Good morning, and welcome to the LiqTech Third Quarter Fiscal Year 2023 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

All right. Thank you very much, Andrea, and good morning, everyone. Thank you for joining us on today's conference call to discuss LiqTech International's third quarter 2023 financial results for the period ending September 30, 2023. Joining us on today's call from the company are Fei Chen, company's Chief Executive Officer; and Simon Stadil, company's 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 today. 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. That said, I'd like to turn the call over to Fei Chen, CEO of LiqTech International. Fei, please proceed.

Thank you, Robert, and good day to everyone on the call. I am excited to get the opportunity to speak with you and to share with you our good progress. During the third quarter, we made continued progress executing against our strategic plan to drive the business towards profitability. We saw a revenue increase of 53% compared to third quarter last year. Gross margins improved from 3% last year to 19% in this year's third quarter. And our net loss improved by $0.4 million. Importantly, our adjusted EBITDA was just a negative $0.8 million as we move the business towards profitability. This improved results are due to the enhanced business strategy we enacted last year with focus on delivering revenue on our established business areas and we're driving growth through expansion into new targeted markets. To put it in other words, we look to protect and expand our established businesses such as commercial pool systems, ceramic membranes, diesel particulate filters and components. Enhance and develop our target businesses, which includes areas such as phosphoric acids, oil and gas and our overall strategic focus to increase our service business. As I mentioned in my recent corporate presentations, the key word here is focus. We are focused on making sure that we can have a sustainable business by protecting and defending our position in key markets we are listed as a demonstrated history of success. We're enabling high upside growth in exciting markets where we can leverage our core silicon carbon technology and system design capabilities. This dual approach ensures that we are not reliant on any one project or customer for us to be successful. Taking a step back, at LiqTech, it is our vision to become a leading provider of advanced and sustainable filtration solutions. This key megatrends of water…

Thank you, Fei, and good morning, everyone. Let me add some color on the financial highlights for the third quarter. The reported revenue of $5.1 million increased 53% compared to the $3.3 million reported in the third quarter of 2022, and also marked a modest, however, important increase compared to the most recent quarter ended June 30. Thrown down by vertical, sales were as follows: systems sales and related services of $2.6 million, up more than 200% compared to $0.8 million reported in Q3 last year and up 24% compared to the most recent sequential second quarter. Looking at our ceramics business, DPF and membrane sales ended at $1.6 million, down 13% compared to the quarter ended September 30 last year, reflecting a dedicated focus on improving profitability by carefully managing our revenue mix. And finally, plastics revenue and externally funded R&D projects of $0.9 million, up 25% compared to $0.7 million reported in Q3 last year with stable plastics activity and progress on key external R&D projects. In summary, the development in revenue is directly correlated with our strategic focus to strengthen the established business lines. More specifically, our core ceramics systems businesses with shorter sales cycles and a new complementary dedicated aftermarket strategy. To be specific, the key revenue drivers during the quarter was the record delivery of 10 pool systems shipped to clients across Europe and Asia, but also the delivery of our first phosphoric acid pilot to China, continued progress on key projects with oil & gas and metal cooling and finally, increased aftermarket sales with uptick in orders for both marine and acid applications, leveraging our global installed base. Zooming in on our components business. Our ceramics and plastic businesses executed on incoming orders post summer with decisive focus on improving throughput and cutting lead…

Thank you, Simon. I'm pleased with the progress our new leadership team has made to transform LiqTech operationally and commercially to become a leading provider of advanced and sustainable filtration solutions around the world. We look forward to finishing 2023 on a high note and saving our sales up for continued success in 2024. With that, operator, we would be happy to take any questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Rob Brown of Lake Street Capital Markets. Please go ahead.

Hi, Fei. Hi, Simon.

Hi.

Hey, Rob.

You made nice progress in building up the distribution relationships. I just wanted to get your sense on how much more there is to go there? And are there certain geographies or other markets that you need to work on? Or do you feel like you've kind of gotten that now in place?

