Aqua Metals Inc (AQMS) 2026 Q2 法說會逐字稿

Good afternoon and welcome to Aqua Metals second quarter 2026 earnings conference call and webcast. My name is Paul and I will be your operator this afternoon. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Dan Scott, Investor Relations.

Thank you, Operator, and thank you everyone for joining us today. Earlier today, Aqua Metals issued a press release providing an operational update and results for the second quarter end of June 30, 2026. This release is available in the investor relations section of the company's website at aquametals.com. Posting the call today are Steve Cotton, President and Chief Executive Officer; and Eric West, Chief Financial Officer.

Before we begin, I would like to remind participants that during this call management will be making forward-looking statements, please refer to the company's report on Form 10-K for a summary of the forwarding statements and the risks, uncertainties, and other factors that could cause actual results to differ materially from those forwarding 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 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 conduct a question-and-answer session with that, I'd like to turn the call over to Steve Cotton, President and CEO of Aqua Metals.

Thank you, Dan, and good afternoon, everyone, and thank you for joining us for our second quarter financial results and business update call. Aqua Metals have now shifted from proving a technology to commercial execution. Over the last several years, we've proven that refining works.

We've demonstrated battery grade products, we've expanded our operating hours, and we validated multiple process flows, everything we're doing today is centered around building a profitable critical minerals processing business here in the United States. You will also hear us describe the company a little differently moving forward, and that is deliberate. AquaMinerals is a US critical minerals processing company commercializing lower cost recovery and refining technologies, that is not a new business, it's a sharper description of the business we've been building.

We continue to believe one of the largest opportunities in the domestic battery supply chain isn't another battery factory. It's the infrastructure needed to process manufacturing scrap and end of life batteries as those factories ramp production. That's exactly what Headwaters ARC is designed to become. We are completing final diligence on a Midwest site with approximately 150,000 square feet of existing industrial infrastructure and approximately 50 or more acres, and it's just a short drive from six major LFP gigafactory projects.

Feedstock proximity drives the economics of this business, and that location puts us next to one of the fastest growing sources of LFP manufacturing scrap in the country. At full campus configuration, Headwaters is designed for approximately 2000 tons per year of processing capacity. That scope and timing remain subject to financing, permitting, and commercial agreements.

One thing I'd like to emphasize is that we've intentionally evolved our commercialization strategy. Instead of attempting to build everything on day one, we've broken the project into logical commercial phases. Phase 1 is designed to use commercially proven preprocessing equipment to domestically recover valuable aluminum, copper, And high specification black mass from segregated LFP battery materials. That approach gives us a much earlier pathway toward commercial revenue while substantially reducing execution risk.

When that operating foundation is established, we integrate a refining in Phase 2 to recover battery grade lithium carbonate, iron phosphate, and graphite from that same black mass. That second step is where we believe aqua metals creates significantly greater long-term value. We're intentionally deploying capital in stages while increasing value at each step. We believe that's a much smarter commercialization strategy.

And some of you have heard us describe commercial plans before, so let me be direct about our standard. We said we would build once and build right, the feedstock offtake and financing in place before deploying a refining at commercial scale. That standard has not changed. The phased Headwaters model is how we satisfy those gates one step at a time.

During the quarter we made meaningful progress across every major work stream required to make that happen. We've advanced site diligence, we've advanced engineering, we've continued evaluating commercially proven preprocessing partners. We've extended discussions with feedstock suppliers and future off-take customers. We've progressed multiple financing structures, and our intent is to fund headwaters substantially at the project level rather than off our balance sheet. Eric will walk through that in more detail.

And we've continued operating the innovation center, which now has exceeded 5,000 cumulative operating hours supporting commercial engineering. Those work streams are happening in isolation, they're all converging toward the same objective, bringing Headwaters into commercial operation as efficiently and with as little execution risk as possible.

One point I'd like investors to appreciate is why we're initially concentrating on LFP. Their fate is becoming the chemistry of choice across energy storage systems and an increasing percentage of electric vehicles. Gigafactory capacity is expanding rapidly. That means manufacturing scrap is expanding just as rapidly.

