Q2 2021 Aqua Metals Inc Earnings Call
Good day.
And thank you for standing by and welcome to the Aqua metals second quarter financial results. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session you'll need to press star 1 on your telephone please be advised that today's conference.
This is being recorded if you require any further assistance. Please press star zero I would now like to hand conference over to your speaker today, Glenn ex with broad. Please go ahead.
Thank you operator, welcome to the Aqua metals second quarter 2021 conference call earlier today Aqua metals released financial results for the quarter ended June 32.
2021. This release is available on the investors section of the Companys website at Www Dot Aqua metals Dot com joining us for today's call for management is Steve Cotton, President and CEO as well as Judd Merrill the company's Chief Financial Officer during today's call manager will be making forward looking statements. Please.
Refer to the company's report on form 10-Q filed today July 29 for a summary of the forward looking statements and the risks uncertainties and 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.
<unk> 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 Steve's and judge formal remarks, we'll be taking questions questions will be accepted over the telephone from analysts.
And all other investors can submit a question using the online webinar portal provided in todays in last week's press release, we will take as many questions as we can in our available time slot and with that I would like to turn the call over to Steve Cotton CEO of Aqua metals, Steve. Please go ahead.
Thank you Glenn Thank you everybody for joining.
Today, I'm going to start with slide 1 and that is.
That we're leading a revolution in both the led and lithium battery industries and I'll talk about that throughout the presentation.
Slide number 2.
This is our safe Harbor, which I won't read to you and you can refer to.
In the deck that we will have up on the website.
Slide 3 for those new to our story and as a reminder to those who have been following aqua metals I'd like to start with our mission.
And that is to provide sustainable metal recycling for materials that are strategic to energy storage applications.
What you see behind.
2 is aqua refining in a still shot of what it looks like to see led made 1 item at a time.
And our proven technology Aqua refining delivers raw materials right back into the manufacturing supply chain and a very clean way in an economical way that can also reduce overhead.
Reliance on mining to meet demand with the recovery of these metals.
Slide number for this.
This is aqua metals at a glance.
We have developed Aqua refining, which is a commercially ready sustainable battery recycling technology.
<unk> refining is very different than traditional battery recycling technologies.
Here it was water instead of fire and organic acids, they're biodegradable to create a 99, 996% plus ultra pure lead which as I mentioned before we do 1 item at a time, starting with creating revolution for the $20 billion lead recycling industry.
We're.
It used to extend the aqua refining capabilities to lithium ion batteries and multi metal recovery through intellectual property that we've already established with Aqua refining and enhanced with our progress towards lithium recycling strategic.
Investments.
And research and development on an ongoing base.
<unk>.
We believe that Aqua refining is a transformative technology that truly benefits both the industries of batteries and battery recycling as well as the Earth itself first.
First off the environmental emissions associated with Aqua refining are vastly reduced compared to incumbent methodologies that use smelting.
Second.
Workers' safety is greatly improved.
Led in air and other heat related activities are vastly reduced and we've seen deaths in the industry related to work for safety and the good news with Aqua refining is it eliminates many of those high risk points for both exposure to.
Industrial materials as well as heat related accidents.
Battery performance could improve greatly with aqua refining and Thats because when you make metals went out at a time you can make ultra pure metals that have very much less of the impurities and you can improve the battery.
<unk> and improve the battery life through novel ways of taking the link between battery recycling and battery manufacturing and linking that with an ultra pure metal product.
The economics of Aqua refining are becoming more and more compelling as we improve the aqua refining capabilities that we've demonstrated.
Crated already commercially in 2018 in 2019, and when we work with our prospective clients for equipment supply and licensing and look at the entire ecosystem, it's a very compelling economic argument.
Our ticker on NASDAQ a day Qos, we're headquartered in Tahoe Reno in Nevada.
Perform incorporated just in 2014, and we have $69.5 million shares outstanding cash on hand is $10.7 million as of June 30th report.
And we are debt free with a very strong balance sheet.
Moving on to slide number 5 I'm going to talk about recent highlights that the company has achieved just in this past quarter.
First off we announced this morning, 1 of the most important announcements in the history of the company and that is that we signed our first definitive agreement to license and deploy Aqua refining technology and equipment in Taiwan.
