Fuel Tech Inc (FTEK) 2003 Q1 法說會逐字稿

Good day, ladies and gentleman, and welcome to the Fuel Tech first quarter earnings conference call.

At this time, all participants are in a listen-only mode. My name is Nick (ph), and I will be your coordinator today. If at any time during the call, you require assistance, please press star, zero, and a coordinator will be happy to assist you. As a reminder, this conference is being recorded.

I would now like to turn the program over to your host for today's call, Ms. Tracy Krumme, Director of Investor Relations. Please proceed.

Thank you, Nick (ph). Good morning, and welcome to Fuel Tech's first quarter conference call.

By now, you should have all received a copy of today's release. If you have not, please call us at 203-425- 9830, and we'll be happy to send you one.

Joining me on the call this morning is our Chairman and CEO, Ralph Bailey, who will be available for the Q&A session, Steve Argabright, our President and COO, and Scott Schecter, our Chief Financial Officer.

As a reminder, the matters discussed in this conference 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 in our forward-looking statements. The factors that could cause these results to differ 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 time. Fuel Tech undertakes no obligation to update any information discussed in this call. Also, as a reminder, this conference call is being broadcast over the Internet and can be accessed at our Web site, www.fueltechnv.com.

With that said, I would like to now turn the call over to Steve. Steve, please go ahead.

Thank you, Tracy, and good morning, everyone.

As we reported, net sales increased 54 percent to eight million, compared to 5.2 million for the same period in 2002. Net loss was 517,000, or three cents per diluted share, compared to net income of $312,000 in the first quarter of last year. These results, in line with our expectations, will be discussed in detail later.

We're very pleased to announce three contracts today for a total of $3.7 million - two for the installation of our NOxOUT technology on 620-megawatt electric coal-fired units and one for a temporary system on a 150-megawatt unit.

The contracts on the larger units continue a trend of repeat orders from satisfied customers and are particularly noteworthy as a result.

As we mentioned in the last conference call, NOx allowance prices for 2003 vintage (ph) tons in the Northeast began climbing rapidly at the beginning of this year. Currently, these allowances are trading in the $8,000-per-ton range for the Ozone season, which started last Thursday. As a result of the high costs of purchasing 2003 allowances to achieve regulatory compliance, we also received a contract from a northeastern utility to provide a temporary, trailer-mounted NOxOUT system that'll be installed this month.

Based on the NOx reduction this system can achieve, the utility will see a significant, financial benefit, compared to purchasing an equivalent number of tons in the form f allowances. Our salesmen are actively taking the same return-on-investment message to those utilities in the 19 states affected by the SIP Call, as 2004 and 2005 allowances are currently trading at close to $5,000 a ton, well in excess of the cost to reduce NOx with our NOxOUT process.

In some cases, the cost of a permanent NOxOUT installation can be recovered in two to three years at these allowance prices. We are expecting additional bookings in the second quarter as a result of this initiative.

We are also pleased with the NOxOUT ULTRA contract we recently announced for $2.2 million. This is the second ULTRA contract for a system to convert urea to ammonia for the safe supply of a reagent to a selective catalytic reduction system being installed on a large, coal-fired unit. We are expecting another ULTRA order of similar size in the very near future.

Regarding our international business, our Italian company is continuing to penetrate the NOx reduction markets in Spain, the U.K., France and Italy. ULTRA is also gaining attention, especially in Italy and France, where new SCRs (ph) are on the drawing board.

In Asia, we have worked very hard to expand and upgrade our network of agents and expect this effort to result in improved sales in this region in the future.

With regard to our FUEL CHEM business, I'm very pleased to report that we expect to have four and possibly five new units starting up on our Targeted In-Furnace Injection Technology within the next 60 days. Four of these units are Western, coal-fired utility boilers ranging in size from 350 to 575 megawatts, while the fifth is a unit - a large, municipal, solid waste incineration facility.

Two of the Western, coal-fired units are particularly important, as the owners have multiple, additional units that could benefit from the technology in the future. In addition, the municipal, solid waste incineration facility is owned by a utility that also operates several units burning Western coals. So we are hopeful that a successful test here will result in an expansion of the program to these units.

