Executive Summary / Key Takeaways

• LiqTech International is leveraging its proprietary silicon carbide filtration technology to target high-value, demanding applications in water treatment (oil & gas, lithium brine, marine) and diesel particulate filters (DPFs), aiming to capitalize on performance advantages over competitors.
• Recent performance shows promising traction in strategic areas, including a record commercial oil and gas system delivery in Q1 2025 and progress on multiple pilot projects in emerging markets like lithium brine extraction and microplastics removal, seen as precursors to larger orders.
• The company is actively expanding its market reach through a partnership-driven strategy, notably establishing a joint venture in China for the marine market and securing new distribution agreements in the U.S. pool sector following NSF certification.
• Despite Q1 2025 gross margin pressure from specific project development costs and manufacturing underutilization, management expects profitability metrics to improve in Q2 2025 and throughout the year, driven by sequential revenue growth and the full effect of implemented cost reduction initiatives.
• With a lowered adjusted EBITDA breakeven target of $5.5 million to $6.0 million in quarterly revenue and a stated goal of achieving profitability later in 2025, successful execution on the growing pipeline of pilot and commercial projects is critical for improving cash utilization and delivering shareholder value amidst ongoing macroeconomic and operational risks.

The High-Stakes World of Advanced Filtration: LiqTech's Silicon Carbide Edge

LiqTech International operates at the intersection of clean technology and industrial necessity, specializing in advanced filtration solutions built upon its core expertise in silicon carbide ceramics. Founded in 2000, the company has dedicated over two decades to developing and manufacturing products designed for demanding gas and liquid purification challenges. Its business spans three segments: Water, Ceramics, and Plastics, though the strategic focus under CEO Fei Chen, who took the helm around late 2022/early 2023, has increasingly centered on leveraging its unique silicon carbide membrane technology for high-value applications within the Water segment, particularly large systems for industrial water treatment, oil and gas, and marine markets.

The industry landscape is populated by large, diversified players like Xylem (XYL), Pentair (PNR), Donaldson (DCI), and Danaher (DHR) (through its Pall brand), alongside smaller niche competitors. These giants often offer broader product portfolios and benefit from significant scale, distribution networks, and financial strength, reflected in their typically higher gross and operating margins compared to LiqTech's current profile. For instance, while LiqTech's gross margin stood at a modest 2.7% in Q1 2025 and 1.7% for the full year 2024, competitors like Xylem and Pentair operate with gross margins in the 35-40% range, and Danaher's Pall brand boasts margins exceeding 50%. This disparity highlights LiqTech's current operational inefficiencies, including manufacturing underutilization, and the impact of development costs associated with complex, first-of-a-kind systems.

However, LiqTech's strategic approach is not to compete head-on across the board but to target specific, challenging applications where its proprietary silicon carbide technology offers a distinct, often quantifiable, advantage. This technology forms the bedrock of its competitive moat. Silicon carbide membranes are inherently durable and perform exceptionally well in harsh environments – conditions that can quickly degrade conventional polymer or ceramic filters.

The tangible benefits of LiqTech's technology are critical to its value proposition:

• Superior Performance in Demanding Conditions: In oil and gas produced water treatment, where chemical treatment is a major, expensive, and unstable alternative, LiqTech's silicon carbide membrane systems are presented as uniquely capable of providing stable, high-quality treatment enabling water reinjection and reuse. Management commentary suggests competitors' membranes have failed in this challenging application, while LiqTech's demonstrate superior, stable performance.
• Enhanced Efficiency in Emerging Applications: In the nascent lithium brine extraction pretreatment market, LiqTech's system is proving effective in enhancing the efficiency of downstream ion exchange processes by delivering water quality that ensures only lithium ions react with the exchange media. This positions LiqTech as a critical component within the production process itself, not just a wastewater treatment step.
• Durability and Continuous Operation: For marine exhaust gas recirculation (EGR) water treatment in dual-fuel vessels, the requirement for continuous operation is paramount. LiqTech's modified silicon carbide solution offers higher capacity and longer continuous operation compared to many competitive technologies, able to run 24 hours with minimal cleaning downtime. This reliability is a key differentiator in an application driven by engine performance requirements rather than just regulatory compliance.

