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Edited Transcript of AQMS earnings conference call or presentation 1-Aug-19 3:00pm GMT

Q2 2019 Aqua Metals Inc Earnings Call

ALAMEDA Sep 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Aqua Metals Inc earnings conference call or presentation Thursday, August 1, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Judd B. Merrill

Aqua Metals, Inc. - CFO & Company Secretary

* Stephen Cotton

Aqua Metals, Inc. - CEO, President & Director

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Conference Call Participants

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* Colin William Rusch

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Ilya Grozovsky

National Securities Corporation, Research Division - Senior Equity Analyst

* Jason Ginder

National Securities Corporation - MD

* Steven Kruger;Foresight Investing;Analyst

* Alison Ziegler

Darrow Associates Inc. - MD

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Aqua Metals Second Quarter 2019 Conference Call. (Operator Instructions)

I would now like to turn the conference over to Alison Ziegler, Managing Director of Darrow Associates. Please go ahead.

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Alison Ziegler, Darrow Associates Inc. - MD [2]

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Thank you, operator. Welcome to Aqua Metals Second Quarter 2019 Conference Call. Last night, Aqua Metals released financial results for the quarter ended June 30, 2019. 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 Wednesday, July 31, for 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 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.

And with that, I'd like to turn the call over to Steve Cotton, CEO of Aqua Metals. Steve, go ahead.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [3]

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Thanks, Alison. Good morning, and welcome. Aqua Metals has made significant operational progress during the second quarter, including moving to 24 by 7 production with our initial 4 modules and achieving a 458% increase in AquaRefined lead production over the first quarter and a 352% increase in lead bullion metal production over the first quarter, equating to a 438% increase in overall production, Q2 over Q1.

I'll summarize now some of our key operational milestones during the second quarter. We've continued to optimize our front-end concentrate production processes, which have allowed for continued increases in electrolyte recovery and throughput to feed more AquaRefining modules. We scaled operation of our third kettle to process the metallic lead that does not go through AquaRefining and we are able to recover an increasing amount of material for AquaRefining.

We signed an agreement with Clarios that sets parameters for finalizing our equipment supply agreement. We work with our O&M partner, Veolia, to bring in a top global engineering design and construction team to augment our Phase 2 capital program with project management and construction project management resources to increase the likelihood of meeting our end-of-year goal of running 16 modules.

We also strengthened our Board with the appointment of Susanne Meline and appointed Dr. Feng Han as Vice President of Licensing and Pricing to press forward with our licensing and partnership activities.

In the second quarter, with Phase 1 behind us, we moved to 24 by 7 operations with our first 4 modules, up from 24 by 4 operations, and we are currently operating 4 modules consistently. The combination of improved concentrate production and module uptime has enabled us to achieve a significant production increase and set a record in the second quarter.

Moving forward, we are also preparing for the delivery in August of equipment for Phase 2 of our capital program in other projects. These projects in sum are expected to further boost electrolyte recovery, increase yield and increase contribution margin later in 2019. This will also enable the rollout of additional modules, particularly beyond the first 8 modules.

Moving on to our partnership with Clarios. As we've previously announced, early in the second quarter we met with Clarios at the nominated First Facility to commence discussions of the proposed development program to supply AquaRefining equipment and know-how as well as licensing and ongoing support services. As a result of these discussions, we agreed on specific performance metrics for the existing AquaRefinery as conditions precedent to shipping equipment. These include things like module performance and uptime, electrolyte usage, feed rates of AquaRefining material and emission. While we are progressing towards achievement of the agreed-upon performance metrics, we've been meeting with Clarios to concurrently collaborate on the development program agreement. Dr. Han, our new Vice President of Licensing and Pricing, is already an integral part of the ongoing discussion and the design of our licensing package for Clarios as well as other potential partners. We currently believe that we are on track to achieve the target performance metrics, which could allow for higher-margin licensing revenue beginning as early as 2020.

And I will now turn over the floor to Judd Merrill, Chief Financial Officer, to review our Q2 2019 financials. Judd?

