ClearSign Combustion's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.11.14 | About: ClearSign Combustion (CLIR)

Start Time: 16:37

End Time: 17:26

ClearSign Combustion Corp. (NASDAQ:CLIR)

Q4 2013 Earnings Conference Call

March 12, 2014 04:30 PM ET

Executives

Rick Rutkowski - CEO

Jim Harmon - CFO

Analysts

Operator

Operator

Good afternoon and welcome to the ClearSign Combustion Corporation 2013 Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) Before we get started, during the course of this conference call, the Company will be making forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes any projections of earnings, revenues, cash or other financial statements, any statements about plans, strategies or objective of management for future operations, any statements concerning proposed new product, any statements regarding expectations for the success of our products in the U.S. and international markets; the outcome of product research and development; any statements regarding future economic conditions or performance, statements or belief and any statements of assumptions, underlying any of the foregoing.

These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks are described in the section of today’s press release titled cautionary note on forward-looking statements and in the reports we file with the Securities and Exchange Commission. Investors or potential investors should read these risks. ClearSign Combustion Corporation assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. Please note, this event is being recorded.

I’d now like to turn the conference over to Rick Rutkowski, CEO. Please go ahead.

Rick Rutkowski

Thank you, David. Welcome everyone to this afternoon’s call. We do appreciate you joining us and the 2013 is a productive year to look back on. One of the things we’re going to move to pretty quickly, I think the press release pretty fairly does describe some of the milestones we got, so we will review those quickly, but more I want to put us in sort of a thematic framework as we go forward.

So I will begin in just a moment, I would ask Jim Harmon to take us through the financial results for 2013 and I guess I’d report to you that the operating loss that we incurred just under $5.3 million was very much in line with our planned operating expense. So we are -- we do continue to be very much on budget and on plan and have -- are projecting a modest increase in operating expense for 2014, but Jim why don’t you take us through the numbers and then I will take it from there.

Jim Harmon

Very good. Thank you, Rick and I will be brief as Rick has a lot of the prospective commentary that will be helpful to the listeners. As you described, our loss for 2013 was $5.3 million, which was about $1.1 million greater than the 2012 loss. The principle differences -- the principle reasons for the increase related to research and development expenses to the tune of $667,000 increase and which is about 56% increase, and general and administrative expenses increased by $424,000 which was a 14% increase in G&A.

With regard to R&D, that was made up principally by two components that were relatively equal. The first was an increase in compensation expense, because we had added quite a few more employees into the R&D group. We added five employees in 2012 and three employees in 2013; the cumulative effect, difference between the two years was $334,000. That reflects the increased efforts by our research and development group that were substantial of course.

Additionally our laboratory consumable expenses increased not only just the typical small items increasing to about $84,000 -- excuse me, $213,000 versus about $30,000 last year. But in addition, approximately $190,000 of other expenses for completion of gas furnaces of 5 million Btu, test furnace of boiler simulator, a biomass furnace things of that sort. Those things would obviously -- typically would be capitalized, but these are research furnaces with no alternative use. So they’re expensed for under GAAP accounting.

G&A expenses increased by $424,000 and that was made up principally of two equal parts. One is our business development and marketing consulting increased to by about $250,000 to $386,000, so pretty substantial increase there. And then the last part was our expenses of being a public company increased by about $250,000 to approximately $1 million and that was reflective of the fact that we were public for all of 2013 whereas we were public for eight months of 2012. So that takes that into account.

A couple of additional notes, we had nominal amount of revenue totaling about $93,000 and that was related to a solid fuel project that we completed for Covanta Energy Corporation, which is a subsidiary of Covanta Holding. Along with that we recognized a cause of that revenue of about $88,000 for just a modest of gross profit, if you will $5,000. It’s essentially intended to be a cost based program, and I should mention that those costs that we and those resources that we use for that project were resources that we’d largely be otherwise using on other projects. In other words, it’s primarily personnel costs.

The last thing I will mention is with regard to our cash position. So our cash position at the end of 2013 was $2.7 million. However, we completed and most of you know, we completed a raise last week, closed on March 5th, raising a little more than $5.7 million. That was a sale of 812,500 shares at $8 a share net cost -- excuse me, net of the costs with a little more than $5.7 million.

