Good morning, everyone, and welcome to the LiqTech International Reports Third Quarter Fiscal Year 2021 Financial Results Conference Call. [Operator Instructions]. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Robert Blum with Lytham Partners. Sir, please go ahead.

All right. Jamie, thank you very much, and good morning, everyone. Thank you all for joining us today during LiqTech's Third Quarter 2021 Financial Results Conference Call. As Jamie just indicated, I'm Robert Blum, Lytham Partners. I'll be your moderator for today's event. Joining us on the call from the company is Sune Mathiesen, the company's Chief Executive Officer. Before I turn the call over, let me remind listeners that following the conference call prepared remarks there will be an open Q&A session. Also, please note that there is a slide presentation accompanying today's conference call. For those on the webcast, the presentation will be on your screen for those that have dialed in, the presentation is available on the company's website at liqtech.com/investor-relations and that is, if you sort of scroll about a quarter way down, there's a black box that indicates company presentation, Q3-2021, and you can click on it and access it there. Before we begin with prepared remarks, we submit for the record the following statement. This conference 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 and 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, and sales of 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, is a listen not to place undue reliance on these forward-looking statements, which speak only as of this date and the date of the release and conference call. The company assumes no obligation to update any forward-looking statement or 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 Sune Mathiesen, Chief Executive Officer of LiqTech International. Sune, please proceed.

Thank you very much, Robert, and good morning to all of you, and thank you for joining us today. As Robert mentioned, we have included a slide presentation to accompany our call this morning. I will reference certain slide numbers as I proceed with my prepared remarks. At a high level, and I am now on Slide 3. I'm pleased with the traction we are making to diversify our business and grow our order book, particularly within the oil and gas industry, where we have recently booked orders with industry leaders such as Baker Hughes, Chevron and ONGC during the past few months. These orders from these very important industry leaders highlights our progress in this important market segment for us, and I believe that we will see further acceleration of our oil and gas business in the coming months. The order for the Middle East market through our joint venture partner is clearly a key milestone for LiqTech. And one, we hope we'll be able to build momentum from going forward. The first order clearly took longer than we originally expected. But we are optimistic that the first one is always the most difficult to get and that it will be an easier pathway going forward. Not only does this order open a larger addressable market for us. It also marks our entry into a build, own and operate model, which we believe will provide us with significant potential upside in the coming years. I will expand more on this momentarily. Beyond oil and gas, we are seeing reemergence within our marine scrubber business, where we continue to see increased inquiries and bookings. We could also see further growth if the IMO on the proposed open loop scrubber ban currently being discussed with its ongoing MEPC committee session. I'll…

[Operator Instructions]. Our first question today comes from Rob Brown from Lake Street Capital Markets.

Thank you for all the detail in the presentation here and sort of color on the 2022. My first question is really around the scrubber market and sort of some of the supply chain issues? And maybe how is your visibility on in terms of delivering things and maybe what's the order book activity level there at the moment?

As you know, the Marine Scrubber business has been tremendously affected by or negatively impacted by the pandemic. And we've been operating on a very low level throughout 2020 and 2021 on marine scrubbers. Back in February, we saw that the price spread between low sulfur fuel and bunker fuel began to increase again. And that spiked an interest from ship owners again to install marine scrubbers. We have been collecting orders and we are slowly ramping back up to speed in the marine scrubber business. We are now anticipating $12 million to $20 million of revenue in here. And I believe we have quite good visibility on that. So it's been a long downturn and finally getting back to booking orders and we believe the outlook we have provided for next year will turn out to be accurate. It's obviously a big range, but we think we'll be within that range.

Okay. Good. And then on the oil and gas order, you talked about in India, what's the scale of that? And is that a direct equity sale to type model as well?

You broke up there, Rob, sorry.

Sorry, I was talking about the India oil and gas order that you talked about. What's sort of the size of that order? And is that a direct equipment sale? Or is that part of a JV arrangement as well?

