Fuel Tech Inc (FTEK) 2004 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your quarter two 2004 Fuel Tech N.V. earnings covered call. My name is Jean, I will be your conference coordinator. At this time, all lines are in a listen-only mode, and towards the end of the conference call, we will be accepting questions. (OPERATOR INSTRUCTIONS). At this time, I will turn the call over to your host, Steve Argabright. Over to you, sir.

Thank you, operator, and thanks to all of you for joining today. Welcome to Fuel Tech's second-quarter 2004 earnings call. By now, all if you should have received a copy of today's release. If you have not, please call 203-425-9830, and we will be happy to send you one.

Joining me on the call today is Vince Arnone, Chief Financial Officer, and Doug Bailey, Deputy Chairman, is expected to be available for the Q&A session.

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 set forth in our forward-looking statement. The factors that could cause the 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 the statements made in this call remain operative at a later date. Fuel Tech undertakes no obligation to update any information discussed in this call, and as reminder, this conference call is being broadcast over the Internet and can be accessed at our website, www.fueltechnv.com.

With that said, I would now like to discuss our operations during the second quarter. As you know, we reported revenues for the second quarter and year-to-date of 7.4 and 13.5 million, respectively, down 26 and 25 percent from the same period last year. The net loss for the quarter was 1 cent per diluted share, and was 4 cents per diluted share year-to-date, compared to a net income of 3 cents and break even the same period last year. These results are in line with our expectations due to the slowdown in our air pollution control revenues during the last 9 months. As we have said in the past, that segment of our business will pick up during the latter half of this year, and into 2005 and 2006.

Starting with our air pollution control business, we are thrilled to have been chosen by one of the premier utilities in the country, Duke Power, to be a key supplier in their compliance plan to meet the requirements of the North Carolina Clean Smokestacks program. We worked closely with Duke prior to signing our alliance agreement to demonstrate the efficacy of our NOxOUT process on both small and large units in their system. These demonstrations were followed by design engineering orders and a turnkey installation, which has proven to be very successful. As a result of this alliance, Fuel Tech will be called upon to provide engineering and NOxOUT systems for up to 24 coal-fired units, varying in size from 40 megawatts to 660 megawatts during the next 4 years. To ensure we meet or exceed our obligations to Duke, we have created an internal team dedicated to the needs of this key customer. The mutually beneficial alliance provides Duke pricing and scheduling advantages, and results in Fuel Tech being their preferred SNCR supplier, and is structured to allow optimization of our engineering and manufacturing resources.

So far in 2004, we have received orders for equipment for 2 units and engineering for an additional 6 units from our alliance partners, totaling approximately $4.4 million. We expect additional equipment releases and the possibility of turnkey orders for these units later in 2004 and into next year.

In other utility industry news, our proposal activity picked up substantially during the quarter, further validating our belief that the second half of the year and beyond will show a significant pick up in revenues. On the industrial side, we are pleased with our activity both domestically and abroad, and are particularly gratified by the sale of our first ULTRA system in Europe in a new application, municipal solid waste incineration.

During the last conference call, we mentioned a future regulatory driver called the Clean Air Interstate Rule that would take effect later in the decade. As it appears today, that rule will have the impact of adding 10 more states to the current Zipcall (ph) region. In addition, the EPA is working out a regional haze rule that would require the remaining Western states to further reduce nitrogen oxide around the same time frame, thereby continuing to expand our market. Preliminary studies of the language of these rules suggest that an additional 175 to 200 utility units will be subject to new NOx reduction requirements starting in the 2007 time frame.

During last quarter's call, we also mentioned the delay of a large booking due to local political issues related to the facility's continued operation. Unfortunately, although we are optimistic about a positive outcome based on feedback we have received, the delay is expected to continue until late in the year.

For our FUEL CHEM business, we are pleased to report that revenues were up almost 90 percent over last year. This was primarily attributable to our continuing penetration of the Western coal-fired utility market, and to a lesser degree, to the business we purchased from Martin Marietta last September. Our patented Targeted-In-Furnace-Injection technology is currently installed or being installed on 11 units, and the order for a 12th has been received. The 12th, which represents an expansion to a second facility at a targeted utility -- a key part of our marketing strategy -- is scheduled to be operational after a planned outage in October.

