Aqua Metals Inc (AQMS) 2020 Q1 法說會逐字稿

Good day, and welcome to the Aqua Metals First Quarter 2020 Results Conference Call. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Glen Akselrod, Investor Relations. Please go ahead.

Thank you, operator. Welcome to Aqua Metals' First Quarter 2020 Conference Call. Earlier today, Aqua Metals released financial results for the quarter ended March 31, 2020. The release is available on the Investors section of the company's website at www.aquametals.com. Joining us for today's call from management is Steve Cotton, President and CEO; as well as Judd Merrill, the company's Chief Financial Officer.

During today's call, management will be making forward-looking statements. Please refer to the company's quarterly report on Form 10-Q filed today, April 30, for the 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.

And with that said, I would like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, please go ahead.

Thanks, Glen. Good afternoon, everyone, and welcome. Despite the constraints on Aqua Metals and all businesses in the face of COVID-19 global pandemic, I am happy to report that all Aqua Metals employees are safe, and we are operating our company utilizing collaborative technologies quite effectively. We, like most businesses, are dealing with unexpected constraints that began in late Q1 in regards to the physical aspects of our operations. Assuming the State of Nevada allows us to return to the AquaRefinery in May, the expected net impact is a slight delay in deployment of our first V1.25L electrolyzer. We expect to begin operating the first V1.25L electrolyzer within 6 weeks after we are able to return to the facility, albeit later than we had originally targeted.

Despite the devastating fire on November 29, COVID-19 and our current uncertain economic times, management has worked diligently to continue to implement our business plan in order to achieve future success for our shareholders.

I would like to spend a couple of minutes to highlight a few of the specific foundational items Aqua Metals has already accomplished that will be the underpinnings for our go-forward capital-light equipment and licensing strategy.

First, $180 million has been invested to date to commercialize AquaRefining. We have already successfully demonstrated that our AquaRefinery ran 24 hours a day, 7 days a week and with our electrolyzers running smoothly for a month at a time, which consistently produced 35,000 ultra-pure and cleanly manufactured ingots. These certified ingots were shipped to our partner, Clarios, the world's largest battery manufacturer who then made production runs of batteries with AquaRefined lead metal. Therefore, we believe that we will not need to build another demo plant and duplicate what has already been proven. In fact, if we had chosen to rebuild the plant, today, we may have been in a position to raise new capital while dealing with the business challenged COVID-19 environment. The fact that we do not need to and we're able to cut down on the burn rate significantly pre-COVID is already proving that our chosen strategy is resilient and correct.

Second, we have also established and continue to invest hundreds of thousands of dollars a year in strengthening our already very strong patent portfolio. A portfolio with global reach, that is critical to protect and ultimately monetize as we accelerate our efforts towards deploying and licensing operations of AquaRefining technology. Third, despite the setbacks of the fire and in the face of COVID-19, we believe that we have a plan for successfully securing the cash position of the company. We project that our cash balance will continue to grow between insurance proceeds and smart asset disposition. Thus, we believe that we will have well over a year of runway to fund our continued efforts to get AquaRefining deployed into our first revenue-producing customer location. We expect this will be a major value inflection point for our shareholders.

Fourth, as Judd will describe in more detail, we have vastly reduced and have plans to further reduce our cash burn rate to further extend our runway on our path to customer revenue and self-reliance. Lastly, we have put into motion our efforts to take the valuable learnings from our operations of the AquaRefinery in the past to build a better, more-efficient, higher-throughput and cheaper electrolyzer with improved conversion cost per tonne of lead produced. We believe that these key incremental and not fundamental improvements will further improve the electrolyzer's reliability, throughput, cost to deploy and cost to operate. We believe this will illustrate that AquaRefining is a robust, compelling offering for the marketplace and customers to consider as we anticipate beginning the upgrading of the $20-plus billion lead recycling industry as a result in the near future.

The industry badly needs to become greener, cleaner and more sustainable. And Aqua Metals has the potential to truly impact the energy storage marketplace through improved battery performance and life that our ultra-pure AquaRefined base metal can provide. This is why our employees, shareholders, partners and potential licensing partners have shown tremendous historical excitement about our company, and these fundamentals have not changed.