As we have said in the past, we have been willing to share risk with our prospects to incent them to move forward, and that concept has played a role in these situations to varying degrees. Also, as I mentioned at the last conference call, we have been testing a new enhancement to the Targeted In-Furnace Injection Technology, and initial indications are that this enhancement is viable, which will make the technology even more beneficial in some cases. At least one of the new units is scheduled to evaluate this enhancement as well.

Regarding the existing Western, coal-fired units, those in Utah are still operating with high-quality coal and do not require our program at the moment. One of the Midwest units is running quite well, while the other is shut down for major modifications, including work funded by a large, DOE demonstration grant.

There is a question as to whether our program will be reinstated when this unit returns to service, as there is some thought that slagging severity will decrease after the modifications. Even if this is the case, we see this as a unique situation, as there were many factors leading to this unit's modifications, and we don't expect other utilities to go to such expense just to deal with slagging issues.

We continue to be in discussions with major coal suppliers about joint marketing relationships and expect at least one agreement to be finalized in the very near future. We are also in discussions with the Electric Power Research Institute about working together on a project and are heavily involved in several utility organizations, who include the American Coal Council.

Regarding our oil-fired business, we would expect some gains in comparison to last year should oil prices stabilize at lower levels.

Internationally, we recently met with the Mexican Ministry of Energy regarding the application of our technology to heavy fuel oil-fired boilers in that country. Mexico has experienced a shortage of reliable, electric power and is looking to increase production capacity significantly over the next 10 years. In the short term, we feel we can quickly provide low-cost megawatts by improving the efficiency and reliability of existing facilities.

In other international news, we expect to receive a large order from a second customer in China in the near future and have recently received small orders from new agents in India and Malaysia.

In Europe, we are still working hard to sell our first application on a coal-fired unit and are in discussions with three, prominent utilities about demonstrating the technology.

On the software side, we continue to progress in marketing the acuity of CFD visualization software in specific markets, mainly automotive, aerospace and chemical processing. In fact, we have received our first order in the automotive market from a tier-one supplier in that industry.

In the last few weeks, we have also issued over 25 demonstration licenses to allow potential customers to evaluate the software in their own environments.

Development is continuing at a rapid pace to ensure that we are providing a state-of-the-art product. Scott?

Thanks, Steve, and good morning.

As expected, our first quarter performance was off from the fourth quarter of 2002, due largely to product mix. But it was in line with our expectations. Net sales for the quarter increased 54 percent to $8 million from $5.2 million in last year's first quarter. We experienced a net loss for the quarter of $517,000, or three cents per diluted share, versus net income of $312,000, or one cent per diluted share.

Our first quarter revenue growth of 54 percent was primarily driven by a 68-percent increase in air pollution control revenues from last year's first quarter. This is the result of the pending deadline of the SIP Call, which requires significant NOx reductions from utility and industrial units in 19 states by May of '04. As we have said, we anticipate that these revenues will continue to grow through 2005-2006, which is beyond the SIP Call deadline.

Our gross margins decreased in the first quarter to 33 percent from 51 percent in last year's first quarter. We experienced the low margins this quarter, because a large percentage of our revenues was derived from turnkey project installations. The turnkey portion of these contracts is sold at a much lower margin than our traditional scope. Additionally, our higher-margin FUEL CHEM business comprised a lower percentage of total revenues than last year's first quarter.

And it's also important to note that our gross margin in 2002's first quarter was unusually high, as a significant portion of our air pollution control revenue was derived from higher-margin industrial projects versus utility projects.

Going forward, we expect our overall gross margins to return to the low-40-percent range.

In the first quarter, our FUEL CHEM revenues were up 18 percent from last year's first quarter but, as expected, down from 2002's first quarter.

Fourth quarter - the decrease in the fourth quarter was due to three things. First, our audit (ph) pattern is such that our fourth quarter is typically our strongest. Second, the outage at the large Midwest utility that Steve discussed, and, lastly, was our first order from China that was shipped in last year's fourth quarter, and that was a large order.

