Q4 2024 LiqTech International Inc Earnings Call
Good day, and welcome to the LiqTech International fourth quarter and fiscal year 2024 financial results conference call. All participants will be in listen only mode. Should you need assistance please sign the conference specialist by pressing the star key followed by zero.
Fei Chen: Joining us on today's call from the company are Fei Chen Chief Executive Officer, David call check the company's recently appointed Chief Financial Officer, and Chief operating Officer.
Fei Chen: Philip price the company's recently announced 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 the call if you're dialed into the call to the traditional teleconference line as the operator just indicated how please press star then one to ask a question. If you are a.
Fei Chen: Listening through the webcast portal and we'd like to ask a question you can submit your questions through the ask a question feature.
Fei Chen: At what gas player and I will look to take those questions at the conclusion of the call before we begin with prepared remarks, we submit for the record the following statement.
Fei Chen: 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 it.
Fei Chen: The various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of the risks that may affect our business financial condition operations and cash flows.
Fei Chen: If one or more of these risks or uncertainties materialize or if the underlying assumptions prove incorrect. The company's actual results may vary materially from those expected or projected the company. Therefore encourages all listeners not to place undue reliance on these forward looking statements, which pertain only as the date of this conference call and press release.
Fei Chen: The company assumes no obligation to update any forward looking statements to reflect any events or circumstances that may arise. After the date of the press release and conference call.
Speaker Change: That said I'd like to turn the call over to Fei Chen CEO of like Duck International Weil. Please proceed.
Speaker Change: Thank you Robert and good day to everyone on nickel.
Speaker Change: At a high labor.
Speaker Change: Fourth quarter results can be in line with expectations. We provided back in November with revenues up threefold from meeting.
Speaker Change: As a percentage of 37% sequential increase from the third quarter.
Speaker Change: The biggest contributors to the sequential growth was ongoing water filtration pilot programs for lithium brine production pre treatment in the U S and another tweet Patrial chemical company for micro plastics remover.
Speaker Change: Ever touch momentarily on why these pilots are critical to the long term adoption in this market.
Speaker Change: Oh total revenue, we're seeing our water treatment systems operations was up nearly 750000 or 108% sequentially and was a key driver to the improved financial results.
A key milestone however, during the first quarter was clearly the right clubs commercial order we received from our ratio back direct for our pure flow whereby you on this for a customer in the north American any jurisdiction.
Speaker Change: Maybe.
Speaker Change: This order in December and the country is doing the parent well true.
Speaker Change: Absolutely so I'm trying to fight it.
Speaker Change: This order already in hand, we have strong visibility into our much improved first quarter with each stations for revenue to be between four three and well put in 7 million equating to a 26% to 38% sequential revenue growth.
Speaker Change: This landmark commercial oil and gas odor North America is a remarkable milestone for leasing as we continue to validate our solutions in the global energy industry I will come back to this more in a moment.
Speaker Change: As we mentioned last quarter another key activities during the first quarter was the implementation of our cost reduction strategy aimed at lowering our breakeven target.
Speaker Change: Sure adjust EBITDA basis to a quarterly revenue run rate of approximately 5.560 million. These initiatives include a reduction you hit kind of basic salary for senior management and the cash compensation by the way.
Speaker Change: Out of directors Youll really start to see these initiatives flows through the income statement more fully in the first quarter.
Speaker Change: So with some revenue growth expected and the cost savings implemented we are improving our profitability metrics, we used our ultimate goal to be profitable later this year.
Speaker Change: Show the high Labor summary, improved sequential revenue growth in Q4 need by a number of a bunch of nutrition pilots underway.
Speaker Change: The receipt.
Speaker Change: After a record record oil and gas orders, which completed here in Q1, which will contribute to another quarter of sequential revenue growth.
Speaker Change: And the implementation of cost savings initiatives aimed at lowering our break even rate to about five five to 6.0 million full quota.
Speaker Change: And as a reminder, we used a private placement we completed back in late September our balance sheet is strong with more than $10 million in cash at the end of the year.
Speaker Change: Yeah.