With that, I will throw that back to you, Rick.

Rick Rutkowski

Thanks very much Jim. I guess quick note that is reflected in the press release is that with the addition of that 812,500 shares, we now have little over 9.6 million shares outstanding rounded to 9,650,000 shares.

And we’re very pleased, I think one of the things that we had hoped to accomplish with that financing and indeed did was to bring in some new investors to the Company; new institutional investors to the Company who we think can be great supporters going forward as well. So we welcome them especially to today's call.

Certain expansion we accomplished quite a bit in 2013, we did increase our R&D expenditure and I think thematically either R&D productivity is really a very big story at ClearSign. I mean we’ve always envisioned that we could have a very capital efficient model. Given the scope of the technology that we’re developing here and its potential application, the capital efficiency is really noteworthy.

So in particular there are two areas of achievement that we keenly focused on. The first of course is with Electrodynamic Combustion Control. Jim mentioned some of the work that we did with Covanta. That was really aimed at a scale up and it occurred in the latter part of the year. We have -- we've done a lot of work through the early quarters on NOx remediation in natural gas-fired systems and scaling those up and indeed our first results that we will put it in the late 2012 at a million Btu per hour with gas-fired systems. So we wanted to bring the solid fuel effort up to par with that effort and fortunate enough in this case to find some sponsorship to do that from Covanta.

That was a very successful effort. Its just to sort of tick through the benefits that we generally target, what I usually see is capable of bringing some very powerful and unique effects to solid fuel systems with regard to particular suppression in carbon monoxide, overall thermal efficiency, and thermal efficiency in particular relates to flame shape, which can really have a significant impact on maintenance and unscheduled maintenance and really maximizing the productivity of very expensive capital assets.

So when we sat with Covanta and went through sort of the list of effects and performance features to target and ask them to stack rank it, their number one priority really related to about system capacity and in turn flame shape. And so that scale up effort and we do have some very compelling images and data and even a short film of this which we will publish shortly was indeed very successful. We developed some proprietary electrode technology along the way. It was a challenging environment to work in with electrical charge, because of the fuel itself is conductive, you’re in an environment that tends to be have a lot of (indiscernible) in terms in it.

There were some real fortuitous aspects to this including the fact that silicon carbide, which is a great material to work with is actually in pretty common use today in the anterior of these large bed type stoker-spreader system. So our first effort was to scale our main Btus per hour. We successfully widened the flame waste by about 30% -- shorter the flame by about 30% and effectively created more uniform in distribution which avoids and reduces the potential for unscheduled maintenance, which is a big cost to companies, and also increased furnace capacity by as much as 30%. So you can envision the kind of ROI just from the effect of flame shape, if you can increase the capacity of a fleet of production assets that can be pretty substantial and again envision why this was a priority for them, so now that was a great development.

On the ECC side we also saw some significant advances in component technology, in miniaturizing and cost reducing the high voltage power supply that is key to enabling these systems. And the miniaturization really is important as it’ll allow us to locate those power supplies close to where the power needs to be delivered to avoid long high voltage cable runs and things of that nature. So, a real enabler and of course the cost reduction was dramatic from -- you we normally pay about $50,000 for a 50,000 volt system, we’re able to produce our own proprietary power supply, which is handheld in ways of few ounces instead of a couple of 100 pounds or for few $100 by contrast. And that’s by far been historically the largest element of our building materials with regard to Electrodynamic Combustion Control.

So in terms of the prospective view of that, we expect our partnering to continue. Covanta will likely to be joined by five or six other companies in the initial go around where we’re sort of forming a consortium where folks have a common interest in solid fuels. You will find these kinds of systems, the same types of systems that Covanta use to burn municipal solid waste are used by forest products companies like Plum Creek and Georgia-Pacific and Weyerhaeuser, were used by companies like American Sugar Refiners to process and burn sugarcane waste, so these are used in those kind of industries.

So there is a shared interest in these kinds of systems and we should have some means to report probably not in the current quarter, we’re just a few weeks away from end of the quarter, but I think sometimes during the second quarter about who’s likely to be in that sort of first event of consortium, participation. We might continue to focus as we scale up that system on particular matter, and with the special focus on what we call PM2.5. If any of you have followed any of the recent headlines especially with regard to China, that’s a significant issue. I met two weeks ago in Beijing with one of the largest utilities. In China we had a very long conversation about this, talked about some ways in (indiscernible) to collaborate and CLIR technology up and there are other aspects to that – an (indiscernible) touch on as well.