Previously, our communications mentioned what an equipment supply and licensing package would mean for Aqua Metals. But at this time, I want to take the opportunity to walk everyone through our proposed revenue plan. We expect it to start with engagement in meaningful discussions with existing operators in the marketplace, which we've already accomplished with Clarios, other partners and several other qualified candidates that currently operate battery recycling facility. The next step would be a sales proposal, coupled with the base technical package. Once the prospect agrees with the proposal and technical package, we would expect to move on to a paid for engineering package, similar to architectural plans where a portion of the revenues could be recognized. This engineering package would be the first revenues we record for our licensing business, potentially range up to significantly over $1 million, depending, of course, on the size and scope of the application.

Once the engineering package is accepted, the next step would be to move forward with new equipment supply and licensing and services agreement. This agreement provides specific cost breakdowns, engineering, furnishing, installing and commissioning of the Aqua Metals provided equipment and third-party equipment from Aqua Metals supplier partners, such as the kiln and briquetting system. We expect revenues for equipment supply to potentially range from millions to tens of millions of dollars and with healthy margins. The total value of which is, of course, dependent upon size of the deployment. Once the equipment arrives on site, we would expect there to be a services element to install, commission, witness test and gain customer acceptance. These services could add an additional source of healthy margin revenue. Once the AquaRefining solution is up and running, we expect to collect a running royalty per tonne of AquaRefined lead produced by that operation. The expected royalty would be based upon the inherent value of the clean process and economic and marketing benefits, plus the premium value of the ultra-pure AquaRefined lead itself which has already commanded up to a 10% premium over standard London Metals Exchange pricing for millions of dollars of lead sold from our own AquaRefinery. For a modest 15,000 tonne a year AquaRefining facility, we could expect to see over $1 million of running royalty per year.

It's important to note that a large deployment of AquaRefining into an existing facility could exceed 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 15,000 tonnes per year. Day 2 of production and beyond could yield additional value-add to other customer revenue opportunities. Potential additional revenue streams could include services, maintenance contracts typical for equipment suppliers, future hardware upgrades to improve throughput, cost to operate, product quality, purity, capacity expansion, unwarranted parts and equipment replacement over time that are all opportunities for additional revenue and supporting our customers in the long run. When we modeled baseline goals of achieving our first licensee deal expected by 2021, with additional expected licensees ramping up at a 1, 2 per year clip for the coming few years, we see a significant opportunity to grow our top line revenue, profitability and cash generation, which should contribute greatly to future shareholder value.

In addition to a licensed equipment supply model, there are other scenarios of monetizing our technology, which we are also pursuing, inclusive of master licensing via country or even a geography. Fortunately, as this was always our long-term plan, we already built a significant multi opportunity funnel of potential licensees in the latter half of 2019 pre-fire. We have seen a significant acceleration in interest from these and new potential licensees and possible new strategic relationships after announcing our accelerated strategy earlier this year.

Lastly, I also want to point out that this management team has a proven track record of gritty, lean entrepreneurial successes throughout our careers that we draw from. And with the support of our Board and partners and shareholders, we are seeking another successful outcome for Aqua Metals by drawing from our successes to date, coupled with our sheer determination to see through our vision of commercializing our innovative market and planet changing AquaRefining technology.

I'll now hand it over to Judd to review our Q1 financials. Go ahead, Judd.

Thank you, Steve. As of March 31, 2020, cash and working capital balances were $6.4 million and $11.5 million, respectively, which includes a $9.9 million insurance proceeds receivable. Actual expected insurance collections are anticipated to be higher. On March 25, 2020, we entered into a memorandum of agreement with Veritex in regards to our loan. We have agreed on the allocation of insurance proceeds with proceeds allocated to Veritex to be used to pay off all amounts outstanding under the loan, which is approximately $8.7 million as of the date of this report inclusive of approximately $500,000 prepayment penalty netted against the $1 million CD collateral.

As of March 31, 2020, the company had received a total of $10 million in insurance payments as a result of the fire damage. $2.5 million was received in December 2019, and the remaining $7.5 million was received in Q1 of 2020. As I stated previously, we have recorded an insurance receivable of $9.9 million, in line with GAAP accounting regulations, which limits the amount of insurance receivable we can recognize on our book. We believe that the replacement value of the equipment and the plant lost or damaged in the fire could be as much as $37 million, and that's excluding any business interruption cost recovery.

