Q2 2024 Li-Cycle Holdings Corp Earnings Call
Unknown Caller: [inaudible]
Good day my name is Ashley and I'll be your conference operator today at this time I would like to welcome everyone to the second quarter 2020 for 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.
Speaker Change: Like to ask a question at that time. Please press star one on your telephone keypad, if you should need to operator assistance. Please press star zero. Thank you I will now turn the call over to Louis D. S. VP Corporate Affairs. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Good morning, and thank you everyone for joining us for lifecycle of a business update and review financial results for the interim period ended June 32024.
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Speaker Change: We will start today with formal remarks from Ikea, <unk>, President and Chief Executive Officer, and Craig Cunningham Chief Financial Officer.
Speaker Change: Then follow with a Q&A session.
Speaker Change: 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 investors <unk> lifecycle Dot com.
Speaker Change: 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.
Speaker Change: Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect, including because of factors discussed in today's press release. During this conference call or in our past reports and filings with the U S Securities and Exchange Commission, and Ontario Securities Commission in Canada.
Speaker Change: These documents can be found on our website at investors that lifecycle dot com.
Unknown Executive: We do not undertake any duty to update any forward-looking statements, whether written or oral, made during this call or from time to time, to reflect new information, future events, or otherwise, except as required. These forward-looking statements should not be relied upon as representing Li-Cycle's assessments for any date subsequent to the date of disqualification. On our first quarter earnings call in May, we provided an update on the progress made on our comprehensive review for the restart of construction of the Rochester Hub.
Speaker Change: 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.
Speaker Change: These forward looking statements should not be relied upon as representing a lifecycle assessment as of any date subsequent to the date of this call.
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Speaker Change: With that I'm pleased to turn the call. So Ajay Thank you Louise and good morning, everyone.
Operator: To all sites on hold, we do appreciate your patience, and we ask that you please continue to stand by.
Ajay: On our first quarter earnings call in May we provided an update on the progress made on a comprehensive review for the restart of construction of the Rochester hub.
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Speaker Change: Today, we are pleased to share additional updates on the steps we've taken towards achieving our previously mentioned key objectives and also to discuss our second quarter financial and operating results.
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Ajay: Starting on slide three we continue to make progress on our key objectives.
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Ajay: First closing the U S. D V loan remains our top priority.
Ajay: We continue to work closely with the D V loan programs office to advance towards definitive financing documentation and satisfying conditions precedent for loan disbursements.
Unknown Executive: Second, we continue to evaluate additional financing alternatives, including exploring financial and strategic options to increase our near-term liquidity. And we have also advanced the Go Forward Rochester Hub project execution plan for the proposed mixed hydroxide precipitate, or MHP, process.
Ajay: Second we continue to evaluate additional financing alternatives, including exploring financial and strategic options to increase our near term liquidity.
Ajay: Third we have advanced our comprehensive review of the Rochester hub.
Ajay: We refined the cost estimates with the local market as part of our work on evaluating the total project cost.
Ajay: And we also advanced the go forward Rochester hub project execution plan for the proposed mixed hydroxide precipitate or MSP process.
Ajay: Finally, we are reviewing and optimizing our spoke network.
Ajay: We are exploring ways to extract more value from our spoke network and are transitioning down terrorists spoke from a paused operation to closure to focus on our key generation three facilities.
Ajay: In addition, we are pleased to announce that the Germany spoke secured ISO certifications for meeting global standards we.
Ajay: We will continue our strategic review of our operations.
Unknown Executive: Turn to slide four for an update on the current status of the DOE process regarding the conditional commitment for a loan for gross proceeds of up to $375 million. Turn to slide 5 for an update on the Rochester Hub Project and the proposed MHB scope. Additionally, we refined cost estimates with the local market for major construction contracts. Including consideration of the recent work with the local market, our current estimated cost to complete the Rochester Hub project is substantially similar at approximately $490 million.
Operator: To all states on hold, we do appreciate your patience, and we ask that you please continue to...
Ajay: Turning to slide four for an update on the current status of the D. We process regarding the conditional commit for a loan for gross proceeds of up to $375 million.
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Ajay: As you can see we remain in step five of the <unk> loan application process and we remain committed to finalizing the alone.
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Ajay: During Q2, we continue to work closely with the D. We on keep technical financial and legal work streams to advance towards reaching an agreement on definitive financing documentation execution thereof, and satisfying conditions precedent for loan disbursements.
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Operator: Please stand by; your program is about to begin. Good day.
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 0. Thank you. I will now turn the call over to Louis Diaz, VP of Corporate Affairs.
Operator: My name is Ashley, and I'll be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2024 Li-Cycle Hldg earnings call-in webcast. All lines have been placed on mute to prevent any background noise.
Ajay: Turning to slide five for an update on the Rochester hub project and the proposed MSP scope.