With Acme metal enterprise.
What's exciting about that announcement.
<unk> is that is a region, which has a very large market and a very rapid growth space and our partner Acme is very excited about working with us to innovate aqua refining and deliver new ways of deploying aqua refining throughout the Asia Pac region.
We secondly.
<unk> secured key new Aqua refining patent allowances and that includes China, which is another patent that we received just this past week, the world's largest and fastest growing led market. This is very important and a technology and equipment supply and licensing environment. We're very proud of our IP portfolio, which I'll discuss more later.
Third we continued research and development and commercial development of Aqua refining for led as well as for the lithium ion battery recycling efforts that we're making on a go forward basis.
There's more to come on that in the future.
Next we further advanced the Aqua refining deployment discussions with.
<unk> for potential licensees inclusive of course with the first definitive agreement that we announced but our sales funnel remains robust and we're looking forward to communicating further news as news develops.
Second to last bullet point is that we secured our final insurance payment, which we announced today of.
$725 million and that raises our total of collected insurance to $32.5 million, which is within the guidance that we've provided.
And it puts the insurance collection efforts and related activities behind us and we're very pleased with that news.
And very much strengthens our balance sheet and cash position of course last bullet point is we have been very busy removing several of the non core assets from the Aqua refinery, which is being converted to <unk>, which stands for lithium nickel cobalt.
Plant to facilitate conversion of the Aqua refinery too.
2 the linacre operation of lithium ion recycling.
And we've done that while continuing to operate the Aqua Liza program within a small section of that facility.
And that has allowed us to further innovate and further improve the Aqua refining program, while we work on the handover of the plant to let it go.
So quite a bit of activity as it relates to those efforts.
Moving on to slide number 6 a little bit more about the Acme metals, Taiwan agreement, we did signed a definitive agreement, which we previously announced a letter of intent within a short period of time from the letter of intent to the definitive agreement.
Which we believe is quite.
Confidence from Acme in Aqua refining technology and its for deployment of the technology in their facility that exists already in Taiwan.
We have established Acme is the first licensee and the largest and fastest growing global led market where they sit we.
We plan to begin shipping equalizer soon.
Voted for initial deployment and operations later this year.
We also envision a great partnership not only with acne, but with other global battery manufacturers to develop a second methodology to produce oxide that comes directly from the aqua refined material and streamlines. The industry you can see more informed.
<unk> about that in our press release, which also references in a hyper link a prior press release from January of this year to describe a bit more about the oxide direct from Aqua refining to battery manufacturing link.
We have the potential to produce oxide using the only 2.
Formation industry standard processes available with our continuing efforts with Acme in Taiwan to add the second oxide development methodology.
And this is some creates a direct link from Aqua refining to battery manufacturing.
And that allows us to improve the economics drive emissions towards net zero.
To improve worker safety and really streamlined the link between battery recycling and battery manufacturing across the board.
Slide number 7.
This is our roadmap to revenue Aqua metals has been in revenue before and were pre revenue and about to go into revenue we get.
You can see in the left.
Left of the slide that the company was founded in late 2014 and within our pre revenue mode with demo plant sales beginning in 2017 of the Aqua refining facility that we built in the Tahoe Reno Industrial center about 140000 square feet.
That plant entered into commercial demonstration production in 2018 in.
A team and we generated and sold 35000 ingots of Aqua refined lead in that timeframe and certified that led with the North American <unk>.
As a north American supplier to the world's largest battery manufacturing company.
We then went back into pre revenue in 2000.
2 to take the learnings from 2018.2019 version, 1 dot O and improve our Aqua riser technology to become a product that we could transition towards revenue not from the sales of demonstration product, a glut metal, but rather the equipment and the technology.
And that has culminated in our announcement this morning.
Morning, with a signed agreement with Acme metals to deploy the Aqua refining technologies in Taiwan, and we expect to reenter back into revenue as we get into 'twenty, 1 and onward into 2022 and 2023.
And as we get into 2022 and 2023, we expect revenue is not only from.
