Li-Cycle Holdings Corp.

Thank you, operator. Good afternoon, and thank you, everyone, for joining us for Lifecycle's business update and review of unaudited financial results for the three-month period ended September 30th, 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. 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.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 statement if any of our key assumptions are incorrect, including because of the factors discussed in today's press release, during this conference call, or in our past reports and filings, the U.S. Securities and Exchange Commission and the Ontario Securities Commission in Canada. These documents can be found on our website at www.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 Lifecycle's assessment as of any date subsequent to the date of this call. With that, I'm pleased to turn the call over to Ajay.

Thank you, Louis, and good afternoon. Starting on slide three, we are excited to announce we've closed an agreement with the U.S. Department of Energy for a loan of up to $475 million, following detailed technical, market, financial, and legal due diligence. This loan value is an increase of $100 million over the previously announced initial payment of $375 million and is expected to support the development of our flagship Rochester Hunt project in upstate New York. This is the first DOE loan to be finalized for a sustainable lithium ion battery materials company and a significant milestone for Lifecycle. We are only the fifth company in recent years to close a loan under the DOE's ATDM program, which is indicative of the significant amount of diligence and work needed to finalize a direct loan. Our loan agreement is a strong vote of confidence for our patented recycling technology and underscores the importance of our role as a critical battery material supplier in the U.S. battery supply chain. The Rochester Hub is expected to be North America's first commercial-scale hydrometallurgical resource recovery facility and a significant domestic source of recycled critical materials for producing lithium ion batteries, including battery-grade lithium carbonate and mixed hydroxide precipitate, or MHP, which is an intermediate product containing nickel, cobalt, and manganese metals. This strategic financing achieves our goal of executing a low-cost, long-term debt financing, which will help optimize our capital structure. We'd like to sincerely thank the DOE for their continued support of Lifecycle and the Rochester Hub project. We're pleased to partner with them as we work to build a sustainable domestic supply chain for critical battery materials in North America. We're also grateful for the bipartisan support for battery recycling and how it can underpin the development of a strong domestic battery supply chain. Turn to slide four for some additional details on loans. The loan facility offers attractive terms relative to other third-party financing alternatives available to us and is a critical step towards our goal of restarting construction at the Rochester Hub project. The $475 million loan facility includes a principal amount of up to $445 million and capitalized interest of up to $30 million during the construction period. Final maturity is on March 15, 2040 for an approximately 15-year term. Principal and the interest during the construction period will not be payable for approximately two years after first advance. The interest rate is fixed from the date of each advance to the maturity date of the loan and the applicable long-dated U.S. Treasury rate And more importantly, with no spread. The first advance rule of the subject of satisfaction or waiver of certain conditions and requirements, including completing our base equity contribution to the project. The base equity contribution includes settling commitments related to the project for costs incurred and not yet paid, which is approximately $92 million as of September 30th, 2024. Additionally, we also need to obtain financing of approximately $173 million to fund our reserve account requirements for first advance. Of note, approximately $97 million of these reserves can be satisfied by letters of credits. These amounts represent a significant portion of the remaining base equity contribution, and they're based on current estimates, which may change prior to first advance. There are also, among other components of base equity contribution that will need to be satisfied prior to first advance. For some added detail, the loan reserve account requirements include reserves for construction, rent up, and spoke capital expenditures. Funding of these reserve accounts is not part of the capex of the project due to mechanical collision. The majority of the reserves are also expected to be released back to the company on or before the completion of the project. We are actively evaluating financing as strategic alternatives for a full funding package needed to restart construction of the Rochester house. Turning to slide five, we continue to make strong progress on our key objectives. Today, we completed a priority for the year, closing the U.S. DOE loan. Our next steps for our key objectives are, first, to secure a full funding package needed for the restart of construction at the Rochester Hub project, of which the DOE loan is a key component. The full funding package will also assist in the funding of the base equity contribution needed to access first advance under the DOE loan. Second, complete our comprehensive review of the HUB project, which includes a technical and economic analysis for the go-forward decision on the MSV scope. We've made great progress in these efforts, including completing the technical review of the MSV scope and establishing a strong commercial framework for HUB premise. In parallel with these objectives, we are continuing our ongoing work on optimizing our SPOC network. We are identifying ways to extract more value from these assets to build a self-sufficient, and financially accredited spoke business. We are focused on our Gen 3 spokes in Arizona, Alabama, and Germany. And as part of the optimization work, we have curtailed operations