Li-Cycle Holdings Corp (LICY) 2024 Q1 法說會逐字稿

Good day.

My name is Madison, and I will be your conference operator today.

(Operator Instructions) Thank you.

I will now turn the call over to Louis DS.

VP Corporate Affairs.

Please go ahead.

Thank you.

Good morning, and thank you, everyone, for joining us for Li-cycle business update and review of financial results for the interim period ended March 31, 2024.

We will start today with formal remarks from IG Coach, our Co-Founder, President and Chief Executive Officer, and Craig Cunningham, Interim Chief Financial Officer.

We will then follow with a Q&A session ahead of this call, Li-cycle issued a press release and a presentation which can be found on the Investor Relations section of our website at investors.li-cycle.com.

On this call, management will be making statements based on current expectations, plans, estimates and assumptions which are subject to significant risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-cycle.

Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect, including because of factors discussed in today's press release during this conference call and in our past reports and filings with the US Securities and Exchange Commission and Ontario Securities Commissions in Canada.

These documents can be found on our website at investors.li-cycle.com. We do not undertake any duty to update any forward-looking statements, whether written or oral may during this call or from time to time to reflect new information, future events or otherwise except as required

These forward-looking statements should not be relied upon as representing lifecycle assessment as of any date subsequent to the date of this call.

With that, I'm pleased to turn the call to Ajay.

Thank you, Lou.

And good morning, everyone.

Lou has been with Li-cycle for nearly two years.

In addition to heading up marketing, communications is also ticking on leading Regulatory Affairs and Investor Relations. [Nahal] asked him to moving on to pursue other opportunities.

We want to thank her for her contributions to Li-cycle and wish her well in her future endeavors.

Now I'd like to introduce Craig Cunningham as Li-cycle, Interim CFO.

We're excited added to the team and are confident that it is a strong addition to the company.

Craig has extensive background in executive level leadership and brings more than 17 years of accounting finance, operational and capital markets experience for Li-cycle.

In his previous roles as CFO and Executive, he's been a key contributor to the formulation of Corporate Strategy and providing key financial oversight and controls on major projects.

Yet has broad experience overseeing a key supply chain, logistics and administrative functions.

Welcome, Craig.

We look forward to your contributions.

On our most recent call in March, we provided an update on the progress made since pausing construction at the Rochester hub in October 2023 and initiated a comprehensive review.

Today We are pleased to share additional updates on the steps we've taken towards achieving the key objectives from this review, providing an overview of our commercial highlights, I'll also discuss our first quarter financial and operating results.

Starting on slide 3.

We continue to make progress on the key strategic priorities that we outlined on our last call.

First, as part of our comprehensive review of the Rochester hub.

We have events work with the local market to refine cost estimates for the project.

Since we confirmed the technical viability of the mixed hydroxide precipitate or MHP process.

Second, with respect to financing, we closed on the strategic investment of $75 million by Glencore on March 25, strengthening our long-term partnership and enhancing our liquidity.

Additionally, in parallel with a comprehensive review, we are working closely with the DOE Loan Programs Office on key financial, technical and legal work streams towards close of the conditional commitment for a loan for gross proceeds of up to

[$375 million].

Third, regarding liquidity as part of our cash preservation plan and in conjunction with our plan to rightsize and reshape our organization.

We transitioned from a regional management model to a centralized model to better position lifecycle for future success.

This strategic decision is expected to generate approximately $10 million in annualized savings from lower payroll costs.

Finally, we continue to optimize our spoke network to reduce cost and improve efficiencies remain focused on prioritizing our generations policies as we align with EV and battery OEM customers.

We continue to execute on growth plans in North America in Europe.

Turning to slide 4 for an update on the comprehensive review for the restart of the Rochester Hub project.

On our last call, we reported that we completed an internal technical review, confirming the viability of the MHP process as part of the potential change in our product development strategy for the Rochester hub,

FinCEN, another work stream that has significantly progressed.

It is work with the local market regarding major construction contracts to refine our capital estimates for the project.

Our current estimated cost to complete the Rochester Hub project is approximately $504 million for the MHP scope, which includes the total cash spend as of March 31, 2024.

