LiqTech International, Inc. Q3 FY2024 earnings call

• Delay: A large commercial produced water treatment project in North America, expected in Q3 2024, was delayed to 2025 due to the customer changing the installation location, impacting $1.5M in revenue. The unit will be delivered in Canada in 2025 and contribute to future growth.
• Positives: More systems at various testing and piloting phases than ever. Includes 4 produced water treatment pilot units, a microplastics removal pilot with a U.S. petrochemical company, a lithium brine production pretreatment pilot, and a factory test of a water treatment unit for WIN DG dual-fuel engines. Established a joint venture with JiTRI in China to expand marine market presence. Delivered 2 swimming pool systems but below expected cadence; working on NSP certification for U.S. sales. DPF and ceramic membrane sales down to $1.1M in Q3 2024 due to temporary market conditions but YTD remains above last year. Implemented cost reduction plan to lower breakeven target to ~$5.5M quarterly revenue run rate, including 10% headcount reduction, senior management salary cuts, etc. Ended Q3 with $4.5M cash, completed private placement adding $8.8M, pro forma cash balance $13.3M.

Revenue for the third quarter of 2024 was $2.5 million, down 51% from $5.1 million in the same quarter of 2023. Breakdown by segments: System sales and related services were $0.7 million compared to $2.6 million in the same period last year; DPF and ceramic membrane sales were $1.1 million compared to $1.6 million in the same period last year; plastics revenues were $0.7 million, similar to Q3 last year. A large $1.5 million system for the oil and gas market, expected in Q3, was delayed to 2025.

• Q4 2024 revenue expected in the range of $3.3 million to $4.3 million.
• Full year 2024 revenue guidance is $14.5 million to $15.5 million.
• Cost reduction plan aims to lower breakeven target to a quarterly revenue run rate of approximately $5.5 million.

• Delay in large commercial oil and gas project affecting revenue in the short term.
• Dependence on a few large orders each quarter, making revenue potentially lumpy.
• Temporary market conditions impacting DPF and ceramic membrane sales.
• Uncertainties associated with forward-looking statements and potential risks that could cause actual results to differ from projections.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: Good morning. Can you talk about some of the reasons for the challenges within the pool system this year? Is there any one particular reason there?

A: 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.

Q: 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 for the JV in China for the marine scrubber?

A: 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.