Q1 2024 LiqTech International Inc Earnings Call

Operator: Financial Results Call. All participants will be in listen-only mode.

All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom of Litham Partners. Please go ahead.

Conference Specialist: After today's remarks, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.

Conference Specialist: Please note this event is being recorded.

Conference Specialist: I'd now like to turn the conference over to Robert Blum of Lytham Partners. Please go ahead.

Robert Bloom: All right, thank you very much Jason, and good morning everyone. Thank you all for joining us today for the LiqTech International first quarter 2024 financial results conference call for the period ending March 31, 2024. Joining us on today's call from the company are Fei Chen, Chief Executive Officer, and Philip Price, the company's 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 today's call.

Conference Specialist: Alright, Thank you very much Jason and good morning, everyone and thank you all for joining us today for the <unk> International first quarter 2024 financial results conference call for the period ending March 31, 2020 for joining us on today's call from the company are Fei Chen Chief Executive Officer, and Philip price the comp.

Speaker Change: <unk> interim Chief Financial Officer.

Management: 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 today's call. If you dialed into the traditional teleconference line. You can press Star then one to ask a question. If you are listening through the webcast portal and like to ask a question you can submit your questions through the ask a question feature in the webcast player.

Robert Bloom: If you dialed in through the traditional teleconference line, you can press star then one to ask a question. 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. We'll do our best to get to as many questions as possible.

Management: We will do our best to get to as many questions as possible.

Robert Bloom: 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 the risk factors that attempt to advise interested parties of the risks that may affect our business, financial condition, operations, and cash flows.

Speaker Change: 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.

Robert Bloom: 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 apply 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. That said, I'd like to turn the call over to Faye Chen, CEO of Licktec International. Faye, please proceed.

Management: Since called the company. Therefore is all listeners to carefully review and consider the various disclosures made in the reports filed with Securities and Exchange Commission, including the 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.

Management: 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.

Management: <unk> 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.

Speaker Change: That said I'd like to turn the call over to Fei Chen CEO of Lectec International. They please proceed.

Faye Chen: Thank you, Robert, and good day to everyone on the call. I am excited to have this opportunity to speak with you and share an update on the solid progress we have made as we maintain our focus on delivering against the strategic plan we instituted over the past year to successfully stabilize and grow our business initially through our established markets and then position ourselves for incremental growth in our target market. As a quick reminder, our established markets are markets where we have extensive customer bases and typically have a reduced sales cycle time.

Fei Chen: Thank you Robert and good day to everyone on the call.

Fei Chen: And I'm excited to have this opportunity.

Fei Chen: With you and see an update on the solid progress we have made as we maintain our focus on delivering against our strategic plan.

Fei Chen: Instituted I'd like to pass the year to successfully stabilized and the girl RBC initially through our established markets and then position ourselves like incremental growth to our target market.

Fei Chen: As a quick reminder, all of these.

Fei Chen: That's just the market and that's where we have extensive customer basis and typically have reduced their cycle times.

Faye Chen: This includes commercial pool systems, diesel particulate filters, marine scrubbers, and other areas where we have recurring revenue opportunities, such as general aftermarket sales and the plant. This established business market provides a strong and stable base of revenue for LeqTech and allows us to gain manufacturing efficiencies by leveraging our existing production capacity. Our target markets include key markets where our high-performance ceramic, Silicone carbon ceramic membrane can provide customers with a strong return on their investment.

Fei Chen: This include commercial pool systems diesel particulate features marine scrubbers and other areas, where we have recurring revenue opportunities such as general aftermarket sales and the plastics.

Speaker Change: This established a business market provides a strong and stable base of revenue Felipe and allow us Manny.

Speaker Change: Manufacturing efficiencies and leveraging our existing production capacity.

Felipe: Our target markets include key markets, where our high performance Jeremy.

Felipe: Silicon carbide ceramic ceramic membrane can provide customers with a strong return on their investment needs.

Faye Chen: This includes specific industry filtration applications to remove solids, oil, pathogens, and heavy metals from water as well as compounds from emissions and industrial off-gas. These areas tend to have longer sales cycles, but it is our belief that if we align ourselves with great partners and establish key reference customers, the sales cycles will decrease, and a large market opportunity will open up for this. I am pleased to report that this strategy is working.

Felipe: This included specific industrial filtration applications to remove Charlie Oh, yeah patches and hidden majors from what I see as comes on from emissions and the industrial I'll sketches.

Felipe: These areas tend to have longer sales cycles, but it's our belief that if we align ourselves with great partner and is that 70 skus reference customers. The sales cycles, we are decrease and the large market opportunity.

Speaker Change: Old enough, but D J.

Speaker Change: I'm pleased to report that strategy is working.

Faye Chen: As I assume most of you saw, we are expecting a significant step up sequentially in revenue for the second quarter, with revenue expected to be between 5 and 5.5 million. This would represent an approximate 20 to 30 percent sequential revenue growth.

Speaker Change: I assume most of you saw we are expecting a significant step up sequentially in revenue for the second quarter revenue to be between five and five 5 million.

Speaker Change: This would represent an approximate 20% to 30% sequential revenue growth.

Faye Chen: But before we talk about a few of the forward-looking expectations and the drivers for the strong second quarter we expect, let's first look back at the progress made during the first quarter. Revenues during Q1 increased 6% compared to Q1 of 2023, driven by the delivery of our first U.S.-based oil and gas-produced water order as part of our new distribution agreement with Resolvac Direct, as well as strengths in our DPF and ceramic membrane business.

Speaker Change: But before we talk about a few of them.

Speaker Change: Forward looking expectations and the drivers for the strong second quarter. We expect that's a look back at the progress made during the first quarter.

Speaker Change: Yeah, and you'll see our in quarter, one increased 6% compared to Q1 of 2023, driven by delivery of our first U S. C O N.

Speaker Change: Guests can choose to watch Oh, there as part of our new distribution agreement with the vessel back direct that's where our strength.

Speaker Change: In our D C F and the ceramic membrane business.

Faye Chen: The U.S.-based oil and gas order was a critical development for us in many ways. First, it expands our presence in North America by showcasing the benefits of our produced water treatment solution to the oil and gas industry. And second, the order comes rapidly on the heels of us signing our contribution agreement with Resolvac Direct in March 2024, highlighting what we believe will be strong interest for our solutions in North America. The containerized pilot system that ResoVac directs orders arrived in Houston on April 30th and will be used as a customer site to test, demonstrate, and document the efficiency of Leetech's retrofiltration technology in trading produced water to facilitate beneficial industry reuse and meet current and future regulatory requirements.

Speaker Change: The U S based oil and gas odor blasters.

Speaker Change: He co development for us in many ways.

Speaker Change: These expense our pricing in North America by showcasing the benefits of our produced water treatment solutions for the oil and.

Speaker Change: In the gas industry and the ticket the order comes rapidly on the heels of US signing our content distribution agreement with the rest of the bank's direct March 2024, highlighting what we believe will be streaming interest for our solutions.

Speaker Change: In North America.

Speaker Change: Continuing to rise the pilot system, that's Rachel back director Oded I arrive in Houston.

Speaker Change: From SEBI and will be used as a customer side. The test demonstrated and documented efficiency of disease, which is nutrition technology trading produced water. So fast you did take beneficiary of industry reuse and meet current and future regulatory requirements.

Faye Chen: Longer term, the intention is to use the results from this pilot operation as a basis to design and implement full-scale commercial systems for on-shore oil and gas applications in the U.S. Let me be clear that our expectation is that this will not be a multi-year trial process. It is our belief that the initial results received in the next few months will help to validate our solutions and provide the data necessary for other customers to move forward.

Speaker Change: Longer term intention is to use the results from this pilot operation as the basis to define and implement full scale commercial systems.

SEBI: I'm sure the guests application in the U S.

Speaker Change: Let me be clear that our expectation is that this will not be much in the ear tire process. It is our belief that the nisha results received in the next few months as well here that is H, our solutions and provide the data necessary for other customers too.

Speaker Change: For what.