Commercialization of Aqua refining technologies for lead recycling, but as we continue to develop and deploy a pilot and then commercial systems with our partner <unk> and others. We expect for revenue for multi metals recycling for the rapidly growing lithium ion battery recycling industry.
Slide 8 summarizes our setup to where we are today, which includes 2 over $200 billion invested and that gets us to the point, where we have announced today the deployment of Aqua refining equipment in a customer's facility, which we're very pleased with and that is only possible with the robust IP.
The portfolio that we've developed.
And I'm very proud of and we're the only company with IP for clean lead recycling and additional IP that we filed even for lithium ion recycling is a really important part of our IP portfolio that's growing.
Since our last report we are now up to 68 total patents that have been issued and allowed.
As I mentioned before we just recently received another allowance in China, which is a very important market for us for obvious reasons.
We've got 49 additional patents that are pending applications. So we expect to see those issued patents and that portfolio grow quite a bit over time as we continue to prosecute.
For those patents.
And that new patent allowance for China as I mentioned is a really important step for the company as we go forward.
So with that I'm going to hand, it over to Judd Merrill our CFO for a financial review Jud.
Thank you Steve.
Share a few comments related.
Each of our financial statements for.
First on slide 10, I'll talk about the balance sheet.
As of June 32021, cash and working capital balances were bulk $10.7 million.
That is $10.7 million in cash and $10.7 million in working capital.
During the.
The second quarter of 2021 re re class certain assets with a net book value of $5.2 million.
Assets held for sale.
These non core assets are no longer necessary for our future operating plans.
Of these assets, we successfully disposed of equipment with a net book value.
Total debt prior to the end of the quarter.
In total assets held for sale of $4.3 million as of June 32021.
Okay.
As previously announced we used to buy agreement related to our plant located in the Tahoe Reno industrial standard commenced.
April 1.2021.
We accounted for the lease to buy agreement as a sales type lease.
As a component of the accounting for this agreement we recognized the estimated fair value for the land.
And the plan of $17 million as a lease receivable.
This is reflected on the company's condensed consolidate.
On the balance sheet.
<unk> allocated between occurrence in a non current portion.
Another component of the accounting for this agreement was the recognition.
A noncash loss on the sale of the plant and equipment of $3.5 million.
A significant portion of this amount is $2.5 million of anticipated.
Remaining costs for repair.
Of damages to.
The building that was caused by the 2019 buyer for $2.5 million included in crude expense as of June 32021.
Moving onto slide 11.
Income statement.
As we concentrated our.
Holliday on licensing and further enhancing our product offerings for future partners.
The company did not generate revenue during the second quarter of 2021.
Cost of product sales increased by approximately 64% during the second quarter to $2.1 million compared to $1.3 million.
Ethane period in 2020.
The increase in cost of product sales was driven by plant cleanup cost and preparation for the lease and planned sales this facility.
Our general and administrative expenses for the second quarter of 2021 decreased approximately 5% compared to the second quarter of 2020.
For this achieve a significant decrease in general and administrative expenses last year during the first quarter 2020.
And these improvements resulted from the Swift cost reduction measures implemented during the companies.
Expedited transition to a capital light business model.
We continue to scrutinize all expenses.
We didn't see an efficient capital management.
For the 3 months ended June 32021, the company had a net loss of $8 million.
Or a negative <unk> 12 per basic and diluted share compared to a net loss of approximately $4 million or a negative 7 cents per basic and diluted share for the 3 months ended.
Well from 32020.
If we remove the noncash loss on the disposal of property plant and equipment of approximately $4.3 million, we have an adjusted non-GAAP net loss of just <unk>.
$3.8 million or a negative 5 and a half cents per basic and diluted share which.
And then maybe lower than expectation.
I want to point out that this non cash adjustment.
Is a 1 time write down it was aligned with our capital light strategy.
My final comments on the statement of cash flows on slide 12.
The net cash used in operating activities for the 6.
<unk> months ended June 32021, and 2020 was $4.9 million $8.3 million respectively.
Net cash used in operating activities for each of these periods consisted primarily of our net loss.
Which then was adjusted for depreciation amortization and stock based compensation charges and the loss on the sales.
With the celebrity equipment as well as net changes in working capital.
