Good day, and welcome to the LiqTech International Fourth Quarter and 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. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom with Liston Partners. Please go ahead.

Alright. Thanks very much, operator, and good morning and good afternoon, everyone. Thank you for joining today's conference call to discuss LiqTech International's fourth quarter fiscal year 2024 financial results for the period ended December 31, 2024. Joining us on today's call from the company are Fei Chen, Chief Executive Officer, David Kowalczuk, the company's recently appointed Chief Financial Officer and Chief Operating Officer, and Phillip Price, the company's recently announced 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 the call. If you dialed into the call through traditional teleconference line, as the operator just indicated, 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 that webcast player, and we'll look to take those questions at the conclusion of the call. 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 the date of this conference call and press release. The company assumes no obligation to update any forward-looking statements to reflect any events or circumstances that may arise after the date of the press release and conference call. With that said, I'd like to turn the call over to Fei Chen, CEO of LiqTech International.

Thank you, Robert, and good day to everyone on the call. At a high level, the fourth quarter results came in line with expectations we provided back in November with revenues of $3.4 million. This represented a 37% sequential increase from the third quarter. The biggest contributors to the sequential growth were ongoing water filtration pilot programs for lithium brine production pretreatment in the US, and another for a petrochemical company for microplastics removal. I will touch momentarily on why these pilots are critical to the long-term adoption in these markets. All told, revenue within our water treatment systems operations was up nearly $750,000 or 108% sequentially and was a key driver to the improved financial results. The key milestone, however, during the fourth quarter was clearly the record commercial order received from Razorback Direct for our PureFlow mobile units for a customer in the North American energy sector. We received this order in December and completed it during the current first quarter of 2025. With this order already in hand, we have strong visibility into a much-improved first quarter with expectations for revenue to be between $4.3 and $4.7 million, according to 26% to 38% sequential revenue growth. This landmark commercial oil and gas order in North America is a remarkable milestone for LiqTech as we continue to validate our solutions in the global energy industry. I will come back to this more in a moment. As we mentioned last quarter, another key activity during the fourth quarter was the implementation of a cost reduction strategy aimed at lowering our breakeven target, measured on an adjusted EBITDA basis, to a quarterly revenue run rate of approximately $5.5 to $6.0 million. These initiatives include a reduction in headcount, basic salary for senior management, and the cash compensation by the board…

Thank you, Fei, and hello to everyone on the call. I'm truly honored to join LiqTech at this pivotal moment. I'm excited to contribute to the company's growth and profitability. I joined LiqTech because I'm deeply impressed by the significant untapped potential of the company's innovative technology. Under Fei's leadership, we are now better than ever aligned to leverage that potential and drive meaningful impact through not only product sales but application knowledge and services. As a green tech company strategically positioned in radically expanding markets, LiqTech is uniquely positioned to capitalize on opportunities that few companies can address today. Water, in particular, has become a global priority with governments increasing regulatory measures offering significant initiatives to not only protect. So the momentum is growing, and LiqTech is poised to be at the forefront of this transformative shift. On a personal note, I see this as an exciting time to be part of a company that is not only addressing critical global challenges but also has the potential to lead the change in the sectors in which we operate. I want to thank Fei and the entire LiqTech team for welcoming me on board, and I look forward to the opportunity to meet with all of our investors in the coming weeks and months. And with that, Fei, I'll turn it back to you.

Thank you, David. And, of course, I want to also thank Phillip Price for stepping in over the past year as our interim Chief Financial Officer. Phillip has done an incredible job across all aspects of financial reporting and SEC compliance and the capital markets. Fortunately, Phillip will be staying on board with us through the end of April to ensure a seamless transition and is here today to once again provide a detailed review of the financials. Phillip, let me now turn the call over to you.

Thank you for the kind words, Fei, and good morning, everyone. As you have hopefully seen in the press release, we have provided breakouts for both the fourth quarter and full-year end savings. We also provided narratives in the release for the year as a whole. Therefore, let me spend a few minutes diving deeper into some of the numbers for the fourth quarter and provide some trends we see going forward. Let's start off with revenue. Revenue for the quarter came in at $3.4 million, up from $2.5 million in the sequential third quarter, but down from $3.9 million in the same quarter last year. Broken down by verticals, sales for the fourth quarter were as follows: Water system sales and related services of $1.4 million compared to $1.6 million in the same period last year, and up significantly from $0.7 million in Q3. Ceramic membrane sales were $1.1 million, down from $1.4 million in Q4 last year, and flat compared to $1.1 million in Q3. Finally, simplastics revenue came in at $0.9 million compared to $0.8 million in Q4 last year and $0.7 million in Q3. Key takeaways for the quarter include strong sequential improvement in water systems driven by two SWIMCO system shipments and multiple ongoing pilot programs, solid growth in simplastics, continued momentum, and ceramic membrane remained relatively flat quarter over quarter. Looking ahead to Q1 of 2025, and as Fei mentioned, we expect to recognize our record oil and gas order, which will help us to drive continued sequential growth from the fourth quarter. We anticipate revenue for Q1 to be between $4.3 million and $4.7 million, representing a 26% to 38% sequential increase over Q4 2024, a 2% to 10% improvement year over year from Q1 2024. Turning to gross margin, we continue to…

