LiqTech International Inc (LIQT) 2024 Q4 法說會逐字稿

Good day and welcome to the LiqTech International fourth-quarter and fiscal year 2024 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. Please go ahead.

All right. 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 Kowalczyk, the company's recently appointed Chief Financial Officer and Chief Operating Officer; and Philip 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. (Conference Instructions)

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 not 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 proven 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 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.

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. At a high level, the fourth quarter results came in 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 was ongoing water filtration pilot programs for lithium brine production pre-treatment 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 this market.

All told, revenue within our water treatment system's 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 first quarter was clearly the record commercial order we received from Razorback Direct for our pure flow mobile units for our customers in the North American energy sector.

With this (technical difficulty) order in December and then 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 million and 4.7 million, equating to 26% to 38% sequential revenue growth.

This landmark commercial oil and gas oil 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 break-even target, measured on an adjust EBITDA basis to a quarterly revenue run rate of approximately 5.5 million to 6.0 million. These initiatives include a reduction in headcounts, basic salary for senior management, and the cash compensation by the Board of Directors.

You will start to see these initiatives flow through the income statement more fully in the first quarter. So with revenue growth expected and the cost savings implemented, we are improving our profitability metrics with the ultimate goal to be profitable later this year.

So the high level summary, improved sequential revenue growth in Q4 lead by a number of water filtration pilots on the way. The receipt of a record oil and gas order, which completed here in Q1, which will contribute to another quarter of sequential revenue growth and the implementation of cost savings initiatives aimed at lowering our break-even rate to about 5.5 million to 6.0 million per quarter. And as a reminder, with the private placement we completed back in late September, our balance sheet is strong, with more than 10 million in cash at the end of the year.

Transitioning back to the record oil and gas order. As we have talked since I joined the company about two years ago, we recognized that there was a large addressable market opportunity for our solutions in a wide variety of markets that can drive growth for LiqTech. These large system solutions in the area of industry water treatment, oil and gas filtration, battery materials, purification, and other industry applications are ideally suited for LiqTech solutions.

Unfortunately, these markers have much longer sales cycles and oftentimes require initial pilot programs before full commercial implementation occurs. We also recognized the need to work with groups that have strong relationships with end customers.

To these two ends, we entered into a distribution agreement to commercialize LiqTech's produced water treatment filtration solution for re-injection and reuse in February 2024 with Razorback Direct, a Houston-based company providing water treatment solutions, consultancy for oil and gas water treatment in the US.

We followed that initial engagement with Razorback Direct's app about a month later with the receipt of a significant order for a containerized pilot system for produced water treatment. The order was shipped shortly thereafter, and operated satisfactorily at the customer site throughout the second half of 2024.

With positive results showcased with this customer from the pilot program, it leads to this new record commercial order, which will be deployed at one of Razorback Direct's customer sites in North America. I remind everyone of this pathway to receiving this order because it highlights the steps needed to penetrate this very large industry op opportunities. They oftentimes require pilot programs first that then lead to commercial orders.

Now, I do believe that the next steps within oil and gas will hopefully become much more accelerated. We now have a commercial level system in place that can be highlighted for future customers' reference. It doesn't mean that a different customer may not want to conduct their own pilot programs, but hopefully, they should shorten the timeline to future adoption.

I want to thank the team at Razorback Direct for their commitment to delivering demonstrated value to their customers by delivering efficient, reliable, and robust solutions for complex water challenges. As the CEO of Razorback Direct stated recently, the results of the pilot exceeded expectation, providing clear evidence of the system's capability to meet the demanding needs of our industry.

This order further solidifies our beliefs in LiqTech's ability to drive meaningful advancements in water management. This is a strong testament to what we believe will be a very bright future for us within the oil and gas industry.

As the history of progress with Razorback Direct, we see the US oil and gas industry highlighted. The first steps to new application success with our filtration systems often starts with a pilot level program.

Currently, we have five systems at the various phases of testing and the piloting, including a pilot unit from a leading technology company for lithium brine production in the US we announced in November and has recently been extended through the end of April for evaluation. A pilot unit with a US petrochemical company for microplastics remover, which was shifted in quarter three, for which we are currently waiting next steps.