While precise, directly comparable quantitative performance metrics across all competitor product lines are not publicly detailed, management's emphasis on the technology's durability, stability, and performance in specific demanding niches underscores its strategic importance. Research and development efforts, though streamlined and centralized, continue to focus on leveraging this core technology for new applications, such as microplastics removal from industrial wastewater, currently being explored through a pilot project. The "so what" for investors is that this technological edge, while not guaranteeing immediate financial parity with larger rivals, provides LiqTech with access to potentially high-margin, specialized markets where its solutions can command a premium and offer a compelling value proposition based on operational benefits for the customer.

Building Momentum: Strategic Partnerships and Pilot Pathways

Recognizing the need to effectively penetrate diverse global markets despite its relatively smaller size, LiqTech has strategically embraced a partnership model. This approach, championed by CEO Fei Chen, aims to leverage the established networks and local expertise of partners to accelerate market adoption. Over the past couple of years, the company has built a network of distributors and collaborators across its target verticals.

In the critical oil and gas sector, partnerships with Razorback Direct in the U.S. and NESR (NESR) in the Middle East have been instrumental. The relationship with Razorback Direct culminated in a significant milestone: a record commercial order for PureFlow mobile units for a North American customer, recognized in Q1 2025. This order followed a successful pilot program, validating the company's strategy of using pilots as a pathway to commercial deployment. Management views this commercial system as a crucial reference point to potentially shorten sales cycles for future orders, although acknowledging that some customers may still require their own pilot testing.

The company currently has multiple pilot projects underway across various promising applications, seen as leading indicators for future growth. These include:

• An extended pilot with a leading technology company for lithium brine extraction pretreatment in the U.S., with an expanded scope to gather data for commercial design.
• A pilot with a world's leading integrated energy company for oil and gas water treatment in the U.S., which has also seen its rental period extended to collect additional performance data.
• A pilot with a U.S. petrochemical company exploring microplastics removal from wastewater.

These pilots, if successful, are expected to transition into larger commercial orders, providing significant revenue opportunities beyond the base business.

The marine market, historically a significant area for LiqTech, is seeing renewed strategic focus, particularly in China. The establishment of a joint venture (90% owned by LiqTech) with JiTRI in January 2025 is a cornerstone of this effort. Located in the key Chinese shipbuilding region, the JV aims to provide local presence, access to networks, and eventually localized assembly. Recent progress includes receiving supplier approval for the WinGD dual-fuel engine Water Treatment System in February 2025, successfully completing a pilot test in March 2025, and securing the first new marine scrubber orders in over 1.5 years in May 2025. A new framework agreement for aftersales support also targets capturing profitable service revenue from the installed base of marine systems.

In the commercial swimming pool market, where deliveries fell short of expectations in 2024 partly due to internal sales performance issues and municipal funding delays, the company is actively building new distribution channels. The receipt of NSF certification for its systems in the U.S. in late 2023/early 2024 was a prerequisite for significant expansion, leading to a new distribution agreement with NAF Aquatics in May 2025.

The Ceramics segment, including DPFs and ceramic membranes, saw a decrease in sales in Q1 2025, attributed to temporary market conditions like customers awaiting potential interest rate cuts. However, management noted a "nice uptick in orders" in Q2 2025 and expects growth in this segment. The Plastics segment continues to perform well, showing sequential and year-over-year growth in Q1 2025 and outperforming expectations.

Financial Performance and the Push for Profitability

LiqTech's financial performance in Q1 2025 reflected the impact of strategic deliveries and ongoing operational dynamics. Revenue increased to $4.62 million, up 9.0% from $4.24 million in Q1 2024 and a significant 36% sequentially from Q4 2024. This growth was primarily driven by the Water segment, which saw revenue jump to $2.69 million in Q1 2025 from $1.55 million in the prior year period, largely due to the U.S. oil and gas system delivery. The Plastics segment also contributed positively, with revenue rising to $969,973 from $880,342. However, the Ceramics segment experienced a notable decline, with revenue falling from $1.81 million in Q1 2024 to $953,846 in Q1 2025.

