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Fuel Tech, Inc. (NASDAQ:FTEK)

Q4 2013 Earnings Conference Call

March 11, 2014 9:00 a.m. ET

Executives

David S. Collins – CFO, SVP and Treasurer

Douglas Bailey – Chairman & CEO

Devin Sullivan – SVP of the Equity Group

Analysts

Chip Moore – Canaccord Genuity

Lucas Pipes – Brean Capital

Stefan Neely – Avondale Partners

Steve Shaw – Sidoti & Company

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 Fuel Tech, Inc. Earnings Conference Call. My name is Maurice, and I’ll be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

Now, I’d like to turn the conference over to Devin Sullivan, Senior Vice President of the Equity Group. Please proceed, sir.

Devin Sullivan

Thank you, Maurice. Good morning, everyone, and thank you for joining us for Fuel Tech's 2013 Fourth Quarter and Yearend Conference Call.

Yesterday after the close, we issued our press release, a copy of which is available at Fuel Tech's website, www.ftek.com. The speakers on this morning's call will be Doug Bailey, Chairman, President and Chief Executive Officer; and Dave Collins, Senior Vice President and Chief Financial Officer

Before turning things over to Dave, I'd like to remind everyone that 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 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 Fuel Tech’s website, www.ftek.com.

With that said, I'd now like to turn the call over to Dave Collins, Fuel Tech’s Chief Financial Officer. Dave, please go ahead.

David Collins

Thank you, Devin, and good morning, everyone. Thank you for participating in today's call. We closed 2013 with record revenues of $109.3 million, which represents an increase of $11.7 million over 2012. This increase is principally due to strong core revenue growth in our China-Pacific Rim and Latin America businesses and reflects our continuing strategies to leverage our investments in growth markets outside the U.S.

Our 2013 net income totaled $5.1 million or $0.23 per diluted share, representing an increase of $2.3 million or 84%. Our adjusted EBITDA was $4.7 million, up $3.2 million or 33% over 2012. During 2013, we increased our working capital by $9.7 million to $48.6 million and our cash balance remained strong at $27.7 million or $1.23 per diluted share.

Now let’s take a look at our results for the full year and fourth quarter periods. Consolidated revenues for the full year increased by 12% to $109.3 million. During 2013, our U.S revenues declined by $7.2 million or 11% to $63.2 million, while our core revenues increased by $18.8 million or 69% to $46.1 million. Our higher core revenues reflected growth in our Latin America business of 148% and our China-Pacific Rim business of 27%. While we expect to see continued growth in our China-Pacific Rim business, we look for a decline in year-over-year revenues from our Latin America business as our large APC contract was nearly two thirds complete as of yearend 2013. We will discuss this in more detail during our APC segment comments.

Consolidated gross margin percentage for the full year was 43%, up slightly from 42% in the prior year. Our strong margin performance was due to better than expected APC margin performance in our China-Pacific Rim business and the U.S bookings received in early 2013, coupled with the consistent margin performance in our FUEL CHEM business.

Our selling, general and administrative expense for 2013 increased $3.7 million over the prior year to $36.4 million. Our SG&A as a percentage of revenues remained consistent at 33% and our dollar increase is due in part to our need to provide supporting infrastructure for our foreign business expansion and increased revenue. Specific changes in our year-over-year SG&A spending includes increases in personnel cost of $2.6 million, offset by decreases in legal and professional fees of $850,000. We also incurred specific costs related to long term strategic initiatives of $700,000 during 2013 and recorded bad debt expense of $650,000.

Our research and development spending for the full year was down $421,000, due solely to the timing and scope of project spending. We continued to focus our R&D spending to support the creation of new opportunities and critical projects in which we are engaged. Long term we expect to maintain this emphasis as we believe the development of new products and processes is a central component of our future growth.

Operating income for 2013 totaled $8 million, up $2.8 million or 54% from the prior year. This improvement was due to the increase in our revenues and highlights the positive impact of operating leverage at our business model.

