LiqTech International, Inc.

Hello and welcome to LICTEC International's second 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 touchtone phone. To withdraw from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Rob Bloom with Litham Partners.

Thank you so much, MJ. Good morning, everyone, and thank you all for joining us on today's conference call to discuss LickTech International's second quarter 2023 financial results for the period ending June 30th, 2023. Joining us on today's call from the company are Fei Chen, the company's chief executive officer, and Simon Stadiel, 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 I 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 Exchange Commission, including risk factors that have been read by 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 Fei Chen, CEO of LickTech International. Fei, please proceed.

Thank you, Robert, and good day to everyone on the call. I'm excited to get the opportunity to speak with you all today. During the second quarter, we continued to successfully execute against our strategy to drive profitable growth, which results in a strong 25% sequential increases in revenue and a significant improvement in growth margins. This combination of top-line growth and the growth margin improvement Covert with tight controls of operating expenses resulted in improving our adjusted EBITDA loss to just 0.6 million compared to a loss of 3.54 million in the year-ago quarter. Adjusted EBITDA loss is the best performance the company has achieved for years. and demonstrates our very achievable pathway to consistent profitability in the near term. As I stated on the last few quarters calls, we have a tremendous opportunity ahead of us to leverage our highly unique technological advantage, brand competences, and sustainability value to build a growing and profitable business. we moved quickly forward following my appointment to define our cooperative vision and the commercial strategy with a clear focus on four key initiatives. As you remember, those four initiatives are a focus on recurring revenue solutions, the creation of new partnership and distribution agreements, to expand our commercial reach, enhancement of operational efficiencies, and the deployment of larger system sales. To accomplish those goals, we brought on board key sales and operations personnel, which have made an immediate positive impact on the business. Further, I have leveraged many of my relationships and strategic approaches That was proven to be successful when I was at TopShot and the Ground Force, two of the leading industry companies in the world with an emphasis on water treatment, chemicals, and clean energy technologies. Where the new team has only been together for three full quarters now, I'm extremely pleased with the progress we have made and anticipate continued progress in the quarters to come. Let me dive into details we are making against our four key initiatives. Let's start with our recurring revenue opportunities, which includes installed base sales, diesel particle filter, ceramic membrane, and the plastic business. Our swimming pool systems business somewhat overlaps between systems and recurring revenue, and I will likewise go into details there. Across all of these key areas, we have improved our pricing discipline through enhanced cost visibility and elevated market intelligence to deliver increased gross profits. As I said last quarter, growth is wincing, but we are extremely pleased with the profitability metrics that came out of these recurring areas, which contributed to the overall strong contribution margins. From a membrane element standpoint, we continue to increase ceramic membrane orders during the second quarter, which will be for delivery in quarter three. On the DPF side, we experienced a stable revenue contribution. We do not expect tremendous growth here, but looking persistently into new application areas to hold this business steady. Finally, on the plastic side, in the second quarter, we experienced significant sequential growth of approximately 67%. This is mainly driven by a large order we received at end of last year in the area of biological-based material development. For the coming period, our team continues to find new and exciting opportunities to deploy our capabilities. Stabilizing and growing our recurring business opportunity is the base by which this business can be sustainable Sustainable, perfect world. I am pleased with the progress here and believe we have further growth ahead in this area of focus. Let us transition to our systems business. As a reminder to those who may be new to our company, this includes our larger system solutions in the areas of industry water treatment, marine scrubber system, the broader oil and gas filtration and acid purification markets. It also includes some cross-hour in swimming pool systems. The system business certainly has longer lead times and requires our team to identify areas where our solutions can offer superior performance and add value to our customers. During the quarter, we signed commercial contracts for delivery of 10 pool systems and successfully performed on-site commissioning of our first MEG unit at the customer's offshore platform in the Mediterranean. Subsequently, we saw 45% of growth in this area. Swimming pool systems have clearly been a leading driver for us during 2023, following the launch of our enhanced aqua solution membrane based on our preparatory silicon carbon membrane technology. Year to date, we have received 15 pool system orders from a wide variety of geographic locations. Revenue growth during the quarter was driven by the successful on-site commissioning of our first MEC unit. This was the first of a two-part order for an offshore project. We have earlier demonstrated the silicon carbon membrane technology performance in pilot. This on-site commissioning has now verified significant performance improvements of our technology to the MEG regeneration process compared to other membrane technologies. The successful commission makes us, gives us confidence for additional opportunities within this marked sub-segment. Further, we are making progress in phosphoric acid purification with the delivery of a pilot unit to silicon filter in China, which we announced on Monday. We are very pleased to have delivered this pilot unit to our partner in the region, which will help them to demonstrate that our ultrafiltration technology can effectively help their customers enhance their process efficiency and the product quality. We look forward to building on this initial progress in the years to come as we look to address one of the strategically key markets for phosphorous acid. Partnerships and distribution. As a reminder, we initially entered into the distribution agreement with Silicon Features in April 2023 to address the large and growing market opportunity in China. The fact that we are getting an initial pilot order so quickly really highlights their desire to advance this partnership. On the same front, our collaboration with NISA for oil and gas-related solutions continues to advance as we have built up an aligned pipeline with clear targets in the near term. I look forward to hopefully sharing more with you on this in the near term. To extend our distribution footprint further, we entered into a MOU to explore the application of our advanced filtration system to industry water treatment in China with Nanjing Vondux. Vondux is an expert in intelligent environmental governance and resource utilization with a focus on garbage pollution control, zero discharge of industrial wastewater, recycling of waste salt, extraction of new energy materials, and provides customers with advanced technology equipment, system integration, and overall solutions to environmental problems. Vondox has extended customer groups across China and a good reputation in environmental waste and water treatment area. China is a significant market for industry water treatment. especially as environmental and sustainability is coming higher and higher up as the agenda of the government and enterprises in the country. Entering this MOU will allow us to tap into Wondex's marked reach and marked position in China. I believe with a strategic combination of direct sales and distribution partners, such as our recently signed agreement with OneDocs, NASA, and SiliconFitter, we have the right combination going forward to make continued progress in our key target markets of swimming pool, oil and gas, acid purification, and the border water treatment. With two quarters completed and a better visibility into the business, I believe we are at the point where we can now provide an outlook for full year 2023. Based on the progress we are achieving in both our recurring and the system sales businesses, we expect full year 2023 revenue growth of 20% to 30%, which would translate into total revenue of about 19 to 21 million for the year. We also believe with operational efficiency improvements we have made that the 2023 full year growth profit margins will be in the range of 15 to 20%. Please remember that our growth margin last year was only 3.5%. We are closing the gap on achieving quarterly break-even. With the strong balance sheet and the tangible progress being made, I am highly optimistic about what is coming for Leetech.