Q3 2022 Li-Cycle Holdings Corp Earnings Call

Please standby your program is about to begin.

Good day my name is Katie and I'll be your conference operator today at this time I would like to welcome everyone to the third quarter 2022 lifecycle Holdings earnings call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would.

I'd like to ask a question at that time.

Press Star one on your telephone keypad.

If you should need operator assistance, Please press star zero.

Thank you I would now like to turn the call over to Nahla acne head of Investor Relations. Please go ahead.

Good morning, and thank you everyone for joining us today for lifecycle to review of our third quarter 2022 results ended July 31.

We will start today with formal remarks from agriculture.

<unk>, President and Chief Executive Officer, Tim Johnson, Co founder and Executive Chairman and Debbie Simpson Chief Financial Officer, We will then follow with a Q&A session.

Ahead of this call lifecycle issued a press release and a presentation, which can be found on the investors relations section of our website at investors thought my cycle Dot com.

On this call management will be making statements based on current expectations plans estimates and assumptions, which are subject to significant risks and uncertainty.

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 U S Securities and Exchange Commission and the Ontario Securities Commission in Canada.

These documents can be found on our website at investors that lifecycle dot com.

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.

With that I'm pleased to turn the call to Debbie.

Thank you and good morning, everyone as.

As we will discuss on today's call. We are very excited by the opportunities that we see in front of it.

Laser focused on the execution annualized operating integrated spoke and hub network.

We continue to make meaningful strides in positioning lifecycle and the long term preferred recycling partner and supplier of lithium ion battery materials.

Particularly in North America and Europe .

With strong commercial connectivity into Asia.

Starting with their key near term updates we are pleased to report that our Rochester help project remains on schedule.

Our European projects continue to advance.

They're useful in Arizona, and Alabama are benefiting from our recent optimization projects.

With regards to our mid to long term strategic focus.

We are capitalizing on strong secular market and government policy momentum for localizing supply of critical battery materials.

We maintained our first mover advantage and battery recycling in North America and Europe .

Which is underpinned by commercial contracts and strategic partnerships.

With the Rochester hub is a key future value driver.

We are sufficiently funded to complete our current project pipeline with potential for debt financing from both traditional and government sources and support our future growth.

Beginning on slide three with quarter highlight.

Tim and I will cover in more detail later.

On the financial front.

We ended the quarter with approximately $650 million cash on hand.

<unk> $250 million in investment proceeds from LG and Glencore.

<unk> sufficient liquidity for our current project pipeline.

On the commercial front.

Our expertise and logistics handling and processing knowhow have allowed us to expand their sources of battery materials from diverse customers across the supply chain.

<unk> back to manufacturers and Oems.

Two recent examples.

Lifecycle with selected for one of the largest energy storage decommissioning projects in North America.

We completed two phase decommissioning project in July which amounted to more than 1400 metric tons of fashion materials, which started back up to renewable energy.

Also.

On emerging electric vehicle OEM with a manufacturing facility in North America named lifecycle and selected global lithium ion battery recycler.

On an operational level.

We completed optimization projects at our Arizona book under August and September directly are now tracking to target too good.

With the <unk> expected to start operations by the end of the fourth quarter.

Our war chest or hop remains on track to commence commissioning stages in calendar 2023.

No.

I will provide a more detailed discussion of our financial results.

<unk> regarding last month's production revenues adjusted EBITDA and cash flow.

Beginning on slide four for Black Hawk production.

We continue to generate higher product sales volumes with the startup of our new Arizona misspoke.

Black Knight production during the quarter of 961, Ken with more than 80% higher than the same quarter last year and up more than 30% from the second quarter, driven primarily by the startup of the Arizona.

While our third quarter volumes reflect favorable progress relative to our first half run rate.

Blackburn production with lower than our original target and we took some temporary downtime at our Arizona spoke to complete optimization projects.

In addition, we intentionally pace the startup of our Alabama book to implement the same profit improvements.

<unk> will discuss this in more detail.

As a result of these actions.

We're behind our original production targets by approximately one to two quarters.

We are updating our fiscal 2022 black Hawk production guidance.

Initial range of 65 to 70 510.

To a range of 35% to 3800 10.

We are pleased to report that since successfully completing the optimization projects in Arizona, Our August and September when rates are now tracking near target to boot.

Turning to slide five for a discussion on revenues.

Finally, as background and as a reminder, our discussion on our last earnings call.

Lining with their contracts and <unk> reporting requirements.

We recognize revenues on product sales at the point of delivery to our customers.

Based on product sales volume and prevailing market prices.

Our customers take time to look to materials and we retain pricing exposure until the related receivable is felicia.

As a result of fair market value adjustments or boost to revenue.

Gain is recognized when metal prices.

Nickel and cobalt in particular increase and the losses recognized with metal prices decrease.

Also to add we are currently paid for cobalt and nickel content and not for the lithium and our black mass yield due to the lack of blockbuster finding capacity available in the market.

