NX Filtration N.V. (NXFIL) Earnings Call Transcript & Summary

Hello, and welcome to the NX Filtration 2025 Half Year Results Webcast Call. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Floris Jan Cuypers, CEO; Jan Fei Zwiers, CFO; and Michiel Staatsen, COO, to begin today's call. Thank you.

Thank you very much for your introduction. Floris Jan Cuypers here, and I welcome all participants to this H1 2025 results webcast. And indeed, I'm here with my 2 colleagues on the Board of NX Filtration. Before I go into the slides, I want to say that, yes, I've been, of course, in the last months traveling a lot with customers, going deep into the markets. And what you see is a confirmation also of what we already also talked about in the Capital Markets Day that water scarcity is a systemic risk. Water scarcity disrupts supply chains and economies, and it's really, therefore, also an opportunity if you have the right solutions. Also, we have the right regulation step-by-step coming into place in multiple regions. One example is the Europe Wastewater Treatment Directive, which we also mentioned yesterday when we announced the Haliotis long pilot in Eau d'Azur in Nice. And the third one that I want to mention before I go into the slides is also the industrial dependency. A lot of industries, B2B customers that we talk to understand that they need to increase reuse and do it in such a way that it is energy efficient. I think we, as NX Filtration have a full spectrum in the membrane technology side with, of course, our flagship product, nanofiltration. As you know, hopefully, that is aimed at drinking water, making drinking water very efficient with low energy and close to no chemicals, but also our reuse business is growing as well as the wastewater treatment. Now if we then go to the slide with the key highlights of H1 2025. Our revenues came in at EUR 6.6 million. This is up 26% if you compare it to the second half of last year and 12% versus the first half. It was driven by repeat projects with existing clients and successful onboarding of various new OEMs, which are our main customers. We see that the value of our technology continues to be reflected in a strong gross margin of 16.1%. In our OEM funnel, where we drive the conversion and the adoption of OEMs as revenue generators, we see also strong progress, which is driven by our focus on developing those relationships and converting those opportunities into orders. We do that with a laser-sharp focus on high-yielding product market combination, so the right products in the right regions with the right OEM customers. We had some important commercial successes that we also made known, amongst others, a first full-scale project order from a Europe-based top 3 global OEM, which we're very proud of. And of course, the Mexican repeat order, which now makes the largest hollow fiber nanofiltration plant in the world with 34 million liters per day capacity. Also in H1, we continued to strengthen the fundamentals. Of course, the main piece being the commercial execution that is driven by a strengthened leadership team. But on the flip side, we continue a pretty sharp focus on cost and efficiency programs, resulting in lower operating costs in the first half year of this year 2025. And that is all on the path towards our progress on our journey towards breakeven operation. If I zoom into the top line developments in the next slide, you can see there that we grew both our business lines, so both sustainable industrial water and clean municipal. We see in the sustainable industrial, obviously, a good pickup driven by reuse, but also the broad portfolio that we have, not only nanofiltration, but also our highly competitive and broad UF portfolio is picking up fast, for example, with customers like Wabag with repeat orders and Thermax and also in other regions. And we see that as well in the microfiltration side. So we're very happy also with the sustainable water, leveraging the breadth of our portfolio. So next to nanofiltration, also our ultrafiltration is growing fast there. Then on the municipal -- clean municipal water, there also, we see growth. We, of course, had that doubling the Mexican plant. But I'm also proud to mention 2 others in wastewater treatment, one being Enschede in the Netherlands, where we work with the local water board and Nijhuis Saur wastewater treatment, taking out medicine and chemicals -- medicine residues and pesticides to clean the discharge. That is the same what will happen also in Nice in France with the large pilot with Halotis, which is one of the largest plants in Europe for wastewater treatment. So that is also something that will help. We see also continued momentum in the municipal side in Asia, not only in Indonesia, but also in India, for instance, in Bangalore, where also the water board is very receptive to our technology, the hollow fiber nanofiltration. Then on to Slide 4, and I give the word to Michiel.