We note This estimate is subject to a number of assumptions and is likely to change as we continue to complete our comprehensive review of our near-term priorities for the restart of the project includes completing the technical and economic review, which dub tails with the new remote closing process.

Turning to slide 5, which highlights key initiatives we completed to enhance liquidity First, regarding financing, in late March, we were pleased to announce that we closed on the previously announced $75 million investment for Glencore, strengthening our long-term partnership and enhancing our liquidity position.

In late April, we received approximately $5.8 million as a first tranche of a total grant for up to $6.9 million from the German state of Saxony and hold for our Germany.

So this is another example of the positive support we continue to receive from our local stakeholders.

We remain committed to diligently exploring strategic alternatives and financing options to natural liquidity.

Second, we are strategically managing our cash to support our liquidity needs as part of the cash preservation plan.

In March, we made a strategic decision to pivot from a regional business model to centralize one.

Reorganizing life cycle to drive increased efficiencies.

This decision is expected to generate approximately $10 million in annualized cost savings through workforce reductions.

In addition, we've been actively engaged with certain contractors and suppliers to the Rochester Hub and now have agreements in place providing for extended payment cycles.

Looking forward, we're exploring further opportunities to increase efficiency across the organization, including realizing cost savings from our spoke operations and implementing additional adjustments to non-core SG&A expenditures Finally, we continue to evaluate further pauses or slowdowns that were stopped operations, the only currency now in lockstep with commercial demand.

Turning to slide 6 for an overview of lifecycles.

Commercial agreements.

Our capability to process all types of lithium-ion batteries, independent of form factor and chemistry, coupled with our operational capacity, has led to the establishment of a broadly diversified global base of battery supply customers spanning the entire battery supply chain.

Some left of the slide, we are pleased to report that during the first quarter, we continued to attract new customers while extending and amending existing grid.

We signed a new reseller agreements with some of the largest EV OEMs in the world as well as leading battery cell manufacturers in both Europe and North America for battery material intake.

In Europe this included signing new agreements or spending and amending current agreements with three of the largest EV OEMs.

With the concept we now have agreements in place with four of the largest IDNs in Europe to recycle modules and full direction.

We continue to see broad-based support for our differentiated technologies across both continents, reflected in our position as a preferred for second partner for leading global batteries, EV and energy storage OEMs.

Turning to slide 7 for some highlights of our spokes technology and operations.

As a reminder, lifecycle developed a patented method for processing all forms of lithium batteries, regardless of chemistry form factor or state of charge.

This environmentally friendly process does not rely on any thermal treatment and is highly scalable for the growing EV battery market.

We are prioritizing our Generation three spokes, which can process full battery packs without the need to dismantle and aligning with EV and battery OEM partners who comprise a large share of our global battery feed intake.It is worth highlighting that four of our top five partners repeat intake during Q1, our EV OEMs.

With respect to our salt operations, we continue to see a higher composition of EV battery packs in our input feed with approximately 41% biomass of the total battery materials processed at our service being EV battery.

We believe we're in a strategic position to receive the feedstock material through the enhanced capabilities of our Gen three spokes, which can efficiently process full ladder.

Turning to slide 8, providing an overview of our sustainability performance.

As we expect to issue our 2023 sustainability report in the coming weeks, our report has been aligned with SAS B standards and builds on the interim report we issued last year.

In 2023, we strengthened our data tracking and reporting capabilities for greater transparency, ultimately better data will help us to enhance our performance in this important area of our business.

A few key takeaways from our 2023's performance include 0% of our scope, one and air emissions are from motorcycle boxes, which is reflective of our environmentally friendly non-thermal recycling technologies are Jenimage both procured all of its electricity from renewable sources, and we continue to prioritize safety and about zero critical safety, environmental and community as it fits our company's recession.

Sustainability is core to our business and believe it is a value differentiator for our company.

Not only found the issue from good for the world community, but it also supports our position as a preferred global perspective.

But with that, I'll turn over to Craig to review the financials, Koji.

Before getting into the financial results, I'd like to start by saying how pleased I am to be joining lifecycle.