As a reminder, part of our competitive differentiation will be our ability to extract lithium from Black Mountain Windsor, What Hyster health is operational.

Revenues from product sales and recycling services of five $4 million increased from $1 3 million in the third quarter of 2021.

Total revenue was negative $2 million compared with a positive $1 7 million for the same period last year.

The decrease in total revenue was primarily driven by a noncash fair market value adjustment of $7 3 million in the third quarter of this year.

It is a fair market value gain of $400000 in the comparable period last year.

This was as a direct result of declines of 32% and 37% for nickel and cobalt prices respectively. During the quarter.

Each impacted approximately 3200 unsettled tons related to prior peak Blackbird II.

As shown here this negative fair market value adjustment is non cash and largely a reversal of fair market value gains through the first half of the year when metal prices were rising.

The cumulative fair market value adjustment for the year was a negative one $6 million.

Total revenues for the first three quarters were $10 $5 million versus $3 million for the comparable period last year.

As nickel and cobalt prices continue to change we would expect further fair market value adjustment to revenues with potential for increases or decreases.

Just to close on what is most important here.

During the third quarter, when excluding these fair market value adjustments or.

Revenue from product sales and recycling services increased four fold relative to the same period last year.

Which demonstrates the underlying growth in our business and we continue to expand our network.

Turning to slide six for adjusted EBITDA.

Both grade year on year and sequential comparison.

Compared to last year adjusted EBITDA loss was approximately 31 $6 million versus $5 3 million.

This reflects increased operating expenses for the ongoing expansion of operations in North America and Europe .

Specifically these are largely related to <unk>.

Higher employee compensation for operational corporate commercial and engineering resources, and we continue to support the expansion of our network, particularly the Rochester House.

Costs associated with becoming a public company given the timing of our listing in August 2021.

Rising raw materials and supply attributable to our increased Blackhawk production from our scope of operations.

I would also note that the quarter included noncash stock based compensation of $4 million.

$300000 this time last year.

And a noncash fair market value pricing loss of $7 3 million during the quarter, which compares to a gain of 400 doses in the prior year.

On a sequential basis compared to last quarter adjusted EBITDA was primarily impacted by the noncash fair market valuation.

Turning to slide seven for a review of the strength of our balance sheet and liquidity.

Lifecycle ended the third quarter with approximately $660 million of cash on hand.

As previously disclosed we enhanced our balance sheet during the quarter with $250 million in combined investment proceeds from LG and Glencore.

This strong balance sheet position is expected to provide sufficient liquidity for capital and operating needs to fund our current pipeline of projects in development.

During the quarter, we invested $82 million in capital expenditures with the majority of this investment allocated securing equipment for the continued construction of our Rochester hub.

Alongside equipment expenditure and leasehold improvements for our North American and European.

With much of our procurement needs, having 90 minutes, we expect the majority of our future capital expenditures will be focused on construction for the continued build out of our Rochester hub.

We anticipate providing an initial capital expenditure outlook for 2023 early next year.

We remain committed to our balanced approach to operating spend and investing in corporate infrastructure that will support our expanding network to drive significant economics in years to come.

Finally, we continue to explore additional debt funding opportunities from both traditional and government sources that will optimize our capital structure and provide flexibility.

This is intended to enable additional group to meet significant customer demand beyond the current pipeline.

Now I'll turn things over to Ajay thank.

Thank you Debbie.

I will discuss the continued favorable market and regulatory secular trends and provide an update on our spoke and hub network.

Turning to slide eight.

We continue to see favorable trends for early movers in the battery supply chain.

Supply and demand dynamics these trends underscore the importance of incorporating recycled materials into the supply chain to help augment reliable domestic supply.

Our total addressable market or Tam for lithium ion batteries available for recycling and our focused regions.

It is driven by increased battery manufacturer Mega factory investments.

It is expected to grow by more than 16 times by 2025 from current levels.

As a result, this is projected to drive combined Tam growth in terms of lithium ion batteries available for recycling in North America, and Europe by more than five times by 2025 from current levels.

Is this dynamic that is causing many global supply chain participants to lock in commercial recycling arrangements, which we continue to see benefiting lifecycle as we expand our network capacity.

Turning to slide nine.

We continue to see favorable tailwind from a number of new public policy programs in the us.

Aimed at providing financial support.

<unk> domestic expansion of the battery supply infrastructure, essentially giving this to be a critical strategic industry.

The recent enactment of inflation reduction act or the Ara.

Should provide significant benefits to the EV battery recycling industry beginning in 2023.

That really comes on the heels of the bipartisan infrastructure law, which calls for $6 billion in grants across the battery sector supply chain.

As well the presidential determination is carving on $500 million in investment to support critical materials for battery production.

We believe the IRA recognizes recycling as an accelerator for the domestic supply of battery materials to support the increasing demand for Evs and energy storage.

These programs will reduce the cost of building new facilities to produce domestic critical materials and help bring down manufacturing costs for batteries.

