Full Year 2023 Li-Cycle Holdings Corp Earnings Call
Operator: Good day, my name is Todd, and I will be your conference operator. At this time, I would like to welcome everyone to the fourth quarter and full year 2023 Li-Cycle Hldg earnings call and webcast. All lines have been placed on mute to prevent any background noise.
Good day My name is Todd and I will be your conference operator.
At this time I would like to welcome everyone to the fourth quarter and full year 2023 lifecycle holdings earnings call and webcast.
All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you should need operator assistance, please press star zero.
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.
Operator: Thank you. I will now turn the call over to Nahla Azmy, Head of Investor Relations. Please go ahead.
I will now turn the call over to Nahla asked me head of Investor Relations. Please go ahead.
Nahla A. Azmy: Thank you. Good morning, and thank you everyone for joining us for Li-Cycle's business update and review. Financial results ended December 31, 2023. We will start today with formal remarks from Ajay Kochhar, co-founder, president, and chief executive officer, Tim Johnston, co-founder and executive chairperson, and Debbie Simpson, chief financial officer. We will then follow with a Q&A session.
Thank you good morning, and thank you everyone for joining us for lifecycle business update and review of financial results ended December 31 2023.
We will start today with formal remarks from Arctic culture, co founder President and Chief Executive Officer, Jim Johnston Co founder and executive Chair.
And Debbie Simpson Chief Financial Officer.
We will then follow with a Q&A session.
Nahla A. Azmy: Ahead of this call, Li-Cycle issued a press release and a presentation, which can be found on the investor relations section of our website at investors.li-cycle.com. On this call, management will be making statements based on current expectations, plans, estimates, and assumptions, which are subject to significant risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle. Actual results could differ materially from our forward-looking statements if any of our 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, www.nmss.li-cycle.com.
Ahead of this call lifecycle issued a press release and a presentation, which can be found in the Investor Relations section of our website at.
And investors that 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 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 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.
Nahla A. Azmy: We do not undertake any duty to update any forward-looking statements, whether written or oral, made during this call or from time to time, to reflect new information, future events, or otherwise, except as required. Such forward-looking statements should not be relied upon as representing Li-Cycle's assessments as of any date subsequent to the date of this call. With that, I'm pleased to turn the call over to Ajay. Thank you, Nahla, and good morning, everyone.
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.
Forward looking statements should not be relied upon as representing lifestyle because there's a sense is it any date subsequent to the date of this call.
With that I'm pleased to turn the call to entre.
Thank you Paula and good morning, everyone.
Ajay Kochhar: On our last call held in mid-November, we committed to providing an update on our progress since pausing construction and initiating a strategic review of the GoForward strategy for Rochester Health. Today, we're pleased to share the meaningful steps taken towards achieving the key objectives from this review and also to discuss our 2023 financial and operating results. Starting on 5-3.
On our last call held in mid November we committed to providing an update on our progress since housing construction.
Initiating a strategic review of the go forward strategy for Rochester.
Today, we're pleased to share the meaningful steps taken towards achieving the key objectives from this review.
And also discuss our 2023 financial and operating results.
Starting on slide three.
Ajay Kochhar: On the left side, are the key objectives we discussed on our last journey call. On the right side, I will review the highlights and key actions we have taken to help achieve them. We'll provide more on these later in the presentation. First, regarding finesse.
On the left side are the key objectives, we discussed on our last earnings call.
On the right side I'll review, the highlights and key actions, we've taken to help achieve.
Well provide more on these later in the presentation.
First regarding financing.
Ajay Kochhar: The Special Committee of the Board of Directors conducted a robust process to review and evaluate potential financial and other strategic alternatives available to the company, including to increase our liquidity. After careful review and assessment of the alternatives identified through this process and consistent with the recommendation of the special committee, Management and the Board were pleased to expand upon Li-Cycle's existing long-term partnership with Clan Corps to increase their strategic investment in Li-Cycle by $75 million. Second, with respect to the DOE loan process. Simultaneously with our comprehensive review, we've been actively engaged with the DOE Loan Programs Office regarding the conditional commitment for a loan of up to $375 million. Third, regarding liquidity. We implemented a cash preservation plan to reduce non-core spend.
The Special Committee of the board of Directors conducted a robust process to review and evaluate potential financial and other strategic alternatives available to the company, including to increase our liquidity.
After careful review and assessment of the alternatives that fight through this process and consistent with the recommendation of the special Committee.
Management and the board, we're pleased to expand upon my cycles existing long term partnership with Glencore.
To increase our strategic investment in lifecycle by $75 million.
Second with respect the Doa among process.
Simultaneous with our comprehensive review.
We've been actively engaged with the daily loan programs office regarding the conditional commitment for a loan of up to $375 million.
Third regarding liquidity.
We implemented a cash preservation plan to reduce noncore spend.
Ajay Kochhar: Slow cash outflows while we evaluate financing options to support our ongoing operation and a restart of construction at the Rochester Hub project. Finally, on the Rochester Hub, it's part of our Comprehensive Review. We've been conducting an internal, technical, and economic review to assess a possible change in the project development strategy. The review confirmed the technical viability of the process to produce lithium carbonate and mixed hydroxide precipitate, or MHP.
A slow cash outflows will be evaluated financing options to support our ongoing operations and a restart of construction at the Rochester hub project.
Finally on the Rochester hub.
As part of our comprehensive review, we've been conducting an internal technical and economic review to assess a possible change in the project development strategy.
The review confirmed the technical viability of the process to produce lithium carbonate and mixed hydroxide precipitate.
