Li-Cycle Holdings Corp.

Greetings and welcome to the Lifecycle Holdings Corp third quarter 2021 financial results call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, Ashish Gupta, Investor Relations for Lifecycle Holdings. Thank you. You may begin.

Thank you, operator. And thank you, everyone, for joining us today. Hosting the call are Lifecycle's co-founder, president, and chief executive officer, Ajay Kochhar, co-founder and executive chairman, Tim Johnson, chief financial officer, Bruce McInnis, and chief commercial officer, Kunal Palfrer. Out of this call, Lifecycle issued its third quarter 2021 earnings press release and presentation, which we will reference today. These can be found on the investor relations section of our website at investors.lifecycle.com. On this call, management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of factors discussed in today's earnings news release during this conference call or in our latest reports and filings with the Securities and Exchange Commission. These documents can be found on our website at investors.lifecycle.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-IFRS financial measures. You should refer to the information contained in the company's third quarter 2021 earnings press release for definitional information and reconciliations of historical non-IFRS measures to the comparable financial measures. With that, let me turn it over to Ajay.

Thank you very much, Ashish, and good morning, everyone. For today's presentation, we'll be referring to the slides that were posted to the investor relations section of our website early this morning. Now, as this is our first earnings call since the closing of the business combination with Peridot last month, I would like to start by thanking our employees for their contributions to lifecycle success. I would also like to thank our shareholders for their support and patience towards the completion of the transactions. Becoming a public company was an important milestone for Lifecycle, and the transaction provides Lifecycle with $527 million of cash netted expenses and funds our base case business plan. This is a real differentiating aspect that goes to de-risking the overall business. To give you a brief overview of today's agenda, first, I will start off by giving a short overview of the company, its current opportunities, and where we aim to be in the future. Second, I will then highlight what differentiates us from other industry players and how we are well positioned to capitalize on accelerating secular trends with our fit-for-purpose technologies for battery recycling. Third, I will also provide an overview of the drivers of accelerating near and medium-term quantities of lithium-ion batteries available for recycling and how this bodes extremely well for Lifecycle's continued rollout. Fourth, our CFO, Bruce McInnis, We'll provide financial and operational highlights from the third quarter. And wrapping it up, my fellow co-founder, Tim Johnston, will review our spoke and hub execution progress. Let's start on slide four. So who is Lifecycle? Well, we are the sustainable pure play leader in advanced resource recovery and recycling. Lifecycle is a commercial business. scaling and lockstep with our battery supply customers, and to meet the accelerating demand for critical battery-grade materials. Moving to slide five. The next question is, why is lithium ion battery recycling important today? And some may have an initial knee-jerk reaction, thinking that battery recycling is a need for many years away. However, the reality is that the need for recycling lithium-ion batteries is here today due to manufacturing scrap and only accelerating further. The pace of announced new battery manufacturing facilities worldwide is far exceeding our expectations of only a few months ago. On an industry-wide and average basis, at least 5% to 10% of manufacturing volumes are typically rejected and hence are available for recycling. As lithium-ion batteries are made, the manufacturing process is not perfect, thereby resulting in manufacturing rejects or yield loss. This manufacturing reject approach is important as battery manufacturers look to uphold unwavering quality standards. For example, we forecast that almost 70% of our 2025 volumes will come from manufacturing scrap. In a nutshell, if you believe in the rapid growth in EV adoption, you believe in lifecycle. We expect our recycling volumes to grow in line with manufacturing volumes over the next several years. Looking at slide six, Prior to starting Lifecycle, my co-founder, Tim Johnson, and I worked in the battery metals and chemicals industry, focused on hydrometallurgical and chemical plants to produce battery materials. Our time working in the industry led us to the recognition of a glaring hole in the future of our increasingly electrified economy, which was the lack of an environmentally and economically sustainable solution for the recycling of lithium-ion batteries that had become globally ubiquitous. We started Lifecycle in 2016 with the mission of solving this global battery manufacturing scrap and end-of-life lithium battery problem and simultaneously creating a secondary supply of critical battery materials while also ensuring a sustainable future for our planet. Lifecycle derives deep competitive advantages from its proprietary spoken-up technologies, which enabled it to outpace existing and emerging lithium ion battery resource recovery approaches. LifeCycle's technologies are proven and we are in execution mode, copy and pasting our