Aqua Metals, Inc. (AQMS) on Q3 2022 Results - Earnings Call Transcript
Operator: Hello, and welcome to the Aqua Metals Third Quarter Financial Results Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bob Meyers of FNK, Investor Relations. Please go ahead, sir.
Bob Meyers: Thank you, operator , and thank you everybody for joining. Earlier today Aqua Metals released financial results for the third quarter ended September 30, 2022. This release is available on the Investors section on the companyâs website at www.aquametals.com. Hosting the call today is is Steve Cotton, President and CEO; Judd Merrill, the companyâs Chief Financial Officer. Before we begin, I would like to remind participants that during the call management will be making forward looking statements. Please refer to the company's report on Form 10-Q filed today November 3, for a summary of forward-looking statements, and the risks uncertainties. Other factors that could cause actual results to differ materially from those forward-looking statements. Aqua Metals cautions investors not to place undue reliance on any forward looking statements. The company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur except as required by law. As a reminder, after the formal remarks, management will be taking questions. Questions will be accepted over the phone from analysts and investors can submit a question using the online webcast portal provided in today's and last week's press release. We will take as many questions as we can in our available time slot. And with that, I would now like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, the call is yours.
Steve Cotton : Thank you, Bob. And thank you to everyone who joined us today. This was an important quarter for Aqua Metals laying the groundwork for key milestones as we move rapidly towards revenue generation. We are making progress in several fronts and on two continents. As we have deployed both our lithium and lead off refining equipment this quarter, our confidence that operate fighting represents a game changer for the industry has only increased. We continue to advance our technology, recovering high purity critical battery minerals and improving our solution. We are already producing ultra-pure led metal in Taiwan and over the next few months are now well trading partner and licensee ACME Metal will regularly operate the phase one system in Taiwan as a showcase for industry partners to witness firsthand, ACME and Aqua Metals are currently in discussions for what Phase 2 and beyond could look like. And we will have further updates to share on next steps by later this quarter or Q1.
Judd Merrill : Thanks, Steve. Let me start my comments with our balance sheet. We ended the quarter with total cash approximately $9.3 million and we had working capital of approximately $15.5 million. This means that we're well funded through to when we expect to begin generating revenue. During the quarter we locked in a $6 million secured note with Alpen Mortgage giving us additional non-dilutive path to expand our cash position and ensure sufficient resources to reach revenue generation. The note was closed on September 30 2022 with a 24-month term and interest at a fixed rate of 8.5%. monthly payments are interest only commencing on November 1, 2022. And all unpaid principal and remaining accrued unpaid interest are due 24 months from the close date. And this loan is secured by a commercial property. And subsequent to the end of the quarter we received the second non-refundable deposit from LINICo. This $2 million deposit further bolsters our tax position. As a reminder, we expect to collect the remaining balance of approximately $12 million in a few months. Part of the proceeds from this cash collected will be used to retire the note without them. There are no other significant changes on our balance sheet so I'll move to the income statement. During the third quarter of 2022, Aqua Metals continue to focus on the research and development activities related to the lithium-ion battery recycling. We had no commercial production during the quarter of 2022. And as a result, no significant revenues were generated during the quarter. Cost of product sales decreased by approximately 50% during the quarter to $0.8 million, compared to $1.7 million in Q3 2021. The decrease and this quarter was due to wrapping up the plants cleanup projects. Research and development costs which included expenditures related to improving lithium-ion battery AquaRefining technology during the three months ended September 30, 2022 increased approximately 80% compared to the three months ended September 30, 2021. Our ongoing investment in R&D is crucial and part of our business strategy, enabling the further advancement of the development of AquaRefining. These costs included expenditures made towards building our pilot facility, which we said is expected to be commissioned later this year. General and Administrative expenses decreased approximately 3% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 but increased approximately 7% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The year-to-date increase in this category included changes in stock based comp and increase in professional fees. Non-cash chart charges included in G&A including stock-based comp were approximately $1.8 million. For the third quarter of 2022, we had an operating loss of $3.9 million compared to an operating loss of $4.6 million for the third quarter of 2021. Our net loss for the third quarter of 2022 was $3.9 million or negative $0.05 for basic and diluted share, compared to a net loss of $1.4 million, or a negative $0.02 per basic and diluted share from third quarter of 2021. The net loss in 2021 was lowered due to an offset of insurance proceeds received in the third quarter of 2021 of approximately $4.3 million. We continue to manage our cash utilization. Cash used in operating activities for the nine months ended September 30, 2022 was $9.3 million. Q3 cash needs were approximately $800,000 to $850,000 per month as expected, and largely due to the addition of more employees and consultants as we invest more in our lithium-ion battery recycling technology. Net cash used in investing activities for the nine months ended September 30 2022 was $1.7 million. This consisted mainly of $2.3 million utilized towards the purchase of property and equipment offset by $1.4 million. proceeds from the sale of equipment and $0.5 million utilized towards the additional investment income. Net cash provided by financing activities was $12.1 million for the nine months ended September 30 2022. And this consisted of $5.6 million in net proceeds from the sale of Aqua Metal shares pursuant to ATM, and $5.9 million in net proceeds from the bridge loan. So, we maintain a healthy balance sheet. And we have sufficient resources as we head into 2023. And with that, that concludes my remarks from the financials. And I'm will now turn it back over to the moderator for Q&A.
