Good afternoon, and welcome to the ClearSign Technologies Third Quarter Conference Call. All participants will be in listen only mode. Please note this is being recorded. I would now like to turn the conference over to Matthew Selinger, Investor Relations. Please go ahead..

Good afternoon, and thank you, operator. Welcome, everyone, to the ClearSign Technologies Corporation third quarter 2020 results conference call. During this conference call, the company will make forward-looking statements. 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..

Thank you, Matthew, and thank you to everyone for joining us today. Our financial results were included on the Form 10-Q the company filed with the SEC on November 13th. The cash burn for the quarter ended September 30, 2020 was $1.1 million compared to $1.6 million in the same period of 2019.

This decline reflects the reductions made to operating expenses and is representative of the changes made in the company's operations since the first quarter of last year.

This increased efficiency is mainly attributable to the systematic focus on prioritized projects, selective use of outsourced consultants and a more rigorous project planning and budgeting approval processes.

Our cash and investment resources were about $10.6 million at the end of the third quarter of 2020 compared to $5.7 million at the end of the second quarter of 2020. Shares outstanding on September 30, 2020 were 30,043,186.

On August 24, 2020, we closed a public offering pursuant to which we issued approximately 2,587,000 shares of common stock for gross proceeds of approximately $5,175,000 or $2 per share. This bolsters the company's cash position, which we believe will enable us to bring our current product developments to market.

On September 30, 2020, clirSPV LLC, our largest shareholder executed its right to purchase approximately 654,000 shares of the company's unregistered common stock, also at the same price of $2 per share. This resulted in further cash inflow of $1.3 million to bolster our balance sheet.

It is important to note that with our quarter ending balances, we now have sufficient working capital available to carry us comfortably into 2022 and that is without revenue from any other sources..

Thank you, Brian, for that financial overview. Hello, everyone, and welcome to the ClearSign Technologies Third Quarter Conference Call. Prior to the last call, we had just announced the signing of our collaborative alliance with Zeeco, Inc., a world-leading burner manufacturer based in Broken Arrow, city border in Tulsa, Oklahoma.

At that time, we were just about to embark on the execution of our first burner order for ExxonMobil, which is also to be our first jointly executed project at the Zeeco facility and with the involvement of the Zeeco team.

For anyone not familiar with this project, the scope of supply included the fabrication of test burners for set up an optimization and demonstration of the burners in the industrial for scale test furnaces at Zeeco.

The testing for this project is extensive and includes the setup of four burners, exactly as they will be in the ExxonMobil heater and the demonstration of the burner operation over an extensive range of operating conditions, and with a wide range of fuel gases covering the needs of all the heaters in ExxonMobil's large and complex Baytown refinery.

As we have previously mentioned, the requested operating ranges are above and beyond the normal or average order.

And while this adds additional demands on our technology and the extended ClearSign Zeeco testing team, this is because we believe ExxonMobil are using this opportunity to validate the ClearSign Core technology for wide-ranging applications across their refineries and not just for this one particular heater.

The burners are currently installed in the Zeeco test furnace and we are making steady progress with the testing protocol.

At the completion of this testing program, we anticipate that we will have greatly expanded the operating range and developed the knowledge and tools to design ClearSign Core burners suitable for installation and successful operation in almost every of its fired round burner heater configuration.

This is by far the most common type in all hydrocarbon processing plants.

In other words, and it is pertinent to emphasize that, because the breadth of the goals of this project far exceed normal operating parameters, on completion of the testing protocol, we expect ExxonMobil and we believe the industry at large, will have great confidence in the future selection of ClearSign Core technology for safe and reliable operationally efficient emissions reduction projects..

Our first question today comes from Amit Dayal with H.C. Wainwright..

With respect to this change in time line, with Exxon for the fall of 2021. Is there a concrete date or a concrete sort of time line for this, and what is driving this shift? Do you need more testing to be done or is it just timing in terms of being able to deploy this? Any color on that would be helpful. Thank you..

The first question regarding timing, I think as many people know, the shutdowns with refineries are a very complicated process that takes of all the planning and quite frankly, I can't speak for Exxon on that. We were notified that the installation date was being changed. Regarding the testing, I mean, we are making very good testing on that progress.

Exxon is involved with that, of course, as are Zeeco being there. And the results that we're seeing are being shared almost daily, if not daily, and are extremely encouraging. This is of course a very big project for us. The scope of this testing is much broader than, or a typical or normal burner project.

