Aqua Metals, Inc.

Greetings and welcome to the Aqua Metals 2019 year-end results and business update conference call. At this time, all participants are in a listen-only mode. If you have not already done so, please close all other programs on your computer. You may submit a question via the web at any time, simply by typing them in the Ask a Question field on the left side of your screen. This webcast has user-controlled slides. To advance through the slide deck, simply hover your mouse on the upper right corner of the displayed slide, and you can use the arrows to move to the next or previous slide. If anyone should require operator technical assistance during the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce our host, Glenn Axelrod, spokesperson. Thank you. You may begin.

Thank you, Diego, and thank you, everybody, for joining the Aqua Metals 2019 year-end results and corporate update conference call. The purpose of today's call is to report on 2019 financial results, provide a corporate update and summary of the business, and to provide investors a better understanding of Aqua Metals' post-fire recovery plan and go-forward business strategy. This will be done through an investor PowerPoint presentation by management. The discussion will be led by Steve Cotton, president and CEO, who is also joined by Judd Merrill, company CFO, and Ben Taecker, vice president of engineering and operations. At the end of management's formal presentation, we will break for question and answers. As a reminder, for the purpose of today's call, we're only taking questions via the web portal. If you have not yet logged in online, the web link access to that portal is available in today's earnings press release, as well as this morning's insurance recovery press release. If you are currently only listening via the telephone and wish to ask a question after the presentation, please access the web link to do so. The presentation today will be using slides. You'll be able to advance the slides on your own using the arrow keys on the top right-hand corner of the presentation. You can also expand the PowerPoint using the expansion feature in the top right corner of the PowerPoint. If these arrow keys should disappear, simply hover your mouse over the top right portion of your screen. Please remember, you can submit a question any time using the question text box within the webinar portal. I will ask the questions on the air for everyone to hear, and management will then answer. I will not reference any names, so simply read the questions asked. If I can't get to your question online, I'll come back to you via email. If for some reason you're experiencing any issues once you start, please remember you can email me at glenn at bristolir.com, and I'll be happy to assist. During today's call, managers will be making forward-looking statements. Please refer to the company's annual report on Form 10-K filed today, March 11th, for a summary of the forward-looking statements and in the risks, uncertainties, and other factors that could cause actual results to differ materially from those forward-looking statements. They are also listed on page 2 of today's PowerPoint. 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 these statements to reflect new circumstances or unanticipated events as they occur, except as required by law. With that said, once again, thank you for joining us. We do encourage Q&A following the formal remarks to help you better understand the business and its future growth path. And at this time, I'll turn the call over to Steve to start his part of the discussion and presentation.

