Earnings Call Transcript - AQMS Q4 2025

Operator, Operator

Greetings, and welcome to Aqua Metals Fourth Quarter 2025 Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dan Scott. Thank you. You may begin.

Dan Scott, Investor Relations / Host

Thank you, operator, and thank you, everyone, for joining us today. Earlier today, Aqua Metals issued a press release providing an operational update and discussing results for the full year ended December 31, 2025. This release is available in the Investor Relations section of the company's website at aquametals.com. Hosting the call today are Steve Cotton, President and Chief Executive Officer; and Eric West, Chief Financial Officer. Before we begin, I would like to remind participants that during this call, management will be making forward-looking statements. Please refer to the company's report on Form 10-K filed today 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 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 conduct a question-and-answer session. With that, I'd like to turn the call over to Steve Cotton, President and CEO of Aqua Metals.

Steve Cotton, President and Chief Executive Officer

Thank you, Dan, and good afternoon, everyone. I appreciate you joining us for Aqua Metals Fourth Quarter and Full 2025 Earnings Call. Today, I'll walk through what was an active and milestone-filled year for our company, covering how we evolved our technology, what we accomplished on the product side, how our strategic partnerships developed and the financial foundation we built heading into 2026. Eric will then follow with a detailed financial review. Let me start with the overall frame for 2025. It was a year in which discipline and execution went hand-in-hand. We made deliberate adjustments to our commercialization approach as market conditions evolved, cleared important technical hurdles, extended our platform with new strategic initiatives and put the balance sheet in meaningfully better shape than where we started the year. On the technology and product front, I would call 2025 the most expansive year in Aqua Metals' history in terms of what the AquaRefining process demonstrated that it can do. We grew the product portfolio. We raised the bar with product specs and proved the feedstock flexibility of our platform in ways that matter commercially and allow us to address the variability of material, not only in the battery recycling market, but beyond to include other markets like rare earths and undersea mining, for example. One of the most important strategic decisions we made this year was to sharpen the commercial scope of our first ARC facility. With the AquaRefining platform that's capable of producing a broader range of outputs, we made the deliberate decision to simplify the first commercial plant around two core feedstock streams, NMC black mass and LFP black mass. From those inputs, our initial commercial focus will be on three primary outputs: battery-grade lithium carbonate, nickel-cobalt mixed hydroxide precipitate or MHP, and iron phosphate. We have already successfully produced these materials at our innovation center, which gives us confidence that this is the right first commercial configuration. That decision is expected to reduce execution risk, shorten time to market, lower upfront capital requirements and support attractive unit economics and a stronger payback profile. In short, we are intentionally designing the first commercial ARC to be simpler, faster and more capital efficient to deploy while preserving the flexibility to expand the product slate over time as we scale. We believe that it is the right disciplined approach to commercialization and long-term shareholder value creation. On product quality, our team delivered results that we believe set a new benchmark for the recycling industry. Our lithium carbonate achieved fluorine levels under 30 parts per million, a specification that to our knowledge places us at or above the quality standard for any recycled lithium source globally. Material meeting this threshold has been produced at meaningful scale and distributed to strategic counterparties for evaluation. The responses have been substantive and encouraging. On the broader product side, we generated product qualification representative volumes of multiple products and advanced those materials through partner qualification processes. We also developed nickel carbonate, producing initial samples calibrated to specific downstream partner requirements, which opens additional product pathways and gives us greater optionality as partner discussions mature. Now on LFP, or lithium iron phosphate battery chemistry, which is cobalt- and nickel-free, I want to give this the attention it