Although there was no additional revenue from China in the first quarter, we expect to receive our second large order in the current quarter.

As Steve also mentioned, we expect to start up four or five new units on our Targeted In-Furnace Injection Technology within 60 days. It's important to note, however, that in some of these applications, we will not see significant revenues until after the demonstration is considered a success. This is because, in many cases, we have agreed to share the risk of the program with our customers.

We obviously would not agree to such an arrangement unless we were extremely confident that the program would be a success. We expect to begin to see the financial benefits of these programs in the quarter following startup.

In the first quarter, SG&A and R&D expense increased to $3.2 million from 2.7 million in last year's first quarter. This increase is due primarily to revenue-related expenses as well as the impact of new hires for FUEL CHEM that were made in the second half of last year. Additionally, and to a lesser extent, additional resources were allocated to support the marketing and development of our ACUITIV advance visualization software.

We continue to have a very strong balance sheet. We ended up the quarter with 8.3 million in cash and 13.2 million in working capital. Our current backlog stands at approximately $10 million.

Looking forward, we expect our results to improve, starting with the second quarter of this year. At this time, based on the state that the utility industry and our economy is in, our outlook for 2003's results has not changed from what we discussed in last quarter's conference call, which was for moderate revenue growth in 2003.

With that, I'd like to turn it back to Steve for closing remarks. Steve?

Thank you, Scott.

In closing, I want to say that we remain very optimistic about achieving significant growth in all three of our businesses. The ROI approach is beginning pay dividends on the NOx reduction side, and ULTRA is becoming more widely accepted in the market. We are very excited about the upcoming demonstrations of our Targeted In- Furnace Injection technology on an additional four or five units this summer.

Interest in this unique process and has continued to grow, and we feel that additional, successful references will lead to broad acceptance of the technology.

We have made an initial sale of ACUITIV software to the automotive market, a key vertical for our future growth. We continue to be committed to achieving our financial goals.

Nick (ph), I would now like to open the call for questions.

Thank you. Ladies and gentleman, if you wish to ask a question today, please press star, one, on your telephone keypad. If your question has been answered, or you wish to withdraw your question, simply key star, two.

Questions will be taken in the order received. Please press star, one, if you have a question. We will pause for a second.

As a reminder, ladies and gentlemen, star, one, to ask a question.

Our first question comes from Robert Kirkpatrick (ph) of Cardinal (ph) Capital. Please proceed, sir.

Good morning. I take it that your first order to the tier-one auto supplier did not result in any revenue. It was still booked against the existing capitalized cost?

Correct, Rob (ph). Correct. And, again, that's just GAAP accounting.

Right. OK. And can you give us the detail on the number of beginning and ending units that were using FUEL CHEM on the coal side? Was that just the two that you spoke of, or are there more than that?

Well, there was the two in Utah, which are not currently utilizing the program because the coal quality is fine. We've heard that that could change this summer, but that's not something we're absolutely sure of at this point. And there was the two in the Midwest, so, yes, there was four, and now there's going to be four to five more in the very near future.

And I'm sorry. I was writing notes so rapidly earlier. On - are the - how are those geographically situated?

The ones that are coming up - one in the northern Midwest, plus (ph) one in the West and the rest in the Southwest actually - new area we penetrated based on salesmen we hired last July.

OK. That's great. The last conference call - there was some discussion of implementing a stock buyback plan. Can you give us an update on where you're thinking on that stands?

Sure. I mean, we're - it's still being discussed, and we have a board meeting this coming - next week, and it will be discussed further there. And if it makes sense - if the board determines it makes sense, we're going to proceed with that.

OK. And then it looked like you burned through a little working capital, Scott, during the quarter. Is that correct?

Yes. It is.

And can you kind of walk through - was that particularly related to something or ...

Well mostly, Rob (ph) it was pay down of payables and accrued liabilities. You know, we used cash in operations of about $2.1 million, and just about all of it is related to pay-down of payables.

OK. And your cap ex for the quarter was probably a quarter million or so?

A little more than that - a little over 300,000.

