Q3 2020 Aqua Metals Inc Earnings Call
Thank you operator. Welcome to the aqua Metals third quarter 2020 conference call earlier today released Financial results for the quarter ended September 30th. 2020 month lease is available the investors section of the company's website at ww.w. Joining us for today's call from management is Steve president and CEO as well. As long as Chief Financial Officer during today's call manager will be making forward-looking statements. Please refer to the company's quarterly report on form 10-q filed today October 22nd or a summary of the forward-looking statements and the risk uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements Alco Metals cautions investors not to place undue Reliance on any phone number and Stephens. 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 suck.
Except as required by law. And with that I'd like to turn the call over to Steve cotton CEO Steve, please go ahead.
Thanks Glenn. Good afternoon to welcome everyone first. I'm happy to report that the company has made substantial progress in the past 90 days by every measure RV 1.25. Electrolyzer program is Faith. Well through the be iteration and it's returned meaningful cost and operational improvements that have been built right into our aakhri finding sales proposals the program remains on or even a little ahead of schedule for completion by year-end, which we believe will put us into a product ready state to finalize our various detailed sales Proposal with the V12 hundred dollar bills and operating specifications required for DTE configuration and pricing. I'm quite proud of our teams diligence progress to achieve and then even over achieve the goals that we laid out for the program earlier in the year. Judd will go into more detail about our financials and the headline is that we have further strengthened our balance sheet through a combination of careful cash management and the largest quarter of insurance collections to date. Yep.
Also, very close to retiring the veritex.
Well and emerging debt-free by the end of this year putting us on or ahead of our previously communicated schedule. We have also made substantial progress on the activities related to the sale of the pack finder e facility as a key part of our transition to being a Capital Lighting equipment and services provider and Technology license or we publicly announced on September 22nd Our intention to engage with potential buyers and sent December 11th at the final date for receiving formal bids for the land plus building. We also indicated that we are interested in engaging with Buyers to consider including the plants and equipment with them as a package deal. I'm happy to report that we have had quite a bit of interest and activity for the building ranging from lead acid battery recycling use to lithium-ion battery recycling use to other industrial use while there are certainly no guarantees. We will be able to enter into a contract by December of this year with a buyer the level of interest in amount of Interest since our announcement has exceeds
Our expectations coupled with our anticipated Insurance collections. We remain optimistic that we will be able to harvest cache from this asset in time to fuel the company's efforts towards life in our technology. If a battery recycler purchases, the property will also have a great Prospect for selling operate finding equipment and services and Licensing our technology right here in our backyard in the Tahoe renewing a real Center. I'd also like to provide an update on our intellectual property. The company was recently granted a new patents in the United States which adds to the large and growing number of hats that we own and we believe continue to add value to our company and our technology. It has been our strategy since we developed Dockery finding to license our technology worldwide as a result of that Vision. Our intellectual property strategy has been Global interests in the beginning today. We have 45 patents allowed or granted in seventeen countries or regions.
just this year alone Aqua metals have secured 15 patents in 10 countries or regions of the 15 new patents 3 or right here in the US and twelve are international in addition wage 67 applications pending both in the US and foreign jurisdictions we are very pleased with a stable of intellectual property that we have developed in anticipate ongoing opportunities to augment I believe that our patent portfolio alone carries significant monetary value now that we have accelerated our licensing strategy we believe this strong patent portfolio with this broad Geographic coverage provides medals with very broad opportunity for potential licensees regarding our sales and partnership development efforts we've made substantial progress both growing and progressing our sales funnel in clubs of Aquarius our discussions and proposals continue to the next stage as we drive towards selecting our first customer and licensee
I provided some color on what our licensing model will look like in terms of revenues and one of our prior calls given that we are now much closer to executing on our first customer. I thought I would spend a few minutes reminding our shareholders know what this means and what it could look like once a prospective customer agrees with the proposal and Technical package. We would expect to move on to a paid for engineering package similar to architectural plans were a portion of the revenues could be recognized the engineering package would be the first revenues we record for a licensing business and potentially range up to significantly over 1 million dollars depending of course on the size and scope of the application. Once the engineering packages is accepted. The next step would be to move forward with an equipment supply and Licensing and services agreement. This agreement is expected to provide specific cause breakdowns of engineering Furnishing installing and commissioning of the aqua metal provided equipment and third-party equipment from Aqua metal supplier Partners such as the Kiln and briquetting system.
We expect revenues for equipment.
