ClearSign Technologies (NASDAQ:CLIR) Q1 2019 Earnings Call

0:00 Good afternoon and welcome to the Clear Sign Combustion First Quarter 2019 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Striden 1 on your touchtone phone. To withdraw your question, please press Striden 2. Please note this event is being recorded. I would now like to turn the conference over to Matthew Selinger, Investor Relations. Please go ahead.

0:29 A thank you, operator, and welcome everyone to ClearSign Combustion Corporation first quarter 2019 results conference call. During this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs, and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call include, but are not limited to, whether field testing and sales of ClearSign's products will be successfully completed, whether ClearSign will be successful in expanding the market for its products, and other risks that are described in ClearSign's public periodic filings with the SEC, including the discussion in the Risk Factor section of the 2018 Annual Report on the Form 10-K.

1:28 Investors or potential investors should read these risks. ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. On the call today with me are Rob Hoffman, ClearSign's Chairman of the Board, Jim Deller, ClearSign's Chief Executive Officer, and Brian Fike, ClearSign's Chief Financial Officer. So with that, now let's turn the call over to Brian Fike. Brian, please go ahead. Thank you, Matthew.

1:57 And thank you to everyone for joining us today. Before I turn the call over to Rob, I'd like to review our preliminary results of operations for the first quarter, which ended March 31st of 2019. The net loss for the quarter was $2.3 million compared to $2.3 million in the same period of 2018. Shares outstanding at March 31st, 2019 were $26,699,761. Our cash and investment resources were about $13.7 million at the end of the first quarter of 2019. It is important to note that we have sufficient working capital available as of today to carry us well into 2020, even assuming no revenues or changes in expenditures.

2:48 And with that, I would like to turn the call over to the chairman of our board, Rob Hoffman. Please go ahead, Rob.

2:55 Thanks, Brian. Before getting into the meat of the call, I wanted to take this opportunity to comment a little on how much progress the company has made in the mere three months since Jim Deller arrived. When I introduced Jim on the last call, I remarked on how his career experiences in the combustion industry checked every box from operational field engineer to sales, to sales support, all the way through running one of the US's most well-respected burner brands. But of course, those accolades were based only on the extensive interviews and references we had gone through and a whopping three days on the job. With the NFL draft having taken place a few weeks ago, I think there is an interesting analogy between searching for a CEO and selecting a first draft choice. The stakes are high, and as the Arizona Cardinals will attest, do-overs are very expensive and uncertainty remains.

3:44 The question is not what they did in college. The issue is whether they can translate that to even better performance than the NFL. In the case of Jim Deller and ClearSign, we have already seen tremendous evidence that he will succeed with his bigger role of CEO. While younger investors might not grasp the analogy, Jim is the Bart Starr, as opposed to the Joe Namath, of the combustion industry. As investors get to know Jim, they will discover that he will never be like Broadway Joe and quote-unquote guarantee victory. nor will he ever be the flashiest guy at an investor conference. Conversely, like Bart Starr, he will be the understated field general, getting the most out of his team while at the same time being the most important cog in driving that team to victory and making the clutch decisions when it is most important.

4:29 I don't want to preempt Jim's commentary today, but suffice it to say that our draft pick has already demonstrated that he is game ready, and I'm excited for him to share his vision for ClearSign's success with you today. With that, I will turn the call over to ClearSign's Chief Executive Officer, Jim Deller.

4:47 Great, Rob. Thank you. You know, I'm clearly going to have to get on to Google. I was born in 1968 in England. Who is this bar star and Broadway Joe guy?

4:58 Well, I guess that's what Google was invented for. Maybe you won't be the only one on the call that has to look those up.

5:04 I guess part of my education. Anyway, good afternoon, everybody. As Rob pointed out on the last call, I had literally just joined the company by a couple of days. To review, I said that my immediate task upon joining the company was to assess the status of the technology internally as well as with our current and prospective customers. I mentioned that the traditional burner business is very competitive due to high barriers to entry in terms of infrastructure requirements and the inherent very careful nature of the customers. I also mentioned There are business model variations which may be different from the traditional burner supply business that should be explored and that could serve clear signs objective of accelerating commercialization.

5:51 In my remarks here, I want to discuss what I believe our technology is today, how it fits into the market, and our path to capture a share of that market. Since that last call in February, we have been focusing on optimizing our technology. the goal of rapidly moving our technology towards full commercialization. In addition to our progress towards arranging supply partnerships, which I will talk about later, we are modifying the structure of the company from being predominantly focused on R&D to a structure ready to support our anticipated commercial operations. We have also cut expenditures where this could be done without hindering us on our path to commercializing ClearSign Technologies. I and the rest of the ClearSign team are very aware of the expectations you as shareholders have for results and share your disappointment in the perceived lack of progress, especially with the knowledge of the developments being made and the potential for ClearSign in the future.

