Good morning, and welcome to LiqTech International First Quarter 2022 Earnings Event. [Operator Instructions] Please note that this event is being recorded. I'd like to turn the conference over to Mr. Robert Blum, Lytham Partners. Please go ahead.

All right. Thank you very much, Nick. Good morning, everyone, and thank you for joining us in today's conference call to discuss LiqTech International's First Quarter 2022 Financial Results. Joining us on the call today from the company is Alex Buehler, Interim Chief Executive Officer; and Simon Stadil, Chief Financial Officer. Before I turn the call over to Alex and Simon, let me remind listeners that there will be an open Q&A session at the end of the call. Before we begin with the 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. Now I'd like to turn the call over to Alex Buehler, Interim Chief Executive Officer of LiqTech International. Alex, please proceed.

Thank you, Robert, and good morning to all of you, and thank you for joining us on today's conference call. Please note that I sincerely appreciate your continued interest in and support of the company and its prospects. As you know, this is my second conference call as Interim CEO of LiqTech. But I know that today, I am in a far better position to communicate a more informed update of the business, along with its recent developments, of which there are many. Said differently, there is much to discuss as we assess an intense and elevated activity over the last several weeks. As always, we will commence with prepared remarks, making a deliberate attempt to anticipate your areas of interest, but also leave adequate time to address your questions at the end. But let me first start off by saying what an incredible opportunity that I believe LiqTech represents. We possess technology that is highly differentiated, confirming a position of product leadership. We are focused on large, attractive end markets with favorable regulatory tailwinds and significant ESG dimensions. To connect our products to these existing end markets, we deliver a value proposition that in many instances is uniquely compelling. So with such attributes in mind, I believe the company benefits from strong backable investment themes, and I am increasingly excited about the business and its prospects. As you noted in the press release, we have entered into a separation and release agreement with our former CEO, Sune Mathiesen. I want to thank Sune for his service to the company over the last many years, and we wish him well in his future endeavors. To assist the company in a search for a new CEO, we have retained Heidrick & Struggles, a leading international executive search firm. While it is…

Thank you, Alex. Let me add some color to the performance, outlook and current focus areas. On revenue. Revenue for the first quarter was $3.6 million compared to $4 million in the first quarter of last year. This representing a decrease of 9%. The revenue in the quarter reflects a difficult quarter that contained limited activity within our systems business, with revenue confined to general commissioning and spare part sales, but also stable volumes within our legacy DPF and Plastics businesses. The decrease in system sales reflects a continuation of the difficult market environment that we have been navigating over the past quarters, exacerbated by continued supply chain constraints and general market volatility. Turning to outlook. And as Alex mentioned, we are expecting a Q2 revenue of $5 million to $5.5 million compared to $4.7 million recorded in the same period last year. The sequential increase is supported by ongoing deliveries and commissioning activities across the Middle East and the U.S., but also positive momentum within our Pool segment, where we see increased interest and deliveries. The quarter will also benefit from a continued and stable contribution from our Plastics and DPF businesses as well as direct membrane sales. Furthermore, we are reaffirming our view on the full year revenue to be within the range of $25 million to $30 million. While the sales pipeline continues to increase, it's important to note that our forecast is highly weighted towards Q4. So as always, there is a risk of slippage, mainly due to longer lead times and general disruption to the global supply chain. At any rate, we are comfortable to hold this guidance based on a bottom-up sales forecast that includes clear visibility and close engagement with the sales team and our customers. In the context of the decreased revenue,…

So before I turn the call over to the operator, let me just express my excitement at the way the team has worked together over the past 6 weeks. It has been all hands on deck by everyone to secure LiqTech's future success. And I could not be more pleased by the efforts of the entire organization and what were clearly very difficult circumstances. We have accomplished much over the last 6 weeks, but clearly, there is still ample heavy lifting to do. But I know that we are up to the task and the best is yet to come. At this point, I would like to turn the call over to the operator to address any questions from the audience. Operator?

[Operator Instructions] Our first question comes from Mark Collin, private investor.

While I appreciate the efforts you guys are making and the confidence you have in the future, I guess I'm kind of curious, Alex, you've been on the Board for, I want to say, at least 5 years, while Sune, the ex CEO, has been putting out these inflated projections to investors for years. I'm just wondering where was the oversight of the Board? And why should we have any confidence in your projections going forward now?

Well, look, as you know, it's a very different thing to be an executive engaged in the business every day as opposed to an independent director kind of with a quarterly view of the business that's typically filtered through 1 or 2 people. So look, the Board's oversight was intact, and it was -- when it became clear that we had to move, we moved. What should give you confidence in the future? I will tell you that the way we're making these future projections is in a way that the business has not seen before. So when we look at our sales pipeline and revenue projections for the current year, we're doing it on a bottom-up basis. We're doing it salesperson by salesperson and project by project. Obviously, we start with the revenue that's been recognized already. We add on top of that sort of our run rate business that is very predictable and historically validated. We then add on top of that our secured backlog through actual orders. And then on top of that, we had a factor sales pipeline. By factor, I mean, probability weighted. Key inputs into that last feature, our estimated contract value shift date whereon we recognize revenue as well as probability. I will tell you that, that pipeline is very well diversified. It does not have heavy concentration. We're kind of not dependent on 1 or 2 deals without which we be with. So it's a very good pipeline. I think it's the best visibility I've seen from this business. We put the discipline in place with our sales team, interacting also with our customers, and we think we have a really good way to sort of validate that pipeline. Now I mean it is true that it's very much back-end loaded. You can arrive at that when you look at actual revenue in Q1 as well as our projections for Q2 and then subtracting the sum of those from the full year guidance, you can see that H2 and more specifically, by the way, Q4, are going to be very back-end loaded. There is always the probability that something slips out of Q4, particularly in this environment of supply chain disruption, very long lead times, where it's kind of tough to call. But obviously, we're taking any measures we can in the business to secure that pipeline so that we can show that sequential growth throughout the full year. So look, I think the sales pipeline visibility is solid. It's increasing. Since I've been here that the sales pipeline has been growing. But I'm always cognizant of the risk of slippage, particularly when you're staring at a pipeline that is so back-end weighted. But thank you for the question. I appreciate it.

