Aqua Metals - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was pre-revenue and operationally focused; net loss was $8.32M with diluted EPS of $(1.03), driven primarily by a $5.25M noncash impairment tied to the strategic decision to sell the Sierra ARC property.
• Aqua Metals announced the planned sale of the Sierra ARC site to retire all debt, add cash proceeds, and lower holding costs by approximately $100,000 per month; management reiterated commitment to first commercial ARC via co-location and partner-led paths that reduce CAPEX/OPEX.
• Technology advances highlighted: initial samples of nickel carbonate and MHP produced; bench-scale LFP recovery demonstrated, with the process blending 50% NMC/50% LFP to effectively double lithium carbonate output potential, enhancing economic viability at scale.
• CFO transition: Judd Merrill stepped down May 16 (consulting through August); Eric West appointed CFO May 19, aiming to strengthen finance/operations alignment during commercialization and financing efforts.
• Near-term catalysts: closing of the Sierra ARC sale (management expects completion in Q2 2025), any binding feedstock/offtake partnerships, and clarity on government support; these could materially impact liquidity, execution runway, and investor sentiment.

What Went Well and What Went Wrong

What Went Well

• Product platform expansion and commercialization readiness: “Produced initial samples of nickel carbonate and mixed hydroxide precipitate (MHP) aligned with potential downstream partners’ requirements,” unlocking new revenue opportunities and meeting battery-grade precursor specs.
• LFP recycling breakthrough: “Our process can take 50% NMC input and 50% LFP input and effectively double lithium carbonate output, improving the economic model,” positioning AQMS to address the fastest-growing battery chemistry.
• Strategic capital discipline: Sale of Sierra ARC intended to retire debt and reduce monthly holding costs by ~$100,000, adding meaningful cash runway to pursue co-location/partner-based commercialization with lower CAPEX/OPEX.

What Went Wrong

• Noncash impairment weighed on results: ~$5.25M impairment recognized in Q1 tied to the strategic shift away from the existing facility plan; net loss increased YoY largely due to this charge.
• Cash decline and burn: Cash ended Q1 at $1.59M; management cited base cash burn of ~$500,000/month, emphasizing urgency of financing and asset actions (ATM usage, equipment/real estate disposition).
• Policy and commodity headwinds: Management cited suppressed lithium prices and uncertain government funding timelines; industry consolidation and partnership formation are in focus while awaiting clarity from agencies (DOE/DOD) and evolving trade/tariff dynamics.

Transcript

Operator (participant)

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 on the call from analysts, and all other investors can submit a question using the webcast portal provided in today's and earlier press releases. We will take as many questions as we can in our available time slot. With that, I'd like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, the call is yours.

Steve Cotton (CEO)

Thank you, Bob, and thank you all for joining us today. I'm pleased to report on what has been an important first quarter for Aqua Metals as we continue to execute on our mission to build a low-cost, resilient domestic battery materials supply chain. It's been just over a month since our last call, but there are some important updates that we'll discuss today. Joining me today are Judd Merrill, our Chief Financial Officer, and Eric West, our incoming CFO. Judd will be making remarks on our Q1 results and answering questions today, and then we'll begin transitioning from his role to Eric later this month and will continue as a consultant through August. We'll speak more on that shortly. Let's begin with our operational updates, starting with what we have accomplished to build an adaptive platform for critical minerals recovery.

In Q1, we achieved three key technical and operational milestones that position us at the forefront of battery recycling innovation. First, our product line expansion. We produced initial samples of nickel carbonate and mixed hydroxide precipitate, or MHP, which align with our developing downstream partners' needs. These are not just technical wins; they unlock new revenue opportunities and enhance our developing customer and partner value proposition. Second, our LFP recycling breakthrough. We completed a successful engineering analysis and then lab and bench scale demonstration for lithium recovery from LFP batteries. As many of you know, LFP, or lithium iron phosphate, is poised to dominate both EV and stationary storage markets. Importantly, our process can handle a blend of 50% NMC, or nickel manganese cobalt, and 50% LFP input, effectively doubling our lithium carbonate output and improving project economics. Third, our purity and performance advancements.

We have continued to improve our battery-grade lithium carbonate assays to meet specific and stringent potential customer specifications, which further strengthens our position as a trusted domestic supplier. In short, as market needs evolve, so does Aqua Metals. We are continuously advancing our technology and adjusting our overall business and commercialization strategy to meet the challenges and seize the opportunities that we see ahead. Now turning to our site strategy, we have entered into an agreement to sell the Sierra ARC property. This strategic move allows us to retire all of our debt, generate meaningful cash reserves, and reduce our holding costs by approximately $100,000 per month. This decision is about resilience and flexibility. We are aligning our capital deployment with today's market environment, characterized by lower lithium prices, uncertainty in our industry, and the tighter capital markets.