6:49 We recognize that revenue and profit are the true measurements of success, and with that sole objective in mind, we are moving quickly to bring products to market in a fully commercialized manner. This is necessary for full-scale commercial operations. Stepping back, I would like to give you an update on our activities over the past three months. This will cover developments in our technology, business strategy, and our activities in China, and will then give an update on specific opportunities we are pursuing. Hopefully, at the end of this, you will have a better understanding of how we expect ClearSign's business to develop going forward. Over the previous years, ClearSign has developed and demonstrated great technology over a wide range of applications. and this is what brought me here today. In fact, I believe that ClearSign can truly be a game changer in the vast field of industrial combustion, but we have to walk before we can run. So in the past three months, we have transitioned our operational focus to the commercialization of this technology, primarily identifying and addressing what needs to be changed or improved to make ClearSign technology more readily adoptable by our customers. This included the technical configuration of the equipment, the resources needed to offer a full commercial product line and the manner in which our technology is delivered to our customers.

8:12 Let me take this opportunity to highlight some changes we have made to the configuration of the Duplex technology and the reasons for them, and also how we are developing our channels into the market. To bring key products to market, quickly we have prioritized our efforts on the Duplex technology as applied to refinery heaters particularly the plug and play technology and the burners for 5G boilers which when we look at the boiler opportunities is by far the biggest and most readily addressable boiler market for ClearSign. This decision was not only based on the size of the addressable markets but also on the value of the technology can provide to these customers how consistent the product designs will be enabling standardization and the efficient scaling of our business and most importantly, how quickly we can get a commercialized product to market.

9:03 Very significantly, these products not only provide value through their NOx minimization, but also the increase in efficiency they deliver and results in fuel savings, CO2 emission savings and potentially increased productivity of whatever equipment they are installed into. In the case of the plug and play technology, we believe that it will also enable the debottlenetting of production heaters in which the throughput is limited by the conflict between the internal heat of volume and the space requirements of the oversized flames from mainstream ultra-low-mox burners. In summary, products based on these technologies provide strong value opportunities not only for emissions control, but also, and potentially in the long term more so, to increased operational efficiencies.

9:50 As part of the product optimization, we have made a fundamental change to the manner in which the duplex technology transitions from ignition to normal operation. The original version of this technology operates in three stages. The ignition of a pilot, the startup of a small plane to heat the downstream duplex tile, then finally the transition of the combustion to the duplex technology for normal ongoing operation. The new version of this technology eliminates the intermediary step provides a duplex solution that from an operations and control perspective is the same as a conventional burner for both the plug and play technology and the 5G boiler configuration. The new version simplifies both the technology, its operation, and also, importantly, eliminates the need for our customers to make modifications to their control systems and operating procedures in order to incorporate our duplex technology into their equipment.

10:48 The new plug and play is truly plug and play, regarding not only heater modification, but also for fuel gas piping, heater controls, and requirements of the operations staff. Not inconsequentially, these modifications reduce and simplify the hardware incorporated into the technology, allowing for reduced manufacturing costs and increased profit. The second change to be addressed regards the channel to market. This will likely vary in details due to the nature of the different burner types that the ClearSign technology is applied to. And if discussions with potential supplier partners are ongoing, it is not appropriate to get into details on this call. But we can at least give an outline and rationale of our approach at a high level.

11:36 During our recent customer visits, we received many comments expressing openness and support for our technology. but they also expressed a great preference for procuring burner technology from the company for substantial customer support resources, fabrication and demonstration capabilities. When asked what they wanted to see to enable them to consider ClearSign as a solution in the future, we learned that while we at ClearSign are ready to undertake multiple large volume burner supply orders, our customers see our limited supply resources as a risk. When one considers that a missed supply can have the consequence of delaying the restart of a refinery, or at least delayed or disrupted operation, it is clear that establishing a channel to market that customers will trust is essential for ClearSign to achieve the mainstream growth we expect.

12:23 Along these same lines, it is normal in the burner supply industry for every single order to be specially configured to optimize the performance of the burner in accordance with the particular operating requirements of the customer and the process of the heat into which it is to be installed. As part of the verification process, nearly all refinery and petrochemical burner orders require the first article burner be demonstrated in a test furnace set up to simulate the conditions of the destination heater prior to their manufacture. Clearly, for ClearSign to develop such a capability will be very capital intensive and counter to our asset line and expenditure-prudent business model. This confirmation from our customers and our objective to scale up to full-scale commercial operation quickly There is clearly merit in supplying our technology in collaboration with other companies that already have the resources and infrastructure needed for mainstream sales and production.

