LiqTech International, Inc.

Good morning, and welcome to the LIC Tech International Report's fourth quarter and fiscal year 2021 financial results conference call. All participants will be in listen-only mode. So, if you need assistance, please send your conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to send the conference over to Robert Bloom with Lithium Partners. Please go ahead.

All right. Thank you very much, Anthony. Good morning, everyone, and thank you all for joining us today for today's conference call to discuss LickTech International's fourth quarter and year-end financial results for 2021. I'm Robert Bloom with Lithium Partners. I'll be the moderator for today's call. And joining us on today's call from the company is Alex Buehler, the company's interim chief executive officer, and Simon Stadel, Company's Chief Financial Officer. Before I turn the call over to Alex and Simon, let me remind listeners that there will be an open Q&A session at the end of the call. Before we begin with prepared remarks, we submit for the record the following statement. This conference call may contain forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed during the conference call. The company therefore urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of the risks that may affect our business, financial condition, operations, and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, the company's actual results may vary materially from those expected or projected. The company, therefore, encourages all listeners not to place undue reliance on these forward-looking statements, which pertain only as of this date and the date of the release and conference call. The company assumes no obligation to update any forward-looking statements to reflect any events or circumstances that may arise after the date of this release and conference call. Now, I'd like to turn the call over to Alex Buehler, Interim CEO, BlickTech International. Alex, please proceed.