As another targeted utility, Phase I of the demonstration on a very large Western coal-fired flow (ph) that started just before our last earnings released, was successfully completed recently. A second phase has been initiated to further optimize the process, and therefore, the potential return to the customer. In addition, the demonstration announced at the last conference call at yet another targeted utility is well underway, and performance has been excellent. At the stage, I am pleased to report that we have operating systems at 3 major utilities, which will soon include 5 units at one of them -- 4 small boilers, and a 5th larger unit in the demonstration phase.

On the marketing side, we continue to believe that major coal companies are valuable resources. We are pleased to report that we have recently made joint calls with Peabody on 2 utilities. If you recall, we announced the joint marketing agreement in June of 2003 to market our TIFI technology to units burning high-sodium coals. We are hopeful that this arrangement with lead to increased revenues in the near future.

Internationally, we are extremely pleased by the order to demonstrate our technology on a coal-fired unit in Italy. The results of the short demonstration were very positive, and we believe it will be expanded for several months to optimize the application after the unit's scheduled outage this month. The meetings in Mexico I mentioned during last call went very well. We are finalizing our partnering agreement and gearing up to navigate the bureaucracy necessary to enter that market.

Turning to our ACUITIV software business, we continue to develop opportunities for distribution of our commercial visualization software, and assigned a new distributor for the Korean market. Product evaluations and discussions are progressing with key independent software alliance partners interested in licensing our visualization technology for combining business resources. We are currently shipping ACUITIV version 4.0, which provides customers with a suite of interactive tools for transient model visualization, server cluster support, and enhanced visualization features.

We have also shipped a promotional version of our software known as ACUITIV Light, with a number of leading companies, research facilities, and universities having now activated licenses. This promotion is designed to generate awareness, trial, and feedback, with incentives in place to upgrade to the fully featured version of ACUITIV. ACUITIV is designed to increase an organization's return on investment when using numerical simulation visualization. Further releases are planned that will support additional capabilities and add increased functionality. We expect the enhancements now offered or planned in addition to the partnering opportunities late in our penetration of our addressable vertical markets, which include automotive, aerospace and defense, power, and chemical processing.

I will now turn the call over to Vince for the financial overview.

Thank you, Steve, and good morning, everyone. As Steve mentioned, we reported net sales for the quarter ended June 30th of $7.4 million, down from 10 million last year. And on a year-to-date basis, net sales were 13.5 million, down from 18 million last year.

The net loss for the second quarter was 1 cent per diluted share versus net income of 3 cents per diluted share last year. And on a year-to-date basis, the net loss was 4 cents per diluted share versus breakeven in the prior year.

The results for the quarter are in line with our expectations, and reflect the expected reduction in revenues derived from the NOx reduction project business. The decline in NOx reduction project revenues for the quarter and year-to-date are partially offset by a 90 percent year-on-year increase in fuel treatment chemical revenues, as this product line contributed revenues at a record level during the first half of 2004.

Revenues derived from Western coal-fired utility boilers had the largest year-on-year impact, and contributions from the customer accounts acquired from Martin Marietta Magnesia specialties on September 30th of 2003, also contributed to the increase.

Gross margins in the second quarter were 43 percent, up from last year's 36 percent. Year-to-date, margins are at 45 percent versus 34 percent in the prior year. The increase is due primarily to a change in product mix in favor of the higher margin FUEL CHEM business and additionally, to a lesser concentration of turnkey air pollution control projects. The FUEL CHEM business, which realizes higher gross margins than the air pollution control business, comprised 50 percent of the revenue totaled in the second quarter of this year, and 55 percent on a year-to-date basis versus only 22 percent of the revenue total from the same periods of the prior year.

An important point to note is the fact that 2 FUEL CHEM demonstrations were in process during the second quarter of each year to. One of these demonstrations was conducted under a 90-day risk share program, and the other demonstration was a shorter-term demonstration at no cost to the customer. The risk share demonstration was deemed a success, and the customer will remit funds early in the third quarter. The no-cost demonstration, also a success, is continuing into a second phase, and is producing revenues.

SG&A expenses were up 13 percent and 12 percent, respectively, in the second quarter and first 6 months of the year versus last year. This increase was primarily attributable to the addition of sales resources for the fuel treatment chemical business, and to revenue-related FUEL CHEM selling expenses. Going forward, we anticipate that our SG&A costs will increase as higher sales volumes, particularly in FUEL CHEM, lead to increased selling costs, primarily from commissions.