Speaker Change: Transitioning back to the root cause of oil and gas order as we have talked since I joined the company about two years ago. We recognized that there was a large addressable market opportunity for our solutions in a wide variety of markets that can drive growth fully tick.
Speaker Change: This large system solutions in the.
Speaker Change: The area of industrial water treatment Oh, yeah in the gas filtration battery material certification and other industry applications ideally suited for leap takes solutions.
Speaker Change: Unfortunately, these markets have much longer sales cycles, and often times require initial pilot programs before full commercial implementation access.
Speaker Change: Also recognized the need to work with groups that had strong relationships with end customers.
Speaker Change: So this too and we entered into a distribution agreement to commercialize mistakes produced water treatment. So filtration solution for Reinjection and reuse in February 2024, with respect directs a Houston based economy, providing.
Speaker Change: Water treatment solutions consultancy for oil and gas water treatment in the U S.
Speaker Change: They followed that initial engagement with respect direction.
Speaker Change: About a month later waste.
Speaker Change: Receipt of a significant older but continue to rise the pilot system for produced water treatment.
Speaker Change: The order was shipped at Chelsea thereafter, and operated satisfactorily at customer sites throughout the second half of 2012.
Speaker Change: With positive result, suitcases, but at least this customer from the pilot program. It leads to this new record commercial order, which will be deployed at one of <unk> directors customer sites in North America.
Speaker Change: I remind everyone of this pathway to receiving this older because it highlights the steps needed to penetrate this very large industry opportunities. They oftentimes require pilot programs first.
Speaker Change: That then leads to commercial owners.
Speaker Change: No I don't believe that the next steps wishing OEM to guess, where hopefully become much more accelerated we now have a commercial never system in place that can be a highlight for future customers reference it doesn't mean that a different customer may not want to come back their own pilots.
Speaker Change: But hopefully these should shorten the timeline to future adoption.
Speaker Change: I want to thank the team and the razorback direct for their commitment to delivering demonstrated value to their customers by delivering efficient reliable and robust solution for complex. What are your challenges is the CEO of respect direct stated recently there is.
Speaker Change: Out of the pilot existed exceeded expectation, providing clear evidence of the systems capability to meet the demanding needs of our industry.
Speaker Change: This older further solidifies our beliefs in these <unk> ability to drive meaningful advancement in water management.
Speaker Change: This is a strong testament to what we believe will be a very bright future for us, we think the oil and gas industry.
Speaker Change: As the history of our progress with respect direct we're seeing the U S or in the gas industry highlighted the first steps to new application success with our filtration systems, often start with a pilot program.
Speaker Change: Currently we have five systems at the various phases of testing and piloting including a pilot units from a leading technology company for lithium brine production in the U S. We announced in November and has recently been extended through the end of April but you've already.
Speaker Change: <unk>.
Speaker Change: Our pilot units.
U S petrochemical company for micro plastics remover.
Speaker Change: Which was shipped it in quarters three for which we are currently waiting next steps.
Speaker Change: When we win after work leading integrated energy companies for produced water treatment in the U S was shipped it in course tutors three for last year. The system is currently and has been extended through to the end of May at which time, we will await next steps with <unk>.
Speaker Change: Also recently commenced a pilot testing, we say engine manufacturer in China as part of our theory, which I will touch on more momentarily.
Speaker Change: And finally in the Middle East, we have a pilot with Michelle which was completed in Q2 of last year and the Nikkei XI system in the Middle East, which has now been operational for more than three years.
The middle East continues to be a slow adopter.
Speaker Change: Adoption, our focus is therefore increasingly directed towards the U S market.
Speaker Change: Beyond these pilot programs, we've seen the last year or so we have also schulte units in key end markets, including a unit for M. E cheese recovery for an offshore project you need deterring much from marine scrubber units in China.
Speaker Change: Water treatment system for the matrix processing industry in Denver, Oshell, we have shot a number for system unit over the past two years.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Each of the various areas I mentioned represent large addressable market opportunities for <unk>. Our team is highly focused on advancing each of these pilots.
Speaker Change: First for outcomes that we believe has the ability to lead to large scale commercial orders this year.
