LiqTech International, Inc. Stock

Good morning, and welcome to the LiqTech International Reports Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Great. Thank you very much, [ Chloe ]. Good morning, everyone, and thank you for joining us on today's call to discuss LiqTech's second quarter 2026 financial results. Joining us on today's call from the company are Fei Chen, Chief Executive Officer; and David Kowalczyk, the company's Chief Financial and Chief Operating Officer. As the operator mentioned, before I turn the call over to management, I'll remind everyone that there will be a Q&A session at the end of the call today. [Operator Instructions].

Before we begin with prepared remarks, we submit for the record the following statement. This conference call may contain forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed during the conference call. The company, therefore, urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including the risk factors that attempt to advise interested parties of the risks that may affect our business, financial condition, operations and cash flows.

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

Thank you, Robert, and good day to everyone on the call. Before discussing the quarter, I want to acknowledge an important development for LiqTech and our shareholder base. In June, we completed an underwritten public offering that generated approximately $18 million in net proceeds. The offering brought a number of new shareholders into LiqTech. And I want to thank those investors along with our existing shareholders for the confidence you have placed in our company and our technology.

We recognize the rising equity capital comes with significant responsibility to our shareholders. We expect to be judged by how effectively we deploy that capital, how consistently we execute and ultimately, whether we can translate our technology and market opportunities into sustainable financial performance. A portion of the proceeds was used to repay our outstanding senior promissory notes and original issue discount notes, significantly strengthening our balance sheet. The remaining capital provides us with the working capital and financial flexibility to execute our growth priorities.

Importantly, having a stronger balance sheet does not change the need for financial discipline. We remain focused on careful capital allocation, disciplined spending and converting our commercial opportunities into revenue and improved profitability. Our priority now is execution and demonstrating measurable progress in our financial results. For shareholders who are newer to LiqTech, I would like to provide just a very brief high-level review of the strategy we have been implementing over the past several years.

Our objective is to build a more balanced, repeatable and profitable company around applications where our silicon carbide membrane technology provides a clear performance advantage and where customer adoption can scale. To begin with, commercial pool has become a much more important part of that strategy. We have invested in a standardized and modular QlariFlow platform, expanded our distribution network and built references across multiple geographies.

Next, Marine has also reengaged through our joint venture in China, which gives us local sales, sourcing, assembly, development and service capabilities in a market where local execution is essential. Our DPF and membrane business and our plastics business provide a steady base of activity and important manufacturing capabilities. The largest variable in our outlook remains Water for Energy and Water for Industry. These markets represent meaningful revenue opportunities for LiqTech, but sales cycles are typically longer and more complex.

Projects often require pilot testing, technical validation, customer approvals, capital budgeting and multiple layers of internal decision-making. As a result, project timing can be difficult to predict and is often influenced by customer processes that are outside our direct control. This means Water for Energy and Water for Industry can be significant drivers of our future growth, but it can also create variability in our quarterly and annual revenue. Our focus is, therefore, on building a broader pipeline, advancing multiple opportunities in parallel and converting more of these projects into firm orders.

Over time, we believe this should make the business less dependent on the timing of any single large project. Based on what we have learned from the market, we have refined our go-to-market approach for both Water for Energy and Water for Industry. In Water for Energy, going forward, we will focus on building strategic commercial partnerships that help us accelerate market penetration and convert our technology capabilities into commercial opportunities. In Water for Industry, we will take a more targeted approach, focusing our resources on selected applications where we see clear customer needs and a strong technology fit.

The steel industry is a good example, where our recent follow-on order demonstrates the potential to move from initial installation to broader multisystem deployments. Our objective is to build a more visible, repeatable and scalable opportunity pipeline while maintaining disciplined resource allocation. The second quarter illustrates both sides of our strategy. Commercial pool achieved record revenue and the Marine continues to execute against its order book.

Since quarter end, the U.S. industry wastewater reuse order and the $2.3 (sic) [ 2.1 ] million follow-on order from a U.S.-based steel manufacturer have further reinforced the progress we are making in selected Water for Industry applications. At the same time, delay in a larger Water for Energy project has reduced our revenue visibility for the remainder of 2026. As a result, we are revising our full year revenue guidance to a range of $20 million to $23 million. Importantly, even at the revised guidance range, we expect to deliver meaningful year-over-year revenue growth, reflecting the underlying process across our business. We are disappointed by this delay, particularly because we had expected this project to contribute revenue this year, but our response is not weak. We are putting greater emphasis and resources behind the markets where we see more repeatable demand, shorter sales cycles and a better revenue visibility.

At the same time, we will continue to pursue significant opportunities in Water of Energy, but in a more selective and increasingly partnership-driven manner. This is not a sudden change in direction. Rather, it's a continuation and acceleration of the strategy shift we have discussed it over the past several quarters, informed by what we have learned from the market. We now have a stronger balance sheet, growing commercial platform and significant market opportunities. But ultimately, we need to demonstrate that these strengths translate into improved financial performance. Our priorities are clear: execute on the opportunities in front of us, maintain financial discipline, improve profitability and build a more predictable and sustainable business. And let me be clear, achieving profitability as quickly as possible remains one of our highest priorities.

Let us talk about each area in more detail. Commercial Pool was the strongest area of business in the second quarter. Revenue reached a record $1.5 million compared with $0.8 million in both the second quarter of '25 and the first quarter of '26. The performance reflects the work we have done to standardize the QlariFlow platform, strengthen our distribution partnerships and establish a broader base of reference installations. During the quarter, we completed assembly of the systems for the Plumpton Aquatic and Leisure Centre project in Australia and our first U.S. commercial pool project in Worland, Wyoming.

The large pool system in Den Helder, Netherlands, which we announced in April is now operating successfully. These projects demonstrate that QlariFlow can serve different facility sizes, project designs and geographics. We are maintaining the advantage of a modular platform. We continue to have our focus in establishing new distribution relationships in the prioritized geographic regions. Expanding the partner network is an important part of the pool strategy because local partners are critical for identifying projects earlier, supporting system design and installation and providing the customer relationships needed to scale efficiently. Pools are attractive to LiqTech because the systems can be more standardized than our many large industry projects. The value proposition is straightforward and each successful installation can help create additional opportunities in the surrounding market and add aftermarket service business.

Transitioning to Marine. Marine revenue totaled $0.7 million in the second quarter compared with $0.4 million in the second quarter of '25 and $0.8 million in the first quarter of '26. During the quarter, we received factory acceptance test approval for the first 2 iCER dual-fuel water treatment units. This represents an important execution milestone and reflects the significant progress made by our team and our joint venture in China. We expect to deliver 1 additional iCER dual-fuel water treatment unit and 2 marine scrubber water treatment systems in the third quarter. We also secured a commercial order of 4 water treatment systems for EGR-equipped vessels in China with the first system currently expected to be delivered in December.

The China joint venture has allowed us to reestablish a stronger position in Marine by combining LiqTech's membrane technology with localized engineering, sourcing, assembly and service. We continue to manufacture our co-silicon carbon membranes in Denmark. We're using the joint venture to improve competitiveness and responsiveness in the Chinese shipbuilding market. The growing mix of iCER, EGR scrubber systems and related aftermarket opportunities gives us confidence that Marine can become a more consistent contributor over time.

Turning to Water for Energy. The most significant change occurred recently. A major customer went through an organizational change that affected the decision-making process for an important Water for Energy project that we had expected to contribute revenue in 2026. New decision-makers became involved and significant part of the customers' internal evaluation and approval process effectively had to restart. As the impact of this delay become clear, we reassessed what we could realistically deliver and recognized as revenue during the remainder of 2026.

Given the slower customer decision-making process, combined with the lead time required for certain critical equipment, we concluded that it was no longer prudent to maintain our previous full year revenue guidance. I want to be clear that we are disappointed by this delay. Our team has invested significant time and resources in technical validation, field engagement and commercial development. Importantly, we have not seen any change in the underlying need for our technology and the technical results remain compelling. The project has not been terminated and remains an active opportunity. Our relationship with the customer remains intact, and we continue to engage closely with the new decision makers as they work through their internal evaluation and approval process.

