Fuel Tech Inc (FTEK) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2011 Fuel Tech Inc. earnings conference call. My name is Carissa and I will be your coordinator for today.

At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today's conference, Ms. Tracy Krumme, Vice President of Investor Relations and Corporate Communications. Please proceed.

Thank you. Good morning, everyone, and thank you for participating on today's conference call to discuss our fourth-quarter and annual 2011 results. Joining me on the call this morning is Doug Bailey, Chairman, President, and Chief Executive Officer; Dave Collins, Senior Vice President and Treasurer; and Bill Cahill, Assistant Controller.

As a reminder, the matters discussed in this 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 statements. The factors that could cause results to differ materially are included in our filings with the SEC. The information contained in this call is accurate only as of the date discussed, and investors should not assume that statements made in this call remain operative at a later date.

Fuel Tech undertakes no obligation to update any information discussed in this call. And as a reminder, this call is being broadcast over the Internet and can be accessed at our website, www.FTEK.com.

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

Thanks, Tracy, and good morning, everyone. I am pleased to walk you through the first look at a year in which we exceeded financial goals that we had set for ourselves, and in doing so, establish several new financial records for our Company.

Our growth was across both segments and delivered record revenues and strong EBITDA results for our Company. We are rolling over $30 million in APC backlog at year end, which will provide us with an excellent start for the new year.

Consolidated revenues for the full year totaled $94 million, a new record for Fuel Tech and $28 million for the current quarter. These results represent year-over-year growth of 15% for the full year and 12% for the current quarter.

Our air pollution control or APC segment delivered revenue growth of rates of 25% for the full year and 37% for the current quarter. Our FUEL CHEM segment delivered full-year revenue of $43 million, which is also a new record. We are proud to deliver these results despite difficult economic and regulatory environments.

Our 2011 domestic revenue of $76 million grew 10% over the prior year while our international revenue of $18 million grew 38% over the prior year. The catalysts for our increase in international revenue is our China/Pacific Rim business, where demand is continuing to develop for our suite of air pollution control technologies. Our international revenue figure is also a new record for the Company.

On a consolidated basis, gross margin increased to 47% for both the full year and fourth quarter, representing increases of 4% and 6% over the prior-year periods, [respectfully]. Our gross margin improvement is largely due to the project mix in our APC segment, with higher-margin project work contributing to a larger percentage of revenue in 2011. Our year-end backlog is comprised of a similar mix of higher-margin project work and we, therefore, expect our gross margin percentages to be consistent with recent quarters. Our consolidated net income for the full year totaled $6 million or $0.25 per diluted share and our adjusted EBITDA for the full year was $16 million.

Now let's look at each of our segments in more detail.

Our APC segment reported record full-year revenues of $51 million, an increase of 25% over the prior year. For the fourth quarter, our APC segment reported revenues of $18 million, a 37% increase over the prior year. During 2011 we announced record APC bookings of $60 million; domestic announced bookings were $45 million; and foreign announced bookings were $15 million. For the third and fourth quarter, our domestic announced bookings totaled $41 million, an increase of 155% over the prior year.

This increase was directly associated with the Cross-State Air Pollution Rule, CSAPR, that was issued in July of 2011. Our APC backlog figure at year end totaled $31 million, which is a new record for the Company. The backlog figure is comprised of domestic backlog of $26 million and international backlog of $5 million.

International APC revenue increased 59% for the full year to $15 million; international APC revenue for the current quarter increased 314% to $6 million. The majority of the revenue increase is related to our China/Pacific Rim business, where new emission control guidelines are being implemented.

Gross margin for the APC segment was 44% for the full year and the quarter, increases of 10% and 12% over the prior year periods, respectfully. These increases are due to a shift to higher-margin APC projects. This mixed trend is also represented in our year-end backlog so we, therefore, expect our 2012 APC gross margin to remain consistent with the recent quarters.

Our FUEL CHEM segment reported record full-year revenues of $43 million and quarterly revenues of $12 million. While our full-year revenue increased 5% over the prior year, we did experience a decline of 15% or $2 million in the fourth-quarter FUEL CHEM revenue. This decline can be attributed to a significant customer that used our chemical treatment intermittently during 2011, and, in general, an overall softening of the coal generation market during the fourth quarter. This softening resulted from a combination of low natural gas prices and a warm winter. While we do not believe these are long-term trends, current decreased electric demand coupled with low natural gas prices will impact the Q1 results, but we expect to see strong results throughout the remainder of the year.

