LiqTech International (NASDAQ:LIQT), a clean technology company specializing in filtration and purification solutions, has reported a decrease in revenue for the second quarter of the fiscal year 2024, while laying out strategic plans for future growth. CEO Fei Chen emphasized the company's recent progress, including a significant order from a leading energy company in the US and partnerships aimed at expanding its market presence. Despite a 10% revenue drop from the previous year's quarter, LiqTech anticipates significant growth in the upcoming quarters, driven by increased activities in the oil and gas, marine scrubber, and swimming pool markets.
Key Takeaways
- LiqTech International received a significant order for a pilot water treatment system in the US.
- Partnerships have been established with companies in various industries to expand market presence.
- The company reported a 10% revenue decrease in Q2 2024 compared to the previous year.
- Gross profit margin stood at approximately 16%, with a revenue forecast of $4 million to $5 million for Q3 2024.
- LiqTech is focusing on aftermarket solutions, ceramic membrane sales, and plastic components to drive future growth.
Company Outlook
- LiqTech expects Q3 2024 revenue to be between $4 million and $5 million, with significant growth projected for Q4.
- The company aims to increase the throughput of existing facilities to accelerate growth and reduce lead times.
- A shift in focus to the US market is underway due to geopolitical instability in the Middle East.
Bearish Highlights
- Revenue for Q2 2024 decreased by 10% year-over-year, with declines in system sales, DPF sales, ceramic membrane sales, and plastic components.
- Three swimming pool system deliveries were delayed due to government funding issues in the UK and Australia.
Bullish Highlights
- LiqTech is optimistic about the marine scrubber market, expecting 400 new ships to be added between 2024 and 2027.
- The company is developing new channels and opportunities to expand its system aftermarket solutions.
Misses
- The company missed its revenue targets due to lower sales in system sales, aftermarket services, DPF and ceramic membrane sales, and plastic revenue.
- Gross profit margin was impacted by the revenue mix and the delivery of a containerized oil and gas pilot system.
Q&A Highlights
- The company is actively building partnerships to become more competitive in the Korean ship market.
- LiqTech is working on developing better aftermarket services for marine scrubbers and implementing a new service concept for the EGR market.
- An MoU with a Chinese partner for pilot testing of ceramic membranes has been signed to improve sales strategy.
Throughout the earnings call, LiqTech International's management team provided insights into their strategic initiatives and financial health. The company remains focused on preserving cash to maintain financial flexibility, ending the quarter with $5.5 million in cash. With the anticipation of a stronger fourth quarter, LiqTech is poised to leverage its partnerships and new market entries to rebound from the current revenue declines.
InvestingPro Insights
LiqTech International's (LIQT) recent earnings report, highlighting a revenue decrease, raises questions about the company's financial health and future profitability. InvestingPro data and tips provide additional context for investors considering LIQT's prospects.
InvestingPro Data shows a market capitalization of $13.65 million, which, while modest, gives a sense of the company's size within the industry. The P/E ratio stands at -1.57, reflecting investor sentiment about the company's earnings potential. Notably, the revenue has grown by 11.43% over the last twelve months as of Q1 2024, which suggests some underlying momentum in the business despite the reported quarterly revenue drop.
InvestingPro Tips highlight several concerns: LIQT is rapidly burning through cash and suffers from weak gross profit margins, which are reported to be approximately 14.57% over the last twelve months as of Q1 2024. Analysts are not optimistic about LIQT's profitability for this year, and the valuation implies a poor free cash flow yield. Additionally, the stock price has performed poorly over the last decade, with a significant hit over the last six months, indicating a longer-term bearish trend.
On the positive side, LIQT's liquid assets exceed its short-term obligations, providing some financial stability. The company operates with a moderate level of debt, which could be manageable with careful financial planning.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available that could provide further insights into LIQT's financial metrics and strategic positioning. These tips are accessible through the InvestingPro platform at https://www.investing.com/pro/LIQT.
Full transcript - LiqTech International Inc (LIQT) Q2 2024:
Operator: Good morning, and welcome to the LiqTech International Second Quarter Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.