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Judd B. Merrill, Aqua Metals, Inc. - CFO & Company Secretary [4]

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Thank you, Steve. For the quarter ended June 30, 2019, we recognized revenue of approximately $1.5 million compared to $483,000 in the second quarter of 2018. Q2 revenue was in line with management's expectation and reflects the initiation of 24 by 7 operations, utilizing our initial 4 modules.

During Q2 2019, our production of AquaRefined lead increased month-over-month and was the driver in increased revenue. We expect this to continue as we progress through the end of the year. Cost of product sales were $7.2 million in the quarter compared to $4.6 million in the year-ago period. Our cost specifically related to revenue generation decreased by 52%. In addition to raw materials and supplies related to increased production, we also brought on 25 new production employees as we prepare to further ramp production.

G&A for the second quarter of 2019 was $4.3 million as compared to $3.9 million in the second quarter of 2018. Approximately 2/3 of G&A related to noncash expenses, including $2.7 million of expense related to the Veolia agreement for operations, maintenance and management services and $0.9 million in noncash stock-based compensation. Excluding the noncash items, our general and administrative expenses for the second quarter of 2019 was the lowest it has been over the last 6 quarters. With the recent payoff of the convertible note held by a subsidiary of Interstate Battery System International, Inc., interest expense for the quarter was just $203,000, down from $719,000 in the second quarter of 2018.

For the quarter ended June 30, 2019, we had an operating loss of $10.4 million, compared to an operating loss of $9.2 million for the second quarter of 2018. The net loss in the second quarter of 2019 was $10.5 million or a negative $0.21 per diluted share compared to a net loss of $9.9 million or a negative $0.33 per diluted share in the second quarter of 2018. Weighted average shares outstanding for the quarter increased to 50.8 million. As of June 30, 2019, the company had $27.3 million in cash and cash equivalents. This includes the approximately $20.3 million net received from the public offering completed in May 2019.

Looking ahead, while we work to ramp up operations, management is mindful of the cash needs of the company to meet our improvement in our operation goals. During the second quarter, the company used $5.5 million of cash for operations and $2.7 million of cash for CapEx. Cash used for operations during the second quarter of 2019 was also the lowest it has ever been over the last 6 quarters. As we scale production and generate revenues of AquaRefined lead, we expect to see our cash needs for operations go down. We will continue to need cash for operations until we reach full capacity of 16 modules. We've also earmarked an additional $7 million to $9 million of cash for planned capital expenditures. We anticipate that up to $5 million of this capital expenditure need will be met with capital and/or operating leases now that we have the labor from Green Bank.

We believe the company's current cash balance, combined with the potential for up to $5 million in operating and/or capital leases provide us with sufficient capital to complete scaling of our first AquaRefinery to 16 modules by the end of 2019 and allow us to begin to execute on the next steps of expansion, both in Nevada and with partners.

With that, I will turn it back to Steve.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [5]

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Thanks, Judd. As we continue to scale concentrate production by optimizing the Phase 1 equipment, we expect to continue to increase module utilization of the initial 4 modules and roll out additional modules into 24 by 7 operation. We expect to continue to set regular production records moving forward. Our partnership with Veolia, a global leader in operations management, should continue to prove invaluable as we coordinate operations throughout the plant to support scaling.

Phase 2 of our capital projects plan remains critical to enhancing our contribution margin, allowing us to scale further. Phase 1 enabled us to demonstrate that we can conserve up to 75% of our target for electrolyte recovery. Scaling beyond the modules will require the completion of Phase 2, which is expected in the fourth quarter along with other key capital improvements. Phase 2 will drive further improvements to contribution margin and enable us to scale the plant to the full 16 modules.

Finally, before I open up the call to questions, I want to comment on the pace of the ramp as well as our expectations for the remainder of the year. We have come a long way and I'm proud to say that we are consistently increasing production of what we believe is some of the highest purity lead in the world with unique attributes and real potential for driving innovation in the battery industry. In fact, we have not produced enough AquaRefined lead for our partner, Clarios, to begin using AquaRefined ingots in full production size batches for battery testing, which has commenced just this past month.