By lightening our footprint now, we gain the freedom to evaluate more cost-efficient locations, ideally near the feedstock and offtake sources for which we are developing, which could both lower CapEx and introduce meaningful OpEx efficiencies as we advance towards commercial deployment. We remain fully committed to building our first commercial ARC, and we're actively engaged with our potential supply, offtake, and funding partners to determine the best path forward. Switching now to the leadership front, as I mentioned earlier, Judd Merrill will transition from CFO on May 16th after several years of dedicated service. Judd, we really sincerely thank you for all of your commitment and leadership through the transformative times, and we all wish you the best on your next venture. Directly related to Judd's departure, we are pleased to welcome Eric West as our incoming CFO effective May 19th.

As many of you listening already know, Eric has six years of experience with Aqua Metals through his prior role, including VP of Finance. We are also grateful that he has agreed to return to the company in the CFO role and have every confidence in his ability to help lead us into this next phase. Judd will also ask Eric to introduce himself in a moment. To summarize my comments as we look ahead, Aqua Metals is first, expanding and adapting its product portfolio and commercial plant economic model to match market conditions and where the critical minerals market is heading. Second, managing capital prudently and adapting our strategy to strengthen our already well-proven resilience as a company. Third, aligning the right leadership to deliver on our goals, including the previously announced recent additions to our board of directors, adding key commercial and financial market expertise.

We are operating with a clear eye on long-term value creation, making the right moves at the right times to build a flexible, high-performance business and maintain that resilience as we have to date. With that, I'll turn it over to Judd to walk through the financials. After that, we'll open the call for Q&A.

Judd Merrill (CFO)

Thanks, Steve. First, this being my last call as the CFO of the company, I want to take a moment to thank the shareholders, stakeholders, my colleagues, the board, and Steve for the trust and support in my role here over the last six and a half years. Sometimes, though, opportunity knocks, and I have taken a new role in a competitive company to be announced soon. While I leave the role of CFO here in very capable guardianship of Eric West, Eric and I have known each other and worked together for many years, including here at Aqua Metals, and I am providing consultancy to the company and to Eric through August for a seamless transition. I thought I'd ask Eric to introduce himself briefly on this call. Eric, go ahead.

Eric West (CFO)

Thanks, Judd and Steve, and to the board for giving me the opportunity to smoothly take the helm from Judd and help drive forward our future. I'm returning to Aqua Metals to take this role because I believe in the company's value proposition, the strength of the team, and in my abilities to make a positive impact on the company's future. I will leave it at that for now and look forward to engaging with shareholders and stakeholders directly in the near future. I'll turn it back over to Judd now to cover the Q1 financials and Q&A.

Judd Merrill (CFO)

Thanks, Eric. Let me start my comments with our balance sheet. We ended the quarter with total cash of approximately $1.6 million. As we have reported, we have listed the Sierra ARC asset for sale. The sale would result in the retirement of all debt and produce cash proceeds while also reducing holding costs by approximately $100,000 per month. This decision adds cash runway, allowing the company to evaluate more cost-efficient locations for future development. The Sierra ARC facility includes the building structure, the underlying land, and various permanent improvements that were previously classified as construction in progress within the plant, property, and equipment on the company's consolidated balance sheet. The total carrying value of the asset group was approximately $9.3 million net of depreciation. An impairment charge of approximately $5.2 million was recorded during the three months ended March 31, 2025.

The company anticipates the sale will be completed during the second quarter of 2025. I will move now to the income statement. Plant operations decreased approximately $1.5 million, or 67.2%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The decrease was primarily driven by a reduction in payroll and related costs of approximately $786,000, resulting from workforce reductions implemented in August 2024 and continued reductions during the first quarter of 2025. Additionally, professional fees decreased by approximately $390,000, and supplies, materials, inventory adjustments, and other overhead-related expenses decreased by $309,000. General and administrative expenses decreased $619,000, or approximately 20.7%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The decrease was primarily due to a reduction in payroll and related costs of approximately $737,000 and a $49,000 decrease in director's fees.