Thank you, Floris Jan. And now to our solid commercial organization with a global reach. And as you can see on the world map, we are now represented in Southeast Asia, the Middle East, Germany, France, Spain, and we have our own sales offices in the U.S., China and India. And with a strong global and local presence, we can effectively support our customers in their search for sustainable water treatment solutions. And in the graph, you can see that we generate revenues in all major water technology markets. And we see this as a great testimony for our success -- the success of our technology and confirmation that the drivers to implement real solutions are getting stronger across the world, that we are successful in demonstrating the power of our technology through our commercial role model across markets and geographies. And this is a very important slide. It explains the progress that we are making in taking our customers, the OEMs through the sales funnel from technology selection to first project realization until installed base. And as communicated at our Capital Markets Day, we measure our potential for the coming years on the traction with our OEMs. And over the past years, we've geared our commercial efforts to developing our pipeline with strong OEM partners with an increasingly stringent and focused commercial process, resulting in a high-quality pipeline today. And this funnel for our nanofiltration-related OEM partners has grown to 175 OEMs compared to 160 OEMs at the end of last year. And during the first half of 2025, we successfully added 15 OEMs to the funnel. And at the same time, we further progressed with the other OEMs to various stages of the funnel. And examples of this include Veolia in France, Ceramed Engineers in India with whom we've secured first HFNF, hollow fiber nanofiltration membrane orders. And also PT Grinviro Indonesia or Grupo Lantania from Spain and Hydroflux in Australia, who commissioned their first operational nanofiltration reference projects. And our objective is to further commercialize our funnel for nanofiltration in the years to come, primarily benefiting from new projects, repeat projects and module replacements from OEMs that have already actively been using our hollow fiber nanofiltration modules in their projects and channeling the other OEMs that are today actively testing and designing with our modules for potential future use. Those are 116 OEMs further through the funnel. And in parallel to this program in the nanofiltration funnel, we continue to build on our OEM funnels for the ultrafiltration and microfiltration products we also deliver to our customers. And these products benefit from shorter sales cycles and development cycles compared to nanofiltration as we offer unique technology and solutions that primarily tap into existing and replacement markets. And with these projects -- products, we can also create a cross-sell platform with our OEMs for our nanofiltration products. And now -- and the next slide is about impact. And here, you see that we are translating the ambitions I just talked about into making real impact. And in this slide, I'm very proud on the achievements of our team in the first half of this year. And let me give you some numbers. Our membranes enable efficient production of high-quality water from alternative sources, sources such as polluted river water from industrial or municipal wastewaters across 26 countries in the first half of the year. And with the membrane modules we sold in this last 6 months alone, you can produce 290 billion liters of water while saving 63 gigawatts on energy and saving 5.2 million kilogram of chemicals with a CO2 footprint equivalent of 2.7 tons compared to existing traditional technologies. And now to Jan Zwiers.

Thank you, Michiel. In the next 2 slides, I will take you through the financials of H1 '25. I will start with the summary of the profit and loss. Total revenues grew by 12% from EUR 5.9 million in H1 '24 to EUR 6.6 million in H1 '25. This with strongest growth in Asia of 35% and North America of 25% growth, following our strategy to increasingly target our efforts towards sweet spot product market combinations. Gross margin remains strong with 60.1% in H1 '25 compared to 59.1% in '24, reflecting our strong technology position. FTE slightly decreased to 154 at 30th of June '25 versus 166 last year. We are able to benefit from efficiencies resulting from our larger scale operations, and we continue shaping our global organization to effectively serve our markets. EBITDA, this is an important point. The underlying EBITDA improved in the first half year. We have improved our gross margins and lowered the operating cost. The decrease in EBITDA of EUR 1.8 million is fully driven by the change in inventories of finished goods and work in progress of EUR 2.5 million, resulting from lower inventory levels. This is positively impacting our cash position. Net loss of EUR 12.7 million. The higher net loss was primarily due to the lower EBITDA as explained and increased depreciation charges related to our new production plant. And now to the balance sheet. CapEx amounted to EUR 4.4 million as compared to EUR 18.6 million in H1 '24, which was mostly related to the construction of our new factory. In total, we expect approximately EUR 7 million of CapEx in '25, mostly related to process equipment in our new factory. For the years to come, limited maintenance CapEx is expected for our brand-new factory in H1 '25. NX Filtration capitalized EUR 0.8 million of development costs, which demonstrates our continued efforts to invest in innovations for the future. Working capital amounted to EUR 17.1 million versus EUR 14.5 million at December last year. This increase was primarily driven by a reduction in payables. At the end of '24, our payables were temporarily higher due to outstanding CapEx invoices and liabilities related to the construction of our new production plant. Cash position at 30th of June '24 amounted to EUR 38.3 million compared to a cash position of EUR 53.4 million at December last year. We continue to expect our cash position to be sufficient to fund our growth ambition well into the future. The final part of this WebEx will be presented by Floris Jan.

