ClearSign Technologies Corp (CLIR) 2018 Q4 法說會逐字稿

Good afternoon, and welcome to the ClearSign Combustion Corporation Full Year 2018 Conference Call. (Operator Instructions) Please note this event is being recorded.

At this time, I would like to turn the conference over to Lou Basenese, Vice President of Corporate Communications. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to the ClearSign Combustion Corporation Full Year and Fourth Quarter 2018 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 factors section of the 2018 annual report on Form 10-K. 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 with me today are Rob Hoffman, ClearSign's Interim CEO and Chairman of the Board; Jim Deller, ClearSign's President; and Brian Fike, ClearSign's Chief Financial Officer.

With that, now I'd like to turn the call over to Brian Fike. Please go ahead, Brian.

Thank you, Lou, and thank you to everyone for joining us today. Before I turn the call over to Rob, I'll review our preliminary results of operations for the full year that ended on December 31, 2018.

For the full year, revenue was $530,000 compared to revenue of $540,000 for the full year of 2017. The net loss from 12 months ended December 31, 2018, was $9.5 million compared to $9.7 million in the same period of 2017. Shares outstanding on December 31, 2018, were 26,697,261. Our cash resources were about $15.8 million at the end of the year. 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.

With that, I'd like to turn the call over to our Interim CEO and Chairman of the Board, Rob Hoffman. Please go ahead, Rob.

Thank you, Brian, for that financial update. I would also like to take this opportunity to thank Lou Basenese for his services. He joined the company in a transition role roughly a year ago to add an investor-centric focus to our team. But with the newly constituted board in place with deep Wall Street experience, Lou will be finishing out his time with the company at the end of the quarter.

I would like to thank and welcome everyone to the call. I thought that I would start today's call by reviewing the progress we made in the past year here at ClearSign, then I will take great pleasure introducing everyone to Jim Deller, our new President and incoming CEO, who will provide some details regarding his background and, most importantly, share why he is excited about the future of our company.

2018 proved to be a year behind the scenes operational progress, while at the same time it has been quite a transition year for the company in terms of leadership. We have covered a lot of ground, but we still have a lot of work ahead of us. While ClearSign continues to make progress on the technological and innovation front, which I'll cover in greater detail later in the call, there is a universal frustration among both the board and our management team that our activities have yet to translate into sales.

While there are explanations for some of our lack of financial progress, I don't want anyone to think that they are excuses. We have virtually an entirely new Board of Directors versus this time last year, and welcomed a new leader who started this past Monday. These changes have already translated into a renewed sense of energy and excitement throughout the company.

Having said that, I urge investors to be patient as we work to translate that energy, excitement and technological innovation into a complete review of our existing strategic plan to ensure it's best suited to attack the best market verticals that Duplex participates in. We are focused on getting results.

Last year, the company raised capital twice. At the end of February through a public underwritten offering and then in July through a capital raise provided by clirSPV, an investment group I organized for the sole purpose of investing in ClearSign. Both raises were done at a price of $2.25 per share. In fact, the SPV could have attempted to negotiate a lower purchase price given that the shares were trading under $2 per share at the time of the closing.

In minds of the investors who make up the numbers of the SPV, however, it was important to immediately establish a track record of shareholder fairness. The SPV does not own a preferred stock or a preferential piece of paper. We own common equity that is treated pari passu with all Clear shareholders, and my goal as the general partner of the SPV is simple: To do everything in my power to help create a company whose stock price will be significantly higher in the coming years.

So for those of you who have owned Clear's shares for years, first of all, thank you for your continued support. But I also must ask a favor: Look forward, not backwards. While I personally began to purchase shares in 2017, my investment in Clear began in earnest a mere 7 months ago. While I too am frustrated by the company's lack of revenue, I'm proud of the substantive changes we have made to both the board as well as to management.

Susanne Meline joined the firm shortly after the public offering last February. I joined in late July, while fellow shareholders Jim Simmons and Bruce Pate joined in December and late January, respectively. As I said earlier, Jim Deller has been on board for a mere 3 days. The entire board and management is cognizant of and completely share the frustrations of the past 5-plus years.

