Li-Cycle Holdings Corp.

Good day. My name is Katie, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2022 Lifecycle Holdings Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the 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 need operator assistance, please press star 0. Thank you. I would now like to turn the call over to Nala Azmi, Head of Investor Relations. Please go ahead.

Good morning and thank you everyone for joining us today for Lifecycles review of our third quarter 2022 results ended July 31. We will start today with formal remarks from Ajay Kochhar, Co-Founder, President and Chief Executive Officer, Tim Johnston, Co-Founder and Executive Chairman, and Debbie Simpson, Chief Financial Officer. We will then follow with a Q&A session. Ahead of this call, Lifecycle issued a press release and a presentation, which can be found on the Investors 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. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect, including because of factors discussed in today's press release, during this conference call, and in our past reports and filings with the U.S. Securities and Exchange Commission and the Ontario Securities Commission in Canada. These documents can be found on our website at investors.lifecycle.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. With that, I'm pleased to turn the call to Debbie.

Thank you, Nala, and good morning, everyone. As we will discuss on today's call, we are very excited by the opportunities that we see in front of us and remain laser-focused on the execution and rule-out of our integrated SPOC and hub network. We continue to make meaningful strides in positioning Wi-Cycle as the long-term preferred recycling partner and supplier of lithium-ion battery materials, particularly in North America and Europe, with strong commercial connectivity into Asia. Starting with our key near-term updates, we are pleased to report that our Rochester Hub project remains on schedule, our European Spokes projects continue to advance, and our new spokes in Arizona and Alabama are benefiting from our recent optimization project. With regards to our mid- to long-term strategic focus, We are capitalizing on strong secular market and government policy momentum for localizing supply of critical battery materials. We maintained our first mover advantage in battery recycling in North America and Europe, which is underpinned by commercial contracts and strategic partnerships, with the Rochester Hub as a key future value driver. And we are sufficiently funded to complete our current project pipeline with potential for debt financing from both traditional and government sources in support of future growth. Beginning on slide 3 was quarter highlights, which Ajay, Tim and I will cover in more detail later. On the financial front, we ended the quarter with approximately $650 million cash on hand including $250 million in investment proceeds from LG and Glencore, providing sufficient liquidity for our current project pipeline. On the commercial front, our expertise in logistics, handling and processing know-how have allowed us to expand our sources of battery materials from diverse customers across the supply chain, including battery manufacturers and OEMs, Two recent examples. Lifecycle was selected for one of the largest energy storage decommissioning projects in North America. We completed a two-phase decommissioning project in July, which amounted to more than 1,400 metric tons of battery materials, which served as backup to renewable energy. an emerging electric vehicle OEM with a manufacturing facility in North America named LifeCycle and its selected global lithium ion battery recycler. On an operational level, we completed optimization projects at our Arizona spoke and our August to September run rates are now tracking to target through goods, with the Alabama spoke expected to start operations by the end of the fourth quarter. Our Rochester hub remains on track to commence commissioning in stages in calendar of 2023. Now, I'll provide a more detailed discussion of our financial results, specifically regarding black mass production, revenues, adjusted EBITDA and cash flow. Beginning on slide four for black mass production. We continue to generate higher product sales volume with the startup of our new Arizona Spoke. Black Mask production during the quarter of 961 tons was more than 80% higher than the same quarter last year and up more than 30% from the second quarter driven primarily by the startup of the Arizona Spoke. While our third quarter volumes reflect favorable programs relative to our first-half workmates, BlackBank's production was lower than our original target as we took some temporary downtime at our Arizona spoke to complete optimization projects. In addition, we intentionally paced the startup of our Alabama spoke to implement the same process improvements. Ajit will discuss this in more detail. As a result of these actions, we are behind our original production targets by approximately one to two quarters. We are updating our full 2022 black mass production guidance from our initial range of 65% to 510% to a range of 35% to 3,800%. We're pleased to report that since successfully completing the optimization projects in Arizona, our