Aqua Metals Inc., McCarran, Nevada, the developer of the AquaRefining process for recycling lead, has announced financial and operational results for its first quarter of 2019, ended March 31.
During the quarter, the company recognized revenue of $400,000 compared with $1.7 million in the first quarter of 2018. As planned and previously disclosed, Aqua Metals slowed production during the quarter to reduce cash burn and to focus on implementing plant improvements and enhancing process efficiencies as it completed Phase One of its capital program prior to ramping operations.
Included in general and administrative expenses for the first quarter of 2019 were several noncash expense items, including $1 million of expenses related to the Veolia agreement for operations, maintenance and management services and $900,000 in noncash stock-based compensation, Aqua Metals says. The company also incurred $200,000 in professional service fees associated with the sublease of the Alameda facility. These items resulted in general and administrative expenses in the first quarter of 2019 of $4 million compared with $1.8 million in the first quarter of 2018, according to the company.
An increase in interest expense for the quarter was driven by a one-time $2.6 million noncash amortization expense resulting from the recent payoff of the convertible note held by a subsidiary of Interstate Battery System International Inc., which provided the benefit of approximately $300,000 in interest savings. The noncash amortization resulted in interest expense in the first quarter of 2019 increasing to $2.9 million compared with $600,000 the year prior. Interest expense without the one-time item was approximately $300,000 for the first quarter of 2019, Aqua Metals says.
“I am very pleased with our operational progress, including safely completing installation of our Phase One capital program and achieving 24x7 production, utilizing our initial four modules,” says Steve Cotton, president and chief executive officer of Aqua Metals. “During the first quarter, we installed a new filter press and a new centrifuge to provide continuous production of concentrate to the AquaRefining modules at improved costs.”
He adds, “While we ran one or two modules 24-hours a day, four days a week during the first quarter to allow safe times for some of the key work to be completed for our contribution margin improvement projects, we began to scale production on April 15th and are now achieving weekly production records.”
For the first quarter, Aqua Metals had an operating loss of $8.9 million compared with an operating loss of $7 million for the first quarter of 2018. The net loss for the first quarter of 2019 was $11.7 million, or 27 cents per diluted share, compared with a net loss of $7.5 million, or 27 cents per diluted share, in the first quarter of 2018. Noncash items negatively affected the net loss for the first quarter of 2019. These noncash items included a one-time $2.6 million amortization expense recorded in conjunction with the payoff of the Interstate Battery convertible note, $1.1 million in stock-based compensation and $1 million of expense related to the Veolia agreement. Weighted average shares outstanding for the quarter was 43.5 million.
The company reports $15.3 million in cash and cash equivalents as of March 31. In January 2019, Aqua Metals received approximately $9.1 million in net proceeds from a public offering of common shares, of which $6.7 million were used to pay all amounts owed for the convertible note held by a subsidiary of Interstate Battery System International. Aqua Metals also recently announced that it has reached an agreement with its primary lender, Green Bank, the primary lender in the U.S. Department of Agriculture-backed loan, to waive certain covenants and allow the company to enter into capital and/or operating leases in the total amount of up to $5 million.
As Aqua Metals continues to scale concentrate production, the company says it expects to roll out modules into operation, positioning it to set regular production records moving forward. The company says it has begun the rollout process for modules five through eight, which would enable the achievement of up to 50 percent of total plant capacity. As modules are brought online, plant operations will need to be further synchronized to meet AquaRefining needs. The company says it remains on track to achieve its target of 16 modules in operation by the end of 2019.
“While we have put in place the equipment and processes to scale production, electrolyte recovery remains critical to enhancing our contribution margin and allowing us to scale further,” Cotton says. “With Phase One complete, we are now conserving up to 75 percent of our target for electrolyte recovery. We have completed a pilot for Phase Two, which we believe will increase electrolyte recovery to 100 percent of our target and increase yield of the material processed through the AquaRefinery. Phase Two equipment is anticipated to be delivered during the summer and installed in the third quarter, driving further improvements to contribution margin,” he added.
The company says it also is focused on increasing the percentage of lead metal recovered from battery feedstock and converted into high-value AquaRefined and lead bullion ingot form right at the AquaRefinery. In particular, opportunities are available to further process the hard metallic lead, which could bring today’s approximately 70 percent conversion to 80 percent or more by year-end, Aqua Metals says, and which could generate considerable additional plantwide gross margin for its AquaRefinery.
In May 2019, the assets and operations of Johnson Controls Battery Group Inc., including Aqua Metals’ agreements and collaboration with Johnson Controls, were sold to Clarios, Glendale, Minnesota, a newly organized battery and power solutions company formed by Brookfield Business Partners LP.
In April, Aqua Metals met with Clarios to begin discussions of the equipment supply agreement and development program for Aqua Metals to supply AquaRefining equipment, know-how, licensing and ongoing support services for a first location. The parties identified specific performance metrics for the existing AquaRefinery in McCarran as conditions precedent to shipping equipment. These are inclusive of AquaRefining module performance and uptime, electrolyte usage, feed rates of AquaRefined material and emissions, Aqua Metals says.
“We believe we are on track to achieve the target performance metrics during 2019 as we complete Phase Two of our capital program and continue to ramp to our target 16 modules,” Cotton says. “There is still plenty of work to do, but together with our operations partner Veolia, we remain laser-focused on achieving operational excellence to meet our economic goals, supplying growing quantities of ultra-pure lead directly to battery manufacturing facilities and executing on our capital-light strategy by pursuing strategic relationships including licensing or coprocessing relationships to expand AquaRefining on a global stage.”