Speaker Change: Yeah.
Speaker Change: The market for us that's why some very strong from a number of years, but has slowed down in the past three years has been the marine scrubber and the border Marine markets. We still believe this represents a large addressable market for <unk>, we just need to be properly.
Speaker Change: Positioned with engine manufacturers and the shipbuilders to regain market share.
Speaker Change: So that and a few weeks ago, we received supplier approval for our waste treatment water treatment system for the win T D.
Speaker Change: When T D do a few engine for those not familiar when TD is one of the market leaders in marine engine manufacturing with a focus on advancing the decarbonization Marine transportation.
Speaker Change: They supply approval allows us to seamlessly deliver systems to Lindsay is the licensees and they're also rise to service partners.
Speaker Change: During the first quarter, we announced the establishment of a theory in China to expand our focus we're seeing the marine market.
Speaker Change: Do you think will be the majority owner of Chile, where our partner theater, he will be a minority owner contributing facilities and the local support of lung is initial operational and commercial funding things.
Speaker Change: Since our call in November we had bought a general manager technical service manager to technical sales managers on board there.
Speaker Change: The team has moved quickly to engage with one of the leading engine manufacturers in China with pilot testing the results I expect expected in quarter two this year.
Speaker Change: I recently came back from China and has participated in the pilot test of our water treatment system on the engine side I have also got the chance to meet and interact with Merlin relevant major stakeholders in China.
Speaker Change: As most of you are familiar it is much easier to work with China based companies by having operations on the ground in the country.
Speaker Change: We used the jewelry now up and running and pilot testing underway I believe that opportunity to truly expand in this large addressable market, especially today than at any point in the past.
Speaker Change: Before I turn it over to David and Phil Let me quickly touch on a few other key markets with a brief update.
Speaker Change: Because we've seen the swimming pool market, we have shifted two systems during quarter four and has another two systems sales to ship here in quarter one.
Speaker Change: We also signed a distribution agreement this month expand our focus in Ireland. We used the first order under this agreement schedule for delivering quarter two 2025.
Speaker Change: She received and that's S approval in November last year, we have been actively searching for potential candidates for distribution in the U S.
Speaker Change: Swimming pools will remain a key contributor and I look forward to more progress made here.
Speaker Change: Transitioning to other parts of our established markets, starting with Cps and the ceramic membrane where Sirius during quarter. Four it was about one 1 million, which was similar to what they want in quarter three of 2024.
Speaker Change: These markets contributed to remain consistent contributor for us.
Speaker Change: We've seen plastics, we saw a nice uptick.
Speaker Change: During quarter four we used do you ever knew of almost 900000, which was up 13% compared to quarter four of last year and up 34% sequentially. The plastic plastics team continues to do a great job differentiating itself and its generally.
Speaker Change: Outperforming our expectations.
Speaker Change: So with stability in our key established the market a record oil and gas commercial order in the U S. A wide variety of pilot programs underway, which oftentimes is.
Speaker Change: They lose too much larger owners and of course with exciting.
Speaker Change: Partnerships Geely and supply approvals in place, we are well positioned heading into 2025.
Speaker Change: One other key move we made was the appointment of David Kowalski, as new Chief financial and operating officer of Nick to fix your March 1st of this year.
Speaker Change: As you hopefully saw in the announcement, we made in January David brings our 20 years of leadership experience and a proven track record in global industrial companies.
Speaker Change: He's.
Speaker Change: Expertise Spence finance strategy equally analyses outage and operational management.
David Kowalski: Let me now turn the call over to David to introduce himself.
Speaker Change: Yeah.
David Kowalski: Thank you Fei and Hello to everyone on the call.
Speaker Change: I'm truly honored to join <unk> at this pivotal moment I'm excited to contribute to the company's growth and profitability.
Speaker Change: I joined <unk>, because I'm deeply impressed by the significant untapped potential of the company's innovative technology.
Speaker Change: On the face leadership, we're now better than ever aligned to leverage that potential and drive meaningful impact through not only product sale, but application knowledge and services.
Speaker Change: As a clean tech company strategically positioned in rapidly expanding markets.
