LiqTech International, Inc.

be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom of Lithen Partners. Please go ahead.

All right. Thank you very much, Jason. And good morning, everyone. Thank you all for joining us today for the LickTech International first quarter 2024 financial results conference call. for the period ending March 31, 2024. Joining us on today's call from the company are Fei Chen, Chief Executive Officer, and Philip Price, the company's 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 today's call. If you dialed in through the traditional teleconference line, you can press star then one to ask a question. If you are listening through the webcast portal and would like to ask a question, You can submit your question through the Ask a Question feature in the webcast player. We'll do our best to get to as many questions as possible. 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 the 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 events or circumstances 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 have this opportunity to speak with you and share an update on the solid progress we have made as we maintain our focus on delivering against the strategic plan we instituted over the past year to successfully stabilize and grow our business initially through our established markets and then position ourselves for incremental growth through our target markets. As a quick reminder, our established markets are markets where we have extensive customer bases and typically have reduced sales cycle times. This includes commercial pool systems, 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 lead tech and allow us to gain manufacturing efficiencies by leveraging our existing production capacity. Our target markets include key markets where our high performance ceramic Silicon carbon ceramic membrane can provide customers with a strong return on their investments. This includes specific industry filtration applications to remove solids, oil, pathogens, and heavy metals from water as well as compounds from emissions and industrial off-gases. 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 DITSEC. I am pleased to report that the strategy is working. As I assume most of you saw, we are expecting a significant step up sequentially in revenue for the second quarter. with revenue to be between $5 and $5.5 million. This would represent an approximate 20% to 30% sequential revenue growth. But before we talk about a few of the forward-looking expectations and the drivers to the strong second quarter we expect, let's first look back at the progress made during the first quarter. Revenue during quarter one increased 6% compared to Q1 of 2023, driven by delivery of our first US-based oil and gas-produced water order as part of our new distribution agreement with Resovec Direct as we're at strength in our DPF and the ceramic membrane business. The US-based oil and gas order was a critical development for us in many ways. First, it expands our presence in North America by showcasing the benefits of our produced water treatment solutions to the oil and the gas industry. And second, the order comes rapidly on the heels of us signing our country's distribution agreement with the Resolvac Direct in March 2024, highlighting what we believe will be straining interest for our solutions in North America. The containerized pilot system that Razorpack Direct ordered arrived in Houston on April 30th and will be used as a customer site to test, demonstrate, and document the efficiency of this type of filtration technology in trading produced water to facilitate beneficial industry reuse and meet current and future regulatory requirements. 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. Let me be clear that our expectation is that this will not be a multi-year trial process. It is our belief that the initial results received in the next few months will help to validate our solutions and provides the data necessary for other customers to move forward. As we stated during our year-end call, the North American oil and gas market is going to be a key focus for DTIC moving forward, and we couldn't be more pleased to be partnered with the great team at the J.S.U.P.E.C. Directorate, who has a strong presence in key oil and gas geographies in the U.S. Building on the success of North American oil and gas order, we received another significant oil and gas produced water commercial pilot order in the first quarter from National Energy Services Reunited, or NISA, in the Middle East. This unit will be used in Gulf Cooperation Council countries by one of the largest integrated energy and chemicals companies in the world, and is scheduled to deliver in June. This will be a key component of the strong second quarter that we are expecting. Similar to the US order, 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. Admittedly, the Middle East tends to move a bit slower than in the US. But this one of our systems installed two years ago operating to expectations We believe there is an opportunity to move Rhapsody forward with other customers in this geography as well. Overall, I am pleased with the progress made against