13:19 We appreciate that this is not a new proposition for ClearSign. Licensing arrangements have been sought in the past with no success to date. We believe our restructured approach today is fundamentally different and will be successful. Our objectives are speed to market and a rapid development of comprehensive and others, while in the past I believe the motivation was predominantly about cash upfront. I have personal experience from being on the other side of this table. From my perspective, it was hard to justify a large upfront fee without having an established product range and dependable sales funnel and ultimately confidence that there will be a good return on my former company's investment. The approach we are taking today is driven by the need for the rapid development of the ClearTime business as well as for long-term growth.

14:10 Our modified approach trades the desire for an upfront licensing fee, which may never be possible or at best could take several years as our technology slowly gets better known and trusted for the means to bring our products to market quickly. This tactic requires our supply partners invest not in upfront cash, but in collaboratively developing a commercial product range with ClearSign technology at its core. and collaborating in joint marketing and promotional activities to achieve the most rapid and comprehensive mainstream development possible in an agreed timeline. In blunt terms, we're choosing to kickstart this business rather than hold out the limited channel to market for a possible cash contribution sometime in the future. Financially for ClearSign, we believe the earlier and increased sales achieved through such an approach will compare positively to a model requiring ClearSign to develop the technology alone at the point in time that the financial licensor will pay a worthwhile fee for licensing rights.

15:11 It provides a path to mainstream commercialization, which we can act upon today, given the rapid optimization of our core technologies over the recent months. Furthermore, and very importantly, We believe this provides the best value to our respective licensing partners who get to invest expertise and resources they already have rather than cash to develop and sell new groundbreaking and market-leading products that will deliver clear value compared to their competition, a very appealing opportunity for them compared to extremely cutthroat, competitive business of today's commercial industrial business. We believe that this and Paul Fowler is one that we can implement and benefit from in the coming months rather than years.

15:58 Without disclosing details, I can confirm we do have expressed interest in developing these new style agreements for industry-leading equipment manufacturers. To that end, we have four non-disclosure agreements in place to further collaborative discussions and visit dates set for due diligence visits to Seattle to witness the capabilities of our newly optimized technology. As part of our ongoing strategy to commercialize our key technologies, we are also preparing our organizational structure for full-scale commercial operations. To develop and support our operations with our future supplier partners and to promote our technology in the marketplace, we are delighted to announce the very noteworthy addition to the ClearSign team. A renowned industry veteran and professional engineer, Jeff Llewellyn, has joined us to lead our refining and ethylene business.

16:48 Jeff has worked in the combustion industry since 1992 originally with John Zink, and since 2009 at Calidus. Jeff is an industry expert in process burner design and technical sales, and most recently led the burner technical sales operation for Calidus. He also has a background in engineering, field service, burner design, and burner testing. Jeff is based in our Tulsa office, although will be spending significant time in Seattle in the short term. Jeff's job, quite simply, is to take plug and play from what we believe is a groundbreaking technology to commercial success. We will direct the technical development of plug-and-play technology, handle the day-to-day finalization and ongoing management of our expected partnership agreements, and going forwards, grow our refining and ethylene business.

17:37 Jeff's ability is well-known throughout the industry, and to have someone with the background of Jeff join us is a great compliment for ClearSign. This is a key role for ClearSign, and we're excited to have Jeff with us. Before moving on to talk about our activities in China, I want to give a quick update on a couple of key strategic opportunities that we are working on. The first is our joint-funded project for World Oil and the South Coast Air Quality Management District in Southern California. For anyone not familiar with this project, this is an installation of five plug-and-play burners co-funded by the South Coast Air Quality Management District to proactively validate for the industry A clear sign offers a feasible and cost-effective means for the new NOx regulations to be met.

18:26 At this time, we do have a purchase order from World Oil and expect a concluding purchase order from the South Coast Air Quality Management District imminently. Just in this past week, we had a team visit the job to confirm installation details and other necessary information, and we have a formal project kick-off meeting scheduled for later this month. We look forward to the supply and successful demonstration of this equipment. We also continue to work with ExxonMobil and are currently finalizing contractual terms to accompany their purchase order for the engineering portion, the first phase of supply of this demonstration installation in Texas. Although the revenue associated with this engineering order is modest, it represents a very significant milestone for ClearSign.

19:12 We anticipate issuing a formal announcement when the order for the engineering phase is finalized. We're also pursuing other promising opportunities for our plug-and-play technology players and large duplex installations and are very encouraged that the motivations of our customers to pursue our technology are not only for the exceptionally low NOx emissions they provide, but also in other cases for the ability of our technology to increase efficiency and productivity and operate in tight firing chambers where traditional low NOx burners cannot function properly. As stated earlier, this provides markets for ClearSign outside and beyond those driven solely by very progressive emissions legislation. The next topic I would like to address is China.

19:58 China has some of the most technologically challenging industrial combustion emissions requirements in the world, with the advantage of it being a very large market and one in which the government acts forcefully, creating a substantial opportunity for a business offering a low emissions performance of ClearSign's technology. District heating is a very large industrial sector in China. To give a quantitative feel for this, there's an estimated 150,000 to 200,000 boilers in regions where NOx emissions are under tightening environmental regulations. Within these districts, there are two types of boilers. Water tube, in which an array of tubes are filled with the water that is being heated. These tubes form a volume into which the burners or burners fire.