Ajay and team have built a truly differentiated business model with the capacity to make meaningful contributions to the future of clean energy.

I look forward to the opportunity to help execute on this mission and create value for our shareholders.

Turning to slide 9 for a review of our 2024.

Our first quarter financial results highlights include improved revenue, cost of sales, adjusted EBITDA and cash position for the first quarter of 2024 versus 2023, starting with the sales of black mass, which were 946 tonnes, a 7% increase versus 881 tons sold in 2023.

Product sales and recycling service revenues before non-cash fair value pricing adjustments decreased to $4.6 million compared to $7.7 million in 2023.

The decrease was largely driven by reduced market prices for cobalt nickel and partially offset by higher recycling service revenue and an increase in products sold.

Total revenue increased 17% to $4.2 million, reflecting a lower unfavorable noncash fair value pricing adjustments of $0.4 million versus an unfavorable adjustment of $4.1 million in 2023.

Moving to cost of sales, which decreased 12% to $16.8 million versus $19.1 million in 2023 cost of sales attributable to product revenue decreased by $3.2 million or 17% compared to last year as a result of lower production levels, partially offset by increased operational costs associated with repairs and maintenance activities.

Cost of sales attributable to service revenue increased by $0.9 million compared to last year due to new service contracts entered with an existing customer that commenced October 2023.

SG&A expenses were $31.7 million versus $22.7 million in 2023, primarily driven by higher professional fees and legal fees related to the Rochester hub construction pause as well as severance costs stemming from the March workforce reduction.

I would like to note that these expenses are onetime in nature.

This increase was partially offset by lower recurring personnel and other administrative costs of $3.7 million.

Other expenses were $92.5 million compared to other income of $2.7 million in the prior year, primarily due to the debt extinguishment loss of $58.9 million, an unrealized fair value loss on financial instruments of $23.8 million relating to the amendment and restatement of the terms of the convertible notes issued by life cycle.

Adjusted EBITDA loss was $27.4 million compared to a loss of $37.9 million in the first quarter of 2023.

This was largely driven by higher revenue, lower cost of sales, partially offset by the increase in SG&A.

As of March 31, 2024 lifecycle has cash and cash equivalents of $109.1 million versus $70.6 million at the end of 2023, which includes the gross proceeds from the Glencore financing that closed during the first quarter.

I will now turn it back to Ajay.

Thank you, Craig.

Turning to slide 10.

We continue to see favorable long-term industry demand trends in both North America and Europe.

The chart on the left illustrates the rising adoption of electric vehicles with sales achieving a kegger of approximately 45% from 2019 through 2023.

Notably, third party sources are projecting a robust 25% categor office space middle of the decade.

If you do the right, the growth dynamics support the robust demand for an expanding market for recycling of all forms of lift by batteries near to mid-term the increase in recycled material is largely being driven by manufacturing scrap from giga factory growth supplemented by end-of-life batteries end of the decade you saw through

It is projected that by 2030, demand for recycling materials will increase by up to six times in 2023.

Well, turning to slide 11 and concluding on lifecycles, go-forward strategy and key objectives.

First, we continue to work closely with a view towards closing of a loan for gross proceeds of up to $375 million.

Second, we continue to evaluate a range of further financing and strategic alternatives to bolster liquidity and facilitate the restart of the Rochester hub projects.

Third, we remain focused on completing our technical and economic analysis of our go-forward approach for the Rochester hub.

And finally, regarding the spoken hub network, we are evaluating our spoke network to identify further opportunities to drive down costs while focusing our production on our Gen three spokes to support our key EV and battery OEM customers.

Operator, we're now ready for questions in queue at this time.

(Operator Instructions)

Jeff Rossetti.

It's TD.

Cohen.

Hi, good morning.

Tom, I just wanted to start with the overview for the hub and then see if you could provide any more detail on the I'm on the kind of work you're doing to refining costs there, Tom, what's what kind of steps have been are left in the process?

And is there any kind of time line on when you expect to complete the review?

Hey, good morning, Joe. Yes.

So as I mentioned in our markets, it's really dovetail it dovetails with the JV profit.