Over half of the board has owned shares in ClearSign since it was private. Having said that, in order to relentlessly focus on the entire windshield in front of us, we need to spend less time talking about what we see in the rearview mirror. Our new management team is looking at the company's future with great optimism.

The capital raise, as I mentioned, have positioned the company with one of the strongest balance sheets in its history. That balance sheet strength also enables us to recruit a CEO with the credentials and experience of a Jim Deller. But Jim is not joining ClearSign believing that he has an overflowing cookie jar, but rather with a knowledge that our current spend rate with 0 revenue is untenable. He does not have all the answers today. And one of my personal goals that is universally shared by my fellow board members is to give Jim the ability to focus exclusively on the strategic and sales side of ClearSign in the coming months.

For those of you wondering why Jim is joining as President with the CEO title not coming until April, it is for precisely this reason. I will continue to lead the regulatory and Investor Relation efforts of the company for the coming month or so and will continue to be involved in both moving forward. But at a minimum, we wanted Jim to be singularly focused on the strategy and managerial aspects of the company directly out of the chute, including addressing corporate culture.

Before turning the call over to Jim to introduce himself, I wanted to briefly cover the recent solicitation for a special meeting. We're happy that it was resolved in a timely and amicable manner. That was possible because the initiators of this solicitation for a special meeting and the board were in almost perfect alignment. We both wanted the company and a disruptive technology that is Duplex to succeed. In fact, virtually all of the substantive requests were already in process, those being new leadership at both the board and the management levels. So it shouldn't come as a great surprise that our agreement was consistent with the transition outlined at our November conference call.

Perhaps the most significant accomplishment in 2018 by both the former and new board was the nationwide search we conducted with the admirable assistance of executive search firm Caldwell Partners. While the initial CEO finalists were culled down by the "2018 board" from dozens of qualified resumes presented by Caldwell, the 2019 board was virtually in place to interview and select the finalists. I am also pleased to report that our selection of Jim Deller was enthusiastically unanimous. After I allow Jim to introduce himself and when you hear his rationale for joining ClearSign, I'm sure you will all agree that we indeed made an excellent choice.

So without further ado, and I speak for the entire team here at ClearSign, when I say, "Welcome Jim, we are excited to have you join and lead the team."

With that, I will turn the call over to ClearSign's President and new leader, Jim Deller.

Thank you, Rob. I appreciate the warm welcome. The purpose of this call, I think it makes sense to first give a bit of my background and discuss why I came to ClearSign, then I'd like to discuss what I foresee as my role here and how we can leverage my experience and skills to move ClearSign forward into next phase of growth.

I have over 28 years of burner experience and most recently led the Honeywell UOP Callidus burner business worldwide. I began my career at Hamworthy Combustion in the United Kingdom, while also completing my PhD with a thesis titled The Control of NOx Emissions from Power Utility Burners. This fundamental knowledge of combustion and NOx formation has served me well in my career, and I believe we'll continue to do so as we develop and commercialize ClearSign's technologies.

In 1996, I relocated to the United States and joined Callidus, which at the time was still being established in the industry. I started out in project engineering and sales. And over the course of 10 years, including many providing service on customer sites around the world, advanced to serve as a Chief Combustion Engineer and manager of burner order execution. In 2010, I was promoted to oversee the global Callidus burner business, which covers refining and petrochemical applications.

During my tenure, we introduced new burner technology, focusing on the full life cycle needs of our customers. It also greatly expanded our international business and developed a dominant market position in a high-tech (inaudible) refining and ethylene burner market in China. Most recently, I had the responsibility of serving as the interim Global Operations Director for the entire Callidus business, which includes flares and thermal oxidizers in addition to burners.