In Q4 of 2019, as a result of the fire, we wrote off approximately $22.4 million of fixed assets that were damaged. No assets were written off in Q1 of 2020. Assets on our balance sheet as of March 31, 2020 that were not affected by the fire totaled approximately $38 million in book value, including the battery breaker, the melting kettles, the kiln, filter presses, mixing and storage tanks, water recovery system and the building infrastructure and the land. As of March 31, 2020, Veritex has received $2.75 million of insurance proceeds from our insurance carriers, which has been set aside in an escrow account to be used to pay off the note. This $2.75 million is recognized as other assets on our balance sheet. Upon receiving the remaining insurance proceeds, the loan will be paid off. We anticipate that this will be completed over the next 3 to 6 months.

Revenue from the 3 months ended March 31, 2020, decreased approximately 96% compared to the 3 months ended March 31, 2019. This decrease is due to the fire that took place and subsequent shutdown during the first quarter of 2020. The plant will not be in production during 2020, except for limited testing of our improved electrolyzers. Product sales during the first quarter of 2019 consisted of high-purity leads from our AquaRefining process as well as lead bullion, lead compounds and plastics.

Cost of product sales includes raw materials, supplies and related costs, salaries, benefits, consulting and outside services costs, depreciation and amortization costs, insurance, travel and overhead cost. Cost of product sales decreased approximately 69% for the 3 months ended March 31, 2020, as compared to the 3 months ended March 31, 2019. Cost of product sales were lower in 2020 due to the suspension of production due to the fire.

General and administrative expenses decreased by approximately 41% for the 3 months ended March 31, 2020 compared to the 3 months ended March 31, 2019. The most significant drivers of these decreases were noncash expenses related to the suspension of operations, maintenance and management activities associated with the Veolia agreement. We also have reduced other general and administrative expenses, such as payroll and services expense. We expect to decrease general and administrative expenses during the year as we accelerate our move to a capital-light strategy. For the 3 months ended March 31, 2019, we had a $1 million of noncash expense related to the Veolia agreement.

For the 3 months ended March 31, 2020, the company had a net loss of $4.4 million or a negative $0.07 per diluted share. That's compared to a net loss of $11.7 million or a negative $0.27 per diluted share for the 3 months ended March 31, 2019. Cash flows used in operating activities for the 3 months ended March 31, 2020, and 2019 was $4.3 million and $6.3 million, respectively. Included in cash outflow from operations was approximately $2.3 million for outstanding payables and for general working capital purposes. Our monthly cash burn rate, which includes monthly plant expenses and corporate overhead during the quarter was approximately $800,000 per month as compared to approximately $2 million per month in the prior year. This decrease was the result of significant actions taken after the November 2019 fire event. We anticipate that cash burn rate will continue decreasing as we move forward in 2020, which will help us to improve our cash runway. Net cash provided by investing activities for the 3 months ended March 31, 2020, was $3.1 million and consisted primarily of $4.7 million of insurance proceeds, offset by $1.6 million of purchases of property, plant and equipment.

As of March 31, 2020, we had collected a total of $10 million of insurance proceeds. In addition, just this week, the insurance carrier confirmed the intent to make payment of additional $2.5 million. This completes all payments for insurance layer #2 as we discussed in our March 30 press release. We've already been vigorously pursuing payment for the third layer of insurance and have been communicating with the fourth layer.

We have submitted detailed business claims, including invoices, quotes, assessments, drawings and pictures to the insurance provider, which represents a significant portion of our insurance claims for equipment and building damage. We will continue to provide additional details and supporting documents in the coming weeks. We are also submitting business interruption claims that we anticipate will be several millions of dollars. We expect to see additional payments in the coming months, and we'll update you as proceeds are received.

We believe we are in a position of strength with respect to meeting the company's future forward goals. We intend to seek funds primarily for insurance proceeds and from the sale of equipment that is not required for accelerating capital-light strategies. In addition, we have submitted loan applications for funding through the SBA's Payroll Protection Program. We are hopeful to receive payment and will report the results of our applications in the near future. Based on these expectations and our current strategy, we do not anticipate any need to seek other sources of cash in the near-term future.

