're addressing as part of these bid processes. We do have some larger contract values that are included in this $10 million to $15 million, call it, target for new awards. But we also have some smaller contract values that are included in that pool of potential projects as well, Amit, as we usually do. But these are awards that should close one way or the other here before the end of Q2. And as I noted, we're following them with hyper-intensity, if you will.

Understood. And then with respect to the backlog, the $9.2 million that you have at the end of the first quarter, is this going to be recognized by the end of 2020? Or is that a different time frame within which you recognize this?

Right. We won't recognize all of that coming in through in 2020, Amit. It will likely be, I would say, $5 million to $6 million of that $9.2 million that will actually come into revenue in 2020 based upon, call it, the planning time horizon with that customer base that represents that backlog, based upon what we know today.

Understood. And then maybe a little bit of a macro level question. The changes in sort of demand for electricity. Is there anything we can do as a company to sort of counter those trends? Obviously, not in the near term, but from a longer-term perspective?

Right. Yes, what we're going through right now is, obviously, it's something that we haven't seen before. I mean relative to the lack of electricity demand just in general. Prior to the impact of this, past couple of months, obviously, we were seeing significant trends towards the utilization of natural gas as the primary fuel stores for power generation in this country and renewables as well, obviously. So our focus on the FUEL CHEM side of the business has been to capitalize on those coal-fired utilities that are remaining and still are being dispatched for power, trying to find those pockets of opportunity whereby those coal units were looking to be kept alive, even as sporadic or peak power generators to help them reduce their cost structures by using lower-rank coals and being supported by our FUEL CHEM program. So that's been something that we've been doing on an ongoing basis, independent of the impact of COVID-19. The other item that we worked on is trying to focus on utilizing FUEL CHEM for other sources of fuel. The biomass opportunities that we did sign the contracts for a little bit earlier here in the year were really quite a nice accomplishment for us. It's a market that we have. We did want to play in a little bit more extensively. There are more units that are burning, call it, the greener fuel, the greener biomass fuel, if you will, today. And we hope that we'll have an opportunity to expand with those applications in the U.S. and in Europe. But relative to your broader question relative to, is there anything that we can do to maintain a business level in -- during this just decline in electricity demand overall, that's a tough one, Amit, as we sit here right now. And unfortunately, the product line, the FUEL CHEM product line, specifically, it is only required when those units are R&D'd up and running. So that business, to the extent we have, an extended period of further disruption in economic activity, we will feel it. We just don't know what that impact is going to be today.

Our next question comes from Pete Enderlin with MAZ Partners.

I just had a few questions. The first one is regarding the FUEL CHEM impact, can you quantify sort of the relative effect -- impact of lower demand and unplanned outages? Both of those had an effect. I would think the lower demand is going to be more of an issue in the second quarter. But how did those 2 sort of play out in the first quarter?

Yes. What we saw in Q1 was, I would say, probably more outage related than overall demand related, just generally speaking, in terms of the notch down in FUEL CHEM revenues in Q1. But to your point in Q2, what we're seeing the customer base due is because of the lack of demand we're finding that some of our customers are willing to take some extended outage time to ensure that they get all of the necessary maintenance work completed before they enter their high-demand season, which is summer time, obviously. So we are seeing our customer base take outages and perhaps longer outages than they normally would take because of the downturn in demand for power generation. So yes, we are feeling it. And again, as I mentioned to Amit, it's just very difficult for us to quantify what that impact is going to be. We are seeing some units come back up and start to run here in the month of May, which is a good sign as we are seeing some pockets of warmer weather activity that necessitates those units to be running. But on the other hand, we are feeling a little bit of the extended outage impact as well. So we'll feel a little bit of both in the second quarter for FUEL CHEM.

Okay. And then what can you say about the potential number of sites that could be addressable market for the TIFI biomass program? You mentioned two. I had no idea whether there could be, 10, 50, 100. What is a reasonable number for the total market, regardless of whether you would have a specific target for market share?

Right. Pete, I would say that at this point in time, I'll give you a range. It's not 2 and I'm not going to give you 100, but it's probably in the 25 to 50 unit range that is available and out there today, and that would include all of North America. That would not include potential European market applications. With our FUEL CHEM business historically, unless we've actually proven the technology to be successful for an application, it's made it difficult for us to go ahead and then have that reference client then to use as a basis for sale to another customer base. The customer that we're actually working with these 2 recent awards, their focus is purely on providing power generation via renewables via use of biomass and they're turning out to be a very nice client relationship for us as we sit here today, and we would look to try to build other such similar relationships in the future.

That's helpful. And then one last question for me, which is very qualitative, you might say. As you've been really working for several years on adding new string to the bow, broadening the base of business. When you look at the TIFI biomass opportunity and the DGI opportunity, which do you think is likely to be more significant financially for you over a long period of time?

Pete, I would have to say that as we sit here today and as we look at our longer-term planning and thinking, our focus on water is one that we believe and that we want to be the larger generator of future improved financial performance for Fuel Tech. We do believe in that end marketplace. We do believe in the technology that we have licensed. It has taken us a little bit longer to move that into markets than we would like. We are talking with additional parties as we sit here today, to investigate other means providing that technology to the marketplace. So from my perspective, Pete, it's our initiative on the water side that I would expect to have a larger future benefit for our company.

Well, that's interesting because given what you just said about the biomass opportunity. That's just a pretty significant one, too, over a long period of time. So I appreciate that. Thank you very much.

You're welcome, Pete. Thank you very much. Stay safe.

Thank you, it appears we have no additional questions at this time. So I would like to pass the floor back over to Mr. Arnone for any additional closing comments.

Thank you, Jesse. I want to thank everyone for joining us on the call today. I want everyone to stay safe, healthy as we work through this very difficult time as a population. Thanks for your interest in the company. We're doing everything that we can to ensure that we deliver value to our stakeholders, and that will always continue. I promise you that. Thanks for your time today.

Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.