Robert Blum: All right. Thank you very much, Rocco. Good morning, everyone. And as Rocco indicated, thank you for joining us for today's LiqTech International Second Quarter 2024 Financial Results Conference Call for the period ended June 30, 2024. Joining us on today's call from the company is Fei Chen, the company's Chief Executive Officer; and Phillip Price, the company's Interim Chief Financial Officer. Before I turn the call over to management, let me remind listeners that there will be an open Q&A session at the end of the call. [Operator Instructions] If you are listening through the webcast portal and would like to ask a question, you can submit your question through the Ask a Question feature in the webcast player, and we'll do our best to get to as many questions as possible. Before we begin with prepared remarks, we submit for the record the following statement. This conference call may contain forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed during the conference call. The company, therefore, urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of risks that may affect our business, financial condition, operations and cash flows. If one or more of these risks or uncertainties materialize or the underlying assumptions prove incorrect, the company's actual results may vary materially from those expected or projected. The company, therefore, encourages all listeners not to place undue reliance on these forward-looking statements, which pertain only as of this date and the date of the release and conference call. The company assumes no obligation to update any forward-looking statements to reflect any events or circumstances that may arise after the date of this release and conference call. Now I'd like to turn the call over to Fei Chen, CEO of LiqTech International. Fei, please proceed.
Fei Chen: Thank you, Robert, and good day to everyone on the call. I'm excited to once again get a chance to speak with you all today and provide an update on the progress we are making. Let me start by diving right into the announcement we made earlier this week where we announced the reciprocity of an order from one of the world's leading integrated energy companies to deliver a pilot system for produced water treatment in the U.S. This order is key for LiqTech as it becomes the second significant produced water treatment order we have received in the U.S. in just the past few months following the order we received in March 2024 from Razorback Direct, highlighting the capability our systems provide to the most challenging purification applications. The new pilot system is scheduled to be delivered to the customer in the third quarter of 2024, and will mark the third consecutive quarter in which we have received and delivered a produced water filtration system for the oil and the gas industry, joining the Razorback order I mentioned in quarter 1 and the commercial pilot unit to NESR in quarter 2. From a high-level perspective, the broader oil and gas industry and the U.S., in particular, is increasingly understanding the importance to use produced water to offset fresh water demand, both inside and outside the oil field. Our solution can be key to reducing OpEx for our customers and meeting their desire set forth to drive sustainability going forward. As I have stated, each of these 3 orders are considered pilot orders, whereby the initial objective is to demonstrate and document the efficiency of our unique silicon carbon ceramic ultrafiltration technology in treating produced water to facilitate reinjection and the beneficial reuse and meet current regulatory requirements with each customer in each specific area. The Razorback system is currently on site with the oil and gas customer. To date, the system has been running stably for more than 2 months with preliminary data highlighting that all requirements are being met. Assuming we are successful upon full testing with the new pilot unit, which we estimate would be approximately 3 to 4 months, it's our belief that 2 things will come out of it. Number one, each of the customers who are currently utilizing the systems will deploy new systems widely across their operations with significant larger treatment capacity. Number two, as this [indiscernible] customers deploy them in their operations, we will have strong commercial proof points to convince other companies to adapt our technology for their full commercial systems. When I took over as CEO about 2 years ago, I stated that oil and gas market would be a tremendous long-term opportunity for LiqTech. However, it would take some time to develop. With the progress made over the past 3 quarters, I firmly believe that we are on the cusp of something significant within this key target market for LiqTech. Another key initiative I laid out when I took over as CEO was to align ourselves with partners that can open up key markets for our solutions. It is a strategy that worked extremely well during my time with Topsoe and Grundfos and one that I thought would work well with LiqTech, given the unique diversification that our filtration systems can provide. As a small company, we simply cannot have an internal sales team that is aggressively targeting the multiple industry segments that our products can address. To that end, over the past year, we have signed the following distribution agreements. For the produced water oil and gas industry, we have signed up NESR in the Middle East and the Razorback Direct in the U.S., both of which have been key contributors to our recent progress within the industry I just touched upon. With the commercial pool system market, we have bought on Oxidine, Total Pool (NASDAQ:POOL), Waterco, Barr + Wray and [indiscernible]. Again, each of these partners has driven system sales for LiqTech, which I will go into more detail in a moment. Within the phosphoric acid market, we signed an agreement with Silicon Filter. They are an active dialogue with some food grade phosphoric acid producers in China. We continued this progress of bringing on partners that can help driving awareness and adoption of our