Q3 2021 Li-Cycle Holdings Corp Earnings Call
Greetings and welcome to the lifecycle Holdings Corp, third quarter 2021 financial results call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I'll now turn the conference over to your host Ashish Gupta Investor Relations for lifecycle holdings. Thank you you may begin.
Thank you operator, and thank you everyone for joining us today.
In the call our lifecycle co founder President and Chief Executive Officer, a J coach our co founder and executive Chairman Tim Johnson.
Chief Financial Officer, Bruce Mckinnis, and Chief commercial officer can offer.
How does this call lifecycle issued its third quarter 2021 earnings press release and presentation, which we will reference today.
These can be found on the Investor Relations section of our website at investors that lifecycle dot com.
On this call management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties.
Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect because of factors discussed in today's.
Earnings News release during this conference call.
In our latest reports and filings with Securities and Exchange Commission.
These documents can be found on our website at investors don't lifecycle dotcom, we do not undertake any duty to update any forward looking statements.
Today's presentation also includes references to non Ifr S financial measures.
You should refer to the information contained in the company's third quarter 2021 earnings press release for definitional information and reconciliations of historical non <unk> measures to the comparable financial measures.
With that let me turn it over to Ajay.
Thank you very much Ashish and good morning, everyone.
For today's presentation, we'll be referring to the slides that were posted to the Investor Relations section of our website early this morning.
Now as this is our first earnings call since the closing of the business combination with paradigm last month.
I would like to start by thanking our employees for their contributions to lifecycle success.
I would also like to thank our shareholders for their support and patience towards the completion of the transaction.
Becoming a public company was an important milestone for lifecycle and the transaction provides lifecycle with $527 million of cash net of expenses and fun our base case business plan.
This is a real differentiating aspects that goes to de risking the overall business.
To give you a brief overview of today's agenda first I will start off by giving a short overview of the company.
Its current opportunities and where we aim to be in the future.
Second I will then highlight what differentiates us from other industry players and how we are well positioned to capitalize on accelerating secular trends with our fit for purpose technologies for battery recycling.
Third I will also provide an overview of the drivers of accelerating near and medium term quantities of lithium ion batteries available for recycling and how this bodes extremely well for.
For life cycles continued rollout.
Fourth our CFO, Bruce Mcinnes, who will provide financial and operational highlights from the third quarter.
And wrapping it up my fellow co founder, Jim Johnston will review, our spoke and hub execution progress.
Let's start on slide four.
So who is lifecycle.
Well, we are the sustainable pure play leader in.
In advanced resource recovery and recycling.
[noise] lifecycle is a commercial business scaling in lockstep with our battery supply customers.
And to meet the accelerating demand for critical battery grade materials.
Moving to slide five nine.
The next question is why is look my battery recycling imported today.
And so it may have an initial knee jerk reaction.
Thinking that battery recycling is a need for many years away.
However, the reality is that the need for recycling lithium ion batteries is here today due.
Due to manufacturing scrap and.
And only accelerating further.
The pace of announced new battery manufacturing facilities worldwide.
As far exceeding our expectations of only a few months ago.
On an industry wide and average basis at least 5% to 10% manufacturing volumes are typically rejected.
And hence are available for recycling.
As long as my batteries were made in.
The manufacturing process is not perfect.
Thereby resulting in manufacturing rejects or yield loss.
This manufacturing reject approach is important as battery manufacturers look to uphold unwavering quality standards.
For example, we forecast that almost 70%.
Of our 2025 volumes will come from manufacturing scrap.
In a nutshell.
If you believe in the rapid growth in EV adoption.
You believe in lifecycle.
We expect our recycling volumes to grow in line with manufacturing volumes over the next several years.
Looking at slide six.
Prior to starting lifecycle my cofounder, Tim Johnson, and I worked in the battery metals and chemicals industry.
Focused on hydro metallurgical and chemical plants to produce battery materials.
Our time working the industry led us to the recognition of a bearing coal and.
In the future of our increasingly electrified economy, which was the lack of an environmentally and economically sustainable solution for the recycling of what's my batteries that have become global ubiquitous.
We started lifecycle in 2016.
With the mission of solving this global battery manufacturing scrap and end of life with my battery problem.
And simultaneously, creating a secondary supply of critical battery materials, while also ensuring a sustainable future for our planet.
Yes.
Lifecycle drive deep competitive advantages from its proprietary spoke and hub technology.
It's enabled it to outpace existing and emerging lift my battery resource recovery approaches.
Lifecycle technologies are proven and we are in execution mode.
Copying pasting our operations in lock step with our accelerating customer needs.
So what is lifecycle strategy.