Q - Sameer Joshi: Hey guys. Thanks for taking my questions. And congratulations on the progress being made. The data facility that is going to be commissioned soon. Will it be up for or will it be generating commercial revenue beginning next quarter? Or should we expect these visits to materialize into all those? And then eventually, in the second or third quarter? Some revenues from that?
Steve Cotton : Yeah, Samir, just a Steve. Yeah, good question. The pilot plant will actually be operating and producing materials this quarter, Q4, very soon. And we expect to be able to get some revenue that we may not report until next quarter, just because of the sales cycle, but it will begin producing revenue producing material this quarter, and then beginning to scale as we go into the new year. Okay.
Sameer Joshi: And then just part two of that question is, the pilot phase then is planned to be of around 840 metric tons per year. And that only completes by December of 2023. During this ramp up, do you expect to continue production at this planned demonstration facility? Or like how should we look at it as a revenue generating source?
Steve Cotton : Yeah, s by nature, it'll continue to produce revenue. But the interest in our part is obviously to get that scaling to happen as we get towards the end, 23 and into 24. And that will require a additional facility. And that's what we're looking at now is where that will be and the timing of that and interlacing that in. However the Innovation Center will continue to operate with updates and continued improvements in the technology that we expect that we'll get from our learnings of operating, while we then take the demonstration, commercial facility is the next step forward. So really, we would have the summation of the innovation center plus that demonstration commercial facility as we get into 2024 and beyond.
Sameer Joshi: Okay, and then just on costs. The costs, it seems are pretty controlled, at the moment. But as you start building this scaling, start to scale next year, should we expect these to increase year-over-year related to what they are currently, I think you're around 2.4 to 2.6 of cash burn per quarter is looking at predicting, guiding,
Judd Merrill : Yeah, Samir, Judd. the initial kind of part of the ramp up, you know, we don't expect cost to increase too much too significantly. It starts out small and then gets bigger. And so we probably will see some increases in the later half next year, as we get into more full ramp up. The pilot facility that we have now it's not huge. So doesn't require a lot of CapEx in terms of like buildings and things like that, but there will be some people to help run it and operate it but still it's a pilot operation. So it's not a ton of people. And so we'll be evaluating those costs and we can give a little more clarity kind of on the next call or even in the first part of the year, but for Q4, Q1 and probably into Q2 will be pretty much stable like we have in the last two years
Sameer Joshi: Okay. And then just a clarification on the of your cobalt, nickel copper and manganese dioxide operations. Is that -- will it happen at the same time when you extract the lithium or recovered the ATM or are these other units that need to be set up and tested similar to what you have done for lithium, just wanted to see how that workss?
Steve Cotton : Yeah, so, all of those materials will be extracted as a part of the connected and pilot system. So, it will at the same time be producing all those various materials. So, the lithium hydroxide will end up in one place, whereas the metallic copper and of course, cobalt nickel will end up in another place on the plating cells, and then the manganese dioxide will end up in another place. But that's what people will be able to see with the connected system as a pilot, as the input feedstock, which is the black mass comes in in the front end and those materials come out on the back end.
