Aquaporin A/S (00B.F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Natalie, your Chorus Call operator. Welcome, and thank you for joining the c presentation of half year 2022. [Operator Instructions] I would now like to turn the conference over to Matt Boczkowski. Please go ahead.

Good afternoon, everyone. My name is Matt Boczkowski, Chief Executive Officer of Aquaporin and I'm joined by Klaus Juhl Wulff, our Chief Financial Officer, to present the results for the H1 2022. Before we start, just a quick word on the forward-looking statements. Some of the statements disclosed here might be forward-looking. So we just want to be transparent with that to the audience. Aquaporin is a pioneer in water technology, we are committed to solving global challenges by rethinking water filtration with biotechnology. We are dedicated to natural water treatment, and the company is listed on the NASDAQ and Copenhagen under the ticker AQP, and has operations in Denmark, Singapore, Turkey and the United States. Our solutions and products are based on one core technology, which is called Aquaporin Inside. And this technology is something that is bridged with engineering with standard membranes, and this allows us to provide products to 3 industries, namely drinking water, industrial water, and food and beverage. These also constitute our 3 major business areas. Although we are based in Denmark, our solutions are global and hence service our customer base. We are 86 employees strong presence in 4 countries with a strong cornerstone investors. Now moving to business highlights for H1 of 2022. Our overall commercial traction has been strong throughout the first year -- throughout the first half of the year. We have had revenues of DKK 13.1 million, which is about 50% more when you compare that to the full year revenue for 2021. Now we have made also great strides in product development across all categories and have advanced our technologies in both drinking water and different segments of Forward Osmosis. We have also reinforced our executive management team by hiring Klaus, our new Chief Financial Officer. Now before and really operates in the 3 distinct areas, the first one being our core technology and innovation, which is what allows us to have a unique selling proposition in the market. We are also in the drinking water with our Reverse Osmosis technology and with our Forward Osmosis technology, we participate in the food and beverage and industrial water industries in niche segments. So there's been quite a few highlights in the first half of 2022 that I would like to bring to your attention here. We've made significant progress towards the second generation of our reverse osmosis membranes, which allows us to deliver solutions that are more energy efficient to the market. We've also made progress in protein encapsulation technology, which allows us to deliver proteins to our membranes, and this is something that drives innovation and drives the performance of our products. We have made collaborations on the core technology and innovation side as well through our open innovation initiatives. And we are aligning more and more of those collaborations so that we spend about 80% of the time on our core activities and 20% of the time on new activities, which we'd like to call internally game changers. Now moving to highlights in drinking water and reverse osmosis. I think one of the highlights for us here is that the Vestel products have been launched under the Rafine brand in Turkey. We do not have the sales number of this launch yet, but we have been told by Vestel we ranked quite high in terms of working with Aquaporin and the overall collaboration with our company. So we're extremely proud of that. We've also have achieved repeat sales with various customers. We have mentioned this with our customer, Philips with whom we are co-branding the Aquaporin Inside and Philips purifiers. But also with the customers like Ecotip in Macedonia, whom we've achieved repeat sales as well as Diamond Drops in India for servicing to school segments with our purifiers. So again, very happy to be trusted by those customers. In the brackish water reverse osmosis segment, which is the segment that looks at treating wastewater or waters that are of a lower salinity than seawater, we have made also progress in both 4-inch elements and 8-inch elements. These are membrane elements that are used in the various industries and we now have these products in a few pilots that we are evaluating for both performance but also longevity. And lastly, in drinking water, the highlight I'd like to bring to your attention is in product development, we've made really good progress on both purifiers for the kitchen segment but also for under the sink segment. And we are hoping to introduce these purifier stores at the end of the year or at least have prototypes that are close to being a finished product. A lot of this activity has taken place during H1 of the year to get them to where we are today. And we have quite a clear line of development for the remaining of 2022. Moving to forward osmosis, which is where we tackle challenges in both the Food & Beverage and Industrial Water segment, we sold 2 systems, one to a large U.S. beverage customer and one to a leading Chinese water technology company, where we are tackling wastewater from chase. Both of those systems are being commissioned, and they could lead to either repeat business or scale up. But again, it is too early to tell today since we are only in the commissioning phase. We've entered into strategic alliances such as the one we've advertised Wafilin and Berghof under the food and beverage space and Forward Water in Canada in the lithium space as well as some areas of wastewater treatments such as [ produced ] water and oil and gas. So Forward Water is going to be promoting our products into these segments, and we're extremely proud to be working with them on some tough to treat applications. We've initiated a partnership with Flavourtech in the aroma segment in Food & Beverage. Flavourtech is a leading technology provider in this space. And again, we are extremely proud to be included as part of their portfolio to tackle some of the challenges and to propose some of new technologies to the food and beverage industry. We've advanced the development of our FO product towards the second generation. We spent