I will close by saying that every key measure, organizational capability, strategic partnerships, operations, product development and most importantly, our quarterly cash management, is trending in the right direction. I look forward to reporting our progress to you next quarter, and we are now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Colin Rusch with Oppenheimer.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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So I appreciate the update on the process and the progress that you're making. Can you just walk us through the cadence towards cash breakeven? I think that's something that we had expected you guys to start to approach with the Phase 1 improvements. But can you just give us an update on when you expect to reach that cash breakeven pitch for the manufacturing?

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Judd B. Merrill, Aqua Metals, Inc. - CFO & Company Secretary [3]

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Yes. So Colin, this is Judd. So as we ramp up, we'll see our cash burn start to decrease but we don't actually see a cash breakeven until we get to the 16 modules. So we'll see that continues to decrease throughout the rest of this year. And then as we get those 16 modules in towards the end of the year, we'll head into 2020 breaking even on that cash. And that's from a plant-basis economics.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [4]

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Okay. That's super helpful. And then with the Clarios relationship, can you give us a sense of what that process looks like on a go-forward basis? My understanding is that you've got some performance benchmarks on the manufacturing that will trigger the move forward on the licensing. But how much can happen between now and then in terms of negotiating financial terms? And when do you think we'll be able to get a bit more information about how that's coming along?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [5]

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Colin, this is Steve. On Clarios, as we've already announced, we are working towards those performance metrics. And while we're working towards those performance metrics, we're continuing to have conversations with them about the overall joint development agreement and equipment supply and licensing discussions. So those are going on concurrent with us meeting those performance metrics. And as we've already indicated, we expected to hit the performance metrics at the end of the year or certainly shortly thereafter and be able to have that other progress on the business front and have something to say early next year.

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Operator [6]

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Our next question comes from Ilya Grozovsky with National Securities.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [7]

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A couple questions. Given that we're in August, what can you tell us about the July output in terms of tonnage?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [8]

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Yes, Ilya, this is Steve. So in July, it was about the same as June, and the reason for that was that we had about a week of maintenance and issues related around some equipment that didn't have anything to do with the AquaRefining area. And as you look at the quarter-over-quarter though, now that we have multiple months of production that we've been reporting, you can still see the very large increase in Q2 over Q1. And had we not have those maintenance issues, we would have seen quite an increase of July over June. So the general trend upwards into the right and we expect to see that to continue on a quarterly basis. There may be a month or 2 here and there, the maintenance issues or planned downtime due to the Phase 2 capital expansion projects for safety purposes. We'll see some monthly periods where we don't see a large increment in production. But again, the overall trend is significant to the up into the right, if you look at Q2 over Q1.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [9]

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And do you expect August to be an up into the right?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [10]

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We do, without any unforeseen issues. The production rates on a daily basis is continuing to increase greatly.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [11]

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Okay. If we look at -- so obviously, you guys are running the 4 initial modules 24/7. What can you tell us about the pace of implementation and turn on, on 5 through 8?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [12]

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So the additional modules to get to the 8 modules, we are well into the process of getting those ready to go and it's all about the front-end production of that concentrate scaling with some additional tweaks that we're making to the front-end concentrate production area. And we expect to see a pretty quick jump from 4 to 8 when we go from 4 to 8.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [13]

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Okay. So was the revenues in the quarter all from the initial 4? Is that -- am I understanding that correctly? That 5, 6, it didn't participate in this quarter's revenues?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [14]

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Correct. So for the quarter's revenues, it's modules 1 through 4.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [15]

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Okay. Do you anticipate in Q2 that 5 through 8 will participate in some way?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [16]

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You mean Q3?

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [17]

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Sorry, yes, Q3.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [18]

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So 5 through 8 could definitely be participating in Q3. It depends upon the step function of some of these projects that we're working on, and we'll indicate that as we provide the production numbers as we're moving through.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [19]

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Okay. On the gross margin side, what -- how many modules do you think you need to be running 24/7 to get a positive gross margin contribution?

