Earnings Transcript for LICY - Q3 Fiscal Year 2024

Operator: Hello, everyone, and welcome to the Li-Cycle Holdings Corp. Q3 2024 Financial Results. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to our host, Louie Diaz of Li-Cycle, to begin. Louie, please go ahead.

Louie Diaz : Thank you, operator. Good afternoon, and thank you, everyone, for joining us for Li-Cycle's business update and review of unaudited financial results for the 3-month period ended September 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. Ahead of this call, Li-Cycle issued a press release and a presentation, which can be found in the Investor Relations section of our website at investors.li-cycle.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 are incorrect, including because of the 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. These documents can be found on our website at 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 as of any date subsequent to the date of this call. With that, I'm pleased to turn the call over to Ajay.

Ajay Kochhar: Thank you, Louie, and good afternoon. Starting on Slide 3. We are excited to announce that we have 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 values an increase of $100 million over the previously announced conditional commitment of $375 million and is expected to support the development of our flagship Rochester Hub 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 Li-Cycle. We are only the fifth company in recent years to close a loan under the DOE's ATVM program, which is indicative of the significant amount of diligence and work needed to finalize the 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 Li-Cycle 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 we can underpin the development of a strong domestic battery supply chain. Turning to Slide 4 for some additional details on the loan. 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 construction period will not be payable for approximately 2 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 of the loan is subject to 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 but not yet paid, which is approximately $92 million as of September 30, 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 via letters of credit. These amounts represent a significant portion of the remaining base equity contribution and are based on current estimates, which may change prior to first advance. There are also among other components of the 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, ramp-up and Spoke capital expenditures. Funding of these reserve accounts is not part of the CapEx of the project through to mechanical completion. 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 and strategic alternatives for a full funding package needed to restart construction of the Rochester Hub. Turning to Slide 5. 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

Craig Cunningham : Thank you, Ajay. Turning to Slide 11 for a review of our 2024 third quarter financial results. Highlights include strong year-over-year revenue growth and lower SG&A 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 tonnes sold in the quarter versus 892 tonnes sold in 2023. Total revenue increased 79% to $8.4 million. This increase reflects higher recycling service revenue, higher metal prices and favorable mix of constituent metals and lower unfavorable noncash fair value pricing adjustments. We'd like to highlight that our $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 to 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 to service revenue compared to last year due to new service contracts entered. We are pleased to note 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 of the construction of the Rochester Hub. Adjusted EBITDA 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.

Ajay Kochhar: Thanks, Craig. Turning to Slide 12. I want to provide an update on the market dynamics in today's battery supply chain. While this year has been dynamic, we believe the long-term fundamentals remain strong for Li-Cycle due to 2 factors

Operator:

Ajay Kochhar: Thank you. So as discussed, we continue to believe strongly in this market and the role that will play at Li-Cycle in securing energy and critical material independence and as discussed, strongly bipartisan topic and with great fundamental secular tailwinds, even in the long term, 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.

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