Within Water for Industry, the near-term opportunity set is becoming increasingly tangible, particularly in steel and other industry wastewater applications. Yesterday, we announced a $2.1 million follow-on order from a U.S.-based steel manufacturer for 4 additional industry wastewater filtration systems with approximately 75% of the order currently expected to be delivered by the end of 2026. This order builds directly on the successful deployment of customers' initial system, which uses our silicon carbide membrane technology to treat challenging wastewater with high oil content and significant variability as part of the customers' broader water reclamation process.

What is particularly important to us is the progressing of this customer relationship. We started with one system, allowing the customer to validate our technology under real operating conditions. Based on successful performance of that system, the customer has now moved forward with 4 additional systems. This demonstrates the potential of our strategy proven the technology in a demanding application, established strong customer reference and then scale from initial installation to a broader deployment. This transition from initial installation to a larger multisystem deployment is exactly the type of development we want to see in Water for Industry. It demonstrates the potential to convert successful technology validation into repeat business and larger commercial opportunities.

This week, we also announced an order from a new U.S. customer for a QureFlow QF-6 ceramic membrane filtration system to be installed at its new facility in Freeport, Texas. The system will treat wastewater generated from industry equipment cleaning operation and recycle the treated water back into the facility's wash water supply. This is an important proof point for several reasons. It brings a new U.S. customer to LiqTech, demonstrates the applicability of our standardized QureFlow platform beyond traditional produced water treatment and addresses a challenging and highly variable wastewater stream where consistent remove of suspended solids and oil is critical.

Most importantly, it delivers a clear economic and environmental benefit to the customer by reducing both wastewater disposal volumes and freshwater consumption. Together with the new steel industry order, this industry wastewater order reinforces our belief that selected water for industry applications can develop into a more repeatable and scalable business. Our standardized system provide customers with clear economic and sustainability benefits. We are allowing us to deploy proven solutions across similar applications. This is why we are allocating greater resource towards selected industry segments where we see strong technology fit, increasing customer engagement and a better near-term revenue visibility.

Finally, our DPF and membrane business remain important foundational part of LiqTech. DPF and membrane revenue was approximately $1 million in the second quarter compared with $1.3 million in both the previous year quarter and the first quarter of '26. The decrease primarily reflected temporary production delays caused by constrained availability of critical raw material. Plastics revenue was $0.9 million compared to $1.2 million in the second quarter of '25 and approximately $1 million in the first quarter of '26. Customer purchasing decisions slowed during the quarter and availability of raw material prices and the broader market uncertainty where both DPF and plastics experienced some pressure during the quarter, they continue to provide an important base of recurring customer activity and continue to the balance of our overall business portfolio.

To summarize, the second quarter delivered record commercial pool revenue, continued execution in Marine and meaningful progress in industry wastewater. These achievements were offset by the delay in Water for Energy that has reduced our near-term revenue visibility and lead us to revise our 2026 revenue outlook. While we are disappointed by timing change, we remain optimistic about the direction of the business. We have a stronger balance sheet, a broader shareholder base, growing traction in markets where we can build standardized and repeatable solution and a greater clarity around where to allocate our resources. Our priority now is execution, converting these advantages into more predictable revenue growth, improved margins and ultimately, sustainable profitability. Let me now turn the call over to David to review the financial results in more detail. I will then make a few closing comments before we open the call for your questions. David?

Yes. Thank you, Fei, and good day, everyone. I will walk through our second quarter financial results, the revised full year outlook and the impact on the June financing on our balance sheet. The revenue for the second quarter of 2026 was $4.4 million compared with $5 million in the second quarter of '25, representing a decrease of 12%. The quarter included strong year-over-year growth in Commercial Pools and Marine, offset by lower Water for Energy activity, temporary production constraints in DPF and membranes and softer customer purchasing in plastics.

Within Commercial Pool, revenue was a record $1.5 million compared with $0.8 million in the prior year quarter. Marine revenue was $0.7 million compared with $0.4 million last year. These increases demonstrate the progress in the strategic growth markets Fei just discussed. DPF and membrane revenue was approximately $1 million compared with $1.3 million in the second quarter of '25. Plastic revenue was approximately $0.9 million compared with $1.2 million in the prior year quarter. As Fei noted, the DPF and membrane comparison was affected by raw material availability, while plastics reflected slower customer purchasing decisions in a volatile raw material environment. Gross profit for the second quarter was $0.4 million, representing a gross margin of 8.4%. This compares with a gross profit of $0.5 million and a gross margin of 9.8% in the second quarter of '25.

The year-over-year decline primarily reflected product mix, including a lower contribution from higher-value system activity as well as a lower utilization of manufacturing capacity, while we continue to manage costs carefully. These factors were particularly offset by procurement benefits and lower depreciation expenses. As we have discussed in prior calls, our current revenue level remains below the point where fixed production costs are fully absorbed. Improving gross margins level depends on both revenue scale and mix. Standardized Commercial Pool, Marine and selected industrial systems are important to that effort because they provide opportunities to reuse engineering, improve procurement, simplify manufacturing and create better operating leverage as volume increases.

Total operating expenses for the second quarter were $2.7 million compared with $2.6 million in the second quarter of '25, an increase of 4%. Approximately 60% of the increase was related to foreign exchange rate movements, given that a significant portion of our cost base is denominated in Danish crowns and euros. Selling expenses were $0.8 million compared with $0.8 million in the prior year quarter. Excluding currency effects, the increase primarily reflected the annualized impact of hires within the Chinese joint venture, continued investments in sales coverage in the U.S. and Europe and annualized cost for the U.S. service center.

General and administrative expenses were $1.6 million compared with $1.5 million in the second quarter of '25. Adjusting for currency movements, G&A remained stable and below general inflation as the cost of filling open positions were offset by savings in other overhead areas. Research and development expenses were $0.3 million compared with $0.2 million in the prior year quarter. The increase primarily related to membrane development and development work for Marine and Commercial Pool systems.

We continue to manage operating expenses with discipline while directing investments towards the areas that support commercial growth and more repeatable system platforms. Other expenses for the second quarter were $0.7 million compared with approximately $0.1 million in the comparable period of '25. The increase was primarily attributable to amortization of debt discount accrued and paid interest on the senior promissory notes and losses on foreign currency translation.

Net loss for the second quarter of '26 was $3.1 million compared with a net loss of $2.2 million in the second quarter of '25. Adjusted EBITDA was a negative $1.6 million compared with a negative $1.3 million in the prior year quarter, slight decline was due to the lower revenue and gross profit and currency-driven increase on operating expenses. Turning to our outlook. We are revising our expectations for the full year of 2026, adjust to a range of $20 million to $23 million. The revision primarily reflects the movement of Water for Energy projects that were previously expected to contribute in '26, but are now anticipated to be completed beyond the current fiscal year.

The range continues to contemplate strong performance from Commercial Pool and Marine, selected Water for Industry opportunities, including the new U.S. steel manufacturing follow-on order and ongoing contributions from DPF membranes and plastics. Approximately 75% of the $2.1 million order is expected to be delivered by the end of '26. The principal variable remains the timing of larger system orders. We have reduced the amount of Water for Energy revenue assumed in the outlook, but we have not removed this opportunity from our commercial pipeline. The revised revenue cadence will affect the timing of operating leverage.

Our priorities remain gross margin improvement, disciplined operating spending and careful working capital management. We will continue to align investment with the markets where we see the strongest visibility and the best opportunity to create repeatable, profitable growth. Turning to the balance sheet. We ended the second quarter with cash on hand, including restricted cash of $15.7 million as of June 30. This compares with $2.7 million at the end of the first quarter. The change primarily reflects the June public offering. The offering closed on June 8 and generated approximately $18 million in net proceeds. In connection with the transaction, we eliminated the remaining senior promissory notes and original issued discount notes.

As a result, LiqTech ended the quarter with a substantially stronger liquidity position and greater financial flexibility. We intend to use that flexibility carefully. The capital is not a substitute for operating execution. It gives us the ability to support working capital, pursue business development in target markets and make focused investments that can help accelerate growth. We will evaluate those investments against clear commercial milestones and continue to manage cash with discipline. And with that, let me now turn the call back to Fei.