And we all went into this testing of mutually agreeing the scope, because of what Exxon we believe are looking for in bonus to deploy across their refinery and also for ClearSign and for Zeeco, wanting to really take our time and make sure that we get the burner technology ready and proven for wide-scale deployment.

So I'm saying that, I’d really just remind everyone that we are not taking longer or making more of this testing than are we expected, we actually plan to really do a thorough job of this testing because we are planning a product for wide-scale deployment. Frankly, Exxon is very involved.

We are all very much looking forward to getting the burners into the Baytown refinery firing. But first of all, got to control what we can actually control and that's what we can do and first of all, we're going to complete this testing as soon as possible, at least we'll get that done. We'll get it proven. We'll get that known.

And that way we can get the burners manufactured and ship down to Baytown, so they're ready for ExxonMobil to install as and when their schedule allows. Regarding the planning yard, if we have any concrete dates, they have indicated that they are now planning this for a later turnaround but we do not have exact date on that yet..

I was trying to also maybe get a sense of the window within which you expect to complete all of your testing and post sort of that clearance, if Exxon gives the okay to go ahead and manufacture these units.

Is there a time line within which these milestones could be accomplished?.

Although, I can't speak for Exxon, I can speak for a typical burner project.

And regarding the time line, we're also running into Thanksgiving on the horizon, but I believe we are close to completing the program of testing for Exxon, and we'll then conduct the formal witness testing, of course, we have to agree those dates with Exxon around their travel plans also.

But it's quite typical once the testing is complete and the client signs off on the performance, that is our release to go ahead and complete the manufacture of these burners and essentially complete the material part of our order, which would then be the handing over of those goods to Exxon.

So that schedule really has -- what changed is just the installation date being planned by Exxon..

Then just moving on to the pipeline, with respect to the burners, sensors, the flare offerings.

Can you talk a little bit about like what is in the sales pipeline now? And do you expect sort of to build on some of the recent wins you've had? Are these catalysts potentially in play for 2021? Just any color on what the pipeline is looking like and how that may sort of come through over the next 12 months..

Amit, I can talk a little bit in general. I actually appreciate the schedule for proposals in this business starts with often an exploratory or budgetary assessment by our clients. So at that point, they have not even committed to the projects themselves.

They do know they have or typically, they have a need on the horizon often that need is a need to reduce their emissions, and they will engage the suppliers of technology, potential solutions very early in that process.

But the length of time and the way that they go through evaluations, I don't want to give specific data and names because there is always so much movement in the pipeline in this industry.

But all I can say is we are seeing more inquiries, we're seeing inquiries come to us more than before and we had to go and look forward and that is very encouraging. We're seeing inquiries that are much more applicable to our technology, which is very encouraging.

And we are seeing follow-on interest, which gives us confidence that the clients are seeing what we have already done and that they are taking note of that, and that's also acting as a catalyst for increased interest. So overall, I'm seeing things more much if you like, things are looking very positive.

Regarding the time frame and knowing the length of these projects, I do expect things to pick up going forwards. Again, I can't quantify that for 2021 but I do expect our sales to be -- seem to be increasingly active as we go through next year..

And then just a final question for me, with respect to China, you mentioned you're setting up a demonstration facility. I guess I have two questions on that.

Are you expecting this demonstration facility to be your hub, if you will, to showcase the offering and the value proposition, et cetera? And then alongside that, who are you currently sort of having these discussions with? Are you speaking mostly with the distributors or is there anyone else in that value chain that you are engaging with? Just trying to get a sense of how that process is working for you right now..

Certainly, trying to explain a bit more detail of our current situation and path in China and also a little of why we're going about this the way that we are. A gateway into China is to get a product, first you have to prove the performance.

And then you get the product certified by the Chinese authorities and that certification is basically your stamp of approval that allows you to sell it commercially in China.

When we're in a position that we have that certification, we are going to be in a much stronger position to -- of course, we can either build the burners ourselves and just start-up our own business. But trying to keep the business asset-light, we really are looking for a collaborative arrangement.

But we're in a much better position to negotiate the interest of ClearSign once we have a technology that is certified for sale and proven to outperform. So our first focus at this time is to get to that stage. In the meantime, of course, we are talking to other companies in China.

