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spk01: Good afternoon and welcome to the Aqua Metals third quarter financial results call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. You can submit a question via the web at any time by typing them in the ask a question field. If you have joined us by phone, you may press star one to join the queue. Please note that this conference is being recorded. I will now turn the conference over to our host, Bob Myers of FNKIR. Bob, you may begin.
spk02: 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, 2024. 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-Q filed November 14th 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. Aquamentals 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 earlier 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 Aquametals. Steve, the call is yours.
spk06: Thank you, Bob, and thank you to everyone who joined us today. We're pleased to share AquaMetal's progress over the last quarter, during which we've made significant advancements in lithium recycling and bolstered initiatives for commercial growth and operational expansion. We'll discuss the operational achievements at our pilot facility, our efforts on strategic financing, key commercial engagements that continue to solidify AquaMetal's position as a leader in sustainable lithium battery recycling, and Judd will discuss the Q3 financials. Since our second quarter conference call and the previously announced loan decision, We have focused on three main objectives. First, demonstrating the repeatability of our unique lithium aqua refining processes. Second, securing long-term financing. And third, further establishing commercial partnerships to support our growth. First, I'll talk about our pilot facility operations and production quality. We're excited to announce that our pilot facility has consistently achieved 24-hour operational capacity, producing high-purity, battery-grade lithium carbonate with over 99.5% purity. This is a critical validation of the quality and consistency of our lithium aqua refining process. To date, we have delivered multiple lithium carbonate samples to potential off-takers and battery manufacturers, all of whom have acknowledged the quality of our recycled materials. we're confident that our ongoing pilot operations are paving the way for full-scale commercial recycling at meaningful revenue scale. Moving on now to our strategic financing and commercial initiatives. In terms of financing, we've made strides in securing both short-term capital through non-essential asset dispositions, as well as long-term capital to support the expansion of our Sierra Aquara Refining Campus, or Sierra ARC. We have multiple term sheets in place. one of which is a substantial capital commitment for our growth plans, which includes the completion of the CR arc as well as future capacity expansions. Another term sheet outlines a commercial supply agreement with a leading battery materials manufacturer. Negotiating and finalizing these agreements is our highest priority, and this initiative is demanding most of our time. Holistically, we believe that these agreements will secure a steady supply of black mass for our recycling processes, offtake of our products, which positions us well for long-term operational success and fits hand in glove with our long-term financing efforts. Turning to advancements at our commercial scale at the Sierra Arc facility, we've made substantial progress in preparing the site for commissioning, pending final financing. We're now materially completed of all the long lead time critical infrastructure upgrades, including structural, utility, electrical service, and switch gear and other building improvements, to enable us to accelerate operations and reach commercial activity once financing is secured. This past quarter and to date, we've hosted visits from key industry players and government organizations, including representatives from the DOE, DOD, EPA, Workforce Development, and we're ready for what we believe will be a rapid two- to three-quarter build-out once capital is finalized. Our initial operations will focus on processing 3,000 tons of black mass per year in our Phase 1 building with plans to scale up to 10,000 tons in Phase 2. On to cost efficiency and environmental leadership. Finally, I want to highlight the environmental and cost benefits of our off-refining technology. Unlike traditional recycling methods that generate massive quantities of sodium sulfate, which is a costly byproduct that even exceeds product output, Our process is much more capital and operating cost efficient, eliminating waste streams and reducing environmental impacts through decarbonization. This not only strengthens our commitment to sustainability, but also translates into what we believe is a low-cost producer opportunity for us to achieve significant cost savings in chemical purchases, waste handling, and compliance. all while creating great manufacturing jobs in a comfortable working environment that enhances the communities in which we will operate as i said our primary focus is on finalizing financing to complete phase one and phase two of the sierra arc build out once funded we anticipate commissioning the facility within two to three quarters positioning aqua metals to quickly scale commercial operations with the goal of becoming the first truly commercial-scale lithium battery recycler in the U.S. We're also advancing additional customer partnerships to secure feedstock supply and established agreements with battery manufacturers. In parallel, our pilot facility will continue to validate our technology and supply representative battery-grade samples to existing and potential partners. We're optimistic about the momentum we're building, and we look forward to sharing further updates as our partnerships and financing milestones come to fruition. In closing, I want to extend our gratitude to the Aqua Metals team for their dedication and hard work. This quarter's accomplishments reflect the scalability of our technology and our commitment to building a financially resilient, environmentally responsible recycling company right here in the U.S. We're energized by the response to our progress from industry leaders and other stakeholders and we're focused on bringing Sierra Arc online and driving foundational and sustainable growth in the U.S. critical battery mineral supply chain. I'll now turn it over to our CFO, Judd Merrill, to discuss financials for the quarter.
