Q1 2023 Li-Cycle Holdings Corp Earnings Call
Hello.
[music].
Good day My name is Todd and I will be your conference operator today.
At this time I would like to welcome everyone to the first quarter 2023 lifestyle.
Lifecycle holdings earnings call and webcast.
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After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question at that time. Please press star one on your telephone keypad.
If you should need operator assistance, Please press star zero.
Thank you.
I will now turn the call over to Nahla asked me.
Head of Investor Relations. Please go ahead.
Thank you good morning, and thank you everyone for joining us today for lifecycle review of our business and financial results ended March 31 2023.
We will start today with formal remarks from logic culture cool.
Co founder President and Chief Executive Officer, Jim Johnston, 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 Investor Relations section of our website at investors don't lifecycle 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 uncertainties most.
Most of which are difficult to predict and many of which are beyond the control of lifecycle.
Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect, including because of factors.
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.
We do not undertake any duty to update any forward looking statements, whether written or oral made during this call are 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 RJ.
Thank you Darla and good morning, everyone.
Aligning our reporting schedule with those of our peers and investors. We're excited to be reporting our first calendar quarter of 2023.
This morning, I will provide a review of our results and the ongoing progress on our spoke and hub networks.
Turning to slide three we.
We continue to execute on our strategic objectives as a leading solutions provider in the sustainable domestic EV battery supply chain in both North America and Europe .
I would like to highlight some of the recent key achievements that will discuss in greater detail on this call.
On the commercial front.
We signed a definitive long term agreement with Vinnie S. A battery manufacturer.
Beginning of 'twenty 'twenty, four lifecycle will become their preferred recycling partner for Vietnamese source battery materials.
In the interim manufacturing scrap <unk> presence in Vietnam will be directed to lifecycle North American spokes.
Over the longer term, we see the opportunity to establish a dedicated spoke <unk> manufacturing site with a decision anticipated by 2025.
From an operational perspective.
We continue to grow our network strategically marrying customer demand.
In North America.
Our four operational spokes are delivering solid performance and.
And we are progressing the plan to ensure ample availability of feedstock for our first commercial hub in Rochester, New York, which remains on track to commence commissioning in late 2023.
We continue to achieve higher operating rates in our North American spoke about work, while also exploring a new site in Ontario.
In Europe we.
We are replicating the modular approach to network route that we've successfully deployed in North America.
We have three spokes in development with our Germany spoke on track to commence operations in mid 2023.
We're excited to announce a partnership with Glencore to co develop our first European hubs.
We expect it to be the largest resource recovery facility on the continent, producing critical battery materials.
Finally on the financial front.
We progressed the work required to close the U S Department of energy East $375 million loan commitment, which we expect will occur in mid 2023.
Turning to slide four for a recap of lifecycle positioning at the center of the battery materials supply chain.
And an overview of our value proposition.
It is important to note that we maintain our flexibility to service all types of customers and the battery supply chain with a pure play recycling and resorts or cut refocus that complements and doesn't compete with their businesses.
We are providing an integrated battery materials platform for global customers by closing the supply chain loop at a local level.
Well logistics and handling knowhow innovative and sustainable technology and a growing network lifecycle is advancing as a global partner of choice with a diversified customers across the battery value chain, including active material manufacturers battery and EV Oems.
Turning to slide five.
For an update on the total addressable market or Tam for battery materials available for recycling.
We continue to see robust demand and expanding market for recycling of all forms of lithium ion batteries.
Near term growth is largely being driven by Giga factory announcements through 2025 and.
And supplemented by growth in end of life battery feedstock towards the end of the decade.
Bolstering the outlooks for lifecycle is a limited supply of alternative post processing capacity coming online in the near term relative to lifecycle, the timing and progress and general market development.
This is likely to be EBIT more pronounced towards the end of the decade.
Turning to slide six.
The modular approach that we've implemented.
Pursue our spoken hub network growth strategy.
Okay.
As we discussed on our transition earnings call in March our successful template in North America has solidified our position as the.
Leading recycler in the region.
Caribbean.
We seek to develop a spoke network strategically located near customers.
Secure sustainable long term feedstock supply in a manner that reduces handling costs and operational risk.
These investments are underpinned by both multiyear intake and offtake commercial contracts.