Thank you, Phillip. And, again, thank you for your steady leadership, filling in on an interim basis this past year. To close things out before I turn over to questions, let me just recap a few key points. First, Q1 is expected to show sizable sequential growth led by progress made in the oil and gas market. This order not only is a key driver to improve financial results, but really is the validation of our systems' capabilities in this critical market. Second, this oil and gas order came from following the successful execution of a pilot order. Pilot orders are in some ways a leading indicator for us. To that end, we have a number of pilots ongoing in a wide range of industries, which we believe will transition to larger commercial scale orders this year. Our base business of DPFs, ceramics, simplastics, aftermarket parts, and the service and swimming pools remain stable. Therefore, growth from these larger systems will be key drivers to transitioning this business to profitability. And, fortunately, with high contribution margins, it only takes a couple of key systems to drive the business to that critical milestone. We are clearly aware of the need to preserve our cash balance and to drive the business to achieve cash flows. We understand the expectations from our investors and are highly focused and simultaneously implementing cost savings initiatives, we are driving revenue growth. Again, thank everyone for your support for LiqTech. With that, operator, we would be happy to take any questions.

At any time your question has been addressed and you would like to withdraw your question, at this time, we'll pause momentarily to assemble our roster. The first question comes from Lucas Ward with Ascendiant Capital Markets. Please go ahead.

Hello. Good afternoon. Thanks for the opportunity to ask a question here. My first question is on Q4 revenues. It looks like we were towards the lower end of expectations. Was there a deterioration that happened since the call in November?

No. But it depended on timing differences on some key projects that went to the next quarter. That's why we were on the lower end of the guidance. We are still within the guidance range.

Okay. Thanks, Phillip. And then with regards to guidance for Q1 revenues, obviously, it looks like we're booking the new oil and gas PureFlow systems and that is pretty lumpy. I'm wondering how that would affect subsequent quarters. In other words, if all that revenue comes in Q1, could there be a fall-off in Q2 or Q3?

That's a very relevant question. We do get a very big order on the PureFlow system in Q1. However, for Q2, we are expecting some other market segments to contribute. So we are working on continued growth each quarter this year.

Okay. And I guess, yeah, just a final question on that note. I mean, obviously, you've worked very, very hard to open up new markets. You've had a lot of new distribution agreements, lots of new pilots, some orders here and there. What do you think it's going to take at this point to see a real take-off in revenues for LiqTech overall? From where we sit.

You are totally right. We have been building up quite a few distribution agreement networks. And that really is the basis for us to get a strong pipeline and to make our sales able to take off. So we are improving our sales pipeline in both the swimming pool system and the oil and gas. And also now we're also building up strong pipelines for the marine system. So those pipelines will give us the basis for take-off in the sales.

Okay. Alright. Thank you, Fei.

Thank you, Lucas.

Again, if you have a question, please press star then one. Our next question comes from Bill Chapman, a Private Investor. Please go ahead.

Yes. Thank you. Hi, everyone. I'm curious about your oil and gas treatment technology. Why would a customer deal with you versus the competition that they're seeing?

I mean, there's different methods today. One of the major competitive technologies compared to our technology is the chemical treatment. And that treatment is very expensive from an operating point of view and also, it's very difficult to handle in a stable way. And their treatment cannot provide water reinjection and reuse. So, basically, we are the only one in the market now able to give stable treatment and really high quality and make the reinjection and reuse of the wastewater in the oil and gas industry feasible. So that's the reason why they are very interested in our technology.

Oh, okay. Thank you. You mentioned in your press release you're engaging in new experimental technologies. Could you give us an idea of whether these are extensions of what you already have or if they are new areas you're going into?