spk05: Thanks, Steve. Let me start my comments with our balance sheet. We ended the quarter with total cash of approximately $3 million. One of the more noticeable changes to the balance sheet and the statement of stockholders' equity is the effect of the reverse stock split. During the quarter, we implemented a reverse stock split of our common stock at a ratio of one post-split share for every 20 pre-split shares. The reverse stock split became effective on November 5th, 2024. All share and per share amounts included in the 10Q are presented as if the stock split had been effective from the beginning of the earliest period presented. This reverse stock split was done to enable us to meet NASDAQ listing requirements. For this quarter, there were only minor changes to our balance sheet compared to the previous quarter and to June 30, 2024. So I will move on to the income statement. The costs related to plant operations were approximately $1.6 million for the quarter and $6.2 million for the nine months. This represents an approximate $9 percent decrease for the quarter, which was due to a decrease in payroll and payroll related fees as we completed a reduction in force during August 2024. We expect further decrease in plant operation costs in the fourth quarter. General and administrative expense were little change compared to the prior year, both quarter and year to date. We expect G&A costs to decrease for Q4 and as we head into 2025. Total base operating and base G&A costs are expected to be about $500,000 to $600,000 per month in this quarter and into 2025. Reflecting the effects of the reverse stock split, our net loss for the three months ended September 30, 2024, was approximately 5.2 million or a negative 76 cents per basic and diluted share compared to a net loss of 4.5 million or a negative 89 cents per basic and diluted share for the same quarter in 2023. Our net loss for the nine months ended September 30th, 2024 was approximately 17 million or a negative $2.77 per basic and diluted share compared to a net loss of $13.9 million or a negative $3.12 per basic and diluted share for the same period in 2023. Cash provided by financing activities and cash used in investing activities did not change significantly compared to the prior quarter. Cash used in operations decreased slightly from the prior quarter and is expected to decrease further in the coming quarter. That concludes my remarks on the company financials. I will now turn it back over to the moderator for Q&A.
spk01: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
spk04: One moment, please, while we poll for your questions. Our first questions come from the line of Samir Joshi with HC Wainwright.
spk01: Please proceed with your questions.
spk00: I'm so sorry, Samir.
spk01: It's really hard to hear you. Unfortunately, your phone is breaking up.
spk04: It's crackling in and out. Can you hear me now? Yes, you sound perfect now. Thank you.
spk03: Okay, great. So I was going to ask you about the DOE visits. I think there was a grant that was expected towards the phase two of the project. I don't know what the status of that grant is right now.
spk06: Yes, Samir, this is Steve. Thanks for the question. The MESC grant announcements already went out and we were not selected for that latest round. However, we have been engaging with the various agencies with physical visits to the plant and things like that that I was talking about earlier. So we're bullish on our future opportunity to receive grant dollars as we continue to work with those various departments to get to know Aqua Metals further.
spk03: Got it. And for the long-term financing, you did mention a couple of types of investors that are looking at it, including a strategic investor. But can you just describe the status and stage of progress Are there multiple parties at the table for each of these categories? And what kind of structures are being discussed?
