Donald Weinberger - Managing Partner, Wolfe Axelrod Weinberger, IR Aldo Petersen - Chairman Sune Mathiesen - CEO.

Eric Stine - Craig-Hallum Matt Campbell - Laridae Capital.

Greetings, and welcome to LiqTech International Year-End and Fourth Quarter Ended December 31, 2017 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Donald Weinberger, Managing Partner at Wolfe Axelrod & Weinberger Associates. Thank you, Mr. Weinberger you may begin..

Thank you, Doug and welcome to all of you to today's conference call to discuss financial results for the fourth quarter and year-ended December 31, 2017 as well as recent business developments. Aldo Petersen, will begin the formal remarks shortly.

Before I turn the call over to him and Sune Mathiesen, let me remind listeners that following the conference call, there will be an open Q&A session. You should also note that a replay of this call will be available starting today at 3:00 P.M. today and ending on April 11, 2018.

To access the replay, please dial 877-660-6853 and enter the conference ID number, 13677666. To access the number for the replay for international callers, please dial 201-612-7415 and enter the same ID number 13677666.

In order for all the listeners to have an opportunity to ask questions, please limit your question initially to one question and one follow-up question. After all individuals have had the opportunity to ask their questions, you're welcome to ask additional questions. Now please bear with me for a minute as I read the forward-looking statements.

The press release and conference call contains 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 in the press release and conference call.

We therefore urge 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 advice interested parties of the risks that may affect our business, financial condition and sales of operations and cash flows.

If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

We therefore urge all listeners not to place undue reliance on these forward-looking statements, which speak only as of this date and the date of the release and conference call.

We assume no obligation to update any forward-looking statements in order to reflect any events or circumstances that may arise after the date of this release and conference call. Having dispensed with that, it is now my pleasure to have Aldo Petersen begin the conference call with his remarks Aldo, please proceed..

Thank you, Don and good morning and good afternoon, ladies and gentlemen to this conference call and today’s conference call collides with the announcement of a very big agreement that LiqTech and LiqTech’s team has been working for, for very long time.

So without any further ado I would like to turn the conference over to our CEO, Sune Mathiesen who will collaborate on today’s event. Sune, please..

Thank you very much, Aldo. First of all, a warm good morning to all the participants from the U.S., and good afternoon to the participants from Europe. Thank you very much for dialing in today to our call to discuss the fourth quarter and fiscal year 2017 results and the outlook for our business.

Our results for the fourth quarter were largely in line with our expectations and even though the low numbers we were especially happy to note the anticipated ramp up in our marine scrubber business. The ramp up that we expect to continue in the coming quarters.

LiqTech has been working into marine scrubber market for almost four years now we were one of the pioneers in this industry. One could almost say that we were there before it was even an industry. We’ve learned a lot and we have made continuous improvements to our technology.

Today we offer very competitive solution for scrubber manufacturers and ship owners. Our systems are of a modular design and we also significant advantages in terms of footprint, quality of discharge, short delivery times, CapEx savings and OpEx savings.

In November 2016 the International Maritime Organization, IMO voted to implement a new lower global cap on sulfur emissions from international shipping. The new lower cap will come into force by January 1, 2020. Following this position we decided to dedicate most of our 2017 resources into this industry.

Yesterday, the Wall Street Journal published an article about marine scrubbers. Amongst other things, it said that scrubber manufacturers expect orders of between $6 billion to $18 billion by 2026. That is up from less than $300 million in 2017 and just a few million in 2016.

It also said that a study commissioned by the IMO says that 6.7% of the global commercial fleet will be used in scrubbers after 2020. That corresponds to about 4,000 ships.

And it also said that executives from shipyards in China and Korea were roughly 1,500 vessels are booked to be built or retrofitted to comply with the new regulation says that about 25% of these will be fitted with the scrubber. The article talks about great expectations from scrubber manufacturers and a very significant ramp up in inquiries.

We have also been experiencing strong pick up in inquiries and it seems like more and more ship owners are considering or have already taken the decision to install scrubbers. With all these reason for optimism that there will be a significant uptake in scrubbers we share that optimism.

Based on feedback from our customers and experts following the industry, we believe that it's likely that around 20% of the fleet will be retrofitted with the scrubber system by 2025. There are approximately 70,000 vessels worldwide affected by the new legislation.

And to all of that comes the newbuild market where analysts predict that the uptake of scrubbers will be even higher. This morning we announced the framework agreement with one of the world's largest manufacturers of marine scrubbers. The framework agreement provides that more than 95 systems are expected to be delivered in 2018 and 2019.

This agreement is very important step for us and we believe that it proves that our decision of dedicating most of our 2017 resources to the marine scrubber industry was the right one. Our long-term investments and references in the marine scrubber market has positioned us well with scrubber manufacturers and ship owners.

And we believe that this agreement is the first of more to come. It has been almost four years since we readdressed our business strategy and started our transformation of the company from being a supplier of components into a supplier of water treatment systems.

Besides the earlier mentioned marine scrubber business, we have also invested significant resources in identifying a number of other industries where our technology makes a difference.

