LiqTech International, Inc.

Hello and welcome to the LICTEC International fourth quarter and fiscal year 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, and to withdraw from the queue, you may press star, then two. As a reminder, this conference is being recorded. I would now like to hand the call to Robert Bloom with Lithum Partners. Please go ahead.

All right. Thank you so much, MJ. Good morning, everyone, and thank you all for joining us today on the conference call to discuss LickTech International's fourth quarter and fiscal year 2023 financial results for the period ending December 31, 2023. Joining us on today's call from the company is Fei Chen, Chief Executive Officer, and Philip Price, For those not familiar, Philip has recently assumed the role as interim 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. MJ provided the instructions on how to queue up at the beginning there. Before we begin with prepared remarks, we submit for the record the following statements. This conference call may contain forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management's 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 the company's 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-listing statements, which pertain only as the date of the release and conference call. The company assumes no obligation to update any forward-listing 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 LitTech International. Fei, please proceed.

Thank you, Robert, and good day to everyone on the call. I am excited to have this opportunity to speak with you and hear an update on the solid progress we have made during the last year. During 2023, We successfully executed a number of strategic initiatives to drive revenue growth, improve our manufacturing and operational efficiencies, and strengthen our balance sheet. We grew our revenue by 13% and increased our growth margin by 12 percentage points. Meanwhile, we reduced our operating expenses with 2.5 million and improved the bottom line with 5.6 million. After taking over as the CEO in late 2022, I have introduced a new commercial strategy that has initially focused on stabilizing and growing our established business areas which are called in terms of our ability to generate revenue. This effort includes reducing the length of the sales cycle we have in marked segments, such as our commercial pool systems. And it also means placing new types of customers' needs in areas where we have an extensive customer base. This includes, for example, diesel particulate filters, marine scrubbers, and other areas where we have recurring revenue opportunities, such as general aftermarket sales and plastics. This established business market provides a strong and stable base of revenue for this dictate and allows us to gain manufacturing efficiencies by leveraging our existing production capacity. The 2023 financial results clearly show that our new strategic focus is working. I will dive into more details on how we intend to continue focusing on improving each of our established areas in a moment. Before doing so, however, Let's talk about what we refer to as our target markets. Where we have stabilized the business and brought about operational efficiencies, we are also setting the stage for growth in key markets where our high-performance silicon carbon ceramic membranes can provide customers with strong returns on their investments. This includes specific industry filtration applications to remove solids, oil, petrogens, and heavy metals from water, as well as compounds from emissions and the industrial off-gases. Where this has potential to encompass a large number of markets, we have narrowed our near-term focus to chemical and the petrochemicals, such as phosphoric acid, and the monoethylene glycol, and oil and gas-produced water. These areas tend to have longer sales cycles, but it is our belief that if we align ourselves with great partners and establish key reference customers, the sales cycles will decrease and the large market opportunity will open up for this tech. As I hope you all have seen from the two most recent press releases we issued over the last two weeks, this process has already begun. Last week, we announced that we have received a significant order for a containerized pilot system for produced water treatment from Resselbeck Direct. This marks our fourth ever u.s based oil and gas produced water order the containerized pilot system that resurrect direct has required will be used at the customer side to test demonstrate and document the efficiency of this ex which of the tradition technology in trading produce the water to facilitate beneficiary in the industrial reuse and meet current and the future regulatory requirements. In the longer term, the intention is to use the results from this pilot operation as the basis to design and implement full-scale commercial systems for the onshore oil and gas application in the US. The North American oil and gas market is going to be a key focus for LIGTECH, moving forward led by our agreement with Razorback Direct, who has a strong presence in key oil and gas geographies in the US. The speed at which this order came is really exciting. As we entered into a distribution agreement with Razorback Direct only a month ago, this is clearly a significant milestone in our efforts to expand operations in North America, and we are really excited about the future perspectives and the potential it holds. We followed up the U.S. order from Razorback Direct with another significant oil and gas-produced water commercial pilot order from National Energy Service Reunited, or NASA, in the Middle East. This unit will be used in Gulf cooperation countries by one of the largest integrated energy and chemicals companies in the world. This order has been in the works for some time, but encountered some delays towards the end of last year due to the conflict in the Middle East. The delay accounted for the vast majority of the differences between our initially stated annual guidelines and the results we concluded the year with. Where we are certainly frustrated by the delay, we couldn't be more pleased to have moved this program forward. Once again, we believe that this commercial test unit for produced water has the ability to open the doors for additional orders with this customer and many other operators in the region. It is important to note that the first oil and gas produced water unit that we deployed in the Middle East in mid-2022 was a key reference point in receiving this order. That system has been now successfully operating for nearly two years, and our 99 percent of the fed water passing through it is being delivered back as clean brine permeate water for reinjection. Yang produced water for the oil and gas industry. Another significant opportunity for us lies within monoethylene glycol, or MEZ. During 2023, we had our first offshore installation in the Mediterranean with a large oil and gas client, which continues to perform well. As I mentioned last quarter, this was the first of a two-part order for the offshore project with expectations for follow-on orders shown. This, however, had again encountered some delays due to the conflicts in the Middle East. As a reminder, the platform is located just off the coast of