These decreases were partially offset by an increase of $41,000 in professional fees and $126,000 in supplies, materials, and other overhead expenses. For the three months ended March 31, 2025, the company recognized a non-cash impairment of approximately $5.2 million related to construction in progress for the facility. The impairment was the result of a strategic shift in revised capital allocation priorities, which led management to discontinue development of the facility for its originally intended use. As a result, the carrying amount of the facility was reduced to reflect its estimated recoverable value. Our net loss for the three months ended March 31, 2025, was approximately $8.3 million, or a negative $1.03 per basic and diluted share, compared to a net loss of $5.5 million, or a negative $1.05 per basic and diluted share for the three months ended March 31, 2024.

Now moving to the cash flow statement, net cash used in operating activities during this period consisted primarily of our net loss adjusted for non-cash items such as depreciation, amortization, and stock-based compensation charges, as well as net changes in working capital. Net changes in investing activities primarily included minor, previously committed fixed asset acquisitions. Net cash provided by financing activities was $638,000 for the three months ended March 31, 2025, consisting of $1.2 million net proceeds from the sale of Aqua Metals shares pursuant to the at-the-market offering, or ATM, offset by $66,000 related to tax withholdings to cover RSU vesting and $500,000 principal payment made on notes payable. We are actively engaging with potential and strategic financial partners aligned with our long-term strategy. That concludes my remarks on the company financials. I will now turn it back over to the moderator for Q&A.

Operator (participant)

Thank you. Ladies and gentlemen, the floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. Again, that's star one if you do have a question or comment. Please hold as we poll for questions. We'll take our first question from Mickey Legg from Benchmark. Please go ahead, Mickey.

Mickey Legg (Analyst)

Hey, guys. Thanks for taking my questions and congrats on making it through another quarter. Judd, congrats on your new role too. I wish you the best. And Eric, it's nice to meet you over the phone and congrats on the new role as well. I guess just to start, I have to ask on the Sierra ARC sale, kudos to find yourself some breathing room there. Could you just walk me through that process, your thought process with that, and exactly how much runway does this give you? It seems like if I could read into this a little bit, there's more of a focus on co-locating now. Could you just correct me there if that's right and walk me through that? Thanks.

Steve Cotton (CEO)

Hey, Mickey. Yeah, this is Steve. Thanks for the question. I'll start with the Sierra ARC and kind of my view in the industry as a whole. As everyone's looking at the critical minerals industry as seen, I would say there are companies that have had to effectively cease operations due to large initial outlays and building what we would characterize as really large plants. We've always been market aware and willing to pivot and willing to adapt to the current conditions early enough. That gives us kind of that pragmatic and survivor instinct that we've demonstrated in the past for those of you that have known us for a long time. Along with our own belief, most analysts and players in this industry do believe that it's going to thrive for those that survive.

Selling the Sierra ARC now gives us that $100,000 a month savings in carrying costs and gives us that meaningful cash runway to continue to develop our commercial relationships with that pragmatic and what I would say is resilient shift in focus to build it when they come compared to what the industry has been doing, which has been build it and then they will come. We're fully committed to building the first ARC once we finalize the offtake and supply financing for the entire project, and our commercial discussions have led us to alternate locations. That could improve the CapEx and OpEx and other efficiencies especially needed in the current market conditions to produce EBITDA that is bankable.

That is really what we believe is the best approach given the current difficult market conditions and public policy shift, etc., to do what we have done and to partner and go where the materials are versus bring the materials to us and not carry the load in the meantime. I will turn it over to Judd just to give another quick summary in terms of what it means for us economically on how it saves us money, so we can be very clear on that.

Judd Merrill (CFO)

Yeah. Hi, Mickey, and thanks for your comments and your questions. The Sierra ARC, we owe about $3 million on that. That is the only debt the company has left. Anything that we sell above and beyond that price will add to our cash balance. In the past, and we are still kind of in the same area of about $500,000 a month burn. That is just our base kind of holding costs and being publicly traded and employees and all that, and even some of the costs related to the work that is still ongoing at our innovation center, which we still are operating and running on an ongoing basis. We anticipate that we will be over that debt price quite a bit, and that will just add to our cash balance and help with the runway.

Mickey Legg (Analyst)

Got it. Okay. Okay. That's clear. All right. Yeah, that kind of segues into my next question, which is related to the macro and how things have been so dynamic, I guess you could put it. Has there been an uptick in customer inbounds given all the tariff announcements and discussions there? It seems like OEMs don't really have a choice but to go domestic now for their lithium, but there's clearly not a lot of domestic products. I'm just curious what sort of conversations you're having there.