To close the loop, we utilize centralized large scale, we're finding up facilities strategically located to leverage existing infrastructure.
Lastly, we optimize our capital structure with strategic financing.
Similar to the recently announced daily loan commitment.
Notably this is a replicable and scalable model we.
We're now extending this model into Europe .
Let me now turn it over to Tim for an update on our spoke and hub network.
Thanks Ajay.
Turning to slide seven for key updates on our Rochester felt that.
The aerial view of the Rochester hub that you see here was taken at the end of April and reflects the significant progress that our team has made in just two months' time.
All aspects of construction are moving in parallel and in line with our expectations, which demonstrates the strength and expertise of our team.
Turning to slide eight for further details on construction progress.
But as we've consistently said the hub is on track to commence commissioning in late 'twenty twice right and is currently tracking at the higher end of the previously disclosed construction cost range.
Early on a key aspect of our construction strategy was to accelerate the procurement of long lead equipment and construction materials such that they would arrive on slot well ahead of when they were anticipated to be needed.
Strategically this was proven to be a significant advantage both in terms of our ability to maintain our project schedule.
And our ability to remain within budget, particularly in light of the challenging inflationary and supply chain environment.
As a result of our actions in 2021 three of our key process buildings and now nearing completion and the construction of that warehouse is substantially finished.
As we discussed in that transition period coal a remaining budget will be influenced by labor cost and productivity.
Turning to slide nine for a view of our expanding global footprint with localized networks.
As a reminder, our strategy is to be the preferred global recycling partner with a leading domestic supply solution in each of the key growth regions.
As illustrated on the slide there is robust demand in both North America and Europe for recycling services, driven by a significant increase in Giga factory capacity.
Or to our competitive advantage is our commitment to consistent execution.
Expanding our network footprint, we are embarking on a partnership for definitive feasibility study with Glencore to co develop a new European hub, which we will discuss in more detail shortly.
Turning to slide 10 for an update on our European spoke network, which is anchoring outgrowth in the continent.
The development of our European Spokes is progressing well.
We continue to expand the deployment of that third generation standardized modules like processing plants.
To provide a brief update on our three European spokes.
In Germany construction is on track with commissioning of the first processing one expected in mid 2023 with the second line expected to follow in the second half of this year.
In France with slot and building secured coupled with commercial battery source contracts, we are progressing procurement and engineering activities and expect to commence operations in the first half of 2024.
In Norway. The construction of the spokes building is on track for completion in the second half of this year ahead of installing the processing line, we intend to use the location as a consolidation facility to support our Germany sport.
Turning to slide 11.
We're excited to announce our partnership with Glencore to jointly studied the feasibility of a new hub at an existing Glenn close sought employ the best night, Italy.
In line without charge, we are extending our module strategy from North America to Europe by developing the next hub, which will be utilized to close the loop for a regional network in Europe .
Yeah.
This project would represent the first significant European resource recovery facility to produce key battery grade products, including nickel cobalt and lithium from recycled battery content.
Turning to slide 12 for details on the partnership arrangement.
As detailed in our May 9th announcement lifecycle, and Glencore anticipate forming a 50 50 joint venture to repurpose part of Glenn close existing metallurgical complex imported bestbuy, Italy, enabling a cost efficient accelerated development plan.
Lifecycle will lead a definitive feasibility study or DFS, which is expected to be completed by mid 2024.
Subject to a final investment decision. The project is expected to start commissioning in late 2026, So early 2027.
The black box processed at the pull the best My hub is expected to be supplied from lifecycle is growing European spark networks and through Glenn close commercial network.
The plant will leverage lifecycle state of the art Hodge metallurgical technology and is expected to have a processing capacity of up to 50 to 70000 tons all black mass annually.
Or the equivalent of up to 600000 electric vehicles per year.
Finally, the project contemplates competitive long term financing from Glencore to fund lifecycle full share of the capital investment.
In summary, our partnership with Glencore enables an accelerated pathway to a Europe based refining facility, providing us with the opportunity to benefit from the capabilities of our partners.
Turning to slide 13 to conclude on our complementary capabilities.
By aligning lifecycle sustainable patented technology and European Spark network with Glencore has extensive commercial network, we expect the poor divestment hub to bring Europe , one step closer to closing the loop for lithium ion batteries.
