Li-Cycle Holdings Corp (LICY) 2024 Q2 法說會逐字稿

My name is Ashley, and I'll be your conference operator today.

At this time, I would like to welcome everyone to the second quarter 2024 Li-Cycle Holdings earnings call and webcast.

(Operator Instructions)

Thank you.

I will now turn the call over to Louie Diaz, VP, Corporate Affairs.

Please go ahead.

Thank you.

Good morning, and thank you, everyone, for joining us for Li-Cycle business update and review financial results for the interim period ended June 30, 2024.

We will start today with formal remarks from Ajay Kochhar, our President and Chief Executive Officer; and Craig Cunningham, 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 or in our past reports and filings with the US Securities and Exchange Commission and the Ontario Securities Commission 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 made 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 Li-Cycle assessments as of any date subsequent to the date of this call.

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

Thank you, Louie, and good morning, everyone.

On our first quarter earnings call in May, we provided an update on the progress made on our comprehensive review for the restart of construction of the Rochester Hub.

Today, we are pleased to share additional updates on the steps we've taken towards achieving our previously mentioned key objectives and also to discuss our second quarter financial and operating results.

Starting on slide 3, we continue to make progress on our key objectives.

First, closing the US DOE loan remains our top priority.

We continue to work closely with the DOE loan programs office to advance towards definitive financing documentation and satisfying conditions precedent for loan disbursements.

Second, we continue to evaluate additional financing alternatives, including exploring financial and strategic options to increase our near term liquidity.

Third, we have advanced our comprehensive review of the Rochester Hub.

We refined the cost estimates for the local market as part of our work on evaluating the total project cost, and we also advanced the go-forward Rochester Hub project execution plan for the proposed mixed hydroxide precipitate or MHP process.

Finally, we are reviewing and optimizing our spoke network.

We are exploring ways to extract more value from our spoke network.

And are transitioning the Ontario spoke from a paused operation to closure to focus on our key generation three facilities.

In addition, we are pleased to announce that the Germany spoke secured ISO certifications for meeting global centers.

We will continue our strategic review of our operations.

Turn to slide 4 for an update on the current status of the DOE process regarding the conditional agreement for a loan for gross proceeds of up to $375 million.

As you can see, we remain in step five of the DOE's loan application process, and we remain committed to finalizing the loan.

During Q2, we continue to work closely with the DOE on key technical, financial and legal workstreams to advance towards reaching an agreement on definitive financing documentation, execution thereof and satisfying conditions precedent for loan disbursements.

Turning to slide 5 for an update on the Rochester Hub project and the proposed MHP scope.

On our Q4 earnings call in March, we reported that we had completed an internal technical review, confirming the viability of the MHP scope to produce MHP and lithium carbonate as part of the proposed change in our product development strategy for the Rochester Hub.

Since then, we've made significant progress on the technical workshops.

This includes advancing the go forward project execution plan for the Rochester Hub.

Additionally, we refined cost estimates with the local market for major construction contracts.

Including consideration of the recent work with the local market.

Our current estimated cost to complete the Rochester project is substantially similar at approximately $490 million for the MHP scope, which is inclusive of cash commitments to date.

For clarity and positively the total project cost estimates MHP scope remains the same at approximately $960 million.

We note that these estimates are subject to several assumptions and will continue to be refined as we complete our comprehensive review work.

In summary, the technical work on the proposed MHP scope is now quite advanced.

Turning to slide 6 for an overview of Li-Cycles commercial updates.

We've established a broadly diversified global base of battery supply customers, including a leading US headquartered vertically integrated EV and battery manufacturer, which is our largest customer source of revenue for the first half of the year.

Notably, four of our top five partners for feed intake during Q2 were among the largest global EV OEMs.

We continue to demonstrate our expertise in processing all types of lithium batteries, independent of form factor and chemistry.

We remain focused on EV battery packs to leverage the value differentiators provided by our Gen-3 spoke capabilities in processing this material.

EV battery packs continue to be a large portion of our input feed.

And represented approximately 40% of the total battery materials processed at our spokes in Q2.

We've also widened our commercial footprint for input feedstock for the Germany spoke in Europe.

As all during the quarter, we announced a partnership with Daimler Truck North America, short-cycle batters.

Finally, we continue to see broad-based support for our differentiated technologies reflected in our position as a preferred recycling partner for leading global battery EV and energy storage OEMs.

Turning to slide 7 for some highlights of our spoke operations.

During the quarter, our spokes produced approximately 1,394 tonnes of black mass and equivalents.

We have continued to optimize our spoke network and have increased throughput rates at our Arizona and Alabama spokes.