Thank you, David. Before we open the call for questions, I want to return to the message I shared at the beginning. LiqTech is building around a differentiated silicon carbon filtration platform that can solve difficult water and emission challenges across multiple markets. The opportunity is significant, and our responsibility is to translate the opportunity into a business that is more predictable, scalable and profitable. The second quarter demonstrates clear progress in Commercial Pool and Marine.

Since quarter end, the new U.S. industry wastewater treatment order and $2.1 million follow-on order from a U.S.-based steel manufacturer have provided further commercial validation of our technology and strengthen our confidence in the opportunity within selected industrial wastewater applications. At the same time, the quarter reinforced the need to remain disciplined in Water for Energy where customer-controlled project timing can create meaningful revenue volatility. We are responding by allocating greater resource towards markets where we have better visibility and a clear path to scale. We are pursuing water for energy opportunities more selectively and increasingly through strategic partnerships.

Across the business, we are focused on building repeatable system platforms, expanding our market reach through partnerships and remaining disciplined use of financial flexibility created by the June offering. We appreciate the support of both our long-standing and the new shareholders. We recognize the responsibility that comes with that support, and we are committed to earning it through disciplined execution, more predictable growth and improved financial performance. With that, Robert, we would be happy to take any questions.

Great. Thank you very much, Fei and David, for the prepared remarks. [Operator Instructions] First here, would you speak to where process improvements driving profitability may be realized in the near term. Examples may be sales, assembly, water system engineering or another area for LiqTech.

Very good question. We actually have been working intensively in the past 1 and 2 years really to make the cost reduction for our processes in order to speed up the profitability. I can mention, first of all, we are doing the standardized product across all the applications, as we mentioned, the marine area, the commercial pool area and also the water for industry area, we are now having our product standardized and that reduce the cost and also provide the scales of economy when the sales goes up.

And we're also working much more close to our procurement process purchasing for the raw materials and the components, we really improve on that, and that will provide us the cost reduction. And we're also using our joint venture in China to see if there's any other component and materials in China can be much more cheaper and attractive for us than we're normally purchasing in Europe. So those are very much things we're doing. We're also working very much on the inventory optimization. We're also working on the production efficiency and the quality control, all this contributing to the improvement of our costs.

And from the sales perspective, we're also working very much on using our sales pipeline and CRM system really to control where we're going to use the sales resource and where we're really going to invest in the technology and also the whole process to get the commercial results and because that also brings a lot of cost to us. So we also -- so overall from the beginning to the end, we are looking at each of steps to really make the cost reduction. We're still a long way to go because they continuously have the possibility to improve, but we are very much aware to do that.

All right. Very good. Thank you. Next question here. Could you talk about the competitive advantages that the QureFlow system has versus the other systems on the market? And how long did the steel customer have your unit operational before they chose to add 4 more units?

Our crossflow system is based on our silicon carbon membrane. And this is very unique because our membrane has the patented coating, makes it very suitable for the waters with very, very dirty content, high oil content and high suspended particles and also different impurity in the water. And that's actually exactly the reason why our system is really function well in the steel manufacturing industry. On top of our membrane, our system, because we call crossflow, is really a continued operation system, and we're able to have the water recycled continuously in the system, and that makes the system continuously safe cleaning and really reduce the risk for being blocking by the impurity in the water.

And the company used our system for the steel manufacturing waters, have been running our system for 10 months. And it has been very stable, and they were so amazed because before they're using polymer membranes and those membranes very easily got blocked and they have to be changed very often. That really brings a lot of OpEx for them, the costing. And also very often, they have to stop the treatment and replace and that really also caused the break in their production process. So our system can run continuously and for all the 10-month period and without any troubles, and we are very stable and keep the promise we have given to them. And that's actually the basis why they have decided to extend another 4 systems because they're really happy for the performance of our system.

Okay. Very good. The next question here is, are you seeing a larger number of pool system sales? Or are you seeing larger sales per system, sort of the size of the system versus the quantity of the systems?

We see both. I mean we -- right now, majority of our sales still is in Europe, especially in North Europe. And -- but we're now coming to U.S. with a strong partner. And also, as you hear, we actually already finished the first pool system. It's going to be installed in U.S. in the quarter 3 -- by the end of quarter 3. So if we continue coming to the U.S., we will continue to come to U.S. In U.S., the systems are bigger. they are much bigger than Europe.

And as you also hear, we actually got a very big system in Australia and also in Holland. So we're working on both the bigger system and also the volume. But of course, we would rather go to the bigger system because you got the revenue faster and much more efficient sales, and we're seeing both.

Okay. Very good. Next question here is how many iCER water treatment units do you forecast could be sold in an average year? And how many annual units do you have capacity for?

That's a very good question. I mean the market is quite big, not only iCER, it's iCER combined with EGR because iCER is about 30% of market and EGR is 70% of market. So these 2 technology, they kind of parallel and share the market. And we are very happy. We already got EGR sales order, and we're going to deliver by end of this year. So we are also going to the EGR market. So right now, according to the Internet data, there's 600 boats and vessels to be delivered from now to 2028, '29 and the combination of iCER and EGR. So our goal definitely -- we would like to get a substantial amount of those vessels and really to get our installations.

So we are working in China to the assembly part. And what we're doing is we find some very good partners in China do the assembly for us. So in this way, our assembly capacity to be quite flexible. So we're able to increase quite fast in this way. So we don't see that as really a challenge. So what we now really focus on is to finalize the standardize of our system for the marine application, both for iCER, EGR and also for scrubber. So in this way, we're really able to speed up very fast when the sales coming. And we see a very good cadence, both for the sales and also delivery in this area.

Very good. I am showing no further questions here. So with that, Fei, I will turn it back over to you for any closing remarks.

Thank you, Robert. Thank you all very much for joining us today and for your continued interest in LiqTech. We look forward to updating you again next quarter.

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

Good morning, and welcome to the LiqTech International Reports First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead, sir.

All right. Thank you very much, operator, and good morning, everyone. Thank you all for joining us on today's conference call as the operator indicated to discuss LiqTech International's First Quarter 2026 financial results. Joining us on today's call from the company are Fei Chen, Chief Executive Officer; and David Kowalczyk, the company's Chief Financial and Chief Operating Officer.

Before I turn the call over to management, let me remind listeners that there will be a Q&A session at the end of the call. [Operator Instructions]

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 the call. The company, therefore, urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of the risks that may affect their business, financial condition, 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, 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.

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

Thank you, Robert, and good day to everyone on the call. The first quarter was in line with our expectations and represented a continued step forward in the transition we have been describing over the past several quarters. Our focus remains on building a more balanced, repeatable and ultimately, more profitable LiqTech by placing greater emphasize on end markets where our technology delivers clear value and where customer adoption can scale in a more predictable way.

The year-over-year revenue comparison was impacted by a significant water for energy delivery in the first quarter of 2025, that did not repeat in the first quarter of 2026 as well as timing of order conversion. However, the underlying activities across the business were encouraging. Commercial Pool, Marine, DPF and Membrane all showed meaningful activity in the quarter, and the new pool and marine orders are setting the stage for improved results in the second quarter and throughout 2026.

Compared to quarter 4 in 2025, revenue increased by 32%, our gross margin expanded by roughly 1,290 basis points. The nature of our business and the sales cycle time means that all the improvements we have made in 2025, we assume gradual improvements quarter-over-quarter in 2026. We are, therefore, reiterating our full year 2026 outlook for revenue of $23 million to $27 million. David will go through the financial details in a few minutes. So I will focus on operating progress, customer activity and strategic direction.

The main message is that our strategy is advancing. We are building around a portfolio of opportunities where our silicon carbide membrane technology can be deployed in repeatable platforms, supported by stronger service capabilities and scaled across geographies. Our commercial pool business continues to be one of the clearest examples of this strategy. During the first quarter, pool deliveries totaled revenue of $0.8 million compared to $0.3 million in the first quarter 2025. More importantly, the order activity we have announced since the beginning of the year reinforces our confidence that QlariFlow is getting traction as a differentiated solution for modern commercial aquatic facilities. In fact, based on our order book, we expect a record quarter for commercial swimming pool in quarter 2, 2026.