OK.

Which includes patents as well.

OK. And could you go into a little more detail about the risk sharing that you're doing on the FUEL CHEM side, in order to have people try your product? And then could you also walk through what the timetable is, in terms of those revenues being booked, and what the hurdles are that you have to go over in order to book those revenues?

Yes. On the rev share side, Rob (ph), there's really three main areas that we - that we're willing to share with customers to get - to get that moving, so to speak. As you know, we provide the equipment as part of the package anyway, but we also have initiated a program where we can help provide capital for installation, for example.

In other words, some of the actual work at the plant that has to occur - we're willing to help out with that. Also, we discount chemicals during the trial until agreed upon results are achieved. In other words, we could, say, give you a 50-percent discount on pricing during the test period. And then once the agreed- upon goals are met, then we're - we recover that 50 percent.

Also, in one case, we've looked at and are implementing a deferred-payment plan, actually, where no cash is going to be exchanged hands until January 2004, because of the situation in the utilities. Now, obviously, we're very careful when we do things like that, but those are three of the items that we've been talking about.

OK. And when you provide capital for the install, is that considered - you know, is that just sunk cost, or do you recover that money?

No. We would recover it in one of a couple ways. One, it could be recovered directly at a time in the future, or, more likely, it'd be recovered as part of the cost of the chemical over time ...

OK.

... as an upcharge, so to speak.

OK. And what about the goals - the agreed -upon goals for, you know, changing the discounted chemical price from 50 percent to 100 percent? And, obviously, you'll get paid back on the 50 percent that you've discount. Well, actually, is that true? Do you - do you ...

Yes.

... just sell at 50 percent, or do you actually ...

No.

... recover the full 100 percent?

No. We recover it. We're very careful to sit down with the customer and agree upon what success is. And success is usually defined in several parameters over a period of normally about 60 days. You can really get a good feel for the efficacy of the program over that period of time. So once those goals are agreed upon as being met over that 60-day period, then we expect to be paid.

OK. And the credit risk that you're running on the utility - that you're not getting any cash until '04 - what would be your total capital that you would think would be at risk there?

On that particular one, I think we're looking at about 700,000.

OK. And would you then book it in revenue, Scott, or do you end up - because there' some sort of uncertainty about that, you either book a much reduced level, or you don't book any of that?

Yes. Well, no. We would book the reduced level. OK? And it would be a receivable.

So you wouldn't ...

So there would be revenues to the extent of what the chemical charge we're actually charging the customer.

OK. And then, Steve, could you go into a little more detail - and I promise this will be the last question I ask, and, then, I'll get back in line - about the Midwestern unit that is undergoing the DOE modification, in terms of what they doing, how much are they spending on it, why do they think it'll result in less slagging?

Is it - is the modification driven by reducing sliding, and what's the risk that that actually happens on a broader scale?

Sure. The - no. It was not done to reduce slagging. This is a project that was in the works before we even started, which was about a year-and-a-half ago. It's about a $20-million project, from what I understand - maybe 40-50 percent of that being funded by DOE.

It's to apply advanced computers using fuzzy logic to improve things like combustion, emissions, mechanical cleaning systems - that sort of thing. And fuzzy logic could be defined as something that - like a palm pilot can recognize handwriting - that sort of thing.

Now, certainly, combustion modifications and things like that can have an impact on slagging. However, we don't see this kind of a situation as being common. This is very unique, and people are not going to spend $20 million in capital to save $1 million a year in expense, certainly not in today's market.

So we don't see that as being a general threat to the (ph) technology in all.

And when is that plant supposed to come back up, so that there'll be in a process of evaluating whether or not they're going to need additional FUEL CHEM or not?

I think it's supposed to start back up this month.

OK. Great. Well, I'll get back in line. Thanks so much.

Your next question comes from Tony Campbell (ph) of Note (ph) Partners.

Good morning. Scott, you may have an answer for this and have already said it, and, if so, I apologize. But SG&A took a fairly large bump upwards, and is it - could you just give us some color on that and what's behind the big increase?

