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Aqua Metals (AQMS) Q1 2021 Earnings Call Transcript

By Motley Fool Transcribing - Apr 30, 2021 at 4:31AM

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AQMS earnings call for the period ending March 31, 2021.

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Aqua Metals (AQMS -2.36%)
Q1 2021 Earnings Call
Apr 29, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Thank you for standing by, and welcome to Aqua Metals pre-record. I would now like to turn the call over to Glen Akselrod. You may begin.

Glen Akselrod -- Investor Relations

Thank you, operator, and welcome, everybody, to Aqua Metals first-quarter 2021 conference Call. Earlier today, Aqua Metals released financial results for the quarter ended March 31, 2021. This 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 report on the Form 10-Q filed today, April 29, for a summary of the forward-looking statements and the risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. Aqua Metals cautions investors not to place undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by law.

As a reminder, after Steve's and Judd's formal remarks, we will be taking questions. [Operator instructions] And with that, I'd like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, go ahead.

Steve Cotton -- President and Chief Executive Officer

Great. Thanks, Glen. And welcome, everybody, to our quarterly call. I'll move from our title slide to Slide No.

2, which is our safe harbor, which Glen basically reviewed. So that's for your reference. And now I'm going to move on to Slide No. 3.

And that's our mission statement. And I just want to remind everybody that Aqua Metals' mission statement is to provide sustainable metal recycling for material strategic to energy storage applications, inclusive of lead and lithium. Our proven breakthrough technology, AquaRefining, does deliver raw materials back into the manufacturing supply chain in a clean and economical way that reduces the overreliance on mining to meet demand. And with that, I'll move to Slide 4 and summarize Aqua Metals at a glance.

We've already developed our technology, our core technology called AquaRefining, which is now commercially ready, and it's a sustainable battery-recycling technology. What's unique about AquaRefining is that it uses water and organic acids to create 99.996 plus percent ultra-pure lead, and we created one atom at a time for the $20 billion-and-growing lead recycling industry. We're also seeking to extend, for some recent announcements, our AquaRefining technologies to apply to the metals recovery associated with the lithium-ion batteries. And we've evidenced our commitment to continuing to develop AquaRefining for this area through additional IP filing, through strategic investment and research and development that we'll talk about a little further throughout the day today.

AquaRefining is also a transformative technology that benefits the industry and the earth itself. AquaRefining benefits the environment with reduced emissions, vastly reduced worker safety exposures, while they're performing the act of every recycling. It also improves battery performance and life through the ultra-pure metal, resulting in better performance and better life span of batteries. And the economics of AquaRefining are becoming more and more favorable when the operators particularly look at all of the aspects of the cost that they spend on workers' safety and environmental mitigation, coupled with the conversion cost of capital, cost-to-deploy AquaRefining compared to the incumbent methodologies to begin with.

The ticker on NASDAQ is AQMS, and we're headquartered in Tahoe Reno in Nevada. The company was incorporated in 2014, and we have about 68 million shares outstanding, and cash on hand in our report of late is $11.7 million. And we have zero debt and a very strong balance sheet. Moving on to Slide No.

5, I'm going to talk about nine recent highlights of our quite active quarter since we last spoke to you. The first is that we continue to advance discussions with several potential licensing partners. As I've stated before, we're currently working through multiple active engagements that are all continuing to progress very well. These engagements include opportunities for AquaRefining upgrades to existing battery-recycling centers, greenfield builds of new hybrid AquaRefining facilities with small, efficient furnace and greenfield builds of stand-alone AquaRefining facilities.

Some of these engagements also include a focus on our streamlined AquaRefining direct to oxide application, which we announced recently as well. And geographically, these active engagements currently cover North America, Europe, the Middle East, India and Southeast Asia. So with the progress we've made in the past quarter, we are still confident that the company will have more to say about this by the end of June, as previously guided. Second, we received first business interruption insurance payments of $1.4 million with a total collection to date of $25 million.