Ajay Kochhar: Turn this 5-4 for an overview of our partnership with Glencore. It has now been nearly two years of cooperation, with an alignment of strategic vision, technical expertise, and asset networking. In 2022, Glencore invested $200 million in Li-Cycle through an unsecured convertible note and designated us as their preferred recycling partner. Together, we formed a global strategic collaboration that aims to create an integrated platform.
Turning to slide four.
For an overview of our partnership with <unk>.
It has not been nearly two years of cooperation with an alignment of strategic vision.
Technical expertise and asset networks.
In 2020 to Glencore invested $200 million in lifecycle through an unsecured convertible note and designated us as their preferred recycling partner.
We formed a global strategic collaboration that aims to create an integrated platform.
Ajay Kochhar: Supply the Global Customer Base with both primary and recycled critical battery material. Specifically, we have previously entered into long-term intake and off-take commercial agreements, which enable us to jointly develop feed opportunities for our spokes, secure offtake for the end and byproducts produced at our spokes and hubs, and obtain a supply of key region inputs for our future house. Turn to slide 5 for details on Glencore's additional investment of $75 million in a Senior Secured Convertible Note. This investment, which enhances Li-Cycle's liquidity, represents an interim step in our funding strategy to support our future plans. These notes will have a five-year maturity to March 2029 and will have an initial conversion price of 53 cents per Li-Cycle common share. The cash interest payments will be based on the secured overnight financing rate, or SOFR plus 5% per year, and Payment in Kind, or PIC, interest payments will be based on Silver Plus 6%.
Our global customer base with both primary and recycled critical battery materials.
Specifically, we previously entered into long term intake and offtake commercial agreements, which enable us to jointly develop feed opportunities for our spokes.
Secure offtake for the N and byproducts produced at our spokes and hubs and obtain a supply of key region for our future hubs.
Turning to slide five for details on Glencore is additional investment for $75 million and a senior secured convertible note.
This investment, which enhances lifecycle liquidity represents an interim step and our funding strategies to support our future plans.
These notes will have a five year maturity to March 2029, and.
And we'll have an initial conversion price of 53 cents for lifecycle common share.
The cash interest payments will be based on the secured overnight financing rate or.
We're super plus 5% per year and.
And payment in kind or pik interest payments will be based on silver plus 6% per year.
Ajay Kochhar: In addition, Li-Cycle and Glencore have agreed to amend the terms of the existing Glencore convertible unsecured note, which was issued to Glencore in 2022 and currently has an aggregate principal amount outstanding of approximately $225 million, which includes the pick into two truncheons. The two trotches would have, among other changes... [inaudible] and 9.95 per share, in each case based on the earlier of certain trigger events.
In addition lifecycle.
My second one black or have agreed to amend the terms of the existing glencore convertible unsecured note.
Which was issued to Glencore in 2022.
And currently has an aggregate principal amount outstanding of approximately $225 million.
Which includes the pic into two tranches.
The two tranches would have among other changes extended maturities and our recent conversion price to Lora and.
And about based on the 30 debut.
The 25% premium.
995 per share and.
In each case based on the earlier of certain trigger events.
Ajay Kochhar: For tranche one, the modification date would be the earlier of one month after the effectiveness and initial funding of a project loan financing for the Rochester Hub and December 31, 2024. And for tranche 2, the modification date would be the earlier of the first commercial production from the Rochester Hub, or construction costs exceeding the construction budget set forth in the project loan financing and June 1st, 2026.
For tranche one.
The modification date would be the earlier of one month after the effectiveness initial funding of a project level financing.
For the Rochester hub and.
And December 31 2024.
And for tranche two the modification date would be earlier of the first commercial production from the Rochester hub.
Construction costs exceeding the construction budget set forth in the project looks fantastic.
And June <unk> 2026.
As discussed earlier, we believe this additional financing with Glencore demonstrates continued support of lifecycle business model.
I'll now turn this over to Tim to cover a review of the portfolio and operations.
Tim Johnston: As discussed earlier, we believe that the additional financing with Glencore demonstrates continued support of Li-Cycle's business model. I'll now turn this over to Tim to cover a review of the portfolio and operations. Thank you, Ajay.
Thank you Ajay.
Turning to slide six to discuss our black mass production strategy.
In 2023, we produced 6825 tons all Black Knight has more than one five times the level achieved in 2022.
This exceeded the top end of our revised guidance of five and a half to six and a half thousand tonnes.
As noted on prior calls in the near to mid term, our black mass production will be tied to the availability of feedstock and local markets and the key strategic customers and close proximity to us for corporations.
Tim Johnston: Turn to slide six to discuss our black mass production strategy. In 2023, we produced 6,825 tonnes of black mass, more than 1.5 times the level achieved in 2022. This exceeded the top end of our revised guidance of 5,500 to 6,500 tons.
Longer term, we will strategically Tom production in line with the internal demand for black mass.
Turning to slide seven for the highlights of our spark operations covering battery material sourcing processing as well as black mass production.
Tim Johnston: As noted on prior calls, in the near to mid-term, our black mass production will be tied to the availability of feedstock in local markets and to key strategic customers in close proximity to our spoke operations. In the longer term, we will strategically time production in line with the internal demand for black mass. Turn to slide 7 for the highlights of our SPARC operations covering battery material sourcing, processing, as well as black mass production. First, regarding the composition of the source barrier material.
First regarding the composition of source battery materials.
I've seen on the top left in terms of form factor the predominant lithium ion battery intake material continues to be manufacturing scrap followed by EV battery packs.
On the right side for our intake of various battery chemistry types.
The largest bucket in 2023 remained NMC. However, it is worth noting that we are in the position to serve the adoption of changing battery chemistries, including L. S. P, which has been gaining prominence in the industry, particularly in Europe.