Unknown Executive: On our Q4 earnings call in March we reported that we had completed an internal technical review confirming the viability of MH scope to produce MSP and lithium carbonate as part of the proposed change in our project development strategy for the Rochester hub.
Louis Diaz: Thank you. Good morning, and thank you everyone for joining us for Li-Cycle's business update and financial results for the interim period ended June 30, 2024. We will start today with formal remarks from Ajay Kochhar, President and Chief Executive Officer, and Craig Cunningham, Chief Financial Officer. We will then follow with a Q&A session.
Ajay: Since then we've made significant progress on the technical work stream.
Louis Diaz: 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.lifecycle.com. On this call, management will be making statements based on current expectations, plans, estimates, and assumptions, which are subject to significant risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle. Actual results could differ materially from our forward-looking statements if any of our key assumptions is incorrect, including because of factors discussed in today's press release, during this conference call, or in our past reports and filings with the U.S. Securities and Exchange Commission and the Ontario Securities Commission in Canada.
Ajay: This includes advancing the go forward project execution plan for the Rochester hub.
Ajay: Additionally, we refined cost estimates with a local market for major construction contracts.
Ajay: Including consideration of the recent work with the local market. Our current estimated cost to complete the Rochester hub project is substantially similar at approximately $490 million for the MH scope, which is inclusive of cash commitments to date.
Ajay: For clarity and positively the total project cost estimates damage pisco remains the same at approximately $960 million.
Ajay: We note that these estimates are subject to several assumptions and we will continue to be refined as we complete our comprehensive review work.
Unknown Executive: In summary, the technical work on the proposed MHP scope is now quite advanced. Turn to slide six for an overview of Li-Cycle's commercial update, which is our largest customer source of revenue for the first half of the year. We remain focused on EV battery packs to leverage the value differentiators provided by our Gen 3 spoke capabilities in processing this material. We secured ISO certifications for our Germany spoke, highlighting our commitment to sustainability and the highest global environmental, health, and quality standards, where operations have been paused since November 2023 until closure in order to focus on our priority Gen 3 facilities.
Ajay: In summary, the technical work on the proposed <unk> scope is now quite advanced.
Louis Diaz: These documents can be found on our website at www.investors.li-cycle.com. We do not undertake any duty to update any forward-looking statements, whether written or oral, made during this call or from time to time, to reflect new information, future events, or otherwise, except as required. These forward-looking statements should not be relied upon as representing Li-Cycle's assessments for any date subsequent to the date of disqualification. With that, I'm pleased to turn the call over to Ajay. Thank you, Louis, and good morning, everyone.
Ajay: Turning to slide six for an overview of lifecycle as commercial updates.
Speaker Change: We've established a broadly diversified global base of battery supply customers, including a leading U S. Headquartered vertically integrated EV and battery manufacturer, which is our largest customer source of revenue for the first half of the year.
Ajay: Notably four of our top five partners for feed and take during Q2 remained the largest global EV Oems.
Unknown Executive: We continue to demonstrate our expertise and processing all types of lift my batteries independent of form factor and chemistry.
Unknown Executive: We remain focused on EV battery packs to leverage the value differentiator is provided by our Gen III spoke capabilities and processing that's material.
Speaker Change: EV battery packs continued to be a large portion of our input feed and.
Ajay: <unk> represented approximately 40% of the total battery materials processed at our spokes in Q2.
Unknown Executive: We have also widened our commercial footprint for input feedstock for the Germany spoke in Europe.
Speaker Change: As well during the quarter, we announced a partnership with Daimler truck North America to recycled batteries.
Speaker Change: Finally, we continue to see broad based support for our differentiated technologies reflected in our position as a preferred recycling partner for leading global battery EV and energy storage Oems.
Ajay Kochhar: On our first quarter earnings call in May, we provided an update on the progress made on our comprehensive review for the restart of construction of the Rochester Hub. Today, we are pleased to share additional updates on the steps we've taken towards achieving our previously mentioned key objectives and also to discuss our second quarter financial and operating results. Starting on slide three, we continue to make progress on our key objectives. First, closing the U.S. DOE loan remains our top priority. We continue to work closely with the DOE Loan Programs Office to advance towards definitive financing documentation and satisfying conditions precedent for loan disbursement.
Speaker Change: Turning to slide seven.
Ajay Kochhar: Second, we continue to evaluate additional financing alternatives, including exploring financial and strategic options to increase our near-term liquidity. Third, we have advanced our comprehensive review of the Rochester House. We refined the cost estimates for the local market as part of our work on evaluating the total project cost, and we also advanced the Go Forward Rochester Hub project execution plan for the proposed mixed hydroxide precipitate, or MHP, process. Finally, we're reviewing and optimizing our spokenet.