Sure. I mean, first is revenue-related expenses, Tony (ph) - you know, commissions, agency fees, agents' fees, et cetera. OK? Second, in the ...

How much is that of the increase?

How much of that is the increase? Probably about a third ...

OK.

About a third of it. Secondly, in the second half of last year, we hired additional sales folks for our FUEL CHEM business, and, obviously, that was not in first quarter's numbers of 2002 and is in 2003's first quarter.

How many people have we (ph) got - did we hire?

Four.

Four. OK.

Four, new salesmen. And, again, one of them - when we talked about the Southwest, those - two of the units that we're (ph) expecting to start up very soon ...

That's mine.

... as a result of this (ph) guy (ph) ...

Just leave it. Sorry. Excuse me.

That's OK. And, finally, there was some additional resources, to a lesser extent, put behind ACUITIV.

OK. When do you expect the software project to turn a profit?

To turn a profit - certainly not this year. As we've been talking, the first thing we need to do it is amortize the cost of the software. That will take, at a minimum, through this year and possibly into next year. So I think we're probably looking at '05 for a profit.

OK. And I just want to - it seems to be taking a long time to come up to - with a really easy decision about the stock repurchase program. Why is it taking so long?

Scott - this is Ralph. Let me say we're very careful decision makers. We're watching the market and deciding whether it's a wise use of our cash or not, and that's the whole decision.

Let me ask Scott a question then. Where do expect your cash position to be at year- end?

Well, it depends on a number of things, Tony (ph). I mean, if it's just business as usual, and we don't make any acquisitions and, you know, just stay at the current ace, it'll probably finish around where last year finished. So it'll be strong.

We're looking at a couple of small acquisitions now, and that goes into this decision process related to the stock buyback. And, you know, we're discussing it, and we'll come to a conclusion on it shortly.

OK. And one final one - is there any - you had been talking about a joint venture with a couple of coal companies for a while. Is there any - what's the impediment to finally inking that?

Well I - joint venture's a little strong, but we certainly are in discussions with three major companies about alliances of one kind or another, and we expect one of them to be imminent.

I mean, there's no substantive issues, especially with one of the company's. It's just a bureaucratic holdup right.

OK. Thank you very much.

Thank you. Our next question comes from Alan Vixelbaum (ph) from Fulcrum (ph). Please proceed sir.

Thanks. Hi. How're you doing?

Hey, Alan (ph).

Couple of questions, more just understanding where we're headed. Number one, if you see - one of the concerns that I have is, as I stated before, it's taken (ph) a lot of time for things to kind of get up and running. We're now pursuing the software segment of your business. Now you're talking about potentially doing acquisitions.

Wouldn't it be - why wouldn't you pull back and just get one of the businesses to really start clicking before you went on to do something else?

Well - Alan (ph), it's Scott. The acquisitions that we're talking about and that we're actively evaluating would fit right in one of our existing businesses and, really, immediately, just increase our market share and provide opportunities to leverage what we have.

So it's not like we're evaluating something new and different. These two situations would fit right within our existing framework, could be easily absorbed, and, again, we'll be able to leverage that based on the infrastructure we already have. So it just makes imminent (ph) sense, and that's why we're looking at them.

And why are these people up to be acquired at this point?

Both are for different reason, and I don't know what I - what I should say and what I shouldn't in this case but very different reasons. One is a small business, frankly, that's competing with us and getting kicked around a little bit by us.

But not only that. There - you know, it's - they're a good operation, but I - you know what? Let's just leave it at that ...

OK.

... for now. OK?

OK. In terms of - in terms of the software business, let's assume that - you know, let's - at what point do you - will you decide that this is a business that's left (ph), you know, maybe to license out? Is there - what are you looking for, in terms of either contract signings or the opposite, as to when you're going to make a decision whether this is worth pursuing or not?

Well, I think we're in that mode now. I mean, we're going be discussing those kind of issues very soon. We're not going to just keep throwing money at a dead horse, but we feel that we do have something very unique, and we're going to give it our best shot.

OK. Over the next - over the next six months, you're going to be trying the FUEL CHEM on four to five new units.

