LiqTech International, Inc.

Hello and welcome to Lit Tech International's first quarter 2023 financial results conference call. All participants will be in listen-only mode. Should 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. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom with Litham Partners. Robert, please go ahead.

Great. Thank you so much, MJ. Good morning, everyone, and thank you for joining us on today's conference call to discuss LickTech International's first quarter 2023 financial results for the period ending March 31, 2023. Joining us on today's call from the company are Fei Chen, Chief Executive Officer, and Simon Stiddall, Chief Financial Officer. Before I turn the call over to management, 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 and 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 event or circumstances that may arise after the date of this release and conference call. Now I'd like to turn the call over to Fei Chen, CEO of LickTech International. Fei, please proceed.

Thank you, Robo. Good morning or good afternoon to everyone on the call. I am excited to get the opportunity to speak with you all today. Following my appointment as CEO in middle September of last year, our commercial strategy is delivering the intended results with strong improvement from our recurring businesses with experienced revenue growth of 27%. sequentially with improved contribution margin. Further, we have recently signed multi-distribution agreements for key geographic and the mass segment to accelerate adoption, including recent agreements to advance phosphoric acid purification within China and water treatment solutions in Southeast Asia. Additionally, our distribution agreement with NESR is progressing nicely as our two companies are closely aligned and have established joint targets for 2023 to address the significant opportunities linked to ESG objectives in the Middle East. We believe this agreement will expand our reach into these key markets which I will touch on in more detail momentarily. Additionally, we have made significant progress implementing processes to drive improvement in our contribution margins, which have reached their higher levels in more than two years. This improvement within manufacturing as well as a 28 percent decrease in operating expenses significantly reduced our break-even point, which we currently estimate to be around $7 million in revenue. These three key initiatives, a focus on recurring revenue, creation of new partnerships and distribution agreements to expand our commercial reach, and operational efficiencies, are all moving forward according to plan. Our other key initiatives The larger system sales is advancing with a sales pipeline that continues to grow. However, proof is in the results, and we still have work to do in order to move pipeline opportunities to conform purchase orders and the venture commissioning of the projects. Again, I will touch more on this in a moment. Overall, I am pleased with the progress during the past few months to grow DTIC, but more importantly, driven the business towards profitability. Let me expand a bit more on each of the areas I just mentioned. Recurring business. As I stated last quarter, we have a tremendous opportunity ahead of us to leverage our highly unique technological advantages rent, competences, and sustainability values to build a growing and profitable business in the years to come. We moved quickly following my appointment of defining our cooperative vision and commercial strategy with a clear focus on recurring business and the large systems opportunities. We also brought on a number of important members to the team, which demonstrated ability to effectively grow businesses. As I mentioned, our recurring business, including swimming pool system, distilled particulate filters, ceramic membrane, plastic component operation, and spare parts, was up 27% of the quarter. Growth is one thing, but we are extremely pleased with the profitability metrics that come out of this component of our business, which contributed to the overall strong contribution margins. Fundamentally, being in a position where we have recurring revenue delivering these positive results is a good sign that we have finally hit a point in our business where we understand our cost base and can optimize our revenue base within our recurring business. The systems and the process that have been put in place have provided us with excellent insights into both of these areas, which should bode well for our business growing forward, especially as we drive growth in our system sales. During the quarter, we delivered two swimming pool system orders. and received a large order for four commercial swimming pool water treatment systems in New Zealand, which deployed a complete filtration system solution leveraging our enhanced aqua solution membrane. Right at the end of the quarter, we received another swimming pool system order. From a membrane element standpoint, received two membrane orders during the first quarter and have seen closed orders for an additional key membrane order for delivery in Q2 and Q3. Overall, membrane represents a significant opportunity for us. On the DPF side, we have officially seen the kind of decreases that we have seen in that business, sequential revenues up compared to Q4. We do not expect tremendous growth here, but looking persistently into new application areas to hold this business steady will go a long way towards our goal. Finally, on the plastic side, in the fourth quarter, we experienced significant sequential growth of approximately 67%. This is mainly driven by a large order we received at the end of last year in the area of biological-based material development. The future for this segment continues to look strong as our team continues to find new and exciting opportunities to deploy our capabilities. I mentioned this last quarter. But it bears repeating. Last year, our products and the service to the swimming pool, DPF, and the plastics were around 11 million in total. We will look to make strong increases on those numbers in 2023, which will improve credibility of our