LiqTech International Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2024

Key Takeaways

  • Received a pilot order from a leading integrated energy company for U.S. produced water treatment, marking the third consecutive quarter of delivering oil & gas pilot systems and demonstrating the reliability of LiqTech’s silicone-carbon ceramic technology.
  • Signed strategic distribution agreements across key verticals—oil & gas (NASA, Risavax), marine scrubbers (Sun Marine, Fremen, Denbigh Marine), food systems, and phosphoric acid—to accelerate global market penetration.
  • Reported Q2 revenue of $4.5 million (down 10% YoY) with system sales up slightly and CPF sales up 23% YoY, while aftermarket services, ceramic membranes, and plastics declined; Q3 guidance is $4–5 million, with expectations for a stronger Q4.
  • Gross margin contracted to 16% due to low-margin pilot system deliveries, but contribution margin remained around 46%; company aims for break-even adjusted EBITDA at approximately $7 million quarterly revenue by leveraging existing capacity.
  • Ended Q2 with $5.5 million in cash and a net loss of $2.1 million; management is focused on cash preservation, increasing facility throughput, and driving recurring revenue through service and partnership initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
LiqTech International Q2 2024
00:00 / 00:00

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Operator

Good morning, and welcome to the LiqTech International second quarter fiscal year 2024 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum
Head of Investor Relations at Lytham Partners

All right, thank you very much, Rocco. Good morning, everyone, and, as, Rocco indicated, thank you for joining us for today's LiqTech International second quarter 2024 financial results conference call, for the period ended June 30th, 2024. Joining us on today's call from the company, is Fei Chen, the company's 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 the call. If you are dialed into the call through the traditional teleconference line, as the operator indicated, please press Star, then one to ask a question.

Robert Blum
Head of Investor Relations at Lytham Partners

If you are listening thrugh 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, and we'll do our best to get to as many questions as possible. 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.

Robert Blum
Head of Investor Relations at Lytham Partners

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 risk factors that attempt to advise interested parties of risks that may affect our business, financial condition, operations, and cash flows. If one or more of these risks or uncertainties materialize or 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. 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.

Robert Blum
Head of Investor Relations at Lytham Partners

Now, I'd like to turn the call over to Fei Chen, CEO of LiqTech International. Fei, please proceed.

Fei Chen
Fei Chen
CEO at LiqTech International

Thank you, Robert, and good day to everyone on the call. I'm excited to once again get a chance to speak with you all today and provide an update on the progress we are making. Let me start by diving right into the announcement we made earlier this week, where we announced the receipt of an order from one of the world's leading integrated energy companies to deliver a pilot system for produced water treatment in the U.S. This order is key for LiqTech as it becomes the second significant produced water treatment order we have received in the U.S. in just the past few months. Following the order we received in March 2024 from Razorback Direct, highlighting the capability our systems provide to the most challenging purification applications.

Fei Chen
Fei Chen
CEO at LiqTech International

The new pilot system is scheduled to be delivered to the customer in the third quarter of 2024, and will mark the third consecutive quarter in which we have received and delivered a produced water filtration system for the oil and gas industry. Joining the Razorback order I mentioned in quarter one and commercial pilot units to NESR in quarter two. From a high-level perspective, the broader oil and gas industry, and the U.S. in particular, is interested in increasingly understanding the importance to use produced water to offset fresh water demand, both inside and outside the oil field. Our solution can be key to reducing OpEx for our customers and meeting their desire set forth to drive sustainability going forward.

Fei Chen
Fei Chen
CEO at LiqTech International

As I have stated, each of these three orders are considered pilot orders, whereby the initial objective is to demonstrate and document the efficiency of our unique silicon carbide ceramic ultrafiltration technology in treating produced water to facilitate reinjection and the beneficial reuse, and meet current regulatory requirements with each customer in each specific area. The Razorback system is currently on site with an oil and gas customer. To date, the system has been running stably for more than two months, with preliminary data highlighting that all requirements are being met. Assuming we are successful upon full testing with the new pilot unit, which we estimate would be approximately three to four months, it's our belief that two things will come out of it.