Sameer Joshi: This is what we would see if there is a plant with it. Early next year, we will see all these operational deployments.
Steve Cotton : Absolutely, absolutely, absolutely, yeah. And that's what we're very excited to have people come and see, particularly in before prioritizing industry, potential partners from the feedstock partnership and offtake side that have we've shared our NDAs -- under NDA with our process flows and things they want to see it operate. And that's what will be happening in November and December. And then as we get towards January, we'll be bringing in more investors, analysts, et cetera. But all the people that visit will be able to see these connected processes
Sameer Joshi: And that's really exciting, actually. Congrats once again. And good luck. Thank you. Thanks for taking my questions.
Operator: Thank you. Our next question today is coming from Colin Rush from Oppenheimer. Your line is now live.
Colin Rusch : Thanks so much, guys. Can you talk a little bit about the pipeline of potential licensees for the lead process? Obviously, that's the most mature technology here and curious how quickly you might build that another customer there.
Steve Cotton : Yeah, thanks Colin. And we're really excited about our progress in the awkward finding for lead that we've deployed in Taiwan. And we've already produced materials there with our partner, and we've got the equipment to the point where it starts stop, function and capability is all integrated with the automatic logic control et cetera. So now there is a showcase facility, sitting in one of the hottest battery markets in the world in the Asia PAC region. So ACME is evaluating what it would look like for them to expand that facility and get it more into a 24/7 type of an operation. But in the meantime, using that as demonstration plan to show off that facility and the technology to their partners that they've brought to the table as well as some additional parties that are quite interested in coming to see that technology in that process. So we're excited about that showcase. Taking place there. Just in the news today, that European smelters are getting idled, or wound down or shut down, due to the extraordinarily high energy costs that are happening in the EU. So we're also seeing what we view even is late breaking news is more of a sales funnel opportunity for the European market, and a lot of these energy costs. Now that's just gas versus electricity. But once you start to wind down and turn off a smelter, you might not be inclined to turn it back up. And that can create sales funnel opportunities for us, in addition to what we see in the Asia PAC region, as well as a couple of U.S. partners are taking a look as well.
Colin Rusch : Great. And then with the relationship with LiNiCo, can you talk about how mature the conversations are around who's putting, you know what capital and to move the collaboration forward? You know, just curious about your underlying cash needs and how much time you're going to really need to clarify all of that.
Steve Cotton: Yes, sure. So there's a few dimensions to that, one dimension is the acquisition of the building, which they paid us all the rent payments on time and we've received recent payment of the $2 million towards the final payments will be coming by March of next year. And in the meantime, we have our pilot starting on to operate at the Innovation Center and we, of course, talk to LiNiCo all the time. And Comstock is really the owner, the primary owner of LiNiCo. And we could potentially still take the opry AquaRefining technologies and deploy that right within that facility and work with them, as they make their decisions on how they're going forward and scaling their operation. They've got some recent permits and things like that. So there's a partnering opportunity that's associated with that relationship, but that's separate. From our own opportunities that is under our own control, which is our pilot demonstration plant that gets turned on in a matter of a couple of weeks.
Colin Rusch : Great. And then, I guess in terms of staffing, are there key hires you guys need to make in the next six to nine months?
Steve Cotton: We've really stepped up pretty well to get to the pilot and the operation of the pilot, there'll be a few net adds in terms of technicians and operators and some key commercial type roles cetera but nothing terribly material to the burn rate, as Judd was answering a question about earlier. So we feel that we're pretty well staffed up for the for the time being to get through these this next phase of our efforts, we did receive a little bit of a rebate now that our team has returned from Taiwan, parts of our technicians and installers, et cetera. For that installation, that will be helping to work with the lithium AquaRefining pilot, and getting that operation where it needs to be. So, net net, we should even out pretty well.
Colin Rusch : Great. Thanks so much.
Operator: At this point, I'm going to turn the floor back over to management for any web questions.
Bob Meyers: Yes, thank you, operator, we certainly have some questions from the line. And I'll help provide these to Steve and Judd. Steve maybe a few for you. Can you discuss how you think about lead acid versus lithium in terms of priority? What does the marketplace look like? The lead asset technology since electric cars use lead acid batteries as well?
