Q4 2019 Earnings Call
[music].
Greetings and welcome to the Aqua metals 2019, yearend results and business update conference call.
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It is now my pleasure to introduce our host.
Glenn Axelrod spokesperson. Thank you may begin.
Thank you Diego and thank you everybody for joining the Aqua metals 2019 year on results and corporate update conference call.
Percussive today's call is to report on 2019 financial results provide a corporate update in summary of the business and to provide investors a better understanding of Aqua metals police fire recovery plan and go forward business strategy. This will be done through an investor Powerpoint presentation by management the discussion will be led by Steve Cod.
President and CEO, who is also joined by Judd Merrill Company, CFO, and then take or Vice President of engineering and operations.
At the end of managements formal presentation, we will break for question and answers as a reminder, for the purpose of today's call were only taking questions via the web portal gave you have not yet logged out in online weblinc access to that portal is available in todays earnings press release as well as this morning's insurance recovery.
Yes release, if you're currently only listening via telephone and wish you asked the question. After the presentation. Please access the web willing to do so the presentation today, we'll be using slide you'll be able to advance the slides in your own using the arrow keys on top right hand corner of the presentation. You can also expand the Powerpoint using the expansion feature and the top right corner of the power.
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Your question online I'll come back to be email if for some reason you're experiencing any issues. Once you start. Please remember you could email me at Glenn at Bristol, IR Dot com and ill be happy to assist.
During today's call manage it will be making forward looking statements. Please refer to the company's annual report on form 10-K filed today March 11th for a summary of the forward looking statements and in the risks uncertainties and other factors that could cause actual results to differ materially from those forward looking statements. They are also listed on page two of today's Powerpoint.
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 that statements to reflect these circumstances or unanticipated events as they occur except as required by law with that said once again. Thank you for joining us we do encouraged.
Q and a following the formal remarks to help you better understand the business and its future growth growth path and this time I'll turn the call over to Steve to start is part of discussion and presentation.
Great well, thank you Glenn.
So.
For starters I just wanted to point out that the purpose of today's call as Glen had alluded to is dual pronged. One is to provide an update to our existing shareholders, who already follow the aqua metals story.
And the second is to continue what we embarked upon pre fire in Q4 with Bristol, which is to introduce the company to potential shareholders, who have also joined us today.
I hope everybody saw our press release this morning regarding doubling our insurance collections. This week to a total of $10 million from the 5 million dollar point, we're at prior to this press release, and we're really pleased with that progress and our cash position, which Jeff will elaborate further.
During his portion of our presentation.
So moving on to slide two of the DAC, you'll see the safe Harbor I won't resolved to you, but is there for anybody who would like to read it.
And we'll start with slide three this is our core middle to the glass so what you're seeing the right side for any of you who have seen it before that is our novel proprietary and environmentally friendly lead acid battery recycling technology, which we call OCC refining at work. It makes a spongy lead and it's a high purity led at a room.
Temperature.
Water based organic asset process, rather than heat furnaces to create that ultrapure led in a very environmentally clean methodology.
And we believe that the opera refining technology is a great fuel for the $20 billion plus led recycling industry, which then feeds into the 65 billion dollar lead acid battery industry with that reduced environmental impact as compared to the traditional smelting process.
There are some vitals when the company down below I will take everybody through in detail and you can review that on your own but on slide four we'll talk about the current problem in the solution to recycling lead acid batteries, today's incumbent methodologies, which is purely smelting is the conventional methods that lead acid battery recycling deployed throughout the world.
And that is a high temperature.
Actually polluting process with very large costs in the risks that are doing nothing that going up to for proper environmental containment add that containment has to do with making sure. The volumes of waste that come out of that process are contained from a fugitive emissions perspective, as well as from solid waste and.
All of those areas and also smelting requires a high degree of additional refining in order to make high purity led which requires the application of chemicals additional process control cetera, and.
Yeah, that's all in the backdrop of environmental regulations and concerns.
As you look at the marketplace today now compare that to offer refining what aqua metals is proven and demonstrated that's an electrical chemical alternative to the Cabot methodologies and lead acid battery recycling using that room temperature water based process and has lots of benefits like reduced emissions Ultra high purity led it's got a modular.
Saleable design, what you see there to rotating discs and if one example of walk refining, creating a spongy high purity led write off with the machine.
As it six it's a significant technological leap forward in the recycling industry, we believe which further supports the circular economy that the lead acid battery industry is already doing a good job on that we think that can do a great job on.
Moving to slide five there's five key business drivers, we just want to point out for everybody.
This new to the story and even knows the story and that is a reminder to everyone that this is a 20 billion dollar.
Global led recycling metal industry that needs a major upgrade and it's being driven when we'll get into more detail by automotive Datacenters and renewables.
The industry and the planet truly needs and environmentally friendly technology to improve sustainability of the recycling processes and reduce emissions. So there is a big environmental backdrop to a lot of the reasons that we're doing this.
The third point is technology.
About refining that we've been operating here at the plant throughout 2018 and 2019 in particular.
Really demonstrated the process that commercial quantities.
We also have leading strategic investors and partners that have included very large industry operators inclusive of Clarion is which is the world's largest battery manufacturer Veolia, which is one of the world's largest plant operators and Interstate batteries, which is the largest battery recycler.
In the United States and was one of our key feedstock suppliers, while we were operating the plant.
For the bullet point is we have very strong intellectual property and we've invested over $180 million towards the commercialization, resulting in a large number of patents granted in the USA and internationally.