We highlight here key hiring benefits broadly for the recycling industry in our business, namely.

Up to $250 billion and clean energy loans, so the Doe loan programs office for LPL.

Up to $60 billion in five year production tax credits, which provides for 10% of the cost of producing critical materials, including lithium cobalt and nickel.

And up to $10 billion in advanced energy product tax credits, which allocate up to a 30% investment tax credit for developing clean energy facilities in the U S. And importantly, this includes recycling facilities.

Additionally, it is worth noting that the IRA is pushing for building EV batteries using material sourced in the U S. Our free trade agreement countries.

New vehicles placed in service next year need at least 40%.

Battery critical minerals to come from U S. A free trade agreement countries to qualify for the clean vehicle tax credits.

And this increases to 80% by.

By 2027.

We believe this push for domestically sourced critical battery grade materials will incentivize automakers to incorporate a higher percentage of recycled material.

This is why it is critical to be a first mover with environmentally sustainable technology.

Our patented technologies are proven in the North American market as a leading way to recycle lithium ion batteries.

Two key advantages.

One lifecycle has the opportunity to explore these government funding opportunities to potentially benefit or spoken hub network growth.

And two we have the capability to assist automakers and achieving the clean vehicle tax credit conditions by meeting their production requirements for domestic content via recycled materials.

Turning to slide 10.

Here, we depict the current portfolio of spoken hub projects in North America, and Europe that are expected to come online in 2022 and 2023.

Ravi these in more detail.

Turning to slide 11, as we've discussed on prior earnings calls in order to be a reliable secondary source of battery grade materials. It is important to secure sustainable feedstock for the intake of battery materials for recycling.

Here, we show the competitive advantages of our spoke network that make lifecycle of go to leading recycling strategic partner for battery supply chain participants.

First.

We are a battery and form factor agnostic with the capability to process entire EV.

And energy storage battery packs with note this assembly.

This was provided lifecycle with a further edge as EV battery packs are continuing to become larger and automakers are implementing fell to pack architecture with minimal ability to dismantle.

Hence our ballpark processing capabilities that are proven at our Arizona smoke and are being implemented in Suffolk subsequent spokes, such as our Alabama spoke provide lifecycle with a strong competitive edge.

Second we're also processing with an increasingly efficient environmentally sustainable footprint with minimal emissions and wastewater discharge.

This provides significant accelerated advantages in terms of permitting.

And third to fill <unk> and adequate intake of battery materials recycling. We are looking at our spokes posted battery and automotive manufacturers as well as EV penetration, thereby minimizing transportation risk and cost.

To reiterate we are positioning the spoke network to capture growing volumes of manufacturing scrap to provide a strong base load of materials for operations.

Supplementing this will be end of life battery volumes, which should continue to rise steadily in the coming decade.

Turning to slide 12 for an update on our European expansion.

Similar to our strategy in North America, we are strategically targeting spoke locations in close proximity to battery electric vehicle manufacturers and EV penetration.

We expect to spoke capacity will be easily absorbed by robust European demand.

In particular for either related battery supply and energy storage systems, given high renewable energy used in the region, which is resulting in additional commercial partnerships.

We've secured strategic sites and have initiated the equipment fabrication with a local industrial partner.

In Norway.

Our site is located with favorable access to logistics networks.

Further this site will meet most of its energy needs through sustainable sources, making our business an attractive commercial partner in Europe .

In Germany our.

Our site is located near various cell battery and EV manufacturing facilities and also has access to renewable energy sources.

Similar to the Arizona, Alabama Spokes, we are taking a staged approach to the start up of these facilities with Germany plant to be online first followed shortly by Norway.

We expect both of the European spokes to be in production by the second half.

2023.

This is a modest shift from the first half of the year based on a more conservative license for additional commissioning and startup time as we continue to implement the best operational practices and learnings from the North American spokes.

Turning to slide 13 for an update on our new North American folks, namely, Arizona and Alabama.

As Debbie discussed earlier during the third quarter, we took deliberate steps to optimize operations of these spoke facilities.

Which is the first of their time to process entire EDI and stationary energy storage battery packs without the standalone.

In order to make these improvements the pace of operations at our Arizona spoke were temporarily affected and we moderately postponed the startup of our Alabama spoke which is a carbon copy of the Arizona spoke.

Since completing these low capital cost optimization projects, Arizona focus now ramping successfully to near target throughput and is demonstrating higher recovery yields a black mass relative to our first generation plants in Ontario, and New York.

We are leveraging the key learnings and process improvements from Arizona spoke for the rollout of the Arab Alabama spoke and European spoke locations.

Lastly, we continue to work with <unk> on the development of the Ohio spoke and are validating the optimal execution path.

Now I'll turn it over to Tim to provide an update on our Rochester hub.

Thank you Roger I'll provide an overview and update of the Rochester hub, which is expected to be the first commercial battery resource recovery facility in North America positioning lifecycle as a leading domestic supply of battery grade materials.