Steve Cotton: Yes, we see both markets is still a tremendous opportunity for Aqua Metals. The lead market is an exciting time for us to have gotten to the third generation of the technology in a product form that's now out there with its first licensee. And that showcase. And as I mentioned earlier, we see great upside and opportunities with the development of that product as a licensed and equipment supplied product in the market that we know could really use an upgrade to the technology. So we're very excited about that, and continue to hope that we can continue to get more partners and penetrate that market. In the meantime, as we develop our lithium efforts, we see a great opportunity, as we've communicated before to be an operator and to be a recycler of the lithium recycling technologies. And that is starting with the pilot system and then going on through the step functions of getting to the demonstration commercial plant, et cetera. So that's a different business model for the lithium business from a primary perspective, which is to be an operator, as compared to the lead business, which is to be a supplier. The lead businesses much more mature. All those smelters that are out there are already operating and owned by others. And so it makes sense to partner in licensed and divided equipment in the lithium business. And the financial opportunity in particular, because now we're dealing with critical minerals that are worth upwards of $70,000 a tonne as compared to $1700 to $2,000 ton in the lead space. We see that opportunity is being recycled to really accelerate our revenue run line as we continue to scale out the lithium efforts. And so the company does have the organizational capability to handle both of those businesses, as demonstrated by building a plant that we're about to turn on to the lithium processing. And by getting on another continent, the AquaRefining technology deployed for lead. So that's why this is really a good inflection point for the company in our view for the coming year.
Bob Meyers: That's great. We have a couple more around customerâs potential customers. And the question here is why is LiNiCo primarily moving forward with green lithium ion technology versus Aqua? And related to that are what are the additional strategic partnerships you're seeking?
Steve Cotton: So, LiNiCo and Aqua Metals have a relationship where Aqua Metals would provide plated metals with the I think you're speaking of the Green Lion Technology that LiNiCo has spoken up in the past which is an opportunity for them to consider some direct recycling capabilities for some of that material. So they're totally separate parts of the process for what their vision about what that plant would look like. So that's a partnership opportunity that we have, and particularly as a part owner of the company. In terms of other partnership opportunities, in addition to our own build, plant and run plant business model, which can generate, by â24, and â25, hundreds of millions of dollars of revenue. There's also the partnership opportunities with black mass providers to us that are interested in verbalizing their businesses, where we can partner with them. There's also partnership opportunities with the actual EV and cell and cell pack manufacturers that are out there that are trying to close the loop and provide for the return of materials in exchange for providing feedstock and things along those lines. So there's a lot of partnering opportunities, we see the lithium business developing not only as a primary recycler, but as a partner, joint venture partner, and potentially working with other parties in other structures, which could even include licensing, because we become we have the capability to license technology, as we've demonstrated with the lead our refining business. So we see lots of optionality in the way that we work with various players in the ecosystem. So we don't really view anyone, frankly, as a competitor, we view every player in the lithium space as really a partner potential.
Bob Meyers: Great. Thank you. And related to that. The question from the line is, why sell your current plant to LiNiCo, if you're already looking for another facility, that's ramping up in the pilot?
Steve Cotton: Yes, so that sale commenced back in 2019 into 2020 of the lead AquaRefining plant. And that plant is being we've agreed to and have worked with LiNiCo to work that deal out. In the meantime, we've really prioritized and stepped up our lithium AquaRefining capabilities at our innovation center. And that's really where the focus is on our AquaRefining from lithium development today, which is inclusive of us, extending that towards the demonstration plant of our own. And we would be putting that in place effectively to suit for our efforts, specifically, while we look at LiNiCo and other parties as partnership opportunities, and licensing opportunities, like I mentioned, to the earlier question.
Bob Meyers: Great, thank you. And I guess this was touched on upon as well. But as you with related to the black mass? How are you thinking about access to black mass as you ramp to 2024?