deserves because I consider proving that we can economically recycle this type of material one of the most significant technical achievements in this company's history. We moved from engineering analysis and bench-scale work on lithium iron phosphate recycling all the way through to processing an entire metric ton of LFP cathode scrap at our pilot facility, recovering battery-grade lithium carbonate that was validated by OEM and third-party testing. That is not a lab result. That is demonstration at commercially meaningful scale. And because LFP chemistry is capturing an increasing share of both EV and stationary storage deployments, the ability to handle it gives our platform a decisive competitive advantage in terms of addressable feedstock. We also initiated trials on sodium sulfate regeneration, a process that could allow P-CAM producers to convert a problematic waste stream back into usable chemical inputs, creating cost and sustainability advantages for our partners. And we extended our alternative feedstock testing to include nickel refinery residue alongside polymetallic nodule materials, rare earth-bearing magnets and e-waste, which underscores the core flexibility built into our electrochemical process. One achievement from 2025 stands out beyond the product and process milestones. We were central to producing the first cathode active material made entirely from recycled nickel sourced within the United States. That material has now entered qualification at a Tier 1 battery manufacturer. This matters not just as a technical accomplishment for Aqua Metals, but as a demonstration that a fully domestic closed-loop battery material supply chain is not a theoretical goal. It is something that can actually be built. As the field of players in this market continues to consolidate, we intend to be at the center of it. On the commercial development side, we advanced our ARC facility design to support a processing range of 10,000 to 60,000 metric tons of black mass input feedstock annually. That flexibility is intentional. It allows us to size the first commercial facility to the specific partner configuration and capital structure we ultimately bring together rather than being locked into a single predetermined scale. We also conducted structured due diligence on several candidate sites for the first commercial ARC, working through factors like feedstock proximity, offtake accessibility, utility infrastructure, permitting pathways and the strategic alignment of potential partners at each location. The process has been thorough, and we are in a good position to move forward with final site selection later this year as the remaining commercial conditions come together. And I want to be direct about the build decision because I think our approach is sometimes misread as hesitation. In fact, this is exactly the opposite. We are not going to build before we are ready. And what ready means is contracted feedstock, committed offtake and project financing that is genuinely bankable. Our posture is simple: build once, build right and execute from a position of confidence. That approach protects shareholders and gives us the best possible path to a facility that ramps to profitability on a reasonable timeline. We also remain actively engaged in diligence with Lion Energy around a transaction structure that we believe could be highly strategic and meaningfully additive to Aqua Metals. If completed, this opportunity would not only provide immediate commercial revenue and extend our reach downstream into branded energy storage systems across portable, residential, commercial, data center and industrial applications, but it would also position Aqua Metals and its shareholders to participate more directly in two of the fastest-growing segments of the electrification economy: distributed energy storage and domestic LFP battery cell manufacturing. Importantly, through Lion's existing relationship with an equity stake in American Battery Factory, or ABF, this transaction would also bring with it a meaningful equity interest in ABF, creating exposure to the emerging U.S. GigaFactory build-out and LFP cell production market. We view this as a compelling strategic fit that could broaden our platform, advance our long-term circularity vision, enhance our commercial relevance and create additional pathways for shareholder value creation. We remain disciplined and thoughtful in our process, and we look forward to updating the market in the near term. Let me now turn to our partnership activity in 2025, which was broad and meaningful. I'll walk through the key relationships because the pattern they reveal is important. With 6K Energy, we formalized a multiyear supply agreement that