During 2011 we announced eight new FUEL CHEM programs representing over 2,000 megawatts of coal-fired generation. For the full year our FUEL CHEM revenues generated from coal totaled $39 million, representing an increase of 5%, while our revenues generated from oil and other totaled $3 million, down slightly from the prior year.

For the current quarter our revenue generated from coal totaled $9 million, which is a decrease of 16% from the prior year, while our revenues generated from oil and other totaled $1.6 million, which represents an increase of 7%.

As of December 31, 2011, the company had one small contingent risk share payment outstanding totaling $40,000. For those who may be new to our story, a risk share on a FUEL CHEM demonstration is when a portion of revenue is put at risk during the demonstration period and then recognized when the customer deems a demonstration a success and moves forward with the commercial program. The risk share will show up on our books as additional revenues, but with no increase in the cost of sales since we have already recognized all the costs associated with the demonstration during the periods in which they were incurred.

Our full-year FUEL CHEM gross margin percentage was 50% and our fourth-quarter FUEL CHEM gross margin percentage was 54%. Our fourth-quarter FUEL CHEM gross margin was higher due to customer mix. These results represent a slight increase in the quarter of 2% and a slight decrease in the full year of 2%. The full-year margin decrease is attributable to a large risk share payment received in the first quarter of 2010, totaling $2 million, which contributed to a higher 2010 gross margin percentage. We have previously discussed this in prior conference calls. Our FUEL CHEM segment gross margin for 2012 is expected to be in line with historical levels of between 48% and 50%.

Selling, general, and administrative costs as a percentage of revenue for the full year declined 2% from 38% to 36%. On a gross dollar basis our SG&A costs increased from $31 million to $34 million for the full year of 2011. This increase was attributed to higher commissions paid as a result of increased revenue, higher incentive payment due to performance, and increases in other professional fees related to special project work. We also had higher SG&A costs related to foreign operations as we made strategic investments in key foreign personnel needed to capitalize on our market opportunities. We expect to continue leveraging our domestic and foreign operating costs and expect to see another incremental decline as a percentage of revenue for the full year 2012.

For 2011 our stock compensation expense was $3 million, a decline of $1 million from 2010. We expect to see our stock compensation expense decline to $1.5 million in 2012 as we further vest our older rewards.

Our current-quarter SG&A expense was 35% versus 30% in the prior year due to incentive plan payments and professional fees discussed above. We will continue to monitor our SG&A spending and where needed, take action to maintain reasonable spending levels.

Investment in research and development activity was up slightly in the current quarter and approximately $500,000 for the full year of 2011. For 2012 we are continuing our investment in research and development activities and expect our committed spending to increase to around $2 million. We will continue to pursue opportunities in identifying new development projects as our markets continue to develop.

Our tax rate for 2011 was 34%, which represents a decrease of 18% from our 2010 tax rate. The reduced tax rate is due to a couple of things, including a higher level of US income, which is dilutive to our permanent differences, and increased tax credits due to higher research and development spending. We expect our full-year 2012 tax rate to approximate 38.5%. Our tax rate is reflective of the expected impact that our permanent items have within our overall rate reconciliation and is dependent on the level of pretax operating profit realized by the Company. A change in our level of operating profits could impact our permanent differences and, conversely, the effective tax rate.

Net income for the full year increased to $6 million or $0.25 per diluted share. This represents an increase of $4 million and 18% per diluted share. For the current quarter we reported net income of $2 million or $0.07 per diluted share. Our adjusted EBITDA increased by 32% to $16 million for the full year. For the current quarter we also recorded reserves of approximately $350,000, which reduced our diluted EPS by $0.02 per share.

I wanted to touch on our quarterly trend for a moment. As we have previously stated, we are not providing guidance but do want to assist with the modeling that is done for investment advice. For the full year 2012 we expect to deliver growth in revenue over our 2011 levels. However, we would look for revenue in the first half of 2011 to be slower due to low natural gas prices and delays in CSAPR. Also, I would point out that we had $1 million in equipment sale revenue in our first-quarter of 2011 FUEL CHEM revenue and this will not be repeated in 2012.