Well today, we have 10000 tonnes of annual lithium ion battery Colin spoke processing capacity.
With an additional 15 to 20000 tonnes of annual processing capacity expected from our two in progress folks.
And on the Hep side, we have 60000 tonnes of annual lithium iron battery equivalent a processing capacity that is on track to be operational in early 2023.
The Rochester hub is located in the former Eastman business Park.
This facility is ideal for chemical infrastructure and has a large labor pool and strong support from the state of New York.
On the right side of the slide you can see where we aim to be.
We are already the leader in North America.
We strive to be the go to global Recycler uplift mine batteries.
And producer of key battery grade materials.
By 2025, we are targeting a global network of at least 100000 tonnes of annual lithium battery coolant spoke processing capacity.
And a centralized network of 220000 to 240000 tonnes of annual lithium ion battery coolant hub processing capacity.
Moving to slide seven.
We see key macro tailwind accelerating for the left of the page.
North America is expected to have over 225 gigawatt hours.
With annual battery production capacity by 2025.
Which is an increase of over 400% from today.
Year to date over 480 gigawatt hours of incremental battery cell production capacity has been announced globally that is planned to be online for 2025.
Continued electrification of mobility will drive earnings power for us.
Moreover, over 17 automotive companies have committed to electrifying their product lineups, ensuring dominant EV sales over the next two decades.
Since we started lifecycle five years ago, there has been significant and increasing government regulation on battery recycling as well.
Recently regulations started heavily focusing on something called recycling efficiency rate.
E R.
Second efficiency rate is a measure of the mass of the battery entering a process versus the mass extracted as products that go back to the economy.
Traditional methods that use heat when burning plastics electrolyte and other elements in a battery can result in 30.
40, or even 50% loss.
In recoverable battery material.
The point is our world and our customers are moving away from this historical approach.
That is not fit for purpose for lithium batteries.
As you can see from the right of the slide it's starting to be regulated.
For example in the U proposed levels are around 65% to 70% if not more.
In California, there is legislation being discussed right now.
That would require a recycling efficiency rate that is close to a 100% as possible.
Well in China the rate is over 80%.
Our hydro metallurgical or hub process enables recovery of up to 95% of all listen my battery materials.
This is far greater than our competitors, who primarily target only cathode.
Or typically cobalt and nickel.
Our wet chemistry method extract valuable battery grade materials from black mass as a battery grade product that is thereby reusable and the manufacturing of new battery technologies.
On slide eight you can see why we are a critical node and the lithium ion battery supply chain.
We have a two part patented spoken hub process that follows both the technical aspects of how we process the materials and also follows our business model.
And our spoke facilities, we process any format of Lyft line battery.
From the smallest type of with my battery all the way up to a full electric vehicle battery pack.
We've taken look my battery materials that are spoke facilities and we process them through to intermediate materials.
The low cost modular design of our spokes enables us to construct them quickly and locate them close to sources of battery supply.
In fact, they can even be directly located on a major customer site.
But the back end of the patented spoke process, we produced three key products, including mixed copper and aluminum.
Plastics and the key product is what the industry calls black mass or black mass concentrated.
In simple terms black math is the anode and cathode materials from within the battery.
When people talk about critical battery materials things like cobalt nickel lithium and graphite.
They all exist within the black mass material.
The second step our hub technology utilizes a patented hydro metallurgical process to treat the black mass.
That's just a way of saying we treat it using a wet chemistry based system in order to recover the key battery materials and placement back into with my better supply chain.
The products produced by our hub process, our battery grade in nature.
As good if not better than Virgin battery grade materials and produced in an inherently economic fashion.
Our hub design is non pyro and allows for recycling efficiency rates of up to 95%.
Versus a historical industry average of 50%.
Moving to slide nine it is important to note that the competitive landscape is segmented between preprocessing.
Involving lithium ion batteries and lift my battery materials being converted to intermediate products and.
And post processing.
All the intermediate products being converted to finished and products.
In order to best understand what's your mind battery recycling solutions can be segmented into preprocessing with lifecycle spokes falling into that category.
And post processing with life cycles hubs falling into this category.
Their lifecycle is patented spoken hub technologies.
The traditional lift my battery recycling supply chain has collapsed and simplified.
The result is much more economic and environmentally sustainable recycling of all types of with my batteries.
Moreover, through life cycles, non Pyrotechnical Agee, we do not burn any portion of the lift my batteries.
It's our missions are significantly reduced and a permanent can be completed unaccepted basis.
As is evident from the bottom of slide nine with respect to the incumbent with my battery recycling supply chain.
Pre processing has been highly manual.
High cost nature combustion based and has an optimized from both an environmental and economic perspective.