establishes the commercial terms under which we would deliver battery-grade nickel metal and lithium carbonate into their domestic cathode active material manufacturing operations. This moves the relationship beyond technical collaboration and into a defined commercial framework, positioning Aqua Metals as a main supplier into a domestic CAM production chain. With Westwin Elements, we entered a nonbinding LOI outlining terms for a potential supply of recycled nickel carbonate that would support Westwin's efforts to build a domestic nickel supply chain. What makes this relationship particularly interesting is the downstream implication. We believe that a Westwin-Aqua Metals commercial partnership can help stand up nickel production and refining capability on U.S. soil that simply does not exist at scale today. We also signed two MOUs that extend the AquaRefining platform into adjacent critical minerals territory. The first with Impossible Metals explores applying our refining process to material collected responsibly from the seafloor, feedstocks that contain nickel, cobalt, copper, manganese and rare earth elements. The second with Moby Robotics evaluates whether AquaRefining can be applied to polymetallic nodules with the potential to recover true rare earth elements as well. Both extend our platform well beyond battery recycling and into strategic areas of focus on critical minerals in today's world. I want to address the strategic logic here directly. These are not departures from our mission. The chemistry underlying AquaRefining—electrochemical refining of dissolved critical mineral streams—is the same whether the feedstock originates from black mass, refinery residue, e-waste or deep sea nodules. The intellectual property travels. What these agreements do is extend our total addressable market and create optionality that a licensing and partnership-oriented business model can monetize without heavy incremental capital. Battery recycling remains our primary commercial path and these adjacencies add strategic depth. We also continued active industry engagement at our Tahoe Reno-based Innovation Center and demonstration plant throughout the year, hosting the National Battery Conference, automotive OEMs, battery manufacturers, recyclers and upstream material suppliers for facility tours and technical reviews. The consistency of the feedback about the quality of our output and the operational sophistication of our pilot plant continues to build credibility in commercial discussions. And you can see some of that feedback on our blog, The Current, on our website. On the governance front, we made targeted additions to the Board of Directors, bringing in directors with specific expertise in growth strategy, commercialization and financial markets. These additions reflect where we are in our development, a company that is transitioning from technology validation to commercial execution, and the Board now reflects that stage appropriately. We also completed a CFO transition with Eric West stepping into the role, bringing both deep Aqua Metals institutional knowledge and a fresh financial perspective to this next phase. On intellectual property, the U.S. Patent Office granted allowance of a foundational patent covering key elements of our lithium battery recycling process. This is a significant addition to an already substantial IP estate and reinforces the long-term defensibility of the AquaRefining platform at commercial scale. We also filed a provisional application covering a novel low-cost leaching approach applicable to mined manganese ores and deep sea nodule feedstocks, which is further evidence of the expanding reach of our IP program. As we enter 2026, our priorities are well defined. We are advancing engineering and permitting work to support site selection for our first commercial ARC. We are deepening commercial negotiations with supply, offtake and project financing partners. And we are moving strategic partner qualifications for our lithium carbonate and MHP forward in a deliberate milestone-oriented way. The broader environment for domestic critical minerals has continued to shift in our direction. The policy and geopolitical case for building domestic battery material production capability has never been stronger, and we are increasingly recognized as a technically validated, credibly financed player in that space. We have the process, the people, the operating demonstration plant and the strategic relationships to move from validation to commercialization. Now it is about converting that momentum into commercial results, and I am confident in our team's ability to deliver. With that, I will turn it over to Eric for the financial review. Eric, over to you.

