Good day, and welcome to the LiqTech International Reports Third Quarter Fiscal Year 2024 Financial 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, Debbie. Good morning, everyone and thank you for joining us on the conference call as the operator mentioned to discuss LiqTech International's third quarter 2024 financial results. And this is for the period ending September 30, 2024. Joining us on today's call from the Company is Fei Chen, Chief Executive Officer; and Phillip Price, the Company's Interim Chief Financial Officer. Before I turn it over to management, let me remind listeners that there will be an open Q&A session at the end of the call. [Operator Instructions] 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 the webcast player and we'll do our best to get to as many questions as possible. 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 risks that may affect our business, financial condition, operations and cash flows. If one or more of these risks or uncertainties materialize or 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, and good day to everyone on the call. Let's jump right to the key topic during the quarter which was the delay of a large commercial produced water treatment project in the North America which was expected to be delivered in the third quarter but has now been delayed following the decision by the customer to change the physical location of the installation. This unit was said to contribute about $1.5 million in revenue to our third quarter results. This is clearly disappointing and significantly impacts our quarterly results. Fortunately, our customer has finalized their location of the installation which has moved from the South United States to Canada with the unit set to be delivered in 2025 and will help to be a key driver to our future growth. I will touch more on this in just a moment. So that's the negative side of the quarter. Let's now turn to a few of the positives. We have more systems today at various phases of testing and piloting than at any time any point in our history. We have four produced water treatment pilot units for the oil and gas industry operation in the field at the moment, one with the Razorback Direct in the U.S. which was shipped in quarter one and operated satisfactorily at the customer site in the past four months. One with NESR which was completed in quarter two for the Middle East, one was one of the world's leading integrated energy companies for produced water treatment in the U.S. which was shipped in quarter three and a legacy system in the Middle East which has now been operational for more than three years. The success of Razorback pilot is what led to the commercial order we originally was set to ship…

Thank you, Fei and good morning everyone. Now let me briefly comment on the financial highlights for the quarter. Revenue came in at $2.5 million compared to $5.1 million in the same quarter last year, representing a decrease of 51%. Broken down by verticals, sales were as follows: System sales and related services of $0.7 million compared to $2.6 million in the same period last year; DPF and ceramic membrane sales of $1.1 million compared to $1.6 million in the same period last year; and finally plastics revenues of $0.7 million equivalent with Q3 last year. As Fei mentioned, we had a large $1.5 million system set to be delivered in Q3 of this year, which has been delayed to next year. Additionally, the number of pool systems delivered this quarter fell short of our expectations. We also experienced a slowdown in our DPF and ceramic membrane business, which we believe is driven by a temporary market conditions as end customers are waiting on potential interest rate cuts. Looking ahead for the fourth quarter of 2024, we expect revenue to be in the range of $3.3 million and $4.3 million compared to $3.9 million in the fourth quarter of last year. For the full year, this guidance translates to an expected revenue range of $14.5 million and $15.5 million. Turning to gross margins. The reduced revenue base for the quarter led to a negative gross loss of $0.2 million compared to a positive gross margin of $0.9 million in the same quarter last year. This decline underscores the impact of lower than expected revenue on our margin performance as fixed production costs were spread over a smaller revenue base, putting additional pressure on profitability. As we still have overhead and other fixed costs that are not fully being absorbed, one…

Thank you, Phillip. In closing, where the quarter was desponding due to the delayed delivery, we have more systems today at various phases of testing and piloting than at any point in our history. We have incredible technology that can be applied across a number of different applications and it is imperative on us to further develop the various partnerships to put ourselves in a position to not be so dependent on one or two orders each quarter. Fortunately, we have a strong balance sheet. But I want to make it clear that we are not taking our elevated cash position for granted. We have put in place initiatives to reduce our expenses, while driving revenue growth. With that operator, we would be happy to take any questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Good morning. Just wanted to get a little more color on the delay in shipping to the oil and gas market, I know you said in 2025. Any sense on when that will be shipped? And I guess, maybe some color on the change in taking that unit. And does that delay the ultimate kind of pilot effort and ability to get follow on orders or timing on follow on orders?