Speaker Change: <unk> is uniquely positioned to capitalize on opportunities that few companies can address today.
Speaker Change: Water in particular has become a global priority the government's increasing regulatory measures and offering significant incentives so not only protect but also improve water quality.
Speaker Change: The momentum is growing electric is poised to be at the forefront of this transformative shift.
Speaker Change: On a personal note I see this is an exciting time to be part of a company that.
Speaker Change: That is not only addressing critical global challenges, but also has the potential to co lead the change in the sectors in which we operate.
I want to thank fee.
Speaker Change: And the entire electric team for welcoming me on board.
Speaker Change: And I look forward to the opportunity to meet with all of our investors in the coming weeks and months.
Speaker Change: And with that I'll turn it back to you.
David Kowalski: Thank you David.
David Kowalski: And of course, it won't also sang fairly priced for stepping in our in the past year as our interim Chief Financial Officer Philip.
David Kowalski: Philips has done an incredible job across all aspects of financial reporting I see compliance and the Pepto markets.
David Kowalski: Fortunately filipe will be staying on board with us through the end up April to ensure a seamless transition and is here today to once again provide a detailed.
David Kowalski: Review of the financials.
Speaker Change: Let me now turn the call out to you.
Speaker Change: Thank you for the kind words and good morning, everyone.
Speaker Change: As you have hopefully seen in the press release, we have provided breakouts for both the fourth quarter and full year ended tables. We also provided narratives and released for the U S of who.
Speaker Change: Therefore, let me spend a few minutes diving deeper into some of the numbers for the fourth quarter and provide some trends we see going forward.
Speaker Change: Mr. I'll start off with revenue women here for the quarter came in at $3 4 million up from $2 5 million in the sequential third quarter, but down from three 9 million in the same quarter last year.
Speaker Change: Broken down by vertical sales for the fourth quarter were as follows.
Speaker Change: Water systems sales and related services of one 4 million compared to $1 6 million in the same period last year, but up significantly from 0.7 million in Q3.
Speaker Change: EPS and ceramic membrane sales were $1 1 million down from $1 4 million in Q4 last year and flat compared to $1 1 million in Q3.
Speaker Change: And finally classic revenues came in at 0.9 million compared to 0.8 million in Q4 last year and <unk> 7 million in Q3.
Speaker Change: Key takeaways for the quarter include strong sequential improvement in water systems, driven by true swimming pool system shipments and multiple ongoing pilot programs.
Speaker Change: Solid growth in classics with continued momentum.
Speaker Change: P P F and ceramic membrane remained relatively flat quarter over quarter.
Speaker Change: Yes.
Speaker Change: Looking ahead to Q1 of 2025 and as Fay mentioned, we expect to recognize a record oil and gas order, which will help us to drive continued sequential growth from the fourth quarter.
Speaker Change: We anticipate revenue for Q1 to be between $4 3 million $4 7 million, representing a 26% to 38% sequential increase over Q4 transfer before and the 2% to 10% improvement year over year from Q1 French plentiful.
Speaker Change: Turning to gross margin as we continue to be below optimal revenue level. We continue to have fixed production costs that are not fully being absorbed and those negative gross margins.
Speaker Change: Furthermore, Q4 margins were impacted by a comprehensive inventory review, which led to a necessary adjustments of <unk> 4 million related to obsolete and slow moving items.
Speaker Change: That said based on our Q1 revenue expectation of four three to $4 7 million and supported by operational optimization initiatives already in place we expect to return to positive gross margins in Q1.
Speaker Change: As we have previously reported on a contribution margin basis, which excludes the impact from our fixed overhead. We are currently operating at approximately 40% to 45% depending on the product mix.
Speaker Change: Turning to Opex.
Speaker Change: Total operating expenses for the quarter were $2 2 million down from $2 6 million in Q4 of last year and compared to $2 4 million in Q3 of 'twenty 'twenty four.
Speaker Change: In particular selling expenses decreased by <unk> 4 million, primarily due to a reduction in the six months of officers the reversal of previously accrued bonuses.