We have done a lot of pilots in various industries and we have been successful in delivering large scale systems to applications within drinking water, agriculture, heavy metal removal, oil and gas and the power plant industry. The large scale references have now qualified as to be specified for further projects into these industries.

Right now, we are building a healthy pipeline with projects within all of these industries, and I believe that we'll receive that those will be an important part of our business in the longer term. We are now seeing the results from our long-term investments into the marine scrubber industry.

And of course the marine scrubber industry will also be our primary focus in 2018. We will however also dedicate more resources into the power plant industry. We have been successful in establishing ourselves into this industry in Denmark, and we are now planning to broaden this out to other geographical areas.

Our systems for power plants are very similar to the systems we have delivered for marine scrubbers and we also have significant advantages. We believe that the power plant industry could prove to be a future golden success for us.

As earlier mentioned, it has now been almost four years since we took the decision of transforming our business from a component supplier into a supplier of water treatment systems. It has certainly taken some time to identify the applications where our technology makes a difference and where we are able to offer a competitive solution.

We have been successful in getting large scale references in a number of industries that I mentioned before. This has allowed us to be specified for future projects. We are greatly encouraged by the success we are experiencing in the marine scrubber industry now and especially by the framework agreement announced earlier today.

We believe that it marks a turning point for our business and that 2018 will be the year where we complete the transformation of our company and turn the company profitable. We believe that our narrowed focus and the development of standardized water treatment systems has been the right choices.

It has taken us longer than we anticipated to change from our business, but we also believe that we have finally come to the end of the process. Having said this, I would like to now turn the conference over to Q&A session. Thank you very much..

Thank you. We will now begin to our question-and-answer session. [Operator Instructions] Our first question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your question..

Hi, Sune..

Hi, Eric..

Hello. Wanted to start with the framework agreement and it sounds like from your commentary. This is not exclusive, but I do want to confirm that.

And then could you also talk about whether there are any -- how this is structured and are there any minimum guarantees as part of the contract or the agreement I should say?.

Yes, what the framework agreement was is that it guarantees us a certain percentage of its customers' orders over the next two years. So, in that way we are guaranteed whatever orders or certain percentage of whatever orders they would receive in these two years.

As regards to the 95 number, that is the budget in the framework agreement and we believe it could be a realistic figure, we have seen pipelines from this customer.

It is one of the world's largest manufacturers of scrubbers, but again there are no guarantees, it just guarantees us the minimum percentage of all the orders they would receive in the two years..

Okay.

And they’re in the process of getting those orders now, or will soon?.

Yes, they have some orders in hand and all the orders they are in the process of securing..

Okay, got it.

Is this -- and I guess maybe it’s early and it's hard to project this, but is this something that I know it's split between 2018, 2019, I mean, it sounds like we should view this as much more of 2019 event is there -- are there any volumes you would anticipate in the second half of 2018?.

It is clear that 2019 will be higher number than 2018. On the other hand, we do see current ramp up in the scrubber market and it will be a continuous ramp up. So it's not like -- it's going explode 1st of January 2019, it will be a ramp up to then. So, some business -- a lot of business will come out of it already in 2018..

Got it, I mean -- already, that's helpful.

And then can you just remind us of that ASP, I think you have quoted that in the past, and I'm just wondering whether one or you supplying an entire system and what that mean for the ASP? And then are there any volume discounts as part of this agreement?.

Yes, the prices are fixed, so they can be renegotiated in 2019 they are fixed for 2018. In regards to the average selling price we have seen that the average selling price is constantly increasing.

Right now we offer our scrubber systems in six different sizes, in the beginning we saw that it was the smaller size episodes and we had an average selling price of $250,000, $300,000. What we see now is that scrubbers are being installed on larger and larger ships.

In fact, one of the orders we announced when we announced the large scrubber orders was for the largest what would be the largest containership in the world. So hence, the size of our systems is also going up and so is average selling price. So a good number for average selling price is $400,000 to $450,000..

Got it, okay, that’s helpful.

And then last one for me, just these are big numbers and I know in the past you’ve talked about the number that you think you could handle just remind us of the capacity that you’ve got? And if there was a need to expand what kind of CapEx you would be looking at?.

Yes, last year we came to realize that this would be a very significant ramp up that we would be facing. We spend a lot of time analyzing how to handle that and the decision was to no longer manufacturer in-house. So over the past six months we have set up a network of sub-suppliers and that would enable us to increase our capacity quite rapidly.

We will do sampling inside in-house, we will do testing in-house of course R&D, but otherwise everything will be manufactured outside. And this system really allows us to ramp up our capacity very quickly. It allows us to ramp up capacity I would say as much as we want because we can always use more and more sub-suppliers.

And what enables this is that we have come up with this modular standardized system. So the system is always the same regardless of what ship its installed. It’s only the number of kits involved in each system that varies.

So to answer your question in short, I think we would be able to handle any ramp up we would be facing of course there is some time needed, but we have already done a lot of work to identify these sub-suppliers, we have entered into an agreement with the sub-suppliers.

So we could quite rapidly increase volume and it could increase to meet whatever demand would be from the market..