Tim Johnston: As seen on the left, in terms of form factor, the predominant lithium-ion battery intake material continued to be manufacturing scrap, followed by EV battery packs on the right side for our intake of various battery chemistry types. The largest bucket in 2023 remained NMC. However, it is worth noting that we are in the position to serve the adoption of changing battery chemistries, including LFP, which has been gaining prominence in the industry, particularly in Europe, with respect to our spoke operations for processing battery materials and our black mass production. In the fourth quarter, we exceeded 80% availability at our operating U.S. spokes, including the processing of EV battery packs at our Generation 3 site. In the fourth quarter, of the total battery materials processed at our U.S. Generation 3 spokes, approximately 45% were EV battery packs.
With respect to our sport Corporation's full processing battery materials, and how blacks mass production.
In the fourth quarter, we exceeded 80% availability at our operating U S sports, including the processing of EV battery packs and our generation III sought.
In the fourth quarter of the total battery materials processed at our U S generation III spokes, approximately 45% was EV battery packs.
These EV battery packs can way upwards of a 1000 pounds and can be processed using our generation three spokes advanced technology to process full EV battery packs with little to no disassembly and without the need to discharge.
Turning to slide eight for.
For an overview of life cycles commercial agreements.
We have the capability to process all types of lithium ion batteries independent of form factor and chemistry.
This capability combined with the operational capacity in both North America, and Europe has enabled us to build out a diversified global customer base.
As shown on the left of the slide customer base spans the entire battery supply chain, including being a preferred recycling partner with leading global battery EV and energy storage Oems.
Tim Johnston: These EV battery packs can weigh upwards of 1,000 pounds and can be processed using our Generation 3 spokes advanced technology to process full EV battery packs with little to no disassembly and without the need to charge. Turn to slide 8 for an overview of Li-Cycle's commercial agreement. We have the capability to process all types of lithium-ion batteries, independent of form factor and chemistry.
On the right side of the slide we maintain a mix of short and long term intake and offtake commercial arrangements.
At the spark level, we entered into a battery material intake contracts, which range from spot multi year evergreen durations complemented by offtake arrangements for the black mass produced at our spokes.
And the future hub level, we have offtake arrangements for our end and by products with <unk> and Glencore.
Tim Johnston: This capability, combined with the operational capacity in both North America and Europe, has enabled us to build out a diversified global customer base. As shown on the left of the slide, our customer base spans the entire battery supply chain, including being a preferred recycling partner with leading global battery EV and energy storage OEMs. On the right side of the slide, we maintain a mix of short and long-term intake and off-take commercial arrangements.
Briefly regarding pricing it is important to note that our contracts are predominantly indexed the underlying market prices for metals.
Turning to slide nine for the status of our network portfolio.
We have slowed operations at our sports network, including closing operations at the Ontario score.
Slowing operations at the New York, Arizona in Alabama Sparks.
On an ongoing basis and are currently reviewing further pauses or slowdowns.
The timing of the France, Norway, and Germany lines to.
Tim Johnston: At the spoke level, we entered into battery material intake contracts, which range from spot, multi-year, to evergreen durations, complemented by off-take arrangements for the black mass produced at our spokes. At the future hub level, we have offtake arrangements for our end and byproducts with Traxxas and Glencore. Briefly regarding process,
Currently all under review.
We are prioritizing generation, three sparks and aligning with EV and battery OEM customers as they continue to ramp capacity in North America and Europe.
We are post construction on the Rochester hub, which we will discuss in more detail later in the presentation.
We are also opposed to the development of the pull divestment hub, while undergoing further review with Glencore on this project.
Turning to slide 10 for a brief overview about sports technology.
Tim Johnston: It is important to note that our contracts are predominantly indexed to underlying market prices for metals. Turn to slide 9 for the status of our network portfolio. We have slowed operations on our spokes network, including pausing operations at the Ontario spokes and slowing operations at the New York, Arizona, and Alabama spokes on an ongoing basis and are currently reviewing further pauses or slowdowns. The timing of the France, Norway, and Germany Line 2 is currently all under review.
As a reminder, lifecycle developed a patented process for processing all forms of lithium ion batteries, regardless of chemistry form factor all state of charge.
This environmentally friendly process does not rely on any thermal treatment produces no wastewater and is highly scalable for the growing EV battery market.
Turning to slide 11, we show the status of the Rochester hub project at the pause in October 2023.
Through to December 31, 2023, we incurred total cost of approximately $567 million on the project comprised of a total cash spend of $452 million and costs incurred but not yet paid of approximately $115 million.
Tim Johnston: We are prioritizing Generation 3 spokes and aligning with EV and battery OEM customers as they continue to ramp capacity in North America and Europe. We have paused construction on the Rochester Hub, which we will discuss in more detail later in the presentation. We've also paused the development of the Port of Esme hub while undergoing further review with Glencore on this project. Turn to slide 10 for a brief overview of our sports technology. As a reminder, Li-Cycle developed a patented process for processing all forms of lithium-ion batteries, regardless of chemistry, form factor, or state of charge. This environmentally friendly process does not rely on any thermal treatment, produces no waste water, and is highly scalable for the growing EV battery market.
Turning to slide 12 for a discussion on our analysis of the change in the project development strategy for the Rochester hub project.
The review is focused on the construction commissioning and operation of the hub with the intensive producing lithium carbonate and MSP.
Notably, both MH and Sulfates approach maintain the production of battery grade lithium carbonate.
With the M. H P approach as depicted by the Green arrows black masses process to produce MH, Pete a culmination of nickel cobalt and manganese metals.
<unk> can be sold to a refiner ahead of being supplied to the battery free trust industry.
With the Sulfates approach as depicted by the Gray arrows black mass would be converted directly into nickel and cobalt sulfate ahead of being supplied to the battery pretty close to industry.