Thank you, Jan Zwiers. Well, if you go to the slide that you see now with the key priorities and outlook, we see that sustaining and accelerating adoption of our technology through our commercial rollout strategy remains our top priority, our #1 priority. We will further intensify our existing approach in working with OEM partners to roll out our pilots and converting these into full-scale projects. And there, we use the criteria of high-yielding focus, so the right geographies, the right products and the right OEMs that we can focus our time and money and people on the fast-converting opportunities, both in UF and MF and also in nanofiltration. This laser-sharp focus is paying off, by the way. I see that when I look what is happening in India, in the Middle East, but also, for instance, in France. We are focusing on realizing more and larger repeat projects with OEMs that know our nanofiltration technology, so that makes it easier to do a repeat project. And there, we are expanding our installed base that will help kick in future replacement sales. On the flip side, we continue to apply strict cost control measures without impacting our longer-term growth prospects. And therefore, we also expect for the full year 2025 that we aim to grow our revenues in the range of 50% to 70% versus 2024. We work for this very hard every day with conviction and passion, and we believe that NX Filtration is on that path to stable delivery of our plans going forward. Together with the Board and our professional and focused colleagues around the world, we are fully committed to keep increasing impact based on our mission, clean and affordable water for all. Here with, I hand over to the moderator for the Q&A.

[Operator Instructions] The first question comes from the line of Chase Coughlan from Van Lanschot Kempen.

I have three, and I'll take them one at a time, if that's okay. Firstly, from a working capital position, of course, you mentioned that you had a reduction of payables, also, I think, a slight reduction in inventories, which reduced the working capital position at period end. Can you give us some expectations for what we should see in the second half? Where should we be sitting at the year-end? And just so we can get a better idea as perhaps the cash burn that we should expect for full year '25?

Certainly, in terms of net working capital position development, what we expect in terms of inventory, if you take our current inventory position, then there is certainly room to optimize to take that in relation to our turnover. Receivables is a little bit depending on, let's say, when we ultimately have the orders in. And the payables is as well linked to the activity level. But overall, we expect a further reduction in terms of net working capital at year-end.

Okay. That's very helpful. And then my second question regarding the FTE reduction. So I think it was almost 10% decline in the workforce versus year-end '24. Where were these reductions mainly? Was there -- was it a specific region or a specific department? Or can you give any color on that?

No. And what we see in terms of the -- due to the fact that we have moved to one location that we have a new factory that we see the first benefits, let's say, of our cost efficiency program. So a significant part that is related to the blue collar activity. But selectively, we see in certain kind of functions that we are optimizing there as well. And even in some areas, we have made, let's say, some investments as such as well. But overall, yes, there's a significant decrease in terms of FTE in line, let's say, what we had in terms of expectation by bringing, let's say, our organization to one location and have more focus on optimizing our costs.

Okay. Perfect. And then my final question. I think you mentioned in the presentation that you saw strong growth in Asia and North America. Could you give a comment on the European market and how that's developing either by country or as a whole?

Yes. No, I think as a whole -- for me, Europe is a motor block also in our revenue generation. What you see, of course, that it differs for -- if it's tender-based municipal versus industrial reuse. I think some of those countries are already showing good momentum. France is one. Spain is one. Also, Netherlands step-by-step, potentially Nordics, where we already have installed base, by the way. So I think we are there also skewing to the high-yield combinations of the right OEMs and the right customers. But we're very proud to see also the wastewater treatment and the municipal projects, also full-scale nanofiltration in Europe in the mentioned countries happening because I want -- I think Europe is ready to further take off next to the momentum in India, in Southeast Asia and also step-by-step in Middle East.

The next question comes from the line of Usama Tariq from ABN AMRO ODDO BHF.

I just have one small question with regards to guidance, especially the second half of this year. So the guidance is second half dependent. Could you give a little bit color on top line growth per segment? What do you expect, for instance, for sustainable industrial water as compared to the municipal water segment? That would be very kind.