Faye Chen: As we stated during our year-end call, the North American oil and gas market is going to be a key focus for LeqTech moving forward, and we couldn't be more pleased to be partnered with the great team at Riesbeck Direct, who have a strong presence in key oil and gas geographies in the U.S. Building on the success of our North American oil and gas order, we received another significant oil and gas produced water commercial pilot order in This unit will be used in Gulf Cooperation Council countries by one of the largest integrated energy and chemicals companies in the world and is scheduled to be delivered in June.

Speaker Change: As we stated during our year end call and North American oil and gas market is going to be a key focus for <unk> moving forward and they couldn't be like these can be patented we used a great team and the recent back direct.

Speaker Change: We had a strong finish traces in key oil and gas yeah okra fees in U S.

Speaker Change: Building on the success of North American oil and gas odor, we received another significant oil and gas produced water and Marcia pilots or in the first two clutter from National Energy services reunited NESA immediately this unit will be you.

Speaker Change #120: In golf Calibration Council countries.

Speaker Change: As the largest integrated energy and chemical companies in the works and is scheduled to deliver in June.

Faye Chen: This will be a key component of the strong second quarter that we are expecting. Similar to the U.S. order, we believe that this commercial test unit for produced water has the ability to open the doors for additional orders with this customer and many other operators in the region. Admittedly, the Middle East tends to move a bit slower than in the U.S.

Speaker Change: This should be a key component of the strong second quarter and we are expecting.

Speaker Change: Similar to the U S. Older. They believe that this commercial case, you'll need a produced water has the ability to open the doors for additional older with this customer and the many other operators in the region.

Speaker Change: Admittedly the middle East tends to move slower than in the U S. But this wind off of our system installed two years ago upgrading to expectations. We believe there are opportunities to more rapidly.

Faye Chen: But as one of our systems installed two years ago, operating to expectations, we believe there is an opportunity to move rapidly and forward with other customers in this geography as well. Overall, I am pleased with the progress made against our oil and gas target market initiatives and look forward to incremental progress in 2024. Let's transition to a few key developments since our last call in our established markets, starting with marine scrubbers.

Speaker Change #109: And for work with other customers in this geography as well.

Speaker Change: Overall I am pleased with the progress made against our oil and gas targeted marketing initiatives and look forward to incremental progress in 2024.

Speaker Change: That transition to a few key developments since our last call in our definitely some markets starting with marine scrubbers.

Faye Chen: Last week, we announced entry into a partnership with the Danmarin Group, or DMZ, to expand our presence in the Chinese shipbuilding and repair market for marine scrubber water treatment solutions, as well as new exhaust gas recirculation water treatment systems for durable fuel marine resources. The agreement also includes the servicing by DMD of existing LeqTech marine installations, including fast delivery of spare parts and on-site repair work. Danmarin Group has close customer relationships in the marine industry and a strong sales and service organization in China with locations close to customers for ship building and repair.

unknown: Last week, we announced entering into a partnership we sit then marine goop DMT, so expand our Christmas and the Chinese shipbuilding and repair market for marine scrubber water treatment solutions as well as new exhaust gas recirculation water treatment systems.

Speaker Change #112: A few marine vessels.

Speaker Change: We meant to also include the servicing I D M E of existing lease taken Mary installations, including faster delivery of spare parts and onsite repair work.

Speaker Change: That Marine group has close customer relationships in the marine industry and the strong sales and service organization in China with locations close to customers for shipbuilding and repair.

Faye Chen: A key component to this partnership is our ability to leverage DMT's highly skilled sales and service capabilities to sell, install, and service our marine water treatment system. The other highlight here is the market for new exhaust gas recirculation water treatment systems for dual-fuel marine resources. The maritime industry is undergoing a significant transition towards cleaner fuel and reduced environmental emissions. In the coming five years, more than half of the new vessels will be built with dual fuel engines, which will make them able to operate with LNG or methanol. For this new type of vessel, there is a need for highly sufficient and reliable water treatment systems. LeqTech's solution is the perfect fit for this application.

D: A key component to this partnership is our ability to leverage D. M. D is highly skilled sales and service capabilities to sell install and service our marine water treatment systems.

D. M.: The other highlight here is the market for new exhaust gas recirculation water treatment systems, but do you have your marine vessels.

Speaker Change: Marine time industry is undergoing a significant transition towards cleaner fuel and reduced environmental emission in the coming five years more than half of the new visitors were previewed with you a few inches, which make them be able to operate with a Z O methanol.

Speaker Change: But this new type of resource and there is a need for highly sufficient and reliable water treatment systems. These taste solution is a perfect fit for this application.

Faye Chen: We look forward to the opportunities that this new partnership can bring for us in Chinese marine discoveries and the gas recirculation market. The second key partnership we entered was with Freiman, a well-established maritime representative to the shipping industry, to market our marine scrubber water treatment solution within Greece. For those not aware, Greece is the largest ship-owning market in the world.

Speaker Change: We look forward to the opportunities that this new partnership can bring for us in Chinese marine scrubbers, and they thought that gas installation market.

Speaker Change: The second key partnerships, we entered last with the frame in a weird establish maritime person.

Speaker Change: The shipping industry to market, our marine scrubber water treatment solution, we see great for those not aware, where it is the largest hip or knee market in the world.

Faye Chen: Freiman has close customer relationships with major shipping companies in Greece and has deep technical insights to ensure effective customer collaboration for the design and installation of new water treatment systems. With the combination of our unique silicon carbon ceramic filtration technology and years of successful commercial demonstration in the marine industry, we look forward to our two companies coming together effectively to expand our marine scrubber footprint and reduce environmental impact from shipping. As we look to the second quarter, beyond the pea oil and gas order to the Middle East set for delivery in June, another key driver of our growth expectation is the commercial swimming pool market.

Speaker Change: Freeman has close customer relationships with major shipping companies in Grace and they have deep technical insight Tony Schuh is fixed cost some recalibration, but design and installation of new water treatment systems.

Tony Schuh: We used the combination of our unique silicon carbide ceramic filtration technology and years of successful commercial demonstration in the marine industry. We look forward to our two companies and together effectively expand our marine scrubber footprint and reduced environmental impact.

Speaker Change: Housekeeping.

Speaker Change: As we look to the second quarter beyond the P OLED and the guests odor to the meter is set for delivery in June.

Speaker Change #131: Another key driver to our growth expectation is to commercial swimming pool market.

Faye Chen: During the second quarter, we expect to deliver eight swimming pool systems in total, with contributions coming from each of our key geographies and distribution partners. As a reminder and for context, we delivered 20 swimming pool systems in all of 2023.

Speaker Change: During the second quarter, we expect to deliver eight system seeing total with contributions coming from each of our key geographies and distribution partners.

Speaker Change: As a reminder, and for context, we delivered trendy swimming pool system seen Oh up to 2023.

Faye Chen: The agreements we signed last year with Waterco, Binary, TotalPool, and Oxidime are all contributors, with each delivering at least one system in Q2. I am pleased with the progress we have achieved on this key established market and look forward to continued market adoption in the years to come. Transitioning to our DPF business and membrane business, another of our established markets. During the first quarter, DPF sales increased 31% compared to the year-ago first quarter, with sales of nearly 1.6 million.

Speaker Change: Now agreements, we signed last year with what are called binary total pool and ups done Oh contributors with each delivering at least one system in Q2.

Speaker Change: I am pleased with the progress we have achieved unless he established market and look forward to continued market adoption in the years to come.

Speaker Change: Transitioning to our D C S business and the membrane business another of our U S market during the first quarter U P. F sales increased 31% compared to the year ago first quarter with sales of nearly one 6 million.

Faye Chen: We are seeing increased interest in our DPF solutions within the European inland transportation markets as renewed focus on black carbon emission reduction occurs. We are also seeing strong sales for our products for Emergency Electricity Generators. Similar to the poor systems, we are pleased with the growth coming from our DPF solutions, which in many ways was an afterthought for LeqTech previously but has become a solid contributor for us today. On the ceramic membrane side, we are making inroads into a couple of key potential markets with pilot testing going on at customer sites. These markets include petrochemicals, water treatment, paper, and pub, and battery material concentration.

Speaker Change: We are seeing increased interest for our ETF solutions, we've seen the European inland.

Chris: Rotation market as renewed focus and black carbon emission reductions of Chris. We are also seeing strong sales force.

Speaker Change: Our Fisher.

Fisher: So emergency electricity generator.