We continue to have a strong balance sheet. We ended the quarter with 5.1 million in cash, and working capital of $9.6 million, and also no debt. Cash and working capital were down 2.7 million, and 1.1 million, respectively, from year end. The decline in cash and working capital from year end was driven by the net loss and by the investments in equipment to support the FUEL CHEM business.

During the quarter, we are pleased to report that we extended the term of our credit facility to July of 2006 on terms favorable to the Company, and we increased the facility to $15 million.

As we have mentioned previously, the second half of 2004 will start to show improvement in the air pollution control business, with increased strength expected in 2005 and 2006. The backlog as of today is approximately $8 million. Fuel Tech continues to work towards developing alliance agreement with critical customers as they look to finalize their compliance plans. Additionally, 2004 is the year in which we have started to see the dramatic growth from FUEL CHEM. We expect revenues in this business to increase 75 percent in 2004 from last year. If this target is met, we would expect our quarterly run rate at the end of this year to be in the range of 5 to $6 million per quarter. The results for the third quarter of the year will show an incremental improvement in revenues and in net income over the second quarter of this year. On a full-year basis, we continue to expect revenues to be flat to slightly improved in 2004 versus 2003, with air pollution control and FUEL CHEM revenues contributing at essentially the same level. We will realize an overall improvement in gross margin dollars and weighted average gross margin percentage, due to the greater contribution from FUEL CHEM. Finally, our bottom line in 2004 will be slightly improved versus 2003 with the favorable change in product mix.

Thanks, Vince. In summary, we are very pleased with the continued progress of our FUEL CHEM group in penetrating the coal-fired utility market. We are very proud of the alliance agreement we recently announced recently with Duke Power Co., and remain confident that the air pollution control side of our business is going to pick up significantly in the second half of the year and beyond.

With that, Jean, I would like to open the call for questions.

(OPERATOR INSTRUCTIONS). Robert Kirkpatrick, Cardinal Capital.

Vince, did you say that your FUEL CHEM sales were 5-0 -- 50 percent -- of total revenues for the quarter?

That is correct, Rob.

Okay. And how much of that came from the Martin Marietta business that you acquired in the year-ago period?

Well, on a year-to-date basis, I will give you the Martin Marietta figure. On a year-to-date basis, we are looking at about 1.2, 1.3 million in terms of contributions from Martin Marietta.

Okay.

Okay.

And then on the departure of your consultant -- Richard Grigg, you know, you just joined with the consultant 3 (multiple speakers) -- months ago or 6 months ago?

In the late March time frame.

Seemingly a little quick to move on? Will he -- will he be able to affect what you wanted him to affect? Will he be able to, in his new position, evaluate FUEL CHEM beneficially?

Well, we hope so. In answer to the second part of your question, we hope so. I think Dick has a great appreciation for our technologies, based on what he has said. As far as his early departure, as he told me, it was like Don Corleone -- he got an offer he couldn't refuse. It certainly wasn't in his plan back in March when we initiated our discussions. And yes, he has been very, very helpful in opening some doors at high levels and giving us regulated utility perspective -- some things we've learned in that area. And we are on the hunt, shall we say, for his replacement as we speak.

Okay. And then finally, could you talk a little bit more about the whole sales process on the FUEL CHEM side? I mean, you've been successful recently at getting demonstrations. But what's it going to take to convert those demonstrations into ongoing business relationships?

Well, we have been successful in doing that. As you know, one of the major utilities -- and I did address this in the call -- will be expanding to a 5th unit -- they will have -- they are installing 3 more now. And the 5th unit will be online at the end of an October outage in the demonstration phase. So from that perspective, that's been our strategy all along, is to work with major utilities who not only are in a leadership position, but have multiple units that can benefit from our technology. And I think that's proof positive that that strategy is beginning to work.

The other 2 majors who are involved in these demonstrations that we addressed earlier were trying to do the same thing. They are evaluating it from an economic perspective. And that's the name of the game here. And so far, we are very optimistic that the others will turn into the same kind of situation, with multiple units at multiple facilities.

Okay. And part of the reason for increasing the size of the line of credit is to be able to fund growth in your business in terms of receivables should you need to do so?