We are currently looking for FUEL CHEM revenue to be below our first-quarter totals on a comparable basis with 2011. On a full-year basis, our operating expenses as a percentage of revenue is expected to decline to 33%, but the percentage for the first half of the year will likely be higher due to the forecasted revenue trends. As mentioned previously, we expect our gross margins for FUEL CHEM and APC segments to be in line with recent quarters.

During this time of regulatory uncertainty we have chosen to focus on improving core technologies and expanding our current product offerings through research and development activities and investments intended to broaden our capabilities. As a result, we may see increased SG&A expense for the first few quarters. We feel this strategic investment is necessary for positioning us in the marketplace.

Our working capital increased by $7 million to $44 million. We also repurchased $4 million of stock during 2011. Our ability to increase working capital while at the same time utilizing a portion of our cash for the share buyback program is indicative of our ability to generate strong earnings and cash flow.

Our cash balance decreased slightly to $28 million due to changes in our working capital. We also repaid half of our outstanding debt in China, leaving just $1.5 million outstanding in debt at year end. We will continue to effectively manage our working capital to ensure we are effectively deploying our capital.

In 2012 for modeling purposes only, we expect that our maintenance CapEx will remain below 1% of consolidated revenues and the majority of all CapEx to be associated with new FUEL CHEM accounts.

Fuel Tech's domestic and international market interest and sales activity continues at a strong pace, especially in our APC business segment. While we are encouraged about our business prospects for 2012 we do not believe it prudent to provide any additional quantitative revenue or earnings guidance at this time.

Now I would like to turn the call back to Doug.

Thank you, Dave, for that report and good morning, everyone. Thank you for joining us all on the call. I'm delighted to be addressing you after reporting our strong fourth-quarter results.

As you heard from Dave, there were many records that were achieved in the fourth quarter and during the year, which include records in backlog, APC announced bookings, and annual revenues and operating income. These results demonstrate the strength and agility of our Company and we are quite proud of these accomplishments. Our performance and success is based upon our employees' continued dedication to solving our customers' most critical problems with timely, cost-effective solutions and consistently deliver engineering [excellent] and meet our guarantees.

We had a very strong quarter in the APC segment. Not only did revenues and operating margins improve, but we significantly grew our contract bookings. We announced APC contract wins of $25 million in the fourth quarter, 160% increase from the $9.6 million announced in the fourth quarter of last year. This was driven primarily by a strong surge in domestic SNCR orders that were placed to meet the requirements of the Cross-State Air Pollution Rule, or CSAPR.

As the replacement for the Clean Air Interstate Rule, or CAIR, the EPA issued CSAPR in July 2011. CSAPR included more stringent NOx regulations affecting 27 states with compliance for the first phase on January 1, 2012, and additional reductions required in the second phase by 2014. As you all know, stay on CSAPR was subsequently ordered by the DC Circuit Court on December 30, 2011. This was based on litigation filed by a number of states and companies operating combustion sources. CAIR was placed back into effect pending the resolution of the CSAPR stay, which is expected later this year.

The primary driver of CSAPR is the federal Clean Air Act, which includes national ambient air quality standards for criteria pollutants, including NOx and ozone with emission requirements that only continue to tighten. These current standards remain in effect and states must comply with the requirements of this law. As with any new environmental regulation and as you heard us discuss on the last quarterly conference call, we were aware that CSAPR was being challenged and that a stay was a possibility. If you look back in the history of the regulations, the State Implementation Plan or SIP Call was stayed in May 1999 and then lifted in June 2000. Similarly, CAIR was vacated in July 2008 and then reinstated in December, 2008, pending a suitable replacement, which is where we are today.

Sources are still driven by consent decrees as well as state and local permit requirements. This last week we announced an award of an SNCR project from a new industrial customer for three steam-generating units located in the southeast US. This award was the result of a plant permit issue. So despite a well practiced tradition of ongoing regulatory debate, we continue to pursue many opportunities to generate new business.

Other domestic growth drivers include the Boiler MACT Rule, which impacts a universe of almost 2,000 units, primarily coal and biomass and more than 10,000 small gas-fired units. This rule sets maximum achievable control technology, or MACT, standards and emissions for new and existing industrial boilers and solid waste incinerators. The new proposal was published on December 23, 2011, with April 2012 for the final rule.