A key milestone was our first U.S. pool system order consisting of 3 systems to be installed at the Weston County School District #1 Aquatic Center in Newcastle, Wyoming. Entering the U.S. market has been an important objective for us because it is a large market with aging infrastructure, high water quality expectations and a growing need for more automated and space-efficient filtration solutions. We view this first U.S. order as an important proof point that can help open additional opportunities over time.

We also received consecutive record-setting pool system orders internationally. One was in partnership with Lotec for new large-scale commercial pool projects in Den Helder, Netherlands. The next was the follow-on record order in partnership with Waterco Limited for 10 systems for Plumpton Aquatic and Leisure Center in Fraser Rise, Victoria, Australia. These wins demonstrate that our solution is being adopted across different geographies, project types and the partner channels.

QlariFlow is well suited to this market because it addresses several customer needs at the same time. Our systems are compact, modular and designed for stable water quality, automation and efficient operation. For retrofit projects, the smaller footprint can be a meaningful advantage where equipment room space is limited. For new build facilities, the modular design gives customers a flexible solution that can be planned into the project from the beginning.

From a business model perspective, pools are attractive because the systems are becoming more standardized and repeatable. This is different from a large one-off projects, which often require more customization and can be more difficult to forecast. As a pool adoption grows, we believe this vertical can contribute to better revenue visibility, improved execution, and a stronger margin profile over time.

Our marine business also continued to build momentum in the first quarter. We delivered two systems under the quarter for marine dual-fuel engine water treatment for LNG vessels, and we expect two more systems to be delivered during the second quarter. Marine revenue totaled $0.8 million in the first quarter compared to $0.2 million in the first quarter 2025. The growth in this vertical is being supported by our joint venture in China, which we believe can help drive more sustainable order flow throughout 2026.

As we discussed on our last call, we have invested in local capabilities to support the marine market, including development and localization activities and regional service infrastructure. This is important because the marine market requires reliable execution, responsive service and a cost competitive localized supply chain. We believe silicon carbide membrane technology has a strong fit in marine applications, particularly for vessels equipped with the dual-fuel engines. These vessels require advanced water treatment solutions that can support onboard wastewater purification and reuse. We are meeting demanding operating requirements. Marine is also attractive because it has the potential to become more repeatable as adoption grows. Each vessel project has its own delivery schedule, but the underlying system platform can be standardized and supported through our regional presence.

Turning to water for energy and industry applications, our view remains balanced and disciplined. Oil and gas continue to be an opportunity for LiqTech and our pipeline remains active. At the same time, as we have said before, the timing of larger projects can be difficult to predict. During the quarter, we commenced a new pilot program in West Texas for produced water treatment with an energy services and solutions company. This type of field activity is important because it gives customers the opportunity to validate the performance of our technology in demanding operating conditions prior to their investment decision for large-sized commercial projects. And it allows us to further demonstrate the value proposition of silicon carbide membranes in produced water treatment.

We continue to believe our technology is well positioned for difficult water streams, where durability, chemical resistance and stable filtration performance are critical. Produced water and industry wastewater are both areas where customers are looking for solutions that can handle high variability, reduce operational disruptions and support environmental and water reuse objectives.

At the same time, we are being careful in how we allocate resources. We are not basing our operating plan on the timing of any single large oil and gas project. We will continue to pursue attractive opportunities, but we will do so in a way that supports the broader strategy of building a more balanced business.

Beyond systems, our DPF and Membrane business and our Plastic business remains an important contributor to LiqTech. In the first quarter, DPF and membrane revenue increased to $1.3 million from $1 million in the prior year quarter. This was driven by strong order flow from both existing and the new customer following our renewed focus within this [ market ] vertical. Plastic revenue increased approximately 5% in the quarter and totaled about $1 million, driven by strong external interest, especially in food processing.

Looking ahead, our priorities are clear. We are reiterating our 2026 outlook and remain focused on executing against the revenue growth and adjusted EBITDA improvement we have communicated. The path to achieving this outlook is not depending on a single large oil and gas order. It is based on continued progress across commercial pool, marine industry application and the components market with potential upside from water for energy as opportunities convert.

The most important strategic priority is to improve the quality of our growth. [ Markets ], where solutions can be standardized, partners can extend our reach, service infrastructure supports customer confidence and the volumes can support better margins. We believe the first quarter provides encouraging evidence that this transition is working. Pool orders are expanding geographically, Marine deliveries are increasing, supported by China JV, DPF and Membrane is benefit from renewed commercial focus, and the water for energy remains active, but we are approaching it with appropriate discipline.

Let me now turn the call over to David to review the financials in more detail. I will then make a few close comments and look to open the call for your questions. David?

Thank you, Fei, and good day, everyone. Let me take some time to walk through our first quarter financial results in a bit more detail and add some color to what was included in the press release.

As Fei noted, the quarter was generally in line with our expectations, the expectations we provided in our year-end call. My remarks today will focus primarily on the year-over-year changes, for the first quarter and on how those results fit into the full year outlook that we are reiterating today.

Let's start with revenue. So revenue for the first quarter of 2026 was $4.1 million compared with $4.6 million in the first quarter of 2025, this represents a decrease of 10.4%. Broken down by verticals, sales for the year were as follows: systems and aftermarket sales were $1.8 million compared to $2.7 million in the prior year quarter. DPF and membrane sales were $1.3 million compared to $1.0 million in the prior year quarter. And finally, plastic components revenue was $1 million compared to approximately $1 million in the first quarter of '25.

The year-over-year revenue decline was solely attributable to lower system sales, specifically the fact that we had a significant order for energy delivery in the first quarter of '25. This did not repeat in the first quarter of '26. That comparison is important because the underlying activity in several of our priority areas was stronger than the headline revenue number might suggest. Within systems, both Commercial Pool and Marine showed meaningful improvements.

Commercial Pool revenue was approximately $0.8 million for the quarter compared with approximately $0.3 million in the prior year quarter. Marine revenue was also approximately $0.8 million compared with approximately $0.2 million in the first quarter of '25. Those increases were offset by the non-repeat of the larger water for energy deliveries last year.

Outside of systems, DPF and membrane sales increased meaningfully, driven by strong order flow from both existing and new customers, following our renewed focus within that market vertical. Components also increased during the quarter, supported by continued external interest, especially within food processing. These are important contributors because they provide a more stable base for recurring activities, while we continue to scale the high-growth system opportunities.

Turning to gross margins. Gross profit for the quarter was $0.4 million, representing a gross margin of 9.5%. That compares to a gross profit of $0.1 million or a gross profit of 2.7% in the first quarter of '25. The improvement in gross margin is an important point. So even though total revenue was lower year-over-year, our gross profit dollars actually increased, and our gross margin expanded by roughly 280 basis points. The improvement was primarily driven by mix in system sales, better utilization of our manufacturing capacity, procurement efforts on prices and lower depreciation expenses.

As we have discussed before, we are still operating below the level -- at the revenue level, where our production platform can fully absorb fixed costs. As a result, our gross margin is not yet where we believe it can be over time. That said, the first quarter shows the benefit of improving mix, continued operating discipline and greater focus on repeatable applications where our cost structure and system design can become more efficient as volume increases. Gross margin improvement remains a key priority, scaling standardized system in Commercial Pool and Marine, along with continued strength in our component business should help support a better margin profile as we move through 2026.

Turning to operating expenses. The total operating expenses for the first quarter were $2.7 million compared to $2.3 million in the first quarter of '25. Approximately 60% of this increase was related to foreign exchange development. Of course, the majority of our cost base is denominated in Danish kroner or euros, the year-over-year currency movement affected how expenses translate into U.S. dollars.

Breaking operating expenses down by category. Selling expenses for the first quarter were $1.0 million compared to $0.7 million in the prior year quarter. Excluding foreign exchange effects, the increase was primarily related to the full year effect of hires within our Chinese joint venture as well as continued investment in the sales organization across the United States and Europe.

General and administrative expenses were $1.4 million compared to $1.4 million in the first quarter of '25. Adjusting for foreign exchange development, G&A expenses remained stable and below general inflation. We continue to manage overhead carefully and the filling of open position was balanced by savings in other areas.