Starting with slide 14 for the key attributes of the Rochester hub.

While our facility will produce a range of end products. We are focused on the production of lithium carbonate nickel sulfide and cobalt salt, but as key value drivers.

We estimate that the hub will process battery material that is equivalent to approximately 225000 electric vehicles per year.

We strategically selected the Rochester Eastman business Park for the location of our hull to leverage existing infrastructure for power.

Cooling water.

Also worth highlighting is that our proprietary technology has been developed to minimize air emissions and apply the zero liquid discharge technology, while liquid streams that collected and treated on slot.

This process provides sustainable pathway for critical materials and contributes to the circular economy.

This has proven to be an advantage for obtaining key environmental permit for the construction of the Rochester hub.

Turning to slide 15.

Just to take a step back briefly I would like to discuss our pilot plant, which underpins the desire for commercializing the Rochester hub.

We proved out the process of a hub with a large scale pilot plant in Kingston, Ontario, which operated for over one year, primarily between 2019 and 2020.

We tested our flow sheet with non equipment and proven chemical processing technologies.

The scale of the individual unit operations exceeded that of industry standards for piloting this type of equipment, giving us added confidence regarding our ability to scale up.

Finally, we tested and qualified the end products with key customers and the global battery supply chain, many of whom we are working with today.

Turning to slide 16.

Youll see the layout of the Rochester hub, the numbered buildings referred to different processing areas.

Starting with area 100, Kiwi received one pound bags of black box from a warehouse the.

But black masses unloaded at the leaching tags, which are used to dissolve the metals and water asset.

Behind the graph, which is drawn and package for shipment.

The liquid solution containing the metals is called the pregnant leach solution or pls.

Moving forward. The Pls solution, then goes through two stages of impurity removal elements, such as copper aluminum and iron and areas 200 300.

Following impurity removal the pls enters the heart of the play three solvent extraction circuit and areas 400, 500, 600 used to selectively recover manganese cobalt and nickel before crystallization drying and packaging of these products.

The Pls solution now contains mostly sodium in lithium and area 800 with sodium is recovered through crystallization ahead of lithium carbonate production.

The Rochester hub has two stages of lithium production shown in the area of 900.

First our crude lithium carbonate is produced by adding sodium carbonate.

Purely the removed in a second step coal by combination, which provides significant flexibility to produce a battery grade lithium carbonate products.

So linear does a lot of the process provides flexibility to handle a wide variety of inputs from black math with tight controls on product quality.

As part of our goal to set the bar for environmentally sustainable refining of battery grade materials. The hub also include a zero liquid discharge.

Which recovers traced impurities and produces fresh condensate water.

Turning to slide 17 for an update on the construction of the hub.

To recap our team has achieved significant milestones to date, we obtain key environmental permits which enabled us to move forward with the project construction.

We completed key commercial contracts for engineering procurement with hubs and for construction management with Mastec industrial.

We locked in the delivery schedule and pricing for the majority of the long lead equipment and made progress purchasing construction materials.

During the third quarter, we have maintained our procurement momentum providing enhanced confidence in material and equipment pricing to keep our projected timeline and cost within target.

Additional highlights include.

The warehouse structural building is near complete and on track to receive black math by the spring of 2023.

Construction has advanced for areas 100 associated with Black Maths leaching and areas 400, 500, 600 solvent extraction with concrete foundations underway, receiving a building steel materials and significant progress on underground utilities.

While we continue to monitor supply chain labor costs and seasonality conditions in Rochester, New York The hub remains on track to start commissioning in stages in 2023.

Turning to slide 18, I would like to close with a recap.

We are accelerating growth based on our strong secular market and government policies that support a localized supply of critical battery materials.

Underpinned by commercial contracts and strategic partnerships, we are continuing our first move a rollout of our spoken hub network in North America, and Europe with the Rochester hub being a key value driver.

We have sufficient liquidity to fund our current project pipeline and operating needs. In addition, we continue to evaluate multiple capital sources, including debt financing alternative from both traditional and government sources and support the next phase of growth beyond that to our project pipeline.

That concludes our formal remarks, operator, we are ready to take questions.

Thank you at this time, if you would like to ask a question. Please press star one on your Touchtone phone.

If you wish to remove yourself from the queue at any time you may do so by pressing star two we remind you to please pickup your handset for optimal sound quality.

Thank you. Our first question will come from Robin Butler with BMO capital markets. Your line is now open.

Hi, Good morning. My first question is on the up commissioning guidance. So is only a portion of the 90000 ton heartburn can be starting up initially and then maybe you can walk us through the cadence timing.

At full operating rates.

Hey, Robin good morning, and I'll turn it over to Tim who will provide some color there.

Good morning, Robert So when we're talking about commissioning.

Now that we're further advanced on the project overall, we're now starting to build out our detailed.

<unk> plan and what we're talking about here is the effectively commissioning is done.

What we're going to refer to as three stages.

Phases, one through to three.