Great. Well, thank you, Glenn. So, for starters, I just wanted to point out that the purpose of today's call, as Glenn had alluded to, is dual-pronged. One is to provide an update to our existing shareholders who already follow the AquaMetal story, and the second is to continue what we embarked upon pre-fire in Q4 with Bristol, which is to introduce the company to potential shareholders who have also joined us today. I hope everybody saw our press release this morning regarding doubling our insurance collections this week to a total of $10 million from the $5 million point we were at prior to this press release. And we are really pleased with that progress and our cash position, which Judd will elaborate further during his portion of our presentation. So moving on to slide two of the deck, you'll see the safe harbor. I won't read it all to you, but it's there for anybody who would like to read it. And we'll start with slide three. and this is AquaMetal to the glance. So what you see on the right side, for any of you who haven't seen it before, that is our novel, proprietary and environmentally friendly lead acid battery recycling technology which we call AquaRefining at work. It makes a spongy lead and it's a high purity lead at a room temperature, water-based, organic acid process rather than heat furnaces to create that ultra-pure lead in a very environmentally clean methodology. and we believe that the aqua refining technology is a great fuel for the $20 billion plus lead recycling industry which then feeds into the $65 billion lead acid battery industry with that reduced environmental impact as compared to the traditional smelting process. There are some vitals in the company down below. I won't take everybody through in detail and you can review that on your own. But on slide four, we'll talk about the current problem and the solution to recycling lead acid batteries. Today's incumbent methodologies, which is purely smelting, is the conventional method of lead-acid battery recycling deployed throughout the world. And that is a high-temperature, potentially polluting process with very large costs and risks that are doing nothing but going up for proper environmental containment. And that containment has to do with making sure that the volumes of waste that come out of that process are contained from a fugitive emissions perspective as well as from solid waste and all of those areas and also smelting requires a high degree of additional refining in order to make high purity lead which requires the application of chemicals, additional process controls, etc. And that's all in the backdrop of environmental regulations and concerns as you look at the marketplace today. Now compare that to aqua refining, what Aqua Metals has proven and demonstrated is that's an electrochemical alternative to the incumbent methodologies of lead-acid battery recycling using that room-temperature, water-based process. And it has lots of benefits like reduced emissions, ultra-high purity lead. It's got a modular and scalable design. What you see there are two rotating disks and one example of aqua refining creating a spongy, high-purity lead right off of the machine. And it's a significant technological leap forward in the recycling industry. we believe which further supports the circular economy that the lead-acid battery industry is already doing a good job on that we think it could do a great job on. Moving to slide five, there's five key business drivers we just want to point out for everybody that's new to the story and even knows the story. And that is a reminder to everyone that this is a $20 billion global lead recycling metal industry that needs a major upgrade. and it's being driven and we'll get into more detail by automotive data centers and renewables. The industry and the planet truly needs an environmentally friendly technology to improve sustainability of the recycling processes and reduce emissions. So there's a big environmental backdrop to a lot of the reasons that we're doing this. The third point is technology of aqua refining that we have been operating here at the plant throughout 2018 and 2019 in particular really demonstrated the process at commercial quantities. We also have leading strategic investors and partners that have included very large industry operators, inclusive of Clarios, which is the world's largest battery manufacturer, Veolia, which is one of the world's largest plant operators, and Interstate Batteries, which is the largest battery recycler in the United States and was one of our key feedstock suppliers while we were operating the plant. Fourth bullet point is we have very strong intellectual property, and we've invested over $180 million towards the commercialization, resulting in a large number of patents granted in the U.S. and internationally. And on the go-forward business model, which we'll talk further about in the last bullet point, the core technologies, process, and commerciality of aqua refined lead really is already proven. And the business model focus, as was before, and it's going to be accelerated as we move forward is on global licensing opportunities to incorporate our aqua refining technology both in industry upgrades of existing facilities as well as builds of new ones. We'll talk more about that as we go further through the deck. If you move to slide six, this is just a summary timeline of how we got here today. Aqua Metals is not a terribly old company. It was just founded in 2014. with an idea and a concept and seed money of $6 million in a private placement where we built our first electrolyzer prototype. Moving to 2015, you'll see that we broke ground shortly after an IPO and a $10 million USDA-backed loan. And within less than a year, we started up the facility in 2016 and commenced operations and announced our partnership with Interstate Batteries to be our key feedstock supplier as well as their investment in the company. We also cast our first aqua-refined ingot in the year 2016. In 2017, we had a great partnering success with our partner and our current partner, Clarios, which was at the time Johnson Controls Power Systems Division. And again, they're the world's largest battery manufacturer. And after that partnership, we did run into some technical challenges and what we called a sticky lead problem and had some delays. In 2018, there was some shareholder activism which resulted, as most of you know, in new governance which was inclusive of a new management team that began work in May 2018 with a reconstituted board to shift and accelerate towards a licensing strategy. And in the year 2018, we made substantial operational progress and went deeply into production which continued into 2019. And in 2019, We did get to 24 by 7, so 24 hours a day, 7 days a week operations, and we produced about 35,000 ingots of aqua refined lead specifically. The plant also became operated by Veolia mid-year as we did the Veolia operations maintenance and management contract, and that is in furtherance of our goals towards the capital of licensing the technology. Unfortunately, as we all know, November 29th, we had a fire in the off-refining area. We'll talk in more detail about that. But the fire caused roughly $40 to $50 million of loss in equipment, as well as, in addition to that, a business interruption loss, which we'll talk about in more detail. And we saw in late 2019, almost immediately after the fire, about a 50% enterprise value drop. and we did begin assessing and investigating and collecting insurance. In fact, we collected our first tranche of insurance money in late 2019. So if you go to slide seven, you will see the demonstration plant that is the aqua refining has really proven that aqua refining works. As I said earlier, 35,000 ingots or 55 truckloads of aqua refined lead were produced. qualified as a lead operating vendor and shipped to Clarios, the world's largest manufacturer. And in 2019, we ran the process for several months at 24 by 7 and also ran the process at or above our original specified 2.4 tons per day per module design. We produced the ultra-pure lead at a very consistent basis and ran the entire plant for several months at 24 hours a day, seven days a week, and ran one to four of those modules, 24 by 7, sometimes up to a month at a time. If you move to slide eight, we had the fire event on November 29th, very shortly before we were going to turn the plant back up after we had idled it for a temporary period of time to complete capital upgrades to get it to its full capacity. And the first and foremost that we've said before, but I'll say it again, is that the cause of the fire had no relationship to the aqua refining technology or process But it was rather related to contracting work that was being done in the aqua refining area. And it occurred during the final weeks of preparation to do that scaling to the 16 modules. And so far, our insurance claims just for the property and casualty losses have exceeded $37 million. And we've submitted business interruption claims for $15 million plus. and the insurance collection cadence and timing, especially in the early days, was uncertain. So the company did act responsibly and swiftly and initiated a massive reduction in our cash burn in early December of 2019. And Judd will get into more detail when he takes you through the financials on that and the results of that. The late Q4 of 2019 and Q1 2020 focus was really on assessment, what happened, investigation, and the early insurance collection efforts, which we did get $2.5 million in December of 2019, and now we're up to $10 million just about 100 days after the fire, along with formulating what our go-forward plan specifics are. So if you go to slide nine, we'll summarize a little bit of our shift to accelerate the licensing and our capital light strategy. The first tenet of that is to build our cash position. As I mentioned earlier, we've been conserving cash post-fire at a great level, and we've been building our cash balance and building our runway. And second point is that we have finalized the design for our licensable electrolyzer. And our intention is to run one to two of these electrolyzers during Q2 of this year, which is very soon. in a final licensable form. We'll get into the specifics of the improvements on what those improvements are. While we're doing that, we are working to identify the licensing site number one as we get the licensable electrolyzers complete for deployment as early as 2021 and contracting as early as 2020. and our intention is also to emerge into our Capitalite model as a company that's debt free and we do expect that we'll be able to retire the entire debt structure that we have throughout the year of 2020. And the business strategy really is intended to build our balance sheet, build our cash position and fund that through insurance collection and as appropriate asset disposition and accelerate are licensing efforts, and we will seek to equip the existing or planned battery recycling facilities for people that we've been talking to throughout the world with aqua refining beginning in 2021. So moving to slide 10, I'm going to introduce Ben Thacker, who's our Vice President of Engineering and Operations and has a lot of experience both operating the electrolyzers as well as running with the designs of them. Ben's going to take over for a moment here and explain to everybody what we're doing to ready the licensed version of the modules.