Fisher: Similar to previous systems, we are pleased with the growth coming from our TPS solution, which in many many ways lessens as the thought well dictate previously but has become a solid contributor for us today.

Fisher: On the ceramic membrane side, we are making in those euros two a couple of key potential market with the pilot testing going on at customer sites. This market include petrochemicals water treatment paper in the park and battery material concentrations.

Faye Chen: We are also looking to scale up through OEM partners in China, Europe, and the U.S. We believe this can be a driver for this component of our operations going forward. I hope to have more to share with you in the coming quarters on this pilot stage, to wrap things up before I turn over to Philip to review the financials in more detail. As our outlook suggests, we expect to see good growth in the second quarter.

Fisher: We are also looking to scale up through OEM partners in China, Europe, and the U S. We believe these can be a driver for this component of our operations going ahead and hope to have more to share with you in the coming quarters on this I love it.

Speaker Change: So referencing wrap things up before I turn our to Filipe to review the financials in more detail.

Faye Chen: We have eight pool systems scheduled for delivery, with contributions coming from each of the distribution partners we have across the world. These orders, coupled with our Middle East oil and gas system set for delivery in June, and an uptick in nearly each of our key established markets, recurring product offerings such as DPF filters and membranes, provide us with optimism for both the second quarter and the rest of the year. I look forward to our continued successful execution against the strategic plan we have set for us. With that said, let me turn the call over to Philip to review the financial results in more detail. Philip.

Speaker Change: As our outlook such as we expect to see good growth in the second quarter. We have eight four system scheduled for delivery. This contributions coming from each of distribution partners. We have cross somewhat this oldest comfort with our middle East Oh, Yeah. The guest is some steps.

Speaker Change: So delivering Joan and an uptick in nearly each of our key established mattress recurring product offerings, such as D. C. S features and membrane provides us with optimism for both the second quarter and the rest of the year.

Speaker Change: I look forward to our continued successful execution against our strategic plan, we said for us, whereas that's it that's when we tend to call our to Philly to review it.

Speaker Change: Financial results in more detail Philip.

Philip: Thank you, Faye, and good morning, everyone. Now, let's dive into the financial highlights for the quarter. Revenue came in at $4.2M compared to $4.0M in the same quarter last year, representing an increase of 6%. This performance falls within our previously disclosed guidance.

Philip Price: Thank you Barry and good morning, everyone.

Philip Price: Now, let's dive into the financial highlights for the quarter.

Philip Price: Revenue came in at $4 2 million compared to coal considerable minion and same quarter last year, representing an increase of 6%. This performance was within our previously disclosed guidance.

Philip: Broken down by verticals, sales went as follows: system sales and related services of 1.5 million compared to 1.4 million in the same period last year and 1.6 million in Q4. DPF and ceramic membrane sales of 1.8 million compared to 1.4 million in the same period last year and up sequentially compared to 1.4 million in Q4. And finally, Plexix revenues of $0.9 million compared to $1.2 million in Q1 last year and $0.8 million in June.

Philip Price: Broken down by verticals sales, whereas follows.

Philip Price: System sales and related services of one 5 million compared to one 4 million in the same period last year and $1 6 million in Q4.

Philip Price: And ceramic membrane sales of 1.8 million compared to one 4 million in the same period last year and up sequentially compared to the $1 4 million in Q4.

Philip Price: Finally, plastics revenues of <unk> 9 million compared to $1 2 million in Q1 last year and two 8 million in Q4.

Philip: In summary, our ceramics business experienced a significant increase, the system sales and radio services recorded a slight uptick, and plastics underwent a notable decline. To be specific, the key revenue drivers for this quarter were the delivery of our first U.S.-based oil and gas-produced water order as part of our new distribution agreement with Wesselbeck Direct, along with increased sales of DPFs and ceramic membrane sales attributed to focused sales efforts beginning in late 2023 that generated elevated activity in the current year. The decline in plastics revenue relates solely to a large one-off sale that was recorded in 2023 without recurrence in the current year.

Philip Price: In summary, our ceramics business experienced a significant increase the system sales services recorded a slight uptick on the classics underwent a notable decline.

Philip Price: To be specific the key revenue drivers for this quarter was the delivery of our first U S based oil and gas produced water water as part of our new distribution agreement with Bristol back our Rex along with increased sales of U P. S athletic membrane sales attributed to focused sales efforts.

Philip Price: Beginning from May 2023, generating innovative attributes in the current year.

Philip Price: The decline in plastics revenue relates solely to a large one off sale that was recorded in 2023 without recurrence in the current year.

Philip: In terms of our forward guidance, as Faye mentioned, we expect revenue for the second quarter of 2024 to be between 5 and 5.5 million, which would be a significant increase of approximately 20 to 30 percent compared to the just-ended quarter. We remain committed to growing our business over the coming quarter as we work intensively to execute on our ambition to further penetrate the global oil and gas, chemicals, and pool system markets with our proven and industry-leading solutions.

Speaker Change: In terms of our forward guidance as Fay mentioned, we expect the revenue for the second quarter of 'twenty 'twenty four to be between five and $5 5 million, which would be a significant increase of approximately 20% to 30% compared to the adjusted this core.

Speaker Change: We remain committed to growing our business over the coming quarter as we work intensively execute on our ambition to further penetrate the global oil and gas chemicals and caused us to markets with our proven industry leading solutions.

Philip: Looking at our gross profit for the quarter, we reported 0.3 million, or an implied gross profit margin of approximately 6.4%, compared to 0.4 million and 9.8% in the prior year's first quarter. This unfavorable change is, first of all, a result of the revenue mix for the quarter. In particular, the delivery of the containerized oil and gas pilot system impacted margins, resulting in a decrease compared to typical levels. This decision was strategic, undertaken to showcase and validate the effectiveness of our technology.

Philip Price: Looking at our gross profit for the quarter, we reported $2 3 million on implied gross profit margin of approximately six four.

Philip Price: 4% compared to $2 4 million or nine 8% in the prior year's first quarter.

Philip Price: The unfavorable change is first of all a result of the revenue mix for the quarter.

Philip Price: In particular, the delivery of the containerized oil and gas pilot system impacted margins, resulting an increase compared to typical levels.

Philip Price: This decision was strategic undertaken to showcase amenities the effectiveness of our technology.

Philip Price: Yeah.

Philip: As we still have overhead and other fixed costs that are not fully absorbed, one of the key metrics we look at to highlight the progress being made is our contribution margin. During the quarter, when you back out fixed costs, our contribution margin ended at approximately 39% compared to 43% in the same quarter reported last year, with the unfavorable change mainly explained by revenue mix and especially the delivery of the containerized oil and gas pilot system, as mentioned before.

Philip Price: As we still have overhead and other fixed costs that are not fully being our soul one of our key metrics. We look out to highlight the progress being made this all contribution margin.

Philip Price: During the quarter when you back our fixed costs or contribution margin ended at approximately 39% compared to 43% in the same quarter reported last year with the unfavorable change mainly explained by revenue mix and especially the delivery of the containers on a gas pilot system estimates or system.

Philip: From an operational perspective, we continue to have excess capacity with the recently installed new kilns and the revitalization of our ceramics facility. Hence, the immediate focus is to leverage the positive momentum and compress delivery lead times while still ensuring the delivery of high-quality membranes and filters. As previously stated, we still maintain our guidance that our business will be breakeven measured on an adjusted EBITDA basis, assuming a quarterly revenue of approximately $7 million and potentially lower with the right revenue mix. Turning to OpEx.

Philip Price: From an operational perspective, we continue to have excess capacity.

Philip Price: With the recently installed new tunes and revitalization of our ceramics facility. Hence the immediate focus is to leverage the positive momentum and compress the name or lead times, while still ensuring the delivery of high quality members and symptoms.

Philip Price: As previously stated we still maintain our guidance that our business will be breakeven measured on an adjusted EBITDA basis, assuming quarterly revenue of approximately $7 million and potentially lower with the box with Phoenix.

Philip Price: Turning to Opex total operating expenses for the quarter was $2 3 million compared to $2 6 million in Q1 of 2023.