Thank you, Rob. I think in our press release you have read – we actually written that we expect it to come in the first half of 2025.

Okay. Great. And then I guess what was the sort of reasoning for the delay, I think it shifted to the location? But was that…

Yes, because when they shift to a new location and the water in a different size, they are different but they do not need to run all the testing of our system because it has been demonstrated very robust and it really can handle different water streams. But they have some one or two pre steps before our treatment and there they would like to do some running testing before they put us in place. So that was one reason delayed the process.

Great. And then on the lithium brine project that you had, can you give us a sense of how big that market is or what a typical system size is in that market?

I mean, we are very, very happy to see the results. It’s so convincing. So the customer very fast order the pilot unit. So the max size is huge. Just for this customer alone in one size will be more than – it’s more than what we never – normally it will be like a double size or even 5x the size what we normally expect. So it’s very big. But we come in steps. I don’t think they will come all together at once, but they will come in stepwise. So it’s a very, very huge potential market and it feels like – it turned out our technology has a very, very unique performance and they are very excited about that. So they also have a patented iron exchange technology, it’s very unique. So I would like to able to excite to share more information with all of you when the pilots are finished because then it’s more clear, but the market is much bigger. It’s much bigger than what we normally expected.

Okay. Thank you. I’ll turn it over.

The next question is from Lucas Ward with Ascendiant Capital Markets. Please go ahead.

Hello team, good afternoon. Thanks for taking the question. So, yes, I wanted to drill down a little bit more on the order pipeline. Like I’m interested in like how you track it. Do you have like a dollar figure for what your backlog is or your three month backlog or your six month backlog? Are you simply tracking individual pilot projects which ultimately, hopefully lead to commercial orders?

So that depends on the business areas. So we have our recurring business where we have order pipelines with dollar marks for all of the potential orders. But as Fei also mentioned, we have other business areas with local sales cyclists where we follow each step for the pilots, beginning with testings at the customer sites. And that should turn into pilot orders and the pilot orders should turn into commercial sized orders. So it differs depends on the business areas.

Okay, cool. So it’s seems like it’s lumpier than I thought. Like if one order is $1.5 million, let’s say, like, can you give us an idea of the size of let’s say – well, first of all, do you book revenues at the test phase or not? Because it sounds like you’re booking them at the pilot phase.

Yes. So that depends on the arrangement with the customers. But with the recent pilots we’ve announced, it’s either been as a direct sale to the customer or as a rental. So the customer rents our pilots and then we provide service engineering for them and we do the testings together with the customer and that gives us revenue.

Okay, cool. So let’s say a system is $1 million, the commercial part, how much would the pilot be? Is that like $100,000? Like what’s the difference in scale from pilot to commercial? I mean, if you buy it, obviously if you rent it, it’s different, if they buy it…

Yes. So if you buy it, it depends on the end market. We’re not able to say it, but if we rent it, it depends on how long time the customer wants to rent, obviously. So it really depends on the end market. And what we have of a track record within that end market.

Let me come back to your question, the price compared to – the pilot with a commercial plan, it depends though, depends on the capacity because the cost and the sales price depends on the treatment capacity. So it’s not a one number. It’s really kind of depends on the exact project. So it can be varied.

Okay. If we look at some of these newer markets like oil and gas, produced water or potentially lithium brine extraction, is it fair to say that the system value is going up a lot relative to let’s say, marine scrubbers or your previous bread and butter swimming pools, obviously would be…

Definitely, yes, they are going up very much. Yes.

Okay. With respect to the lithium project, it says in the press release that your U.S. membrane filtration can actually enhance the downstream ion exchange, which I’m not sure what that means. But it sounds like you’re becoming part of the production process as opposed to just cleaning the water that maybe is produced as a result. Is that a new kind of position for LiqTech?

Yes, you’re totally correct. We are going to be a part of their production process in that – in the lithium brine production. So they are using the ion exchange. That means they have a special materials, as the ion exchange material to really kind of have a chemical reactions with the lithium ion to convert that to the metals they need to use. And in order to do this very efficiently, they do need have – the water have been pretreat showing this way only the lithium ion will be react on the media. Otherwise the efficiency will be reduced. So we are really here for them to increase their efficiency of capture lithium ion. So it is totally right, Lucas. We are in the production process.

