Aqua Metals (AQMS) - Poor Executive Track Records and Even Worse Supporting Cast
Hello OpTrackers,
We’re back with another short idea - today it’s Aqua Metals, Inc. (AQMS).
For The Uninitiated
While there are dozens of tools available to enable the qualitative and quantitative analysis of THE BUSINESS of a potential investment, at OpTrack.io I believe there is an unmet need for analysis of THE PEOPLE that drive the outcomes of these businesses. I hope you find it helpful. If you do, please subscribe and share it far and wide. It would mean the world to me.
Aqua Metals Business Overview
The tradition of OpTrack.io is to not spend a lot of time on the actual business and this won’t be an exception.
Aqua Metals is a publicly traded science project. A quick snippet from the company’s latest 10-K:
“We were formed as a Delaware corporation on June 20, 2014, for the purpose of engaging in the business of recycling metals through a novel, proprietary and patent-pending process that we developed and named “AquaRefining.” In 2015, Aqua Metals developed a breakthrough metal recycling technology that utilizes a clean, closed-loop process that can produce high-purity metal. We believe this innovative approach can deliver raw materials back into the manufacturing supply chain, while reducing emissions and toxic byproducts and creating a safer work environment. In particular, the modular AquaRefining systems have already demonstrated the ability to recover critical minerals from both lead acid batteries and lithium-ion batteries and can reduce the cost and environmental impact of battery recycling.”
So, the company recycles batteries using a proprietary process called “AquaRefining.” I have absolutely no idea that that means. If anyone does, please feel free to respond in the comments and or shoot me an email. But to be honest, I really don’t care what it means and I don’t think you really need to. Let’s keep digging.
AQMS People Overview
Stephen Cotton, AQMS Chief Executive Officer
Stephen’s background appears pretty innocuous. The only prior experience I can find is that he was the CEO of a company called Data Power Monitoring that changed its name to IntelliBatt and then again to Canara, Inc.
It appears that at some point a PE firm called Columbia Capital invested $22mm into the business and simultaneous to that Stephen was replaced with another fellow as CEO and he remained Executive Chairman for a year. The business was related to data center batteries, so not completely afield to what AQMS is doing.
I have no insight as to whether Stephen left of his own volition or the PE firm forced the change in leadership.
Judd Merill, AQMS CFO
Judd’s only prior C-Suite / Named Executive Officer experience was at a company called Comstock (Ticker: LODE). He was the CFO from 2011 - 2017 and was on the board from 2020 - 2023. Here is LODE’s share price performance from 2011 to today.
Vincent DiVito, AQMS Chairman and Lead Independent Director
Prior to AQMS, Vincent served on the board of Entertainment Gaming Asia, Inc. from 2005 to 2017. Here’s the share price over that time:
He also served as the Chairman of Riviera Holdings Corp from 2002 - 2011 and it ultimately filed for bankruptcy (but admittedly had a hell of a run there for a while):
Vincent’s most successful prior public company experience that I can find was his tenure on the board of VirtGame Corp, from just over a year before it was sold to Progressive Gaming Internal in 2005 for $20mm. We note, however, that Progressing Gaming also went on to file for bankruptcy in 2009. Womp Womp.
Edward Smith, AQMS Director
The brightest spot on AQMS’s list of professionals and board members is Mr. Smith. He was the CEO and President of SMTC for its last 4 years as a public company and he oversaw some genuine value creation:
He also spent time at Avnet, though never in a role all that senior, which has been a great compounder. Not sure he gets a ton of credit for that but I do want to be fair and balanced in the review of these biographies, so it’s worth mentioning.
Dr. Molly Zhang, AQMS Director
Dr. Zhang is pretty much a career board member at this point. She is currently on the board of Arch Resources, Gates Industrial Corporation, and some private companies. Additionally, she was previously on the board of Cooper-Standard Holdings, GEA Group, and Newmont Corporation. These are serious, large cap companies.
In summary, the key operators and Chairman of AQMS are not confidence inspiring, but they do appear to have added some credible adults to the board.
Non-Operator People Overview
The ideas I have written up on this blog thus far haven’t strayed far beyond the track records of executives and board members at the subject companies. However, it’s my firm belief that investors can obtain “signal” by tracking the support cast around these executives as well. On that front, AQMS has a few concerning members of it support cast:
Bucket Shop Underwriters
Given as of Q1 2013 the company had $9mm of gross debt, $3.5mm of gross cash and burns ~$3mm/quarter, it’s not surprising that in July the company announced $20mm capital raise. The company issued 18mm shares at $1.10/share for $20mm in gross proceeds. That is a ~26% discount to the closing share price on July 19th when the offering was priced.
The offering was underwritten by Benchmark, which is one step above Network 1 Financial, but a truly bucket shop brokerage firm. I’d be willing to wager an equal weight basket short Benchmark clients would dramatically underperform the S&P 500.
Tiny Corporate Partnerships
One of the participants in AQMS’s capital raise is Yulho Co., a Korean company that - according to Capital IQ - is engaged in recycling lithium batteries and also in the business of selling women’s clothing.
The company has $160mm market cap, does not generate meaningful cash flow, and has debt roughly equal to its cash balance. It also has generated approximately no shareholder value ever. Not exactly a confidence inspiring partnership.
Putting This Altogether
So, in summary:
AQMS is a publicly traded science project that doesn’t generate any revenue and burns cash
All of the key executives have track records either devoid of meaningful success or full of mostly failures
Admittedly, there does appear to be two adults on the board
Strategic partnerships with companies that look about as credible as AQMS itself is
Is keeping itself in business by issuing shares via bucket shop underwriters
The company now has ~6 quarters worth of cash on the balance sheet, but we would be shocked if this ever becomes a real business. Eventually the market will catch on to the perpetual dilution and negative reflexivity will kick in. With a low cost to borrow this looks like a promising set up for an alpha short to me.
Disclaimer: Please remember this post should not be taken as investing advice and please consult a licensed financial advisor before making any investment decisions. The OpTrack team did its best to present everything above in a factually accurate way, but there is always room for error in biographical data on executives and market data. There may be mistakes of omission or commission in the above - if you find one - please reach out to OpTrack@OpTrack.io so that we can correct it.