Our effective tax rate for 2013 was 35%, down approximately 10% over our prior year rate. During 2013, we benefited from additional R&D credits due to congressional action that retroactively reinstated the tax credit for the 2012 year. The effective recording the 2012 tax credit in the current year reduced our 2013 effective tax rate by approximately 3%. Additionally, the ratio of domestic and international income levels impacts our blended rates which results in quarter and year-over-year fluctuations in our effective tax rate. Currently, we expect our 2014 rate to approximate 40%.

Consolidated net income for the full year was $5.1 million, or $0.23 per diluted share and our adjusted EBITDA for the full year was $12.7 million. These amounts represent increase in net income of $2.3 million or 84% over the prior year and an increase of $3.2 million or 33% in adjusted EBITDA.

Now let's move on to a more in-depth discussion of our business segments. Our APC segment reported full year revenues of $72.5 million, up $10.1 million, or 16% from the prior year. As previously discussed, this increase is reflective of growth in our four businesses, offset by decrease in our U.S business. Our consolidated backlog at December 31 was $22.4 million, broken down as follows, U.S $3.3 million, Europe and Latin America, including Chile, $10.2 million and China-Pacific Rim $8.9 million.

Our China-Pacific Rim revenues grew 27% in 2013 and we expect to see that strength continue. We are exploring ways to accelerate that growth as we believe the China-Pacific Rim geographic area represents one of our fastest growth markets. During 2013 booked $17.2 million in new China-Pacific Rim orders, and added an additional $3.8 million in new orders subsequent to yearend. This total of $21 million represents a year-over-year increase in mainland China bookings of 11%. During 2013, we saw renewed interest in our broad suite of products in China and realized significant growth in our SNCR and SO3 product lines. We believe our product line diversification will provide improved assets to this marketplace and fuel ongoing growth for the foreseeable year.

In Chile, our project continues to progress and we have completed installations at three of the six units. As discussed previously, we had approximately $9.5 million in backlog remaining as of December 31. Our project gross margins are a bit better than planned and we currently have two units left to install. While we had previously anticipated a mid-2014 completion date, our customer has decided to reschedule the outage on the last unit so we will carry approximately $2 million of backlog over into 2015 on this project.

Finally, our U.S bookings in the first half of 2013 contributed for a strong Q3 and year-to-date performance. This activity was state decree driven and resulted in three large SNCR orders. Our U.S APC segment outlook is lower for the first half of 2014 and will remain so until we have greater regulatory certainty. However, we have identified a large market opportunity remaining in the U.S and remain poised and ready to serve this market.

Gross margin for the APC segment increased year-over-year by 2% to 38%. This increase was due to better than expected margins in our China-Pacific Rim business and from the contributions of our three large SNCR projects I previously mentioned which were booked during the first half of 2013.

Our FUEL CHEM segment reported 2013 revenues of $36.8 million, which represents an increase of $1.6 million or 4%. As we’ve previously discussed, during 2013 we experienced a broad increase in revenue across our customer base which is encouraging and we are hopeful that we will see the trend continuing into 2014. Gross margin for our FUEL CHEM segment was 53%, which was consistent with the prior year.

Now for some comments regarding our Q4 results. Consolidated revenues were $24.2 million, representing a decline of $2.4 million or 9%. This decline is attributed to our APC segment revenues which decreased in Q4 by $2.5 million from $18.5 million to $15.9 million

Our Q4 FUEL CHEM revenue increased slightly from $8.1 million to $8.3 million. Our consolidated gross margin for the quarter was 43% which was up 7% from the prior year gross margin percentage of 36%.

During Q4, our APC segment margins were 39% while our FUEL CHEM segment margins were 51%. We would expect to see our APC segment margin to range between 35% and 40% in 2014, while we anticipate our FUEL CHEM segment gross margins will range between 48% and 52%.

Our SG&A expenses for the fourth quarter totaled $9.3 million, up $1.6 million from the prior year. Our SG&A spending is up primarily due to staffing needs required to support the increase in our revenues. We continued to monitor our SG&A spending and we’ll make necessary adjustments when needed based on market and business activity outlooks.