Gross profit in Q1 2025 was $125,056, resulting in a gross margin of only 2.7%, a decrease from $271,102 (6.4% margin) in Q1 2024. This decline was primarily attributed to the low margin on the large U.S. oil and gas system delivery, which incurred significant associated development costs, and the underutilization of manufacturing capacity stemming from the lower Ceramics and DPF sales volume. Despite the low reported gross margin, the company highlights its contribution margin (excluding fixed overhead) as significantly higher, indicating that profitability improves considerably with increased volume and better absorption of fixed costs.

Operating expenses remained relatively stable at $2.31 million in Q1 2025 compared to $2.32 million in Q1 2024. Selling expenses increased due to costs associated with the new China JV and lower prior-year sales commissions, while general and administrative expenses decreased due to reduced recruitment and consulting costs. R&D expenses also saw a slight decrease as the function was streamlined. The net loss for Q1 2025 was $2.36 million, comparable to the $2.39 million loss in Q1 2024.

Liquidity remains a key focus. As of March 31, 2025, LiqTech had $10.45 million in cash and restricted cash, down slightly from $10.87 million at the end of 2024. Net working capital decreased to $15.40 million from $15.74 million. Cash used in operating activities was $1.30 million in Q1 2025, an improvement from $1.96 million used in Q1 2024, reflecting better management of working capital despite the net loss. Financing activities provided cash, primarily from a $1.09 million related party loan from the JV partner and a $13.8k capital contribution from the noncontrolling interest. The company believes its current cash position and expected cash from operations are sufficient for the next 12 months, though this is subject to significant macroeconomic and market uncertainties.

In response to historical operating losses and the need to achieve sustainable financial health, LiqTech implemented a comprehensive cost reduction strategy in Q4 2024, with the full effect realized in Q1 2025. These measures, including headcount and senior management salary reductions, have lowered the adjusted EBITDA breakeven target to a quarterly revenue run rate of $5.5 million to $6.0 million, a significant improvement from the previous $6.5 million to $7.0 million target.

Outlook, Risks, and the Path Forward

Management is guiding for continued sequential revenue growth in Q2 2025, with an expected range of $4.8 million to $5.2 million. This growth is anticipated to be more diversified across segments, including contributions from pilot rentals, pools, Ceramics/DPFs, Plastics, and aftermarket sales. The full effect of cost-saving initiatives and expected improvements in manufacturing utilization as revenue increases are projected to lead to improved profitability metrics in Q2 2025.

Looking ahead, the company aims for continued growth throughout 2025, expecting contributions from across segments and the potential realization of revenue from large projects stemming from successful pilots. The delayed $1.5 million oil and gas project is expected to be delivered in the first half of 2025, and successful outcomes from ongoing pilots in oil and gas and lithium brine could lead to commercial orders later in the year. The goal is to surpass the lowered $5.5 million to $6.0 million quarterly revenue breakeven target and achieve profitability later in 2025.

Despite the positive momentum in strategic areas and the push for profitability, several risks could impact LiqTech's trajectory. Macroeconomic uncertainty, geopolitical instability (which has already led to a shift in focus for O&G from the Middle East to the U.S.), trade restrictions and tariffs, and supply chain disruptions remain potential headwinds that could affect customer investment decisions and operational costs. Dependence on a few major customers and the ability to secure raw materials at competitive prices are ongoing considerations. The long sales cycles for large systems mean that delays, as experienced in Q3 2024, can significantly impact quarterly results. Furthermore, the company has identified material weaknesses in its internal controls over financial reporting, which management is actively working to remediate, but full remediation requires sustained effective operation of controls over time. Competition, particularly from larger, more financially robust players, remains a factor, although LiqTech aims to differentiate through its technology in specific niches.

In conclusion, LiqTech International is at a pivotal juncture. Armed with a differentiated silicon carbide technology and a focused strategy targeting high-value, demanding applications, the company is building a pipeline of opportunities through strategic partnerships and pilot programs. Recent performance, particularly the record U.S. oil and gas delivery and progress on emerging market pilots, suggests this strategy is beginning to yield results. Coupled with aggressive cost reduction measures aimed at lowering the breakeven point, the company has a clearer path towards profitability. The key for investors will be monitoring the successful conversion of the growing pilot pipeline into commercial orders, the sustained growth across its diversified segments, and the effective execution of its cost control and operational efficiency initiatives, all while navigating the inherent risks in its target markets and global economic environment.