And we expect future insurance payments, but we made some great progress in the past quarter by breaking into the business interruption element, in addition to the property and casualty. Appointed two additional board members with key industry experience, and I'll talk about those board members when we get further on in the deck, and we're very pleased to welcome Molly and Eddie to the team. We also filed a provisional patent for the AquaRefining application to lithium-ion recycling. There's a lot of companies that are talking about lithium-ion recycling and trade secrets.

Aqua Metals, of course, has trade secrets, but Aqua Metals is pursuing IP because, in order to be an equipment supplier and licensor of technology, it's very important to secure the intellectual property of the technology and the processes. We've also evidenced our progress in lithium-ion by investing in a clean tech lithium-ion recycling innovator, LiNiCo. LiNiCo stands for lithium, nickel and cobalt, three of the metals in the multi-metal lithium-ion recycling environment. And LiNiCo purchased with a lease to purchase of our AquaRefinery, and we expect that we'll be working with them toward helping stand LiNiCo up very quickly.

Commenced our lease to buy agreement for the noncore facility with LiNiCo, and that was an important step for us also from a financial perspective because it released the burden of the capital-heavy environment that Aqua Metals want to transition to our capital-light environment and allows us to have a better financial runway, which Joe will be talking about in a little bit here. We also filed another provisional patent, which is a patent around creating lead oxide directly from AquaRefining. And that, therefore, streamlines the overall link between battery recycling and battery production by eliminating the need to melt and cast and refine metal and instead take the briquettes to come off of the AquaRefining process and put them directly toward the battery-manufacturing process. We've also established a global partnership with BASF, which is one of the world's largest chemical companies in the world, to help secure the supply of one of our key chemicals and work with us to market our solution on a global stage.

We also raised additional net proceeds of $0.5 million through some opportunistic ATM sales. So I'm going to go on to Slide 6 now and point out that the company, from an IP perspective and execution perspective in developing the technology, is quite mature. We have over $200 million invested, and that sets up the equipment supply and global-licensing opportunities that we are currently engaged in. The robust IP portfolio makes us the only company with IP for clean lead and lithium battery recycling with 61 patents now total issued and allowed and 53 additional patents pending.

This is a very important area, again, to be a technology and licensing and equipment supply company that you have to get your IP coverage in the markets that you're operating in. As I was mentioning from our sales funnel earlier today and if you look at the map, it maps together quite well. So Slide 7 talks about our experienced management team and our engaged board, which is truly focused on execution. We've really derisked a lot of the technology, particularly in the lead space, and we are focused now on execution as a management team with a great independent directors on our board.

And on the management team side, myself, I come from a background of battery monitoring and lead-acid battery supply and understand the battery manufacturing and battery recycling industries quite well and have been with Aqua Metals since the very early days in January of 2015. Judd Merrill, our CFO, has from a mining and metals background. So Judd understands very similar processes in terms of metals and metals production and has brought a great deal to the table in terms of not only our financial management but our strategic initiatives. Ben Taecker, our vice president of engineering and operations, comes from one of our investors in Aqua Metals, Clarios, which happens to be the world's largest battery manufacturing company; and then had joined Aqua Metals years back and has really risen to the task of being a very productive vice president of engineering and operations for the company with that domain experience and background.

On the independent director side, Shariq Yosufzai is our non-executive chairman, as an independent chairman, more like the European model; and held various positions at Chevron, including president of global marketing; and has been on many boards and brings a steady hand as the Chairman of the Board for Aqua Metals that has been a wonderful addition to our board for years now. Vinny DiVito has been with us since the beginning and is just a fantastic chair of our audit committee. Molly Zhang and Eddie Smith are our two recent additions. And Molly is somebody that has quite a bit of licensing -- global licensing experience and background in executing on licensing deals through Dow Chemical Company.

And Eddie Smith, who's joined us, is president and CEO of SMTC, a manufacturing -- a contract manufacturing corporation and has over 25 years of extensive experience in manufacturing. And remember, we are going to be an equipment supplier here in electronic components distribution industries. So we're very pleased with the team that we have that's focused on that execution because it is an execution play as we move forward, and that team is really what you have to believe in to make sure the execution succeeds. So with that, I'm going to turn over the presentation to Judd Merrill, our CFO, to take everybody through the financial overview.