We do have significant interest amongst boiler manufacturers and burner manufacturers and actually end user as well, but we have certainly not engaged in any detailed conversations with them at this time, primarily because our negotiating position and the ability to form a collaborative agreement that truly respects the value of what ClearSign offers is going to much better once we have that Chinese certification in place.

So this is really a stepping stone. The demonstration that we are preparing for and setting up is going to be done in a boiler that's set up on the site of one of the Chinese boiler manufacturers.

There is no other commitment apart from -- if you look at this from the perspective of boiler manufacturer, for a boiler manufacturer to have an advanced understanding of how to include a technology like ClearSign's into their equipment, potentially gives them a advantageous position in the Chinese market, knowing that the Chinese market is actually one of the most stringent and highly enforced emissions regulation markets in the world and an extremely large market.

So there's a definite advantage for that boiler manufacturer being the first to sound bound to gain knowledge of this technology and they are very aware of that..

Our next question comes from David Brown with Seeking Alpha..

So I was trying to intimate from your comments a little more clarity about the difference between where we're at with the water tube boiler in China and the fire tube boiler.

It seemed to me from your comments, if I was reading between the lines correctly, that you are closer or you feel like it's far less complex to do the fire tube boiler, get that demonstration going and getting that to market quicker because the water tube boiler was a far larger and more complex situation and your engineers were making great progress, but then COVID happened and that's thrown a little bit of a monkey wrench.

Am I reading between the lines correctly, was that what I was hearing from your comments?.

I mean, what you state is correct, but there is more to it than that. The two burner designs are very closely coupled. And we have focused on prioritization and what products we can bring to market the fastest. The 5G boiler burner is a smaller a device, the mechanical engineering is less complex for that reason.

And we also have a test boiler available to us in our office in Seattle but we can continue and make rapid progress on, even what we cannot get into China and work on the boiler tube product.

So whilst that we were prevented from getting into China, we've switched gears and really made great advancements in our overall boiler technology by focusing on the fire tube and now we have taken that design back to China.

In fact, the burner that we're building now is different from the burner that we envisioned back at the start of this year, because we've made very big improvements to it. So we've modified the designs we have in China. We fabricated that burner in China. The fire tube boiler burner is not restricted to the Chinese heating season.

So it means that we can continue to make progress even outside of the heating seasons. So by focusing on the fire tube design, it gave us the ability to continue to really push forward to make rapid progress in our boiler burner, even despite the restrictions and the obstacles we've incurred because of the COVID-19 pandemic.

So ultimately, what we're doing on the firetube is also advantageous to the boiler tube is just by progressing the fire tube, we're able to make much more rapid progress, but that progress is very much is going to be beneficial for the water tube boiler burner as well down the road.

But you are right that the fire tube is going to be our first product to market, no doubt in China..

And I think I was hearing, too, that your engineering has gone to the point where you basically have a one piece product or that's the hope you'll have it all finalized and fine-tuned so that you have this one piece burner that can go into either a retrofit or a brand new burner, and that can be sold and marketed successfully much more successfully.

Was I hearing that correctly?.

That is correct. But beyond that, we know we have this bone, we have developed it and had it running in the boiler that we have in Seattle. What we have done is basically duplicated that design and had it fabricated by our team in China, that's what our Asian President Mr. Menendez has been doing. So we've taken those drawings.

We've converted them to like Chinese materials. We've had that manufactured in China. It's in the final stages of assembly right now. The next step is just to install that. But it is essentially duplicating what we've already proven in the Seattle test boiler..

So that's pretty exciting to me to hear that, because it seems like not only would it be applicable to China, which is a huge market, but it could be applicable worldwide to North America and Europe and other markets, if you have a great design that gets great NOx readings and is simple to install.

So do you have any color on besides China?.

It's an opportunity we're very aware of. Obviously, the biggest market right now is China and that's where we're focusing on this launch. And then the next step is to extrapolate the designs. Once we've optimized this first size, we'll be stepping up through the range to build like you don't want one boiler burner, you want a range of boiler burners.

You've got to, some ways got to be first. China is the obvious place to be first. But after that, there is no reason why it's only China. It's just China is where -- China is obviously the highest for our team that's where we've chosen to start..