We expect the second half of 2021 that would be fairly consistent with the first half in terms of cash use from operations.
We did receive insurance proceeds of $1.4 million during the second quarter of 2021 related to the 2000.
El <unk> fire and subsequent to the end of the quarter as Steve mentioned, we finalize discussions with our insurance provider and secured an additional payment of 5.25 million.
And this is that brings the total to approximately 32.5 million.
As the amounts that we received.
From insurance exceeded our original assurance receivable balance that.
That was limited by GAAP accounting standards the.
The payments that we received from insurance are reported as other income and are netted against related expenses.
Net cash used in investing activities for the 6 months.
Ended June <unk>.
See out to 'twenty, 1 was $1.1 million.
And consisted mainly of $1.2 million for the purchase of property plant and equipment $2 million utilized towards investment on many co.
The net cash provided by financing activities of $10.2 million for the 6 months ended June 32021 consistent.
<unk> of $9.3 million in net proceeds from the sale of Aqua metals shares pursuant to the ATM and point $7 million proceeds from the stock option exercises.
The majority of the ATM proceeds happened in Q1 with a smaller portion of just over $1.5 million collected in Q2, which is consistent with our current strategy.
At closing.
I would like to stay for the company in a very favorable position with a strong balance sheet, which includes no debt and a strong cash balance and a meaningful expected AR collections from the sale of the building. We are on solid foundation as we move forward on our strategic business plan.
With that I'll turn it back over to the operator for questions.
Thank you Sir as a reminder to ask a question you need to press Star 1 on your telephone did withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question.
It's from Colin Rusch Your line is open.
Yeah.
The net first license agreements on can you help us understand some of the financial implications for that.
How how are you starting to see some cash I'll start coming into the company here over the next couple of quarters from that.
Thanks.
Yes, so the first agreement is.
He will be a phased deployment and so we will see.
The beginnings of revenue.
Likely towards the end of the year as we get the equipment up and running and begin collecting royalties.
But we will be making several tons per day.
Day.
Well acne, we will be making several tons per day.
So there won't be a material amounts of revenue in 2021, and as I pointed out in the presentation, It's really 2022 and beyond where the company will begin to see what I would characterize as material amounts of revenue for equipment and for <unk>.
Royalties, but it's a transition from pre revenue for equipment and licensing into revenue as we round the bend towards next year as we deploy the equipment this year and get it operating with our first license Inc.
Perfect. That's super helpful. And then in terms of kind of quarterly cash burn.
What.
What's the cadence of that here over the next you know.
3 or 4 quarters.
Yeah Colin.
So the second half of the year, it's probably even book a lot like the first half.
<unk>.
Free cash burn in the quarterly cash burn.
Not a lot of changes.
In that.
But as we go forward into the next year, we are hiring some additional people.
And adding a little bit more.
Strength to the company.
So we'll see some uptick it won't be significant.
But.
It will be meaningful in terms of supporting our go forward strategy.
In the licensing and some of that will be determined.
And as you know as we get more news on additional licensee besides the Acme.
And some of that will be determined on the timing of how things progress.
No sooner.
Might skew a little bit quicker uptick in some of those.
Strategy cash needs for for employees.
And support.
It takes a little bit longer than it would be pushed out.
Okay. Thanks, so much guys.
Your next question is from Sameer Joshi Your line is open.
Thanks, guys and congratulations on your.
Sure.
Transaction with acne.
Just following up on Collyns question for little bit.
Would you be able to share any little bit more granularity on the number of equalizes during the various phases that you would be deploying.
In Taiwan for the next several quarters.
Got it.
Sure Yeah. So.
As I had mentioned the debt first deployment will be.
Several aqua <unk>.
And as we've noted we've improved the throughput of the optimizer, so they'll make several tons per day from.
From the get go.
As we get those that equipment up and running and then as we entered the further.
Phase of the deployment will go to a larger deployment, particularly as we work with Acme with their connections to global battery manufacturers that they already are doing business with where they can pull are the capabilities of the oxide production.
And help us move forward.
That we expect to see significant increases in the size of the deployment to match the needs that we worked together with Acme to identify with their client base. So we will see a ramping of phases as we get moving but the first phase is not a de minimis amount, but it's.