Thank you, Robert, and good morning to all of you, and thank you for joining us on today's conference call. Please know that I sincerely appreciate your continued interest in and support of the company and its prospects. I know that today's call is unique, occurring shortly after last week's announcement about Suna and his medical leave of absence. So let me start by conveying my very best wishes to Suna and his family. for which we hope and pray for a speedy recovery. While I cannot provide any further details related to his condition or timeline, we will work diligently to ensure for a seamless transition. I will ask in advance for your patience, as clearly I lack Suna's command of the many details of the business, its markets, and its technologies, but rest assured that I am a fast learner. and I will climb the learning curve as quickly as possible. I am honored to lead the company at this time with the full support of the board of directors. I am currently in Denmark at our headquarters and manufacturing facility in Greater Copenhagen, and I'm very pleased to observe a team that is welcoming of interim leadership, rising to the occasion of the moment, adapting to the transition, and meeting head on the market challenges that we are facing as a business. I think that it is fair to say that we all embrace the bright and exciting future at Ligtech. Importantly, our investors should know that you have my full commitment, my undivided attention, and I will work tirelessly to provide strong leadership, strategic clarity, commercial intensity, and execution discipline during this transitional time. So with that said, let's dive into the business with further detail. I thought it would be important to frame an agenda upfront for today's call. I will kick off by providing some context regarding our addressable markets, including marine scrubbers, oil and gas, black carbon, and other segments. I will layer into each category the visibility that we possess or lack in certain instances. and how that impacts our outlook for the rest of the year. I will then ask Simon to provide some added color on key financial items affecting the fourth quarter and full year of 2021. After Simon's remarks, we will be happy to open the call to your questions, after which I will conclude with some closing remarks. So let's begin with Marine Scrubbers. As the company has discussed over the past year, in 2021, we faced a variety of challenges. particularly those stemming from the global pandemic and its associated economic repercussions. In late 2021, we began to discern improving market conditions for scrubber systems as the price spread between high and low sulfur fuels stabilized above $100 per metric ton, and now widening to more than $200 per metric ton since the beginning of March. Likewise, we observed a strong increase in inquiries and orders in late 2021 and into early 2022 that correlated with the widening fuel price spread. Despite commodity pricing that was more conducive to investment in marine scrubbers for ship owners, the industry experienced a new set of dynamics comprised of highly elevated shipping volumes, and unique pricing power to overcome the supply chain disruption that occurred during the height of the pandemic. In this environment, our customers indicated a strong desire to keep their ships on the water and operational to exploit such favorable dynamics. So to reiterate, while the price spreads have improved and indicate very favorable economics for scrubber investments, ship owners remain reluctant to dry dock their assets for the installation of a marine scrubber system amid such frenzied activity and pricing power. Consequently, this has led to delays in customer order acceptance and limited visibility as to when industry dynamics might return to normalcy. Simon will add some further details here, but it is important to note that we have observed orders originally expected to deliver in Q1 pushed to the right on account of delays imposed by our customers. On a positive note, however, quotation activity in the past month exceeds the pace and levels reported by the company throughout 2021, highlighting pent-up demand for our solutions in the future after the prolonged lull during the pandemic. We believe that trends in the marine scrubber market continue to favor increased adoption of closed-loop scrubbers that employ the company's differentiated filtration technology. However, the timing is more uncertain today than it was a few months ago. At any rate, our enthusiasm for marine scrubbers has not waned, and we are prepared to meet the prospect of increasing demand for our products in the future caused by environmental awareness, increasing regulation, and a compelling value proposition in the context of widening fuel spreads. Let's now transition to a discussion on oil and gas. As Suna mentioned last quarter, we have received orders for several oil and gas projects from industry leaders such as Baker Hughes Chevron and ONGC. These orders span global geographies and feature advanced applications in produced water treatment and deep sea oil drilling. By way of example, the order from Baker Hughes for the Middle East was a significant milestone for the company as it allows entry into a very large end market for water filtration applications. Expanding on our other oil and gas opportunities outside of the Middle East, We remain excited about applications for ethylene glycol recovery, particularly our agreement with Chevron, as well as our order with Oil and Natural Gas Corporation, or ONGC, which is an oil and gas producer owned by the Indian government. There, our technology will be integrated for another produced water application. While our prospects remain intact, it is a fact that we are experiencing delays imposed by our customers due to various logistical challenges in a commodity environment disrupted by geopolitical tensions. Specifically, two large orders that were scheduled for delivery in the first quarter of 2022 are now expected to deliver in the second quarter of 22. Overall, this equated to about 2 million in sales that shifted out of the first quarter. Additionally, owing to the uncertainty resulting from the conflict in Ukraine and the overall geopolitical environment, we are experiencing further delays in the release of orders by certain oil and gas customers that we initially anticipated in the first half of 2022. At this point, we now believe that they will push out into the second half of the year. I wish that we were in a position to provide further clarity. with respect to the exact timing of the many opportunities that we have developed over the past couple of years. But unfortunately, the environment is very dynamic, evolving quickly, changing daily. We will, however, do our level best to keep everyone apprised of new developments as further clarity manifests. And we hope to paint a better picture during our next conference call in May. Let's now transition to the black carbon market where our focus remains on marine vessels within China. As we have stated in the past, China has taken a lead in reducing black carbon emissions from inland and ocean-going vessels. The new mandates in China have created a large opportunity for diesel particulate filters where we have proven our technology leadership over the last 20 years to remove particulate matter from the exhaust gas of internal combustion engines. Consequently, China and black carbon remain key focus areas for the company, and we are progressing to expand our manufacturing capability to serve these strategic markets globally. Over the past couple of years, LIGTECH has focused intently to diversify its revenue base, to penetrate new end markets of large size, high growth, and regulatory tailwinds and to complement our existing market position in marine scrubbers. We have made notable progress in oil and gas and other industrial applications. And as I mentioned a moment ago, we believe that the black carbon market in China clearly presents some large imminent opportunities for the company. Beyond marine scrubbers, oil and gas, and black carbon, another area of meaningful progress encompasses the supply of our membranes for use in non-LCTEC developed applications or those through OEM agreements. In January of this year, for example, we announced a three-year membrane supply agreement with an estimated total value of $23 million over the life of the contract to supply a large European customer for drinking water treatment. We anticipate first deliveries to begin in the third quarter of this year with regularly scheduled deliveries thereafter over the final two years of the agreement. Clean water demand continues to grow rapidly due to increasing population, urbanization, industrialization, social mobility, a growing middle class with enhanced living standards, and climate change. And I believe that LICTEC's unique, differentiated technology is ideally suited to a variety of OEM applications in this burgeoning market. Importantly, clean water applications represent relatively high margin opportunities that better leverage the investment and advancements made in our core technologies over the last several years. While we remain optimistic about our prospects in 2022 and beyond, we must also cautiously acknowledge the reality of the current business environment. where geopolitical tensions, supply chain disruptions, and sustained inflation create inevitable market uncertainty. Given the first quarter is nearly complete, and considering the previously noted revenue that has shifted to the right for marine scrubbers and oil and gas customers, we are revising guidance for the first quarter, for which we now anticipate revenue in the range of 3.5 to $4 million. Assessing the rest of the year as best as we can right now, we are also revising full year guidance to allow for the general shift to the right, forecasting revenue in a range of $25 to $30 million. While we remain bullish about our long-term prospects and future revenue associated with buoyant end markets, We are conscious of the aforementioned delays and wish to calibrate expectations accordingly. With that said, let me now turn the call over to Simon, who will add some context on financial performance for the fourth quarter and full year of 2021. After Simon's narrative, we will open the line for questions. Simon, please proceed.