LiqTech International, Inc.

Good day and welcome to the LICTEC International Reports third quarter fiscal year 2024 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 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom with Lifem Partners. Please go ahead.

All right. Thank you very much, Debbie. Good morning, everyone, and thank you for joining us on the conference call, as the operator mentioned, to discuss LickTech International's third quarter 2024 financial results, and this is for the period ending September 30th, 2024. Joining us on today's call from the company is Fei Chen, Chief Executive Officer, and Philip Price, the company's Interim Chief Financial Officer. Before I turn it over to management, let me remind listeners that there will be an open Q&A session at the end of the call. As the operator indicated, if you are dialed in through the traditional teleconference line, please 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 and 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 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 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. Let's jump right to the key topic during the quarter, which was the delay of a large commercial produced water treatment project in the North America, which was expected to be delivered in the third quarter but has now been delayed following the decision by the customer to change the physical location of the installation. This unit was said to contribute about 1.5 million in revenue to our third quarter results. This is clearly disappointing and significantly impacts our quarterly results. Fortunately, our customer has finalized their location of the installation, which has moved from the South United States to Canada, with the unit set to be delivered in 2025 and will help to be a key driver to our future growth. I will touch more on this in just a moment. So that's the negative side of the quarter. Let's now turn to a few of the positives. We have more systems today at the various phases of testing and the piloting than at any time, any point in our history. We have four produced water treatment pilot units for the oil and the gas industry operation in the field at the moment. One with the Razorback direct in the US which was shipped in quarter one and operated satisfactorily at the customer side in the past four months. One with NASA, which was completed in quarter two for the Middle East. One with one of the world's leading integrated energy companies for produced water treatment in the U.S., which was shipped in quarter three. And a legacy system in the Middle East, which has now been operational for more than three years. The success of Razorback pilot is what led to the commercial order we originally was set to ship this quarter as the customer clearly recognized the value in our solutions. The pilot unit in Middle East will be installed and operated in January 2025 in one of the leading producers of the energy and chemicals in the region. The pilot unit will provide us unique opportunity to showcase the superior value proposition of our containerized UF filtration system. This would boost our technology in the Middle East region. The pilot unit with one of the world's leading integrated energy companies for produced water treatment in the US is presently under commissioning. We expect that the pilot testing will lead to a commercial project with this partner in 2025. Beyond oil and gas, recently we have placed a pilot unit with a US petrochemical company for micro-plastic remover, which was shipped in Q3. We also completed a test with a mini-unit focused on lithium-brane production pretreatment in the US, which was successful and has led to the next step, a pilot unit order, which is set to deliver this month. We also recently completed a factory test of water treatment unit for 1DG dual fuel engines, highlighting satisfactory results, permitting us to address SIPs based on 1DG dual fuel engines. We think this could lead to commercial sales of our water treatment units for EGR systems in 2025. Within the last year or so, we have also shopped units in key end markets, including a unit for MEG recovery for an offshore project in Mediterranean, a pilot unit for phosphoric acid purification in China through silicon filter, multiple marine scrubber units in China through Yoyo, a waste water treatment system for the metro processing industry in Denmark. And we have shot more than 24 proof system units over the past 20 months. Where we have always said the timing of large systems would be much slower and it would not be linear, we feel good about the progress made the last few quarters to put ourselves in a position to drive further adoption in a multitude of market segments. Coming back to one of our key end markets, marine water treatment, to assist In building out our adoption, NEWA announced the establishment of a joint venture with Jiatui Jiangshu Industrial Technology Research Institute to expand our presence in China, a key shipbuilding market which has an approximate 80% market share. The JIAWEI will be named Nantong Jiatui LICTEQ Green Energy Technology Company Limited. and will be located in Lantong Haimen, Jiangsu Province. LITTECH will be the majority owner of JIAWEI, where JIAZHUI will be a minority owner, contributing facilities and local support, along with initial operational and commercial funding. JIAZHUI is a technology and research institute in Jiangsu Province with the aim of promoting innovation and technology commercialization through partnership and a joint investment. GeoTree was established 10 years ago and has built up extensive collaborations with industries, universities, and research institutes in the US, Europe, Australia, Canada, and China. GeoTree has focused on a wide variety of areas, including clean technology. This year, we will make it possible for us to hire sales force in China to have access to network and the customers to provide a local service and spare parts support. In the medium long term, this year we will provide the possibility for us to localize the system assembly to reach cost price reduction. As most of you know, the marine shipping industry is moving towards cleaner fuel applications with the majority of new vessels being equipped with dual fuel engines, which requires reliable water treatment for the exhaust gas recirculation systems, or EGR. For perspective, according to Carson Shipping Intelligence and the ship engine companies published data, In 2024 through 2027, 400 new vessels are on order with EGR solutions planted in addition to retrofit applications, which are increasing for LNG-powered vessels. I am pleased to have finalized this giveaway and look forward to what it can do to help expand our market presence in China. Transitioning to another key market for us, swimming pools. During the quarter, we delivered two swimming pool systems, one by Poor Court in Ireland and one by Oxidize in Spain. This is certainly below our expected quarterly cadence and an area of increased focus for the team. We work intensively in building up more distribution partnerships into new geographic territories. One area we touched on last quarter that we believe will help is the receipt of NSP certification for our system in the US. For those that are not aware, we are unable to sell our commercial swimming pool solutions in the US as we work through this approval process. With the certification now in hand, we have been in conversations with numerous potential partners that will help drive adoption in the U.S. with the goal to have new collaborations in place by the end of the year. Transiting to other parts of our established markets, starting with DPFs and ceramic membranes. DPF and ceramic membrane sales during Q3 were about 1.1 million compared to 1.6 million in the year-ago third quarter. This is below our expectations, largely reflecting what we believe to be temporary market conditions within the customers awaiting potential interest rate cuts. Fortunately, year-to-date, sales continue to remain above last year's level, showing the continued strong market demand. Clearly, we are behind where we want to be at this point due to the delay of the large commercial oil and gas orders and other delays which has impacted us ramping up sales quicker. As we look to the first quarter of 2024, we expect revenue to be between 3.3 and 4.3 million, which would be above the most recent third quarter and compared to 3.9 million in the year-ago fourth quarter. But again, our expectation was to be above this level, exceeding 2024. As a result, we implemented a cost reduction plan aimed at lowering our break-even target, measured on an adjusted EBITDA basis, to a quarterly revenue round rate of approximately 5.5 million. Remember, our previous break-even target was 6.5 to 7 million. This cost cut will be across the board and includes a 10% reduction in headcount, a 10% reduction in base salaries for senior management in 2025, a 50% reduction in cash compensation for the board of directors in 2025, as well as other cost-saving initiatives. Positively, we ended the quarter with a solid balance sheet holding a pro forma cash balance of more than $13 million. As a reminder, in September and subsequently in November, we closed on a private placement of $10 million with existing institutional investors. We thank them for their strong conviction with respect to our company, our management team, and our future opportunities. It is our commitment to not have to raise additional capital and bring this business to profitability as soon as possible. Despite delay orders with a large number of agreements in place and the large order set to be delivered next year, corporate with cost reduction initiatives I mentioned I continue to believe that we are in a strong position to achieve this stated goal. With that said, let me turn the call over to Philip to review the financial results in more detail. Philip.