Steve Cotton (CEO)

Yeah. It's an interesting time in the industry for sure. Everybody is trying to figure out what the public policy moving forward is going to be and how that translates to government support from a policy perspective, from a loan guarantee perspective, and from a grant perspective, even grants that were previously issued are in question. That, coupled with the drop in lithium prices that are really, frankly, below any project-financeable number for a mine to consider opening up a new lithium mine, has got most analysts, and we agree with those analysts, believing that this is a temporary bump in the road, so to speak, and that we will see those lithium prices come up because it has to in order for the industry to really work. Think of it like what the minimum price of a barrel of oil has to be.

It's the same type of a scenario. We see the industry in the meantime looking not only at their own capabilities, but looking at each other. This is very common when an industry is new and maturing and hits a bump in the road that you see a phase of consolidation and a phase of more open-armed partnerships. That's what we've been experiencing is the activity level of engaging with not only the large players, but the medium and the small players has really gone through the roof, which is a really positive thing because now everybody's talking and trying to collectively figure out how to build this industry from the ground up in the U.S. We're really encouraged by that. Like I said in my earlier comments, it is the game of survivor. In order to thrive, you've got to survive.

We're very situationally aware and making sure that we continue to survive and be there for when this industry really starts to thrive.

Mickey Legg (Analyst)

Got it. Got it. Okay. Understood. I thought the product line expansion and the LFP recycling was an interesting development, and it's another example of how you guys are able to be nimble in this rapidly evolving industry. It seems like that's being driven by some of these customer discussions you're having and some of the offtake products that they're looking for to meet some of their specifications. Could you just talk about the opportunity there and what the thought process is with that?

Steve Cotton (CEO)

Yeah. Great, Mickey. That's a great question. I'd love to talk about that. I would say our advancements that we've announced this quarter are really two-pronged. That is that, firstly, we're oriented to market and partner responsiveness by our nature. Think of that as like have it your way. That means making materials that fit as best as possible as the input for our downstream partners' processes. That greatly enhances and improves our offtake opportunities and engagements with those customers because we're going to give it to them their way. Secondly, we're really driving hard for optimization. That is really to improve the plant economics iteratively so our process does continue to be the one, if not the only one, that can actually produce positive EBITDA, particularly with the suppressed metals prices and current marketplace conditions that we're seeing.

With that focus on that optimization, we believe strongly that our operating costs at commercial scale can be much lower than the other processes. That is because they eliminate the need for massive amounts of one-time use chemical costs, transport costs, processing costs, and costly and harmful waste streams that come about when you're doing it with that methodology. That, we believe, does two things. That optimization improves our margin profile at scale, and that provides what we believe is still a bankable plant-build future that can be debt or project financed.

The second thing that does is that this key work allows us to further advance discussions we've been having with other adjacent players in the critical minerals space for Aqua Metals to also be an enabler in the form of licensing or joint venture or other win-win arrangements because we have the IP, we have the two-plus years of demonstrating lithium-oxide refining that have produced battery-grade materials, and we have the proof of the economic and environmental and worker safety advantages. That's what we believe is at the largest scale of battery-grade materials production from recycling by us thus far in the U.S.

Mickey Legg (Analyst)

Great. Great. Lastly, I just have to throw in one about government discussions and the White House. I know I asked last call, and you said it might take a couple of months for those to progress and to get a bit better line of sight into how those may go. Is there anything more you could tell us? Are those active? I see your mission at creating domestically produced product as very aligned with this administration's desire to create this supply chain locally here in the U.S. Thanks.

Steve Cotton (CEO)

Yeah. The government side is kind of we discussed in the last conference call. We've been engaging the various stakeholder agencies, and that includes things like the DOD, the DOE, etc., etc. We're taking full advantage of the opportunity, but we don't have specific feedback yet. We've been advised by our well-respected DC-based government relations partner that it will likely take a few more months to gain a little bit more clarity on what the go-forward policy and then following with that policy, the funding support will or won't be for the industry.

That said, we are aligned with the administration's interest in securing the domestic supply chain and keeping all these critical and valuable materials in the U.S. where they can then be reintroduced into the U.S. manufacturing operations, creating manufacturing jobs rather than really the current conditions where effectively the U.S. is a net exporter of critical materials in the form of black mass that goes to Asia and an importer of the battery cells and systems that come back as a net importer. Everyone agrees on that being a major problem and a major priority to address. We are really hopeful and active in trying to affect the outcome to see government support really kick in in this space again later this year.