Moreover, post processing approaches have involved processing intermediate product.
Through legacy nickel smelting infrastructure.
And the process components, like lithium and graphite or lost.
The end product meets infrastructure are also nickel and cobalt metal.
Which are not the inputs to batteries.
In summary, the incoming battery recycling supply chain has been a bit like a square peg in a round hole.
Non purpose built as well as being an optimized from an economic and environmental perspective.
Slide 10 summarizes lifecycle as key competitive advantages.
Lifecycle as moat is comprised of two key aspects.
Our patented and fit for purpose spoke and hub technology.
And sticky long term battery supply contracts and secured and product offtake.
Lifecycle CT vintages are as follows.
Firstly high recovery rates and inherently low cost operations.
Our technology involves no discharging the batteries.
A minimal to no dismantling and automated processing.
Compared to labor intensive and potentially unsafe traditional preprocessing approaches.
Second non pyro technology protected by a robust IP mode.
Thermal processing generates harmful flooring bearing the missions also known as forever chemicals.
That are being increasingly regulated.
Lifecycle is patented portfolio of non pyro technologies leaves us well positioned for future growth and a sustainable focused world.
As a result of our patented non power technologies emissions are significantly reduced and a permanent can be completed on an accelerated basis relative to the incumbent technologies.
Third our ability to scale efficiently with customers through capital light and replicable spoke facilities for example, co located onsite with battery manufacturers.
Lifecycle spoke technologies capital light has a low footprint in size and as replicable as logical abilities in a modular Lego build fashion.
Thereby enabling lifecycle to scale efficiently as the battery supply chain has grown concurrently.
Fourth we are agnostic to lithium ion battery types.
Including lithium iron phosphate batteries or L. P batteries.
<unk> solid state batteries and much more.
Fifth our recovery of battery grade products from the hub, including lithium.
Lithium has historically been difficult or ignored for recovery by incumbent recyclers.
For example, lithium is lost as part of the legacy nickel smelting post processing approach.
And by comparison lifecycle, Hep technology recoveries lithium economically and in battery grade form.
And last but not least lifecycle spoken hub technologies have minimal environmental footprint with.
With negligible wastewater in air emissions with aggressive zero landfill diversion focused operations.
Slides 11 through 13 framed the tremendous opportunity we have in front of us and how it has accelerated rapidly in the past several months alone give.
Given the amount of battery manufacturing capacity set to come online over the next few years and beyond.
On slide 11, you can see that the total addressable market projections in 2025 for the amount of lift my batteries available for recycling.
The accelerated significantly in just the past five months.
Growth forecast in North America, Europe, and China have all increased by at least 50%.
What stands out is also the pronounced 65% growth.
And the total lithium batteries adult for recycling in North America realm.
Relative to the total addressable market estimates from just five months ago.
The key driver of this growth is new battery Mega factory announcements far exceeding original expectations.
This drive additional battery manufacturing scrap available for recycling in lockstep with battery manufacturing and not years from now.
On slides 12, and 13, you can see the amount of growth coming over the next few years with projects that have already been announced.
I turned 25, we expect North American annual battery capacity.
To reach between 229, and 294 gigawatt hours from approximately 45 gigawatt hours today.
Over the same period, we expect the amount of battery scrap decreased by approximately four to six times.
Lifecycle is strategically positioning our footprint across key regions or we expect a significant amount of battery manufacturing capacity and projected battery scrap material to be produced alongside ramping end of lifecycle quantities.
As is evident there is a lot of opportunity ahead.
While exceeding lifecycle original base case plans.
For example, our announced 2025 North American spoke capacity would represent only 20% to 30% of the projected battery manufacturing scrap volume alone.
Which is only one segment of lifecycle as total addressable market.
This should help to contextualize the accelerating battery supply customer growth that is driving lifecycle to continue to accelerate its rollout within the company's five year strategic plan.
Now I'll pass it over to Bruce Mckinnis to provide an operational and financial update as well as to discuss our outlook.
Over to you Bruce.
Thank you Ajay I will now provide some commentary on our third quarter results followed by a business outlook for the remainder of fiscal 2021.
Starting on slide 15.
Let me take you through some of the key highlights during the quarter.
We are pleased with our fiscal Q3 performance and we remain on track with our original expectations as we continued to ramp production significantly during the second half of 2021.
With the pace of deployment of new battery Mega factories far exceeding our initial expectations. We also recently announced the addition of a fourth North America base spoke in Tuscaloosa, Alabama.
The fourth spoke is tied to strategic anchor battery supply customers that are located near the facility as per Yesterdays press release.
Additionally, we expect construction of the Rochester hub to begin in late 2021 with operations commencing in early 2023.