We'll (ph) pay (ph) more than that in the next six months, but certainly ...

OK. So that's my question. Where - over the next six months, how many units will you hopefully be testing, because, unfortunately, at this point, you know, understood - I understand that the utility industry's having a very tough time, but, at this point, I guess what we're looking for is some kind of road map as to what's successful and not, because some of the utilities you sign contracts with are not willing to talk about it - not willing to tell us who they are.

So can you give us a roadmap of where you think you're going to be, forgetting about revenues and earnings for a second, just in terms of contract - in terms of both FUEL CHEM and on the air pollution control side of the business? Can you give us some kind of roadmap over the next - you know, from now until the end of the year, where you think you will be or where you hope to be?

Yes. Well, let's start with the FUEL CHEM. You know, I did mention that I think successful - some additional, successful references would (ph) be extremely critical at this point. I mean, we've always said that we thought we needed six to eight to 10 successful units before the dam broke, so speak. And I think we still feel that way.

And I feel strongly that, by the end of this year, we'll have - certainly, these five that we're talking about today will be active customers - contractual customers and five more by the end of the year. We're - there's a lot of people on the sidelines watching what happens from the perspective of, you know, a very conservative industry - you-can't do-it-until-you've-done-it type attitude. And I think you'll see that once these are out there and successful within the next 90 to 120 days, I think you'll see some other new contracts well before the end of the year.

OK. Before you get to the air pollution control side, those four or five units - when will they - when will they be starting?

Within the next 60 days. Some of them late this month, some in June, and I think one in July is what we're looking at.

OK.

Two are starting up next week.

OK. And within those units - each unit, potentially, in terms of - let's assume everything goes according to the plan, and they're successful. What level of chemical usage would those units have on an annual basis, assuming regular - I understand that, at a certain point in time, you could have a good vendor (ph) call that you don't need it, which is what's happening in Utah.

Right.

What would be the expectation for the usage?

Well, on the coal-fired units, somewhere between three-quarters of a million and one- and-a-quarter million. That's about - so $1 million average is realistic. Certainly on the municipal solid waste incinerator, it's quite a bit smaller than that - probably 100 to 200,000. But, remember, that particular unit is owned by a utility with multiple units firing Western coal, so it's kind of a precursor.

I think that's a pretty good average - $1 million.

OK. And on the air pollution ...

Air pollution control side - I'm not going to predict too much beyond the second quarter, but right now what we think - we'll end up with bookings in the second quarter somewhere between 12 and 15 million. We've announced six million at this point. So we've got some others that are - we feel quite close.

Good. Thank you.

Ladies and gentlemen, as a reminder, to ask a question, please press star, one, on your telephone keypad. Your next question comes from David Funeri (ph) of the Heartland (ph) Fund. Please proceed, sir.

Yes. Good morning.

Morning.

I'm not particularly familiar with your story, but, hopefully, you can help me a little bit. The chemicals that use in the - in the FUEL CHEM side ...

Yes.

... are they proprietary?

Yes. They are. But what's really proprietary is the application of the chemicals more than the chemicals themselves.

Well, I guess ...

I'm sorry?

Yes. I guess the real question is do - if they install the equipment, could somebody else come in, I guess, and try to undercut you on the chemicals?

Well, nothing's impossible; however, it's patented. We sign an agreement with the customer that they won't do that up front.

Yes. That's the important thing. And how long does that agreement go?

Well, typically, it's a confidentiality type agreement that's good for, you know, three to five years - as long as we can get them to sign it for.

And then what - are the margins significantly different on the chemicals versus the installation of the equipment or the equipment?

Yes. Again, we don't even sell the equipment. We maintain ownership of that, because we feel that that's part of the - part of the ways to keep competitors out of the - out of the client's (ph) plant. So the margins - we make a moderate margin on the equipment by including it in the price of the chemicals.

OK. So you're recovering all the - OK.

Absolutely.

And if this were to take off, how do you fund your equipment requirements?

Well again, the equipment requirements on the FUEL CHEM side are very small in comparison to the air pollution control side. For example, a large coal-fired unit - our investment in equipment probably will not be over a hundred to $120,000.

