Thank you for standing by. This is the conference operator. Welcome to the Aqua Metals Inc. Third Quarter 2020 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Glen Akselrod, President of Bristol Capital. Please, go ahead.

Thank you, operator. Welcome to the Aqua Metals' third quarter 2020 conference call. Earlier today, Aqua Metals released financial results for the quarter ended September 30th, 2020. This release is available on the Investors section of the company's website at www.aquametals.com. Joining us for today's call from management is Steve Cotton, President and CEO; as well as Judd Merrill, the company's Chief Financial Officer. During today's call, management will be making forward-looking statements. Please refer to the company's quarterly report on Form 10-Q filed today October 22nd 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. Aqua Metals cautions investors not to place undue reliance on these 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. And with that, I'd like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, please go ahead.

Thanks Glen. Good afternoon and welcome everyone. First, I'm happy to report that the company has made substantive progress in the past 90 days by every measure. Our V1.25 electrolyzer program has progressed well through the b iteration and has returned meaningful cost and operational improvements that have been built right into our AquaRefining sales proposal. The program remains on or even a little ahead of schedule for completion by year-end which we believe will put us into a product-ready state to finalize our various detailed sales proposal with the V1.25 build and operating specifications required for detailed configuration and pricing. I'm quite proud of our team's diligent progress to achieve and then even overachieve the goals that we laid out for the program earlier in the year. Judd will go into more details about our financials and the headline is that we have further strengthened our balance sheet through a combination of careful cash management and the largest quarter of insurance collections to-date. We are also very close to retiring the Veritex loan and emerging debt-free by the end of this year putting us on or ahead of our previously communicated schedule. We have also made substantial progress on the activities related to sale of the AquaRefinery facility as a key part of our transition to being a capital-light equipment and services provider and technology licensor. We publicly announced on September 22nd, our intention to engage with potential buyers and set December 11 as the final date for receiving formal bids for the land plus building. We also indicated that we are interested in engaging with buyers to consider including the plant and equipment with their bid as a package deal. I'm happy to report that we have had quite a bit of interest and activity for the building…

Thank you, Steve. As of September 30, 2020, cash and working capital balances were $5.6 million and $2.4 million respectively. As of September 30, 2020, the company had received a total of $21.8 million in insurance payments as a result of the fire damage. In just Q3 alone, we received $6.8 million with another approximate $0.75 million being received this week for a total of approximately $22.6 million. We anticipate total insurance proceeds for building equipment damages and cleanups to total up to $30 million. We may receive additional insurance payments for business interruption losses. Assets on our balance sheet as of September 30 2020 that were not affected by the fire totaled approximately $37 million in book value. These assets are still in good shape, some of them brand-new and will be either used in future licensing deals or sold. During the third quarter we sold one nonessential asset for $150,000. As part of our accelerated equipment supply and licensing strategy which includes the disposition of non-core assets we officially placed our plant up for sale. As stated previously we believe we have achieved the demonstration purposes of the plant resulting in the successful validation of AquaRefining technology and commercial sale of our ultra-pure lead. This step is part of our long-term business strategy which includes monetization of this noncore30 asset with the sale of the plant as a means of financing the company's continued acceleration of our core business of becoming an equipment supplier and licensor of AquaRefining technology. Other items I want to mention on the balance sheet include other assets and notes payable. As of September 30 2020 we have set aside in an escrow account approximately $7.6 million of insurance proceeds allocated to Veritex to pay off the remaining balance of the loan which is…

Thanks Judd. We look forward to keeping everyone updated as we make meaningful progress in our efforts and expect to have further updates between now and our next quarterly call. If you haven't already please watch the Aqua Metals Twitter and YouTube channels as we'll continue to provide information through those venues. I'll now turn it over to the operator to facilitate the Q&A portion of our call today. Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Colin Rusch from Oppenheimer. Please, go ahead.

Thanks so much, guys. Could you speak to the metrics that you're looking to target for the new electrolyzer the V1.25L for the benchmarks that your customers are looking for? Can you just give us a sense of what we might be looking for and how close you are to those performance metrics?

Yes. Hey Colin. So in terms of the metrics for the electrolyzers at the highest level it's the three iterations in our progress on those three iterations. And as we've indicated today, we've gotten the first iteration A, behind us. We're operating B. And soon to operate L which is the final licensable version. And our investor deck goes through the various improvements that we're making, but they're based upon reducing the CapEx expenditure required to deploy these machines, increasing the throughput of material that goes through the machines, and therefore improving the maintenance and the operating expense of operating the machines. And those final specs, we won't really have until we get closer to the end of the program, which is towards the end of the year. And we'll continue to update, as I mentioned our sales proposal and models that we put forth to the various folks that we're talking to, on the specifics of those. So I hope that answers your question.

