Good morning, and welcome to LiqTech International Reports First Quarter Fiscal Year 2021 Financial Results. All participants will be in listen-only mode. Please note that this event is being recorded. I’ll now like to turn the call over to Mr. Robert Blum of Lytham Partners. Please go ahead.

All right. Thank you, Nick, and good morning, everyone. Thank you for joining us today. LiqTech International discusses its first quarter 2021 financial results. As Nick mentioned, I’m Robert Blum of Lytham Partners, and I’ll be the moderator for today’s call. Joining us on the today’s call from the company is Sune Mathiesen, the company’s Chief Executive Officer. Before I turn our call over to Sune, let me remind listeners that following the conference call, there will be an open Q&A session. You should also note that a replay of this call will be available shortly following the conclusion of the live call. Before we begin with prepared remarks, we submit for the record the following statements. 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 this conference call. The company therefore urges all listeners to carefully review and consider the various disclosures made in 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, sales of operations and cash flows. 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 urges all listeners not to place undue reliance on these forward-looking statements, which speak 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 in order to reflect any events or circumstances that may arise after the date of the release and conference call. Now, I’d like to turn the call over to Sune Mathiesen, Chief Executive Officer of LiqTech International. Sune, please proceed.

Thank you very much, Robert, and good morning to all of you. And thank you for joining us today. So, as I assume many of you saw in the press release this morning, our business is again improving. Orders have picked up significantly. And we now expect order intake for the second quarter to exceed $10 million. As you might remember, this equals the record first quarter 2020 revenues and it does mark a milestone in the post-pandemic recovery of our business. The three primary drivers of growth, we have recently discussed a rebound in the marine scrubber market. The launch of our water treatment solutions for our joint venture in the oil and gas market, and the black carbon reduction markets, particularly within the Chinese marine industry are increasingly gaining traction. We continue to see an improvement in inquiries and orders from the marine scrubber market. Our pipeline in oil and gas continues to grow and we have seen the first orders for our black carbon reduction products. This progress, coupled with recent orders for new applications highlights the progress we’re making in leveraging our proprietary silicon carbide technology to expand beyond our historical reliance on a single market. We’ve made significant investments in safe personnel and with orders now back to pre-pandemic levels, it proves to us that this was indeed the right decision. I would like to take this opportunity to expand further on the three main markets. First, the oil and gas market; so as mentioned, our pipeline in oil and gas continues to grow. It has grown to a very large number and as mentioned in the press release this morning, we expect significant orders and revenue from this industry in 2021. New environmental regulations combined with geological restrictions and local water scarcity are driving a greater fraction of the produced water to be more extensively treated and reused. This reuse plus 50% more water expected to be treated over the next 10 years is what is providing this significant opportunity for LiqTech. If you can remember back to our slide presentation at our Analyst Day back in January 2021, we highlighted many of the reasons why LiqTech silicon carbide membranes are superior to the competition in treating produced water. Our technology is capable of treating water to a much better quality than any other available technology on the market. Today, operators were trucking water to the production side, use it in the production of oil, and then shrug it away and store it in disposal wells. This is obviously bad for the environment, and also comes with a high cost. Our technology allows the operators to reuse the same water over and over again, and narrows the environmental footprint and saves cost. The superior product performance, environmental pressures, and scarce water resources are all in our favor. Until now, we have been laser-focused on opportunities in the Middle East. But our progress there has been noted by some of the large players in the industry, and we now are also in discussion for orders for other regions and offshore applications. I look forward to the further maturing of this business in the quarters to come. And I believe that we’ll be able to share news about first orders in the imminent future. I strongly believe that we have a great opportunity to be one of the significant players in the oil and gas industry. Let me briefly also expand on the black carbon reduction market where our focus is on marine vessels within China. We also announced the receipt of our first set of orders this morning. As I said last quarter, China is taking a lead in reducing black carbon emissions from inland and ocean-going vessels. The new mandates in China have created a $600 million opportunity for ocean-going vessels and a $26 