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Judd B. Merrill, Aqua Metals, Inc. - CFO & Company Secretary [20]

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Yes. So this is Judd. So the 16 -- the 16 gets us to breakeven. So anything over that, we start to see positive margin. And we talked about the expansion to 32. So later in the year 2020 is when we contemplated that. And so we can see that as we move into and throughout 2020.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [21]

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Okay. Got it. And then my final question, just on the cash. So looks like you guys burned 7 and change this year. Can you just talk about the pace of the cash reduction, so to speak, on a quarterly basis in the second half of the year? Kind of what are you thinking in terms of the cash needs on a quarterly basis? And that's it for me.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [22]

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Yes. Okay. Yes, so if you look at Q1 versus Q2, we saw that come down a little bit. I think we have $6.3-or-so million in Q1 and $5.5 million in Q2. We'll see that come down throughout the remainder of this year. Cash needs follow how well we execute on our production and implementation of some of the equipment goals. So we'll see that come down little by little over the next 2 quarters. But as we get closer to that 16 modules, we'll see that be more significant. So we ended the quarter with a really strong cash position and we're excited to see that at each quarter we're coming down on that -- those cash needs.

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Operator [23]

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(Operator Instructions) Our next question comes from [Bob Michelin] with Northern Investments.

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Unidentified Analyst, [24]

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So I was looking at your claim on you're up to 80% recovery when you hit Phase 2 -- completion of Phase 2. How are you planning to deal with the last 20% of the lead fully recovered?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [25]

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Yes. So [Bob], we, as you can see, have really been increasing our lead recoveries and treating and getting that lead into the form of ingotized metal in the form of AquaRefined lead or lead bullion. And that does go very soon from the 70% range to the 80% range as we continue to make some capital upgrades. We do have a path, we believe, will get us to the 100%. That will take us into the year 2020 to get towards that 100%. We may not make 100% by the end of 2020 but we have various programs that we're planning and have already, in some case, ordered equipment for that will allow us to get more and more of that lead processed. And that is important because that gives us a higher margin on the finished goods as opposed to having to shift some semifinished goods for further processing.

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Unidentified Analyst, [26]

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Great. We noticed that you had your permits out there and you must be curing concrete by about now for your rotary kiln, that's the main column, that is the -- how do you pronounce that properly, a columnar? Who is your global construction company? I know you announced it, I wasn't able to see the name.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [27]

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Yes. So we're working with Veolia as well as another company called Brown and Root, and they're one of the largest engineering design and construction firms in the world. And we have several people here from Brown and Root helping Veolia and us with various project management efforts on some of these capital expenditure projects. And as we characterized in the news release, the purpose of that is to increase the likelihood of all these projects remaining on time and on budget, and having a global firm such as Brown and Root helping Veolia and us is really reassuring for our ability to execute on our plan.

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Unidentified Analyst, [28]

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Okay. And not to have you repeat but you did say that the next site will not be released until you have metrics for all 16 modules. You will not be extrapolating the results. Is that true? You have to wait for all 16 before you will release the name of the next site.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [29]

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In terms of naming another site, you're saying?

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Unidentified Analyst, [30]

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Yes. Releasing the ID. I've been making an assumption on the site and I just was curious on when we will see that. You've known the site, I would assume -- true or false, you've known the site for over a year because you guys have been working with Clarios very closely and it just all depend on metrics on whether you move forward. Kind of curious what keeps -- well, I know what keeps you from naming the site, okay, releasing the site. I'll withdraw that question.

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Operator [31]

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Our next question comes from Jason Ginder with National Securities.

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Jason Ginder, National Securities Corporation - MD [32]

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Speak to the maintenance issue. Is that a schedule maintenance issue? Or is that something that you had to just take care of? And what did it cost you in terms of tonnage production so we can model that going forward?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [33]

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Sure. We lost probably about a week in production in July due to a couple of maintenance issues that came up. And again, they were not in the AquaRefining area, in the general areas of the plant. And if you want to model it, you can kind of model that -- that production was effectively a little bit less than 3 out of the 4.3 weeks.

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Jason Ginder, National Securities Corporation - MD [34]

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I'm sorry, I lost you there for a minute. The phone went dead for a moment. So about 20% reproduction loss because of maintenance?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [35]

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Yes, you can say probably 20%, 25% range of production loss due to maintenance issues.

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Jason Ginder, National Securities Corporation - MD [36]

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Is that a scheduled maintenance? Or is that just an unforeseen type of maintenance issue? Because the machines -- these modules are fairly new, right? I mean, it's not like these are...