Yes. I'll have some follow-ups. And then, in terms of closing on a building sale, how quickly do you think that might happen? Is that, a full-year process? You think you might be to get it done sooner with your instinct or kind of the range of possibilities?

So, we have a good amount of interest both from within the lead acid battery industry, inclusive of some interesting lithium-ion recyclers that are looking to get in the business in the area, as well as other industrial use. And so the funnel looks good. But real estate transactions or real estate transactions -- and it will take time to see, how that works out. We're hopeful, that we could enter into contract by the end of the year, because of the December 11 date. And we feel like, we will be getting some bids before then. But we have to agree with what those bids are. And we have to work out the deal. But I don't foresee it as being a protracted process at this point holding all other things equal, economy and other things.

All right, that's a fair point. And then, just the final one, in terms of the number of folks that are looking at being your first customer on the new business model, can you just give us a sense of how robust that pool of potential customers is at this point? Are we thinking kind of on the order of half a dozen? And how thorough or how far down the road, are they in terms of being able to think about a license agreement?

Yes. We're engaged with what I would characterize as several parties and talking through specific site, opportunities and configurations et cetera. And that's as I mentioned earlier on the call, inclusive of Clarios of course. So the sales funnel is robust and growing and progressing through the sales cycle process. And it's really us that's holding it up a lot more than anything else to some extent, because -- excuse me we have to finish our 1.25 program and get those final specs so we can really figure out with these various prospects what the final configuration and everything like that would look like. So, it's a robust group. And it ranges in geographies inclusive of the U.S., South America, Asia Pacific, a couple of European opportunities. And so it's quite an interesting field and that gives us the opportunity to make sure that the first place we put AquaRefining is the best chance of success for Aqua Metals and for the client.

Perfect. Thanks so much, guys.

Yes. Thanks, Colin,

[Operator Instructions] The next question comes from David Kanen from Kanen Wealth Management. Please go ahead.

Good afternoon guys. Congratulations on the progress thus far. First question is in regards to the burn rate, I see the progress at -- for the quarter it was only about $700,000. Can you give me a sense once the plant is sold incrementally, what will be the savings on a yearly basis? And what I'm referring to is any staffing that will not be needed, their security utilities insurance, all of the overhead associated with the building. Could you just quantify what that will be?

Yes, Dave, it's Judd. So we anticipate there's probably $150,000 or so and just kind of holding costs in the building. That includes insurance costs, property taxes, utility those types of things that we could see reductions when the plant sells. The less meaningful $150,000 a month that's less meaningful over a year's time. And then, of course there's some debt holding costs that, we're getting very close to paying off. So that's another chunk about $75,000 to $85,000 a month in just that. So there's a couple of hundred thousand dollars, at least that we're seeing in that kind of monthly burn. So over a year's time, it's more than a couple of million dollars that -- in reduction. Now on the staffing team, we're kind of already a small team, strategic members of the team that are here working. And so the people that we have here that are kind of helping the one the version 1.25 programs, some of these guys will transition over into helping to build the electrolyzers, the modules that we made shipping through our first licensees next year. So the staffing won't change a whole lot until we start seeing in the years beyond when we start to have several licenses and are working towards that. But just kind of in the near to medium term, the staffing levels won't change a whole lot. So that kind of gives you maybe a little sense on the cash burn where it's going.

Okay. So about up to $2.5 million in annualized savings once you dispose of that asset sounds like. And then could you give us a range? I know you said that you expect that it will -- you'll have a contract before the year is over and we all know that in real life we can't hold you to that. It's just it's your educated guesstimate. But could you give us also an educated guesstimate on a range for the asset sales inclusive of any equipment there that you think you can monetize kind of like a low and high range of what that will bring in cash minus commissions to the agent and so forth?

Yes. I mean, we kind of start with the number that's on our balance sheet with $37 million. Of course, there's a lot of like install costs and things like that do. But the majority of that balance is the plant and the land itself, which we've got listed right now for $18.3 million. So that's out there and people are looking at that. So that's a big chunk of what that could come in now. There's a lot of interest in this area, could it go higher, maybe it could go a little lower, we don't know but we feel like that's probably a good number of what that could look like. And then there's tens of millions of dollars of assets in the plant including some big pieces such as the kiln and filter presses and the battery breaker. So there's a few million dollars there. And we play around with the ranges a little bit. And even on the low end those are some pretty good dollars kind of where our cash burn is now. It's pretty good dollars but we're going to do the best we can to get those in the hands of the people who do need them and want to pay the fair value. We've already had some interest in some of the pieces of equipment that we've kind of held off on letting go, except for one little piece that we did sell in the quarter just because of the interest and making sure that anybody who's looking at the plant thinking about maybe more than just having a plant, maybe having some of the equipment that's in there but they get the first kind of look at that and make sure that those guys are able to buy those. That's kind of kind of our thinking along those lines.