A starting point that will be tacked onto and Thats. The beauty of Aqua refined to begin with is that it's a modular system and we can put.
Modular growth steps in step functions as we continue to expand the facility with Acme as appropriate.
That's helpful.
Our word when you mentioned the global reach of fact me.
There are regional.
A feature to this licensing agreement are.
Is it only focused on Taiwan and maybe some.
Channel regions or is it a global license that is being awarded to us.
So.
The the deal that we worked out with Acme is it for Taiwan. They are our partner.
And in Taiwan, there are global manufacturers of batteries that have facilities in Taiwan.
And so it's a it's a it's a busy center for the manufacturing.
So batteries and so it's the access through acme's long running relationships at the various highest levels with those types of clients.
Has a regional Asia Pac aspect to it as well as the global aspect because some of those manufacturer ship their products globally.
Understood.
Thanks for clarifying that.
You mentioned reassured experts from.
For the news.
More news on the Lumi coal going forward, but is there anything that can be share now.
Does anything or in other words, what are the next milestones that we should be looking for.
<unk> of so for the you mean for the lithium development for.
Yes.
Yes, so <unk> is making great progress.
Paring, what was the Aqua refinery to be the <unk> recycling facility and they've announced already that they are planning on getting some operations.
And late this year and early into next year.
Aqua metals is working with Linda go on via the adaptation of Aqua refining to add value to the <unk> lithium processing facility.
Also recently announced the planned.
Throughput at the facility to be quite large and.
And Randy 1 of the largest lithium facility.
Recycling facilities in the world.
And so we see a great opportunity to continue to partner with <unk> to take our Aqua refining technology and deploy.
The results of our efforts for the multi metal type of recovery within the facility. There. So I would expect further evidenced.
And meeting of the relationship that we have with <unk> and with the Eco network that we've built.
<unk>, which is inclusive of not only political but comstock as a as another owner of let it go and Green line Who's another technology provider, what we're really working towards is feedstock supply partners.
Want to see there.
Lithium use spent cells is very large corporations go to clean hydro metallurgical processing facilities as opposed to those that smell lithium ion batteries and so we see great opportunities on that front expand the ego network that we should be able to evidence in the not so distant future.
As well as.
The buyers are.
For the output on a high purity metals that we plan to produce along with the cathode ready materials, but clinical plans to produce.
Using orange and.
And the Green lines technology.
So that's the.
The path forward, but the nice thing about what we have.
With this eco network as there is land is there the building is there.
The the process flows are well designed and equipment is getting put in the floor very soon and so we feel that this eco network is ahead of many of the other players in the lithium space.
There.
A little bit more speculative in nature.
Understood. Thanks for that color and you mentioned the plant.
Maybe this question is for Jud.
Doug you mentioned the for 3 million losses, the onetime loss should we expect some more additional onetime losses.
As in <unk>.
For for any additional equipment that you maybe disposing off.
Yes, no we.
Pretty much removed the.
The building asset and land to receivable.
That moved out of fixed asset.
And then we moved a little bit of some assets.
For held for sale.
And then there is the write off was related partly to the building.
And the cleanup costs or don't cleanup for the repair cost.
That's part of that equation and so.
All of that we felt like is now on the financials and behind us.
The.
Joining me on the left is to sell some of that equipment and depending on where that comes in there maybe a gain or loss, but we felt like right.
That balance fairly represents what we think the market value is.
As of the day of the financials.
Right right.
Thanks for that 1 last 1.
There was some.
Recovery of the PPP or the other for giving us the PPP loan this quarter as well.
Do we expect any additional flow.
Given this or has everything been given so far.
Debt so everything on the PPP who's been forgive then it was well over $300000. So we've seen that many last year.
And the forgiveness that came in 2 different pieces, because we have the the Reno Inc. In the in an operating company.
The book those loans have been forgiven and so thats completely off them. So there is.
Absolutely zero debt on the company's financials.
Okay.
Thanks for that.
Installations and good luck.
Thank you very much.
Your next question is from Shawn Severson Your line is open.