With that, I'll turn it back to Steve for closing remarks.

Thanks, Judd. In conclusion, we believe that our accelerated shift to a capital-light equipment supply, services and AquaRefining licensing model has put Aqua Metals in a position of strength during these uncertain times with a promising outcome. Based on the production levels of the AquaRefinery pre-fire, we feel we have derisked the technology execution portion of the investment. And while we execute on the V1.25L electrolyzers and our partnership licensee discussions, the opportunity for returns for Aqua Metals is significant as compared to our past years of capital-heavy efforts, which fortunately put us into our current position of strength.

I'll now turn it over to the operator to facilitate the Q&A session.

(Operator Instructions) The first question comes from Colin Rusch of Oppenheimer.

As you're talking with these inbound license opportunities, are you looking at opportunities outside of the lead recycling market? I know that you -- certainly you've had another set of opportunities from different materials that you could recycle with the process. Can you give a sense of whether that's an option or not at this point with these potential customers?

Sure, Colin. So we do receive inquiries for things that aren't requiring batteries, lead acid batteries as feedstock. And a couple of them have been interesting, and they're mining-related and taking a lead molecule based mining product and putting it through our process. But for the most part, all the prospective licensees and targets that we are going for is lead acid batteries as a feedstock.

Great. And then when you look at the V1.25L process. Do you have all the components on hand to build those tools? Or is there any supply chain risk? Or how can you -- can you help us get comfortable with your mitigation efforts or continuity efforts with all the capacity you need to prove out those components?

Yes. Yes. Fortunately, Colin, we have the materials on site, and we pre-COVID-19 lockdown were able to even get a fair bit of the infrastructure to support the first electrolyzers that we'll be putting in within weeks after our return. And we don't foresee any parts, supply chain problems. There are some additional updates to those electrolyzers we'll make throughout the process as we roll in another electrolyzer to -- through the rest of the -- remainder of the year. And thus far, we haven't seen any supply chain issues with those items either, and everything seems to be dependent more upon our getting back into the facility and running them.

Okay. That's helpful. And then finally, you've been working with some representation related to the insurance companies, and appreciate the detail in terms of your progress at this point. Relative to your expectations, where are you? And are you still engaged with that person to help facilitate this process on the insurance recovery?

Colin, this is Judd. We've hired Greenspan, and they're still working with us and represent us. They are our public adjusters and they are assisting us in the insurance collections. And it's a process, and we always wanted to go as fast as possible, but I think it's going as good as it could and can, and we've made progress. And we've delivered a lot of information to them, and they have to go through that and I know they're looking at it, and the [case] have actually done a pretty good job of getting through a lot of that information. That's why we get these progress payments. And so we'll continue down that path, and it seems to be working, and we'll get additional payments and keep giving them additional details. So I think from our perspective, we're moving along as expected.

The next question comes from David Kanen of KWM.

Lot of my questions have been answered already just through the press release and through Colin. But just so I understand correctly, the outlook on additional cash proceeds. So we've collected $10 million so far. There's $27 million remaining under the insurance, and that excludes business interruption, correct?

Yes. So the way that it worked out is, we've internally identified up to about $37 million in just property and business -- or property and equipment and the plant and cleanup-type expenses. We've submitted to the insurance carrier almost all of that plus $30 million of details. And so there's additional information that we have to get to them. And so that is what they're going through right now. And then we submitted some preliminary estimates on the business interruption. We don't have a lot of detail that we can share yet on that, but that's kind of the next phase as well that we'll be submitting to them.

Okay. So about $27 million in insurance proceeds that we estimate we can collect. We don't know what the BI is going to be, and then there are some asset disposals. Can you just take me through that? When you say asset disposals, I'm assuming potentially the plant and property. And then is there any equipment there as well? And if you could give me a total number on what that is, just a ballpark.