Fei Chen
Fei Chen
CEO at LiqTech International

Number one, each of the customers who are currently utilizing the systems will deploy new systems widely across their operations with significantly larger treatment capacity. Number two, as these fair-weather customers deploy them in their operations, we will have strong commercial proof points to convince other companies to adopt our technology for their full commercial systems. When I took over as CEO about two years ago, I stated that oil and gas market would be a tremendous long-term opportunity for LiqTech. However, it would take some time to develop. With the progress made over the past three quarters, I firmly believe that we are on the cusp of something significant within this key target market for LiqTech. Another key initiative I laid out when I took over as CEO was to align ourselves with partners that can open up key markets for our solutions.

Fei Chen
Fei Chen
CEO at LiqTech International

It is a strategy that worked extremely well during my time with Topsoe and Grundfos, and one that I thought would work well with LiqTech, given the unique diversification that our filtration systems can provide. As a small company, we simply cannot have an internal sales team that is aggressively targeting the multiple industry segments that our products can address. To that end, over the past year, we have signed the following distribution agreements. For the produced water in the oil and gas industry, we have signed up NESR in the Middle East and Razorback Direct in the U.S., both of which have been key contributors to our recent progress within the industry I just touched upon. Within the commercial pool system markets, we have brought on Optiswim, Total Pool, Waterco, Barr + Wray, and Niveko.

Fei Chen
Fei Chen
CEO at LiqTech International

Again, each of these partners have driven system sales for LiqTech, which I will go into more detail in a moment. Within the phosphoric acid market, we signed an agreement with Silicon Future. They are in active dialogue with some food-grade phosphoric acid producers in China. We continued this progress of bringing on partners that can help driving awareness and adoption of our solutions, with particular progress made within the marine scrubber market. To that end, in May, we entered into a partnership agreement with Dan-Marine Group to expand our presences in Chinese shipbuilding and repair market for marine scrubber water treatment, as well as new exhaust gas recirculation water treatment system for dual fuel marine vessels. The agreement also includes the servicing by Dan-Marine Group of existing LiqTech marine installations, including fast delivery of spare parts and on-site repair work.

Fei Chen
Fei Chen
CEO at LiqTech International

Also in May, we announced an agreement with the Franman, a well-established maritime representative to the shipping industry in Greece. Franman will bring LiqTech close to the various influential ship owners through its extensive network. In July, we announced an agreement with Danbee Marine, a South Korea-based maritime representative to the shipping industry. For Danbee to market our marine scrubber water treatment solutions within South Korea, the second largest shipbuilding market in the world, after China. We are starting activities to recover the customer relationships we have in the market. These three new partners, along with our previously signed agreement with Shanghai Yuehe in China, from whom we received two marine scrubber water treatment system orders in the past year, should help us expand our presence in this important market for LiqTech.

Fei Chen
Fei Chen
CEO at LiqTech International

One other partnership agreement I wanted to touch on was our announcement two weeks ago that we have entered into an MOU with China Haisum Engineering Company to explore the application of LiqTech's advanced filtration system for the industrial water treatment in China. China is a significant market for industrial water treatment, with environmental protection and sustainability of increasing importance to the government and the enterprises. I am excited about what this collaboration with China Haisum for industrial uses will bring LiqTech. Partnerships and collaborations will be a key for us going forward. They often take time to materialize, but we are beginning to see results with nearly all of them we have signed up over the past 18 months or so, and believe we will see further positive impact in the years to come.

Fei Chen
Fei Chen
CEO at LiqTech International

As I highlighted in the press release this morning, we successfully delivered five swimming pool systems during the second quarter. The swimming pool market is an important recurring revenue opportunity for LiqTech. However, as I stated on the call last quarter, our budget and expectations were set for the second quarter included eight swimming pool systems for delivery. Unfortunately, three systems anticipated to be shipped for municipal applications in the U.K. and Australia were delayed due to government funding, causing us to fall short by about $500,000 from the outlook we provided. One big deployment that will benefit the swimming pool market for us is the receipt of NSF certification for our systems in the US. For those that are not aware, we are unable to sell our commercial swimming pool solution in the U.S. as we work through this approval process.