Okay, thanks a lot..

Thanks, Eric..

Our next question comes from the line of Anthony Martiza, Private Investor. Please proceed with your question..

Yes, hi good morning. Congratulations on your win.

Question for you is balance sheet, will you need to raise capital in order to fulfill your 2018 or 2019 goals in the scrubber market?.

We have been handling I would say low cash position for quite some time now; we raised some capital back in November last year. We do not have any current plans to raise capital right now. We would have to wait and see how the market develops.

Again we have set up this network of sub-suppliers and it means that we actually have quite a good I would say cash management in each order, but again should we see massive ramp up, much more agreements, we could need to raise capital.

But right now it’s difficult to answer that question and this agreement alone does not raise the need for the capitalization of the company..

Okay, thank you.

And just a follow-up question to that you mentioned profitability during 2018 are you saying that you’ll be profitable for the full year or do you anticipate profitability for example in the next quarter?.

Thanks, Bob. When we did our budgets, it shows us that what we need this year to turn the company profitable besides the other business we have is 23 scrubber orders this year. And we believe that is not going to be easy that is a significant ramp up from where we are coming from, but we believe that it's likely that we could get to that one..

Okay, thank you. .

Thanks. .

Our next question comes from the line of Peter Penmartin [ph] from [indiscernible]. Please proceed with your questions. .

Hi, Sune. .

Hey, Peter. .

So just kind of flush out this framework, it sounds like this is -- I guess help us to find what this framework agreement actually means? Because it sounds like it's more sort of an order mechanism versus like we are going to work together in some sort of capacity.

So just help us understand what this really means? Because framework can be sounds like we're working towards working together whether it’s from your comments earlier sounds like you guys are going to be guaranteed of a percentage of their scrubber business.

So am I thinking about it right, or not?.

What this agreement means that we are absolutely guaranteed a minimum percentage of this customer's business over the next two years. So it's actually worth a lot more for us. And of course the 95 number is the low expectation from this company under this agreement. So the number could be higher. And there is of course also a risk that it could be low.

But the important thing for us is that it secures us a minimum percentage of whatever this business this customer would be doing over the next two years..

Okay, that's very helpful. And then what is your current scrubber backlog / order book look like.

Just help us kind of understand what you have in hand for the first six months of this year?.

Yes, we do have a backlog right now that means that we will see a ramp up in the first six months of this year compared to the second half of 2017. So second half of 2017 was already a ramp up, there will be a further ramp up in 2018.

In terms of numbers that could still change, we are still seeing orders out there for delivery actually in the first half of 2018. So that could still increase further from that level..

Okay.

And remind us how many scrubber systems you shipped in the first -- or the second half of 2018?.

We announced last year that we were planning to ship a minimum of seven systems in the second half of 2017. And we met those expectations..

Okay.

And going -- and so you think you will do better than that in the first half of 2018?.

Correct. .

Okay, got it. Okay, that's all I have. Thank you..

Thanks a lot, Peter. .

Our next question comes from the line of Matt Campbell with Laridae Capital. Please proceed with your questions. .

Hey, Sune good morning or good afternoon. Just wondering….

Good morning, Matt. .

Good morning.

This agreement that you have does this preclude you from signing any partnerships with any of the other manufactures of scrubbers?.

No, as I mentioned in my remarks, we have been working long-term with this customer. It is a very valued customer of LiqTech and we're very, very happy to enter into this agreement. But it does not preclude us from working with others and we are anticipating to sign more agreements and more orders in the near-term..

Yes, that's helpful. I got up a little late, but could you just speak to your other businesses a little bit more detail.

How are things going up at some of the other businesses?.

Yes, as you know we started to transform this company about four years ago. We made the decision to transform the company from being a supplier of membranes into a supplier of complete water treatment systems. We have been active in drinking water, agriculture, heavy metal removal, oil and gas, swimming pool industry and the power plant industry.

Where we have seen the most success so far in these all industries is in the power plant industry. We have actually been able to position ourselves quite well in Denmark we have delivered a good number of systems to power plants in Denmark and we see that it’s working very well.

The application is also for scrubbers and very, very similar to what we do in ships. The systems that we are selling are very, very similar. And so from a production point of view that is very helpful.

We plan on investing more resources into the power plant industry in 2018 and to take the success that we already have in Denmark and try to broaden that out to other geographic areas in 2018..

Great, thanks very much. Look forward to the progress..

Thanks, Matt..

There are no further questions in queue. I’d like to hand the call back to management for closing comments..

Thank you very much. I would just like to take the opportunity to thank everybody for dialing into the conference call today. We’ve had the chance to discuss both long-term and near-term opportunities we do realize that it has taken us some time to identify the right markets for our technology.

But with the development we now see in the marine scrubber industry and the framework agreement that we announced today we do believe that we have finally come to the end of the transformation of this company.

We do appreciate the continued support from all you shareholders and we will continue our hard work to establish our technology in the market and bring value back to our shareholders. Thank you very much for dialing in and thank you for your continued support. Bye-bye..

Ladies and gentlemen this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day..