But I think as I promised earlier, I want to sort of put a thematic context around this and I guess what I meant by that is that, if we look at 2013, 2013 was a year of developing and demonstrating technology, scaling it up, demonstrating that we’ve achieved some what it ended up being some very, very powerful effects and I think that it exceeded our expectations. And then really transitioning, using the results of that -- those development efforts to attract commercial partners early adopter commercial customers for the technology. And so 2014, if I were to describe thematically I would say it’s about commercialization and collaboration in the context of that commercialization our model is very much to partner. Our model is also to identify high value segments of the market. In particular, I will echo a few you heard before. We’ve been focused on refinery process heaters. We’ve been focused on packaged boilers and as I’ve just been discussing, we’ve been focused on the industrial scale combustion of solid fuel with scale up to utility scale systems to follow accordingly from there.

With regard to that effort, we were approached in the latter part of 2012 initially by a customer, a partner -- a prospective partner in the refinery space with a challenge regarding flame shape. This is a pervasive and expensive problem for refinery process heaters using low NOx burners. And it really is -- I had the opportunity recently to look at a -- what a bad flame pattern or flame shape looks like inside a furnace and you can just see that flame just kind of tearing at, flying at those process tubes. And then when the process tubes do get damaged, the system has to be shut down, the bottom of the tubes are sort of, new ones are welded into place and the real cost is not that capital in that labor which is expensive and (indiscernible) loss of that production capacity. And this is an analogist to what we see even in these ways to energy systems. But these are truly pressing problems.

We were approached with the challenge of shortening flame length and not making NOx go back up. What we achieved, well was to dramatically shorten flame length we were originally asked to shorten it by 30%, we shortened it by 90%, we didn’t make NOx go back up from 20 parts per million. We brought it down to two parts per million. So we exceeded our expectations and expectations really at the marketplace.

And one of the things I was to pound the table about a little bit because I think if you are looking at ClearSign as an investment and evaluating ClearSign as an investment, one of the things that we would really encourage folks to do is really dig in and do some diligence on the Duplex technology in particular simply because that one is moving to market very, very quickly and that’s part of the power of this. So what we ended up producing in response to that request, NOx control technology that is we think clearly disruptive, because not only it does get uniquely in the marketplace to lower single-digit NOx emissions numbers, but in the process it solves several well-known problems. I mentioned the problem of (indiscernible) there is also the cost of flue gas recirculation and increased excess air, which are known costs associated with operating NOx control or low NOx burners and packaged boilers and things of that nature.

So this is a truly remarkable piece of innovation -- I’d use the word elegant to describe it, because it solves so many problems simultaneously. Just as we’ve seen it scale rapidly in the laboratory both in size, we are now operating in two -- we’re able to operate in two different commercial configurations and up for a natural gas system that’s representative of refinery heaters and outside fired force strap system that is representative of packaged boilers, we scaled those both up to about 2 million Btus per hour.

We very rapidly went from in the 8, 9 parts per million all the way down to 2 parts per million and virtually zero carbon monoxide. So what we were able to quickly discern is that this is a technology that was going to hurt us a very rapid trajectory. As we look at the other boxes that we need to check, we need to check the reliability box, the producibility or manufacturability box, the survivability and lifetime box. And indeed we feel great about all of those things. This is a -- these other challenge that is a well-known challenge associated with gas-fired systems was heat transfer and radiance and that Duplex offers an advantage there, it turns out that the tile is actually a better immersive radiator that flame by itself. So this is a truly -- we think disruptive piece of technology that it gives us some broad market potential.

So I will just reiterate for a moment that with respect to this technology we’re targeting in refinery process heater, we’re targeting packaged boilers which exist in large volume in the U.S., about 275,000 above the 3, 4 million Btu per hour level, 60,000 and then 10 to 20 million Btu per hour level and these systems broadly speaking have significant challenges related to the cost of NOx control systems. And by that I mean not just the capital costs, but the ongoing costs of ownership and again this is kind of where we can really dig in and throw some powerful members.

