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spk00: Good day. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2024 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 should need operator assistance, please press star 0. Thank you. I will now turn the call over to Luis Diaz, VP Corporate Affairs. Please go ahead.
spk02: Luis Diaz Thank you. Good morning and thank you everyone for joining us for Lifecycles Business Update and review of financial results for the interim period ended March 31st, 2024. We will start today with formal remarks from Ajay Kochhar, Co-Founder, President and Chief Executive Officer, and Craig Cunningham, Interim Chief Financial Officer. We will then follow with a Q&A session. Ahead of this call, Lifecycle issued a press release and a presentation, which can be found on the investor relations section of our website at investors.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 Lifecycle. 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 Ontario Securities Commissions 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. These forward-looking statements should not be relied upon as representing life cycles assessment as of any date subsequent to the date of this call. With that, I am pleased to turn the call to Ajay. Thank you, Louis, and good morning, everyone.
spk01: Louis has been with Lifecycle for nearly two years. In addition to heading up marketing communications, he's also taken on leading regulatory affairs and investor relations. Nala, as me, is moving on to pursue other opportunities. We want to thank Nala for her contributions to Lifecycle and wish her well in her future endeavors. Now, I'd like to introduce Craig Cunningham as Lifecycle's interim CFO. We're excited to add him to the team and are confident that he'll be a strong addition to the company. Craig has extensive background in executive-level leadership and brings more than 17 years of accounting, finance, operational, and capital markets experience to Lifecycle. In his previous roles as CFO and executive, he has been a key contributor to the formulation of corporate strategy and providing key financial oversight and controls on major projects. He also has broad experience overseeing IT, supply chain logistics, and administrative functions. Welcome, Craig. Thank you. We look forward to your contributions. On our most recent call in March, we provided an update on the progress made since pausing construction at the Rochester Hub in October 2023 and initiated a comprehensive review. Today, we are pleased to share additional updates on the steps we've taken towards achieving the key objectives from this review, providing an overview of our commercial highlights, and also discuss our first quarter financial and operating results. Starting on slide three, we continue to make progress on the key strategic priorities that are outlined on our last call. First, as part of our comprehensive review of the Rochester Hub, we have advanced work with the local market to refine cost estimates for the project since we confirmed the technical viability of the mixed hydroxide precipitate, or MHP, process. Second, with respect to financing, we closed on the strategic investment of $75 million by Glencore on March 25th, strengthening our long-term partnership and enhancing our liquidity. Additionally, in parallel with our comprehensive review, we're working closely with the DOE Loan Programs Office on key financial, technical, and legal works rates towards close of the conditional commitment for a loan for gross proceeds of up to $375 million. Third, regarding liquidity, as part of our cash preservation plan, and in conjunction with our plan to right-size and right-shape our organization, we transitioned from a regional management model to a centralized model to better position lifecycle for future success. This strategic decision is expected to generate approximately $10 million in annualized savings from lower payroll costs. Finally, we continue to optimize our SPOC network to reduce costs and improve efficiencies. We remain focused on prioritizing our Generation 3 SPOC as we align with EV and battery OEM customers who continue to execute on growth plans in North America and Europe. Turning to slide four for an update on the comprehensive review for the restart of the Rochester Hub project. On our last call, we reported that we completed an internal technical review confirming the viability of the MHP process as part of the potential change in our project development strategy for the Rochester Hub. Since then, another workstream that has significantly progressed is work with the local market regarding major construction contracts to refine our capital estimates for the project. Our current estimated cost to complete the Rochester Hub project is approximately $504 million for the MHP scope, which includes the total cash spent as of March 31, 2024. 