20:46 and others, which tend to be smaller and more standard in shape. In these, the burners fire into a large tube that is surrounded by a vessel filled with water that is being heated. To date, our efforts have focused on the water tube boilers in the Chinese district heating plants. When ClearSign first entered the Chinese market, we did not have the optimized fire tube boiler burner we have today. The decision was made to utilize the technology successfully applied to the ones through steam generators and OTSGs installed in California. These were considered to be sufficiently similar for the same technology to be used for this boiler application. With a similar horizontal firing configuration and a similar firing rate, it was anticipated the transition to a boiler application from an OTSG would be a relatively routine extrapolation from the designs already programmed by ClearSight.

21:39 As anyone who has been following this application can attest, We have met challenges along the way that were not anticipated at the time we embarked on this project. These largely result from the increased combustion intensity within the interior volume of the boiler. In addition, the time to make technical iterations is greatly increased when the installation is halfway around the world. While we have not reached our ultimate goal, we have made good progress and have achieved firing rates up to two-thirds of the target rate. and in doing so have also generated a much better understanding of what needs to be done to complete the project. Our progress is now on hiatus due to the end of the Chinese heating season. However, with the district's encouragement, we are continuing to develop this installation through the summer using computer modeling and other engineering tools and look forward to demonstrating full rates early this coming heating season.

22:35 When we look into the makeup of the Chinese heating districts, For every water tube boiler, there are approximately four of the fire tube boilers. Given that we now have an optimized fire tube boiler technology, this provides a very large and attractive target market for ClearSign in China. Lest anyone believes that ongoing efforts in China have been in vain, it is through our ongoing support of the current water tube boiler installation that we maintain a solid relationship with the management of the heating district in Beijing. and have received their encouragement for us to install demonstration clear sign bio-tube boiler burners so that they can assess and confirm the performance of our technology before or during this coming season. We anticipate a successful demonstration will open the door for significant ongoing sales. I will be making a trip to China to visit our client and operating partners later this month. During this visit, we will be able to further review and assess the current situation and explore opportunities to potentially engage local productization and supply partners who could help provide a rapid scale-up of our business in China and also who can be channels into the wider Chinese heating industry along with other sectors of the Chinese boiler burner market.

23:49 With that, I'd like to bring Rob back on the call for some additional comments. Rob?

23:54 Thanks, Jim. Excuse me. Before wrapping up our prepared comments and moving into the Q&A, I'm going to take my chairman hat off for a bit and put on my investor hat. One of the tenets of my investing philosophy has been to lean on others who are experts in their respective fields and essentially piggyback on their assessments. Some term this concept of investing by proxy. In the case of ClearSign, there are a number of proxy indicators that one can look towards. Perhaps the most recent one is the decision by Jim to join ClearSign, and even more recently for Jeff Llewellyn to join us as well. Here we have two people who are basically trading the stability and comfort of working for a Honeywell for the upside of working for ClearSign. They know the combustion business. They know the dearth of true innovation within the industry. So they recognize that game-changing technologies does not come along every day. Given their knowledge of the industry, they are confident enough in our future success to essentially bet their careers on it. The next example is the South Coast Air Quality Management District that Jim referenced. The district has an engineering staff whose full-time focus is emissions control. Not only is the district putting its reputation behind clear sign technology, but they are actually investing in an installation.

25:09 In other words, they are literally putting their money where their mouth is with the anticipation that a successful demonstration project will enable them to use a much larger stick to encourage clear sign adoption within their operating geography. Third, we have the Chinese Heating District. Have we accomplished our goal there? Not yet. but the fact that not only are we being asked to continue our work on the water tube boiler but also expand our expertise into the larger fire tube vertical, we believe it's a strong vote of confidence that our technology can help satisfy a pressing issue within many of China's largest cities. The final example we have is ExxonMobil. Ask anyone in the energy industry which company is the preeminent engineering leader and the consensus is always ExxonMobil.

25:56 What we have to remember, however, is that XOM does not do anything hastily. Their reputation as well as their operational excellence depends on deep dive analysis. My grandfather was a carpenter who always ascribed to the mantra, measure twice, cut once. In the case of ExxonMobil, I think they must have a mantra of measure 100 times, cut once. So while all investors, including the SPV, are frustrated by the lack of revenue progress the company has achieved to date, including with XOM, We cannot overestimate the importance of our achievement of the recent engineering contract we are close to finalizing. Said differently, ExxonMobil has been measuring 100 times over the course of the last number of months, and we believe now are getting close to being ready to cut.