Speaker Change: For some highlights of our spoke operations.
Unknown Executive: During the quarter, our spokes produced approximately 1394 tons of black mass and equivalents.
Unknown Executive: We have continued to optimize our spoke network and have increased throughput rates at our Arizona, Alabama spokes.
Unknown Executive: We secured ISO certifications for our Jimmy spoke.
Lighting, our commitment to sustainability and the highest global environmental health and quality standards.
Ajay Kochhar: We are exploring ways to extract more value from our spoke network and are transitioning the Ontario spoke from a paused operation to closure to focus on our key generation three facilities. In addition, we are pleased to announce that the Germany Spoke secured ISO certifications for meeting global standards. We will continue our strategic review of our operation.
Unknown Executive: And finally, we are transitioning the Ontario spoke.
Unknown Executive: Our operations have been paused since November 2023 to closure in order to focus on our priority Gen three facilities.
Unknown Executive: Turn to slide 8 for some highlights related to the optimization initiatives at our spoke. As noted, we are prioritizing our Gen 3 spokes, which can process full battery packs without the need for dismantling. This aligns with the priorities of our EV and battery OEM partners, who comprise a large share of our global battery feed intake. We are also optimizing our product conversion costs to increase our competitiveness in the market, which is a growing share of our revenue. With that, I'll now turn the call over to Craig to provide a review of the financials.
Speaker Change: Turning to slide eight for some highlights related to the optimization initiatives at our spokes.
Craig: Our goal is to take near term steps towards creating financially accretive spokes.
Unknown Executive: As noted we are prioritizing our gen III spokes, which can process full battery packs without the need for dismantling.
Unknown Executive: This aligns with parties of our EV and battery OEM partners, who comprise a large share of our global battery feet intake.
Craig: In line with this we aim to maximize and sustained throughput rates.
Craig: At our Gen three spokes to fully leverage these capabilities.
Unknown Executive: We're also optimizing our product conversion cost to increase our competitiveness in the market.
Craig: As you can see in this quarter recycling services, our growing share of our revenue.
Craig: Representing approximately 43% of our revenue in the first half of the year.
Ajay Kochhar: Turn to slide four for an update on the current status of the DOE process regarding the conditional commitment for a loan for gross proceeds of up to $375 million. As you can see, we remain in step five of the DOE's loan application process, and we remain committed to finalizing the loan. During Q2, we continue to work closely with the DOE on key technical, financial, and legal workstreams to advance towards reaching an agreement on definitive financing documentation, including execution thereof and satisfying Conditions President for Lone Dispersion.
Craig: We will continue focusing on these services to leverage the value differentiators of our Gen three spokes and generate revenue.
Craig: We are working with our strategic partners to support and execute on these plans and look forward to providing further details on our spoke optimization and strategic initiatives in Q3, 'twenty 'twenty four.
Unknown Executive: This increase reflects higher recycling revenue and favorable non-cash fair value pricing adjustments of approximately 0.2 million versus an unfavorable adjustment of 1.7 million from the prior year. We're also pleased to note that SG&A has decreased 39% to $15.3 million versus $24.9 million in 2023. The adjusted dividend was a loss largely driven by a decrease in SG&A, cost of sales, and higher revenue, as well as $2.2 million in restructuring fees.
Ajay Kochhar: Turn to slide 5 for an update on the Rochester Hub project and the proposed MHB scope. On our Q4 earnings call in March, we reported that we had completed an internal technical review confirming the viability of the MHP scope to produce MHP and lithium carbonate as part of the proposed change in our project development strategy for the Rochester Hub. Since then, we've made significant progress on the technical work, this including advancing the Go Forward Project Execution Plan for the Rochester House.
Unknown Executive: With that I'll now turn the call over to Craig to provide a review of the financials.
Ajay Kochhar: Additionally, we refined cost estimates with the local market for major construction contracts. Including consideration of the recent work with the local market, our current estimated cost to complete the Rochester Hub project is substantially similar at approximately $490 million for the MHP scope, which is inclusive of cash commitments today. For clarity, and positively, the total project cost estimate for the Damage Fee Scope remains the same at approximately $960 million.
Ajay Kochhar: We note that these estimates are subject to several assumptions and will continue to be refined as we complete our comprehensive review work. In summary, the technical work on the proposed MHP scope is now quite advanced. Turned to 5-6 for an overview of life-eckless commercial options. We've established a broadly diversified global base of battery supply customers, including a leading U.S. headquarters. Vertically Integrated EV and Battery Manufacturer, which is our largest customer source of revenue for the first half of the year.
Unknown Executive: Thank you Ajay turning to slide nine for a review of our 2024 second quarter financial results highlights include record quarterly revenue and lower SG&A and cost of sales for the second quarter of 2024 versus 2023, starting with the sales of Black Madison equivalents, which were 1158 tons versus 2093 tons sold.