We are excited to announce that we on boarded 14, new battery supply customers during the third quarter, which demonstrates continued technical and commercial validation for lifecycle alongside robust market acceleration.
Finally, following fiscal Q3 2021.
Our business combination with paired up with minimal redemptions and our common shares began trading on the New York stock exchange under the ticker ticker LIC Y on August 11.2021.
Over to slide 16.
It is important to start with our commitment towards health safety environment and quality, we have successfully certified our Kingston and Rochester spoke operations as well as our headquarters in accordance with ISO 9001, ISO 14001, ISO 45001 and <unk>.
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These certifications are the culmination of leading standards with lifecycle of cold alongside being critical for lifecycle customers.
This further bolsters lifecycle as a competitive advantage.
Turning to slide 17.
As mentioned, we successfully added 14, new battery supply customers during the third quarter for a total of over 70.
As part of this we announced the foundational manufacturing scrap agreement with LTM cells L. L C.
I'll see himself as a joint venture of General Motors, and LG energy solutions.
Well I think it was agreement with Altium, it's focused on recycling up to 100% of the manufacturing scrap generated at <unk>, Ohio based battery cell plant.
When fully operational in 2022.
The LTM plant in Ohio will have annual production capacity of approximately 35 gigawatt hours.
Lifecycle will recover the raw materials contained in the scrap transforming them into valuable products that contribute to the circular economy.
During the third quarter, we produced 524 tons of Black Knight's material, which included 85 tons of lithium carbonate equivalent 75 tonnes of nickel and 23 tonnes of cobalt, which were all in line with expectations.
On Slide 18, we will review quarterly financials and key highlights.
For the third quarter revenue reached $8.0 million, which increased 840% from the year ago period, driven by increases in product sales and recycling services, largely reflecting increased quantities of batteries and battery scrap processed at Kingston and Rochester spokes.
Also enabled by the continued onboarding of new battery supply customers.
Revenues from product sales were approximately $7.0 million, while revenues from recycling services were approximately <unk> 1 million.
It is important to note that the third quarter of 2021 results are in line with the expected continued ramp up during the second half of 2021.
Due to continued demand for specialty chemicals for the battery industry, we continued to see strong pricing for our key products.
The right of the slide provides a reconciliation between net revenue reportable under Ifr S and gross revenue, which is a non I FRS measure as shown in that revenue reportable under IR, perhaps includes the treatment refining and possibly marketing charges that are incurred when black mass is sold to third parties.
For clarity the gross revenue again in <unk>.
This measure excludes the treatment refining and marketing charges.
<unk> will continue to report net revenue in accordance with IRS within its financial statements.
During the third fiscal quarter operating expenses were $16.0 million compared to $10.0 million during the prior period driven by increased personnel costs, a ramp up of operations at the Kingston and Rochester spokes increases in raw materials supplies and finished goods increased R&D spending.
And nonrecurring expenses related to the business combination.
Net loss was approximately $15.0 million compared to approximately $9.0 million in the prior year period.
Adjusted EBITDA loss was $7.0 million compared to $4.0 million for the prior year period.
Turning to the balance sheet.
Recall upon closing of the business combination in August lifecycle received approximately 527 million in net proceeds as of August 31, 2021, we had cash and cash equivalents of approximately $511 million.
Shares outstanding as of August 31 were $163 million 179553 common shares.
Moving to slide 19, let's discuss our fiscal year 2021 business outlook.
Lifecycle is reiterating the continued ramp up at Kingston, and Rochester spokes during the second half of 2021 in line with expectations.
The Rochester hub procurement will begin during fiscal year 2021, enabling lifecycle to continue on track with project execution.
The Arizona spoke procurement and construction will continue.
The Alabama spoke procurement and execution will be kicked off.
And lastly fiscal year 2022 guidance will be provided in conjunction with reporting our fiscal year 2021 results.
Now I'd like to turn it over to Tim to provide an update on our spoke expansion at Rochester hub.
Thank you Bruce I'll start off on slide 'twenty could give an update on our sports facilities.
Our first commercial spark is located in Kingston, Ontario, and began operations in mid 2020.
In April 2021, we announced the development of a third North American spark in Gilbert Arizona.
On track for completion of the first processing line in early 2022.
We are further excited to have announced this week and additional sport can be located in Alabama, which is on track for completion in mid 2022.
Moving to slide 21, our fourth commercial sport facility will be located in Tuscaloosa, Alabama, and the south east of the United States.
This region is highly strategic located close to battery and auto manufacturing slots.
This facility is incremental to our base case business plan choose the increased forecast demand for additional battery Mega factories.