spk06: So we've been speaking to folks in the financial side for quite a while. And as I mentioned earlier, since August. And we can't really comment on the structure at this point in time. But it is a of great interest in our part to not only fund phase one of the CRR, but to have a path and flight path to get to the phase two, which is the build-out to 10,000 tons, and work with patient and strategic capital that is looking at the space strategically and from a long-term perspective. So that's what we've really prioritized, and we're having great discussions in great levels of detail that's taking a great amount of our time, and we expect to have more to report there not too long from now. On the commercial side, as I mentioned, we have been providing this battery-grade lithium carbonate to multiple OEMs and players in the industry, and the consistent feedback we get is, A, the samples that we provide are consistently battery-grade, and that, just as importantly, we seem to be the only North American recycler that is able to provide battery-grade recycled lithium carbonate. And that is a big deal, and that opens up the commercial discussions in great levels of detail for long-term feedstock and offtake agreements that, of course, go hand in glove when you're looking at financing a facility so you have that input, processing, output, and all those economics put together. Fortunately, because our process is much more favorable than other processes for the capex expenditure per ton of capacity, as well as for the conversion cost per ton of material that goes through it, even with today's suppressed metals prices, which we think are not going to be extending for a terribly much longer amount of time, we could still produce cash at a plant level. So that means getting the scale more quickly is more important and finding the funding to get from the 3,000 to the 10,000 is a critical part of our funding strategy. So we expect to be able to report more on the commercial and financing activities as we get towards the end and into the early part of next year.
spk03: Understood. Thanks. And then one last one, probably for Jed. I think you mentioned $500,000 to $600,000 a month of expenses. Is this all-inclusive? That is, does it include the plant operations in it as well, or were you only referring to the G&A and R&D cash expenses?
spk05: No, this is GNA and operations. This is total kind of cash needs right now. And we've done a good job getting our burn way down and trying to manage that cost. And so that includes everything.
spk03: And for the plant operations, you did mention you expected them to be lower. What levels can you reach without, like, so that you can restart the operations when needed? What level of, can you just say that again? I think you were at 1.6 million for plant operations.
spk05: Yeah. Yeah. I mean, we'll see similar once we, um, you know, start up the plant, um, again, um, and start ramping back up, we'll see similar kind of costs and, and cash needs that, uh, that we had before. Um, kind of, I mean, if we look back at Q2, It's kind of a good example. We were ramping up at that point and had hired most of our people. So I think that's kind of similar to what we expect once we turn things back on.
spk04: Understood.
spk03: Okay. Thanks for taking my questions.
spk04: Thank you. As a reminder, if you would like to ask a question by phone, please press star 1 on your telephone keypad.
spk01: Thank you, I'm not showing any further questions on the phone. Bob, I'd like to pass the call back to you for any questions submitted via the webcast.
spk02: Sure, thank you. First question, can you talk a little bit more about why you executed the reverse stock split?
spk05: Yeah, Bob, I'll take that question. The primary reason was to regain compliance with the NASDAQ listing requirements. This is something that many companies, particularly those you know, the micro cap or even the lithium related industry that have had to deal with and will probably have to do in order to maintain that NASDAQ listing rule. And so that's what we did.
spk02: Got it. Thank you. And this was touched upon, but the financing term sheet is great news. Is there something in particular that gives you confidence that this will advance to a signed agreement?
spk05: I'll just take that. We've talked about our desire and our goal to make sure that we fund this not only in the short term, but in the long term. And so we spend a lot of time and effort in this area. We've done things internally in terms of purchasing certain modeling software and organizing and doing extended runs of our pilot operation, all with that goal. And so there's a tremendous amount of work that's being done to secure our future. And so that gives us optimism, you know, but there's still work to do.
spk02: Got it. Thank you. The next question. Assuming everything goes well and you do secure long-term funding, can you talk a little bit more about the commissioning schedule for the Sierra Arc?
spk06: Yeah, Bob, this is Steve. I'll take that one. So I would start with saying our confidence and our ability to ramp quickly is really a reflection of the consistent pilot operations that we strategically chose to do compared to a lot of others in the industry and have been successfully doing for now nearly two years. And as mentioned in our earlier remarks, capital dependent, of course, we do project that we can get the first phase of the CRR to reach commissioning within two to three quarters. And that's really because we have a building ready for equipment placement and a lot of that equipment on order and sitting in vendors' warehouses and our warehouses ready to be installed and commissioned. And that gives us a unique and really interesting rapid time to market upon funding. So we've already gotten that real head start with that building acquisition and outfit and equipment and finalized designs, et cetera. This, I believe, would really put us into an industry leadership position of being the first North American and certainly the first U.S. producer of critical battery materials that's shipping truckloads of battery-grade materials. And even with the frustrating delays that we've seen, not only for aqua metals but for the industry as a whole, Even with that, that puts us in what we believe will be a leadership position in the entire industry.