Philip: Total operating expenses for the quarter were $2.3 million compared to $2.6 million in Q1 of 2023. This is a decrease of 0.3 million, or approximately 10%. The decrease mainly reflects the release of 2023 bonus provisions offset by increased insurance costs and expenses associated with the CFO transition. As stated over the last few quarters, we remain focused on running a lean business by monitoring costs and carefully evaluating our spend to ensure that we do not jeopardize our financial objectives.

Philip Price: This is a decrease our soup on 3 million or approximately 10%.

Philip Price: The decrease mainly reflects the release of 2023.

Philip Price: Pre bonus commissions offset by increased insurance costs and expenses associated with the CFO organization.

Philip Price: As stated over the last few quarters, we remain focused on running a lean business are monitoring costs and carefully evaluating our spend to ensure that we do not jeopardize our financial objectives.

Philip: Moving to the next item, net other expenses during the quarter were 0.4 million compared to 0.2 million in Q1 of last year, with the development mainly explained by the non-cash loss associated with the sale of fixed assets, partly offset by gains on currency transactions due to the euro depreciation against the US dollar during the period. Concluding on the P&L, the net loss for the quarter was 2.4 million, which was consistent with the net loss reported in the first quarter of last year.

Philip Price: Moving to the next item net net other expenses during the quarter were <unk> 4 million compared to <unk> 2 million in Q1 of last year with the development mainly explained by the noncash loss associated with the sale of fixed assets, partially offset by a gain.

Philip Price: Our troops transactions due to the euro depreciation against the U S dollar.

Philip Price: Yeah.

Philip Price: Concluding on the P&L net loss for the quarter was $2 4 million, which was consistent with the net loss reported for first quarter of last year.

Philip: However, this quarter's result was driven by revenue growth and a decrease in operating expenses, offset by lower margins as well as an increase in other expenses. And finally, let me briefly comment on our cash flow and balance sheet before summarizing and handing over to Dirk. We ended the quarter with $7.7 million in cash, down $2.7 million compared to the fourth quarter. This is explained by the cash used in operating activities, a reduction in accrued expenses related to the release of bonus provisions, and an increase in prepaid expenses due to annual insurance premiums and IT licenses paid.

Philip Price: How long. This quarter's result was driven by revenue growth and a decrease in operating expenses offset by lower margins as well as an increase in other expenses.

Philip: And finally, increased inventories, which is linked to strategic sourcing for ongoing projects to cut delivery lead times. And also, historically, the first quarter has always been the most financially demanding period in terms of cash flow due to the annual expenses mentioned before. And finally, during this quarter, we managed to sell surplus equipment with the proceeds used to repay the related leasing liabilities in full. Balancing our cash will remain a key KPI for our business as we are determined to preserve cash to maintain our strategic and financial flexibility.

Speaker Change: Finally, let me briefly comment on our cash flow and balance sheet before summarizing and having Pedro would you say.

Pedro: We ended the quarter with seven part of 7 million in cash down $2 7 million compared to the fourth pool.

Pedro: This is explained by the cash used in operating activities and a reduction in accrued expenses related to the lease bonus provisions.

Pedro: An increase in prepaid expenses due to annual insurance premiums and I to licenses paid.

Pedro: And finally, an increase inventories, which is linked to the strategic sourcing for ongoing projects to cost delivery lead times.

Pedro: And also historically the first quarter has always been the most financially demanding period in terms of cash flow due to the annual expenses mentioned before.

Speaker Change: And finally during this quarter.

Speaker Change: We manage to sell.

Speaker Change: Phil surface equipment with the proceeds used to repay related leasing liabilities.

Speaker Change: To summarize balanced.

Speaker Change: Balancing our cash flow remain a key two powerful business as we are determined to preserve cash to maintain our strategic and financial flexibility.

Philip: We also acknowledge that we need to increase the throughput of our system facilities to accelerate growth, reduce lease times, and ultimately pave the way to a business in balance both from a net income and cash flow perspective. Thank you again for your continued support, and back to you.

Speaker Change: We also acknowledge that we need to improve increase the throughput of our system facilities, So accelerated growth with good news.

Speaker Change: And ultimately pave the way for business and balance both on the net income and cash flow perspective.

Speaker Change: Thank you again for your continued support in <unk>.

Speaker Change: Thank you Philip <unk>.

Faye Chen: In closing, we remain committed to executing against our strategic roadmap focused on long-term value creation. Over the past year, we have launched a clearly defined commercial strategy that has already yielded positive results. Going forward, our business will be underpinned by strong continuing revenues within our established businesses and an increased foothold in our strategic target market. The growth we expect in Q2 and the results of the year, combined with improved operational execution across organizations, will be key to drive a step change in growth margins and positive cash flows.

Speaker Change: In closing, we remain committed to executing against our strategic roadmap focused on long term value creation.

Speaker Change: Over the past year, we have launched a clearly defined commercial strategy.

Speaker Change: That has already yielded positive results.

Speaker Change: Going forward, our business will be underpinned.

Speaker Change: And by strong continuing revenues, we've seen our established businesses and increased foothold in our strategic target markets.

Speaker Change: The growth, we expect in quarter, two and the results of the year, coupled with improved operational execution across our organization will be key to drive step change in gross margins and positive cash flows and look forward to continuing to execute against our strategic.

Faye Chen: I look forward to continuing to execute against our strategic initiatives in 2024 to drive value creation for our shareholders. One final comment before I turn it over to your question. I will be participating, together with Philip, in the Lithium Partners Spring 2024 Investor Conference on May 30th. If you would like to schedule a one-on-one meeting, please contact Robert Bloom, and he will be happy to arrange it for you. With that operator, we would be happy to take any questions. Thank you.

Speaker Change: <unk> initiatives in 2024 to drive value creation for our shareholders.

Speaker Change: One final comment before I turn it out to your questions.

Speaker Change: It will be participating together with Philip in the Lytham Partners Spring 2024 Investor Conference on May studies.

Speaker Change: If you would like to schedule and one on one meeting please contact Robert Blum and he will be happy to coordinate for Ya.

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

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Rob Brown from Lake Street Capital Markets. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Speaker Change: At this time, we'll pause momentarily to assemble our roster.

Speaker Change: Our first question comes from Rob Brown from Lake Street Capital markets. Please go ahead.

Speaker Change: Yeah.

Rob Brown: Hi, congratulations on all the progress. Thank you, Ra.

Rob Brown: Hi, congratulations on all the progress.

Speaker Change: Thank you Rob.

Faye Chen: My first question is on the U.S. oil and gas market. Great to see some progress there in getting delivery. Could you give us a sense of how the pilot program plays out? I think you talked about a relatively short assessment period and then maybe a sense of how market development and pipeline development happen after that.

Rob Brown: I guess first question is on the U S oil and gas market, great to see some progress there and getting a delivery could you give us a sense of how the pilot program plays out I think you talked about.

Speaker Change: A relatively short.

Speaker Change: Assessment period, and then and then maybe a sense of how the all the market development and pipeline development happens after that.

Faye Chen: As I mentioned in the talk, the pilot arrived in the U.S. on the 30th of April, and actually, now it's already at the customer site. We are very happy to start running it this week and the coming week, so we expect in the coming months or so we're going to have the first testing results. So that will really give a clear indication about the performance of our pilot plan for U.S. produced water.

Speaker Change: And as I mentioned in.

Speaker Change: In the tuck the pilots has arrived in the U S and on the <unk> stuff that I April and actually now it's already at a customer site. We are very happy to have stopped running already and this week and the coming week. So shall we expect in the coming months social it going to have the first and.

Speaker Change: Testing results showed that really gave us the clear indication about the performance of our pilot.

Speaker Change: And for the U S and.

Speaker Change: Produced water.

Faye Chen: And we are already discussing with different companies, and especially with Rieselberg Direct, about a pipeline. So there's a lot of things going on, and it's really people are excited to see the results of this pilot testing. So we are very excited to see the progress in the next couple of months.

Speaker Change: And we are already discussing with different companies and especially also with visa direct and about our pipeline show them. There's a lot of things going on and it's like really people are exciting to see the results of this pilot testing so.

Speaker Change: We are very exciting to them to see the progress in the next couple of years and months.

Rob Brown: Okay, great. I assume given the Middle East system running for a couple of years that progress will be... [inaudible] sales pitch that Razorback goes out with to its customers. Thanks a lot.

Speaker Change: Okay, great and I assume I assume given the middle East.