billion opportunity for inland vessels. This tightening legislation has created a new opportunity for our product, which has been a 20-year leader in diesel particulate filters to remove particulate matter from the exhaust gas of internal combustion engines. As you recall, we have adapted this 20 year history in DPF and have developed products specifically for black carbon reduction within the marine sector. As we discussed last quarter, our pipeline in this market is very large, and it provides us with optimism to move forward with plans to develop a new manufacturing facility in China. The manufacturing facility will service this black carbon reduction market for ocean-going and inland vessels and also function as a service center for our marine scrubber products. We’re in the process of completing the site selection for a facility we plan to lease. The frame of the building is already built, and our expectation is to have it operational by mid-2022. As a reminder, the new facility is ultimately expected to have a capacity of approximately five million liters of DPF. This compares to a current capacity of one million liters in our Copenhagen facility. We are very pleased to have received these initial orders in black carbon for the China marine industry and believe the opportunity here is significant. Now, an update on the marine scrubber market which, as I stated, continues to show signs of improvement following the global economic effects of COVID-19. The price spreads between bunker fuel and low sulfur fuel, which remained lower than $50 throughout much of 2020, have recently expanded and the spread is now above $110. We believe the business case arguments supportive of marine scrub installations ranges between $70 and $80. Given the return to normalized price spreads, we’re now seeing a renewed interest in scrubbers. Further, we continue to see a move towards closed-loop systems compared to open-loop systems. As I stated last quarter in November 2020, the European Parliament voted to outface and ultimately ban open-loop scrubber systems. To date, more than 120 ports worldwide have banned open-loop discharge. There are also some important meetings with the IMO in June to discuss the harmonization of open-loop discharge regulations, or in other words, to discuss a global open-loop ban. As you break down the inquiries and orders that are coming in, the good thing is that they are rather diversified. They are diversified by scrubber manufacturer, they are diversified by end-user, and further diversified by geography, as Europe has begun to come back online. Similar to the way in which this market began to shape up in its infancy a few years ago, we are seeing things play out similarly again. For instance, many of the new orders we have seen to this point are smaller overall orders somewhere in the area of one to three units per order. This is how things began two years ago, then we began to see larger orders follow. Those larger orders are beginning to show up in quotations. If history has any indicator, we would expect to begin booking them again in the coming quarters. Also, we like what we’re seeing in the marine scrubber market, in terms of quotation activity in orders, and the macro trends towards a potential ban on open-loop systems. The overall price paid increase provides us continued optimism. To wrap things up, the journey to diversifying the business this year, we’re receiving new orders and multiple end-market applications, with large market opportunities in oil and gas, and black carbon reduction coming to the forefront. Let me just say that I believe that the three areas we have talked about today are just scratching the surface on the longer-term potential for our silicon carbide technology. We also received our first orders for the $26 billion carbon reduction market in China and we continue to make progress on the construction of our new facility in the region. As I just mentioned, the marine scrubber market continues to show signs of improvement with inquiries and orders improving rapidly. All told, our order intake is back to pre-COVID levels, a significant achievement for the entire team here at LiqTech. As always, I thank all of you for your support at LiqTech. And now, I would like to turn the call over to your questions. Operator, please?

First question comes from Eric Stine of Craig-Hallum. Please go ahead.

Sune, good morning.

Good morning, Eric.

Hey, so just wanted to start with black carbon orders. How would you characterize these? Are these more pilot orders, where you would expect follow-ons based on a trial period? Or do you view these as initial orders that are just part of a more general ramp now that you have better clarity into your manufacturing facility and being able to handle bigger orders in 2022?

I would say they’re still very small orders, initial orders that the market is just coming together. This is really the early stages. But the important thing is that we’re booking orders, we’re building relationships with the customers already. As we get further into 2021, the market will expand. We’ll see more orders available in the market. And the orders will be bigger. But for now, still very early stages, but extremely pleased to see that we’re picking up these initial orders.

Got it. But to be clear, I mean, so these really are not pilot orders. I mean, you would view these more as initial orders rather than pilot orders for there’s a test phase to move to the next stage.