Our operating income in Q4 was $496,000, down from $917,000 in the prior year. This decline is attributable to lower revenue and higher planning costs experienced in the current quarter.

Net income was $406,000 or $0.02 per share compared with the breakeven results in the prior year.

Cash and equivalents at December 31 were $27.7 million and we have a small debt balance on our foreign line of credit totaling $1.6 million. Our working capital balance increased $9.7 million from the prior year and totaled $48.6 million at yearend. Cash provided by operating activities was $2.8 million. Our spending on property and equipment totaled $1.7 million and we advanced a small amount of debt in our China-Pacific Rim operation to fund for our project needs. Due to our strong cash flow, we will continue to invest in our research and development activity during 2014 to enhance our product portfolio.

Now I'd like to turn the call over to Doug.

Douglas Bailey

Good morning, everyone, and thank you all for joining us today. I’m pleased to report that Fuel Tech had a very successful 2013. This marks our fourth consecutive year of growth since the economic downturn year of 2009. In particular, these results were achieved despite two years of regulatory gridlock here in the United States in defining important future policies to reduce air emissions, as well as a period marked by a rapidly changing generation mix in the electric utility industry.

Consolidated revenue rose to a record $109.3 million, up 12% over 2012 and our annual profit increased substantially, reflecting improved results from both our APC and FUEL CHEM business segments. Our focus on expanding our global market and achieving greater geographic diversity, particularly with our regulatory driven APC portfolio, manifested itself further in 2013.

International revenues rose for a third consecutive year and comprised 42% of total revenues in 2013, up 28% from the prior year. We also ended the year with a balance sheet that ranged among the stronger in our history. Our APC market segment provided over $10 million of revenue increase, and 84% of our gross margin color improvement. APC market conditions remained strong in China, though we’re still sluggish in U.S as of the end of 2013.

Current domestic bidding activity continues to be driven largely by state consent decrees and other mandates while lingering regulatory uncertainty has widened the time from proposal to signed contract. As Dave noted, this domestic slowdown is reflected in our yearend U.S backlog. However, just as we did in 2013, we continued to pursue multiple projects through all phases of the consultative sale cycle in the U.S and overseas and are confident in our ability to secure a significant share of these awards during 2014.

Within our FUEL CHEM segment, revenues rose moderately while margins remained substantially intact. Although this segment remains challenged by low natural gas prices and lower capacity utilization in coal powered power plants, it has maintained its reputation of results, efficiency and value. We expect that FUEL CHEM will remain a stable and consistent contributor to our revenues and profitability during 2014.

With respect to our business in China, our 2013 revenues increased for the third consecutive year. During 2013, we announced bookings that included our Ultra SNCR flue gas conditioning and SCR technology solutions. China remains a key imperative for our business which we expect to grow in 2014 and beyond. With nearly a 7 year presence in China, we now aim to expand our position there as an indigenous air pollution control leader. To that end, we will continue to localize our capabilities in supply chain while building strong commercial relationships. The news and images in China regarding the level of environmental air pollution and the associated health hazards generate near daily headlines across the world.

The World Health Organization in Beijing has labeled the extended smog situation a crisis and the Chinese government recommends that residents wear masks and avoid outdoor activities. Swings in the air quality index often reach extremes on some 20-fold, the level above which that organization warns against daily exposure, particularly as it relates to PM2.5 fine particulates. The air is often so impenetrable that living under such a blanket of smog has even been described as a nuclear winter. In a nation of 1.3 billion people, the consequences of severe air pollution extend well beyond health risk and endanger China’s food supply. Big clouds of smog cut the amount of sunlight that reaches crops by roughly 50%, dramatically impeding photosynthesis. If present conditions persist, China’s agricultural output can be severely affected.