operations and lost step with our accelerating customer needs. So what is LifeCycle's strategy? Well, today we have 10,000 tons of annual lithium ion battery equivalent spoke processing capacity with an additional 15 to 20,000 tons of annual processing capacity expected from our two in-progress folks. And on the hub side, we have 60,000 tons of annual lithium-ion battery equivalent processing capacity that is on track to be operational in early 2023. The Rochester hub is located in the former Eastern Business Park. This facility is ideal for chemical infrastructure and has a large labor pool and strong support from the state of New York. On the right side of the slide, you can see where we aim to be. We are already the leader in North America. We strive to be the go-to global recycler of lithium batteries and producer of key battery grade materials. By 2025, we are targeting a global network of at least 100,000 tons of annual lithium battery cobalt spoke processing capacity. in a centralized network of 220,000 to 240,000 tons of annual lithium-ion battery coolant hub processing capacity. Moving to slide seven, we see key macro tailwinds accelerating per the left of the page. North America is expected to have over 225 gigawatt hours of annual battery production capacity by 2025, which is an increase of over 400% from today. Year to date, over 480 gigawatt hours of incremental battery cell production capacity has been announced globally that is planned to be online for 2025. Continued electrification and mobility will drive earnings power for us. Moreover, over 17 automotive companies have committed to electrifying their product lineups ensuring dominant EV sales over the next few decades. Since we started Lifecycle five years ago, there has been significant and increasing government regulation on battery recycling as well. Recently, regulations started heavily focusing on something called recycling efficiency rate, or RER. Recycling efficiency rate is a measure of the mass of the battery entering a process versus the mass extracted as products that go back to the economy. Traditional methods that use heat when burning plastics, electrolytes, and other elements in a battery can result in 30, 40, or even 50% loss in recoverable battery material. The point is, our world and our customers are moving away from this historical approach that is not fit for purpose for lithium-ion batteries. As you can see from the right of the slide, it's starting to be regulated. For example, in the EU, proposed levels are around 65% to 70%, if not more. In California, there's legislation being discussed right now that would require a recycling efficiency rate of as close to 100% as possible. While in China, the rate is over 80%. Our hydro-metallurgical or hub process enables recovery of up to 95% of all with my battery materials. This is far greater than our competitors who primarily target only cathode or typically cobalt and nickel. Our wet chemistry method extracts valuable battery grade materials from black mass as a battery grade product that is thereby reusable in the manufacturing of new battery technologies. On slide 8, you can see why we are a critical node in the lithium-ion battery supply chain. We have a two-part patented spoke and hub process that follows both the technical aspects of how we process the materials and also follows our business model. In our spoke facilities, we process any format of lithium-ion battery, from the smallest type of lithium-ion battery all the way up to a full electric vehicle battery pack. We take in Likmai battery materials at our spoke facilities, and we process them through to intermediate materials. The low-cost modular design of our spokes enables us to construct them quickly and locate them close to sources of battery supply. In fact, they can even be directly located on a major customer site. At the back end of the patented spoke process, we produce three key products, including mixed copper and aluminum, mixed plastics, and the key product is what the industry calls black mass or black mass concentrate. In simple terms, black mass is the anode and cathode materials from within the battery. When people talk about critical battery materials, things like cobalt, nickel, lithium, and graphite, they all exist within the black mass material. The second step, our hub technology, utilizes a patented hydrometallurgical process to treat the black mass. That's just a way of saying we treat it using a wet chemistry-based system in order to recover the key battery materials and place them back into the lithium-ion battery supply chain. The products produced by our hub process are battery-grade in nature, as good if not better than virgin battery-grade materials, and produced in an inherently economic fashion. Our hub design is non-tyro and allows for recycling efficiency rates of up to 95% versus a historical industry average of 50%. Moving to slide nine, it is important to note that the competitive landscape is segmented between pre-processing, involving lithium ion batteries and lithium ion battery materials being converted to intermediate products, and post-processing, involving intermediate products being converted to finished end products. In order to best understand lithium-ion battery recycling, solutions can be segmented into preprocessing, with lifecycle spokes falling into this category, and post-processing, with lifecycle hubs falling into this category. Through lifecycle's patented spoken hub technology, the traditional lithium-ion battery recycling supply chain is