We secured ISO certifications for our Germany spoke, highlighting our commitment to sustainability and the highest global environmental health and quality centers.

And finally, we are transitioning the Ontario spoke for operations have been paused since November 2023 to closure in order to focus on our priority Gen-3 facilities.

Turning to slide 8 for some highlights related to the optimization initiatives at our spokes.

Our goal is to take near-term steps towards creating financially accretive spokes.

As noted, we are prioritizing our Gen-3 spokes, which can process full battery packs without the need for dismantling.

This aligns the parties of our EV and battery OEM partners who comprise a large share of our global beverage feed intake.

In line with this, we aim to maximize and sustained throughput rates at our Gen-3 spoke to fully leverage these capabilities.

We are also optimizing our product conversion costs to increase our competitiveness in the market.

As you can see this quarter, reflecting services our growing share of our revenue.

We're presenting approximately 43% of our revenue in the first half of the year.

We will continue focusing on these services to leverage the value differentiators of our Gen-3 spokes and generate revenue.

We are working with our strategic partners to support and execute on these plans and look forward to providing further details on our spoke optimization and strategic initiatives in Q3 2024.

With that, I'll now turn the call over to Craig to provide a review of the financials.

Thank you, Ajay.

Turning to slide 9 to review of our 2024 second quarter financial results.

Highlights include record quarterly revenue and lower SG&A and cost of sales for the second quarter of 2024 versus 2023.

Starting with the sales of biomass and equivalents, which were 1,158 tonnes versus 2,093 tonnes for the same period last year.

Total revenue increased 133% to $8.4 million, a record for the company.

This increase reflects higher recycling revenue and favorable non-cash fair value pricing adjustments were approximately $0.2 million versus an unfavorable adjustment of $1.7 million from the prior year.

Moving to cost of sales, which decreased 4% to $19.4 million versus $20.2 million in 2023.

Cost of sales attributable to product revenue decreased by $2.3 million or 11% compared to the last year's results due to lower production levels, partially offset by costs associated with spoke repairs and maintenance activities.

Cost of sales attributable to service revenue increased $1.5 million compared to last year due to new service contracts entered.

We are also pleased to note that SG&A has decreased 39% to $15.3 million versus $24.9 million in 2023, primarily driven by lower recurring personnel costs resulting from our restructuring initiatives implemented since the pause of the construction of the Rochester Hub.

Adjusted EBITDA was a loss, largely driven by a decrease in SG&A, cost of sales and higher revenue as well as $2.2 million in restructuring fees.

As of June 30, 2024 Li-Cycle has cash and cash equivalents of $57 million versus $109.1 million at the end of the first quarter of 2024.

This is mainly due to higher working capital and investing activities, partially offset by lower SG&A.

And I'll now turn it back to Ajay.

Thanks, Craig.

Turn to slide 10.

I wanted to conclude by addressing the current industry dynamics we're seeing across the better supply chain.

While there have been recent challenges, we continue to believe in the long-term fundamentals for Li-Cycle that are two main drivers.

Increasing recycling supply and the deficit of expected post-processing capacity.

And the continued trend towards localization of the battery supply chain.

The chart on the left illustrates the rising adoption of electric vehicles in North America, with sales achieving a CAGR of approximately 36% from 2019 through 2024.

Notably, despite current industry headwinds, third-party sources are projecting a robust 23% kegger office space through the end of the decade.

As depicted on the right, these growth dynamics support the strong demand for an expanding market for recycling of all forms of lithium ion batteries.

In the near to midterm the increase in recycled materials is largely being driven by manufacturing scrap from giga factory growth with end-of-life battery feedstock supplementing this growth towards the end of the decade.

By 2030, the supply of recycled materials is projected to increase by 5 times to 6 times versus 2024 levels.

Despite the recent challenges we are seeing in the battery supply chain for longer term, fundamentals for the industry remain clear for recycling.

The transition to EV adoption is well underway and growth is continuing even if at a different rate in the near term.

Electrical is well-positioned to capitalize on these opportunities as there is still a significant gap in post processing recycling capacity.

The Rochester Hub is expected to play a pivotal role and helping to fill this gap.

Turning to slide 12.

We believe the trend towards localization will also continue to be a positive for the industry and our company. (inaudible) initiatives in North America and Europe continue to provide a favorable backdrop, encouraging local production and reducing reliance on external supply chains.

This includes the US Inflation Reduction Act, various tax incentives and more recently potential tariffs on imports.

In the US, we've seen continued bipartisan support to build domestic capacity in the battery supply chain to onshore clean energy jobs and reduce reliance on critical minerals from foreign entities of concern.

