Aqua Metals Inc (AQMS) 2023 Q1 法說會逐字稿

Good afternoon, and welcome to the Aqua Metals' First Quarter Financial Results Conference Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the call over to your host, Bob Meyers of FNK Investor Relations. Please go ahead, Bob.

Thank you, operator, and thank you, everybody, for joining. Earlier today, Aqua Metals issued a press release providing an operational update and discussing financial results for the first quarter ended March 31, 2023. This release is available in the Investor Relations section on the company's website at aquametals.com. Hosting the call today are Steve Cotton, President and Chief Executive Officer; and Judd Merrill, Chief Financial Officer.

Before we begin, I would like to remind participants that, during the call, management will be making forward-looking statements. Please refer to the company's report on Form 10-K filed March 9; our Form 10-Q filed today, May 4, 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 does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur except as required by law.

As a reminder, after the formal remarks, we will be taking questions. Questions will be accepted over the phone from analysts, and all other investors can submit a question using the online webcast portal provided in today's and last week's press releases. We will take as many questions as we can in our available time slot.

To start the call, we will show a brief video that highlights our progress. For those that have dialed in, you will be able to hear the narration, and the replays will be available on the website. Steve will lead the call from there.

(presentation)

Thank you to everyone who joined us today. Though it's only been a short time since we last shared a quarterly update, Aqua Metals is already making major progress this year. As you just saw in our highlight video, Aqua Metals has made operational progress by all measures in the first quarter of 2023, building upon the many milestones achieved last year.

We are rapidly demonstrating the capabilities and expertise to drive toward full commercialization. We are proving our innovative, sustainable and closed-loop technology in our lithium AquaRefining pilot facility. And after securing property for our commercial growth, we are already well underway in upgrading the existing building #1, the first phase of our 5-acre clean metals campus into a 3,000-input tons per year recycling facility, which we'll expect to begin the commissioning by Q1 of next year.

As we previously announced, we plan to expand our first campus to a target of 10,000-input tons per year, which could generate $200 million or more of revenue. Perhaps most importantly today, though, is that we are now fully operational at our revolutionary lithium AquaRefining pilot. In Q1, Aqua Metals became the first sustainable lithium-ion battery recycling facility in operation that does not use polluting smelters to recover valuable materials from black mass. We are now producing high-quality metals like copper, nickel and lithium hydroxide from spent lithium batteries and operating our innovative pilot facility 24 hours a day, 5 days a week. We couldn't be more excited for our continued operational progress, and we continue to share samples of our high-purity, sustainably recycled battery materials with manufacturers and OEMs across the supply chain who've also been here visiting our operation. And those ongoing supply agreements and partnership discussions are bearing fruit.

On the supply side, we have recently announced agreements for all of the lithium battery black mass we need for 2023 and now into 2024, meaning that the raw materials needed to reach commercial scale production at our new recycling campus are secured. We continue to work with and identify a diverse array of black mass suppliers and are now placing orders for material at scale.

And on the offtake side, we announced earlier this week that Aqua Metals has initiated a development partnership with 6K Energy and signed a letter of intent to supply their first-of-kind PlusCAM cathode manufacturing facility in Jackson, Tennessee, where 6K plans to produce 13,000 tons of cathode material each year, which would equate to approximately 100,000 to 200,000 average EV battery packs depending upon battery chemistry and size.

6K Energy is an ideal offtake partner to announce for Aqua Metals. Both Aqua Metals and 6K Energy share the vision of creating a low-carbon and circular supply chain for critical battery materials domestically, while at the same time advancing cost-effective production methods for sustainable lithium-ion batteries, and our partnership signifies a major step towards U.S. leadership in the next generation of net 0 battery materials and technologies.