collapsed and simplified. The result is much more economic and environmentally sustainable recycling of all types of lithium-ion batteries. Moreover, through Lifecycle's non-pyro technology, we do not burn any portion of the lithium-ion batteries, since our emissions are significantly reduced and are permanently completed on an accelerated basis. As evidenced from the bottom of slide 9, with respect to the incumbent lithium-ion battery recycling supply chain, preprocessing has been highly manual, high cost in nature, combustion-based, and hence unoptimized from both an environmental and economic perspective. Moreover, post-processing approaches have involved processing intermediate product through legacy nickel-smelting infrastructure. In the process, components like lithium and graphite are lost. The end products in this infrastructure are also nickel and cobalt metal, which are not the inputs to batteries. In summary, the incumbent battery recycling supply chain has been a bit like a square peg in a round hole. non-purpose built as well as being unoptimized from an economic and environmental perspective. Slide 10 summarizes Lifecycle's key competitive advantages. Lifecycle's moat is comprised of two key aspects, our patented and fit for purpose spoken hub technology and sticky long-term battery supply contracts and secured end product offtake. Lifecycle's core advantages are as follows. Firstly, high recovery rates and inherently low-cost operations. Our technology involves no discharging of batteries, minimal to no dismantling, and automated processing, compared to labor-intensive and potentially unsafe traditional preprocessing approaches. Second, non-pyro technology protected by a robust IP mode. Thermal processing generates harmful fluorine-bearing emissions, also known as forever chemicals, that are being increasingly regulated. LifeCycle's patented portfolio of non-pyro technologies leave us well-positioned for future growth in a sustainable, focused world. As a result of our patented non-pyro technologies, emissions are significantly reduced and our permitting can be completed on an accelerated basis relative to the incumbent technologies. Third, our ability to scale efficiently with customers through capital light and replicable spoke facilities, for example, co-located on-site with battery manufacturers. Lifecycle spoke technology is capital light, has a low footprint in size, and is replicable, as Lifecycle is built using a modular LEGO build fashion, thereby enabling Lifecycle to scale efficiently as the battery supply chain has grown congruently. Fourth. we are agnostic to lithium ion battery type, including lithium iron phosphate batteries or LFP batteries, future solid state batteries, and much more. Fifth, our recovery of battery grade products from the hub, including lithium. Lithium has historically been difficult or ignored for recovery by incumbent recyclers. For example, lithium is lost as part of the lead And by comparison, Lifecycle's hub technology recovers lithium economically and in battery-grade form. And last but not least, Lifecycle's spoken hub technology has a minimal environmental footprint with negligible wastewater and air emissions with aggressive zero-landfill diversion-focused operations. Slides 11 through 13 frame the tremendous opportunity we have in front of us in how it has accelerated rapidly in the past several months alone, given the amount of battery manufacturing capacity set to come online over the next few years and beyond. On slide 11, you can see that the total addressable market projections in 2025 for the amount of Lifline batteries available for recycling has accelerated significantly in just the past five months. Growth forecasts in North America, Europe, and China have all increased by at least 50%. What stands out is also the pronounced 65% growth in the total lithium ion batteries available for recycling in North America relative to the total addressable market estimates from just five months ago. The key driver of this growth is new battery manufacturing announcements far exceeding original expectations. This drives additional battery manufacturing scrap available for recycling in lockstep with battery manufacturing and not years from now. On slides 12 and 13, you can see the amount of growth coming over the next few years with projects that have already been announced. By 2025, we expect North American annual battery capacity to reach between 229 and 294 gigawatt hours from approximately 45 gigawatt hours today. Over the same period, we expect the amount of battery scrap decreased by approximately four to six times. Lifecycle is strategically positioning our footprint across key regions where we expect a significant amount of battery manufacturing capacity and projected battery scrap material to be produced, alongside ramping end-of-lifecycle quantities. As is evident, there is a lot of opportunity ahead, well exceeding Lifecycle's original base case plan. For example, our announced 2025 North America's flow capacity would represent only 20% to 30% of the projected battery manufacturing scrap volume alone, which is only one segment of Lifecycle's total addressable market. This should help to contextualize the accelerating battery supply customer growth that is driving Lifecycle to continue to accelerate its rollout within the company's five-year strategic plan. Now I'll pass it over to Bruce McInnis to provide an operational and financial update, as well as to discuss our outlook. Over to you, Bruce. Thank you, Ajay. I will now provide some