That is correct. We supplied pilot orders for quite some time now. We view these as more as first small orders in this market.

Got it. Okay, that’s great. Then moving to oil and gas, it sounds like you are more confident in your term orders and I know that COVID kind of, hurt the outlook last year. I mean, you’ve been confident in orders for some time. So maybe why the increased confidence now and maybe just talk about the gaining factors here? Is it what you talked about for some time that, travel in-person meetings to finalize things? I mean, is that it? Or are there other things at play here?

No, travel restriction has definitely been a gaining factor. You’re absolutely correct when you say that we feel more confident than ever about imminent orders. We think, first orders are very imminent. We think that we’ll be able to share the news with our investors in the very near future. We still have very strong confidence that oil and gas will be a significant contributor of new orders this year, and even revenue in 2021.

Got it. And then maybe last one for me just following up on that. I know, in the past, your commentary has been, you do expect oil and gas in the near-term here that potentially be the biggest part of your business. Is that this – is that more, or I guess, orders in 2021 and results or revenues in 2022, is that the right way to think about it?

So, what we see right now is that we will see substantial orders this year. We will even see some of the revenue this year, and going into 2022 through revenues will further increase, but we should see both orders and revenue in 2021, of course ramping up further in 2022.

Okay, thanks a lot.

Thanks, Eric.

Thank you. Next question comes from Cameron Lochridge of Stephens Inc. Please go ahead sir.

Hey, good morning, guys. Thanks for taking my question.

Good morning, Cameron.

Sune, I was hoping we could start just piggybacking off of that last line of questioning around oil and gas. Just the level of so and expectations for 2021, is it still the case that we think oil and gas revenue will exceed that of scrubber revenue? Or is it now looking more like that will be pushed into 2022?

We definitely think that order intake from oil and gas in 2021 will be bigger than order intake from marine scrubbers. In terms of revenue, still a little bit uncertain. It will definitely be bigger in 2022 whether or not it will be in 2021, there’s still a little bit of a question depending on how projects will deliver and so forth. But in terms of order intake, yes, we still expect order intake from oil and gas to exceed the order intake from marine scrubbers.

Okay, got it. That’s helpful. Thank you. And then on the $10 million of orders that were like expecting in 2Q, just to make sure that I’m following up correctly. Is that for total company? Not just one particular line of products or businesses? And then secondly, could you just maybe share with us where orders on a quarterly basis bottomed in 2020? Thank you.

Yes. So, we have not disclosed order intake. But it is very low at a certain point in 2020 when COVID hit. The reason why we use the $10 million number is that it equals our record first quarter last year, which was the highest revenue number and also took the quarter. I believe it was $10.2 million in the first quarter of 2020, and that’s why we think $10 million in order intake really proves to us that we are now back to pre-COVID levels. It’s still low compared to where we expect to be a few quarters out. But we think it’s truly marks a return to pre-COVID levels. And that’s something we were quite proud of that we now see recovering. In terms of where are we going? Well, we expect this to develop further over the next coming quarters. Getting up to, I would say, full speed to watch the industry in.

Got it. Thank you, Sune.

Thanks.

Thank you. The next question comes from Rob Brown of Lake Street Capital Markets. Please go ahead.

Hi, Sune. I was wondering if you could expand a little bit on the oil and gas growth.

Good morning, Rob.

Good morning, you talked about oil and gas pipeline kind of expanding? Could you expand on that, in terms of where you’re seeing new market activity and what you’re seeing there?

Yes, what we’re seeing in oil and gas, we’ve been laser focused on the Middle East for some time. It looks like the progress we’ve made; a lot of the operators picked up on that. We now see inquiries coming from other regions as well and also from offshore applications. So, we are now really expanding our presence in the oil and gas industry. Things are shaping up quite well. We expect imminent orders from the Middle East. We even expect imminent orders from offshore applications. So it’s shaping up very well for us in oil and gas right now.