Fei Chen
Fei Chen
CEO at LiqTech International

With the certification now in hand, we are in conversations with partners that will help drive adoption in the U.S., with the goal to have new agreements in place by the end of the year. So while we are disappointed with the delays from the three planned systems, the pool market continues to remain strong for us and will be a key contributor to our recurring revenue in the future. When you dive deep into the financial results, a few things may not be as obvious, and I think it bears mentioning. All told, we are seeing incremental growth in our system sales. During the second quarter, we reported $1.3 million in system sales, which is up from $1.2 million in the year-ago second quarter, and $1.2 million in quarter one of this year.

Fei Chen
Fei Chen
CEO at LiqTech International

Further, during the second quarter, DPF sales was $1.6 million, a 23% increase compared to the year-ago period and up about 4% sequentially. As I mentioned last quarter, we are seeing increased interest in our DPF solutions within the European inland transportation market, as renewed focus on black carbon emission reduction occurs. We are also seeing strong sales for our filters for emergency electricity generators. Similar to pool system, we are pleased with the growth coming from our DPF solutions, which in many ways was an afterthought for LiqTech previously, but has become a solid contributor for us today. What I might call are two revenue areas, system sales and DPF sales, that are both showing growth. For Q2 system sales and DPF sales were up more than $400,000 combined year-over-year and $200,000 sequentially.

Fei Chen
Fei Chen
CEO at LiqTech International

Offsetting this growth were pullbacks during the second quarter within our system aftermarket solutions, which were down from the year ago period by about $300,000, our ceramic membrane sales, which were down about $400,000 from last year, and our plastic components, which were down about $200,000. Where these other three areas are a bit less core to our focus, they are still contributors to our financial results, and we are focused on developing new channels and opportunities to expand these areas. Philip will expand in more detail on this in a moment. To wrap things up, as our outlook suggests, we expect to see revenue of about $4 million-$5 million in the third quarter. At midpoint, that would be similar to what we just reported in the second quarter.

Fei Chen
Fei Chen
CEO at LiqTech International

The biggest variables we have pertain to timing of deliveries on a few systems, particularly within the swimming pool market. It is my belief that as we achieve the expected traction within the oil and gas market, we expect to experience a rerun in the marine scrubber market and continue the positive overall trajectory in the swimming pool market, we will see the fourth quarter significantly above the levels achieved or expected in the first three quarters of this year. The groundwork we have set in terms of partnerships, collaborations, and regulatory approvals should all help contribute to this growth. With that said, let me turn the call over to Philip to review the financial results in more detail. Philip?

Phillip Price
Phillip Price
Interim CFO at LiqTech International

Thank you, Fei, and good morning, everyone. Now, let me briefly comment on the financial highlights for the quarter. Revenue came in at $4.5 million, compared to $5.0 million in the same quarter last year, representing a decrease of 10%. Broken down by verticals, sales were as follows: system sales and related aftermarket services of $1.9 million, compared to $2.1 million in the same period last year, and up sequentially compared to the one point five million in Q1. DPF and ceramic membrane sales of $1.7 million, compared to $1.8 million in the same period last year, and $1.8 million in Q1. And finally, plastic revenue of $0.9 million, compared to $1.1 million in Q1 last year, and $0.9 million in Q1.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

To be specific, the key revenue drivers for this quarter was the delivery of an oil and gas produced water pilot as part of our distribution agreement with NESR. The delivery of five pool filtration systems, along with stable contribution from DPF sales, attributed to focused sales efforts that began in late 2023 and generated elevated activity in the current year. Our aftermarket services decreased due to elevated remediation work and associated deliveries in the same period in 2023, and the decline in plastics revenue relates solely to a large one-off sale that was recorded in 2023, without recurrence in the current year. In terms of forward guidance, as Fei mentioned, we expect the revenue for the third quarter of 2024 to be between $4.0 million and $5.0 million, which will be similar to the first two quarters of 2024.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

We remain committed to growing our business over the coming quarters as we work intensively to execute on our ambition to further penetrate the global oil and gas, chemicals, and food system markets with our proven and industry-leading solutions. Looking at our gross profit for the quarter, we reported $0.7 million on implied gross profit margin of approximately 16%, compared to $1.2 million and 23.3% in prior year's second quarters. The 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 decreased compared to typical levels This decision was strategic, undertaken to showcase and validate the effectiveness of our technology.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