Sure, Dave, Steve here. So on the asset disposition side, we don't need, for example, a lot of the chiller systems that we had that were fortunately spared because they were outside of the building for the AquaRefining area and weren't affected by the fire. So that's a standard piece of equipment as an example. And there's other assets like that throughout the plant that we won't need as we progress forward. Fortunately, we'll be able to run the electrolyzers off of the significant supply of prepaid for, pre-broken batteries and digested AquaRefining concentrate. So there's other equipment that we won't necessarily need any time soon as we run the electrolyzers off of that concentrate, don't have to run other parts of the plant. And so that plant and equipment could be worth millions of additional dollars in sum. And then there's the -- ultimately, as we've transitioned towards the capital-light model with the licensees running off refining and production facilities, we won't need the full-size AquaRefinery plant after we prove out the V1.25 electrolyzer. So that opens up opportunities later in the year and into next year for considering the appropriate asset disposition of land, plant and building or some parts of that, depending upon how we ultimately decide to do that. So that's basically when you add it all up, tens of millions of dollars of opportunity for us to harvest that cash and put it back into the capital-light business on top of the insurance collections, on top of our cash position.

Okay. Okay. And then I see you made quite a bit of progress in reducing the burn rate in Q1. Now with -- what is, let's say, at the halfway point or exiting the year, Judd, what will be the burn rate on an annualized basis, if you will, like a year-end run rate, once we get into the second half of the year, let's say?

Yes. So the guidance that we've been giving is that we are currently at about $800,000 a month. And we're doing some things to try to get that down. We haven't given any guidance on kind of where we'll end the year. But we expect -- there's some things that are kind of contingent on helping that. There's some costs related to just keeping the plant kind of up and running and some other things that as we progress throughout the year and we decide kind of where these things fit into kind of the go-forward strategy may actually help reduce some of the cost. And so we haven't given any guidance to kind of where we think we'll end up, but we're doing some things to try to get that burn rate down and being proactive about it.

Okay. So in the back half of the year, will we be at a lower burn rate than we were in the first half? Is that a safe assumption?

Yes, I think that's safe, and that's what we're expecting internally and what we're working towards.

Okay. So right now, we're at a burn run rate of about $9.5 million annualized. Is it possible to get that to about $6 million a year once we get in the back half of the year? Or is that a little bit too aggressive?

Well, I think it's doable, but there's some work to do. And obviously, we want to try to get it as low as we can because we want to focus primarily just on the licensing opportunities. And so again, we haven't given any specific guidance other than the $800,000. But I think as we move into summer time and into the Q3, we'll be able to give everybody updates.

Okay. I mean, unfortunately, part of the legacy or the history of the company has been because we were in a very capital-intensive business, which obviously, we're turning the page on going to licensing and capital light, but there was this constant need to raise capital. Is it safe to say that going forward, that we're -- that our capital needs are going to be sufficient? Or do you think that sometime this year, we're going to need to go out and raise capital again?

Dave, this is Steve. I'd definitely say the latter. We have a significant runway no matter how we model it between the insurance collections and the asset dispositions with the transition to the capital-light and ultimately, over time, when we don't have to mount the big aircraft carrier at the plant that we won't need any longer, that will be a significant impact to reduce the burn because there's just minimum cost associated with that, like electrical and gas and security and all those kinds of things. So we'll see likely a reduction in burn rate with a significant step function reduction once we get to the first licensee and can operate by assembling modules out of a smaller space -- with office space and assembly space. I'll make a note that we did assemble all 16 modules for ourselves when we were still in Alameda, California in about a 5,000 square foot area. So it doesn't take much space. And so the future looks very positive in terms of the fixed overhead associated with facilities in the long run. But we do need the plant to continue the electrolyzer work to get the product into a licensable form. And -- but while we're doing that, we still think we can reduce the burn, as Judd was mentioning.

Okay. Great. And then as far as the licensing, I'm sorry to monopolize here, but there was a lot of information. I was kind of surprised that already that there is a pipeline, if you will, that caught me off guard, which is great. But could you take me through what the pipeline looks like? What kind of interest are you getting from what kind of entities at this point? Any color on how many? And then also, you gave a breakdown earlier in the call about the different components of this licensing strategy that will generate revenue, for example, equipment, and I missed part of it. I was multitasking, so my apologies. But if you can just go through there's an equipment component, what would be the margins there? I'm assuming there are some professional services or engineering that would generate revenue. And then also, based on the size of the plant, you gave -- you talked about a small plant and a large plant, what the potential is for royalties. So if you could just go through that again, I'd appreciate that.