Definitely, Rob. I mean, we looked at extending the line and increasing the line as a means of doing that, just in case we have to do so. A small Fuel Tech -- amazing as it might seem -- still gets requests from large utilities to (indiscernible) parts of their jobs. And so adding the increased strength, the line of credit, only helps us as we continue negotiations with the utility groups. And it also shows a nice sign of strength that we believe we have in our business, and that our bank is showing a level of confidence in us.

And finally the shorter no cost to the potential customer demonstration -- how long did that last? What was the total cost of that for you?

Well, I can't give you the total cost -- it was 30 days. That was agreed upon at the beginning. The results, I think, would be agreed upon by both us and the utility were outstanding. And it is proceeding forward. I am really not in a position where I can give you the cost. But it was worth the effort and the cost based on getting into this major utility, which has been one of our priority targets for quite some time.

Rob, just as a point of reference, you know, we speak to our average utility customer in the FUEL CHEM business as approximately generating $1 million in revenues per year. You know approximately what our gross margins are, so you can work back to what we are talking about here. And again --

That would be an appropriate analysis to do (multiple speakers) --

Again, you will get close to a number, and you'll get to the point whereby you'll realize that it is an investment that we need to make to gain business -- simple as that.

(OPERATOR INSTRUCTIONS). Sheryl Skolnick, Fulcrum Global Partners.

First question is a broader question; the second portion is more of a typical sell-side analyst question, which I hate asking, but I have to. So let me go with the more interesting one first. One of the theories out there that I've heard an awful lot from people interested in your company and finding out more about it is that with high oil prices they are, in theory, should be -- in theory should make coal more attractive and power from coal-fired utilities, therefore, more attractive, lower-cost. And so, presumably, as that happens, then the Western fire coal also becomes more interesting, sort of a drag-along kind of thesis. And therefore, there should be more interesting -- more interest by those utilities in the FUEL CHEM technology. So are we seeing that at all? Is there any evidence that suggests that there is more interest from domestic utilities, or even foreign utilities, for that reason?

Yes, I think that's exactly right, Sheryl. And I think in this country, I think gas has had a more dramatic effect than oil has, although oil is certainly a player. And we have a significant level of oil-based business as well, and I think we can say that that has from an economic dispatch perspective, people are certainly going to try to run their coal-fired units before they run their oil-fired units. But that's pretty obvious. So yes, in coal, I think you look at the share price levels of major coal companies in this country, you can see that the interest in coal overall has certainly increased, and (multiple speakers) coal in particular.

The case in point may be that internationally would be a good description. And in Italy, until a few years ago, basically 100 percent of the power in that country was generated with heavy fuel oil. They are looking to convert numerous units to coal because of just what you talked about, the dependence on Middle East oil and oil prices. The unit we ran our demonstration on was just that sort of unit -- they used to burn oil. Now they have converted it to coal. And the incentive there is a little different than here in that they buy coal on the spot market. They get it from South Africa, Indonesia, Ukraine, Russia, etc. So they want the flexibility to be able to burn whenever is out there at the right price. So to answer that question -- long answer, but yes, you are right on the money there.

So it all works in theory -- the tangible evidence would be the one boiler in Italy -- are you seeing any -- are your phones ringing more often?

Well, the phones don't usually ring in the sales process -- (multiple speakers)

Well, I know that. (multiple speakers). You know what I am asking.

No, I know what you are asking. Yes, the interest is picking up, and it is picking up not only because of the discussion we just had, but because we are gaining credibility; the process is being recognized as a viable alternative more often than it was before. It's just all part of that bigger picture.

All right, I guess because as much progress as you have made, we are obviously all a little impatient to see the real explosion in actual numbers of contracts and actual dollars of revenue and earnings.

Well, 90 percent -- we are pleased with that, and again, we are on track for the annual projections we gave a long time ago.

Okay. And that brings me nicely to my next point -- and that is -- the revenues were a tad bit lower, certainly, than I had anticipated in the quarter. And I guess when I listen to the guidance that you gave them, it sounds like it really hasn't changed any at all since before this quarter, but the revenues clearly on the top line were a little soft, and then the bottom line, as a result, was a little soft. So what are you banking on accelerating between now and the end of the year? And I think I know the answer, but I want you to give it to me anyway.