Speaker Change: The war travel expenses.
Speaker Change: These savings were partially offset by bad debt expenses of <unk> 5 million, mainly related to the settlement of a legacy receivables during the quarter.
Speaker Change: G&A decreased <unk> 1 million driven by savings in legal fees and external consultancy services, while R&D expenses increased by <unk> 1 million, primarily due to the completion of a larger R&D project in Q4.
Speaker Change: Yeah.
Speaker Change: As we look to the future we have now fully implemented comprehensive cost reduction strategy aimed at lowering our breakeven target measured on an adjusted EBITDA basis to quarterly revenue level of approximately five five to six points here.
Speaker Change: A significant improvement from the previous target of $6 five to 7 million.
Speaker Change: Key initiatives include a 10% reduction in head count a 10% reduction in base salaries for senior management is 20 to 25 or 50% reduction in cash compensation for the board of directors in 2025, as well as other cost saving measures.
Speaker Change: Cocoon, concluding on the P&L net loss for the quarter was $3 2 million compared to $3 2 million for the comparable period of 2023.
Speaker Change: Yeah.
Speaker Change: And finally from a cash flow perspective, we ended the quarter was $10 9 million in cash adjusting from the impact of the financial placement, which grows across both Q3 and Q4 underlying cash decreased by approximately $2 4 million compared to the end of the third quarter.
Speaker Change: With revenue growth benefiting from.
Speaker Change: Operating leverage due to our largely fixed production cost base and supported by the cost reductions we have implemented we expect to see significant improvement in cash utilization in 2025.
Speaker Change: With this being my last call. Let me just say thank you to all of the investors for their support of Victor I have enjoyed Sip again. During this transition are repaired and I look forward to all the great things from leasing in the future.
Speaker Change: Let me turn the call back over to you.
Speaker Change: Thank you Felipe and again, thank you for your steady leadership failure in our interim basis up this past year.
Speaker Change: To close things out before I turn over to questions. Let me just recap a few key points.
Speaker Change: First quarter, one is expected to show sizable sequential growth lead by progress made in the oil and gas market.
Speaker Change: Not only is a key drive to improved financial results, but there really is a validation of our systems capabilities in this critical market.
Speaker Change: Second this oil and gas odor him from following the successful execution of a pilot order.
Speaker Change: The owners are in some ways, a leading indicator for us toward that end, we have a number of pilots ongoing in a wide range of industries, which we believe will transit transition to larger commercial scale Otis this year.
Speaker Change: Our base.
Speaker Change: Business of D. G S ceramics, plastics aftermarket parts and service and.
Speaker Change: Swimming pools remained stable therefore growth from this larger systems will be key driver drivers to transitioning this business to profitability and Fortunately with high contribution margins. It only takes a copper T systems to drive the business towards that.
Speaker Change: Critical milestone.
Speaker Change: We are clearly aware of the need to preserve our cash balance and they drive the business to achieve cash flows we understand the expectation from our investors and are highly focused and simultaneously implementation cost savings initiatives, we are driving revenue growth.
Speaker Change: Again, thank everyone for your support for this take with that operator, we would be happy to take any questions.
Speaker Change: Okay.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you'd like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our.
Speaker Change: Roster.
Speaker Change: Our first question comes from Lucas Ward with Ascendant capital markets. Please go ahead.
Hello, Good afternoon. Thanks.
Speaker Change: Thanks for the opportunity.
Speaker Change: To ask a question here.
Speaker Change: My first question is on Q4 revenues it looks like we were towards the lower end of expectations.
Speaker Change: Was there.
Speaker Change: The deterioration that happened since the call in November.
Speaker Change: No.
Speaker Change: Is it dependent on timing differences on some key projects that.
Speaker Change: Went to the next quarter. So that's why we were in the lower end of the guidance.
Speaker Change: So within the guidance range.
Speaker Change: Okay.
Speaker Change: Thanks, Sean.
Speaker Change: And then with regards to guidance for Q1 revenues, obviously, it looks like we're booking the new oil and gas pure flow systems and that is pretty lumpy I'm wondering if how that would affect.