Funded by our development partnership with 6K, Aqua Metals will be building on our patented and patent-pending state-of-the-art AquaRefining technology to commercialize a sustainable pCAM production process that replaces chemical catalysts with clean electricity. pCAM, or cathode precursor materials, is an essential input for 6Ks high-performance, low-carbon cathode materials that will power the future of American-made lithium-ion batteries. Aqua Metals has already filed the IP for this suite of technology earlier this year, and this development project with 6K, upon completion, will allow us to license our innovative metal to pCAM technology to take battery metals in metal form, sourced from us and even the open metals markets, to a 6K specific process that 6K will operate to create input-ready material.

The initial engineering agreement will also generate modest revenues, under $1 million for Aqua Metals, during the remainder of this year. And our jointly anticipated development success expected later this year will pave the way for a supply agreement that the companies are currently negotiating based on 6Ks expected manufacturing volume at PlusCAM as it comes online in 2024, 2025. This supply agreement would be for thousands of tons of material each year and represents hundreds of millions of dollars in potential revenue for Aqua Metals throughout the contract term.

Not only does this partnership build on Aqua Metals' intellectual property and cutting-edge engineering capabilities, but it also reinforces the value of our inherent flexibility in the battery metals marketplace. Because we produce high-purity metals instead of alloys or sulfate wind recycling, we believe that AquaRefining offers greater certainty and flexibility in meeting the exacting standards of Tier 1 battery and cathode manufacturers by starting with pure inputs. Each manufacturer has a specific recipe for exactly what they are looking for. And in our ongoing partner discussions, our pure metals input stands out as a key selling point. The process of turning pure metals into battery metals is well understood, and that fundamentally derisks Aqua Metals as a supplier.

We are also currently negotiating agreements with traditional metals buyers based on LME value and purity, meaning we plan to always have an offtaker for any metals we produce, not assigned to a specific offtaker or OEM. In the near-term, we expect to sell limited quantities of recycled materials to metals buyers while also reserving finished materials for testing, product samples and, of course, future R&D work.

This flexible business strategy and demonstrated success is bolstered by our steadily improving financial position. Just a few days ago, we received the final $12 million payment from Comstock Inc. as part of the previously announced industrial lease agreement and sale of our previous property. This transaction resulted in net proceeds of approximately $6 million after paying off our interim loan. This amount, combined with our quarter-end cash balance, totals more than $9 million in cash, an amount sufficient to execute our 2023 plans.

Our continued progress is garnering significant attention, not just from partners and potential customers, but from politicians, as well. In April, U.S. Senator Catherine Cortez Masto and her staff visited and toured our pilot facility in Tahoe-Reno. As you saw in the highlighted reel, the next day, the Senator took our message of building a circular domestic supply chain for critical minerals to the floor of the Nevada legislature. The senator's enthusiasm and praise were welcomed by the entire team, and we are glad that Aqua Metals' vision is resonating with political leaders. She is a tremendous advocate for Nevada businesses and has offered great counsel in our ongoing discussions with other government offices and agencies.

As you can see, Aqua Metals is progressing on all fronts. Our technology is being proven out every day as we reach new operational milestones. We have secured the necessary supply of black mass feedstock to reach commercial scale. We are generating revenues, and we now have announced 2 planned offtake agreements for 6K and for Dragonfly Energy for our sustainably recycled materials, with more anticipated to come. Aqua Metals is accelerating, and this is just the beginning.

So now I'll turn the call over to Judd Merrill, our CFO, to discuss the results.

Thanks, Steve. Let me start my comments with our balance sheet. As of March 31, 2023, we had total assets of $34 million and working capital of $7.4 million. We ended the quarter with total cash of approximately $3.4 million. After the quarter closed, we collected the remaining balance of $12 billion for the 2500 Peru property sale. Part of the proceeds were used to retire the $6 million note with Alpen we secured in 2022.

Cash on hand and cash received from this asset sale sufficiently cover costs related to operating the pilot plants, initial outfitting of our Walton campus facility and general corporate needs for the remainder of 2023. Property, plant and equipment increased approximately $4.5 million during the quarter, largely driven by the purchase of our new campus processing site located in the Tahoe-Reno Industrial Center, which we secured with a $3 million note.