Sheryl, I mean one of the primary reasons that we fell short of your target is due to the risk share program that we had with the one customer. (multiple speakers). I mean, we will feel the positive of impact of that rolling into the third quarter, okay? Without giving you specifics on exactly what that number is, I can basically just say that it's a significant number, okay? Simple as that. Independent of that, with the recent bookings that we've announced on the air pollution control side and the additional bookings that we see coming into place here in the second half of the year, we are confident that the air pollution control side of the business -- we are going to be able to meet the targets we had in place there. And as of today, FUEL CHEM is basically on track to meet that year-on-year 75 percent increase in revenues. So, again -- to your point, we are exactly where we thought we would be, again, falling a little bit short of the numbers that you had out there for the second quarter. But on a year-to-date basis, we are targeting where we thought we would be.

So it is more of a timing difference that you recognize the revenue in the third quarter instead of in the second?

Exactly.

As you know, with our risk share programs, what happens is that during that demonstration period, we could only recognize revenue for basically a portion of that risk share amount, okay? For example, if our normal price is $1 and we are doing a 50-50 risk share, we can only recognize revenue for 50 cents basically of that dollar. And then as of the day that that trial is being successful, we recognize that full remaining chunk of revenue at that point in time. (multiple speakers). So it truly is timing in terms of (multiple speakers) one year and the second --

(multiple speakers) -- right, that's fair enough. And then for the October start -- is that also our risk sharing?

Yes, it is. It is a risk share.

Okay, and then I have to ask my final question, which is ACUITIV -- you are expanding it. So have you sold any seats? And if you have sold seats, what is giving you the confidence to be making -- to be expanding it and bringing out new versions of it with enhanced capabilities?

I guess expanding it is a little bit strong. It's the same development group; it's just that they are on schedule to -- the development schedule was set some time ago, and they are following that development schedule. So inherently, version 4.1 and beyond are going to be coming out in the new future. So I guess I would not characterize that as expansion.

Your second question -- no, there has not been a new license sold in the last quarter. However, I did mention some marketing situation with offering ACUITIV Light to enhance people to purchase ACUITIV 4.0. And that program is developing relatively well. So we would expect that to result in licenses in the third and into the fourth quarter.

Sheryl, this is Doug Bailey; I wasn't able to join the call due to the delay of the conference host not connecting me until about 10 minutes after you all started. But the program is on track with what's been budgeted. We are running below budget on cash flow. The ACUITIV Light program was developed as a very novel way of getting our product into the hands of some very important household Fortune 500 company names -- major national, international research labs, major universities -- and that's resulted in about already an incremental 12 licenses that are priced very differently with some incentives for purchase before the end of the year. And that program is generating awareness trials, and some very important feedback. And the development program is directly in response to interest expressed by various customers in terms of functionality, features, and being able to read certain files. So the program is as budgeted, in response to what customers are wanting.

Okay. I guess I was under the impression -- and perhaps this mistaken one -- that there was sort of a sense that by some point, I thought it was this fall, we should expect to see a development partner or a distribution partner, excuse me, in place. And if that wasn't going to materialize, then perhaps ACUITIV might be rethought? Is that correct? Is that impression correct?

Those discussions are in progress, Sheryl. We have several leading partners who are currently evaluating the product, looking at compatibility with their software offerings. What we started in the spring is now in progress, and will continue till we get determination of which are the best partners to go forward with.

Tony Campbell, Knott Partners.

This is actually (multiple speakers) in for Tony Campbell. How are you? Aside from the 2 demonstrations you discussed earlier, how many potential new clients do you have in the hopper for FUEL CHEM?

It's a large number, I guess, if you had to pick the top ones that are closest, I guess there are 4 or 5 other significantly large utilities that are in that group. I am not prepared to say that we are going to sell one next Tuesday, but there's lots of activity. There's lots of interest. There's visits to -- additional visits to our good customer in Oklahoma that has been so kind as to allow others to visit. So it's progressing well. And I mentioned earlier that Dick Grigg opened some doors at some high levels that we've been discussing those types of things with executive suites, so to speak. So we are very optimistic about penetrating some additional utilities in the near future.

How much larger is the pipeline this quarter over last quarter?

Well, I don't look at it quite like that, but I don't think there's any additional utilities that we've talked to. We've been talking to significantly all of the Western coal-fired utilities all along. I just think we are making some progress with all of them.

I agree (ph).

It is a stepwise process, and we are moving forward. And I'm very satisfied with our sales process.

