Aqua Metals 2026 Q2 Earnings Call

Dan, please proceed. Thank you, operator, thank you, everyone, for joining us today.

Earlier today, Aqua Metals issued a press release providing an operational update discussing results for the second quarter ended June 30th, 2026. 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, 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 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 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.

Thank you, Dan, good afternoon, everyone, thank you for joining us for our second quarter financial results and business update call. Aqua Metals has now shifted from proving a technology to commercial execution. Over the last several years, we've proven that AquaRefining works. We've demonstrated battery-grade products. We've expanded our operating hours, we validated multiple process flows. Everything we're doing today is centered around building a profitable critical minerals processing business here in the U.S. You will also hear us describe the company a little differently moving forward, that is deliberate. Aqua Metals is a U.S. critical minerals processing company commercializing lower-cost recovery and refining technologies. That is not a new business. It's a sharper description of the business we've been building. We continue to believe one of the largest opportunities in the domestic battery supply chain isn't another battery factory.

It's the infrastructure needed to process manufacturing scrap and end-of-life batteries as those factories ramp production. That's exactly what Headwaters ARC is designed to become. We are completing final diligence on a Midwest site with approximately 150,000 sq ft of existing industrial infrastructure and approximately 50 or more acres, and it sits a short drive from six major LFP gigafactory projects. Feedstock proximity drives the economics of this business, and that location puts us next to one of the fastest-growing sources of LFP manufacturing scrap in the country. At full campus configuration, Headwaters is designed for approximately 20,000 tons per year of processing capacity. That scope and timing remain subject to financing, permitting, and commercial agreements. One thing I'd like to emphasize is that we've intentionally evolved our commercialization strategy. Instead of attempting to build everything on day one, we've broken the project into logical commercial phases.

Phase 1 is designed to use commercially proven pre-processing equipment to domestically recover valuable aluminum, copper, and high-specification black mass from segregated LFP battery materials. That approach gives us a much earlier pathway toward commercial revenue while substantially reducing execution risk. Once that operating foundation is established, we integrate AquaRefining in phase 2 to recover battery-grade lithium carbonate, iron phosphate, and graphite from that same black mass. That second step is where we believe Aqua Metals creates significantly greater long-term value. We're intentionally deploying capital in stages while increasing value at each step. We believe that's a much smarter commercialization strategy. Some of you have heard us describe commercial plans before, so let me be direct about our standard. We said we would build once and build right with feedstock offtake and financing in place before deploying AquaRefining at commercial scale. That standard has not changed.

The phased Headwaters model is how we satisfy those gates one step at a time. During the quarter, we made meaningful progress across every major work stream required to make that happen. We've advanced site diligence. We've advanced engineering. We've continued evaluating commercially proven pre-processing partners. We've expanded discussions with feedstock suppliers and future offtake customers. We've progressed multiple financing structures, and our intent is to fund Headwaters substantially at the project level rather than off our balance sheet. Eric will walk through that in more detail. We've continued operating the innovation center, which now has exceeded 5,000 cumulative operating hours supporting commercial engineering. None of those work streams are happening in isolation. They're all converging toward the same objective, bringing Headwaters into commercial operation as efficiently and with as little execution risk as possible.

One point I'd like investors to appreciate is why we're initially concentrating on LFP materials. LFP, or lithium iron phosphate, is becoming the chemistry of choice across energy storage systems and an increasing percentage of electric vehicles. Gigafactory capacity is expanding rapidly. That means manufacturing scrap is expanding just as rapidly. Our market analysis, informed by third-party industry research projects, recyclable LFP scrap will grow roughly 15-fold by 2030, BloombergNEF projects U.S. storage capacity of approximately 235 gigawatt hours by 2035. We believe that creates one of the largest underserved critical minerals processing opportunities in North America. Unlike nickel and cobalt-rich batteries, LFP requires a different economic model. Our phased commercialization strategy is specifically designed around that opportunity. I want to be clear that LFP is where we start, not where we stop.

The same platform architecture, mechanical pre-processing, followed by AquaRefining and product recovery, is intended to extend to NMC materials, or nickel manganese cobalt, and over time, to selected mined materials and industrial waste streams. We have already tested the process on mined feedstocks. Headwaters is designed to be the first node in that platform, not the whole business. At the same time, AquaRefining remains the technology that differentiates this company. Our process is designed to eliminate one-time use chemicals, reduce waste, improve worker safety, and lower operating costs compared with conventional processing methods. The innovation center continues validating commercial process flows while supporting engineering for Headwaters, so that technology foundation remains very strong. Another area we are pleased with is our financial discipline. We have entered this commercial phase debt-free. We are intentionally matching capital deployment with commercial milestones, and our objective is not simply to build a facility.

Our objective is to build a profitable business with disciplined capital allocation, and that is an important distinction. Looking ahead, our priorities for the balance of 2026 are straightforward: complete the site diligence, secure long-term site control, select our phase 1 processing partner, advance feedstock and offtake agreements, continue engineering, complete capital formation, advance permitting, and continue moving toward a final investment decision. Those are tangible milestones investors can follow over the coming quarters. I want to be clear about when the economics arrive. At a final investment decision on phase 1, we intend to provide capital cost, expected throughput, product mix, and expected operating cost. I will close with this. We believe Aqua Metals has reached an important inflection point. The technology foundation has been established and the market opportunity continues to strengthen.

Our commercialization strategy is now clearly defined, and our team is focused every day on executing that plan with discipline. We are excited about the opportunity ahead, and we appreciate the continued support of our shareholders. With that, let us have Eric review the financial results before opening the line for questions.

Thanks, Steve. Moving to highlight a few items on the income statement for the second quarter of 2026. We reported a net loss of approximately $4.5 million, or $1.31 per basic and diluted share, compared with a net loss of approximately $6.8 million, or $7.44 per basic and diluted share in the second quarter of 2025. The per share comparison also reflects the increase in the weighted average shares outstanding during 2026. The total operating expenses were approximately $4.6 million for the quarter, compared with approximately $7 million in the prior year period. The current year quarter includes an additional non-cash provision for credit loss of approximately $2.1 million related to Lion Energy. While the prior year quarter included a non-cash impairment charge of approximately $3.8 million.

Plant operations, research and development, and general and administrative expenses totaled approximately $2.5 million, compared with approximately $3.3 million in the prior year quarter, reflecting our continued focus on managing our core operating cost structure. Lion Energy, based on developments during the quarter, we updated our estimate of expected recoveries. At June 30th, our total allowance for credit losses was approximately $2.5 million, representing 60% of the approximately $4.2 million gross balance that also includes accrued interest. This resulted in a net carrying amount of approximately $1.7 million. The allowance is an accounting estimate of the expected collections and does not represent a determination of the amount legally owed to Aqua Metals or a waiver of our rights. We remain committed to pursuing recovery through appropriate legal and commercial avenues.