Okay, good. And maybe characterize your backlog at this point? How much activity have you sort of booked at this point for the back half of the year? And how much do you feel like is in quoting? And then following on to that, I think you talked about your quoting sizes increasing? What are you quoting now in terms of average sizes, if sort of two to three systems were the norm? What’s sort of the size growing to at this point?

Yes, I would say, so all of our markets are in different stages of recovery. As mentioned a little bit earlier, you announced recovery in the marine scrubber business, we see these kinds of smallish orders available one unit here, two units here and so forth. In terms of oil and gas, small projects and when I say small projects, maybe a couple of million dollars ranging up to much, much bigger projects available in that industry. And then finally, in black carbon, we are starting to book small orders for that application. We think it will ramp up to much bigger orders throughout 2021. And then we have to note that some of the work we’ve done in other applications is also now maturing for us. We announced a $2.2 million order this morning for acid filtration which is also a great step for us. So slowly, but safely things are coming together. We will see that recovery in our business. I’m happy to note that our order intake for this quarter is now back to pre-COVID levels, but I would say the different segments are in different stages of recovery.

Okay, great. And then last questions on capacity expansion, where are you at with additional furnace orders and when do you expect them to be installed?

So, we are doing that planned expansion in Copenhagen right now. We will further increase our capacity there. Of course, we are doing that capacity expansion in China making good progress, and then the site selection process right now is coming to an end. We plan on leasing a facility in China rather than building a new one, which should shorten the period of time before we can be in operation. So once again, our expansion is moving along as planned.

Okay, thank you. I’ll turn it over.

Thanks, Rob.

Thank you. And the next question is from Liam Burke of B. Riley. Please go ahead.

Thank you. Hi, Sune. How are you today?

Doing well. Good morning.

Sune, the scrubber ban internationally has been in place for over a year now. Shipyards reopened about a year ago. Dry docking schedules for the operators are continuing on schedule. Are you seeing any activity on the rehab or the upgrade side of existing systems or are all your orders coming from new builds?

So, we actually see activity from several segments in the marine scrubber market. We see both new builds and we see retrofits, which means existing vessels without scrubber installation. We’re also beginning to see open-loop scrubber conversions. So, there’s activity from all levels. If we go back one year, the activity in the marine scrubber industry really stopped overnight. With COVID, starting all the shipyards shutdown, and orders just came to a halt. What also happened is that oil prices decreased. The price spreads between low sulfur and bunker fuel even came to a negative but stabilized below $50 per metric ton last year. That didn't really support marine scrubber installation. So, throughout most of 2020, there was very little order activity in the marine scrubber business. We saw price spreads begin to widen again last year and it is now above $110 again, and that has certainly caused a lot of activity in the marine scrubber business again. It’s actually picking up at a faster pace than we anticipated, I think. So that’s great to see. What we’re seeing right now is really just the beginning. We will see a further increase in inquiries and orders throughout 2021. Hopefully, we will also see that open-loop scrubber ban lead to many open-loop conversions.

But the – I mean, even the vessel operators are admitting hey, the spreads are – what the price of oil now the spreads are going to stay wide, and they have been wide for about six months. Is there any push now, I mean, with shipyard capacity starting to normalize post-COVID, are you seeing any kind of push by the existing operators, the vessel operators with existing scrubbers pushing you to retrofit?

Yes, we see quite a lot of that. You’re right that the price spreads started to widen again about six months ago. It has been increasingly widening until now and is making the business case from marine scrubbers better and better, I would say. It always takes some time for the market to recover. When you start to see the price movement, ship owners begin to get interested in scrubbers again, they make a decision. They find the shipyard, they find the scrubber manufacturer, and all of that takes time. I’d say it’s probably only in the last few months, we’ve seen a real increase in orders available in the market and that is a continuing trend. There is definitely a lot of interest for retrofits.

Are your order composition at similar levels pre-COVID on scrubbers?

I would say, yes, the order composition is such that we see smaller orders available. Typically, one, two, three, or four units. What we saw pre-COVID was much bigger bulk orders. We now see inquiries for that kind of volume again. If everything goes like it did two years ago, and we think it will, then these inquiries will turn into orders soon, and we’ll see, let’s say much bigger orders available in the market.

