Aqua Metals sees substantial decrease in Q1 revenue arising from earlier fire

Aqua Metals Inc., McCarran, Nevada, has announced financial and operational results for its first quarter of 2020, ended March 31, reporting $18,000 in revenue, a 96 percent decrease from the $437,000 it reported for the quarter ended March 31, 2019. The decline in revenue was the result of the plant fire, which prohibited its recycled lead production after the fire in the fourth quarter of 2019 and in the first quarter of 2020.

The suspension of production resulting from the fire also meant that the cost of product sales decreased by approximately 69 percent for the quarter to $1.5 million compared with $4.7 million for the first quarter of 2019, the company says.

General and administrative expenses for the first quarter of 2020 decreased approximately 41 percent to $2.4 million from $4 million in the first quarter of 2019. The suspension of the Operations, Maintenance and Management section of the company’s overall agreement with Veolia reduced payroll and led to improvements in nearly all other expense categories. Aqua Metals also says it recognized $0.6 million in noncash expenses as a result of the Veolia agreement during the first quarter of 2020. This compares to $1 million in noncash expenses related to the Veolia agreement that was recognized during the first quarter of 2019. 

Interest expenses for the first quarter of 2020 were $0.2 million compared with $2.9 million for the first quarter of 2019. The decrease is attributed to the payoff of the Interstate Battery convertible note during the first quarter of 2019, the company says.

For the quarter ended March 31, 2020, Aqua Metal had an operating loss of $4.1 million compared with an operating loss of $8.9 million for the first quarter of 2019. The net loss for the first quarter of 2020 was $4.4 million, or 7 cents per basic and diluted share, compared with a net loss of $11.7 million, or 27 cents per basic and diluted share, in the first quarter of 2019.

The net loss for the first quarter of 2020 was impacted by noncash items, including $1 million in stock-based compensation and $0.6 million related to the Veolia agreement. By comparison, noncash items that negatively affected the first quarter of 2019 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 the $1 million related to the Veolia agreement, Aqua Metals says.

Insurance proceeds receivable totaled $9.9 million as of March 31. This balance reflects a decrease of $7.5 million from Dec. 31, 2019, as a result of insurance payments received. The original amount of insurance proceeds receivable recorded during the fourth quarter of 2019 of $19.9 million was limited by generally accepted accounting principles to the net book value of assets written off as a result of the fire. The company says it anticipates that actual total insurance collections, reflecting actual asset replacement cost, will be significantly more than the net book value of damaged assets.

“In response to a very difficult fourth quarter, I am pleased with the steps we’ve taken and the progress we have made in accelerating the transition of our business strategy to a capital-light, licensing business model,” says Steve Cotton, president and CEO of Aqua Metals. “We are convinced this is the right approach to build significant shareholder value. We have made positive strides in achieving our near-term 2020 goals in a very short time period and in the face of logistical challenges resulting from COVID-19.

“We believe we are in a sound financial position to accomplish the objectives of our business model,” he continues. “We expect to fortify our current resources with the receipt of additional insurance payments and select asset disposals. In conjunction with our recent agreement with Veritex [to extinguish existing debt in 2020], we have established a plan to be debt-free this year. We are on track to have the first V1.25L electrolyzer operational within six weeks after we are able to return to the facility following present COVID-19 restrictions. These V1.25L electrolyzers will AquaRefine the large quantity of valuable lead concentrate we produced and incurred cost to create prior to the plant fire, which eliminates the need for costly battery feedstock acquisition and processing costs. In addition, we have had meaningful conversations with potential customers and partners to consider licensing our proprietary AquaRefining technology. I am optimistic and proud of our team for effecting the strength of the Aqua Metals cash position and runway we have established to fund our go-forward plans, particularly in the face of the recent devastating fire and COVID-19 outbreak.”

Aqua Metals says it is implementing a capital-light business strategy designed to optimize shareholder value that focuses on licensing opportunities, which always been a core part of its business plan. “This path has the potential to maximize shareholder value as it could be far less capital intensive than rebuilding the plant and could potentially be funded primarily from a combination of cash on hand, insurance proceeds and asset dispositions,” the company states in the news release on its quarterly earnings. This strategy focuses on pursuing licensing opportunities within the lead battery recycling marketplace.

The company says it intends to dispose of certain assets that are not essential to the capital-light licensing strategy as the go-forward business strategy requires less space, less equipment, preserves cash and focuses on the needs of its future licensees.