Starting with completion checks, we will then two week testing instrumentation.

The work in terms of calibration.

For the final stage of commissioning, which is ultimately the introduction of black mass.

What youll see on slide 17, as the commissioning actually overlaps with with construction. So what's important is that as we go through the startup of the plant.

It's not the sort of plant that you just turned everything all in one guard that's actually important to play in the sequencing of commissioning with construction.

Because we want to have certain circuits available. So that you can actually start up and progressively moved through the plant.

And doing those checks.

Part of the.

The end of construction.

So that's what we mean by that.

But when we want to sort of start to provide this sort of framework because as we get closer to this milestone we expect to be able to come back to with more color in relation to how we're progressing in relation to these different stages and what.

We are doing but we wanted to set up a framework in terms of terminology early.

Okay, maybe just a follow up so I appreciate that there are different steps associated with the commissioning phase itself, but as far as the.

The wording of.

Stage commissioning I wanted to be sure that that doesn't mean that the 90000 time theres going to be introducing stages as well as from a volume perspective.

Okay. Just wanted all cleared at a later stage commissioning, but once you have completed its 90000 ton run rate thereafter is that does that.

Correct, yes.

So I'm not sure what.

Thinking like it's 35000 tons per year of Black Mountain.

Yes.

So the 35000 tons per year of Black math, two stages just to break it down in more detail. So stage, one is really about confirming satisfactory completeness.

The engineering design. So this is the checks and balances based.

Basically the slot off on the endo construction or mechanical completion across the different stages.

Stage, two is where we are now and then.

The equipment, we're doing leak testing and water testing through the system, we'll be doing instrument calibrations and the luck and then stage three is the introduction of block models.

It's not actually so we're not talking about starting it up in terms of like stages of.

Production throughput, that's really about stages of activity in terms of how we sequence.

The different parts of commissioning.

Okay. That's clear and then just based on the graphic on slide 17.

Am I right that.

To assume that maybe the.

The commissioning step number three the black mass introduction.

More.

Q1, 'twenty four maybe even spring.

Too early to give specific timing on that.

Yes, I would like to hold off on giving specific timing for now Robyn just don't want to get further through construction, but I do want to lay it up so that we can come back to and talk about how are we going to sequence commissioning.

We rollout at the end of construction.

But more perfect yet.

If I can just sneak one more question and I did want to touch on the inflation reduction Act.

I just wanted to be clear I know you outlined some of the different benefits that you could be.

Can receive so on the 10% production tax credits and the potential of the investment tax credit.

Is that something you guys expect to receive is that something you.

<unk> been told you will receive or is it still.

I guess to be determined.

I would assume that you would be in line or something like that but maybe not quite definitive yet is that fair or just wanted to be clear on.

Yes.

Got it.

Yes, I would say, we can't speak specifically to anything thats not firm and ready to be public, but I would just say the.

Our strategy here was that line, there's a lot of different programs through different legislature and enactment of various things that ought to come through so I wanted to describe it I think two vis vis the tax credit. So our understanding is that thats going through the Treasury Department and it would come through and will be available starting from next year, but there will be a process associated with that to assess.

Yes.

Allocated appropriately so really just wanted to help perhaps of the slide was to help distill all of this relatively confusing information out there some times and whats applicable potentially for us.

Alright, Thanks, a lot.

Thanks Robert.

Thank you. Our next question will come from Ben <unk> with Baird. Your line is now open.

Hey, guys.

Maybe just first.

Thanks for the explanation of the fair market value, but just how does it relate to cash.

And then is there any way that you can.

Got it.

That volatility.

Going forward in the way that you structure your contracts.

Some questions or follow up.

From the previous call or two.

Yes.

Yeah, Hey, Brad. Thanks, Thanks for the question so on the F&B side and financials slide deck Youll take that meant that will take the credit versus debit good morning, Ben So your.

The market value.

The fair market value adjustment is non cash right.

So it doesn't impact should cash to the extent that you're settled on the market value at settlement time, but the ups and downs in the in between time for the adjustments are noncash adjustment.

And then as we look forward.

I think maybe just a reminder.

We live in this world right now, where we're selling back Matt.

And that's not the world, we're going to be so there's a long settlement paid associated with the black market trades.

Inventory that black masks will be produced in our spokes and it will go to our hub segment refining into the vaccine materials on the settlement page on those types of contracts will be much lower so when we get to that stage the window of exposure for us it will be much reduced.

Just add to that it gets better from a near term modeling standpoint, which was out of it offline, but in the MD&A under the revenue discussion, we've actually provided even further disclosure regarding kind of an aging analysis of black mountain being settled so we can talk about that separately, but just to flag that we've enhanced disclosure around that.

Okay great.

Just on the different steps to solve that.

Extraction.

I don't know.

Time lines here, but.

Bill.

It looks like there are several steps of different solve the extra actions does it.

Does it take to get.

Correct.

Formula for the lack of a better word of solvents.

Before youre up and running.