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [37]

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It wasn't the modules. It was the area surrounding the modules. So it wasn't -- it was the AquaRefining area of the plant. So again, if you calculate and model out about 3 weeks or so of production, and that would be conservative, you would see that we would have done much better in July than in June. But I also remind everyone that as we get multiple months reported, you want to start looking at quarters. And on the quarter-over-quarter, as we reported, from Q2 over Q1, it was a significant percentage increase, in fact, 458% for the AquaRefined lead Q2 over Q1. And we expect to see that trend of significant increases continue, particularly in a quarter-by-quarter basis. There may be a month or 2 that we went flat due to maintenance issues or planned issues as again we intend to get some of these Phase 2 capital upgrades in, which for safety purposes may require us to shut down some processes to start scaling the plant.

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Jason Ginder, National Securities Corporation - MD [38]

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The phone went dead, so -- just I didn't hear any answer. So was this a scheduled maintenance issue? Or was it an unforeseen maintenance issue?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [39]

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It was an unforeseen maintenance issue for the quarter for that period of time. Is any -- operator, did you hear -- is it Jason's line? Or is it our line?

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Operator [40]

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I believe it's Jason's line. I can hear you well.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [41]

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Okay.

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Operator [42]

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Our next question comes from [Brian Conrad], a private investor.

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Unidentified Participant, [43]

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So when you implemented -- I mean on the last call, you said electrolyte production was -- and recovery was the limiter on why you only had 1 to 4 modules operating. And just help me understand why Phase 1 was supposed to hit 75% of your recovery target and then Phase 2 was kind of get the remaining 25%. Why we're still having that electrolyte limiter there? Or is it other issues that are holding back production or the module? Are the remaining modules just not ready to be put in production? Or is it something else?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [44]

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Yes. [Brian], good question. So the modules themselves are running very well and performing very reliably. And the focus now is in the other areas of the plant to synchronize them towards the module production. And that includes things like the breaker and separation processes as well as the front end in electrolyte management. And even the back end of the plant when you take the precast and you make the precast to begin with and then cast those, et cetera. So all those other processes around the complex plant with multiple processes are what we're working on scaling more so than the AquaRefining area, which is running quite well.

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Unidentified Participant, [45]

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Okay. So how is Phase 2 going to have such a dramatic impact that now you can -- now that you can operate all 16, when I'm viewing it as only 25% of the electrolyte recovery? Is it -- not Phase 2 but it's just -- go ahead.

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [46]

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Phase 2, there's a couple of areas that are going to help with the electrolyte recovery, one of which is the drying system that will be able to get us a higher yield on the pace before it goes into our electrolyte for digestion and we'll be able to have less residues, significantly less residues. And that, in conjunction with a water evaporating system for us to recover our sodium sulfate, which is an inert byproduct of recycling of batteries, together helps us greatly with the electrolyte management and contribution margin and yield as well as ability to scale further.

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Unidentified Participant, [47]

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Okay. So -- but I'm thinking of Phase 2 as the 25%. Shouldn't the plant, as it's configured today, be able to support 12 modules running?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [48]

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Well, it's that percentage of electrolyte recovery for contribution margin as opposed to capacitization. So those are 2 different areas of key performance measurements. One is electrolyte recoveries that we don't have to use as many chemicals to do the recycling and the other is the ability to further capacitize the facility.

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Unidentified Participant, [49]

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Okay. So if you wanted -- if you wanted to run 8 modules 24/7 right now, could you?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [50]

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So in order to get to 8 modules 24 by 7, we have some additional fine-tuning that we have to do with our front-end concentrate production area. And also, we would like to see the contribution margin improvements as we produce more material to be a part of that decision to get to the 8 and it's those things coupled together that are really -- and some basic project management that's getting us to between now and the 4 modules and when we'll be running the 8 and so on as we get to 16.

I will point out though that we did indicate that when we go to the 8 modules, it will be actually modules 9 through 16. So by the time we run 8 modules, we will have commissioned and run 12 of the 16 modules.