And just one other question about the ClearSign Eye. I know that you probably can't tell me a whole lot of details about partnerships and things of that nature. But what I was hearing -- and I've heard in the previous call was you're very excited about this technology, because it's a huge addressable market if you become successful.

And you seem to be perhaps the only game in town that has what you have to offer right now. It sounded to me like you're looking for a partnership because you mentioned you wanted to minimize capital outlays because obviously, we're still a tiny company at this point and have limited resources with that.

So it sounds like you're looking for a, what I think I was hearing is, you're looking for a partnership, maybe similar to the Zeeco partnership with, in the other area, so that you can follow the model of not having huge capital outlays. Does that sound accurate? I know you probably can't say a whole lot about the details..

Yes, and it's probably worth clarifying. The ClearSign Eye is our sensor technology. And I think you don't mind another clarification for everyone who's listening. We have two fields of the ClearSign Eye technology, both are potentially very expansive markets.

The first, which I think is the one you're not referencing is the pilot sensor, which is destined for refineries and petrochemical plant, and that has a worldwide market, basically, every burner that uses a pilot in the world is a potential market for that product.

That's a product that we are currently manufacturing or having manufactured for us as a ClearSign product. And at this point is the only true ClearSign manufactured product and that's because it's a single design, off-the-shelf. In the big picture it’s a relatively simple design.

And that's the one that's done and in the hands of our sales team down in Texas and that one's ready for sale. I believe the ClearSign Eye, the aerospace application, the ClearSign Eye is the one you're referring to….

Yes. So that's a helpful clarification because I was a little bit confused about -- I did understand that what you said it could go into any kind of pilot, in any application for a pilot, a burner and in anything. I did understand that part. And so I'm glad to know that you already have a product that's marketable in that niche.

And so what you're clarifying is the partnership is likely going to be in the aerospace industry then..

That's right. Yes. The aerospace industry is obviously a very different industry. One of the advantages of forming collaboration agreements and partnerships is you can select partners who are expert in that particular field.

So it clearly makes sense for us to seek a partnership with people who are expert and experienced in the aerospace equipment and manufacturing field, to get the approvals required for something on an airplane and the like is a long process.

We do not want to be in a position of funding a project for many years and the capital outlay that would be involved with that, especially when it involves expertise not referencing is that we do not have in-house.

So again we're looking to find a company where we can leverage their specific industry knowledge and pair that with the unique capabilities of the ClearSign Eye sensor technology to solve a problem in the aerospace industry.

But that will be a very different company than the companies who we have formed a collaboration agreement with forming on the burner industry. The structure of that may also be different. You're right. I can't go into specific details of who we're talking to or what that looks like.

But it's the same concept, remaining asset-light, finding a partner with the correct and unique capabilities specific to that particular industry.

And then one all through down the road on doing this for a reason, we also want to make sure that we've got a clear vision of when everything is done and everything is successful, how does ClearSign make money at the end of it..

And just one quick third question.

And do you think that the political climate maybe changing so that in North America so that there is a higher demand for your products?.

I think it's certain that political climate in North America is changing. I really can't comment on that in detail. But I think, one -- I had the same question a while ago, regarding the previous administration.

But I think the reality is it's generally the local airports that are driving the more aggressive engines regulations and looking at their local environments. In particular, we are focusing on the markets in California and Texas.

So it's the regulatory bodies there and the mandates that they're putting on the industry within their areas that is driving the emissions-related market for us. To be honest, the relatively short-term nature as the presidential terms change, how much that would immediately impact our business is very difficult to gauge.

And I don't think I've got any special knowledge about that compared to anybody else, but we're always forward looking..

Yes. Fair enough. I just think the last four years, certainly, there's been very little pressure upon the state regulatory boards to ramp things up for instance, or there might even have been some discouragement. So I'm just noting that just in the back of my mind. But you're right, we don't know for sure how that's going to play out..

Our next question comes from Robert Kecseg with Las Colinas Capital Management..

The question I had first was, due to this testing and whatever change in parameters and so forth that you've done.

Is that something that's documented ordinarily so that if engineers from other prospective customers wanted to see that they could take a look at that and analyze exactly what took place during this testing?.

Absolutely. I mean, the work that we are doing and the technology that we're developing is ClearSign's technology.

And really back to statement I made earlier, one of the reasons that we are and have embarked on such an elaborate test program in this initial order with ExxonMobil and with Zeeco is to develop our technology so that it can be very widely used and to accommodate the needs of, as far as I recall, almost every refinery heater that uses a fire ground burner.