Tim Johnston: Turning to slide 11, we show the status of the Rochester Hub project at the pause in October 2023. Through to December 31, 2023, we incurred total costs of approximately $567 million on the project, comprised of a total cash spend of $452 million and costs incurred but not yet paid of approximately $115 million. Turn to slide 12 for a discussion on our analysis of a change in the project development strategy for the Rochester Hub project. The review is focused on the construction, commissioning, and operation of the hub with the intent of producing lithium carbonate and MHP. Notably, both MHP and sulfate's approaches maintain the production of battery-grade lithium carbonate.
We have no current plans that include the production of nickel sulfide and cobalt sulfate.
However, the areas dedicated to the production of nickel sulfide and cobalt so quit being left intact under the MSP skirt to allow for the potential construction completion and integration in the future.
We are conducting an internal technical and economic review of the Rochester hub project, which resulted in an estimated cost to complete of approximately $508 million, including costs incurred but not yet paid off approximately $115 million.
Of December 31, 2023.
Taking into account total cash spend of approximately $452 million as of December 31, 2023, we expect the revised estimated project cost of the Rochester hub project to be approximately $960 million for the FHFA Scott.
We noted this estimate is subject to a number of assumptions and is likely to change as we continue to complete a comprehensive review work, including re engaging and re bidding construction subcontracts.
Tim Johnston: With the MHP approach, as depicted by the green arrows, black mass is processed to produce MHP, a combination of nickel, cobalt, and manganese metals. The MHP can be sold to a refiner ahead of being supplied to the battery precursor industry. With the sulfates approach, as depicted by the grey arrows, black mass would be converted directly into nickel and cobalt sulfates ahead of being supplied to the battery precursor industry. However, we have no current plans that include the production of nickel sulfate and cobalt sulfate.
The increase in estimated project costs as compared to the prior range of approximately $850 million to approximately $1 billion that included the expected production of nickel sulfide and cobalt sulphate from November 2023 is primarily due to further refinement of the methodology used for.
Estimating the project costs based on the MH piece Scott.
Importantly, our internal technical review confirmed the technical viability of the MSP process.
In addition to the cost to complete we will incur costs during the construction pause between October 23, 2023. So the project restart date, which we expect to fund with current cash and required additional interim funding.
Tim Johnston: However, the areas dedicated to the production of nickel sulfate and cobalt sulfate are being left intact under the MHP scope to allow for the potential construction, completion, and integration in the future. We are conducting an internal technical and economic review of the Rochester Hub project, which resulted in an estimated cost to complete of approximately $508 million, including costs incurred but not yet paid off of approximately $115 million as of December 31, 2023. Taking into account total cash spent of approximately $452 million as of December 31, 2023, we expect the revised estimated project costs of the Rochester Hub project to be approximately $960 million for the MHP scope. We know this estimate is subject to a number of assumptions and is likely to change as we continue to complete our comprehensive review work, including re-engaging and re-bidding construction subcontractors.
We will also incur other costs, such as Washington capital commissioning ramp up costs and financing costs, which will be included in the full funding solution.
As we've indicated we will require significant additional funding before restarting the construction of the Rochester hub project.
I'll turn this over to Debbie to provide a review of the financials.
Okay.
Thank you Tim.
Turning to slide 13.
About 2023 financial results.
Before covering the details I would like to note that our 2023 financials reflect calendar year reporting as well as in transition to U S. GAAP from ISR reports.
As you will see us.
Scott is a functional income statement presentation.
We will now see separation of our expenses between cost of goods sold and SG&A that changed from the line item detail any niche based approach with ISI.
Tim Johnston: The increase in estimated project costs as compared to the prior range of approximately $850 million to approximately $1 billion, that included the expected production of nickel sulfate and cobalt sulfate from November 2023, is primarily due to further refinement of the methodology used for estimating the project costs based on the MHP scope. Importantly, our internal technical review confirmed the technical viability of the MHP process.
Moving now to just to a discussion of the actual results through 2023 versus 2022.
Starting with sales Black matte, which was 4324 Cheng.
A 3% increase versus the 4192 tons in 2022.
Product sales and recycling services revenues before noncash fair value pricing you gentlemen.
Deborah K. Simpson: In addition to the cost to complete, we will incur costs during the construction pause between October 23, 2023 and the project restart date, which we expect to fund with current cash and required additional interim funding. We will also incur other costs, such as working capital, commissioning, ramp-up costs, and financing costs, which will be included in the full funding solution. As we've indicated, we will require significant additional funding before restarting the construction of the Rochester Hub project. I'll turn this over to Debbie to provide a review of the financials. Thank you, Tim.
Increased to $23 6 million, 34% increase compared to $17 6 million.
Thank you Keith.
The increase was largely driven by a higher value product mix coupled.
Coupled with higher recycling services revenues from new service contracts.
Partially offset by reduced market prices for cobalt and nickel.
Total revenue was $18 $3 million compared to $16 5 million in the prior year.
Yeah.
Reflecting an unfavorable noncash fair value pricing adjustment of $5 3 million versus $1 1 million in 2022.
Deborah K. Simpson: Turning to slide 13 for a review of our 2023 financial results, before covering the details, I would like to note that our 2023 financials reflect calendar year reporting, as well as a transition to US GAAP from IFRS reporting. As you will see, US GAAP is a functional income statement presentation.
Related to the lower market prices for cobalt and nickel.
Moving to cost of sales, which was $81 8 million.
$55 $2 million in 2020.
CFO and fixed costs related to glass mat and shredded metal products suite and repeat with $29 $1 million.
Page $23 2 million in 2022.
Deborah K. Simpson: You will now see separation of our expenses between cost of goods sold and SG&E, a change from the line item detail in the nature-based approach with IFRS. Moving now to a discussion of the actual results for 2023 versus 2022, starting with sales of Black Mask, which were $4,324.10.
