10-Q: Li-Cycle Holdings Corp. Reports Q3 2024 Results, Navigates Financial Challenges and Strategic Review

Li-Cycle Holdings Corp. reported its Q3 2024 results, highlighting a net profit of $56.5 million, while also addressing ongoing financial challenges and strategic adjustments.

Summary

• Li-Cycle Holdings Corp. reported a net profit of $56.5 million for the third quarter of 2024, a significant turnaround from a net loss of $30.7 million in the same period last year.
• However, for the nine months ended September 30, 2024, the company reported a net loss of $88.4 million, compared to a net loss of $99.1 million for the same period in 2023.
• Revenue for the quarter was $8.4 million, up from $4.7 million year-over-year, and $21.0 million for the nine months, up from $11.9 million year-over-year.
• The company's cash and cash equivalents decreased to $42.1 million as of September 30, 2024, from $80.3 million at the end of 2023.
• Li-Cycle has paused construction of its Rochester Hub project and is actively exploring financing options to secure the $486.7 million needed to complete the project.
• The company has implemented a Cash Preservation Plan, which includes reducing staffing, pausing production at the Ontario Spoke, and slowing operations at other Spokes.
• Li-Cycle has secured a loan facility of up to $475 million from the U.S. Department of Energy, but access to these funds is contingent on meeting certain conditions.
• The company is also focusing on optimizing its Spoke network and has curtailed operations at the New York Spoke.
• Li-Cycle is actively exploring additional financing and strategic alternatives to address its liquidity needs and restart the Rochester Hub project.

Sentiment

Score: 3

Explanation: The document presents a mixed picture with some positive developments (Q3 profit, DOE loan) but is heavily weighed down by significant financial challenges, project delays, and going concern doubts. The overall tone is cautious and concerning from an investment perspective.

Positives

• The company achieved a net profit of $56.5 million in Q3 2024, a significant improvement from the previous year.
• Revenue increased year-over-year, driven by growth in recycling service revenue.
• Li-Cycle secured a substantial loan facility from the U.S. Department of Energy.
• The company is actively implementing a Cash Preservation Plan to reduce costs.
• Li-Cycle has completed a technical review of the MHP scope for the Rochester Hub project.

Negatives

• The company reported a net loss of $88.4 million for the nine months ended September 30, 2024.
• Cash and cash equivalents decreased significantly to $42.1 million.
• Construction of the Rochester Hub project remains paused.
• The company has curtailed operations at the New York Spoke.
• Li-Cycle is facing material uncertainties about its ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is in doubt due to recurring losses and the need for additional financing.
• There is no guarantee that Li-Cycle will secure additional funding on attractive terms or at all.
• The DOE Loan Facility is subject to conditions, and failure to meet these conditions could prevent access to the funds.
• The company faces risks related to the execution of its growth strategy and the development of manufacturing capabilities.
• The company is subject to various legal proceedings, including shareholder lawsuits and mechanics liens.
• The company's financial flexibility is limited by restrictive covenants in its debt agreements.
• The company is exposed to commodity price fluctuations for nickel, cobalt, and lithium.

Future Outlook

Li-Cycle expects to continue to incur reduced capital expenditures until the restart of Rochester Hub construction. The company is actively exploring additional financing and strategic alternatives for a complete funding package needed to restart construction at the Rochester Hub and for general corporate purposes. The company expects to recommence construction on the Rochester Hub after securing additional financing toward the cost to complete the project, which is currently estimated at $486.7 million.

Management Comments

• Management believes that the long-term demand for EVs and hybrids remains strong.
• Management expects to see significant growth in the amount of LIB materials available for recycling.
• Management is focused on reviewing critical projects, executing against the cash preservation plan and advancing funding opportunities.

Industry Context

The document highlights the growing demand for electric vehicles and the increasing availability of battery materials for recycling, which supports the long-term viability of Li-Cycle's business model. However, it also notes the current macroeconomic and industry trends that have reduced project commitments to build EV-related supply chains in North America and Europe. The document also notes a significant deficit of post-processing capacity for black mass is currently expected in the medium term in North America and Europe.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or competitors in terms of financial performance.
• However, it does note that the level of post-processing capacity for black mass in North America and Europe is substantially lower than the amount of battery materials available for recycling, suggesting a potential competitive advantage for Li-Cycle if it can successfully complete the Rochester Hub.
• The document does not provide specific details on the performance of comparable companies, but it does mention that the company's revenue is primarily derived from eight key customers, which are leading companies in the global battery supply chain.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to various claims and legal proceedings in the ordinary course of its business.
• Three shareholder lawsuits were launched following the company's announcement on October 23, 2023, that it would be pausing construction on the Rochester Hub project.
• A putative shareholder derivative action was filed in the Supreme Court of the State of New York, Monroe County, purportedly on behalf of the Company against certain of the Company's current and/or former officers and directors.
• The company received a notice of a subrogation liability claim by an insurance company on behalf of one of the other tenants of the New York Spokes warehouse.
• Pike Conductor DEV 1, LLC sent the company a purported notice of default claiming that the company failed to pay certain amounts in connection with leasing a warehouse and administrative building related to the Rochester Hub.
• MasTec Industrial Corp. commenced arbitration proceedings against the company's subsidiary, Li-Cycle North America Hub, Inc., and a foreclosure action in the Supreme Court, County of Monroe, New York.

Related Party Transactions

• The company has convertible debt instruments with affiliates of Glencore plc.
• The company has agreements with Glencore to sell certain products from its Spokes.
• The company has engaged Fade In Production Pty. Ltd., which is controlled by certain members of the immediate family of the former interim non-executive Chair of the company's Board, to provide it with corporate video production services.
• The company has engaged Consulero Inc., which is controlled by certain members of the immediate family of the company's President and Chief Executive Officer, to provide it with technology services in relation to the company's inventory management system.

Stakeholder Impact

• Shareholders are impacted by the company's financial challenges, project delays, and potential dilution from future equity issuances.
• Employees are impacted by workforce reductions and changes in management structure.
• Customers are impacted by the company's ability to provide recycling services and deliver products.
• Suppliers are impacted by the company's ability to pay for goods and services.
• Creditors are impacted by the company's financial condition and ability to repay its debts.

Next Steps

• Li-Cycle will continue to implement its Cash Preservation Plan.
• The company will continue to explore financing options and strategic alternatives.
• Li-Cycle will work to satisfy the conditions required to draw against the DOE Loan Facility.
• The company will continue to review its strategy for bringing on additional Spoke and Hub capacity.
• Li-Cycle will continue to optimize its Spoke network.

Key Dates

Keywords

Li-Cycle, battery recycling, lithium-ion batteries, black mass, Rochester Hub, DOE Loan Facility, cash preservation, convertible debt, electric vehicles, MHP, strategic review