our oil and gas target market initiatives and look forward to incremental progress in 2024. Let's transition to a few key developments since our last call in our established markets, starting with marine scrubbers. Last week, we announced entry into a partnership with the Dan Marine Group, or DMZ, to expand our presence in the Chinese shipbuilding and repair market for marine scrubber water treatment solutions, as well as new exhaust gas recirculation water treatment systems for dual-fuel marine vessels. The agreement also includes the servicing by DMZ of existing LICSEC marine installations, including fast delivery of spare parts and on-site repair work. Danmarine Group has close customer relationships in the marine industry and a strong sales and service organization in China with locations close to customers for shipbuilding and repair. A key component to this partnership is our ability to leverage DMZ's highly skilled sales and service capabilities to sell, install, and service our marine water treatment systems. The other highlight here is the market for new exhaust gas recirculation water treatment systems for dual-fuel marine vessels. Marine time industry is undergoing a significant transition towards cleaner, fuel and reduce environmental emissions. In the coming five years, more than half of the new vessels will be built with dual fuel engines, which make them be able to operate with LNG or methanol. For this new type of vessels, there is a need for highly sufficient and reliable water treatment systems. This type of solution is the perfect fit to this application. We look forward to the opportunities that this new partnership can bring for us in Chinese marine squabbles and exhaust gas recirculation market. The second key partnership we entered was with Freiman, where we established maritime representative to the shipping industry to market our marine squabble water treatment solution within Greece. For those not aware, Greece is the largest ship-owning market in the world. Bremen has close customer relationships with major shipping companies in Greece and have deep technical insights to ensure effective customer collaboration for design and installation of new water treatment systems. With the combination of our unique silicon carbon ceramic filtration technology and years of successful commercial demonstration in the marine industry. We look forward to our two companies come together effectively to expand our marine squabble footprint and reduce environmental impact from shipping. As we look to the second quarter, beyond the key oil and gas order to the Middle East set for delivery in June, another key driver to our growth expectation is the commercial swimming pool market. During the second quarter, we expect to deliver eight systems in total with contributions coming from each of our key geographies and distribution partners. As a reminder and for context, we delivered 20 swimming pool systems in all of 2023. The agreements we signed last year with Waterco, Binary, Total Pool, and Oxygen are all contributors with each delivering at least one system in Q2. I am pleased with the progress we have achieved on this key established market and look forward to continued market adoption in the years to come. Transition to our DPF business and the membrane business, another of our established markets. During the first quarter, DPF sales increased 31% compared to the year-ago first quarter. with sales of nearly 1.6 million. We are seeing increased interest for our DPF solutions within the European Inland Transportation Market as renewed focus on black carbon emission reduction occurs. We are also seeing strong sales for our features for emergency electricity generator. Similar to pool systems, we are pleased with the growth coming from our DPF solutions, which in many ways was an afterthought for Dick Tech previously, but has become a solid contributor for us today. On the ceramic membrane side, we are making inroads to a couple of key potential markets with pilot testing going on at customer sites. These markets include petrochemicals, water treatment, paper and puff, and battery material concentration. We are also looking to scale up through OEM partners in China, Europe, and the US. We believe this can be a driver for this component of our operations going ahead. I hope to have more to share with you in the coming quarters on this pilot test. To wrap things up before I turn the hour to Philip, to review the financiers in more detail. As our outlook suggests, we expect to see good growth in the second quarter. We have eight pool systems scheduled for delivery with contributions coming from each of the distribution partners we have crossed the board. These orders, coupled with our Middle East-oriented gas system set for delivery in June and an uptick Nearly each of our key established markets' recurring product offerings, such as DTF filters and membrane, provide us with optimism for both the second quarter and the rest of the year. I look forward to our continued successful execution against the strategic plan we set forth. With that said, let me turn the call over to Philip to review the financial results in more detail.