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. Our near-term priorities for the rest of the project include completing the technical and economic review, which dovetails with the DOE loan closing process. Turn to slide five, which highlights key initiatives we've completed to enhance liquidity. First, regarding financing. In late March, we were pleased to announce that we closed on the previously announced $75 million investment from Glencore, strengthening our long-term partnerships and enhancing our liquidity position. In late April, we received approximately $5.8 million as the first tranche of a total grant for up to $6.9 million from the German state of Saxony-Anhalt for our Germany's books. This is another example of the positive support we continue to receive from our local stakeholders. We remain committed to diligently exploring strategic alternatives and financing options to enhance our liquidity. Second, we are strategically managing our cash to support our liquidity needs as part of the cash preservation plan. In March, we made a strategic decision to pivot from a regional business model to a centralized one, reorganizing lifecycle to drive increased efficiencies. This decision is expected to generate approximately $10 million in annualized cost savings to workforce reductions. In addition, we've been actively engaged with certain contractors and suppliers to the Rochester Hub, and now have agreements in place providing for extended payment cycles. Looking forward, we're exploring further opportunities to increase efficiencies across organizations, including realizing cost savings from our SPOC operations and implementing additional adjustments to non-core SGA expenditures. Finally, we continue to evaluate further positives or slowdowns in our SPOC operations beyond those previously announced in lockstep with commercial demand. Turn to slide six for an overview of Lifecycle's commercial agreements. Our capability to process all types of lithium ion batteries independent of form factor and chemistry, coupled with our operational capacity, has led to the establishment of a broadly diversified global base of battery supply customers spanning the entire battery supply chain. Shown on the left of the slide, we are pleased to report that during the first quarter, we continue to attract new customers while extending and amending existing agreements. We signed new recycling agreements with some of the largest EVOEMs in the world, as well as leading battery cell manufacturers in both Europe and North America for battery material intake. In Europe, this included signing new agreements or expanding and amending current agreements with three of the largest EVOEMs in the continent. We now have agreements in place with four of the largest EVOEMs in Europe to recycle modules and pull battery packs. We continue to see broad-based support for our differentiated technologies across both continents, reflected in our position as a preferred recycling partner for leading global battery, EV, and energy storage OEMs. Turn to slide seven for some highlights of our spoke technology and operations. As a reminder, Lifecycle developed a patented method 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 and is highly scalable for the growing EV battery market. We are prioritizing our Generation 3 spokes, which can process full battery packs without the need to dismantle, and aligning with EV and battery OEM partners who comprise a large share of our global battery feed intake. It is worth highlighting that four of our top five partners for feed intake during Q1 are EV OEMs. With respect to our spoke operations, we continue to see higher composition of EV battery packs in our input feed, with approximately 41% by mass of the total battery materials processed at our spokes being EV battery packs. We believe we're in a strategic position to receive these feedstock materials due to the enhanced capabilities of our Gen 3 spokes, which can efficiently process full battery packs. Turning to slide 8, providing an overview of our sustainability performance, as we expect to issue our 2023 Sustainability Report in the coming weeks. Our report has been aligned with SASB standards and builds on the interim report we issued last year. In 2023, we strengthen our data tracking and reporting capabilities for greater transparency. Ultimately, better data will help us to enhance our performance in this important area of our business. A few key takeaways from our 2023 performance include 0% of our Scope 1 air emissions are from our recycling processes. which is reflective of our environmentally friendly non-thermal recycling technologies. Our journey spoke procured all of its electricity from renewable sources, and we continue to prioritize safety and have had zero critical safety, environmental, and community issues since our company's inception. Sustainability is core to our business and believe it is a value differentiator for our company. Not only is sound ESG performance good for the world and our community, but it also supports our position as a preferred global recycling plant. With that, I'll now turn it over to Craig, who will provide a review of the financials. Thank you, Ajay. Before getting into the financial results, I'd like to start by saying how pleased I am to be joining Lifecycle. Ajay and the team have built a truly differentiated business model with the capacity to make meaningful contributions to the future of clean energy. I look forward to the opportunity to help execute on this mission and to create value for our shareholders. Turning to slide 9, a review of our 2024 