Steve Cotton: Yes, so we've already announced that we've secured quite a bit of black mass for our operations in 2023. And we physically received quite a quite a bit of it that we just tweeted some photos about, I believe, in the past week, that people can see. And it's on our latest corporate deck as well. So we have a lot of the black mass here, we got the supplier partners in diversity in that side of it. So we see that as a great opportunity. And also, because our process is so environmentally favorable to really all the other processes that are out there, we're able to get cells in and work with black mass providers to work out deals for them to effectively crushed those cells, and delivered to us the black mass. So we're bringing value to the table with these black mass providers. And we see that as a continued way to continue to be able to scale our efforts. And all that said, we obviously have a lot of battery breaking and crushing capabilities from our history as a company and in the longer run, we see opportunities for us to also be able to generate black mass from the cells directly ourselves in addition to partnering.
Bob Meyers: Okay, perfect. There's one that's a little bit more technical. Maybe I'll ask this and then we'll take a pause. How adaptable is the lithium ion battery recycling technology to various compositions of batteries? Does each type require recalibration? Or can you group any type of black mass and separate the elements?
Steve Cotton: Yes, so our technology is quite flexible in the composition of that material that comes into our process. And it really comes down to how you optimize how many lithium nickel cobalt cells you put in there as compared to the production of the lithium hydroxide material itself. So we tried to work with the black mask suppliers to get it to a spec range that's actually quite wide that includes multiple battery chemistries. We also go through our process because it's really the most economical process. In addition to orders of magnitude improved environmental processes, it affords us the ability to process LFP or lithium iron phosphate batteries that are cobalt and nickel free, and work to produce that lithium hydroxide. That's one of the reasons that we saw a great opportunity to partner with Dragonfly that makes that type of battery chemistry, this is a safer battery chemistry, for stationary in particular applications. And so we think that we have the most flexibility including being able to process LFP type batteries that really nobody wants. That other recyclers based upon the chemistry of those batteries, not having those other materials and their process not having the economic capabilities to recover them, whereas we can. So that's one of the real strengths of lithium ion refining, is the ability for us to work with all these various chemistries, and players in the ecosystem that have these various chemistries.
Bob Meyers: Okay, thank you. A couple more here. And they relate to strategy. And I know you've touched on some of this, but at what, at what stage of the business lifecycle Do you think ACO models is that at the end here of Q3 2022.
Steve Cotton: I would say that for our licensing business, we're in a stage of launch and commercial launch of the licensing business, for the lead off refining, as evidenced by what we have an acne in Taiwan and the continued desire to develop that as a licensing and equipment supply business with now a mature product, with a technology risk level. That's very commercialized. When you look at the lead, I'm sorry, the lithium of refining business, we have a higher technology risk level than the lead side. But we're rapidly progressing that forward particularly with the inflection point of opening up the one of the world's if not, the U.S. first end to end black mass full production facility to produce all these various minerals. And that will take us to the point where we can then begin to commercialize for ourselves, as well as partnerships. The lithium oxide and technology in a revenue producing mode is early as this quarter in getting into the next year. So that is a very exciting thing for Aqua Metals to be able to have that with lithium of refining to the point where it can start to generate revenue, as we continue to de risk and then scale the technology to 23 and 24 and beyond to the point where we can generate hundreds of millions of dollars of revenue per quickly.
Bob Meyers: Right. Thank you. And are you seeing multiple companies, customers, potential partners, making arrangements or becoming interested in visiting the plant to see operational in the coming months? And what is your competitive leverage around that.
Steve Cotton: So we've definitely been very active with our commercial team working with the various players in the ecosystem. And that's why we're prioritizing November December, those that we've shared our process, flow sheets and capabilities under non-disclosure agreements, and talked in details about how it would look if we partnered together, whether it be supply black mass ranging to an off take partner to anything in between looking at things like joint ventures and how we get from pre canned materials. And so those players you can count on, you need more than two hands to count them that would like to come and see the facility as soon as possible. And that should facilitate further discussions with some if not all of them on what that partnership opportunities could look like. And that's really what we're focused on, in really the remainder of this year. And as we get an early q1, but it's also very important for people in the investment community and analysts to come and see the facility as well. We're trying to balance the visitors so it doesn't become a showcase visitation facility, but it's actually an operational facility because it from time to time we're able to host visitors and not disrupt our engineers and operations teams. So that's how and why we're prioritizing in the coming weeks and months. And we're really excited to have everybody there. Look forward to welcoming everyone here to Tahoe Reno.