a lot of time on that during the first part of the year. And again, we hope that by the time that we closed 2022, we're going to have a prototype that is being ready to be offered in the beginning of 2023 or towards the middle of 2023. Now moving to the next slide and talking a little bit about our strategies coming to life. This particular slide focuses on product development position in positioning, which, again, is part of our commercialization effort, which is a big pillar of our overall strategy. On the left-hand side, you see a new product that we will be introducing to the market. It is a product that we've been developing during the first part of the year, and it's driven by the need to address issues such as PFAS removal from drinking water, bacteria, viruses, parasite removal and hardness reduction. All of these, which are really current trends in the industries -- in the industry are going to be addressed by this unit. And once again, we are hoping to have this unit ready by the end of this year. I'll also mention that this is a proof of how we are converting proof-of-concept products for manually viable products into flagship products. And what this means for us is that we are learning quite a lot about the purifiers that we currently have in our portfolio. And this leads us to develop products where we understand that we cannot have [indiscernible] restrictions that we have to know how to work with the minimal bubbling on volume quantities. And so this allows us to choose suppliers that are able to work with us under those terms, and we are extremely proud of the progress that we've made in H1 towards that. We also have advanced on the regulatory space in both drinking water and Forward Osmosis. So having our products approved in -- by certain regulatory bodies is necessary to operate in the food space in the drinking water space, and each country has its own way of getting -- giving approval. And so we have made a lot of progress there as well. And overall, I would say we have quite an ambitious time line for product development that we launched at the beginning of 2022, and that we progressed nicely over through the first half, and we have a clear path towards the end of 2022 to deliver prototypes or final products. We've also increased our focus on niche segments in Forward Osmosis. This includes aroma, aroma adjacencies, which means areas that we can treat with the same products as we are using for aroma, biogas, leachate and select key accounts. What's really important to highlight here is that we took extreme care to ensure that we have customers that are aligned in each one of those segments. And that is also part of how we want to focus in Forward Osmosis that we develop in areas where we have a clear path to market, although we have a clear path to a proof-of-concept with customers or key accounts. Lastly, I want to highlight that by the end of 2022, we hope to have a very exciting drinking water portfolio, including a newly complete kitchen unit, purifier, second-generation membrane flat sheet and membrane elements. And last but not least, we are also working on enabling our devices with -- to be connected so that we can give our customers the ability to know how much water they're consuming and to be more in tune with consumption and production patterns. This is quite important from a sustainability point of view since it all starts with awareness and awareness comes with data and knowing how you're consuming your water. Moving to the next slide on our strategy and what we've done in the first part of the year and how this positions us for growth for the rest of 2022. Here, I will be focusing on making an impact working with partners, geographic expansion and branding. At the level of making an impact, we estimate that roughly 50,000 homes and schools will help Aquaporin Inside water in their establishments. This is going to be primarily driven in countries like China, India and Turkey, where we have had the majority of our development. And we hope that this is going to drive better and healthier drinking water for the people that are using the Aquaporin Inside water, but also to offset some of the plastic pollution that could be generated should these customers be resorting to plastic bottles if they did not have the Aquaporin Inside purifiers. So it's a small dent in a problem that is quite large when it comes to having access to drinking water. But we are very proud of making this difference, and we want to continue in that thing in the remainder half of the year. In terms of geographic expansion, we have -- we are seeing the beginning of revenue from different segments in the United States both from FO and RO. So again, we are very proud of having accomplished this in the first half of the year and are excited about driving this in the second half of the year, and we are actively recruiting for a commercial business developer in the U.S. to help us drive this further. We've also acquired -- we also opened a liaison office in Turkey. This is an office that allows us to get closer to our Turkish customers and also to have access to the Turkish labor force that then brings us closer to operating in the Balkan region as well as the region in the Middle East. Our strategy around the contract manufacturing and joint development partnerships is really paying off. We are able to pilot products, codevelop products fast, bring them to the market, test them, evaluate them and then make a decision on whether we continue in the direction or not. We're able to also test various different suppliers to see which ones are our most complementary to Aquaporin's business lines in both food and beverage -- segments of industrial water and in drinking water. Lastly, as a level of branding, we've been increasing our exposure through conferences, through online events and throughout different forms of advertising and sponsorships with key accounts. One of such events that will be taking place on September 13, is at [ entire cinema ], which is a part of our -- of what we are showcasing at the IWA Conference during the week of September 12. And for any of our guests here on the call today, you are mostly invited to attend this event. And should you want to do so, please send us an e-mail at [email protected]. I will now pass it to Klaus to walk you through the results and outlook for H1 of 2022. Thank you.