first quarter financial results. Highlights include improved revenue, cost of sales, adjusted EBITDA, and cash position for the first quarter of 2024 versus 2023. Starting with the sales of black mass, which were 946 tons, a 7% increase versus 881 tons sold in 2023. Product sales and recycling service revenues before non-cash fair value pricing adjustments decreased to $4.6 million compared to $7.7 million in 2023. The decrease was largely driven by reduced market prices for cobalt, nickel, and partially offset by higher recycling service revenue and an increase in products sold. Total revenue increased 17% to $4.2 million, reflecting lower unfavorable non-cash fair value pricing adjustments of $0.4 million versus an unfavorable adjustment of $4.1 million in 2023. Moving to cost of sales, which decreased 12% to $16.8 million versus $19.1 million in 2023. Cost of sales attributable to product revenue decreased by $3.2 million or 17% compared to last year as a result of lower production levels partially offset by increased operational costs associated with repairs and maintenance activities. Cost of sales attributable to service revenue increased by $0.9 million compared to last year due to new service contracts entered with an existing customer that commenced in October 2023. SG&A expenses were $31.7 million versus $22.7 million in 2023, primarily driven by higher professional fees and legal fees related to the Rochester Hub construction pause, as well as severance costs stemming from the March workforce reduction. I would like to note that these expenses are one time in nature. This increase was partially offset by lower recurring personnel and other administrative costs of $3.7 million. Other expenses were $92.5 million compared to other income of $2.7 million in the prior year, primarily due to the debt extinguishment loss of $58.9 million and unrealized fair value loss on financial instruments of $23.8 million relating to the amendment and restatement of the terms of the convertible notes issued by Lifecycle. Adjusted EBITDA loss was $27.4 million, compared to a loss of $37.9 million in the first quarter of 2023. This was largely driven by higher revenue, lower cost of sales, and partially offset by the increase in SG&A. As of March 31, 2024, Lifecycle has cash and cash equivalents of $109.1 million versus $70.6 million at the end of 2023, which includes the gross proceeds from Glencore Financing that closed during the first quarter. I will now turn it back to Ajay. Thank you, Craig. During the slide 10, we continue to see favorable long-term industry demand trends in both North America and Europe. The chart on the left illustrates the rising adoption of electric vehicles, with sales achieving a CAGR of approximately 45% from 2019 to 2023. Notably, third-party sources are projecting a robust 25% CAGR off the space in the middle of the decade. As seen on the right, these growth dynamics support the 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 being driven by manufacturing scrap from gigafactory growth, supplemented by end-of-life battery feedstock at the end of the decade. It is projected that by 2030, demand for recycling materials will increase by up to six times from the 2023 level. Turn to slide 11 and concluding on Lifecycle's go-forward strategy and key objectives. First, we continue to work closely with the DOE towards closing of a loan for gross proceeds of up to $375 million. Second, we continue to evaluate a range of further financing and strategic alternatives to bolster liquidity and facilitate the restart of the Rochester Hub project. Third, we remain focused on completing our technical and economic analysis of our go-forward approach for the Rochester Hub. And finally, regarding the Spoke and Hub network, we are evaluating our Spoke network to identify further opportunities to drive down costs while focusing our production on our Gen 3 spokes to support our key EV and battery OEM customers. Operator, we're now ready for questions.
spk00: Thank you. 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 will take our first question from Jeff Rossetti with TD Cohen.
spk03: Hi, good morning. I just wanted to start with the review for the hub and see if you could provide any more detail on the kind of work you're doing to refine costs there. What kind of steps have been or are left in the process, and is there any kind of timeline on when you expect to complete the review?
spk01: Hey, good morning, Jeff. Yeah, so as I mentioned in my remarks, it's really dovetails with the DOE process. I'd say the key thing that we're working on right now is working with the local market to refine the capital cost estimate. Obviously, what we've put out there and what's reiterated today is our best and latest information. But we're doing some additional work with the local market to get their input effectively to validate, refine the estimate effectively. So that's important, obviously, because it drives some of the support for the work for the DOE. But it's also important, obviously, to be working towards a restart. In terms of timing, I'd say it's, again, very intertwined and dovetails with the DOE. So the priority and my top priority is closing the DOE loan, and that's really the enabler to a restart.