Research and development expenses were $0.3 million compared to $0.2 million in the prior year quarter. The increase was primarily tied to membrane development costs and development work related to Marine systems.

Overall, our approach to operating expenses remains disciplined. We are investing where we see clear commercial returns, particularly in sales coverage, marine development and capabilities that support the scaling of repeatable system platforms. At the same time, we are carefully managing overhead and focusing resources on the areas of the business that are most important to our path towards profitability.

Other expenses for the quarter were $0.4 million compared to other expenses of $0.2 million in the comparable period for '25. The change was primarily attributable to losses on foreign exchange transactions due to the U.S. dollar development compared to euro, lower interest income, and accrued interest on the senior promissory note, partly balanced by lower amortization of debt discount and a decrease of net interest expenses.

Net loss for the first quarter of '26 was $2.7 million compared to a net loss of $2.4 million in the first quarter of '25. The year-over-year change was primarily driven by the higher operating expenses and other expense levels that I just discussed, particularly offset by the improvement in gross profit.

For the first quarter, adjusted EBITDA was a negative $1.5 million compared to a negative $1.4 million in the first quarter of '25. While the year-over-year comparison was relatively stable, we continue to believe the most important drivers of adjusted EBITDA improvements are revenue scale, a stronger system mix and increased utilization, disciplined operation expense control. We are making investments in targeted areas, but our objective remains to convert revenue growth into meaningful operating leverage as the year progresses.

Turning to our outlook. We are reiterating our expectations for the full year of 2026 revenue to be in the range of $23 million to $27 million. This would represent a growth of approximately 39% to 64% compared to full year '25. As Fei discussed, the growth outlook is expected to be driven primarily by Commercial Pool, Marine and continued activity across Water for Energy and industrial applications, supported by stable contributions from DPF and Membranes and Plastic components. We expect improved pool results in the second quarter and through 2026. The supported by recent order activity, including the first U.S. pool system order and additional larger international pool projects.

In marine, we delivered 2 systems during the first quarter and expect 2 more systems to be delivered during the second quarter with further sustainable order flow expected through the year, supported by our Chinese joint venture. The quarterly cadence of revenue will continue to be influenced by system and delivery time. As a result, we do not view the first quarter as a full year indicator. We remain focused on executing against backlog, converting the order pipeline and maintaining cost discipline as the business scales.

And finally, from a cash perspective, we ended the first quarter with cash on hand, including restricted cash of $2.7 million as of March 31, 2026. Our focus remains on disciplined cash management and careful allocation of resources. We are aligning spending with the verticals that we believe can support repeatable growth, improved margin performance and better revenue visibility over time. As we move through '26, we will continue to balance investments in growth with the need to preserve flexibility and drive the business towards positive adjusted EBITDA.

And with that, let me now turn the call back to Fei.

Thank you, David. Before we open the call for questions, I want to reiterate that our first quarter results were in line with our expectations and reflect continued progress against our strategic plan. We are building LiqTech around end markets that can support more predictable, repeatable growth, particularly in Commercial Pool, Marine, DPF and Membrane and Plastic compound. We believe, the results in this year will continue to highlight this transition. At the same time, we remain encouraged by the long-term opportunity in Water for Energy, but we are being disciplined in how we plan the business and allocate resources. Our focus is on markets, where our silicon carbide technology delivers clear performance advantages and where we can scale profitably.

With that, Robert, we would be happy to take any questions.

Thank you very much, Fei, and David, for your prepared remarks there. [Operator Instructions] We do have a few questions already in the queue here. So Fei and David. I'll begin.

First question here is, what does a "steady-state" margin structure look like for the new LiqTech? How should we model gross margins?

Yes, that's a good question. And so essentially, what we have told before and what we continue to see is that on a project basis, we are realizing margins between 30% to 50%. So essentially on average 40%. So with the volume increase, we should be closing in on a steady-state margin of 40%. Of course, on top of that, with the volume increase, you will see additional scaling effects, leaving opportunity open for lowering the production cost further for systems and membranes.

Okay. Very good. There are a few questions here regarding guidance for the year, so I'll try to combine them together. You are guiding revenue of $19 million to $23 million for the rest of the year here, which implies $6.3 million to $7.6 million per quarter. What are the major drivers of this steep revenue growth? And how much does water for energy or industry contribute to this revenue?

And Robert, that's a very good question and your number is correct. In the first quarter, we do not have very much contribution from water for energy and water for industry. But we do have a pipeline with some very interesting projects with high probabilities. So we expect, in the year going forward, we will see some projects go through from these two areas, water for energy and water for industry. But very importantly, also, we see really significant growth in our commercial pools, marine and also DPF and membrane for the rest of the year. So this all together will contribute the increase quarter-by-quarter.

Okay. Very good. And as a sort of extension of that, do you have any information you can provide relating to how revenue will be distributed between Q2, Q3 and Q4?

Yes. So we definitely -- and as we said also in the presentation of the result, we expect the implementations of changes in how we operate in '25, to show gradual improvements through '26. So we definitely do expect to see a gradual ramp-up, but also with the Q2, increase compared to Q1 of this year already.

Yes, I would like to add, as I mentioned in my speech before, if we look at our order book, we already can see, for example, for marine and especially commercial pool system. We already have a very strong order book. So we know at the quarter 2 for the commercial pool will be a record quarter on revenue because there is a time difference between the commercial order and revenue conversion. And that's always make it complicated when the revenues come in. But we have a very strong order book, so we can't really see what's happening next quarter.

All right, very good. [Operator Instructions]

Next question here is regarding commercial pools. The order that you highlighted in the Netherlands is for a new pool. This person's understanding is that you focused on retrofits, is new sales a new opportunity for the company?

That's a very, very good question. I mean, 2 years ago, I think our pool system has been very much focused on the retrofit. It very much depends on the distributors because at that time, our distributor in U.K. was Total Pool; their focus was and still is retrofit swimming pools. And now we have started building up the new distributors, both in U.K. with Binary and also Lotec. They are the ones really very active both on the retrofit and the new project. So now we see the new projects also coming. So I would like to emphasize, we're actually working both on the retrofit and the new build pools because our system has really strong advantages for both segments.

All right. Very good. I'm showing no further questions in the queue here. So with that, Fei, I will turn it back over to you for closing remarks.

Thank you, Robert. Thank you all very much for being with us today. We look forward to communicating with you soon again.

Good morning, and welcome to the LiqTech International Reports Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham. Please go ahead.

All right. Thank you very much, Drew, and good morning, everyone, and thank you all for joining us on today's conference call to discuss LiqTech International's fourth quarter and full year 2025 financial results. Joining us on today's call from the company are Fei Chen, Chief Executive Officer; and David Kowalczyk, the company's Chief Financial and Chief Operating Officer.

Before I turn the call over to management, let me remind listeners that there will be a Q&A session at the end of the call. [Operator Instructions]

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 the conference call.

The company, therefore, urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of the risks that may affect the company's business, financial condition, 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, 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.

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

Thank you, Robert, and good day to everyone on the call. 2025 represented a meaningful step forward for LiqTech. For the whole year, revenue increased 13%, driven by a 49% increase in total systems and aftermarket revenue. And we made improvements to drive efficiencies across much of our business. That shift towards higher value system sales is central to our long-term strategy and reflects growing adoption of our silicon carbide membrane technology across multiple end markets.

While we fell short of our original revenue guidance, this was primarily due to continued delays with a large oil and gas order that remains active in our pipeline. The project is still under discussion, but as we have constantly communicated, the timing of large oil and gas project is difficult to predict.

That said, we understand that we cannot -- unpredictable...

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Our focus needs to be and is on building...

[Audio Gap]

And diversified systems portfolio with stronger visibility and improved margin profile going forward.

In many ways, this has been consistent with our approach since I took over as CEO. To focus on more predictable parts of our business, such as swimming pools, which will be a key driver going forward, we are certainly amplifying this approach going forward in terms of how we allocate our resources.

Our commercial pool business was a standout performer in 2025 and delivered the strongest year in the company's history. We sold 34 pool systems during the year, a new record for LiqTech. Of those, 24 systems were delivered in 2025 with the remaining 10 scheduled for delivery in early 2026. Pool system revenue totaled $2.6 million for the year and represented a drive of growth within our Systems segment.