solutions with particular progress made within the marine scrubber market. To that end, in May, we entered into a partnership agreement with Dan Marine Group to expand our presence in Chinese shipbuilding and repair market for marine scrubber water treatment as well as new exhaust gas recirculation water treatment system for dual-fuel marine vessels. The agreement also includes the servicing by Dan Marine Group of existing LiqTech marine installations, including fast delivery of spare parts and on-site repair work. Also in May, we announced an agreement with Franman, a well-established maritime representative to the shipping industry in Greece. Franman will bring LiqTech close to the various influential ship owners through its extensive network. In July, we announced an agreement with Danbee Marine, a South Korea-based maritime representative to the shipping industry. For Danbee to market our marine scrubber water treatment solutions within South Korea, the second largest shipbuilding market in the world after China. We are starting activities to recover the customer relationships we have in the market. These 3 new partners, along with our previously signed agreements with [indiscernible] in China from whom we received 2 marine scrubber water treatment system orders in the past year should help us expand our presence in this important market for LiqTech. One other partnership agreement I wanted to touch on was our announcement 2 weeks ago that we have entered into an MoU with China Haisum Engineering Company to explore the application of LiqTech's advanced filtration system for the challenged industrial water treatment in China. China is a significant market for industrial water treatment with environmental protection and sustainability of increasing importance to the government and the enterprises. I am excited about what this collaboration with China Haisum for light industry uses will bring LiqTech. Partnerships and collaborations will be a key for us going forward. They often take time to materialize, but we are beginning to see results with nearly all of them we have signed up over the past 18 months or so and believe we will see further positive impact in the years to come. As I highlighted in the press release this morning, we successfully delivered 5 swimming pool systems during the second quarter. The swimming pool market is an important recurring revenue opportunity for LiqTech. However, as I stated on the call last quarter, our budget and expectations we set forth for the second quarter included 8 swimming pool systems for delivery. Unfortunately, 3 systems anticipated to be shifted from municipal applications in the U.K. and Australia were delayed due to government funding, causing us to fall short by about $500,000 from the outlook we provided. One big deployment that will benefit the swimming pool market for us is the receipt of NSF certification for our systems in the U.S. For those that are not aware, we are unable to sell our commercial swimming pool solution in the U.S. as we work through this approval process. With the certification now in hand, we are in conversations with partners that will help drive adoption in the U.S. with the goal to have new agreements in place by the end of the year. So while we are disappointed with the delays from the 3 planned systems, the pool market continues to remain strong for us and will be a key contributor to our recurring revenue in the future. When you dig into the financial results, a few things may not be as obvious, and I think it bears mentioning. All told, we are seeing incremental growth in our system sales. During the second quarter, we reported $1.3 million in system sales, which is up from $1.2 million in the year ago second quarter and $1.2 million in quarter 1 of this year. Further, during the second quarter, DPF sales was $1.6 million, a 23% increase compared to the year ago period and up about 4% sequentially. As I mentioned last quarter, we are seeing increased interest in our DPF solutions within the European in-line transportation market as renewed focus on black carbon emission reduction occurs. We are also seeing strong sales for our filters for emergency electricity generators. Similar to pool systems, we are pleased with the growth coming from our DPF solutions, which, in many ways, was an afterthought for LiqTech previously but has become a solid contributor for us today. What I might call are 2 revenue areas, system sales and DPF sales, that are both showing growth. For quarter 2, system sales and DPF sales were up more than $400,000 combined year-over-year and $200,000 sequentially. Offsetting this growth were pullbacks during the second quarter within our system aftermarket solutions, which were down from the year ago period by about $300,000. Our ceramic membrane sales, which were down about $400,000 from last year and our plastic components, which were down about $200,000. While these other 3 areas are a bit less core to our focus, they are still contributors to our financial results, and we are focused on developing new channels and opportunities to expand these areas. Phillip will expand in more detail on this in a moment. To wrap things up, as our outlook suggests, we expect to see revenue of about $4 million to $5 million in the third quarter. At the midpoint, that would be similar to what we just reported in the second quarter. The biggest variables we have pertained to timing of deliveries on a few systems, particularly within the swimming pool market, it is my belief that as we achieve the expected traction within the oil and the gas market, I indicated, experienced a re-ramp in the marine scrubber market and continue the positive overall trajectory in the swimming pool market, we will see the fourth quarter significantly above the levels achieved or expected in the first 3 quarters of this year. The groundwork we have set in terms of partnerships, collaboration and the regulatory approvals should all help contribute to this growth. With that said, let me turn the call over to Phillip to review the financial results in more detail. Phillip?