Eric West, Chief Financial Officer

Thanks, Steve. We'll now provide an overview of our full year 2025 financial results and balance sheet position. Given this is our fourth quarter and full year call, I will focus primarily on annual figures while noting fourth quarter specifics where relevant. Let me start with the balance sheet. We ended the year with cash and cash equivalents of approximately $10.8 million. The significant capital raise activity in 2025 is the most important context for understanding our year-end position. In October, we closed a $13 million investment from a leading institutional investor, combined with approximately $7 million raised through our ATM and equity line programs. Our total new capital raised in 2025 was approximately $20 million. This was a proactive raise made from a position of strength and strategic momentum, and it provides us with multiple quarters of operating runway and the resources needed to advance engineering, permitting and site selection work for our first commercial scale AquaRefining facility. I also want to highlight a key balance sheet improvement that I'm particularly proud of. We ended the year with no long-term debt. This is the result of the deliberate financial management decisions made throughout 2025, including the completion of the Sierra ARC asset sale in the second quarter and the associated retirement of the $3 million Summit Building loan. Having fully eliminated our debt, we entered 2026 with a cleaner, more flexible capital structure than we have had in years. Now moving to the income statement. I will cover the full year 2025 results with prior year comparisons where described. Total operating expense for the full year 2025 was approximately $23.3 million compared to approximately $23.8 million for the full year 2024. While total expenses were relatively consistent year-over-year, 2025 included approximately $9.1 million of impairment and loss on disposal charges, compared to approximately $3.1 million in 2024. These impairment charges are nonroutine and noncash in nature. Excluding these items, underlying operating expenses declined meaningfully year-over-year, reflecting the sustained cost discipline we have maintained throughout 2025, including the benefit of workforce reductions implemented in prior periods while continuing to support our key technical and commercial development programs. We are running a lean, mission-focused operation. General and administrative expenses for the full year were approximately $10.5 million, down from approximately $12 million in the prior year. The decline was driven primarily by lower payroll and related costs following prior year workforce reductions, reduced professional fees and broader overhead efficiencies. For the fourth quarter specifically, G&A came in at approximately $3.8 million. Research and development expense for the full year totaled approximately $1.3 million, reflecting our continued investment in process optimization and product expansion, including lithium carbonate quality improvement, MHP production, nickel carbonate development and LFP processing capability. For the fourth quarter, R&D was approximately $0.4 million. While we maintain disciplined cost controls, we are intentional about funding the technical work that derisks commercialization and advances partner qualification. Every dollar spent in this area has a clear commercial purpose. Our full year 2025 net loss was approximately $22.6 million or negative $15.15 per basic and diluted share compared to a net loss of approximately $24.6 million or negative $38.25 per share for the full year 2024. For the fourth quarter, our net loss was approximately $4.4 million or negative $2.97 per share. These figures reflect the pre-revenue development stage of our business, and they continue to trend in the right direction as our cost structure matures. I want to take a moment on the year-over-year net loss comparison because the 2025 figures also reflect some noncash items that are worth noting for investors evaluating our underlying operating trajectory. Our 2025 results include noncash items associated with warrant liability remeasurement, impairment on disposal of property, plant and equipment and other noncash adjustments similar to prior periods. We are pleased that the core operating cash consumptions continue to trend lower year-over-year, which is a direct reflection of the cost discipline we have discussed on every call this year. Moving to the cash flow statement. Net cash used in operating activities for the full year 2025 was approximately $10.3 million compared to approximately $13.6 million in 2024. This improvement, a reduction of more than 24.8% year-over-year, reflects our disciplined overhead management and the lower cost structure we have built over the past 18 months. Investing activities for the year primarily reflect the Sierra ARC building and equipment sale proceeds received in Q2, partially offset by minor fixed asset activity. In December of 2025, we also provided approximately $2.1 million of short-term financing to Lion Energy, which remained outstanding at the year-end as a note receivable. Subsequent to year-end in February 2026, we entered into a nonbinding term sheet contemplating the potential acquisition of Lion Energy and contributed the outstanding note along with an additional $2 million to acquire a subordinated position interest in its senior secured credit facility in connection with our evaluation of the potential transaction. On the financing side, the year was characterized by meaningful capital inflows from our October institutional raise and ongoing ATM and equity line activities, partially offset by debt repayment activity completed earlier in the year. Looking ahead, as Steve outlined, we anticipate a measured increase in cash usage as we ramp engineering, process optimization and site readiness activities in support of our first commercial facility. We will continue to manage our spending with rigorous discipline. Every dollar invested must advance a clear strategic and technical milestone. The focus remains on maintaining adequate liquidity, aligning investment pace with commercialization progress and ensuring we have the financial platform to reach our goals. The balance sheet improvements we achieved in 2025—eliminating debt, raising $20 million in new capital and continuing to reduce our operating cash burn—have positioned Aqua Metals to approach 2026 from a place of genuine financial stability. We have the runway we need and we intend to use it wisely. That concludes my prepared remarks. I will now turn the call back to the operator for the question-and-answer session.

Operator, Operator

Our first question comes from Mickey Legg with The Benchmark Company.

Michael (Mickey) Legg, Jr., Analyst, The Benchmark Company

Congrats on another quarter. Just a couple here on the Lion Energy acquisition. Assuming that it does get approved and closes, just what are your main areas of focus near term and some of the most natural areas of synergy you see for Aqua Metals?