The compliance date will be anywhere from March 2014 to April 2016, which required reductions for particulates, mercury, HCL, and a tight carbon monoxide requirement. New opportunities for burner tuning and SNCR projects will open up due to the CO requirement and existing NOx site permits. Many new opportunities from the industrial segment continue to grow for our SCR technology and SCR services to manage catalyst performance to maximize NOx reduction.

We have a strong pipeline of business across our entire domestic portfolio. We continue to see demand from utilities and industrial units for our low NOx burner and Over-Fire Air technologies. Just as we completed a $13 million burner job in the fourth quarter of 2010, we are currently bidding on projects that are similar in size and scope, which can help offset any short-term delay that we may experience in SNC orders due to the CSAPR stay. Rest assured we are absolutely confident that once there is better clarity on CSAPR, we will see a continued uptick in our SNC order and ASC order activity.

In the meantime, we have close and trusted relationships with our customers, and we continue to stay on top of their emission control needs so that we are ready to respond quickly and in a timely and cost-effective manner.

Turning to China, we also saw strong financial performance in the fourth quarter, which resulted from the continuing execution of the record dollar value projects that were booked in 2011. In that year we achieved record annual revenues and record annual announced bookings in the amounts of $12.5 million and $13.4 million, respectively.

Total international revenues during the year increased 38%, primarily attributable to our China operations. Our revenues in China actually more than doubled in 2011 over the prior year. Our level of current bidding activity in China has never been higher and we anticipate additional future orders to come from this activity. Already this year we've announced two ULTRA system and two SNCR systems on coal-fired units in China.

As that country's economic growth drives the need for more power, we expect use of coal to continue to expand and the need for pollution control technologies to be robust, as utility industrial operators must comply with the NOx reductions set out in the country's ['12] five-year plan.

As we have previously mentioned, in the pursuit of a more environmentally-friendly economy the Chinese government issued the five-year plan on environmental protection, which lays out pollution reduction goals between 2011 and 2015. This was released by the State Council and went into effect last year. It is intended to build upon China's achievement in pollution control over the past five years and set new goals for the future. These goals call for a 10% targeted decrease of total output of nitrogen oxide from 2011 to 2015. The plan lays out policies to restructure the economy and sets new targets meant to reduce China's reliance on energy imports; improve its energy efficiency; and slow the pace of environmental degradation.

As we have stated in the past, the requirements in the policy align well with our portfolio of NOx reduction capabilities, which cover the spectrum from combustion modifications to advanced SCR systems.

We continue to see strong interest from the China market in our ULTRA product line, evidenced by the award of 13 ULTRA systems last year and two so far this year. As more SCRs are installed to comply with NOx reduction requirements, we will see this market opportunity continue to grow. I believe that we are in an excellent position to fulfill the need for safe delivery and storage of ammonia for SCR systems, especially in the heavily-populated key point regions.

Turning to our FUEL CHEM segment, we reported record annual revenues and operating income, primarily the result of the startup of chemical injection for nine new customer accounts. This achievement is particularly noteworthy given the challenging environment we've been facing.

During 2011 there was a 4% drop in electricity generation from coal as utilities switched to more affordable natural gas to fuel their power plants. In addition, US electricity generation was down about 0.3% year over year. Average on-peak electricity prices were lower across most of the United States. A large exception was in the ERCOT region covering most of Texas, where sustained wide-spread extreme heat resulted in record-breaking load levels and unprecedented prices. Elsewhere in the US, moderate weather led to reduced electrical consumption in the residential sector.

Natural gas prices are currently trading below $2.50 per million BTU. This is down more than 20% just from December and represents the lowest price in a decade. These lower gas prices place pressure on coal-fired units and as a result, some coal plants have switched or will switch to gas. However, we believe that gas will not be the answer for many power plants due to pipeline distribution constraints. Gas has so far displaced about 6% of US power generation because regardless of how low the price of natural gas may become, only those coal-burning plants that are connected to a gas supply may consider conversion.

Recent forecasts show rising natural gas prices that make pipeline expansion less attractive. Shale gas is also causing interesting market dynamics around pipeline access and alternative uses like ethane cracker plants for the manufacture of ethylene, which is converted to a host of chemicals used in making everyday products.

So the bottom line is that coal should remain the dominant energy source for quite some time. It is abundant, it's cheap, and it's found in many places. The world's most preferred fuel for electricity generation accounting for about 40% of the planet's electricity usage more than natural gas, nuclear, wind, solar and geothermal combined. In fact, power generation from coal is expected to increase by 25% from 2009 to 2035. Coal is here to stay and it certainly provides opportunity for Fuel Tech.