Our market analysis informed by third-party industry research projects, recyclable LFP scrap will grow roughly 15-fold by 2030, and Blue (inaudible) projects US storage capacity of approximately 235 gigawatt hours by 2035. We believe that creates one of the largest underserved critical minerals processing opportunities in North America. Unlike nickel and cobalt rich batteries, LFP requires a different economic model.

A phased commercialization strategy is specifically designed around that opportunity, and I want to be clear that LFP is where we start, not where we stop. The same platform architecture, mechanical, preprocessing, followed by refining and product recovery is intended to extend the NMC materials or nickel manganese cobalt, and over time to selected mined materials and industrial waste streams. We have already tested the process on mine feedstocks. Headwaters designed to be the first node in that platform, not the whole business.

And at the same time, AquaRefining remains the technology that differentiates this company. Our process is designed to eliminate one-time use chemicals, reduce waste, improve worker safety and lower operating costs compared with conventional processing methods. The innovation center continues validating commercial process flows while supporting engineering for, so that technology foundation remains very strong.

And another area we're pleased with is our financial discipline. We have entered this commercial phase debt-free. We're intentionally matching capital deployment with commercial milestones, and our objective isn't simply to build the facility. Our objective is to build a profitable business with disciplined capital allocation, and that's an important distinction.

Looking ahead, our priorities for the balance of 2026 are straightforward. Complete the site diligence. Secure long-term site control. Select our Phase 1 processing partner, advanced feedstock and offtake agreements. Continue engineering, complete capital formation, advance permitting, and continue moving toward a final investment decision.

Those are tangible milestones investors can follow over the coming quarters, and I want to be clear about when the economics arrive at a final investment decision on Phase 1, we intend to provide capital cost, expected throughput, product mix, and expected operating cost.

I'll close with this, we believe Aqua Metals has reached an important inflection point. The technology foundation has been established, and the market opportunity continues to strengthen. Our commercialization strategy is now clearly defined, and our team is focused every day on executing that plan with discipline. We're excited about the opportunity ahead, and we appreciate the continued support of our shareholders.

With that, let's have Eric review the financial results before opening the line for questions.

Thanks, Steve. Moving to highlight a few items on the income statement for the second quarter of 2026. We reported a net loss of approximately $4.5 million. Or $1.31 per basic and diluted share compared with a net loss of approximately $6.8 million or $7.44 per basic intuitive share in the second quarter of 2025.

The per share comparison also reflects the increase in the weighted average shares outstanding during 2026. Total operating expenses were approximately $4.6 million for the quarter compared with approximately $7 million in the prior year period. The current year quarter includes an additional non-cash approximately $1 million related to Lion Energy.

While the prior year quarter included a non-cash impairment charge of approximately $3.8 million. Plant operations, research and development, and general and administrative expenses totaled approximately $2.5 million compared with approximately $3.3 million in the prior year quarter. Reflecting our continued focus on managing our core operating cost structure.

Online energy based on developments during the quarter, we updated our estimate of expected recoveries. At June 30, our total allowance for credit losses was approximately $2.5 million representing 60% of the approximately $4.2 million gross balance. That also includes accrued interest. This resulted in a net carrying amount of approximately $1.7 million.

The allowance is an accounting estimate of the expected collections and does not represent a determination of the amount legally owed to Aqua Metals or a waiver of our rights. We remain committed to pursuing recovery through appropriate legal and commercial avenues.

We ended the quarter with approximately $4.7 million in cash and cash equivalents and working capital of approximately $4 million and no notes payables outstanding, cash used in operating activities was approximately $6.5 million during the first six months of the year. During the second quarter, we raised approximately 581,000 in net proceeds under the ATM program, bringing the total ATM proceeds for the first six months of 2026 to approximately $1.9 million.

We continue to manage our operating spend carefully. As noted in today's release, we are advancing project financing, staged equipment financing, third-party real estate structures and economic development opportunities for Headwaters ARC, with Newmark's Advanced Manufacturing Practice Group engaged as an advisor. Our intent is to fund the project substantially at the project level so that the corporate capital supports operations and staged execution. Our objective is to preserve financial flexibility while advancing Headwaters ARC through disciplined milestone-based capital deployment.