Thank you, Faye, and good morning, everyone. Now, let's dive into the financial highlights for the quarter. Revenue came in at 4.2 million compared to 4.0 million in the same quarter last year, representing an increase of 6%. This performance falls within our previously disclosed guidance. Broken down by verticals, sales were as follows. System sales and related services of 1.5 million compared to 1.4 million in the same period last year and 1.6 million in Q4. BPF and ceramic membrane sales of 1.8 million compared to 1.4 million in the same period last year and up sequentially compared to the 1.4 million in Q4. And finally, plastics revenues of 0.9 million compared to 1.2 million in Q1 last year and 0.8 million in Q4. In summary, our ceramics business experienced a significant increase, the system sales and related services recorded a slight uptick, and the plastics underwent a notable decline. To be specific, The key revenue drivers for this quarter was the delivery of our first US-based oil and gas produced water order as part of our new distribution agreement with Razorback Direct, along with increased sales of DPFs and ceramic membrane sales attributed to focused sales efforts beginning from late 2023 that generated elevated activity in the current year. The decline in plastics revenue relates solely to a large one-off sale that was recorded in 2023 without recurrence in the current year. In terms of our forward guidance, as Faye mentioned, we expect the revenue for the second quarter of 2024 to be between 5 and 5.5 million, which would be a significant increase of approximately 20 to 30 percent compared to the just ended quarter. We remain committed to growing our business over the coming quarter as we work intensively to execute on our ambition to further penetrate the global oil and gas, chemicals and pool system markets with our proven and industry-leading solutions. Looking at our gross profit for the quarter, we reported 0.3 million or an implied gross profit margin of approximately 6.4% compared to 0.4 million and 9.8% in the prior year's first quarter. The unfavorable change is first of all a result of the revenue mix for the quarter. In particular, the delivery of the containerized oil and gas pilot system impacted margins, resulting in a decrease compared to typical levels. This decision was strategic, undertaken to showcase and validate the effectiveness of our technology. As we still have overhead and other fixed costs that are not fully being absorbed, one of our key metrics we look at to highlight the progress being made is our contribution margin. During the quarter, When you back out fixed costs, our contribution margin ended at approximately 39% compared to 43% in the same quarter reported last year, with the unfavorable change mainly explained by revenue mix and especially the delivery of the containerized on-gas pilot system as mentioned before. From an operational perspective, we continue to have excess capacity with the recently installed new kilns and revitalization of our ceramics facility. Hence, the immediate focus is to leverage the positive momentum and compress delivery lead times while still ensuring the delivery of high quality membranes and filters. As previously stated, We still maintain our guidance that our business will be breakeven measured on an adjusted EBITDA basis assuming quarterly revenue of approximately 7 million and potentially lower with the wide revenue mix. Turning to OPEX, total operating expenses for the quarter was 2.3 million compared to 2.6 million in Q1 of 2023. This is a decrease of 0.3 million or approximately 10%. The decrease mainly reflects the release of 2023 bonus provisions offset by increased insurance costs and expenses associated with the CFO transition. As stated over the last few quarters, we remain focused on running a lean business by monitoring costs and carefully evaluating our spend to ensure that we do not jeopardize our financial objectives. Moving to the next item, Net other expenses during the quarter were 0.4 million compared to 0.2 million in Q1 of last year, with the development mainly explained by the non-cash loss associated with the sale of fixed assets, partly offset by gain on currency transactions due to the euro depreciation against the US dollar during the period. Concluding on the P&L, net loss for the quarter was 2.4 million, which was consistent with the net loss reported in the first quarter of last year. However, this quarter's result was driven by revenue growth and a decrease in operating expenses, offset by lower margins, as well as an increase in other expenses. And finally, let me briefly comment on our cash flow and balance sheet before summarizing and handing back over to Faye. We ended the quarter with $7.7 million in cash, down $2.7 million compared to the fourth quarter. This is explained by the cash used in operating activities, a reduction in accrued expenses related to the release of bonus provisions, an increase in prepaid expenses due to annual insurance premiums and IT licenses paid, and finally, an increase in inventories which is linked to the strategic sourcing for ongoing projects to cut delivery lead times. And also, historically, the first quarter has always been the most financially demanding period in terms of cash flow due to the annual expenses mentioned before. And finally, during this quarter, we managed to sell surplus equipment with the proceeds used to repay the relative leasing liabilities in full. To summarize, balancing our cash flow remains a key KPI for our business, as we're determined to preserve cash to maintain our strategic and financial flexibility. We also acknowledge that we need to increase the throughput of our system facilities to accelerate growth, reduce lease times, and ultimately pave the way to a business in balance, both from a net income and cash flow perspective. Thank you again for your continued support.