Bob Meyers: Great, thank you. I want to bring the operator back in because as I understand there's an another question on the line. Is that accurate?
Operator: Certainly. Our next question is coming from Steve Krueger from Foresight Investing Your line is now live.
Steve Krueger : Well, hi, thanks for taking my question. I'm still trying to get my head around the relationship between your plans for operating the pilot plant for recycling lithium and then scaling that up with your own facilities and the relationship of that enterprise with what LiNiCo is going to be doing. I thought Lenovo was going to be doing the same thing. Are they going to be doing the same different? Are they not recycling lithium? What's the relationship between what you're going to be doing and what they're going to be doing?
Steve Cotton: Yeah, so Lenovo is focused on acquiring battery cells and crushing and producing black mass material. And we're focused on taking black mass materials and inputs, our process and creating the minerals that we've talked about earlier in the call today. So really, we're focused on a different part and stage the process. And that is a very complementary thing for what LiNiCo goes planned operation is to look like, as well as our own operation, which starts with black mass, not the cells and takes it through to the end result. And so they're, they're complimentary, with that them as a partner. And it's solely an operation that we can operate ourselves as we operate that lithium ion refining pilot and get that scale to a demonstration plant and beyond.
Steve Krueger : So essentially, the LiNiCo plant will be supplier of black mass, and that's going to be their principal business. That is that what I understand Steve.
Steve Cotton: Which could be greatly enhanced by in that same plant, taking that black mass that's produced forward to all those critical minerals, just like we're doing in our pilot plant.
Steve Krueger : So it could be evolving into a competitor essentially.
Steve Cotton: No, not at all, because they would be incorporating and working with our technology to take the black mass that they produce forward to pure nickel, pure cobalt, lithium hydroxide, and other materials that that we would work with them to complement their technologies with ours, not competitive, complimentary, additive to our business.
Steve Krueger : I guess I'm confused that you'd both be recycling lithium, lithium ion batteries to produce high value pure metals, cobalt, nickel, so forth. You both be doing that same thing.
Steve Cotton: LiNiCo would be taking in battery cells, storing battery cells, crushing battery cells, separating the materials creating the black mass material, Aqua metals would be taking the black mass material and creating nickel and cobalt, and copper and other minerals from the black mass that LiNiCo produces in a non-competitive complimentary fashion. In the meantime Aqua Metals will operate his own facility that will take black mask from LiNiCo potentially as well as others that we've already been taking black mass from and take our part of the process forward.
Steve Krueger : Okay, got it. So have you done any kind of initial planning as to what kind of size of plant who would be, building as you start scale up your own recycling process?
Steve Cotton: Yeas, of course. So the 840 tons plus for the plant that is the pilot plant is step one, and then the demonstration plant will have to be in a different location. And that commercial demonstration plant is something that we have not announced what's the location or configuration and tonnage of what that plant will look like. But it will be a lot more than 840 tons. And that will get us into 10s, if not, towards $100 million plus of revenue in the next stage of the development of the plant, and then you go to the larger plant from there and so on, depending upon who you partner with. And organically built facilities.
Steve Krueger : Right. The current price is at 840. Size of the pilot plant capacity. How much is that price or two per tonne on a blended basis of the metal she'll be producing.
Steve Cotton: We've said before that the pilot plant can generate up to $20 million revenue.
Steve Krueger : Okay, got it. Thanks very much, Steve.
Operator: Thank you. Weâve reached the end of our question and answer session. I'd like to turn the floor back over to Steve for any further or closing comments.
Steve Cotton: Thank you all again for your time and attention today. We are positioned for an exciting end to 2022 and a transformative 2023. Several important initiatives are ready to deliver meaningful benefits and we are growing our base of partners and customers. We look forward to providing updates to our shareholders and stakeholders and interested parties. In the near term. I will be attending conferences and meetings with investors in New York in late November, early December and we'll also have more information on the pilot plant tours for investors to begin in January. If anybody has questions in the meantime, please feel free to contact us, or FNK IR and we look forward to our next quarterly update call. Thanks again.
Operator: Thank you. That does conclude today's teleconference and webcast and you can connect your line at this time and have a wonderful day. We thank you for your participation today.