The Alabama spark for facility will initially have 5000 tons per year of processing capacity with capability to be expanded to 10000 tons per year of lithium ion battery processing capacity.
For most of the Arizona, we plan to leverage our full Pax shredding technology, increasing life cycles total processing capacity in North America, 225 to 30000 pumps, but yeah, all the lithium ion batteries.
Turning to slide 22.
Very importantly, I'm pleased to report that our flagship Rochester hub project is on track and.
In 2020, we began definitive engineering permitting and infrastructural work and I'm pleased to report the definitive engineering work will be completed in 2021.
To facilitate groundbreaking before the end of the year, allowing for the commissioning to begin in early 2023.
The development of the hub has allowed lifecycle to continue to expand our commercial base securing critical contracts such as the Ultima agreement for the supply of battery materials.
And off take for finished specialty chemicals.
We look forward to providing a more in depth update on the Rochester hub project following the completion of definitive engineering.
Moving to slide 23, I'm pleased to highlight that we will be hosting the lifecycle battery recycling day on October six 2021.
This event will include a range of panels involving external guess covering key topics pertinent to lifecycle business.
This includes vehicle electrification.
Stable critical materials.
Next generation batteries.
Well as environmental and community engagement.
Save the date and stay tuned for registration details, which will be further communicated in the coming several weeks.
In addition, we are pleased to be participating in several upcoming investor conferences as noted on slide 23.
Finally on slide 24, we believe lifecycle is the right solution for the recycling of all types of lithium ion batteries traditional.
Traditional smelting and refining techniques are less economically efficient.
And more harmful to the environment.
We have a strong portfolio of patents and technology complemented with a strong network of commercial demand and battery supply contracts that have taken many years to developed.
We are scaling with our customers as they grow and supporting increasingly stringent policy directives regarding battery materials and recycling.
Before I wrap it up I would like to summarize why we are so excited about the opportunities we have ahead of us.
One last cycle is at the intersection of all three broad and rapidly changing megatrends.
Critical for the growth of the zero carbon economy.
These include the electric vehicle Revolution.
Sustainability with an emphasis on circular economy.
The domestic supply of strategic materials.
Sure.
We believe lifecycle provides leading fit for purpose solution for the recycling of all types of lithium ion batteries.
Additional smelting and refining techniques are more harmful to the environment and our technology has proven to be more efficient with higher yields and more recoverable material.
Inevitably robustly improved environmental and economic sustainability.
Right.
Lastly, lifecycle is already a commercial business that has got good solutions operating today.
Our long term competitive edge is comprised of two key aspects.
Our patented fitful purpose sports hub technologies.
And sticky long term battery material supply contracts and associated product offtake agreements.
Following the closing of the business combination lifecycle is well capitalized to execute on our business plan.
Last cycle is poised for rapid growth as we continue to scale with our customers accelerating electric protection plans.
Thank you for your time today.
We will now open the lineup for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line.
Of Robyn <unk> with BMO capital markets. Please proceed with your question.
Hey, Good morning, guys. So my first question is on the spoke rollout in Capex.
How should we think about the spoke expansion and rollout going forward considering what I believe is about a one per quarter production capability right now and when you think about other things like the time it takes us scout ideal locations and to secure necessary permits.
And it seems like the next couple spokes are expected to be about $10 million and all in Capex versus I think 5 billion. Previously stated so is 10 million.
Spoke capex run rate right now.
Yeah, Thanks, Robin and I appreciate the question I actually turn it over to Tim Johnson and he's going to answer the question.
Thank you Adrienne and thank you Robyn.
Excellent question. So first of all let me start by saying lifecycle has now established a what we're calling a spark fulfillment center. This is essentially a dedicated location, where we've developed the capability to build.
Bill Spark modules for those of you have seen the videos, you'll understand what I'm, referring to the NPL.
N P also rollout spark platform on a continuous basis. So we don't see any restrictions on our ability.
To fulfill the requirements of one sport coat quarter using your estimate there.
Robert.
What I would say, it's part of the execution of the spark programs.
Because of the low environmental footprint associated with the export facilities. They have been and they continue to be relatively simple to private as well as because of the replicating a bowl nitro facility.
They are able to be turned on and ramped up relatively quickly.
In relation to the run rate cost program.
What we've allowed for us going forward some facilities will have.
The ability to process full Pax some facilities will have the ability to process also modules. There is a slot incremental cost to that but most of the incremental cost is actually because of standard products.
Process is to allow for the duplication of the processing lines within the same facility.
The odds are outlined in the presentation that we've seen a significant increase in the demand for recycling capacity and so in certain locations.
Arizona, and Alabama, we're actually starting with the footprint to be able to run up to 10000 tons per.