We don't yet Scott tweaks that can take take time to figure out.

The different mixture that you'd need alright, I am just wondering how that ramps into the previous question about the.

The ramp up.

Thanks.

Because of the several steps.

Yes, no worries.

And happy to add to the.

Basically we know the formulation of the.

The solvent extraction reagents that we will be using the.

They are the same it's the same process that we went through our demonstration plant.

Same extraction.

Saint <unk> St.

Same processing conditions.

And so from that perspective, we're not.

We expect them to make any changes there. So we don't expect to expect that.

Itself will affect our commissioning or ramp up.

The number one thing about the commissioning as well on the salt extraction side, it's really about getting the solutions moving through the rock flow rates and so it's all about the volumetric flow rates through solvent extraction and ultimately that's what you're targeting which is much more mechanical than it is processing.

Sure.

Okay. That's good for me. Thank you guys.

Thank you so thanks, Bob Thanks, Dan.

Thank you. Our next question will come from Brian Dobson with Chardan capital markets. Your line is now open.

Hi, Good morning, do you think that you could speak to your expected total speed during each of the three quarters and then further what you expect your capacity utilization rates to be in each of those quarters.

Hey, Brian Sorry, do you mean, just to be clear this past fiscal year sorry.

No.

Moving forward over the next several quarters.

What do you expect your capacity.

Utilization rates.

Yes, so we're.

So I would just say we're I think there is some broad indication. They're also reaching our year end and then we'll have a year end call and generate so don't want to get ahead of ourselves, but there will be some preview of the business outlook for the year. So don't want to get ahead of ourselves, but I would say just just high level and then maybe W or Tim one Adam.

Are we at.

Elucidate there I mean, obviously on the surface of it it looks pretty drastic in terms of the change to be Frank about it but really at the end of the day here as Debbie articulated and I did it's really a shift of approximately 1% to two quarters relative to where we wanted to be.

We took the tough decisions to fix.

These low capital cost optimization projects.

It added some time, but it's the right thing to do before we go rolling out a whole bunch of additional assets and we're seeing the benefits of that now as you saw in the slides even with the August results just preliminarily that we've put in the slide deck. So just speaking to the in quarter and what we're seeing right now that's a bit of a qualitative direction.

And further to that.

We don't expect.

Impact hub I mean at the end of the day, what we're trying to do is get a spark networks optimized.

Between now and when the hops thoughts up to make sure that we can.

We generate the black math.

We need to generate.

We believe that.

It was still well on track for that and then lastly, Brian on page 10, you'll see what we've put out there vis vis brought timing for the different assets in the slide deck.

Okay excellent and I guess just to clarify so it seems like your guidance is implying that 30% 35% increase in.

Black man.

Production in the fourth quarter from the third quarter sequentially could you just hit on the key items that are driving that increase.

Yes.

So the number one driver of that is really the recognition of the.

The Arizona spark and.

Got it.

Hit its target throughput.

Our capabilities and then there's a small imports as well in relation to Alabama, starting up which is.

Which is imminent and that.

We'll have an.

An additional positive increase in terms of the run rate quarter over quarter for black mass production.

And do you expect the momentum at those facilities to continue into 2023 years through 2023.

Yes, so with Arizona.

Close to our target throughput rate for Arizona, we expect.

To be able to continue to improve upon that and maintain it and then ultimately it's about the ramp up of Alabama.

But given that the lessons learned from Arizona, we are anticipating that that facility will ramp up well.

Great and as you are thinking about.

And that projects in Europe .

Would you expect those facilities to open with higher utilization rates in the U S facilities, given the greater adoption in Europe or do you think it should be similar in terms of modeling those facilities.

Yes, so we expect that the throughput rates of these new plants, like Arizona, Alabama, Germany and Norway.

Total will have very similar utilizations.

Arizona is an early indicator is doing very well in that regard we are seeing.

Strong demand in Europe from a commercial perspective, and so we expect that trend will continue as well.

Yes excellent. Thank you and just as a final question related to the inflation reduction Act do you have any color on the timing of when the federal government might make those funds available.

Yes broadly speaking Brian .

A lot of those programs are really 2023 onward. So.

They've gone through the enactment to that is really getting through the operated operationalized does programs in both of them are really 2023.

Thanks.

Great. Thanks for the additional color very helpful.

Thanks.

Thank you. Our next question will come from P. J <unk> with Citi. Your line is now open.

Yes, hi, good morning.

Hi, Jamie.

Yes.

The black box.

Production can you just seen drastic like you said.

Just delayed by one to two quarters.

You mentioned optimization of the Arizona hub.

What exact what kind of process improvements did you do there.

Does that lower your cost or does it just like deepwater linking.

<unk>.

Have you do you are you seeing all those benefits and your current current production.

Yeah, Thanks, Vijay <unk> for Tim to answer yes, absolutely. So most of the aspects that we were dealing within Arizona were around materials handling.

And so you should think of things like.