All systems sold during the year were based on our proprietary QlariFlow commercial pool filtration platform. QlariFlow is designed to meet the increasingly complex operational, regulatory and space requirements facing modern aquatic facilities. Compared to conventional media filtration, our system delivers stable and reliable water quality while enabling greater automation and operational efficiency. Its compact and modern design makes it particularly well suited for retrofit installations where equipment room space is limited, an increasingly important consideration for operators upgrading aging infrastructure.

The record number of system sales reflect growing customer acceptance and increasing confidence among both operators and distribution partners. We see clear momentum as facilities prioritizing water quality, automation and space efficiency, and QlariFlow is emerging as a compelling alternative to traditional filtration measures.

We have also made structural improvements to the pool system itself. Our new and modular design is standardized and cost efficient with improved gross margins and simplifies installation. Unlike oil and gas systems, which oftentimes are highly customized to specific customer needs, pool systems are increasingly becoming repeatable off-the-shelf solutions. This makes the market segment both more scalable and profitable.

From a distribution standpoint, we recently expanded our relationship with Barr + Wray in the U.K. into an exclusive distribution agreement subject to minimum annual system volumes. In addition, we are seeing interest from U.S.-based swimming pool companies. In these days, we are working on the final details for the first U.S. swimming pool project. We see potential opening of a very attractive growth market. All told, we have sold pool system in 6 different countries in 2025 and look to expand that this year.

Based on the guidance we have provided, we expect pool revenue of approximately $5 million to $6 million in 2026, which compares to $2.6 million in 2025, reflecting continued market adoption and delivery of systems already in backlog.

Turning to water for energy. Oil and gas remains an opportunity, but it continues to create timing challenge. We are engaged with multiple providers, both large and small, and the delayed order that impacted 2025 guidance remains under discussion. As mentioned, these systems are typically highly customized, which not only make timing unpredictable, but also impacts our margin profile.

Where we continue to pursue this segment and see potential opportunities with partner companies such as NESR in Middle East and ongoing trials through Razorback Direct in North America. We are going to be disciplined in how we allocate resources, and we are no longer basing our operating plan on difficult to predict customer timing no matter how promised they may be, where we are seeing encouraging and increasing tangible traction within broader water for industry applications.

The successful delivery and commissioning of our advanced member-based filtration system for oily wastewater at NorthStar BlueScope Steel has been a key proof point. The system was designed to resolve recurring filtration disruptions of polymer membrane caused by high oil content and variability in wastewater quality, which has given our customer costly and difficult experiences. Our system has demonstrated strong performance. This project has reinforced our belief that industrial wastewater treatment can become a larger and more stable contributor to our business.

Industrial systems tend to be more standardized than oil gas projects, which supports better margin and shorter sales cycles. We are seeing increased interest across multiple industry verticals and to support this growth, we added dedicated service resource to expanding our industry presence in the U.S.

In further support of our U.S. growth strategy, we also opened a dedicated service center in Texas in partnership with Halldor Systems this past November. This facility enhances our ability to support customers in the water for energy and water for industry segment, and providing certified technicians, spare parts availability, remote and on-site technician support and system maintenance and repairs. Localized service is critical to scaling in the U.S. market. The service center not only strengthens customer support but has already begun to contribute to new business development by increasing customer confidence in our long-term commitments to the region.

Going ahead, we believe we will see strong contribution from industrial side of broader energy segment with upside opportunities from the more specific oil and gas market. In total, we are expecting water, water for energy, water for industry related revenue of $5 million to $8 million. This compares to $4.3 million for this market segment in 2025.

We are happy to see that our Marine segment is building momentum, particularly through our joint venture in China. During 2025, we broke ground on a new marine-focused R&D center and the localization facility in Haimen, Nantong, and completed a regional spare parts warehouse to strengthen service capabilities for our growing marine customer base. These investments are designed to support the development and localization of marine silicon carbide membrane water treatment units for dual-fuel engine vessels and for wastewater purification and reuse. By increasing local assembly and sourcing within China, we are improving supply chain resilience and cost competitiveness in the market.

We strongly believe that silicon carbide membrane technology will continue gaining adoption in new marine vessels equipped with dual-fuel engine, driven by its durability, chemical resistance and energy efficiency. We ended the year with 3 marine orders for 8 commercial vessels in backlog scheduled for delivery throughout 2026.

Marine revenue, including service sales was approximately $1.5 million in 2025. And we are targeting approximately $4 million in 2026, reflecting a good market adaptation of our membrane filtration technology.

Look at the broader Systems business, including pool, water for energy, water for industry and the marine side. Our expectation is that we will generate revenue of $14 million to $18 million. This would be up from $8.2 million in systems revenue in 2025, showing growth of about 70% to 120%. This is a key reason why we are so excited about the future.

Beyond our Systems business, we also have our legacy DPF and membrane business and the plastic business, which remains a stable contributor to our operations. Combined, this segment represented approximately $8 million in revenue in 2025. We expect this part of our business to remain reasonably stable in 2026, and in a cautious outlook anticipating total revenue from the 2 groups combined to be slightly increased to $9 million in revenue.

Looking at 2026, we expect revenue in the range of $23 million to $27 million, a positive full year 2026 adjusted EBITDA in the middle to high range of the revenue guidance, assuming constant currency. Growth is expected to be driven primarily by continued expansion in pool systems, industrial applications and marine. The range in our revenue guidance largely reflects the continued unpredictability of oil and gas project timing.

Our strategic focus remains clear, scale standardized higher-margin system platforms. We are maintaining disciplined cost control and operational efficiency with the goal of near-term profitability.

Let me now turn the call over to David to review the financials in more detail. I will then make a few closing comments and look to open the call for your questions. David?

Thank you, Fei, and good day, everyone. Let me take some time diving into the financial results in a bit more detail and add some color to what was in the press release. Please note that I will keep my remarks focused primarily on the year-over-year changes.

Let's start with revenue. So revenue for the year came in slightly above $16.5 million, up from $14.6 million a year ago. Broken down by verticals. Sales for the year were as follows. Systems and aftermarket sales of $8.2 million compared to $5.5 million in the prior year. DPF and ceramic membrane sales were $4 million, down from $5.6 million in the prior year. And finally, plastic components revenue came in at $4.1 million compared to $3.4 million last year.

The increase was mainly due to increased deliveries of systems to pool energy industry and marine water treatment and components and plastics, partly offset by decreased sales of filters. The increase in deliveries of systems was mainly driven by increased deliveries within pool filtration and industry systems. The increase in components, mainly within machine building for food industry. The decrease in sales of filters was primarily driven by a refocusing of our strategy to capitalize on subsegments where we see increased due to demand for DPF outside automotives. As Fei mentioned, the delta between our recent expectations for '25 and actual result is primarily due to the delay in a larger oil and gas system, which remains in our pipeline, but we have not yet received the purchase order for.

Turning to gross margins. Margins for the year were 7.6% compared to 1.7% in 2024. As we continue to be below our optimal revenue level, we continue to have fixed production costs that are not being fully absorbed and those lower than normalized gross margins.

A couple of key notes is that part of the increase in gross margins was due to the higher level of overall revenue as our contribution margins are typically on average in the 40% area, where we do have some fluctuations between market segments, as you know. However, this was offset by the investment of resources into deliveries of containerized oil and gas systems to the U.S., which contributed to lower than usual margin, reflecting a strategic decision aimed at demonstrating the validation of our value proposition associated with our technology and seeding the market for future growth. As we move forward, a key focus will be on leveraging our standardized systems, which inherently are higher margin. This means more focus on pools, industrial applications, marine applications and membrane sales.

Turning to OpEx. Total operating expenditures for the year were $9.6 million compared to $9.7 million last year. Breaking it down, selling expenses for the year were $2.7 million compared to $2.7 million last year. This development was partly driven by full year effects of savings made in 2024 and lower accounts receivable write-offs and provision needs. These effects were partly offset by costs associated with our newly formed joint venture in China, costs for outbound distribution, including tariffs to the U.S. and expenditures related to external sales consultancy services, which also increased in 2025.