I would now like to hand, it over to Debbie for a financial review.
Thank you Jim turning to slide 14.
For being our first quarter financial results I would like to discuss the evolution of lifecycle revenue and financial profile.
We source into battery materials and it just came tomato prices from a diverse tourist customer.
Currently and for the near term the participant south black mass under contractual arrangements.
This results in Black Ms revenues that are based on current metal prices at the point of sale.
It's important to note is that the sale of that mass is only an interim strategy.
Our mid to long term goal is to utilize our black mass production as feedstock for the hub.
Which will manufacture battery grade materials, including lithium cobalt and nickel I.
I don't know king significant incremental value.
The operationalization of our Rochester.
<unk> represents a key step change I think.
Who's the evolution towards producing these battery grade materials.
As seen on the top right chart.
Utilizing the forecasted underlying metal prices on the bottom right and applying a premium to reflect the production of battery grade finished products should give you a sense of the significant inflection points, we anticipate in our revenue profile.
Turning to slide 15 for a discussion of our first quarter results.
As seen on the top left chart, we produced 1853 tonnes of plasma more than double the level achieved in the prior year.
Driven by the startup of operations at our Arizona, Alabama, Spokes and the upgrade of our New York spoke.
We sold 881 tonnes of plasma.
Collecting about a 14% increase versus the 774 tons sold in the prior year.
Q2, The addition of new commercial customers and higher production and sales from our spokes facilities.
Okay.
Moving to revenue for the peak as.
As a reminder.
Our revenues are influenced by market prices of metals contingent products, notably cobalt and nickel with no value attributed to lithium content at this time.
We continued yourself mass is an intermediate product.
Revenue from product sales and recycling services before fair market value adjustments.
Please by 114% year over year.
Seven $7 million versus $3 6 million in the prior year.
This was primarily attributable to the higher product sales volumes from the expansion of our customer base expanding operations of the spokes securities and the benefit of a higher products sales volume mix.
Total revenue was $3 $6 million compared to 8 million in the prior year.
This included an unfavorable noncash fair market value adjustment of $4 $1 million and product revenue driven.
Driven by lower nickel and cobalt prices versus a favorable fair market value adjustment of $4 million in the prior year.
Turning to slide 16 for an update on our cash flow and a review of the strength of our balance sheet.
The viewing our favorable track records beginning in March of last year, we had a cash balance of $527 million.
During the nine months between March 2022, and yearend, we secured key strategic funding of $250 million from LG, and Glencore and deployed $177 million towards the construction of our Rochester hub and spokes facility.
Notably we ended 2022 with a similar level of cash.
With approximately $520 million of cash on hand.
During the first quarter of 2023, we invested $86 million to fund our net what coke.
Focused on the Rochester hub.
Ending the period with $409 million of cash on hand.
With the conditional loan of $375 million from the department of energy are kind of pro forma cash balance would be in excess of $780 million.
Turning to slide 17.
With our first quarter results keeping us on track, we are reaffirming our key business metrics for 2023.
And finally, turning to slide 18 for closing.
We are advancing the Rochester hub construction remaining on schedule and on track to commence commissioning in late 2023.
Expanding our global network of spokes and hubs, specifically replicating our successful North American business model in Europe .
With three spokes.
Plans for a new hub and an option for funding and strategic commercial partnerships.
Enhancing our global position as a preferred recycling partner with going guys.
Global battery supply chain participants and strengthening our balance sheet and adding flexibility to fund our future net what goes with the department of Energy's long expected to close mid 'twenty two 'twenty three.
That concludes our formal remarks.
Peter we are ready to take questions.
At this time, if you would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Brian Dobson with Chardan capital markets.
Yeah.
Hi, Good morning, two quick questions on the hub facilities.
Facilities so.
In in Rochester, we're very excited to see that we'll be opening can you talk a little bit about the commissioning approval process that might take place after the opening and how long it will take to get black mass running through that facility, what that what that processing ramp looks like.
Hey, good morning, Brian that's going for Tim to handle.
Yeah. Good morning, Brian how are you supposed to be talking to.
This is Michael quickly in relation source.
Just in relation to the commissioning process. So we're still on track.
Stop commissioning by the end of this year.
As we've discussed previously the commissioning will commence in stages.
Then.