And on the go forward business model, which we'll talk further about in the last bullet point, the core technologies process and commercial reality of OCC refined led really is already proven and the business model focus as was before and as going to be accelerated as we move forward is on global licensing opportunities to incorporate our OCC refining technology.
Both an industry upgrades of existing facilities as well as builds of new ones, we'll talk more about that as we go further through the deck.
If you move to slide six this is just a summary timeline of how we got here today Aqua metals is not a terribly old company. It was just founded in two.
2014, with Nike and a concept and seed money of $6 million into private placement, where we built our first electrolyzer prototype moving to 2015, you'll see that we broke ground. After shortly after an IPO and a 10 million dollar USAA backed loan and within less than a year. We started up the facility in 2000.
In 16, and commenced operations and announced our partnership with Interstate batteries to be our key feedstock supplier as well as their investment in the company.
We also cast our first off refining get in year 2016 in 2017, we had a great partnering.
Success with our partner in our current partner Clarion, which was at the time Johnson controls power systems Division and again as the world's largest battery manufacturer.
And.
Be after that partnership we did run into some technical challenges is what we call. The sticky led problem and had some delays.
In 2018, there was some shareholder activism, which resulted as most of you know and new governance, which inclusive was inclusive of the new management team.
That began work in May 2018, with the reconstituted board.
To shift and accelerate towards a licensing strategy and in year 2018, we made substantial operational progress and win.
Deeply into production, which continued into 2019 and in 2018, we did get to 24 by seven so 24 hours a day seven days a week operations and we produced about 35000 ingots of OCC refined led specifically.
And the plant also became operated by the Julia mid year as we did at the Veolia operations maintenance management contract and that is in further ends of our goals towards the capital light of licensing the technology. Unfortunately, as we all know November 29th we had a fire in the off reform.
Owning area, we will talk in more detail about that but the fire caused roughly $40 million to $50 million of loss in equipment.
As well as in addition to that a business interruption loss, which we'll talk about more detail and we saw in late 2019, almost immediately after fire the fire about a 50% enterprise value drop.
And we did begin assessing and investigating and collecting insurance and the fact, we collected our first tranche of insurance money in late 2019.
So if you go to slide seven you will see the demonstration plant.
That is the off refining has really proven that offer refining works.
As I said earlier 35000, ingots or 55 truckloads of operated by and led were produced qualified as a lead operating vendor and ships declares the world's largest manufacture and in 2019, we ran the process for several months at 24 by seven and also brand the process.
At or above our original specified 2.4 tons per day per.
Per module design, we produce the Ultrapure led at a very consistent basis and ran the entire plant for several months at 24 hours a day seven days a week and ran one to four goes modules 24 by seven sometimes up to a month at a time.
If you move to slide eight.
We have to fire events in November 29, very shortly before we were going to turn the plant backup. After we had idle that for a temporary a period of time to complete capital upgrades to get into a full capacity and the first and foremost that we've said before but I'll say it again is that the caused the fire had no relationship to the awkward refining technology or process.
But it was rather related to contracting work that was being done in New York refining area.
And it occurred during the final weeks of preparation to do that scaling to the 16 module and so far our insurance claims just for the property and casualty losses have exceeded $37 million and Weve submitted business interruption claims for $15 million plus and the insurance collection.
Agents and timing, especially in the early days was uncertain. So with the company did acura responsibly in swiftly and initiated a mass reduction our cash burn in early 2000.
Early December of 2018, and Jed, we will get into more detail. When it takes you through the financials on that and the results of that.
Late Q4 2018 in Q1 2020 focus was really on assessment, what happened investigation and the early insurance collection efforts, which we did get 2.5 million in December 2019, and now we're up to $10 million just about 100 days after the fire.
Along with formulating what our go forward plan specifics are.
So if you go to slide nine.
I will summarize a little bit of our shift to accelerate the licensing and our capital light strategy. The first tenant of it that is to build our cash position.
As I mentioned earlier, we've been conserving cash post fire at a great level and we've been building, our cash balance and building our runway and.
Second point is that we have finalized the design for our Licensable Electrolyzer and our intention is to run one to two of these electrolyzers. During Q2 of this year, which is very soon enough final licensable form will get into the specifics of the improvements on what those.
The improvements are.
So while we're doing that but we are working to identify the licensing site number one.
As we get the Licensable Electrolyzers complete for deployment as early as 2021 and contracting as early as 2020.
Our intention is also to emerge into our capital light model as a company that's debt free and we do expect that we'll be able to retire the entire debt structure that we have.
Throughout the year of 2020, and the business strategy really is intended to build our balance sheet build our cash position and fund that through insurance collection and as appropriate asset disposition.
And accelerate our licensing efforts and we will seek to equip the existing or planned battery recycling facilities for people that we've been talking to throughout the world with OCC refining beginning in 2021.
So moving to slide 10, I'm going to introduce spend hacker, who is our vice president of engineering and operations and has a lot of experienced growth operating the electrolyzers.
As well as.
Running with the designs of them and Ben is going to take over for a moment here in explained to everybody what we're doing to ready to eat licensee the license version of the modules.
Thanks, Dave.
Like Steve said on Slide 10, we talk about the new designed for Electrolyzer of 1.25 ml, specifically designed for licensing.
The Aqua metals engineering team has recently completed new design with minor improvement.
Solely around operation cost and capital build cost with absolutely no changes to the electro winning process that was developed in 2019.