Steve Cotton, President and Chief Executive Officer

Yes, Mickey, good question. And yes, we have been very deep in due diligence across all the key work streams associated with this acquisition. That's inclusive of financial, legal, operational and commercial. And that's included everything from auditing the financials to completing a detailed independent market and product assessment across Lion's revenue-generating portable, residential, commercial, industrial and data center offerings. The team has spent a lot of time discussing synergies across facilities and working closely through all the discussions. On the process, it's been very active and substantive, and we expect to bring it to a conclusion in the near term and update the market accordingly. In a greater sense, what we see with the synergies is that an integrated battery materials and battery energy storage company is much stronger than those that stand on their own. And that's because of the synergies you can get with circularity across the ingredients that go into the batteries, the production of the batteries, inclusive of the ownership that Lion Energy has in American Battery Factory with their planned GigaFactory in Tucson, Arizona, and being able to put that all together and expose the shareholder, frankly, to the optionality of owning a stock that is really a combination of energy storage, battery materials and GigaFactory production. It's much how it's done in China. The one reason that China has been successful is by integrating these solutions and creating those kinds of synergies to reduce costs, increase efficiency and have a better story about the overall solution. So we're really excited about that opportunity to work everything out with Lion Energy and come out swinging; we believe it will be the first integrated energy solution provider and battery materials provider in North America.

Michael (Mickey) Legg, Jr., Analyst, The Benchmark Company

Great. Okay. Okay. That's very helpful. And then just one more on the acquisition. I want to understand a little bit better the equity stake it could bring in American Battery Factory. How does that fit in there? Does it align with your closing remarks about fitting into the domestic end-to-end battery ecosystem?

Steve Cotton, President and Chief Executive Officer

Yes. So definitely, the equity stake in American Battery Factory is a huge value creator and a huge synergistic opportunity. American Battery Factory is planning a first GigaFactory in Tucson, Arizona. They've already secured the land—about 270 acres—where we see synergistic opportunities as one of the sites we're considering to deploy our ARC facility at commercial scale, plus Lion Energy having some battery fabrication. So if you can think of a single location that would have cells being produced, the agreement that we already have with American Battery Factory in an MOU form today is that we would take the scrap from that GigaFactory as an input to our recycling facility and return lithium carbonate to that GigaFactory. In that same area, Lion Energy could be putting together innovative battery energy storage products for the various segments of the marketplace I mentioned earlier. The GigaFactory plays are large. American Battery Factory is seeking the final phase of financing to get that GigaFactory started later this year. Those are hundreds of millions of dollars of investment based on project finance; we think our equity position would still be quite meaningful post-financing. A GigaFactory produces significant revenue and product that add to those synergies. So we really see that as a key aspect of our relationship with Lion Energy and American Battery Factory—tying that all together.

Operator, Operator

I would now like to turn the call back to Dan to facilitate questions that were submitted online.

Dan Scott, Investor Relations / Host

All right. Thank you very much. First question for Steve. Could you give us a site selection update? Where does the process stand? And when can we expect an announcement?

Steve Cotton, President and Chief Executive Officer

Sure. So the biggest gating factors now are really site selection, project structure, lining up the right capital and commercial partners. As we've already mentioned, we're in active due diligence on two specific potential sites, looking at things like feedstock access, logistics, utilities, permitting and, of course, the overall economics of the project in that particular location. Our goal is to settle on and secure the lead site and then spend the balance of the year making real progress on site-specific FEL-2 engineering. That's really the stage where you move from concept into a much more defined and specific plant design down to every nut and bolt for that particular location, cost estimate and the execution plan to begin executing a bond.

Dan Scott, Investor Relations / Host

Excellent. The second question, Steve, is what is the status of the feedstock market? There's been a lot of volatility in battery metal prices. How does that affect your commercial position?

Steve Cotton, President and Chief Executive Officer

Great question. Today, effectively all of the black mass produced in the United States and really North America is being exported offshore, simply because there really aren't yet commercial scale refining options here domestically. That's exactly the opportunity we're pursuing with the first build of our commercial ARC. The market does demand competitive payables for feedstock, but we believe our AquaRefining process puts us in a very strong position because of its potential CapEx and OpEx advantages. Importantly, we're already working to diversify through both end-of-life batteries and GigaFactory scrap, as I mentioned earlier. That includes our announced MOU with American Battery Factory in Tucson. We can take end-of-life and beginning-of-life batteries that didn't make it, and about half of the scrap overall today is GigaFactory scrap. It's also important to note that the overall economics around refining black mass have improved meaningfully over the last year. A number of projects across the industry, including ours, slowed or paused when lithium carbonate prices fell to around $8,000 per ton in 2024. With pricing now having recovered to roughly the $20,000 per ton range, we think that creates a much healthier backdrop. That, in turn, is a real opportunity for the remaining U.S. players and especially for Aqua Metals given the stage that we're at today.