One was one of the world's leading integrated energy companies for produced water treatment in the US was shifted in quarter three for last year. The system is currently active and has been extended through to the end of May, at which time, we will await next steps. We also recently commenced a pilot testing with an engine manufacturer in China as part of our CV, which I will touch on more momentarily.

And finally, in the Middle East, we have a pilot with NESR, which was completed in Q2 of last year, and the legacy system in the Middle East, which has now been operational for more than three years. The Middle East continues to be slow in its adoption. Our focus is, therefore, increasingly directed towards the US market.

Beyond these pilot programs, within the last year or so, we have also sold units in key end markets, including a unit for MEG's recovery for an offshore project in Mediterranean, multiple marine squabble units in China, a wastewater treatment system for the metal processing industry in Denmark. Also, we have shot a number of pool system units over the past two years.

Each of the various areas I mentioned represent large addressable market opportunities for LiqTech. Our team is highly focused on advancing each of these pilots to successful outcomes that we believe have the ability to lead to large-scale commercial orders this year.

The market for us that was very strong for a number of years but has slowed down in the past three years has been the marine squabble and the border marine markets. We still believe this represents a large addressable market for LiqTech. We just need to be properly positioned with engine manufacturers and the shipbuilders to regain market share.

To that end, a few weeks ago, we received supplier approval for our waste treatment -- water treatment system for the WinGD Dual-Fuel Engine. For those not familiar, WinGD is one of the market leaders in marine engine manufacturing with a focus on advancing the decarbonization of marine transportation. This supplier approval allows us to seamlessly deliver systems to WinGD, its licenses, and their authorized service partners.

During the first quarter, we announced the establishment of a treatment in China to expand our focus within the marine market. LiqTech will be the majority owner of the [DMG], where our partner JiTRI will be a minority owner, contributing facilities and the local support along with initial operational and commercial funding.

Since our call in November, we have bought a general manager, technical service manager, two technical sales managers on board. The team has moved quickly to engage with one of the leading engine manufacturers in China with pilot testing. The results are expected in quarter two this year.

I recently came back from China and has participated in the pilot test of our water treatment system on engine site. I have also got the chance to meet and interact with many relevant major stakeholders in China.

As most of you are familiar, it is much easier to work with China-based companies by having operations on the ground in the country. With the treatment now up and running and pilot testing on the way, I believe that the opportunity to truly expand in this large addressable market is better today than at any point in the past.

Before I turn it over to David and Philip, let me quickly touch on a few other key markers with a brief update. First, within the Swimming Pool market, we shipped two systems during quarter four and have another two systems set to ship here in quarter one. We also signed a distribution agreement this month to expand our focus in Ireland, with the first order under this agreement scheduled for delivering in quarter two, 2025.

Since received NSF approval in November last year, we have been actively searching for potential candidates for distribution in the US. Swimming Pools will remain a key contributor, and I look forward to more progress made here.

Transitioning to other parts of our established markets, starting with CPFs and Ceramic Membranes, where sales during quarter four were about 1.1 million, which was similar to what they were in quarter three of 2024. These markets contributed to remain consistent contributor for us.

Within Plastics, we saw a nice uptick during quarter four, with revenue of almost 900,000, which was up 13% compared to quarter four of last year, and up 34% sequentially. The Plastics team continues to do a great job differentiating itself and is generally outperforming our expectations.

So with stability in our key established market, a record oil and gas commercial order in the US, a wide variety of pilot programs on the way, which oftentimes is a prelude to much larger orders, and of course, with exciting partnerships, COE, and supply approvals in place, we are well positioned heading into 2025.

One other key move we made was the appointment of David Kowalczyk as the new Chief Financier at the operating office of LiqTech effective March 1 of this year. As you hopefully saw in the announcement we made in January, David brings our 20 years of leadership, experience, and a proven track record in global industry companies.

His expertise spends finance, strategy, equity analysis, audit, and operational management. Let me now turn this call over to David to introduce himself.

Thank you, Fei, and hello to, everyone, on the call. I'm truly honored to join LiqTech at this pivotal moment, and 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 clean 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.

