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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Welcome to the Fuel Tech N.V. first quarter 2004 earnings conference call. 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, ladies and gentlemen, this conference is being recorded. I would now like to turn the presentation over to Ms. Tracy Krumme, Director of Investor Relations. Ma'am, please go ahead.
TRACY KRUMME, DIRECTOR OF INVESTOR RELATIONS, FUEL TECH N.V.: Thank you, Carol. Welcome to Fuel Tech's first quarter 2004 call. By now all of you should have received a copy of today's release; if you have not, please call us at 203-425-9830, and we will be happy to send you one.
Joining me on the call this morning is Ralph Bailey, Chairman and CEO; Doug Bailey, Deputy Chairman; Steve Argabright, President and COO; and Vince Arnone, Chief Financial Officer. Steve and Vince will open up the call with their comments and then they'll be available for the Q&A session, as well as Ralph and Doug, who will also be available to answer questions.
As a reminder, the matters discussed in the 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 we have set forth in our forward-looking statements. These 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 on this call remain operative at a later time. Fuel Tech undertakes no obligation to update any information discussed on this call, and as a 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 turn the call over to Steve. Steve, please go ahead.
STEVE ARGABRIGHT, PRESIDENT & COO, FUEL TECH N.V.: Thank you, Tracy, and good morning everyone. Thank you for joining us today to review our financial and operating results for the first quarter of 2004. As you know, we reported a loss of 3 cents per diluted share for the first quarter, which was flat or compares to the same loss per diluted share last year. We reported net sales of $6.2 million, down 24 percent from last year's $8 million. This decrease in revenues result from an expected shutdown in our air pollution control business, which was partially offset by increased FUEL CHEM revenues.
We are pleased to report that our FUEL CHEM business had a record quarter, with revenues up 116 percent over last year. This was attributable to our Western coal-fired business as well as an increase in our more traditional oil-fired business, and to a lesser degree, the addition of Martin Marietta's retail fuel treatment chemical business which was acquired on September 30. It's important to note that these strong results were achieved despite the fact that the Western Farmers' unit was shutdown for a maintenance outage during the majority of the month of March.
We continue to be extremely excited about the growth opportunities in our FUEL CHEM business. As I have said before, we have identified five key utilities that we believe are important to achieve critical mass. These utilities have been identified as high-priority prospects due to their leadership positions and the revenue opportunities available to provide our Targeted In-Furnace Injection technology to multiple units within their facilities.
In the first quarter we announced demonstrations at two of these major utilities. Last week, we started pumping at one of these units and initial results are very positive. The second demonstration was delayed due to improved coal quality, significantly reducing slagging problems at this time and eliminating the financial incentives to move forward for now. Modeling of this unit has been completed, so if problems do reoccur we can react very quickly. More importantly, though, we recently received an order for a demonstration scheduled to commence this summer at another prioritized utility on a 325 MW Powder River Basin coal-fired unit.
At another of our targeted utilities, our process is currently installed on two small units, and we are currently negotiating a three-year contract to expand to two additional units at the same facility. We are also meeting with the management teams of other larger stations within this same utility, so there is a possibility for more expansion here as well.
We continue to make progress at the fifth targeted utility and have scheduled corporate discussions with them with the help of our newly hired consultant, Dick Grigg. We are pleased with the progress we have made at these key utilities and are optimistic that the successful demonstrations will lead to increased penetration of our technology both within these utilities and at new customers.
Dick Grigg, our newly hired consultant I mentioned, brings more than 30 years experience to Fuel Tech as an engineer, plant manager and senior officer of New York Stock Exchange traded Wisconsin Energy. He'll be working closely with me and the FUEL CHEM and APC managers and salesmen to help penetrate targeted accounts and to assist in creating additional strategic marketing programs customized to fit the utility industry. He is excited to work with us because he believes in the technology we provide, and we are very pleased as well because of his many contacts, excellent reputation in the industry, and we expect he will be very helpful in generating additional business.
On the marketing side, we continue to believe that major coal companies are valuable resources. We are pleased to report that our activity level has picked up recently as a result of Peabody Coal's aggressive marketing. If you recall, we announced the joint marketing agreement in June of this year to market our TIFI technology to units burning high sodium coals. We are hopeful this arrangement will lead to increased revenues in the near future.
Although our primary focus continues to be the slag control business. We are continuing organic development of additional technologies as natural spin-offs of our current process. We have also already applied for patents based on this work, and expect to demonstrate the new approaches in the near future.
Internationally, we are continuing our discussions with a potential partner in Mexico, and I will be their next week for additional meetings. Mexico has experienced a shortage of reliable electric power and is looking to increase production capacity significantly over the next ten years. In the short-term, we feel we can provide low-cost megawatts by improving the efficiency and reliability of existing facilities. We are also pursuing business in Europe, primarily in Italy through our Italian subsidiary.
Turning to the air pollution control business, revenues for the first quarter were down 61 percent from the previous year. This shortfall is due primarily to the reasons we have discussed in the past which include recent rulings and uncertainty regarding New Source Review, financial issues and constraints at utility companies, and low 2004 NOx allowance prices, which provide utilities with a short-term alternative for meeting SIP Call requirements. Allowance prices for 2005 and 2006 are currently trading at a 50 percent premium over those for 2004, and we still expect a definite improvement in this year's second half results.
As I have mentioned in the past, a significant amount of our sales focus has been on creating alliances with major utilities going forward. A well structured alliance has mutually beneficial terms in that it would provide pricing and scheduling advantages to the utility while at the same time giving Fuel Tech the opportunity to optimize our engineering and manufacturing resources. We believe that we are very close to executing an agreement with a major utility and should have a positive announcement in this regard in the near future, followed shortly thereafter by the release of some engineering and equipment for construction.
As we have mentioned in the past, we have also been pursuing a technical alliance that will allow us to combine our technology with another established process that will enhance our capabilities in specific situations. I am pleased to announce that we have just executed a memorandum of understanding with a well-known supplier of NOx reduction technologies, and we are working together to target the appropriate customers.
In other utility news, we were disappointed to learn that a large booking we expected late in the first quarter has been delayed due to local …