As we still have overhead and other fixed costs that are not fully being 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 46%, compared to 52% 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. From an operational perspective, we still have excess capacity with the recently installed new kilns and revitalization of our ceramics facility. Our immediate goal is to capitalize on this positive momentum by shortening delivering lead times while still maintaining the high quality of our membranes and filters.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

As previously stated, we still maintain our guidance that our business will be break even, 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, total operating expenses for the quarter was $2.8 million, which is comparable to the same quarter last year, with a slight increase of $38,000 or approximately 1.4%. 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 we do not jeopardize our financial objectives. Moving on to the next item.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

Net other expenses during the quarter were $39,000, compared to an income of $33,000 in Q2 of last year, with the development mainly explained by reduced interest income, as well as increased debt discount amortization due to the extension of the maturity date for the senior commission notes. Concluding on the P&L, net loss was $2.1 million for the quarter, compared to $1.6 million for the comparable period in 2023. This quarter's result was mainly driven by the decrease in revenue and lower margins. Finally, let me briefly comment on our cash flow and balance sheet before summarizing and handing back over to Fei Chen.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

We ended the quarter with $5.5 million in cash, down $2.2 million compared to the first quarter, explained by cash use in operating activities and increased working capital, mainly related to the increased activity levels and CapEx of $0.2 million related to replacement of kiln insulation. To summarize, balancing our cash flow remain a key KPI for our business, as we are determined to preserve cash to maintain our strategic and financial flexibility. We also acknowledge that we need to increase the throughput of our existing facilities in order to accelerate growth, reduce lead times, and ultimately pave the way to business imbalance from both a net income and cash flow perspective. Thank you everyone for your support, and now back over to you, Fei Chen.

Fei Chen
Fei Chen
CEO at LiqTech International

Thank you, Philip. As I mentioned, and as Philip elaborated on, we have experienced nice growth within our system sales and DPF business year over year and sequentially. The change in revenue from the year ago quarter is entirely due to deliveries of plastic products, ceramic membranes, and aftermarket sales. We recognize the top and the bottom line numbers are what people will focus on. However, I would like to point out that we are making progress within our core growth initiatives to drive new system sales and expand our DPF operations. Importantly, we have a wide range of initiatives in place to continue this growth with new partnerships, collaborations, and regulatory approval in place. However, it should be clear that my biggest excitement right now is the progress we are making within the produced water treatment for the oil and gas industry.

Fei Chen
Fei Chen
CEO at LiqTech International

Quarter three will be our third consecutive quarter with a new produced water system being delivered. We are optimistic that successful execution of these pilot units will lead to significant opportunities for LiqTech in the quarters to come. One final comment before I turn it over to your questions. I will be participating in the H.C. Wainwright Conference and conducting one-on-one meetings with investors in New York on September ninth. If you happen to be attending and would like to connect, please reach out to Robert Blum to coordinate. Further, I will be conducting virtual one-on-one meetings at Lytham Partners for our 2024 Investor Conference on August, October 1st. Again, reach out to Robert to coordinate. With that, operator, we would be happy to take any questions.

Operator

Thank you. If you would like to ask a question, please press star then one on your telephone keypad. If you'd like to withdraw your question, please press star then two. Today's first question comes from Rob Brown at Lake Street Capital Markets. Please go ahead.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

Hi, Fei. Hi, Philip.

Fei Chen
Fei Chen
CEO at LiqTech International

Hi, Rob.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

First question on the produced water market and the pilot. What's the timeline for that pilot evaluation and I guess the kind of next steps or opportunity that this customer represent?

Fei Chen
Fei Chen
CEO at LiqTech International

The pilot, we are going to—I mean, we're delivering in quarter three. We're taking about three to four months to finish the testing. And after that, we expect, you know, to see some progress in that direction.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

Okay, great. And then the kind of evaluation metrics that you're looking at, I guess, maybe you could just remind us on kind of what you're looking for, what the customer is looking for, and what you sort of evaluate when you do these pilot programs?

Fei Chen
Fei Chen
CEO at LiqTech International

So, Rob, can you repeat your question? That was not very clear.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

Sorry about that. I just wanted to clarify. As you evaluate these pilot programs, what are the key things that you and the customer are looking for in terms of the ability of the system, and what are they really evaluating on these pilot programs?