Yes. Let me kick off and maybe if one of the colleagues want to add. Yes. So the second half, we have to step up compared to the first half, of course. And the confidence we have for this comes from 2 main sources. So one, of course, we have already secured some orders that we have to deliver in this second half of the year. And the second part is, of course, our pipeline. And when you split that in 3, and I'm going to do that over products, we see -- we're working on projects with our OEMs, as Floris Jan was just explaining on the nanofiltration side, where we have good visibility, but the projects are a bit larger, like the SAPAL project we were able to secure 2 months ago. That's the project we're working on very focused with our teams to understand the process of the customers and take away risks and to get them in. But on the other products, ultrafiltration and microfiltration, they are very much -- very often applied also in the industrial space, we see a very solid pipeline of smaller projects with shorter lead times that we're still working on to secure for the second half of this year, but where we have good visibility and expectations to also realize that in Q3 and Q4.

Yes. I think that's a very good point, Michiel. So to reiterate, indeed, in UF and MF, we have a competitive product portfolio. We can easily replace other companies, which you know the names of because we have really good product, competitive pricing, and we do both small and large projects, also high volume, for instance, in Nemmeli in India with our UF, and also our recently launched 65 square meter UF. In MF, same story, large brewers, large OEMs. And then for nanofiltration, we have very much grip and at least grip and transparency on the large deals. But as you know, nanofiltration is a big technology change versus UF, RO or conventional or spiral wound nanofiltration. And there, multiple aspects play a role, civil works, permits, financing, et cetera, et cetera. But we, as a Board, personally are closely involved in those deals to where we can influence where they fall in which quarter. But that has a different dynamic, of course, than UF and MF, but we are confident also there that we can make it happen within our reach.

[Operator Instructions] The next question comes from the line of Christoph Greulich from Berenberg.

Two from my side, please. The first one is probably a bit of an overlap with the prior question on the H2 guidance. So just wondering if you might be willing to share any more details in terms of when we look at what is implied for the revenues in the second half, what share of that is actually backed by orders that you already have received and orders you have a very good visibility on that, that they will be coming in over the coming months compared to the orders that you also described kind of a best estimate in terms of what your pipeline might deliver just to kind of get a feel for what in a way is kind of already kind of secured and what is the share of revenues you still have to kind of work hard on getting them into the books. And then the second question would be just on the OEM funnel that you have presented and the nice progress there that you've shown over recent years and also in H1. So if I understand it correctly, you currently have relationships with 175 OEMs on the nanofiltration side. Just if you could give me an idea of what is the total opportunity set, like how many potential OEMs are out there that would be relevant for you so to understand what is the white space that is still left here?

Yes. Well, thank you so much. Let me comment on the first question, Floris Jan, and then Michiel will take the second question. So yes, all 3 business lines are -- there's a good dynamic, both in hollow fiber nanofiltration with its dynamic of technology change and a bit more broader perspective with civil works, permits, et cetera, et cetera, but also in UF and MF. And yes, we have good visibility on the pipeline that we convert into order intake and then to delivery out of the factory. We don't disclose numbers on our order book, by the way, but we see a good order book for 2025 and also for 2026. So that is positive. We do this on a weekly basis, go through all of these deals ourselves personally in our weekly drumbeat with the Board with all the sales leaders. I think the nature of UF and MF is you can measure indeed the quote frequency and keeping the drum going and the intake. And then -- so that is giving us confidence that we will see the growth there. And for hollow fiber nanofiltration, of course, there's a couple of big projects that you need to keep moving on in terms of feasibility study, demo, finalization, financing and delivery schedules. But also there, we have the confidence. And we, of course, acknowledge that the growth in H2 will be higher than H1. That's the answer on the first question. And Michiel, second one.