Speaker Change: System running for a couple of years that the progress will be.

P. J: You know favorable P. J just wanted to get a sense, what's the what's sort of the system benefits that the customer gets a with your system and and maybe just what's the.

Speaker Change: Sales pitch.

Speaker Change: That razorback goes out with to its customer base.

Faye Chen: Thanks a lot Rob. This is a very, very good question. The really good benefits of our system definitely are that our membrane is really suitable for this type of water treatment. It's highly oily content, and there's also metal content and also very high solid content.

Speaker Change: Thanks, a lot a lot of drugs and this is a very very good question and that they're really good benefits out of our system definitely is or membrane is really suitable for these type of the water treatment and he is a highly audio content and there's the osha NATO and contend and Osha very highest solid.

Speaker Change: And we have demonstrated both in the middle East and also I just saw a marine scrubber market and our membrane is really good for these types of treatments and it really can be.

Faye Chen: And we have demonstrated both in the Middle East and also actually through our marine scrubber market that our membrane is really good for this type of treatment. And it really can be cleaned up very efficiently to keep the efficiency of filtration. And this is exactly the difference between our membrane and the polymer membrane.

Speaker Change: Clean up very efficiency, so keeps them the efficiency appreciation and this is exactly the difference between our membrane and polymer membrane. So so we really have the light long lifetime and the very high efficiency is through long periods of time and the second thing is that we are we have a containerized solution. So.

Faye Chen: So we really have a long lifetime and very high efficiency over a long period of time. And the second thing is that we have a containerized solution. So it's really – it's very easy to use. It's mobile.

Speaker Change: It's a really a isn't.

Speaker Change: It's a very easy to use it's a mobilized you can pull down the track and transport from one side to the other side.

Faye Chen: You can put it on the truck, can transport it from one side to the other side. And also, it's a motorized build. So basically, we only need demand at the customer site, some basic utilities in place. Then we can just put the container there and the plug in, and it's really able to start treating.

Speaker Change: And also it's a motor liability neutral modernize the beauty. So basically we only need demand at customer side. Some basic utilities are in place then they can just put the content on there and then plugging and they're really impetus that trade. So so you don't need all those construction CEVA construction work.

Faye Chen: So you don't need all that construction, serial construction work. And also, the footprint is very small. We have a very compact design for our system, and it's really convenient to use, and the operating cost is much lower than the other existing technologies in the market. So those are the things we also really were able to demonstrate through our pilot testing, both the quality of our filtration and also the OPEX data and also all the operation benefits. Those things were able to make our pitch much sharper when we finished our pilot testing in a couple of months.

Speaker Change: And also the footprint is very small we have a very compact design of our system.

Speaker Change: You know, yes, I really am convinced us and operating costs, it's a much lower and other existing technology in the market. So so those are the things. We're also really were able to demonstrate through our pilot testing both the quality of our expectation and the ocean that you'll know what the Opex and.

Speaker Change: Asia and the Osha hold them operations benefits those things, we're able to make our pitch much more shops. When they finished our pilot testing in a couple of months.

Rob Brown: Okay, great. Thank you. And then on the Q2 ramp in revenue, I think you mentioned pool systems really stepping up. Could the pool market become more of a diversified stream of activity there going forward, or is there some kind of one-time stock and stuff going on, but just a sense of how the pull market's developing and how you see it playing out over the next couple of days. 18 months. And we are, you know

Speaker Change: Okay, great. Thank you and then on the.

Speaker Change: Q2 ramp and revenue I think you mentioned pool systems are really stepping up could the pool market does that become.

Speaker Change: More of a diversified stream of of activity there going forward or is there some kind of onetime stocking stuff going on but just a sense of how the pool market is developing and how you see it playing out over the next.

Speaker Change: 18 months or so.

Faye Chen: Right now, we are primarily active in Europe and Australia, and we are now moving into the US market. So we would like to go into the US market to really find partners for our crew system. And in Europe, we have some huge markets, like Holland and Germany, we're not really active in today, and that's also something we're going to come into. So in the next six months, we are entering new territories for our crew system.

Speaker Change: And we are you know right now we primarily are executing in Europe, and Australia and we are now.

Speaker Change: Going into the U S market. So we would like to go to the U S market to really find a partner for our crude system and in Europe. We have so many huge Max like Holland, and Germany, and we're not really execute today and that's also something we'd go into in the coming in the next six months, we are entering the new territories, but flower pool system.

Rob Brown: Okay, great. And then, in terms of the partnerships, you continue to add some nice partnerships. How much more is there to go in getting the partnerships in place? Or do you feel like the two you've announced kind of fill out where you were working on?

Speaker Change: Okay, Great and then and then in terms of the partnership to continue to add somebody a partnership.

Speaker Change: How how much more is to go in getting the partnership in place or do you feel like this you've.

Speaker Change: We've announced kind of fill up where you were where you were working on.

Faye Chen: I mean, we have just announced the two partnerships for the marine area, and as you see, we will continue to find partners, and maybe, you know, different types of partners. For the marine, for example, we have DanMarine, it's really for sales and distribution, and Freiman is different, because they have really networked with the ship owner, so what we're trying to do is we try to get partners through a whole stakeholder group, so in this way, our sales and max penetration will be much more efficient.

Speaker Change: I mean.

Speaker Change: That we have just announced the two partnership further for the Marine area and then as.

Speaker Change: As you will see we will continue to find the partners and maybe you know different type of partner, but for marine like Samba, we'd have to done marine is really for the sales and distribution and the frame and different because they have to really network with the shipowner shows what we trying to do is we try to catch up.

Speaker Change: Partners through a whole stakeholder groups showing this week, our sales and the Max penetration, whereas the musselwhite efficient.

Faye Chen: So this is our thought because we are already building quite some partnerships, and we want to be more clever, really to use the partnership in a more multiple dimension to really move our sales more efficiently ahead in the select verticals we are working on.

Speaker Change: So this is our soft because we already building question patent suits and we want to be more clever really to use the partnership in M was much put I mentioned to really move our sales play efficient.

Speaker Change: In the West Coast, which we are working.

Rob Brown: Great. Okay. Thank you. I'll turn it over to you. Thank you, Rob.

Speaker Change: Great. Okay. Thank you I'll turn it over.

Speaker Change: You up.

Operator: Again, if you have a question, please press star, then 1. Our next question comes from Lucas Ward from Ascendian Capital Markets. Please go ahead. All right, Leq, this is your line on mute.

Speaker Change: Again, if you have a question. Please press Star then one.

Speaker Change: Our next question comes from Lucas Ward from <unk>.

Speaker Change: <unk> capital markets. Please go ahead.

Speaker Change: Hi, Lucas is your line on mute.

Lucas Ward: Yeah, sorry about that. Lucas Ward here. Good afternoon, Faye and Phyllis, and congratulations on your business progress. Hi.

Lucas Ward: Yes, sorry about that Lucas word here good afternoon Fay.

Lucas Ward: Congratulations on your base business progress.

Speaker Change: Hi.

Lucas Ward: So I wanted to look at the overall revenue opportunity and just sort of understand what are the keys to really scaling it up because it looks like you have so many opportunities in different geographies and different verticals. And, you know, you have the filter opportunities and the system opportunities. And it's almost like you're planting seeds in a lot of different places. And so I guess I wanted to ask, from your perspective, what are the keys to really... scaling those, growing them?

Speaker Change: So I wanted to look at the overall revenue opportunity.

Speaker Change: And just sort of understand like what are the keys to really scaling it up because it looks like you have so many opportunities in different geographies and different verticals.

Speaker Change: You have the.

Speaker Change: The filter opportunities in the system opportunities and it's almost like you're planting seeds and a lot of different places and so I guess I wanted to ask from your perspective, what are the keys to really.

Speaker Change: Scaling those growing them.

Faye Chen: I mean, that was a very good observation. We are playing the seat.

Speaker Change: I mean, that's that's very good observation, we are playing the seats because what we have found out is our you know our strategic focus area that means a swimming pool system D. C. P F and marine and or I guess, if we just look at it and the membrane. If we look at all these together.

Faye Chen: Because what we have found is our strategic focus area, that means the swimming pool system, DPF, and marine and oil gas. If we just look at the membrane, if we look at all this together, we actually have addressed the max potential of $4 billion US. So today, we have a max here of less than 1%. So we are actually in the process of really clearing out the way and putting in the seat for the next wave of growth.

