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LIQTECH INTERNATIONAL INC (LIQT)·Q4 2018 Earnings Summary

Executive Summary

  • Q4 2018 was “in line with expectations,” with net sales of $2.9M, gross profit of $0.18M, operating expenses of $1.8M, and net loss of $(1.1)M or $(0.015) per share; mix shifted toward higher‑margin marine systems while legacy DPF declined .
  • Segment dynamics: Marine revenue rose 42% YoY to $1.4M, while DPF fell 7% YoY to $1.5M; cash ended at $3.8M, roughly flat vs September .
  • Management pre‑announced Q1 2019 record revenue (~$7M) and a return to profitability, with Q2 expected to surpass Q1; backlog continued to build above ~110 standardized systems noted in January and ~50 in November .
  • Corporate catalysts: 1‑for‑4 reverse split (effective April 9, 2019) and planned uplisting to Nasdaq Capital Market (expected April 16, 2019) .

What Went Well and What Went Wrong

What Went Well

  • Marine momentum: “We are set to report record quarterly revenues of approximately $7 million for Q1 2019, [and] return the Company to profitability… As more countries such as China and Singapore ban the port use of open loop scrubbers… We are well positioned to capture a meaningful share of this rapidly growing market” .
  • Mix improvement: Q4 gross profit improved to $0.18M vs $0.06M in Q4 2017, driven by higher‑margin marine products and operating leverage; management expects further margin gains as marine grows .
  • Backlog growth and capacity: Backlog continued to rise above ~110 standardized systems reported in January; manufacturing and office space expansion without CapEx, plus furnace additions planned to increase capacity in 2H19 and into 2020 .

What Went Wrong

  • Revenue softness and OpEx inflation: Q4 sales declined 3% YoY to $2.9M; total operating expenses rose 39% YoY to $1.8M, reflecting G&A ramp and timing, widening net loss to $(1.1)M vs $(0.9)M in Q4 2017 .
  • Legacy DPF headwinds: DPF revenue fell 7% YoY to $1.5M; management is deemphasizing automotive retrofits in favor of marine opportunities (e.g., NOx reduction) .
  • Sequential decline: Q4 revenue of $2.9M was below Q3’s $3.35M, with Q4 marine shipments acknowledged but a more pronounced ramp only materializing in Q1 2019 (to ~$7M) .

Financial Results

Summary Financials

MetricQ4 2017Q3 2018Q4 2018
Revenue ($USD Millions)$3.0 $3.347 $2.9
Gross Profit ($USD Millions)$0.059 $0.289 $0.177
Total Operating Expenses ($USD Millions)n/a$1.231 $1.8
Net Income - (IS) ($USD Millions)$(0.9) $(0.922) $(1.1)
Diluted EPS - Continuing Operations ($USD)$(0.02) $(0.013) $(0.015)

Margins

MetricQ4 2017Q3 2018Q4 2018
Gross Profit Margin %2.0% 8.6% 6.1%

Segment Breakdown

Segment Revenue ($USD Millions)Q3 2018Q4 2018
DPF (ceramic diesel particulate)$1.921 $1.5
Liquid filters and systems (Marine and other)$1.426 $1.4
YoY Change (Q4 2018 vs Q4 2017)n/aDPF: -7% ; Marine: +42%

KPIs

KPIQ3 2018Q4 2018
Cash and Equivalents ($USD Millions)$3.862 $3.8
Confirmed Systems Backlog (units)“more than 50” (Nov-2018) “well above ~110” (Jan-2019 reference)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ1 2019n/a~$7.0M; record quarter Introduced
ProfitabilityQ1 2019n/aReturn to profitability Introduced
Revenue and Operating ProfitQ2 2019n/aExpected to surpass Q1 Introduced
Listing StatusApril 2019NYSE AmericanMove to Nasdaq Capital Market (expected Apr 16, 2019) Transfer of listing
Reverse Stock SplitApril 2019n/a1-for-4 effective Apr 9, 2019 Announced

