Fuel Tech, Inc. (FTEK) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Fuel Tech, Inc. Earnings Conference Call. My name is Carissa, and I'll be your coordinator for today. [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, Carissa. Good morning, everyone, and thank you for participating on today's conference call to discuss our first quarter 2012 results. Joining me on the call this morning is Doug Bailey, Chairman, President and Chief Executive Officer; and Dave Collins, Senior Vice President, Treasurer and Chief Financial Officer. As a reminder, the matters discussed in this conference call except for historical information are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those 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.

Thank you, Tracy, and good morning, everyone. Our first quarter results are in and we are pleased to report good revenue growth and earnings for the quarter. Consolidated revenue for the quarter was $25 million, representing a year-over-year increase of $3 million or 11% of sales -- or 11% over the prior year. Net income for the quarter was $1.5 million or $0.06 per diluted share, and our adjusted EBITDA for the quarter was $3.5 million. Our revenue growth in the current quarter was a result of strong APC segment revenue, which delivered a 42% increase over the prior year. Now let's talk in more in depth about each of our business segments. Our Air Pollution Control, or APC, segment revenue for the first quarter was $16 million, representing an increase of $5 million or 42% over the prior year. This increase resulted from the strong order activity reported in Q3 and Q4 of 2011 driven by the Cross-State Air Pollution Rule, or CSAPR. While CSAPR has been delayed, we remain optimistic in our opportunities to deliver outstanding emission control technology to an emerging U.S. domestic marketplace. Our foreign revenues of $2.3 million were down slightly from the prior year. While our foreign revenues were slow in the first quarter of 2012, we have announced $5 million in new foreign orders thus far in 2012 and are seeing strong bid activity. We remain optimistic in our opportunities abroad as new air pollution control standards are being implemented. Thus far in 2012, we have announced $9 million in new APC orders, including $7 million through March and another $2 million in April. Backlog at the end of the first quarter was $22 million and it's comprised of domestic backlog of $16 million and foreign backlog of $6 million. The majority of this backlog will be recognized in the current year. We continue to see strong interest in our APC suite of products both domestically and internationally and are confident that we can deliver solid results in our APC segment despite regulatory uncertainty. Our FUEL CHEM segment revenue for the first quarter totaled $9.5 million, representing a decrease of $2 million or 18% over the prior year. Our 2011 first quarter revenue includes approximately $1 million of nonrecurring lower margin installation work at a new customer site. Adjusting for this, our year-over-year decline would be $1 million or 10%. While we are facing some challenges due to low natural gas prices, we are encouraged by the continued demand from existing and new customers and currently expect to see an annual increase in FUEL CHEM revenue for 2012. Revenue generated from coal-fired units decreased $1.8 million or 17% while our revenue from non-coal-fired units of $656,000 declined 23%. Consolidated gross margin for the current quarter of 48% was down 2% from the prior year. This change was attributed to a year-over-year decline in our APC segment gross margins. Quarterly gross margin for our FUEL CHEM segment was 53%, an increase of 4% over the prior year. This increase was in part due to the $1 million lower margin installation services provided in 2011. We expect to see our gross margin in the FUEL CHEM segment trending with recent quarters. Our APC segment gross margin of 44% declined 6% over the prior year. The margin decline was due to the mix of product sales delivered during the comparable quarters. We expect to see APC gross margins remain higher through the June quarter and then average downwards for the last half of the year to 38% to 40%. This forecast margin is of course dependent on bookings and project completion in the last 2 quarters of 2012. SG&A expenses, exclusive of R&D expenditures for the current quarter, were $9 million, an increase of $1 million over the prior year. This increase is comprised of higher variable selling and incentive-related costs including commissions, which are due to the increased revenue recognized in the current quarter and higher professional fees related to project work during the first quarter. As a percentage of sales, our SG&A costs remain consistent with the prior year at 35% of sales. The company continues to focus on discretionary spending while still making the strategic investments required to grow our business globally. Quarterly research and development expenses were $506,000 and were focused on developing and testing technologies with near-term market applications in both boiler optimization and air pollution control arenas. This amount is up slightly from the prior year. As always, we will continue to watch the domestic and international regulatory landscape to ensure Fuel Tech is continually positioned -- properly positioned to meet the emission control needs of our customers. Operating income for the first quarter of 2012 was $2.5 million, down slightly from the prior year amount of $2.7 million. We have continued to make strategic resource investments in anticipation of order flow in both of our segments, and we therefore believe we are well positioned to handle increased revenue levels in our core businesses without needing to make significant additional investments in personnel or infrastructure. Due to the mix of forecasted domestic and international revenue and income levels presumed for the full year of 2012, we have set the full year 2012 effective tax rate at 38% and will adjust quarterly as necessary. Cash on hand at the end of the quarter was $31 million, and we are debt free except for a small piece of start-up debt in China of less than $2 million. Working capital was $43 million at the end of the first quarter. We continue to generate strong cash flow from our business model due to the relatively small investment in fixed infrastructure costs. Quarterly cash generated by operating activities was $5.5 million. This positive cash flow was offset by purchases of property and equipment of $800,000 and our stock repurchase program of $1.9 million. We feel our outlook for 2012 is promising and look forward to seeing some clarification in the domestic regulations. In the meantime, we continue to work with our customers to design and implement leading technologies for the emission control needs and work with our FUEL CHEM customers to deliver cost reductions in plant operations through fuel switching and efficiency improvements. Now I'd like to turn the call over to Doug.