Israel. We initially expected this second order to seep in late 2023, but it will most likely be a 2024 event now. As I stated at the beginning, where this oil and gas orders can initially have long sales cycles, it is our firm belief that getting our foot in the door to showcase the capabilities of our systems will allow us to shorten future sales cycles and ultimately help us open a very large attractive addressable market. Transitioning away from oil and gas, let's move on to phosphorus acid, another key target market where we have recently re-evaluated our position. In doing so, it has become evident that there is a broader opportunity for us in what I would call the broader petrochemical markets, where our solutions have a superior value proposition. In the past 15 years, We have sold membranes to 40 to 50 different customers for chemicals, petrochemicals applications. The customers are very satisfied with our membrane filtration efficiency and excellent lifetime. We will therefore work on establishing strong collaborations with selected system integration companies, OEM, to penetrate this highly relevant and potential marketplace. As you can hear, I am pleased with the progress we have made to advance our position within our target market where our core technology can be easily adapted. Each of these areas provide us with a large address for market and opportunity to unlock significant growth for LICTEX as we move forward. But as I have stated many times since I took over as CEO, I will not put all the company's eggs in one basket, chasing opportunities that have longer sales cycles. We need to have a strong base that provides us with revenue and cash flows. That's where our established market strategy comes into play. So let me just touch on a couple of focus areas within our established market, starting with our commercial swimming pool products. During 2023, we successfully delivered 20 swimming pool systems in total. We now have more than 120 commercial swimming pool installations across Europe and the Pacific regions. During 2023, we executed key distribution agreements with Oxidine, Waterco, Boundary, and TotalPool to expand our footprint. As we look into 2024, we will work on harvesting the results from our established partnerships and build our reputation further in the market. We are looking to further expand into key geographics where we don't have a presence, such as in Germany, France, Netherlands, and United States. I am pleased with the progress we have achieved. and look forward to continue March adoption in the years to come. Transitioning to our DPF and the membrane businesses. Again, these are areas within our established markets where we have an extensive base of more than 50 long-term DPF customers and another 40 to 50 customers on the membrane side. We offer a highly defined value proposition to our customers across both Europe, North America for DPFs, and Europe and China for membranes. During 2023, our DPF and ceramic membrane business in combination generated $6.2 million in sales. As we pointed out in our press release, we are seeing order flow improving for DPFs, with new orders up 11% sequentially compared to first quarter of 2023. As we enter 2024, we will remain focused on building up new DPF customers in emerging areas such as black carbon emission and emergency electricity generation, nourishing our existing customer base We are focusing on strategic customers with master agreements. On the membrane side, we are looking to scale up through OEM partners in China, Europe, and US. We think there is a strong opportunity for this business to grow nicely in the years to come. Finally, let's discuss our initiatives on the marine scrubber side. As those of you that have followed the companies closely for many years know, this was a very large part of the business in 2018 and 2019, driven by the pending introduction of IMO 2020, which regulated emissions on marine vessels. Since 2018, we have approximately 170 installations around the world with multiple types of ships. Unfortunately, the adaptation of IMO 2020 was impacted by the pandemic. However, we saw the return of our first new marine scrubber system orders in more than 18 months as we deployed and upgraded modular design systems through our recently enhanced distribution relationship with Yoyo in China during the third quarter of 2023. Where we still are not seeing the same adoption rates we saw back in 2018 and 2019, there does still appear to be a market for our solutions. Furthermore, new types of marine fuels and engine technologies are currently being developed, and we believe our systems may be suited to support them. Therefore, our team is working to reset the relationship we had in the past and develop new agreements that will potentially put us in a position to regain the leadership position we previously held in this market. Having completed my first full fiscal year as CEO of Leetech, I am proud of the accomplishments we have made. It is my firm belief that this tech is more relevant today than ever before. Our filtration solutions address key issues related to climate change-induced freshwater scarcity. We also help to reduce emissions, lower energy consumption, and increase productivity. Our silicon carbon membrane solutions remove particles, oil, pathogens and heavy metals from water, making it possible to recycle it for essential applications, thereby reducing stress on our freshwater resources. Our diesel particulate filters reduce harmful emissions from diesel vehicles, diesel machinery, or power generators. We are also effectively removing black carbon emissions in maritime applications. Our commercial pool filtration provides significant environmental benefits and cost savings with up to 80% less water usage, 60% lower energy consumption, and 30% less chlorine dosing. Together with our partners, we create advanced filtration solutions for liquids and gas purification that provide a clear value to our customers and contribute to a cleaner and more sustainable planet. We are executing against the business plan we have set forth with strong operational and financial progress made in 2023. As we look to 2024, we are confident in our ability to continue expanding our revenue base across both Our established markets and the target markets were driving improvements in operational efficiency that will move the company to break even this year. Before I return the hour to Philip to review the financial results, let me just take a moment to thank Simon Staley for his commitment to LITIC for the past two years. Simon joined LeakTech at a time of tremendous transition for the company and provided a steady hand and thoughtful insight when it was needed most. As Robert stated at the beginning, Philip has assumed the role as interim chief financial officer. Many of you have had a chance to meet with Philip over the past few months and hopefully have come away impressed as I have with his understanding of LITSEC and our opportunity. Philip has held the role of head of group finance for LITSEC for the last two years, and I look forward to his continued contribution as he steps into the role of interim chief financial officer. With that said, let me turn the call over to Philip to review the financial results in more detail.