We’ve gotten in addition to a strong reception from prospective customers and partners. We’ve also gotten a very keen level of interest from environmental regulators at the regional level and at the federal national level who are really intrigued by this system. We’ve gotten as we’d guess keen level of interest from natural gas producers, most of those are big oil companies as well as the utilities that delivered natural gas to their customers and indeed I think as of some of our recent presentations at the Energy Solutions Council for example, I think we’re going to be able to look to some support as we go from commercial -- the first commercial article to install more pilot systems I think what we may see some support from those partners as well.

So let me talk a little bit about partner (indiscernible) and market opportunities. I mentioned refinery process here, I mentioned packaged boilers. One that I haven't mentioned is something we call [through] [ph] steam generator which is a very, very hard boiler. These tend to be 40, 50, as much as 80 million Btus per hour. They are used pervasively anytime you see heavy oil production, because in order to move heavy oil or to pump it, to do anything where that you’ve got to heat it. And in order to heat it, you pump steam into the ground. So at the single field you may see 120 of these or more in the State of California, there are about 1,000 of these things. In Alberta there is many more and other areas where heavy oil is found many more than that.

We think there is a real opportunity here. We have a customer in hand particular who is pulling very hard, we believe we’re going to be able to perform an early installation of one of these systems. And we believe it represents a significant market opportunity on the order of several hundred thousand to $0.5 million per unit. And again a 1000 units just in the State of California, so a very, very large market and again in this case we’ve actually going to sort out by these customer who’re unable to really find solutions to these NOx control problems readily available in the market, but more than willing to work with us on bringing new technology to market.

So we’ve some of the situation occurring in the refinery process heater world. I think we’d be able to look to potentially install some pilot site demonstrations on customer sites as well as engage in commercial partnering. With respect to package boilers we’re in advanced discussions with one or more partners in that domain and I think there is a great commonality in terms of how we perceive the opportunity. We both in case see an opportunity to achieve a best available control technology designation in the longer term. We see an opportunity to certainly deliver to markets like California which has very aggressive regulations which frankly people are having a real trouble maintaining cost effectively without resorting to expensive after treatment add-ons like selective catalytic reduction. But the use of excess air anytime you regulate it off for NOx, I mean, [ph] just an off the shelf burner is going to give you a native form about 50 parts per million of NOx, but to get down into those, sort of client parts demand they’re typically still talking about some combination of either flue gas recirculation or increased excess air, and the annual cost of that by itself is significant. So we’ve done an analysis that looks at that annual cost and we’ve made a big dent and vertically eliminate 100s of 1000s of dollars in annual operating cost from these systems. So what we think that give us is pricing power. And when we combine that pricing power look at our, building materials, our modest building materials and a relatively straightforward engineering that’s required to install the Duplex we feel very good about the prospects for being able to combine an increased profitability with pricing power, with strong customer benefit and rapid ROI. We think we deliver the systems very profitably well within a two year payback period it would be very compelling to system [management] [ph] operators and in fact it models well even though the faster payback in that.

So that’s very encouraging, as we said there is 60,000 of these larger systems, 275,000 all in the potential for backed would be a very exciting one. It would see potentially broad adoption of the technology and we’re now in the process of kind of aligning our business model, an analysis of the business opportunity with perspective partners. We should be able to report something to you in that regard in a matter of weeks on whether that’s just prior to 3/31 or soon after is a little difficult to say, but I think we’re talking about in that timeframe as we discussed.

I think with the new development here, the new twist is that we’re actually going to accelerate; it looks like installation of commercial systems into the current year and at least one or two of those in the first half of this year relating to very significant opportunities. The other thing I think that exceeds our expectations as compared to the last time we spoke to you is the level and quality of interest coming from overseas both China and in a more recent case Saudi Arabia. I do want to tell you its early going a little bit, but we’re talking to sea level people on the other sides of these conversation to our very well versed in all the refinery process heaters, package boilers.

There was a recent announcement of a conference coming up in Shanghai, bear with me a moment here while I shuffle some papers. But they described a scenario in which they will be retrofitting somewhere in the neighborhood of 500,000 boilers in China. Last year in Beijing about a 1,000 boilers were converted from ultra-natural gas. Shanghai has an initiative in place where all boilers in Shanghai must be converted by 2017. And I am going to read to you from the brochure for the HEATex Boiler Conference, well it's called Boiler Shanghai for 2014 which will be occurring this October.