Thank you, Dave, and good morning, everyone, and thank you for joining us on today's call. As you heard from Dave, we had a very strong quarter in the Air Pollution Control, or APC, segment, with first quarter revenues up 42% from the same period last year. This was driven by a strong surge in domestic SNCR orders that were placed to meet the requirements of the Cross-State Air Pollution Rule or what we call CSAPR. We announced APC contract wins of $7 million in the first quarter, a 160% increase from the $2.7 million announced in first quarter of last year. CSAPR is a cap and trade program for states, mostly in the eastern half of the United States, designed to reduce power plant emissions that compromise the ability of downwind states to meet certain clean air standards. The rule, which includes emission caps defined for individual combustion units, was set to take effect at January 1 of this year, but it was stayed on December 30, 2011, after industry group, states and others filed a host of legal challenges. On April 13 of this year, federal appeals court held oral arguments on the future of CSAPR. Petitioners and respondents came under a tough line of questioning from judges with the U.S. Court of Appeals for the District of Columbia circuit, with arguments both for and against the rule put to the test. The court expedited this case, to an unusual degree, with the EPA and other proponents suggesting that the compressed briefing schedule indicate that the court appreciates the need for the rule to be implemented in a timely manner. The EPA has commented that a previous interstate transport rule, that was subject to a judicial stay, was largely upheld by the court. Legal observers say that they expect the court to issue an opinion by the end of the summer with CSAPR, if the stay is lifted to take effect in 2013. So 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 emission requirements that continue to tighten. These current standards remain in effect and states must comply with the requirements of this law. In addition, sources are still driven by consent decrees, as well as state and local permit requirements. We saw evidence of this in the first quarter as we were awarded a SNCR project for 3 steam-generating units in the southeastern part of the United States which was a result of a plant permit issue. So despite a market which has a long history of regulatory debate and uncertainty, we continue to pursue opportunities to generate new business and will continue to do so. Our other domestic growth drivers for our APC business include the Boiler MACT rule and the Regional Haze rule. The Boiler MACT rule impacts the universe of almost 2,000 coal and biomass units and more than 10,000 small gas-fired units. This rule sets maximum achievable control technology, or MACT, M-A-C-T, standards that 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 and which has to do with a court decision on EPA rulemaking procedures. With required reductions for particulates, mercury, HCl and a tight carbon monoxide requirement, new opportunities for burner tuning and SNCR technology will open due to the carbon monoxide 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've also seen increased proposal activities as many states are moving to finalize their NOx compliance plans under the Regional Haze program of the Clean Air Act, particularly for sources in Western states outside the CSAPR region. A consent decree issued by the D.C. Circuit Court has been issued requiring all states to complete their state implementation plans by November 2012. We have a good pipeline of business across our domestic portfolio. We continue to see demand from utilities and industrial units for our Low-NOx Burner, Over-Fire Air technologies. We are confident that once there is better clarity on CSAPR, we will see a continued uptick in SNCR order and ASCR activity, or Advanced Selective Catalytic Reduction. 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. Now turning to China. Our level of bidding activity does remain strong and we anticipate additional new orders to come from this activity. Already this year, we have announced 6 ULTRA systems and 2 SNCR systems on utility coal-fired units in China. As China's economic growth drives the need for more power, we expect the use of coal there to continue to expand and the need for pollution control technologies to be robust, as utility and industrial operators comply with NOx reductions, set out in that country's 12th Five-Year Plan. The 5-year plan on environmental protection lays out pollution reduction goals between 2011 and 2015. As we have constantly stated in the past, the requirements of the policy align well with our portfolio of NOx reduction capabilities, which cover the full 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 6, so far, this year. As more SCRs are installed to comply with NOx reduction requirements, we will see this market opportunity 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 of China. Turning to our FUEL CHEM segment. The first quarter of 2012 was a challenging period as we continue to be impacted by low natural gas prices and sluggish electrical demand, which caused a number of our existing customer plants to operate below expectations. These lower gas prices place pressure on coal-fired units, and as a result, some coal plants have switched or will switch to gas. Additionally, a warmer-than-average winter that we saw depressed electricity demand. U.S. residential electricity consumption during the first quarter was about 8% lower than the same period a year ago. Electric power generated using coal dropped by 16%. Natural gas prices have been trading at the lowest levels that we've seen in a decade. The Henry Hub day-ahead price for natural gas is $2.31 per million BTU, which compares to $5 per million BTU last year. Current gas market conditions are not sustainable and should give way to increases in the long term. The NYMEX commodity future gas prices do show an increasing trend with gas trading at $3.20 for December this year and $4 for January 2014. Coal-fired generators continue to see creative ways to comply with CSAPR and EPA rules by keeping their operating costs in check and maintaining reliability. This is where FUEL CHEM comes into play as operators are looking for fuel strategies to lower their costs, as they compete with the low natural gas prices. Some plants are looking to lower their SO2 emissions by switching from using bituminous coal which, as you know, is sourced primarily from mines in Central and Northern Appalachia. The sub-bituminous coal sourced primarily from the Powder River Basin in Wyoming and Montana, either with a complete fuel switch or by blending the 2 types. While PRB coal has a lower heat content, it’s lower in cost, has lower sulfur, and therefore, creates fewer emissions when burned. Other coal-fired units are equipped with scrubber technology can utilize more economic Illinois Basin fuels to displace Appalachian coals. These Illinois Basin coals typically have much higher slagging properties and may emit higher SO3 levels, which can open incremental FUEL CHEM opportunities even when coal consumption may be contracting. So with that, I'd like to now turn the call over to the operator who can open the line for any questions. Thank you.