spk03: Gotcha. Okay. And just regarding a restart, Is there any kind of CapEx needed this year to preserve the hub at all? And would you plan to build any black mass inventory at all this year? Or you mentioned that you may focus on just the Gen 3 spokes. So maybe you would reduce your black mass production or at some point this year, just anything on kind of what you're seeing on the inventory side and maybe any kind of incremental CapEx spend that you might need this year? Thanks.
spk01: Yeah, for sure. So in general, I would say Q1 is relatively indicative of the run rate on that. So we don't expect anything significantly incremental around CapEx. You know, during Q1, we addressed the first part around the maintenance of the assets at the hub. So we're very focused on ensuring that the assets are preserved. There is some level of spend, but it's not very material. So that is included in the financials that you saw in Q1. And that will continue, of course, because that's a priority. And around the black mass inventory bills, so our priority right now as we continue to focus on managing liquidity is going to continue to be to sell the black mass that we produce. Again, I'd say Q1 is relatively indicative of the run rate of where we are. After further changes, we'll obviously let the market know. But where we stand right now, the key focus is on Germany, Arizona, Alabama.
spk03: Thanks very much. Thank you.
spk00: Thank you. We will take our next question from Brian Dobson with Charting Capital Markets.
spk01: Hi, good morning. Thanks very much for taking my question. You know what, I've got a quick follow-up question on the Rochester hub. There's been a lot of talk recently about PFAS chemicals within battery production, and I suppose also within battery recycling. I guess given recent regulations put in place by the EPA, how does your recycling process deal with PFAS chemicals, and are they, I guess, mitigated prior to the raw materials being shipped for sale? Within the hub facility, not the plant. Yeah, no worries. No worries. And yeah, it's a very good question. So it's definitely a hot topic in the industry. It actually has been for a couple of years. So the key thing on, so PFAS are, you know, fluorine containing, it's a pollutant and the issue with it is it gets into people's bodies and it can be quite harmful through the ecosystem and essentially, in the human. So that's the big focus on PFAS. It might have been such a hot topic for the gig, sort of around this kind of grounding. The big thing about lithium-ion batteries and where the fluorine is contained is, at the end of the day, if you're not treating the batteries thermally, you keep the fluorine in basically a non-gaseous, non-emitted form. I can get into more depth, but there's different types of fluorine, and they go different places in the process. But the bottom line is, we do not emit like PFAS, for example, into the air. This is one of the challenges actually with the traditional process for recycling lithium-ion batteries. So where you heat up the batteries and really what they're trying to do in simple terms is degrade the binder, the glue that keeps the cathode and the anode on the respective foils. That's a fluorine-based binder. And that's one of the common places where you emit PFAS. So in our case, the fluorine goes into solid products, and as a result, doesn't get emitted to the atmosphere. And that's also been a part of the permitting that we did for the Rochester house. Yeah, excellent. And do you think that this gives a competitive advantage, the type of recycling that you do versus a pyro based recycling? And would those players need to stop that type of recycling under these new regulations? Yeah, we do think it gives us a big advantage. The customers have been focused on it for a while. The very traditional, the non-life cycle approach, as I mentioned, there's basically some sort of pre-treatment where you make chair part batteries and then very commonly some sort of what's called calcination step. That's the thermal step. That is the step that is of a concern for fluorine emissions. And we see that as a very common approach. It comes from Asia, actually. that's been installed in North America and Europe. So would they need to potentially stop operations? Not sure. But, yeah, it's a very hot topic and, of course, it's getting a renewed interest. Great. Thanks very much. Thanks, Brett.
spk00: Thanks, Brett. Thank you. Once again, if you would like to ask a question, please press star and 1 on your telephone keypad now. And we will take our next question from Matthew O'Keefe with Cantor Fitzgerald.