There were no other significant changes on our balance sheet since our last quarterly report, so I'll move to the income statement. In Q1, we were focused on advancing and executing our operations at our pilot facility and began the initial work to build out our commercial facility. We had a limited commercial scale production during the first quarter and, as a result, no revenues were generated during the quarter.

Plant operating costs were related to operating our pilot facility in Q1 2023. Q1 2022 plant operating costs included cleanup costs related to the recently sold 2500 Peru plant. Research and development costs [decreased] by approximately 19% compared to the quarter ended March 31, 2022. As we expected, our Q1 2023 R&D expenses were lower than last year as we focused in Q1 more on plant operations. We will see R&D expenses related to our agreement with 6K in the next 2 quarters.

General and administrative expenses increased approximately 8.7% for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022. This was in line with expectations and guidance. Noncash charges included in G&A, including stock comp, were approximately $0.7 million.

The first quarter 2023, we had an operating loss of $4.5 million compared to an operating loss of $4.3 million for the same period in 2022. Our net loss for the quarter ended March 31, 2023, was $4.6 million or a negative $0.06 per basic and diluted share compared to a net loss of $4.4 million, or negative $0.06 per basic and diluted share, for the same period in 2022.

We continue to manage our cash utilization efficiently. Cash used in operating activities for the quarter ended March 31, 2023 was $2.9 million. Q1 cash needs were approximately $900,000 per month as expected, largely due to the addition of more employees and consultants as we invest more in the lithium ion battery recycling technology.

Net cash used in investing activities for the quarter was $5.2 million. This consisted mainly of $4.3 million utilized towards the purchase of the campus building and property. Net cash provided by financing activities was $4.4 million for the quarter. This consisted mainly of $3 million from the note received and of net proceeds from the sale of Aqua Metals shares pursuant to the ATM. We have maintained a healthy balance sheet and have grown our company responsibly.

Our current cash balance, including the sale of the 2,500 Peru asset and our expected revenues later this year, support our base company costs needed to operate our pilot plant throughout the year. Expansion of our campus property and equipment needed will require additional investments. We are actively pursuing non-dilutive options, including debt, USDA-backed notes, government grants and strategic partnership investments. We are confident in our technology, partnerships and team to be able to deliver on our plans this year.

And with that, that concludes my remarks on the financials. I will now turn it back over to the moderator for Q&A.

(Operator Instructions) Our first question is coming from Colin Rusch from Oppenheimer.

Can you talk, or just remind us the contribution that 6K is going to make to this partnership, both financial and otherwise?

Colin, yes. So 6K is exciting because it's not only a nonrecurring engineering source of revenue for Aqua Metals this year to really finish out the development of the ability to go straight from metals to the materials that they need to do their cathode-active material production, but it's also in contemplation of a supply agreement where we would provide to 6K the output from our first campus facility and potentially, even in co-located operations, the cobalt and nickel and copper and lithium hydroxide in the form that helps them to develop their cathode-active materials.

So it's really an engineering and technology cooperative agreement that also contemplates completing very soon the supply agreement, which could be worth, as I said earlier, hundreds of millions of dollars to Aqua Metals over the term of the contract.

Great. And then in terms of the USDA loan and the grant funding, can you just give us a sense of where you're at in terms of maturity of those conversations in those processes?

Yes. So the USDA is moving along nicely. We're in that kind of the pre-application phase. We expect to submit something by end of June, early July and be able to hear back shortly after that. So we're very active in that area. We've got some different consultants that are working we're doing a feasibility study. We're doing the engineering study and putting together all the models that are required. So we're moving forward on that.

I don't know if you asked about it, but just on the grant front, there's one grant I think that we talked about that we applied for. It was $5 million, and we'll hear back probably late summer on that. A significant portion would come to us, and we have some partners on that, as well. So we're optimistic, but we don't know until probably August, September timeframe on that. We expect the next big round of grants from the Department of Energy to come out this summer, which we are preparing to apply to those as well.

Okay. And the final one for me is just I know it's early days with this pilot facility, but could you give us a sense of what you're seeing from a yield standpoint at this point in terms of material in, material out, and the range of quality that you're getting off that process?