[Operator Instructions] And your first question comes from the line of Graham Mattison of Lazard Capital Markets.

I was wondering, talking on the boiler rule coming up, why didn't we see a meaningful impact for you, would this really be a 2014 and beyond event?

Well, certainly, it's longer in time and it probably relates to things that we are doing in our own product development activities. It's an area that we can well serve, and so a lot of what we are doing in developing new applications can potentially address that regulatory need.

All right. And then a question on CSAPR in terms of what you're hearing from customers. I mean, obviously, if the rule is put back in place, I expect we'd see a strong uptick in orders. But if the CSAPR is vacated, what would that look like? Or rather, what do you think your customers or what have your customers been saying in terms of how they would react to that?

Well, of course, as we previously said, even as CSAPR is vacated we still have the compliance requirements of the Clean Air Interstate Rule that continues to exist. The ultimate NOx reduction level attainment goals that are set out for the years ahead still remain in effect. I think the timing of these rules can influence the choice of technology application. For example, when you saw CSAPR promulgated to take effect beginning of this year, that short timeframe drove the need for SNCR orders in a very big way that contributed to the surge of orders that we saw in the last 2 quarters of 2011. For that same reason, I think that if we see CSAPR remain in effect on -- even in the beginning of 2013 timeframe you're going to see that repeated. On the other hand, if there's a -- if they have to go back to the drawing board, then I think you'll see some of our other technologies which are presently in active quotation, in active bidding come into play. But what we have taken steps of, as a company, is to provide a range of solutions from the burner to the SCR, so that we can, on a single basis or in combination, provide the level of NOx reduction on a timeframe that fits each operators' compliance schedule needs. So my point is, is that we're only going in one direction. It's the compliance time that tend to get debated as these regulations are challenged in courts.

And your next question comes from the line of John Quealy of Canaccord Genuity.

I may have missed this, just in terms of qualified guidance or expectations for 2012 for APC and FUEL CHEM, do we still expect year-on-year growth in both line items on the top line?

We do at this time, much of that depends on regulations and what happens with the court's stay. It impacts -- our FUEL CHEM side, what happens with the gas prices and some of the trending on that side of the business as well. But as we sit here today, the expectation is still for year-on-year growth.

And so in your assumptions, you assume that the stay gets removed or the stay is in place?

Good question. As Doug mentioned, there still are other drivers. There's stay implementation plans, there's Regional Haze rule. There's other things that are drivers for our technologies, so...