Sure. Sure. So in terms of the sales funnel and engagement that we have with prospective licensees and partners that will help us achieve licensees through those partnerships has grown in its nature. And we've seen the sales funnel grow from our own efforts prior to and leading up to the fire event, where we were already engaged with several players across the globe, ranging from Asia Pacific market to North America. Of course, Clarios and also some European opportunities and South American opportunities. And we are talking to various licensees about projects ranging from AquaFit which is deploying AquaRefining at their existing facility to either expand the production or capacitize the production or to improve the emission standards and the quality of the lead. We've talked to a couple that are doing greenfield builds of battery recycling facilities in the Asia Pacific region that would design AquaRefining right into a net new build which is very interesting. We've talked to a potential licensee about processing the dust that comes out of the baghouses or the fluid system baghouses that is tens of tonnes per day in a significant size plant that is another application of AquaRefining to an existing facility. So there's multiple applications on the table, as I mentioned earlier, a mining one. So there's a lot out there. And we've seen a significant tick up since we've announced our acceleration of the -- towards the licensing strategy that we've seen a lot of inbound inquiries in addition to the engagement that we already had.

And then to answer your other question on the licensing, just to boil it down, it starts with a -- the first revenue starts with the engineering package, and that package is the design services for the customer to accept to then order the equipment off of just like you hire an architect to design a building. So there's a significant fee associated with that, which is high-margin services revenue. Once the customer agrees, we build out that bill of materials in detail, and they procure the equipment, and we provide the equipment, not only from Aqua Metals, but also from our supplier partners and get revenue from that as well as services revenue. And then once the equipment is commissioned and witness tested and operating, we would seek to recover a recurring royalty which we believe we can get a significant running royalty because of the premium value that's already in market, been paid for by the largest battery company in the world for the AquaRefined lead as a premium over the London Metals Exchange rate. And the other value-add of the environmental and the green and the performance capabilities. So that running royalty, we believe we can capture significant recurring revenue. And then that's just the beginning of the relationship with the client, just as any equipment supplier into an industrial plant, that -- day 2 is the beginning of the relationship. And then there's physical product upgrades, warranty, equipment and services associated with that. So it's the beginning of a journey of revenue and value that we offer to those customers. So I hope that's boiled that down for you.

Yes. I mean, could you -- the only thing I was unclear on, and I don't know if this is even -- if you could even disclose this, but let's say, you were deploying modules, let's say, to start 2 modules at a place -- at a facility. What do you think that equipment would sell for? And what kind of gross profit would you get?

It's all really custom and dependent upon each customer facility. So I'm a little bit reticent to state an actual number, other than any significant deployment is going to get into the 7 figures in terms of value of the equipment. And then as I mentioned on -- earlier on the call, there's facilities that -- our facility was 15,000 tonnes a year of AquaRefined lead capacity, which is a very modest, I'd call it, a small size facility. There's larger ones that could go up to 100,000 tonnes, which would be well deep into the 7 figures in equipment. And then there might be some that want to try a smaller set, at least initially, or a particular specific application. And those might be a smaller number and in the single-digit millions. But it's going to be a significant revenue no matter how we slice it, and it depends upon the size of the client.

The next question comes from Charles Bellows of White Pine Capital.

Sorry, I was on mute. Can you hear me? Okay. Steve, let's go to the pipeline again, and I'm trying to get things squared away. You said that -- how many modules do you need up and running and for how long before you're going to get an indication from a licensee that they are willing to go?

So it's a simultaneous effort of us getting the AquaRefining electrolyzers into a licensed productized version. A lot of that work was already accomplished that we're about to turn all 16 of them on with those upgrades before the fire event happened, and then we're making a couple of other improvements. And we feel it's important to this summer run those and improve them out and get some data by fall so we can continue the conversation with realistic numbers around throughput and all those things from the updated units and cost factors because we are doing a significant cost reduction to improve that value proposition on the CapEx side. So -- go ahead.

So you're saying that it will be fall, you're planning to have 2 up and running, but it will be into or through the third quarter before you have the base data that you need to really go to the license people.