Yes. So that's a great question. In terms of the yield that we're getting in terms of value of the metals that we talked about, we're getting pretty much all but, like, $20 a ton of black mass worth of value out of that material. So the yield is very high. And we're seeing great process flow, and throughput is beginning to kick in. As we mentioned on the call, we've gone to 24 hours a day by 5 days a week operations. That means there's people working at the pilot facility, and the pilot is operating for 24 hours a day during the Monday-to-Friday time frame.

So we expect that we'll begin to produce enough quantity of material that we're not only using that material for our own testing and samples to our offtake partners and things along those lines, but also to sell that material in the metals market. You need to get to probably a minimum of a ton of each type of metal, and we expect that we'll be there in a matter of weeks that we have the opportunity to begin selling those materials. And that takes time when you make your first sale to get through the full qualification and payments and things like that, but we do expect to begin selling those materials relatively soon.

Our next question is coming from Sameer Joshi from H. C. Wainwright.

Congratulations on the progress. Just a few questions on the 6K. What are the financial commitments or requirements from Aqua Metals that are required for this?

So what we've disclosed publicly is that the NRE portion, which I think is what you're asking about, which is the nonrecurring engineering fees that 6K will be paying to Aqua Metals will be less than $1 million, but a significant amount. And the exact amount will depend upon how everything goes throughout the remainder of this year. But we expect that we'll book, let's say, several hundred thousand dollars of revenues from 6K for the nonrecurring engineering portion.

That is to connect our process where we get to the pure metals production as well as lithium hydroxide, and be able to take that material and get it through our IP through some customization of our IP to fit their process by the end of the year. And in the meantime, we're working on our negotiations for a long-term supply contract that I was mentioning earlier, it could be worth hundreds of millions of dollars to Aqua Metals over the term of the contract.

And that's really to fulfill their facility plans for their Jackson, Tennessee PlusCAM facility. And that is slated at about 13,000 tons per year of cathode-active material production. So it will be a significant portion of that supply.

What's also really cool about this relationship with 6K is it's not just sustainable battery recycled materials from the metals that we extract, but this technology that we're working on with 6K will also allow for the ability to retrieve metals from the mining world, such as nickel and cobalt as examples, or even lithium, and get those converted into the form that they need in order to make those cathode-active materials with their really innovative process that matches well with our carbon-free solution.

Understood. Yes, that was the intention of my question, to understand if the development agreement, you were getting paid for by 6K to fund development. And just an accounting question on that. Will this be considered revenues? Or will it be [netted] against R&D or some other line items?

Yes. So it won't be considered revenues from our pilot operations, but it would be a revenue line item offset by some R&D expense.

And then, in terms of your capacity versus 6K's goal of 13,000 tons, would their facility take all your capacity? Or how should we think about that?

Yes. So we don't intend to sell out the entire capacity of our campus to one partner, but 6K will certainly achieve a significant portion of that capacity. As we've already announced, we have a relationship with Dragonfly Energy, for example, for the lithium hydroxide. So there's a growing number of clients and partners that we'll be working with from the output of that facility.

But we do say in that announcement that we're contemplating co-location and the ability to add to the capacity of our additional campus as we develop our partner network. So in the longer-term, we'll see some additional projects potentially coming to light that is AquaRefining, lithium AquaRefining technology in locations beyond our own campus facility.

In terms of just the pilot facility that is operational now, what kind of revenues should we expect from this during 2023? Or will these be just samples and not significant revenues?

Yes. No, thanks for the question. So 2023 is all about getting our pilot tested and running, which we're doing, and it's been successful so far. 2024 is about operating the demonstration plant, and that's all the work we're doing now. We are producing metals, and there will be some revenues. There will be a modest amount of revenue in 2023. But the focus is less on revenue this year, more on it next year as we operate the bigger plant, but there will still be some revenue that we'll see from that and from 6K.

We understand that this will be mostly ramping up and getting traction on the commercial side. Just the last clarification. Did I hear that cash balance as of now is around $9 million? Or is it above $9 million?