Speaker Change: Subsequent quarters in other words, if all of that revenue comes in in Q1.
Speaker Change: Could there be a falloff in Q2 or Q3.
Speaker Change: That's very relevant the question, we do get a very big older to a pure flow system in quarter one.
Speaker Change: However, we for the pleasure tool, we are expanding expanding some other market segment will contribute so we definitely look on continued growth each quarter in this year.
Speaker Change: Okay.
And I guess just a final question on that note I mean, obviously you've worked very very hard to open up new markets, you've had a lot of new distribution agreements lots of new pilots.
Speaker Change: Some orders here and there.
Speaker Change: What what do you think it's going to take at this point to see a real takeoff and revenues for Lickteig overall.
From from where we sit.
Speaker Change: I mean, you are totally right we have been.
Speaker Change: Building, a quiet mainly distribution agreement.
Speaker Change: Network and that really is the basis for us to get a strong pipeline and to make our sales able to take up. So are we are improving our sales pipelines in both the swimming pool system and and.
Speaker Change: Orient the guest and Osha I'll now we also building off the strong pipelines for marine our system. So those pipelines will give us the basis for takeoff in the in the in the sales.
Okay.
Speaker Change: Alright, Thank you Perry.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Again, if you have a question. Please press Star then one.
Bill Chapman: Our next question comes from Bill Chapman, a private Investor. Please go ahead.
Bill Chapman: Yeah. Thank you hi, everyone.
Bill Chapman: I'm curious on your oil and gas treatment technology.
Speaker Change: Why would a customer a deal with you versus the competition that they're seeing.
Speaker Change: I mean, they're defend may search today, one of the major competitive technology.
Speaker Change: Compared to our technology is the chemical treatment.
Speaker Change: And that treatment is very expensive in the operating point of view and also you know, it's very difficult to handle in a stable way and their treatment cannot provide the water reinjection and reuse.
Speaker Change: So basically we are the only one in the market now we're able to give the stable treatment and really high quality and makes the reinjection and reuse of the wastewater and oil and gas industry. Facebook. So that's the reason why they are very interesting in our technology.
Speaker Change: Oh, Okay. Thank you you mentioned on your press release your engage again Newt experimental technologies could you give us an idea of these extensions what you already have or is it new areas youre going into.
Speaker Change: We are basically half hour, Sarah silicon carbon and ceramic membrane combined with our systems. So its not like we are continue doing the new systems, we use our system and then they use our application knowledge, we able to go into a different industry sectors show, So what I mentioned.
Speaker Change: In the new success went off the era is the petrochemical industry, we're able to make them micro plastics.
Speaker Change: Patrick Coast Remover and another thing is the interesting. We also have our pilots in U S. Right now is for the lithium.
Speaker Change: No no material protection Alicia Brian production pre treatment, we also working very hard to open that market.
Speaker Change: Our application show them Chase really use the same technology in the same system by the west defend application knowledge and also the understanding of customers' needs. We are going to a different you know the the new new to me in this way.
Speaker Change: Okay that sounds great. Thank you very much goodbye.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Our next question comes from George Melas with M. K H management. Please go ahead.
Speaker Change: Thank you good morning, good morning Philip.
Speaker Change: One quick.
Speaker Change: Quick question on two questions on the pools and on marine.
Speaker Change: Sales.
Speaker Change: We're quite it seems like they were quite disappointing in.
Speaker Change: In 2024.
Speaker Change: And I thought we had gathered some momentum with additional distribution partners of course, not yet in the U S. But I'd love to try to understand kind of why did that sort of like.
Speaker Change: You know Peter out, let's say in 2024.
Speaker Change: I mean, the reason push system has really been disappointing.
Speaker Change: Totally right what in 2024 is well.
Speaker Change: We have for not being able to build up a very strong sales pipeline into during 2023, because it took us about six to nine months before you'll have a elite until you really got the sales so when you're coming to trying to trying to fool without a good pipeline and that takes a long time to build.
So we have seen the last the past two or three months or pipeline value is really increased so we do really hope and what might happen and then the next three quarters in this year the pool sales should catch up based on the pipeline we have built up now.