(OPERATOR INSTRUCTIONS). Jack Robinson, Winslow Management.

Let me just follow up on Sheryl's question, and then a bigger question. ACUITIV, again -- how much did it cost us this quarter, and once there is a partner, will this begin to breakeven, at least. Or what kind of relationships are we talking about here?

This is Doug. The cash invested is about $70,000 per month, at current level on a very, very nil revenue basis. But the difference is that we have kept our expense rate low while getting the product placed in the hands of not only some major OEM partners, who are facing a major problem of how to visualize increasingly large numerical simulation data sets, and we have a good answer for them. So part of the win would be to have that company -- rather than developing its own product, adopt ACUITIV. And the outcome for that is to be an installed software component in all of their license sales. So it's a very big win.

We have conversations with all the leading CFD companies, and are attracting, I think, a good awareness level among people involved in the numerical simulation market. The launch of version 4.0 generated over 35 articles just in the last 3 months. We are getting 3 times the public relations article placement of our competition, and yet we are still back selling functionality. And so working with these independent software vendors, we are learning from them what do they need. And without increasing or decreasing our resources, we are applying those software development activities to enhance the opportunity to be integrated with their software or be independently purchased by their customers. And many of the customers who have now activated their licenses for ACUITIV Light, for example, are fluent users. The leading CFD company, for whom we already had the ability to read their native data sets, we have to backfill that capability in with some of the other OEM's.

In the meantime, we have some international distributors that are actively selling the product. So it's still a bit of a cultivational sale. But the high-level work is going on at the OEM level for partners, and that requires some careful evaluation by the software development people.

And I heard the word "adopt" -- does that mean we are going to allow this child to be adopted by a third party?

I'm not sure what you're -- what you mean.

I mean, is the opportunity here to have ACUITIV acquired, or somebody else pick up the negative cash flow to burn -- that's happening here?

Well, if such an offer were made, it would be considered by the Board. Right now, we are looking at how we grow the business, whether that's shared ownership, Fuel Tech ownership or an independent party. But I can tell you that there is great intrigue among those companies as to what Fuel Tech has created, and we want to capitalize on that for our shareholders in the best way possible. But note that we are not investing more in human resources, but rather doing product placement, cultivation activities that do not increase our investment, nor are we decreasing it, because there is functionality that those companies want, who would be perpetual users of the product.

Okay. Vince, just going back -- can you just enlarge, please, on the Italian project and what you believe the potential is there in just Italy?

Yes, I will give that a shot, Jack. The Italian project was very successful -- very short-term demonstration on a coal that they had had severe problems burning. They couldn't stay on line for more than a couple of days without slagging up badly. And the fact that it was so severe is related somewhat to the coal, but it's also related to the fact that boilers that initially design to burn heavy fuel oil have serious problems unless they spend hundreds of millions of dollars, almost, on several units to actually convert them to the capability to burn a fuel with a lot of ash in it, which oil certainly does not have. So again, the goal here was to be flexible relative to available fuels. At this point, I'm not confident enough in the economics to be able to give you an exact market size in that, but it's significantly smaller than what we see in the U.S. and if you look at Italy, obviously. But I would venture I guess that it's a multimillion dollar market -- recognizing that there just aren't that many units yet that have been converted to coal. But it's something I know the major utility, Enel (ph), in Italy is taking a close look at, because of the obvious high costs and unknowns of what is going to happen on the fuel oil basis.

And just a follow up -- is there a good source of magnesium in Italy or in Europe?

Yes, there is. In fact, we ran -- the demonstration was run on product from the U.S. because we just didn't want to take any chances, so we've evaluated the Italian product -- it looks to us to be of high quality. We are negotiating now relative to when the unit does restart to run the Italian product. That certainly makes much more sense from an economic perspective for both the customer and Fuel Tech. So we are satisfied that there's a suitable source of magnesium available in that country.

Robert Kirkpatrick, Cardinal Capital.

Just a follow-up on the ACUITIV costs. Are those pretty much all in the cost of goods line?

The majority are not, actually, Rob. They will fall down into the SG&A expense category.

(OPERATOR INSTRUCTIONS). At this time, I am showing no questions.

All right, well, again, I want to thank everyone for joining us today, and for your continued interest in Fuel Tech.

Ladies and gentlemen, thank you for joining us on the conference call. You may now disconnect your line.