This reflects increase in raw material acquisition costs and other production costs.
Fixed and other costs for the spoke network not capitalized to inventory and expense in the period.
With $34 9 million compared to $16 9 million in 2022.
The increase was primarily due to higher steel cost, including personnel cost and.
Deborah K. Simpson: A 3% increase versus the 4,192 tonnes sold in 2022. Product Sales and Recycling Services Revenues Before Non-Cash Fair Value Pricing Adjustments increased to $23.6 million, a 34% increase compared to $17.6 million in 2022. The increase was largely driven by a higher value product sales mix, coupled with higher recycling services revenues from new service contracts, and partially offset by reduced market prices for cobalt and nickel.
And depreciation from the existing and new spoke asset in.
In Germany.
In addition, <unk>.
Cost of sales includes fixed and other costs related to production assets in development.
Seven $4 million related to Rochester hub compared to $2 6 million in 2022.
And $10 $4 million related to stock networking development compared to $12 5 million in 2022.
SG&A expenses were $93 4 million versus $81 3 million in 2022.
Deborah K. Simpson: Total revenue was $18.3 million compared to $16.5 million in the prior year, reflecting an unfavorable non-cash fair value pricing adjustment of $5.3 million versus $1.1 million in 2022, related to the lower market prices for cobalt and nickel. Moving to cost of sales, which were $81.8 million versus $55.2 million in 2022. Variable and fixed costs related to black mats and shredded metal products sold during the period were $29.1 million, compared to $23.2 million in 2022.
Primarily driven by higher personnel costs before implementing the workforce reduction in November 2020.
We note that prior to the construction pause at the Rochester hub.
<unk> operations personnel in anticipation of the hub commissioning.
We also increased headcount to support expanding spoke network capital projects and corporate requirements.
Further increasing our cost of sales and SG&A.
Research and development costs with $5 7 million versus $2 7 million in 2022.
Related to the personnel costs and professional fees incurred for the initial R&D for the Portuguese Anthony.
Deborah K. Simpson: This reflects an increase in raw material acquisition costs and other production costs. Fixed and other costs for the spoke network not capitalized for inventory and expensed in the period were $34.9 million compared to $16.9 million in 2022. The increase was primarily due to higher Spock costs, including personnel costs, leases, and depreciation from the existing and new Spock assets in Germany. In addition, cost of sales includes fixed and other costs related to production assets and development.
Other income was $24 7 million a decrease of $27 2 million compared to the prior year, which was primarily related to a decrease in fair value gains on our conduct.
Adjusted EBITDA loss was $166 4 million.
Compared to a loss of $118 5 million in 2022.
This was largely driven by higher cost of sales and increased SG&A.
Due to the growth and expansion of the business.
Deborah K. Simpson: $7.4 million related to the Rochester Hub compared to $2.6 million in 2022 and $10.4 million related to the Spoke Network in development compared to $12.5 million in 2022. SG&A expenses were $93.4 million versus $81.3 million in 2022, primarily driven by higher personnel costs before implementing the workforce reduction in November 2023. We note that prior to the construction pause at the Rochester Hub, we had hired operations personnel in anticipation of the Hub commissioning. We also increased headcount to support the expanding spoke network, capital projects, and corporate requirements, further increasing our cost of sales and SG&A. Research and development costs were $5.7 million versus $2.7 million in 2022 and were primarily related to the personnel costs and professional fees incurred for the initial R&D for the Port of Esme hub. Other income was $24.7 million, a decrease of $27.2 million compared to the prior year, which was primarily related to a decrease in fair value gains on our convertible debt.
Turning to slide 14 for a discussion on the actions taken on the cash preservation plan.
At the beginning of November we implemented a cash preservation plan, which has helped to reduce cash outflows, while we explore strategic alternatives in financing options to increase liquidity.
We're diligently working to manage our cash to support our liquidity needs.
First on the spoken have capital spend we pause construction at the Rochester hub, while we are completing their go forward plans for the project.
Curtailed production to focus on key customers and pause development of MISO capacity.
Second on improving working capital.
We have been actively engaged with contractors and suppliers in Rochester have project to negotiate extended payment plan.
As well as extending other payment cycles and implementing other similar measures.
Additionally to the extent possible, we've been killing form of payment terms for blockbuster.
Third on rationalizing our cost structure.
We will continue to further rightsize and reshape our organization.
Either reduce costs or spoke operation and make additional cuts to non core SG&A costs.
Deborah K. Simpson: The Adjusted EBITDA loss was $156.4 million compared to a loss of $118.5 million in 2022. This was largely driven by higher costs of sales and increased SG&E related to the growth and expansion of the business. Turning to slide 14, we implemented a cash preservation plan which has helped to reduce cash outflows while we explore strategic alternatives and financing options to increase liquidity. We are diligently working to manage our cash to support our liquidity needs. First, on the Spoken Hub Capital Spend, we paused construction at the Rochester Hub while we are completing our review of the go-forward plan for the project, curtail spoke production to focus on key customers, and pause development of new spoke capacity. Second, on improving working capital. We have been actively engaged with contractors and suppliers to the Rochester Hub project to negotiate extended payment plans, as well as extending other payment cycles and implementing other similar measures. Additionally, to the extent possible, we've been pulling forward payment terms for black mask sales.
As of December 31, 2023, and March 15, 2024 lifecycle had cash and cash equivalents on hand of approximately 70 $135 million respectively.
Excluding restricted cash of approximately $10 million in expected gross proceeds from the glencore financing of $75 million.
Which is expected to close on or around March 25, 2024.
Coupled with the expected gross proceeds from the Glencore financing, we estimate pro forma cash would be approximately $110 million.