Yeah. This is overall, a lower capital intensity way to rollout spoke capacity.
But that's the way so you should still can sit up for 5000 pumps for you a run rate of roughly $5 million for processing.
Okay, and maybe just to follow up on that.
So the spoke Capex, we should think of it more like a range maybe between five to 10.10 being the ones that.
<unk> posted a full packs.
And maybe with respect to I think the MDA MD&A.
MD&A mentioned.
Beachheads spokes in both Europe, and China would be closer to 10 as well is that because those are going to be full pack processing or because there's going to be.
Maybe more upfront costs associated with permitting and scouting.
Actually embedded within that $10 million going to cost.
There is a minor amount until additional engineering upfront engineering cost associated.
Associated with bringing the spark design up to the European card requirements.
But in general.
We will be talking more about this enough for your guidance, but as we look across our way.
Where would it be placing sports in the future.
Future. The initial sport capacity will likely be full park processing capacity adults went up simple fashion with expansion capability.
Okay. Thank you and maybe just a second question.
So at this stage do you foresee an LLP hub is the most likely candidate for up to.
Maybe you can just discuss the current expectation.
And.
And sequencing and timing for the next hubs.
Yeah no problem. So first of all we're really excited about the continued acceleration of the L. L. P battery market.
And we have multiple path currently underway, which will be able to provide an update as part of the coming quarters.
Right. Thank you.
Thank you Robyn.
Thank you. Our next question comes from the line of Daniel Ives with Wedbush Securities. Please proceed with your question.
Yes. Thanks.
Can you just talk about.
How do you think about the run rate for EBITDA in Q4, and you're just going forward.
I appreciate it.
Yeah, Hey, Dan. Thanks, so much for the question certainly so.
I think just to reiterate.
We continue to see volumes tonnages.
As well as hence revenues ramping in line with expectations and just to be clear I'm talking about the immediate future.
To fiscal Q4.
So you'll see that continued commensurate rise in the tonnage and the revenue.
But also an associated negative adjusted EBITDA.
The second point around that is we're pulling forward and continue to enhance the team with respect to personnel.
And that's very important of course to enhance execution as we continue to accelerate our rollout.
Of course, the nearer term immediate effects is an adjusted EBITDA was negative.
Roughly speaking you could probably take the Q3 numbers.
And incrementally adds about 50% to 100% just as a rough indication.
For the immediate fiscal Q4.
Adjusted EBITDA.
But the bottom line is you know 0.3 and final point is that we're laser focused on execution.
We're building our spokes as we continued to accelerate in lockstep with our customers you see it in this presentation and.
And we are of course gearing towards the execution of the hub.
Which as everybody knows from the sell side community and for those that are do.
That is a key financial inflection point for the company.
So hopefully the airplane.
Hopefully that gives you a little bit of color.
Great Great and then.
Just given all the activity that we're seeing in the market in terms of.
The build out of a battery technology can you just talk about.
Maybe how conversations have changed with customers or potential customers car or the last six months versus maybe if we went back a year year and a half ago just anecdotally.
Alright, Thanks for the question David I got it.
Golf ball bearing it keeps blockbuster.
Well, if you look in the North American context, I would say that as we've seen I think we presented in the slides as well significant announcements of production capacity here in North America.
So the opportunity is definitely increased and there is definitely a projected let's say deficit and capacity are starting to become a deficit in capacity in North America.
As more of these Giga factory Mega factories come online. So I would say the opportunity is rapidly increased.
And.
There's a strong demand for our services and also increased capacities.
Given the Mega factory rollout.
Sure.
Thanks.
Thank you. Our next question comes from the line of Jeff Osborne with Cowen <unk> Company. Please proceed with your question.
Good morning, guys. This is Jeff Rossetti on for Jeff Osborne, Thanks for taking our questions.
Just maybe if I could start and I know you've disclosed that there was.
Some COVID-19 related impact.
In your Q2.
And also this quarter, so I just wanted to see.
Has that impacted your operations as you spoke in Kingston.
Rod Chester.
Also know that you said you were ramping.
On your plan, but just wanted to see where the utilization rates. So did your two spokes in the quarter.
Yeah, certainly, especially here thanks for the question Jeff.
Yes, I can start and then Tim can add on here is needed. So short answer is yes, as we disclosed in the Q2 MD&A there was a bit of a slower start to the year than we had originally anticipated, but that said as we've reiterated on this call for the immediate future for full fiscal year 'twenty 'twenty. One we're very encouraged by the pickup.
And the continued ramp up.
I'd say broadly in line with expectations that the reiterated for 2021.