26:42 I'm also a firm believer in understanding incentives when analyzing businesses. And incentives usually come down to basic human nature in that most business decisions are driven by individual career risk and reward. Notice that I said risk as well as reward, since for the most part, combustion industry professionals are much more focused on the risk part of the equation. What is so gratifying about Jim's efforts to date is that he immediately honed in on this very important point in analyzing our technology, pursuing supply agreements, as well as organizing clear sign management, taking them one at a time. Our technology is different. While in our minds, since different is dramatically better, our customers should agree, no? But what Jim knows from his years of experience is that in order to convince customers of the positive attributes, you also have to focus on eliminating the differences wherever possible.

27:36 By changing from a preheat burner setup to a more traditional pilot system, he has eliminated a major operational question mark on the part of customers. After all, the more customers have to change their operational methods, the more risk they will perceive, and the less likely they will be to endorse change. So by removing perceived operational risks, we expect we can accelerate adoption. License agreements versus supply agreements. Upfront investment versus collaborative development funded out of normal operating capital budget. The barriers to the former are substantial, including the issue of who, in other words, what level executive signs off, and who in the organization, i.e., lower level executive, will have the career confidence to push it through to the top.

28:22 The most impressive part of Jim's partnership strategy shift is that given the lower risks on the part of our partners, we should be able to not only reach an agreement faster, but also move customers faster from beta orders through to adoption orders. Successful supply agreements also dramatically drop another perceived risk that Jim identified. customers want the comfort of a manufacturing and service organization that ClearSign has no interest in duplicating. So by collaboratively developing our technology with partners who already have such capability and providing those partners with incentives that they can easily model, we create a win-win-win situation for the customer, the partner, and, of course, ClearSign. Lastly, with the addition of Jeff Whelan to the team, Jim is also recognizing that our future supply partners will need a point person whose singular goal is to commercialize our technology through the eyes of what the customer wants and needs, as well as what ClearSign provides and what the supply partner provides.

29:21 While I have not yet had the pleasure of meeting Jeff yet, all indications are that he is the perfect man for the job. When I introduced Jim to you on our February call, I asked for patience. I firmly believe that Jim has accomplished more in the past three months than any of us could have reasonably expected. And for those of you interested enough to listen to this call and continue to be shareholders, I firmly believe that your patience will be rewarded. With that, operator, let's open up the lines for questions. For those on the phone, to ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. We will pause to assemble our roster on the phone. Our first question comes from John Reynolds, retail.

30:29 One moment.

30:30 Thanks for the update, guys. What is the roadmap of the company, or how are you going to tell the investment community where you're going? We've been patient. Small micro-cap companies like this need communication and effective communication with and the investment community. We haven't heard anything since the last quarterly call. And I really appreciate this update you just gave.

31:15 And what does this do to compress the sales cycle and ultimately drive revenues for the company.

31:26 Okay. So there were several parts to that. Certainly I appreciate your comment about communications. We've mentioned several things today which are going to be key milestones for ClearSign as we conclude them. We will be keeping up with press releases and it is absolutely my intention to keep our investor community informed. I think the bigger question we can, to elaborate on the course, we are absolutely trying to compress the schedule to commercialization. The developments we've made here have been quite substantial in the technology. We are actively in conversations with our supply partners.

32:13 These supply partners have a large range of test facilities, a very large and very experienced and capable staff. and we anticipate be very rapidly able to work with our team who know the duplex technology to create an entire product range and to market that as they also have a wide network of sales channels and relationships with the customers and the heater manufacturers and in the case of the boilers, the boiler engineering companies who can connect the new technology to the ultra low NOx needs of customers. of the marketplace. So I really believe that we are on the fastest track to getting this product commercialized and to getting mainstream sales.

33:06 As you said, the difference is we're not going to do this as a small team. We're going to do this by partnering with a large team, bringing the critical parts that we have, but also recognizing and leveraging that the supply partners that we're looking to work with have some extensive and very necessary resources of their own and that we will do this together. are not alone as just ClearSign.

33:26 So are you saying that you're going to do this through a value-added reseller channel? Is that your strategy?

33:34 No, we will be doing this in collaboration with a partner and that collaboration will include the development of a product range within their facilities. But I really need to be clear here. Every agreement like this is the result of a negotiation. and obviously what is the outcome is also partly due to the input of the other party that we're working with. So I can't say with certainty exactly what all the details of this agreement will be. My intention is that we will truly find a win-win scenario because we need the supply partners to benefit greatly from this relationship as we do for ClearSign and as we do for the end users and we have to find that win-win-win.

34:21 When we do that, our supply partners will be motivated to develop the product range and to promote the sales and to seek opportunities to sell clear sign technology. And that is absolutely our desire. But I really believe that to achieve that and our motivation and mentality going into these negotiations is that we need to find that right balance and make sure this truly is a very good deal for all parties involved.