OK.

So it's really not a large factor.

Great. And, then, can you help me with understanding the current regulatory environment that's driving some of these NOx reduction requirements? Specifically, I thought someone said that it came in - May of 2004 was the requirement, but you expect revenues out much further than that.

Yes. It's rather complex, but there's really a couple different dates. One was last week, actually, in the northeastern United States, where they had to further reduce NOx - they were the leaders and had to further reduce NOx May 1st, 2003, and that's underway right now. That's why you're seeing the very high cost of the NOx tons in the Northeast at $8,000 a ton. We discussed that briefly about the contract we just received to help that utility benefit financially rather - reduce the tons themselves rather than buying tons on the open market, so to speak.

The SIP Call, the one that is coming up next year, May 31st, 2004, impacts 19 states are around the Northeast, if you will. The requirements there are based on the fact that nitrogen oxides, which our processes reduce, are (ph) a precursor to smog. And nitrogen oxides from Michigan, Ohio, Illinois, Indiana and so forth just blow towards the east. And without controlling those tons, the Northeast cannot comply with their requirements.

So that's kind of the basis of the SIP Call. It requires seven to 800 utility boilers and a couple hundred large, industrial boilers to reduce NOx by May 31st, 2004.

Now the reason we feel that the market is going to go beyond 2004 is because the situation that the utilities are still in - some are getting better, but there's still a lot of distress (ph) generation out there. I've heard the number 100,000 megawatts of distress (ph) generation, and that's enough to light 100 million homes in this country.

But they're not spending the capital - many of them are not spending capital to reduce NOx right now. So we feel that the market for our technology is just going to extend beyond this deadline, because people will not have met the requirements by then. They'll be forced to buy credits at inflated values. Even 2005 NOx tons are trading close to $5,000 a ton right now, significantly more than what equilibrium would say it's going to be, if everybody was going to make it on time.

Two other questions then. What would a typical, coal-fired boiler produce in terms of tons that they're trying to reduce? For example, maybe you give an example of your - where you're putting in a temporary unit out in the Northeast. You know, so (ph) they're paying $8,000 a ton. How many tons would that facility create over the course of a period?

Let me - let me give you one that's actually an average-size unit.

OK.

That one's a little smaller. The 300-megawatt unit - and I'm going to give you a typical baseline. Again, these units have done some lifting, shall we say - some NOx reduction already. They've got an average baseline of .4 pounds per million BTU. And I know that doesn't mean a lot, but let me put it in terms of tons.

That - the ozone season runs from May 1st to September 30th, so those are the tons that count.

Yes.

And if that unit were to run 80 percent of its capacity for that period of time, about 1,700 tons of NOx would be emitted.

And, lastly, when you put in a mobile unit like that, do you lease the unit to them?

Yes. With a monthly fee.

Monthly fee. And how many - how difficult is it for you to build a mobile unit of that nature? I mean, if you had demand for, say, five all of a sudden, could you produce five?

It would - it would probably take - to produce five would probably take six months.

OK.

So it wouldn't be that fast. We happen to have an 18-wheel type trailer, fully outfitted, available. So it happened very quickly. As soon as they see the tons we're - at that inflated rate, we got a phone call.

Great. Thank you very much.

Steve, if I might add just a little addendum for the group, one key thing that I've taken note of recently is what's going on in the coal industry. And in checking with a couple people who are principals in that industry, coal prices are up, and it's up, because they see both increased usage and the fact that there hasn't been any additional coal capacity put in of consequence. But at the same time, they see coal usage going up.

They see a diminution of generating capacity. We're (ph) - because they haven't built new capacity recently, they think they see a convergence of the lack of coal, new capacity and the lack of generation due to demand. And, for that reason, it's lifting their market. And that can't be anything but good for us.

Once again, as a reminder to our participants, if you have a question today, please press star, one, on your telephone keypad. We have no further questions. Back to you, Mr. Argabright.

Well, again, I want to thank everyone for your interest in Fuel Tech and for participating in the call today.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.