Phillip Price: Thank you, Fei, and good morning, everyone. Now let me briefly comment on the financial highlights for the quarter. Revenue came in at $4.5 million compared to $5.2 million in the same quarter last year, representing a decrease of 10%. Broken down by verticals, sales were as follows. System sales and related aftermarket services of $1.9 million compared to $2.1 million in the same period last year and up sequentially compared to the $1.5 million in Q1. DPF and ceramic membrane sales of $1.7 million compared to $1.8 million in the same period last year and $1.8 million in Q1. And finally, plastic revenue of $0.9 million compared to $1.1 million in Q1 last year and $0.9 million in Q1. To be specific, the key revenue drivers for this quarter was the delivery of an oil and gas produced water pilot as part of our distribution agreement with NESR. The delivery of 5-pool filtration systems, along with stable contribution from DPF sales attributed to focused sales efforts that began in late 2023 and generated elevated activity in the current year. Our aftermarket services decreased due to elevated remediation work and associated deliveries in the same period in 2023, and the decline in plastics revenue relates solely to a large one-off sale that was recorded in 2023 without recurrence in the current year. In terms of forward guidance, as Fei mentioned, we expect the revenue for the third quarter of 2024 to be between $4.0 million and $5.0 million, which will be similar to the first 2 quarters of 2024. We remain committed to growing our business over the coming quarters as we work intensively to execute on our ambition to further penetrate the global oil and gas, chemicals and pool system markets with our proven and industry-leading solutions. Looking at our gross profit for the quarter. We reported $0.7 million on implied gross profit margin of approximately 16% compared to $1.2 million and 23.3% in prior year's second quarter. The unfavorable change is, first of all, a result of the revenue mix for the quarter. In particular, the delivery of the containerized oil and gas pilot system impacted margins resulting in a decrease compared to typical levels. This decision was strategically undertaken to showcase and validate the effectiveness of our technology. As we still have overhead and other fixed costs that are not fully being absorbed, one of the key metrics we look at to highlight the progress being made is our contribution margin. During the quarter, when you back out fixed costs, our contribution margin ended at approximately 46% compared to 52% in the same quarter reported last year with the unfavorable change mainly explained by revenue mix and especially the delivery of the containerized oil and gas pilot system, as mentioned before. From an operational perspective, we still have excess capacity with the recently installed new kilns and revitalization of our ceramic facility. Our immediate goal is to capitalize on this positive momentum by shortening delivering lead times while still maintaining the high quality of our membranes and filters. As previously stated, we still maintain our guidance that our business will be breakeven measured on an adjusted EBITDA basis, assuming a quarterly revenue of approximately $7 million and potentially lower with the right revenue mix. Turning to OpEx. Total operating expenses for the quarter was $2.8 million, which is comparable to the same quarter last year, with a slight increase of $38,000 or approximately 1.4%. As stated over the last few quarters, we remain focused on running a lean business by monitoring costs and carefully evaluating our spend to ensure we do not jeopardize our financial objectives. Moving on to the next item. Net other expenses during the quarter were $39,000 compared to an income of $33,000 in Q2 of last year with the development mainly explained by reduced interest income as well as increased discount amortization due to the extension of the maturity date for the senior promissory notes. Concluding on the P&L, net loss was $2.1 million for the quarter compared to $1.6 million for the comparable period in 2023. This quarter's result was mainly driven by the decrease in revenue and lower margins. Finally, let me briefly comment on our cash flow and balance sheet before summarizing and handing back over to Fei. We ended the quarter with $5.5 million in cash, down $2.2 million compared to the first quarter, explained by cash used in operating activities and increased net working capital mainly related to the increased activity levels and CapEx of $0.2 million related to replacement of kiln insulation. To summarize, balancing our cash flow remain a key KPI for our business as we are determined to preserve cash to maintain our strategic and financial flexibility. We also acknowledge that we need to increase the throughput of our existing facilities in order to accelerate growth, reduce lead times and ultimately pave the way to a business in balance from both the net income and cash flow perspective. Thanks, everyone, for your support, and now back over to you, Fei.