I mean, if I may add, John, we got similar environment a year ago where CAIR had been vacated and there was some hesitation and delay in orders in the first half of last year and they followed by a surge. I think you're going to probably see something similar in the APC segment. This might be fair to say given the -- some of the projects that we're bidding on we might see lumpier awards, but the aggregate of all that, giving a broader set of solutions and a long-term driver of overall compliance spells growth, in my belief, for APC. I think FUEL CHEM's growth has been slowed due to the issues we stated, natural gas prices affect coal-fired generation, overall electricity demand, so there we are looking for applications of our technology to address additional needs other than just fouling and slagging.

And so one follow-up on that, so Doug, with your characterization of '12 perhaps following a similar pattern in '11 for APC in terms of the orders, in the revenues in the back half of the year. Can you comment, I know you did a little bit in your prepared remarks about anecdotal conversations with utilities or commercial customers about that visibility? Is it the same visibility that you had last year in terms of anecdotal conversations with your customers or how are you getting comfort with that scenario in your model?

Well, neither we nor our customers can predict the outcome of what the court may decide. I think there were some rational need and there were some irrational requirements that were built into the CSAPR policy. I think the right thing to do is to set realistic compliance timelines for those -- particularly for those states and units that are more heavily challenged. Every state situation is different. And yet, I, as one person, am a great believer in the continued long-term use of coal, albeit we do recognize that these low natural gas prices and the potential outlook for substantial supply of natural gas will affect many units. That being said, we're taking steps to aggressively pursue market opportunities, new products that can serve a changing market. And I think you have to do that to drive growth. I think it's fair to say that if CSAPR is fully stayed as it is, our phone will be ringing off the hook. If it continues to be debated in the court, we're going to do as we've done in the past. We're going to pursue growth opportunities where we can successfully apply our technologies, and if you look to our track record over the last 2 years, you've seen that we've done that and we are doing that on a worldwide global basis, not just domestic U.S.

And my last question, in terms of the backlog, so backlog about $30 million at year end, down to $22 million and then, Dave, you talked about most of that getting used up in '12. Is that even or is it going to be another good use in the June period? And then to your point about margins, maybe a step down a little bit. How should we think about backlog in the next couple of quarters?

Then how it rolls, I think the domestic of $16 million would spread between Q2, Q3. There are some installations around fall outage and so that money is going to be spent in Q3, so I'd spread it between those 2 quarters. The foreign backlog of $6 million, I would spread Q3, Q4.

And your next question comes from the line of Lucas Pipes of Brean Murray.

Kind of, first, a big picture question, yes, I have there short-term energy outlook out and they just expect a slight rebound in coal use in 2013. Could you maybe kind of give us a sense of what your customers are saying about future coal use, how -- essentially what the expectations are if they expect a rebound off of 2012 levels given that we had this extremely mild winter?

Well, I think it would vary by customer. Many customers are very committed to their continued use of coal. Coal is traditionally and will continue to be the lowest cost source of thermal production. It is the baseline fuel for this economy. It will not be displaced by the clean tech solutions that are inoperable during times of no sunlight, no wind. Natural gas, however, has come into play in a big way and we've seen some plants capable of switching, and you'll see that. And so each customer's fuel strategy can differ, so I would generally say that if you average all that out, you'll see more use of natural gas and you'll see continued use of coal as a baseline fuel. That's the only way you can deliver, on average, the lowest cost electricity in this country. And again, I think a lot of coal-fired plant operators don't take a lot of heat in current gas prices staying at the levels that they are. So if you've got a significant valued investment, well permitted, many of them have got the air pollution control technologies in place. Some of them may have needs for programs that we can offer on an ongoing basis whether that's a trend, pollution control technology or a FUEL CHEM program to meet their situational needs, they'll look to us. But I think what you see, generally stated in the industry is an aggregation of obviously a broad set of customers. We do have a very broad set of customers.

That's very helpful. And then a quick follow-up, your cash flows continued to be very strong, you have a good cash balance. Now that your share repurchase program essentially is exhausted for now, what are your plans to deploy that capital?

To apply that stock?

To deploy the cash?