Thank you, Philip. In closing, we remain committed to executing against our strategic roadmap focused on long-term value creation. Over the past year, we have launched a clearly defined commercial strategy that has already yielded positive results. Going forward, our business will be under pinned by strong continuing revenues within our established businesses and an increased foothold in our strategic target markets. The growth we expect in Q2 and the results of the year, coupled with improved operational execution across organizations, will be key to drive steep changes in growth margins and positive cash flows. I look forward to continuing to execute against our strategic initiatives in 2024 to drive value creation for our shareholders. One final comment before I turn it over to your questions. I will be participating, together with Philip, in the Lithium Partners Spring 2024 investor conference on May 30. If you would like to schedule a one-on-one meeting, please contact Robert Bloom and he will be happy to coordinate for you. With that, operator, we would be happy to take any questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. This time, we'll pause momentarily to assemble our roster. Our first question comes from Rob Brown from Lake Street Capital Markets. Please go ahead.

Hi. Congratulations on all the progress.

Thank you, Rob.

I guess first question is on the U.S. oil and gas market. Great to see some progress there in getting a delivery. Could you give us a sense of how the pilot program plays out? I think you talked about a relatively short period. assessment period and then give you a sense of how the market development and pipeline development happens after that.

As I mentioned in the talk, the pilot has arrived in the U.S. on the 30th of April and actually now it's already at the customer side. We are very happy to start running already this week and the coming week, so we expect in the coming months or so, we're going to have the first testing results. So that will really give the clear indication about the performance of our pilot plan for the U.S. produced water. And we are already discussing with different companies and especially also with the Resurrect Direct about a pipeline. So there's a lot of things going on and it's like really people are excited to see the results. of this pilot testing. So we are very excited to see the progress in the next couple of months.

Okay, great.

I assume given the Middle East system running for a couple of years that the progress will be favorable. I just want to get a sense, what's sort of the system benefits that the customer gets with your system? And maybe just what's the sales pitch that Razorback goes out with to its customer base?

Thanks a lot, Rob. This is a very, very good question. The really good benefits of our system definitely is our membrane is really suitable for this type of the water treatment. It's a highly oily content, and there's also metal content and also very high solid content. And we have demonstrated both in the Middle East and also actually through our marine squabble market. And our membrane is really good for this type of treatment. And it really can be cleaned up very efficiently to keep the efficiency of filtration. And this is exactly the difference between our membrane and the polymer membrane. So we really have the long lifetime. And the very high efficiency is through long periods of time. And the second thing is we have a containerized solution. So it's really, it's very easy to use. It's mobilized. You can put on the truck, can transport from one side to the other side. And also, it's a modular build, modularized build. So basically, we only need demand at customer side, some basic utilities in place. Then we can just put the container there and the plug-in, and then really able to start trade. So you don't need all those zero construction work. And also, the footprint is very small. We have a very compact design of our system. And it's really convenient to use, and operating cost is much lower than the other existing technology in the market. So those are the things we also really were able to demonstrate through our pilot testing, both the quality of our filtration And also, you know, the OPEX data and also hold operation benefits. Those things were able to make our pitch much more sharp when we finished our pilot testing in a couple of months.

Okay, great. Thank you.

And then on the Q2 ramp in revenue, I think you mentioned pool systems really stepping up. Could the pool market – does that become – more of a diversified stream of activity there going forward, or is there some kind of one-time stocking stuff going on, but just a sense of how the pool market's developing and how you see it playing out over the next 18 months or so?

Right now, we're primarily active in Europe and Australia, and we are now moving into U.S. market. So we would like to go to U.S. market to really find partners for our pool system. And in Europe, we have some huge markets like Holland and Germany. We're not really active today, and that's also something we're going to come in. So next six months, we are entering the new territories for our pool system.

Okay, great.

And then in terms of the partnerships, you continue to add some nice partnerships. How much more is to go in getting the partnerships in place? Do you feel like the two you've announced kind of fill out where you were working on?