Mickey Legg (Analyst)

Got it. Okay. That's all for me. Thanks, guys.

Judd Merrill (CFO)

Thanks, Mickey.

Operator (participant)

Once again, that's star one if you do have a question or comment. I'll turn the floor over to Bob Meyers for additional questions.

Bob Meyers (VP of Investor Relations)

Yes. Thank you. We have received a few questions. First question. Are potential partners testing the quality of your more recent material that you're producing?

Steve Cotton (CEO)

Yeah. That's a good question. Yes, the primary focus of our pilot demonstration plant operations to continue today and beyond in our innovation center here in Tahoe Reno Industrial Center continues to be producing and assaying ourselves product samples and sending those samples and testing varying feedstock sources to create those samples and getting those materials in the hands of all these potential off-takers that we've been talking to, like I was mentioning earlier. We've continued doing this in Q1 through now. Those commercial relationships, of course, really underpin the financing of moving forward with that commercial-scale facility.

Bob Meyers (VP of Investor Relations)

Great. Thank you. The next question is similar. With the appropriate financing for an ARC, how quickly can these new initiatives translate into revenues?

Steve Cotton (CEO)

Yeah. Even with the Sierra ARC, we would need to build an additional building. We believe that we could potentially improve time to market by taking a suitable building or buildings that already exist, such as a brownfield sitting somewhere else in the country closer to supply and offtake partners that we're talking to. That could be better suited to our new plant layout process flows with these improvements that we made by adding the LFP, mixing it in with the NMC, and producing these other products to be able to produce EBITDA at the maximum level. As I already pointed out, we're in several discussions with these adjacent players in the industry that already have facilities, and we can be an enabler for them. That means making their EBITDA producing value proposition and time to market greater and faster.

That might allow for improvements for them in those types of scenarios. One company in this industry cannot do it all. We believe that in addition to helping ourselves, we're positioned uniquely to be able to help all the other companies do it better.

Bob Meyers (VP of Investor Relations)

Got it. Thank you. Pivoting a little to the financials and Judd in particular, can Judd tell us a little bit more about his departure?

Judd Merrill (CFO)

Yes. Sure, Bob. This decision was based kind of on a long-term opportunity that advances my career in a non-competitive opportunity. It is not related to Aqua Metals. It has really been a pleasure, seriously, being here at Aqua Metals and being the CFO. I wish the best for the team. That is why I am available during a transition period. We have worked out a 90-day-plus consulting period where I can help smoothly transition my role to Eric, the incoming CFO. I have worked with Eric for quite a bit of time, not only here at Aqua Metals, but in a prior role. I have full confidence in him and the go-forward plan with that.

Bob Meyers (VP of Investor Relations)

Great. Thank you. We have, I think, one more question for you. Can you expand a little bit on your earlier remarks around near-term and long-term financing opportunities?

Judd Merrill (CFO)

Yeah. We'll start with the near-term. That's been driven by our desire to retire some existing debt by the end of this quarter that we're in now. That's going to reduce burn. We'll be making interest payments and other holding costs. That helps with our cash runway. Also, near-term financing has included the judicious use of the ATM and potential asset disposition of fungible equipment. As we announced today, real estate that we don't need to be bearing the cost for at this time. On the long term, a lot of this has remained the same, just trying to find the right partner for project financing. There's still debt-based capital. We're still having discussions and advancing that. There are some opportunities there that we're continuing to have.

We're also having directly related discussions about feedstock and offtake partnerships that make the financing of the first ARC bankable. Also, how we can work together with these partners to fund the go-forward strategy.

Operator (participant)

Excellent. Thank you. That's all the time we have for questions. I'll now turn the floor back to Steve Cotton for closing remarks.

Steve Cotton (CEO)

Great. Thank you, operator. I'll just close by saying this is consolidation time for players in critical minerals for sure. Consolidation also means partnerships. We've seen, for example, in one example, Leighton acquired many of North Fool's assets and many other instances of consolidation and partnering. This is really common with the development of any industry that hits the proverbial bump in the road. We're definitely paying attention, engaging with all the opportunities, with all the parties that are out there. Where it makes sense, we'll explore a better way forward on that front. In the meantime, we've really added to the resilience and the runway of the company with the courageous decisions that we've made as a management team to date. I feel very confident in our ability to continue to survive to make the day that we shall thrive.

I thank everybody for your support and continued confidence in Aqua Metals. We will see you soon.

Operator (participant)

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.