Coal-fired generators continue to seek creative ways to comply with CSAPR and EPA rules by keeping the costs in check and maintaining reliability. This is where FUEL CHEM comes into play as operators are looking to emit less SO2 and lower their coal costs as they compete with low natural gas prices. To that end, they are switching from predominantly bituminous coal sourced from mines in central and northern Appalachia, to 100% sub-bituminous coal, of course, mostly from the Powder River Basin in Wyoming and Montana, or they are blending the two.

While PRB coal has a lower heat content, it is lower in cost and has lower sulfur, which creates fewer emissions when burned.

(inaudible) and coal prices continues to be a significant driver for our FUEL CHEM business due to CSAPR and low natural gas prices. Coals from the Powder River and Illinois Basins have increasingly displaced Appalachian coals. In fact, Illinois Basin production is anticipated to double by 2017. This opens incremental FUEL CHEM opportunities even when total coal consumption may be contracting.

With that, I would like to please turn the call back over to the operator, who may open the line for questions. Thank you.

(Operator Instructions). John Quealy, Canaccord Genuity.

Hi, good morning, everyone. It is Mark Sigal for John. My first question, wanted to just touch on the backlog. So $30.8 million exiting the year; about another $4.7 million in Q1. Clearly, things are at record level. Is there anything in the backlog or in the Q1 order flow, any work that is contingent on formalization of CSAPR here?

No. It is all firm orders booked in the prior year and is not at all contingent upon further regulatory debate of CSAPR.

Okay. And then in the past, you've talked about given sort of the acceleration in APC bookings, you've talked about qualitatively, and some quantitatively, about some of the discussions you have been having. I think you've thrown out the number in the past, something representing up to 60 boilers or so. Can you just help us think about the discussions you're having now? Obviously you booked significant order flow since that time mid-summer when you talked about those 60 units. So perhaps an update on where that number stands?

Why don't I address that, just real quickly, Doug.

Yes, that was, Mark, part of the Canaccord conference discussion. We did have a robust list, continue to have that.

With the stay of CSAPR, some of those discussions have been pushed off. There still is an active, ongoing list of prospects that we are working with. It spans SNCR burner jobs, different ways to reduce the NOx. But I will tell you for the time being it slowed in the discussions and in decision-making, just pending the final resolutions of what the courts say on CSAPR.

Okay. And then just turning to SG&A, so clearly a step up in the quarter. You've been around that $7.5 million or $8 million prior to this. Can you just talk about what drove, call it, the incremental $1.8 million in expense? And specifically, if you can talk about some of the professional fees or some of the miscellaneous stuff that looks to have accelerated a bit in Q4?

Yes, that's fair enough. The Q4, we did have some true-ups in our incentive plan accruals. Our incentive plans are EBITDA based. There is a component of revenue as well, but we had much stronger EBITDA results than revenue results this last year, and so as a result, we had some true-ups in Q4 on our incentive plans.

On the professional fee side, we do have some ongoing spending. I can't foresee it extending past Q2, but that is hard to say how long those will go. They are not permanent spending and so when we look out at the full year we are modeling down to 33% on a full-year basis but you may see some higher spending than Q1.

Okay, so perhaps looking ahead to 2012 towards the middle or the back half of the year you would expect that SG&A expense to moderate a bit.

Correct.

Okay. Got you.

To put it in perspective a little bit, you know, the number of personnel that we had in our Company at the end of 2011 was identical to the number we had at 2009. There's been significant strengthening in the talent of our organization; significant effort to develop the right kind of incentive plans that drive top-line growth, and I think those are working well. So the reward system is there that's in our compensation expense. And yet the benefit to that is to push us to a revenue level that will begin to drive nice operating leverage.

That being said, there are some strategic investments that we choose to make that are in currently incurred SG&A costs, whether they are to address short-term opportunities or long-term needs. And for that reason our eye is on managing the percent reduction over time of SG&A as a percent of revenue. And I think we are well on a nice way to achieve that.

Okay. And then, just my last question, FUEL CHEM clearly looks to still be battling some headwinds that you pointed out in the prepared remarks. Can you give us a sense of what percentage of your commercial units were online in the quarter? And then also it looks like the margin profile continues to be very favorable despite some of the softness on the top line in that segment. Is that just simply a function of reduced cost share expense, or is there anything fundamentally going on with perhaps a step up in margins there?