Energy saving and emission reduction is determined by the state counts one of the national key project planning of the 12th Five Year Plan. Implementation of the project has been accelerated by the concentrated outbreak of the problems of serious air pollution all over the country. According to statistics there are currently about 500,000 small and medium coal fired industrial boilers in China counting the second largest coal burning pollution after coal fired power stations. In response to the calls of National Energy Saving and Emission Reduction Policy there was a nationwide climax in using clean energy to replace coal fired boilers and it's directly driven by the prosperous development of the heating and boiler industry once again. So indeed an interesting twist that there is a kind of an economic stimulus here associated with boiler conversion at a very large scale from industrial boilers. Again we have got a great solution in the message we delivered to some very senior people on Hangzhou and Shanghai as well as Beijing was that, as we do these boiler conversions, our technology will enable you to lead to the fuller front of the state-of-the-art in terms of emissions performance and solve two problems at once moving away from coal to natural gas.

But importantly in that environment, natural gas is not inexpensive the way it is here, so there is a cost to that transition. So we also talk a lot about the need to balance that environmental effort, that emissions control effort with having a minimal impact on the businesses that are creating jobs and driving GDP growth. And indeed if you look a little deeper into that 12th Five Year Plan, the Chinese Government has announced really two top initiatives. Their first one is GDP growth, their second one is what they’re calling the war on pollution. So we think we’re going to be able to form some very compelling partnerships there with them, indeed we continue to have some very constructive discussions with some senior people who are well placed and positioned as perspective partners.

Ideally what we want to do is take the momentum that we have here in the product categories and market segments that we have package boilers, refinery process heaters and translate as much of that as we can into the Chinese market. An important difference and we think in some ways an advantage in the Chinese market is that this conversion effort is underwritten directly by government spending. They have allocated through research reports that we read, there’s as much as $280 billion over the next five years and about $150 billion of that in Beijing alone. The week that I was in Beijing, I was there for a few days before going on to Shanghai and Hangzhou, it was staggeringly bad and some of you have been there; most of you have probably seen pictures. I couldn’t see the hotel across the street from mine. You go outside and your eyes would sting, this is indeed a crisis problem. They shutdown that week a 147 factories and when that happens they continue to pay people, but they pay them at a reduced rate. So you can see why this is now starting to become a real source of civil unrest and that’s, as it's always the case there’s quality of life issue correlates directly to an economic issue. So those two issues of GDP growth and emissions control are really very closely linked and I guess a greater understanding of that right now. So we see that as a major opportunity.

As I mentioned again, early days from some of these other enquires but very senior level folks contacting us from other parts of the world as well. And I think we’re at not for the fact that we have seen Duplex advance in the way that it has, at rate that it has, and with the modest level of investment that’s been required we’d be a little hesitant to be this aggressive, but we think this technology really doesn’t find itself too aggressive and broad commercialization throughout the industry. So I might well bring it back sort of what we’ve seen in the first half of this year partnering on packaged boilers, potential end users, site installations on refinery process heaters and we think that once for the steam generator opportunity is an enormous one. I do want to emphasize that’s, the sweet spot continues to be scaling into this 5 to 10 million Btu per hour range that covers a large segment of the -- both the packaged boiler market as well as the refinery process heater market where you tend to use a rays of burners, so we may have a heater that’s 50 or 60 million Btus per hour or more, but that’s typically a number of 6 to 10 burners. So that’s very much a sweet spot for us. But we do want to -- we now have the confidence that we believe we can scale the system to several times that effort and obviously if we’re successful the payoff we think is enormous, an enormous market opportunity in those large steam generators. So we’re more than happy to undertake that project. We think it can be done very cost effectively. There will be some cost sharing and we think we can have some of those costs underwritten by those customers in both cases.

