LiqTech International, Inc. Q1 FY2026 earnings call

Strategic Transition Progress

• Management is executing a strategic shift to build a more balanced, repeatable, profitable business focused on markets where the company's silicon carbon membrane technology delivers clear value and supports scalable, predictable growth, rather than relying on large one-off custom projects.
• Q1 2026 results were in line with management expectations; revenue increased 32% quarter-over-quarter from Q4 2025, and gross margin expanded 1290 basis points quarter-over-quarter. The company's 2025 operational improvements are expected to deliver gradual quarterly improvements throughout 2026.

Commercial Pool Vertical

• The first US commercial pool order (3 systems for a Wyoming school district aquatic center) was secured, marking a key milestone in entering the large, high-potential US market, which has aging infrastructure and demand for compact, automated filtration solutions.
• Consecutive record international orders were secured: a large new project in the Netherlands with Lotec, and a 10-system follow-on order for an Australian leisure center with Water Code Limited, demonstrating cross-geography, cross-project adoption through partner channels.
• The Clary Flow solution offers advantages for both retrofits (smaller footprint for limited equipment space) and new builds (modular flexible design). The vertical's standardized, repeatable business model improves revenue visibility and supports margin expansion over time. A record revenue quarter for commercial pool is expected in Q2 2026 based on current order backlog.

Marine Vertical

• Two dual-fuel LNG vessel water treatment systems were delivered in Q1 2026, with two more deliveries planned for Q2. The China joint venture, which supports localized development, supply chain, and service infrastructure required for the marine market, is driving sustainable order flow growth.
• The company's membrane technology is well-suited for marine wastewater purification and reuse on dual-fuel vessels, meeting strict operating requirements. The vertical is expected to become more repeatable as adoption grows, with standardized system platforms supported by regional presence.

Water-for-Energy & Industrial Applications

• The produced water and industrial wastewater pipeline remains active, with a new pilot program launched in West Texas with an energy services firm to validate technology performance for customers prior to large commercial investment. The technology's durability, chemical resistance, and stable filtration make it well-positioned for challenging water streams.
• Management maintains a disciplined approach to resource allocation, and does not build the 2026 operating plan around the timing of any single large oil and gas project, pursuing opportunities only in line with the broader balanced growth strategy.

Component Verticals

• DPF and membrane revenue grew 30% YoY driven by renewed commercial focus and strong order flow from new and existing customers.
• Plastic components revenue grew 5% YoY, driven by strong demand from the food processing sector. Both verticals provide a stable base of recurring revenue as higher-growth system verticals scale.

Financial Discipline

• Management maintains disciplined cost control, investing only in areas with clear commercial returns (sales coverage, marine development, scaling repeatable platforms) while keeping overhead stable. Gross margin expansion remains a core top priority.

Total Q1 FY2026 revenue was $4.1 million, a 10.4% year-over-year (YoY) decrease from $4.6 million in Q1 FY2025. The decline was entirely due to the absence of a large 2025 water-for-energy system delivery that did not repeat in 2026:

• Systems and aftermarket: $1.8 million in Q1 2026 (43.9% of total revenue), down from $2.7 million in Q1 2025. Within systems: Commercial pool revenue was $0.8 million (19.5% of total revenue), up 166.7% YoY from $0.3 million; Marine revenue was $0.8 million (19.5% of total revenue), up 300% YoY from $0.2 million; these gains were offset by the missing large water-for-energy delivery from 2025.
• DPF and membrane: $1.3 million in Q1 2026 (31.7% of total revenue), up 30% YoY from $1.0 million in Q1 2025.
• Plastic components: $1.0 million in Q1 2026 (24.4% of total revenue), up ~5% YoY from ~$1.0 million in Q1 2025.

Gross profit was $0.4 million (9.5% gross margin) in Q1 2026, up from $0.1 million (2.7% gross margin) YoY. Gross margin expanded 680 basis points YoY driven by better product mix, improved manufacturing capacity utilization, lower procurement costs, and reduced depreciation. Total operating expenses were $2.7 million, up from $2.3 million YoY, with ~60% of the increase from foreign exchange translation effects. Net loss was $2.7 million, up from a $2.4 million net loss YoY; adjusted EBITDA was negative $1.5 million, compared to negative $1.4 million YoY.

• Management reiterates the full year FY2026 revenue guidance range of $23 million to $27 million, which represents 39% to 64% YoY growth over full year 2025. No upward or downward revision to the prior guidance range was made.
• Revenue growth is expected to be driven primarily by commercial pool and marine expansion, with stable contributions from DPF, membrane, and plastic components, and potential upside from water-for-energy and industrial projects as they convert from the pipeline.
• Management expects a gradual quarter-over-quarter revenue ramp throughout 2026, with a clear sequential revenue increase in Q2 2026 compared to Q1 2026. Commercial pool is projected to deliver record revenue in Q2 2026 based on existing backlog.
• The quarterly revenue cadence will continue to be impacted by system delivery timing, so Q1 2026 results should not be used as an indicator for full year performance.
• Steady-state gross margin is targeted to reach 40% as volume scales, with current project-level margins already ranging 30% to 50% (averaging 40%). Additional volume-driven scaling effects are expected to lower production costs further over time.
• Management expects to balance targeted growth investments with disciplined cash management, with the long-term goal of reaching positive adjusted EBITDA.

• Forward-looking statements are inherently subject to known and unknown risks and uncertainties that could cause actual results to differ materially from projected outcomes. Undue reliance should not be placed on forward-looking statements, which are only valid as of the call date, and the company assumes no obligation to update statements for future events or circumstances.
• Larger water-for-energy projects have highly unpredictable timing, creating revenue visibility risk for that vertical.
• The company is currently operating below the revenue scale required to fully absorb fixed manufacturing costs, so gross margins remain below targeted steady-state levels.
• A majority of the company's cost base is denominated in Danish kroner and euros, so foreign exchange rate volatility creates expense translation risk and increased foreign exchange transaction losses. In Q1 2026, foreign exchange movements accounted for ~60% of the YoY increase in operating expenses.

Q: What is the target steady-state gross margin for the business, and how should investors model margins going forward? / A: Management states that current project-level margins already range 30% to 50%, averaging 40% per project. As revenue volume scales, the company expects to approach a 40% steady-state gross margin. Higher volume will also create additional scaling benefits that can further lower production costs for systems and membranes over time.

Q: What drives the expected steep sequential quarterly revenue growth for the rest of 2026, and how much of this growth comes from the water-for-energy and industrial verticals? / A: While Q1 2026 had minimal contribution from water-for-energy and industrial, the company holds a high-probability pipeline of projects in these areas that are expected to convert to revenue over the remainder of the year. More significant growth is expected from commercial pools, marine, and DPF and membrane, with all these verticals combining to drive the projected quarter-over-quarter revenue ramp.

Q: Can you share any details on the expected revenue distribution across Q2, Q3, and Q4 2026? / A: Management confirms that gradual quarterly improvements will continue throughout 2026, with sequential revenue growth starting with an increase in Q2 2026 compared to Q1. The company's current order book already confirms that commercial pool will deliver a record revenue quarter in Q2, though revenue timing remains dependent on order conversion lead times.

Q: The highlighted Netherlands order is for a new build pool, and the company was previously focused on retrofits. Are new build pools a new emerging opportunity? / A: Early commercial pool focus was skewed to retrofits aligned with the focus of the company's original UK distributor. Newer distributors across markets are actively pursuing both retrofit and new build projects, so new build orders are now growing alongside retrofits. Management emphasizes the company's solution has strong competitive advantages for both market segments.