General and administrative expenses for the year ended December 2025 were $5.7 million compared to $5.7 million in '24. The underlying development in local currencies, Danish kroner was a 4% improvement compared to '24. This development was due to savings made in '24, partly balanced by filling the CFO position and other open positions.

Research and development expenses for the year was $1.2 million compared to $1.4 million in '24. The decrease was primarily due to a more focused R&D strategy with fewer ongoing projects and reduced average number of employees engaged in external research and development activities. For the year, adjusted EBITDA was negative $5 million compared to negative $6.1 million last year.

Turning to our guidance. For 2026, we are expecting revenue to be in the range of $23 million to $27 million. As we break this down, we are anticipating that our broader water for energy and water for industry business will be between $5 million and $8 million. We believe our pool business would be in the range of $5 million to $6 million. Our Marine business would be about $4 million, of which 60% will be from new systems and 40% from our recurring service business. And finally, that our legacy DPF and plastics business will be about $9 million. We target a positive full year 2026 EBITDA in the mid- to high range of the revenue guidance, assuming constant currencies. And finally, from a cash perspective, we ended the quarter with $5.1 million in cash. Everything else was pretty much in line with our normal operating procedures from a balance sheet perspective.

And with that, let me turn it back to Fei.

Thank you, David. To close things out before I turn over to questions. Our silicon carbon filtration platform is central to how we address increasingly complex global water challenges, built on advanced ceramic membrane technology. Our solutions are designed to operate reliably in some of the harshest and the most demanding treatment environment from produced water in energy application to commercial pool systems and heavy industry wastewater streams.

As European customers meet strict environmental regulation while lowering water usage and energy intensity, we provide practical high-performance solutions that support long-term sustainability goals. The momentum we generated in 2025, including record pool system sales, progress in produced water, marine systems deployment and industry installations such as our project with a major steel producer demonstrates the expanding global recognition of our technologies' value.

As we look ahead, our direction is well defined. We are prioritizing growth in our most attractive verticals, particularly pool, industrial applications and marine. We are remaining disciplined execution across the organization. At the same time, we remain firmly focused on scaling the business to achieve profitability and position LiqTech for durable profitable growth over the long term.

Again, thank you, everyone, for your support of LiqTech. With that, Robert, we would be happy to take any questions.

All right. Thank you very much, Fei and David, for those prepared remarks. [Operator Instructions]

There are a few already in the queue here, Fei and David. So the first one here is, when can we expect revenue from the large oil and gas order push out to be booked?

That's a good question. And of course, as we mentioned, it's a bit, you can say, in the hands of the customer. But we definitely would expect, you can say, the oil and gas project to materialize in the coming -- in this year, essentially 2026, with the timing of -- yes, we don't know the precise timing, but Q2 finalization ideally.

Okay, very good. The next question here is, do tariffs affect your U.S. oil and gas business? Are your products competitively priced?

This is a very good question. And because the tariff is a moving target so we really have our focus on that. And up to now, we have been able to kind of have very good discussion with our customers. So we don't really need to take all the tariffs on ourselves alone. And going forward, we're definitely looking at what is the best way for us to handle the tariffs and how we're able to keep our competitiveness. But as we mentioned before, we are working very, very focused on the cost reduction of our product and also the standardization and efficiency, and that will somehow balance also to the tariff impact on our technology.

Okay, very good. [Operator Instructions] A couple of questions here pertaining to your need for capital here in 2026.

And as you have heard today, we actually have laid out a very clear growth plan with a revenue guidance of $23 million to $27 million in 2026. So we are definitely evaluating how we're able to support this strong growth spend, and that means we are looking at different financial options.

Okay, very good. And it looks like this may be the final question, barring any last minute that may come in. And I think you've touched on this a few times, but to reiterate, what are the drivers of your 2026 revenue outlook of $23 million to $27 million?

This is a very good question also as we used some time in our earnings call about this. And what we really have to say to ourselves is we have to make -- we will focus on a broader and diversified perspective and also working on the verticals, which have more visibility and higher predictability. So we're actually working at the growth in basically all our Systems segment. The pool system, we're going to have $5 million to $ 6 million coming this year. And the Marine growth from $1.5 million to $4 million. And we say water for energy and water for industry will be $5 million to $8 million. That's a bigger range there because the oil and gas project are more difficult to predict the timing. And the DPF and plastic plus the membrane area, we expect a slight increase from $8 million to $9 million. So as you can hear now, the driver is from the different verticals, and this gives us much more reliable and predictable revenue growth compared with before.

Okay, very good. I'm showing no further questions in the queue. So with that, I would like to turn the call back over to Fei Chen for closing remarks.

Thank you, Robert. I would like to say thank you to all of you for being with us today. We look forward to communicating with you soon again. Thank you.

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

Good morning, and welcome to the LiqTech International Reports Third Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

All right. Thank you very much, and good morning, everyone. As the operator indicated, thank you for joining us today to discuss LiqTech International's Third Quarter 2025 Financial Results for the period ended September 30, 2025.

Joining us on today's call from the company are Fei Chen, the company's Chief Executive Officer; and David Kowalczyk, the company's Chief Financial and Chief Operating Officer.

Before I turn it over to management, I do want to remind everyone that there will be a Q&A session at the end. [Operator Instructions].

Before we begin with prepared remarks, we submit for the record the following statement. This conference call may contain forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed during the conference call.

The company, therefore, urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of the risks that may affect our business, financial condition, operations and cash flows. If one or more of these risks or uncertainties materialize or if the underlying assumptions prove incorrect, the company's actual results may vary materially from those expected or projected.

The company, therefore, encourages all listeners not to place undue reliance on these forward-looking statements, which pertain only as of the date of the release and the 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 the release and conference call.

With that, I'd like to turn the call over to Fei Chen, Chief Executive Officer of LiqTech International. Fei, please proceed.

Thank you, Robert, and good day to everyone on the call. There is a lot of optimism for the future based on the execution during the third quarter, not simply because of the growth in revenues, improvement in gross margins and reduction in operating expenses, but also due to the strong order books during the third quarter, which sets the stage for a nice fourth quarter.

A key driver during the quarter was the strength within our water treatment systems business, led by our swimming pool vertical, which achieved its highest quarterly revenue to date. Equally important is that the new bookings received during the quarter indicates a continuation of this positive trend. It is clear that the market is increasingly recognizing the unique attributes of our QlariFlow filtration system and the compelling alternative it offers to traditional media filtration systems used in commercial pools.

Beyond the swimming pool vertical, we are making progress in a number of other applications, which leverage our robust silicon carbide membrane technology, including water for energy, industrial applications and the marine industry. The increased order flow and interest is the direct result of the numerous successful pilot programs we have implemented over past 2 years, showing the success of our systems in real-world examples.

We have long emphasized that this transformation would take time, and we now believe that we are on the verge of broad adoption of our systems across multiple market verticals. Where system sales are the ultimate measure of success, we have spent considerable effort rightsizing the business and enacting operational efficiencies to drive down costs, both from an OpEx perspective as well as from a manufacturing side.

During the quarter, our contribution margin was one of the highest levels we have seen over the past 5 years. And gross profit was at 19.6%, also at an improved level. Further, our operating expenses are at their lowest levels in mining years.

Let me circle back on a few of the key activities during the quarter, starting with the swimming pool vertical. As mentioned, we delivered systems to 6 customers during the quarter, totaling $1.0 million in revenue. The systems delivered was much larger in size than many of our historical systems and really highlights the progress we are making within the larger swimming pool systems.

The orders delivered during the quarter were fulfilled through our partners, Bindery and Total Pool in the U.K. and Oxidine in Spain. These partners have been instrumental to our success, particularly as we have strengthened our collaborations in the past 3 years.

During the quarter, we continued to expand our pipeline within our key markets, including systems in U.K., Denmark and Holland. This really shows the dips of what we have accomplished in the past few years, building these relationships, but also the internal team's role in helping move projects forward and showcase what is possible with our solutions.

Another key development within our swimming pool solutions has been the development of the modular design system, which allows for easy of deployment. Since I took over, we have worked hard to move away from many customized solutions, which often take too long to create and cost too much money. Further, it created too many confusion among customers. This theme of creating a modular design system and driving down costs is not just applicable to our swimming pool vertical, but across other applications as well.