Unknown Executive: The same period last year total revenue increased 133% to $8 4 million a record for the company. This increase reflects higher recycling revenue and favorable noncash fair value pricing adjustments of approximately <unk> 2 million versus an unfavorable adjustment of $1 7 million from the prior year.
Ajay Kochhar: Finally, we continue to see broad-based support for our differentiated technologies, reflected in our position as a preferred recycling partner for leading global battery, EV, and energy storage OEMs. Turn to slide 7, for some highlights of our SPOC operations. During the quarter, our spokes produced approximately 1,394 tons of black mass in Equilibrium.
Ajay Kochhar: We have continued to optimize our SPOKE network and have increased throughput rates at our Arizona and Alabama states. We secured ISO certifications for our Germany spoke, highlighting our commitment to sustainability and the highest global environmental health and quality. And finally, we are transitioning the Ontario spoke. Our operations have been paused since November 2023 for closure and are due to focus on our priority Gen 3 episodes.
Unknown Executive: Moving to cost of sales, which decreased 4% to $19 4 million versus $20 2 million in 2023 cost of sales attributable to product revenue decreased by $2 3 million or 11% compared with last year's results due to lower production levels, partially offset by costs associated with spoke repairs and maintenance activities.
Unknown Executive: Cost of sales attributable to service revenue increased $1 5 million compared to last year due to new service contracts entered.
Unknown Executive: We're also please note that SG&A has decreased 39% to $15 3 million versus $24 9 million in 2023.
Unknown Executive: Primarily driven by lower recurring personnel costs, resulting from our restructuring initiatives implemented since the pause of the construction of the Rochester hub.
Unknown Executive: Adjusted EBITDA was a loss largely driven by a decrease in SG&A cost of sales at higher revenue as well as $2 2 million in restructuring fees as of June 32024, lifecycle has cash and cash equivalents of $57 million versus $109 1 million at the end of the first quarter of 'twenty 'twenty. Four this is mainly due to higher working capital and investing activities partially.
Speaker Change: Ill start by lower SG&A I will now turn it back to <unk>.
Rick: Thanks, Rick.
Unknown Executive: Turning to slide 10, I wanted to conclude by addressing the current industry dynamics we're seeing across the battery supply chain. Well, there have been recent challenges.
Ajay Kochhar: Turn to flight 8 for some highlights related to the optimization initiatives at our spokes. Our goal is to take near-term steps towards creating financially accretive spokes. As noted, we are prioritizing our Gen 3 spokes, which can process full battery packs without the need for dismantling.
Speaker Change: Turning to slide 10, I wanted to conclude by addressing the current industry dynamics, we're seeing across the battery supply chain.
Ajay Kochhar: This aligns with the priorities of our EV and battery OEM partners, who comprise a large share of our global battery feed intake. In line with this, we aim to maximize and sustain throughput rates at our Gen III spokes to fully leverage these capabilities. We're also optimizing our product conversion costs to increase our competitiveness in the market. As you can see in this corner, Recycling Services is a growing share of our revenue. We're representing approximately 43% of revenue in the first half of the year.
Unknown Executive: While there have been recent challenges we continue to believe in the long term fundamentals for lifecycle due to two main drivers.
Unknown Executive: We continue to believe in the long-term fundamentals for lifecycle that are the two main drivers, with sales achieving a CAGR of approximately 36%, as depicted on the right. The transition to EV adoption is well underway, and growth is continuing even if at a different rate in the near future. Li-Cycle is well positioned to capitalize on these opportunities as there is still a significant gap in post-processing recycling capacity. The Rochester Hub is expected to play a pivotal role in helping to fill this. This includes the U.S. Inflation Reduction Act, various tax incentives, and more recently, potential tariffs
Unknown Executive: Increasing recycling supply and the deficit of expected post processing capacity.
Unknown Executive: And the continued trend towards localization of the battery supply chain.
Unknown Executive: The chart on the left illustrates the rising adoption of electric vehicles in North America.
Unknown Executive: With sales achieving a CAGR of approximately 36% from 2019 through 2024.
Unknown Executive: Notably despite current industry headwinds third party sources are projecting a robust 23% CAGR office space to get to the decade.
Unknown Executive: As depicted on the right.
Unknown Executive: These growth dynamics support the strong demand for an expanding market for recycling of all forms of lift my batteries.
Unknown Executive: In the near to mid term the increase in recycling materials is largely being driven by manufacturing scrap from Giga factory growth with.
Unknown Executive: With end of life battery feedstock supplementing this growth towards the end of the decade.
Unknown Executive: By 2030, the supply of recycling materials is projected to increase by up to six times versus 2024 levels.
