Earnings Transcript for CLIR - Q3 Fiscal Year 2023

Operator: Good day, and welcome to the ClearSign Technologies Third Quarter 2023 Conference Call. [Operator Instructions] Please also note that this event is being recorded today. I would now like to turn the conference over to Matthew Selinger of Firm IR Group. Please go ahead, sir.

Matthew Selinger: Good afternoon, and thank you, Operator. Welcome, everyone, to the ClearSign Technologies Corporation third quarter 2023 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 by 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, or 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 factors section of the 2022 Annual Report on Form 10-K and the Quarterly Report on the Form 10-Q for the quarterly period ended September 30, 2023. Except as required by law, 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 with me today are Jim Deller, ClearSign's Chief Executive Officer; and Brent Hinds, ClearSign's Chief Financial Officer. So at this point, I would like to turn the call over to CFO, Brent Hinds. Brent? Please go ahead.

Brent Hinds: Thank you, Matthew, and thank you, everyone, for joining us here today. Before I begin, I'd like to note that our financial results on Form 10-Q were filed with the SEC earlier today after the market close. With that, I'd like to give an overview of the financials for the third quarter of 2023. The company recognized $85,000 in revenue during the third quarter of 2023 compared to $324,000 for the comparable period in 2022. Revenues recognized year-to-date in 2023 were $1.1 million compared to $324,000 for the same period in 2022. The increase in year-over-year revenues were driven in large part by our 2 ongoing California process burner refinery projects. Now I'd like to shift our focus from revenue to cash. Our net cash used in operations for the quarter ended September 30, 2023, was approximately $1.3 million compared to approximately $900,000 for the same period in 2022. This $400,000 year-over-year increase was driven by project execution costs related to our California refinery projects. As noted in prior conference calls, many of our contracts are set up so as to allow us to collect meaningful amounts of cash before we recognize revenues. As we continue to work through these contracts, we will hit contract milestones in the coming months that will allow us to collect more cash from our customers. Now turning focus from cash to the income statement. Our net loss for the third quarter in 2023 was approximately $1.3 million, which is essentially the same for the comparable period in 2022. Our year-to-date net loss for 2023 was approximately $4.2 million, which is approximately $200,000 decrease year-over-year compared to the prior year. This year-over-year decrease was predominantly due to our change in gross profit, which improved due to sales volume. As of September 30, 2023, we have $7.2 million in cash and cash equivalents, with 38.6 million shares of common stock outstanding. And with that, I'd like to turn the call over to our CEO, Jim Deller. Jim?

James Deller: Thank you, Brent, for the financial overview. As always, I'd like to thank everyone for joining us on the call today and your interest in ClearSign. On today's call, I will review our business segments, changing our usual order, and I will start with boiler burners first this time. And at the end of this, I will touch on China since boiler burners are our main product line there. Following that, I'll move on to process burners, which will include both what I will call typical process applications and also an update on high hydrogen projects and developments. Before I start, I have a couple of more general items I'd like to address. Firstly, I want to personally extend my thanks to Board member, Gary DiElsi, who has just stepped down. Gary called me, early Thursday last week, to pass on his regrets that he has had some unavoidable time commitments arise. And unfortunately, he will not be able to continue his service to ClearSign as a Director. On behalf of myself and the other Directors, I want to pass my gratitude for his engagement and advisory and help, and we do wish him the best in the future. The second item is to make you aware of some work completed by a third party that will be of interest. This report was published by the consulting company ICF, for the California State Gas Emerging Technologies or GET Program, titled Market Assessment of Emerging Ultra-Low NOx Burner Technologies, dated August 11th, 2023, and that gives a comparison of the latest burner technologies and features ClearSign prominently, both our process burner and boiler burner technologies. Our boiler burners are also identified under the Rogue brand name. So a few quotes

Operator: [Operator Instructions]. And our first question here will come from Eric Gruskin [ph], Private Investor.

Unidentified Analyst: You talked a lot about process burners and boiler burners. But can you also talk about the prospects for the firetube product, the flame cameras and this new -- the new hydrogen fuel burners and perhaps you could rank those in terms of sales capacity.