So that’s pretty exciting, and a way to think about that is as we start to look at technology risk and taking this technology end market, we really covered the gamut in terms of scale. We have got the scale that we’ve been operating at the 1 to 2 million Btus per hour. We have a 5 million Btu per hour furnace constructed on site and ready to go with Duplex and short order here. So that’s kind of as I said sort of a center piece in that sweet spot, but what you’re also going to see in two directions, you’re going to see us try to accelerate a scale up to a much larger system, obviously again small cost big payoff. And as we reported this morning and in our purpose in really putting this piece and it was out this morning also that we could talk about on this call. We did a little (indiscernible) project in response to an enquiry from an air quality regulator who said to us, first of all we have been asked to provide cost and feasibility data for best available retrofit controlled technology. But in the context of those conversations, they asked specifically about residential heaters and about whether the Duplex technology could in fact scale down and scale down to an important point cost effectively for residential heaters and without compromising efficiency and indeed the technology lends itself to both of those things.

So it is early days. I want to emphasize this, but I think what Joe Colannino would tell you -- what he told me is that our confidence level based on these early results 7 parts per million of NOx, 3 parts per million remain of CO, our confidence level is that we are going to be able to achieve the scale down version of it. Now I can’t tell you because it's been a while since we had any conversations with the guys who make residential heaters, but we did this in response as I said to a regulators request and enquiry. We did it very cost effectively, a small (indiscernible) project we basically went to Home Depot, we bought residential water heaters and air heater, pulled the guts out of it, retrofitted it and achieved the results that we’re seeing. There’s some work to do to optimize that, so that those results are continuous and not trenchant, but we think we’ve got a handle on what needs to be done, and as I said I think Joe would tell you that we’re pretty confident there’s a solution.

But the business model there is quite interesting because unlike with these large industrial systems where there’s going to be more cost associated with the scale up and the delivery of those systems to market, this is where it was going to be about building a stable reference model, reference design, bringing those manufacturers, there’s five or six that cover most of the market, there’s one that because this is about 35% market share. And demonstrating the system through them and then licensing the technology sooner that they are as interested as the regulatory authorities are in the system.

So it was a great indication and further support for how robust this technology is and scalable it is. And again we think it represents a unique opportunity to cover cost effective solution. It’s obviously very price sensitive kind of market as you would imagine. So we really see 2014 is shaping up in a very interesting way obviously in the first half of the year. We’re entirely focused on those three areas that we discussed, refinery process heaters, packaged boilers and industrial scale combustion and solid fuels. I think you will see the developments in all three areas as I have described Clear, we’ll add a fourth to that with what we call the one [screw] [ph] steam generators, the large units that are used in the oil field those might think all of that will happen in the first half, and some of that probably if not before the end of the current quarter then soon after very early in the second quarter.

As we get into sort of the middle part of the year I think we’ll start to see more meat on the bones of our international efforts. Again, it's only sensible that those would come shortly behind our efforts here. To some extent came off of some of the success we’re having in the U.S., but the -- and China is certainly an urgent one, it is a massive priority. With that said it's also viewed as a significant business opportunity and again you see the boiler industry grouping as I read to you as a form of economic stimulus the idea of converting these boilers or it's important also to maintain that stimulus that those boilers should be cost effective to operate as well, and I think there’s an understanding of that and an understanding of how our technology can really play an important role in that regard.

So going back to the thematic continuum of development and demonstration in 2013 and commercialization and collaboration in 2014, we think that we are on a very productive track there that we see this number of prospects continue to grow. There’s obviously some constraints that we have in terms of our staffing where we want to stay lean until we get some of these wins in particular and then we can start talking about adding step. Someone asked me recently about kind of how we were planning to approach China? The default model at the moment is that we would set up a wholly owned subsidiary company that we’d capitalize that company so that it would be given majority on subsidiary with some minority investment partners in it. And that company essentially would engage in the same kinds of partnering activity segment that you’ve seen us do here. So they would engage with refinery process heater companies, utility companies, companies in the metal industry that we met with while we were there, the boiler companies and engineering and construction companies that target these segments of the market, and begin to go for our technology solutions as quickly as we can into what promises to be a really exciting market.