We will gradually be introducing reagents and black mass.
As part of the final stages of commissioning, which will happen.
During the course of well into 2024.
In terms of additional approvals, there's no additional approvals that are required.
It's simply a matter of now completing the project and starting it up.
As we get closer to the timing for startup we will come back to you with a more detailed plan around commissioning and wrap up we just want to make sure that that we are.
At the right level outsold definition, when we do that so more to come on that one Brian .
Now it's important to you.
But but everything is looking good at this point.
Yeah, very good and then Barry.
Exciting news in Europe .
Regarding your partnership with Glencore.
Can you maybe point to some of the things you learned during the development of the Rochester hub that could make this a smooth process.
Opening up.
Potential new facility or rather retrofitting.
Maybe that you were discussing.
Absolutely I'm happy to take that one as well, Brian and then Ajay and Debbie Please feel free to add on.
As required so I think a couple of key things there what has worked really well for us in North America that we expect to implement.
In Italy has been a procurement on execution strategy. So if you think back to what we've been talking about now for almost a couple of years has been our approach to make sure that we have materials and equipment available on slot well ahead of when they're needed and our plan will be to execute on a similar path.
And that really takes a lot of the risk out of the execution schedule.
Technical perspective, we are utilizing a number of the same unit operation.
We are utilizing and and Rochester, So all the lessons that we've gathered through the detailed engineering phase.
In Rochester will be able to roll up your roll directly into.
The design as part of the base case.
For port of SMA.
What's going to be really.
Very beneficial.
The fact that by the time, we're starting up for divestment, we would've already been operating Rochester for some time, so we'll be able to bring across all that operational understanding.
Into the new facility as well so what we're all expecting to see is a.
More expedient more efficient execution plan to pull the best of luck.
Excellent. Thank you very much.
Thanks, Paul.
Thank you. Our next question comes from Matthew O'keefe with Cantor Fitzgerald.
Thanks, operator, good morning, everyone.
For the quarter. So congrats on moving things ahead as he began.
Just had a quick question on the where as we're building out the hub.
How are you feeling about the spoke performance maybe you could tell us.
Little bit there on you know is it meeting your expectations with respect to.
Recoveries of Black mass.
Costing as far as you know cost of raw materials, I know they've gone up.
A little bit maybe you could talk a bit about that as well and then.
Also.
What.
What we see as far as.
Is there a big.
Benefit to being at capacity at the spokes or is it fairly relative.
Relatively a fixed cost operation.
Thanks, Matt Yeah, another one for Tim to address.
Yeah, no problem. So a few things to address that so so let me walk through it systematically Fremont two so first of all from a recovery perspective.
I'd say that the sports outperforming.
Well, we've seen improvements generation over generation of sport planet now without generation three plants in Arizona or in Alabama, which is by the way the same plants that we're installing in Europe .
We have our highest recovery.
Rates across any of our assets to date, which is in line with our expectations and doing very well.
In terms of costing of raw materials. So we don't disclose publicly details around.
Costing of raw materials, except for to say that.
We have seen some price relief for input.
Serials of commodity prices have come down and that really talks to the.
The fact that we are very much.
No.
On the inbound and the outside of the business when it comes to.
Commodity price movements, which gives us some protection as you can imagine that we benefit.
By being able to link those two markets together.
So from our side, we see this as being a relatively constant margin spread business in the long run. So it doesn't have a big impact on us.
Okay.
Thanks.
Sorry go ahead Bob.
Oh, no I was just.
Just on that I was just wondering if the I don't know if theres a disconnect between or a difference between the black mass produced in Black mask sold was that due to timing of sales or are you starting to stockpile now for.
Great Great question. So no it was mostly due to timing from our downstream customers.
And what was happening at their assets, we don't expect to see it continuing into Q2. So you should expect sales in Q2 to reflect the draw down on this volume we are planning as I've said previously.
To stockpile, some black box this year, but it will be targeted towards the backend of this year.
Great and then and then Matt just to address your question as well I don't know Tim you can jump in there around the feed side.
And Tim I can start that you should add I think look at the end of the day, we're operating our assets in lockstep with market demand and customer timing so.
We can flex that as we see fit ultimately these are assets to feed that Rochester hub.