The main areas of improvement are around the overall efficiency of the unit the automation of the unit and the processes as well as the assembly complexity and remote access capability for field deployment.
The team has been a process of building a first electrolyzer view 1.25, ALC and expect to be producing led within the Q2 this year.
Turning back over to you Steve Great. Thanks, Ben.
Moving on to slide 11.
Thats all plugs into our 2021st half key initiatives and you'll see there is a list of six items, there and I'll try to get through these as quickly as possible first is to continue to collect those insurance proceeds that we've been successfully collecting affected by our retention of a public adjuster, which allows us to interface with the insurance company adjuster.
It's been very successful, thus far as well as specialized council to facilitate those payments both for the casualty and for the business interruption losses and put cash on the balance sheet as we've already been doing.
Second point is to sell unneeded assets as appropriate.
Our balance sheet shows about $37 million of book value for the all the equipment in the plant and some of that could be sold or redeployed as well to license sites. So we have opportunities to unlock some value out of the assets that we have here in the facility, while we use it to.
Was the went up to five l. that that was referring to.
In the near future.
0.3 is restructuring our debt for the year 2020.
And retiring that debt in 2020 as I mentioned earlier.
The next point is to build and run those electrolyzers with those design improvements and really the primary reasons that we're doing that is to improve the cost and operating model for the better value proposition to the licensees, while we're talking with them.
While increasing the utilization rate to get more throughput potentially through those machines, which further increases that value proposition and again, we expect to begin running one or two those units very soon.
We also seek to conduct a contract the license site number one we've been talking to several instead interested parties.
Ranging from Greenfield builds to retrofit of existing battery recycling facilities to even specialized applications of our refining within a facility for particular types of materials and we're going to work to pick the best site by Q4, Q1 timing and plan to deploy that first sight and be ready to deploy that bike.
2020, what and.
Continuing our research and development, but the focus is on licensing and those improvements the Ben was mentioning earlier as well as building out support tools for our new customers because with these running elsewhere, we need to be able to see what's happening on a real time basis from flow rates to how the electrolyzers or operating on a variance.
Although the very parameters to allow us to support the implementations.
If you go to slide 12, you can see visually that our cash needs runway.
Can be non dilutive and so if you look at your 2020 and that we're in now and 2021, we can fund this capital light pivot from the insurance proceeds and potentially some asset sales.
When you look at 2022 and beyond by then we believe we will have an up licensing revenue to sustain and grow the company and continue to build shareholder value and that's part of the licensing.
Plan that we Didnt have had placed for since inception, really but particularly accelerate in 2018.
If you move to slide 13 beyond that shorter term runway. There is a longer term vision that we want to make sure. We communicate everybody that we do have a longer term vision and that is starting with pivot and building cash as I mentioned in 2020 and getting to self sufficiency towards 2021 and by propagating in 2022 additional.
License sites and gaining revenue from those sites from equipment sales and maintenance and service and licensing revenues and then in 2023, extending opera refining applications to prove that they do indeed improve battery performance due to that high purity of OLED, which we think will strengthen our industry influence on the energy storage world and.
Allow us to help our partners and the industry work towards the best available technology status rock refining.
And then ultimately we think that diversification can happen in the longer term, which is trials of OCC refining applications.
For a particular applications for led an even potentially other metals.
Slide 14 is just a quick reminder, for everybody of what the market drivers are.
As of increasing the global demand for less and this is really important because theres a finite amount of capacity to give that's out there and we'll get into that in a minute, but theres auto growth in emerging markets. They are putting more cars in the road of many of those cars have two batteries instead of one theres renewable energy so energy storage is becoming more and more important for solar and wind.
And other types of applications. There is multiple chemistries there theres lithium battery farms Theres also a lot OLED battery farms that are being built and that increases the demand for led if you look at the third area. That's the datacenter and telecom space, where I came from for the great both of my career and.
Particularly the lead acid battery portion of that and that is vastly growing at a rapid rate because every application. This cloud based internet base is becoming more and more critical cannot have downtime and so those battery farms are there to make sure that the server farms don't go out when the utility power fail leopard vehicles on the last point on.
For everybody that Didnt know they do have lead acid batteries in them and the lithium battery only propels vehicle.
So slide 15, just point out that the growing demand for led is.
Increasing and is projected to continue to increase from 46 billion and went back in 2015.
And all the way up to 84 billion by 2019, I'm sorry by 2030.
Roughly so we do see that the market is growing at a rapid rate by those market drivers and that means that there is a higher need for capacity position of existing facilities opportunities for new facilities to be built to consider awkward refining as part of the quarters on as a rebuild and.
And we think that we're at a good place at the right time to facilitate at new technology for both of those types of applications.
In a growing market.
Slide 16 summarizes our offer refined advantage and there is really comparing it to traditional recycling technologies for key advantages talk refining and that's again that purity, which is very important for.
The future of energy storage, because as the impurities to caused batteries lead acid batteries in particular to gas and dry out an agent perform.
Less ideally that included they didnt have those impurities in them. So we think theres incredible opportunity. There is a long term for battery manufacturers to take advantage of the OCC refined led.
We also believe that we can enable these global battery recyclers to meet the demand and the growing demand for led the capacity have to ultimately come from somewhere as we all believe this market is growing and operate brining can contribute towards that capacity with the third area of the reduced environmental impact in the fourth area of potentially.
At equal or ultimately a lower cost to recycle because of the lower cost to maintain and manage the environmental footprint of OCC refining as compared to incumbent techniques.