But as you can probably can piece together that there's also some catch up that we're pleased to report within fiscal Q3 and fiscal Q4. So that's just from a rough guidance for the full year that should give you an indication I'll turn it over.
But Tim you could talk a little bit more about the utilization aspect.
Yeah, Jeff So just further building upon what Roger was saying the.
Kingston Operation is now operating 24 seven.
The biggest impact that we had in Rochester was the flu.
What was slow hiring of the staff that they took a little bit longer to get the staff than we had initially anticipated.
We're now at two shifts going to to three shifts actually next week and.
It will be at full shifts, which is full utilization by the end of the year.
So as RJ said the back half of this year.
The heavy wrap here and you'll continue to see that.
As part of our next quarterly.
Reporting.
Okay great.
I appreciate the update on <unk> guidance I was wondering if there was any change to the calendar guidance that you provided.
Your S four.
Yeah, I can take the subject here again so.
So I think the short answer is yes.
Again reiterating that we are in line with the expected ramp of the Kingston Rochester spokes.
Translate that to the full year.
Calendar year, if you want to take that approach as well.
Again, whoever just emphasize as we were talking about there with a question from Dan.
Try images and line revenues in line, where we see of course some of them.
Adjusted EBITDA being more negative as you can probably tell from the results of this quarter is frankly, because we're hiring about pulling cost.
And execution at forward. So we're accelerating some of that which means a pronounced near term adjusted negative EBITDA, but of course as folks know and here. This is all geared towards the.
The ramp and the execution of the spokes and home, which we're laser focused on.
Okay, great and if I could ask.
One more just on the.
14, new supply customers. That's great. Just wanted to see are you able to disclose it all now where you stand in terms of your total with lithium ion battery feed tonnage.
Thanks, Jeff So I'll start and Mike can all can add on here.
Yeah look I think as part of our full year fiscal 2022 guidance. We will look to continue to provide as transparently as we can you know.
Color around that I think folks can also see based on the breadth of the Alabama spoke.
But of course the <unk>.
Common here, what's very important of course is gearing or whatnot ultimately towards scaling the hub.
So stay tuned for that that's going to be a big focus as we talk about full year 2020 guidance.
But I'll turn it over to Colin.
Yeah, I think just on the comment of 14, new customers, we've seen accelerated growth and customer acquisition at the beginning of the year, we had indicated around 40 customers.
Now, we have 70, plus and 14 of those coming in in the last quarter and we will continue.
To increase that number and add new customers, which will of course drive volume into the plants.
Yes.
Okay, and I'm, sorry, if I could just get one more just wanted to Rochester hub, Tim I think you.
You mentioned that you will provide additional details once you finish the engineering case.
Just wanted to see.
How do you get to the lower end or the higher end of year three.
30% range.
The $175 million cost number.
Whether or not you would see any change in.
And the actual processing capability of the Rochester called Badger.
Finish the engineering chase, Thanks, I'll jump back in the queue.
Thanks, Jeff I'll turn it over to Tim who can address that.
Yeah. Thanks, Jeff So let me start with answering the back end of the question first so as discussed we continue to benefit from market acceleration.
As outlined in the presentation, we've seen increase and 65% and demand all material available for recycling.
For 2025 in just the past five months.
So we continue to take that into consideration.
As part of the rollout to all parts of the spoke and hub facilities.
We are in the final stages of different dimension Harrington I'm looking forward to coming back to the market upon the completion of the spin.
Engineering next quarter.
To provide a much deeper dive on overall on the overall hub project.
Thanks.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.
Our next question comes from the line of P. J <unk> with Citi. Please proceed with your question.
Yes, good morning, gentlemen.
Tim.
Good morning P J.
I know you talked about five to 10 per cent batteries crap in manufacturing.
Is it possible that as battery manufacturers go down the learning curve and become more efficient at 5% to 10% scrap rate could go down in the future.
I appreciate the question P J and I can start here and we can all can add on as needed.
Firstly, a common question I appreciate you asking it.
So I think in the near term years of ramp which is pertinent for a lot of the data that we showed around the market for North America, and generally speaking for Mega factories.
It's actually quite common that you can have a much higher scrap rates in 5% to 10% in fact, its public about their for many of the.
Mega factories in the past years, it could even be as high as 30%.
Now people take a step back just to play Devil's advocate people say well.
Why would that be you know, obviously folks are trying to minimize scrap rates.
I would point you as well to the commensurate side of it which is regarding quality and trying to prevent recalls.
So I'm not going to point to specific names or is he says, but I think that's an important aspect to point to regarding keeping an unwavering quality standard and that needs to be the approach and cell manufacturing. So short answer P. J is 5% to 10% is more conservative.