Great. Thank you, Sune.

Thank you.

Next question is from Jeb Armstrong of Clear Harbor Asset Management. Please go ahead.

Thank you for this great release. And also hope everyone is well, it looks like Denmark is making good progress rolling out the vaccine to everyone. So that’s certainly good to see. I wanted to sort of hone in a little bit on the comment you had on the acid scrubber market talking about a $2.2 million order for acid filtration, I’m wondering if you could provide a little bit more color around that please?

Yes, it’s basically – so it’s in the acid production. In that production process, you get a lot of sediments and impurities in the acid. What they’re doing today is that they’re using filters of lower quality and with a limited life length, because they need to be replaced since the acid is very corrosive. What we can do with silicon carbide is that silicon carbide is chemically inert from 14 pH, so can easily be used for acid filtration and will last for a very long time in that application. On top of that, we provide a much final level of filtration, making the quality of the acid much, much better. It’s a combination of a better life length, and also a much better filtration quality.

Is this related to either pharmaceuticals or the food industry? Or is this completely separate from that?

It’s actually both. Pharmaceutical companies, basically a big chemical plant, and also food and beverage who use quite a lot of acids. So, I’d say it’s in that group of applications that we’ve set for a while that we will expand into is that the food and beverage and pharmaceuticals are very attractive markets for us. We’ve been doing a ton of work on that. This is one of the first major wins in this group of applications.

Because this sounds like that even with all the other activities you have on your plate, if the pharmaceutical industry is starting to open up to you as well, that’s a pretty good sign.

It is indeed.

Yes. And then just wanted to turn them quickly to another acid issue, that’s acid mine runoff has – is that something that there’s been much discussion of or considering all the other activities you have going on right now that that sort of like another option, another potential market that at the moment is not a priority?

It’s actually something that we are looking into. As I mentioned, both in the press release and on the call. We have taken on quite a lot of sales personnel over the last couple of quarters. We have made significant investments into this. The idea was to have more sales power obviously in the market, but also to a more diversified company. We’re beginning to see the effects of that. We now have sales personnel dedicated for food and beverage and pharmaceuticals. We have sales personnel dedicated for marine, and all the personnel is dedicated to industrial applications, including mining. With that focus we now have in several end markets, we are also beginning to see the results from that. Mining is definitely still an application where we think that we have a future with our technology.

Thank you, Sune.

Thanks, Jeb.

Thank you. And the next question from Rodney Hathaway of 1492 Capital Market. Please go ahead.

Good morning. Of course, in China’s inflation…

Good morning, Rodney.

Good morning. Are you seeing any inflationary pressures in any of your cost components, your input cost components on the flip side, are you able to price accordingly your end customers and recoup any inflationary costs or any components price for that maybe you’ve seen on the input side?

We are not seeing any supply issues, most of the components we use are really commodities and widely available. We have not seen a lot of price increases. So that has not been an issue. In terms of pricing, I would say probably throughout most of last year, there were a lot of companies like ourselves suffering from the economic effects from COVID-19. There was a general lack of holdings in the market. As a result, I think competition was probably tougher than normal, and there’s certain price pressure arising from that as well. We now see that there are more orders available again. We see there’s less price sensitivity in the market, which is a great sign. We’re obviously trying to increase prices. But in terms of supply issues and supply costs, we have not seen any major issues.

Okay. Thanks.

Thanks, Rodney.

At this time, we have no further questions. I’ll turn the call back over to management for closing remarks. Please go ahead.

Thank you very much, operator, and thanks for everyone joining us on the call today. I look forward to speaking with many of you again next year during our next set of virtual one-on-ones. As Robert and the team at Lytham will be hosting meetings the week of June 14. So, please get in touch with him to arrange a meeting. Thank you all for your support of LiqTech and I wish you a great day and stay safe. Thank you very much.

The call is now concluded. Thank you for attending today’s presentation. You may now disconnect.