If you go to slide 17, you'll see our planned revenue sources summarized and a little bit of a timeline 2020. This year, it's focused mostly insurance collections and again, we already collected $10 million in the first 100 days since the fire.
And our legal counsel continues to tell us that they are impressed with the progress that we've made to date.
And we're working towards the total payout of up to $50 million, that's the nameplate full insurance.
We have new and as I've mentioned earlier, our claims are already exceeding.
[music].
That $50 million that 2020, and 2021, we could potentially augment with the sale of a needed assets and that could you yield $10 million plus for those assets that we choose to sale is also create that opportunity to redeploy some of the equipment to the first license site.
We've already paid for and we can provide a attractive licensing package for the first licensee for some of the equipment that we already have here on site.
We could redeploy to license to site and 2021 22, plus that's when the equipment services and royalties kicks in and set up that potentially lucrative model for the existing and Greenfield battery recycling facilities. We've already built the licensing model and we've already built the beginnings of our licensee pipeline.
And engage with several potential licensees throughout the world inclusive of Claris of course, and we're seeking with our licensing deals engineering revenues between six and seven figures per project. So what does that mean thats. When you hire an architect to design a bridge or a building or a skyscraper your house. They don't do that for free so the engineering path.
Package. This provided to our project basis is paid for in as traditional and all.
Industries for that to be the case that would be our first beginnings of licensing revenue, which would be significant.
And then well we project, possibly equipment supply revenue of over $10 million for projects just from the operating finding.
Electrolyzer supply as well as the supporting and related equipment.
To feed those electrolyzers and take the led offer them and protect them and all those types of applications as well.
On the feed into the system of the ecosystem to decline already has.
We see recurring revenue royalties on the led Thats produced as a great revenue source and us whatever licensing company is ultimately after but in addition to the recurring running royalties theres additional millions of dollars and revenue opportunities even per license side over the life of the license that could potentially be generated due to maintenance and upgrades over the life.
Time of that off refined deployment in that plant that could be physical upgrades that could be technology upgrades.
To provide additional monitoring capabilities et cetera, et cetera, So thats kind of summary of the planned revenue sources. If you go to slide 18.
This is.
Two ways, primarily that you could look at OCC refining attaching to an existing facility.
And this is separate from a greenfield facility, where it would be more obvious that you would just incorporate our refining as you built facility, but you can actually take OCC refining and one option on the left increase the production of an existing facility that has emissions limits without increasing emissions by adding OCC refining to process, 50% that material.
Much more cleanly and keeping the furnace capacity for that for the non paced portion of the led the other option is that you can keep the total production same as existing facility add off refining and vastly reduced the missions and improve the quality of the metal that comes out with less environmental and finishing to get to the hype pure.
He led.
Product as a result.
Moving on to Slide 19. These are just a summary of licensing market drivers and some numbers behind that so the secondary led demand, which secondary led means recycled led primary let me mind led so that recycled led demand is projected to increase from those numbers I was showing you earlier by 2030.
From 2018 to 2030 by about 1.8 million tons.
And that's a lot of.
Passed the demand is going to need to be fulfilled in one way or the other.
All new batteries need about 70% to 85% recycled led at an aggregate overall battery industry level and that's one great story of the lead acid battery industry. It's one Shining example of a circular economy, where most of the led in the car battery or any battery that you use has already been and other value has been recycled and 72.
85% of.
Content needs to be recycled led the rest of it comes from the mines to feed the growth in the marketplace and we believe that the demand for the secondary led will eventually surpassed the secondary led smelting capacity and that is also going to be due to some environmental limits and constraints on furnaces and permitting overtime.
As as this all progresses.
Slide 20 summarizes our smelters could truly benefit from what we call Aqua fit and that is the active adding OCC refining to smelter.
And for a pure battery recycle it gives them all these opportunities on the top half to increase the capacity lower the emissions.
Create a higher quality product produced the purest led on Earth, which could result in their led sales at a higher premium we demonstrated already that we can get the highest premium possible for the led that we produced here from the world's largest battery manufacturer.
As as a proof point.
Public relations advantages and potential reputation of protection with consumers is obviously high what are your battery recycling or a battery manufacturer the bottom part those more of a focus and battery manufacturers.
That could meet growing demand for the Ultrapure led and Thats driven by the increased sales of these newest high performance batteries like that start stop battery and cars and Datacenters et cetera that really are driving the need for ultra pure led the industry is crying for it the ability to market. The performance enhancement ultimately obtained by using the peer led.
Also gives an opportunity to market the green nature of the products, we saw how well organic food did we saw how well.
In many instances in applications of.
Green and clean methodologies that have improved sustainability and really improved.
Marketability of products around the World, We believe OCC refining is right in the middle that.
21, slide number 21, this summarizes total addressable market of a licensing market opportunity in terms of the amount of led and value of led this produced producible by op refining right now secondary led production.
In 2018.
This more than 2018 is 7.2 million tons and of that about happens available for OCC refining. So that leaves about $7.2 billion worth of led that can be made from OCC refined solutions as a total market opportunity, where we would be collecting running royalties from and providing the equipment to make that $7.2 billion with when.
Yes.
Slide 22, again summarizes that we've invested over $180 million to get where we are today.
And that investment has gone into getting the technology patented getting the technology proven through the OCC refinery and at a very near Licensable state and that heavy investment has really allowed us and all that water and the bridge to leverage into our future growth opportunity, which is to be technology licensing cap.
A little light.