To deploy the cash? Well, we -- first of all, we maintain a conservative balance sheet policy so that we have more than adequate cash reserves. Generally speaking, we like to have that to take advantage of a potential M&A opportunity, an investment program. We do believe that repurchasing our stock was a good use of our shareholders' cash. The business model I thought was very well tested during the financial crisis period, when you saw an actual reduction in revenue and yet we've continued to generate cash flow. So one of the things that we have always kept our eye on is our ability to constantly generate cash flow within this company as a company should. At the same time, the management team is in place today and the talent that we have in the company is very, very oriented towards new product development. That is our future. So we are shifting dollars into R&D. It would be reasonable to see us in time spending perhaps 3% to 4% of our revenues just in R&D for new product development. And while that isn't going to go through a cash reserve for the size we have overnight, what it will do is generate the products and services to further develop our portfolio of intellectual property, patent state and our ability to generate new markets where we have good competitive advantage and add to that cash. So we believe that R&D and new product development is one of the best return on investments that we can be making with our cash. So internal use of funds is the highest priority.

And would another share repurchase program still be on the agenda here or how are you looking at that?

Well, looking at the amount that we spent and our willingness to buy the stock at the prices that it was trading at over the last 6 months and you look at where the stock price is today, it could be reasonably anticipated that we might further consider additional stock repurchases. It's an exceptionally good value at this time. We do not have a formal supplemental program in place at this time, but it would be reasonable to consider one.

[Operator Instructions] And your next question comes from the line of Steve Charest of Divine Capital Markets.

I had a bad connection. Could you reiterate what the backlog was on the orders in the quarter?

Backlog at the end of the quarter was $22 million, $16 million domestic and $6 million foreign.

Okay. My question relates to the mix or coal substitution. Without having to get into too much math, if we could get a stabilization of gas prices, let's say, gas stays at $2 or $2.50 and then we're all excited. What percent of the overall mix of revenue growth, with -- or excuse me, with FUEL CHEM, would you say would come from the coal mix substitution? I mean, is it in the 5 to 10 range, 10 to 15 range? Do you have any kind of ballpark for that contribution?

Coal fuel switching?

Yes, fuel switching.

And you mentioned -- are you talking about switching from one coal to another coal or are you referring to natural gas?

Yes, yes. Right, no, from -- assuming that just natural gas is stable and it's less of an impact here. If we're just looking at switching from the Appalachian coals out to the Illinois and farther west basins, what kind of contribution do you see coming from that?

Sure. Well, certainly with respect to our present lineup of customers who are typically on some form of coal, as you know, our oil-fired FUEL CHEM revenues are much lower than what they originally started out to be, which was never a large market. So we're talking about plants that principally are stable in their fuel sourcing decision. Now however, new accounts can be plants that have, some time ago, switched and are experienced problems or may be anticipating to switch. So that's where you're working with new customers to apply the program. But at the same time, across the board with electricity demand down, some customers with multiple plants might have reduced load levels or one of their units down while the others run or inside their system may have a plant that has chosen to switch to natural gas. What we call our attrition, that's affected generally by electrical demand generation on switching to natural gas. But our new customer acquisitions, largely those who are utilizing the changing mix of fuels and experience the problems that we can help them solve. It's a constantly changing mix.

Right, right. Well, through all the ups and downs of the regulatory regime and the economic cycle and this ongoing load depression, you seem to be able to execute at the margin on these accounts. Wherever there is a marginal account to be captured is where you seem to be able to execute to keep the growth going in spite of the regulatory regime, and that's where we're trying to get a little bit more detail where possible. So characterizing it is helpful and I didn't think you'd spit out a number like 12.2%, but...

It's 12.4%. All right. There is no precise ability to give you a number.

It's really the new accounts.

Right. You really don't know when or how big the program is going to be. These are long sales cycles and very, very hard to predict when you'll close the sale. And then once sold, it's a managed relationship to continue to find applications of the technology to help them either to expand it to a sister unit or to find better tuning solutions on the one you started out on, so very, very hard to predict.

And your next question comes from the line of Dan Mannes of Avondale.

Sorry, I missed the earlier part of the call. Just a couple of things I wanted to follow-up on. In your press release, you talked a little bit about non-CSAPR opportunities for the APC segment. Can you talk a little bit about what you see out there? Are there specific states that are moving ahead on CAVR or visibility rule issues, are there specific areas that you're focused on or are just saying broadly you think this is becoming more interesting?

Well, it's not just specific states and it's not just the United States. We are offering capabilities in the area of Low-NOx Burner, Over-Fired Air systems in foreign countries. We are actively quoting programs throughout the country. I wouldn't say that it's particularly driven by one state's needs. I think it's rather the choice of that technology for the starting point situation and the control objective that is the best technology for the money for achieving the reduction that they're looking for.