[Operator Instructions] Next question comes from John Chatter, [indiscernible] Wealth Investment.

Maybe I missed this, but what's your commitment in China at this point? Does the $5 million of CapEx include anything for China? Or could the $5 million in CapEx be revised down further if you're able to extricate yourself from commitments in China? If I missed that, I apologize.

Yes. So look, we have suspended our investment in China. Now we have committed capital for that investment historically. So we are working with the vendors to do 1 of 2 things, right, either reduce the capital commitment but we need to negotiate our way out of that. And in certain cases, we pay cash upfront, and we want to get some value realization on what we paid for equipment that we can use in our facilities here in Denmark. So we're balancing those 2 competing imperatives. We want to reduce the capital commitments but at the same time, receive some value realization on capital or on cash that's already been paid. So for the latter, we are redirecting certain equipment items that were originally destined to China back here to Denmark for pieces that are needed to relieve manufacturing bottlenecks and increase our utilization. Hopefully, that answers your question.

Over the years, the prior CEO kept talking about needing to expand productive capacity and putting out large numbers as to what that productive capacity was going to be. So I guess, why would you need any machinery back in Denmark at all given the expansions that you had undertaken in prior years?

Well, I mean, again, the other option is, do we just let it go and not get any value for the cash that's already been paid? I would -- I am choosing to negotiate where we can and get out of it. But in certain cases, for cash that's already been paid, we might as well get something in return. Now this is just not sort of a big pet rock that's going to sit in our manufacturing plant. It's very targeted in terms of where the bottlenecks. Okay, we need an extruder, for example. We need another mixer, for example. So it's very targeted to relieve those bottlenecks. As I look at capacity overall for the business, I think we're having ample capacity, particularly after we incorporate some of these pieces of equipment that we're rerouting from China to Denmark. Now having said that, we're still shaking out our plants here in Copenhagen. We got to get the production yields up. We need to get the scrap down. We need to get the throughput up. But after this year of CapEx, and we gave you some estimates on what that looks like, I think our capacity is sound for the foreseeable future, which means there's not a lot of CapEx after this year. We're sitting on what should be a solidified operation and clear ability to produce and grow our revenue.

You mentioned validation process that needs to take place in the Middle East for the water filtration system. How long do you expect validation to take?

Well, I mean, we'll start accumulating run time immediately, obviously, right? And there are 4 different sites with 3 different applications. Each of those sites are scheduled to run for a period of several months, but that doesn't mean you have to wait for the end of each site to do anything. With 2 weeks, with 4 weeks of run time, we start demonstrating our value proposition and engaging with the customer accordingly, right? Now this is, in fact, a 2-year agreement where it's sort of structured as revenue upfront now with service and commissioning fees over the remaining 2 years, but we'll be engaging with the customer starting from commissioning with run time, validating the value proposition, hopefully using that as a reference point to upsell the existing customer and then activate new customers. We do have other opportunities in the pipeline with this strategic customer in the Middle East. However, you should know we're not including them in the current year forecast. So it's also keeping with what I said a moment ago, right? It's a very well-diversified pipeline that's not relying on any 1 or 2 large deals to hit our nut here. So -- but if these go well, there is an opportunity to accelerate some of those sales opportunities with the customer.

Got it. And back to China with your pulling back on your commitment to China, are you including any inland marine NOx revenue in this year's guide? That was talked up as being such a gigantic market in the past. And I guess I'm just wondering, is that still the case? And if you do intend to supply it you will do it then from Denmark, I guess?

Yes, we will. And to your first question, there is a little bit in the pipeline for black carbon NOx reduction, not huge, but it's a start. Your point is valid. We will work to skin that market from afar outside of Denmark. Obviously, if we ever got into sort of volume-based orders, we would need to revisit that decision or our investment, but we would do so when we had much clearer line of sight on the market. And obviously, we were ready to make that investment accordingly. I think they're going slower than China than we had originally anticipated. Obviously, they came out with a splash in their 5-year plan with their ability to reduce these emissions, but things are on study at the moment in China, especially in the Shanghai area with the lockdown so they are delayed with their implementation of those regulations. So meaning the decision right now to skin that market from afar is clearly the right decision from my perspective.

This concludes our question-and-answer session. I'd like to turn the call back over to Mr. Alex Buehler for closing remarks. Please go ahead.

I want to thank you all for your participation in today's call. Along with your continued interest in and support of the company, I hope that you share my belief that we have accomplished a lot over the last several weeks. We have initiated a CEO transition, stabilized the organization, shored up the balance sheet, reduced headcount and costs, rationalized our investment plans, accelerated sales to drive margin-accretive growth and are now working intensely to solidify operations. To reinforce my earlier position, LiqTech is a real business that possesses core competencies. We are facing attractive end markets with regulatory tailwinds and ESG dimensions. We have differentiated technologies that confirm a position of product leadership, and we have compelling value propositions to connect products and systems to end markets. I am very excited about the business and its prospects, and I look forward to continued dialogue in the future. Thanks again for your participation, and please have a great day.

Conference has now concluded. Thank you for attending today's event. You may now disconnect.