Putting you'll see that in order as a baseline to do that you have to have the foundational and intellectual property secured in RFP strategy has been very sophisticated is focused on materials and method I won't go into great detail that you'll see the math and you'll see the summary of all the countries, which were continuing to add to it we are continuing to invest in this.
Portion of our business.
Slide 23 summarizes the experienced management.
Team as well as our engaged board, which is truly focused and partnering on execution on the left you'll see the executive management team, which is inclusive of myself I have a lot of experience in not only aqua metals for the past five years, but also.
And battery lead acid battery deployments and battery borrowing for.
The stationary battery applications and working with smelters as well as battery manufacturers Judd Merrill our CFO has a great degree of experience when it comes to mining and metals and as achieved.
A lot of positive outcomes with his business.
This is that he's been involved with and Ben who you all that today that described as the electrolyzer be one to five ml has.
Direct relevant experience in.
Being on the project launch team for a very large battery recycling facility in the United States and operating that facility and then even picked up his whole family and moved here. The first time he saw refining because he saw it is the future and you wanted to be a part of the future. If you look at our independent directors.
We have independent directors from large business ranging from Chevron to Dupont to Equinix, which is a very large data center operator to a vast degree of experience in capital markets and audit and.
Accounting and finance and administration. So we've got a great team, which is a big part of the formula for success.
So in summary on slide 24.
Aqua metals is the first of its kind environmentally friendly solution for the entire led recycling industry and it produces the purest let available which we think is a great opportunity for all the reasons I described earlier the company has proven OCC refining and a demonstration commercial scale by the truckload, which we believe as a catalyst that.
We'll launch our global licensing business and the 20 billion dollar and growing market of which half can be opera refined is a great opportunity for a company of our size at this time.
And strategic partnerships investment from the global leaders that we've talked about earlier, we think truly validate the industry support the industrys much of it is.
White supportive and backing and interested in seeing OCC refining propagate become successful because everybody does add that common feeling that the industry in the world really needs it and that management team that I. Just described you coupled with our board is truly executing and refining our business plan that we put in place in 2018, which we've now acts.
Celebrated to this capital light licensing opportunity.
As a result, the fire in early 2020, so with that I'll turn it over to Judd Merrill Arse, Chief Financial Officer to take you guys through the financial elements of our presentation go ahead, Jeff Alright, Thanks, Steve.
Spend a few comments on each slide we're in starting on slide excuse me by 26 capitalization.
You'll see as of December 30, Onest. Another 19, we had total cash of 7.6 million working capital at 17.7 million, which gives no effect to the payment of the 7.5 million insurance proceeds that we received at the end of the year or subsequent to the into the year.
We do have the debt with Green bank for approximately 9.2 million, but six 8.6 million negative issuance costs.
Which is secured by liens on substantially all of our assets, including insurance proceeds.
However, we are in current negotiations with Green bank on a loan modification.
That may take away some of those covenants related to.
I believe and such.
Moving right onto the next slide on the balance sheet.
As we've stated as of December 31st about 19, the company did receive 2.5 million insurance payment as a result result of the fire damage and subsequent to year end as I mentioned, we received an additional 7.5 million.
The company as the year end determined that it was probable that we were Steve at least an additional 17.4 million insurance proceeds during the 2020 fiscal year.
Which we've already received 7.5 million.
Expected XP expected.
17.4 of insurance receivable is figuring on our balance sheet.
As a result of fire the company did write off approximately 22.4 million of fixed assets that were damaged. These assets consisted of operational equipment building.
And the equipment that was under construction at the time the fire.
The disposal of the fire damage. The assets included a decrease of accumulated depreciation of 2.5 million sold a total net write off of fixed assets totaled 19.9 million.
Moving to the statement.
Of operation.
Product sales for 2019 consisted of high purity led from our offer refining process as well and we're going in and lead compound and plastics.
So 10% increase over 2018, which was mainly revenues from just Purcell lead compounds in plastics.
During the second quarter 2019 throughout the third quarter, we began to increase production by the addition of of our new modules and increased efficiencies.
And during the fourth quarter, we limited the operations that are arc refining in order to focus our resources on implementing the plant improvements enhancement processes efficiencies. However, during the fourth quarter. We also.
Were impacted by by the fire that.
Cost of product sales, including includes raw material suppliers and related cost salaries and benefits consulting outside services depreciation and amortization.
Churns travel in overhead cost.
Cost increased by 9% over the 12 months ended December 30, Onest 2019, as compared to 2018 same period.
And the cost of product sales were lower in 2018 due to lower production rates.
The cost increase in 2019 were also affected by are ramping up of operations.
Aquarefining process.
General and administrative expenses increased approximately 36% for 12 months ended December 31st about the 19 comparative the 12 months ended December 31 2018.
Most significant drivers of these increases were noncash expense items.
So for the 12 month.
Ended December 31st down 19, we had $8.9 million noncash expense related to the agreement.
In addition to noncash stock based compensation to our current employees and directors increased by approximately 2.8 million.
Compared to 2018.
In December right. After the fire, we did take significant action to reduce costs, including the very hard task of laying off.
Big portion of our workforce there wasn't an easy thing to do but it was a tough decision that we made our current monthly burn rate is approximately 800000, a month for its just a little under two point.
Five.
Per quarter, we may see that come down throughout the year.
It's a balancing act to make sure that we conserve cash but maintain our potential to execute on our go forward strategy.
For the year ended December 31st does 19, the company had net loss of 44.8 million negative 86 cents per diluted share compared to.