It's applied to potentially range for Millions to tens of millions of dollars and wood healthy margins the total value of which is of course depending upon the size of the deployment. Once the equipment arrives in sight. We would expect to be services that women to install commission and witness tests and gain customer accepted his Services could add an additional sources healthy. Margin Revenue. Once the Acura finding solution is up and running we expect to collect royalty per ton of occupied lead produced by the operation. The expected royalty would be based upon the inherent value of the claim process and the economic and marketing benefits plus the premium value of the old fashioned Rock refined light itself, which is already commanded up to a 10% premium over the standard London London Metals exchange pricing for millions of dollars of lead sold from our own on Refinery for a month or $15,000 a year off refining facility. We could expect to see over 1 million dollars of running royalty per year. It is important to note that a large deployment of Acura fighting into an existing facility can suck.
In excess of 100,000 tonnes a year of production. I would also like to point out that due to the modular nature of our technology. Our technology is compatible with smaller deployments that are below fifty thousand tons per year Thursday to production and Beyond could yield additional value adds to other customer service opportunities potential additional revenue streams could include service maintenance contracts typical for equipment suppliers future upgrades to improve throughput cost to operate product quality and Purity capacity expansions unwarranted Parts and Equipment replacement overtime are all opportunities for additional revenues in supporting our customers in the long run getting back to the results from the past quarter in addition to our sales and partnership development efforts. We have also made progress on what we believe can be some interesting new power ships for the company that will further enhance our offering and our Revenue stay tuned the company has also further enhance our organizational capability, which he hires to ensure that we are a fool.
To execute upon completion of V 1.25 and signing our first customer as I've said before we could run into a hurdle or two, but this team has continued to prove that it can clear hurdles. So to conclude I would like to say that I'm very proud of our team and our Collective efforts thus far this year. We have a strong culture and teamwork that enables us to repeatedly report that we are accomplishing what we previously guided. I'll now hand it over to Judd to review our Q3 financials Judd. Go ahead.
Thank you Steve as of September 30th, 2020 cash and working capital balances were 5.6 million and 2.4 million respectively.
As of September 30th 2020 the company had received a total of 21.8 million insurance payments as a result of the fire damage.
In just Q3 alone. We received 6.8 million with another approximate point seven five million being received this week for a total of approximately 22.6 million anticipate total insurance proceeds for building equipment damages and clean up the total up to Thirty million dollars. We may receive additional insurance payments for business Interruption losses.
That's it.
On our balance as of September 30th 2020 that were not affected by the fire totaled approximately $37 million Book value. These assets are back on good shape some of them brand new and will be either used due to licensing deals for sold.
During the third quarter. We sold one non-essential asset for $150,000.
As part of our tolerated equipment supply and license and strategy which includes the disposition of non-core assets. We officially placed our plant up for sale. I stated previously, we believe we have achieved the demonstration purposes of the plants resulting in the successful validation of mockery finding technology and commercial sales or service rep your land. This step is part of our long-term business strategy, which includes monetization of this nonpolar a set with the cell of the plant as a means of financial companies continued acceleration of our Core Business of becoming an equipment supplier and license or of awkward signing Technologies.
Other items I want to mention on the balance sheet include other assets and notes payable as of September 30th 2020. We have set aside in an escrow account approximately 7.6 million of insurance proceeds allocated to bear attacks to pay off the remaining balance of the loan, which is approximately 8.5 million as of the date of this report as inclusive of approximate 500,000 prepayment penalty netted against a $1000000 TV collateral.
The 7.6 million is recognized as other assets on our balance sheet with the payment from insurance this week the escrow account now totals approximately 87.9 million. We anticipate that the debt related to the vertex note will be paid in full by the end of this year.
As we have discussed our lad recycling facility was not in production during the year and except for nominal sales of inventory and the first and third quarters of 2020. You did not generate revenue for the three and nine months ended September 30th 2020 as there has been no significant production subsequent to the fire that occurred during the fourth quarter 2019. The plant will not be in production on a go-forward basis except for the operation and testing of our improved electrolyzer as part of the package the 1.25 program.
Pasta product sales includes raw material supplies and related costs salaries and benefits Consulting and outside Services costs depreciation and amortization costs and insurance money on overhead cost cost of product sales decreased Approximately 80% and 78% for the three and nine months ended September 30th, 2020 respective life as compared to the three and nine months ended September 30th, 2019 cost of product sales decrease during 2020 due to the suspension of production resulting from the Spire for the 3 months ended September 30th, 2020. The company had a net loss of 1.8 million or a negative $0.03 per basic invite you to share compared to a net loss of 10.2 million or a negative $0.17 per basic and diluted share for the 3 months ended September 30th 2019 dead.