I mean, we have just announced the two partnerships for the marine area. And as you see, we will continue to find the partners and maybe, you know, different type of partner. For the marine, for example, we have the Danmarine. It's really for the sales and distribution. And the Freyman is different because they have really network with the seapower. So what we're trying to do is we try to get the partners through a whole stakeholder group. So in this way, our sales and the max penetration will be much more efficient. So this is our thought, because we're already building quite some partnerships, and we want to be more clever, really to use the partnership in multiple dimensions to really move our sales more efficient ahead in the select verticals which we are working.

Great.

Okay, thank you. I'll turn it over.

Thank you, Rob.

Again, if you have a question, please press star, then 1. Our next question comes from Lucas Ward from Ascendant Capital Markets. Please go ahead.

Hi, Lucas. Is your line on mute?

Yeah, sorry about that. Lucas Ward here. Good afternoon. Faye and Philip and congratulations on your business progress. Hi. So I wanted to look at the overall revenue opportunity and just sort of understand like what are the keys to really scaling it up because it looks like you have so many opportunities in different geographies and different verticals and, you know, you have the filter opportunities and the system opportunities and it's almost like you're planting seeds in a lot of different places. And so I guess I wanted to ask, from your perspective, what are the keys to really scaling those, growing them?

I mean, that was a very good observation. We are playing the seeds, because what we have found out is our strategic focus area, that means the swimming pool system, DPF, and marine and oregas. If we just look at the membrane, if we look at all this together, we actually have addressed the market potential of $4 billion. So today, we have marked here less than 1%. So we are actually in the process really clear out the way and putting the seed for the next wave growth. So what you can see is the DPF actually we are doing very good now in Europe. And we would like to see in next year or coming years, where is the new playground but we would like still really grow in Europe first of all and the poor system we are growing very well now in the UK and in Australia and in Spain and we would like also go to the other market so you see now it's really we're putting on the foundation but really can grow up in the future and we feel really you know can see the last years what we've done in the different segments and it's the right way to go. So we are continue to putting the seeds on the ground and then we will harvest them in the coming period. So it's really a very exciting period ahead for us.

And Lucas, also just to add some color, it's also just not to be reliable on only one business area. So to spread our risk.

Got it. Okay. Can you comment more on competition Like, you know, how much of a factor, because the way you presented it sounds like it's just, it's mostly a sales and marketing challenge. You know, it's a matter of like finding the right partners and the resources and just going after it. But could you also comment on who you see in various, you know, verticals and geographies? You know, are they the same players over and over again? And, you know, how much does competition impact your ability to get those design wins?

The interesting thing about our market is that we don't have a uniform competitor across all the segments. So we actually have a different competition in a different segment, and they are all different from each other. And if we take DPF as example, before we actually had a competitor in Denmark, but that company has been bought by a Chinese company, so the whole production has been moved to China. So that's actually give us a competitive advantage because we are the European company and many of the European customers like to buy from European company. So that's very interesting. And we do have some competitions in Germany and in Japan and the French, but we are the ones in the niche is we are very flexible and able to deliver fast and there is a high end product. And that's what our special, you know, in this DPF area. And many of our customers are recurring customers, so there's a very solid customer base, and they are still growing. It gives us a very good basis for revenue income. And if we take the swimming pool area, our competition technology is a sand filter, and our filtration technology solution for the pool system It's much more environmental friendly and energy saving and the water saving and the chemical reduction. So we have some really unique value propositions for this market. So it's really, for me, it's really only the marketing and the sales, you know, speed from our side is going to push it ahead. And the oil and the gas areas, we are still new. We're trying to get in, but we definitely see there's a needs for our solutions in that sector. We don't see any headcount competition yet and we are keeping very much alert to see what is coming when we have, you know, open the door and really able to demonstrate our technology. And marine area, we did have very strong competition as I mentioned in the last couple of calls and we had, you know, very good initiate marks, you know, we're going to a very dominant position and there's many Chinese cheap solutions coming in with a very bad performance and they kind of flash the market. So right now, We're trying to go back in the market with much more clear view and go to the high end and like this exhausted gas recirculation, that's market, those cheap technology cannot really stand. And we're trying to go back there and really occupy the market because that's what's perfect for our solution. So we come back with a more smart solution at a different angle. So this, you can hear, different segments, there are different competition. We don't have one word competition across all segment.