34:46 Okay, so... are you confident that you're going to have some of those win-win-wins in place and therefore some revenues to report to the shareholders?

35:01 I don't have a perfect crystal ball. What I can tell you is that we have already discussed this type of arrangement with several key and global potential supply partners They have expressed great interest. We've had ongoing communications to the point that we have signed NDAs in place to continue those discussions and we actually have dates confirmed for multiple partners to come to Seattle to do their own due diligence and to see the newly optimized technology really as their own Sign Technologies Corporation, Stephen Michael Deller

36:14 I think that we have earned the right to be communicated with in a more effective manner. This has been very, very discouraging as a shareholder for the type of communication. And Rob, I'll put it on you as well. You've been involved in the company long enough. This has been unacceptable. And I'm just going to leave it at that. So thank you. Thank you. The next question comes from Marshall Crowe Retail.

36:44 Yes, hi. Thanks for taking my call. I'm a long-term investor as well, although a small investor, but nevertheless, I'm quite encouraged. Maybe I have a small or short track record, so I don't know what to anticipate in terms of communication, but these conference calls have been, this one particularly, has been very encouraging. The one question that's kind of haunted me that I've almost not wanted to ask because I was afraid of the answer was, is there ever a time when you're starting in the mechanics of the system, when you're starting from a cold boiler and warming it up and then transitioning into your duplex tiles, is there ever a moment where you've got periods of instability, essentially where something could go wrong, where something explodes?

37:39 I guess that's what I'm saying, wondering about.

37:42 Okay, so first of all, even going back to the original technology, we're a very conservative company and we recognize the severity and the importance of control and maintaining stable combustion. The key, and I think really to put your mind at ease, the changes that we have made over the last three months and that I described in the early comments, when we simplified the operation of the technology from a three-step to a two-step process, we have eliminated any transition of what was the duplex flame or the combustion from the initial primary preheat burner when they used to transition up to the duplex head. That step has gone away. What we have now is an ignition slash pilot system that provides a flame that is at exactly the same vicinity as the permanent flames. You would now light this pilot burner or the pilot device and then you can immediately turn on the main fuel gas.

39:00 That flame will has with a standard burner light on the pilot and stabilize on the flame stabilizing device. The flame stabilizing device in our case happens to be this wonderful duplex technology we have. But in terms of the operation of the technology, it is now exactly the same as for a regular industrial burner.

39:24 All right. That's great to hear. Very good. Thank you. And a real quick other question. So the tiles, you know, they burn very hot. They last for a year or for five years or forever before they have to be replaced. Can you speak to that?

39:40 Well, we don't have forever yet. Nor do we want to. We have had duplex burners and these tiles in operation now for several years. We have had the opportunity to go back into that equipment and to see it. and we've had installations where it has been cycled also, cycled up and down almost on a daily basis over the period of longer than a year. And whilst I've not climbed in those units myself, the reports that we've had back is that the tiles are looking as new.

40:16 Is that right? Terrific. And obviously they're made in the United States and then how easy or difficult would it be to pirate those tiles?

40:32 So first of all, as to your second part of the question, I really don't want to get into the source of the material. We do have other special technology embedded into the burners that we're selling or the parts that we are providing. Also, the clear sign and duplex technology is very heavily covered by patent So certainly in the combustion industry, we do recognize that the spare parts business is very fruitful. We are very cognizant of that. And as we arrange our agreements going forwards and design our equipment, we certainly are careful to recognize the value to clear sign of the ongoing lifecycle service down the road and make sure that we maintain what's due to us.

41:31 Very good. Thank you for taking my call. I'm very encouraged. Thank you.

41:36 Thanks, Marshall. As a reminder, to ask a question, you may press star then one. And I believe we may have a question from ClearSign HQ.

41:47 Amy, thank you. This is Matthew Selinger. Does anyone here in the room, by the way, we had our annual general meeting, so we do have investors live here with us. Does anyone here in the room have a question they'd like to ask? If you're to step forward, if you don't mind. Yeah.

42:00 Jim, can you give me more color on China and the opportunity there?

42:04 Certainly. Thank you. So China is a very interesting part of the world. The emissions requirements in China, we've all seen the smog and the reports of pollution in China. And the government, I know from my prior knowledge and also reports since joining ClearSign, the government has taken that very seriously. And when the government acts in China, they... Don't really negotiate. They pretty much tell the clients what they have to do. The relationships we have with the peering districts are very strong. It's beyond just handshakes and words. We have signed agreements with them.

42:49 These agencies are quasi-government agencies and operate hundreds of thousands of of boilers, many of them in the highly polluting regions where the NOx emissions are being greatly reduced. We see the China market as at least as big for us as the United States market is extremely important. The opportunities for our newly optimized fire tube technology there are huge. And one really nice thing with a fire tube boiler is it's a very repeatable and consistent boiler. So as you finalize a product and get that certified, you can actually take those products and repeat them over and over again into all of the boilers of that same standard size. So it's a very, very rapidly scalable technology once it's approved.