Fei Chen: Thank you, Phillip. As I mentioned and as Phillip elaborated on, we have experienced nice growth within our system sales and DPF business year-over-year and sequentially. The change in revenue from the year ago quarter is entirely due to deliveries of plastic products, ceramic membranes and aftermarket sales. We recognize the top and the bottom line numbers of what people will focus on. However, I would like to point out that we are making progress within our core growth initiatives to drive new system sales and expand our DPF operations. Importantly, we have a wide range of initiatives in place to continue this growth with new partnerships, collaborations and regulatory approval in place. However, it should be clear that my biggest excitement right now is the progress we are making within the produced water treatment for the oil and gas industry. Quarter 3 will be our third consecutive quarter with a new produced water system being delivered. We are optimistic that successful execution of this pilot unit will lead to significant opportunities for LiqTech in the quarters to come. One final comment before I turn it over to your questions. I will be participating in the H.C. Wainwright Conference and conducting one-on-one meetings with investors in New York on September 9. If you happen to be attending and would like to connect, please to reach out to Robert Blum to coordinate. Further, I will be conducting virtual one-one-one meetings at Lytham Partners' 2024 Investor Conference on August -- October 1, again, reach out to Robert to coordinate. With that, operator, we would be happy to take any questions.
Operator: [Operator Instructions] Today's first question comes from Rob Brown at Lake Street Capital Markets.
Rob Brown: First question on the produced water market and the pilot, what's the time line for that pilot evaluation and I guess the kind of next steps or opportunity that this customer represents?
Fei Chen: The pilot, we are going to -- I mean, we're delivering in quarter 3. We're taking about 3 to 4 months to finish the testing. And after that, we expect to see some progress in that direction.
Rob Brown: Okay. Great. And then the kind of valuation metrics that you're looking at, I guess, maybe if you could just remind us on kind of what you're looking for or what the customer is looking for and what you sort of evaluate when you do these pilot programs?
Fei Chen: So Rob, can you repeat your question? That was not very clear.
Rob Brown: Sorry about that. I just wanted to clarify the -- as you evaluate these pilot programs, what are the key things that you and the customer are looking for in terms of the ability of the system and what are they really evaluating on these pilot programs?
Fei Chen: Okay. Okay. I mean what they really like our system is our system is -- have a very high mobility and also very reliable and also very automation. It's totally digitalized. We're able to have the remote monitoring and the control automation and the membrane is a very stable quality. So the pilot we have together with Razorback, at our customer site, it has been running more than 2 months, and the membrane has extremely stable quality and lifetime and the water purification result is very good and stable. So this is what they're evaluating. So it's -- basically it's the reliability, it's mobility and automation.
Rob Brown: Okay. Great. And then on the U.S. pool market, you talked about getting the NSF certification. Maybe give us some more color on what that means in terms of being able to sell into the market and your expectations or what you think the pipeline looks like in the U.S. market?
Fei Chen: We are very excited to get this NSF certification because that means we're able to start going to the U.S. market. But we have already, behind the scene, doing the go-to-market planning. So it's not like we just start now. So right now, we have the plans in place. So we're going to start approaching the potential partners already from now. And it is our intention. We would like to have some partners in place by the end of this year. So we're able to really start going to the U.S. market.
Rob Brown: Okay. Good. And the U.S. -- or sorry, the pool system order that you talked about in the U.K. and Australia that did not ship in the quarter, the 3 systems. Do you expect those to ship in, I guess, the rest -- sometime in the rest of the year, Q3 or Q4? Or are those sort of on hold for a while?
Fei Chen: They are delayed because of the government funding. And unfortunately, you know how the government are, they don't give you a new date, say, when it's going to come in. So from a conservative point of view, we try to make some other opportunities to replace them. And we don't know if they certainly will come to Q3, Q4 or maybe they will postpone to Q1, Q2 next year. So we try to make some other compensation from other opportunities for the [Technical Difficulty] because we don't get a certain date from the government, say, when this will come.
Rob Brown: Okay. Good. And my last question is really on the -- some of the partnerships you've developed in the, I guess, the Korean ship market partnership in particular. How do you see that playing out in the scrubber ramp and the marine ramp?
Fei Chen: I really think we have very good opportunity for this new scrubber segment for the EGR for dual-fuel engine ship. And those ships, expect in 2024 to 2027 period will be 400 new ships coming to place in this special segment. And our solution is really very good for this segment. We actually have made some modification to really have a much higher capacity and the longer continued operation, and this is something very unique compared with other competitor solution in the market. So in this way, we believe we have very good opportunity able to go into this segment very strongly. So that's why we are actively building up the partnership in this area. And also, we're also very actively working into the most effective way going to the market and if there's any other business model should be applied for really going -- intensively going to this market because the market is coming up now. And for the next 4 years will be really, really interesting. So I hope I can tell something more in the next quarter, and we are really strongly going back there.