With the continued growth in EV adoption underpinning the long-term demand for recycling and prospecting capacity and the ongoing support of localization of the supply chain.

The planned development of the Rochester Hub will strategically position Li-Cycle to create value for our stakeholders.

Turn to slide 13, and to reiterate our go-forward strategy and key objectives.

First, we are focused on reaching an agreement on definitive financing documentation for the DOE loan.

Second, we are evaluating financing and strategic options to bolster our liquidity.

Third, we aim to complete the comprehensive review of the MHP scope, the Rochester Hub.

And lastly, we are working with our strategic partners to maximize value across our spoke network.

Stay tuned as we expect to provide further details on our spoke optimization and strategic initiatives in Q3.

Before we get to Q&A, I wanted to thank our employees and our partners for their continuing support.

Li-Cycle has clear objectives of the second half this year, and we are focused on capitalizing on our opportunities.

Operator, we're now ready for questions.

(Operator Instructions)

Doug Paul, LPL Financial.

Can you provide some more color on where we're at in this step five or possibly how long this step five takes for this loan to close?

Sure.

Hi, so I'd say at a high level, just to take a step back, probably focusing a lot of this is speaking, see a lot of progress from the DOE recently and momentum picking up.

Now just to contextualize, this is the last stage before we close.

And so we've been here for a while obviously back to since February 2023, we got a cash agreement since then.

We've been in close, though, in between we had to pause a bit of a proposed shift in the strategy within the closing phase there are three workstreams, there's technical, financial market and legal.

The technical side has been focused on the MHP scope that is well progressed.

The financial market side has been basically reintegrating that into the view, from the financial perspective, that's also very well progressed.

And now we're really focused on those definitive financing documents as mentioned.

Okay, do you have an anticipation date of closing.

So I think at this time, we're moving as expediently as possible to close.

And I could tell you is my top priority is the top priority for the organization, and we're continuing to progress towards that.

Thank you.

(Operator Instructions)

Matthew O'Keefe, Cantor Fitzgerald.

Thanks, operator.

Good morning.

Just a question on the comprehensive review some good progress sounds like has been made there.

I'm just wondering, I mean, how much more and timing wise on that being completed?

And how is -- how are metal prices sort of impacting that review.

And as an addition to that, if you could sort of comment on your view on lithium is going to be a very important component of your revenue stream when you get this operational, maybe you could comment on current pricing and the kind of pricing you expect as needed and to make this work.

Yeah.

Hey, Matt, good morning.

So yeah, I mean, certainly on the review first, and I'll talk a little bit about the influence of metal pricing.

So maybe you can talk about that review.

I think just to break it apart in a simple terms, there's a technical part and there's a financial part.

The technical part has been a lot of we talked about, I talked about competition vis a vis the internal technical viability type of MHP scope so that's been complete it.

And then a big thing that we did in Q2 was go into a local market to refine the estimate for the CapEx which, by the way, was also necessary activity for the DOE.

So that's also done, great as you saw we didn't change the CapEx estimate.

So that then feeds into the second part of the financial part, which is really what you're driving at.

Within that obviously, there's the full financing package that working on the due is the cornerstone of that and what you're getting at is really what does it mean current metal prices?

Yeah.

I mean, look, we're in a -- we've been in a soft period for nickel, cobalt and lithium.

One of the benefits we have is obviously we're not reliant on any one of those I'd like to do so with increasing product.

Obviously, as you know, we have never really gotten into a forecast economics we'll get there when we get there.

But I can tell you, given the basket of those three, even at current prices and where they're expected to be, we still see this as accretive (inaudible) wouldn't be pursuing it.

So that's really another way of talking about where current prices are and how we see the economics.

Okay.

Can I just ask it a little bit different way or I mean in your discussions with the DOE, did they have a kind of price deck or expectation is there we're focused on?

I mean, you're only putting in some sort of hurdles for you or not hurdles but targets for you.

So they do have an expectation not at liberty to say what it is because that's there on a by business based event.

But what I can say is at a high level and just sticking based on most of your experience would be obviously given its debt and it's a loan.

These are sort of bullish equity underwriting sort of commodity prices that are typically been used, probably speaking, right?

So like it's that's the sort of (inaudible) just to talk broadly.

Okay.

Appreciate that.

Thank you.

Thank you, Matt.

(Operator Instructions)

And it does appear that we have no further questions at this time.

I'll turn the call back over to Ajay for any closing remarks.

Thank you.

So imagine given the continued favorable long-term trends in our industry.

We're excited to execute on our clear objectives, and we look forward to providing you with further updates on our progress.

Thank you.

Thank you, and this does conclude today's program.

Thank you for your participation.

You may disconnect at any time.