LiqTech International, Inc.

Good morning and welcome to the Lick Tech third quarter fiscal year 2023 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 your question, please press store then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom with Lithum Partners. Please go ahead.

All right. Thank you very much, Andrea. And good morning, everyone. Thank you for joining us on today's conference call to discuss Lick Tech International's third quarter 2023 financial results for the period ending September 30th, 2023. Joining us on today's call from the company are Fei Chen, Company's Chief Executive Officer, and Simon Stadel, Company's 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 today. 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, The 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 attempt to advise interested parties on 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 that may arise after the date of this release and conference call. That said, 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 am excited to get the opportunity to speak with you and to share with you our good progress. During the third quarter, we made continued progress executing against our strategic plan to drive the business towards profitability. We saw revenue increase of 53% compared to third quarter last year. Gross margins improved from 3% last year to 19% in this year's third quarter. And our net loss improved by 0.4 million Importantly, our adjusted EBITDA was just a negative 0.8 million as we moved the business towards profitability. These improved results are due to the enhanced business strategy we enacted last year with focus on delivering revenue on our established business areas and we're driving growth through expansion into new targeted markets. To put it in other words, we are looking to protect and expand our established businesses, such as commercial pool systems, ceramic membranes, diesel particulate filters, and components, and hunt and develop our target businesses, which includes areas such as phosphoric acid oil and gas, and our overall strategic focus to increase our service business. As I mentioned in my recent cooperative presentations, the key word here is focus. We are focused on making sure that we can have a sustainable business by protecting and defending our position in key markets where LIKTECH has a demonstrated history of success. We are enabling high upside growth in exciting markets where we can leverage our core silicon carbon technology and system design capabilities. This dual approach ensures that we are not reliant on any one project or customer for us to be successful. Taking a step back, at LICTED, it is our vision to become a leading provider of advanced and sustainable filtration solutions. These key megatrends of water cleaning and reuse, greenhouse gas emission reduction and the overall circular economy are all key to save the world's scarce resources and protecting the environment. Beyond protecting the environment and preserving resources, our solutions provide real economic benefits to our customers. Whether it is the increased years through product purification of our phosphoric acid systems, decrease the cost through the ability to reuse water in our produced water, oil and gas solution, or lower energy consumption and the chlorine dosing needs in the case of our aqua solution for commercial swimming pool products. The recent sales wins that we have achieved and distribution agreements we have signed are all due to this key idea of providing value to customers. Let me take a minute to talk about some key developments that took place over the past few months. Let's start with our commercial swimming pool products. We successfully delivered 10 swimming pool systems during the third quarter and have recently received orders for three more systems which we anticipate delivering during the fourth quarter. Year to date, we have shifted 18 systems compared to 6 systems in 2022, with a geographic focus in UK, Spain, Portugal, Australia and New Zealand. With the great progress we have made in these new geographic areas, we have been looking at ways to broaden our sales footprint. by entering into distribution agreements with key partners. Following a thorough process, we entered into two key agreements, one with VAR and REIT, a UK and Dubai-based group to cover key areas of the Middle East, including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. As their CEO mentioned, liquid pool filtration system is statistically a perfect match with the binary cutting edge work in the design and the build of the most prestigious state-of-the-art leisure centers and spas. We also entered into an agreement with Waterco to cover Australia, New Zealand, Papua New Guinea and the Pacific Islands. Waterco is a well-established player in the swimming pool market and has worked with Victics successfully over the past three years to bring solutions to their joint customers. We look forward to working with these two well-respected companies to broaden our reach and make a substantial impact in the global aquatic and water treatment industries in these key territories. Within the marine scrubber market, we saw the return of our first new marine scrubber system orders in more than 18 months as we deployed an upgraded modular design system through our recently enhanced distribution relationship with Yoyo in China. Our dialogue with customers and partners has confirmed that DTEK's modular design marine squabble water treatment system is highly reliable and delivers strong returns on their investments. Furthermore, our new generation design reduces OPEX for owners