Good afternoon, everyone. As Matt mentioned, the first half of 2022 was strong commercially. And overall, we are satisfied with our results. Q2 continued the positive growth trend we saw in Q1 and from H2 2021. Revenue in the first half was DKK 13.1 million, as mentioned. That represents a year-over-year growth of 360%. And after 6 months, we are already having reported revenue being 47% higher than the full year revenue of full 2021. The commercial traction is, as mentioned, largely coming from repeat revenue with strong international customers, which really gives us a good consolidation going forward. To support our growth journey and the path to achieve profitability, we and the management plan to investigate options to raise further capital. This will happen in the second half of 2022. On top of this, we have a very strong cost controlling case, which allows us also to mitigate some of the challenges we see in the market. If we go to the income statement, I said the revenue was DKK13.1 million, DKK 7.9 million of that revenue came from drinking water with majority, as I said, been repeat revenue and the rest is from business development projects and pilots within Industrial Water and Food & Beverage. The cost base still represents an increased cost to support the commercial focus and follows our plan. We have seen increased costs for logistics, consumables, et cetera, but these will have to an extent managed to offset to the tight cost control. The EBIT results for the first half of 2022 was a loss of DKK 53.7 million versus a loss in the first half of 2021 of $82.6 million. The first half last year of 2021 was impacted by special items from becoming listed on NASDAQ Copenhagen. The result -- the EBIT result for the first half is in line with plans. Due to changes in organization and increased costs from being listed, there are movements within cost lines with blurs year-over-year comparisons on specific lines, but overall, the cost base is comparable. Regarding our balance sheet, we had at the end of the first half cash on hand of DKK 79.6 million. This is sufficient to support our operations for the next 12 months. But as mentioned earlier, we management plan to investigate options to raise further capital to fund our onwards growth and get into profitability. Our trade receivables at the end of the first half was impacted by a significant part of the Q2 revenue being inwards late in the quarter and not yet due for payment from the customer as of June 30. Our equity ever first half was DKK 217.6 million, and we continue to not have any loans or borrowings in our business. Cash flow. First half, as I said, was impacted by higher working capital due to the higher invoicing in the quarter and also the timing of that because we have a number of receivables not yet due. Looking at 2021 as a comparison, that includes the net proceeds from the IPO finalized on June 28, 2021. So how -- where does this bring us in terms of the full year. As I mentioned, we believe we have a very good first half, very good Q2. We closed on very strong results of being on track with our plans. This means that we've maintained our full year guidance. So and the guidance is revenue within DKK 20 million to DKK 30 million and EBITDA of a loss between DKK 90 million and DKK 100 million, and EBIT a result of minus DKK 105 million to DKK 115 million. These are unchanged since we announced them at the annual report. So with that, we will open up for questions and Q&A.

Thank you, Klaus.

Thank you, Klaus. So we see that there are no questions here online. So perhaps I will just take a minute to wrap up and to thank everyone for joining the call. Just want to reiterate here that we are extremely pleased with the results that we were just communicated for the first part of 2022. Again, that we are maintaining our guidance and that we are really excited and looking forward for the second part of the year. So thank you very much, everyone, for listening. And again, I hope to see you at the IWA event. Please feel free to email us so we can register you. Thank you very much.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.