Okay. Thank you, Fei. One more question on operating expenses. It was surprisingly low. It hasn't been this low for a long time, and it was attributed to this release of bonus provisions. I just wanted to understand, like, what that means. and what I should expect going forward in terms of modeling operating expenses?

Yes, of course. So the release of bonus provisions relates to the 2023 KPIs. So we didn't meet the target, and therefore we released the bonus provisions, hence the positive effect of the OPEX. But the level that you should expect is around 2.6 million per quarter.

okay um all right that's all i had okay we are very much uh cost conscious so really trying to increase our in the output from production and output from the sales people so we're really trying to you know become more efficient and in this way we actually can keep the operating costs down and and increase the sales at and our revenue at the same time so this is one of very clear ppi class and we're also trying to improve our process across the whole value chain.

Okay, yeah, it didn't, it seemed like there was more going on there, you know, like more of a sort of a structural shift towards, you know, cost savings. So thanks for confirming that.

Again, if you have a question, please press star, then one. And our next question comes from George Malice from MKH Management. Please go ahead.

Good morning, good afternoon. Good job on the quarter and the progress. Thank you. I had a question about the U.S. oil and gas order. I'm trying to understand how it happened so fast. Was it that basically Razorback sort of had a customer? and that had a problem and they went looking for technology and found you and signed that distribution agreement and then they were able to propose a solution to their customer? Or did they sign a relationship with you first and then started looking for customers and one happened to happen so fast?

What kind of... I think... That's a very interesting question. Actually saying this way, we are very happy. We find this very good partner to work with because they are in the oil and gas market and very much alert what its customer needs. So they have a very strong customer network and the customer group already. So they know exactly what the customer is really looking for and really like of the technology. And we have found out the chemistry of these two companies, you know, match very well. And there are some very clever technical people and the commercial people in respect direction. So since we start discussion simultaneously, we already start discussion, you know, present our technology to them. And also, they tell us what the customer needs. So it's not like we sign the contract, then we start work together. We already start work, at the same time we sign the contract. And that's also a process. We find out this is the partner we would like to work together with. So that's why, you know, it's more than only one month we find the customer. But I have to say it's really, really good. They have a customer who really needs a new solution. for their problem. So this is a very good match.

Okay, great. Okay. And then how many different other solutions can they propose to their customers in terms of treating the produced water? Because clearly they have some solutions right now, but you are a new technology that they offer. What are the alternatives that they have provided in the past?

I mean, it's a general knowledge in the market for all the people in the oil gas market. The pretreatment for produced water is rather tough because the water is nasty. You have a lot of oil inside and a lot of metal content and also salt and the solids, many, many solid particles. There are many different kind of chemical treatment methods for this part. And I think most of people, they don't like to use chemical method today. So when they see our solutions is so neat and also automation and really kind of user friendly also, both for the operator and for the environment. So they really got excited about this and they see the potential right away because they are kind of tired of the chemical process, chemical treatment. So this is, you know, you can be luck sometimes. I think we are lucky because they are looking for something better than what they have today.

Okay, okay, great. And then one final question on the pool systems. Given the existing distributors that you have, so assuming you're not adding any distributors, but I think you will, but with the existing distributors, do you expect to beat the 2023 deliveries? You had 20 deliveries in 23. With the existing distributors, can you match that or beat that? I mean- In terms of what visibility do you have in the pool system?

We are definitely trying to work with our existing distributors, make them much more efficient. So I expect their sales to grow because only they can grow their sales and we can grow our revenue. And at the same time, we also going to build new distributors in the next half year. So it's a combination of both, but I definitely expect our distributors every year, their sales should grow.

