Aqua Metals, Inc.

Good afternoon, and welcome to the Aqua Metals Third Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You can submit a question via the web at any time by typing them into the Ask a Question field. Please note this conference is being recorded. It's now my pleasure to turn the call over to Bob Myers of FNKIR. You may begin, Bob.

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 in the investor relations section on 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 9, or Form 10-Q, filed today, November 8, for a summary of the forward-looking statements and the risks, uncertainties, and other factors that could cause the actual results to differ materially from those forward-looking statements. AquaMetals 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. Questions will be accepted over the phone from analysts. And all other investors can submit a question using the online webcast portal provided in today's and last week's press releases. 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.

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 in 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, Aquamentals has built a strategy that could expand with multiple revenue streams at a measured pace, and most importantly, does not involve a singular massive 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 a billion dollars in CapEx to make a billion dollars 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. 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 AquaMetals 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 Divisions. This partnership is intended to expand our geographic footprint through licensing of our lithium arc refining 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 belt 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 multi-part memorandum of understanding that enhanced the scope of our collaboration. The agreement outlines a 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 cam 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. 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 de-risking our business model we are squarely focused on building a circular supply chain that is sustainable with everything we produce aligning with battery manufacturer qualifications for steadily increasing 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 aqua refining program. However, our primary focus is on scaling our lithium ion battery recycling business, enabling us to reach saleable truckload quantities of materials while retaining samples to provide to partners like 6K and Dragonfly so they can develop and execute their own testing programs. A truckload of materials is approximately 20 tons. We expect to begin producing saleable quantities and materials from our Sierra Arc in the second half of 2024 and expect significant and consistent growth in revenues from recycled materials beginning in 2025. The build out of our Sierra Arc in Tahoe Reno is progressing as planned. We have black mass input material and funding to begin the commissioning for this expansion, and we are pursuing non-dilutive financing options for the remaining amounts. Our primary strategy for this is in the form of our already submitted USDA loan guarantee application that includes strong third-party validation in the form of a feasibility study of our overall business and strong third-party validation by a global engineering firm, ICF, in the form of a detailed technical lifecycle analysis and validation of our novel processes. This package also includes detailed line-by-line hard quotes for the entire Phase 1 build-out already underway of the Sierra Arc, which gives us great confidence in the overall costs. In the event the USDA loan guarantee does not work out for us, we have solid alternative debt-based backup plans in the works. I'd add that the government grants we are pursuing are for new lines of business not for the core business with the ARC, and we are not dependent on securing those particular grants to move forward with the ARC. If successful, those grants will accelerate our overall expansion efforts. We raised capital in the third quarter and successfully strengthened our balance sheet to carry us through market fluctuations that can be expected. With our flexible business model and funding options that are not solely reliant on government entities, we believe we are well positioned to execute. In summary, we said that 2023 was the year that we said we would transition from pilot phase to commercialization, and that initiative is well underway and accelerating. We have successfully proven our technology at pilot scale and have leveraged that success to numerous announced and developing partnerships. We have secured input and offtake partners with more coming. We are scaling operations in a measured and phased way to minimize capital expenditures and limit risk. We have a healthy balance sheet and a growing number of options to secure the remaining growth capital. Our strategy is rapidly coming together, and we believe that 2024 will be a watershed year for aqua metals. I look forward to sharing further updates with you all soon. And now I'm going to turn it over to Judge Merrill, our Chief Financial Officer, to discuss the results for the third quarter.