August and September runways are now tracking near target throughput. Turning to slide five for a discussion on revenues. By way of background, and as a reminder of our discussion on our last earnings call, aligning with our contracts and IFRS reporting requirements, We recognise revenues on product sales at the point of delivery to our customers, based on product sales volume and prevailing market rental prices. Our customers take title of the materials and we retain pricing exposure until the related receivable is fully settled. As a result, fair market value adjustments are booked to revenues. A gain is recognised when metal prices, nickel and cobalt in particular, increase and a loss is recognised when metal prices decrease. Also to add, we are currently paid for cobalt and nickel content and not for the lithium in our black mass sales due to the lack of black mass refining capacity available in the market. As a reminder, part of our competitive differentiation will be our ability to extract lithium from black mass once our Rochester hub is operational. Revenue from product sales and recycling services of $5.4 million increased from $1.3 million in the third quarter of 2021. Total revenue was negative $2 million compared with a positive $1.7 million for the same period last year. The decrease in total revenue was primarily driven by a non-cash fair market value adjustment of $7.3 million in the third quarter of this year versus a fair market value gain of $400,000 in the comparable period last year. This was as a direct result of declines of 32% and 37% for Nicholas Cobalt prices, respectively, during the quarter, which impacted approximately 3,200 unsettled tons related to prior period black mass sales. As shown here, This negative fair market value adjustment in non-cash and largely a reversal of fair market value gains through the first half of the year when middle prices were rising. The cumulative fair market value adjustment for the year was a negative $1.6 million. Total revenues for the first three quarters were $10.5 million versus $3 million for the comparable period last year. As nickel and cobalt prices continue to change, we would expect further fair market value adjustments to revenues with potential for increases or decreases. Just to close on what is most important here, during the third quarter, when excluding the fair market value adjustments, our revenue from product sales and recycling services increased fourfold, relative to the same period last year, which demonstrates the underlying growth in our business as we continue to expand our network. Turning to slide six for adjusted EBITDA, both for a year-on-year and sequential comparison. Compared to last year, adjusted EBITDA loss was approximately $31.6 million versus $5.3 million. This reflects increased operating expenses for the ongoing expansion of operations in North America and Europe. Specifically, these are largely related to higher employee compensation for operational, corporate, commercial, and engineering resources as we continue to support the expansion of our network, particularly the Rochester House. Costs associated with becoming a public company, given the timing of our listing in August 2021. Rising raw materials and supplies attributable to our increased black mass production from our spoke operations. I would also note that the course included non-cash stock-based compensation of $4 million versus $300,000 this time last year. And a non-cash fair market value pricing loss of $7.3 million during the quarter, which compares to a gain of $400,000 in the prior year. On a sequential basis, compared to last quarter, adjusted EBITDA was primarily impacted by the non-cash fair market value. Turning to slide 7 for a review of the strength of our balance sheet and liquidity. Lifecycle ended the third quarter with approximately $650 million in cash on hand. As previously disclosed, we enhanced our balance sheet during the quarter with $250 million in combined investment proceeds from LG and Glencore. This strong balance sheet position is expected to provide sufficient liquidity for capital and operating needs to fund our current pipeline projects and developments. During the quarter, we invested $82 million in capital expenditures, with the majority of this investment allocated to securing equipment for the continued construction of our Rochester Hub, alongside equipment expenditure and lethal improvements for our North American and European people. With much of our procurement needs having now been met, we expect the majority of our future capital expenditures will be focused on construction for the continued build-out of our Rochester house. We anticipate providing an initial capital expenditure outlook for 2023 early next year. We remain committed to our balanced approach to operating spend and investing in corporate infrastructure that will support our expanding network to drive significant economics in years to come. Finally, we continue to explore additional debt funding opportunities from both traditional and government sources that will optimize our capital structure and provide flexibility. This is intended to enable additional rules to meet significant customer demands beyond the current pipeline. Now, I'll turn things over to Ajay.