spk02: Great. Thank you. The next question, following on on the funding, can you tell us more about your commercial development?
spk06: Yeah. So being able to repeatedly produce battery-grade materials versus what's called technical-grade or even lower-grade than technical-grade, lithium carbonate, and other materials to OEMs has really bolstered our supply and offtake discussions. That is really a qualifying event in order to even have those detailed discussions. And we've been told that we're the ones that are able to consistently provide those. So those engagements are very serious. We've even been told that we're the only recycler in North America to have been able to really do this. As I mentioned earlier, the commercial and funding fit together hand in glove and all parties are in talks. We're not just in talks with commercial and in talks with the financial side. We're all in talks because it is hand in glove and it all fits together to see this thing through. We expect that we'll be able to update on the commercial development further even later this year or early next.
spk02: Thank you. Next question. Regarding other partnerships, in particular 6K and the timeline to support them with recycled materials.
spk06: Yeah, so we continue to work with our partner 6K. We've made a lot of great progress in this past quarter. And so in addition to directly providing the battery grade lithium carbonate to OEMs, we've also provided the same to 6K. along with that NRE project or non-recurring engineering project that we developed for them of nitrated metals, inclusive of recycled metals from our process. And they've been producing battery grade CAM or cathode active material samples for their OEM relationships. And we've evidenced together, we believe the lowest cost decarbonized recycled content supply chain right here in the US that can truly compete with the China factor. And just this past quarter and together, we're really engaging quite a few of those various OEM counterparties through that partnership, in addition to some direct discussions and samples that we provided, as I mentioned earlier. So we're really excited about that future with 6K, together achieving a lot of goals for securing critical battery minerals right here in the U.S. with the cost and environmental advantage.
spk02: Great. Thank you. Can you discuss... In a little bit more detail, you outlined industry leaders as well as several government agencies that have visited the plant. And where do you think some of those discussions might lead?
spk06: Yeah, well, it was great to have representatives visit just this past quarter from the DOE, from the DOD, from the EPA, Workforce Development Agency. visiting our innovation center and our pilot facility operating within that innovation center as well as the Sierra Arc facility. And we highlighted our costs, benefits, and environmental benefits and worker safety and comfort advantages for the community right in an operating plant producing battery-grade critical materials before their eyes as they visit it. We think that's quite impactful and that that will really help our uh build of our relationship with the various government agencies on a go-forward basis and we've subsequently those visits had further interaction with those agencies and we expect that continued conversations ought to do a great deal to help us support our ongoing grant efforts and let's remember also that grants require cost share so any company that's awarded a grant is going to have to provide a significant cost share So you have to have the right financial strategic partner in order to support that cost share. So as I was mentioning earlier, the commercial and the overall financing go together hand in glove. Well, so does this, because we've seen some companies that have been awarded provisionally large grant dollars, and everybody's wondering where they're going to get their cost share. and how that's going to impact the company to be able to support that cost share. We think that strategic capital is what's going to be really required for the government to feel comfortable supporting companies on a go-forward basis.
spk02: Thank you. Next question. What is happening with the processed material that Aqua Metals is currently producing?
spk06: Yeah, so we are producing these materials, and those materials are being sent to these samples that we've been talking about today, to the various OEMs, etc. The overall capacity of the pilot facility design capacity is between 50 and 100 tons per year, so they're not giant amounts. 20 tons is a truckload, so over the process of a year getting materials produced, sampled into the hands of OEMs in meaningful quantities for them to do their evaluation, as well as some of that is kind of a working capital to help prime the pumps, we'll call it, for our commercial facility. So that's much more valuable than a small, tiny trickle of revenue that we could have and we could be reporting, but we've chosen not to go that path because it's much more important to take that finite amount of materials and seed the market to develop those commercial relationships. So that's really what's been happening with the materials at the facility.
spk01: Thank you. That is all the time we have for questions today. I'd like to hand the call back over to Steve Kine for any closing remarks.
spk06: Great. Well, thanks, everybody, for continuing your support and having interest in aqua metals. And I think we'll have a lot more news to report in the near future as we are very busily working away on what we've been talking about today. And we look forward to reporting soon in our next quarterly update or sooner. Thanks, everyone.
spk01: Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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