The government is increasing regulatory measures and offering significant initiatives to not only protect but also improve water quality. 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 co-lead the change in the sectors in which we operate. I want to thank Faith 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 Philip Price for stepping in over the past year as our Interim Chief Financial Office. Philip has done an incredible job across all aspects of financial reporting, SEC compliance, and capital markets.

Fortunately, Philip will be staying on board with us through the end of April to ensure a seamless transition and here today to, once again, provide a detailed review of the financials. Philip, 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 in the tables. 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, but up significantly from 0.7 million in Q3.

EPF and 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. And finally, Plastic revenues 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 swimming pool system shipments and multiple ongoing pilot programs. Solid growth in Plastics with continued momentum. CPF and Ceramic Membrane remained relatively flat quarter over quarter.

Looking ahead to Q1 of 2025, and as I mentioned, we expect to recognize our record oil and gas order, which will help us to drive continue 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, and a 2% to 10% improvement year-over-year from Q1, 2024.

Turning to gross margin, as we continue to be below our optimal revenue level, we continue to have fixed production costs that are not fully being absorbed and, thus, negative gross margins. Furthermore, Q4 margins were impacted by a comprehensive inventory review, which led to necessary adjustments of 0.4 million related to obsolete and slow moving items.

That said, based on our Q1 revenue expectation of 4.3 million to 4.7 million and supported by operational optimization initiatives already in place, we expect to return to positive growth margins in Q1. As we have previously reported on a contribution margin basis, which excludes the impact from our fixed overhead, we are currently operating at approximately 40% to 45% depending on the product mix.

Turning to OpEx. Total operating expenses for the quarter were $2.2 million, down from 2.6 million in Q4 of last year and compared to 2.4 million in Q3 of 2024. In particular, selling expenses decreased by 0.4 million primarily due to a reduction in executive officers, the reversal of previously accrued bonuses, and the lower travel expenses.

These savings were partially altered by bad debt expenses of 0.5 million, mainly related to the settlement of a legacy receivable during the quarter. G&A decreased 0.1 million, driven by savings in legal fees and external consultancy services, while R&D expenses increased by 0.1 million primarily due to the completion of a larger R&D project in Q4.

As we look to the future, we have now fully implemented the comprehensive cost reduction strategy aimed at lowering our break-even target, measured on an adjusted EBITDA basis to a quarterly revenue level of approximately 5.5 million to 6.0 million, a significant improvement from the previous target of 6.5 million to 7 million.

The initiatives include 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 all the cost saving measures. Concluding on the P&L, net loss for the quarter was 3.0 million compared to 3.2 million for the comparable period of 2023.

And finally, from a cash flow perspective, we ended the quarter with $10.9 million in cash, adjusting from the impact of the financial placement, which closed across both Q3 and Q4. Underlying cash decreased by approximately 2.4 million compared to the end of the third quarter. With revenue growth benefiting from operating leverage due to our largely fixed production cost base and supported by the cost reductions we have implemented, we expect to see significant improvement in cash utilization in 2025.

With this being my last call, let me just say thank you to all of the investors for their support of LiqTech. I have enjoyed stepping in during this transitionary period, and I look forward to all the great things from LiqTech in the future. Fei, let me turn the call back over to you.

Thank you, Philip. And again, thank you for your steady leadership filling in on an interim basis of this past year.

To close things out before I turn over to questions, let me just recap a few key points. First, quarter one is expected to show sizeable sequential growth lead by progress made in the oil and gas market. This order not only is a key drive to improved financial results, but really is validation of our system's 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 DTFs, Ceramics, Plastics, Aftermarket Pass, and the Service and the Swimming Pools remains 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 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 expectation from our investors and are highly focused on simultaneously implementing cost savings initiatives, we are driving revenue growth. Again, thank you, everyone, for your support for LiqTech.

With that, operator, we would be happy to take any questions.

(Operator Instructions) Lucas Ward, Ascendent Capital Markets.

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. So that's why we were in the lower end of the guidance or still within the guidance range.

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

That's a very relevant question. We do get a very big order on pure flow system in quarter one. And however, for the quarter two, we are expecting some other market segment will contribute. So, we definitely work on continued growth each quarter in this year.

Okay. And I guess, yeah, just a final question on that note. I mean, obviously, you've worked 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?