It's a direct equipment sales. So it's sales outside of the JV. It's a new customer. We are currently working on several projects with them. This first order was for produce border application like what we're doing in the Middle East. The first order was not as big as the first one we announced in the Middle East. We have a few quite exciting projects coming up here that we can hopefully book in the near future. So let's call it a good start and with a great potential customer, and then we look forward to booking next orders.

Our next question comes from Jeb Armstrong from Clear Harbor Asset Management.

I hope you are well, and thank you for providing the guidance. I think it's terrific to be able to have some visibility into what's happening over the next 12 months. I wanted to first sort of go back and hone in a little bit on the logistics the supply chain issues about what sort of happened in the last couple of months that may have changed? And what kind of visibility you have going forward now, now that we're in the sort of the middle of the fourth quarter?

Yes. We actually discussed it on our previous conference call that we were beginning to see supply chain disruptions in the market. And that has become worse. We see the pump deliveries and deliveries for electronic parts are being pushed out, and that has affected our ability to deliver certain orders in the third quarter. These orders have now been moved into the fourth quarter and actually even some of the orders we're supposed to deliver in the fourth quarter have now been moved to the first quarter and so forth. It is what it is. I think that most companies around the world are experiencing this right now. We're trying to work around it. We're trying to be able to forecast better on what parts we need. But it is affecting our business right now. We think it will do that for the next 1 or 2 quarters, and then we believe the situation will stabilize.

And I just wanted to turn back and if you could just sort of review the -- how gross margin what goes into gross margin as it does move about a fair amount. So if you could just provide sort of an overview of the items that go into gross margin and why it does tend to move about as much as it does?

Why it moves around right now is very much related to volume. So it also means with the low volume, the impact from our fixed costs that are part of the gross margin. They -- that becomes a bigger part on the low volume. So as we grow our revenues, that will fluctuate less. So basically, our costs that are included in the gross margin consists of fixed cost and output costs. And as we grow revenues, the fixed part becomes smaller. Depreciation becomes a smaller part. And also, we should see, depending on revenue mix that the gross margins will stabilize. As you can see from the presentation, our contribution margins vary quite a lot depending on the specific application. Contribution margins from oil and gas are high, whereas contribution margins from DPF, for example, are very low. But again, as we grow revenues in each of these business segments, we will also see it across margins will stabilize.

[Operator Instructions]. Our next question comes from Craig Rose from Axiom.

On, considering the low end of your guidance is offering 100% revenue growth, is there a reason why you're not reporting a backlog number like most people would?

Yes, good question, Craig. We are just getting into the habit of providing guidance throughout the pandemic. It's been difficult for us to forecast our business. As you know, we -- our marine scrubber business was seriously impacted by the effects from the pandemic. What has led us to now provide guidance is enhanced visibility on the order book and our pipeline. And that now has led us to take the decision to provide guidance. We could obviously include more things in the guidance going forward. maybe order book is one of them. This is certainly a starting point. And I think it's a great starting point. I think it provides our investors with much more visibility on where we think the company will be 12 months from now, but we'll certainly take into consideration, including order book in the future.

Well, I would say with -- you're now pulling revenue from 4 locations, you no longer have to fear reporting your purchase orders or your booked orders because your competitors won't know where the orders are coming from. So I would recommend start doing it immediately and it's a way for you to build credibility among current and future investors.

Yes. I think that's certainly a valid point, Craig, and would certainly be part of our considerations for which metrics we will include in our guidance going forward.

Is it safe to say that you purchase orders for the low end of your guidance?

Yes. Again, we have not provided that number. And again, we -- I think you have a valid point and it will be part of our consideration when we provide metrics on the next update.

And ladies and gentlemen, at this time, we're ending today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Thank you very much, Jamie. And again, thanks for everyone joining us on the call today. I wish you a great day and stay safe. Thank you.

And ladies and gentlemen, that does conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.