Fei Chen
Fei Chen
CEO at LiqTech International

Okay. Okay. I mean, what they really like our system is, our system is have a very high mobility and also very reliable, and, you know, and also very automation. It's totally digitalized. We're able to have the remote monitoring and the control automation, and the, the membrane is a very stable quality. So, so the, the pilot, we have, together with Razorback at our customer site, it have been running more than two months, and the, the membrane has showed extremely stable, quality and lifetime. And the water, pure purification result is very good and stable. So this is what they evaluating. So it basically is the reliability, it's mobility, and automation.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

Okay, great. Thank you. And then on the U.S. pool market, you talked about getting the NSF certification. Maybe, you know, maybe give us some more color on what that means in terms of being able to sell into the market and your expectations or what you think the pipeline looks like in the U.S. market.

Fei Chen
Fei Chen
CEO at LiqTech International

We are very excited to get this NSF certification, because that means we're able to start going to the U.S. market. But we have already, behind the scenes, doing the go-to-market planning, so it's not like we just start now. So, right now, we have the plans in place, so we're going to start approaching the potential partners already, from now. And, it is our intention, we would like to have some partners in place, by the end of this year, so we're able to really start going to the U.S. market.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

Okay, good. And the U.S., or sorry, the pool system order that you talked about in the U.K. and Australia that did not ship in the quarter, the three systems, do you expect those to ship in, I guess, the rest sometime in the rest of the year, Q3 or Q4, or are those sort of on hold for a while?

Fei Chen
Fei Chen
CEO at LiqTech International

They are delayed because the government funding, and unfortunately, you know how the government are, they don't give you a new date, say when it's going to be coming. So for a conservative point of view, we try to make some other opportunity to replace them. And you know, we don't know if they certainly will come to Q3, Q4, or maybe they will postpone to Q1, Q2 next year. So we try to make some other compensation from other opportunities for the ... So because we don't get a certain date from the government, say when this will come, come.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

Okay, good. Thank you. And my last question is really on some of the partnerships you've developed in the, I guess, the Korean ship market partnership in particular. How do you see that playing out in the scrubber ramp and the marine ramp?

Fei Chen
Fei Chen
CEO at LiqTech International

I really think we have very good opportunity for this new scrubber segment. It's called the EGR for dual fuel engine ship. And those ships, you know, expecting 2024 to 2027 period, will be 400 new ships coming to place in this special segment. And our solution is really very good for this segment. We actually have made some modifications to really have a much higher capacity and the longer continued operations, and this is something very unique compared with other competitor solutions in the market. So in this way, we believe we have very good opportunity able to go into this segment very strongly. So that's why we are actively building up the partnership in this area.

Fei Chen
Fei Chen
CEO at LiqTech International

And also, we're also very actively working into the most effective way going to the market, and if there's any other business model to be applied for really going, intensively going to this market, because the market is coming up now, and for next, four, four years will be really, really, interesting. So, I hope I can tell you something more in the next quarter, and we are, we are really strongly going back there.

Rob Brown
Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets

Okay, great. Thank you, and congrats on the product.

Operator

Thank you. As a reminder, if you'd like to ask a question, please press star then one. Our next question comes from Lucas Ward at Ascendiant Capital Markets. Please go ahead.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

Thanks. Hi, good afternoon, Fei, Philip, and Robert.

Fei Chen
Fei Chen
CEO at LiqTech International

Hi.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

Good afternoon.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

So regarding the full year outlook, it sounds like you're expecting a similar type of revenue run rate for Q3, although Philip gave, you know, a fairly wide band there, but a much better Q4. Do you have a target for the full year that you can share at this point?

Fei Chen
Fei Chen
CEO at LiqTech International

I mean, we have shared the quarter three prediction, and we do not want to tell, you know, what is the Q4 look like, because it's really going to be a big, bigger quarter, and we need to see something falling into place before we have the certain number. But it's definitely going to be a much better quarter than the first three quarter. That we can say.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

Okay. How about gross margins? How do you see those trending? Looks like it was 16% for Q2, so they seem to be coming up relative to last year, certainly relative to late last year.