commentary on our third quarter results, followed by a business outlook for the remainder of fiscal 2021. Starting on slide 15, let me take you through some of the key highlights during the quarter. We are pleased with our fiscal Q3 performance and we remain on track with our original expectations as we continue to ramp production significantly during the second half of 2021. With the pace of deployment of new battery mega factories far exceeding our initial expectations, we also recently announced the addition of a fourth North America-based boat in Tuscaloosa, Alabama. The fourth spoke is tied to strategic anchor battery supply customers that are located near the facility, as per yesterday's press release. Additionally, we expect construction of the Rochester hub to begin in late 2021, with operations commencing in early 2023. We are excited to announce that we onboarded 14 new battery supply customers during the third quarter, which demonstrates continued technical and commercial validation for Lifecycle alongside robust market acceleration. Finally, following fiscal Q3 2021, we closed our business combination with Peridot with minimal redemptions and our common shares began trading on the New York Stock Exchange under the ticker LICY on August 11th, 2021. Over to slide 16. It is important to start with our commitment towards health, safety, environment, and quality. We have successfully certified our Kingston and Rochester spoke operations as well as our headquarters in accordance with ISO 9001, ISO 14001, ISO 45001, and R2. These certifications are the culmination of leading standards that Lifecycle upholds alongside being critical for Lifecycle's customers. This further bolsters Lifecycle's competitive advantage. Turning to slide 17, as mentioned, we successfully added 14 new battery supply customers during the third quarter for a total of over 70. As part of this, we announced the foundational manufacturing scrap agreement with Altium Cells LLC. Altium Cells is a joint venture of General Motors and LG Energy Solutions. Bicycle's agreement with Altium is focused on recycling up to 100% of the manufacturing scrap generated at Altium's Ohio-based battery cell plant. When fully operational in 2022, The LTM plant in Ohio will have annual production capacity of approximately 35 gigawatt hours. Lifecycle will recover the raw materials contained in the scrap, transforming them into valuable products that contribute to the circular economy. During the third quarter, we produced 524 tons of black mass material, which included 85 tons of lithium carbonate equivalent, 75 tons of nickel, and 23 tons of cobalt, which were all in line with expectations. On slide 18, we will review quarterly financials and key highlights. For the third quarter, revenue reached $1.7 million, which increased 840% from the year-ago period, driven by increases in product sales and recycling services, largely reflecting increased quantities of batteries and battery scrap processed at the Kingston and Rochester spokes, also enabled by the continued onboarding of new battery supply customers. Revenues from product sales were approximately $1.6 million, while revenues from recycling services were approximately $0.1 million. It is important to note that the third quarter 2021 results are in line with the expected continued ramp-up during the second half of 2021. Due to continued demand for specialty chemicals for the battery industry, we continue to see strong pricing for our key products. The right of the slide provides a reconciliation between net revenue reportable under IFRS and gross revenue, which is a non-IFRS measure. As shown, the net revenue reportable under IFRS includes the treatment, refining, and possibly marketing charges that are incurred when black mass is sold to third parties. For clarity, the gross revenue, again a non-IFRS measure, excludes the treatment, refining, and marketing charges. LIESECO will continue to report net revenue in accordance with IFRS within its financial statements. During the third fiscal quarter, operating expenses were $7.9 million compared to $1.9 million during the prior period, driven by increased personnel costs, a ramp-up of operations at the Kingston and Rochester spokes, increases in raw materials, supplies and finished goods, increased R&D spending, and non-recurring expenses related to the business combination. Net loss was approximately $6.9 million compared to approximately $1.8 million in the prior year period. Adjusted EBITDA loss was $5.2 million compared to $1.3 million for the prior year period. Turning to the balance sheet, recall upon closing of the business combination in August, Lifecycle received approximately $527 million in net proceeds. As of August 31st, 2021, we had cash and cash equivalents of approximately $511 million. Shares outstanding as of August 31st were $163,179,553 common shares. Moving to slide 19, let's discuss our fiscal year 2021 business outlook. Lifecycle is reiterating the continued ramp up at the Kingston and Rochester spokes during the second half of 2021 in line with expectations. The Rochester hub procurement will begin during fiscal year 2021, enabling Lifecycle to continue on track with project execution. The Arizona spoke procurement and construction will continue. The Alabama spoke procurement and execution will be kicked off. And lastly, fiscal year 2022 guidance will be provided in conjunction with reporting of fiscal year 2021 results. Now I'd like to turn it over to Tim to provide an update on our SPOKE expansion and the Rochester hub.