Unknown Executive: Despite the recent challenges we are seeing in the battery supply chain the longer term fundamentals for the industry remained clear for recycling.
Unknown Executive: The transition to EV adoption is well underway and growth is continuing even if at a different rate in the near term.
Unknown Executive: Electrical is well positioned to capitalize on these opportunities as there is still a significant gap and post processing recycling capacity.
Unknown Executive: The Rochester hub is expected to play a pivotal role in helping to fill this gap.
Unknown Executive: Turn to slide 12, we believe the trend towards localization will also continue to be a positive for the industry and our company.
Unknown Executive: Policy initiatives in North America, and Europe continue to provide a favorable backdrop encouraging local production and reducing reliance on external supply chains.
Unknown Executive: This includes the U S inflation reduction act various tax incentives and more recently potential tariffs on imports.
Unknown Executive: In the U S. We have seen continued bipartisan support to build domestic capacity in the battery supply chain to onshore clean energy jobs and reduce reliance on critical minerals from foreign entities of concern.
Unknown Executive: With the continued growth in E b adoption underpinning the long term demand for recycling and post processing capacity and the ongoing support for the localization of the supply chain.
Unknown Executive: The planned development of the Rochester Hub will strategically position Li-Cycle to create value for our stakeholders. First, we are focused on reaching an agreement on definitive financing documentation for the DOE law. Stay tuned as we expect to provide further details on our spoke optimization and strategic initiatives in Q3.
Unknown Executive: The planned development of the Rochester hub will strategically position lifecycle to create value for our stakeholders.
Unknown Executive: Turning to slide 13, and to reiterate our go forward strategy and key objectives.
Unknown Executive: First we are focused on reaching an agreement on definitive financing documentation for the D V alone.
Unknown Executive: Second we are evaluating financing and strategic options to bolster our liquidity.
Unknown Executive: Third we aim to complete the comprehensive review of the image be scope for Rochester hub.
Ajay Kochhar: We will continue focusing on these services to leverage the value differentiators of our Gen 3 spokes and Generic Revit. We are working with our strategic partners to support and execute on these plans and look forward to providing further details on our spoke optimization and strategic initiatives in Q3 2024. With that, I'll now turn the call over to Craig to provide a review of the financials.
Unknown Executive: And lastly, we are working with our strategic partners to maximize value across a spoke network.
Unknown Executive: Stay tuned as we expect to provide further details on our spoke optimization and strategic initiatives in Q3.
Craig Cunningham: Thank you, Ajay. Train it's like nine for a view of our 2024 second quarter financial results. Highlights include record quarterly revenue and lower SGA and cost of sales for the second quarter of 2024 versus 2023. Starting with the sales of black mass and equivalent, which were 1,158 tons versus 2,093 tons sold in the same period last year. Total revenue increased by 133% to 8.4 million, a record for the company. A record for the company.
Unknown Executive: Before we get to Q&A I wanted to thank our employees and our partners for their continuing support lifecycle.
Craig Cunningham: This increase reflects higher recycling revenue and favorable non-cash fair value pricing adjustments of approximately 0.2 million versus an unfavorable adjustment of 1.7 million from the prior year. Moving to cost of sales, which decreased 4% to $19.4 million versus $20.2 million in 2023. Cost of sales attributable to product revenue decreased by $2.3 million, or 11% compared to last year's results, due to lower production levels partially offset by costs associated with smoke repairs and maintenance.
Craig Cunningham: The cost of Sills is attributable to service revenue, which increased by 1.5 million compared to last year due to new service contract centers. We're also pleased to note that SG&A has decreased 39% to $15.3 million versus $24.9 million in 2023. Primarily driven by lower recurring personnel costs, resulting from a restructuring initiatives implemented since the pause of the construction of the Rochester House. However, Adjusted EBITDA was a loss largely driven by a decrease in SG&A, cost of sales, and higher revenue, as well as $2.2 million in restructuring fees.
Unknown Executive: Well I think it was clear objectives over the second half this year and we are focused on capitalizing on our opportunities.
Craig Cunningham: As of June 30th, 2024, Li-Cycle has cash and cash equivalents of $57 million, versus $109.1 million at the end of the first quarter of 2024. This is mainly due to higher working capital and investing activities partially offset by a low-rest GNA. I will now turn back to Ajay. Thanks Rick.
Unknown Executive: Later, we are now ready for questions.
Speaker Change: Thank you and at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Mr remove yourself from the queue you may do so by pressing star two we remind you to please pickup your handset for optimal sound quality will pause to allow any questions. Thank you.
Operator: We will take our first question from Doug Paul with LPL Financial. Please go ahead.
Speaker Change: We will take our first question from Doug Paul with LPL financial. Please go ahead.
Doug Paul: Can you provide some more color on where we're at in this step five or possibly how long the step five takes for this loan to close.