Right. So we ended the quarter with a little over $3 million, $3.3 million, and then we successfully closed on the sale of 2500 Peru asset that was $12 million that we brought in. We used $6 million of that to pay off that bridge note, significantly reducing the debt we had. So the 6 plus the 3% is where we came up with the 9%. Got it.

We reached the end of the phone portion of our Q&A session. I'd like to turn the floor back over to Bob Meyers for the web portion.

Yes, we have a few questions. Back to 6K, what were the most important factors for Aqua Metals that made 6K the right partner at this time? And what influenced 6K, if you were able to expand on that?

Yes. Thanks, Bob, for asking that question. So there's a number of factors that really make 6K a great fit for Aqua Metals. And that starts really at a fundamental level with the company's mutual and shared vision of building that domestic and sustainable supply chain for critical battery materials. So it's a really natural fit. Their process is powered by electricity. And our process, as we talk about quite a bit, is powered by electricity and not powered by fossil fuels or intensive use of chemicals with waste streams.

So that's really what the big part of the fit was. And for our fit into the ecosystem, we are really good at generating the critical battery minerals in pure form, and what 6K is a pioneer at is creating cathode material production, and their plasma technology really is truly next-level. They're scaling operations rapidly and in line really with our strategic growth plan, as well. And they're a prime example of the type of offtake or partnerships, I'd say, that we we're working to develop. And the expected demand for raw materials that we all think we're going to see will be significant in the coming years. We believe that the combination of our domestic supplies of the recycle-critical minerals and metals and their domestic manufacturing also makes batteries manufactured from our joint products fully eligible for the IRA initiatives and tax credits.

So really, all of this, combined with the low emissions benefits for our combined technologies, we think and we know they think makes for an enduring partnership in this climate-constrained world that's going to be powered by lithium batteries as we electrify.

We talked a little bit about some existing material. And the question is, how far along are you with cobalt and manganese plating?

So we're far along in finishing out the suite of minerals from the pilot facility. And I guess I would say expect to hear from us very soon on the cobalt and the manganese dioxide.

And I think this might be the last question, and we've talked a little bit about it, but when will you be at your target capacity of 6 to 10 metric tons per month at the pilot facility?

We're ramping quickly towards those numbers. And again, that's 6 to 10 months of input materials. So it's actually more tons of the output material ultimately as we build molecules that weigh more than atom. So we expect, because we have now achieved that we talked about today, the 24 hours a day by 5 days a week operation; while we're all sleeping at on a Tuesday night, we're out there making metals and minerals. We expect that we'll achieve that ramp, I would say, as we get into the summer and complete the achievement of that ramp.

And in the meantime, we're already, as I mentioned earlier, beginning to make stuff at the level of tonnage in the very near future, we expect that we'll get to that capacity of the pilot plant. And then, really, that is going to be constrained in terms of our revenue opportunity. But as Judd said earlier, the pilot plant isn't about the revenue as much as it's about informing how to correctly take the next phase, which is our commercial demonstration plant at our campus facility and build it once and build it right. We want to be really good stewards to our capital, and we've learned a lot from the pilot already, and that's already informed our design for the next phase facility.

So that's a lot of what the pilot is about. And of course, partner development with partners like 6K and Dragonfly that already have looked at samples of our materials and others that we're not about able to talk about today, that's really more of the function of that pilot.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Great. Well, thank you, operator. I'd also like to point out and highlight that we have some really great content on our website. For anyone that wants to learn more, you can always see right on our home page in the What's New summary what's going on of late.

And then check out our media tab. In addition to press releases and in the news that you see in most websites, we also have comprehensive materials in our blog that we've called The Current with video and other information. We've recently announced our Battery Recyclopedia, which has great content and great information on battery recycling vernacular. It can get anybody up to speed quite quickly in all the things that are battery and battery recycling-related.

So with that, I'd like to thank everybody for listening in today or on the replay, if you're listening to the replay, and please make it a great rest of the day. Thanks, everyone.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.