With that, I'll turn the call back over to the moderator to begin Q&A.

(Operator Instructions) Michael Legg, Benchmark.

Yeah, thanks guys, hey Steve, hey Eric, maybe just start by expanding on how this is sort of a natural evolution of you your previous project working from more of a recycling to, Greenfield refinery to, pre-processing infrastructure, with the gigafactories in the area. Can you just elaborate on that, like, how should we be viewing this evolution and what gives you confidence, this is, An underserved piece of a supply chain, thanks.

Yeah, Micki, good question, and, it's all about finding the market and, having the right solution for the market, and what we are really focused on is the fact that there is just a huge, underserved opportunity for LFP chemistry batteries with those 6 gigafactories in the region there, and we see an opportunity to collect those batteries, and focus on that chemistry, which is a simplified chemistry, and also

De-risk the first phase of it by deploying a standard set of that into the aluminum copper finds as well as the black mass production and then put the AquaRefining in there and focus that on the lithium and not have to worry initially about the nickel and cobalt, so we see it as a de-risk, a lower cost of entry, a staged approach, and in literally the middle of the market where it is most needed because we're building a lot of gigafactories and we're just not building as a country, the ability to process these materials and keep those materials in the country.

So all that together is really the thesis behind the way that we're approaching this and being able to do so in such a way that we preserve our capital along the way.

Got it, okay, that's helpful, and then that takes me to my next one, which is sort of about what you learned from the equipment procurement and the progress you've made there, seems like you're making good progress. But just curious, what should we be looking for on that front, is there anything particular that that you've learned from that?

You mean on the equipment procurement for Phase 1?

Yes.

Yeah, so we are definitely very close to a decision point on the equipment supplier for Phase 1.

And that, is really exciting for us because we've seen this equipment operating at scale. And we would, be able to take the equipment that's been running at scale and deploy it and execute versus take any technology risk, for the collection and preprocessing and production of those initial revenue generating products, and so that's really the, a key part of the next steps for Aqua Metals is to sign that agreement and get moving forward with the procurement of that equipment and deployment of that equipment at the project Headwaters location.

Got it, okay, and then last one, what are some of the milestones we should be looking for in the near to midterm, is it more these economics on the Phase 1, that's definitely high on my list.

Yeah, so, lots of milestones to come, of course, and that involves, the indication of this, the final indication of the specific site, and then the equipment supply portion of it, the financing of the real estate, and tenant improvements of the real estate, fortunately it's a building that we believe that we can, up it very quickly, and you'll see news flow. About that that's part of the supply on the equipment.

On the facility, on the location, and of course the commercial side of things, which is feedstock and offtake contracts.

Okay, great, that's all for me, thanks guys.

Thanks, Micki.

Thank you, I would now like to turn the call back to Dan Scott to facility questions that were submitted online.

Thank you, operator, and thank you, Micki for the questions.

The first one we got was, Steve, could you walk us through why the phased approach at Headwaters creates a path to revenue earlier than a greenfield build would and why the company is starting with LFP.

Yeah, certainly, so, really the single most important fact about Headwaters is that the facility already exists, as I was saying, we're working with approximately 150,000 square feet of existing industrial infrastructure and 50 more acres surrounding that. And starting inside a building that is already standing means we're not funding a full greenfield construction cycle before we can process a single ton of material. That's really what makes the phased approach work, so Phase 1 is designed again, like, I was speaking with Micki about, to use commercially proven mechanical processing that is already scaled and produces valuable high spec black mass, aluminum finds, copper finds, as products and using that proven equipment that's available today from an established supplier.

Phase 2 is where we add our patented aqua refining technology, and then we take that, black mass and convert it to battery grade lithium carbonate and iron phosphate and graphite right here in the United States. Later phases then would extend the platform to NMC or nickel manganese, cobalt and other critical mineral type feedstocks. But each phase is designed to be capitalized and validated on its own terms before we commit to the next phase.