43:39 So within China, with the channels to market that we expect to achieve through our relationships with the heating districts and this very repeatable product, which is a very readable and addressable market with a very large potential return for ClearSign. Thank you. The next question comes from Robert Kessig at Los Colinas Capital Management.

44:09 Thank you, Jim, for giving us kind of a new light on what may be able to happen. As far as the efficacy of the product and the things that we heard about the low NOx and the low carbon monoxide emissions, I think it was originally in the steam generators. the OTSGs, we actually heard of some real data that was very low. Is there anything suspect there or is there other things that need to be changed to really accomplish those really low NOx and low CO emissions?

44:48 The technology does provide those very low NOx and very low CO emissions and we've So admittedly, and back to the communications, we've not said a lot about the OTSGs over the last few months. We do maintain a very good relationship with them. But we have really focused on what we have seen as the big potential money makers for ClearSign in the plug and play burners where we really see the US as a very strong market. And the FireTube Boiler Burners, where there is a market in the US, but also a very big potential in China.

45:33 The goal is to get those products into those markets as quickly as possible. So we're certainly working on the OTSGs and aware of that. But to focus on something, you've got to have resources to get that done. And really the story with the OTSGs, apart from the obviously the work that we do being very independent on our customers, they have not been priority number one and two for ClearSign over the last few months as we've really pushed the firetube boiler burner and the plug and play burner for the refineries as our first priority. So hopefully that explains, we are working on those products, we do have plans for them We just prioritize where we think we can get more money more quickly first.

46:24 Okay, so I want to ask on the plug-and-play, has a company ever really installed one? We were under the understanding that something was installed at Delos in Texas. So has there ever been a unit installed in a process heater for a refinery?

46:43 Yes.

46:45 Okay, and then the last thing was... It seems like in the U.S. there's a big problem with regulators and that type of thing where the industry doesn't want to try something new unless they're kind of forced to by the regulators. Can you kind of give us your feeling about that? What's the situation?

47:13 We have to recognize the industry that our customers are in. They are extremely careful and obviously very prudent looking out for our own profits. I think our goal is to work in the environment we're in. We can't change the political relationship between the regulators and our customers. Our task is to find the regions where the industry, being smart, realize what regulations are coming down the road and our future operations and as we discussed also bringing to light the increased efficiency and in the case of the plug and play the ability of the burners to work in more closer confines than standard burners and to recognize that there are markets outside of those driven purely by the emissions regulations and in our own work to make sure that we express that value and work with customers with those needs also for the benefit of ClearSign. but I don't think there's room to honestly criticize the customers or the regulators. Our job is just to recognize the landscape we're working in and work out how to position ourselves best within that.

48:33 And do you anticipate staying in Seattle or is it going to be more economical to be in the south or some other area?

48:44 I mean I'm probably a bit more First of all, we are in Seattle. The company is based here. Obviously, we're invested with quite a large infrastructure built up in the buildings here in Seattle. Of course, we also have to recognize that at least the vast majority of the top quality global burner suppliers are based in Tulsa, Oklahoma, where we also have an office. Not coincidentally, Jeff Llewellyn, who has recently joined us, is based in Tulsa and will remain in Tulsa in anticipation that we will have close relationships going forward with companies in Tulsa and if there is a bifurcated business that at least the commercial arm of the business will likely have a bigger presence in Tulsa because at the end of the day you have to be close to your partners and you have to be close to your customers.

49:42 Thank you, Jim. Thank you. I believe we may have a question. Please sign HQ.

49:53 Would you mind coming forward? All right. And would you mind stating your name if you don't mind? Yes, I'm Stace Williams. I consider myself a loyal shareholder. Even in the face of the last 15 months and 80% decline in the share price, but I've heard some real encouraging comments from the conference call today. The area I want to ask you about is during the past three or four conference calls, The shareholders have kind of had this Exxon discussions carrot dangled in front of them. And I understand Mr. Deller's comments that now we anticipate some modest revenue from the engineering phase order. Could you shed some light on maybe what's the horizon for an implementation order with Exxon? And I may be getting ahead of ourselves with that question, but I think you addressed the Some revenue from an engineering phase order and how that would be different from an implementation order. What's the horizon of an implementation order specifically with Exxon and the status of that? I don't know if that goes to Mr.

50:51 Deller or Mr. Hoffman.

50:56 So to look at the at this project because our project with Exxon and as Robert described Exxon is a very diligent, very highly engineering capable oil company. They have recognize the value of ClearSign technology from a very long time ago and over the years have invested in research here in our lab. They have collected data. They've had a series of meetings. I've recently been part of those. I actually spoke with Exxon before coming here, by the way, as well. And they continue to support ClearSign. I know that we actually had conversations with them earlier this week. We had two of our team down at the local API meeting But the order we have in-house, this is a modest order in terms of money.