Now announced and are going to be some work on the part of events may have in Europe . So that's the focus is making sure that we have ample feed as we've articulated in lock step with that ramp up timing for the hub assets.
Yes.
Great. Thank you.
Okay.
Thank you as a reminder, if you would like to ask a question. Please press star one at this time.
Our next question comes from Jeff Osborne with TD Cowen.
Hey, good morning, just a couple of questions on my side.
The <unk> side I was wondering what the remaining milestones and conditions are.
I think you originally were targeting <unk> for that loan.
No I think the verbiage Elisa is mid 'twenty three not a big change, but I am just curious if you could walk us through if there is any delay there and then what the remaining milestones are would be helpful.
Sure Jeff Good morning, and I can start on that and then Debbie can add on as needed. So no in short nothing major in terms of hurdles remaining to close we actually articulated we're on track look I mean, a lot of this is just documentation, it's really our core loan agreement.
Arrange of ancillary agreements clothing certificates legal opinion. So you can imagine so that's the sort of work this ongoing which is really a lift on the legal side primarily.
One nuance there around conditions and just broadly speaking about the QE programs office, sometimes for some companies. They do have for example conditions on permits.
To close in lifecycle space, we have our key operational permits for the Rochester hub. So that is not a condition for us to have sometimes there's externalities that if I closing timing for us it's really just doing the work around the legal documentation.
I agree.
Really just the volume of the administrative tasks and gentlemen, thanks.
On both sides.
Yeah.
Got it and then maybe just another modeling related question on the Opex side. It was a bit higher than we were expecting on our end at least.
How do we think about were there any one time issues this quarter or is this sort of the new run rate and we should expand that through the second half of the year, what's the cadence of spend there.
Yeah.
Great.
<unk> kind of Opex.
Con way against the bottom line of the.
P&L.
The fact that.
Our revenue reached maybe a little bit more than that.
That difference in reduction in revenue timing issues.
As much of our flow through from that but if you isolate SG&A in the core spend.
Backend noncash.
Noncash share.
<unk> com.
Sean what do you see actually if you look across some of the Q3.
Last year, which I indicated kind of Q3 Q4 last year was it importantly, first right in terms of business. Once you receive you into Q3 Q4, and then into this year and I think maybe the fact that we need to transition teeth. There was two months three months is showing a little bit of confusion into the equation.
If you look at success in free yet for three quarters, and we are really a rather than some search notion on.
Hello, Sir.
Which is quite consistent.
Got it and then just going back to the inventory build question I appreciate it for this quarter, but how do we think about the second half of the year.
Do you expect that there would be a period of time, where you all production is cash.
To feed the Beast, so to speak when the hub ramps up or are you contractually required to sell a minimum amount I'm just trying to think about how we should model that inventory built to feed to hub is your commissioning that.
We have some contractual minimums and that's all I have.
<unk> I would think of it as a kind of tail end of this year well begin that the next thing I think we talked about this a little bit in the transition period, I think what's really important iturbide thoughtful.
Thoughtful adviser piece.
So we have a plan that takes us to a point, where we have sufficient.
Inventory, sorry and enough backup.
Start that commissioning and ramp up and then from there once we get into that with you and what you really see is the majority of production will go to Anthony Hi, well, we've actually went through the plan to build the inventories, but actually build the production levels at the spoke at the same time.
To create that level do we need once they have really starts to kick in.
Jeff It's really a gradual more of a gradual greener.
Got it that's all I had thank you so much.
Thank you Josh.
Thank you as a reminder, if you would like to ask a question. Please press star one.
We will pause just a moment to allow any additional questions to queue.
And there are no further questions in queue. At this time I will now turn the floor back over to RJ Costar for any additional or closing remarks.
Thank you Todd.
So we continue to execute on our spoke and hub strategy, establishing global footprint with local networks in North America and Europe our.
Our strategy is supported by a growing portfolio of key battery material global market participants selecting lifecycle as their preferred recycling partner, coupled with strategically timed and cost effective funding sources.
The team is focused on delivering significant value to our key stakeholders with key financial inflection expected upon the operator operationalization of our Rochester hub.
And of course, we appreciate your time and support of lifecycle look forward updating you on our progress as we move forward. Thank you.
Thank you. This concludes today's call and webcast you may disconnect. Your line at this time and have a wonderful day.
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