Like shirts for example, just making sure that we can get the material to flow through at the rate that we need it that's all now been addressed and incorporate into.

Our standard design in terms of the long term implications, we don't see any.

Negative implication in terms of the cost of these plants from these changes.

I would say that one of the benefits of.

Overall business model is the carbon copy nature all of our sports plant. So the lessons that we've learned here, we can rollout into that standard design and optimize those facilities going forward. So overall, we think that was definitely time well spent we learned a lot.

We're happy with the progress that we've now made.

And looking forward to continue to rollout these future slots.

And do you do you have any.

Obviously my timing on site, you mentioned, Alabama start, but in the full Q anything on the Ohio site, as well as Norway and Germany.

Yeah, Hey, PJ I think page 10 is a good broad timing there and obviously as we get into early next year and that look for <unk>, we'll see what else we added about potentially but that's really a bit of a pipeline views of our buildup.

Yes.

Okay, and then lastly.

You mentioned potential long term deal but.

But besides that.

You mentioned.

Do you sort of locally sourced clean vehicle program and associated with that.

Our battery recycling fit into that which I'm sure. It's a critical part by end of the decade that you need recycling.

But how do you benefit from that particular program.

Yes, good question, Peter just to clarify so.

It's an indirect benefit for us so.

That's of course for the purchase of Evs, but to get that credit there are a range of increasing domestically supplied content requirements.

So starting at about 40% in the growing too much more than that in the years thereafter so.

The question is how does somebody meet that requirement with domestic supply where it is going to come from especially with as you know the very long lead for domestic mining. So what we've seen from a demand pull perspective is even more accelerated interest from automakers automakers trying to see how they can meet these requirements and.

Recycling is a much quicker pathway to get that supply and how we can help them meet those requirements that make sure their vehicles are eligible for it as much as possible.

Okay. Thank you.

Thank you.

Thank you once again, if you'd like to ask a question that is star one on your Touchtone phone.

Our next question will come from Jeff Osborne with Cowen <unk> Company. Your line is now open.

Hey, good morning.

Few questions on my end on the optimization. That's helpful. I appreciate that it was more of a material handling and low capex is there a way of quantifying what the improvement in yields would be on black mass recovery, especially relative to the spec merger deck.

Yeah, Thanks, Jeff and here again, yes, I mean, we don't.

Provide specific guidance in terms of the yield improvements but.

Notably we have not.

Notice.

Marketable improvement in terms of overall recoveries.

Through the new generation plan.

But I can't provide specific details, yes, and just to add to that Jeff and I know, where you're going but just as a broader comment when Tim is answering the previous question regarding throughput people might say hey. These are 10-K, you had five K. So like what's the big difference just spoke to <unk>, but just wanted to emphasize that so we've up the form factor that we're actually processing.

So we're taking a full packs as opposed to the modules, which are like the building blocks of the packs.

Thats very advantageous for us.

Automakers move towards.

Bigger a bigger packs and sell to pack architecture no dismantling.

But it also then does change obviously, but the plants doing rent so a multistate shredding little bit different same core technology, but a little bit different in a few areas. So that's really what we're working through it as nothing major but now with that under our belt, it's great for us because as Tim said, it's our carbon copy approach for the future plans.

And do you anticipate rolling that out in Rochester, as well or any battery related recalls or.

Requirement for full form factor would have to be done in Ohio, Arizona, Alabama.

Yes, so so in Rochester, we do plan on doing an upgrade to the front end of the plant.

Nominal capital investment, but it will give us enhanced capability to take larger form factor materials.

Through the plants as well as improve overall.

Covers and yield.

All future plants.

At this point in time all.

All of these what we would consider our new generation <unk> plant. So when you look at our forecast towards new.

Facilities. They are all based on the full pad capability.

Plant.

And just Tim given that it'll be one of three operational plant in the spring of 'twenty three in the U S. If youre doing it the first half of the year should we assume some downtime for that.

It's nominal it's really what we're doing is.

Collectively with with our partners in Rochester is we're actually doing the construction and assembly of equipment alongside the existing operating plant.

And then we'll be basically doing a hot change, which will have a very very small impact in terms of the quarter from downtime perspective.

Swap over some of the key pieces of the plant.

Got it and my final question, that's very helpful and the slides are very helpful. So I appreciate the transparency on the process steps and the commissioning timeline I just wanted to reconcile two comments you made one I think it was building 100 in the map.

It would be operational in the spring of 'twenty.

'twenty, three which was the receiving for the black mass and then the commissioning and the introduction of the black mass would be in late 'twenty three through early 'twenty four I would imagine at some point in time, you're going to have to start building inventory and you wouldn't have black mass sales in any revenue would be tied to non battery metals or plastic.

Six.

Maybe recall fees that you pay to disassemble recall batteries, how do we think about the timing, especially with.

The warehouse opening up in the spring do you need to build three to four quarters of inventory to sort of feed the beast or how do we think about that as you.

I'd imagine slowly introduce black mass as you.