I mean, you are totally right. We have been building up quite many distribution agreements network. 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 pipelines in both the swimming pool system and the oil and the gas.

And also, now, we're also building up the strong pipelines for marine system. So those pipelines will give us the basis for take-off in the sales.

Okay. All right. Thank you, Fei.

(Operator Instructions) Bill Chapman, Private Investor.

I'm curious on the 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 technology compared to our technology is the chemical treatment. And that treatment is very expensive in the operating point of view, and also, it's very difficult to handle in a stable way. And their treatment cannot provide the water reinjection and reuse.

So, basically, we are the only one in the market now. We're able to give the stable treatment and the really high-quality and makes the re-injection and reuse of the wastewater in oil and gas industry feasible. So that's the reason why they are very interesting in our technology.

Okay. Thank you. You mentioned on your press release; you're engaging in new experimental technologies. Could you give us an idea of these extensions of what you already have or is it new areas you're going into?

We are basically have our silicon carbon ceramic membrane combined with our systems. So it's not like we continue doing the 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 area is the petrochemical industry. We're able to make the microplastic particles remover. And another thing is interesting, we also have a pilot in US right now is for the lithium material production, lithium brine production pre-treatment. We are also working very hard to open that market for our application.

So it's really use the same technology and the same system but with different application knowledge and also understanding of customers' needs. We're able to go into a different -- the new domain in this way.

Okay. That sounds great. Thank you very much. Goodbye.

(Operator Instructions) [George Millis, MKH Management].

Quick question on two questions on the pools and on marine. The pool sales, we're quite -- it seems 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 like peter out, let's say, in 2024?

I mean, the reason pool system has really been disappointing, you use totally right word; in 2024 is we have not been able to build up a very strong sales pipeline into -- during 2023 because it took about six to nine months before you have a leads until you really got the sales. So when you come to 2024 without a good pipeline, and that takes long time to build up.

So we have seen the last, the past two or three months, our pipeline value is really increased. So we do really hope and work very hard on and the next three quarters in 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 you got the supply approval from it's hard to pronounce but [JiTRI]? Is there -- when do they start, or maybe they've already started, 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 produced the engine right now. And that's one of the reason why we are doing this pilot trial, pilot testing in China with one of the engine manufacturer. And this engine manufacturer actually have the license from [JiTRI] to produce engine for them.

So the pilot testing now, we have China is really the -- it's like the ticket to able to get into their system, to able to sail to their commercial system. So we are very exciting to get this fast opportunity to test our pilot at their engine size. And we expect by the end of quarter two, 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 term in that space?

I mean, this is really a very -- we started joint venture in December last year, and we have now got hired a general manager and the salesperson. In this, the past two months, the salespeople just start actually in the beginning of March.

So, they are working on really build up a substantial sales pipelines. I would say when we come to quarter two, and when we're going to make the earnings call in quarter two, I think I were able to give you much more concrete answers 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. Okay. Thank you very much.

(Operator Instructions)

All right, operator, this is Robert Blum here. Looks while we wait to see if there's any additional questions to the live, I've got just a couple here on the webcast that I don't believe have been addressed. (Conference Instructions) Fei, I know you've touched a little bit on the US pool market, but anything further you can talk about as it relates to timing on distribution agreements within the US?

As I mentioned, we got the NSF approval in November last year, and we start actively searching for the partners. So we are now narrowing our searching and so I cannot say exactly the results yet. So 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 to be recorded in Q1 or any updates on that specific announcement?

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

Okay. Great. And then maybe just a couple of questions here on gross margins. I guess, Philip, you mentioned talking about the percentages there on a contribution basis.

Is there any more visibility that can be provided as it pertains to a break-even gross profit dollar basis to help connect the dots there? And I think what you mentioned was your positive gross margin expectation for Q1.

Yeah, so, Robert, you are correct. So the declining in gross margin is mainly driven by the lower than expected revenue, which has resulted in fixed production costs not being spread over or aren't being spread over a smaller revenue base and putting additional pressure on profitability.

So, as I also mentioned in my speech earlier, is that we're 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 break-even target on gross margin, because we're already communicating the break-even 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 soon again. Thank you, everyone.

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