Operator: [Operator Instructions] Our next question comes from Lucas Ward at Ascendiant Capital Markets.
Lucas Ward: Fei, Phillip and Robert. So regarding the full year outlook, it sounds like you're expecting a similar type of revenue run rate for Q3, although Phillip gave a fairly wide band there, but a much better Q4. Do you have a target for the full year that you can share at this point?
Fei Chen: I mean, we have shared the quarter 3 prediction. And we don't -- we do not want to tell what is the Q4 look like because it's really going to be a big, bigger quarter, and we need to see something fell into place before we have the certain number, but it's definitely going to be a much better quarter than the first 3 quarters. That we can say.
Lucas Ward: Okay. How about gross margins? How do you see those trending? It looks like it was 16% for Q2, so they seem to be coming up relative to last year, certainly relative to late last year.
Phillip Price: Yes. So gross margin is connected with the revenue because we have fixed cost and then we have our variable cost. So whenever the revenue is lower than the same quarter last year, as you compared it to, the gross profit margin would be lower. But as I also mentioned, we are also monetizing our contribution margin, which is still about 45%.
Lucas Ward: Okay. Yes. That's an internal figure, right? Like would it be possible for us to calculate that, from the numbers that you report?
Phillip Price: Not at this moment, no.
Lucas Ward: Okay. That's fine. And so just looking at the drivers of the revenue, it looks like the aftermarket solution sales were soft. What drives that? Like what impact -- I mean, if we're selling a lot of systems, why wouldn't the aftermarket solution revenues just sort of track with that?
Fei Chen: I mean up to now, our aftermarket service primarily is the marine scrubber. And that's also one of the reason why we signed this contract with Dan Marine Group. And in the past years, after we have shot the marine scrubber, we have not been very good at the setup, the aftersales, both the system and the sales channel. And so we missed opportunity there. And what we're really now trying to see is we really believe the aftermarket for the marine will come back. And the Dan Marine Group will be the one to help us with the fast delivery and also very close to the customers. And for the new marine scrubber market, the EGR market, we're also working on a new service concept. So in this way, we were able to, from the beginning, already have a service package with the customer, and that will also be the case with the oil and gas market. We also intend to have a service package agreement with the customer from the beginning when we start selling the commercial project. So the aftermarket is really under development. And this is what we see, the unstable situation.
Lucas Ward: Okay. Could you comment on the geopolitical situation? I know this is a problem in Q1. The war was impacting your O&G prospects in the Middle East. Is that still an issue on your radar screen?
Fei Chen: Yes. That's actually one of the big reason why we have moved our focus primarily to the U.S. market I'm sure because we believe the geopolitics situation is really unstable, and we don't know what's really happening. So we now change to a more stable market and we also see the U.S. market actually is coming up with a lot of traction for the produced water treatment. So we are very happy actually we made this change, and we can see the results already.
Lucas Ward: Okay. Got it. Could you comment in general on the ceramic membrane business? Historically, this has been a big segment? Like what are the -- what is the growth outlook for it?
Fei Chen: I think what we are now investigating is we have been a manufacturer for ceramic membrane for more than 15 years. But the way we're selling our ceramic membrane has been a little bit ad hoc. So we don't really have a very systematic knowledge about the -- how we should selling our membrane and how is the price setting and what is really the most competitive way to do our membrane selling. So this is what we are now working on very systematically to getting the knowledge and also trying to find the right partners to bring our membrane into the market because our membrane is in high end and it's for some special applications. So that's where the place we have to be very sharp on. So this is one of the reason why we have signed this MoU with this Chinese partner called Haisum because they have some very unique applications. We are now doing the pilot testing with them. So I hope in a quarter or so I will be able to present some results there. This is the way we're going to do it. It's more selective and more focused, and really have much more max knowledge about what's the best way to selling our membrane.
Operator: Thank you. We're showing no further questions at this time, so I'd like to turn the conference back over to management for any closing remarks.
Fei Chen: Thank you all very much for being with us today. We look very much forward to communicating with you soon again in next quarter. Thank you.
Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
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