Speaker Change: Okay, Great. That's good to know and then on the you got the supply approval from them, it's hard to pronounce but reading it.
Speaker Change:
Speaker Change: Is there when when do they start or maybe they've already said that when do they start producing these engines and when do you think when is your first opportunity to recognize revenue in that area.
Speaker Change: They are already produced the engine right now and that's one of the reason why we are doing this pilot training and pilot testing in China. We went off the engine manufacturer and this in Jamaica picture I actually have to the license from Wednesday to produce engine for them.
Speaker Change: Sure. So the pilot testing now we have China is really the you know it's like a ticket so able to get into their system to able to sell to them for their commercial system.
Speaker Change: So we are very exciting to get this fast opportunity to test our pilot and their engine in the engine side and the we expect by the end of quarter. Two we will have to find the result that we should be able to come to the commercial sales.
Speaker Change: Okay and can you give us a sense of what is the opportunity what is the Tam in that space.
Speaker Change: I mean when this this is really and that you know we stopped the John Winter in December.
Speaker Change: Last year, and we have now got hired a general manager and the sales person is in this the past two months. The salespeople are just that actually are in the beginning of March. So they are working on really built up a substantial got a sales pipeline I will say when we come to quarter two.
Speaker Change: And you know when we're going to make that in the earnings call in quarter. Two I think I, we're able to give you a much more concrete answers and that's because right. Now we are building absent real sales pipeline and I will only answer you'll when they have the data available.
Speaker Change: Okay very good okay. Thank you very much.
Speaker Change: You.
Speaker Change: Once again, if you have a question. Please press Star then one.
Speaker Change: Alright, operator this is Robert Blum here I look for a while we wait to see if theres any additional questions through the live I've got just a couple here on the webcast I don't believe have been addressing that again, just as a reminder, everyone on the webcast if you'd like to ask a question you can type it into that to ask a question box.
Speaker Change: On your your player there.
Speaker Change: Fei I know you've touched a little bit on the U S pool market, but anything further you can talk about as it relates to timing on distribution agreements are within the U S.
Speaker Change: As I mentioned, we got the NSF approval in November last year, and they stopped actively searching for the partners. So we are now narrowing our searching and so I can't I cannot say exactly the result, yet so we are working on that.
Speaker Change: Okay, Great. There's a question here pertaining to our back and I think this is more of a clarification. The order that was discussed at the end of the third quarter being delayed was that in fact, the order from that was announced here and to be recorded in Q1 or.
Speaker Change: Any updates on on that specific announcement.
Speaker Change: That was the correct. That's the order we have received in December last year from respect that the huge oil and gas commercial unit and that will be delivered in quarter. One this year and that's exactly the order we announced in quarter three delayed.
Speaker Change: Okay, Great and then maybe just a couple of questions here on gross margins I guess, Philip you mentioned sort of talking about the percentages there on a contribution basis.
Speaker Change: Is there any more visibility that can be provided as it pertains to sort of a breakeven.
Gross profit dollar basis to sort of help us connect the dots there.
Speaker Change: I think what you mentioned was your.
Speaker Change: Positive gross margin expectation for Q1.
Speaker Change: Yes. So why would you are you are correct. So the declining gross margin is mainly driven by the lower than expected revenue.
Speaker Change: Which has resulted in fixed production cost not being spread over all off being spread over a smaller revenue base and putting additional pressure on the profitability. So as also mentioned in the in my speech earlier is that we are still running at a decent contribution margin level of 40.
Speaker Change: 45% and that number excludes the impact from <unk>.
Speaker Change: Fixed overhead.
Speaker Change: So therefore is it solely due to the reduced revenue base, so I'm not going to put a number on the exact breakeven target on gross margin.
Speaker Change: Already communicated the breakeven target on the.
Speaker Change: The EBITDA basis.
Speaker Change: Okay very good I am showing no further questions on the lifeline or additional questions on the webcast player here, so with that management I will turn it back over for closing remarks.
Speaker Change: Thank you all very much for being with US today, we look forward to come indicating wish you'll show again, thank you everyone.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.