Okay, cool. And with respect to microplastic removal, is this a new market for LiqTech?

I mean, this is very, very good question. It is new. We actually had a development project in 2023 found by a Danish government and really doing testing of microplastic remover from industry wastewater. And we were very surprised to see the good results we got in that development project. So with that data in hand, we had a communication with this U.S. petrochemical company because we realized they have a challenge with the microplastic in their wastewater. And they got very excited about our results and our technology. So very fast to get the pilot order and right now we actually conducting the pilot at the customer site in U.S.

Okay, thanks Fei. Okay, last question, WIN DG dual-fuel engines. Is this a new market? I mean, what's the significance of that relative to your standard marine scrubber opportunity?

This is a new application. So I would say, yes, this is a new market because the standard traditional marine scrubber market is really regulatory control. They need to trade the water before they can discharge into the ocean. And this one is really the engine has to treat – to be treated. The gas from – exhausted gas from the engine has to be cleaned and treated in order to have the combustion efficiency of their engine. So this is not a regulatory control, it's really the requirement for the engine. So that's why it's much more interesting because in this way they have to choose efficient technology not only by the cheaper, not choosing the cheapest. So that's why we think we have a unique position here and also the demand. The water treatment solution has to be continue operating when the engine is running. And that makes many of the chip and other competitive technology cannot really perform in this application. And we know our solution is able to run continuously 24 hours and only need very few – very short time for the cleaning. And this is also unique of our solution. So it's a very interesting new application area for us, definitely.

Okay, great. Thank you, Fei, Phillip and Robert.

Thank you, Lucas.

Thank you.

[Operator Instructions]

Debbie, this is Robert here. I guess, while we wait to see if there are additional questions submitted live here, I've got a few webcast submitted questions. Again, if you're listening on the webcast and would like to submit a question, you can type it in the Ask a Question box there. Fei and Phillip, there is one component, I think of the lithium brine question that you did not already get asked and it was how long do you expect the pilot to be for the brine customer, do you have any estimates on the timeline for the pilot?

I expect they will be there until the next couple of months. They'll be there.

Next few months, it'll take. Okay, next question here is can you talk about some of the reasons for the challenges within the pool system this year? Is there any one particular reason there?

I mean, from the MAC perspective, all the customers and the partners are very, very interested in our technology. So we have a very, very good technology with a very strong value proposition. And unfortunately we had a sales management VP for sales and also a salesperson for the pool system did not perform well. And that actually cost our sales really going down in the pool system side. So we have made correct actions. We have changed the VP for sales and also we have hired a new salesperson. So they are now in the whole speed intensive work to catch up what have been left out. And we are really building up new distribution partnerships and also we follow up closely with our existing distributors. And I really believe 2025 you're going to see the effect of a new sales team will be much more efficient and really professional compared with the old one. So it's purely our internal reason, nothing about the market and the customer.

Okay, great. [Operator Instructions] Looks like I might have one additional question here and it's relating to the JV in China for the marine scrubber. Can you just expand on that a little bit further? What are some of the main goals and some of the various processes that yourself and the partners will be undertaking?

Yes, it's a joint venture with a state-owned technology research institute in JiTRI in Jiangsu and Jiangsu province is just next to Shanghai. So majority of the China's keeping built industry actually is in that region. Actually there's a location called Nantong. There is a deep sea water harbor and that's why there there's a lot shipbuilding industry exactly in that place. And we are going to work through these partners and they actually have a marine sector has very strong stakeholder relationship and network that will be very good for us. And they actually invest also in this joint venture and we already start working hiring the people in China locally and also build up a spare part and service in the local in the short-term and long-term. We will also look at the localization of our system assembly and it's really, really crucial. We have to have the people underground in China in order to following up all those shipbuilding industry and the design institute really to get us close to them and that really will make us very strong presence in China and make it happen. This I really think will help our marine scrubber for the EGR solution to be sold in China.

Okay, great. I hope those answered the questions there from the webcast. I am not showing any additional questions here through the live line. So Fei and Phillip, I will turn it back over to you for any closing remarks.

Thank you 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.