On the LFP though, as asked, we're following the feedstock and the demand, and based on our market analysis informed by third-party and industry research, that recyclable LFP manufacturing scrap is expected to really increase quite a bit, approximately 15 times by 2030.

And Bloomberg NEF projects that the battery storage installations in the US are going to reach approximately 235 gigawatts of installed power capacity and 948 gigawatt hours, which is a staggering number of battery energy storage capacity by 2035, and the existing US shredders today that do that preprocessing are concentrated.

On the nickel and manganese and cobalt or that NMC scrap today, which raises the cost of that feedstock and thus leaves the LFP underserved, and the headwaters sits, as I mentioned earlier, a really short drive from 6 major LFP gigafactory projects, and we'd rather build where the feedstock is growing fastest, and, the processing capacity there just simply does not exist yet.

Great, Steve, thanks, the next question is Sierra ARC was announced and then sold, and management has said build once build right with concentrated feedstock, committed offtake, and bankable financing as the gates before building. What is structurally different about Headwaters, and does Phase 1 clear those same gates?

Yeah, that's a fair question, and the gates have not moved, the contracted feedstock, committed off cake, and bank financing remain the conditions for deploying capital, at a commercial scale. What has changed is that we now have a structure that lets us satisfy those conditions in sequence rather than trying to clear all of them before anyone turns a shovel. Sierra ARC was the first of kind build that required the full capital commitment up front.

And when the market moved against the industry where we saw lithium prices dive bomb, we made the disciplined decision at that time to sell the asset and protect the balance sheet, and headwaters is close to the opposite profile. Phase 1 is designed to use commercially proven equipment, as I mentioned, rather than the first of kind technology we've engaged Newmark, who is a leading global commercial real estate adviser to pursue those third-party real estate structures for the land, building and site development.

And equipment payments are being negotiated on staged terms that are tied to milestones. So Phase 1 does not go around the gates, it's really more how we get to them. Stock in the door and product going out is what converts feedstock discussions into contracts, and what makes a Phase 2 project financable on a project level terms, same discipline but sequenced differently to summarize.

All right, next one is, share account has increased significantly over the past five quarters, how should existing shareholders think about the funding of Phase 1 across real estate structures, staged equipment terms and the ATM. And how do you think about funding the company through a final investment decision?

Yeah, this is, Eric, I'll take that one, so. Let me start with, where we ended the quarter, we finished June 30 with approximately $4.7 million in cash and approximately $4 million in working capital. And we used approximately $2.7 million of the cash in operations during the quarter, we raised approximately 581,000 under the ATM during the quarter with approximately $48 million of capacity remaining on the ATM, and we continue to carry debt.

On dilution, I will be direct, we raised capital through one of the most difficult stretches the sector has seen, that decision is the reason the company is in the position to pursue Headwaters at all. We raised proactively rather than reactively, and we ran the business lean while we did it.

Going forward, the objective is to fund Phase 1 with little capital equity as possible. The architecture of the three layers is first land, building, and site development represent a significant component of the Phase 1 cost, and Newmark is engaged to pursue third-party real estate structures, including a long-term triple net lea or similar arrangement.

Second, we were pursuing staged equipment payment terms aligned with project milestones rather than paying all that up front. Third, corporate capital is reserved for the operations and staged execution with ATMU in a measured way. Alongside those we've submitted state and local economic development packages and are -- and those discussions are advancing.

And then on the period between here and the final investment decision, the work ahead of us is diligence, engineering, permitting, and negotiating rather than construction. And our operating cost structure is lower than it was a year ago. We managed to milestones rather than to a calendar. None of these charges are, signed, and we're going to characterize, I'm not going to characterize them as any of them is complete until they are.

But the preference is clear. Project level and asset-backed capital ahead of corporate equity and the capital then has, will not deploy any capital into construction ahead of these conditions we have set, and we will report against milestones with every quarter.

Thanks, Eric, the next question on the durability of the model, how does Headwaters perform if lithium prices fall back toward last year's lows. And is there genuine domestic demand for the Phase 1 products, or does that material get exported the way most US black masses today?

