ClearSign Technologies Corporation (NASDAQ:CLIR) is a leading provider of innovative combustion solutions that are designed to significantly improve key performance characteristics of industrial and commercial systems. The company's patented technologies, ClearSign Core™ and ClearSign Eye™, have been proven to enhance operational performance, energy efficiency, emission reduction, and overall cost-effectiveness across a wide range of industries, including energy, commercial/industrial boiler, chemical, petrochemical, and power.

Business Overview

ClearSign was originally incorporated in 2008 and is headquartered in Tulsa, Oklahoma. The company's primary technology, ClearSign Core, achieves very low emissions without the need for selective catalytic reduction. ClearSign has also developed its ClearSign Eye sensor technology, which has applications beyond the company's core combustion business.

ClearSign's technologies are currently in field development, with the company generating $2,403,000 in annual revenue and reporting a net loss of $5,194,000 in fiscal year 2023. The company has incurred losses since inception totaling $92.8 million and expects to experience operating losses and negative cash flow for the foreseeable future. However, ClearSign has made significant progress in commercializing its products, with the first customer installations now operating in normal commercial applications.

Financials

In the first quarter of 2024, ClearSign reported revenues of $1,100,000, a significant increase from $900,000 in the same period of 2023. This growth was driven by two separate performance obligations for two customers - a shipment of multiple process burners to a California refinery and the sign-off of a computational fluid dynamic (CFD) study.

Gross margin for the first quarter of 2024 was 39.7%, a substantial improvement from 11.9% in the same period of 2023. The increase in gross margin was primarily due to the higher-margin profile of the process burner sales, compared to the lower-margin burner performance testing revenue in the prior-year quarter.

The company's net loss for the first quarter of 2024 was $1,100,000, a favorable decrease of $300,000 compared to the prior-year period. This improvement was directly correlated to the increase in gross profit and higher sales volume.

Liquidity

ClearSign's cash balance as of March 31, 2024, was $46,600,000. This figure does not include the $8,700,000 in net cash raised through recent equity offerings, which were completed after the quarter-end.

Operational Highlights

ClearSign has made significant progress in its key business segments, including process burners and boiler burners.

Process Burners

In the process burner segment, ClearSign announced the successful completion of source testing for the second heater at the Kern Energy refinery. This was the company's second significant retrofit project, with the heaters featuring fuel gas that varies significantly in hydrogen content, ranging from 0% to 80%. Following the successful testing, Kern Energy placed two additional orders with ClearSign for the detailed engineering of burners to be installed in two more heaters at the refinery.

ClearSign also has a 20-burner order for a Los Angeles-area refiner in production, with the final witness testing completed and the burners now being fabricated by the company's partner, Zeeco. These burners are scheduled for shipment to the customer in the third quarter of 2024.

The company has seen a significant increase in inquiries from end-user refiners, with engineering companies reaching out to ClearSign to include the company's solutions in their evaluations. This includes interest from Europe, which is an encouraging development.

Boiler Burners

In the boiler burner segment, ClearSign and its partner, Rogue, have a steady cadence of customer inquiries and a growing sales funnel. Key opportunities since the last update cover a wide range of industries, including high-tech production facilities, education facilities, food and beverage producers, and industrial manufacturers.

ClearSign has the first in a series of four burners in production for an induced processing company in Central California. The company also has a large 1,200 horsepower boiler burner for a recycling company in Central California, which is scheduled to start up in the next few weeks. This will be ClearSign's first burner in the largest size range, requiring a 2.5 parts per million NOx guarantee, and is expected to provide a significant reference in the industry.

Hydrogen Burner Development

ClearSign's Department of Energy-funded hydrogen burner development project has made significant progress. The company has installed the first commercial version of the hydrogen burner in a test furnace at its partner, Zeeco, and the results have exceeded expectations, with NOx emissions as low as 4 parts per million using 100% hydrogen fuel. Due to these promising results, ClearSign anticipates being able to accelerate the commercial availability of this new burner design.

The hydrogen burner has gained significant interest among ClearSign's customer base, with clients expressing interest in the prospect of upgrading the company's current burner technology to a 100% hydrogen-capable version while maintaining the same emissions profile.

Sensing Technology Partnership

ClearSign has also made progress in its sensing technology partnership with Narion Corporation. Narion's CEO, Eddie Kwon, recently presented at a conference on the implementation of sensors to increase efficiency and safety in the aerospace industry. The ClearSign-developed sensing technology has the ability to measure the flammability or propensity to ignite of a gas mixture, as well as the presence of a flame and the rate at which it travels. These capabilities have applications in the transport sector, particularly in aircraft, and in rotating detonation engines, which have significant military applications.

While the sensing technology partnership with Narion is a longer-term prospect, the potential market is vast, and ClearSign stands to benefit from any successful commercialization of the technology through a licensing arrangement.

Outlook

ClearSign's business is in a good position, with two consecutive quarters of revenues above $1 million and a growing order backlog in both the process and boiler burner product lines. The company's initial installations are helping to establish its technology in the industry and are generating increased interest from potential customers.

The company's top priority at this time is growing its sales. ClearSign now has developed technology and first installations of operational and client sites in all its major product lines, providing valuable references for prospective customers. The company's goal is to leverage these references and recent achievements, such as the two Best Available Control Technology determinations received earlier this year, to increase awareness and acceptance of ClearSign's solutions in the market.

ClearSign is also focused on the constant development of its technology and product lines. The progress in the hydrogen burner project and the interest it has already received in the industry have been significant. The company is also making substantial progress in the ongoing development of its new horizontally fired process burner product line, which is expected to enhance the growth of the ClearSign business.

Upcoming milestones for the company include the anticipated start-up of the 1,200 horsepower, 2.5 parts per million NOx guaranteed boiler burner for the recycling company in California, as well as the shipping of the first boiler burner in a series of four for a fruit and vegetable multi-juice processing company in California.

Risks and Challenges

While ClearSign has made significant progress, the company continues to face challenges common to early-stage technology companies. The company has incurred losses since inception and expects to experience operating losses and negative cash flow for the foreseeable future. ClearSign's ability to generate meaningful revenues is dependent on its technologies gaining market recognition and acceptance, as well as the company's ability to secure adequate funding through co-development agreements, strategic partnerships, or equity/debt financing.

Additionally, the company operates in a highly competitive industry, and emerging technologies may outpace ClearSign's offerings. Regulatory changes and customer demand for the company's products and services also pose risks to the business.

Conclusion

ClearSign Technologies Corporation is a promising player in the industrial combustion solutions market, with a growing portfolio of innovative technologies and a strong focus on emission reduction and energy efficiency. The company has made significant progress in commercializing its products, with the first customer installations now operating in normal commercial applications. ClearSign's recent financial performance, operational highlights, and growth opportunities suggest the company is well-positioned to capitalize on the increasing demand for clean and efficient combustion solutions across a variety of industries. However, the company continues to face the challenges common to early-stage technology companies, including the need for ongoing funding and the risk of emerging competition. Investors should closely monitor ClearSign's progress as it navigates these challenges and works to establish its technologies as industry standards.