LiqTech International, Inc.

And welcome to WIC Tech International First Quarter 2022 Earnings Event. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Robert Bloom with the partners. Please go ahead.

All right, thank you very much, Nick. Good morning, everyone, and thank you for joining us today's conference call to discuss LickTech International's first quarter 2022 financial results. Joining us on call today from the company is Alex Buehler, Interim Chief Executive Officer, and Simon Stadel, 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 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 assumption is proven correct, the company's action 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 Chief Executive Officer, Flick Tech 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. As you know, this is my second conference call as interim CEO of LickTech, but I know that today I am in a far better position to communicate a more informed update of the business along with its recent developments, of which there are many. Said differently, there is much to discuss as we assess intense and elevated activity over the last several weeks. As always, we will commence with prepared remarks, making a deliberate attempt to anticipate your areas of interest, but also leave adequate time to address your questions at the end. But let me first start off by saying what an incredible opportunity that I believe LickTech represents. We possess technology that is highly differentiated, confirming a position of product leadership. We are focused on large, attractive end markets with favorable regulatory tailwinds and significant ESG dimensions. To connect our products to these existing end markets, We deliver a value proposition that in many instances is uniquely compelling. So, with such attributes in mind, I believe the company benefits from strong, backable investment themes, and I am increasingly excited about the business and its prospects. As you noted in the press release, we have entered into a separation and release agreement with our former CEO, I want to thank Suna for his service to the company over the last many years, and we wish him well in his future endeavors. To assist the company in the search for a new CEO, we have retained Hydric & Struggles, a leading international executive search firm. While it is difficult to estimate timing, the process is proceeding as planned, and I have committed to a full transition and proper handover as interim CEO. For as long as I occupy this position, I am fully committed to the success of Lyftech and will work tirelessly to provide engaged leadership, strategic clarity, commercial intensity, and execution discipline during this transitional time. I am taking today's call from our ceramics manufacturing facility in Ballerup, located in the greater Copenhagen area. Since our last conference call, I have spent most of my time in Denmark. And I can confidently assert that there exists a talented team of professionals who are equally committed to the success of the company. Critical to our building momentum is Simon Stadel, our CFO. Please remember that Simon only joined LIHTC in late November of last year. And since that time, he has planned and executed with remarkable pace and intensity. We are very fortunate to have him on the team. While we will note some of our actions and achievements over the last two months, clearly there is much more heavy lifting to do. But please know that we are all up to the challenge and rising to the occasion. It was clear to all of us during the last call that in the context of operating losses, cash burn, and a convertible note that started amortizing, the balance sheet was weak and the company was poorly capitalized. Consequently, we surged immediately to shore up the balance sheet. You will note from our press release that we have entered into an agreement to raise $23 million in gross proceeds through a public equity offering. Additionally, we have negotiated an agreement to amend our existing convertible note. I will ask Simon to provide specifics on both the equity raise and the convertible note amendment in a moment. What is fairly obvious is that these two agreements transform our balance sheet. while providing us with the necessary capital to execute on our business plan going forward. Clearly, this was a highly dilutive event, and we do not take such moves lightly, but rest assured that it was necessary, even in these challenging market conditions, to secure the financial future of the business and allow us the flexibility to execute our strategic growth and operating plans. Admittedly, we cannot rely on capital raises to fund operating losses, as such is not a sound catalyst to investment. Instead, we must create an efficient business that is self-sufficient. Consequently, we are taking proactive and decisive measures to protect and right-size our business. Specifically in April, We implemented an organizational realignment and related downsizing, reducing headcount and labor costs by about 25% or roughly 30 employees, the overwhelming population of whom were classified as overhead and indirect. This will provide us with an expected annual run rate savings of approximately 2.5 to 3 million, with full realization expected toward the end By virtue of this downsizing, we expect to record restructuring costs in the second quarter of this year, including costs related to the suspension of investment activities, which I will discuss in a few moments. Having identified labor cost savings, we are applying a similar focus for non-labor expenses. both of which will help to reduce our break-even level for operating income and cash flow to a revenue run rate of approximately $7 to $8 million per quarter. Clearly, this will depend on attainment of certain contribution and gross margins through optimization of volume, price, and mix, a constructive analysis and program for which is already underway. Also in the spirit of self-help, we have made the decision to suspend our planned investments in China and rationalize our CapEx plans. To this point, we are actively negotiating with our equipment suppliers to reduce open CapEx commitments by up to 4 million while redirecting certain items of equipment that were originally destined for China to our ceramics manufacturing facility in Copenhagen to relieve existing production bottlenecks. Thus, we are balancing two competing imperatives, reduction of capital commitments on one hand with value realization upon cash already spent on the other. Beyond cost and capital reductions, we are laser focused on shaping an efficient business that fully embraces the discipline of execution again, with pace and intensity. We are moving quickly to elevate a culture of accountability, performance management, and continuous improvement. Concurrent with the realignment and headcount reduction described earlier, we have implemented a new organizational design, moving toward one LCTEC and eliminating a divisional structure that resulted in operating silos, layers of middle management, strained communication, and poor sharing of resources. As part of this new organizational design, we have centralized the sales and marketing and R&D functions, which had previously resided in the divisions. We removed managing directors who led the divisions and appointed plant managers for each manufacturing