Earnings Call Themes & Trends

TopicQ2 2018 (prior)Q3 2018 (prior)Q4 2018 (current)Trend
IMO 2020 regulation favoring closed-loop scrubbersBusiness case and TAM outlined; early adoption cycle Bans of open-loop discussed; adoption ramp to 2025 China/Singapore bans; conversions rising; hybrid/newbuild mix growing Strengthening regulatory tailwinds
Order backlog and visibilityExpect substantial orders; frameworks in place >50 confirmed systems; order sizes growing (5–10 at a time) Backlog “well above” ~110; less disclosure as revenue converts Building backlog; shifting focus to deliveries
Capacity expansionOutsourcing systems; Mark 6 lowers costs; plans to double membrane capacity Furnaces ordered to double capacity; strong working capital profile Additional furnaces reserved for 2020; office/manufacturing expansion without CapEx Proactive scaling
Competitive positioningFirst-mover advantage; proven SiC membranes; ability to compete on price Guaranteed compliance vs centrifuge; commodity shift; shipyard role rising Market share “at least the same, maybe gaining”; centrifuge disadvantages highlighted Competitive edge consolidating
Product roadmap (NOx, grey/black water, bilge)Focus on marine scrubber; other applications deprioritized New frameworks; broader marine solutions discussed Developing NOx product; selling first grey/black water systems; bilge water treatment explored Expanding marine portfolio

Management Commentary

  • “We are set to report record quarterly revenues of approximately $7 million for Q1 2019, to return the Company to profitability… As more countries such as China and Singapore ban the port use of open loop scrubbers… We are well positioned to capture a meaningful share of this rapidly growing market” — Sune Mathiesen, CEO .
  • “Our backlog of confirmed systems orders continues to grow… well above the approximately 110 confirmed systems in backlog announced in January 2019 and the 50 systems announced in November 2018” .
  • “We will more than double our manufacturing and office space… This expansion will be done without any CapEx spending” .
  • “We actually had a very healthy market share in 2018… we are at least at the same level and… maybe we are gaining a little bit market shares” .

Q&A Highlights

  • Mix and ASPs: Retrofits dominated to date, with growing newbuilds and conversions of open‑loop to closed‑loop; ASPs similar across retrofit/newbuild, potentially higher on newbuilds .
  • Capacity and scaling: Additional furnaces scheduled in 3Q19 with more reserved for 2020; systems manufacturing expanded without CapEx; flexible allocation between membranes and DPF .
  • Market share and shipments: Healthy share in 2018; shipped marine systems in Q4; revenue ramp from $3M in Q4 to ~$7M in Q1 underscores acceleration .
  • Technology differentiation: Filtration system guarantees compliant discharge vs centrifuge; footprint and automation advantages; a major centrifuge OEM adopting filtration .
  • Additional opportunities: Heavy metals removal capability valued as future regulations tighten; NOx product under development; grey/black water and bilge water treatment opportunities emerging .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2018 EPS and revenue was unavailable at the time of request due to data access limits; as a result, comparisons to consensus cannot be provided [SPGI request error].

Key Takeaways for Investors

  • Marine closed‑loop scrubber demand — reinforced by China/Singapore bans — is driving mix and margin improvement; Q1 2019 record revenue (~$7M) and profitability are pivotal inflections .
  • Sequential softness in Q4 highlights timing of deliveries; the sharp Q1/Q2 ramp should be the focus for near‑term positioning .
  • Competitive moat in SiC filtration with guaranteed compliance vs centrifuge alternatives supports sustained share and pricing power; conversions add a new demand leg .
  • Capacity additions (furnaces) and manufacturing expansion without CapEx de‑risk execution as backlog converts to revenue in 2019–2020 .
  • Corporate actions (reverse split, Nasdaq uplisting) can broaden investor access and improve liquidity, potentially serving as catalysts alongside operational beats .
  • Legacy DPF remains a drag; pivot to marine NOx and other shipboard water solutions may unlock higher‑margin adjacencies over time .
  • With consensus unavailable, watch company‑specific delivery cadence and backlog disclosures for intra‑quarter estimate resets and potential upside risk to revenue/margin trajectories .