Let me address the margin question. That is just mix related; it is customer mix related. Not all customers are at the same level, and that depends on volumes and pricing that is negotiated, so it's just mix-related.

Regarding your question about how many were online and what percentage, through the fourth quarter there were a couple of accounts that were off; a couple of them weren't even running their coal plants. And so there was a decline in the number of units that were online.

When I look at Q1, some folks are taking an outage, they are moving up their outage schedules, just because demand is a bit weak. And that is due to warm weather conditions as well as the natural gas fundamentals that we talked about before.

Fundamentally, when electrical generating load requirements are down that does have an effect on the current need for the FUEL CHEM program. So outages can be taken or load levels reduced to where it might impact us in the short term, but our ability to return and serve those customers when those outages end is still there.

And I think we have to also remember that FUEL CHEM is still a largely new market. We don't have a lot of competition. It obviously plays greater need when load levels are higher. So we just have to look through the short-term aberrations that these market factors play while continuing to provide additional benefit that the programs offer.

Okay. Thanks, guys.

Lucas Pipes, Brean Murray.

Hey, good morning, everyone. My first question is also in regards to the FUEL CHEM segment, and the fuel switching from central Appalachia to other regions; could you maybe quantify a little bit what the impact is and the opportunity of fuel switching going forward?

Quantify the impact for us?

Yes, so in terms of revenues, if that is possible.

Well, I don't know that we can reduce that to a number. We obviously apply the FUEL CHEM program to address the needs of coals that create more problems such as PRB and Illinois Basin coals. So every plant that chooses to convert to those coals is a candidate depending upon how it is operating that unit.

Generally speaking I think you should continue to expect that the region of northern, central Appalachian coal supply will continue to contract in this country, whereas Illinois Basin and Western coal will continue to steadily expand.

Thank you. That is helpful.

That being said, you could have a PRB-burning coal plant that is not operating at such a full load level to create all the same problems that we can provide solutions to. So I think electricity generation levels, as they are returning with stronger economic output, also provide a favorable backwind to that marketplace.

Okay. And then just in terms of -- to go back to the APC segment -- what other regulations are driving your business right now given that CSAPR is currently in the court? Could you walk us through maybe some of the state regulations that are still out driving business?

Sure. Well, for example, one of the regulations that the utility industry has some clarity in is currently allocating capital dollars -- is for what is called the utility Mercury and Air Toxics Standards rule. This affects units above 25 megawatts. So there's about 1100 coal-fired plants and about 300 oil-fired plants in the domestic US marketplace that need to comply with that rule. And that addresses particulates, mercury, HCl, acid gases, dioxin/furans. And we have R&D programs oriented to develop additional solutions for that.

That final rule just issued in mid-December 2011, and has a compliance timeline of about three years from the final rule.

There's probably going to be some litigation around that, but not so much as you saw with CSAPR.

Okay.

You also see a lot of need to address SO2, SO3 and both utility Mercury Air Toxics Standards rule and Boiler MACT come into play here. So we have programs in place to add to our capabilities in reducing oxides of sulfur.

Probably, in terms of market size, there's over 50,000 megawatts through 2015 that the EPA would estimate need to comply with these programs, probably calling for equipment solutions on the order of $0.5 billion -- quite a number of competitors in that arena. And even re-agents alone that would be fed into those units is a marketplace that through 2015 could easily exceed over $2 billion. So a lot of different companies come into play in addressing that marketplace, and we will be there as well.

I appreciate all the color. Thank you very much.

(Operator Instructions). Jeff Osborne, Stifel Nicolaus.

I was wondering if you could possibly touch on the Chinese market in terms of what you think your market share is there and in terms of the outlook.

Well, I think the best way to characterize that is the China environmental controls market is still immature and evolving. Very difficult to specify market shares when even market sizing is not often easily ascertained. That being said, you could kind of get your arms around it when you think about how the domestic US market has been sized and grown over decades. China will follow the same pattern as a modern country, but I would put a scale factor of about 3 times the size. And I get that from the fact that while we burned, consumed, about 1.2 billion tons of coal, let's say, in the United States, they are consuming over 3.5 billion tons and growing.