Okay, and then what kind of visibility do you have? into the pipeline there, their pipeline.

Sorry?

What visibility do you have into their pipeline?

We have a total transparency. So we really work closely together. So they are really our partners.

OK. Great. Thanks a lot.

Thanks.

Fay and Philip, I've got just a couple of questions here through the webcast portal that I want to make sure we get addressed. So I'll try to move through a few of these quickly and summarize where there's some overlap. First one is, can you talk about sort of your general sales approach in the United States? It seems like that's a focus area for you. Is this going to be sort of a team approach, marketing, distributors? Just expand a little bit more on your focus in the U.S.

Okay. we have the first distributor partner for the orient guest area respect director and what we working with them is really very close to together we we do the testing together and we do the marketing together and we're doing the the sales pipeline together and the sales work also together and the their people will do the the ground the service and we will be you know the back office and also the technical support for them so so they will be you know, our arm and the legs in the U.S. ground. So this is for the oil and gas, and definitely we will continue to grow this relationship. And for the oil and for the pool system, we expect also to find some partners in the U.S. market to help us do the marketing and the sales, and also potentially in the future, also the service. So it's really a strong partnership We are working in the U.S., trying to really make the sales penetration in this market. U.S. is a very big market, so definitely we will not only have one partner, and we need more partners. But we would like to take enough time and really make that happen. Then we see what brings next.

All right, fantastic. A couple of questions here just sort of talking about sort of your break even, which I know you talked on a little bit, but maybe just to expand a little bit on sort of the outlook here, your break even rate, sort of goals in terms of achieving positive cash flow, etc.? ?

Yeah, so as we mentioned before, we still maintain the guidance for when the business will be breakeven, and that's with a quarterly revenue of approximately 7 million, potentially lower if we have the right revenue mix. Regarding to the cash flow, that's of course a key KPI for us. We are determined to preserve the cash in order to maintain our strategic and financial flexibility. We would also acknowledge that we need to increase the throughput of our existing facilities in order to accelerate growth and reduce lead times and ultimately pave the way to a business imbalance from both a net income and cash flow perspective. And also what Faye mentioned before is that our main focus is on running a lean business.

All right, fantastic. It looks like I've got one last question here. You've talked about some of the growth, I guess, within the DPF solutions, referenced Europe, inland transportation and electricity emergency generators. Maybe just expand on what some of the drivers are for that. Is this sort of a sales approach or is this sort of a market-driven approach? Just expand a little bit more on the DPF growth there.

I would say it's a very, very strong trend we have feel now in the market. And the European inland transportation, it got more and more public and the political awareness. So people really start looking in these sectors and start talking about how much emissions they actually give to people through this inland transportation. So countries like Holland and Germany definitely start looking at that now, and that's what we feel. And we do get some very good customers, and the stronger ones, they actually go into this area and really have a very close collaboration with us in that. And we expect to see this growing in the coming years, definitely. And for the electricity emergency generators, it purely is very much is for the data center around the world. And they need to have this DPF installed in any of the data centers they're building today, especially in combination with artificial intelligence, because there's a lot of data centers building, especially for those ones. And they are definitely around the world. It's not only Europe, and also in the U.S. and so on. been seen as one of the preferred partners, even also by some US companies to provide this DPF to them. So what we feel is we have a quite good reputation in the DPF market, and very often the DPF market is mouth-to-mouth research. It's not really the massive marketing approach. So by having this very good relationship and also good reputation in the market, many cases actually customarily come to us and by themselves, but we're also going out proactively going to some conference and try to find the target customers to really work with them. So this is a two-way we are working on, and we are very excited to see this development, and we're really confident this DPS market is going to continue to grow and market for us in the coming years also.

All right, fantastic. Very helpful. It appears we have no further questions here, either online or through the teleconference. So, Fei, I'll go ahead and turn it back over to you for closing remarks.

Thank you, Robert. Thank you all very much for being with us today. We look forward to communicating with Yongxiong again. Thank you.

The conference is now concluded. Thank you for attending today's presentation.