Commission the.

The first two steps and move to phase III as you've articulated.

Yes.

You rightly pointed out we will have our warehouse completes in the spring of next year rates receive black mountain.

I'll, let debbie provide some commentary in terms of.

Our current.

Disclosure around.

Where we want to stand on inventory building.

Hey, Jeff I Love, your terminology, which seems to be.

So I would start by saying, we havent made any commitments yet.

Can you just plan on.

On building inventory I think there's a couple of things.

As noted it would be smart for us to have some inventory on hand as we go through this and we will start we put upon that.

We go through our planning for next year and Stephanie from Midtown area.

Two weeks or so so that would be a smart move on our part.

When the facility.

Hey, Jim mentioned earlier, our job with our folks right now.

Mr. <unk> would you leave me seemed a little bit casting, but really think of it until lead time in terms of getting folks ready to be produced in <unk>.

And so if you think of that I know pretty much in the NBA continuous operation, where we won't need a lot of inventory on hand materials are key to our folks and they'll go directly to our hub, but in that interim period, while we go through the Jackup It would be wise for us to have.

Hum.

Some material on hand, and then the last part is really just.

I keep reminding everybody of us selling black mass is not our business.

And actually it's not the most economic use of the mid tier.

So to the extent that we can shift sooner versus later on.

On extracting lithium from these mid tier five better economics for us so that sits in the background.

A little bit of economic pressure to get to the end and to have black box severe birthrate that in fund VIII.

Intermediate Sam.

Excellent Debbie just a very quick follow up on the last comment there, leaving lithium on the table would you say youre, leaving 50 cents on the dollar if not more per kilogram are ton of black mask that sold or how do we think about quantifying that.

Yes.

Dilemma that you're in.

Yes, and moved all around right I'll say with pricing. So we focus to your on take your own views on that but yes for sure. I mean, this is really the core essence, and sometimes I think it's missed about our story that our Rochester hub will be producing between 7500 8500 tons of lithium carbonate and if you take today's prices that's a substantial amount of economics, obviously for the company.

So on a per ton basis, it moves around but your math I would say, it's directionally right.

And it's very interesting because for five years ago.

And even a year ago, you would have heard us say like its a third a third a third roughly equal contribution and often we will be told hey, like why are you even focusing on lithium but six years ago, but this is the core of it and the bottom line is that market is severely and deficit of supply versus increasing demand. So we are a near term relatively versus.

Mining solution for that and it's Super important from a financial perspective for the value of the company in the future.

And how that Carla.

<unk> through to the present.

Perfect. Thanks, so much that's all I had.

Thanks, Jeff.

Thank you. Our next question will come from Robin Sadler with BMO capital markets. Your line is now open.

Thanks.

Just maybe curious to have a high level discussion on how you're thinking about the hub to I know it's.

Your hands full with hub, one right now, but with the IRL IRI Bill how much does that influence where you think he bought a second hub location would there be enough feedstock, let's say midterm feedstock for you to justify a hub location in North America dependent.

Two.

Received these opex and Capex benefits that you could receive from the Arab Delaware as you know.

You are maybe some of your partnership.

Obligations are still going to make your focus on Europe , Europe for maybe up to or would you ever and this might be getting greedy, but would you ever consider sort of a parallel expansion for two and three kind of around.

Around the same time trying to get a sense of.

How do you think about that as that policy.

Changes are occurring kind of real time.

Yes, great question Robin I'll, so I'll keep it to what we can say I would say look I mean, they are a super exciting I think it's a great step in the right direction longtime coming so it's good to see.

Same time, Europe , we see tremendous tailwind for our business. Similarly.

Similarly commercially similarly from regulatory perspective so.

We will assess all options.

And as we've said before.

There are longer lead low dollar really just time oriented activities that we can progress.

Site selection be permitting once it's ready et cetera. So we will continue down that track look forward, if you're able to give an update on that when we can.

But I would say, we don't see really a necessarily a overkill either way I would say, it's interesting, it's probably pretty equal.

So we'll have some interesting decisions ahead of us.

Got it thanks.

Thanks, Rob. Thank you it appears Theres no further questions at this time I would now like to turn the call back over to Jay for his closing remarks.

Thank you. So in closing we continue to execute on our spoken hub network growth objectives, and strengthen our position as a long term preferred recycling and resource recovery partner to global strategic participants and the battery supply chain.

We have sufficient liquidity for our capital and operating needs to fund the current pipeline of projects in development and we are evaluating ways to further optimize our capital structure to support future growth.

Finally, our integrated spoke and hub network is uniquely positioned to capitalize on the accelerating electrification trends as.

As well as favorable tailwind from increasing government policy support.

<unk> translate into significant earnings and cash flow.

Thank you. We appreciate your time and interest in lifecycle and look forward to continue to update you regarding our ongoing dialogue and execution.

Thank you ladies and gentlemen. This concludes today's event you may now disconnect.

Okay.

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Okay.

Thank you.

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