James Deller: Certainly, and I mean, give some more color around those and some clarification. So I'll start the boiler burners, you mentioned the fire tube. The firetube is the smaller range of the boiler products, basically, the boilers or the boilers that we address fit into 2 types there's water tube, which tend to be the larger end of the range and the firetube boilers, which are typically of the smaller end of the range, and they are the main focus of our sales at this time. But the boiler burner products are sold in collaboration with our partner, California Boiler and branded as a Rogue Burner, and those are actually the subject of the segmentation project that I referenced that we worked with California Boiler -- so in terms of the immediate sales opportunities, I think that has to be the one that I would focus on most from the outside. The response we have to that segmentation project and making these products relevant to now all areas of the United States, both within California and outside. And the response that we've seen to date in the very short time since our project was rolled out, definitely made that a major focus for us. We have 2 major product lines. One is that boiler burner line and the second is the process burners. The immediate start-ups that I referenced, the one that was started last week, there's another just waiting on one component, down in Texas that's actually in a process heater and a much larger boiler burner due to be started up around the end of the year. Those are all of that firetube boiler burner product line. And then the indications we've got from customers following the segmentation of ClearSign being favorably seen amongst the other bidders for other products in California also resulting from that segmentation. So those who mentioned, I really would focus on the firetube boiler burners. Longer term, obviously, we're all watching the circular hydrogen economy and the development of the hydrogen pipelines and the introduction of hydrogen into fuel gas systems and that has got enormous potential. And just to try to emphasize that, one, of course, is the customer is burning hydrogen and needing equipment to burn hydrogen. But what may be the bigger influence for us is whenever you add hydrogen to a typical fuel gas, even in a smaller percentage range in the region of 15% to 20% has been discussed that has a very large influence on the NOx created. You may put the NOx up by 40% to doubling the NOx. So if a client is operating currently just under their NOx permit, introducing the hydrogen in that fuel gas is going to put them over their present levels and require them to address that. And we really believe the most efficient way to address that is to put in a new much lower NOx creating burner, which we have and we are promoting as the ClearSign products. That is the focus of not just the project we mentioned with the SBIR grant but also the reasons for promoting the ClearSign boiler burners. The last topic you mentioned was the ClearSign sensor. I know you [indiscernible]. What we have is a sensing technology that's unique. The biggest prospects for that, we have a partner company called Narion based out in Seattle. And Narion was the recipient of a government grant recently, which we announced of $250,000 to develop a sensor that will control the steam flow to industrial flares. That's a very big -- a big need in that market. And Narion is also pursuing many other opportunities. These are longer range and further out, but I really believe there's great potential in the work that Narion is completing as well.

Operator: [Operator Instructions] Our next question will come from Robert Kecseg with Las Colinas Capital Management.

Robert Kecseg: Yes. I was wondering about the cash flow and the dilution with the $7 million that's shown on the balance sheet at the end of the quarter and the anticipation of these orders flowing some cash in. Do you believe that we'll get into the next year before -- into the next calendar year before do you need any more public financing.

Brent Hinds: Yes. Thank you for the questions. Our balance sheet, we felt is healthy right now. We're comfortable with it. We have projects that we're working on and cash coming in from those projects and cash to come from those projects.

James Deller: Bob, just to add some color to that, right? The -- I know everyone's watching the revenue. The -- but specifically, the projects that drive the revenue are exactly the ones we're talking about, the revenue is recognized on significant milestones, but typical milestones will be the -- by the delivery and the start up of burners, we've got the 3 boiler burners we talked about today. And also the testing of the installation of the process burners, there are some significant projects that are happening in these next few months that will trigger the milestones typical to lead to the revenue recognition?

Operator: And our next question will come from Jeff Feinglass, a Private Investor.

Jeff Feinglass: Jim, I was hoping you could expand a bit on China. And specifically, you mentioned the prospects of relatively soon getting certification for the 5G boiler. But what are the next steps after that as far as sales? I mean, can you -- maybe it's too speculative at this point, but could you speak on that?