Use an operating activities for the 3 months ended September 30th 2020 was approximately 7 million included in cash outflows from operations for the quarter back was approximately two point four million for outstanding payables and for General working capital purposes offset by approximately 1.7 million in other income related to insurance proceeds a monthly cash burn rate during the quarter which includes basic monthly expenses and corporate overhead was approximately $700,000 per month compared to approximately $830,000 per month in q1 and approximately 2 million per month in the prior-year.
We anticipate after selling the plan and paying off our note with bear attacks that we will see we will experience another meaningful reduction cash burn.
As I mentioned before we have now collected a total of twenty two point six million of insurance proceeds. We still have work to do and our meeting on a regular basis with insurance adjusters and Consultants month current work being done includes ongoing third-party assessments of final building repair and cleanup final electrical reviews and miscellaneous items. We expect to collect up Thirty million dollars in equipment and building damages and clean up costs. This number could go higher or lower based on these final assessments as soon as assessment is completed two carriers to make payments regardless if it is a large amount or a smaller amount in the past, 45 days, we've seen payments of largest 5.3 million and a small as $700,000. We are also working on our business Interruption claim which adds more total expected claim toward our total policy amount of $15.
We continue to work with our public adjuster who represents the company in our claims and is very active with their team of expert.
It is likely that we will receive additional payments and potentially the remainder of our claim the next three to six months in closing. I want to point out that we still we are a very strong financial position. We ended the quarter with a strong cash balance. We are very close to being essentially a debt-free company. We have significantly reduced our rate of span and we expecting a general insurance collections also or the coming months expect to add to our funds primarily from the cell of plant and equipment that is not required for our accelerated Capital Life Strategies with that. I will turn it back to Steve for closing comments.
Thanks, Judd. We look forward to keeping everyone updated as we make meaningful progress in our efforts expect to have further updates between now and our next quarterly call. If you haven't already, please watch the office Twitter and YouTube channels as will continue to provide information through those venues. I'll now turn it over to the operator to facilitate the Q&A portion of our call today operator.
We will now begin the question-and-answer session.
So doing the question to you. You may press the taller than one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speaker phone, please pick up your handset wage or pressing any Keys withdraw your question, please press star then to pause for a moment as call US during the Q.
The first question comes from Poland Russia from oppenheim, please go ahead.
So much guys, could you speak to the The Matrix that you're looking to Target for the the new electrolyzer review 125 so that you know for the benchmarks that your customers are out for you just give us a sense of you know, what we might be looking for and how close you are to those performance metrics.
Yeah. Hey calling. So in terms of the the metrics for the electrolyzer, you know, the highest level it's the three iterations and our progress on those three iterations and as we've indicated today, you know, we we've gotten the first iteration a behind us. We're operating be in soon to operate L, which is the the final licensable version and our investor deck goes through the the various improvements that were making but they're they're based upon reducing the capex expenditure required to deploy these machines increasing the throughput of material that goes through the machines and therefore improving them the maintenance and the the operating expense of operating the machines and those final specs. We won't really have until we get closer to the end of the program which is towards the end of the year and we continue to update as I mentioned our sales proposals and models that we put forth to the various folks that were talking to on the
Specifics of those so hope that answers your question.
Yep, I'll have some follow-up and then you know in terms of you know closing on a building-to-building sale. How quickly do you think that might happen is that you know a full year process to get it done sooner. What's your your instinct kind of the range of possibilities?
So, you know, we we have a good amount of Interest both from within the lead acid battery industry inclusive of some interesting lithium-ion recyclers that are looking to get a business in the area as well as other industrial use and so the the funnel looks good, but real estate transactions are real estate transactions and it'll take time to see how about how that works out? We're we're hopeful that we could enter into contract by the end of the year because of of the December 11th date and we feel like we will be getting some bids before that. But we have to agree with what those bids are and we have to work out the deal, but I don't foresee it as being a protracted process at this point holding all other things equal you calling to me and you know other things
All right.
It's a problem then just the final one in terms of you know, the number of folks that are looking at being, you know, your first customer on on the new business model. Can you just give us a sense of you know how robust that the pool of uh, potential customers is at this point, you know, are we thinking, you know kind of on the order of half a dozen and how thorough or how far down are they in terms of being able to think about a license agreement?