Yes. And on your second question on the 175 OEMs that we're working with currently. Perhaps you could recall also from the Capital Markets Day that we explained the playing field for nanofiltration, there's about 10 what we consider really global OEMs who are addressing issues on water scarcity and water pollution around the world. So you have to think about the big names like Aqualia, Veolia, Kurita, et cetera. In this 175, those big OEMs are in there as well, but these parties also take their time to do the due diligence, et cetera, and the validation of the technology. And then the second layer is what we call the larger regional OEMs, for instance, covering India or covering China, et cetera. Also there, we are working with the major ones. But there's, of course, also a big group of smaller OEMs, regional, local, focused on a certain application or a certain industry, and these move quicker. So I think we have -- in the 175, we have a healthy mix. There's, of course, still OEMs out there to be gained. But -- so that's a little bit of a description of what these types of OEMs are. And I think the press release of earlier this week on the project in France that we're piloting for is given an indication that we're working with these OEMs from smaller projects that have easy and shorter commercialization schemes to these bigger projects, which are very important, of course, for the volumes we need for the future.

We currently have no questions coming through. [Operator Instructions] We have a question from Fernand de Boer from Degroof Petercam.

One actually is, let's say, on the inventory. And if I listen to you, you have some visibility on the microfiltration and ultrafiltration, less maybe on HN. Could you give us a little bit of split how you build up your inventory? How do you manage then process?

Indeed, and I think then you have to reflect on the type of nature of our business. So hollow fiber nanofiltration for a big part is driven by projects. So in terms of delivery, we have good visibility and also that reflects how we operate, let's say, from a production and supply chain perspective. For UF and MF, that is slightly different. It is more short cycle. And therefore, we have for these type of products more inventory in stock in order to fulfill when the order comes. So there is, let's say, long -- shorter visibility. So that is the way how we manage our inventory. So taking, let's say, the nature of the different products -- taking the nature of the different businesses in consideration.

Yes. And I think maybe to add to that is, of course, net working capital is extremely important for us. We see it on multiple fronts because we do manage for cash. And in our weekly and monthly sales and operations spending meetings, we are really prioritizing to have the inventory for the right products that we sell at a high rate and lower the inventory where we can because it's all cash preservation.

But are you willing to give a kind of split in your sales between HF and the other products?

No, we don't disclose the breakup. No. We see a good momentum in all 3 business lines.

Okay. And I'd like to come back on -- because I remain a little bit puzzled on Mexico. So the repeat order was included in the H1 results.

That's correct.

That's correct.

But you sent out the press release on July 11. So how does that work then?

Yes, that's also aligning the press release starting with the customer, so the OEM, the customer and getting approval. So it's just -- that's the only thing actually, nothing more.

The next question comes from the line of Kristof Samoy from KBC Securities.

I will try to tease you again to disclose a little bit more regarding your turnover in July and August order intake backlog. So because we're end of August, 8 months down in the year. would it not be possible to disclose a little bit more how your revenues are for July and August and how order intake was? And secondly, also, again, once a call, can you somehow disclose the split between nanofiltration sales and the other product sales? And then as a general question, what are your views on the tariffs and the impact on your business? And then finally, in terms of capacity of your factory, can you give us an update on the current production capacity you have in your factory and how you see that evolving over time?

Yes. Well, the first piece, I will talk a little bit about and then maybe Michiel can talk about the tariffs. So without the risk of disappointing you, no, we don't disclose it. But I can say that UF and MF and nanofiltration are all 3 relevant contributors and growing. And we also do feel that twice a year, we have a good set of disclosures, including now also the OEM funnel, which will also drive the models and make more clarity. But all 3 business lines are growing nicely. And yes, the disclosure that we do are the same and will remain what it is now. And on the tariff side, me making a start and then Michiel can chip in. Yes, the tariffs are there. The European Union and the U.S. have made the deal. So that is, of course, not positive because 15% is 15%. We do feel that our product is differentiated because it doesn't have PFAS in it, by the way, it's not PVDF. And we are driving where we can, the UF and nanofiltration sales in the U.S. as well. But of course, the tariffs are not nice, but we don't see a dilutive effect in our margins or interest in our product.

That's partly also because there's not a lot of -- when you look at the hollow fiber membrane market, there's not a lot of hollow fiber production in the U.S.

No, it comes from outside.

Also, our competition has the same tariffs.

There are no further questions. So I hand you back to your host to conclude today's conference.

Well, thank you so much. It was really nice to have this again, and we look forward to continuing the conversation with you and of course, in the meantime, otherwise in half years' time. Thank you so much.

Thank you for joining today's call. You may now disconnect your lines. Host, please stay on the line and await further instructions.