Judd?

Judd Merrill -- Chief Financial Officer

Thanks, Steve. All right. We're going to move now to Slide 9, the balance sheet, first financial statement that we'll talk about. So as of March 31, 2021, the cash and the working capital balances were $11.7 million and $9.4 million, respectively.

The fixed assets on our books as of March 31, 2021 totaled approximately $27.4 million in net book value. These assets making up this balance is largely the plant building and infrastructure, which we announced this quarter, was part of the lease to sell to LiNiCo; and the remaining fixed assets, including the battery breaker, the melting kettles, filter presses and such are being evaluated to be either sold or used in our first licensing yield. Noncurrent assets now include $1.5 million investment into LiNiCo Corporation. And we also have an option to exercise warrants to invest another $500,000.

We are pleased to point out also that our liabilities are now at the lowest level in recent company history since we have retired debt from last year. The lease liability is related to the facility located about a mile from our existing plant located in the Tahoe Reno industrial center. We plan to use this facility to continue R&D work as well as to assemble the electrolyzers for our future licensees. I'm going to move to Slide 10.

On the income statement, our lead-recycling facility was not in production during 2020 or the first quarter of 2021 as we focused on our licensing strategy. Cost of product sales includes raw materials, supplies and related costs, salaries and benefits in consulting and outside services costs, depreciation and amortization, insurance, travel and overhead costs. Cost of product sales did increase approximately 11% over the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase in cost of product sales was a result of plant cleanup costs in preparation for the lease and eventual sales facility.

For the three months ended March 31, 2021, the company had a net loss of $4.2 million or a negative $0.06 per basic and diluted share, compared to a net loss of $4.1 million or a negative $0.07 per basic and diluted share for the three months ended March 31, 2020. Now I'm going to move to Slide 11 and have a little discussion on the cash flows. The net cash used in operations for the three months ended March 31, 2021 and March 31, 2020 was $2.0 million and $4.3 million, respectively. The net cash used in operating activities during each of these periods consisted primarily of our net loss adjusted for noncash items, such as depreciation, amortization and working stock-based compensation charges, as well as net changes in working capital.

The net cash used in investing activities for the three months ended March 31, 2021 was $0.9 million and consistent mainly of $0.5 million for the purchase of property, plant and equipment and $0.2 million used toward the investment in LiNiCo. Net cash provided by investing activities for the three months ended March 31, 2020 was $3.1 million, and that consisted primarily of $4.7 million in insurance proceeds, partially offset by $1.6 million for purchases of property, plant and equipment during that quarter. Net cash provided by financing activities was $8.1 million for the three months ended March 31, 2021 and consisted of $7.5 million in net proceeds from the sale of Aqua Metal shares pursuant to the ATM and $0.7 million from stock options exercised, partially offset by the one -- the $0.1 million forgiveness of the PPP loan. Net cash used in financing activities for the three months ended March 31, 2020 consisted of $0.1 million for payments on debt.

I want to point out also that we have only used approximately $0.5 million of the ATM since we last reported. This usage was partially related to our investment into LiNiCo. And future usage of the ATM is contingent upon strategic investment opportunities. As we guided on our last earnings call, we anticipate starting this month, in April 2021, our -- that our monthly cash needs are estimated to be around $650,000 per month.

Lease payments began in April. And since we still have access to the building lab and some office space, we expect the company will also realize some savings by not having to move quickly out of the building. And then, finally, on the last slide, just a couple of updates. First on the insurance.

As of the data is report and as of today, we've received approximately $25 million of insurance proceeds from our insurance carriers. And that includes an initial payment of $1.4 million toward our business interruption insurance claim. This completes the first three layers of insurance. We are now working with the fourth and final layer of insurance, which totaled up to $25 million in coverage.

We do expect another $2 million on the business interruption claim to be made shortly by the fourth layer, and we are getting very close to being done with the insurance collection process. We believe that additional payments will be made both on equipment and business interruption, and we intend to vigorously pursue the receipt of the remaining insurance proceeds to satisfy our total claim. In closing, I will reiterate that our cash balance remains strong. Our current cash needs are very manageable, which puts us in solid place to move forward on our strategic business plan and allow us to execute on our goals as we move forward.