Fuel Tech strives to help remedy this situation in China. Our company was the pioneer in developing emission reduction technologies in the U.S, enabling our nation to meet stringent reduction targets that have vastly improved the quality of life for all Americans. We therefore believe that we’re uniquely positioned to assist China in addressing its current challenges to balance the rapid industrialization with the health and quality of life for its citizens. We are a recognized leader in air pollution control solutions in China, serving many of that nation’s largest power generation and industrial companies. Importantly, we’re not perceived in China as just another foreign company. Since establishing our Beijing office in 2007, we have continually added staff and in 2014 we expect to locally employ over 40 Chinese nationals.

With respect to our business in Latin America, our project in Chile, the largest APC contract in our history, continues to progress history in accordance with our customer’s requirements. Of the six units for which work was contracted, installations were successfully completed during outages at three units in 2013. Two additional outages are scheduled for 2014, with completion expected by the end of the second quarter. Due to the customer’s present electricity generation needs, the outage of the six units has been rescheduled to 2015 when the last phase of this project is now expected to be completed. Although Chile is a limited market, we continued to leverage the success of this project as a showcase to demonstrate our abilities with the goal of seeking additional business in this and other markets.

In Mexico we continued to demonstrate good technical progress for the improved comprehensive control of S03 at customer units. This is evidenced by visible plume reduction and we are encouraged that this developing market continues to represent one in which Fuel Tech can establish a leadership position.

In the United States, the better regulatory landscape is still in flux. During 2013, the domestic APC utility market was driven by a number of consent decrees where customers agreed to reduce NOx emissions as a part of settlement agreements as well as individual state requirements. Growth in several industrial markets, including new plants or plant expansions, require new or modified air permits and prompted the need for SCR and SNCR technologies for compliance. The current Supreme Court review of the Cross-State Air Pollution rule is expected to be completed by July 2014 to provide clarity to EPA requirements NOx and SO3 emission reductions for the Eastern half of our country.

Even lacking this sudden new regulatory driver, we have visibility into a near term potential for well over $100 million in domestic APC project opportunities, over half of which are with the utilities, with the balance in industrial segments. Future industrial sector opportunities have been identified and include manufacturers of carbon black, fertilizer plants, chemical and refinery plants and pulp, paper and biomass facilities. Of this total near term potential as the choice of technology, over half can be expected to involve our SCR and ASCR solutions, with the balance in our portfolio of NSCR, Ultra and low NOx burner for our air applications. Regardless of the type of project we win, most will likely continue to be lumpy in size, with long sale cycles as I’ve previously stated. As such, we expect our performance in the second half of 2014 will be stronger than the first half of the year.

With respect to our overall business development initiatives, we remain committed to investing in research and development to foster the continued growth of our company. This past year we introduced to the marketplace our XCAM or Extractive Continuous Ammonia Monitoring System solution. This is an engineered process designed to quickly and accurately measure ammonia concentrations in NSCR and SCR applications. This method is fast and accurate to less than one parts of a million of ammonia concentration. XCAM has now been made available to a large previously installed base to maximize NOx reduction and minimize reagent consumption, and initial sales were announced in January.

Our R&D efforts have also focused on unfolding opportunities in the future control of multi pollutants, for example mercury, acid gasses, and oxides of sulfur nitrogen. In addition, we have integrated into this effort and are actively exploring the end licensing or acquisition of technologies that both complement and expand our core capabilities. In keeping with our strategic focus, we are pursuing the development of new solutions that trend our business mix to a greater level of recurring revenues backed by intellectual property and knowhow. While much of this work remains in proprietary development, we anticipate the fruits of these efforts will contribute importantly to our future growth.

So in summary, despite some currently challenging end markets, we remain fully optimistic of our ability to increase our presence and profitably grow in the global marketplace. We have the people, the technology, relationships, financial strength and reputation to capitalize on a wealth of opportunities to create a more energy efficient sustainable environment and produce long term value for our stakeholders.

With that, I'd now like to ask the operator to please open the floor for questions from our analysts and institutional investors. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Chip Moore with Canaccord. Please proceed.

Chip Moore – Canaccord Genuity

It looks like APC margins were a bit better than expected this quarter. Maybe you could just break that out Latin America versus China and then where blended margins stand in the current backlog.