Operator: Yeah.
Doug Paul: Sure Hi.
Speaker Change: So I'd say at a high level just to take a step back probably focusing a lot of misogyny speaking <unk> seen a lot of progress from the deal, we recently and momentum picking up.
Ajay Kochhar: Turn to slide 10. I wanted to conclude by addressing the current industry dynamics we're seeing across battery supply. Although there have been recent challenges, we continue to believe in the long-term fundamentals for the life cycle that are two main drivers. Increasing Recycling Supply and the Deficit of Expected Post-Processing Capacity, and the continued trend towards localization of the battery supply chain. The chart on the left illustrates the rising adoption of electric vehicles in North America, with sales achieving a compound annual growth rate of approximately 36% from 2019 through 2024 Notably, despite current industry headwinds, third-party sources are projecting a robust 23% CAGR off this base As depicted on the right.
Speaker Change: Now just to contextualize right. This is the last stage before we close.
Ajay Kochhar: These growth dynamics support the strong demand for an expanding market for recycling of all forms of lithium ion batteries. In the near to midterm, the increase in recycling materials is largely being driven by manufacturing scrap from gigafactory growth, with end-of-life battery feedstock supplementing this growth towards the end of the decade. By 2030, the supply of recycling materials is projected to increase by up to six times versus 2024 levels.
Ajay Kochhar: Despite the recent challenges we are seeing in the battery supply chain, the longer-term fundamentals for the industry remain clear for recycling. The transition to EV adoption is well underway, and growth is continuing, even if at a different rate in the near future. Li-Cycle is well positioned to capitalize on these opportunities as there is still a significant gap in post-processing recycling capacity. The Rochester Hub is expected to play a pivotal role in helping to fill this Turn of Slide 12.
Ajay Kochhar: We believe the trend towards localization will also continue to be positive for the industry and our company. Policy initiatives in North America and Europe continue to provide a favorable backdrop, encouraging local production and reducing reliance on external supply chains. This includes the U.S. Inflation Reduction Act, various tax incentives, and more recently, potential tariffs on imports.
Ajay Kochhar: In the US, we have seen continued bipartisan support to build domestic capacity in the battery supply chain to ensure clean energy jobs and reduce reliance on critical minerals from foreign entities of concern. With the continued growth in EV adoption underpinning the long-term demand for recycling and post-processing capacity and the ongoing support for the localization of the supply chain, the planned development of the Rochester Hub will strategically position Li-Cycle to create value for its stakeholders.
Speaker Change: And so we've been here for a while obviously back in February 2023.
Ajay Kochhar: Turn to slide 13 and to reiterate our go forward strategy and key objectives. First, we are focused on reaching an agreement on definitive financing documentation for the DOE law. Second, we are evaluating financing and strategic options to bolster our liquidity. Third, we aim to complete the comprehensive review of the MHP scope for the Rochester Hub. And lastly, we are working with our strategic partners to maximize value across our spoken network. Stay tuned as we expect to provide further details on our spoke optimization and strategic initiatives in Q3.
Speaker Change: We got our initial equipment. Since then we've been in close though in between we had the pause a bit of a proposed shift in the strategy.
Speaker Change: Within the closing phase there are three work streams, there is technical financial market and legal.
Ajay Kochhar: Before we get to Q&A, I wanted to thank our employees and our partners for their continuing support. Li-Cycle has clear objectives for the second half of this year, and we are focused on capitalizing on our opportunities. Operator, we're not ready for questions. Thank you.
Speaker Change: Technical side has been focused on the MH scope.
Speaker Change: That is well progressed the financial market side has been basically re integrating that into the view from the financial perspective, Thats also very well progressed and now we're really focused on those definitive financing documents as mentioned.
Operator: Yes.
Doug Paul: Okay do you have an anticipation date of closing.
Speaker Change: So I think at this time, we are moving as expediently as possible to close and I could tell you. This is my top priority is the top priority for the organization and we're continuing to progress towards that.
Doug Paul: Alright, thank you.
Operator: At this time, 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. We remind you to please pick up your handset for optimal sound quality. We'll pause to allow any questions to queue. We will take our first question from Doug Paul with LPL Financial. Please go ahead. All right, can you provide some more color?
Operator: And once again, as a reminder, that is the star and one for your questions. We will take our next question from Matthew O'Keefe with Cantor Fitzgerald. Please go ahead.
Speaker Change: And once again as a reminder, that is star and one for your questions. We will take our next question from Matthew O'keefe with Cantor Fitzgerald. Please go ahead.
Matthew O'Keefe: Thanks, Operator. Good morning.