Yeah. We still have quite many areas -- geographic areas to be explored. For example, we don't have any distributor in the U.S. and also some other European countries. So we will definitely continue our journey and find more distributors to extend our geographic reach.

Okay. Great. And then, I guess, on the scrubber market, you had some orders in the quarter. How is the pipeline looking for that? And do you feel like that's sort of reengaging into next year? What's your sense on that market for the next coming months?

So Rob, we were not commenting on the pipeline. Clearly, we're disclosing orders as they come, if they are obviously relevant in terms of tapping into new markets or they are reflecting a new product or a sizable order. Now we are diligently working through our marine portfolio, as also alluded to you on our conference participation back in September, where we're trying to really address that market through multiple channels. As we also alluded to at that point, we have onboarded a new sales rep for that market, very experienced person, that will help us build more channels. So we are working diligently to really strengthen our marine pipeline, and we'll elaborate more on that on future calls. And obviously, we will also disclose that on relevant press releases in due time.

Thank you. And then maybe on your efforts to kind of get spares and services improving, I think you had some nice progress there. But how do you see that playing out? And what sort of goes into ramping that business?

I mean we do have 160 marine systems in the market, and that give us a very good basis for our service business. And we're also selling more systems for the oil and gas and also phosphoric acid, and also even for the swimming pool systems. So we are actually in the process, really looking into our service offering, and build up the [ proficiency ] on that. So we do hope -- we do expect next year, the service will contribute very significantly than before.

Okay. Great. Thank you. I’ll turn it over.

[Operator Instructions] And our next question will come from Bill Chapman, a private investor. Please go ahead.

Yes. Thank you. Hi, everyone. On the phosphoric acid, one of your presentations, you said the ROI is well under one year. And is that still proving out? And then if so, what obstacles are you having to deal with for a company to adopt this? For example, they have to shut the plant down for four days, and that's difficult. What are the issues that the plants have to deal with to adopt this?

It's nice you have seen our presentation. It is true, the return of investment is very short, it's less than a year and that still stands. So the really widen -- the sales cycle is longer for that application is we are actually going to put our ultrafiltration system into their production line. So they always want to make a pilot testing before they really put into their real system. So that's also why we have sold our pilot to a [indiscernible], and we're going to have more pilots sending out. And when the pilot is up running, then they will become more reliable for them to really open their pipeline. So these are a little bit troublesome process because they want to see [indiscernible] and they want to take the pilot process. But the return on investment is very impressive for all the customers we have worked with.

And maybe just adding to that, Bill, I think the key thing here is also, as we mentioned, that the system is performing well. I think the quality of the system and the fact that we have a client that is really benefiting from this, I think, gives us the long-term view that this is the right market for us to focus on. But obviously, we can't control the decision process on the client side. And as Fei correctly mentioned, when we are tapping into the co-production line, it unfortunately takes time. But I just want to reiterate that the system that we have installed is performing extremely well.

Okay. Would this be considered substantial cost savings to the average manufacturing plant or is it marginal cost savings?

It's a substantial savings because they both save the process cost and also the product quality increase, and that is very much value for them.

Okay. One last question. How big is the market on this? I don't think I've seen anything on that. If I did, I just overlooked it. So how big is the market for this?

I don't think we have published exactly the max size for this one. But we think, in our presentation, you have seen, and for the new target business area, we're saying something about more than $2 billion potential addressable market. So it's a huge market there.

Just one last question. Of all of the product offerings you have, which ones have the biggest revenue potential for the company, the way it seems right now to you?

That's exactly why we have defined our commercial strategy as we have done today, and we do not want to take the same situation as we had before and we stand on one leg. We would like to have several different segments and is more stable for the company. So I would say, all the areas we are focused on, the commercial swimming pool and the marine scrubber, and the phosphoric acid and oil & gas solutions, they all could be very substantial revenue contributor for our market.

Okay. Thank you very much.

Thank you, Bill.

You are most welcome.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you all very much for being with us today. We look forward to communicating with you soon again. Thank you for attending.

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