Douglas Bailey

I’d be happy to provide a general comment and Dave might add some specificity. But across the board in 2013 and currently, we’ve been able to enjoy a better than expected margin, well above what we budgeted. This has been accomplished in good cost control and performance in our Chile project. It has been accomplished in unbudgeted but sold SNCR jobs last year that were particularly strong in contributing to our third quarter performance. And we’ve seen better than expected performance in gross margin in multiple projects in China. Given the developing and uncertain competitive nature of that market, it was difficult as we looked into 2013 to ascertain what our margins would be. But I would say that we’ve been pleased with our margin performance across all of our APC projects geographically. And I really do also credit our fine organization with good project execution skills to keep our costs well in line with what we had projected.

David Collins

Chip, this is Dave. Our blended margin in backlog is 28% and that’s principally reflective of higher concentration with our remaining Latin America Chile contract work. In China as Doug mentioned, we’ve been recognizing better margins throughout the year. Our blended margin is 31% on China backlog.

Chip Moore – Canaccord Genuity

That’s helpful. And then just on the cash priorities with the balance sheet where it is, can you talk a little bit more about some opportunities to accelerate growth, whether it’s acquisition or licensing arrangements like you talked about, just sort of your latest thoughts and how the market is.

Douglas Bailey

Sure. Of course owing to the confidentiality of anything that we may be considering doing, it would be expected that we would have attractive use of cash for opportunities that we deemed and have identified would give us additional growth. So again without being asked to be specific on that, I would say that the cash on our balance sheet for this year and beyond is going to be utilized and not only continue to maintain our financial strength, but give us the flexibility to make important add on acquisitions or in licensing opportunities. So we’re very active in that area.

Chip Moore – Canaccord Genuity

Okay, that’s fair. I guess just lastly, you talked a little bit more on that near term $100 million opportunity that you’d identified. Maybe you can expand a little on some of the industrial sector. Thanks.

Douglas Bailey

I mentioned a number of market areas that we’re working on. For example I mentioned carbon black. There’s 23 facilities within the United States and some of the first of those recently have had to enter into consent agreements. We mentioned how consent decrees are our driver today. And while we see this market unfolding, it will be over a three to five year timeframe. So we’re looking for turnkey opportunities, particularly for SCR type solutions, which are several million in size, again reflecting the lumpy project opportunities. But we do believe that we’ll be successful in penetrating that market. Again I mentioned fertilizer refinery chemical, biomass pulp and paper. We have a history of working with these segments, plus municipal solid waste steel industry.

There are consent decrees unfolding in multiple segments, our state rules and permits that we see as the drivers of opportunities in the industrial landscape. The industrial market as I said is probably a little under half of our pipeline of opportunities. While we intend to often think about Fuel Tech as very closely associated with the utilities industry and we are. We have a great reputation and experience for industrial projects and we’ve actually done more industrial installations because of the multiplicity in utility. So we tend to see strong needs in industrial solutions, particularly for SCR, ASCR applications as well as SNCR. Is that the help on the industrial side that you were looking for?

Operator

Your next question comes from Lucas Pipes with Brean Capital. Please proceed.

Lucas Pipes – Brean Capital

I just wanted to touch base a little bit on the FUEL CHEM business. When I look out over the coal landscape, it was a very cold winter. It looks like we’re going to add further generation, coal generations compared with last year. I wondered if you started to see an impact on that business due to the change in gas prices etc. and if so, what type of growth rate we could be looking at year-over-year for 2014 versus 2013.

Douglas Bailey

It may be hard to actually pinpoint a growth rate, Lucas, but you’re absolutely right about the severely cold winter. As we all read in the press, we’ve seen somewhat rising and even spiking natural gas prices. The dependence on coal as a strategic fuel to generate electricity in this economy will be there. I personally see it increasing its market share over the years ahead. As retirements of certain coal fire plants are made and the increased utilization of the remaining fleet, the capacity utilization at higher levels creates additional opportunities for the application of FUEL CHEM program. We’re beginning to see a little more new business development opportunity and still have a strong customer base that has had increasing use of our solutions. So I think it’s going to be moderate growth, but sustainable business that will continue to produce good margins. I think the story is yet to be played out as to where we will be several years from now relative to coal and natural gas in the generation mix. Coal is here to stay and there’s some important needs that that industry has that we can help provide solutions for.