Matthew O'Keefe: I just have a question on the comprehensive review. Some good progress sounds like has been made there. I'm just wondering, I mean, how much more and when timing wise on that being completed? And how are metal prices sort of impacting impacting that review? And as an addition to that, if you could sort of comment on your view that lithium is going to be a very important component of your revenue stream when you get this operational. Maybe you could comment on current pricing and the kind of pricing you expect is needed to make this work.
Matthew O'Keefe: Thanks, operator, good morning.
Matthew O'Keefe: Just a question on the.
Matthew O'Keefe: The comprehensive review some good progress sounds like has been made there I'm just wondering.
Matthew O'Keefe: How much more and timing wise on that being completed and how is <unk>.
Speaker Change: Our metal prices.
Matthew O'Keefe: Sort of impacting impacting that review and as an addition to that if you could sort of comment on your view on on.
Matthew O'Keefe: That team is going to be a very important component of your revenue stream. When you get this operational maybe you could comment on current pricing and kind of pricing you expect as needed.
Matthew O'Keefe: To make this a to make this work.
Ajay Kochhar: Sure, hi. So I'd say at a high level, you know, just to take a step back, probably folks have seen a lot of, this is Ajay speaking, seen a lot of progress from the DOE recently in momentum picking up. Now, just to contextualize, right, this is the last stage before we close. And so we've been here for a while, obviously, since February 2023.
Matthew O'Keefe: Yeah, Hey, Matt Good morning, So yeah, let me start maybe on the review first and I'll talk a little bit about influence of metal pricing. So.
Ajay Kochhar: We got our conditional agreement. Since then, we've been in closed. In between, we had the pause, a bit of a proposed shift in the strategy. In the closing phase, there are three workstreams. There are three aspects of it: technical, financial market, and legal. The technical side has been focused on the MHP scope. That is well-progressed. The financial market side has been basically reintegrating that into the view from the financial perspective. That's also very well-progressed. And now we're really focused on those definitive financing documents, as mentioned.
Ajay Kochhar: Okay, do you have an anticipated date for our closing? So I think at this time, we're moving as expediently as possible to close. And I can tell you, this is my top priority. It's a top priority for the organization. And we're continuing to progress toward that.
Unknown Executive: Well, yeah, we keep talking about this review. I think just to break it apart in simple terms, there's a technical part and there's a financial part, right? So the technical part has been a lot of what we talked about, talked about in the presentation, vis-a-vis the internal technical viability technology of the MHP scope, so that's been completed. And then a big thing that we did in Q2 was go to the local market to refine the estimate for the CapEx.
Ajay Kochhar: And once again, as a reminder, that is the star and one for your questions. We will take our next question from Matthew O'Keefe with Cantor Fitzgerald. Please go ahead.
Speaker Change: Let me, yes, we keep talking about this review I think just to break it apart and simple.
Unknown Executive: Simple terms there is a technical part and as the financial part right. So the technical part has been a lot of what we talked about I talked about in the presentation.
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Speaker Change: The internal technical viability tactical damage Visco assessment completed and then the big thing that we did in Q2 was going to a local market to refine the estimate for the Capex.
Operator: Thanks, Operator. Good morning.
Unknown Executive: Which by the way it was also necessary activity for the <unk>.
Unknown Executive: So that's also done great and as you saw we didn't change the Capex estimate.
Speaker Change: So that then feeds into the second part of the financial part of slow Youre driving at within that obviously there is the full financing package, they're working on the theory is the cornerstone of that.
Unknown Caller: I just have a question on the comprehensive review. Some good progress sounds like has been made there. I'm just wondering, I mean, how much more and when timing wise on that being completed? And how are metal prices sort of impacting impacting that review? And as an addition to that, if you could sort of comment on your view that lithium is going to be a very important component of your revenue stream when you get this operational. Maybe you could comment on current pricing and the kind of pricing you expect is needed to make this work.
Speaker Change: What youre getting at is really what does it mean at current metal prices.
Ajay Kochhar: Yeah, hey Matt. Good morning.
Ajay Kochhar: So yeah, let me start maybe on the review first, and I'll talk a little bit about metal pricing. So Well, yeah, we keep talking about this review. I think just to break it apart in simple terms, there's a technical part and there's a financial part, right? So the technical part has been a lot of what we talked about, talked about in the presentation, vis-a-vis the internal technical viability technology of the MHP scope, so that's been completed.
Speaker Change: I mean look we're in a we've been in a soft period for nickel cobalt and lithium.
Ajay Kochhar: And then a big thing that we did in Q2 was go to the local market to refine the estimate for the CapEx, which, by the way, was also a necessary activity for the DOE. So that's also going great.
Ajay Kochhar: And as you saw, we didn't change the CapEx estimate. So that then feeds into the second part of the financial part, which is really what you're driving at. Within that, obviously, there's the full financing package that we're working on. The DOE is the cornerstone of that.