Max: He actually has addressed a max potential of 4 billion U S. Dollar. So today, we have Max here less than 1%. So we are actually in the process really play out the way and putting the seat but for the next wave of growth. So what you can see is the DCF actually we're doing.

Faye Chen: So what you can see is the DPF, actually, we are doing very well now in Europe. And we would like to see in the next year or so where the new playground is, but we would like to really grow in Europe, first of all. And the poor system. We are growing very well now in the UK and in Australia and in Spain.

Rob Brown: Very good now in Europe, and we would like to see you know in next year or coming years, whereas the new thank Rob, but we would like steel really girl. It in Europe first of all both in the poorest system. We are growing where we are now in the UK and in Australia and in Spain, and we would like auto builds.

Faye Chen: And we would like to go to other markets. So now, we're really putting the foundation in place so it can really grow fast in the future. And we feel really, you know, can see over the last years what we've done in the different segments. And it's the right way to go. So we are continuing to put the seeds on the ground, and then we will harvest them in the coming period. So it's really a very exciting period ahead for us. And Lucas, also, just to add some color.

Rob Brown: The other market.

Rob Brown: So you'll see now is really we are putting out there.

Rob Brown: Foundation, but really can grow.

Rob Brown: In the future and we feel really testing the last few years has been down in the defendant.

Rob Brown: And it's the right way to go so we are continuing to putting that on the ground and then we will have as you know.

Speaker Change: In the in the coming period, so it's really a very exciting area.

Speaker Change: Yes.

Faye Chen: And Lukas, just to add some color, it's also just not to be reliable in only one business area, so we spread our risk.

Speaker Change: And Lucas also just to ask Nicola is also just not to be.

Speaker Change: I'll move on only one business area so to split off August.

Speaker Change: Yeah.

Speaker Change: Got it okay.

Lucas Ward: Can you comment more on competition, like, you know, how much of a factor it is because, the way you present it, it sounds like it's mostly a sales and marketing challenge. You know, it's a matter of like finding the right partners and the resources and just going after it. But could you also comment on who you see in various, you know, verticals and geographies? Are they the same players over and over again? And, you know, how much does competition impact your ability to get those design wins?

Speaker Change: Can you comment more on competition like how much of a factor because.

Speaker Change: So the way you presented it sounds like it's just it's mostly a sales and marketing challenge, it's a matter of like finding the right partners and the resources and just going after it but could you also comment on who you see in various verticals and geographies are they the same players over and over again.

Speaker Change: And you know how much does competition impact your ability to get those design wins.

Faye Chen: The interesting thing about our market is that we don't have a uniformed competitor across all the segments, so we actually have different competition in a different segment, and they are all different from each other. And if we take DPF as an example, before, we actually had a competitor in Denmark, but that company was bought by a Chinese company, so the whole production has been moved to China.

Speaker Change: You know the interesting about our market is that we don't have a uniformed competitor across the oldest segment. So actually I have a different the competition in the defense segment and they are different from each other and if we take the DTF ASIC December before we actually I had a competitor in Denmark and Bud.

Speaker Change: That company has been bought by a Chinese company. So the whole production had been moved to China. So that's actually give us a competitive advantage because we are a European company and many of the European customer would like to buy from a European company.

Faye Chen: So that actually gives us a competitive advantage because we are a European company, and many European customers like to buy from European companies. So that's very interesting, and we do have some competition in Germany and Japan and the French, but we are the ones in the niche because we are very flexible and able to deliver fast, and there is a high-end product, and that's what our space, you know, in this DPF area and that many of our customers are recurring customers, so there's a very solid customer base, and they are still growing.

Speaker Change: That's very interesting and we do have some competitions in Germany and the U S.

Speaker Change: Japan, and the French, but we are the ones in the niche is we are very flexible and able to deliver fast and there is a high end product and that's why our space here in this M D J F area and many of our customer reach.

Speaker Change: Recurring customers. So there's very solid customer base and they are still growing it gives us a very good basis for the revenue income.

Faye Chen: It gives us a very good basis for revenue, you know, income. And if we take the swimming pool area, our competition technology is a sand filter, and our filtration technology solution for the pool system is much more environmental-friendly and energy-saving, water-saving, and chemical reduction.

Speaker Change: And if we take the swimming pool area, our competition technology, it's a sudden feature and our filtration technology solution for the pool system is much more environmental friendly and energy saving and water saving and the chemical reduction. So we have some really unique value proposition for this market.

Faye Chen: So we have some really unique value propositions for this market. So it's really, for me, it's really only the marketing and the sales, you know, speed from our side that's going to push us ahead. And the oil and gas areas, we are still new, we're trying to get in, but we definitely see there's a need for our solutions in that sector. We don't see any head-on competition yet, and we are keeping very much alert to see what is coming when we have, you know, opened the door and are really able to demonstrate our technology.

Speaker Change: So it's really for me, it's J D I'll need a marketing.

Speaker Change: Net sales.

Speaker Change: Speak from our side, it's going to push it.

Speaker Change: And the oil and the gas areas with your new are they trying to get in but that we definitely see there some.

Speaker Change: Needs for our solutions in that sector, we don't see any head count competition, yet and we are keeping very much alert to see what's coming when we have.

Speaker Change: Open the door and they're really able to demonstrate our technology and marine area. We did have very strong competition.

Faye Chen: And in the marine area, we did have very strong competition, as I mentioned in the last couple of calls, and we had, you know, very good initial marks. We were going to a very dominant position, and there are many Chinese cheap solutions coming in with a very bad performance, and they kind of flash the market. So right now, we're trying to go back into the market with a much clearer view and go to the high end, and like this exhausted gas recirculation, that's a market that those cheap technologies cannot really stand.

Speaker Change: I mentioned in the last to cover costs and we had.

Speaker Change: Very good initiate Max.

Speaker Change: They go into a very dominate position and there's many Chinese cheap solutions coming with a very bad performance and they cannot flashed the market. So right. Now we are trying to go back to you in the Max with much more clear view and it goes to the high end and like this.

Speaker Change: He's exhausted our guests recirculation that market those cheap technologic cannot really stance and we're trying to go back there and really occupied pads market because that was perfect for our solution. So they come back with a more smart solution and different Andrew So you.

Faye Chen: And we're trying to go back there and really occupy the market because that was perfect for our solution. So we come back with a smarter solution from a different angle. As you can hear, there are different segments; there is different competition. We don't have one world competition across all segments.

Speaker Change: You can hear defend the segment Air Defense competition, we don't have one what competition across the oil segment.

Speaker Change: Okay.

Lucas Ward: Okay. Thank you, Faye.

Fei Chen: Thank you Fei one more question on operating expenses it was surprisingly low.

Lucas Ward: One more question on operating expenses. It was surprisingly low. It hasn't been this low for a long time, and it was attributed to this release of bonus provisions. I just wanted to understand what that means and what I should expect going forward in terms of modeling operating expenses.

Speaker Change: It hasn't been this low for a long time and it was attributed to this release of bonus provisions I just wanted to understand like what that means and you know what I should expect going forward in terms of modeling operating expenses.

Philip: Yes, of course. So the release of bonus provisions relates to the 2023 KPIs, so we didn't meet the target, and therefore we released the bonus provisions, hence the positive effect on OPEX. But the level that you should expect is around 2.6 million.

Speaker Change: This of course on the resource bonus provision so relates to may of 2023, Kpis. So we didn't meet the targets and therefore.

Speaker Change: We'll use the bonus provisions hence.

Speaker Change: The positive effect of the Opex, but we are below.

Speaker Change: Below that you should.

Speaker Change: It was around $2 6 million.

Speaker Change: Sure.

Speaker Change: Okay.

Lucas Ward: All right, that's all I had.

Speaker Change: Alright.

Speaker Change: Go ahead.

Faye Chen: Okay, we are very cost conscious, so we are really trying to increase our output from production and output from the sales people, so we are really trying to become more and more efficient, and in this way, we can keep the operating costs down and increase sales and our revenue at the same time. So this is one of the very clear PPIs for us, and we are also trying to improve our process across the whole value chain.