Yes, so, two things protect the model, the first is that Phase 1 is not primarily a lithium story. Phase 1 is black mass, aluminum finds, and copper finds as the products, and in this segment. Processors are generally paid to take in feedstock, so you're in revenue before you even begin processing. The combination is considerably less sensitive to the lithium prices than a pure refining operation would be.

The second is cost position, operate fighting is designed to eliminate those one-time use chemicals and reduce the waste streams as we've been talking about all along and associated disposal costs and do so in a far safer and less labor-intensive environment, which is where the operating cost advantage primarily comes from. We believe still that a lower operating cost position is what allows the platform to operate through a full price cycle rather than only in a strong one, and for context, you could, anyone listening can go back and look at lithium carbonate prices and see how they've recovered substantially from 2025 lows.

In the meantime, on domestic demand. Aluminum and copper, of course, have deep established US offtake channels and pricing has been strong, particularly, recently, black mass is the exception, and it's that exception that makes our point, most black mass produced in the country today is exported because there's not enough commercial scale refining capacity here to process it, that is precisely the GAAP that Phase 2 is designed to close, and we view domestic res refining as a demand problem that has already got an answer waiting for capacity, not one that has to be created.

Great, and then we have one last question. You have described Headwaters is designed for approximately 20,000 tons per year at full campus configuration, what does that capacity mean for the business, and can you give investors any sense of the Phase 1 unit economics behind it?

Sure, let me be precise about the structure because it does clarify the question, so, Phase 1 is the preprocessing, and, getting into some more detail, we expect to install two preprocessing lines that will be approximately 10,000 tons per year each.

So that's approximately 20,000 tons per year at full Phase 1 configuration. Phase 2 does not add tonnage to the building, but rather it takes that black mass that Phase 1 produces at its capacity. And, turns that into refined products, so rather than selling black mass at that point, we would refine it ourselves and sell more lithium carbonate, iron phosphate, and graphite than black mass.

The scope and timing remain subject, of course, to financing, permitting, and all those commercial agreements, and I'll point out that this is not a production forecast and it is not guidance yet at this point. So that structure is deliberate and is central to how we are managing that risk, we are not betting the company on a single build. And this first line establishes the operation in the commercial relationships.

The second line scales what we have already proven, and Phase 2 then adds the value to the material that we're Are going to be handling rather than requiring new or different types of feedstock, the capacity is sized against us receiving a portion of the LFP manufacturing scrap projects a short drive of the site that I mentioned earlier.

On economics, I'll give you, a standard that we're holding this to rather than a specific forecast. Phase 1 has to earn its own return, and we're not asking anyone to fund phase one and the promise of Phase 2, before we take Phase 1 to a final investment decision, the case has to demonstrate positive EBITA and positive cash flow at the project level and return on invested capital that meets our investment criteria in each case, after RAM and under commercial assumptions that we can support.

If it does not clear that bar, we don't proceed. Two things I want to be precise about, that is an investment criterion, not financial guidance, and it is project level economics, which is a different measure than consolidated company results that carry corporate costs. Also on sizing, the phase one products are again copper and aluminum and high specification black mass, all of which price off of observable markets.

Between the throughput and the product set, you have the framework really to do the math, and that math varies depending on metals prices, obviously. The variables that determine where we land inside it are commercial, therefore, rather than technical, what we pay for the feedstock or even paid to take the feedstock, the mix of material we receive, what we recover, and what those products fetch at the time.

Several of those terms -- are terms that we are actively negotiating have not quite yet signed, which is why we're not putting estimates on the record ahead of the agreements that determine them. As a final investment decision on Phase 1, we intend to provide the capital cost expected throughput product mix and existing operating costs, and you'll be able to model it more properly at that point.

Thanks Steve, that's the, end of our questions, maybe I could just turn it back to you for some closing remarks.

Appreciate that, Dan, and appreciate everybody attending the call and listening in on project Headwaters and Aqua Metals, and we're really looking forward to continuing to keep the market updated as we make those milestones one by one between, Q3 and Q4. Look forward to reporting more news soon.

Thank you. This does conclude today's conference call and webcast. You may disconnect at this time and have a wonderful day. Thank you for your participation.