Ajay Kochhar: And then what you're getting at is really, OK, what does it mean at current metal prices? Yeah, I mean, look, we're in a soft period for nickel, cobalt, and lithium. One of the benefits we have is obviously we're not reliant on any one of those, unlike say a sole lithium producing project. Obviously, as you know, we have never really gotten into, you know, forecast economics; we'll get there when we get there.
Unknown Executive: One of the benefits we have is obviously we're not reliant on any one of those, unlike say a sole lithium producing project. Even at current prices and where they're expected to be, we still see this as accretive, right? Otherwise, we wouldn't be pursuing it. So that's maybe another way of talking about where current prices are and how we see the economics.
Speaker Change: One of the benefits. We have is obviously, we are not reliant on any one of those unlike I said, so lithium and producing product.
Ajay Kochhar: But I can tell you given the basket of those three, even at current prices and where they're expected to be, we still see this as a creative, right? Otherwise, we wouldn't be pursuing it. So that's maybe another way of talking about where current prices are and how we see the economy.
Speaker Change: Obviously as you know we have no we have never really gotten into you know forecast economics will get there when we get there, but I can tell you given the basket up those three.
Unknown Executive: Even at current prices and where they are expected to be we still see the size of accretive railroads wouldn't be we wouldn't be.
Scott: So Scott.
Unknown Executive: Maybe another way of talking about where current prices are and how we see the economics.
Matthew O'Keefe: Okay, can I just ask you a little bit differently? Or, to put it another way, in your discussions with the DOE, do they have a kind of price deck or expectation that they're focused on? I mean, are they putting in some sort of hurdles for you or, not necessarily, but targets for you?
Unknown Caller: Okay, can I just ask you a little bit differently? Or, to put it another way, in your discussions with the DOE, do they have a kind of price deck or expectation that they're focused on? I mean, are they putting in some sort of hurdles for you or, not hurdles, but targets for you? So they do have an expectation, not at liberty to say.
Unknown Executive: Okay.
Matthew O'Keefe: Just ask it a little bit different way or I mean.
Matthew O'Keefe: In your discussions with the deal we did they have a kind of price deck or expectation that there.
Matthew O'Keefe: We're focused on I mean are they putting in some sort of hurdles for you or or not hurdles with targets for you.
Ajay Kochhar: So they do have an expectation, not at liberty to say what it is, because that's their own advice to them. But what I can say, at a high level, and just speaking based on what most folks' experience would be, obviously, given it's debt and it's a loan, these aren't sort of bullish equity underwriting commodity prices that are typically used, broadly speaking, right? So that's the sort of zone rent, just to talk broadly. Okay. Okay.
Speaker Change: So they do have an expectation I'm not at Liberty to say, what it is because thats their uncle by visible based event, but what I can say is at a high level.
Speaker Change: And just sticking based on those most folks experience would be obviously, given its debt and its alone.
Speaker Change: These aren't sort of bullish.
Speaker Change: Equity underwriting sort of commodity prices that are typically used broadly speaking right. So that's the sort of.
Matthew O'Keefe: Brent just to talk broadly.
Matthew O'Keefe: Okay. Okay.
Matthew O'Keefe: Okay. Okay I appreciate that thank.
Matthew O'Keefe: Thank you.
Matt: Thank you Matt.
Operator: And once again, as a reminder, that is star and one for your questions. We will pause another moment to allow any further questions to queue. And it does appear that we have no further questions at this time. I'll turn the call back over to Ajay for any closing remarks. Thank you.
Speaker Change: And once again as a reminder, that is star and one for your questions. We will pause another moment to allow any further questions. Thank you.
Matthew O'Keefe: And it does appear that we have no further questions. At this time I will turn the call back over to Jay for any closing remarks.
Ajay Kochhar: So, as mentioned, given the continued favorable long-term trends in our industry, we're excited to execute on our clear objectives, and we look forward to providing you with a further update on our progress soon. Thank you.
Speaker Change: Thank you so as mentioned given the continued favorable long term trends in our industry. We're excited to execute on our clear objectives and I look forward to providing you with a further update on our progress. Thank you.
Operator: Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect at any time, https://www.youtube.com.au
Matthew O'Keefe: Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.
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Ajay Kochhar: Notably, four of our top five partners for feed intake during Q2 were among the largest global EV OEMs. We continue to demonstrate our expertise in processing all types of lithium batteries, independent of form factor and chemistry.
Ajay Kochhar: We remain focused on EV battery packs to leverage the value differentiators provided by our Gen 3 spoke capabilities in processing this material. Evie Matterfacts continue to be a large portion of our input, and represented approximately 40% of the total battery materials processed at our spokes in QT. We've also widened our commercial footprint for input feedstock for the German spoke in Europe. As well, during the quarter, we announced a partnership with Diamond Truck North America to recycle batteries.