Great. Thanks, guys, Steve I was wondering if it may be explain why this came to be the first 1 what was unique about this with actually that it moves.
So quickly.
The circumstances around it that are brought it forward.
So good question Shawn So we've actually known asked me for quite some time and they've expressed interest in our technology because long ago, they chose not to smell and Acme, it's been in the business.
Business of refining lead bullion into specialized alloys for these very large clients that they have and have always been interested in finding a clean way to produce the the pure lead for those same clients and so the aqua refining capability.
Abilities that we've developed not only in our operations at our Aqua refinery, but as we improved it to the version 1 day at 2.5 and the real customer ready product really got the conversations on a fast track with their interest in being the first customer to move forward as quickly as.
Possible. So we've worked out those arrangements with them. The nice thing about Acme is that they are nimble and quick moving but they also have.
A very strategic relationships with some of those with large battery manufacturers. So that's what we see is kind of unique about the deal.
In the sense that.
They are.
A fast moving well connected strong track record supplier to those types of organizations.
In a very fast growing market in Asia Pac to to help us as well.
And with that in mind with so many new technologies, everybody wants to be second not first strike and adoption.
So how.
<unk> do you think this impacts you know those those other pump those other transactions potentially in the pipeline in terms of how this is viewed and assume it helps accelerate but just what do you think the takeaway is going to be in the in the next few in the pipeline that you're expecting from about.
Sure you know you've got 6 people standing up on the cliff.
Go first and jump into the ocean.
And when the first 1 goes its likely that others will follow I've seen this in prior companies in my career with newer technologies as they get adopted and gain that momentum factor the ability even in the Asia Pac region to have a showcase facility.
We can show people in that region Aqua refining at its finest.
Is certainly going to help but even before we ramp.
Ramp that facility up in the coming months I believe that the robust sales funnel that we have.
Seeing that we have.
Consummated a relationship with another entity and another party with great credibility in the industry.
It certainly helps.
Progress of those.
Those discussions so we do see a momentum.
Breaker of getting that first 1 is really breaking inertia and then once you break inertia.
You can start to propagate that's our plan.
Well, you've been able to retain any additional information I'm going to talk specifically about some of the technology.
It obviously when you rollout at scale like that there's going to be some learning curves right youre going to discover things and there's going to be data. The mine are you going to be able to keep and utilize and leverage all of that and that you'll be closely engaged with them.
Yeah. So it is joint development, but the IP rates associated with the joint development of our assigned back to Aqua metals.
<unk> of course, Magni will enjoy the licensing of that IP throughout Taiwan. So it's a real win win situations. So there's no potential conflict in that IP and we've worked that all out with them and.
Feel very confident that we'll be able to.
Jointly develop particularly.
<unk> second methodology that we've already done.
The first net.
So to all of you to go direct to oxide because that truly is transformational to the link between recycling.
Lead batteries as well as frankly lithium ion batteries, if you can take a pure metals and go direct oxide.
From a multi metals.
The government as well as the environment. It's also quite exciting so we see great opportunity in.
In that it really kind of fits in with our overall concept of the eco network with lithium. It's also the same with led it takes multiple companies to innovate and sold.
<unk> put together.
A better way and so that's what we really well.
Well matched for with Acme.
Great Thanks, guys and congratulations.
Thank you.
Steve It's Glenn here, we've got a few questions on the online too I think most of the questions have been covered by the prior Q&A.
Except for 1 which is and I'll just sum it up in generality, because we've got a few questions on this but can you just comment or update the current status of the <unk> relationship.
Sure so.
Uh huh.
Clarion has been going through an IPO process.
I think we all saw that news.
Say that that's been put on hold but there is still in a quiet period and so really the only comment I can make it <unk> refer to our Q filing.
And you can see the status of the relationship in the Q filing.
Perfect I don't.
Today questions in the queue I think we're ready to end the call.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect.
Thank you everyone.
[music].
See anymore.
[music] business book.
Okay.
For sure.
Okay.
Okay.
Yes.
Okay.
Okay.
Yes.
Great.
[music].
Sure.
Moving forward.
Okay.
Thanks for that.
Revenue for women.
February volume.
Okay.
No.
[music].
Sure.