Dan Scott, Investor Relations / Host

Thanks, Steve. Next question: can you talk about the LFP breakthrough in more detail? Why is it significant? And what does it mean for your business model?

Steve Cotton, President and Chief Executive Officer

Yes. As I mentioned in my prepared remarks, the LFP breakthrough is really about our ability to economically recover lithium while also recovering the iron phosphate into a reusable form. That's a big deal. LFP does not have nickel or cobalt to support the economics, so you really have to run an efficient process, and that's exactly where our AquaRefining technology stands out. That matters not just for future end-of-life batteries, but for the growing volume of LFP GigaFactory scrap—such as that already being generated and what we expect from American Battery Factory as they come online. As LFP continues to scale across energy storage and EVs, we really think that puts us in a strong position to be a leader in LFP battery recycling.

Dan Scott, Investor Relations / Host

All right. Eric, next one is for you. Can you expand on your liquidity position coming out of 2025? And how long does the current capital support your operations?

Eric West, Chief Financial Officer

Yes, definitely happy to expand on that. We ended the year with $10.8 million of cash, no long-term debt and a lower operating burn. This has put us in a stronger position compared to prior periods. We continue to exercise cost discipline as we progress. To add additional context, the capital raised during 2025 was about $20 million in total, which helped strengthen the balance sheet and put us in a position to fund the work we're doing now. That gives us solid flexibility as we continue to move forward on engineering, site selection and our partnerships that lead to our first commercial facility. Overall, we feel good about where we are. The focus now is continuing to be disciplined and making sure that we deploy capital against the right milestones.

Dan Scott, Investor Relations / Host

All right. A couple more. Steve, you've announced MOUs with Impossible Metals and Moby Robotics for deep sea mineral applications and also an LOI with Westwin Elements. How do these partnerships fit with Aqua Metals' core business? And what do they look like commercially?

Steve Cotton, President and Chief Executive Officer

At a high level, all of these partnerships are about applying our core AquaRefining platform to new sources of critical minerals and opening access to very large total addressable markets where we can monetize that capability. We view them as directionally aligned and not a distraction. Whether it's black mass, GigaFactory scrap, or primary resources like deep sea nodules or refining intermediates from partners like Westwin, the common thread is our ability to process these complex materials efficiently and with a lower environmental footprint. These partnerships give us optionality and extend our TAM in addition to battery recycling at our sites.

Dan Scott, Investor Relations / Host

Okay. The last question we have is, Steve, how do you view the ongoing consolidation in the battery recycling industry? Does it create opportunity or risk for Aqua Metals?

Steve Cotton, President and Chief Executive Officer

We view the consolidation overall as a net positive for Aqua Metals. The lithium price collapse in 2024 exposed which models were resilient and which were not. At the same time, the industry is learning that simply copying China's chemical-intensive hydro approach into North America is a very tough economic proposition. That's why we built AquaRefining differently from the beginning. Our process is far less chemically intensive, produces far less waste—specifically we do not produce sodium sulfate waste streams the way the incumbent hydro processes do—and it is better suited to North American permitting and operating realities. As weaker models fall away, we think our position becomes increasingly differentiated and stronger.

Operator, Operator

Thank you. There are no further questions at this time. I'd like to pass the call back over to Steve for any closing remarks.

Steve Cotton, President and Chief Executive Officer

All right. Well, thank you, everybody, for listening in. For those of you reading the transcript in the future, we look forward to continued communication of our updates in the near future as we continue to develop Aqua Metals through the rest of 2026. We're really excited to keep everybody in the loop. Thanks again.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.