So what we're learning is going to be reflected in our sales drawings, it's going to be reflected in the guarantees we make and the proposals that we send to our customers. Engineers from any company will get to see it and assess it, and understand how it works and how we can apply it with them to solve their problems.

This is very much a development of a ClearSign technology. The opportunity to get these burners into a large scale industrial furnace, to learn how they perform together and to develop the range of products, it's just something ClearSign has had to do to take our technology from a very unique burner model into a complete market ready product range.

But that is very much owned by ClearSign that we will market and sell going forward..

And am I right in assuming that from the time that this began, I guess, it was about five weeks ago today and I assume, I guess, that these burners have been running pretty steadily for this entire five week period. The multiple I guess is a four burner configuration.

Is that right?.

That's right. So the heater is set up exactly the same as the destination heater in Baytown.

I think when you look at the the durability of burners and the testing, one of the reasons that we have test furnaces is that as these burners get put through extremes of operation in a test furnace that you would never put them through in an operational refinery.

So not only have they been quite consistently fired, they've been taken well beyond and outside the norm of what they would experience in a operational refinery.

So actually the length of time that this has taken and the degree of exercise that these burners have been put through in this test furnace, is the first time ever that the company has been able to do that with multiple burners.

So what I'm getting at is, it seems to me that this greatly reduces the risk for investors going forward, because we've gotten through this milestone.

Could you comment on that?.

No, you're absolutely right.

And I've seen the developments to our technology and how well it has been able to accommodate the extreme demands that are being put on it, both by the very tightly spacing of the burners in this test furnace and the extremes of the operating conditions, and I've been absolutely delighted with the results I've seen so far.

I can't give specifics but it has been a huge development in the ClearSign technology..

And then the other area, because of the other order on the replacing the SCR in California, I was wondering as far as sales folks -- thinking as a salesperson.

Is there some knowledge out there or information about potential other SCR prospects? Because I would think with the difference in the cost, it would be a dramatic opportunity for sales and in particular in that particular regulatory market of California.

But is there information about potential other SCR installations being challenged by this technology?.

This is a really big opportunity for us. There's no database that we know currently that shows exactly these projects, but that is exactly the low hanging fruits for this technology.

Now the other view is just compare, contrast, we just talked about the Exxon burner testing and how much effort we're putting into this to expand the product range and the wide range of requirements that are, and demands that are being put on that burner. In contrast, the infrastructure projects that's -- this is the regular type of project.

So the specification for this project is purely what's needed to make these burners work. This is something that will turn very quickly. So just try to compare it to that -- that order was taken quite recently with a target installation of Q1 next year.

The reason we're doing the work on the Exxon project is so that we can have this kind of execution on orders going forward. This is the normal execution.

So this is a very good reference project and the ideal spot of finding a client that has no alternative and installing an SCR, that is exactly the target market that we're looking for and the low hanging fruit for our businesses..

Our next question comes from Jeff Feinglass, a Private Investor..

I think you answered most of my question. My question was going to be surrounding the nature of the testing that would be needed for the burners for the major infrastructure plant versus Exxon.

And I think what I heard, maybe just reiterate that far or less, I guess, expanding of testing and types of conditions that it's far more straightforward with those guys than with the Exxon testing.

Would that be correct?.

That's correct. And Jeff, there's more to it than that. I mean, the reason -- and I'll go back again, the reason that there is so much effort on everybody's part being put into the excellent testing is this is really a strategic and technology developing projects.

The infrastructure project is an example of a typical normal projects where you have the technology developed, it's being applied to a very specific function for a specific heater rather than in case of Exxon, we need someone or stretching the technology, so we'll do everything for everyone in one application.

So you'll see that this infrastructure order is going very quickly. By comparison, there's very minimal involvement. We've taken the order the burners are designed, they're actually under fabrication right now. And like I said, they targeted for installation next quarter.

This is the way that we should expect the ClearSign’s business to look once we have got our product line fully developed and tested. The Exxon testing is really our path to maturity..

This concludes our question-and-answer session. And I'd like to turn the call back over to Jim Deller for any closing remarks..

Well, thank you everyone for your time today. That completes our conference call. We look forward to updating you on our progress as events occur. Again, thank you all very much, and have a good day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..