Yeah, we're we're engaged with what I would characterize as several parties and talking through specific site opportunities in configurations Etc a that's as I mentioned earlier on the call inclusive of clarius, of course, and so the sales funnel is is robust and growing and progressing through Thursday sales cycle process and it's really us the totaling it up a lot more than anything else to some extent because excuse me, we have to finish our 1.25 program and get those final specs Thursday. We can really figure out with these various prospects what the final configuration and everything like that would look like so it's it's a robust grown and you know, it ranges in geography inclusive of the South America Asia Pacific a couple of European opportunities, and so it's
It's quite an interesting field and that gives us the opportunity to make sure that the first place we put akhra fighting is is a best chance of success for all those in for the client.
Perfect. Thanks so much guys. Yeah. Thanks for calling.
once again, if you have a question, please press * then 1
The next question comes from David Hayden from K & Wealth Management, please. Go ahead.
Good afternoon, guys, congratulations on the progress. Thus far first question is in regards to the burn rate wage. I see the you know, the progress that for the quarter it was only about seven hundred thousand dollars. Can you give me a sense? Once the plan is sold incrementally? What will be the savings on a yearly basis in what I'm referring to is any staffing that will not be needed their security utilities Insurance all of the overhead associated with the building. Could you just quantify what that will be?
Yeah, Dave Judd. So we anticipate you know, there's probably a hundred fifty thousand or so off and it just kind of holding cost of the building blankly insurance cost property taxes ability of those type of things that that we can see reduction, you know, when the plant cells, uh, you know less meaningful over that's you know, a hundred fifty thousand a month. That's like me more years years time off and then of course, there's there's some debt holding costs that you know, we're getting very close to being so that's another chunk of you know, $75,085 a month and just that so, you know, there's a couple hundred thousand dollars means that we're seeing in that kind of monthly burn, you know, it's over and over a year's time.
more than a couple of billion dollars they
In reduction now on the Staffing team, you know, we're kind of already at you know, a small team strategic team members of the team that are here working. And so the people that we have here that are kind of helping like the one the the version one point two five program and you know, some of these guys will transition over into helping to build the the electrolyzer and the modules that that we just paid the shipment to our first licensees next year. You won't change the whole lot, you know until we start seeing, you know in the you know years Beyond when we start to you know have several licenses in are working towards them just kind of in the near to medium-term the Staffing levels won't change a whole lot. But can I give you a maybe a little sense on the cash buyer and where it's going?
Okay, so about up to 2 and 1/2 million dollars in annualized savings. Once you dispose of that asset sounds like and then could you give us a range? I know you said that you expect it. It will you'll have a contract before the year's over and we all know that in real life. We can't hold you to that. It's just it's your educated guesstimate, but could you give us also an educated guesstimate on a range for the assets sales inclusive of any equipment there that you think you could monetize kind of like a a low-end higher range of what that will bring in in cash minus, you know commission's to to a in the agent and so forth.
Yeah, I mean, you know, we kind of start with the number that's on our balance sheet was thirty-seven million, of course, you know a lot of like install cost like that too. But the majority of that balance is the plant in the land itself, which you know, we've got listed right now for eighteen point three million. So that's out there and people are looking at that. So that's a big chunk of what that could come in. Now, you know, there's a lot of interest in this area. Could it go higher maybe if you go a little lower, you know, we don't know but they'll like that's a probably a good number of what that could look like and then it was tens of millions of dollars of assets in the plant, you know, some big pieces such as the Kiln and filter presses and the boundary breaker, you know, so there's you know, there's a few million dollars there and
And we we play around with the ranges a little bit and and you know, even on the low end those are some pretty good dollars kind of where our cash burn is now is is pretty good dollars wage, you know, but we're going to do the best we can to get billed in the hands of the people who need them and and want to pay the fair value. We've already had some interest in some of the pieces of equipment that we've kind of held off on on Monday. Go except for one little piece that we did sell in the quarter just because of the interest and making sure that anybody off at the plant and thinking about maybe more than just having a plan maybe having some of the equipment that's in here that they get the first kind of look at that and and make sure that those guys be able to buy those. Um, let's kind of kind of our thinking along those lines.
Okay, so it sounds like in terms of the property the land and the bill.
Link minus commissions probably about Seventeen million dollars unless there's a bidding war that's probably a conservative number and then with the equipment am assuming it's not a strategic buyer and they don't need that that could be another $3 million. So so we're talking twenty million dollars and then given the reduction and burn rate. We would potentially may have four plus years of cash Runway going into the pursuit of our first licensing deal. That's is that a correct landscape, you know working their way to add paper. I think it's fair way to look at it. There's a lot of value there and and that values and provides wage cash inflows for for a long period of time.