To that point, we are working with our joint venture partners in China to reduce the cost of components and assembly of our marine water treatment systems, making them more competitive in the market. We will continue manufacturing the silicon carbide membranes in Denmark. We are also exploring the potential to leverage our Chinese assembly and sourcing capabilities to drive cost reductions across our systems and applications.

Another exciting development within our China joint venture has been the recipient of 2 first orders for marine dual-fuel engine water treatment systems. The marine shipping industry is moving towards cleaner fuel applications with most new vessels equipped with dual-fuel engines that require reliable water treatment for exhaust gas recirculation systems.

According to published data, approximately 400 new vessels are on orders with ISO ADR solutions planned between 2024 and 2027. One of the 2 marine dual-fuel engine orders is scheduled to be delivered here in the first quarter with the other set for delivery in early 2026. We believe more opportunities are on the horizon.

Transitioning from China to the U.S., we have talked about this for a while now, but the water for energy market is rapidly growing within the U.S. We have worked with partners such as Razorback Direct and Renewable Resources lately to build a presence in the U.S. For this reason, we have moved forward with the opening of a dedicated service center near Fort Worth, Texas. The new facility is being launched in partnership with Halldor Systems and opened a few weeks ago. For those not familiar, Halldor is an industry service provider with extensive experience in energy, oil and gas and industry sectors. They specialize in equipment servicing, maintenance and field support.

The center will strengthen support for our Water for Energy business segment, offering deployment of certified service technicians, availability of critical spare parts, remote and on-site technical support and system maintenance and repairs. As we scale our operations in the U.S., this new service center allows us to respond faster and support customers with deep local knowledge and reflects our strategy to offer fully integrated filtration solutions from engineering and commissioning to lifetime service.

On the topic of new system deployments, we are actively engaged with several end customers and hope to have updates to share soon.

Taking a step back, I think it is important to remind everyone of the number of the new systems that we have deployed during the past couple of years. Since the beginning of last year, we have deployed 9 pilots or commercial systems across a wide range of industry applications from multiple oil and gas industry systems to lithium brine production, plastic removal from a U.S. petrochemical company and EG recovery, metal processing, the broader marine industry and the most recent order of an advanced membrane-based filtration system to trade oily wastewater to North Star BlueScope Steel, a major U.S.-based steel producer.

We are establishing a consistent cadence of large system deliveries each quarter alongside our base business, including swimming pools, plastics and DPF filters, bringing us closer to revenue levels that approach breakeven and profitability. This has been our goal, and I'm very pleased with the progress we have made.

Let me now turn the call over to David to review the finance in more details. I will then make a few closing comments and look to open the call for your questions. David?

Thank you, Fei, and good day, everyone. Let me take some time diving into the financial results in a bit more detail and add some color to what was in the press release.

So let's start with revenue. Revenue for the quarter came in at $3.8 million, up from $2.5 million in the year-ago third quarter. Broken down by verticals, sales for the third quarter were as follows: Water system sales and related services of $2 million compared to $0.7 million in the same period last year. DPF and ceramic membrane sales were $0.8 million, down from $1.1 million in Q3 last year. And finally, plastics revenue came in at $1.0 million compared to $0.7 million in Q3 last year.

The key takeaways for the quarter include strong year-over-year improvement in Water Systems, driven by a combination of multiple swimming pool orders and the remaining portion of the industrial order for the steel industry. Growth in plastics, which was up 54% due to a strong external interest within especially food processing and the upgrade of our production facility in Q3 last year and stabilization of DPF and ceramic membranes sequentially, but still off the year-ago quarter.

Looking ahead to Q4 of 2025, we anticipate revenue to be between $4.6 million and $5.6 million, which would equate to a 38% to 67% increase from Q4 2024.

For the full year 2025, we expect revenue to be between $18 million and $19 million, representing a 23% to 30% increase compared to 2024. We do want to note that we do want to be cautious and provide a slight change to guidance, solely driven by timing in purchase orders in our systems business. The visibility we have to receive formal purchase orders for 2 systems during Q4 of 2024 are likely shifting to Q1 of 2026.

Turning to gross margin. As we continue to be below our optimal revenue level, we continue to have fixed production costs that are not being fully absorbed and those lower than normalized gross margins. That said, for the third quarter, gross margins were much improved from the year-ago period, coming in at 19.6% compared to a negative margin of 8.5% in the year-ago period.

We had previously reported on a contribution margin basis, which excludes the impact from our fixed overhead. This margin for the quarter was significantly higher. The gap between gross margin and contribution margin will narrow in the coming quarters, driven by cost improvements and volume growth.

Turning to OpEx. Total operating expenses for the quarter were $2.1 million compared to $2.4 million in Q3 last year and compared to $2.6 million in Q2 of 2025. As we look to the future, our breakeven target measured on an adjusted EBITDA basis, measured at EBITDA adjusted for amortization, right-of-use assets and cost of stock-based compensation, the level continues to be quarterly revenue of approximately $6 million. The one caveat I will state is that there's a product mix component to it.

Concluding on the P&L, net loss was $1.5 million for the quarter compared to a $2.8 million loss for the comparable period of 2025, a substantial improvement driven by revenue growth, improved gross margin and reduced operating expenses.

And finally, from a cash perspective, we ended the quarter with $7.3 million in cash. Everything else was very much in line with our normal operating procedures from a balance sheet perspective.

And with that, let me turn it back to Fei.

Thank you, David. Can you hear me?

Yes, please proceed.

Okay. Thank you, David. To close things out, before I turn over to the questions, our proprietary silicon carbide filtration technology stands as a foundational element in tackling the planet's most urgent ecological issues. This cutting-edge ceramic membranes deliver exceptional results in the tough water treatment scenarios, spanning from produced water in oil and gas operations to pool filtration systems. By helping industries comply with rigorous environmental standards, we are cutting down on water and energy use. We are resolving water purification problem and advancing true sustainability. Recent achievements like landing record orders for swimming pool systems, major contracts for treating produced water, marine applications and industry applications such as that for the steel industry highlights the rising worldwide appetite for our innovative solutions.

The potential moving forward is immense, fueled by escalating water shortage and tough global regulations. Their key alliance, we are broadening our impact with application-oriented ready-to-deploy solutions. Such partnerships enhance our capability to offer complete systems that guarantee regularly adherence, streamline operations, safeguard assets and lower cost for customers.

In the years to come, we are dedicated to advancing and expanding our filtration solutions to sites seize the best possibilities. Again, thank everyone for your support of LiqTech. With that, Robert, we would be happy to take any questions.

All right. Fantastic. Thank you very much, Fei and David, for your prepared remarks. [Operator Instructions] We do have a few questions submitted already. We'll begin here. Besides swimming pool systems, which segments are seeing the most sustained order momentum?

As mentioned in my speech, we have very much moment in the Water for Energy segment as well. And we also start getting orders from marine industry. But I would say, compare this to the marine industry, it just start. The Water for Energy is getting momentum.

Okay. Very good. Next question here. Is the uptick in gross margin sustainable? Where do you see gross margins trending over the next few quarters?

David?

Yes, sure. Thanks for the question. I would say, yes, this is very much sustainable. And with expected higher revenues, we will see also further increases in the gross margin. There's a strong link between the size of revenue and really the gross margin. So talking about a defined level, I think it's hard, but we will see increases with the increase in revenue.

Okay. Very good. Next question here is, how is your capacity utilization trending? Are there any metrics you can provide there?

Yes. Obviously, we have different metrices for capacity and also different sites. But I think in general, it's fair to say that we have spare capacity, which is also why we provide the insight on the difference between gross margin and contribution margin. We have plenty capacity to support growth with very, very limited investments.

All right. Very good. [Operator Instructions] Barring any further questions coming in, the last question here is what would be a reasonable target for 2026 revenue growth?

That's a very good question. We're actually in the process of making our budget for 2026. So we cannot say any concrete number yet, but we definitely believe and see a very strong growth trend in 2026.

Okay. Very good. I am not showing any further questions at this time. So with that, I will turn it back over to you, Fei, for any closing remarks.

Thank you, everyone. I would like to thank you all very much for being with us today. We look forward to communicating with you soon again. Thank you.

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