site. Moreover, we have created functional leadership to align with critical imperatives for the business and elevate accountability for key initiatives. From a manufacturing standpoint, we are working diligently to craft an optimization plan to unlock capacity, reduce equipment downtime, increase manufacturing yields, reduce scrap, and decrease average unit costs. In combination with those drivers of revenue previously mentioned, including volume, price, and mix, we are confident in our ability to achieve margin accretion to support the new break-even level of the business. Many investors have asked me, do we have a real business here, or is this simply a science project? My answer is yes to the first and no to the second. There is a business here. This is more than a science project. LICTEC benefits from real core competencies that are difficult to replicate and possible to scale and leverage. These core competencies include material science, fluid dynamics, and systems integration. LICTEC has positioned itself as a world leader in silicon carbide ceramics technology since 1999. Our flagship silicon carbide membranes are chemically inert, temperature resistant, high flux, and extremely durable. Additionally, we have robust in-house engineering capabilities for process design, 3D modeling, and control systems. We have supplied a diverse set of applications across multiple end markets. including marine scrubber wash water, industrial wastewater drinking water, oil emulsion separation, and many more. We have established production and sales capacity in Europe, coupled with distributors and agents in China, Korea, Spain, UK, France, and the Middle East, which allow for planned expansion in key geographic markets. And we have a highly seasoned team of professionals who bring deep experience in the clean technology and advanced filtration industries. So yes, this is a real business with core competencies. These core competencies have translated into differentiated technology and a premium product position that is facing large, attractive end markets with regulatory tailwinds and important ESG dimensions, and that is connecting these products to end markets through value propositions that are uniquely compelling across many applications. I sincerely hope the takeaway here is that in the last six weeks, we have taken bold steps and decisive actions to reposition the business. We have initiated a leadership transition, redesigned and stabilized the organization, shored up the balance sheet, and reduced costs and investments. Operational improvements are manifest, so let's now transition to a commercial and market update, discussing some of the salient activity over the last several weeks. On the oil and gas front, we have shipped our systems to a strategic customer in the Middle East through Baker Hughes and our local partner. The systems are currently en route to the customer with planned delivery anticipated next week. Based on the Incoterms for custody transfer, we will recognize revenue for the upfront portion upon equipment receipt at its final destination, which will occur in the second quarter. We will then recognize commissioning and service revenue over the term of the contract as we step through the validation process. As noted in the past, this project represents our first foray into the Middle East oil and gas market at commercial scale, and we are truly excited to demonstrate the unique benefits of our systems. Importantly, under the terms of the contract, the customer will be deploying our water filtration systems on four sites for three different applications. And if or when we can validate performance along with the associated value proposition, there are other opportunities in the current pipeline that should accelerate. I believe that this is a significant milestone for the company. Opening new applications in a new end market and one from which we can convert new opportunities with this existing customer and activate new customers based on a reference case study and validated value proposition. I know that this has been a long time in the making and technology adoption in the oil and gas market is painfully slow due to its reliance on manual labor and the associated need to provide a bulletproof solution with high reliability. Some have remarked that they heard about this for many years, but I honestly believe that we are now on the doorstep of validation for our first commercial proof point in the oil and gas market. And as we commission these systems and accumulate runtime, we will work to validate our value proposition and elevate customer engagement. Meanwhile, we are actively working to commission our first systems for the asset filtration market in the US. As a reminder, these systems were originally shipped in the fourth quarter of 2021, during which we recognized revenue of about $2.2 million. With the successful commissioning of these highly specialized systems, we should conclude in the next few days, we are optimistic that this will generate additional opportunities for deployment of LickTech's unique filtration technology within this market segment for this customer at other sites and for new customers. Recently, we announced an order for a European OEM customer valued at about $23 million over a term of three years. Upon full evaluation of this contract, we have determined that the commercial terms are not conducive to meet our margin expectations in the context of notable inflation. Accordingly, we are actively negotiating with this customer to better frame price, volume, and timing commitments. Based on secular trends such as population growth, water scarcity, social mobility in a growing middle class, regulatory oversight and climate change, clean water demand continues to grow rapidly. And I believe that LCTEC's unique differentiated technology is ideally suited to a variety of OEM applications in this burgeoning market. And as I stated last quarter, 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. From a marine scrubber perspective, we are in a similar position as that expressed during our last call. Price spreads are strong and resilient, indicating favorable economics for closed-loop scrubber investments. But on the other hand, supply chains remain disrupted, with the marine industry still in scramble mode amid frenzied activity and strong pricing power. We are, however, seeing proof of life in this market where our quotation activity is elevated and hopefully orders are imminent. As you read in the press release, the Q1 revenue of $3.6 million fell within our guidance for the quarter communicated in late March. As we look toward the second quarter, we are expecting revenue of five to five and a half million underpinned by our ongoing system deliveries for our clients in the Middle East. Furthermore, we maintain our view on the full year with a revenue range of 25 to 30 million. And as I mentioned, and Simon will expand upon this momentarily, we have significantly reduced our go-forward operating cost structure to decrease our break-even point, which we expect to realize by the end of the year. With that said, let me now turn the call over to Simon, who will add some context on financial performance for the first quarter and provide some additional details on the balance sheet and operating initiatives that I highlighted a moment ago. Simon, please proceed.