Now over time 10, 20 years into the future certainly I think that's of course the objectives.
Our customers and we want them to succeed we want to be collaborating with them.
But again for the near term medium term, that's not a huge Trevor I'll get maybe brought send it out.
Well.
Yeah, one other factor to consider in that as well P. J is that a self formats get larger there's a highest intensity for scrap and the reason is the but the fact that potential that beef export probability perspective increases with the size of the individual cell.
So some of the trends that we're seeing in the auto industry is actually leading towards a higher potential for scrap as well.
Great Good point on the safety side.
Then you mentioned that 70% of your 2025 volumes wouldn't be from manufacturing scrap which is interesting.
What do you think.
Is it the rest, 30% post consumer battery recycling and how much of that do you think could be from E vs would assess.
Traditional consumer batteries.
Yes, great question or did you make it started getting them broken.
Add on as needed.
Short answer is it's interesting we do see a rising quantity of larger format as we call. It for higher voltage driving from U D type batteries. So it's part of that 30% actually we are starting to see a more pronounced amounts as part of our book and that is for example did you say older hybrid it could be what we'd call.
Premature mortality.
David if I can recall.
Roughly good to assume that roughly 20% of that residual and that sort of range, probably attributable to high voltage and then that lighter, 10% portable batteries energy storage systems and the like what's coming to that it's interesting. If you can go five years further and beyond we'll continue to see that mix change and.
EV batteries really equal Wiseman ultimately of course overtake them.
Great. Thank you.
Thank you. Our next question comes from the line of Ben <unk> with Baird. Please proceed with your question.
Hey, good morning, Congrats on your first conference call in our quarterly results.
No you added 14.
New supply customers during the quarter could you could you talk maybe just about.
How the marquee is for adding new customers and then.
When you add a new customer how those contracts work.
With the customers if it's similar to how it was last quarter or similar to how you started or if there's been any changes there in terms of maybe you could just refresh us on how the tour.
Are those those contracts work.
Yes.
I'll take my questions.
Yes.
Around here.
When we're adding customers, we're looking at a broad funnel across different customer segments of course automotive and transport.
Targeting those and.
Approaching the customers the choice the contacts that we've had for a number of years now to acquire those customers as they ramp up their electrification strategies in production.
So those tend to be longer term.
Contracts.
When we get into on the opposite end for example, when we add groups.
Groups in the post consumer consumer electronics are at.
That tends to be more regional they they have to go through compliance check. So there are two an ISO certification, who recently achieved in Rochester are significant milestones to help us to acquire those customers, but also adding more regional business development capacity in line with the spoke capacity so as we add Phoenix in Alabama.
In team members in those regions to chase the.
More regional customers as opposed to the.
For example, automotive customer and more centralized approach for a national contract. So it's a multi layered business development approach to acquire customers.
Customers and can take six to nine months to go through their processes and compliance checks to add them onto our roster.
Hi, Jay I think we will add something on top of that.
Yeah, just quickly, but I wanted to say is you know just as a broad comment there continues to be we see a deficit of recycling capacity relative to the available material.
And hence from a terms links.
<unk>.
Whatever the optics of the contract are they continue to be favorable and in line and if not frankly.
Realizing from the customer community from the battery supply cost per community that it is a pretty sudden universe of companies that can deal with these issues soup to nuts.
And so just to be clear.
<unk> continued to be the famous not many times, we're seeing a deficit of recycling capacity relative to available materials.
And just following along with that.
Would you have the Tuscaloosa or announced with how much do you got.
For a lack of a better word fill it.
Or have a line of sight to fill it from I know that.
Mercedes play out in numbers.
For a plant but.
How do you have the contracts structured so.
So that you can deploy that capital and I know that you don't go out and the returns on it.
Thank you.
So that one thanks, thanks a lot.
Yeah, Thanks, Sanjay and so how we assess that is really sweet fall that's the immediate available market.
Typically what we're looking for is in the range of about 1200 tonnes per year, all immediately available material.
But more importantly, it's a strategic longer term view a lot of how these customers will contract is not based on the future deployment of assets, it's the ability.
Ability to process the material today, and now and so as we look to Tuscaloosa and being strategically located in the south east of the United States.
Those two both battery and automotive.
Manufacturing facilities.
It's both.
But most importantly, it is a long term strategic.
Opportunity for lots of them.
Thanks, Chris.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. <unk> for any final comments.
Thanks, very much so to close out I would like to thank all of our employees for their contributions to lifecycle success.
Our shareholders for their support.
And our customers for their commitment and we look forward to providing future updates and future opportunities to discuss our progress as we move ahead. Thank you very much for your time today.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.