So again I really invite you to do your work here, find an expert, press down on the Duplex. And the reason for that is, it's one of these things that the more you peel this onion the better it looks. The more you begin to appreciate that this is not just state of the art emissions control, but it solves several of these key problems that have lead to escalating cost for NOx control, it increases the radiant heat transfer. So here’s an interesting one that we just put together an abstract for some senior folks at the utility. U.S. utilities are converting from coal to natural gas. If the Duplex increases radiant heat transfer, well the big challenge you have when you work from coal to natural gas is the loss of radiant heat transfer, meaning you take coal out of the system which is the radiant fuel, you put natural gas in which is a much less radiant fuel, it's got a blue flame it keeps it heat inside. The Duplex helps to solve that problem and that’s an expensive problem. If you loose 5% efficiency when you convert from coal to nat gas that you rather not take. Well the Duplex obviously will have to be scaled up to the kinds of scales we’ve been talking about 40, 50, 60 million Btus per hour and up, but it would solve the radiant problem and would potentially obviate the need for selective catalytic reduction systems on the backend and now you’re talking about tens of millions of dollars, and after treatment systems and the ongoing operating process associated with those. So it obviously models where they’re in place, that models where you can avoid capital cost and new construction in any case reducing the level of NOx that those systems see is going to produce a cost saving. So that’s a little bit further out but this is a technology that what we think will continue to pay dividends.

We did mention in our press release today that we’ve continue to have pace with regard to intellectual property development, [phenomenon in] [ph] excess of 150 patents for health. The first set of patents filed associated with the Duplex contain over 300 claims, we’re extending those claims into the system domain. So, when you install a Duplex tile in a firetube you don’t have a new burner, you don’t just have a new NOx emissions control system, you have a new boiler architecture because the heat is transferred not from a flame, but from a radiating ceramic tile. So, the intellectual property can be extended accordingly and our guys have done a really masterful job over that, and we’re excited about the prospects for the kind of coverage that we think is possible. We really looked very hard at that.

So, thank you for your time today, I appreciate it. We have got some time to take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question comes from Philip Lee of Mangrove. Please go ahead.

Rick Rutkowski

Hi, Philip.

Operator

Mr. Lee is your line muted by chance? (Operator Instructions).

Rick Rutkowski

Okay, Philip I apologize we appear to be having some technical difficulty getting you on. But certainly don’t hesitate to call directly with whatever question you might have, we’re more than happy to answer obviously.

Operator

All right. (Operator Instructions).

Rick Rutkowski

Okay. Well, we’re here in California at the Roth Conference. I suspect that some of the folks who often ask questions on this call maybe here at the conference. So sure we will get at the bunch tomorrow when we present at noon and deliver a lot of this information to that group of folks here. We do appreciate everyone’s time today and more than that your ongoing inevasible support and enthusiasm. And as I’ve said as we peel the onion here more and more where this picture looks better and better with respect to the legs that the technology will have, the market opportunities that exists and one of the things that has really happened in the context of that transition from development and demonstration to the early phase of the commercialization, we really have an opportunity to sharpen our pencil in terms of pricing models, market penetration rates and things of that nature. And it's obviously a key aspect of the discussions with prospective partners and the licensees is to have a shared vision of how we would price this technology and it's our job on behalf of all of our shareholders, ourselves included in that to full value this technology in the context of those relationships and to ensure that its market potential is maximized and achieved.

So I feel that we’re on task with that, but we understand the mechanisms that we put in place typically we’ll have a minimum healthy requirements and that correlate to rates of market penetration that we think are appropriate for the technology. And as I said what’s encouraging to us is I think that really is very much a shared vision about the power of this technology, about the kind of market share that we can look towards and about the potential for things like best available control technology or best available retrofit control technology. So we’ve been grateful and our business development team has done a wonderful job of bringing all of these constituencies together, end users, field suppliers, commercial partners, engineering and construction companies, and we got great mix we think to address here as we progress through the year. We think the first half has been especially exciting time and I expect we’re only weeks away from -- we think are potentially some pretty important developments to report as we embark on this collaborative commercialization of our technology. Thanks again for your time. Philip, please don’t hesitate to contact us and we will be sure to get your question answered. Sorry, I didn’t get a chance to share it with the group here today. Thank you all and we’ll look forward to seeing you soon and I’m saying this for everyone if you had other questions that occur to you later, please don’t hesitate to contact the Company directly. We look forward to hearing from and to seeing all of you in the near future.

Operator

Thank you. The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect your line.

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