Coal powers about 80% of the Chinese economy. It is 40% worldwide. And so the need for environmental controls on coal-fired plants in all solutions will be a very large market. And I would say, look to our historical past at penetrating the US market and recognize it over a number of years that will probably be 3 times larger.

Got you. And then one quick follow-up. I just missed the stock-based compensation for the quarter. I wonder if you could provide that.

I don't think we provided that, did we?

I don't know that we provided for the quarter. Let me get it to you real quick. For the quarter it was $600,000.

Got you. Thanks, much.

Compares with 2010 fourth quarter of $500,000, so it was up slightly.

Perfect. And that should trend down through 2012 as some of the awards roll over?

That's correct, yes. We're projecting $1.5 million for the stock compensation for all of 2012. And last year for the 2011 period, it was $2.8 million.

Great. Thank you.

(Operator Instructions). Stephen Charest, Divine Capital Markets.

Good morning and a good quarter there. A question on CapEx -- I think you had mentioned maintenance CapEx about 1% of sales going forward. Do you have an estimate, roughly, on total CapEx, especially with the idea that you're going to be spending a little bit more effort on expanding the product line or suite of products in lieu of CSAPR being on hold?

We don't really have much CapEx on the APC side, so the tie-in to CSAPR has not been a strong tie. Our program-related or revenue-related CapEx is really on the FUEL CHEM side and that is new customer related. We do have the ability to rotate some of our systems around our installed base, so it really depends on new customers coming online on the FUEL CHEM side.

As far as our maintenance CapEx, it's just general IT-related -- some office spend, but not anything heavy. We're not managing the industrial manufacturing facility or anything of that sort. So it tends to be pretty minimal.

Right. And it looks like it has come down a little bit in 2010 and 2011 versus 2009. Would it be reasonable to assume that we kind of stay level?

Yes, that's fair.

Yes, okay.

You know, I would say there's two factors. The short-term factor relates to new revenue activity, new account activity with FUEL CHEM, where we either can utilize existing on-hand equipment or we purchase -- we own the equipment to service those accounts as opposed to the APC segment where we do capital projects and we sell all that. So we don't have a capital expenditure requirement that is borne by Fuel Tech in APC.

Now longer term, our TIFI technology is capable of doing a number of beneficial things for customers other than flag control filing. So as we begin to look at ways to apply our TIFI technology through the requirements levied by the utility, Mercury and Air Toxics Standards rule and so forth to address oxides of sulfur, acid gases, mercury, other pollutants, we may very well be utilizing the same business model, where we own the equipment and we create our revenues through chemical feed. So I would say they're largely going to track our revenues on the TIFI category.

And there are no further questions. At this time, I'd like to turn the call back over to Doug Bailey for concluding remarks.

Okay. Thank you, operator. Thanks, everybody, for joining the call this morning. You know, as I reflect on 2011 and I look forward to 2012, I see a lot of similarity. You know, we saw regulatory uncertainty in the first half of 2011. I think I told our investors, shareholders, that we saw expected robust APC market activity unfolding in the second half of the year, and indeed it did.

Now we find ourselves with a short stay on CSAPR, but nothing takes my eye off the ball of the long-term need for increasing environmental controls in the very pollutants that we look to reduce.

So I think there is a similar story unfolding for 2012 -- a nice revenue stream assured in the first half of the year coming from the execution of contracts won, particularly in the second half of 2011, and a full belief that those bookings will only accelerate as we move through the first half of this year into the second half.

Regulations get challenged. We get increasing and decreasing clarity on what those final rules will be, but there's no question over the next several years that our customers face significant investment requirements. And Fuel Tech is the Company that has got many low-cost solutions to providing those compliance needs.

We're not just about air pollution control. We are also about generating clean, efficient energy, so energy efficiency solutions come about by well-designed FUEL CHEM programs that are targeted to our customer needs, will continue to be at work.

I am very -- also encouraged by the prospect of growth in the global markets. We have made an important investment overseas in China. I think you're beginning to see the early results of that positioning, and those doors are only going to begin to open.

To be sure, we'll face a lot of competition over there; we'll be challenged. But we bring great technology, a very motivated organization, and an ability to deliver on an over 25-year reputation for excellence.

I'm very proud of our organization and what they accomplished in 2011. And I think they are going to delight our shareholders in what they can accomplish in 2012.

So with that, I thank you, everybody, for being on the call this morning, and we wish you all the best. Thanks, operator.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.