Phillip Price
Phillip Price
Interim CFO at LiqTech International

Yeah, so gross margin is connected with the revenue, because we have fixed costs, and then we have our variable costs. So whenever the revenue is lower than the same quarter last year, as you compare it to, the gross profit margin would be lower. But as I also mentioned, we also monitor our contribution margin, which is still above 45%.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

Okay. Yeah. That's an internal figure, right? Like, would it be possible for us to calculate that with the numbers that you report?

Phillip Price
Phillip Price
Interim CFO at LiqTech International

Not at this moment, no.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

Okay, that's fine. And so just looking at the drivers of the revenue, it looks like the aftermarket solution sales were soft. What drives that? Like, what impact... I mean, if we're selling a lot of systems, why wouldn't the aftermarket solution revenues just sort of track with that?

Fei Chen
Fei Chen
CEO at LiqTech International

I mean, up to now, our aftermarket service primarily is the marine scrubber. And that's also one of the reason why we signed this contract with Dan-Marine Group. And in the past years, after we have sold the marine scrubber, we have not been very good at the setup, the after-sales, both the system and the sales channel. And so we missed opportunity there. And what we're really now trying to see is we really believe the aftermarket for the marine will come back. And the marine, the Dan-Marine Group will be able to help us with the fast delivery and also very close to the customers. And so for the new marine scrubber market, the EGR market, we're also working on a new service concept.

Fei Chen
Fei Chen
CEO at LiqTech International

So in this way, we were able to, from the beginning, already have a service package with the customer, and that will also be the case with the oil and gas market. We also intend to have a service package agreement with the customer from beginning, when we start selling the commercial project. So the aftermarket is really under development, and this is what we see, you know, the unstable situation.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

Okay. Could you comment on the geopolitical situation? I know this is a problem in Q1. The war was impacting your O&G prospects in the Middle East. Is that still an issue on your radar screen?

Fei Chen
Fei Chen
CEO at LiqTech International

Yes, that's actually one of the big reason why we have moved our focus primarily to the U.S. market and onshore, because we believe the geopolitical situation is really unstable, and we don't know what's really happening. So we now change to a more stable market, and we also see the U.S. market actually is coming up with a lot of traction for the produced water and treatment. So we are very happy, actually, we made this change, and we can see the results already.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

Okay. Got it. Could you comment in general on the Ceramic Membrane business? Historically, this has been a big segment. Like, what are, what are the, what is the growth outlook for it?

Fei Chen
Fei Chen
CEO at LiqTech International

I think what we are now investigating is, we have been a manufacturer for ceramic membrane for more than 15 years. But we were selling our ceramic membrane has been a little bit ad hoc, so we don't really have very systematic knowledge about the, you know, how we should selling our membrane and how to price selling and, what is really the most competitive way to do our membrane selling. So, so this is what we are now working on, very systematically to getting the knowledge and also trying to find the right partners to bring our membrane into the market, because our membrane is in high-end, and it's for some special applications. So, so that's where the place we have to be very sharp on.

Fei Chen
Fei Chen
CEO at LiqTech International

So this is one of the reason why we have signed this MOU with this Chinese partner called the Haisum, because they have some very unique applications. We are now doing the pilot testing with them, so I'm hoping a quarter or so, I will be able to produce, present some results there. This is where we're going to do it, more selective and more focused and really have much more market knowledge about what's the best way to selling our membrane.

Lucas Ward
Lucas Ward
Senior Research Analyst at Ascendiant Capital Markets

Okay. Okay, I think I'm good. Thank you very much, Faye, Philip, I appreciate it.

Fei Chen
Fei Chen
CEO at LiqTech International

Thank you very much.

Operator

Thank you. We surely have no further questions at this time. I'd like to turn the conference back over to management for any closing remarks.

Fei Chen
Fei Chen
CEO at LiqTech International

Thank you all very much for being with us today. We look very much forward to communicating with you soon again in next quarter. Thank you.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Executives
    • Fei Chen
      Fei Chen
      CEO
    • Phillip Price
      Phillip Price
      Interim CFO
Analysts
    • Lucas Ward
      Senior Research Analyst at Ascendiant Capital Markets
    • Rob Brown
      Founding Partner and Senior Equity Research Analyst at Lake Street Capital Markets
    • Robert Blum
      Head of Investor Relations at Lytham Partners
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