So I think the key thing that we're working on right now is working in the local market to refine the capital cost estimate.

Obviously, what we've put out there and that's reiterated today is our best and latest information, but we're doing some additional work with the local market to get there and effectively to validate and refine the extra effectively.

So that's important, obviously, because it drives some of the support for the work you're doing.

But it is also important obviously to be a working towards a restart in terms of timing, I'd say it's again, very intertwined.

It dovetails with the DRE.

So the priority and my top priority is closing the JV loan, and that's really the enabler to our restart.

Got you.

Okay.

And then just regarding a restart on, is there any kind of CapEx needed this this year to preserve the hump at all.

And would you plan to build any black mass inventory at all this year or M.?

And you mentioned that you may focus on just the Gen three spokes.

So Pam, maybe you Ita reduce your black mass production or on at some point this year.

Just anything on kind of what you're seeing on the inventory side and maybe any kind of incremental CapEx spend that you might need this year?

Yes, for sure.

So in general, I would say Q1 is relatively indicative of the run rate on that.

So we don't expect anything significant incremental around CapEx during Q1.

We can jump to the first part around the maintenance of the assets at the hub.

So we're very focused on ensuring that these assets are preserved.

There is some level of spend, but it's not very material.

So that is included in the financials that you saw.

Q1 will continue of course, that's a priority and around the block has inventory builds to our party right now as we continue to focus on managing liquidity is going to continue to be to sell the black mass that we produce.

Again, I'd say Q1 is relatively indicative of the run rate of where we are after further changes.

We'll see what the market now, but where we stand right now, the key focus is on Germany, Arizona, Alabama.

Thanks very much.

Thank you.

Brian Dobson, Chardan Capital Markets.

Hi, good morning.

Thanks very much for taking my question.

And you know, if I could a quick follow-up question, if I may.

On the Rochester hub, there's been a lot of talk recently about PFAS chemicals were in battery production and I suppose also within battery recycling, I guess given recent regulations put in place by the EPA on how does your recycling process deal with PFAS chemicals and are they, I guess, mitigated prior to prior to the raw materials being shipped for sale bid we wanted to highlight if we can have hub capability?

Yes, no worries.

No worries.

And yes, very good question.

So it's a very hot topic, and that should actually happen for a couple of years.

So the key thing on that so people are in a flooring containing a pollutant.

And the issue with it is it gets into people's bodies and it can be quite harmful through the ecosystem, essentially even so that's the big focus on key parts of Mike's been such a hot topic that we get certain rents kind of grounding.

And the big thing, though with regulators and where the Florence contained is at the end of the day.

If you're not treating the batteries thermally, you keep the flooring.

And basically on cash, it's non-admitted form again in more depth, but there's different types of flooring and they go different places in the process.

But the bottom line is we do not admit like PFS, for example.

And here this is one of the challenges actually with the traditional process for cycling with one battery.

So where you heat up the batteries and really trying to do in simple terms is degrade that binder the glue that keeps the cathode and the anode on their respective sales.

That's a Florida-based binder, and that's one of the common places where you emit flooring.

So in our case, the flooring goes into solid products and as a result doesn't get admitted to amateur.

And that's also and a part of the permitting that we did for the Rochester.

Yes, excellent.

And do you think that this gives us a competitive advantage, the type of recycling that you do versus the pyro based recycling and with those with those players need to stop that type of recycling under these new regulations?

Yes, we do think it gives us a big advantage that customers have been focused on it for a while on the very traditional the non-like-for-like or dual approach.

As I mentioned, there's basically some sort of pretreatment remake, Jeff Hart batteries and then very commonly some sort of what's called calcination set.

That's the thermal step that is the step that is of a concern for flooring emissions.

And we see that as a very common approach.

It comes from Asia actually has been installed in North America and Europe.

So would be needed to stop operations, not sure.

But yes, it's a very hot topic and of course, getting it renewed interest.

Great.

Thanks very much.

Greg and Kim, once again, if you would like to ask a question, please press star and one on your telephone keypad now.

And we will take our next question from Matthew O'Keefe with Cantor Fitzgerald.