51:44 But for Exxon to actually place an order for the engineering of a supply or for the part of a supply agreement is the start of a supply agreement. This is quite a normal way of buying burners in the industry. They'll place an order for engineering, you get the engineering done, and then basically you release the order for the second phase. So this is a purchase of ClearSign burners to be installed in a heater down in Texas for demonstration and proving by Exxon. So the significance of this order is absolutely huge for ClearSign. We are expecting to start on this. We are working through the final details of a purchase order as we speak. So this is not something that's out in the future. This is something today. In terms of communications, we very much look forward to announcing the completion of receiving the order.

52:38 and that this is underway. We expect to be working on this in the next month and through the rest of the year so this is going to be starting very, very soon. This isn't something that's out sometime in the future. Thank you.

52:50 I think this is Rob Hoffman. I think it's interesting to kind of juxtapose where we see Exxon and one of the questions previous was where do we stand with the regulators and that's what's so interesting or or fascinating, I'm not sure if I'm even getting the right word. Exxon is not reacting to environmental regulations today. I mean, the regulations in Texas, while they are moving in the direction that will benefit us, they're not in the same timeline as, let's say, the ones in California. But Exxon is forward thinking, and so they... and as we mentioned they're very engineering focused but they are not before the SPV put money in I did some due diligence on Exxon not with specificity of duplex but with the process and what I discovered is that you know When they went to the safety committee, that was a big deal.

53:57 Exxon doesn't, they look at lots of things and they don't bring it all to the safety committee. So the fact that this technology went to the safety committee was a big deal. And then this engineering study, again, from a revenue perspective, it's not significant, but it's an indication that Exxon is very interested in making those next steps. And as Jim said, we are at the... were beholden to their timeline in terms of when we actually put the burners that they're planned on. But we know what heater it's going in. We do the engineering work. So the other thing to remember about Exxon is they don't do these things to solve one heater. This is not trying to solve a heater problem that some of our installations to date have been.

54:48 Some of our early customers have been, well, they got a heater that's giving them problems. Let's try this out because nothing else will work. Exxon is looking at it differently. Let's see how these things work, because if they work the way we think they can, there's a lot more behind it. That's kind of where I look at it.

55:06 Do we have any other questions live here? Sir, would you mind coming forward by chance? I just want to say my first question was taken.

55:14 Okay. Would you mind identifying yourself, please? My name is Elvisante. Thank you. And my question was because This company is involved with multiple chains of leadership and I know investment is, you have to take it by heart or blow it. And I'm sure everybody would like to have their growth and value of their investment grow. So my question is, where do you see this company B, from now 12 months from now. The second one is what was your least successful investment and your ideal exit strategy?

56:11 Thank you.

56:14 So the first one is pretty easy to answer. I can't give definite timelines, but the But what we expect to see is leveraging the resources and the marketplace. We have the technology, but we do not see our future as a clear sign manufacturing plant. We're not going to be another burner manufacturer. It is to find partners around the world in different technologies and different verticals, however best suits the breakup of the markets and the clear sign technologies. and then with those partners to grow with them, to develop marketing with them, to give them groundbreaking technology to enable them to sell a burner with a clear sign core that is better than anything else on the market and that can meet the emissions requirements or the heater efficiency requirements going forwards.

57:16 But it truly is a collaborative process I honestly can't answer your question Second two questions. I mean, investments that have gone wrong, I've had some that have gone broke. That's bad. No one likes that. That's probably the worst that anything can...

58:01 I'll actually, but I'll give you one of mine because I've been in a professional investment for 25 years and I'll juxtapose why this was a difficult one versus what I see here. I invested in a dental laser company. Great technology. The client... would supposedly be more comfortable. What I realized, though, is that to convince the marketplace, you basically had to convince every single dentist one by one. So the selling process was there was very little operating leverage. Gross margin on the product was very good, but in terms of ramping the market, it was very challenging. So you contrast that with what the ClearSign business model is, and I say this kind of tongue-in-cheek, is we have to sell to Exxon once. We don't have to sell to every Exxon service station around the world.

59:01 Obviously, we're not doing anything to Exxon service stations, but that's my point, is we have a hockey stick operating future. When adoption occurs, more adoption will occur, and you don't need to actually sell to every single, you don't have to educate every dentist on the advantage of laser dentistry. They will already know, and that's the other highlight of what an Exxon brings to us, is everybody knows how diligent Exxon is. So if and when they start to adopt, which we anticipate, that will hopefully open more floodgates. This concludes our question and answer session.

59:48 I would like to turn the conference back over to Tim Deller for closing remarks.

59:54 Thank you, operator. Well, thank you all. Are there any more questions? So if there are no further questions, I would like to thank our investors for participating on this call and for their continued support of ClearSign. Thank you all. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.