Lucas Pipes – Brean Capital

That’s very helpful. And on that back drop off, more resilient coal generation. Could you maybe reiterate where you see the domestic APC business heading? Obviously you’ve always had nice -- historically you had nice margins domestically. So as a percentage of business on the APC side, what amount -- what piece of the pie should we allocate or think about the domestic market?

Douglas Bailey

I can tell you that this year was a large percentage of the business and much of that of course was derived from our presence in Chile. But it’s very hard to go and immediately replace a large project like that. We consciously pursued development in multiple geographic markets to achieve what I like to call regulatory diversification. In the more than 15 years that I have been associated with this business, I am probably witnessing my fourth sales cycle in the domestic APC markets. It has gone through peaks and valleys, and as you can well imagine, when regulations were propagated or stayed, new substitute rules were issued and perhaps vacated. So I think you’re seeing us now on the tail side of a four year cycle that probably reached its low water mark in 2009, increased. It’s got a little bit of softness now to be sure, but we’ll come back.

So strategically, while these capital projects are ones that Fuel Tech are good at winning and executing and we really have enjoyed remarkably good margins, particularly in 2013, our focus is going to be look for ways to provide solutions to the air pollution control market that move us in more of a direction of recurring revenues as opposed to just capital sales. That creates a greater flywheel to our business to have predictable higher level of recurring revenues that we can count on while still enjoying the enhancement of large capital projects that we’re capable of executing. That’s our R&D efforts are focused on developing solutions around pollutants that quite honestly utilize more of our FUEL CHEM model or ways in which we can develop proprietary chemicals that provide continuous sales opportunities for Fuel Tech.

At the same time we’re looking at a little more out of the box opportunities around that consumable mix, whether it’s on the post combustion or pre combustion side of our markets to provide engineered solutions that can grow our recurring revenue business. So long term I would say the APC and our capital projects ups and downs ought to be a smaller part of our mix. Certainly in the last couple of years it’s been a very important part of our mix. That’s where we’re headed.

Lucas Pipes – Brean Capital

That’s very helpful. Maybe as a follow up, when I think about the FUEL CHEM, it’s been more of a domestic opportunity so far. Do you have concrete plans for taking that abroad as well?

Douglas Bailey

Yes. Again in general we’ve had some success in developing sales in Europe. We see the market yet to come in China. Our interactions with large companies over there has only awakened I think interest in FUEL CHEM. Clearly with the quality level of Chinese coal and the dependence on that fuel driving that economy and the severity of problems that are associated with that, discovering what Fuel Tech can bring to that marketplace will bring opportunity. We are looking for ways to find market access to bring not only that, but other present and future technologies to the Chinese marketplace. But as we’ve said in the past, today China is a pollution control market with FUEL CHEM on the horizon. That being said, while we’ve done some demonstration work, there’s just an early I think increased awareness of what this might have to offer in the geographic market. I don’t expect that to play out as a major contribution to 2014 revenues, but as I look longer term it’s a tremendously good asset of our company.

Operator

Your next question comes from the line of Dan Mannes with Avondale. Please proceed.

Stefan Neely – Avondale Partners

Hi. This is actually Stefan on for Dan.

Douglas Bailey

We’re going to get Dan eventually.

Stefan Neely – Avondale Partners

Yes, eventually, hopefully this afternoon. Most of my questions have been asked. I did want to touch on near term contract wins. You noted that the second half of 2014 looks to be better than the first half. Given your yearend backlog, what kind of opportunities are you seeing in terms of awards in the next six months? Any color you can give on geographic locales of such awards.

