Hello and welcome to LiqTech International's First Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Robert, please go ahead.

Great. Thank you so much, MJ. Good morning, everyone, and thank you for joining us on today's conference call to discuss LiqTech International's first quarter 2023 financial results for the period ending March 31, 2023. Joining us on today's call from the company are Fei Chen, Chief Executive Officer; and Simon Stadil, 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. 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 a 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 LiqTech International. Fei, please proceed.

Thank you, Robert. Good morning or good afternoon to everyone on the call. I am excited to get the opportunity to speak with you all today. Following my appointment as CEO in mid-September of last year, our commercial strategy is delivering the intended results with strong improvement from our recurring businesses, which experienced revenue growth of 27% sequentially with improved contribution margin. Further, we have recently signed multi-distribution agreements for key geographies and market segments to accelerate adoption, including recent agreement to advance phosphoric acid purification within China and water treatment solutions in Southeast Asia. Additionally, our distribution agreement with NESR is progressing nicely, as our two companies are closely aligned and have established joint targets for 2023 to address the significant opportunity linked to ESG objectives in the Middle East. We believe this agreement will expand our reach into these key markets, which I will touch on in more detail momentarily. Additionally, we have made significant progress implementing processes to drive improvement in our contribution margins, which have reached their highest levels in more than two years. This improvement within manufacturing as well as a 28% decrease in operating expenses significantly reduce our breakeven point, which we currently estimate to be around $7 million in revenue. These three key initiatives, focus on recurring revenue, creation of new partnerships and distribution agreements to expand our commercial reach and operational efficiencies, are all moving forward according to plan. Our other key initiative, the larger system sales, is advancing with a sales pipeline that continues to grow. However, proof is in the results, and we still have work to do in order to move pipeline opportunities to confirmed purchase orders and eventual commissioning of the projects. Again, I will touch more on this in a moment. Overall, I am pleased with the…

Thank you, Fei, and good morning, everyone. Let me add some color on the financial highlights for the quarter. Revenue was $4 million, compared to $3.6 million in the same quarter last year, representing an increase of 10%. Broken down by vertical, sales were as follows: system sales and related services of $1.4 million, compared to $0.6 million in the same period last year and $1.8 million in Q4; DPF and ceramic membrane sales of $1.4 million, compared to $1.9 million in the same period last year and up sequentially compared to the $1.3 million in Q4; and finally, plastics revenue of $1.2 million, compared to $1.1 million in Q1 last year and up significantly compared to the $0.7 million in Q4. As you can hear, the largest increase year-on-year was in our systems business due to increased traction with delivery of two marine scrubber systems for the Asian market, installation of pool orders in Europe, and continued progress on our important Middle Eastern and Mediterranean oil and gas efforts. As Fei mentioned, on a sequential basis, the improvement was most predominant within our plastics business due to partial delivery of a large strategic order combined with a general uptick in order intake following a challenging Q4. Looking at our gross profit for the quarter. We reported $0.4 million on implied gross profit of approximately 10%, compared to $0.2 million and 7% in prior year's first quarter. The positive development is underpinned by higher activity and improved profitability, partly offset by increased costs related to maintenance and refurbishment of our high-temp kilns at our Ballerup ceramics facility. As we still have overhead costs and other fixed costs that are not fully being absorbed, one of the key metrics we look at to highlight the progress being made is our contribution…

Thank you, Simon. Before I turn over to your questions, let me quickly summarize. First, we have moved quickly to accelerate the commercial and business development processes here at the company, which has begun to show tangible results. We are growing our more predictable recurring revenue opportunities, leveraging our differentiated technology. We are also focusing on opportunities where we can deploy larger systems. Importantly, the processes and the systems we have put in place, allowing us to better align our costs with revenues with more accurate bidding on projects, all of which are driving nice improvement in our contribution margins. We have created new distributor relationships to address certain end market and have made investments to the internal team to ensure an effective multi-strategic approach to commercialization. And as we keep reiterating every time, everything we are doing is set against the backdrop of achieving profitability. The organizational transition we are undertaking has proceeded with emphasis on utilizing our existing core competencies within the company and calibrate with our renewed strategic focus and the market dynamics. As Simon and I both mentioned, we remain on track to deliver breakeven at the $7 million in revenue, a number we think is achievable in the near term. I am highly optimistic about the future and look forward to take any questions there may be. Operator?

[Operator Instructions] Today's first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Hi, Simon. Nice progress on the quarter.

Thank you.

Thank you.

So first question here is on the pipeline. You talked about the pipeline of new large projects being -- starting to build. And I just wanted to get a sense of your view there. How is that built over the last quarter? And what's the confidence level in that pipeline sort of compared to Q4?

I mean, as I mentioned in my speech, we have a very, very growing pipeline. It's growing each and every month. And we have increased our confidence also on the projects. I think some of them will be converted to purchasing orders in Q2. So you -- I mean, yes, in the near future.

Maybe just to add on that as well, Rob. So I think as you can see, going all the way back to last year, we are really focusing on fast-tracking our way to breakeven. And again, the recurring business, I think we just want to steer your attention to that as well because of the large orders have a longer decision cycle, which we also alluded to. And for us, seeing the tremendous improvement in recurring business is, obviously, what gives us better predictability going into the next quarters. And then on top of that, clearly, the larger system orders, more strategic orders, will be the icing on top of that. But as we can all see on guidance, we feel more confident in giving guidance now. And then hopefully, the track record will show that also over the coming quarters.

Okay. Great. And then, yes, I did want to ask about the Q2 guidance and outlook. I think you alluded to it there on the recurring business. But sort of -- what's sort of the confidence level there? And how do you have visibility or, I guess, what's the visibility into sort of beyond Q2 at this point?

So we are definitely looking to continue growing our recurring business, and that's also what we're looking at right now. Clearly, we're tracking it every single day. So yes, we are confident that a proportion of the growth quarter-on-quarter will definitely come from recurring business. So again, continuing the same trajectory as we've seen in Q1, again, underlining that we have better visibility. So that's definitely -- the key guidance here for us is that we have that visibility and stability. You can also say that the recurring business is starting to give us that predictability in our forward-looking analysis.

Okay. Great. And then I think you said you shipped two marine systems in the quarter. How is the marine business at this point in terms of activity and the pipeline in the marine scrubber business?

As I mentioned, we do see there some life signs in the marine business. So things started moving again. So we are actually focused on this area. Actually, we just hired a new salesperson. He's going to start next week because we really want to build out a stronger pipeline here. So we believe there will be several systems that will come to us later this year. So we do there some things moving.

Maybe just to add to that as well, Robert. I think on that note, please bear in mind, we acknowledge that the marine market was an important contributor to us in the past. And right now, we also want to try to cover that together with our aftermarket focus. So again, with the new -- the onboarding of a new key VP of Aftersales, combined with a new salesperson, hopefully also help us address this large pool of installed systems and help drive our aftermarket business also in the quarters to come. So the marine is not only selling new systems, it's also a matter of like leveraging the existing number of outstanding systems that we have now operating on multiple ships across the globe.

Thank you. I'll turn it over.

[Operator Instructions] Seeing no further questions, this concludes our question-and-answer session. I would now like to turn the call back over to management for closing remarks.

Hello, everyone. I'd like to thank you all very much for being with us today. We look forward to communicating with you soon again. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.