Well, but in the meantime, we're talking to the licensees about the application and the size of the application and what it would look like to put the AquaRefining in, talking to them about conversion costs, giving them the baseline numbers that we already have, from operating our modules in production that are very compelling to begin with. And then sharing with them that, hey, the product, the final version of the product is going to have these additional enhancements. So they're likely going to want to see those numbers before they pull the trigger on the equipment supply side, but we can certainly get into the engineering package discussion before the end of the year as we're talking and engaging with these various clients. It's just that the final version of the product is going to have some tweaks, which are all favorable for everybody.

Yes. You got to get them to say yes. The other question I had in here is that Clarios when it was still JCI and all part of that, they had an exclusive with you if they took it. Is that now gone?

Yes. So Clarios has the first-mover advantage through June of 2021 by contract. And so we're still, of course, talking to Clarios regularly. In fact, they have Board observation and still a significant shareholder in the company, are involved with a lot of things that we work on. So they may still be the first mover, but we're keeping our options open for whoever else is out there in the marketplace. And making sure that we're responding to the inquiries because they're coming in, and it would be bad form to not engage with credible inquiries that are coming in. And it will be up to Aqua Metals ultimately to decide.

Now by the very sake of the calendar by getting the modules to their final shippable condition as we round the corner into 2021, it's not that much time between then and June of 2021 for us to make the ultimate decision as to the best path forward with the first licensee site. And that may be Clarios, it may be a different licensee. It may be one of Clarios' partners because if you go look through the contract that we filed when we agreed with Clarios on the joint development agreement, it includes North America, China and Europe and includes themselves as well as their top 2 supplier partners that are lead recyclers that they could introduce us to, which they've been doing, and we've engaged and talked to. So it will determine ultimately, which one is the best fit, and we'll pick to make the right decision for Aqua Metals and obviously, the shareholders.

So as I -- if I'm hearing you correctly, the way it looks is you will not have something really announceable until maybe the fourth quarter or into the first part of 2020 on a licensee who has said go.

In terms of a licensee that's signed up and shipping equipment, it will take some months for us to get there. You are correct in that. Now there's other types of business development, partnerships, things like that, that we're working on that are quite interesting, that aren't licensees, but they're partnerships that would help facilitate getting us into the market with licensees and have a synergistic partnership value that we're working on as well. So there's that side of it. And then the actual physical deployment of the equipment, I would expect that you would see that not happen until 2021.

Okay. Because, I guess, just maybe you can give me an answer. Why has -- Clarios has seen the other -- the whole system working, they bought the lead, they had, theoretically, identified a site. Why aren't they moving at all? At least...

Yes. Clarios hasn't said no and all that. So we continue to talk with them and share with them what it is that we're doing with these updated versions of the electrolyzers. The key part of our contract with Clarios was that there were metrics -- performance metrics that were specific to the old plan, which was to build out the AquaRefining to the full 16 modules, and then capital-heavy expand it to the 32. And we needed to get to 16 modules for them to feel comfortable putting it into a very large facility as a finished product. We're still talking with them about, hey, we've accomplished pretty much all the other things like running it 24/7, like generating 2.4 to 2.5 tonnes of lead per day per module on a consistent basis with a consistent quality that they bought all of and all those things. And so those discussions continue, but if either a rework of those joint development agreement metrics with them or another licensee will go in first, of which might be one of their partners that they would be more comfortable with having to go first because it's a more appropriate site with the best possible offer or they would work with us on another first mover and in that scenario, they may agree to go to a second mover position. It all depends upon how negotiations play out. That's about the most I can say at this point.

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Cotton, Chief Executive Officer, for any closing remarks.

Okay. Well, thank you, operator. Thanks, everybody, for your time today, and we do appreciate the continued support from our shareholders as well as our partners as we work towards these go-forward plans. We will continue to update everybody in the coming weeks and months as we deploy and operate our go-to-market version 1.25L electrolyzers. We're really looking forward to getting back into the plant and getting that going. And in the meantime, we'll also keep you up-to-date as we harvest cash and insurance proceeds and as appropriate, the timely asset disposition, and we'll report on our continued commercial progress with our existing and our developing partners. Thanks, everybody, and have a great day and stay safe.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.