I guess, and I'm specifically talking about Clean Air Visibility, I'm talking U.S. issues. Are you seeing any issues between state interpretation and federal whereby maybe your equipment is the most cost-effective solution, but for instance the Feds are pushing more expensive solutions for whatever the rationale is?

Well, I don't know that I would say the Feds are pushing more expensive solutions. The supply base, such as countries like ours, offer a range of solutions. There are others who have similar capabilities to ours, some of them have less robust technologies than ours. Some are geared to offering large, very capital-intensive solutions like large SCR systems that we don't choose to do. What we can do is provide a custom choice of solution from one end of the plant to the other that on a capital efficient basis provides a reliable alternative to any other solution. And I would say, we're undeterred by the CSAPR delay. My goodness, we've seen regulatory debate in this industry for years. And so I think we're positioned to offer good stepwise choices of programs that customers anywhere, primarily in the affected states of course are looking to plan in an orderly way their needs. Now some customers will wait and see, particularly if they're facing a very large investments that they might have an alternative compliance strategy for. We've always said that having clarity in the rules is better for our customer base than having no rule in place. The air pollution control needs are there. We're only going in one direction. It's best if they know what they have to do and what timeframe that's reasonable and they can set out to choose the compliance strategy that best serves their needs.

Okay. Switching topics real quick. On the FUEL CHEM side, and you may have already addressed this, so I apologize. You were able to maintain pretty attractive margins and frankly, given the drop off in coal generation in the quarter, your revenues were actually better than we had expected. Are you seeing any progress, for instance, on maybe some different pricing alternatives that maintain clients better or does it just happen to be that the clients you have left are still economically viable in the current gas price environment?

Well, I think there are certainly key clients that are so well satisfied with the performance of the program that they're increasing their use of that program. We're also finding ways to help them in other ways than they may have first begun and there are ways that we can grow with the existing customer base.

Okay. So you're not indicating there's been any change in sort of the pricing regime you used to move may be less from volumetric to sort of other pricing dynamics?

No, we haven't. Dan, we've added a different product mix at some client sites and those have different price points. So that's partly what you're seeing, but no, we haven't done any change of strategy in terms of our pricing.

Okay. And then lastly just -- sorry, keep going.

If I can add to that. It's often the case when you introduce a new product or a new technology, it comes in one flavor. And it requires early adopters to accept it and then as it gets into the mainstream, you begin to tailor that product a little bit more to that customers' needs, and you come up with new chemistries to provide more specific solutions. So as you look at our FUEL CHEM product lineup, you'll see variations of chemistry that have been developed, and I think providing those incremental new products has been a way to grow our business with our existing customers or apply that new product solution to a newly acquired account.

Okay. And then last thing just a bigger picture strategic question. I heard some of your commentary about the value of R&D. I just -- looking outwards, even through the current cycle and even assuming CSAPR comes back, R&D, M&A, what are you looking at to sort of broaden out your product mix and make yourself more of a holistic provider of solutions, both utilities and maybe otherwise? Can you just give us a little bit of color on where you want to be in a couple of years? Because APC has sort of been very cyclical and FUEL CHEM, while it’s holding its own, it sort of have a tough environment as well. I'm just trying to think of what you can do longer term to be a more diversified maybe more viable long-term company?

That's a great question with a easy answer and it reflects, not only my personal belief, but that of this organization. This company was founded on intellectual property, developed technologies that found their way into an industry that had a need and we've created a sustainable advantage. Now some of those products today are mature. SNCR is not a brand new technology. Our TIFI technology and FUEL CHEM is still relatively young, but it won't live forever. So great companies, I think, constantly generate new products, new ideas that can be patented and protected through intellectual property. So enhancing our intellectual property estate to provide cost-effective, high-performing solutions that give us competitive advantages is what we want to continue to fortify this company with, and so that the foundation of new products and a new IP will be the platform of further growth.

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

Okay, well, thank you, operator, and thank you, everybody, for being on the call. I thought the questions were good. As we sit here today, we're feeling pretty good about our business. We're not at all affected by the -- all these regulatory issues. They will sort themselves out in time. Those, as I've always said, little bumps in the road are small things in the lifecycle of the corporation. So we set out to do what we intended to do. I think we turned in a great quarter of growth. You're seeing us now have a revenue run rate that's crossing the $100 million mark with the team and development programs that we have in place and with the likely clarity that will come in the months ahead. We feel like we're going to set ourselves -- we've set ourselves up for another very good year. So we thank you for your interest in Fuel Tech. We appreciate you supporting us and that's all we have for today. Thank you.

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