Aqua Metals, Inc. (NASDAQ:AQMS) Q3 2023 Earnings Call Transcript

Aqua Metals, Inc. (NASDAQ:AQMS) Q3 2023 Earnings Call Transcript November 8, 2023

Aqua Metals, Inc. beats earnings expectations. Reported EPS is $-0.04, expectations were $-0.05.

Operator: Good afternoon and welcome to the Aqua Metals’ Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. It’s now my pleasure to turn the conference over to your host, Bob Meyers of FNK Investor Relations. You may begin Bob.

Bob Meyers: 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 third quarter ended September 30th, 2023. This release is available on the Investor Relations section of 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 9th or Form 10-Q filed today, November 8th, 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. [Operator Instructions] We will take as many questions as we can in our available time slot. And with that, I’d like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, the call is yours.

A closeup of a CO2 laser cutting through a piece of metal, demonstrating precision motion.

Steve Cotton: Thank you, Bob and thank you to everyone who joined us today. Our strategy focus is paying off as we have made significant progress in commercializing our innovative technology. This strategy honed on lessons learned as the industry has matured is based on self-sustainability and measured growth. The rechargeable battery industry is still in its early stages and is susceptible to growth in the electrification of cars, the slow expansion of a charging infrastructure, and technological innovation and batteries themselves. The overall trajectory, however, remains steep. But short-term fluctuations in growth rates, investments and commercialization are to be expected. In contrast to others in the industry, Aqua Metals has built a strategy that can expand with multiple revenue streams, at a measured pace, and most importantly, does not involve a singular mass of capital expenditure.

Unlike others, we do not plan to build first a massive and expansive plant requiring government grants or loans to succeed. Put another way, we do not need to spend $1 billion in CapEx to make $1 billion in revenue. With our unique technology and engineering design, our commercial plant is expected to require about half of the CapEx per ton of our closest competitor due to the inherent efficiency of our process and because our ability to scale at a metered pace requires half of the capital cost of other technologies, we have significantly greater flexibility in our funding mechanisms. We can certainly apply for government grants and loans, and we are doing so. If those avenues do not come to fruition, we can use traditional debt to finance our growth because we will be in a better position to service that debt due to our greater efficiency and the significantly smaller capital needs.

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Q&A Session

Additionally, partnerships, joint ventures, and similar structures create a viable pathway to scaling. And finally, our industry involves valuable tax credits, which create additional monetization pathways that are available to us due to our lower CapEx requirements and not to others. Simply put, we have the strategy in place, supported by the right partners, based on the previously announced expansion of our campus recycling facility in Tahoe-Reno, Nevada and the projects we have announced with key partners to succeed. We are not overextending ourselves either financially or strategically, and we are developing multiple pathways to near-term success. As we watch the challenges of others in our industry amidst this environment where the cost of capital is high, we increasingly believe that our strategy is the right one.

Let me speak to the expansion of our partner ecosystem. Expanding our relationships with partners is a critical part of our commercialization strategy and we have made significant progress in this area. As an IP company, our strategy involves Aqua Metals positioned as an owner/operator and also licensing our proven technology to partners. Licensing represents a highly capital-efficient way to grow revenue and profitability. During the third quarter, Dragonfly Energy announced it had successfully used high purity lithium hydroxide recovered by Aqua Metals from recycled lithium-ion batteries to manufacture a lithium-based battery cell using Dragonfly’s patented Dry Battery Electrode Coating Technology. This is a major milestone for Aqua Metals and its partners, proving that we can deliver a closed lithium loop right here in Nevada sourcing, manufacturing, and recycling key lithium battery materials, all within the state.

We also secured a strategic investment in partnership with South Korea-based Yulho and their Yulho Materials division. This partnership is intended to expand our geographic footprint through licensing of our lithium AquaRefining technology in Yulho’s plant in South Korea. This is a large project, and we are working closely with Yulho, giving them sufficient time to complete their build-out of their first black mass processing facility and ramp operations. We are targeting to complete a licensing agreement with Yulho in the first part of 2024. Recently, we advanced our previously advanced plans with 6K Energy and subsequently signed a multipart memorandum of understanding that enhanced the scope of our collaboration. The agreement outlines the future joint venture to co-locate a lithium battery recycling facility with 6K in the Eastern United States to be engineered and operated by Aqua Metals.

The plant will support 6K Energy’s proprietary UniMelt sustainable can manufacturing process that significantly reduces carbon pollution and waste stemming from the battery supply chain. This is another prime example of the value proposition that Aqua Metals provides to our potential partners and customers. We expect to finalize the formal supply agreement with 6K by the end of this year. We believe that these partnerships, strategic investments, and achievements serve as powerful validation for our technology, our strategy, and our position in the marketplace. And as a result of our partner ecosystem, we have agreements in place to receive black mass as we expand capacity at our own commercial campus. We have multiple partners to purchase our recycled components.

So, buyers for our output is not likely to be a challenge. Effectively, we have created a closed loop significantly derisking our business model. We are squarely focused on building a circular supply chain that is sustainable with everything we produce, aligning with battery manufactured qualifications for steadily increasing our IRA incentives. These incentives, as I mentioned earlier, can serve as another tailwind for our core strategy. In the third quarter, we generated modest revenue from the sale of some inventory. We also generated modest revenues from our NRE or non-recurring engineering fees associated with our lithium AquaRefining program. However, our primary focus is on scaling our lithium-ion battery recycling business, enabling us to reach saleable truckload quantities and materials, while retaining samples to provide to partners like 6K and Dragonfly, so they can develop and execute their own testing programs.