Net loss of 40.3 million or a negative.
Our 18 per diluted share for the year ended December 30, Onest 2018, the net loss for the year ended December 31st about 19 included the eight or 13.2 million of noncash items comprised of $44.2 million stock based compensation and 9 million on expenses related to the the only.
Freeman.
So if we exclude the impact of the Vilia noncash compensation. The company's adjusted net loss was 35.8 million or a negative 69 cents per diluted.
Share.
Weighted average shares outstanding for the year was 52.3 million.
Moving to the last.
Flying on cash flow.
We did have net cash used in operations for the years ended December 30, Onest 2019 in December 31st on 18.
25.2 million and 26.3 million respectively.
And non cat or net cash used in investing activities. During the year consisted primarily of purchases of fixed assets related to phase two construction on our final production upgrades at our trick facility in Nevada, and that was offset by the initial 2.5 million insurance payment.
Our net net cash provided by financing activities for the year ended December 31st about 19 consisted of 3.1 million net proceeds from our January.
2019, public offering and 20.3 million net proceeds from our made public offerings.
On the this increase of cash flows is offset by six point million pay off of the Interstate battery convertible note.
With that I'll turn the time back over to Steve.
Yes, so thanks, Jen and that's a wrap for our presentational materials, So Glenn I'll turn it over to you and you can facilitate the Q in a portion for today, Okay Super on that thank you very much Stephen tour audience remember please use the question and answer techs box in the.
Presentation portal, we do have quite a number of questions in the queue I will try to do our best to get to everybody. We will stay past 530 to answer questions and if we don't get to your questions today I'll be sure too.
Respond via email or phone calls a follow up so our first question to you Stephens can you talk about would be Opex run rate is to reach license revenue.
So the Opex run rate as jet was talking about is going to be significantly lower because we reduced our cash burn rate and Jeff maybe you can actually answer that question better than me.
So the op ex burn rate is composed of.
Gionee and.
And plant operations is about a 65 35 split at this point so about 55 DNA in 35% as I mentioned were.
800000, a month and.
We.
We'll probably see there are some things as you transition in that in this environment. There's few commitments that are kind of still out there related to certain scoping type contract things like that we may see that actually come down a little bit.
Through the year.
Okay and can you comment on how much capex as required.
How much capex is required.
And our current.
Yes.
In the new business model.
So the Capex is actually is a fairly low amount.
Some of the.
Work, that's being done right now it's towards the enhanced electrolyzers that we've been talking that Ben talked about.
And so for 2000.
In 2020, we're probably.
Half a million 2 million of Capex.
For the year.
Okay. Thank you.
What are the hurdles that you see to signing a licensing agreement.
So.
The licensing agreement.
Depending upon who we sign it with and for what type of facility, obviously people want to learn more about the proof points of what we've already done which we've been very easily communicate and people go to want to see the electrolyzer, one dot to five Els run and.
That we expect that will accomplish and begin to accomplish certainly in Q2.
And then it comes down to the hurdle of the value proposition and we are confident that we can model multiple applications of OCC refining with the folks that were talking to to provide compelling solution for at least one site.
From the get go and that's the key is to get that first site and it's a numbers game in any sales process that you have to be talking to multiple players about multiple types of opportunities and find the best fit and so it's the commercial hurdle that in any new product that you're going to have to overcome and.
And we've had many conversations and feel good about the progress that we've made with our conversations today.
Thank you can you comment on the number of potential licensees, you're currently speaking with about agreements.
So we've been talking to potential licensees.
That are involved with greenfield builds as well as involved with.
Retrofit of existing facilities and even a couple that have interest in particular applications for OCC refining that would be significant volumes.
Frock refining in in a facility, but on a processing something different than just the battery pace in that facility, but other things that come out of the process.
In those facilities. So there is multiple that we've been talking too.
But not going to give you an exact number.
Okay. Thank you.
Has the agreement with Veolia changed or do you expect it to change as part of the adjusting strategy.
So the agreement with the oil is in force. So we still have an agreement with the earlier.
And the means to the end.
As to operate the plant here.
At the OCC refinery with OEM Nm, which we did spend that portion of the agreement because theres no need to operate a full 24 by seven plant, but the the Partnership's Foundation is that the only wants to be a part of OCC refining propagation and deployment and operating those types of 15.
These throughout the world and that part of the our partnership is strong and remains in force and we have a very common interest in seeing.
That happen so.
We've suspended deal and then portion of it but the overall relationship is geared towards finding the best path forward to get off refining deployed elsewhere.
Okay. Thank you.
Next question can you provide color on the asset sales mentioned in the press release and how much money you think can be generated from the sale.
So.
In the deck, we talked about $10 million plus opportunity there for the asset sales and we're going to be very opportunistic and consider what makes the most sense at the right time.
As we utilize the facility in the meantime to operate our one to two electrolyzers. So in operating the wanted to Electrolyzers theres certain pieces of asset with within the facility that we may not need like for example, we have three operating kettles and provisions for 650 ton kettles, if we don't intend to run the full fussy.
Realty here and March towards the licensing opportunity in focus towards that there may be it opportunity. So some of the kettle materials.
We don't operate all 16 module on the outside of the building not effected by the fire a bunch of cooling systems that we may be able to sell the ones that we're not using and get some isn't dollars in house for that.
We preserve all optionality that if a strategic partner has an interest in outfitting the facility in the capital heavy mode and is willing to provide either as a financial partner as a strategic partner the dollars to build out this facility to its full capacity, that's something that we will continue to entertain and keep that.