We expect that the results from the cash preservation plan will deliver lora cachet fluid in order to maintain current operations until we are able to obtain more substantial financing.
I will now turn back to Ajay Thank you Debbie.
Turning to slide 15.
Just taking a step back we continue to see favorable secular industry demand trends in North America and Europe.
The chart on the left illustrates the rising adoption of electric vehicles with sales posting record growth adoption at an approximate 45% CAGR from 2019 through 2023 based on third party sources.
Notably these third party industry sources are projecting that EV sales will build on this strong base growth posting a 25% CAGR through the end of the decade.
I see another rate these growth dynamics support the robust demand for an expanding market for recycling of all forms of lift by matters.
Deborah K. Simpson: Third, on rationalizing our cost structure. We will continue to further right-size and reshape our organization, further reduce costs at our spoke operations, and make additional cuts to non-core SG&E costs. As of December 31, 2023 and March 15, 2024, Li-Cycle had cash and cash equivalents on hand of approximately $71 and $35 million, respectively, excluding restricted cash of approximately $10 million and expected gross proceeds from the Glencore financing of $75 million, which is expected to close on or around March 25, 2024.
Near to midterm the increase in recycling materials is largely be driven by manufacturing scrap.
Giga factory growth supplemented by end of like battery feedstock towards the end of the decade.
It is projected by 2030 demand first likely materials will increase by up to six times from 2023 levels.
Turning to slide 16, concluding on life cycles go forward strategy.
First regarding the financing strategy.
We are excited to work with Glencore to close the interim financing and.
And Additionally, we continue to work closely with the Doe on progressing the conditional commitment for a loan of up to $375 million.
Second with.
With respect to spoke and hub network.
We are evaluating our spoke production to drive down costs.
And focusing production through our Gen III spokes to support key customers.
Deborah K. Simpson: Coupled with the expected gross proceeds from the Glencore financing, we estimate pro forma cash to be approximately $110 million. We expect that the results from the cash preservation plan will deliver lower cash outflows in order to maintain current operations until we are able to obtain more substantial financing. I will now turn back to Ajay. Thank you, Debbie. Turn to slide 15.
And finally, we remain focused on completing our analysis of our go forward approach for Rochester.
Before we turn to Q&A, which wanted to take a moment and express our gratitude to multiple supporters during this significant transition.
First we are immensely proud of the lifecycle team for their continued commitment hard work and dedication.
Second we're very appreciative of our customers suppliers.
Ajay Kochhar: Taking a step back, we continue to see favorable secular industry demand trends in North America and Europe. The chart on the left illustrates the rising adoption of electric vehicles with sales posting record growth at an approximate 45% CAGR from 2019 through 2023 based on third-party sources. Notably, these third-party industry sources are projecting that EV sales will build on this strong base growth, posting a 25% CAGR through the end of the decade. As seen on the right, these growth dynamics support robust demand for an expanding market for recycling of all forms of lithium-ion batteries. Near to mid-term, the increase in recycling materials is largely to be driven by manufacturing scraps from Gigafactory Growth, supplemented by end-of-life battery feedstock towards the end of the decade. It is projected that by 2030, demand for recycling materials will increase by up to six times from 2023 levels.
And our financial advisors for their continued support and collaboration as part of our go forward business plans for the Rochester hub.
Of special note, we're excited and appreciate Glencore support and continued collaboration.
Operator, we're now ready for questions.
Yes.
At this time with the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad if.
If you wish to remove yourself from the queue you may do so by pressing star two.
We remind you to pick up your handset for optimal sound quality.
Our first question comes from Brian Dobson with Chardan capital markets. Please go ahead.
Okay.
Thanks very much for taking my question. This morning. So as you think about your ongoing conversations with Doa has the nature of those.
Those conversations changed.
Since you put the facility into strategic review and would you consider the awarding of dose.
Ajay Kochhar: Turn to slide 16, concluding on Li-Cycle's Go Forward strategy. First, regarding the financing strategy. We are excited to work with Glencore to close the interim financing.
As necessary in order to continue construction.
With that project.
Hey, Brian It's drew here.
Thanks for the question so starting with.
Ajay Kochhar: Additionally, we continue to work closely with the DOE on progressing the conditional commitment for a loan of up to $375 million. Second, with respect to the Spoken Hub Network, we are evaluating our spoke production to drive down costs and Focusing Production through our Gen 3 spokes to support key customers. And finally, we remain focused on completing our analysis of our go-forward approach for the Rochester House.
Our engagement with the <unk> since the <unk>.
Pause I would just as I said, they're a rest Canada.
The call.
We're very thankful I think to the Dewey for continuing to actively engage with us and be very supportive.
And that Hasnt changed to be Frank over the last couple of months so.
Interim financing.
Closing, we're looking forward to continuing to progress their towards close the debate.
So that's number one and then number two the way to think about our go forward funding is really in two parts number one is around.
Syndrome funding the cash on hand, and then we have a cash preservation plan to extend our runway as long as possible and then theres really the need of the project and today. We gave you a bit of an updated view of our latest estimates of where that is and there's more work to do on that including with the relevant subcontractors to refining.
Ajay Kochhar: Before we turn to Q&A, we just want to take a moment and express our gratitude to multiple supporters during this significant transition. First, we're immensely proud of the Li-Cycle team for their continued commitment, hard work, and dedication. Second, we're very appreciative of our customers, suppliers, the DOE, and our financial advisors for their continued support and collaboration as part of our Go Forward business plan for the Rochester Hub. Of special note, we're excited and appreciate Glencore's support and continued collaboration. Operator, we're now ready for questions. At this time, the floor is now open to questions. If you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2.
Estimate.
But that all in all it's going to require full funding solution.