With that, I will now turn it back over to the operator for questions.

Glen Akselrod -- Investor Relations

Operator, do we have any questions? No, we can't hear you.

Questions & Answers:


Operator

Colin...

Glen Akselrod -- Investor Relations

Yeah. Yes, go ahead now.

Operator

OK. Colin Rusch, your line is now open. You may ask your question.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Thanks so much, guys. Could you just give us an update on where you think the insurance element might tap out? You guys have done a great job of collecting what you can so far. I'm just wondering kind of expectations around additional capital that you could bring in over the next several quarters.

Judd Merrill -- Chief Financial Officer

Yeah. I mean, we're very close, I think, to being done with the last little bit of insurance. But we don't want to comment exactly where that might end up. I think there's still some negotiations and some discussions that we'll have as we kind of wrap things up, and that's kind of the normal process.

When we kind of get to the end, they've paid on everything that we presented to date. We believe there's some more room on the business interruption. But we don't want to comment too much on that as we're kind of getting to those final discussions and negotiations. But if you look at where we're at, the $25 million, and we've identified a couple more million on the PI, that kind of set the floor range, and then it could go up from there.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

OK, that's helpful. And then, I know it's early days with LiNiCo, but obviously, you guys are getting straight to work with them. Can you talk a little bit about what the initial efforts are around scoping out the opportunity to work together in critical benchmarks or validating the approach?

Steve Cotton -- President and Chief Executive Officer

Yeah, hey, Colin, I'll take that. So yes, we're really excited with the growing relationship with LiNiCo. They've gotten into the building, and there's quite a crew doing layout and planning for the adopted layout of the facility. They can take advantage of a lot of the layout that we created for the facility with the inbound materials, breaking and separation and the cells that will go into the area.

But we're working together with them to look at what the AquaRefining activity will be as it fits in with the overall facility. And we'll be operating some sells going after individual metals within the lithium suite and, hopefully, bring those to the LiNiCo facility to deploy and work out how that looks from an equipment supply and licensing perspective. We've also evidenced, like I mentioned earlier in the call, our interest in the space with provisional IP. And that's really important filing around the area of lithium-ion recycling as it relates to the capabilities that AquaRefining can offer to that space.

And we feel very confident that we'll be able to say some things in the not-so-distant future about some further progress in that space that will further evidence, in addition to the partnership with LiNiCo and the sale of the facility and the IP that we prosecuted in the research and development that we've already announced. So we're really excited about it. But we're not going to let that distract us from the deal-making that we're in the midst of on getting our first licensing deal for AquaRefining in the lead space. But we recognize that lithium is going to be about as big as the lead-recycling market in dollar value by about the end of the decade, if not sooner.

So it's a really important space for us to consider.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Perfect. And thanks for sort of breaking that segue for me. So I know it's, obviously, a little bit difficult to say too much about where you're at with the lead license and supply agreement. But I guess, if you could give us a sense of kind of the progress that you're making and confidence level as it's changed over the last couple of months since you last reported?

Steve Cotton -- President and Chief Executive Officer

Sure. Yes. So as I mentioned in the call, we -- the geographical broadness of the prospects and folks that we're talking to at a very detailed level has grown. The applications have grown from things like AquaFit, which is bolting on AquaRefining to an existing battery-recycling facility with smelting to greenfield net new builds that are government-sponsored and supported to applications of AquaRefining for our recently announced other provisional patent filing for direct to oxide where you take those briquettes.

And you can then put them directly into a battery-manufacturing mode, bypassing the whole need to refine and kettle it, and cast, and then just turn it right back into what it would have looked like, anyway. So we feel very good about the breadth and depth of the funnel and the progress that we've made through each stage of the sales fall with the various candidates that we have. So that's why we continue to reiterate our confidence that we'll have something to say soon. We're excited about that.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Excellent. Thanks so much, guys.

