ClearSign Technologies Corporation Common Stock (DE) Water Tower Research Virtual Insights Conference

Peter, thank you very much. Always a pleasure to be here.

First, ClearSign Technologies' safe harbor statements can be found on the investor tab of the company website. Next, investor questions are welcome throughout. Please enter them in the chat box and we'll make sure that those are delivered to Jim and his team. Very important here, if you'd like to request a meeting with ClearSign management, you can indicate that through the conference portal. With that, let's get started here. Jim, for investors joining us today who may be new to ClearSign, could you walk us through what the company does, the problem that you're solving for industrial operators, and how you've structured the business to address that?

Yeah, certainly. Thank you, Peter. We describe ourselves as an industrial technology company. We specialize in flames, right? We have IP and expertise that allows us to control the way flames are structured. What's important is we can make sure the flames do what they need to do, but we can also control the chemistry that forms pollution. Essentially, we can make flames that don't make pollution, or keep pollution down to the levels required by the latest regulations so that our customers don't have to put very expensive backend cleanup systems on their heaters. That is a very big savings for our customers.

If you've ever cooked with your kids in the kitchen, and all the work you have to do to clean up the mess afterwards, and then you have that conversation, "Hey, it would just be much easier if you didn't make the mess in the first place," that's pretty much the way that we're addressing the industrial pollution with our customers. As you said, we are a small company in a truly global marketplace. We have very sophisticated customers like oil refineries, petrochemical companies, that have large asset needs that we don't have. ClearSign is small, but we've come up with a strategy of forming significant collaborative partnerships with majors in the industry that have those assets and come up with relationships that are truly win-win for us and them. That allows us to have access to their assets.

It allows them to sell burners into the very low emissions part of the market that extends beyond the range of their equipment themselves. So it is a win-win for both. They also get to manufacture our equipment in their specialized shops, and they get profit in that. So these relations are set up on a win-win basis. On the sales front, we are able to work with a lot of our customers so that they carry our products in their offerings to their customers. So by setting it up that way, they essentially become an extension of the sales arm for us. While we are small, we can actually get a very extensive reach through the way that we have structured the business.

Something important, I think, for investors to understand, I would like to draw their attention to this, just to remind that your company is related to NOx regulations. This is not something that is tied at all to carbon policy. With that in mind, how would you characterize where that regulatory landscape kind of stands today across those key markets, and how much runway does this compliance cycle related to NOx give your company as a growth driver?

Yeah. Thank you, Peter. I think that is very important, right? The NOx regulations are one of the criteria pollutants that date right back to the formation of the EPA. It is a very big part of ground level ozone and the toxins at ground level. So our industry is driven by the need of local regulators to tighten up on emissions to maintain clean, safe air at ground level, and there are specific thresholds that the EPA mandates to the local regulators that drives their tightening of emissions. For timing, our biggest markets today are in California and Texas. The California modern emissions regulations have been out for about 5 years now. There has actually been very little equipment installed, so we are actually seeing a lot of activity now as the refineries get to crunch time that they are having to start to act on those regulations.

The biggest market for us in the U.S. is the Texas Gulf Coast. What is really exciting there, the TCEQ, the local regulators of those regions, are just rolling out new regulations there, tightening up on the NOx emissions from oil refineries and petrochemical plant down in that area. Fees on those regulations are due to start in 2017, and we are already receiving a lot of inquiries from the plant, the refineries, and the petrochemical companies down in that area as they look to address their equipment. When we look at the timeline, it typically takes 5 to 10 years. We have already seen the lag on the California sites, so 5 to 10 years to implement those regions. Beyond that, we do not see that as limiting. We are already seeing tightening of regulations and needs coming out of Canada.

We're seeing the regulations start to change in certain areas of the petrochemical business in Europe. As population grows and more and more hydrocarbons are burned, the ground level toxins increase, just requiring tighter regulations wherever that occurs. It's a rolling phenomenon. Just right now, our key markets are just getting very active with the latest regulations, which is exactly the pain point of customers that we're targeting with the ClearSign technology.

Let's talk about the technology itself and the impact it has on your customers. So really in kind of plain terms here, what are you doing differently to combat the NOx emissions when compared to, say, those traditional approaches, and how does that kind of change the economics for your customers?

Yeah. This is really fundamental to us. So, in a way, I explained that we specialize in flames and flame structure. If you get to control the way that flames are formed, you get to control the chemistry, you can not make the pollutant emissions in the first place. To put numbers to this, we have a project in-house for a California refinery, and they gave us their estimate for the cost of implementing one of the selective catalytic reduction systems. This is the large backend cleanup system. You basically spray ammonia or urea ahead of this big catalytic deck. It forces the chemical reaction and removes the NOx from the flue gases before it gets emitted into the atmosphere. It works. It's been around for years. It's extremely expensive. Their estimate for two heaters for this project was $50 million. They've come to ClearSign. Our burners are designed so we just don't make emissions in the first place.

Our burners will plug in. They'll take their existing burners out. Our burners will plug into the existing holes. They'll be straight, just standard operation. Our estimate for them using our technology is just under $10 million. A large refinery will have 40 to 50 heaters on a refinery. The cost to implement an SCR across that refinery, to comply with modern emissions, if they did that on every heater, would be in the region of half a billion dollars. If ClearSign's coming in about 20% of that cost, you can imagine that we're saving, or have the potential to save that refinery about $400 million. So there's a very meaningful cost saving for the customer.

You also, in terms of the landscape, or your asset light model, you compete against some very large, long-established burner suppliers. Yet ClearSign outsources most of its manufacturing to one of those companies. Could you talk about the Zeeco relationship? What that gives you that readily you will not be building on your own, and where you believe your durable advantages lie?

Yeah. This is part of the fundamental strategy. When I took over at ClearSign, I realized, all right, we have to be able to sell our equipment in a way that our customers are used to buying it. They have certain specific requirements. One is they require that process burners are demonstrated at full scale for article number 1 before you go and manufacture the full order. They require that the equipment is manufactured in a shop that they have certified. So they look at the quality control system, and they need to know the shop. We get that by working with one of the global majors, which is, in our case, we have a collaborative partnership with Zeeco. Working with them gives us instant credibility in the market. Everyone recognizes them. Zeeco is truly one of the top 2 global manufacturers of combustion equipment.