And the project financing loan AK.
Is.
There is obviously a key part of that.
But depending on where those numbers come out and what the full funding need as we'll be looking to get together a full funding solution. So we use those words thats what it means the <unk> part of that but it needs to be informed also by where we ultimately land up in terms of the more refined estimate.
Okay. Thanks for that color.
As you're contemplating resuming coverage and you had mentioned Rebating ASP.
Operator: We remind you to pick up your handset for optimal sound quality. Our first question comes from Brian Dobson with Chardon Capital Markets. Please go ahead.
Aspects of the project.
Have you been in I guess have you maintained relationships with your former contractors and would you need to change contractors.
Brian H. Dobson: Thanks very much for taking my question this morning. So, as you think about your ongoing conversations with DOE, has the nature of those conversations changed? Since you put the facility into strategic review, and would you consider the awarding of those funds as necessary in order to, [inaudible] Hey, Brian, it's Ajay here. Thanks for the question. So, starting with our engagement with the DOE since the pause, I would just, as I said, the red scan of the call, we're very thankful, I think, to the DOE for continuing to actively engage with us and be very supportive. And that hasn't changed, to be frank, over the last couple of months.
Forward or where do you think that those relationships could be resumed.
In the immediate future.
Yes, Thanks, Ron that's come on for Tim to take Hey, Brian nice to be talking to.
So similar.
Similar to what Ajay was saying at the end we've had immense support from the contracting community.
Particularly the contractors within the Rochester region, I think everyone is aligned and has a desire to see this project through to completion.
Our focus from a go forward perspective is really.
Ajay Kochhar: So, you know, with this interim financing imminently closing, we're looking forward to continuing to progress there towards closing with the DOE. So that's number one. And then, number two, the way to think about our go-forward funding is really in two parts. Number one is around, you know, this interim funding, the cash on hand, and then we have a cash preservation plan to extend our runway as long as possible. And then there's the real need for the project. And today we gave you a bit of an updated view of our latest estimates of where that is, and there's more work to do on that, including with the relevant subcontractors to refine that estimate. But that, all in all, is going to require a full funding solution.
How do we best contract the project, while the remaining scope of work that needs to be done.
We're open to the right strategy Thats part of the work that we're going through at the moment in Washington with that local contracting community.
Work that out.
That will be something we'll be able to provide more updates on Brian as we get closer to a potential.
Potential restart.
Yes excellent.
If you look around your portfolio of assets.
And you're contemplating call it demand in the United States and Europe.
Which areas you're most appealing to you over the next two to three years.
Ajay Kochhar: And the Project Financing Loan, aka DOE, is obviously a key part of that. But depending on where those numbers come out and what the full funding need is, we'll be looking to get together a full funding solution. So when we use those words, that's what it means. The DOE is part of that, but it needs to be informed also by where we ultimately land up in terms of the more refined estimates. Okay, thanks for that color.
Yes, I can take that.
Yes look I mean, I think we've seen those markets grow.
Frankly in a similar way from a amount of material available for recycling. Obviously, we're very present in both North America and Europe.
Part of it today, if we wanted to give a little bit more color on our customer base. You saw those quoted figures of Oems and battery makers. So those customers span, both North America and Europe.
Brian H. Dobson: You know, as you're contemplating resuming coverage, and you had mentioned rebidding aspects of the project, have you maintained relationships with your former contractors, and would you need to change contractors in order to proceed forward, or do you think that those relationships could be resumed? in the immediate future. Hey Brian, nice to be talking to you. And, similar to what Ajay was saying at the end, we've had immense support from the contracting community, particularly from contractors within the Rochester region. I think everyone is aligned and has a desire to see this project through to completion. Our focus from a go-forward perspective is really how do we best contract the project for the remaining scope of work that needs to be done. We're open to the right strategy; that's part of the work that we're going through at the moment, and we're working with that local contracting community to work that out.
And so I'd say in short Brexit is pretty neck and neck in terms of growth.
Each market has its own features.
In terms of the regulatory landscape.
Policy et cetera, so yeah, so today I'd say.
In summary, as I sat there it's equal from our perspective.
Okay, and just one final Super quick one do you have any concerns about wastewater at the.
Rochester facility that was brought to completion.
<unk> West operation.
Yeah, Brian So I can answer that.
Let me sort of break that up into two parts to be very clear.
The project that is currently under care and maintenance has never had any reagents. So materials introduced into it so it's purely a construction site.
At this point in time, so just from a status perspective today.
A go forward perspective, one of the key aspects of the design of the Rochester hub facility is what we call zero liquid discharge.
System.
So essentially were traditional facilities would be discharging industrial wastewater.
Tim Johnston: And that'll be something we'll be able to provide more updates on, Brian, as we get closer to a potential restart. Yeah, excellent. And, you know, as you look around your portfolio of assets, in your contemplating, call it, demand in the United States and Europe, which areas appear most appealing to you over the next two to three years? Yeah, I can take that. It's Ajay. Yeah, look, I mean, I think we've seen both markets grow. Frankly, in a similar way, from the amount of material available for recycling, obviously, we're very present in both North America and Europe.
We've invested in technology and capital to be able to effectively reclaim that water.
And avoid the need for for an industrial.
Wastewater discharge.
It's part of our growth.
Yes.
These thoughts Brian as a company as we look across our sites.
Yes.
Excellent. Thank you very much.
Thank you I appreciate the questions.
As a reminder, if you would like to ask a question. Please press star one at this time.
Our next question comes from Matthew O'keefe with Cantor Fitzgerald. Please go ahead.
Ajay Kochhar: Part of today, we wanted to give a little bit more color on our customer base. You saw those quoted figures of OEMs and battery makers. So those customers span both North America and Europe. And so I'd say, Brian, today they are pretty neck and neck in terms of growth. And each market has its own features in terms of the regulatory landscape, incentives, policy, etc.