at our New York spoke and our continuing closure activities at our Ontario spoke, as previously indicated. Turning to slide six for a recap of the imagery process. Black mass will be processed at the hub to produce MHP, a combination of nickel, cobalt, and manganese metals. MHP could be sold to a refiner ahead of supplying to the battery cathode precursor industry. In our case, we have secured an off-take agreement with Glencore covering all of our MHP production. We also have existing off-take agreements for lithium carbonate produced at the Rochester Hub with Traxxas and Glencore. In the long term, we retained the optionality of the project to produce nickel and cobalt sulfates. For clarity, the production of lithium carbonate remains as originally planned. The MHP process is not new for the company, and it was actually part of our large-scale pilot program completed in 2019 to 2020 and is included in our patented technology portfolio. Turn to slide 7 for an update on the Rochester Hub project and the MHP scope. As mentioned, we are excited to have completed the technical review of the Rochester Hub project. We also continue to advance the Go Forward project execution plan. The estimated total capital cost of the project to mechanical completion is unchanged at approximately $960 million. Our current estimated cost to complete the project is approximately $487 million, which is inclusive of commitments for costs incurred but not yet paid at approximately $92 million. The total capital cost of the project through the mechanical completion does not include commissioning, working capital, rent up, and financing related costs. We expect an annual production of up to approximately 8,250 tons of battery-enabled carbonate and up to approximately 72,000 tons of MHP. The expected nameplate processing capacity remains at 35,000 tons of black mass annually. As we announced last week, we've entered into an agreement with LENCOR covering the offtake of 100% of the MHP we produce at the Rochester Hub. I'd like to note that Glencore and Traxxas' existing offtake rates covering lithium carbonate production, GMAB, are not affected by these amendments. With these amended agreements, we have established a commercial framework that provides a strong market foundation for the project. We're pleased to have strong industry partners as we continue to work towards our goal of restarting construction of the Rochester Hound. Turning the slide in, we'll take a look at the evolution of Lifecycle's expected revenue and financial profile. We currently provide services with corresponding revenue for the recycling of lithium ion batteries. And in some cases, we pay for battery materials based on discounted metal prices. And this is all from a diverse pool of suppliers to produce and sell black mass under contractual arrangements. This results in black mass revenues that are based on current metal prices at the point of sale. A goal of our spoke optimization initiative is to make this part of our business financially creative and self-sufficient. Our mid- to long-term goal is to utilize our black mass production as feedstock for the Hub, which will produce battery grade lithium carbonate and MHP, unlocking significant incremental value. The operationalization of our Rochester Hub will represent a key step change in lifecycle evolution. Utilizing the forecasted underlying melt prices at the bottom of the chart with the expected hub production of these critical battery materials should give you a sense of the inflection point to anticipate an revenue profile. It is worth highlighting that under the MHP scope, the metal cohorts for nickel and cobalt are consistent with the previous sulfates plan. Turn this slide on for an overview of LifeCycle's commercial updates. We've established a broad and diversified global base of battery supply customers, including a leading U.S. headquartered, vertically aspirated EV and battery manufacturer, which is our largest customer source of revenue for the first time in months of the year, and in Q3. We continue to demonstrate our expertise in processing all types of lithium ion batteries, independent of form factor and chemistry, and are particularly leveraging our Gen3 technology to support our customers. As shown on the bar chart, manufacturing scrap continues to make up a large part of our battery input feed. The manufacturing scrapping process includes large battery pack formats, which we focus on to leverage the value differentiators provided by our Gen3 spoke capabilities in processing this material. 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. Notably, four of our top five partners for feed intake during Q3 were among the largest global EV OEMs. Turn to slide 10. for highlights in our black mass production and spoke optimization initiatives. During the quarter, our spokes produced 1,459 tons of black mass and gold ones, progressively higher each quarter this year. Our goal is to take near-term steps towards creating a financially creative spoke business. Building a self-sufficient spoke business will also support our work on securing further financing. As noted, we are prioritizing our GEN3 spokes which can process full battery packs without the need for the smartphone. We are optimizing our spoke facilities to maximize and sustain throughput rates and recoveries, reduce costs, and enhance the quality of our blackouts. In addition, as you've seen in the last few quarters, recycling services are a growing share of our revenue. We will continue working on these initiatives and focus on our Gen 3 spokes to build a self-sufficient spoke business. In line with this strategy, we have curtailed operations under New York Spoke and are continuing closure activities under Ontario Spoke, as previously indicated. With that, I now turn it over to Craig to provide the review of the financials. Thank you, Ajay. Today's plan led to an improved review of our 2024 third quarter financial results. Highlights include strong year-over-year revenue growth and lower SGA for the third quarter of 2024 versus 2023. Although the year-to-date production is lower than in the prior year, we were pleased to see