significantly by largely reducing day-to-day operational and maintenance costs. This tank has more than 160 installations in the marine scrubber market, which occurred primarily between 2018 and 2020. This new order not only demonstrates the continuous confidence from the market and the customers in our solutions, but also validates Our enhanced commercial strategy I mentioned a few moments ago as we focus on driving revenue in established business verticals where Leetex has proven technical capabilities and installations. With a renewed focus on the market, corporate with capable distribution partners, I believe there is an opportunity to regain our position in this market in the future. Finishing out our established business contributors, from a membrane element standpoint, we continue to deliver ceramic membrane orders during the third quarter and receive new orders which will be set for delivery in quarter four. On the DPF side, we experienced stable revenue contribution. We don't expect tremendous growth here, but looking persistently into new application areas to hold this business steady. On the plastic side, in the third quarter, we did experience a bit of a sequential pullback as we wrapped up a large order we received at end of last year. in the area of biological-based material development. We continue to look for opportunities to grow this area into the future. Finally, we did see significant increases in the sale of spare parts in Q3. As we have more systems in operation, this will become a nice recurring business opportunity for us. Our role, we are pleased with the progress being made on our established business areas. Across all of the key areas I mentioned, we have improved our pricing discipline through enhanced cost visibility and elevated mass intelligence, which is delivering increased gross profit and ultimately bring little closer to profitability. Where we are pleased with the traction generated from our established business, we recognize that there is a very large accessible market opportunity for our solutions in a wide variety of markets that can potentially drive growth for Leetech. These large system solutions in the areas of industry water treatment, oil and gas filtration, acid purification, and other industrial applications are ideally suited for these solutions in the long run. As we have stated, the downside is that this area has much longer sales cycles, but I believe progress is being made. Within the oil and gas markets, our collaboration with NASA is moving ahead. We are currently building what I would define as a pilot system, specifically for NASA to utilize in various demonstrations. We are similarly in close dialogue with two to three target customers in the Middle East for produced water solutions where our solution could be applied. Hope to have more to share with you in the coming quarters. We think for storage ethics. We delivered and recognized revenue during the third quarter on our pilot unit to silicon feature in China. We believe this pilot unit will enable our partners in the region to demonstrate that our ultrafiltration technology can effectively help their customers enhance their process efficiency and the product quality. We look to further build up this pilot and our US-based installation to drive further phosphorus acid system sales into the future. During the third quarter, we also delivered and recognized the revenue of a natural cooling system here in Denmark. We are not a large market opportunity. It highlights the capabilities of our solution across a wide range of opportunities and the validation by yet another large international company. Finally, on the monoethylene glycol or MEG fund, our first offshore installation in the Mediterranean with a large oil and gas client continues to perform well. As I mentioned last quarter, this is the first of a two-part order for the offshore project with expectations for follow and orders shown. That's it due to the location of the platform, which is off the coast of Israel. There is some uncertainty on the timing due to the current conflicts in the region. We should know more in the coming weeks on whether or not this will be shifted in fiscal 2023 or slip to 2024. In summary, as we look to the rest of the year and into 2024, we see a number of opportunities in our targeted business segment, particularly with Phosphorus Acid as well as produced water components of oil and gas markets. that we believe will be key contributors to growth hopefully in 2023 and certainly in 2024. Further, our newly established partnerships within the commercial swimming pool markets are expected to expand our growth in this key market segment for us moving ahead. Where there is always uncertainty, such as what we are in company with our MEG installation in the Mediterranean, we feel confident in the guidance for the full-year 2023 revenue of 19 to 21 million. Further, we also believe that we remain on track to achieve our full-year gross profit margin expectations in the range of 15 to 20%. Please remember that our gross margin last year was only 3.5%. We have a tremendous opportunity ahead of us to leverage our highly unique technological advantages, brand competencies and sustainability value to build a growing and profitable business. In 2023, we have succeeded in making continued progress in each quarter, and I am extremely pleased that with this good performance and anticipate continued progress in the quarters to come. With that, let me turn the call over to Simon to review the financials in more detail, after which I will wrap up with a few comments and then open the call to your questions. Simon, please proceed.