Option open, but ultimately if we do the licensing path down the line there is an opportunity consider.
Exiting the entire building and selling the plant, but thats not on our agenda at the moment is to use the plant sell the assets that we don't need and keep that optionality opened depending upon how the licensing into Gaza further conversations with strategics and financials would go.
Okay. Thank you.
Can you comment on how you can run a licensed electrolyzer without a plant in place.
So we have a plant in place the part that did not.
Survived the fire so well was on the OCC refining side, but wall. So people may be wondering justifiably well, how you can run off refining at the OCC refining area has been burnt and the way that we intend to do that is more than.
Three quarters of the square footage of the plant is still usable and accessible and we've already moved some of those chilling systems that was mentioning in place to feed into running the electrolyzer or electrolyzer orders.
Right there in the front end area of the plant.
And that's our plan and.
We don't need the refining area to do that.
Okay. Thank you insurance related question, what are the insurance dollars limits covering the November fire and idols first party or third party insurance coverages.
So our total insurance.
Coverage is $50 million.
And that is first party. So those are our that's our insurance carrier Valley to later insurance.
For different insurance companies involved, but they're all directly with us.
And so the first initial payment confirm that first layer. The second payment came from the second layer, but these are all first party.
Sure.
Carriers that they're working directly that's up to that 50 50 million norland.
Thank you you've commented on your relationship with Youll. There can you also expand on that on the current relationship with clear iOS and Interstate batteries and how has the change post player.
Sure So I'll start with Interstate batteries.
We're not.
Buying as much feedstock right now so theres not any transactional relationship with Interstate batteries at the moment.
On the clear iOS side of equation.
We are regularly meeting with clear iOS into though there is no walk refined led sales to them at this time. They do remember remained as a keyboard observer and obviously isn't interested licensee of op refining and an overall partners. We continue on our journey forward. So clear iOS has been this with us for quite quite a few years and.
Ultimately, we will find the right way to work together with them, we believe and in the meantime, there on our board as a board observer, and we regularly meat and talked about different types of opportunities.
Okay. Thank you can you comment on what the current head count is today and what your expected GNS costs will be in 2020.
Yes, so our current headcounts 23 employees made up of engineers and.
Plant operations individuals who are helping us get the electrolyzers were up and running.
In general corporate staff as well, so that should stay fairly consistent throughout the year and.
We'll add resources as needed.
Our DNA as I said, our current monthly burn rate is about 800000.
A mom and DNA makes up about 65%.
Okay.
Thank you.
Could you comment on what type of assets would be for sale as part of this new strategy.
So earlier I gave an example of.
The kettles that we use to melt the led and if we're not going to need to melt 80 tons. A day of led only need melt few times a day OLED, we wouldn't necessarily need all those cattle.
And the those chiller systems for 16 modules. If we're if we're running just a few electrolyzers, we're not going to need some of that infrastructure some of which survived the fire and there's other potential pieces of equipment not only that would be for sale, but could be moved it to our first licensee that gives us a gray.
Value proposition to the first licensee.
One example that at all provide is we do add that Killen that we put in we ran the demonstration killed, but we have a full sized brand new killing here the cost several million dollars to put in which is a part of our process for the full full blown facility, what's to say that we wouldn't take that killed and send that to a licensee for it.
First movers advantage great deal on the kill.
Yes. Thank you just for clarity purposes are you planning on selling the plant itself or just equipment within the plant and then further clarity I think you may have commented on it but just again what is the current.
Burn per month downstream.
So I'll answer the first question then Jud can answer the second so.
The assets that we're talking about doing asset disposition Opportunistically now is not inclusive of the full plant.
Because we need the plant to operate and run the Electrolyzers, it's more of that those equipment. Examples I gave just a moment ago and then ultimately as we progress in our strategic conversations there might be opportunities to either go back announced at the plant with.
Sourcing someone else's large and heavy capital so it doesn't dilute our shareholders.
Before.
Once we complete our mission to get to the first license site it may make sense too.
So the plant in the building in the land at that point in time, but we're keeping that optionality fully open.
Okay. Thank you.
Next questions related to insurance again is there a reason that you're only booking insurance proceeds receivables of 17.4 million. When the total name thing would be in addition of 47.5 billion can you just walk.
The investors through that.
Yes. So this is actually by GAAP accounting rules that we can book only up into the amount of the write off.
Although we internally believe it's going to be much much higher and we've got a lot of evidence.
To support that and we're putting that we're giving that information to insurance carriers.
On an ongoing basis. So if you remember I said a net.
A write off was 19.9 million hours, which we've already collected 2.5 as of the ended the year, which leaves us with the 17.4 million as a receivable.
So yes, there is that Theres GAAP accounting rules and then there is what we actually expect to receive as we go throughout the area and we collect more.
Ben will be able to recognize that on our financial statements.
Okay. Thank you again back to the licensee model.
In your discussions with licensees have any said are indicated they would sign an agreement without the current plant operating and then second follow up why do you think it'll take until the end of 2020 to get a deal Doug.
So the answer your question. One is yes, there are potential licensees that do not need to see the entire plant operating for them to proceed with it with a licensed option.
And so the answer to the second question is it we believe it's prudent for us to get the B, one dot to five L.
After lasers running because it and our interest to make sure that we can see them operating when their remote and that we make those improvements than we improve our value proposition and get the best win win for the licensee in us and that shouldn't take.