Whenever competing with ClearSign, I've been aware and intrigued by the ClearSign technology for many years. Its low NOx performance greatly exceeds the mainstream burners available today, and our company has made great strides raising awareness and demonstrating these capabilities. My confidence in this technology and this market potential was the primary motivation behind my decision to take on this new and very exciting position. I believe my technical background, my specific experience in the global combustion equipment market and my strategic business development abilities are uniquely aligned with the opportunities ahead for ClearSign.

As I see it, the path ahead is to fully develop and commercialize this great technology. The traditional burner supply business is very competitive and has high barriers to entry in terms of the infrastructure requirements and the understandably very careful nature of our customers. There are business model variations which may be different from the traditional burner supply business that should be considered and consider ClearSign's attempt to accelerate commercialization well.

My plan is to address and develop these with input from my customers and potential channel and collaboration partners as we seek to transform ClearSign to commercial success. Being so new to position, I can't give any more specific information today but will provide updates in the future. To date, the company has made great advancements in introducing disruptive and unique ClearSign technology to the market and earning the recognition and respect it has in the industry today. I'm excited to work with the ClearSign team to build on this achievement. I look forward to the work ahead.

With that, I'd like to bring Rob back on the call for some additional comments and operational updates. Rob?

Thank you, Jim. Hopefully, those of you on the call will appreciate the exceptional breadth of Jim's experience, especially as it pertains to the industrial burner space. He really has done it all. From studying to implementing to selling to managing, we are really, truly excited to have Jim on board.

In light of all the management transitions in 2018, I'm happy to report it did not distract our team from making important progress. But as I said before, much of this progress did not translate into sales yet, but we believe that these achievements form an important foundation for future revenue.

In the past year, we successfully completed follow-on installations in our OTSG, or Once Through Steam Generator, as well as in flare segment. We believe that both categories, primarily located in Southern California, remain fertile for future Duplex adoption, pending the anticipated clarification of environmental regulations.

We developed, successfully installed and are operating a larger-scale Duplex plug-and-play burner at a Southern California refinery. Not only is this refinery very pleased with the performance of Duplex, but they're more than willing to allow prospective ClearSign customers the ability to see the units in action. In fact, Jim will be attending a demonstration for a group there on Friday.

We reached a key R&D milestone in our work developing a pre-engineered fire-tube boiler burner, reaching a stretch goal and the industry-first performance of NOx emissions of 5 parts per million and 3% oxygen concentrations. As we have mentioned in the past, the market for fire-tube boilers is perhaps the largest vertical that Duplex can address.

I'm also happy to report that our first announced super major, Exxon, has chosen a site for our initial installation. I should also add that many investors, including myself, underestimated the length and depth of pre-evaluation and engineering that a company like ExxonMobil needs to go through prior to installing even a small number of burners. But we must also remember that a small number of burners is not their goal. While we can do everything in our power to ensure that we immediately provide responses to all of their requested questions, we do not have control over the speed, the timing or the protocol of excellence internal processes for doing business with new vendors.

We also recently announced the final approvals for World Oil to be a partner on the previously announced South Coast Air Quality Management District project that will be jointly funded by World Oil, the district and ourselves. The project's purpose is to demonstrate clear Duplex technology as a solution to achieve ultralow emission levels in refinery process heaters and other types of fired equipment.

Again, many investors anticipate that we would be further along, given that this partnership with a different company was initially announced in the fall of 2017. When the first company backed out for reasons completely unrelated to Duplex, not only did we need to find and qualify World Oil as an appropriate partner, but essentially the approval process from the air quality district had to be duplicated with committee and then the full board approval being driven in large part by the different meeting schedules with the respective entities.

But to paraphrase a questioner from our last call asking whether having a regulatory body invest in a new technology questioning whether that was a big deal, the answer is an emphatic yes. The aforementioned Friday plug-and-play demonstration that Jim is attending is for the staff of the district at that existing installation.