Speaker Change: Okay. We are very much of a cost cancers. So we're really trying to increase our in the output from production and up two from the salespeople. So we really are trying to become more efficient and in this way. We actually can then keeps the operating costs and.

Speaker Change: And and increased sales.

Speaker Change: Revenue at the same time. So it is were not very clear PPI, plus and they're also trying to improve our process across the whole value chain.

Lucas Ward: Okay, yeah, it didn't seem like there was more going on there, you know, like more of a sort of a structural shift towards, you know, cost savings. So thanks for confirming that.

Speaker Change: Okay, Yeah. It didn't it seemed like there was more going on there you know like more of a sort of a structural shift towards.

Speaker Change: Cost savings so thanks for confirming that.

Operator: Again, if you have a question, please press star then 1. And our next question comes from George Mallis from MKH Management. Please go ahead.

Speaker Change: Again, if you have a question. Please press Star then one.

Speaker Change: And our next question comes from George Melas from M. K H management. Please go ahead.

George Mallis: Good morning, good afternoon, Finn, Phillip. Good job on the quarter and the progress. Thank you.

George Melas: Good morning, good afternoon, good job on the quarter and the progress.

Speaker Change: Thank you.

George Mallis: I had a question about the U.S. oil and gas order. I'm trying to understand how it happened so fast. Was it that, basically? Razorback sort of had a customer, and that customer had a problem, and they went looking for technology and found you, defined you, and signed that distribution Agreement, and then they were able to propose a solution to their customer. Or, did they sign a relationship with you first and then started looking for customers, and one happened to happen so fast? What's the kind of...

George Melas: I had a question about the U S oil and gas order.

Speaker Change: I'm trying to understand how it happened so fast.

Speaker Change: Is it that you see.

Speaker Change: It can be.

Speaker Change: <unk> raised it back sort of had a customer.

Speaker Change: And that had a problem and they were looking for technology and found you and before you know.

Speaker Change: <unk> signed a distribution agreement and yeah, and then they were able to.

Speaker Change: To propose a solution to their customer or.

Speaker Change: <unk> signed a relationship with you first and then started looking for customers and one happened to happen so fast.

Speaker Change: Please go ahead.

Speaker Change: I I I think.

Faye Chen: I think... That's a very interesting question. I could say in this way we are very happy we found this very good partner to work with because they are in the oil and gas market and very much aware of what its customers need. So they have a very strong customer network and a customer group already, so they know exactly what the customer is really looking for and really likes about the technology. And we have found out that the chemistry of these two companies, you know, matches very well, and there are some very clever technical people and the commercial people in respect of direction.

Speaker Change: That that's the right interesting question actually was saying this way we are very happy we find this very good partner to work with us because they are in the OEM the gas market and very much alert, but its customer needs. So they they have a very strong customer network and the customers who've already so they know exactly what the customer.

Speaker Change: It's really looking for and really like the technology.

Speaker Change: And so we have found out that chemistry of these two companies.

Speaker Change: Match, where we are and there are some very clever technical people in the commercial for pizza in respect directs so things, we thought discussion and pet chemo 10 minutes and we've already started discussions in the percent of our technology to them and also and they tell us what the customer needs. So so it's not like we spend the counter.

Faye Chen: So since we start discussing and simultaneously, we already start discussing, you know, present our technology to them, and they also tell us what the customer needs. So it's not like we sign the contract, then we start working together. We already start work at the same time we sign the contract, and that's also a process where we find out this is the partner we would like to work together with. So that's why you know there's more than just one month we find the customer, and I have to say it's really really good for them. They have a customer who really had a really need for a new solution for their problem. So this is a very good match.

Speaker Change: And we stopped work together we've already started work at same time, we signed the contract and that's also a process. We find out. This is the partner we would like to work together with so so that's why you know there's a it's more of that only one month's we fund the cut tomorrow and by that I have to say, it's a really really good at them. They have a customer really had to.

Speaker Change: Really neat.

Speaker Change: Our new solutions for their their their problem. So.

Speaker Change: So this is a very good match.

George Mallis: Okay, great. Okay. And then how many different other solutions can they propose to their customers in terms of treating the produced water because, clearly, they have some solutions right now, but you are a new technology that they offer. So how... What are the alternatives that they have provided in the past?

Speaker Change: Okay, great. Okay, and then how many different those solutions can be proposed to their customers in terms of.

Speaker Change: Treating to produce water.

Speaker Change: Because clearly they have some solutions right now, but you beat your <unk>.

Speaker Change: Technology that they offer so so.

Speaker Change: Okay.

Speaker Change: But what are the alternatives that they have provided in the past.

Faye Chen: I mean, it's a general knowledge in the market for all the people in the oil and gas market. The pretreatment for produced water is rather tough because the water is nasty. You have a lot of oil inside, and a lot of metal content, and also salt and solid particles. You know, many, many solid particles. So traditionally, there are many different kinds of chemical treatment methods for this part. I think most people don't like to use chemical methods today.

Speaker Change: This is a general knowledge in the market for all of the people in the oil and gas market.

Speaker Change: Treatment for produced water, it's a it's a broader tough because the water is a nasty you'll have a lot of Oems are inside and a lot of major content and the ocean salt and and then and they are solid and the many many charlotte potatoes. So traditionally there many different kind of chemical treat.

Speaker Change: <unk> message for this part and then I think most people they don't like us chemical Mesa today. So it's a win win when they see our solution is so you know some neat and osha automation and really kind of user friendly also bus for the operator and the further for the environment.

Faye Chen: So when they see our solutions, it's so neat, and also automation, and really kind of user-friendly also, both for the operator and for the environment. So they really got excited about this, and they saw potential right away because they are kind of the type of chemical process, chemical treatment. So this is, you can be lucky sometimes. I think we are lucky because they are looking for something better than what they have today.

Speaker Change: So they really got me excited about this and they see potential right away because they are kind of tired of the chemical process a chemical treatment. So so this is you can be lack sometimes I think we are lucky because they are looking for something better than what they have today.

George Mallis: Okay. Okay, great.

Speaker Change: Okay, Okay, Great and then one final question on the pool systems.

George Mallis: And then one final question on the pool systems. Given the existing distributors that you have, so assuming you're not adding any distributors, but I think you will, but with the existing distributors, do you expect to have to beat the 2023 deliveries? You have 20 deliveries in 23. With the existing distributors, can you match that or beat that? And what visibility do you have in the pool system?

Speaker Change: Given the existing distributors that you have assuming you're not adding any distributors, but I think you will but with the existing distributors.

Speaker Change: We expect to have to beat the 2023 deliveries you had 20 deliveries in 'twenty three.

Speaker Change: With the existing distributors can you match that we'll beat that.

Speaker Change: I mean, I don't know what visibility do you have in the pool system, where we are we as you know different is trying to work with our existing distributors make them much more efficient and so on so I expect that their sales girl because I mean, they can go there.

Faye Chen: We are definitely trying to work with our existing distributors, making them much more efficient. So I expect their sales to grow because only they can grow their sales, and we can grow our revenue. At the same time, we're also going to build new distributors in the next half year. So it's a combination of both, but I definitely expect our distributors' sales to grow every year.

Speaker Change: And we can grow our revenue.

Speaker Change: And at same time, they also going to build a new and new distributors in the next half year. So I'd say, it's a combination of both but I definitely expect our distributors every year their sales so the girl.

George Mallis: Okay, and then what kind of visibility do you have into the pipeline there, their pipeline? Sorry?

Speaker Change: Okay, and then what kind of visibility do you have into the pipeline fill their pipeline sorry.

George Mallis: What visibility do you have into their pipeline?

Speaker Change: What visibility do you have into their pipeline.

Faye Chen: We have a totally transparent system. So we really work closely together. So they really are a part.

Speaker Change: Have a totally transparency.

Speaker Change: So we really work closely together so that they really are our partners.

Speaker Change: Okay.

George Mallis: Great. Thanks a lot. Thanks.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Thanks.

Operator: I've got just a couple of questions here through the webcast portal that I want to make sure we get addressed. So I'll try to move through a few of these quickly and summarize where there's some overlap. The first one is, can you talk about sort of your general sales approach in the United States? It seems like that's a focus area for you. Is this going to be sort of a team approach, marketing, and distributors? Just expand a little bit more on your focus in the U.S.