business, improve our manufacturing throughput and the growth margin, and ultimately reduce our break-even point. Q1 was an important first step in achieving that goal. Let us transition to our systems business. As a reminder to those who might be new to our company, this includes our large system solutions in the area of marine scrubber systems, industry water treatment, the border oil and gas filtration, and acid purification markets. This business certainly has longer lead time to do it and requires our team to identify areas where our solution can offer superior performance and add value to our customers. During the quarter, we delivered two marine scrubber systems and continued work on a new metal cooling project in Denmark. Furthermore, we continued our work on our Middle East oil and gas project. On the marine scrub market, this was once a rapidly growing market a number of years ago, but basically granted to a herd during the pandemic. We delivered two systems during the first quarter and expect to receive new orders in the coming months. Where the market is not what it was, we are seeing signs of life. On the oil and gas side, we discussed last quarter a significant MEG order received from a major US oil company operating in Europe. This was the first of a two-part order for an offshore project where we have already demonstrated the silicon carbide membrane technology performance in pilot and have verified significant performance improvement to the MEG regeneration process when compared to other membrane technologies. At the end of last week, we have signed master service agreements with the US oil companies. Our people are carrying on-site commissioning in these coming weeks. Our MEG system should be a contributor to growth in the second quarter. The wastewater treatment system order I mentioned is for the metal processing industry application in Denmark, which worldwide represents a potentially large addressable market for the company. Our proprietary silicone carbon membranes are an ideal solution that can feature heavy metals, lubricants, and other demanding substances and toxins. We will look to grow this market in the years to come. Our agreement in the Middle East addressing produced water treatment for oil and gas production, where our technology and collaboration with our partners continues to demonstrate tremendous results. Our team is aggressively pursuing opportunities in the Middle East, and where this is a longer lead cycle solution, I believe progress is being made. Finally, our acid purification system solution runs stable at our customer's site. We are in a close dialogue with the client to explore the new project opportunity. With us making nice progress in each of these markets through our direct sales force, it has been a key focus of mine to create distribution partnerships that can open the doors for us to expand our reach in new geographies and access to key market verticals. In November, we entered an agreement with the National Energy Services Reunited, or NESR, a publicly traded international provider of integrated energy services in the Middle East and the North Africa region. The agreement will be focused on leveraging our capabilities in produced water filtration solutions for reinjection. AESR has close customer relationships and a strong service organization within Middle East, North Africa oil and gas industry. Since the agreement was announced, we have succeeded in becoming closely aligned and we have established Target opportunities for 2023 address ESG applications in the Middle East. In February, we entered into a distribution agreement to supply membranes to Liquinix water treatment solution for Singapore. Liquinix specializes in design, fabrication, and system integration of compact water and wastewater treatment platforms. using next-generation technologies such as ceramic, biomimicry, and the graphene membrane. An interesting opportunity pipeline is established, and it's been closely followed up. Last month, we entered into a distribution agreement with Silicon Feature, a China-based company focused on providing technologies for chemical industry. with a focus on supplying our advanced filtration system. For phosphoric acid purification, China is a very significant market for high-grade of phosphoric acid production for food, pharmaceuticals, mining, and automobile batteries. We have demonstrated that our technology can effectively help our customers enhance their process efficiency as well as product quality. We look forward to working with the silicon feature to efficiently expand our market reach into this large and growing opportunity in China. As you can hear, we have signed agreements to focus on each of our co-system areas. Ori and the guys with NESR, wastewater treatment with Lipinix Phosphorus acid is a silicon feature, and you should look for more to come. One key distribution area we are working on is the creation of streaming food system partnerships. To this point, we have mostly gone through direct sales, which has been effective, but we want to look to accelerate the growth through distribution partnerships. Looking for strong distribution partnerships will be a focused area throughout the rest of the year. As we look to the second quarter, we are expecting revenue of about $5 million, which would represent a $1 million increase from the just recently completed first quarter, or a 25% increase. The key drivers here are continued growth in our recurring business, coupled with an increase in system sales with a major contribution coming from the commissioning of the significant MEG order we received from a major OUS oil company operating in Europe. We have expectations for continued improvement in contribution margins and efficient management of operating expenses. We are closing the gap and achieving quarterly break-even. With a strong balance sheet and the tangible progress being made, I'm optimistic about what is coming for LeakTech. With that, let me turn the call over to Simon to review the finance in more detail, after which I will wrap up with a few comments and then open the call to your questions. Simon, please proceed.