that the quarterly production of black mass and equivalents increased compared to the same period last year. Black mass sold also increased, with almost 2,000 tons sold in the quarter versus 892 tons sold in 2023. Total revenue increased 79% to $8.4 million. This increase reflects higher recycling service revenue, higher metal prices, a favorable mix of constituent metals, and lower unfavorable non-cash fairly pricing adjustments. We'd like to highlight that are $8.4 million in revenue for Q3 was consistent with the record revenue from Q2 2024, demonstrating continued positive momentum this year. Moving to cost of sales, which were slightly lower at $20 million, cost of sales attributable product revenue decreased approximately 3% compared to last year as a result of lower production levels. This was offset by an increase of $0.6 million in cost of sales attributable service revenue compared to last year due to new service contracts entered. we are pleased to know that SG&A has decreased 50% to $12.9 million versus $25.9 million in 2023, primarily driven by lower recurring personnel costs resulting from restructuring initiatives implemented since the pause in the construction of the Rochester Hub. Adjusted income improved year-over-year, largely driven by a decrease in SG&A and higher revenue. This quarter, our net cash outflows were $27 million less than the previous quarter, driven by lower expenditures from our cash conservation initiatives and $1.1 million raised through our ATM program. I will now turn it back to Ajay. Thanks, Craig. Turning to slide 12. I wanted to provide an update on market dynamics in today's battery supply chain. While this year has been dynamic, we believe the long-term fundamentals remain strong for lifecycle due to two factors. First, the increasing supply of recycling materials and the lack of domestic post-processing capacity. And second, the continued support for building a localized battery and critical materials supply chain. The chart on the left shows the rising sales of EVs in North America, with a CAGR of approximately 20% for 2025 to 2030, despite current industry headlines. As shown on the right, the widespread adoption of EVs supports the increase in battery materials available for recycling. The increase in recycling materials near to mid-term is largely driven by manufacturing scrap, which currently makes up a large part of our current feedstock. By 2030, the supply of recycling materials is projected to increase by up to three times versus 2025 as more end-of-life battery stock becomes available. To summarize, the long-term fundamentals for the battery recycling industry remain strong, with Lifecycle well positioned to help bridge the large gap in domestic post-processing recycling capacity with the Rochester Hub. Turn to slide 13. We believe the current trends towards energy and critical material independence will also continue to be a positive for the battery supply chain industry and our company. Another example includes the recently finalized guidance on the U.S. 45X tax credit, which provides direct financial incentives to the hub and supports the development of a domestic circular U.S. battery supply chain. Specifically, it includes the 10% production tax credit on lithium carbon expected to be produced to Rochester Hub, including certain direct and indirect production costs. and is available through 2032. In the U.S., battery-supplied recycling continues to be a strong bipartisan topic, as there is a clear understanding that building a battery supply chain domestically is in both the economic and national security interests of the country. We believe these are positive trends that will help create forward momentum for the lifecycle and the Rochester Road and help create value for our investors and stakeholders. Turn to slide 14 and reiterate our go-for strategy and key objectives. First, we've completed today a key priority by finalizing the DOE loan. Second, we are actively evaluating financing and strategic options for a full funding package needed to restart construction of the Rochester Hunt project, which includes meeting requirements for the first advance of the DOE loan. Third, we've made significant advancements on our review of the Rochester Hunt And the next step once ready will be a formal updated final investment decision or FID, which will be underpinned by the full financing package we're looking to secure. And this will mark the completion of the comprehensive review. And finally, we are continuing to maximize value across our spoke network by working to build a financially creative spoke business that focuses on our Gen3 technology. Before we get to Q&A, I wanted to thank our employees and our partners for their continuing support. While the last 12 months have been very dynamic for our company, we have been able to work through challenges and achieve significant milestones because of support and dedication of these groups. LifeCycle has clear objectives going forward, and we're focused on capitalizing on these opportunities. Operator, we're now ready for questions.

Of course, thank you. If you would like to ask a question, please press star followed by one on your telephone keypads. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you're unmuted locally. As a reminder, that's star followed by one on your telephone keypads now. We will pause briefly to allow for any questions to be registered. As a reminder, if you'd like to ask a question on today's call, please dial star followed by one on your telephone keypads now. We have no calls registered on today's call, so I'll hand back over to the management team for any further or final remarks.

Thank you. So as discussed, we continue to believe strongly in this market and the role that will play as Lifecycle in securing energy and critical material independence. And as discussed, strongly bipartisan topics and with great fundamental secular tailwinds, even in the long term and, of course, the dynamic period we've been going through near term. So we look forward to providing everyone with further updates as we continue to progress. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.