Thanks.

Thanks for taking my call.

Good morning.

And first question for me is just on the hub operations, you've got four operating hubs and you did 1,300 tons of black mass, but what's the capacity of those four hubs, um, would nameplate capacity.

It's over 10,000 business within that range of namely.

Good morning, Matt.

Yes.

So that's the input capacity curve.

So like the.

Yes, yes.

But in terms of batteries to get to the Black Mountain, it really depends on like the form factor of the material on, let's say, roughly half.

So that's not like full family, but obviously mindful shifts, right?

So really the way that we operate is it's very focused on really prioritizing the shifts around where the commercial demand is and it does move around over time, right.

So the merchants we have theatricals resonate, but actually so

I guess was what I was getting at is like what kind of, I guess what some what capacity are you running at right now?

And because you've got four hub joining United full capacity, you may have been $1.9 million in revenue on $15.9 million of costs wiring, you just running one spoke and shipping everything.

There were two one in Europe, one in North America.

Yes.

So we're talking about optimizing the store network of that.

That's part of the focus, right?

So there's a balance there.

So part of the reason to have numerous folks as you're closer to the batteries are and it is tough to ship batteries on the world side, as we look at the Gen three spokes, that is a big focus, right, is basically driving through throughput where it makes sense, which then drives down unit costs, which then makes it much more efficient.

But we'll just continue to be thoughtful around that.There is a bit of working capital consideration there, too.

So it's about right and to what degree we want to be pushing.

So we're always looking at that and we'll continue to update assess S6 Edge.

Okay.

All right.

So you but you didn't say you don't really have a number of us.

Are that percentage of capacity you're running and

yes, we don't really like usually gets codes by spoken kind of look on a network-wide, but it does depend on the network.

We are looking at worldwide network-wide.

I mean, you can you can do the math right?

If you take 10,000 tons of paper capacity through biomass for so we're producing.

So yes, you'll see that we did disclose right last quarter that we slowed for book and this is reflective of that.

And now the pressure really is combined though the commercial demand and the working capital needs, what's the best choice around to your question, right.

Where do you consolidate that demand potentially or not, et cetera?

Yes, because that's a pretty hefty burn.

Okay.

And then if I may ask one other thing.

I didn't it didn't have a ton of time to go through the full 10K.

But the young on the debt side, there's one of the things you do with Glencore here was the you renegotiated some of that those converts right and to sign the checks and reduce your restructured these unsecured converts and a portion of that is now interest secured converts, is that correct?

Senior secured and congrats to you on that again.

Yes, sure.

No problem from.

So yes, so there's two components.

There's the new investment, the Sony Family Dollar investments about the senior secured convert right here right now from that closed.

And they were asking about the space that are restructuring that recycling of the old converts, the $20 million convert from 2022.

So there are two triggers for that convert, and this is back to the March on 25 stocks.

So basically have just at a very high level, it will reprice based on the walk of 30 days, plus 25% are months after key milestones or a Saturday earlier of a date.

So the two milestones are the closing or the completion of definitive documentation around the DOE loan.

And so that's the first one or the end of this year.

So that's the first milestone, half of it.

And the second is associated with a few different trigger points, but it's focused on commercial production from the Rochester hub for a future date.

So that's effectively how it's going to be repriced.

And part of that yes, is addition of security for that original loan that was part of the totality of the transaction that we did with Glencore.

Okay.

The benefit there just to make clear benefit there just to be clear is we're getting an extended maturity associated with that original note.

So we five years for those two tranches from the point where they get repriced effectively and that has a good amount of time relative to the original maturity date.

So that line of products.

Okay, that's important.

Thank you.

Thank you for that.

Thanks for clearing that up for me for now.

Thanks, Rob.

Thank here.

It appears there are no further questions in the queue.

I will now turn the call over to RJ for his closing comments.

That you.

So thanks, everybody, again for joining.

As we mentioned, we're laser focused on the key objectives of airline.

We look forward to continuing to update the market, and we'll speak again soon.

This does conclude today's program.

Thank you for your participation.

You may disconnect at any time.