Thanks, operator, and thanks for taking my call.
Just two questions here, one with the scope change of making MH P.
The plane you have going forward here.
Does that change your permitting status at all do you need to get amendments to your permits are there any changes there we should be thinking about.
Brian H. Dobson: So, yeah, today I'd say, in summary, as I said, it's equal from our perspective. Okay, excellent. And just one final, super quick one.
Good morning, Matt Hey, it's Saturday and I'll turn it over to Tim Good morning, Matt and so is the short answer to that is no major changing changes required from.
Brian H. Dobson: Do you have any concerns about wastewater at the Rochester facility that was brought to completion and went into operation? Yeah, Brian, and so I can answer that. So to, let me sort of break that up into two parts. To be very clear, the project that's currently under care and maintenance has never had any reagents or materials introduced into it, so it's purely a construction site at this point in time. So just from a status perspective today, from a go-forward perspective, one of the key aspects of the design of the Rochester Hub facility is what we call a zero-liquid discharge system, and so essentially where traditional facilities would be discharging industrial wastewater, we've invested in technology and capital to be able to effectively reclaim that water and avoid the need for an industrial wastewater discharge, as part of our overall... ETHOS, Brian, as a company as we look across their sites.
And environmental permitting perspective, it's still the same materials.
As a smaller operating footprint, so it would be within our existing.
Permanent framework.
The only considerations.
What we would call normal.
Instruction style permits and some modifications to those.
As.
One or two of the areas.
A little bit physically different but that's the only difference.
Okay, So that will impact you.
Well you revise timeline at all.
No.
Okay, and then just on the timeline I know.
Still a lot of moving parts here and.
It's going to take some time, but.
The glencore.
Invert buy yourself a good amount of time I don't know whether its maybe a year to 18 months of runway.
You can correct me if you can give me more color on that but.
Once you do get sort of a financing solution in place roughly.
How long would it take to complete.
Tim Johnston: Excellent, thank you very much. Thank you. I appreciate the question.
Facility construction, and then sort of get into your ramp up.
Yes, good questions, Matt and it obviously things a lot of folks want to understand I think at this stage. What we're doing is we're right in the midst of these just did.
Operator: As a reminder, if you would like to ask a question, please press star 1 at this time. Our next question comes from Matthew O'Keefe with Cantor Fitzgerald. Please go ahead.
Terminal Technical review looking at the technical economic viability, which was good and that was positive and now I think the key thing that we need to get done in the coming periods is really this subcontractor bidding.
Operator: Thanks, Operator. Thanks for taking my call. Just two questions here. One, with the scope change of making MHP, which,,,,,,,,,,,,,,,,,,,,, Good morning, Matt. Hey, it's Ajay.
So before we come out and start talking about timeline, where theres going to be I mean, we have a view but.
Do you need to be informed by the folks that you're going to do the work.
Matthew O'Keefe: And I'll turn it over to Tim. Good morning, Matt. And so the short answer to that is no major changes required from an environmental permitting perspective. It's still the same materials. It's a small operating footprint, so it would be within our existing permitting framework. The only considerations would be what we would call normal construction-style permits and some modifications to those as needed.
And that's the key next thing that we're going to be looking to define so I think post that then at the right time, we'd like to give some color, but where we stand today, we're still silver bearing.
Okay.
Helpful. Thank you that's it for me.
Thanks, Matt.
As a reminder, if you would like to ask a question. Please press star one at this time.
We'll pause just a moment to allow any additional questions to queue.
Tim Johnston: One or two of the areas are a little bit physically different, but that's the only difference there, Matt. Okay, so that won't impact your revised timeline. No. Okay, and then just on the timeline, I know there are still a lot of moving parts here and it's going to take some time, but with the Glencore Convert, you buy yourself a good amount of time. I don't know whether it's maybe a year to 18 months of runway, or you can correct me if you can give me more clarification on that, but once you do get sort of a financing solution in place, roughly how long would it take to complete the facility construction and then sort of get into your ramp?
And it appears there are no further questions in the queue. At this time I will turn the call back to Jay for his closing comments.
Thanks very much.
And again I appreciate everybody's time and to the right towards the end of the call and all the support from our various stakeholders. This period and we look forward to updating everybody as you progress. Thank you.
This does conclude today's call and webcast you may disconnect. Your line at this time and have a wonderful day.
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Uh-huh.
Matthew O'Keefe: Yeah, good questions, Matt. And I know, obviously, things a lot of folks want to understand. I think at this stage, what we're doing is we're right in the midst of these, you know. We just did an internal technical review looking at the technical economic viability, which was good, which was positive. And now I think the key thing that we need to get done in the coming periods is really this subcontractor bidding. So before we come out and start talking about the timeline and where that's going to be, I mean, we have a view, but that view needs to be informed by the folks who are actually going to do the work. And that's the key next thing that we're going to be looking to define. So I think post that, then at the right time, we'd like to give some color.
Okay.
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Ajay Kochhar: But where we stand today, we're still reviewing. That's helpful. Thank you. That's it for me.
Uh-huh.
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Matthew O'Keefe: Thanks, Brian. As a reminder, if you would like to ask a question, please press star 1 at this time. We'll pause just a moment to allow any additional questions to queue. However, it appears there are no further questions in the queue at this time. I will turn the call back to Ajay for his closing comments. Thanks very much. And again, I appreciate everybody's time. As I mentioned right towards the end of the call, I know the support from our various stakeholders during this period and look forward to updating everybody as we progress. Thank you. This does conclude today's call and webcast. You may disconnect your line at this time and have a wonderful day.
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Ajay Kochhar: ...
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