James Deller: Hi Jeff. Yes, certainly, I can. I appreciate the question. I would just preface this but obviously at this time, I will tell you what I see, but this is very speculative. We are -- as I mentioned, we are in the process of completing the -- like the run-in soon to be followed by the government certification of the 500-horsepower 5G boiler burner in California. Jeff, I know you've been following, but for those that haven't. One of our key strengths in China is our partnership with what may be their biggest 5G boiler manufacturer in China called Shuangliang. This is a truly enormous company. And their interest in ClearSign and what we've agreed through our alliance with them is to provide what we're calling an integrated boiler burner package into the Chinese market. So we have a truly national scale Chinese boiler manufacturer developing a product, incorporating the ClearSign burner to achieve the new low NOx requirements that are being rolled out by the Chinese government. In recent years, we've seen a shift in China and the regulations are being rolled out now in the heavily industrialized regions of China. Whereas previously, the focus was on the northern regions, especially around Beijing, where the air was notoriously bad and focused on the district heating, that is still in place, but this new development is in the industrial cities. In the call, I mentioned Shenzhen and Suzhou, Nantong and Tianjin these are all very large industrial regions within China. These industrial regions are heavily populated with 5G boilers, and they are not a seasonal heating. This is industrial heating that's used year-round. The local governments are driving the NOx levels down in these regions and being able to partner with a Chinese company like Shuangliang that is very prominent within the Chinese market and then along with them, the outreach to the local governments in those areas and to the industrial parks. And to me, it's a really exciting opportunity. I don't have any details to report, but that is the path that we're following and the sales pursuits that we are undertaking as we complete the certification of this large of 500 horsepower boiler burner.

Operator: Our next question will come from Brad Van Ducker [ph], a Private Investor.

Unidentified Analyst: My question is, as a long-term investor is the market cap of the company and the fact that the stock prices remain really low, and we can't seem to turn the corner on it or maintain anything with it. What are your thoughts on getting the stock price up, the shares up and the interest up where investment is up?

James Deller: Brad, I really can't comment at the share price and what people pay. That's not really in our control. But we're obviously in control of the progress of the company and the news that flows out. I can reinforce my side and hopefully for everyone, but the absolute importance of getting the reference projects out into the market and having the equipment in the field for our customers to see and to give them confidence in placing those orders. And I know I've said that before, but let me give you a bit of color. Just this past week, we started up the 300-horsepower 5G boiler project in California. In that same week, we have already had one customer contact our sales team with California Boiler and go and visit that boiler to look at it as a reference in preparation for them making plans for their NOx control equipment in California. It's absolutely critical to get this equipment out. We have two boilers starting up in California this year or for the big one may be rolling slightly into next year. We've got one down in Texas that we have process burner quotes or requests for quote been waiting to come to us on that startup. And in addition, the heater manufacturer who manufactured that heater has already come back to us and asked for quotes for 2 more burners for projects that they are chasing. So when you ask -- I know everyone is looking forwards and looking at the development, I just cannot stress from my perspective, how important getting these units out into the field are -- and then it's absolutely our job to leverage that right to do exercise like we have for the segmentation to get right, people like Tina and Matthew on board and to really focus on the growth of ClearSign so we can leverage that installed base and finally show the world what ClearSign products can do.

Unidentified Analyst: Yes. I can remember when the boilers first came out that there was, I think you quoted in the 50s, the number of inquiries into it. But we didn't have any out and installed. So you think now that we're getting installation that we'll start seeing things come across the finish line with orders.

James Deller: I truly believe so, Brad. And based on what we've seen just this past few months, both with the segmentation project that I talked about and the targeting and the interest in that and then just the -- right just seeing people want to see to see the equipment installed. Just an example is the reference that I quoted this past week of the customer immediately coming and asking to see the 300 horsepower burner in operation up. And to my background, my previous background in the process burner industry, where the clients always ask well, where's your reference list. So for us to get -- finally be putting our references together, I believe, is absolutely key for us.

Unidentified Analyst: I think the encouraging thing for me is that I have not seen a failure in a product that once it's been installed that a customer has had to withdraw or anything, everything has been successful. So I think as an investor and a long-term believer in the company, it's just a frustration that things aren't picking up faster, but I understand patience.

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

James Deller: Thank you, everyone. As always, your interest and taking the time to participate today. We look forward to updating you regarding our developments and speaking with you on our next call.

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