Years, it should take months and so we should be through that as I said commencing in Q2, and while we work out the commercial discussions with the licensees, we have an opportunity to move on that by 2021.
Okay. Thank you.
The Green Bank loan is retired or modified would you be able to sell and leads back you're building and if so how much additional cash might does generate.
Yes, so yes, the Green Bank loan now we're currently working on that right now and.
It would first via modification and then retirement over the course of several months.
Once we do that had a freeze up.
What we can do at the plant and.
There are certain covenants whenever you enter into an agreement with the lender that they have to follow and we follow those and have a great relationship the Green bank, but once those are out of the place than we have.
Yes.
Abilities to do do what we'd like to.
Opening those opportunities.
Came up there be.
We'd be able to take advantage.
Okay. Thank you and I know we've reached top of the our we've got about six or seven questions left in the queue, we'll try to get through those and then.
And the call at that time.
Can you comment on the current delisting situation and the plan that you would have in place to address that.
Yes so.
As we announced back in January received.
Notice from the NASDAQ on the listing rule the worry fell under a dollar per share.
The company has a period of 180 calendar days from that Dave notification So until July 13th.
2020 to curate.
So if any point in time between now and then that our share price goes above one dollar for tank picking the business days with curate.
If we do not regain that dollar per share for 10 days by July 13th than we.
The company may be eligible for additional time to regain compliance.
And sometimes that an additional six months, so that would take us into January of 21.
So we believe that the actions we're taking in the go forward plan will.
Be very positive and hopefully drive that up.
We intend to monitor.
The quote this very closely between now and then.
Considering all the options in order to make sure we regain compliance with with this requirement.
Okay Super. Thank you I've got a couple of obviously headlines have questions related to Corona buyers. So we'll ask them now.
Number one is has this affected your operations and have you build plans around it.
So as any businesses considering right now is how you operate if you have to quarantine or.
Put employees out of Harm's way and we do have a plan in place in the event that we need to do so we've sat down with our IP Department in.
Major everybody has the proper VPN and productivity in the event that we need to.
Pull the trigger on that so it's.
Interesting time for all of us with the krona virus and obviously the people that were trying to protect or that.
Typically in the older ages, and so we want to make sure that nobody's bring home something to somebody else. So the plans are in place we're thinking about how we would approach it and.
So there's certain essential activities that would be taking place the plant in the event things got worse.
And Fortunately in the environment that we work in people were respirators anyway within 95 masks.
And so thats kind of a natural things that would take place with the proper PBT wearing latex gloves and all those things anyway. So I think we're prepared and we'll see what the world brings us in the next several days.
Okay Super Thank you and I guess as it related question.
How could critical component lead times impact the operation of the version 1.25 and are you expecting any delays due to China supply issues.
So right now we have just about all the part that we need to build the version 1.25 ml and we're in the process up or hearing those last part going to have line of sight to delivery for each and every one of them. So we expect no delay due to lead times.
Okay Super. Thank you can you just commenting you may have done this earlier.
Well there clearly are still has first mover status and their agreement and.
I guess, what other factors within the agreement so we can be met or perhaps.
We're not in that.
So curious.
As part of our agreement with them does have a first mover advantage there was extended to June of 2021.
And we continue to dialogue with clear rules about the most appropriate facility in application for OCC refining why we talk to other potential licensees and.
But the contract is in place with Clarion us between now in June of 2021 for them to have that first movers advantage now if they choose not to be the first mover for some.
For some reason that would likely with our the strength of our partnership we would have the opportunity to work with another licensee and.
Still maintain a.
Obviously, a relationship with clear rules in the event that that that scenario were to develop.
Okay Super. Thank you very much I believe all but one question into Q have now been answered in one way shape or form if not please for the person asking retail specific question and the last question that I'll ask at this point unless other questions come in as good a potential licensee takeover your existing planned.
The answer is yes, so there's an opportunity for as I mentioned earlier for strategics, whether their financial strategic or four.
Industry specific strategics to look at the opportunity to operate the plant on the plant is set up for the most part to work with lead acid batteries, but theres, even potential other types of applications that used battery breakers and kettles for refining business. For example, aluminum plant just down the street that has.
Kettles running by the day melting aluminum and so theres other uses as well so when we think of strategics, we think of.
Strategics on multiple layers, but.
The most strategic for us would be somewhat in the led industry that would have an interest in doing that.
We're open to conversations with any and all and we're having some of those conversations.
Super. Thank you gentlemen, there are no further questions in the queue, Steve I'll turn the call over to you back for closing remarks.
Yeah, Yeah. Thank you Glen and thanks to everyone for attending today and for those of you that are familiar with the story being patient with those that were getting more familiar with the story and vice versa frankly.
And these challenging times with the market's doing what they're doing even questions about corona virus et cetera.
We are comfortable that we have the cash runway as mentioned earlier.
To proceed with our path forward and as as we've discussed today Aqua metals is accomplished a great deal in 2019 and post fire even on the last 100 days into early 2020, we believe we've set our vision and path forward, we have a strong footing of the building and maximizing cash model to fuel.
We believe is a non dilutive pushed forward with short term technical improvements that are going to prepare offer refining for licensing.
And the goal of seeing through our vision of propagating OCC refining and a large industry as we've talked about that we and our partners think need OCC refining and we look forward to continuing to provide further updates to everybody in the near future.
Super. Thank you very much thank you to our audience and this concludes this presentation.
Thank you all parties may disconnect have a great evening.