The final project I will directly comment on today is the work we have been doing for a major Chinese heating district customer. I don't think I need to review how large a potential market China could become for ClearSign, nor why having the district heating market would be an ideal entree for the firm. But one of the retrofit challenges that has faced ClearSign since we started the project was the necessity of modifying an extremely large 100 million BTU per hour European swirl-stabilized burner that's already installed at the heating district and how we best can achieve a smooth and consistent transition with our ClearSign technology from this European deep burner mode to the Duplex mode.

Since this is a retrofit project, which in the Chinese burner boiler segment will be the majority of our business, it is of critical importance for us to develop a way to transition in a reliable, cost-effective, replicable and automated manner. Not only is this boiler virtually twice as large as anything else we have done before, but it specs and geometry were unique as well as being halfway around the globe from us.

I am pleased to report that this past November 2018, we were able to overcome certain technological challenges posed by the boiler and successfully transitioned from the traditional burner mode to our Duplex mode. From November 18 until now, our ClearSign technical team has developed and upgraded the ClearSign's system. And in January -- this past January of '19, we again successfully demonstrated to the heating district senior management successful transitioning of an upgraded version of our Duplex system using a ceramic material, the same material successfully used in our plug-and-play offerings. We have a team in place in China as we speak working on further optimizing the Duplex system.

Closer to home, we are constantly monitoring the changes being proposed by the 2 major California air quality districts and continue to believe that the eventually promulgated rules will benefit the adoption of Duplex.

Looking forward, we remain encouraged by continued commercial interest, which we expect will spark brighter as the aforementioned regulatory clouds clear. In light of Jim's recent arrival and expertise in this area, however, it's only appropriate for us to afford him the time to get a handle on all our active commercial discussions before providing investors with an updated outlook on the size of the market and probabilities of success.

All that being said, I speak for the entire board and company when I say we remain encouraged about the next phase of growth for ClearSign in 2019 and beyond, especially since we are entering the year with a refreshed and committed board and experienced CEO with a track record of scaling burner businesses worldwide and sufficient capital to allow for a comprehensive review and revision of corporate strategies, priorities with the goal to maximize shareholder value.

With that, I'd like to open up the call to Q&A. Operator, can we please open up the call to questions?

(Operator Instructions) And the first question will be from [Jeff Feinglas, Retail].

Welcome, Dr. Deller, to the great northwest. Although I will forewarn you that the Mexican food and barbecue are not as good as from whence you came, but you'll -- I'm sure you'll make do. My question surrounds -- in the past conference calls we talked about 75 commercial opportunities in the pipeline. Is there -- can you give us an update or status on each of those or color on those?

[Jeff], I'll let Jim respond to your culinary comments. But I think what we try to do in the prepared commentary is to comment on a couple of the major ones. Obviously, we talked about Exxon. We talked about China. We talked about World Oil. Those opportunities were in that number of 75. But I think what we also mentioned is that we want to give Jim a fair amount of time to -- and I'm going to actually let him go through it a little bit, give him some time to get his arms around how we talk about opportunities. Jim?

Well, [Jeff], I appreciate your input, and I can assure you I'm being well fed. But as to the list of interest that we have, at this stage, being so new, it's extremely borne by really get to understand the needs and the nature of these inquiries, but also to get some direct feedback from our customers and the major players in the industry [and certainly] before giving any [relative] feedback. The next few weeks [and sort of] few months, I will be traveling around talking to the potential (inaudible) partners to the major customers and also to a lot of the people who have expressed interest in the past to really get a good understanding of how ClearSign is perceived and to chart the most effective path for ClearSign to develop and certainly for the commercialization of the ClearSign products.

(Operator Instructions) And in showing no questions in the queue, we will conclude the question-and-answer session. I would like to hand...

[Why don't we -- let's --] I will just -- I will thank everybody, but if -- sometimes I know I've been on these type of calls and the call gets cut off, I was just about to ask a question. So I'll just give it another couple of seconds.

(Operator Instructions)

All right. Well, thank you, [Jeff], for your question, but I'd like to ask and thank all investors for participating on the call and for their continued interest in ClearSign, and we will be chatting again in a couple of months.

Thanks again.

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation.

At this time, you may disconnect your lines.