We basically have our silicon carbide ceramic membrane combined with our systems. So it's not like we are continuing to develop new systems. We use our system and then we use our application knowledge. We're able to go into different industry sectors. So what I mentioned in the new sectors, one of the areas is the petrochemical industry. We're able to make the microplastic particles removal. And another thing is interesting. We also have a pilot in the US right now. It's for the lithium material production, lithium brine production pretreatment. We're also working very hard to open that market for our application. So it's really using the same system, but with different application knowledge and understanding of customers' needs, we're able to go into different new domains in this way.

Okay. That sounds great. Thank you very much.

Thank you.

Again, if you have a question, please press star then one. Our next question comes from George Melas with MKH Management. Please go ahead.

Thank you. Good morning, Fei. Good morning, Phillip.

Good morning.

Quick question on two questions on the pools and on marine. The pool sales seem like they were quite disappointing in 2024. And I thought we had gathered some momentum with additional distribution partners, of course, not yet in the US, but I'd love to try to understand why did that sort of, like, peter out, let's say, in 2024?

I mean, the reason pool systems have really been disappointing, you're totally right, in 2024 is we have not been able to build up a very strong sales pipeline during 2023 because it took about six to nine months before you have a lead until you really got the sales. So when you're coming to 2024 without a good pipeline, that takes a long time to build up. So we have seen in the last two or three months, our pipeline value has really increased. So we do now really hope and work very hard on the next three quarters this year, the pool sales should catch up based on the pipeline we have built up now.

Okay. Great. That's good to know. And then on the marine side, you got the supply approval from, sorry to pronounce, but WinGD. Is there when do they start or maybe they won't really start, but when do they start producing these engines? And when do you think when is your first opportunity to recognize revenue in that area?

They are already producing the engine right now. And that's one of the reasons why we are doing this pilot trial, pilot testing in China with one of the engine manufacturers. And this engine manufacturer actually has the license from WinGD to produce engines for them. So the pilot testing now we have in China is really the ticket to be able to get into their system to be able to sell to their commercial system. So we are very excited to get this fast opportunity to test our pilot at their engine site. And we expect by the end of Q2, we will have the final results. Then we should be able to come to the commercial sales.

Okay. And can you give us a sense of what is the opportunity? What is the TAM in that space?

I mean, this is really a very, you know, we started the JV in December last year, and we have now hired a general manager and salespeople in the past two months. The salespeople just started, actually, at the beginning of March. So they are working and really building up a substantial sales pipeline. I would say when we come to Q2 and, you know, when we're going to make the earnings call in Q2, I think I will be able to give you a much more concrete answer on that. Because right now, we are building up the real sales pipeline, and I will only answer you when I have the data available.

Okay. Very good. Thank you very much.

Thank you.

Once again, if you have a question, please press star then one.

Alright, operator. This is Robert Bloom here. Looks like while we wait to see if there's any additional questions on the line, I've got just a couple here on the webcast that I don't believe have been addressed. And again, just as a reminder, everyone on the webcast, if you'd like to ask a question, you can type it into that ask a question box on your player there. Fei, I know you touched a little bit on the US pool market, but anything further you can talk about as it relates to timing on these agreements within the US?

As I mentioned, we got the NSF approval in November last year. And we started actively searching for partners. So we are now narrowing our search. So I cannot say exactly the result yet, but we are working on that.

Okay. Great. There's a question here pertaining to back in I think this is more of a clarification. The order that was discussed at the end of the third quarter being delayed, was that in fact the order from that was announced here and will be recorded in Q1 or any updates on that specific announcement?

That was correct. That's the order we received in December last year from Razorback, the huge oil and gas commercial unit. And that will be delivered in Q1 this year. And that's exactly the order we announced in Q3 delayed.

Okay. Great. And then maybe just a couple of questions here on gross margins. I guess, Phillip, you mentioned sort of talking about the percentages there on a contribution basis. Is there any more visibility that can be provided as it pertains to sort of a breakeven gross profit dollar basis to sort of help connect the dots there? I think what you mentioned was your positive gross margin expectation for Q1.

Yeah. So, Robert, you are correct. So the decline in gross margin is mainly driven by the lower than expected revenue, which has resulted in fixed production costs not being spread over or are being spread over a smaller revenue base and putting additional pressure on profitability. As I also mentioned in my speech earlier, we are still running at a decent contribution margin level of 40% to 45%, and that number excludes the impact from fixed overhead. So, therefore, it's solely due to the reduced revenue base. So I'm not going to put a number on the exact breakeven target on gross margin. We already communicated the breakeven target on the EBITDA basis.

Okay. Very good. I am showing no further questions on the live line or additional questions on the webcast player here. So with that, management, I will turn it back over for closing remarks.

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

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