Speaker Change: Our fans fill up I've got just a couple of questions here through the webcast portal that I want to make sure we get addressed so I'll try to move through a few of these quickly summarize where theres some overlap.

Speaker Change: First one is can you talk about sort of your general sales approach.

Speaker Change: The United States. It seems like that's a focus area for you is this going to be a sort of a team approach marketing distributors, just expand a little bit more on your focus in the U S.

Speaker Change:

Faye Chen: We have the first distributor partner for the Oriana Gas area, RISPAC, and when we're working with them, it's really very close together. We do the testing together, and we do the marketing together, and we do the sales pipeline together, and we do the sales work also together. And their people will do the ground service, and we will be the back office and also the technical support for them. So they will be our arm and leg in the U.S.

OEM: We had the first distribution partner for the OEM to guests area and respect director and one we are working with them is really very close to scanner, we stood assisting together and we'd do the marketing together and we're doing the sales pipeline together under sales work ultra together and they are people, we would do that.

Speaker Change: The ground service and we will be in the back office and also the technical support for them. So they would be.

Speaker Change #101: Our and the lakes.

Speaker Change #100: In the U S. So this is for the oil and gas and definitely we will continue to grow this relationship.

Faye Chen: So this is for Oriana Gas, and we will definitely continue to grow this relationship. And for the poor system, we expect also to find some partners in the U.S. market to help us do the marketing and the sales, and also, potentially, in the future, also the service. So it's really a strong partnership we are working in the U.S. trying to really penetrate the sales penetration in this market. The U.S. is a very big market, so definitely, we will not only have one partner and we need more partners, but we would like to take one last time and really make that happen. Then we will see what's next.

Speaker Change: And for the audience for them for the pro system, We expect Osha to fund some partners in the U S market.

Osha: To help us do the marketing and sales and also potentially in the future also the service so it's really.

Osha: Strong partnership we are looking in the U S trying to really make the sales penetration in this market U S is very big market. So definitely we will not have one partner and we need more partners, but we would like to take one last time and really make that happen and then we see at Wassa, What's the bridge.

Osha: <unk>.

Operator: Alright, fantastic. A couple of questions here just sort of talking about sort of your break-even, which I know you talked about a little bit, but maybe just to expand a little bit on sort of the outlook here, your break-even rate, sort of goals in terms of achieving positive cash flow, etc.

Speaker Change #102: Alright fantastic a couple of questions here, just sort of talking about sort of your breakeven, which I know you talked on a little bit, but maybe just expand a little bit on sort of the outlook here your breakeven rate.

Speaker Change #102: What sort of goals in terms of achieving positive cash flow et cetera.

Philip: Yeah, so, as we mentioned before, we still maintain the guidance for when the business will be breakeven, and that's with a quarterly revenue of approximately $7 million, potentially lower if we have the right revenue mix. Regarding cash flow, that's, of course, a key KPI for us. We are determined to preserve cash in order to maintain our strategic and financial flexibility. However, we would also acknowledge that we need to increase the throughput of our existing facilities in order to accelerate growth and reduce lead times and ultimately pave the way to a business in balance from both a net income and cash flow perspective. And also, what Faye mentioned before, our main focus is running an e-business.

Speaker Change #102: Yes, so as we mentioned before.

Speaker Change #107: We still maintain the guidance for when the business will be breakeven and that's with a quarterly revenue of approximately 7 million potentially lower if we have the right revenue mix regarding.

Speaker Change #107: Regarding too.

Speaker Change #117: The cash flow that's of course, a G tube pie for us.

unknown: Determined to preserve cash.

Speaker Change #105: Order to.

Speaker Change #114: To maintain our strategic and financial flexibility. We also acknowledge that we need to increase the throughput of our system facilities in order to accelerate growth and reduce lead times and ultimately pave the way to our business and balance on both our net income and cash flow perspective.

Speaker Change #105: And also what you mentioned before.

Speaker Change #115: Our main focus is on running a lean business.

Operator: All right, fantastic. Looks like I've got one last question here.

Speaker Change #106: Alright fantastic it looks like I've got one last question here.

Operator: You've talked about some of the growth, I guess, within the DPF solutions, referenced Europe, inland transportation, and emergency generators. Maybe just expand on what some of the drivers are for that. Is this sort of a sales approach, or is this sort of a market-driven approach? Just expand a little bit more on the DPF growth.

Speaker Change #106: You've talked about some of the growth I guess within the DPF solutions are referenced Europe, and when transportation and electric.

Regency generators: Regency generators, maybe just expand on what some of the drivers are for that as a sort of a sales approach or is this sort of a market driven approach just expand a little bit more on the DPF growth there.

Regency generators: Uh huh.

Regency generators: And.

Faye Chen: I would say it's a very, very strong trend we have now in the market, and European inland transportation has got more and more public and political awareness. So people really start looking into these sectors and start talking about how much emissions they actually give to people through this inland transportation.

Speaker Change #118: I would say is it's a very very strong trend we have fear in the market.

Speaker Change #121: That said European inland transportation, it got in one or more public and political awareness so people really start.

Speaker Change #119: Locking in these sectors and start talking about how much emission actually give to people through this inland transportation, so countries like Holland, and Germany, if I'm looking at that now and that's why we feel and we do get some very good customers and the stronger ones. They actually go into this a area in there.

Faye Chen: So countries like Holland and Germany definitely are starting to look at that now, and that's what we feel. And we do get some very good customers, and the stronger ones, they actually go into this area and really have a very close collaboration with us in that. And we expect to see this growing in the coming years, definitely. And for the electricity emergency generators, it purely is for the data centers around the world, and they need to have this DPF installed in any of the data centers they're building today, especially in combination with artificial intelligence, because there are a lot of data center buildings, especially for those ones. And they are definitely around the world; it's not only Europe, but also in the US and so on.

Speaker Change #119: Really has a.

Speaker Change #119: Very close.

Speaker Change #119: With us in that and we expect to see this going in the coming years Infinity and.

Infinity: Therefore for the electricity is emergency generators is purely is very much is for the data center around the world and they need to have this as ETF in start any of the data center, they're building today, especially in combination with artificial intelligence because theres a lot datacenter buildings basically for those funds.

Infinity: And.

Speaker Change #122: They are definitely.

Speaker Change #126: Around the world, it's not in Europe, and also in U S and strong and we are actually seeing.

Faye Chen: And we are actually being seen as one of the preferred partners, even by some US companies to produce and provide this DPF to them. So what we feel is we have a quite good reputation in the DPF market, and very often the DPF market is a mouth-to-mouth research, it's not really a massive marketing approach. So by having this very good relationship and also a good reputation in the market, many times, customers actually come to us by themselves, but we're also going out, proactively going to some conferences, and trying to find the target customers to really work with them.

Speaker Change #125: <unk> is one of the preferred partners, even the osha by some U S company to produce.

Speaker Change #124: Provide the cities have to them. So what we feel is we have a quite good reputation in the DPF market.

Speaker Change #124: And the many very often the DPF market is most must may search, it's not really the massive marketing approach. So I have a very good relationship and also good reputation in the market and Mary in many cases actually customer they come to us and by themselves, but they also going out.

Mary: Proactively going to some conference and tried to you know.

Mary: Funded target customers to really work with them show them. So it is too late and we are working on and we are very excited to see this development and we're really confident this EPS Mike's going to be continue to grow in that market for us in the coming year social.

Faye Chen: So this is a two-way street we are working on, and we are very excited to see this development, and we're really confident that this DPF market is going to continue to grow in the coming years also. All right, fab.

Operator: All right, fantastic, very helpful. It appears we have no further questions here either online or through the teleconference, so Faye, I'll go ahead and turn it back over to you for closing remarks.

Speaker Change #127: Alright fantastic very helpful. It appears we have no further questions here, either online or or through the teleconference. So I'll go ahead and turn it back over to you for closing remarks.

Robert Blum: Thank you Robert.

Faye Chen: Thank you all very much for being with us today. We look forward to communicating with you again.

Robert Blum: Thank you all very much for being with US today, we look forward to communicating with you on some again.

Robert Blum: Thank you.

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

Speaker Change #132: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Speaker Change #127: Yeah.

Speaker Change #127: [music].