Steve Cotton -- President and Chief Executive Officer

Thanks, Colin.

Operator

Thank you. [Operator instructions] Next question comes from the line of Amit Dayal from H.C. Wainwright. Your line is now open.

You may ask a question.

Amit Dayal -- H. C. Wainwright & Co. -- Analsyt

Thank you. I appreciate you taking my questions, guys.

Steve Cotton -- President and Chief Executive Officer

Sure.

Amit Dayal -- H. C. Wainwright & Co. -- Analsyt

With respect to the licensing agreement, Steve, should we assume this -- any progress on this will only materialize after June 2021?

Steve Cotton -- President and Chief Executive Officer

So with the funnel and the stages that we are in the funnel and the guidance that we've already provided, the company is seeking to get a -- something positive to say about where we are with the deal-making between now and the end of June.

Amit Dayal -- H. C. Wainwright & Co. -- Analsyt

OK. Understood. And if that materializes, right, I mean, if you get something going and a deal comes through, how should we think about the impact on your burn rate?

Steve Cotton -- President and Chief Executive Officer

So what's important is that the first deployment of AquaRefining will likely not be a very large deployment initially; it will be a phased approach. So there could be initial revenue associated with some equipment and some services and things along those lines. But as I've mentioned earlier, on some of these calls, I anticipate that we'll be seeing phased deployments of AquaRefining. So people get comfortable within their facility of the deployment.

And that's particularly when you do the bolt-on type arrangement. And then greenfield announcements could be very exciting but have a little bit of a longer time line because you have to build a building and build an entire facility and integrate AquaRefining within those facilities. So it's dependent upon the type of deal, how quickly we'll see the revenue. Unfortunately, we have a good mix in the sales funnel.

So we'll see different types of cadence with the revenue associated with the services and equipment and ultimately, the running royalty.

Amit Dayal -- H. C. Wainwright & Co. -- Analsyt

OK. Understood. Thank you for that. Just one last one.

Were there any or has there been any additional improvements to the V1.25 solution?

Steve Cotton -- President and Chief Executive Officer

So we've indicated that -- and even are tweeting photos of a -- we're now operating two aqualizers, and we are continuing to make further adjustments and improvements to the technology and the capability. So the research and development curve continues, and that focuses on things like throughput, cost reduction and further tightened automation controls, electrical efficiency, which helps with the value proposition even further. So we will continue that product development for the foreseeable future. But that's improvements on what we believe is already a very capable Version 1.25 that can be put in the hands of clients in a very near-term scenario.

Amit Dayal -- H. C. Wainwright & Co. -- Analsyt

OK. Yeah, that's all I have, Steve. Thank you so much.

Steve Cotton -- President and Chief Executive Officer

Great. Thank you.

Operator

Thank you. [Operator instructions]

Glen Akselrod -- Investor Relations

Steve, it's Glen here. We've got a number of questions in the queue that came in through the portal, and they all have to do with the licensing deals, for the most part. So I think you've answered most of that already. But as a point of clarification, as it relates to the Clarios exclusive, can you comment on whether or not that exclusive also exists outside of North America? And that is, if that's also subject to the June deadline?

Steve Cotton -- President and Chief Executive Officer

So the June deadline for Clarios is applicable to North America, China and Europe. That is correct. So that is in those three areas. We have opportunities that are within those areas, but we also have plenty of opportunities outside of those areas.

And as I've mentioned before, our negotiations in sales funnel has gone down the path, and that is inclusive of Clarios, obviously. So we're continuing to work out how it'll look.

Glen Akselrod -- Investor Relations

OK. Super. Thank you. I think that covers most of the questions in our queue.

Steve Cotton -- President and Chief Executive Officer

Great.

Glen Akselrod -- Investor Relations

I guess, if there's no other further questions, moderator, we will conclude the call.

Operator

[Operator signoff]

Duration: 29 minutes

Call participants:

Glen Akselrod -- Investor Relations

Steve Cotton -- President and Chief Executive Officer

Judd Merrill -- Chief Financial Officer

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Amit Dayal -- H. C. Wainwright & Co. -- Analsyt

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