Douglas Bailey

Again I think one of the things that we’re seeing surprisingly is a broader interest in more of our solutions in China. There may very well be better than expected wins in the SNCR space. In this market, we know where the opportunities are. We know that the sales cycle is one that requires a lot of [consultative] efforts and a timeframe of winning that’s a little hard to predict. But sometimes we’ll know clearly when an RFQ will come out and bids will be evaluated, a general idea of the level of competition and the expected award dates and we’ve factored that into our thinking. Sometimes the scope of work can change. We’re now capable of doing larger projects than we did in the past. We’ve come a long way as a company from the standpoint of what we’re able to offer. We now demonstrated in larger capital projects. So we’re now bidding on larger opportunities.

So we’re no longer a company known as an SNCR company. We have SCR, ASCR and our combustion capabilities, ULTRA, XCAM now and many engineering service capabilities. So our anticipation is that the defining difference will happen after some regulatory clarity comes in the year. We can’t influence that, but when you get to the Supreme Court level, there’s not another level after that. So two years have now gone by in which we really haven’t had a major regulatory driver that’s addressing the cross-states issues. We still have the long term NOx driver of National Ambient Air Quality Standards and we know where regional productions are needed.

We’re addressing our sales development and marketing efforts to opportunities in those states and regions. But just like 2013, we ended up with some nice contracts that played out well during the calendar year that looking into the beginning of the year we just didn’t know we would have. I just think that is the character of the marketplace today. So for that, I will say it’s going to be softer domestically this year. It’s going to continue to grow and I think accelerate to China. We’re going to play out our large work in China and we’re looking at renewed opportunities in other markets. So lumpy is still the word. Difficult to predict is part of this kind of business, which is why so much of our development work has been aimed at building a product and services portfolio aimed at steady recurring revenues. So that’s what we’re going to strive to achieve and we’re well on our way to doing that.

Stefan Neely – Avondale Partners

That’s helpful. My second question on the SG&A line. You noted some bad debt expense. That’s happened for a couple of quarters now. What is that a function of? Is that a function of doing business in China? If so, would we expect something like that to continue in the future?

David Collins

There’s been a couple of specific accounts that we provided reserves for. A couple of them were in China. There was another in Latin America. As a company, we have not had a history of reoccurring bad debt experience. A lot of our customers have large utilities so we have not experienced that. I’m hesitant to tell you that it won’t happen again, but we continually assess our AR positions, collection positions and provide reserves when we feel it’s prudent to do so. If there’s a risk area it would be China. That’s fair to say, but I can’t sit here and tell you that we’re going to have to provide additional reserves next year. Again we did put them up at yearend because we felt that was prudent and that’s the best that I can do right now.

Operator

(Operator Instructions) Your next question comes from the line of Steve Shaw - Sidoti & Company. Please proceed.

Steve Shaw – Sidoti & Company

Hey David, did you mention the amount of revenue that came from the Chilean project?

David Collins

In 2013?

Steve Shaw – Sidoti & Company

No, in the fourth quarter.

David Collins

In the fourth quarter -- for the full year it was about $20 million and it was split evenly throughout the quarters. So let me see if I can get you a number specific for yearend. Yes, I’ve got it, about $5.5 million in Q4

Steve Shaw – Sidoti & Company

Okay. And then in 2014, was there still $10 million left in the backlog on that project?

David Collins

Yes, that’s correct.

Steve Shaw – Sidoti & Company

And then pretty much everything has been asked. Do you guys have a guess on when the cash flow rule might -- a decision be made on that?

Douglas Bailey

I think based on what we hear in the June, July timeframe at the earliest. Whether or not the court chooses to take additional time is beyond our knowledge. But consensus seems to indicate that by early Q3.

Thank you again on the good questions. Any more questions, operator?

Operator

No further questions. I now would turn the call back over to Doug Bailey for closing remarks.

Douglas Bailey

Thank you again for your participation and questions on today's call and of course for your continuing interest in Fuel Tech. We remain excited and optimistic about our future, and we will certainly look forward to keeping you further apprised of our progress and looking to create another successful year, 2014. Thank you everybody. Have a good day.

Operator

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

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