Okay, and then I missed part of the call Steve. I think you you gave some numbers in terms of possibly Engineering Services equipment sales. Could you just reiterate that for me? Just because I missed it. And then also could you make an educated guesstimate on when do you think what do you think the time frame is uh of procuring your first licensing deal and and is is there the potential for multiple ones next year?
Yes, so Dave in terms of the engineering piece of it that's kind of the first tranche of Revenue that we would see and that's like when you hire the architect to design a building an expansion to your building you pay the detailed specs and so that could be six figures the numbers that could go into the seven figures depending upon which site and how complex the the the solution is, so that could very and then that progresses forward towards the purchase of equipment and the deposits for Equipment and supply that we would be providing equipment and then ultimately the running royalty Blood Services dollars afterwards. So, um, they'll be phases of Revenue associated with uh, the deployment of this now every deal will probably have a little bit of uniqueness to it and get those are just general guidelines. I also want to iterate on the other thing is that you asked about how many licensees we could support and you know, we want to get it right off.
Focus on the first license e strongly uh, but because we have a pretty good sales funnel. We see some potential synergistic opportunities between the opportunities that we have. So in other words, we're one player maybe it should one element of what it is that they can do with us that could actually help another player within the lead-acid battery industry. And so we're looking at opportunities life where there could be more than one type of an arrangement that that that we could move forward with it all depends upon how the the sales funnel plays out and how the the deal-making happen as we round the bend to the end of the year and into next so hopefully that gives you some visibility into into what it is that we're we're doing
okay, and then
It seemed like when you were referring to the parties that are interested in potentially purchasing the the building and the property that they were strategic lawyers involved. It. Just I don't know if you stated that explicitly but that's that was sort of my perception. So could you could you address that? What what is the life Hood when you look at let's say The Funnel of buyers that are interested. What's the likelihood of a strategic buyer that could use the plant for purpose that potential energy Mystic with our our you know, like our technology and so forth.
Sure, so and and when we look at the the field of potential buyers that are out there it does as I mentioned include players that are in the lead acid battery in a tree. So that's where as judge was referring to. You know, we've kind of held the plant and Equipment together to the most part. So if somebody wants to look at it as a package opportunity, we retain that equipment. We're not bringing things out of there and putting them back in so there are lead acid battery industry opportunities and there's also an interesting thing going on in the tahoe-reno industrial center area, which is there are a fair number of companies trying to move forward with how do we recycle lithium batteries? Cuz remember recycle that after the batteries an aqua Metals improves the way that you recycle it after batteries duoc refining greatly but the prospects of recycling and recovering Cobalt and lithium and nickel and authors.
From lithium ion batteries is in its nascent phase and obviously Tahoe Reno industrial center has a large lithium player with Tesla being it down and there are some companies that are that are moving forward and and that area and see this is a strategic hub for potentially creating an ecosystem. Our plant has a very interesting location. It is in a opportunity Zone, which for those of you that don't know what that means is basically a incredibly favorable tax reject for job creation and it provides great opportunities for businesses to enter into and so because of that some of these nations companies are seeing this is an interesting region. We see Aqueduct is even having an opportunity to look at how we could work with not only let ask batteries like where's but Recyclers of other types of batteries and that's enough juice.
Flavor of of a possibility and potential for acquisition of of a plant of that nature and size and location. There's others that are also just looking at it more from the opportunity Zone in a strategic real estate play the tahoe-reno industrial center is sold out. There are no new properties being sold since blockchain bought the remaining 67,000 Acres wage, um last year and so it's all a resale market right now. And as we all know when Real Estate, um, uh, when you're in a resale only a non developed Market is a supply-and-demand thing and we think that we need some favorable opportunity on that front. And so we are talking to players that are looking at the space from a from a pure real estate perspective. That wouldn't be necessarily relating to let ask battery or other types of battery recycling but if the financial transaction looks good that still serves our goal of transitioning the company to a capital life type of a model and moving phone.
Licensees putting awkward finding else would be nice to have awkward finding in our own backyard. There's no doubt about it and and
We're we're definitely of course pursuing all things that are going to be the best deal for aqua metals and our shareholders.
Okay, I'll go back and Q. Good luck. Thanks, Dave.
This concludes the question of the session. I would like to turn the conference back over to Steve cotton for any closing remarks.
Great. Well, thank you operator. Thanks everybody for joining and attending and if you have any follow-ups, please contact our our group and I appreciate the time and continue to support from everybody and we look forward to keeping everybody updated between now and the next call and of course on our next call everybody. Have a great rest of the week and weekends. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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