spk04: Thanks. Uh, thanks for taking my call. Good morning. Um, first question for me is just on the hub operations. Uh, you've got four operating hubs and you did 1300 tons of, uh, black mass, but what's the capacity of those four hubs? Um, you know, with nameplate capacity, it's over 10,000, isn't it? Isn't that range? Hey, good morning, Matt.
spk01: Yeah, so that's the input capacity for spoke. Yeah, so that's in terms of batteries. To get to the black mass, it really depends on, like, the form factor of the material. But to roughly half, so that's at, like, full dangling, but also keep in mind full shifts, right? So really the way that we operate is it's very focused on, really prioritizing the shifts around where the commercial demand is, and it does move around over time, right? So the more shifts we have, the closer we are to making it.
spk04: So I guess what I was getting at is, like, what kind of – I guess what capacity are you running at right now? And because you've got 4Hub joining, you're not in full capacity. You made $1.9 million in revenue on $15.9 million of costs. Why aren't you just running one spoke and – shipping everything there or two, one in Europe, one in North America.
spk01: Yeah, so when we talk about optimizing the spoke network, that's part of the focus, right? So there's a balance there. So part of the reason to have numerous spokes is you're closer to where the batteries are, and it is a bit tough to ship batteries all around the world. But as we look at the Gen 3 spoke, that is a big focus, right? It's basically driving through where it makes sense, which then drives down unit costs, which then makes it much more efficient. But we'll just continue to be thoughtful around that there is a bit of working capital consideration there too so it's a balance right um to what degree we want to be pushing so we're always looking at that um and we'll continue to update the steps that things may change okay um all right so you but you didn't say you don't really have a number of uh what percentage of capacity you're running at um yeah we don't really like usually disclose by spoke we kind of look at it network-wide but it does defend personal network-wide network-wide i mean you can you can do the math right if you take 10 000 tons of you know input capacity through the black mass for solar producing so yeah you'll see that we're we did disclose right last quarter that we slowed throughput um so this is reflective of that Now the question really is, combine that with the commercial demand and the working capital needs, what's the best choice around to your question, right? Where do you consolidate that demand, essentially, or not?
spk04: Yeah, because that's a pretty hefty burn. Okay, and then if I may ask one other thing. I didn't have a tight time to go through the full 10K, but on the debt side, one of the things you do with Glencoe here is you renegotiate some of those contracts Converts, right? And you restructured these unsecured converts, and a portion of that is now into secured converts. Is that correct? Senior secured converts? Can you walk us through some of that again?
spk01: Yeah, sure. Sure, sure. No problem. So, yeah, so there's two components to that. There's the new investment, the $75 million investment, so that's a senior secured convert. Right now it's on the close. And then what you're asking about is basically the restructuring or restriking of the old convert, the $200 million convert from 2022. So there are two triggers for that convert, and this is back to the March 25th stock. So basically half-half, just at a very high level, it will reprice based on the VWAP of 30 days plus 25%. a month after key milestones, or that or the earlier of a date. So the two milestones are the closing or the completion of the definitive documentation around the daily loan. So that's the first one, or the end of this year. So that's the first milestone, half of it. And the second is associated with a few different trigger points, but it's focused on commercial production from the Rochester hub. or a future date. So that's effectively how it's going to be repriced. And part of that, yes, is addition of security for that original note. That was part of the totality of the transaction that we did with Pancor. Okay. So the benefit there, just to be clear, the benefit there, just to be clear, is we're getting an extended maturity associated with that original note. So it will be five years for those two tranches from the point where they get repriced effectively, and that adds a good amount of time relative to the original maturity date. So that is the benefit for us.
spk04: Okay, that's important. Thank you. Thank you for that. Thanks for clearing that up. That's it for me for now. Thanks.
spk01: Thanks, Matt.
spk00: Thank you. Thank you. It appears that there are no further questions in the queue. I will now turn the call over to Ajay for his closing comments.
spk01: Thank you. So thanks everybody again for joining. As we mentioned, we're laser focused on the key objectives of airline. We look forward to continuing to update the market. We'll speak again soon.
spk00: this does conclude today's program thank you for your participation you may disconnect at any time
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