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Unidentified Participant, [51]

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Right, right. I noticed that. And if so, it sounds like what you're implying here is that part of the production limit is voluntary and that the contribution isn't sufficient to really just run it all out. Is that accurate?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [52]

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Well, the contribution margin is increasing greatly as evidenced by we produced far more than we've ever produced and consumed less cash than we've ever consumed. And so we're heading in the right direction. So it's a combination, like I was saying, of the equipment needed and all the processes in place and synchronization of the plant to get comfortably to a regular 8 module basis, and that's really more the driver than the contribution margin towards that. But that is a factor, and the more you produce, the higher you want your contribution margin to be.

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Unidentified Participant, [53]

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Okay. And so when you roll -- when you deploy the modules to the Clarios location, when you hit the metrics, when you identify the site, do you expect a similar delay in getting those modules up and running? Or do you expect the smelter front-end process to be sufficient to ramp those up right away?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [54]

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Yes. Well, that would be the second/third time around so we expect it to go much more quickly as we deploy the first AquaRefining outside of our AquaRefinery based upon improvements and all of those things associated with it. So we should anticipate a more rapid ramp for a licensee than we've done because we're the first-of-a-kind facility and that always takes longer than the second iteration. And that said, goes the same when we expand from 16 to 32 modules, we ought to see more of a quick ramp from the 16 to 32 because we will have all that experience in running the 16.

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Unidentified Participant, [55]

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Okay. And then a little different direction. How is your relationship with Interstate? I mean you've paid off the note with them? I assume they were happy to receive the money. Other than that, is the relationship good?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [56]

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Yes. Interstate is still a significant investor in the company and a holder of shares and a major feedstock supplier. We talk to them regularly and they are very pleased to see because as a feedstock supplier, they are noticing that we're needing a lot more feedstock as we continue to progress with our scaling. So we're spending more time with them probably than last these days.

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Unidentified Participant, [57]

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Okay. Well, I appreciate it. I mean this will be my fourth quarter year that I've been waiting for this to hit full production. So I look forward to it happening in 2019.

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Operator [58]

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Our next question is from Steve Kruger with Foresight Investing.

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Steven Kruger;Foresight Investing;Analyst, [59]

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Is any one of the performance metrics that you have with Clarios around return on investment?

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [60]

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The performance metrics, Steve, are really around advertised throughputs of the machines, which we're already achieving and uptime in utilization and process flows, not around the ROI. That's the business discussion that we're having with them in the meantime, is working out with them how we're going to supply the equipment, how that gets paid for and how the licensing and ultimately the royalties work for the lead that's produced. So those are the discussions that we're having with them now in the business end while we achieve those technical performance metrics.

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Steven Kruger;Foresight Investing;Analyst, [61]

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In terms of the first-of-a-kind plant that you're ramping up right now, you've been continuing to expend capital to improve the performance of the plant. Can you give us any kind of guidance or visibility to what you think the return on investment will be once you get the plant fully up and running and at a level that you're happy with?

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Judd B. Merrill, Aqua Metals, Inc. - CFO & Company Secretary [62]

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So Steve, this is Judd. As we mentioned before, the investment this year in CapEx gets us to the 16 modules. We talked about that being at a breakeven on a plant economics. When we head into the expansion, the 32 modules, we see some significant cash inflows. And so that's good. That's where we want to be. And we -- our investments show that margins could be as good as 20% when we get to the 32 modules. So we're looking to that expansion to get us there.

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Steven Kruger;Foresight Investing;Analyst, [63]

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When you say margins, Judd, you mean operating margin?

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Judd B. Merrill, Aqua Metals, Inc. - CFO & Company Secretary [64]

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Correct.

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Steven Kruger;Foresight Investing;Analyst, [65]

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Income before income tax, right?

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Judd B. Merrill, Aqua Metals, Inc. - CFO & Company Secretary [66]

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Yes.

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Operator [67]

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

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Stephen Cotton, Aqua Metals, Inc. - CEO, President & Director [68]

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Thank you, operator. Well, I'd like to thank everybody for their time today and we really do appreciate the continued support from our shareholders and our partners as we work to ensure that we can scale this plant to its full capacity and execute in the meantime on our partnerships with Clarios, Veolia and others that we're working with. We will continue to update you all in the weeks and months ahead as we reach additional milestones. And we really thank everyone again for their time, and that's all for now.

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Operator [69]

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