Okay. So it sounds like in terms of the property, the land and the building minus commissions probably about $17 million unless there's a bidding war. That's probably a conservative number. And then with the equipment, assuming it's not a strategic buyer and they don't need that that could be another $3 million. So we're talking $20 million. And then given the reduction in burn rate, we would potentially have four-plus years of cash runway going into the pursuit of our first licensing deal. Is that a correct landscape...

It's a fair way to go about it. I think it's a fair way to look at it. There's a lot of value there and that value can provide a good cash inflow for a long period of time.

Okay. And then I missed part of the call. Steve, I think you gave some numbers in terms of possibly engineering services equipment sales. Could you just reiterate that for me just because I missed it? And then also could you make an educated guesstimate on when do you think -- what do you think the time frame is of procuring your first licensing deal? And is there the potential for multiple ones next year?

Yes. So, Dave, in terms of the engineering piece of it, that's kind of the first tranche of revenue that we would see. And that's like when you hire the architect to design, your building or an expansion to your building, you take the detailed specs. And so that could be six figures. The numbers it could go into the seven figures depending upon which site and how complex the solution is. So that could vary and then that progresses forward towards the purchase of equipment and the deposits for equipment to supply that we would be providing equipment and then ultimately the running royalty and services dollars afterwards. So there'll be phases of revenue associated with the deployment of this. Now every deal will probably have a little bit of uniqueness to it and those are just general guidelines. I also want to iterate. The other thing is that, you asked about how many licensees we could support. And we want to get it right and focus on the first licensee strongly but because we have a pretty good sales funnel we see some potential synergistic opportunities between the opportunity funnel that we have. So in other words where one player may be interested in one element of what it is that they can do with us they can actually help another player within the lead acid battery industry. And so we're looking at opportunities like that where there could be more than one type of an arrangement that we could move forward with. It all depends upon how the sales funnel plays out and how the deal-making happens as we round the bend to the end of the year and into next. So hopefully that gives you some visibility into what it is that we're doing.

Okay. And then it seemed like when you were referring to the parties that are interested in potentially purchasing the building and the property that there were strategic players involved. I just -- I don't know if you stated that explicitly, but that was sort of my perception. So could you address that? What is the likelihood when you look at let's say, the funnel of buyers that are interested what's the likelihood of a strategic buyer that could use the plant for a purpose that potentially is synergistic with our technology and so forth?

Sure. So -- and when we look at the field of potential buyers that are out there it does as I mentioned include players that are in the lead acid battery industry. So that's where as Joe is referring to we've kind of held the plant and equipment together to the most part. So if somebody wants to look at it as a package opportunity, we retain that equipment. We're not bringing things out of there and putting them back in. So there are lead acid battery industry opportunities. And there's also an interesting thing going on in the Tahoe Reno industrial center area which is there are a fair number of companies trying to move forward with how do we recycle lithium batteries. Because remember you could recycle lead acid batteries and Aqua Metals improves the way that you recycle lead acid batteries through AquaRefining greatly. But the prospects of recycling and recovering cobalt and lithium and nickel and other metals from lithium-ion batteries is in its nascent phase. And obviously Tahoe Reno industrial center has a large lithium player with Tesla being down the road. And there are some companies that are moving forward in that area and see this as a strategic hub for potentially creating an ecosystem. Our plant has a very interesting location. It is in an opportunity zone which for those of you that don't know what that means, it's basically a incredibly favorable tax region for job creation and it provides great opportunities for businesses to enter into. And so because of that some of these nascent companies are seeing this as an interesting region. We see Aqua Metals is even having an opportunity to look at how we could work with not only lead acid battery recyclers, but recyclers of other types…

Okay, I will go back in queue. Good luck.

Thanks Dave.

This concludes the question-and-answer session. I would like to turn the conference back over to Steve Cotton for any closing remarks.

Great. Well thank you operator and thanks everybody for joining and attending. And if you have any follow-ups please contact our IR Group and I appreciate the time and continued support from everybody. And we look forward to keeping everybody updated between now and the next call and of course on our next call. Everybody have a great rest of the week and weekend. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.